<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
[X] Definitive Proxy Statement Rule 14a-6(e)(2))
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
Ecogen Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
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(4) Date filed:
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<PAGE> 2
ECOGEN INC.
Langhorne, Pennsylvania 19047-3023
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
March 11, 1999
TO THE STOCKHOLDERS OF ECOGEN INC:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of
Ecogen Inc., a Delaware corporation (the "Company"), will be held at The Locust
Club, 1614 Locust Street, Philadelphia, Pennsylvania, 19103 on Thursday, March
11 1998, at 10:00 a.m., local time, for the following
purposes:
I. To elect five members of the Board of Directors, each to serve until
the next annual meeting;
II. To consider and approve a proposal to adopt the Company's 1999 Stock
Option Plan;
III. To ratify the appointment of KPMG LLP as independent auditors to
audit the Company's books and accounts for fiscal year 1999; and
IV. To transact such other business as may properly come before the
meeting.
The Board of Directors has fixed January 11, 1999 as the record date
for determining the holders of Common Stock entitled to notice of and to vote at
the meeting. Consequently, only holders of Common Stock of the Company of record
on the transfer books of the Company at the close of business on January 11,
1999, will be entitled to notice of and to vote at the meeting.
We invite all stockholders to attend the meeting. TO ENSURE THAT
YOUR SHARES WILL BE VOTED AT THE MEETING, HOWEVER, PLEASE COMPLETE, DATE AND
SIGN THE ENCLOSED PROXY AND RETURN IT PROMPTLY. If you attend the meeting, you
may vote in person, even though you have sent in your proxy.
James P. Reilly, Jr.
Chairman and Chief Executive Officer
Langhorne, Pennsylvania
February 5, 1999
<PAGE> 3
ECOGEN INC.
2005 CABOT BOULEVARD WEST
LANGHORNE, PENNSYLVANIA 19047-1810
PROXY STATEMENT
The accompanying proxy is solicited by the Board of Directors of
Ecogen Inc. (the "Company") for use at its 1999 Annual Meeting of Stockholders
(the "Annual Meeting") to be held on March 11, 1999. Copies of this proxy
statement and the accompanying proxy are being mailed on or after February 1,
1999, to the holders of record of the Company's common stock, par value $.01 per
share (the "Common Stock") on January 11, 1999. The proxy may be revoked by a
stockholder at any time prior to its use by giving written notice of such
revocation to the Secretary of the Company or by voting in person at the Annual
Meeting. The expense of this solicitation will be paid by the Company. Officers
and other employees of the Company may solicit proxies personally or by
telephone.
The persons named in the accompanying proxy will vote as set forth
under "Election of Directors" with respect to the election of directors. With
respect to the other subjects referred to in this proxy statement, the persons
named in the accompanying proxy will vote as stated in the proxy.
Holders of Common Stock of record at the close of business on
January 11, 1999, will be entitled to one vote per share held of record on all
business of the Annual Meeting. On January 11, 1999, there were approximately
8,194,075 shares of Common Stock outstanding. The presence at the Annual Meeting
in person or by proxy of the holders of a majority of the shares of Common Stock
outstanding on the record date will constitute a quorum to conduct business at
the meeting. Proxies submitted which are marked "abstain" or "withhold
authority" will be deemed present at the meeting for purposes of determining a
quorum to conduct business at the meeting.
If a quorum is present, the election of directors will be decided by
a plurality of the shares of Common Stock represented in person or by proxy at
the meeting and entitled to vote thereon. Shares represented by proxies which
are marked "abstain" or "withhold authority" and shares as to which a broker
indicates that it does not have discretionary authority to vote (referred to
herein as non-votes by brokers) with respect to any or all nominee(s) for
director will not be deemed present for purposes of voting on the election of
any or all such nominee(s) for director and therefore will have no impact on the
vote on any or all such nominee(s).
The approval of all other matters brought before the meeting will
require the affirmative vote of a majority of the shares of Common Stock
represented in person or by proxy at the meeting and entitled to vote thereon.
Shares represented by proxies which are marked "for," "against" or "abstain"
will be counted for purposes of determining the vote required for approval of
these other matters, and the total number of votes cast "for" each of these
other matters will determine whether sufficient affirmative votes have been
cast. An abstention from voting on these other matters has the same legal effect
as a vote against any such matter and shares represented by proxies which are
marked "withhold authority" (including non-votes by brokers) are not counted for
purposes of determining whether these other matters have been approved.
The Company's fiscal year begins on November 1 and ends on October
31. Unless the context otherwise requires, all references in this proxy
statement to a particular year shall mean the Company's fiscal year.
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PROPOSAL I
ELECTION OF DIRECTORS
Five directors are to be elected at the 1999 Annual Meeting of
Stockholders to serve until the 2000 Annual Meeting of Stockholders and until
their respective successors are elected and qualified. The persons named in the
accompanying proxy intend to vote for the election of the nominees identified
below unless authority to vote for one or more of such nominees is specifically
withheld in the proxy.
The Board of Directors is informed that all of the nominees are
willing to serve as directors, but if any of them should decline to serve or
become unavailable for election as a director at the Annual Meeting, an event
which the Board of Directors does not anticipate, the persons named in the proxy
will vote for such nominee or nominees as may be designated by the Board of
Directors, unless the Board of Directors reduces the number of directors
accordingly.
The nominees for election to the Company's Board of Directors are:
MR. ESTEBAN A. FERRER, 48, has served as a director of the Company
since January, 1996. From 1983 until 1995, he served as Secretary of the
Company. Since September, 1990, Mr. Ferrer has been a partner at the law firm of
Paul, Hastings, Janofsky & Walker LLP. Mr. Ferrer holds a Juris Doctor degree
from Columbia University School of Law and is admitted to practice in the states
of Connecticut and New York.**/***
MR. PHILIPPE D. KATZ, 37, has served as a director of the Company
since February, 1998. Since 1996, Mr. Katz has been a partner at the investment
firm of United Equities(Commodities) Company. From 1992 to 1996, Mr. Katz was
associated with United Equities(Commodities) Company. From 1989 to 1992, Mr.
Katz was associated with the law firm of Weil, Gotshal & Manges. */**
DR. LOWELL N. LEWIS, 67, has served as a director of the Company
since February, 1989. Since February, 1992, Dr. Lewis has been an International
Research Management Consultant. From January, 1988 through his retirement from
the University of California in April, 1991, Dr. Lewis was employed at the
University of California as Associate Vice President for Programs, Agriculture
and Natural Resources; Associate Director of the California Agricultural
Experiment Station; and Associate Director of Cooperative Extension.*/***
MR. JAMES P. REILLY, JR., 52, has served as Chairman of the Board of
Directors of the Company since November 1, 1995 and as a director of the Company
since June, 1992. Since January, 1994, Mr. Reilly has been the Chief Executive
Officer of the Company and since June, 1992, he has been the Company's
President. From June, 1992 to January, 1994, Mr. Reilly served as Chief
Operating Officer of the Company. From 1976 until he joined the Company, Mr.
Reilly was employed in various management capacities at Rhone-Poulenc, Inc.,
most recently, from April, 1991 to May, 1992, as Vice President and General
Manager of the Fine Chemicals Division.**
MR. JOHN R. SUTLEY, 56, has served as a director of the Company
since March, 1996. Since 1994, he has been President and Chief Executive Officer
of Nalco/Exxon Energy Chemicals, L.P., a specialty chemicals company. From 1968
to 1994, Mr. Sutley was employed in various management capacities at Nalco
Chemical Co., most recently, from 1991 to 1994, as Group Vice President of Nalco
Chemical Co. and President of Nalco Europe. */***
* Member, Audit Committee
** Member, Nominating Committee
*** Member, Compensation Committee
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All directors hold office until the next annual meeting of the
Company's stockholders and until their successors are elected and qualified. In
calendar year 1998, Dr. Lewis, Mr. Ferrer, Mr. Katz, and Mr. Sutley were each
paid an annual retainer of $12,000, and no additional fees for attendance at
meetings of the Board or Committees of the Board were paid to Directors in
calendar year 1998. In calendar 1999, directors who are not employees of the
Company will be paid a retainer of $12,000 and, if Stockholder Proposal II
regarding the Company's 1999 Stock Option Plan is approved by the Company's
Stockholders, such directors will receive non-statutory options to purchase up
to 2,000 shares of the Company's Common Stock.
The Board of Directors held eight meetings during fiscal 1998. During
fiscal 1998, the standing committees of the Board of Directors were the Audit
Committee, the Compensation Committee and the Nominating Committee.
The Audit Committee, which met on two occasions in fiscal 1998, is
responsible for: (i) reviewing the Company's financial results and financial
position and the scope and results of audits of the Company's financial
statements; (ii) evaluating the Company's system of internal controls; (iii)
meeting with independent auditors and with appropriate Company financial
personnel concerning the Company's system of internal controls; (iv)
recommending to the Board of Directors the appointment of the independent
auditors; and (v) evaluating the Company's financial reporting activities and
the accounting standards and principles followed in preparing the Company's
financial statements.
The Compensation Committee, which met on two occasions in fiscal
1998, is responsible for: (i) considering and recommending to the Board of
Directors salaries, bonuses and other forms of compensation for corporate
officers; (ii) performing such duties and exercising such authority which, under
the terms of the Company's stock option plan and applicable law, may be assigned
to a committee of the Board of Directors; (iii) considering and adopting changes
in the Company's non-officer employee compensation structure; and (iv)
considering and recommending to the Board of Directors changes in director
compensation.
The Nominating Committee, which met on one occasion in fiscal 1998,
is responsible for: (i) recommending qualified candidates for election as
directors of the Company, including the slate of directors which the Board of
Directors proposes for election by stockholders at each annual meeting; (ii)
recommending the structure and membership of the committees of the Board of
Directors; and (iii) recommending to the Board of Directors the appointment of
new corporate officers. The Nominating Committee will consider recommendations
of stockholders for nominees for election to the Company's Board of Directors if
such nominations are submitted in writing and include the name and description
of the qualifications of the nominee along with the reason for such nomination,
addressed to the Company at its Langhorne, Pennsylvania office, to the attention
of the Nominating Committee.
In fiscal 1998, each of the incumbent directors attended at least
seventy-five percent of the aggregate of all meetings of the Board of Directors
and committees of which he was a member.
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PROPOSAL II
APPROVAL OF STOCK OPTION PLAN
The Board of Directors has unanimously approved the Company's 1999 Stock
Option Plan (the "Plan") and the submission of the Plan to a vote of the
Company's stockholders. The Plan authorizes the issuance of options to purchase
up to 1,500,000 shares of the Company's Common Stock to employees or directors
of, or consultants and advisors to, the Company or any subsidiary of the
Company. The Plan will not become effective unless it is approved by the
Company's stockholders.
The Board of Directors believes that the availability of stock options is
an important feature of the Company's ability to attract, retain, and reward
qualified employees. Compensation in the form of stock options is an important
feature of the Company's compensation structure as a whole because, among other
reasons, it provides optionees with a personal stake in the Company's stock
performance and enables the Company to competitively compensate employees
without adversely affecting its cash flow. The Board of Directors believes that
it is in the Company's best interest for the Company's stockholders to approve
the Plan.
Since 1987, the Board of Directors has relied upon stock options to
attract and retain outstanding individuals to serve as the Company's directors
and employees and to align their interests with the interests of the Company's
stockholders. The Company's 1987 Stock Option Plan terminated in 1998. In 1998,
the Board of Directors approved the 1998 Stock Option Plan (the "1998 Plan") to
continue to provide incentives to employees to continue in the long-term service
of the Company. The 1998 Plan reserves for issuance to employees options to
purchase up to 1,500,000 shares of Common Stock. As of December 31, 1999,
options to purchase up to 825,000 shares of Common Stock were available for
issuance under the 1998 Plan. If the stockholders of the Company approve the
1999 Plan, no additional options will be granted under the 1998 Plan.
The 1999 Plan is substantially identical to the 1998 Plan except that it
provides for the grant of incentive stock options (which may have certain
federal income tax advantages to the optionees) and for the grant of options to
directors of the Company as well as consultants and advisors to the Company.
The affirmative vote of a majority of the shares of Common Stock
outstanding on the record date and represented in person or by proxy at the
meeting will be required to approve this proposal. Shares represented by proxies
which are marked "abstain" will have the same effect as a vote against this
proposal and shares represented by proxies which are marked 'withhold authority"
(including non-votes by brokers) are not counted for purposes of determining the
majority requirement.
THE BOARD OF DIRECTORS UNANIMOUSLY
RECOMMENDS AN AFFIRMATIVE VOTE FOR THIS PROPOSAL
The principal features of the 1999 Plan are described in summary
form below. A copy of the 1999 Plan is on file with the SEC.
ADMINISTRATION
The 1999 Plan will be administered by the Board of Directors of the
Company. Subject to the express provisions of the 1999 Plan, the Board of
Directors and the Compensation Committee will have the authority to administer
and interpret the 1999 Plan, including the authority to determine when and to
whom options will be granted, to set the specific terms of individual options,
and to make all other determinations in the judgment of the Board of Directors
necessary or desirable for the administration of the 1999 Plan.
The Board of Directors has reserved 1,500,000 shares of Common Stock
for issuance under the 1999 Plan. If options granted under the 1999 Plan expire
or otherwise terminate without being exercised, the
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shares of Common Stock not purchased pursuant to such options again become
available for issuance under the 1999 Plan. Both incentive stock options and
non-statutory stock options may be granted. Incentive stock options are intended
to be treated as "incentive stock options" within the meaning of Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code").
AMENDMENT, MODIFICATION AND TERMINATION OF THE 1999 PLAN
The Board of Directors may at any time and from time to time amend,
modify or terminate the 1999 Plan. No amendment, modification or termination may
become effective without approval by the stockholders, if stockholder approval
is required by applicable statute or regulation, or if the Board of Directors
determines that stockholder approval is otherwise necessary or desirable. No
amendment, modification or termination of the 1999 Plan will in any manner
adversely affect any outstanding option without the consent of the participant
holding the option. With the consent of the optionee affected, the Board of
Directors may amend outstanding option agreements in a manner not inconsistent
with the 1999 Plan. Unless earlier terminated by the Board of Directors, the
1999 Plan will terminate on the earlier of March 10, 2009 or the date on which
all shares available for issuance under the 1999 Plan shall have been issues
pursuant to the exercise or cancellation of options granted under the 1999 Plan.
ELIGIBILITY
Eligible participants in the 1999 Plan include persons who are, at
the time of grant, officers employees or directors of, or consultants or
advisors to, the Company or any subsidiary of the Company. No individual may be
granted an incentive stock option unless such individual is an employee of the
Company or any subsidiary of the Company.
No incentive stock option may be granted under the 1999 Plan to any
person who, at the time of the grant, owns (or is deemed to own) stock
possessing more than 10% of the total combined voting power of the Company or
any affiliate of the Company, unless the option exercise price is at least 110%
of the fair market value of the Common Stock on the date such option is
authorized to be granted, and the term of the option does not exceed five years
from the date of grant. For incentive stock options granted under the 1999 Plan,
the aggregate fair market value (determined at the time of grant) of the shares
of Common Stock with respect to which such options are exercisable for the first
time by an optionee during any calendar year (under all plans of the Company and
its affiliates) may not exceed $100,000.
KEY ELEMENTS OF THE 1999 PLAN
The purchase price per share of stock deliverable upon the exercise
of an option under the 1999 Plan will be not less than the fair market value of
the Common Stock as determined by the Board of Directors on the date such
options is authorized to be granted. As of December 31, 1998, the closing price
of the Common Stock was $1.69.
Options under the 1999 Plan will be granted without consideration
and, except as otherwise approved by the Board of Directors with respect to
non-statutory stock options, are nontransferable except by will or the laws of
descent and distribution. The maximum term of options granted under the 1999
Plan is ten years, except that in certain cases with respect to incentive stock
options the maximum term is five years. Options under the 1999 Plan generally
terminate three months after termination of the optionee's employment by, or
relationship as a consultant or director of, the Company or any affiliate of the
Company, unless (a) such termination is due to such person's disability, in
which case the option may, but need not, provide that it may be exercised at any
time within one year of such termination; (b) the optionee dies while employed
by or serving as a consultant or director of the Company or any affiliate of the
Company, or within three months after termination of such relationship, in which
case the option may, but need not, provide that it may be exercised within one
year of the optionee's death by the person or persons to whom the rights to such
option pass by will or by the laws of descent and distribution; or (c) the
option by its terms provides for exercise within a longer period of time
following termination of
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employment or of the consulting or director relationship. Subject to the
preceding sentence, and except as provided under the Code with respect to
incentive stock options, if at any time during the last six months of the term
of any option granted under the 1999 Plan, the optionee is precluded from
selling shares of Common Stock underlying such options solely because of the
application to such optionee of the Company's "Material Inside Information and
Insider Trading Confidential Information Policy" (or similar successor policy),
the term of such option is extended by six months beginning with the first day
such optionee is not longer so precluded.
Under the 1999 Plan, each Outside Director is automatically granted
(i) on the date the Outside Director is first elected to the Board,
non-statutory options to purchase up to 9,000 shares of Common Stock, and (ii)
on the date of each annual meeting of the Company's stockholders at which the
Outside Director is re-elected to the Board, non-statutory options to purchase
up to 2,000 shares of Common Stock.
FEDERAL INCOME TAX CONSEQUENCES
There are no federal income tax consequences to an optionee by
reason of the grant of an incentive stock option under the 1999 Plan. No income
or gain must be recognized upon the exercise of an incentive stock option unless
the option holder (i) is subject to the alternative minimum tax, or (ii) has
ceased to be an employee for more than three (3) months before the date of
exercise. However, income or gain must be recognized upon the disposition of
shares obtained upon exercise of an incentive stock option. If the shares are
held for at least tow years from the date of grant of the option and one year
from the date of issuance, any gain recognized on disposition of the shares
would generally be treated as a long-term capital gain for federal income tax
purposes. However, if the shares are disposed of within the periods described in
the preceding sentence (a "disqualifying disposition"), in general, the option
holder would recognize ordinary income upon such disposition equal to the
excess, if any, of (i) the lesser of (A) the fair market value of the shares on
the date of exercises and (B) the amount received by the option holder from such
disposition, over (ii) the exercise price. Currently, the federal maximum tax
rate imposed on net capital gain with respect to individuals is 28 percent (20
percent for most capital assets held for over 18 months), while the federal
maximum ordinary income tax rate with respect to individual is 39.6 percent. Net
capital gain means the excess of net long-term capital gain over net short-term
capital loss, if any. The Company will generally not be entitled to take an
income tax deduction upon the grant or exercise of an incentive stock option,
but will be entitled to a business deduction with respect to any income
recognized by an option holder upon a qualifying disposition (provided the
Company satisfies certain reporting requirements).
There are no federal income tax consequences to an optionee by
reason of the grant of a non-statutory stock option under the 1999 Plan. Taxable
ordinary income will normally be recognized by an optionee upon the exercise of
a non-statutory stock option in an amount equal to the excess of the fair market
value of the shares on the date of exercise over the exercise price. The Company
will be entitled to a business deduction in the amount of ordinary income
recognized by the optionee, provided the Company satisfies certain reporting
requirements. Upon disposition of such shares the optionee will generally
recognize a capital gain or loss in an amount equal to the difference between
the selling price and the sum of the amount paid for such shares plus any amount
recognized as ordinary income upon exercise of the option. The Company will not
realize any tax consequences as a result of the disposition of shares acquired
upon exercise of a non-statutory stock option.
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RELATIONSHIP TO 1998 PLAN
The 1999 Plan is substantially identical to the 1998 Plan except
that the 1999 Plan provides for the grant of incentive stock options and for the
granting of stock options to Outside Directors of, and consultants and advisors
to, the Company and its subsidiaries. If the stockholders of the Company approve
the 1999 Plan, no additional options will be granted under the 1998 Plan.
NEW PLAN BENEFITS
The Company has not included a New Plan Benefits Table typically
required when action is taken with respect to a compensation plan because (i)
approval of the 1999 Plan will not automatically result in new benefits accruing
to the named executive officers (such grants being at the discretion of the
Board of Directors) and (ii) the number of shares of Common Stock underlying
options that would be granted to the named executive officers and other Company
employees from the shares authorized for issuance under the 1999 Plan, if
Proposal II is approved, is indeterminable at this time.
Under the 1999 Plan, Outside Directors will automatically be granted
non-statutory options to purchase up to 2,000 shares of Common Stock on the date
of each annual meeting of stockholders at which such Outside Directors are
re-elected to the Board of Directors, beginning with the 1999 Annual Meeting of
Stockholders.
PROPOSAL III
RATIFICATION OF APPOINTMENT OF AUDITORS
Subject to stockholder ratification, the Board of Directors has
appointed the firm of KPMG LLP as independent auditors to audit the Company's
books and accounts for the fiscal year 1999. If the stockholders do not ratify
this appointment, the appointment will be reconsidered by the Board of
Directors.
KPMG LLP has audited the Company's books and accounts since August,
1987. Audit services provided by KPMG LLP for the fiscal year ended October 31,
1998 included: examination of the Company's consolidated financial statements,
limited reviews of interim reports, review of the Company's filings with the
Securities and Exchange Commission and consultations on matters related to
accounting, taxation and financial reporting. A representative of KPMG LLP is
expected to be present at the Annual Meeting.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
A VOTE FOR SUCH RATIFICATION
OTHER BUSINESS
The Board of Directors does not intend to present to the meeting any
business other than the matters described in this proxy statement. If any other
matter is presented to the meeting which under applicable proxy regulations need
not be included in this proxy statement or which the Board of Directors did not
know would be presented within a reasonable time before this solicitation, the
persons named in the accompanying proxy will have discretionary authority to
vote proxies with respect to such matter in accordance with their best judgment.
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COMPENSATION COMMITTEE REPORT
Dear Stockholders:
Responsibility for recommending compensation of the Company's
executive officers for services rendered during fiscal 1998 rested with the
Compensation Committee of the Company's Board of Directors. Those
recommendations were then considered and approved by the Board.
In recommending the compensation of the Company's executive officers,
the Compensation Committee has adopted the philosophy that aligning compensation
with each executive officer's contribution to Company-wide performance
objectives and encouraging stock ownership result in optimal performance by its
executive officers which, in turn, should positively affect the Company's future
performance. The major components of the Company's executive officers'
compensation are salary, cash bonuses, stock awards, and stock options. Salaries
of the Company's executive officers tend to be set at the midpoint of industry
peers, and stock option grants, stock awards, and cash bonuses are employed to
enhance the competitiveness of compensation packages within the industry, to
reward outstanding performance and to provide incentive for reaching further
performance goals.
For the fiscal year 1998, the Compensation Committee set four
quantitative goals for the Company, representing what the Committee believes are
the four primary indicia of the Company's progress toward profitability.
Specific targets were set for product sales, net loss, operating expenses and
cash reserves. The Committee believed that these four factors, considered as a
whole without particular emphasis on any one factor, provided the primary
criteria for measuring the Company's performance in fiscal 1998. The Committee
has also identified additional factors on which to judge the success achieved by
the Company in moving toward its long-term objective of becoming a leading
developer and supplier of biological pesticide products. These factors include
(1) progress in research and development programs, (2) implementation of
strategic alliances with other enterprises, and (3) improvements in product
manufacturing processes.
With respect to the compensation of Mr. Reilly, the Company's
Chairman and Chief Executive Officer, during fiscal 1998 Mr. Reilly was paid
$300,000 as salary, was awarded 100,000 shares of the Company's Common Stock
subject to forfeiture under certain conditions should Mr. Reilly leave the
employ of the Company, and was granted stock options to purchase up to 400,000
shares of the Company's Common Stock under the Company's 1998 Stock Option Plan.
The options have an exercise price per share of $1.25, the market price of the
Company's Common Stock when the options were granted, and become exercisable
over a three year period. In addition, the Company has agreed to reimburse Mr.
Reilly for his additional income tax burden arising from the award of 100,000
shares of the Company's Common Stock.
The grants in fiscal 1998 to Mr. Reilly of a stock award and stock
options were intended by the Committee and the Board to reward Mr. Reilly for
the accomplishment of a number of strategic transactions and other developments
that repositioned and strengthened the Company in 1998. The stock award and
stock options are also designed to provide an incentive to Mr. Reilly to
continue to guide the Company through the completion of the Company's strategic
repositioning. The Committee also concluded that, while the Company did make
progress during fiscal 1998 toward achievement of a number of its long-term
objectives, the Company fell short of achieving its quantitative goals and the
Chief Executive Officer bears responsibility for both the successes and the
failures of the Company. The Committee recommended that no increase be made in
Mr. Reilly's salary as a result of the Company's performance in 1998. The
Company's progress in fiscal 1998 included improved financial performance as
measured by product sales, expenditure levels and results of operations. The
Company also achieved a number of its other objectives including the successful
divestment of its pheromone business, private placements of equity securities, a
secured line of credit financing, and a beneficial amendment to the Monsanto R&D
Agreement.
With respect to executive officers' compensation generally during
fiscal 1998, the Compensation Committee primarily focused on the compensation of
management-level employees at both comparable companies and at divisions of
larger companies engaged in the same industry as the Company, and also
considered the contribution made by each individual officer to the achievement
of the Company-wide objectives outlined above.
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The Company has considered the effect of Internal Revenue Code
Section 162(m) and proposed regulations thereunder concerning the
non-deductibility of certain executive compensation payments in excess of $1
million and has determined that the Company need not adopt a policy with respect
thereto because none of its executive officers currently has compensation
approaching $1 million per year, nor is it likely that any such officer will
reach that level of compensation in the near future.
It is our hope that you, the stockholders, will come to view our
decisions on executive compensation as indicators of how your directors view
both the individual contributions of each of the Company's executives and where
the Company stands along its strategic path.
Esteban A. Ferrer Lowell N. Lewis John R. Sutley
(Chairman)
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
There are no Compensation Committee interlocks and there is no
participation on the Compensation Committee by insiders of the Company.
9
<PAGE> 12
EXECUTIVE COMPENSATION
COMPENSATION
The following table sets forth the compensation for services
rendered to the Company during the last three fiscal years by the Chief
Executive Officer and the four other executive officers of the Company:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Compensation
Annual Compensation (Awards/Payouts)
------------------- ----------------
Restricted All Other
Name and Salary Bonus Options Stock Awards Compensation(1)
Principal Position Year ($) ($) (#) ($) ($)
- ------------------ ---- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C>
James P. Reilly, Jr., 1998 $300,000 $ -0- 400,000 $125,000(2) $ 8,704
Chairman and Chief 1997 300,000 -0- 75,000 -0- 7,125
Executive Officer 1996 287,500 -0- -0- -0- 4,762
Richard A. Deak, 1998 180,000 -0- -0- -0- 8,475
Vice President, 1997 179,167 -0- -0- -0- 7,125
General Counsel and 1996 173,333 -0- -0- -0- 5,581
Secretary
Mary E. Paetzold, 1998 216,000 -0- -0- -0- 32,500(3)
Vice President, 1997 175,000 -0- 10,000 -0- 7,087
Chief Financial 1996 173,333 -0- -0- -0- 5,489
Officer and
Treasurer
James A. Baum 1998 141,074 -0- 150,000 -0- 7,272
Vice President, 1997 118,515 -0- 10,000 -0- 5,333
Research 1996 112,872 15,000 -0- -0- 4,333
Timothy B. Johnson 1998 124,167 -0- 125,000 -0- 7,983
Vice President 1997 117,667 -0- 10,000 -0- 4,997
Sales and Marketing 1996 106,000 15,000 -0- -0- 2,766
</TABLE>
(1) Reflects the Company's contribution on behalf of such executive officer to
the Company's 401(k) Profit Sharing Plan.
(2) Mr. Reilly was granted 100,000 shares of Common Stock subject to forfeiture
in the event Mr. Reilly leaves the employ of the Company under certain
circumstances (the "Restricted Shares"). The restrictions regarding forfeiture
terminate with respect to one half of the Restricted Shares in September, 1999
and terminate with respect to the remaining Restricted Shares in September,
2000. Unless and until any Restricted Shares are forfeited by Mr. Reilly, Mr.
Reilly is entitled to any dividends that may be paid with respect to the
Restricted Shares.
(3) Includes $25,000 paid to Ms. Paetzold in connection with the restructuring
of certain employment arrangements.
The Company does not have a defined benefit or actuarial pension plan and
the Company does not have a long-term incentive plan.
The Company maintains a severance compensation agreement with Mr. Reilly
that provides that in the event Mr. Reilly's employment with the Company is
terminated (as defined in the agreement) under certain circumstances the Company
is obligated to continue to pay Mr. Reilly his salary and benefits for a period
of eighteen months.
10
<PAGE> 13
OPTION GRANTS FOR LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential Realizable Value
at Assumed Annual Rates
of Stock Appreciation for
Option Term(2)
--------------
% of Total
Options Granted Exercise
Options to Employees Price Expiration
Name Granted(1) For Fiscal year (/sh) Date 5% ($) 10% ($)
- ---- ---------- --------------- ----- ---- ------ -------
<S> <C> <C> <C> <C> <C> <C>
J.P. Reilly, Jr 400,000 59% $ 1.25 9/23/08 $314,450 $796,870
J.A. Baum 150,000 22% $ 1.25 9/23/08 $117,920 $298,830
T.B. Johnson 125,000 19% $ 1.25 9/23/08 $ 98,270 $249,020
</TABLE>
- ----------
(1) Exercisable ratably over a three year period beginning on the first
anniversary of the date of grant.
(2) The dollar amounts under these columns are the result of calculations at the
5% and 10% rates set by the Securities and Exchange Commission and are not
intended to forecast possible future appreciation, if any, of the Company's
stock price.
OPTION EXERCISE AND YEAR-END VALUE TABLE
Aggregated Option Exercises in Last Fiscal Year and Full Year-End Option Value
<TABLE>
<CAPTION>
Number of Unexercised Value of Unexercised
Options at Fiscal In-the-Money Options
Year-End (#) at Fiscal Year End($)(1)
------------ ------------------------
Shares Value
Acquired on Realized
Name Exercise (#) ($) Exercisable Unexercisable Exercisable Unexercisable
---- ------------ --- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
J.P. Reilly, Jr. None N/A 128,000 480,000 $ -0- $12,400
R.A. Deak None N/A 36,000 15,000 -0- -0-
M.E. Paetzold None N/A 48,333 21,667 -0- -0-
J.A. Baum None N/A 13,447 163,047 -0- 4,650
T.B. Johnson None N/A 9,510 138,510 -0- 3,875
</TABLE>
(1) The dollar values have been calculated based on the difference between the
fair market value of the securities underlying the options at fiscal year end
and the exercise prices of the options. For purpose of determining the fair
market value of the in-the-money options at October 31, 1997, the fair market
value of the Company's Common Stock was $1.281.
11
<PAGE> 14
PERFORMANCE GRAPH
The following is a line graph comparison of the Company's yearly
percentage change in cumulative total shareholder return with that of the NASDAQ
Composite Index and the Zacks Agricultural Operations Index, for the period
beginning with December 31, 1993 and ending October 31, 1998.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
AMONG ECOGEN INC., NASDAQ COMPOSITE INDEX,
AND ZACKS AGRICULTURAL OPERATIONS INDEX*
<TABLE>
<CAPTION>
STARTING
BASIS
DESCRIPTION 1993 1994 1995 1996 1997 1998
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ECOGEN INC ($) $100.00 $55.36 $ 16.96 $ 9.64 $ 7.86 $ 3.68
- --------------------------------------------------------------------------------------------------
NASDAQ ($) $100.00 $99.77 $132.95 $156.75 $204.50 $227.32
- --------------------------------------------------------------------------------------------------
ZACKS INDEX ($) $100.00 $96.49 $144.94 $215.32 $301.48 $343.50
- --------------------------------------------------------------------------------------------------
</TABLE>
- ----------
* Assumes an initial investment of $100. Total return assumes reinvestment of
dividends. Included in the Zacks Index are AG Services of America Inc., Chai Na
Ta Corporation, DeKalb Genetics Corp., Delta & Pine Land Co., Embrex, Inc.,
Neogen Corp., Northland Cranberries Inc., Pioneer Hi-Bred International and U.S.
Home & Garden Inc. Values are as of December 31 for 1993 and as of October 31
thereafter.
12
<PAGE> 15
PRINCIPAL STOCKHOLDERS
The following table sets forth information as of January 1, 1999, with respect
to the beneficial ownership of the Company's Common Stock by all persons known
by the Company to be the beneficial owners of more than 5% of its outstanding
Common Stock, by each director and nominee for director, by each named executive
officer, and by all current executive officers and directors as a group. Except
as indicated in the footnotes to the table, the persons named in the table have
sole voting and investment power with respect to all shares of Common Stock
beneficially owned by them.
<TABLE>
<CAPTION>
Name and Address (1) Number of Shares Percentage of Class
- --------------------------------------------------------------------------------
<S> <C> <C>
Monsanto Company 943,397 11%
800 North Lindbergh Boulevard
St. Louis, MO 63167
- --------------------------------------------------------------------------------
United Equities (Commodities) Company 534,833 6%
Moses Marx
Philippe D. Katz
160 Broadway
New York, NY 10038 (2)
- --------------------------------------------------------------------------------
KA Investments LDC 1,338,065 14%
c/o Deephaven Capital Management
1712 Hopkins Crossroads
Minnetonka, MN 55303 (3)
- --------------------------------------------------------------------------------
James P. Reilly, Jr. (4) 268,636 3%
- --------------------------------------------------------------------------------
James A. Baum (5) 17,598 *
- --------------------------------------------------------------------------------
Richard A. Deak (6) 36,660 *
- --------------------------------------------------------------------------------
Timothy B. Johnson (7) 11,922 *
- --------------------------------------------------------------------------------
Mary E. Paetzold (8) 69,201 1%
- --------------------------------------------------------------------------------
Esteban A. Ferrer (9) 3,200 *
- --------------------------------------------------------------------------------
Philippe D. Katz (10) 10,000 *
- --------------------------------------------------------------------------------
Lowell N. Lewis (11) 6,940 *
- --------------------------------------------------------------------------------
John R. Sutley (12) 7,040 *
- --------------------------------------------------------------------------------
All current executive officers and 966,030 11%
directors as a group (nine persons)
(2) (4) (5) (6) (7) (8) (9) (10) (11)
(12) and (13)
- --------------------------------------------------------------------------------
</TABLE>
* Indicates amount is less than 1%.
13
<PAGE> 16
(1) The addresses of all officers and directors of the Company listed above
are in care of the Company. The Company's corporate headquarters are
located at 2005 Cabot Boulevard West, Langhorne, Pennsylvania 19047. For
purposes of calculating beneficial ownership, the Company relied upon
reports filed with the Securities and Exchange Commission and upon its
actual knowledge.
(2) Pursuant to Amendment No. 3 to Schedule 13D filed by Moses Marx and United
Equities (Commodities) Company ("United Equities") on September 14, 1998,
securities reported as being beneficially owned by United Equities include
534,833 shares of Ecogen Common Stock. In addition to the 534,833 shares
of Common Stock directly held by United Equities, United Equities also
holds 32,354 shares of the Company's 8% Series 1998-C convertible
Preferred Stock (which are convertible into Ecogen Common Stock after
August 20, 1999) in accordance with the terms of such preferred stock.
Moses Marx has a 99% equity interest in United Equities, and has sole
investment and voting power over, and is deemed to beneficially own the
shares of Ecogen Common Stock held by United Equities. Philippe Katz has a
.5% equity interest in United Equities and may be deemed to beneficially
own the shares of Ecogen Common Stock held by United Equities.
(3) Includes 160,000 shares which KA Investments LDC ("KA") has the right to
acquire upon exercise of a warrant which is exercisable at any time. Also
includes 1,178,065 shares which KA has the right to acquire upon
conversion of the Company's Series 1998-A 8% Convertible Preferred Stock
(assuming a conversion price of $1.47).
(4) Includes 128,000 shares which Mr. Reilly has the right to acquire upon
exercise of stock options which are exercisable on or within 60 days
following January 1, 1999. Does not include 480,000 shares which Mr.
Reilly has the right to acquire upon exercise of stock options which are
not currently exercisable and not exercisable within 60 days following
January 1, 1999.
(5) Includes 17,470 shares which Dr. Baum has the right to acquire upon
exercise of stock options which are exercisable on or within 60 days
following January 1, 1999. Does not include 159,024 shares which Dr. Baum
has the right to acquire upon exercise of stock options which are not
currently exercisable and not exercisable within 60 days following January
1, 1999.
(6) Includes 36,000 shares which Mr. Deak has the right to acquire upon
exercise of stock options which are exercisable on or within 60 days
following January 1, 1999. Does not include 15,000 shares which Mr. Deak
has the right to acquire upon exercise of stock options which are not
currently exercisable and not exercisable within 60 days following January
1, 1999.
(7) Includes 9,510 shares which Dr. Johnson has the right to acquire upon
exercise of stock options which are exercisable on or within 60 days
following January 1, 1999. Does not include 138,510 shares which Dr.
Johnson has the right to acquire upon exercise of stock options which are
not currently exercisable and not exercisable within 60 days following
January 1, 1999.
(8) Includes 500 shares held by Ms. Paetzold's husband. Ms. Paetzold disclaims
beneficial ownership of these shares. Includes 48,333 shares which Ms.
Paetzold has the right to acquire upon exercise of stock options which are
exercisable on or within 60 days following January 1, 1999. Does not
include 21,667 shares which Ms. Paetzold has the right to acquire upon
exercise of stock options which are not currently exercisable and not
exercisable within 60 days following January 1, 1998.
(9) Includes 2,200 shares which Mr. Ferrer has the right to acquire upon the
exercise of stock options which are exercisable on or within 60 days
following January 15, 1999. Does not include 1,600 shares which Mr. Ferrer
has the right to acquire upon exercise of stock options which are not
currently exercisable and not exercisable within 60 days following January
15, 1999.
14
<PAGE> 17
(10) Does not include 534,833 shares owned by United Equities of which Mr. Katz
has a .5% equity interest. See Footnote 2 above.
(11) Includes 5,800 shares which Dr. Lewis has the right to acquire upon
exercise of stock options which are exercisable on or within 60 days
following January 15, 1999.
(12) Includes 7,000 shares which Mr. Sutley has the right to acquire upon
exercise of stock options which are exercisable on or within 60 days
following January 15, 1999. Does not include 4,000 which Mr. Sutley has
the right to acquire upon the exercise of stock options which are not
currently exercisable and not exercisable within 60 days following January
15, 1999.
(13) Gives full effect to stock options and warrants, which are presently
exercisable, held by executive officers and directors.
CERTAIN TRANSACTIONS
On January 24, 1996, the Company closed a transaction with Monsanto
Company ("Monsanto") for, among other things, development of the Company's
proprietary Bt technology. Under the terms of the agreement, Monsanto purchased
943,397 shares of Common Stock for $10.60 per share for an aggregate purchase
price of $10 million. Monsanto has certain registration rights with respect to
the shares of Company Common Stock. In addition, Monsanto has a right of first
refusal to purchase securities from the Company in order to maintain its
percentage ownership interest in the Company upon the occurrence of certain
events involving the issuance of additional securities by the Company. In
addition, on January 24, 1996, Monsanto acquired for $5 million certain rights
to Ecogen's existing Bt strain library and insecticidal crystal protein gene
library, and the intellectual property rights associated with such libraries
including certain patents and patent applications (the "Bt Technology"). The
Company maintains rights to the Bt Technology for applications other than
in-plant uses. Monsanto did not acquire any rights to the Company's fermentation
and formulation technology, insectary technology or technology related to the
movement of Bt genes from Bt and back into Bt without foreign DNA. Monsanto and
the Company are also parties to a Research and Development Agreement involving
Bt Technology (the "R&D Program"). The R&D Program which terminated in January,
1999, provided Ecogen with $10 million of research funding. The results of the
R&D Program are owned by Monsanto and licensed to Ecogen for use outside of
in-plant applications. Under the terms of the agreement with Monsanto, Ecogen
will share in the commercialization success of transgenic plants incorporating
the Bt Technology. Monsanto shall pay a commercialization success fee based on
sales revenue and license fees received by Monsanto from products which
incorporate the Bt Technology or the results from the R&D Program.
In August 1998, the Company and United Equities (Commodities)
Company ("United Equities") entered into a transaction pursuant to which the
Company exchanged an 8% convertible secured note due in October 2002 in the
amount of $3.2 million that was held by United Equities for 32,354 shares of
newly issued 8% Series 1998-C convertible preferred stock with a stated value of
$100 per share. Dividends on the preferred stock are payable semi-annually in
cash or shares of such preferred stock at the option of the Company. The
preferred stock has no voting rights except with respect to certain matters
affecting the preferred stock. At the election of the holder, the preferred
stock may be converted into common stock of the Company at any time and from
time to time beginning in August 1999 at a conversion price equal to the lesser
of (i) $2.125 per share (subject to adjustment under certain circumstances), and
(ii) the average market price of Common Stock as defined in the agreement over a
five day period at the time of conversion. The Company, at its option, may
require conversion of the preferred stock if the average market value of the
Company's common stock is greater than $4.00 per share over a ten day period.
The Company, at its option, may redeem the preferred stock at 125% of the stated
value. Furthermore, in certain circumstances, all of which are in the control of
the Company, the Company may be required to redeem the preferred stock at
various premiums over stated value. If the Company is unable to issue sufficient
shares of Common Stock within a specified period of time after the holder has
requested conversion, or the Common Stock has a market value of less than $1.00
per share for thirty consecutive days, the dividend rate may increase and the
Company could be required to pay such dividends in cash. In such
15
<PAGE> 18
event and if the unpaid dividends exceed $37,500 for a period of thirty days,
the Company may be required to appoint two designees of the holders of a
majority of the outstanding preferred stock to the Company's Board of Directors.
Philippe Katz, a director of the Company is a partner in United Equities
(Commodities) Company.
Esteban A. Ferrer, a director of the Company since January, 1996, is
a partner in the law firm of Paul, Hastings, Janofsky & Walker LLP which has
represented the Company with respect to various legal matters since 1990.
The Company believes that all of the foregoing transactions were
entered into upon terms comparable to those which could have been obtained at
that time from a third party in an arms' length transaction and furthermore have
significantly contributed to the Company.
STOCKHOLDER INFORMATION
Holders of Common Stock of record on January 11, 1999 will receive a
copy of the Company's Annual Report to Stockholders for the fiscal year ended
October 31, 1998. The Annual Report to Stockholders is not soliciting material
and is not incorporated in this proxy statement by reference.
ANY PERSON FROM WHOM PROXIES FOR THE MEETING ARE SOLICITED MAY
OBTAIN FROM THE COMPANY, WITHOUT CHARGE, A COPY OF THE COMPANY'S ANNUAL REPORT
ON FORM 10-K FOR THE FISCAL YEAR ENDED OCTOBER 31, 1997, BY WRITTEN REQUEST
ADDRESSED TO ECOGEN INC., 2005 CABOT BOULEVARD WEST, LANGHORNE, PENNSYLVANIA
19047-3023, ATTENTION: INVESTOR RELATIONS DEPARTMENT. THE ANNUAL REPORT ON FORM
10-K IS NOT SOLICITING MATERIAL AND IS NOT INCORPORATED IN THIS DOCUMENT BY
REFERENCE.
FUTURE STOCKHOLDER PROPOSALS
The Company must receive at its principal office before October 1,
1999, any proposal which a stockholder wishes to submit to the 2000 Annual
Meeting of Stockholders, if the proposal is to be considered by the Board of
Directors for inclusion in the proxy materials for that meeting.
James P. Reilly, Jr.
Chairman and Chief Executive Officer
February 5, 1999
16
<PAGE> 19
ECOGEN INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
James P. Reilly, Jr. and Mary E. Paetzold, and each of them, with full
power of substitution, are hereby authorized to represent and to vote the
shares of Common Stock of Ecogen Inc. held of record by the undersigned on
January 11, 1999 as directed on the reverse side and, in their discretion, on
all other matters which may properly come before the Annual Meeting of
Stockholders to be held on March 11, 1999, and at any adjournment as if the
undersigned were present and voting at the meeting.
Whether or not you expect to attend the meeting, you are urged to execute
and return this proxy, which may be revoked at any time prior to its use.
The shares represented by this proxy will be voted as directed by the
stockholder. WHERE NO DIRECTION IS GIVEN WHEN THE DULY EXECUTED PROXY IS
RETURNED, SUCH SHARES WILL BE VOTED FOR ALL ITEMS.
(CONTINUED, AND TO BE SIGNED AND DATED, ON REVERSE SIDE.)
SEE REVERSE
SIDE
<PAGE> 20
PLEASE DATE, SIGN AND MAIL YOUR
PROXY CARD BACK AS SOON AS POSSIBLE!
ANNUAL MEETING OF STOCKHOLDERS
ECOGEN INC.
MARCH 11, 1999
- Please Detach and Mail in the Envelope Provided -
PLEASE MARK YOUR
VOTES AS IN THIS
/ X / EXAMPLE.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL ITEMS.
ITEM 1. FOR WITHHELD
ELECTION OF
DIRECTORS / / / /
For, except vote withheld from the following nominee(s):
_______________________________________________________
NOMINEES: Esteban A. Ferrar
Philippe D. Katz
Lowell N. Lewis
James P. Reilly, Jr.
John R. Sutley
FOR AGAINST ABSTAIN
ITEM II. APPROVAL OF THE 1999 STOCK
OPTION PLAN AS FULLY DESCRIBED IN / / / / / /
PROPOSAL II OF THE PROXY STATEMENT.
ITEM III. RATIFICATION OF THE APPOINTMENT OF / / / / / /
KPMG LLP AS INDEPENDENT AUDITORS.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
Signature ______________________________________ Dated: _________________, 1999
________________________________________________ Dated: _________________, 1999
Signature if held jointly
IMPORTANT: (Please sign exactly as name appears hereon. Joint owners should
each sign. When signing as attorney, executor, administrator, trustee
or guardian, please give full title as such.)
