Registration Rights Agreement

REGISTRATION RIGHTS AGREEMENT


This Registration Rights Agreement (this "Agreement") is made and entered into as of May 12, 1999, between Ecogen Inc., a Delaware corporation (the "Company"), and KA Investments LDC, a Cayman Islands corporation (the "Purchaser").


This Agreement is made pursuant to the Convertible Preferred Stock Purchase Agreement, dated as of the date hereof between the Company and the Purchaser (as amended, modified or supplemented from time to time, the "Purchase Agreement").


The Company and the Purchaser hereby agree as follows:


1. Definitions


Capitalized terms used and not otherwise defined herein that are defined in the Purchase Agreement shall have the meanings given such terms in the Purchase Agreement. As used in this Agreement, the following terms shall have the following meanings:


"Advice" shall have meaning set forth in Section 3(m).


"Affiliate" means, with respect to any Person, any other Person that directly or indirectly controls or is controlled by or under common control with such Person. For the purposes of this definition, "control," when used with respect to any Person, means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise; and the terms of "affiliated," "controlling" and "controlled" have meanings correlative to the foregoing.


"Business Day" means any day except Saturday, Sunday and any day which shall be a legal holiday or a day on which banking institutions in the state of New York generally are authorized or required by law or other government actions to close.


"Closing Date" shall have the meaning set forth in the Purchase Agreement.


"Commission" means the Securities and Exchange Commission.


"Common Stock" means the Company's common stock, $.01 par value.


"Effectiveness Date" means (i) with respect to the Registrable Securities issuable upon conversion of the Preferred Stock and exercise of the Warrant, the 120th day following the


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Closing Date and (ii) with respect to the Registrable Securities issuable upon exercise of the Trigger Warrants, the 120th day following the issuance of Trigger Warrants.


"Effectiveness Period" shall have the meaning set forth in Section 2(b).


"Exchange Act" means the Securities Exchange Act of 1934, as amended.


"Filing Date" means (i) with respect to the Registrable Securities issuable upon conversion of the Preferred Stock and exercise of the Warrant, the 30th day following the Closing Date and (ii) with respect to the Registrable Securities issuable upon exercise of the Trigger Warrants, the 60th day following the issuance of Trigger Warrants.


"Holder" or "Holders" means the holder or holders, as the case may be, from time to time of Registrable Securities.


"Indemnified Party" shall have the meaning set forth in Section 5(c).


"Indemnifying Party" shall have the meaning set forth in Section 5(c).


"Losses" shall have the meaning set forth in Section 5(a).


"Person" means an individual or a corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or political subdivision thereof) or other entity of any kind.


"Preferred Stock" means the Company's shares of 7% Series 1999-A Preferred Stock, $.01 par value, to be issued to the Purchaser pursuant to the Purchase Agreement (including any shares of Preferred Stock issued in payment of dividends on the Preferred Stock).


"Proceeding" means an action, claim, suit, investigation or proceeding (including, without limitation, an investigation or partial proceeding, such as a deposition), whether commenced or threatened.


"Prospectus" means the prospectus included in the Registration Statement (including, without limitation, a prospectus that includes any information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgated under the Securities Act), as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Securities covered by the Registration Statement, and all other amendments and supplements to the Prospectus, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference in such Prospectus.


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"Registrable Securities" means the shares of Common Stock issuable upon (i) conversion in full of the Preferred Stock, and (ii) exercise in full of each of the Warrant and the Trigger Warrants, provided that in order to account for the fact that the number of shares of Common Stock that is issuable upon conversion of the Preferred Stock is determined in part upon the market price of the Common Stock at the time of conversion, Registrable Securities contemplated by clause (i) above, shall include (but not be limited to) a number of shares of Common Stock equal to no less than 175% of the number of shares of Common Stock into which the shares of Preferred Stock (including shares of Preferred Stock issuable as dividends) are convertible, assuming such conversion occurred on the Closing Date or the Filing Date, whichever yields a lower Conversion Price and assuming all dividends for a two year period are paid in shares of Preferred Stock and that all such shares of Preferred Stock are outstanding. Notwithstanding anything herein contained to the contrary, if the actual number of shares of Common Stock into which the shares of Preferred Stock are convertible exceeds twice the number of shares of Common Stock into which the shares of Preferred Stock are convertible based upon a computation at a particular Closing Date, the term "Registrable Securities" shall be deemed to include such additional shares of Common Stock. With respect to the Registration Statement filed with respect to the Registrable Securities issuable upon conversion of the Preferred Stock and exercise of the Warrant, the Company shall be required to file additional Registration Statements to the extent the actual number of shares of Common Stock into which the Preferred Stock is convertible and Warrants are exercisable exceeds the number of shares of Common Stock registered in the initial Registration Statement hereunder. The Company shall have ten (10) Business Days to file such additional Registration Statements after notice of the requirement thereof, which the Holders may give at such time when the number of shares of Common Stock as are issuable upon conversion of Preferred Stock plus the number of shares of Common Stock issuable upon exercise in full of the Warrant, exceed 85% of the number of shares of Common Stock registered in the initial Registration Statement hereunder.


"Registration Statement" means the registration statement and any additional registration statements contemplated by Section 2(a), including (in each case) the Prospectus, amendments and supplements to such registration statement or Prospectus, including pre- and post-effective amendments, all exhibits thereto, and all material incorporated by reference or deemed to be incorporated by reference in such registration statement.


"Rule 144" means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.


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"Rule 415" means Rule 415 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.


"Securities Act" means the Securities Act of 1933, as amended.


"Special Counsel" means one special counsel to the Holders, for which the Holders will be reimbursed by the Company pursuant to Section 4.


"Trigger Warrants" means the common stock purchase warrants issuable to the Purchaser pursuant to Section 5(a)(iii) of the Certificate of Designations filed in connection with the authorization of the Preferred Stock.


"Warrant" means the Warrant to be issued to the Purchaser pursuant to the Purchase Agreement.


2. Shelf Registrations


(a) On or prior to each applicable Filing Date, the Company shall prepare and file with the Commission a "Shelf" Registration Statement covering all Registrable Securities required to be included herein in such Registration Statement for an offering to be made on a continuous basis pursuant to Rule 415. Each Registration Statement shall be on Form S-3 (except if otherwise directed by the Holders of a majority in interest of the applicable Registrable Securities in accordance herewith or if the Company is not then eligible to register for resale the Registrable Securities on Form S-3, in which case such registration shall be on another appropriate form in accordance herewith). Each Registration Statement shall state, to the extent permitted by Rule 416 under the Securities Act, that it also covers such indeterminate number of shares of Common Stock as may be required to effect (i) conversion of the Preferred Stock to prevent dilution resulting from stock splits, stock dividends or similar events, or by reason of changes in the Conversion Price in accordance with the terms of the Certificate of Designations (as defined in the Purchase Agreement) and (ii) exercise of the Warrant in full to prevent dilution resulting from stock splits, stock dividends or similar events, or by reason of changes in the Exercise Price (as defined in the Warrant) in accordance with the terms of the Warrant, provided that any Registration Statements covering Registrable Securities issuable upon exercise of Trigger Warrants will state, to the extent permitted by Rule 416 under the Securities Act, that it also covers such indeterminate number of shares of Common Stock as may be required to effect exercise of Trigger Warrants in full to prevent dilution resulting from stock splits, stock dividends or similar events, or by reason of changes in the Exercise Price (as defined in the Trigger Warrants) in accordance with the terms of the Trigger Warrants.


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(b) The Company shall use its reasonable best efforts to cause each Registration Statement to be declared effective under the Securities Act as promptly as possible after the filing thereof, but in any event prior to each applicable Effectiveness Date, and shall use its reasonable best efforts to keep such Registration Statement continuously effective under the Securities Act until the date which is five years after the date that such Registration Statement is declared effective by the Commission or such earlier date when all Registrable Securities covered by such Registration Statement have been sold or may be sold without volume restrictions pursuant to Rule 144(k) as determined by the counsel to the Company pursuant to a written opinion letter to such effect, addressed and acceptable to the Company's transfer agent (the "Effectiveness Period"), provided, however, that the Company shall not be deemed to have used its best efforts to keep the Registration Statement effective during the Effectiveness Period if it voluntarily takes any action that would result in the Holders not being able to sell the Registrable Securities covered by such Registration Statement during the Effectiveness Period, unless such action is required under applicable law or the Company has filed a post-effective amendment to the Registration Statement and the Commission has not declared it effective.


3. Registration Procedures


In connection with the Company's registration obligations hereunder, the Company shall:


(a) Prepare and file with the Commission on or prior to each Filing Date, a Registration Statement on Form S-3 in accordance with Section 2(a) and the method or methods of distribution thereof as specified by the Holders (except if otherwise directed by the Holders), and cause the Registration Statement to become effective and remain effective as provided herein; provided, however, that not less than seven (7) Business Days prior to the filing of the Registration Statement or any related Prospectus or any amendment or supplement thereto (including any document that would be incorporated or deemed to be incorporated therein by reference), the Company shall, (i) furnish to the Holders and their Special Counsel copies of all such documents proposed to be filed, which documents (other than those incorporated or deemed to be incorporated by reference) will be subject to the review of such Holders and their Special Counsel, and (ii) cause its officers and directors, counsel and independent certified public accountants to respond to such inquiries as shall be necessary, in the reasonable opinion of respective counsel to such Holders, to conduct a reasonable investigation within the meaning of the Securities Act. The Holders or their Special Counsel will provide the Company with their comments on the proposed Registration Statement within five (5) Business Days of their receipt thereof (the "Review Period") and if the Holders and their Special Counsel provide their comments to the Company after the end of the Review Period, the Filing Date shall be extended by the number of Business Days after the Review Period before which such comments were provided. The Company shall not file the Registration Statement or any such Prospectus or any amendments or supplements thereto to which the Holders of a majority of the Registrable Securities, their Special Counsel, shall reasonably object on a timely basis.


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(b) (i) Prepare and file with the Commission such amendments, including post-effective amendments, to the Registration Statement as may be necessary to keep the Registration Statement continuously effective as to the applicable Registrable Securities for the Effectiveness Period and prepare and file with the Commission such additional Registration Statements in order to register for resale under the Securities Act all of the Registrable Securities; (ii) cause the related Prospectus to be amended or supplemented by any required Prospectus supplement, and as so supplemented or amended to be filed pursuant to Rule 424 (or any similar provisions then in force) promulgated under the Securities Act; (iii) respond as promptly as reasonably possible to any comments received from the Commission with respect to the Registration Statement or any amendment thereto and as promptly as reasonably possible provide the Holders true and complete copies of all correspondence from and to the Commission relating to the Registration Statement; and (iv) comply in all material respects with the provisions of the Securities Act and the Exchange Act with respect to the disposition of all Registrable Securities covered by the Registration Statement during the applicable period in accordance with the intended methods of disposition by the Holders thereof set forth in the Registration Statement as so amended or in such Prospectus as so supplemented.


(c) Notify the Holders of Registrable Securities to be sold and their Special Counsel as promptly as reasonably possible (and, in the case of (i)(A) below, not less than five (5) days prior to such filing) and (if requested by any such Person) confirm such notice in writing no later than one (1) Business Day following the day (i)(A) when a Prospectus or any Prospectus supplement or post-effective amendment to the Registration Statement is proposed to be filed; (B) when the Commission notifies the Company whether there will be a "review" of such Registration Statement and whenever the Commission comments in writing on such Registration Statement (the Company shall provide true and complete copies thereof and all written responses thereto to each of the Holders); and (C) with respect to the Registration Statement or any post-effective amendment, when the same has become effective; (ii) of any request by the Commission or any other Federal or state governmental authority for amendments or supplements to the Registration Statement or Prospectus or for additional information; (iii) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement covering any or all of the Registrable Securities or the initiation of any Proceedings for that purpose; (iv) of the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction, or the initiation or threatening of any Proceeding for such purpose; and (v) of the occurrence of any event that makes any statement made in the Registration Statement or Prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires any revisions to the Registration Statement, Prospectus or other documents so that, in the case of the Registration Statement or the Prospectus, as the case may be, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading.


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(d) Use its reasonable best efforts to avoid the issuance of, or, if issued, obtain the withdrawal of (i) any order suspending the effectiveness of the Registration Statement, or (ii) any suspension of the qualification (or exemption from qualification) of any of the Registrable Securities for sale in any jurisdiction, at the earliest practicable moment.


(e) Furnish to each Holder and their Special Counsel, without charge, at least one conformed copy of each Registration Statement and each amendment thereto, including financial statements and schedules, all documents incorporated or deemed to be incorporated therein by reference, and all exhibits to the extent requested by such Person (including those previously furnished or incorporated by reference) promptly after the filing of such documents with the Commission.


(f) Promptly deliver to each Holder and their Special Counsel, without charge, as many copies of the Prospectus or Prospectuses (including each form of prospectus) and each amendme ...