<PAGE> 1
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
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
HYBRIDON, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement)
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:
2) Aggregate number of securities to which transaction applies:
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):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] 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:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
- --------------------------------------------------------------------------------
<PAGE> 2
HYBRIDON, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 15, 1998
NOTICE IS HEREBY GIVEN that the Annual Meeting of the Stockholders of
Hybridon, Inc., a Delaware corporation (the "Company"), will be held on Monday,
June 15, 1998 at 2:00 p.m. at Hybridon Specialty Products, 155 Fortune
Boulevard, Milford, Massachusetts (the "Meeting") for the purpose of considering
and voting upon the following matters:
1. To elect three Class III Directors for the ensuing three years;
2. To approve an amendment to the Company's 1997 Stock Incentive Plan, as
more fully described in the accompanying Proxy Statement;
3. To ratify the selection of Arthur Andersen LLP as independent auditors
of the Company for the current year; and
4. To transact such other business as may properly come before the Meeting
or any adjournment thereof.
The Board of Directors has no knowledge of any other business to be
transacted at the Meeting.
The Board of Directors has fixed the close of business on Thursday, May 7,
1997 as the record date for the determination of stockholders entitled to notice
of and to vote at the Meeting and at any adjournments thereof.
A copy of the Company's Annual Report to Stockholders for the year ended
December 31, 1997, which contains consolidated financial statements and other
information of interest to stockholders, accompanies this Notice and the
enclosed Proxy Statement.
By order of the Board of Directors,
E. ANDREWS GRINSTEAD, III, Secretary
May 15, 1997
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE PROMPTLY COMPLETE, DATE,
SIGN AND RETURN THE ENCLOSED PROXY IN THE ACCOMPANYING ENVELOPE. NO POSTAGE NEED
BE AFFIXED IF THE PROXY IS MAILED IN THE UNITED STATES.
<PAGE> 3
HYBRIDON, INC.
620 MEMORIAL DRIVE
CAMBRIDGE, MASSACHUSETTS 02139
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 15, 1998
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Hybridon, Inc. (the "Company") at the
Annual Meeting of Stockholders to be held on Monday, June 15, 1998 at 2:00 p.m.
at Hybridon Specialty Products, 155 Fortune Boulevard, Milford, Massachusetts
and at any adjournments thereof (the "Meeting").
All proxies will be voted in accordance with the instructions of the
stockholder. If no choice is specified, the proxies will be voted in favor of
the matters set forth in the accompanying Notice of Meeting. Any proxy may be
revoked by a stockholder at any time before its exercise by delivery of a
written revocation or a subsequently dated proxy to the Secretary of the Company
or by voting in person at the Meeting. Attendance at the Meeting will not itself
be deemed to revoke a Proxy unless the stockholder gives affirmative notice at
the Meeting that the stockholder intends to revoke the Proxy and vote in person.
On May 7, 1997, the record date for determination of stockholders entitled
to vote at the Meeting, there were outstanding and entitled to vote an aggregate
of 15,356,825 shares of Common Stock of the Company, $.001 par value per share
(the "Common Stock"). Each share entitles the record holder to one vote on each
of the matters to be voted upon at the Meeting.
THE NOTICE OF MEETING, THIS PROXY STATEMENT, THE ENCLOSED PROXY AND THE
COMPANY'S ANNUAL REPORT TO STOCKHOLDERS FOR THE YEAR ENDED DECEMBER 31, 1997 ARE
BEING MAILED TO STOCKHOLDERS ON OR ABOUT MAY 15, 1998. THE COMPANY WILL, UPON
WRITTEN REQUEST OF ANY STOCKHOLDER, FURNISH WITHOUT CHARGE A COPY OF ITS ANNUAL
REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1997, AS FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION, WITHOUT EXHIBITS. PLEASE ADDRESS ALL SUCH
REQUESTS TO THE COMPANY, ATTENTION OF CORPORATE ADMINISTRATION AND DEVELOPMENT,
620 MEMORIAL DRIVE, CAMBRIDGE, MASSACHUSETTS 02139. EXHIBITS WILL BE PROVIDED
UPON WRITTEN REQUEST AND PAYMENT OF AN APPROPRIATE PROCESSING FEE.
<PAGE> 4
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of March 31, 1998
with respect to the beneficial ownership of shares of Common Stock by (i) each
person known to the Company to own beneficially more than 5% of the outstanding
shares of Common Stock, (ii) the directors and director nominees of the Company,
(iii) the Chief Executive Officer and the other executive officers listed in the
Summary Compensation Table below (the "Named Executive Officers"), and (iv) the
directors and executive officers of the Company as a group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL OWNERSHIP(1)
--------------------------
NUMBER OF PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER SHARES CLASS
------------------------------------ --------- ----------
<S> <C> <C>
5% STOCKHOLDERS
Yahia M.A. Bin Laden........................................ 377,500(2) 7.46%
2, rue Charles Bonnet
1206 Geneva, Switzerland
Pecks Management Partners, Ltd. ............................ 356,500(3) 6.58%
One Rockefeller Plaza, Suite 900
New York, New York 10020
Nicris Limited.............................................. 310,000 6.12%
2 rue Charles Bonnet
1206 Geneva, Switzerland
Intercity Holdings, LTD..................................... 341,667 6.75%
c/o Coson Corporate Services
P.O. Box HM 1561
Hamilton, HM FX, Bermuda
DIRECTORS
Youssef El-Zein............................................. 142,192(4) 2.74%
Nasser Menhall.............................................. 118,605(5) 2.30%
E. Andrews Grinstead, III................................... 254,814(6) 4.83%
Mohamed A. El-Khereiji...................................... 179,287(7) 3.48%
Paul C. Zamecnik............................................ 112,020(8) 2.20%
Sudhir Agrawal.............................................. 105,665(9) 1.74%
James B. Wyngaarden......................................... 15,000(10) *
OTHER EXECUTIVE OFFICERS
Anthony J. Payne............................................ 92,250(11) 1.66%
All directors and executive officers as a group (8
persons).................................................. 1,021,833(12) 17.92%
</TABLE>
- ---------------
* Less than 1%
(1) The number of shares beneficially owned by each director and executive
officer is determined under rules promulgated by the Securities and
Exchange Commission, and the information is not necessarily indicative of
beneficial ownership for any other purpose. Under such rules, beneficial
ownership includes any shares as to which the individual has sole or shared
voting power or investment power and also any shares which the individual
has the right to acquire within 60 days after March 31, 1998 through the
exercise of any stock option or other right. The inclusion herein of such
shares, however, does not constitute an admission that the named
stockholder is a direct or indirect beneficial owner of such shares. Unless
otherwise indicated, each person or entity named in the table has sole
voting power and
2
<PAGE> 5
investment power (or shares such power with his or her spouse) with respect
to all shares of capital stock listed as owned by such person or entity.
(2) Includes 310,000 shares held by Nicris Limited ("Nicris"). Mr. Bin Laden, a
controlling stockholder of Nicris, may be considered a beneficial owner of
the shares beneficially owned by such entity.
(3) Share ownership based on Schedule 13D filed with the Commission on February
17, 1998. Share ownership is based on shares issuable upon the conversion
of debt securities of the Company.
(4) Includes (a) 74,183 shares issuable upon the exercise of warrants held by
Mr. El-Zein, (b) 366 shares issuable upon the exercise of warrants held by
Pillar Associated, (c) 12,800 shares held by Pillar Investment, (d) 5,243
shares issuable upon the exercise of warrants held by Pillar Investment,
(e) 20,000 shares issuable upon the exercise of warrants held by Pillar
S.A., and (f) 20,000 shares issuable upon the exercise of warrants by
Pillar S.A.R.L. Also includes 8,000 shares subject to outstanding stock
options held by Mr. El-Zein which are exercisable within the 60-day period
following March 31, 1998. Mr. El-Zein, an affiliate of Pillar Investment,
Pillar Limited, Pillar S.A., Pillar Associated and Pillar S.A.R.L., may be
considered a beneficial owner of the shares beneficially owned by such
entities. See "Certain Transactions -- Transactions with Pillar S.A. and
Certain of its Affiliates" for a description of (a) certain shares of
common stock issued and warrants to be issued to Pillar Investments in lieu
of cash in satisfaction of the full amounts owing under the 1994 Pillar
Consulting Agreement and the Pillar Europe Agreement and (b) certain
warrants to purchase common stock which the Company has agreed in principle
to issue, subject to the execution of definitive documentation, in
connection with the Company's recent financing.
(5) Includes (a) 52,195 shares issuable upon the exercise of warrants held by
Mr. Menhall, (b) 366 shares issuable upon the exercise of warrants held by
Pillar Associated, (c) 12,800 shares held by Pillar Investment, (d) 5,243
shares issuable upon the exercise of warrants held by Pillar Investment,
(e) 20,000 shares issuable upon the exercise of warrants held by Pillar
S.A., and (f) 20,000 shares issuable upon the exercise of warrants by
Pillar S.A.R.L. Also includes 8,000 shares subject to outstanding stock
options held by Mr. Menhall which are exercisable within the 60-day period
following March 31, 1998. Mr. Menhall, an affiliate of Pillar Limited,
Pillar Investment, Pillar S.A., Pillar Associated and Pillar S.A.R.L., may
be considered a beneficial owner of the shares beneficially owned by such
entities. See "Certain Transactions -- Transactions with Pillar S.A. and
Certain of its Affiliates" for a description of (a) certain shares of
common stock issued and warrants to be issued to Pillar Investments in lieu
of cash in satisfaction of the full amounts owing under the 1994 Pillar
Consulting Agreement and the Pillar Europe Agreement and (b) certain
warrants to purchase common stock which the Company has agreed in principle
to issue, subject to the execution of definitive documentation, in
connection with the Company's recent financing.
(6) Includes 211,235 shares subject to outstanding stock options which are
exercisable within the 60-day period following March 31, 1998.
(7) Includes (a) 80,414 shares issuable upon the exercise of warrants held by
Mr. El-Khereiji and (b) 8,000 shares subject to outstanding stock options
held by Mr. El-Khereiji which are exercisable within the 60-day period
following March 31, 1998. Also includes 90,873 shares beneficially owned by
Solter Corporation. Mr. El-Khereiji, an affiliate of Solter Corporation,
may be considered a beneficial owner of the shares beneficially owned by
such entity.
(8) Includes 26,000 shares subject to outstanding stock options which are
exercisable within the 60-day period following March 31, 1998.
(9) Includes 90,905 shares subject to outstanding stock options which are
exercisable within the 60-day period following March 31, 1998.
3
<PAGE> 6
(10) Includes 700 shares held by Dr. Wyngaarden's children and 11,000 shares
subject to outstanding stock options which are exercisable within the
60-day period following March 31, 1998.
(11) Includes 82,355 shares subject to outstanding stock options which are
exercisable within the 60-day period following March 31, 1998. Mr. Payne's
employment with the Company terminated on September 15, 1997.
(12) Includes an aggregate of 298,011 shares issuable upon the exercise of
outstanding warrants exercisable within the 60-day period following March
31, 1998 and an aggregate of 445,494 shares issuable upon the exercise of
outstanding stock options exercisable within the 60-day period following
March 31, 1998. Does not include 112,733 shares issuable upon the exercise
of outstanding stock options not exercisable within the 60-day period
following March 31, 1998.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors, executive officers and
holders of more than 10% of the Company's Common Stock to file with the
Securities and Exchange Commission initial reports of ownership and reports of
changes in ownership of Common Stock and other equity securities of the Company.
Such persons are required by Commission regulations to furnish the Company with
copies of all Section 16(a) forms filed by such person with respect to the
Company.
Based solely on its review of copies of reports filed by reporting persons
pursuant to Section 16(a) of the Exchange Act, or written representations from
reporting persons that no Form 5 filing was required for such person, the
Company believes that, during 1997, all filings required to be made by reporting
persons of the Company were timely made in accordance with the requirements of
the Exchange Act.
VOTES REQUIRED
The holders of a majority of the shares of Common Stock issued and
outstanding and entitled to vote at the Meeting shall constitute a quorum for
the transaction of business at the Meeting. Shares of Common Stock present in
person or represented by proxy (including shares which abstain or do not vote
with respect to one or more of the matters presented for stockholder approval)
will be counted for purposes of determining whether a quorum exists at the
Meeting.
The affirmative vote of the holders of a plurality of the votes cast by the
stockholders entitled to vote at the Meeting is required for the election of
directors. The affirmative vote of the holders of a majority of the shares of
Common Stock present or represented by proxy and voting on the matter is
required for the approval of the amendment to the Company's Stock Incentive Plan
(the "1997 Plan") and the ratification of the selection of the Company's
independent auditors.
Shares which abstain from voting as to a particular matter, and shares held
in "street name" by brokers or nominees who indicate on their proxies that they
do not have discretionary authority to vote such shares as to a particular
matter, will not be counted as votes in favor of such matter, and will also not
be counted as votes cast or shares voting on such matter. Accordingly,
abstentions and "broker non-votes" will have no effect on the voting on a matter
that requires the affirmative vote of a certain percentage of the votes cast or
shares voting on a matter.
PROPOSAL 1 -- ELECTION OF DIRECTORS
The Company has a classified Board of Directors consisting of two Class I
Directors, four Class II Directors, and three Class III Directors. One vacancy
currently exists in each class of the Class I Directors and the Class II
Directors. At each annual meeting of stockholders, directors are elected for a
full term of three years to succeed those whose terms are expiring. The Class I
Directors were elected at the 1996 Annual
4
<PAGE> 7
Meeting for a three-year term expiring at the 1999 Annual Meeting of
Stockholders; and the Class II Directors were elected at the 1997 Annual Meeting
of Stockholders for a three-year term expiring at the 2000 Annual Meeting of
Stockholders.
The persons named in the enclosed proxy will vote to elect, as Class III
Directors, Sudhir Agrawal, Youssef El-Zein and E. Andrews Grinstead, III, the
three director nominees named below, unless the proxy is marked otherwise. Dr.
Agrawal and Messrs. El-Zein and Grinstead are currently directors of the
Company.
Each Class III director will be elected to hold office until the 2001
Annual Meeting of Stockholders and until his successor is elected and qualified.
Each of the nominees has indicated his willingness to serve, if elected;
however, if any nominee should be unable to serve, the person acting under the
proxy may vote the proxy for a substitute nominee. The Board of Directors has no
reason to believe that any of the nominees will be unable to serve if elected.
For each member of the Board of Directors, including those who are nominees
for election as Class III Directors, there follows information given by each
concerning his principal occupation and business experience for the past five
years, the names of other publicly held companies of which he serves as a
director and his age and length of service as a director of the Company.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION, OTHER
DIRECTOR BUSINESS EXPERIENCE DURING PAST
NAME AGE SINCE FIVE YEARS AND OTHER DIRECTORSHIPS
- ---- --- -------- ----------------------------------
<S> <C> <C> <C>
NOMINEES FOR TERMS EXPIRING IN 2001 (CLASS III DIRECTORS)
Sudhir Agrawal, D.Phil................. 44 1993 Senior Vice President of the Company since
March 1994; Chief Scientific Officer of the
Company since January 1993; Vice President of
Discovery of the Company from December 1991
to January 1993; Principal Research Scientist
of the Company from February 1990 to January
1993.
Youssef El-Zein........................ 49 1992 Vice Chairman of the Board of Directors of
the Company since February 1997; Executive
Officer of Pillar S.A., a private investment
and management consulting firm, since 1991;
Chairman of the WorldCare Group since 1993;
Member of the Board of Directors of Pillar
Investment Limited, a private investment and
management consulting firm, since 1991.
E. Andrews Grinstead, III.............. 52 1991 Chairman of the Board and Chief Executive
Officer of the Company since 1991; President
of the Company since 1993; Member of the
Board of Directors of EcoScience Corporation,
Pharmos Corporation and Meridian Medical
Technologies.
DIRECTORS WHOSE TERMS EXPIRE IN 1999 (CLASS I DIRECTORS)
Nasser Menhall......................... 42 1992 Member of the Board of Directors and Chief
Executive Officer of the WorldCare Group, a
teleradiology company, since 1993; President
of Pillar Limited, a private investment and
management consulting firm, since 1990;
President of Biomedical Associates, a private
investment firm, since 1990.
DIRECTORS WHOSE TERMS EXPIRE IN 2000 (CLASS II DIRECTORS)
Mohamed A. El-Khereiji................. 44 1993 Chairman of the International Centre for
Commerce and Contracting, a contracting and
trading company, since 1979; Chairman of
Faisal Investment E.C., a leasing company,
since 1989.
</TABLE>
5
<PAGE> 8
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION, OTHER
DIRECTOR BUSINESS EXPERIENCE DURING PAST
NAME AGE SINCE FIVE YEARS AND OTHER DIRECTORSHIPS
- --------------------------------------- --- -------- ----------------------------------
<S> <C> <C> <C>
James B. Wyngaarden, M.D............... 73 1990 Vice Chairman of the Board of Directors of
the Company since February 1997; Foreign
Secretary of the National Academy of Sciences
and the Institute of Medicine of the National
Academy of Sciences from 1990 to 1994;
Council member of the Human Genome
Organization from 1990 to 1993 and Director
from 1990 to 1991; Director of the National
Institutes of Health from 1982 to 1989;
Member of the Board of Directors of Human
Genome Sciences, Inc. and Magainin
Pharmaceuticals, Inc.
Paul C. Zamecnik, M.D.................. 85 1990 Principal Scientist at the Worcester
Foundation for Biomedical Research, Inc. (the
"Worcester Foundation") from 1979 to 1996 and
Collis P. Huntington Professor of Oncologic
Medicine Emeritus at the Harvard Medical
School since 1979.
</TABLE>
Effective February 17, 1997, Dr. Andre L. Lamotte, a Class I Director of
the Company, resigned from the Board of Directors of the Company. Effective July
29, 1997, Jerry A. Weisbach, a Class II Director of the Company, resigned from
the Board of Directors of the Company. Effective August 11, 1997 J. Robert
Buchanan, a Class I Director of the Company, resigned from the Board of
Directors of the Company.
Pursuant to the Company's offer to exchange its 9% Convertible Subordinated
Notes due 2004 ("9% Notes") for Series A Preferred Stock and warrants (the
"Exchange Offer"), exchanging holders of the 9% Notes had the right to designate
one person for nomination to the Board of Directors. The exchanging holders of
the 9% Notes have selected Arthur W. Berry as their nominee, although Mr. Berry
has not yet been elected to the Board of Directors. It is expected that Mr.
Berry will be appointed as a Class I or II Director within the next 45 days. Mr.
Berry is a Managing Director and a principal of Pecks Management Partners, Ltd.,
an exchanging holder of 9% Notes and a substantial purchaser of newly issued
Series A Preferred Stock of the Company. In addition, the Company has had
discussions with Harold L. Purkey regarding his joining the Board of Directors,
although he has not been appointed at this time. Mr. Purkey is the President and
a principal of Forum Capital Markets L.P. ("Forum"). Forum acted as the
Company's placement agent for the recent sale of the Company's Series A
Preferred Stock.
For information relating to shares of Common Stock owned by each of the
directors, see "Security Ownership of Certain Beneficial Owners and Management."
BOARD AND COMMITTEE MEETINGS
The Board of Directors met seven times (including by telephone conference
and by written consent) during 1997. All directors attended at least 75% of the
meetings of the Board of Directors and of the committees on which they served.
The Board of Directors has an Audit Committee, which reviews the results
and scope of the audit and other services provided by the Company's independent
public accountants. The Audit Committee held two meetings during 1997. The
members of the Audit Committee are Mr. Menhall and Dr. Wyngaarden.
The Board of Directors does not currently have a compensation committee.
The Company has no nominating committee of the Board of Directors.
6
<PAGE> 9
DIRECTOR COMPENSATION
Each non-employee director is paid $1,500 for personal or telephonic
attendance at a Board or committee meeting. Other directors are not entitled to
compensation in their capacities as directors. All of the directors are
reimbursed for their expenses incurred in connection with their attendance at
Board and committee meetings. In addition, Drs. Wyngaarden and Zamecnik received
compensation in the amounts of $49,250 and $58,000, respectively, in 1997 in
connection with the provision of certain consulting services to the Company and
for serving on the Company's Scientific and/or Clinical Advisory Boards. The
Company also is a party to various consulting, advisory and other arrangements
with affiliates of Messrs. El-Khereiji, El-Zein and Menhall. For a description
of the foregoing arrangements with the Company and certain other transactions
between the Company and affiliates of certain directors, see "Certain
Transactions."
In October 1995, the Company adopted the 1995 Director Stock Option Plan
(the "Director Plan"). Under the terms of the Director Plan, options to purchase
1,000 shares of Common Stock were granted to each director of the Company other
than Mr. Grinstead and Dr. Agrawal as of January 30, 1996 at an exercise price
of $65.625 per share, and options to purchase 1,000 shares of Common Stock were
granted to each director other than Mr. Grinstead and Dr. Agrawal as of May 1,
1997 at an exercise price of $27.50 per share. The Director Plan also provides
that options to purchase 1,000 shares of Common Stock will be granted to each
new director upon his or her initial election to the Board of Directors. Annual
options to purchase 1,000 shares of Common Stock will be granted to each
eligible director on May 1 of each year. All options will vest on the first
anniversary of the date of grant (or, in the case of annual options, on April 30
of each year with respect to options granted in the previous year); provided,
that the exercisability of these options will be accelerated upon the occurrence
of a change in control (as defined in the Director Plan). A total of 50,000
shares of Common Stock may be issued upon the exercise of stock options granted
under the Director Plan. The exercise price of options granted under the
Director Plan will equal the closing price of the Common Stock on the date of
grant. As of March 31, 1998, options to purchase an aggregate of 14,000 shares
of Common Stock were outstanding under the Director Plan.
Non-employee directors also have received options to purchase Common Stock
of the Company under the Company's 1995 Stock Option Plan (the "1995 Plan") and
the Company's 1997 Stock Option Plan (the "1997 Plan").
7
<PAGE> 10
COMPENSATION OF EXECUTIVE OFFICERS
Summary Compensation Table
The following table sets forth the compensation for services in all
capacities to the Company for the fiscal years ended December 31, 1997 ("fiscal
1997"), December 31, 1996 and December 31, 1995 for the Company's Chief
Executive Officer and up to four of the other most highly compensated executive
officers who were serving as Executive Officers at December 31, 1997 whose total
annual salary and bonus exceeded $100,000 in fiscal 1997 and up to two
additional individuals who would have been among such other four most highly
compensated executive officers if such individuals had been serving as executive
officers at December 31, 1997 (the Chief Executive Officer and such other
executive officers are hereinafter referred to as the "Named Executive
Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
--------------------------------- ------------
OTHER SECURITIES
ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION OPTIONS COMPENSATION
--------------------------- ------ ----- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
E. Andrews Grinstead, III..... 1997 $375,000 0 $72,486(1) 66,806 $ 75,048(2)(3)
Chairman of the Board, 1996 $375,000 $225,000 $82,386(6) 50,000 $ 43,527(7)(8)
President and Chief 1995 $270,000 $235,000 $19,655(9) 119,846 $118,332(10)(11)
Executive Officer
Anthony J. Payne.............. 1997 $172,656 0 $47,778(1) 31,316 $158,628(2)(3)(4)
Former Senior Vice President 1996 $243,750 $107,000 $45,616(6) 25,000 $ 14,853(7)(8)
Of Finance and 1995 $175,000 $137,500 $30,469(9) 43,162 $ 45,250(10)(11)
Administration, Chief
Financial Officer,
Treasurer and Secretary(12)
Sudhir Agrawal, D. Phil....... 1997 $250,000 0 0 32,263 $ 22,757(3)(6)
Senior Vice President of 1996 $250,000 $100,000 0 25,000 $ 28,676(5)(8)
Discovery, Chief Scientific 1995 $178,250 $114,125 0 32,263 $ 38,523(5)(11)
Officer and Director
</TABLE>
- ---------------
(1) Includes $51,386 and $33,817 paid by the Company to Messrs. Grinstead and
Payne, respectively, in lieu of employee benefits in 1998.
(2) Includes $37,748 and $972 paid by the Company to Messrs. Grinstead and
Payne, respectively, during 1997 with respect to life insurance for the
benefit of the Named Executive Officer.
(3) Includes $37,300, $15,468 and $18,269 paid by the Company to Mr. Grinstead,
Mr. Payne and Dr. Agrawal, respectively, in connection with the surrender
of accrued but unused vacation days during 1997.
(4) Includes $142,188 paid by the Company to Mr. Payne in connection with the
termination of his employment during 1997.
(5) Includes $4,500, $4,277 and $4,488 contributed by the Company on behalf of
Dr. Agrawal pursuant to the Company's 401(k) Plan in 1995, 1996 and 1997
respectively.
(6) Includes $76,017 and $36,938 paid by the Company to Messrs. Grinstead and
Payne, respectively, in lieu of employee benefits in 1997.
(7) Includes $11,364 and $3,134 paid by the Company to Messrs. Grinstead and
Payne, respectively, during 1996 with respect to life insurance for the
benefit of the Named Executive Officer.
8
<PAGE> 11
(8) Includes $32,163, $11,719 and $24,399 paid to Mr. Grinstead, Mr. Payne, and
Dr. Agrawal, respectively, in consideration of the surrender of accrued but
unused vacation days during 1996.
(9) Includes $12,510 and $23,594 paid by the Company to Messrs. Grinstead and
Payne, respectively, in lieu of employee benefits in 1996.
(10) Includes $34,345 and $4,531 paid by the Company to Messrs. Grinstead and
Payne, respectively, during 1995 with respect to life insurance for the
benefit of the Named Executive Officer.
(11) Includes $83,987, $40,719 and $34,023 paid to Mr. Grinstead, Mr. Payne, and
Dr. Agrawal in consideration of the surrender of accrued but unused
vacation days during the period from the commencement of such Named
Executive Officer's employment with the Company through December 31, 1995.
(12) Mr. Payne's employment with the Company terminated as of September 15,
1997.
Employment Agreements
The Company is party to an employment agreement with Mr. Grinstead for the
period commencing July 1, 1996 and ending June 30, 2001. Under this agreement,
Mr. Grinstead is currently entitled to receive an annual base salary of
$375,000. Mr. Grinstead also is eligible to receive (i) a cash bonus each year
related to the attainment of management objectives specified by the Board of
Directors and (ii) additional payments of $16,000 in 1997 and 1998. In the event
Mr. Grinstead's employment is terminated by the Company without cause (as
defined) or by him for good cause (as defined), the Company will pay Mr.
Grinstead during the 24-month period following his termination a monthly amount
equal to one-twelfth of the sum of Mr. Grinstead's annual base salary as of the
date of termination and the average bonus paid to him during the three years
preceding his termination (the "Average Bonus Amount"). The Company also will
continue Mr. Grinstead's benefits for such period, subject to earlier
termination under certain circumstances. If his employment is terminated by the
Company for failure to perform his assigned duties, he will continue to receive
his annual base salary and benefits during the six-month period following such
termination. Notwithstanding the foregoing, in the event that Mr. Grinstead's
employment is terminated for any of the above reasons within 12 months following
a Change in Control (as defined) of the Company, Mr. Grinstead will be entitled
to receive, in lieu of the payments described above, a lump sum payment equal to
300% of the sum of his annual base salary and his Average Bonus Amount.
In accordance with the terms of Mr. Grinstead's previous employment
agreement, the Company loaned $190,000 to Mr. Grinstead in December 1992
pursuant to the terms of a promissory note bearing simple interest at a rate of
6% per year, which originally provided for the payment of principal and all
accrued interest on the earlier of December 23, 1995 or the expiration or
termination of Mr. Grinstead's employment by the Company, but is currently
payable on demand. Such loan remained outstanding as of March 31, 1998, at which
date the total unpaid balance of principal and interest was $250,100.
The Company is party to an employment agreement with Dr. Agrawal for the
period commencing July 1, 1996 and ending June 30, 2000. Under this agreement,
Dr. Agrawal serves as Senior Vice President of Discovery and Chief Scientific
Officer of the Company and is currently entitled to receive an annual base
salary of $250,000. Dr. Agrawal is eligible to receive a cash bonus each year
related to the attainment of management objectives specified by the Chief
Executive Officer and the Board of Directors. In the event Dr. Agrawal's
employment is terminated by the Company without cause (as defined) or by him for
good cause (as defined), the Company will pay Dr. Agrawal during the 24-month
period following his termination a monthly amount equal to one-twelfth of the
sum of Dr. Agrawal's annual base salary as of the date of termination and the
average bonus paid to him during the three years preceding his termination (the
"Average Bonus Amount"). The Company will also continue Dr. Agrawal's benefits
for such period, subject to earlier
9
<PAGE> 12
termination under certain circumstances. If his employment is terminated by the
Company for failure to perform his assigned duties, he will continue to receive
his annual base salary and benefits during the six-month period following such
termination. Notwithstanding the foregoing, in the event that Dr. Agrawal's
employment is terminated for any of the above reasons within 12 months following
a Change in Control (as defined) of the Company, Dr. Agrawal will be entitled to
receive, in lieu of the payments described above, a lump sum payment equal to
300% of the sum of his annual base salary and his Average Bonus Amount.
The employment agreements entered into between the Company and each of Mr.
Grinstead and Dr. Agrawal also provide that all stock options held by any of the
Named Executive Officers (including existing options and options to be granted
in the future) shall include terms providing (i) that in the event that such
Named Executive Officer's employment is terminated by the Company without cause
or by him for good cause the exercisability of such stock options will be
accelerated by two years and such stock options will be exercisable for a
two-year period following termination and (ii) that in the event of certain
changes in control of the Company, its liquidation or the sale of all or
substantially all of its assets, all such stock options not then exercisable
will vest and become immediately exercisable. The Company is also a party to
registration rights agreements with Mr. Grinstead that provide that in the event
the Company proposes to register any of its securities under the Securities Act
of 1933, as amended (the "Securities Act"), at any time, with certain
exceptions, Mr. Grinstead shall be entitled to include the shares of Common
Stock held by him in such registration, subject to the right of the managing
underwriter of any underwritten offering to exclude from such registration for
marketing reasons some or all of such shares. The Company also is a party to
indemnification agreements with Mr. Grinstead pursuant to which the Company has
agreed to indemnify him for certain liabilities, including liabilities arising
under the Securities Act.
Mr. Payne's employment with the Company terminated as of September 15,
1997. The Company is party to an agreement with Mr. Payne regarding the
termination of his employment. Pursuant to this agreement, options to purchase
an aggregate of 62,493 shares of Common Stock were amended to provide for the
acceleration by two years of the exercisability of such options and to extend
the period during which such options may be exercised until the second
anniversary of the termination of Mr. Payne's employment. In addition, under
this agreement, the Company agreed to pay Mr. Payne during the 12-month period
following his termination a monthly amount equal to one-sixth of the sum of Mr.
Payne's annual base salary as of September 15, 1997. Under this agreement, Mr.
Payne agreed to repay a personal loan from the Company in the amount of
$221,521.25 upon his acceptance of employment by a third party, at which time
the remaining severance payments would be applied to the loan balance. As of
March 31, 1998, such loan had been repaid in full and the Company's obligation
to continue making severance payments to Mr. Payne had terminated. The Company
has also agreed to continue Mr. Payne's benefits for a two-year period, subject
to earlier termination under certain circumstances.
Stock options to purchase an aggregate of 261,841 shares of Common Stock
granted to the Named Executive Officers pursuant to the 1990 Plan provide that,
upon a change in control (as defined in the 1990 Plan), all options granted
thereunder will become fully exercisable. In addition, pursuant to the terms of
the employment agreements entered into between the Company and each of the Named
Executive Officers described above (i) in April 1997, stock options to purchase
an aggregate of 130,386 shares of Common Stock granted to the Named Executive
Officers under the Company's 1995 Plan were amended to provide that such options
will become fully exercisable upon a change in control of the Company, and (ii)
all stock options granted to the Named Executive Officers after March 1, 1997
will provide that such options will become fully exercisable upon a change of
control of the Company.
10
<PAGE> 13
Option Grants Table
The following table sets forth certain information concerning grants of
stock options made during fiscal 1997 to each of the Named Executive Officers:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------- POTENTIAL REALIZABLE
PERCENTAGE VALUE AT ASSUMED
OF TOTAL ANNUAL RATES OF STOCK
NUMBER OF OPTIONS EXERCISE PRICE APPRECIATION FOR
SECURITIES GRANTED PRICE OPTIONS TERM(2)
UNDERLYING TO EMPLOYEES PER EXPIRATION ----------------------
OPTIONS GRANTED IN FISCAL YEAR SHARE DATE(1) 5% 10%
--------------- -------------- -------- ---------- -- ---
<S> <C> <C> <C> <C> <C> <C>
E. Andrews Grinstead, III..... 16,806(3) 5.32% $31.25 2/19/07 $330,246 $ 839,959
38,000(4) 12.04 30.00 4/09/07 716,300 1,818,400
12,000(5) 3.80 31.88 5/21/07 240,300 609,900
Sudhir Agrawal................ 7,323(3) 2.30 31.25 2/19/97 142,722 361,707
19,000(4) 6.02 30.00 4/09/07 358,150 908,200
6,000(5) 1.90 31.88 5/21/07 120,150 304,950
Anthony J. Payne.............. 6,316(3) 2.00 31.25 2/19/07 124,113 314,547
19,000(4) 6.02 30.00 4/09/07 358,150 908,200
6,000(5) 1.90 31.88 5/21/07 120,150 304,950
</TABLE>
- ---------------
(1) The expiration date of an option is the tenth anniversary of the date on
which the option was originally granted.
(2) The amounts shown on this table represent hypothetical gains that could be
achieved for the respective options if exercised at the end of the option
term. These gains are based on assumed rates of stock appreciation of 5% and
10%, compounded annually from the date the respective options were granted
to their expiration date. The gains shown are net of the option exercise
price, but do not include deductions for taxes or other expenses associated
with the exercise. Actual gains, if any, on stock option exercises will
depend on the future performance of the Common Stock, the optionholders'
continued employment through the option period, and the date on which the
options are exercised. As of March 31, 1998, the last sale price of Common
Stock of the Company was significantly lower than the exercise price of the
options reflected in this table.
(3) These stock options are immediately exercisable with respect to 40% of the
shares covered thereby and will become exercisable with respect to the
remaining 60% of the shares covered thereby in three equal installments in
arrears commencing on February 19, 1999.
(4) These stock options are immediately exercisable with respect to 40% of the
shares covered thereby and will become exercisable with respect to the
remaining 60% of the shares covered thereby in three equal installments in
arrears commencing on April 9, 1999.
(5) These stock options are immediately exercisable with respect to 20% of the
shares covered thereby and will become exercisable with respect to the
remaining 80% of the shares covered thereby in four equal annual
installments in arrears commencing on May 21, 1998.
11
<PAGE> 14
Aggregated Option Exercises and Year-End Option Table
The following table sets forth certain information concerning each exercise
of a stock option during fiscal 1997 by each of the Named Executive Officers and
the number and value of unexercised options held by each of the Named Executive
Officers on December 31, 1997:
AGGREGATED OPTION EXERCISES IN LAST
FISCAL YEAR AND FISCAL YEAR-END
OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
SHARES UNEXERCISED
UNDERLYING IN THE MONEY
OPTIONS AT OPTIONS AT FISCAL
FISCAL YEAR-END YEAR-END(1)
--------------- -----------------
EXERCISABLE/ EXERCISABLE/
UNEXERCISABLE UNEXERCISABLE
--------------- -----------------
<S> <C> <C>
E. Andrews Grinstead, III....................... 191,874/71,445 $ --/--
Anthony J. Payne(2)............................. 70,592/40,053 --/--
Sudhir Agrawal.................................. 80,453/37,811 17,500/--
</TABLE>
- ---------------
(1) The closing price for the Common Stock as reported by The Nasdaq OTC
Bulletin Board on December 31, 1997 (the last day of trading) in 1997 was
$3.00. Value is calculated on the basis of the difference between the option
exercise price and $3.00, multiplied by the number of shares of Common Stock
underlying the option.
(2) Mr. Payne's employment with the Company terminated as of September 15, 1997.
Report of the Board of Directors on Executive Compensation
The Company's Board of Directors is responsible for establishing
compensation policies with respect to the Company's executive officers,
including the Chief Executive Officer and the other executive officers named in
the Summary Compensation Table, and setting the compensation for these
individuals.
The Board of Directors seeks to achieve three broad goals in connection
with the Company's executive compensation programs and decisions regarding
individual compensation. First, the Board of Directors structures executive
compensation programs in a manner that it believes will enable the Company to
attract and retain key executives. In order to ensure continuity of certain key
members of management, the Board of Directors has historically approved
multi-year employment contracts for its executives. Second, the Board of
Directors establishes compensation programs that are designed to reward
executives for the achievement of business objectives of the Company and/or the
individual executive's particular area of responsibility. By linking
compensation in part to achievement, the Board of Directors believes that a
performance-oriented environment is created for the Company's executives.
Finally, the Company's executive compensation programs are intended to provide
executives with an equity interest in the Company so as to link a portion of the
compensation of the Company's executives with the performance of the Company's
Common Stock.
The compensation programs for the Company's executives established by the
Board of Directors consist of three elements based upon the foregoing
objectives: base salary; annual cash bonus; and a stock-based equity incentive
in the form of participation in the Company's stock option plans. In early 1996,
the Board of Directors engaged and consulted with an independent compensation
consultant with respect to adjustments in the base salaries of the Company's
executives for 1996 and stock option grants in 1996. Such consultant also
advised the Board of Directors as to the terms of the new multi-year employment
agreements entered into with the Company's executives upon the expiration of
their previous agreements.
12
<PAGE> 15
In establishing base salaries for the executive officers, including the
Chief Executive Officer, which base salaries have been fixed in the executive
officers' employment agreements, the Board of Directors monitors salaries at
other companies, particularly those that are in the same industry as the Company
or related industries and/or located in the same general geographic area as the
Company, considers historic salary levels of the individual and the nature of
the individual's responsibilities and compares the individual's base salary with
those of other executives at the Company. The Board of Directors also considers
the challenges involved in retaining first-rate managerial personnel in the
antisense field because of the new nature of this technology. To the extent
determined to be appropriate, the Board of Directors also considers general
economic conditions, the Company's financial performance and the individual's
performance.
The Board of Directors did not consider cash bonuses for 1997 due to the
Company's cash position.
The Board of Directors uses stock options as a significant element of the
compensation package of the Company's executive officers, including the Chief
Executive Officer, because they provide an incentive to executives to maximize
stockholder value and because they reward the executives only to the extent that
stockholders also benefit. It is not the policy of the Board of Directors,
however, to grant stock options to executives annually, and the timing of such
grants depends upon a number of factors, including new hires of executives, the
executives' current stock and option holdings and such other factors as the
Board of Directors deems relevant. In granting stock options in 1997 to the
Company's executives, the Board of Directors considered a variety of factors,
including the Company's accomplishments in the areas of product development and
enhancement of the Company's patent and licensing position. In addition, the
grant of stock options to Mr. Grinstead in 1997 was based on the Board of
Directors' judgment as to the leadership role Mr. Grinstead played with respect
to these accomplishments. When granting stock options, it has generally been the
policy of the Board of Directors to fix the exercise price of such options at
100% of the fair market value of the Common Stock on the date of grant.
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), enacted in 1993, generally disallows a tax deduction to public
companies for compensation over $1,000,000 paid to its chief executive officer
and its four other most highly compensated executive officers. Qualifying
performance-based compensation will not be subject to the deduction limit if
certain requirements are met. In this regard, the Company has limited the number
of shares subject to stock options which may be granted to Company employees in
a manner that complies with the performance-based requirements of Section
162(m). Based on the compensation awarded to Mr. Grinstead and the other
executive officers of the Company, it does not appear that the Section 162(m)
limitation will have a significant impact on the Company in the near term. While
the Committee does not currently intend to qualify its incentive awards as a
performance-based plan, it will continue to monitor the impact of Section 162(m)
on the Company.
BOARD OF DIRECTORS
Sudhir Agrawal
Mohamed El-Khereiji
Youssef El-Zein
E. Andrews Grinstead III
Nasser Menhall
James B. Wyngaarden
Paul C. Zamecnik
13
<PAGE> 16
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Board of Directors does not currently have a compensation committee.
The Board of Directors as a whole, including Mr. Grinstead and Dr. Agrawal, who
are employees of the Company, perform equivalent functions. None of the
directors or executive officers of the Company had any "interlock" relationships
to report during the Company's fiscal year ended December 31, 1997.
Since January 1, 1997, the Company has entered into or engaged in certain
transactions with Pillar S.A., Pillar Limited, Pillar Investment Ltd. and
Charles River Building Limited Partnership (the "Cambridge Landlord"), entities
of which Messrs. El-Zein and Menhall are affiliates. See "Certain Transactions."
CERTAIN TRANSACTIONS
Since January 1, 1997, the Company has entered into or engaged in the
following transactions with the following directors, officers, stockholders who
beneficially own more than 5% of the outstanding Common Stock of the Company
("5% Stockholders") and affiliates or immediate family members of such
directors, officers and 5% Stockholders.
Transactions with Pillar S.A. and Certain of its Affiliates
Since January 1, 1997, the Company has entered into or engaged in certain
transactions with Pillar S.A., Pillar Investment Ltd., Pillar Limited and the
Cambridge Landlord. Pillar S.A., Pillar Investment Ltd. and Pillar Limited are
affiliates of Messrs. El-Zein and Menhall, two directors of the Company. The
Cambridge Landlord is an affiliate of Messrs. El-Zein and Menhall and Mr.
El-Khereiji, a third director of the Company. The following is a summary of
these transactions.
In 1997, the Company was a party to a consulting agreement (the "1994
Pillar Consulting Agreement") with Pillar S.A., dated as of March 1, 1994,
pursuant to which Pillar S.A. provided the Company with financial advisory and
managerial services in connection with the Company's overseas operations,
including support services in connection with contracts and agreements. Under
the terms of the 1994 Pillar Consulting Agreement, the Company paid Pillar S.A.
continuing consulting fees of $60,000 per month and $23,000 per month for
overhead costs, and reimbursement of certain authorized out-of-pocket expenses.
The 1994 Pillar Consulting Agreement expired on February 28, 1998.
Pursuant to the 1994 Pillar Consulting Agreement, the Company issued to
Pillar S.A. two five-year warrants to purchase an aggregate of 40,000 shares of
Common Stock of the Company.
On July 8, 1995, the Company entered into an additional agreement (the
"Pillar Europe Agreement") with Pillar S.A. pursuant to which Pillar S.A. agreed
to provide to the Company certain consulting, advisory and related services (in
addition to the services to be provided pursuant to the 1994 Pillar Consulting
Agreement) and serve as the Company's exclusive agent in connection with
potential corporate partnerships in Europe and as a non- exclusive placement
agent of the Company in connection with private placements of securities of the
Company for a period of two years. On November 1, 1995, the Pillar Europe
Agreement was amended to provide that (i) Pillar S.A. would cease to serve as
the Company's exclusive agent in connection with potential corporate
partnerships in Europe, but would continue to serve as a non-exclusive agent in
such respect, (ii) Pillar S.A. would receive a retainer of $26,470 per month for
the balance of the term of the Pillar Europe Agreement (April 1, 1997), (iii)
the fees set forth in the Pillar Europe Agreement would only be payable to
Pillar S.A. in connection with potential collaborations with any French
pharmaceutical company with which the Company engaged in discussions during the
12-month period ended November 1, 1995 as a result of introductions by Pillar
S.A. and (iv) any compensation payable to Pillar S.A. in connection with its
services with respect to other corporate collaborations or any placements of
securities would be negotiated on a
14
<PAGE> 17
case-by-case basis and would be subject to the approval of the independent
members of the Board of Directors of the Company. The Pillar Europe Agreement
expired on April 1, 1997.
During the year ended December 31, 1997, the Company paid Pillar S.A. an
aggregate of $903,267 under the 1994 Pillar Consulting Agreement and the Pillar
Europe Agreement, as amended. In addition, as of May 7, 1998, the Company issued
150,000 shares of common stock and will issue warrants to purchase 37,500 shares
of common stock of the Company exercisable at $2.40 per share and expiring on
May 4, 2003 in lieu of cash in full satisfaction of the outstanding amounts due
under the Pillar Consulting Agreement and the Pillar Europe Agreement.
The Company has retained Pillar Investments as a placement agent of the
Company in connection with a private placement of securities of the Company
outside the United States (the "Offshore Offering"). Pillar Investments is
entitled to receive fees consisting of (i) 9% of the gross proceeds of such
Offshore Offering and (ii) a non-accountable expense allowance equal to 4% of
such gross proceeds. Through the date hereof, Pillar Investments has received
$1,635,400 pursuant to these arrangements. As of the date hereof, the Company
and Pillar Investments have not completed their negotiations in respect of
Pillar Investments' compensation as placement agent. However, the following
arrangements have been agreed to in principle, subject to the execution of
definitive documentation: (a) Pillar Investments is entitled to purchase, for
nominal consideration, warrants to purchase such number of shares of the Common
Stock of the Company equal to 10% of the aggregate number of shares of Common
Stock sold in the Offshore Offering (including shares of Common Stock issued in
exchange for Units which included 1998 Unit Notes (such Units being referred to
herein as the "Note Units")), exercisable at $2.40 per share and expiring on May
4, 2003, and (b) the Company and Pillar Investments will enter into an advisory
agreement (the "Financial Advisory Agreement") pursuant to which Pillar
Investments shall act as the Company's non-exclusive financial advisor, which
agreement will provide that Pillar Investments receive a monthly retainer of
$5,000 (minimum engagement of 24 months beginning on May 5, 1998), and be
entitled to receive out-of-pocket expenses, a consulting/restructuring fee of
$960,000 payable in Common Stock of the Company valued at the market price and
payable in three equal installments as net proceeds of $25,000,000, $30,000,000
and $35,000,000 are received in the Offshore Offering, the right to purchase,
for nominal consideration, warrants to purchase such number of shares of Common
Stock equal to 15% of the number of shares of Common Stock included in units
received by purchasers who exchanged such Note Units for units consisting of
Common Stock and warrants, at a per share exercise price of $2.40, and certain
cash and equity success fees in the event Pillar Investments assists the Company
in connection with certain financial and strategic transactions.
The Company is a party to a lease (the "Cambridge Lease") with the
Cambridge Landlord dated as of February 4, 1994. The Cambridge Lease covers
approximately 91,500 square feet of space in Cambridge, Massachusetts, has an
initial term of fifteen years commencing on February 1, 1997, and may be
extended for three additional five-year terms at the option of the Company. The
Cambridge Lease originally provided for an annual rent equal to $30 per square
foot on a triple net basis for the first five years, $33 per square foot on a
triple net basis for the next five years and the greater of $30 per square foot
on a triple net basis or the then market value of leased property for each of
the five-year renewal terms. In connection with the Company's election to
acquire an interest in the Cambridge Landlord described below, the annual rent
due under the Cambridge Lease was increased for the first five years of the
lease term to $38 per square foot on a triple net basis and for the second five
years to $42 per square foot on a triple net basis and for the third five years
to $47 per square foot on a triple net basis.
On July 1, 1996, the Company elected to fund approximately $5.5 million of
the costs (primarily relating to tenant improvements) of the construction of the
leased premises through contributions to the capital of the Cambridge Landlord
in exchange for a limited partnership interest in the Cambridge Landlord (the
"Partnership Interest"). The Partnership Interest entitles the Company to an
approximately 32% interest in the Cambridge Landlord. Hybridon's right to
receive distributions of cash generated from operations or from
15
<PAGE> 18
any sale or refinancing of the property is subordinate to the distribution to
certain other limited partners of priority amounts currently totaling
approximately $6.5 million. In the case of a sale or refinancing of the
property, after payment of the priorities described in the immediately preceding
sentence, Hybridon is entitled to a return of its capital contribution and,
thereafter, to its pro rata share of the remaining funds available for
distribution. The Company also has the right, for a period of three years ending
February 2000, to sell the Partnership Interest back to certain limited partners
of the Cambridge Landlord for a price equal to the greater of (i) the aggregate
cash contribution made by Hybridon to the Cambridge Landlord or (ii) the fair
market value of the Partnership Interest at the time. The assets of these
limited partners are limited to their investment in the Cambridge Landlord.
In 1997, the Company had on deposit with Bank Fur Vermogensanlagen Und
Handel ("BVH") the amount of $1,034,618. In November, 1997, German banking
authorities imposed a moratorium on BVH and closed BVH for business. Pursuant to
an agreement dated November 28, 1998, the Cambridge Landlord has agreed to
assume the risk for the BVH deposit and to pay to the Company the amount of
$75,000 a month after each rent payment under the Cambridge Lease is made until
such time as $1,000,000 has been paid to the Company or the BVH deposit is
released. The Company will reimburse the Cambridge Landlord for any cash
received under this agreement, up to the amount realized by the Company from the
final settlement of the BVH deposit, after the moratorium is lifted. As of March
31, 1998, the Cambridge Landlord had paid $250,000 to the Company under this
agreement.
The Company was a party to a lease (the "Paris Lease") with a third party
dated March 23, 1994 for approximately 1,800 square feet of space in Paris,
France. The Company's obligations under the Paris Lease were guaranteed by
Pillar S.A. Effective March 31, 1998, the Company terminated the Paris Lease.
Other Transactions
Certain persons and entities (the "Rightsholders"), including Dr. Zamecnik,
Pillar S.A., Pillar Limited, Intercity Holdings, Mr. Bin Laden and Nicris, are
entitled to certain rights with respect to the registration under the Securities
Act of certain shares of the Company's Common Stock (the "Registrable Shares"),
including shares of Common Stock that may be acquired pursuant to the exercise
of options or warrants, under the terms of agreements among the Company and the
Rightsholders (the "Registration Agreements"). The Registration Agreements
generally provide that in the event the Company proposes to register any of its
securities under the Securities Act at any time, with certain exceptions, the
Rightsholders shall be entitled to include Registrable Shares in such
registration, subject to certain conditions and limitations. Certain
Rightsholders, including Pillar S.A., Pillar Limited, Intercity Holdings, Mr.
Bin Laden and Nicris, but excluding, among others, Dr. Zamecnik, have the
additional right under certain Registration Agreements to require the Company to
prepare and file registration statements under the Securities Act, if such
Rightsholders holding specified percentages of the Registrable Shares so
request, and the Company is required to use its best efforts to effect such
registration, subject to certain conditions and limitations.
For a description of certain employment and other arrangements between the
Company and its executive officers, see "Compensation of Executive Officers"
above. For a description of stock options granted to certain directors of the
Company, see "Director Compensation" above.
The Company believes that the terms of the transactions described above
were no less favorable than the Company could have obtained from unaffiliated
third parties.
16
<PAGE> 19
COMPARATIVE STOCK PERFORMANCE
The comparative stock performance graph below compares the cumulative
stockholder return on the Company's Common Stock for the period from January 25,
1996 (the effective date of the initial public offering of the Company's Common
Stock) through December 31, 1997 with the cumulative total return on (i) the
Nasdaq Market Index and (ii) a peer group index (the "SIC Code Index") selected
by the Company which is comprised of the 90 publicly traded companies, including
the Company, that are currently grouped under the Standard Industrial Code
pertaining to businesses engaged in the manufacture or development of biological
products other than diagnostic substances (assuming the investment of $100 in
the Company's Common Stock, the Nasdaq Market Index and the SIC Code Index on
January 25, 1996 and reinvestment of all dividends). Measurement points are on
January 25, 1996, December 31, 1996, March 31, 1997, June 30, 1997, September
30, 1997 and the last trading day of the year ended December 31, 1997. Prior to
January 25, 1996, the Company's Common Stock was not registered under the
Exchange Act.
<TABLE>
<CAPTION>
Measurement Period Hybridon Nasdaq SIC Code
(Fiscal Year Covered) Inc Market Index Index
<S> <C> <C> <C>
1/25/96 100 100 100
12/31/96 55.95 120.16 94.51
3/31/97 61.90 114.05 92.97
6/30/97 47.62 134.93 98.04
9/30/97 18.45 157.31 103.41
12/31/97 5.71 147.40 101.64
</TABLE>
PROPOSAL 2 -- APPROVAL OF AMENDMENT TO 1997 STOCK INCENTIVE PLAN
The Board of Directors believes that the continued growth and profitability
of the Company depends, in large part, upon the ability of the Company to
maintain a competitive position in attracting, retaining and motivating key
personnel. As of March 31,1998, 563,280 shares were available for future Awards
under the Company's 1997 Plan and 187,903 shares remain available for stock
option grants under the Company's 1995 Plan. Accordingly, on April 30, 1997, the
Board of Directors authorized, subject to shareholder approval, an amendment to
the 1997 Plan that increases from 600,000 (after taking into account the
five-for-one reverse stock split of the Company's Common Stock effected in
December 1997) to 4,500,000 (the "New Maximum Shares") the number of shares of
Common Stock available for issuance under the 1997 Plan (subject to a
17
<PAGE> 20
proportionate adjustment for certain changes in the Company's capitalization,
such as a stock split) and increases the number of shares with respect to which
an Award may be granted to any participant under the 1997 Plan per calendar year
from 100,000 (after taking into account the reverse stock split referred to
above) to 500,000 (which represents the same number of shares which could have
been granted before such reverse stock split). The New Maximum Shares equal
approximately 14% of the sum of the total number of shares of Common Stock
outstanding as of May 7, 1998 plus the total number of shares of Common Stock
which would be issuable upon conversion of all Series A Preferred Stock of the
Company issued or issuable (including shares of Common Stock underlying Series A
Preferred Stock to be issued as dividends on such Series A Preferred Stock over
the next two years) as of May 7, 1998. Such percentage is approximately 15%,
excluding the effect of dividends on the Series A Preferred Stock.
The following is a summary of the material provisions of the 1997 Plan:
DESCRIPTION OF AWARDS
The 1997 Plan provides for the grant of options that are intended to
qualify as incentive stock options within the meaning of Section 422 of the Code
("incentive stock options"), options not intended to qualify as incentive stock
options ("nonstatutory stock options"), restricted stock awards and other
stock-based awards, including the grant of shares based upon certain conditions,
the grant of securities convertible into Common Stock and the grant of stock
appreciation rights (collectively "Awards").
Incentive Stock Options and Nonstatutory Stock Options
Optionees receive the right to purchase a specified number of shares of
Common Stock at some time in the future at a specified option price and subject
to such other terms and conditions as are specified in connection with the
option grant. Options may be granted at an exercise price which may be less
than, equal to or greater than the fair market value of the Common Stock on the
date of grant. Under present law, however, incentive stock options and options
intended to qualify as performance-based compensation under Section 162(m) of
the Code may not be granted at an exercise price less than the fair market value
of the Common Stock on the date of grant (or less than 110% of the fair market
value in the case of incentive stock options granted to optionees holding 10% or
more of the voting power of the Company). The 1997 Plan permits the Board of
Directors to determine the manner of payment of the exercise price of options,
including through payment by cash, check or in connection with a "cashless
exercise" through a broker, by surrender to the Company of shares of Common
Stock, by delivery to the Company of a promissory note, or by any other lawful
means.
Restricted Stock Awards
Restricted Stock Awards entitle recipients to acquire shares of Common
Stock, subject to the right of the Company to repurchase all or part of such
shares from the recipient in the event that the conditions specified in the
applicable Award are not satisfied prior to the end of the applicable
restriction period established for such Award.
Other Stock-Based Awards
Under the 1997 Plan, the Board has the right to grant other Awards based
upon the Common Stock having such terms and conditions as the Board may
determine, including the grant of shares based upon certain conditions, the
grant of securities convertible into Common Stock and the grant of stock
appreciation rights.
18
<PAGE> 21
ELIGIBILITY TO RECEIVE AWARDS
Officers, employees, directors, consultants and advisors of the Company and
its subsidiaries are eligible to be granted Awards under the 1997 Plan. Under
present law, however, incentive stock options may only be granted to employees.
The maximum number of shares with respect to which an Award may be granted to
any participant under the 1997 Plan may not exceed 100,000 (after taking into
account the reverse stock split referred to above) shares per calendar year.
As of March 31, 1998, approximately 100 persons were eligible to receive
Awards under the 1997 Plan, including all of the Company's employees and
consultants, and the Company's two executive officers and five non-employee
directors. The granting of Awards under the 1997 Plan is discretionary, and the
Company cannot now determine the number or type of Awards to be granted in the
future to any particular person or group.
ADMINISTRATION
The 1997 Plan is administered by the Board of Directors. The Board has the
authority to adopt, amend and repeal the administrative rules, guidelines and
practices relating to the 1997 Plan and to interpret the provisions of the 1997
Plan. Pursuant to the terms of the 1997 Plan, the Board of Directors may
delegate authority under the 1997 Plan to one or more committees of the Board,
and subject to certain limitations, to one or more executive officers of the
Company. Subject to any applicable limitations contained in the 1997 Plan, the
Board of Directors, or any committee or executive officer to whom the Board
delegates authority, as the case may be, selects the recipients of Awards and
determines (i) the number of shares of Common Stock covered by options and the
dates upon which such options become exercisable, (ii) the exercise price of
options, (iii) the duration of options, and (iv) the number of shares of Common
Stock subject to any restricted stock or other stock-based Awards and the terms
and conditions of such Awards, including conditions for repurchase, issue price
and repurchase price.
The Board of Directors is required to make appropriate adjustments in
connection with the 1997 Plan and any outstanding Awards to reflect stock
dividends, stock splits and certain other events. In the event of a merger,
liquidation or other Acquisition Event (as defined in the 1997 Plan), the 1997
Plan provides that the vesting of all outstanding Options or other stock-based
Awards will accelerate, making them fully exercisable prior to or upon
consummation of the Acquisition Event.
If any Award expires or is terminated, surrendered, canceled or forfeited,
the unused shares of Common Stock covered by such Award will again be available
for grant under the 1997 Plan.
AMENDMENT OR TERMINATION
No Award may be made under the 1997 Plan after March 20, 2007, but Awards
previously granted may extend beyond that date. The Board of Directors may at
any time amend, suspend or terminate the 1997 Plan, except that no outstanding
Award designated as subject to Section 162(m) of the Code by the Board of
Directors after the date of such amendment shall become exercisable, realizable
or vested (to the extent such amendment was required to grant such Award) unless
and until such amendment shall have been approved by the Company's stockholders.
FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the United States federal income tax
consequences that generally will arise with respect to Awards granted under the
1997 Plan and with respect to the sale of Common Stock acquired under the 1997
Plan.
19
<PAGE> 22
Incentive Stock Options
In general, a participant will not recognize taxable income upon the grant
or exercise of an incentive stock option. Instead, a participant will recognize
taxable income with respect to an incentive stock option only upon the sale of
Common Stock acquired through the exercise of the option ("ISO Stock"). The
exercise of an incentive stock option may, however, subject the participant to
the alternative minimum tax. Generally, the tax consequences of selling ISO
Stock will vary with the length of time that the participant has owned the ISO
Stock at the time it is sold. If the participant sells ISO Stock after having
owned it for at least two years from the date the option was granted (the "Grant
Date") and one year from the date the option was exercised (the "Exercise
Date"), then the participant will recognize long-term capital gain in an amount
equal to the excess of the sale price of the ISO Stock over the exercise price.
If the participant sells ISO Stock for more than the exercise price prior
to having owned it for at least two years from the Grant Date and one year from
the Exercise Date (a "Disqualifying Disposition"), then all or a portion of the
gain recognized by the participant will be ordinary compensation income and the
remaining gain, if any, will be a capital gain. This capital gain will be a
long-term capital gain if the participant has held the ISO Stock for more than
one year prior to the date of sale.
If a participant sells ISO Stock for less than the exercise price, then the
participant will recognize capital loss equal to the excess of the exercise
price over the sale price of the ISO Stock. This capital loss will be a
long-term capital loss if the participant has held the ISO Stock for more than
one year prior to the date of sale.
Nonstatutory Stock Options
As in the case of an incentive stock option, a participant will not
recognize taxable income upon the grant of a nonstatutory stock option. Unlike
the case of an incentive stock option, however, a participant who exercises a
nonstatutory stock option generally will recognize ordinary compensation income
in an amount equal to the excess of the fair market value of the Common Stock
acquired through the exercise of the option ("NSO Stock") on the Exercise Date
over the exercise price.
With respect to any NSO Stock, a participant will have a tax basis equal to
the exercise price plus any income recognized upon the exercise of the option.
Upon selling NSO Stock, a participant generally will recognize capital gain or
loss in an amount equal to the excess of the sale price of the NSO Stock over
the participant's tax basis in the NSO Stock. This capital gain or loss will be
a long-term gain or loss if the participant has held the NSO stock for more than
one year prior to the date of the sale.
Restricted Stock Awards
A participant will not recognize taxable income upon the grant of a
restricted stock Award, unless the participant makes an election under Section
83(b) of the Code (a "Section 83(b) Election"). If the participant makes a
Section 83(b) Election within 30 days of the date of the grant, then the
participant will recognize ordinary income, for the year in which the Award is
granted, in an amount equal to the difference between the fair market value of
the Common Stock at the time the Award is granted and the purchase price paid
for the Common Stock. If a Section 83(b) Election is not made, the participant
will recognize ordinary income, at the time that the forfeiture provisions or
restrictions on transfer lapse, in an amount equal to the difference between the
fair market value of the Common Stock at the time of such lapse and the original
purchase price paid for the Common Stock. The participant will have a basis in
the Common Stock acquired equal to the sum of the price paid and the amount of
ordinary compensation income recognized.
Upon the disposition of the Common Stock acquired pursuant to a restricted
stock Award, the participant will recognize a capital gain or loss equal to the
difference between the sale price of the Common Stock and the participant's
basis in the Common Stock. The gain or loss will be a long-term gain or loss if
the shares are
20
<PAGE> 23
held for more than one year. For this purpose, the holding period shall begin
just after the date on which the forfeiture provisions or restrictions lapse if
a Section 83(b) Election is not made, or just after the Award is granted if a
Section 83(b) Election is made.
Other Stock-Based Awards
The tax consequences associated with any other stock-based Award granted
under the 1997 Plan will vary depending on the specific terms of such Award,
including whether or not the Award has a readily ascertainable fair market
value, whether or not the Award is subject to forfeiture provisions or
restrictions on transfer, the nature of the property to be received by the
participant under the Award, the applicable holding period and the participant's
tax basis.
Tax Consequences to the Company
The grant of an Award under the 1997 Plan will have no tax consequences to
the Company. Moreover, in general, neither the exercise of an incentive stock
option nor the sale of any Common Stock acquired under the 1997 Plan will have
any tax consequences to the Company. The Company generally will be entitled to a
business-expense deduction, however, with respect to any ordinary compensation
income recognized by a participant under the 1997 Plan, including as a result of
the exercise of a nonstatutory stock option, a Disqualifying Disposition or a
Section 83(b) Election. Any such deduction will be subject to the limitations of
Section 162(m) of the Code. The Company will have a withholding obligation with
respect to any ordinary compensation income recognized by participants under the
1997 Plan who are employees or otherwise subject to withholding in connection
with the exercise of a nonstatutory stock option or a Section 83(b) Election.
BOARD RECOMMENDATION
The Board of Directors believes that the Amendment to the 1997 Stock
Incentive Plan is in the best interests of the Company and its stockholders and
therefore recommends that the stockholders vote FOR this proposal.
PROPOSAL 3 -- RATIFICATION OF THE SELECTION OF AUDITORS
The Board of Directors has selected Arthur Andersen LLP as auditors of the
Company for the year ending December 31, 1998, subject to ratification by
stockholders at the Meeting. If the stockholders do not ratify the selection of
Arthur Andersen LLP, the Board of Directors will reconsider the matter. A
representative of Arthur Andersen LLP, which served as auditors for the year
ended December 31, 1997, is expected to be present at the Meeting to respond to
appropriate questions, and to make a statement if he or she so desires.
STOCKHOLDER PROPOSALS FOR 1999 ANNUAL MEETING
Any proposal that a stockholder intends to present at the 1999 Annual
Meeting of Stockholders must be submitted to the Secretary of the Company at its
offices, 620 Memorial Drive, Cambridge, Massachusetts 02139, no later than
January 18, 1999 in order to be considered for inclusion in the Proxy Statement
relating to that meeting.
OTHER MATTERS
The Board of Directors knows of no other business which will be presented
for consideration at the Meeting other than that described above. However, if
any other business should come before the Meeting, it is
21
<PAGE> 24
the intention of the persons named in the enclosed Proxy to vote, or otherwise
act, in accordance with their best judgment on such matters.
The Company will bear the costs of soliciting proxies. In addition to
solicitations by mail, the Company's directors, officers and regular employees
may, without additional remuneration, solicit proxies by telephone, telegraph,
facsimile and personal interviews. The Company will also request brokerage
houses, custodians, nominees and fiduciaries to forward copies of the proxy
material to those persons for whom they hold shares and request instructions for
voting the Proxies. The Company will reimburse such brokerage houses and other
persons for their reasonable expenses in connection with this distribution.
THE BOARD OF DIRECTORS HOPES THAT STOCKHOLDERS WILL ATTEND THE MEETING.
WHETHER OR NOT YOU PLAN TO ATTEND, YOU ARE URGED TO COMPLETE, DATE, SIGN AND
RETURN THE ENCLOSED PROXY IN THE ACCOMPANYING ENVELOPE. PROMPT RESPONSE WILL
GREATLY FACILITATE ARRANGEMENTS FOR THE MEETING AND YOUR COOPERATION IS
APPRECIATED. STOCKHOLDERS WHO ATTEND THE MEETING MAY VOTE THEIR STOCK PERSONALLY
EVEN THOUGH THEY HAVE SENT IN THEIR PROXIES.
By Order of the Board of Directors,
E. ANDREWS GRINSTEAD, III, Secretary
May 15, 1998
22
<PAGE> 25
This Proxy when properly executed will be voted in the Please mark [X]
manner directed by the undersigned stockholder(s). If no your votes as
other indication is made, the proxies shall vote "For" indicated in
proposal numbers 1, 2 and 3. this example
1) Election of Class III Directors.
Nominees: Sudhir Agrawal, Youssef El-Zein and E. Andrews Grinstead, III.
For
All If you do not wish your shares voted "FOR" a
FOR Withhold Except particular nominee, mark the "For All Except"
[ ] [ ] [ ] box and strike a line through the nominee(s)
name. Your shares will be voted for the
remaining nominee(s).
2) Approval of the amendment to the Company's 1997 Stock Incentive Plan.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3) Ratification of selection of Arthur Andersen LLP as independent auditors of
the Company for the current year.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
A vote FOR the director nominees and FOR proposal numbers 2 and 3 is recommended
by the Board of Directors.
Mark this box [ ] if comments or address change have been noted on the reverse
side of this card.
Please be sure to sign and date this Proxy.
Please sign this proxy exactly as your
name appears hereon. Joint owners should
each sign personally. Trustees and other
fiduciaries should indicate the capacity
in which they sign. If a corporation or
partnership, this signature should be
that of an authorized officer who should
state his or her title.
Date:
-------------------------------------
-------------------------------------------
Stockholder sign here Co-owner sign here
PLEASE VOTE, DATE AND SIGN ON OTHER SIDE AND
RETURN PROMPTLY IN ENCLOSED ENVELOPE.
- -------------------------------------------------------------------------------
*FOLD AND DETACH HERE*
HYBRIDON, INC.
<PAGE> 26
Dear Stockholder:
Please take note of the important information enclosed with this Proxy Ballot.
There are a number of issues related to the management and operation of your
Company that require your immediate attention and approval. These are discussed
in the enclosed proxy materials.
Your vote counts, and you are strongly encouraged to exercise your right to vote
your shares.
Please mark the boxes on the proxy card to indicate how your shares shall be
voted. Then sign and date the card, detach it and return your proxy vote in the
enclosed postage paid envelope.
Your vote must be received prior to the Annual Meeting of Stockholders to be
held on June 15, 1998.
Thank you in advance for your prompt consideration of these matters.
Sincerely,
Hybridon, Inc.
HYBRIDON, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
Annual Meeting of Stockholders - June 15, 1998
Those signing on the reverse side, revoking prior proxies, hereby appoint(s) E.
Andrews Grinstead, III, Robert G. Andersen and Cheryl M. Northrup, or each or
any of them with full power of substitution, as proxies for those signing on the
reverse side to act and vote all shares of stock of Hybridon, Inc. (the
"Company") which the undersigned would be entitled to vote if personally present
at the 1998 Annual Meeting of Stockholders of the Company and at any
adjournments thereof as indicated upon all matters referred to on the reverse
side and described in the Proxy Statement for the Meeting, and, in their
discretion, upon any other matters which may properly come before the Meeting.
Attendance of the undersigned at the Meeting or at any adjournment thereof will
not be deemed to revoke this proxy unless those signing on the reverse side
shall revoke this proxy in writing.
HAS YOUR ADDRESS CHANGED? DO YOU HAVE ANY COMMENTS?
- --------------------------------- ---------------------------------
- --------------------------------- ---------------------------------
- --------------------------------- ---------------------------------
- --------------------------------------------------------------------------------
*FOLD AND DETACH HERE*
