SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13E-4
ISSUER TENDER OFFER STATEMENT
(PURSUANT TO SECTION 13(E)(1) OF THE
SECURITIES EXCHANGE ACT OF 1934)
HYBRIDON, INC.
(NAME OF ISSUER AND PERSON FILING STATEMENT)
9% CONVERTIBLE SUBORDINATED NOTES DUE 2004
(TITLE OF EACH CLASS OF SECURITIES)
44860M-AA-6; -AB-4; -AC-2; -AD-0; -AE-8; -AF-5
(CUSIP NUMBERS OF EACH CLASS OF SECURITIES)
E. ANDREWS GRINSTEAD, III
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
620 MEMORIAL DRIVE
CAMBRIDGE, MA 02139
(617) 528-7000
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED
TO RECEIVE NOTICES AND COMMUNICATIONS ON BEHALF OF THE
PERSON FILING STATEMENT)
With Copy to:
MONICA C. LORD, ESQ.
KRAMER, LEVIN, NAFTALIS & FRANKEL
919 THIRD AVENUE
NEW YORK, NEW YORK 10022
(212) 715-9100
FEBRUARY 6, 1998
(DATE TENDER OFFER FIRST PUBLISHED, SENT OR GIVEN TO SECURITY HOLDERS)
CALCULATION OF FILING FEE
TRANSACTION VALUATION (1) AMOUNT OF FILING FEE (2)
- ------------------------- ------------------------
$51,594,664 $10,319
(1) Solely for the purpose of calculating the filing fee and, as computed
pursuant to Section 13(e)(3) of the Securities Exchange Act of 1934, as amended,
and Rule 0-11(b)(1) thereunder, the transaction value equals the aggregate
principal amount of and accrued but unpaid interest on the securities proposed
to be exchanged pursuant to the Offer described in the Offer to Exchange filed
as an Exhibit hereto.
(2) Represents 1/50th of 1% of the transaction value as calculated above.
[_] Check box if any part of the fee is offset as provided by Rule 0-11(a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the Form or
Schedule and the date of its filing.
Amount Previously Paid: Filing Party:
------------- ----------------------
Form or Registration No.: Date Filed:
----------- ----------------------
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ITEM 1. SECURITY AND ISSUER.
(a) Incorporated herein by reference to the information appearing under
the caption "Certain Information Concerning Hybridon" in the Offer to
Exchange, dated February 6, 1998, filed as Exhibit 9(a)(1) to this
Issuer Tender Offer Statement on Schedule 13E-4 (the "Offer to
Exchange").
(b) Incorporated herein by reference to the information appearing on
the front cover of the Offer to Exchange, and to the information
appearing under the captions "Introduction," "Terms of the
Offer--Amount of Notes; Consideration; Expiration Date; Interest
Payment" and "Transactions and Agreements Concerning the Notes" in the
Offer to Exchange.
(c) Incorporated herein by reference to the information appearing under
the caption "Price Range of Hybridon Common Stock; Dividends" in the
Offer to Exchange.
(d) Not applicable.
ITEM 2. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
(a) Incorporated herein by reference to the information appearing under
the caption "Source and Amount of Consideration" in the Offer to Exchange.
(b) Not applicable.
ITEM 3. PURPOSE OF THE TENDER OFFER AND PLANS OR PROPOSALS OF THE ISSUER OR
AFFILIATE.
Incorporated herein by reference to the information appearing under the caption
"Purpose of the Offer; Certain Effects of the Offer" in the Offer to Exchange.
ITEM 4. INTEREST IN SECURITIES OF THE ISSUER.
Incorporated herein by reference to the information appearing under the caption
"Transactions and Agreements Concerning the Notes" in the Offer to Exchange.
ITEM 5. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO
THE ISSUER'S SECURITIES.
Incorporated herein by reference to the information appearing under the captions
"Transactions and Agreements Concerning the Notes," "Purpose of the Offer;
Certain Effects of the Offer" and "Fees and Expenses" in the Offer to Exchange.
ITEM 6. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
Incorporated herein by reference to the information appearing under the caption
"Fees and Expenses" in the Offer to Exchange.
ITEM 7. FINANCIAL INFORMATION.
(a) Incorporated herein by reference to the financial statements
included in the Annual Report on Form 10-K for the year ended December
31, 1996 of Hybridon, Inc. ("Hybridon"), and the Quarterly Report on
Form 10-Q for the quarterly period ended September 30, 1997 of
Hybridon, each of which is attached hereto as an Exhibit, and to the
information appearing under the caption "Selected Consolidated
Financial Information" in the Offer to Exchange.
(b) Incorporated herein by reference to the information appearing under
the caption "Selected Consolidated Financial Information" in the Offer to
Exchange.
ITEM 8. ADDITIONAL INFORMATION.
(a) Not applicable.
(b) Not applicable.
(c) Not applicable.
(d) Not applicable.
(e) Incorporated herein by reference to the information appearing under
the captions "Certain Information Concerning Hybridon," "Purpose of the
Offer; Effects of the Offer" and "Transactions and Agreements
Concerning the Notes" and also see Exhibits 9(a)(1) and 9(a)(2).
2
<PAGE>
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
EXHIBIT NO. DESCRIPTION
- ----------- -----------
9(a)(1) Offer to Exchange, dated February 6, 1998.
9(a)(2) Form of Exchange Agreement and Letter of Transmittal.
9(a)(3) Form of Notice of Guaranteed Delivery.
9(a)(4) Form of press release, dated February 6, 1998, to be issued
by Hybridon.
9(b) Not applicable.
9(c) Not applicable.
9(d) Not applicable.
9(e) Not applicable.
9(f) Not applicable.
9(g)(1) Annual Report on Form 10-K for the fiscal year ended December
31, 1996 filed by Hybridon, incorporated by reference to
Annex D attached to the Offer to Exchange.
9(g)(2) Quarterly Report on Form 10-Q for the fiscal quarter ended
September 30, 1997 filed by Hybridon, incorporated by
reference to Annex E attached to the Offer to Exchange.
9(g)(3) Consent of Arthur Andersen LLP.
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify that the
information set forth in this statement is true, complete and correct.
Dated: February 6, 1998
HYBRIDON, INC.
By: /s/ E. Andrews Grinstead III
------------------------------
Name: E. Andrews Grinstead III
Title: Chairman, President and
Chief Executive Officer
3
EXHIBIT 9(a)(1)
HYBRIDON, INC.
OFFER TO EXCHANGE FOR SERIES A PREFERRED STOCK AND
WARRANTS OF HYBRIDON, INC. ("HYBRIDON")
ANY AND ALL OUTSTANDING PRINCIPAL AMOUNT OF
AND ACCRUED BUT UNPAID INTEREST ON 9% CONVERTIBLE
SUBORDINATED NOTES DUE 2004 OF HYBRIDON
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON MARCH 9, 1998, UNLESS THE OFFER IS EXTENDED.
Hybridon, Inc., a Delaware corporation ("Hybridon"), invites the holders of its
9% Convertible Subordinated Notes due 2004 (the "Notes") to tender any and all
of the principal amount of and accrued but unpaid interest on (together, the
"Exchange Value") their Notes in exchange (the "Exchange") for (i) 10 shares of
Series A Preferred Stock, par value $.01 per share, of Hybridon ("Series A
Preferred Stock") and (ii) warrants ("Exchange Warrants") to purchase such
number of shares of common stock, par value $.001 per share, of Hybridon
("Hybridon Common Stock") equal to 15% of the number of shares of Hybridon
Common Stock into which such Series A Preferred Stock would be convertible at
the Exercise Price (as defined below), for each $1,000 in Exchange Value of the
Notes tendered, upon the terms and subject to the conditions set forth in this
Offer to Exchange and in the Exchange Agreement and Letter of Transmittal (the
"Letter of Transmittal"). See "Purpose of the Offer; Certain Effects of the
Offer." The Offer is open to all holders of Notes. See "Terms of the
Offer--Consideration Being Offered." Hybridon will enter into an agreement with
respect to the registration under the Securities Act of 1933, as amended (the
"Securities Act"), of the shares of Series A Preferred Stock issued in the Offer
and shares of Hybridon Common Stock into which such Series A Preferred Stock and
the Exchange Warrants issued in the Offer are convertible and certain other
matters. See "Terms of the Offer--Consideration Being Offered" and "Purpose of
the Offer; Certain Effects of the Offer--Ancillary Agreements." This Offer to
Exchange, together with the Letter of Transmittal, constitutes the "Offer."
Hybridon will exchange all Exchange Value of Notes validly tendered and not
withdrawn, upon the terms and subject to the conditions of the Offer. See "Terms
of the Offer--Extension; Termination; Amendments" and "Terms of the
Offer--Certain Conditions of the Offer."
------------------------------
ANY TENDER OF NOTES WHICH INVOLVES DENOMINATIONS OF LESS THAN $1,000 IN EXCHANGE
VALUE THEREOF WILL BE EXCHANGED ON A PRO RATA BASIS, EXCEPT TO THE EXTENT THAT
SUCH PRORATION WOULD RESULT IN THE ISSUANCE OF A FRACTIONAL SHARE OF SERIES A
PREFERRED STOCK. IN THE EVENT THAT SUCH FRACTIONAL SHARE WOULD RESULT, HYBRIDON
SHALL, AT ITS SOLE DISCRETION, EITHER (A) ROUND SUCH FRACTIONAL SHARE TO THE
NEAREST WHOLE NUMBER OF SHARES (WITH 0.5 BEING ROUNDED UP), OR (B) PAY IN CASH
AN AMOUNT EQUAL TO SUCH FRACTION MULTIPLIED BY $100 (WHICH IS THE PER SHARE
STATED VALUE OF SERIES A PREFERRED STOCK). HYBRIDON WILL NOT ISSUE ANY
FRACTIONAL SHARES OF SERIES A PREFERRED STOCK IN THE OFFER. IN THE EVENT THAT A
TENDERING NOTEHOLDER WOULD OTHERWISE BE ENTITLED TO RECEIVE A FRACTIONAL
EXCHANGE WARRANT, HYBRIDON SHALL ROUND UP SUCH FRACTIONAL EXCHANGE WARRANT TO
THE NEAREST WHOLE NUMBER OF EXCHANGE WARRANTS.
-------------------------------
THE OFFER IS NOT CONDITIONED UPON ANY MINIMUM AMOUNT OF EXCHANGE VALUE OF THE
NOTES BEING TENDERED. THE OFFER, HOWEVER, IS SUBJECT TO CERTAIN CONDITIONS. SEE
"TERMS OF THE OFFER--CERTAIN CONDITIONS OF THE OFFER."
IMPORTANT
Any holder of Notes (a "Noteholder") desiring to tender all or any portion of
the Exchange Value of such Notes should either (1) complete and sign the Letter
of Transmittal or a facsimile thereof in accordance with the instructions in the
Letter of Transmittal, mail or deliver it and any other required documents to
the Depositary specified herein, and either deliver the certificate representing
the Notes to the Depositary along with the Letter of Transmittal or deliver such
Notes pursuant to the procedure for book-entry transfer set forth in "Terms of
the Offer--Procedure for Tendering Notes" herein, or (2) request such
Noteholder's broker, dealer, bank, trust company or other nominee to effect the
transaction and such broker, dealer, bank, trust company or other nominee to
complete and sign the Letter of Transmittal or a facsimile thereof in accordance
with the instructions in the Letter of Transmittal, mail or deliver it and any
other required documents to the Depositary specified herein. A Noteholder whose
Notes are registered in the name of a broker, dealer, bank, trust company or
other nominee must contact such broker, dealer, bank, trust company or other
nominee if such Noteholder desires to tender such Notes. Any Noteholder who
desires to tender Notes and whose certificate for such Notes are not immediately
available, or who cannot comply in a timely manner with the procedure for
book-entry transfer, should tender such Notes by following the procedures for
guaranteed delivery set forth in "Terms of the Offer--Procedure for Tendering
Notes--Guaranteed Delivery Procedure" herein.
No Noteholder may tender any or all of the Exchange Value attributable to
accrued but unpaid interest on the principal amount of the Notes being tendered
without also tendering the Exchange Value attributable to such principal amount,
or vice versa.
-------------------------------
<PAGE>
AS SET FORTH IN MORE DETAIL IN THE LETTER OF TRANSMITTAL, BY SIGNING AND SENDING
SUCH LETTER OF TRANSMITTAL, THE TENDERING NOTEHOLDERS ARE THEREBY MAKING CERTAIN
REPRESENTATIONS AND AGREEING TO BE BOUND BY CERTAIN COVENANTS CONTAINED THEREIN.
IN ADDITION, HYBRIDON WILL MAKE CERTAIN REPRESENTATIONS AND AGREEMENTS WITH
RESPECT TO CERTAIN MATTERS PURSUANT TO THE LETTER OF TRANSMITTAL. SUCH COVENANTS
AND REPRESENTATIONS OF HYBRIDON WILL BECOME EFFECTIVE AND BINDING ON HYBRIDON AT
SUCH TIME THAT HYBRIDON ACCEPTS FOR EXCHANGE ANY OF THE EXCHANGE VALUE OF THE
NOTES TENDERED BY A TENDERING NOTEHOLDER. IN THE EVENT THAT THE OFFER IS
TERMINATED BY HYBRIDON OR HYBRIDON DOES NOT ACCEPT FOR EXCHANGE ANY EXCHANGE
VALUE OF THE NOTES VALIDLY TENDERED BY A TENDERING NOTEHOLDER, NONE OF THE
COVENANTS, AGREEMENTS AND REPRESENTATIONS MADE BY EITHER SUCH TENDERING
NOTEHOLDER OR HYBRIDON IN THE LETTER OF TRANSMITTAL WILL BE VALID AGAINST OR
BINDING UPON THE PARTY WHO MADE ANY SUCH COVENANTS, AGREEMENTS OR
REPRESENTATIONS. ANY TENDER NOT ACCOMPANIED BY THE LETTER OF TRANSMITTAL WILL BE
DEEMED INVALID. PLEASE READ CAREFULLY THE LETTER OF TRANSMITTAL. SEE "PURPOSE OF
THE OFFER; CERTAIN EFFECTS OF THE OFFER--ANCILLARY AGREEMENTS."
-------------------------------
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF THIS
TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED IN
THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
NEITHER HYBRIDON, ITS BOARD OF DIRECTORS NOR ANY OF ITS EXECUTIVE OFFICERS MAKES
ANY RECOMMENDATION TO ANY NOTEHOLDER AS TO WHETHER TO TENDER ANY OR ALL OF THE
EXCHANGE VALUE OF THE NOTES OWNED BY SUCH NOTEHOLDER. EACH NOTEHOLDER MUST MAKE
HIS, HER OR ITS OWN DECISIONS AS TO WHETHER TO TENDER NOTES AND, IF SO, HOW MUCH
IN EXCHANGE VALUE TO TENDER.
Although the Notes have been eligible for trading in the Private Offerings,
Resales and Trading through the Automatic Linkages ("PORTAL") market, Hybridon
has been advised by the National Quotation Bureau that it has no records of any
reported transactions in the Notes on the PORTAL market. Moreover, Hybridon has
no pricing information with respect to the secondary market transactions in the
Notes, which became freely tradable upon the effectiveness of the Registration
Statement (Reg. No. 333-25833) covering the same. Shares of Hybridon Common
Stock, into which the Notes are convertible (at a $35.0625 conversion price,
after giving effect to the one-for-five reverse stock split), are quoted for
trading on the Nasdaq OTC Bulletin Board. As of the close of business on
February 5, 1998 (the last trading date prior to the commencement of the Offer),
the last reported bid price on the Nasdaq OTC Bulletin Board for a share of
Hybridon Common Stock was $1.500.
Questions or requests for assistance or for additional copies of this Offer to
Exchange, the Letter of Transmittal for the Notes or other tender offer
materials may be directed to Hybridon at its address and telephone number set
forth on the back cover of this Offer to Exchange.
The date of this Offer to Exchange is February 6, 1998.
2
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO MAKE ANY RECOMMENDATION ON BEHALF OF HYBRIDON
AS TO WHETHER NOTEHOLDERS SHOULD TENDER THEIR NOTES PURSUANT TO THE OFFER. NO
PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THE OFFER OTHER THAN THOSE CONTAINED HEREIN
OR IN THE LETTER OF TRANSMITTAL. IF GIVEN OR MADE, SUCH RECOMMENDATION AND SUCH
INFORMATION AND REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY HYBRIDON.
TABLE OF CONTENTS
PAGE
SUMMARY.................................................................... 4
INTRODUCTION............................................................... 6
TERMS OF THE OFFER......................................................... 7
Amount of Notes; Consideration; Expiration Date; Interest Payment....... 7
Procedure for Tendering Notes........................................... 9
Withdrawal Rights....................................................... 10
Acceptance for Exchange of Notes and Exchange for Consideration......... 10
Certain Conditions of the Offer......................................... 11
Extension; Termination; Amendments...................................... 11
SELECTED CONSOLIDATED FINANCIAL INFORMATION................................ 12
RECENT DEVELOPMENTS........................................................ 14
PRICE RANGE OF HYBRIDON COMMON STOCK; DIVIDENDS............................ 14
PURPOSE OF THE OFFER; CERTAIN EFFECTS OF THE OFFER......................... 15
SOURCE AND AMOUNT OF CONSIDERATION......................................... 17
TRANSACTIONS AND AGREEMENTS CONCERNING THE NOTES........................... 17
CERTAIN FEDERAL INCOME TAX CONSEQUENCES.................................... 17
FEES AND EXPENSES.......................................................... 20
CERTAIN INFORMATION CONCERNING HYBRIDON.................................... 20
ADDITIONAL INFORMATION..................................................... 22
MISCELLANEOUS.............................................................. 23
ANNEXES TO OFFER TO EXCHANGE*
Annex A Form of Certificate of Designation of Series A Preferred Stock of
Hybridon
Annex B Form of Warrant Agreement for Exchange Warrants**
Annex C Form of Certificate of Designation of Series B Preferred Stock of
Hybridon
Annex D Annual Report on Form 10-K for the fiscal year ended December 31,
1996 of Hybridon
Annex E Quarterly Report on Form 10-Q for the fiscal quarter ended September
30, 1997 of Hybridon
Annex F Proxy Statement on Schedule 14A for the 1997 Annual Meeting of
Stockholders of Hybridon
Annex F-1 Proxy Statement on Schedule 14A for the Special Meeting of
Stockholders of Hybridon held on November 18, 1997
Annex G Quarterly Report on Form 10-Q for the fiscal quarter ended March 31,
1997 of Hybridon
Annex H Quarterly Report on Form 10-Q for the fiscal quarter ended June 30,
1997 of Hybridon
Annex H-1 Amendment on Form 10-Q/A to Quarterly Report on Form 10-Q for the
fiscal quarter ended June 30, 1997
Annex I Current Report on Form 8-K dated April 2, 1997 of Hybridon
Annex J Current Report on Form 8-K dated July 25, 1997 of Hybridon
Annex K Current Report on Form 8-K dated September 3, 1997 of Hybridon
Annex L Current Report on Form 8-K dated September 19, 1997 of Hybridon
Annex M Current Report on Form 8-K dated September 23, 1997 of Hybridon
Annex N Current Report on Form 8-K dated November 18, 1997 of Hybridon
Annex O Current Report on Form 8-K dated December 3, 1997 of Hybridon
Annex P Current Report on Form 8-K dated January 11, 1998 of Hybridon
Annex Q Current Report on Form 8-K dated January 13, 1998 of Hybridon
Annex R Current Report on Form 8-K dated January 22, 1998 of Hybridon
Annex S Current Report on Form 8-K dated January 16, 1998 of Hybridon
Annex T Form of Unit Purchase Agreement for the New Offering
Annex U Form of Notes due 2007 of Hybridon
- --------------------
* Unless otherwise noted, none of the documents attached hereto as Annexes
contain exhibits, annexes and other attachments thereto.
** Form of Warrant Certificate is attached as Exhibit A thereto.
3
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SUMMARY
This general summary is provided solely for the convenience of the Noteholders
and is qualified in its entirety by reference to the full text and more specific
details contained in this Offer to Exchange and the Letter of Transmittal and
any amendments hereto and thereto.
<TABLE>
<CAPTION>
<S> <C>
Hybridon................................ Hybridon, Inc., a Delaware corporation.
The Notes............................... 9% Convertible Subordinated Notes due 2004 of Hybridon.
Amount of Notes Sought.................. All of the outstanding Notes, together with accrued but
unpaid interest thereon.
Exchange Value.......................... The principal amount of and accrued but unpaid interest on
the Notes.
Consideration........................... The consideration being offered per $1,000 in Exchange Value
of the Notes tendered consists of 10 shares of Series A
Preferred Stock and Exchange Warrants to purchase such
number of shares of Hybridon Common Stock equal to 15% of
the number of shares of Hybridon Common Stock into which
such shares of Series A Preferred Stock would be convertible
at the Exercise Price (as defined below). See "Terms of the
Offer-- Consideration Being Offered" and "Price Range of
Hybridon Common Stock; Dividends."
Conditions of Offer..................... The Offer is not conditioned upon any minimum amount of
Exchange Value of the Notes being tendered. The Offer,
however, is subject to certain conditions. See "Terms of the
Offer--Certain Conditions of the Offer."
Expiration Date......................... March 9, 1998, at 12:00 Midnight, New York City time, unless
extended.
How to Tender Notes..................... See "Terms of the Offer--Procedure for Tendering Notes." For
further information, call Hybridon or consult your broker,
dealer, bank, trust company or other nominee for assistance.
Withdrawal Rights....................... Any or all of Exchange Value of the tendered Notes may be
withdrawn at any time prior to the Expiration Date of the
Offer and, unless accepted for payment prior thereto, may be
withdrawn after April 1, 1998. See "Terms of the
Offer--Withdrawal Rights."
New Offering............................ The Company recently commenced a private offering, on a
"best efforts" basis, of up to 550 Units (at $100,000 per
Unit), each Unit consisting of $100,000 principal amount of
Notes due 2007 ("Offering Notes") and certain warrants to
purchase Common Stock of Hybridon (the "New Offering"). See
Annexes T and U for more information on the New Offering.
Purpose of Offer........................ The Offer constitutes a part of the restructuring (the
"Restructuring") of the capital structure of Hybridon to
raise, pursuant to the New Offering, up to $55,000,000 (less
fees, commissions and expenses) in cash for use in
Hybridon's operations and to reduce Hybridon's debt service
obligations. In connection with the Restructuring, the
holders of approximately $40,000,000 principal amount of
Notes (the "Consenting Notes"), for themselves and on behalf
of their respective transferees, consented, among other
things, to subordinate their Notes to the Offering Notes and
to defer, if Hybridon so elects, the next interest payment
scheduled for April 1, 1998 until October 1, 1998. To
evidence such consent and other matters (the "Consent"),
Hybridon and State Street Bank and Trust Company, as trustee
(the "Trustee"), have entered into a First Supplemental
Indenture, dated as of January 13, 1998 (the "Supplemental
Indenture"). The Supplemental Indenture amended the
Indenture, dated as of March 26, 1997, between Hybridon and
the Trustee (as amended by the Supplemental Indenture, the
"Indenture"), which governs the Notes.
Upon the occurrence of the Restructuring Trigger (as defined
below), the Offering Notes (which currently rank senior to
the Consenting Notes) will automatically be converted into
shares of Series B Preferred Stock of Hybridon (with such
powers, limitations and preferences as set forth in the form
of the Certificate of Designation of Series B Preferred
Stock, which is annexed hereto as Annex C) which shall rank
junior to the Series A Preferred Stock issuable in the
Offer. As a result, the Offer presents the holders of the
Consenting Notes with an opportunity effectively to nullify
the subordination effected by the Consent if the Net
Proceeds Threshold (as defined below) is achieved.
Furthermore, unless the Restructuring Trigger occurs prior
to the Termination Date (as defined in the Unit Purchase
Agreement included as Annex T hereto) of the New Offering:
(i) purchasers of Units in the New Offering will be entitled
to receive additional warrants to purchase, at an exercise
price of $.001 per share of Hybridon Common Stock, a number
of shares of Hybridon Common Stock equal to 100% (rounded to
the nearest whole share) of the Hybridon Common Stock
underlying their purchased Offering Notes, and (ii) the
interest rate borne by the Offering Notes will increase from
14% to 18% per annum. The Offer is open to all holders of
the Notes. See "Terms of the Offer -- Consideration Being
Offered." If successful, the Restructuring will improve the
financial position of Hybridon by reducing the indebtedness
of Hybridon for financial reporting purposes, and thereby
improve the chances of Hybridon being
4
<PAGE>
able to comply with the quantitative criteria for the
listing of Hybridon Common Stock on the Nasdaq Stock Market.
See "Purpose of the Offer; Certain Effects of the Offer."
Restructuring Trigger................... At such time that both (a) at least $40,000,000 in principal
amount of the Notes (together with all of the then accrued
but unpaid interest thereon) is irrevocably exchanged in the
Offer for Series A Preferred Stock and Exchange Warrants,
and (b) Hybridon has received proceeds in the New Offering,
net of cash fees, commissions and expenses ("Net Proceeds"),
equal to or exceeding $20,000,000 (the "Net Proceeds
Threshold"). There can be no assurance that the
Restructuring Trigger will occur.
Consenting Notes........................ The Notes held by those holders who, for themselves and on
behalf of their respective transferees, consented, among
other things, to subordinate their Notes to the Offering
Notes and to defer, if Hybridon so elects, the next interest
payment scheduled for April 1, 1998 until October 1, 1998,
and Notes representing the same indebtedness as such
Consenting Notes. The Offer, however, is not limited to the
holders of the Consenting Notes; all Noteholders are invited
to tender in the Offer.
Market Price of Notes................... Although the Notes have been eligible for trading in the
PORTAL market, Hybridon has been advised by the National
Quotation Bureau that it has no records of any reported
transactions in the Notes on the PORTAL market. Moreover,
Hybridon has no pricing information with respect to other
types of secondary market transactions in the Notes. Shares
of Hybridon Common Stock, into which the Notes are
convertible (at a $35.0625 conversion price, after giving
effect to the one-for-five reverse stock split), are quoted
for trading on the Nasdaq OTC Bulletin Board. The last
reported bid price of the Hybridon Common Stock on the
Nasdaq OTC Bulletin Board is shown on the front cover of
this Offer to Exchange. See "Price Range of Hybridon Common
Stock; Dividends."
Interest Payments....................... Hybridon made a regular semi-annual interest payment on the
Notes on October 1, 1997 to holders of record as of the
close of business on September 15, 1997. Holders of the
Notes tendered and purchased pursuant to the Offer will not
be entitled to any interest payments in respect of any later
interest periods (or any portion thereof). Hybridon is
required to make the next interest payments on the Notes on
April 1, 1998 to holders of record as of the close of
business on March 15, 1998, except that such interest
payments on the Consenting Notes may, at Hybridon's option,
be deferred until October 1, 1998 pursuant to the Consent.
Solicitation Fee........................ None. See "Fees and Expenses."
Exchange Date........................... As soon as practicable after the Expiration Date, which is
expected to be no later than four business days after the
Expiration Date. See "Terms of the Offer--Extension;
Termination; Amendments" and "Terms of the Offer-- Certain
Conditions of the Offer."
Further Information..................... Additional copies of this Offer to Exchange, the Letter of
Transmittal and the Notice of Guaranteed Delivery may be
obtained by contacting Hybridon at the address and telephone
number shown on the back cover of this Offer to Exchange.
Questions about the Offer should be directed to E. Andrews
Grinstead, III, Chairman of the Board, President and Chief
Executive Officer of Hybridon, at the same telephone number.
</TABLE>
5
<PAGE>
INTRODUCTION
Hybridon invites the Noteholders to tender any and all of the Exchange Value of
their Notes in exchange for 10 shares of Series A Preferred Stock and Exchange
Warrants to purchase such number of shares of Hybridon Common Stock equal to 15%
of the number of shares of Hybridon Common Stock into which such shares of
Series A Preferred Stock would be convertible at the Exercise Price (as defined
below), for each $1,000 in Exchange Value of the Notes tendered, upon the terms
and subject to the conditions set forth herein and in the Letter of Transmittal
for the Notes tendered. See "Purpose of the Offer; Certain Effects of the
Offer." The Offer is open to all holders of Notes. See "Terms of the
Offer--Consideration Being Offered." Hybridon will enter into an agreement with
respect to the registration under the Securities Act of the shares of Series A
Preferred Stock issued in the Offer and shares of Hybridon Common Stock into
which such Series A Preferred Stock and the Exchange Warrants issued in the
Offer are convertible and certain other matters. See "Terms of the
Offer--Consideration Being Offered" and "Purpose of the Offer; Certain Effects
of the Offer--Ancillary Agreements." This Offer to Exchange, together with the
Letter of Transmittal, constitutes the "Offer". See "Terms of the
Offer--Extension; Termination; Amendments" and "Terms of the Offer--Certain
Conditions of the Offer."
------------------------------
ANY TENDER OF NOTES WHICH INVOLVES DENOMINATIONS OF LESS THAN $1,000 IN EXCHANGE
VALUE THEREOF WILL BE EXCHANGED ON A PRO RATA BASIS, EXCEPT TO THE EXTENT THAT
SUCH PRORATION WOULD RESULT IN THE ISSUANCE OF A FRACTIONAL SHARE OF SERIES A
PREFERRED STOCK. IN THE EVENT THAT SUCH FRACTIONAL SHARE WOULD RESULT, HYBRIDON
SHALL, AT ITS SOLE DISCRETION, EITHER (A) ROUND SUCH FRACTIONAL SHARE TO THE
NEAREST WHOLE NUMBER OF SHARES (WITH 0.5 BEING ROUNDED UP), OR (B) PAY IN CASH
AN AMOUNT EQUAL TO SUCH FRACTION MULTIPLIED BY $100 (WHICH IS THE PER SHARE
STATED VALUE OF SERIES A PREFERRED STOCK). HYBRIDON WILL NOT ISSUE ANY
FRACTIONAL SHARES OF SERIES A PREFERRED STOCK IN THE OFFER. IN THE EVENT THAT A
TENDERING NOTEHOLDER WOULD OTHERWISE BE ENTITLED TO RECEIVE A FRACTIONAL
EXCHANGE WARRANT, HYBRIDON SHALL ROUND UP SUCH FRACTIONAL EXCHANGE WARRANT TO
THE NEAREST WHOLE NUMBER OF EXCHANGE WARRANTS.
-------------------------------
THE OFFER IS NOT CONDITIONED UPON ANY MINIMUM AMOUNT OF THE EXCHANGE VALUE OF
THE NOTES BEING TENDERED. THE OFFER, HOWEVER, IS SUBJECT TO CERTAIN CONDITIONS.
SEE "TERMS OF THE OFFER--CERTAIN CONDITIONS OF THE OFFER."
NEITHER HYBRIDON, ITS BOARD OF DIRECTORS NOR ANY OF ITS EXECUTIVE OFFICERS MAKES
ANY RECOMMENDATION TO ANY NOTEHOLDER AS TO WHETHER TO TENDER ANY OR ALL OF THE
EXCHANGE VALUE OF THE NOTES. EACH NOTEHOLDER MUST MAKE HIS, HER OR ITS OWN
DECISION AS TO WHETHER TO TENDER THE NOTES AND, IF SO, HOW MUCH IN EXCHANGE
VALUE OF THE NOTES TO TENDER.
-------------------------------
AS SET FORTH IN MORE DETAIL IN THE LETTER OF TRANSMITTAL, BY SIGNING AND SENDING
SUCH LETTER OF TRANSMITTAL, THE TENDERING NOTEHOLDERS ARE AGREEING TO BE BOUND
BY CERTAIN COVENANTS CONTAINED THEREIN. ANY TENDER NOT ACCOMPANIED BY THE LETTER
OF TRANSMITTAL WILL BE DEEMED INVALID. PLEASE READ CAREFULLY THE LETTER OF
TRANSMITTAL. SEE "PURPOSE OF THE OFFER; CERTAIN EFFECTS OF THE OFFER --
ANCILLARY AGREEMENTS." -------------------------------
Although the Notes have been eligible for trading in the PORTAL market, Hybridon
has been advised by the National Quotation Bureau that it has no records of any
reported transactions in the Notes on the PORTAL market. Moreover, Hybridon has
no pricing information with respect to other types of secondary market
transactions in the Notes. The shares of Hybridon Common Stock, into which the
Notes are convertible (at a $35.0625 conversion price, after giving effect to
the one-for-five reverse stock split), are quoted for trading on the Nasdaq OTC
Bulletin Board under the symbol "HYBN". The last reported bid price on the
Nasdaq OTC Bulletin Board, as of the close of business on the date of this Offer
to Exchange, for the Hybridon Common Stock is shown on the front cover of this
Offer to Exchange.
A semi-annual interest payment on the Notes was paid on October 1, 1997 to
holders of record as of the close of business on September 15, 1997. Holders of
the Notes tendered into and purchased pursuant to the Offer will not be entitled
to any interest payment in respect of any later interest periods (or any portion
thereof). Hybridon is required to make the next interest payments on the Notes
on April 1, 1998 to holders of record as of the close of business on March 15,
1998, except that such interest payments on the Consenting Notes may, at
Hybridon's option, be deferred until October 1, 1998 pursuant to the Consent.
Tendering Noteholders will not be obligated to pay brokerage commissions or
solicitation fees with respect to the exchange of the Notes by Hybridon pursuant
to the Offer. Hybridon will reimburse promptly each broker, dealer, bank trust
company and other nominee who assists in the dissemination of this Offer to
Exchange and other related materials to the beneficial owners of the Notes for
reasonable out-of-pocket expenses incurred in connection therewith. Hybridon
will pay all charges and expenses of ChaseMellon Shareholder Services, L.L.C.
(the "Depositary") incurred in connection with the Offer. No other fees,
soliciting or otherwise, will be paid by Hybridon in connection with the Offer.
See "Fees and Expenses".
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Noteholders are not under any obligation to tender Notes pursuant to the Offer.
The Offer does not constitute notice of redemption of any Notes pursuant to the
Indenture which governs the Notes, nor does Hybridon intend to effect any such
redemption by making the Offer. The Offer does not constitute a waiver by
Hybridon of any option it has to redeem the Notes. See "Purpose of the Offer;
Certain Effects of the Offer."
Copies of this Offer to Exchange and the Letter of Transmittal are being mailed
to record holders of the Notes and will be furnished to brokers, dealers, banks,
trust companies and other nominees whose names, or the names of whose nominees,
appear on Hybridon's Noteholder list or, if applicable, who are listed as
participants in a clearing agency's security position listing for subsequent
transmittal to beneficial owners of the Notes.
TERMS OF THE OFFER
AMOUNT OF NOTES; CONSIDERATION; EXPIRATION DATE; INTEREST PAYMENT
Upon the terms and subject to the conditions described herein and in the Letter
of Transmittal, Hybridon will purchase any and all Exchange Value of the Notes
that are validly tendered on or prior to the Expiration Date (as defined below)
(and not properly withdrawn in accordance with "--Withdrawal Rights" below) in
exchange for 10 shares of Series A Preferred Stock and Exchange Warrants to
purchase such number of shares of Hybridon Common Stock equal to 15% of the
number of shares of Hybridon Common Stock into which such shares of Series A
Preferred Stock would be convertible at the Exercise Price (as defined below),
for each $1,000 in Exchange Value of the Notes tendered. See "--Extension;
Termination; Amendments," "--Consideration Being Offered" and "--Certain
Conditions of the Offer." Any tender of Notes which involves denominations of
less than $1,000 in Exchange Value thereof will be exchanged on a pro rata
basis, except to the extent that such proration would result in the issuance of
a fractional share of Series A Preferred Stock. In the event that such
fractional share would result, Hybridon shall, at its sole discretion, either
(a) round such fractional share to the nearest whole number of shares (with 0.5
being rounded up), or (b) pay in cash an amount equal to such fraction
multiplied by $100 (which is the per share stated value of Series A Preferred
Stock). Hybridon will not issue any fractional shares of Series A Preferred
Stock in the Offer. In the event that a tendering Noteholder would otherwise be
entitled to receive a fractional Exchange Warrant, Hybridon shall round up such
fractional Exchange Warrant to the nearest whole number of Exchange Warrants.
The later of 12:00 Midnight, New York City time, on March 9, 1998, or the latest
time and date to which the Offer is extended is referred to herein as the
"Expiration Date". There can be no assurance that Hybridon will exercise its
right to extend the Offer.
Regular semi-annual interest payments on the Notes were paid on October 1, 1997,
to holders of record as of the close of business on September 15, 1997. Holders
of the Notes tendered into and purchased pursuant to the Offer will not be
entitled to any interest payments in respect of any later interest periods (or
any portion thereof).
No alternative, conditional or contingent tenders will be accepted by Hybridon.
CONSIDERATION BEING OFFERED
Holders of the Notes are invited to tender any or all Exchange Value of their
Notes in exchange for 10 shares of Series A Preferred Stock and Exchange
Warrants to purchase such number of shares of Hybridon Common Stock equal to 15%
of the number of shares of Hybridon Common Stock into which such shares of
Series A Preferred Stock would be convertible at the Exercise Price (as defined
below), for each $1,000 in Exchange Value of the Notes tendered and accepted for
exchange by Hybridon. Any tender of Notes which involves denominations of less
than $1,000 in Exchange Value thereof will be exchanged on a pro rata basis,
except to the extent that such proration would result in the issuance of a
fractional share of Series A Preferred Stock. In the event that such fractional
share would result, Hybridon shall, at its sole discretion, either (a) round
such fractional share to the nearest whole number of shares (with 0.5 being
rounded up), or (b) pay in cash an amount equal to such fraction multiplied by
$100 (which is the per share stated value of Series A Preferred Stock). Hybridon
will not issue any fractional shares of Series A Preferred Stock in the Offer.
In the event that a tendering Noteholder would otherwise be entitled to receive
a fractional Exchange Warrant, Hybridon shall round up such fractional Exchange
Warrant to the nearest whole number of Exchange Warrants. The fair market value
of the Series A Preferred Stock and Exchange Warrants will be allocated first to
principal and then to accrued but unpaid interest on the principal amount of the
Notes.
Series A Preferred Stock
The following summary description of Series A Preferred Stock of Hybridon is
necessarily incomplete and is thus qualified in its entirety by the form of
Certificate of Designation of the Series A Preferred Stock and the form of
Certificate of Designation of Series B Preferred Stock which are attached as
Annex A and Annex C, respectively, to this Offer to Exchange and they are
incorporated herein by reference.
The Certificate of Incorporation of Hybridon permits its Board of Directors to
issue up to 5,000,000 shares of preferred stock, par value $.01 per share (the
"Hybridon Preferred Stock"), in one or more series, to designate the number of
shares constituting such series, and fix by resolution, the powers, privileges,
preferences and relative, optional or special rights thereof, including
liquidation preferences and dividends, and conversion and redemption rights of
each such series. No shares of Hybridon Preferred Stock are currently
outstanding. Immediately prior to the acceptance for exchange of the Notes
tendered into the Offer, Hybridon will file with the Secretary of State of the
State of Delaware a Certificate of Designation concerning the Series A Preferred
Stock, with the following designations:
Dividend: 6.5% per annum, payable on the same dates interest
payments are currently to be paid with respect to
the Notes. The dividend may be paid with either
cash or additional shares of Series A Preferred
Stock, at the option of Hybridon.
Liquidation Preference: $100.00 per share plus accrued but unpaid
dividends.
7
<PAGE>
Ranking: The Series A Preferred Stock ranks, as to
dividends and liquidation preference, senior to
the Series B Preferred Stock and the Hybridon
Common Stock.
Conversion Price: Through April 1, 2000, the conversion price of the
Series A Preferred Stock shall be $35.00 per share
of Hybridon Common Stock.
After April 1, 2000, the conversion price of the
Series A Preferred Stock shall be 212.5% of the
Initial Conversion Price (as defined below) of the
Series B Preferred Stock (subject to antidilution
adjustments set forth in the Certificate of
Designation for the Series A Preferred Stock); in
addition, there shall be a reset of such
conversion price (the "Series A Reset") upon the
occurrence of the Series B One-Year Reset (as
defined below) to 212.5% of the conversion price
of the Series B Preferred Stock immediately
following the Series B One-Year Reset.
As used herein, the "Initial Conversion Price" of
the Series B Preferred Stock shall mean the lesser
of (i) $3.00, and (ii) 80% of the Trading Price
(as defined hereinafter) as of the initial closing
date, any interim closing date or the final
closing date (the "Final Closing Date") of the New
Offering, whichever is the lowest; "Trading Price"
shall mean, generally, the lesser of (i) the
average closing bid price of the Hybridon Common
Stock for 30 consecutive trading days, ending with
the trading day immediately prior to the date on
which the Trading Price is being determined, and
(ii) the average closing bid price of the Hybridon
Common Stock for five consecutive trading days,
ending with the trading day immediately prior to
the date as of which the Trading Price is being
determined; "Series B One-Year Reset" shall mean a
reset of the conversion price of Series B
Preferred Stock which would take place if the
average closing bid price for 20 consecutive
trading days, ending with the trading day
immediately prior to the Final Closing Anniversary
(as defined hereinafter), is less than 125% of the
then conversion price of Series B Preferred Stock
as of the one-year anniversary (the "Final Closing
Anniversary") of the Final Closing Date.
Mandatory Conversion
or Redemption: On or after the date of the Series B One-Year
Reset and after April 1, 2000 in the case of
clause (ii) below, if the closing bid price of the
Hybridon Common Stock exceeds 250% of the
then-current conversion price of the Series B
Preferred Stock for 20 trading days in any 30
consecutive trading day period, Hybridon may (i)
cause the Series A Preferred Stock to be
converted, in whole or in part, into Hybridon
Common Stock at 200% of the then-current
conversion price of the Series B Preferred Stock
or (ii) redeem the Series A Preferred Stock for
cash in an amount equal to $100.00 per share
(subject to appropriate adjustment to reflect any
stock split, reclassification or reorganization of
the Series A Preferred Stock) plus any accrued but
unpaid dividends (provided that holders will have
the right to convert into Hybridon Common Stock,
at the conversion price applicable after April 1,
2000, any shares so called for mandatory
conversion or redemption). Any mandatory
conversion or redemption (in the case of Series A
Preferred Stock) of the Series A or Series B
Preferred Stock must be executed with respect to
both series on a pro rata basis.
Class Voting Rights: Hybridon shall not, without the affirmative vote
or consent of the holders of at least 50% of all
outstanding Series A Preferred Stock, voting
separately as a class, (i) amend, alter or repeal
any provision of the Certificate of Incorporation
or the By-laws of Hybridon so as adversely to
affect the relative rights, preferences,
qualifications, limitations or restrictions of the
Series A Preferred Stock (with the issuance of
securities ranking prior to, or pari passu with,
the Series A Preferred Stock (A) upon a
Liquidation Event (as defined in the Certificate
of Designation for Series A Preferred Stock) or
(B) with respect to the payment of dividends or
distributions not being considered to so adversely
affect, but the exchange of any shares of Series B
Preferred Stock for shares of a series of
preferred stock of the Company ranking prior to
the Series A Preferred Stock being considered to
so adversely affect) or (ii) authorize or issue,
or increase the authorized amount of, Series A
Preferred Stock, other than Series A Preferred
Stock issuable in exchange for the Notes or
accrued but unpaid interest thereon in the
Exchange or issuable as dividends on Series A
Preferred Stock.
Exchange Warrants
The following summary description of the Exchange Warrants of Hybridon to be
issued in the Offer is necessarily incomplete and thus is qualified in its
entirety by the form of Warrant Agreement (the "Warrant Agreement") which is
attached as Annex B to this Offer to Exchange and incorporated herein by
reference.
In connection with the Offer, each tendering Noteholder will receive, in
addition to shares of Series A Preferred Stock, Exchange Warrants to purchase a
number of shares of Hybridon Common Stock equal to 15% of the number of shares
of Hybridon Common Stock into which the Series A Preferred Stock issued to such
Noteholder pursuant to the Offer would be convertible at the Exercise Price (as
defined in the following sentence). The Exchange Warrants have an initial
exercise price equal to 212.5% of the Initial Conversion Price of the Series B
Preferred Stock (the "Exercise Price"), provided, however, that, until April 2,
2000, the Exchange Warrants' exercise price shall be equal to the then-effective
conversion price of the Series A Preferred Stock. The Exchange Warrants are
subject to redemption at the option of Hybridon under the circumstances
described in Section 8 of the Warrant Agreement.
Registration Rights
The following summary description of the registration rights to be granted to
the tendering Noteholders in connection with the Offer is necessarily incomplete
and thus is qualified in its entirety by the applicable provisions contained in
the Letter of Transmittal and such provisions are incorporated herein by
reference.
Hybridon will agree to use its best efforts to file (by the later of (A) the
earliest to occur of (i) the filing date of the registration statement to be
filed pursuant to the Unit Purchase Agreement relating to the New Offering (a
form of which is attached hereto as Annex T), (ii) the expiration of thirty (30)
days after the Final Closing Date and (iii) the later of (x) the expiration of
sixty (60) days from the date on which Hybridon has received Net Proceeds in the
New Offering equal to or exceeding $20,000,000 in the aggregate, and (y)
November 16, 1998, and (B) the date on which shares of Series A Preferred Stock
are first issued) a shelf registration statement (the "Registration Statement")
pursuant to Rule 415 under the Securities Act with respect to the resale of (a)
the shares of Series A Preferred Stock issuable in the
8
<PAGE>
Offer and (b) the shares of Hybridon Common Stock issuable upon conversion of
such Series A Preferred Stock or upon exercise of the Exchange Warrants, except
to the extent that any such securities are then freely tradeable under
applicable securities laws or tradable subject to the requirements of Rule
144(k) promulgated under the Securities Act. Furthermore, Hybridon will also
agree to use its best efforts to have such Registration Statement declared
effective as soon as practicable after the filing.
Reset Warrants
The following summary description of the Reset Warrants (as defined below),
which may be issued to the tendering Noteholders under certain circumstances, is
necessarily incomplete and thus is qualified in its entirety by the applicable
provisions contained in the Letter of Transmittal and such provisions are
incorporated herein by reference.
Upon the occurrence of the Series A Reset, the holders of Series A Preferred
Stock will receive, per share of Series A Preferred Stock, additional warrants
("Reset Warrants") to purchase a number of shares of Hybridon Common Stock equal
to the quotient of (a) the number of shares of Hybridon Common Stock underlying
the warrants issuable to the holders of Series B Preferred Stock, per share of
Series B Preferred Stock, upon the Series B One-Year Reset divided by (b) 2.125.
The Reset Warrants will be substantially in the form of the Exchange Warrants
and be governed by a warrant agreement substantially in the form of the Warrant
Agreement (a form of which is attached hereto as Annex B) for the Exchange
Warrants, except as provided above. Without limiting the generality of the
foregoing, such Reset Warrants will be subject to redemption at the option of
Hybridon on the same terms applicable to the Exchange Warrants, and may contain
any legends required by applicable laws.
Also see "Purpose of the Offer; Certain Effects of the Offer -- Ancillary
Agreements."
PROCEDURE FOR TENDERING NOTES
To validly tender the Notes pursuant to the Offer, the tendering Noteholder must
either:
(a) send to the Depositary (at one of its addresses set forth on the
back cover of this Offer to Exchange) a properly completed and duly
executed Letter of Transmittal for the Notes tendered or facsimile
thereof, together with any required signature guarantees and any other
documents required by the Letter of Transmittal, and either (i) cause
a certificate representing the Notes to be tendered to be received by
the Depositary, at one of its addresses or (ii) cause such Notes to be
delivered pursuant to the procedures for book-entry transfer described
below (and a confirmation of such delivery must be received by the
Depositary), in each case on or prior to the Expiration Date; or
(b) comply with the guaranteed delivery procedure described under "--
Guaranteed Delivery Procedure" below.
The Depositary will establish an account at The Depository Trust Company (the
"Book-Entry Transfer Facility") for purposes of the Offer within five (5)
business days after the date of this Offer to Exchange, and any financial
institution that is a participant in the system of the Book-Entry Transfer
Facility may make delivery of the Notes by causing such Book-Entry Transfer
Facility to transfer such Notes into the Depositary's account in accordance with
the procedures of such Book-Entry Transfer Facility. ALTHOUGH DELIVERY OF THE
NOTES MAY BE EFFECTED THROUGH BOOK-ENTRY TRANSFER, A PROPERLY COMPLETED AND DULY
EXECUTED LETTER OF TRANSMITTAL FOR THE NOTES TENDERED OR FACSIMILE THEREOF,
TOGETHER WITH ANY REQUIRED SIGNATURE GUARANTEES AND ANY OTHER REQUIRED
DOCUMENTS, MUST, IN ANY CASE, BE RECEIVED BY THE DEPOSITARY AT ITS ADDRESS SET
FORTH ON THE BACK COVER OF THIS OFFER TO EXCHANGE ON OR PRIOR TO THE EXPIRATION
DATE, OR THE TENDERING NOTEHOLDER MUST COMPLY WITH THE GUARANTEED DELIVERY
PROCEDURE DESCRIBED BELOW.
DELIVERY OF THE LETTER OF TRANSMITTAL AND ANY OTHER REQUIRED DOCUMENTS TO THE
BOOK-ENTRY TRANSFER FACILITY DOES NOT CONSTITUTE DELIVERY TO THE DEPOSITARY.
Except as otherwise provided below, all signatures on a Letter of Transmittal
must be guaranteed by a firm that is a member of a registered national
securities exchange or the National Association of Securities Dealers, Inc. (the
"NASD"), or by a bank or trust company having an office or correspondent in the
United States which is a participant in an approved Signature Guarantee
Medallion Program (each of the foregoing being referred to as an "Eligible
Institution"). Signatures on a Letter of Transmittal need not be guaranteed if
(a) the Letter of Transmittal is signed by the registered holder of the Notes
tendered therewith, or (b) such Notes are tendered for the account of an
Eligible Institution.
Guaranteed Delivery Procedure.
If a Noteholder desires to tender Notes pursuant to the Offer and cannot deliver
certificate for such Notes and all other required documents to the Depositary on
or prior to the Expiration Date, or the procedure for book-entry transfer cannot
be complied with in a timely manner, such Notes may nevertheless be tendered if
all of the following conditions are met:
(i) such tender is made by or through an Eligible Institution;
(ii) a properly completed and duly executed Notice of Guaranteed
Delivery in the form provided by Hybridon (with any required signature
guarantees) is received by the Depositary as provided below on or
prior to the Expiration Date; and
9
<PAGE>
(iii) the certificate for such Notes (or a confirmation of a
book-entry transfer of such Notes into the Depositary's account at the
Book-Entry Transfer Facility), together with a properly completed and
duly executed Letter of Transmittal for the Notes to be tendered (or
facsimile thereof) and any other documents required by the Letter of
Transmittal, are received by the Depositary no later than 5:00 P.M.,
New York City time, on the third business day after the date of
execution of the Notice of Guaranteed Delivery.
The Notice of Guaranteed Delivery may be delivered by hand or
transmitted by facsimile transmittal or mailed to the Depositary and
must include a guarantee by an Eligible Institution in the form set
forth in such Notice of Guaranteed Delivery.
THE METHOD OF DELIVERY OF THE NOTES AND ALL OTHER REQUIRED DOCUMENTS IS AT THE
OPTION AND RISK OF THE TENDERING NOTEHOLDER. IF DELIVERY IS BY MAIL, REGISTERED
MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED. IN ALL
CASES SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY.
NOTEHOLDERS ARE URGED TO CONSULT WITH THEIR OWN TAX ADVISORS REGARDING THE TAX
CONSEQUENCES OF THE OFFER. SEE "CERTAIN INCOME TAX CONSEQUENCES."
All questions as to the form of documents and the validity, eligibility
(including time of receipt) and acceptance for payment of any tender of Notes
will be determined by Hybridon, in its sole discretion, and its determination
shall be final and binding. Hybridon reserves the absolute right to reject any
or all tenders of Notes that (i) it determines are not in proper form, or (ii)
the acceptance for payments of or payment for which may, in the opinion of
Hybridon's counsel, be unlawful. Hybridon also reserves the absolute right to
waive any defect or irregularity in any tender of Notes. None of Hybridon, the
Depositary or any other person will be under any duty to give notice of any
defect or irregularity in tenders, nor shall any of them incur any liability for
failure to give any such notice.
WITHDRAWAL RIGHTS
Tenders of Notes made pursuant to the Offer may be withdrawn at any time prior
to the Expiration Date. Thereafter, such tenders are irrevocable, except that
they may be withdrawn after April 6, 1998, unless theretofore accepted for
exchange as provided in this Offer to Exchange. If, Hybridon extends the period
of time during which the Offer is open, is delayed in accepting for exchange or
exchanging for Notes or is unable to accept for exchange or exchange for Notes
pursuant to the Offer for any reason, then, without prejudice to Hybridon's
rights under the Offer, the Depositary may, on behalf of Hybridon, retain all
Notes tendered, and such Notes may not be withdrawn except as otherwise provided
in this "Terms of the Offer--Withdrawal Rights," subject to Rule 13e-4(f)(5)
under the Securities Exchange Act of 1934 (the "Exchange Act"), which provides
that the issuer "making the tender offer shall either pay the consideration
offered, or return the tendered securities, promptly after the termination or
withdrawal of the tender offer."
To be effective, a written or facsimile transmission notice of withdrawal must
be timely received by the Depositary at one of its addresses or facsimile
numbers set forth on the back cover of this Offer to Exchange and must specify
the name of the person who tendered the Notes to be withdrawn and the amount of
Exchange Value of the Notes to be withdrawn. If the Notes to be withdrawn have
been delivered to the Depositary, a signed notice of withdrawal with signatures
guaranteed by an Eligible Institution (except in the case of Notes tendered by
an Eligible Institution) must be submitted prior to the release of such Notes.
In addition, such notice must specify, in the case of Notes tendered by delivery
of certificates, the name of the registered holder (if different from that of
the tendering Noteholder) and the serial numbers shown on the particular
certificates evidencing the Notes to be withdrawn or, in the case of Notes
tendered by book-entry transfer, the name and number of the account at the
Book-Entry Transfer Facility to be credited with the withdrawn Notes and the
name of the registered holder (if different from the name of such account).
Withdrawals may not be rescinded and Notes withdrawn will thereafter be deemed
not validly tendered for purposes of the Offer. However, withdrawn Notes may be
retendered by again following one of the procedures described in "Terms of the
Offer--Procedure for Tendering Notes" at any time prior to the Expiration Date.
All questions as to the form and validity (including time of receipt) of any
notice of withdrawal will be determined by Hybridon in its sole discretion, and
its determination shall be final and binding. Neither of Hybridon, the
Depositary or any other person will be under any duty to give notification of
any defect or irregularity in any notice of withdrawal or incur any liability
for failure to give any such notification.
ACCEPTANCE FOR EXCHANGE OF NOTES AND EXCHANGE
Upon the terms and subject to the conditions of the Offer and as promptly as
practicable after the Expiration Date (which is expected to be within four (4)
business days after the Expiration Date), Hybridon will accept for exchange and
exchange the Notes validly tendered. See "-- Amount of Notes; Consideration;
Expiration Date; Interest Payment"; "-- Extension; Termination; Amendments";
"--Certain Conditions of the Offer" and "Source and Amount of Consideration."
Thereafter, exchange for all Notes validly tendered on or prior to the
Expiration Date and accepted for exchange pursuant to the Offer will be made by
the Depositary as promptly as practicable. In all cases, payment for Notes
accepted for exchange pursuant to the Offer will be made only after timely
receipt by the Depositary of certificates for Notes (or of a confirmation of a
book-entry transfer of such Notes into the Depositary's account at the
Book-Entry Transfer Facility), a properly completed and duly executed Letter of
Transmittal for the Notes tendered or facsimile thereof, and any other required
documents.
For purposes of the Offer, Hybridon will be deemed to have accepted for exchange
(and thereby exchanged) Notes that are validly tendered prior to the Expiration
Date and not withdrawn as, if and when it gives oral or written notice to the
Depositary of its acceptance for exchange of such Notes. Hybridon will effect
the exchange of the Notes that it has accepted pursuant to the Offer by
depositing the consideration therefor with the Depositary. The Depositary will
act as agent for tendering Noteholders for the purpose of receiving
consideration from Hybridon and transmitting the same to tendering Noteholders.
Under no circumstances will interest be paid on the value of the consideration
to be issued to tendering Noteholders, regardless of any delay in making such
exchange.
No Noteholder may tender any or all of the Exchange Value attributable to
accrued but unpaid interest on the principal amount of the Notes being tendered
without also tendering the Exchange Value attributable to such principal amount,
and vice versa.
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Certificates for all Notes not accepted for exchange by Hybridon, or the
Exchange Value of the Notes not tendered by the Noteholder or not accepted for
exchange by Hybridon, will be returned (or, in the case of Notes tendered by
book-entry transfer, such Notes or Exchange Value will be credited to an account
maintained with the Book-Entry Transfer Facility) as promptly as practicable,
without expense to the tendering Noteholder.
If certain events occur, Hybridon may not be obligated to exchange the Notes
pursuant to the Offer. See "--Certain Conditions of the Offer." Hybridon will
pay or cause to be paid any transfer taxes with respect to the exchange and
transfer of any Notes to it or its order pursuant to the Offer.
CERTAIN CONDITIONS OF THE OFFER
Notwithstanding any other provision of the Offer, Hybridon will not be required
to accept for exchange or exchange any Notes tendered, and may terminate or
amend the Offer with respect thereto, and may postpone (subject to the
requirements of the Exchange Act for prompt payment for or return of Notes) the
exchange of Notes tendered, if any of the following shall have occurred at any
time after the date of this Offer to Exchange and prior to the Expiration Date
(whether or not such occurrence shall be continuing at the time of such
termination, amendment or postponement):
(a) any action or proceeding shall have been threatened, instituted,
pending or taken, or approval shall have been withheld, withdrawn or
abrogated, or any statute, rule, regulation, judgment, order or
injunction shall have been threatened, proposed, sought, promulgated,
enacted, entered, amended, enforced or deemed to be applicable to the
Offer or Hybridon, by any legislative body, court, authority, agency or
tribunal or any other person, including the Securities and Exchange
Commission (the "Commission") or the States of Delaware or
Massachusetts, that, in Hybridon's sole judgment, would or might
directly or indirectly (i) make the acceptance for exchange of, or
exchange of, some or all of the Notes illegal or challenge the
acquisition of such Notes or otherwise or in any manner relate to or
affect the Offer, (ii) materially impair the contemplated benefits of
the Offer to Hybridon or (iii) materially affect the business,
condition (financial or other), income, operations or prospects of
Hybridon, or otherwise materially impair in any way the contemplated
future conduct of the business of Hybridon; and
(b) there shall have occurred (i) any general suspension of trading in,
or limitation on prices for, securities on any national securities
exchange or in the over-the-counter market, (ii) any change in the
general political, market, economic or financial condition in the
United States or abroad that could have a material adverse effect on
Hybridon's business, operations, prospects or ability to obtain
financing generally or the trading in the equity securities of
Hybridon, (iii) the declaration of a banking moratorium or any
suspension of payments in respect of banks in the United States or any
limitation on, or any event which, in Hybridon's sole judgment, might
affect, the extension of credit by lending institutions in the United
States, (iv) the commencement of a war, armed hostilities or other
international or national calamity directly or indirectly involving the
United States, or (v) in the case of any of the foregoing existing at
the time of the commencement of the Offer, in Hybridon's sole judgment,
a material acceleration or worsening thereof.
The foregoing conditions are for the sole benefit of Hybridon and may be
asserted by Hybridon regardless of the circumstances (including any action or
inaction by Hybridon) giving rise to any such condition, and any such condition
may be waived by Hybridon, in whole or in part, at any time and from time to
time in its sole discretion. The failure by Hybridon at any time to exercise any
of the foregoing rights shall not be deemed a waiver of any such right and each
such right shall be deemed an ongoing right which may be asserted at any time
and from time to time. Any determination by Hybridon concerning the events
described above will be final and binding on all parties.
EXTENSION; TERMINATION; AMENDMENTS
Prior to the Expiration Date, Hybridon may extend the period of time during
which the Offer is open or otherwise amend or modify the Offer and may terminate
the Offer for any reason. There can be no assurance, however, that Hybridon will
extend the Offer. During any such extension, all Notes previously tendered will
remain subject to the Offer, except to the extent that such Notes may be
withdrawn as set forth in "--Withdrawal Rights."
Prior to the Expiration Date, Hybridon may, upon the occurrence of any of the
conditions specified in "--Certain Conditions of the Offer" terminate the Offer
and not accept for exchange or exchange any Notes tendered or, subject to Rule
13e-4(f)(5) under the Exchange Act (which provides that the issuer "making the
tender offer shall either pay the consideration offered, or return the tendered
securities, promptly after the termination or withdrawal of the tender offer"),
postpone acceptance for exchange of Notes.
To effect any such extension, amendment, modification, termination or
postponement, Hybridon shall give oral or written notice to the Depositary and
make a public announcement thereof. Without limiting the manner in which
Hybridon may choose to make such a public announcement, Hybridon shall have no
obligation (except as otherwise required by applicable law) to publish,
advertise or otherwise communicate any such public announcement, other than by
making a release to the Dow Jones News Service, except in the case of an
announcement of an extension of the Offer, in which case Hybridon shall have no
obligation to publish, advertise or otherwise communicate such announcement
other than by issuing a notice of such extension by press release or other
public announcement, which notice shall be issued no later than 9:00 A.M., New
York City time, on the next business day after the previously scheduled
Expiration Date.
If Hybridon materially changes the terms of the Offer or the information
concerning the Offer, or if it waives a material condition of the Offer,
Hybridon will extend the Offer to the extent required by Rules 13e-4(d)(2) and
13e-4(e)(2) under the Exchange Act. Under these rules, the minimum period during
which an offer must remain open following material changes in the terms of the
offer or information concerning the offer (other than a change in price, change
in dealer's soliciting fee or change in percentage of securities sought) will
depend on the facts and circumstances, including the relative materiality of
such terms or information. In a published release, the Commission has stated
that, in its view, an offer should remain open for a minimum of five business
days from the date that a notice of such a material change is first published,
sent or given. The Offer will be extended for at least ten business days from
the time Hybridon publishes, sends or gives to Noteholders a notice that it will
(a) increase or decrease the consideration it will pay for Notes or pay any
soliciting fee or (b) increase (if previously decreased) or decrease the
percentage of Exchange Value of the Notes it seeks (except that the acceptance
for payment of additional Exchange Value of the Notes not to exceed 2% of the
outstanding Exchange Value of the Notes shall not be deemed to be an increase).
11
<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
In thousands, except per share data
<TABLE>
<CAPTION>
Years Ended
December 31, Nine Months Ended September 30,
------------------ ----------------------------------------------------
1995 1996 1996 1997 1997 1997
Pro Forma
Pro Forma(1) As Adjusted(2)
------------------ ----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 1,405 $ 4,009 $ 2,946 $ 3,143 $ 3,143 $ 3,143
Interest Expense (173) (124) (88) (3,223) (973) (973)
Net Loss (34,547) (46,853) (32,458) (49,977) (47,727) (47,727)
Net Loss Applicable to Common
Stockholders (3) (34,547) (46,853) (32,458) (49,977) (49,352) (49,352)
Basic loss per share (3) $ (10.67) $ (9.66) $ (6.77) $ (9.90) $ (9.78) $ (9.78)
Diluted loss per share (3) $ (10.67) $ (9.66) $ (6.77) $ (9.90) $ (9.78) $ (9.78)
Shares used in basic and diluted
loss per share 3,239 4,852 4,798 5,047 5,047 5,047
Capitalization
As of September 30, 1997
------------------------
In thousands, except share data
Pro Forma
Actual Pro Forma(1) As Adjusted(2)
------ ------------ --------------
<S> <C> <C> <C>
Current portion Long Term Debt $ 8,063 $ 8,063 $ 8,063
Long term debt, net of current portion 3,557 3,557 3,557
Subordinated Notes 50,000 - -
Stockholders' (Deficit) Equity
Series A Convertible Preferred Stock, $.01 par value
1,033,232 shares authorized; 522,500 issued and
outstanding pro forma and pro forma as adjusted - 5 5
Series B Convertible preferred Stock, $.01 par value,
2,616,918 shares authorized; 238,000 issued and
outstanding pro forma as adjusted - - 2
Common Stock, $.001 par value, 100,000,000 shares
authorized; issued and outstanding 5,058,450 5 5 5
Additional Paid In Capital 173,692 223,321 243,325
Deficit Accumulated During Development Stage (199,171) (199,171) (199,171)
Deferred compensation (1,148) (1,148) (1,148)
---------
Total Stockholders' (Deficit) Equity (26,622) 23,012 43,018
---------
Total Capitalization $ 34,998 $ 34,632 $ 54,638
=========
12
<PAGE>
OTHER FINANCIAL DATA:
Years ended Nine months ended
December 31, September 30,
-----------------------------------------------------------------------
1995 1996 1997 1997 1997
Pro Forma
Pro Forma (1) As Adjusted (2)
<S> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges (4) -- -- -- -- --
Book value per common share (5) 3.84 4.54 (5.26) (5.78) (5.64)
</TABLE>
(1) Pro forma to give effect to the exchange of $50 million in principal amount
of the Notes and $2,250,000 of accrued interest thereon for Series A
Convertible Preferred Stock and the writeoff of $2,616,000 of deferred
financing costs to additional paid in capital. There can be no assurance
that $50 million in principal amount of the Notes will be exchanged. Such
pro forma adjustments do not reflect the impact of the New Offering or the
issuance of any Offering Notes.
(2) Pro forma as adjusted to give effect to the exchange of $50 million in
principal amount of the Notes and $2,250,000 of accrued interest thereon
for Series A Convertible Preferred Stock, the writeoff of $2,616,000 of
deferred financing costs to additional paid in capital and the issuance of
$23.8 million of Series B Convertible Preferred Stock, net of estimated
issuance costs of $3,794,000. There can be no assurance that $50 million in
principal amount of the Notes will be exchanged and $23.8 million of Series
B Convertible Preferred Stock will be issued.
(3) Basic EPS is computed by dividing net loss applicable to common
stockholders (net loss plus cumulative preferred stock dividends) by the
weighted-average number of common shares outstanding during the period.
Convertible securities and common stock equivalents have not been included
in diluted EPS since the effect would be antidilutive.
(4) For the purpose of calculating the ratio of earnings to fixed charges,
earnings represent Hybridon's loss from continuing operations before income
taxes plus fixed charges. Fixed charges consist of interest expense on all
indebtedness plus the interest portion of rental expense on non-cancelable
leases and amortization of debt issuance costs and debt discount.
Hybridon's earnings have been inadequate to meet its fixed charges for the
years ended December 31, 1995 and 1996 and for the nine months ended
September 30, 1996 and 1997 by $33.9 million, $46.4 million, $32.1 million
and $44.7 million, respectively. On a pro forma and pro forma as adjusted
basis as described in notes (1) and (2) above, Hybridon's earnings would be
inadequate to meet its fixed charges by $44.7 million in the nine months
ended September 30, 1997.
(5) Book value per common share is computed by dividing net assets by the
number of common shares outstanding. Net assets is equal to stockholders'
(deficit) equity less the liquidation value of preferred stock.
13
<PAGE>
RECENT DEVELOPMENTS
The information set forth in the Current Reports on Form 8-K dated December 3,
1997, January 11, 1998, January 13, 1998, January 22, 1998 and January 16, 1998,
attached hereto as Annex N through S, is incorporated herein by reference.
The Company recently commenced a private offering, on a "best efforts" basis, of
up to 550 Units (at $100,000 per Unit), each Unit consisting of $100,000
principal amount of the Offering Notes and certain warrants to purchase Hybridon
Common Stock (the "New Offering"). See Annexes T and U for more information on
the New Offering.
Hybridon has been informed by Arthur Andersen LLP, its independent public
accountants, that their report on Hybridon's December 31, 1997 financial
statements will contain an explanatory fourth paragraph addressing the
significant uncertainty regarding Hybridon's ability to continue operating as a
going concern unless Hybridon is able to raise sufficient capital to fund
operations for 1998 prior to the release of the audit report.
PRICE RANGE OF HYBRIDON COMMON STOCK; DIVIDENDS
Although the Notes have been eligible for trading in the PORTAL market, Hybridon
has been advised by the National Quotation Bureau that it has no records of any
reported transactions in the Notes on the PORTAL market. Moreover, Hybridon has
no pricing information with respect to other types of secondary market
transactions in the Notes. Hybridon Common Stock, into which the Notes are
convertible (at a $35.0625 conversion price, after giving effect to the
five-for-one reverse stock split), is quoted for trading on the Nasdaq OTC
Bulletin Board under the symbol "HYBN". Prior to Hybridon's delisting on
December 2, 1997, Hybridon Common Stock was quoted for trading on the Nasdaq
National Market System. See the information incorporated by reference under the
caption "--Recent Developments." The last reported bid price on the Nasdaq OTC
Bulletin Board, as of the close of business on February 5, 1998 for the Hybridon
Common Stock is shown on the front cover of this Offer to Exchange.
NOTEHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR THE HYBRIDON
COMMON STOCK.
The following table sets forth the high and low sales or bid prices of the
Hybridon Common Stock for the fiscal quarters indicated (after giving effect to
the one-for-five reverse stock split).
High Low
1996
First Quarter (from January 24, 1996)............ $71.250 $ 43.750
Second Quarter................................... 59.375 25.625
Third Quarter.................................... 59.375 33.125
Fourth Quarter................................... 43.125 26.250
1997
First Quarter.................................... 43.125 28.125
Second Quarter................................... 35.625 25.000
Third Quarter.................................... 28.125 7.500
Fourth Quarter................................... 4.859 2.609
1998
First Quarter (through February 5, 1998)......... 3.359 1.000
Hybridon has never declared or paid cash dividends on its capital stock and
Hybridon does not expect to pay any cash dividends on its Common Stock in the
foreseeable future. The Indenture limits Hybridon's ability to pay dividends or
make other distributions on the Hybridon Common Stock. In addition, Hybridon is
currently prohibited from paying cash dividends under a credit facility with a
commercial bank.
14
<PAGE>
PURPOSE OF THE OFFER; CERTAIN EFFECTS OF THE OFFER
Purpose of the Offer; Certain Effects of the Offer
The Offer constitutes a part of the Restructuring of the capital structure of
Hybridon to raise up to $55,000,000 (less fees, commissions and expenses) in
cash for use in Hybridon's operations and to reduce Hybridon's debt service
obligations. In addition, if successful, the Restructuring will improve the
financial position of Hybridon by reducing the indebtedness of Hybridon for
financial reporting purposes, and thereby improve the chances of Hybridon being
able to comply with the quantitative criteria for the listing of Hybridon Common
Stock on the Nasdaq Stock Market.
Upon the occurrence of the Restructuring Trigger (as defined below), the
Offering Notes (which currently rank senior to the Consenting Notes) will
automatically be converted into shares of Series B Preferred Stock of Hybridon
(with such powers, preferences and limitations as set forth in the Certificate
of Designation for Series B Preferred Stock, which is annexed hereto as Annex C)
which shall rank junior to the Series A Preferred Stock issuable in the Offer.
As a result, the Offer presents the holders of the Consenting Notes with an
opportunity effectively to nullify the subordination effected by the Consent if
the Net Proceeds Threshold (as defined below) is achieved. Furthermore, unless
the Restructuring Trigger occurs prior to the Termination Date (as defined in
the Unit Purchase Agreement included as Annex T hereto) of the New Offering: (i)
purchasers of Units in the New Offering will be entitled to receive additional
warrants to purchase, at an exercise price of $.001 per share of Hybridon Common
Stock, a number of shares of Hybridon Common Stock equal to 100% (rounded to the
nearest whole share) of the Hybridon Common Stock underlying their purchased
Offering Notes and (ii) the interest rate borne by the Offering Notes will
increase from 14% to 18% per annum. The Offer is open to all holders of the
Notes. See "Terms of the Offer -- Consideration Being Offered." However, in the
event that a tender of Notes is accepted by Hybridon for exchange into Series A
Preferred Stock and Exchange Warrants, but the Restructuring Trigger is not
attained, then such tendering Noteholder would be subordinated to all unsecured
creditors of Hybridon, whereas had such Noteholder not tendered, such Noteholder
would have ranked pari passu with respect to such unsecured creditors.
Furthermore, any tendering Noteholder, whose Notes are accepted for exchange
pursuant to the Offer, will be subordinated to the other Noteholders who do not
tender their Notes in the Offer.
As used herein, the "Restructuring Trigger" means such time that both (a) at
least $40,000,000 in principal amount of the Notes (together with all of the
then accrued but unpaid interest thereon) is irrevocably exchanged in the Offer
for Series A Preferred Stock and Exchange Warrants, and (b) Hybridon has
received Net Proceeds in the New Offering equal to or exceeding $20,000,000 (the
"Net Proceeds Threshold"). There can be no assurance that the Restructuring
Trigger will occur.
The fair market value of the Series A Preferred Stock and Exchange Warrants will
be allocated first to principal and then to accrued but unpaid interest on the
principal amount of the Notes.
Limitations on Resale of Hybridon Stock
The Series A Preferred Stock and the Exchange Warrants to be issued in exchange
for the Notes in the Offer, the Reset Warrants (if any) and Hybridon Common
Stock issuable upon conversion or exercise of the Series A Preferred Stock, the
Exchange Warrants or the Reset Warrants (if any), shall have the status of
securities acquired in transaction under the so-called "exchange offer"
exemption under Section 3(a)(9) of the Securities Act but cannot be resold by
the tendering Noteholders without registration under the Securities Act or an
exemption therefrom. Hybridon has agreed to effect a shelf registration under
the Securities Act of the Series A Preferred Stock and the Hybridon Common Stock
underlying the Series A Preferred Stock and the Exchange Warrants. See "Terms of
the Offer -- Consideration Being Offered -- Registration Rights." Prior to the
effectiveness of the registration statement covering such securities, however,
the holders thereof may not sell any such securities without an exemption from
registration under the Securities Act. However, for purposes of Rule 144 under
the Securities Act, the holding period of the Series A Preferred Stock and
Hybridon Common Stock issued upon conversion thereof may be "tacked" onto that
of the Notes exchanged in the Offer.
Each certificate representing the Series A Preferred Stock, the Exchange
Warrants and the Hybridon Common Stock issuable upon conversion or exercise
thereof shall contain a legend to the effect that the securities represented by
such certificate have the status of securities acquired in transaction under an
exemption of Section 3(a)(9) of the Securities Act and cannot be resold without
registration under the Securities Act or an exemption therefrom.
Ancillary Agreements
AS SET FORTH IN MORE DETAIL IN THE LETTER OF TRANSMITTAL, BY SIGNING AND SENDING
SUCH LETTER OF TRANSMITTAL, THE TENDERING NOTEHOLDERS ARE MAKING CERTAIN
REPRESENTATIONS AND AGREEING TO BE BOUND BY CERTAIN COVENANTS CONTAINED THEREIN.
IN ADDITION, HYBRIDON WILL MAKE CERTAIN REPRESENTATIONS AND AGREEMENTS WITH
RESPECT TO CERTAIN MATTERS PURSUANT TO THE LETTER OF TRANSMITTAL. SUCH COVENANTS
AND REPRESENTATIONS OF HYBRIDON WILL BECOME EFFECTIVE AND BINDING ON HYBRIDON AT
SUCH TIME THAT HYBRIDON ACCEPTS FOR EXCHANGE ANY OF THE EXCHANGE VALUE OF THE
NOTES TENDERED BY A TENDERING NOTEHOLDER. IN THE EVENT THAT THE OFFER IS
TERMINATED BY HYBRIDON OR HYBRIDON DOES NOT ACCEPT FOR EXCHANGE ANY EXCHANGE
VALUE OF THE NOTES VALIDLY TENDERED BY A TENDERING NOTEHOLDER, NONE OF THE
COVENANTS, AGREEMENTS AND REPRESENTATIONS MADE BY EITHER SUCH TENDERING
NOTEHOLDER OR HYBRIDON IN THE LETTER OF TRANSMITTAL WILL BE VALID AGAINST OR
BINDING UPON THE PARTY WHO MADE ANY SUCH COVENANTS, AGREEMENTS OR
REPRESENTATIONS. ANY TENDER NOT ACCOMPANIED BY THE LETTER OF TRANSMITTAL WILL BE
DEEMED INVALID. PLEASE READ CAREFULLY THE LETTER OF TRANSMITTAL.
15
<PAGE>
The following description summarizes the agreements contained in the Letter of
Transmittal. However, such description is qualified in its entirety by reference
to the Letter of Transmittal and the same is incorporated herein by reference.
Certain Sale Restrictions
By signing and returning the Letter of Transmittal, the tendering Noteholder and
each beneficial owner of the Notes tendered, in consideration of Hybridon's
acceptance of the Notes so tendered, will thereby agree not to, directly or
indirectly, through related parties, affiliates or otherwise, (i) sell "short"
or "short against the box" (as those terms are generally understood) any
security of Hybridon, or (ii) otherwise engage in any transaction, except for
any transaction approved by Hybridon in writing, that involves hedging of such
holder's position in any security of Hybridon; provided, however, that a
tendering Noteholder or such a beneficial owner may have an aggregate short
position covering any number of shares of Hybridon Common Stock fewer than the
quotient of (a) the product of (x) the number of shares of Series A Preferred
Stock held by such holder multiplied by (y) the Dividend Base Amount (as defined
in the Certificate of Designation for the Series A Preferred Stock), divided by
(b) the conversion price of the Series A Preferred Stock as in effect from time
to time.
Restriction on Indebtedness and Senior Equity Issuances; Affiliate Transactions
Hybridon will agree that, following the Restructuring Trigger, it will not,
without the consent of the Designated Director (as defined below), (i) for the
first 12 months, incur, assume or guarantee any additional indebtedness (A) for
money borrowed, (B) evidenced by a note, debenture or similar instrument given
in connection with the acquisition of any business, Property (as defined in the
Indenture) or assets, (C) consisting of obligations of Hybridon as lessee under
leases required to be capitalized on the balance sheet of the lessee under GAAP
(as defined in the Indenture) or (D) consisting of reimbursement obligations and
other liabilities (contingent or otherwise) with respect to letters of credit,
bank guarantees or bankers' acceptances (collectively, "Indebtedness"), or issue
any equity securities senior in dividends or liquidation preference to the
Series A Preferred Stock other than with respect to: (a) any amendments,
renewals, extensions, modifications, refinancings and refundings of the Loan and
Security Agreement, dated December 31, 1996, between Silicon Valley Bank and
Hybridon, provided that the principal amount does not exceed $7,500,000 and the
maturity date is not advanced; (b) capitalized leases with a capitalized amount
not exceeding $3,000,000; (c) the Offering Notes (including Offering Notes
issued as interest thereon); and (d) any amendments, renewals, extensions,
modifications, refinancings and refundings of the above (provided that the
maturity date is not advanced and the original amount thereof is not increased);
and (ii) for the second 12 months, (A) incur any additional Indebtedness in
excess of $10 million over the permitted level for the first 12 months (provided
that capitalized leases entered into in the first 24 months will count against
the $10 million threshold) or (B) issue more than $15 million liquidation
preference of any equity securities senior in dividends or liquidation
preference to the Series A Preferred Stock. Furthermore, Hybridon will agree
that, for so long as the Series A Preferred Stock remains outstanding, following
the Restructuring Trigger, it will not, without the consent of the Designated
Director, enter into any transaction with any Affiliate (as defined in the
Indenture) of Hybridon unless such transaction is approved by a majority of the
independent directors of Hybridon.
Board Seat
Upon the occurrence of the Restructuring Trigger, for so long as at least 50% of
the Series A Preferred Stock initially issued in the Offer remains outstanding,
the holders of Series A Preferred Stock as a class shall be entitled to
designate one member for nomination to the Board of Directors of Hybridon (the
"Designated Director"), provided that such nominee is reasonably acceptable to
Hybridon.
Certain Additional Covenants and Representations of Hybridon
Effective upon its acceptance for exchange of Notes in the Offer, Hybridon will
represent and warrant to tendering Noteholders that, since March 26, 1997, no
event has occurred which would change the Conversion Price (as defined in the
Indenture) other than the reverse stock split effected by Hybridon in December
1997. Furthermore, upon such acceptance, Hybridon will covenant not to engage in
any act that would change such Conversion Price without adjusting the conversion
price and conversion rate of the Series A Preferred Stock to the extent that
such adjustment would be required pursuant to the Certificate of Designation of
the Series A Preferred Stock.
Also see "Terms of the Offer -- Consideration Being Offered -- Registration
Rights."
Purchase of Notes After the Offer
After the consummation of the Offer, Hybridon may determine to purchase
additional Notes on the open market, in privately negotiated transactions,
through one or more tender or exchange offers or otherwise. Any such purchases
may be on the same terms as, or on terms which are more or less favorable to
holders of Notes than, the terms of the Offer. However, Rule 13e-4(f)(6) under
the Exchange Act prohibits Hybridon and its affiliates from purchasing any
Notes, other than pursuant to the Offer, until at least ten business days after
the Expiration Date. Any future purchases of Notes by Hybridon would depend on
many factors, including Hybridon's business and financial position, capital
requirements of Hybridon, and general economic and market conditions.
The Offer Not Redemption
Noteholders are not under any obligation to tender the Notes pursuant to the
Offer. The Offer does not constitute notice of redemption of any Notes pursuant
to the Indenture, nor does Hybridon intend to effect any such redemption by
making the Offer. The Indenture does not permit Hybridon to redeem any of the
Notes prior to April 1, 2000. The Offer does not constitute a waiver by Hybridon
of any option it has to redeem Notes and all Notes remaining outstanding after
the Offer will continue to be redeemable at the option of Hybridon in accordance
with the terms of the Notes and the Indenture. The Notes are redeemable at the
option of Hybridon on and after April 1, 2000 (provided that prior to March 31,
2001, the Notes may not be redeemed unless certain conditions are met) at 104.5%
of the principal amount thereof and thereafter at prices declining annually to
100% of the principal amount on and after April 1, 2003 plus, in each case,
dividends accrued to the redemption date.
16
<PAGE>
Except as set forth elsewhere in this Offer to Exchange (and any document
incorporated herein), Hybridon has no current plans or proposals which relate to
or would result in: (a) the acquisition by any person of additional securities
of Hybridon or the disposition of securities of Hybridon; (b) an extraordinary
corporate transaction, such as a merger, reorganization or liquidation,
involving Hybridon or any of its subsidiaries; (c) a sale or transfer of a
material amount of assets of Hybridon or any of its subsidiaries; (d) any change
in the present Board of Directors or management of Hybridon; (e) any material
change in the present dividend rate or policy, or indebtedness or capitalization
of Hybridon; (f) any other material change in Hybridon's corporate structure or
business; (g) any change in Hybridon's Certificate of Incorporation or By-Laws
or any actions which may impede the acquisition of control of Hybridon by any
person; (h) a class of equity securities of Hybridon becoming eligible for
termination of registration pursuant to Section 12(g)(4) of the Exchange Act; or
(i) the suspension of Hybridon's obligation to file reports pursuant to Section
15(d) of the Exchange Act.
NEITHER HYBRIDON, ITS BOARD OF DIRECTORS NOR ANY OF ITS EXECUTIVE OFFICERS MAKES
ANY RECOMMENDATION TO ANY NOTEHOLDER AS TO WHETHER TO TENDER ANY OR ALL OF THE
EXCHANGE VALUE OF THE NOTES . EACH NOTEHOLDER MUST MAKE HIS, HER OR ITS OWN
DECISION AS TO WHETHER TO TENDER NOTES AND, IF SO, HOW MUCH IN THE EXCHANGE
VALUE OF THE NOTES TO TENDER.
SOURCE AND AMOUNT OF CONSIDERATION
Assuming that Hybridon exchanges all outstanding Notes pursuant to the Offer,
the total amount of consideration to be paid by Hybridon will consist in the
aggregate of (i) approximately 520,000 shares of Series A Preferred Stock, which
shall be issued from Hybridon's authorized but unissued shares of Hybridon
Preferred Stock, (ii) Exchange Warrants to purchase such number of shares of
Hybridon Common Stock equal to 15% of the number of shares of Hybridon Common
Stock into which such shares of Series A Preferred Stock would be convertible at
the Exercise Price, and (iii) to the extent applicable, Reset Warrants to
purchase shares of Hybridon Common Stock. In addition, Hybridon expects to incur
fees and other expenses. See "Fees and Expenses."
TRANSACTIONS AND AGREEMENTS CONCERNING THE NOTES
Based upon Hybridon's records, neither Hybridon nor, to Hybridon's knowledge,
any of its associates, subsidiaries, directors, executive officers or any
associate of any such director or executive officer owns any Notes or has
engaged in any transactions involving the Notes during the 40 business days
preceding the date hereof. Neither Hybridon nor, to Hybridon's knowledge, any of
its directors or executive officers is a party to any contract, arrangement,
understanding or relationship relating directly or indirectly to the Offer with
any other person with respect to any securities of Hybridon other than as
disclosed or incorporated by reference in this Offer to Exchange. See "Fees and
Expenses."
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a discussion of anticipated certain federal income tax
consequences to Hybridon and holders of Notes of the exchange of Notes for
Series A Preferred Stock and Exchange Warrants as part of the Restructuring and
to holders of Series A Preferred Stock, Exchange Warrants and Hybridon Common
Stock. The discussion is based on the provisions of the Internal Revenue Code of
1986, as amended (the "Code"), final, temporary and proposed Treasury
regulations thereunder, and administrative and judicial interpretations thereof,
all as in effect as of the date hereof, and all of which are subject to change
(perhaps retroactively) by legislation, administrative action or judicial
decision. There can be no assurance that the Internal Revenue Service (the
"Service") will not challenge one or more of the tax consequences of the
exchange described herein, and no opinion of counsel or ruling from the Service
has been or will be requested as to any of such tax consequences.
The discussion as to the tax consequences to holders relates to "U.S. Holders".
For purposes of this discussion, a "U.S. Holder" is a holder that is an
individual who is a citizen or resident of the United States, a corporation or a
partnership that is organized under the laws of the United States or any state
thereof or an estate or trust whose income is includible in gross income
regardless of its source. For its taxable years beginning after December 31,
1996, a trust generally is a U.S. Holder only if a court within the United
States is able to exercise primary supervision over its administration and one
or more United States persons have the authority to control all substantial
decisions of the trust. The discussion also assumes that holders hold their
Notes as capital assets and will hold the Series A Preferred Stock, Exchange
Warrants and Hybridon Common Stock as capital assets.
The following discussion does not include all matters that may be relevant to
any particular holder in light of such holder's particular facts and
circumstances. Certain holders, including financial institutions,
broker-dealers, tax-exempt entities, insurance companies and non-U.S. Holders
may be subject to special treatment not described below.
THE FEDERAL INCOME TAX CONSEQUENCES OF THE TRANSACTIONS DESCRIBED HEREIN ARE
COMPLEX. ALL HOLDERS OF NOTES SHOULD CONSULT WITH THEIR OWN TAX ADVISORS AS TO
THE PARTICULAR TAX CONSEQUENCES TO THEM OF THE EXCHANGE AND THE OWNERSHIP AND
DISPOSITION OF SERIES A PREFERRED STOCK, EXCHANGE WARRANTS AND HYBRIDON COMMON
STOCK, INCLUDING THE APPLICATION AND EFFECT OF ANY STATE, LOCAL AND FOREIGN TAX
LAWS.
17
<PAGE>
Tax Consequences to Hybridon
Cancellation of Indebtedness
If a taxpayer satisfies its outstanding debt obligations for less than its
principal amount, such taxpayer generally realizes cancellation of debt ("COD")
income for federal income tax purposes. In the case of an exchange where
outstanding indebtedness is canceled in exchange for stock and warrants, the
amount of such COD income is, in general, equal to the excess of the adjusted
issue price (including accrued but unpaid interest) of the indebtedness
satisfied over the fair market value of such stock and warrants.
Such COD income generally is recognized and included in the corporation's
taxable income, except to the extent that the taxpayer is insolvent (or if the
taxpayer is in bankruptcy). Certain tax attributes of the taxpayer, including
net operating loss carryovers ("NOLs"), tax credit and capital loss
carryforwards and tax basis in property, must be reduced by the amount of the
taxpayer's COD income that is excluded due to insolvency. Such attribute
reductions are made after the determination of the taxpayer's tax liability for
the taxable year in which the debt cancellation occurs.
Whether Hybridon will recognize COD income upon the exchange of Notes will
depend upon the value of the Series A Preferred Stock and Exchange Warrants at
the time of the exchange. Any such COD income will be excluded from Hybridon's
taxable income to the extent, if any, of its insolvency at such time (with
correlative reduction of its tax attributes), and the remainder will be included
in Hybridon's taxable income. In general, Hybridon will be able to apply its
NOLs, to the extent thereof, against any such COD income that is not excludable.
Limitation on NOL Utilization
A corporation that undergoes an "ownership change" is generally limited in the
use of its pre-change NOLs and certain built-in losses. An ownership change
generally occurs when the percentage of the corporation's stock by value held by
certain persons (identified in the Code as "5% shareholders") increases in the
aggregate by more than 50 percentage points over the lowest level held by such
persons during a three-year testing period. Hybridon believes that while the
exchange of Notes for Series A Preferred Stock and Exchange Warrants will not
result in an ownership change of Hybridon for these purposes, the conversion of
the Offering Notes into Series B Preferred Stock upon a Restructuring Trigger
may result in such an ownership change.
If an ownership change occurs, the corporation's annual utilization of its NOLs
is limited (subject to special rules with respect to certain built-in-gains) to
the product of the corporation's equity value immediately before the ownership
change multiplied by the applicable long-term federal tax-exempt rate. For
Federal income tax purposes, net operating loss and tax credit carryforwards as
of December 31, 1996 were approximately $138,191,000 and $2,989,000,
respectively. An ownership change would severely limit Hybridon's ability to use
such carryforwards.
Tax Consequences to Holders of Notes
The Exchange
The exchange of Notes for shares of Series A Preferred Stock and Warrants
pursuant to the Offer should constitute a recapitalization under Section
368(a)(1)(E) of the Code, and, therefore, except as provided below, no gain or
loss should be recognized by the holders of Notes. Notwithstanding the above,
provided the exchange occurs before March 9, 1998, any realized gain should be
recognized and includable in income to the extent of the fair market value of
the Exchange Warrants (not attributable to accrued but unpaid interest)
received. The amount of gain realized should equal the positive difference, if
any, between (a) the fair market vale of the Series A Preferred Stock and
Exchange Warrants received, except to the extent attributable to accrued
interest, and (b) the principal amount of the Notes exchanged.
Any such gain recognized generally should constitute short term capital gain.
In addition, exchanging holders of Notes who have not previously included in
income accrued but unpaid interest should recognize ordinary interest income to
the extent that the Series A Preferred Stock and Exchange Warrants received is
attributable to such accrued but unpaid interest. Holders who have previously
included in income accrued but unpaid interest should be entitled to a
deductible loss to the extent such previously included interest income exceeds
the portion of the Series A Preferred Stock and Exchange Warrants received
attributable to such interest. The terms of the Offer provide that the fair
market value of the Series A Preferred Stock and Exchange Warrants will be
allocated first to principal and then to accrued but unpaid interest on the
principal amount of the Notes. Hybridon will report interest in its information
filings to holders and to the Service in a manner consistent with the above
allocation. However, there can be no assurance that the Service will agree with
such allocation. If the Service were to successfully allocate a greater portion
of the exchange consideration to accrued but unpaid interest, cash basis holders
may recognize a greater amount of interest income.
Gain or loss should be recognized to the extent that the amount of any cash
received in lieu of fractional shares of Series A Preferred Stock exceeds (or,
in the case of a loss, is less than) the holder's basis in the Notes allocable
to such fractional interests received.
The Exchange Warrants
Basis and Holding Period. In general, a holder's tax basis in the Exchange
Warrants received pursuant to the Restructuring should equal their fair market
value (except that, if the exchange occurs on or after March 9, 1998, the
holder's basis in the Exchange Warrants (and not allocable to accrued and unpaid
interest) should equal the holder's adjusted tax basis in the portion of the
Notes surrendered allocable to the Exchange Warrants received). A holder's
holding period in the Exchange Warrants should begin on the day after the
exchange (except that if the exchange occurs on or after March 9, 1998, the
holding period for the Exchange Warrants (other than those attributable to
accrued but unpaid interest) should include the holding period of the Notes
exchanged).
Exercise or Sale of an Exchange Warrant. The exercise of an Exchange Warrant
should not be taxable to the holder thereof. A holder of an Exchange Warrant
should recognize gain or loss upon the sale of an Exchange Warrant in an amount
equal to the difference between the amount realized on the sale and the holder's
adjusted
18
<PAGE>
tax basis in the Exchange Warrant. Such gain or loss generally should constitute
long term capital gain or loss if the holder's holding period for the Exchange
Warrants was more than one year, and with respect to individual holders, should
be taxed at the lowest rates applicable to capital gains if such holding period
was more than 18 months.
Expiration of the Exchange Warrants. Upon the expiration of an unexercised
Exchange Warrant, a holder should recognize a loss equal to the holder's
adjusted tax basis in the Exchange Warrant. Such loss generally should be long
term capital loss if the Exchange Warrant was held for more than one year.
Series A Preferred Stock and Hybridon Common Stock
Basis and Holding Period. In general, a holder's tax basis in the Series A
Preferred Stock received pursuant to the Restructuring (other than stock
received attributable to accrued but unpaid interest) should equal the sum of
the holder's adjusted tax basis in the Notes surrendered (other than the tax
basis in the portion of the Notes treated as exchanged for cash in lieu of
fractional shares of Series A Preferred Stock), decreased by the fair market
value of the Exchange Warrants received and increased by the amount of gain
recognized with respect to the receipt of the Exchange Warrants. However, if the
exchange occurs on or after March 9, 1998, the holder's basis in the Series A
Preferred Stock (that is not allocable to accrued but unpaid interest) should
equal the holder's adjusted tax basis in the portion of the Notes surrendered
allocable to the Series A Preferred Stock received). A holder's holding period
in the Series A Preferred Stock received (and not allocable to accrued and
unpaid interest) should include its holding period for the Notes surrendered.
The holder's tax basis in that portion of the Series A Preferred Stock received
that is allocable to accrued and unpaid interest should be equal to the amount
of such interest deemed received, and the holder's holding period in such
portion of the Series A Preferred Stock allocable to accrued and unpaid interest
should begin on the day after the exchange.
A holder's tax basis in shares of Hybridon Common Stock received upon the
conversion of Series A Preferred Stock should be the same as the holder's
adjusted tax basis in the Series A Preferred Stock converted (reduced by the
portion of such basis allocable to any fractional shares of Hybridon Common
Stock for which the holder receives a cash payment from Hybridon). The holding
period of the Hybridon Common Stock received in the conversion should include
the holding period of the shares of Series A Preferred Stock that were
converted.
A holder's basis in Hybridon Common Stock acquired upon exercise of an Exchange
Warrant should equal the sum of (a) its basis in the Exchange Warrant and (b)
the cash paid upon exercise of the Exchange Warrant. The holding period for the
Hybridon Common Stock acquired upon exercise of an Exchange Warrant should begin
on the day following the day of exercise.
Dividends. Dividends paid on Series A Preferred Stock (whether in cash or in
kind) or on Hybridon Common Stock should be taxable to a holder as ordinary
income, to the extent paid out of Hybridon's current or accumulated earnings and
profits. Subject to certain restrictions, dividends received by a corporate
holder generally will be eligible for the 70% dividends received deduction.
Sale. A holder of Series A Preferred Stock or Hybridon Common Stock who sells or
otherwise disposes of such stock in a taxable transaction should recognize
capital gain or loss equal to the difference between the cash and the fair
market value of any property received on such sale and the holder's tax basis in
such stock. Such gain or loss should be long term gain or loss if the holding
period for such stock was more than one year and, with respect to individual
holders, should be taxed at the lowest rates applicable to capital gains if such
holding period was more than 18 months.
Redemption. A redemption by Hybridon of some or all of a holder's Series A
Preferred Stock or Hybridon Common Stock should be treated as a dividend to the
redeeming holder to the extent of Hybridon's current and accumulated earnings
and profits unless the redemption meets one of the tests under Section 302(b) of
the Code. If one of the tests under Section 302(b) is met, the redemption should
be treated as an exchange giving rise to capital gain or loss as described
above, except to the extent of declared but unpaid dividends. Holders should
consult their tax advisors as to the application of Section 302(b) to their
particular circumstances.
Conversion of Series A Preferred Stock. A holder generally should not recognize
gain or loss upon conversion of Series A Preferred Stock into Hybridon Common
Stock (except to the extent that any cash paid in lieu of a fractional share
exceeds the holder's tax basis in the Series A Preferred Stock allocable to such
fractional share).
Adjustments to Conversion Price. Pursuant to Treasury Regulations promulgated
under Section 305 of the Code, a holder of an Exchange Warrant or Series A
Preferred Stock may be treated as having received a constructive distribution
from Hybridon upon an adjustment in the conversion (or exercise) price of the
Exchange Warrants or Series A Preferred Stock if (i) as a result of such
adjustment, the proportionate interest of such holder in the assets or earnings
and profits of Hybridon is increased and (ii) the adjustment is not made
pursuant to a bona fide, reasonable, anti-dilution formula. An adjustment in the
conversion price would not be considered made pursuant to such a formula if the
adjustment were made to compensate for certain taxable distributions with
respect to the Hybridon Common Stock into which the Exchange Warrants and Series
A Preferred Stock are convertible (or exercisable). Thus, under certain
circumstances, a decrease in the conversion price of the Exchange Warrants or
Series A Preferred Stock may be taxable to a holder of an Exchange Warrant or
Series A Preferred Stock as a dividend to the extent of the current or
accumulated earnings and profits of Hybridon. In particular, the issuance of
Reset Warrants and an adjustment to the conversion price of the Series A
Preferred Stock may be taxable to holders of Series A Preferred Stock. In
addition, the failure to adjust fully the conversion (or exercise) price of the
Exchange Warrants or the Series A Preferred Stock to reflect distributions of
stock dividends with respect to the Hybridon Common Stock may result in a
taxable dividend to the holders of Hybridon Common Stock.
Backup Withholding
A holder of Notes, Series A Preferred Stock, Hybridon Common Stock or Exchange
Warrants may, under certain circumstances, be subject to "backup withholding" at
the rate of 31% with respect to cash payments made in lieu of fractional shares
of Series A Preferred Stock in the exchange, dividends with respect to stock or
the
19
<PAGE>
proceeds of a sale, exchange or redemption of stock or warrants unless such
holder (i) is a corporation or comes within certain other exempt categories and,
when required, demonstrates this fact or (ii) provides a correct taxpayer
identification number, certifies that such holder is not subject to backup
withholding and otherwise complies with applicable requirements of the backup
withholding provisions. A holder who does not provide a correct taxpayer
identification number may be subject to penalties imposed by the Service. Any
amount withheld under these rules will be creditable against the holder's
federal income tax liability.
THE TAX CONSEQUENCES OF A SALE PURSUANT TO THE OFFER MAY VARY DEPENDING UPON THE
PARTICULAR CIRCUMSTANCES OF THE TENDERING NOTEHOLDER. NO INFORMATION IS PROVIDED
HEREIN AS TO THE STATE, LOCAL OR FOREIGN TAX CONSEQUENCES OF THE OFFER. EACH
NOTEHOLDER IS URGED TO CONSULT SUCH NOTEHOLDER'S OWN TAX ADVISOR TO DETERMINE
THE PARTICULAR FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF SALES
PURSUANT TO THE OFFER TO SUCH NOTEHOLDER.
FEES AND EXPENSES
Hybridon has retained ChaseMellon Shareholder Services, L.L.C., as Depositary in
connection with the Offer. Hybridon or its agent or representative may contact
Noteholders by mail, telephone, telex, telegraph and personal interviews, and
may request brokers, dealers, banks, trust companies and other nominees to
forward materials relating to the Offer to beneficial owners. The Depositary
will receive reasonable and customary compensation for its services and will
also be reimbursed for certain out-of-pocket expenses. Hybridon has agreed to
indemnify the Depositary against certain liabilities, including certain
liabilities under the federal securities laws, in connection with the Offer. The
Depositary has not been retained for the purposes of making solicitations or
recommendations in connection with the Offer.
Other than as described above, Hybridon will not pay any solicitation fees to
any broker, dealer, bank, trust company or other person for any Notes exchanged
in connection with the Offer. Hybridon will reimburse such persons for customary
handling and mailing expenses incurred in connection with the Offer.
CERTAIN INFORMATION CONCERNING HYBRIDON
Hybridon, established in 1989, believes that it is a leader in the discovery and
development of novel genetic medicines based primarily on antisense technology.
Antisense technology involves the use of synthetic segments of DNA
(oligonucleotides) constructed through rational drug design to interact at the
genetic level with target messenger RNA, which codes for the production of
proteins. In contrast to traditional drugs, which are designed to interact with
protein molecules associated with diseases, antisense drugs work at the genetic
level to interrupt the process by which disease-causing proteins are produced.
Drugs based on antisense technology may have broader applicability, greater
efficacy and fewer side effects than conventional drugs because antisense
compounds are designed to intervene early in the disease process at the genetic
level and in a highly specific fashion.
For the most recent developments concerning Hybridon, see "Recent Developments."
The principal executive offices of Hybridon are located at 620 Memorial Drive,
Cambridge, MA 02139; telephone number (617) 528-7000.
Business of Hybridon
The information set forth under Item 1, Part I of the Annual Report on Form 10-K
for the fiscal year ended December 31, 1996 of Hybridon, which is attached
hereto as Annex D (the "10-K"), is incorporated herein by reference.
Properties and Facilities
The information set forth in Item 2, Part I of the 10-K, which is attached
hereto as Annex D, is incorporated herein by reference.
Legal Proceedings
The information set forth in Item 3, Part I of the 10-K, which is attached
hereto as Annex D, is incorporated herein by reference.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
See "Price Range of Hybridon Common Stock; Dividends."
20
<PAGE>
SELECTED FINANCIAL DATA
The information set forth in Item 6, Part II of the 10-K, which is attached
hereto as Annex D, is incorporated herein by reference.
<TABLE>
<CAPTION>
SELECTED CONSOLIDATED FINANCIAL DATA
In thousands, except per share data
Years Ended Nine Months Ended
December 31, September 30,
------------------------- ------------------------------------------------
1995 1996 1996 1997 1997 1997
Pro Pro Forma
Forma(1) As Adjusted(2)
Statement of Operations Data:
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 1,405 $ 4,009 $ 2,946 $ 3,143 $ 3,143 $ 3,143
Net Loss (34,547) (46,853) (32,458) (49,977) (47,727) (47,727)
Net Loss Applicable to Common
Stockholders (3) (34,547) (46,853) (32,458) (49,977) (49,352) (49,352)
Basic loss per share (3) $ (10.67) $ (9.66) $ (6.77) $ (9.90) $ (9.78) $ (9.78)
Diluted loss per share (3) $ (10.67) $ (9.66) $ (6.77) $ (9.90) $ (9.78) $ (9.78)
Shares used in basic and diluted loss per share 3,239 4,852 4,798 5,047 5,047 5,047
<CAPTION>
As of September 30, 1997
As of December 31, Pro Forma
1995 1996 Actual Pro Forma(1) As Adjusted(2)
------------------------------- ---------------------------------------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash, cash equivalents and short-term
investments (4) $ 5,284 $ 16,419 $ 14,792 $ 14,792 $ 34,798
Working capital (deficit) 210 8,888 (2,623) (373) 19,633
Total assets 19,618 41,537 46,603 43,987 63,993
Long-term debt, net of current portion 1,145 9,032 3,557 3,557 3,557
9% Convertible Subordinated Notes due 2004 - - 50,000 - -
Deficit accumulated in the development stage (102,341) (149,194) (199,171) (199,171) (199,171)
Total stockholders' equity (deficit) $ 12,447 $ 22,855 $ (26,622) $ 23,012 $ 43,018
QUARTERLY FINANCIAL DATA
s In thousands, except per share data
<CAPTION>
Three Months Ended
--------------------------------------------------------------
March 31, June 30, September 30,
1997 1997 1997
--------------------------------------------------------------
<S> <C> <C> <C>
Revenues $ 1,059 $ 1,415 $ 668
Operating expenses (15,077) (18,941) (19,102)
Net loss (14,018) (17,525) (18,434)
Basic loss per share (3) (2.78) (3.47) (3.65)
Diluted loss per share (3) (2.78) (3.47) (3.65)
Cash, cash equivalents and short-investments (4) 2,490 28,648 14,792
Total Assets 30,967 61,309 46,603
Total current liabilities 12,302 9,571 19,668
Long-term debt and capital lease obligation, net of current portion 9,500 10,020 3,557
9% Convertible Subordinated Notes due 2004 - 50,000 50,000
Total stockholders' equity 9,165 (8,281) (26,622)
</TABLE>
21
<PAGE>
(1) Pro forma to give effect to the exchange of $50 million in principal
amount of the Notes and $2,250,000 of accrued interest thereon for
Series A Convertible Preferred Stock and the writeoff of $2,616,000 of
deferred financing costs to additional paid in capital. There can be
no assurance that $50 million in principal amount of the Notes will be
exchanged. Such pro forma adjustments do not reflect the impact of the
New Offering or the issuance of any Offering Notes.
(2) Pro forma as adjusted to give effect to the exchange of $50 million in
principal amount of the Notes and $2,250,000 of accrued interest
thereon for Series A Convertible Preferred Stock and the writeoff of
$2,616,000 of deferred financing costs to additional paid in capital
and the issuance of $23.8 million of Series B Convertible Preferred
Stock, net of estimated issuance costs of $3,794,000. There can be no
assurance that $50 million in principal amount of the Notes will be
exchanged and $23.8 million of Series B Convertible Preferred Stock
will be issued.
(3) Basic EPS is computed by dividing net loss applicable to common
stockholders (net loss plus cumulative preferred stock dividends) by
the weighted-average number of common shares outstanding during the
period. Convertible securities and common stock equivalents have not
been included in diluted EPS since the effect would be antidilutive.
(4) Short-term investments consisted of U.S. government securities with
maturities greater than three months but less than one year from the
purchase date.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The information set forth in Item 7, Part II of the 10-K, which is attached
hereto as Annex D, and in Item 2, Part I of the Current Report on Form 10-Q for
the fiscal quarter ended September 30, 1997 of Hybridon (the "10-Q"), which is
attached hereto as Annex F, is incorporated herein by reference.
DIRECTORS AND EXECUTIVE OFFICERS OF HYBRIDON
The information set forth under the caption "Executive Officers and Significant
Employees of the Company" in Item 4A, Part I of the 10-K, which is attached
hereto as Annex D, and under the caption "Proposal I--Election of Directors" in
the proxy statement on Schedule 14A for the 1997 Annual Meeting of Stockholders
of Hybridon, attached hereto as Annex F (the "Proxy Statement"), is incorporated
herein by reference.
EXECUTIVE COMPENSATION
The information under the caption "Compensation of Executive Officers" in the
Proxy Statement, which is attached hereto as Annex F, is incorporated herein by
reference.
STOCK PERFORMANCE GRAPH
The information set forth under the caption "Comparative Stock Performance" in
the Proxy Statement, which is attached hereto as Annex F, is incorporated by
reference.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information set forth under the caption "Security Ownership of Certain
Beneficial Owners and Management" in the Proxy Statement, which is attached
hereto as Annex F, is incorporated herein by reference.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth under the caption "Security Ownership of Certain
Beneficial Owners and Management" in the Proxy Statement, which is attached
hereto as Annex F, is incorporated herein by reference.
22
<PAGE>
ADDITIONAL INFORMATION
Hybridon is subject to the informational requirements of the Exchange Act and,
in accordance therewith, files reports, proxy statements and other information
with the Commission. Hybridon has also filed an Issuer Tender Offer Statement on
Schedule 13E-4 with the Commission which includes certain additional information
relating to the Offer.
Such material can be inspected and copied at the public reference facilities of
the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and
the public reference facilities in the Commission's Regional Offices located at
Seven World Trade Center, Suite 1300, New York, New York 10048, and 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material can
be obtained at prescribed rates by writing to the Commission, Public Reference
Section, 450 Fifth Street, N.W., Washington, D.C. 20549. Copies of certain of
such material can also be inspected at the offices of the Nasdaq Stock Market,
Inc., 1735 K Street, Washington, DC 20006-1500. Hybridon's Schedule 13E-4 will
not be available at the Commission's Regional Offices. The Commission maintains
a site (http://www.sec.gov) on the World Wide Web that contains reports, proxy
and information statements and other information regarding registrants, such as
Hybridon, that file such documents electronically with the Commission.
MISCELLANEOUS
The Offer is not being made to, nor will Hybridon accept tenders from,
Noteholders in any jurisdiction in which the Offer or its acceptance would not
be in compliance with the laws of such jurisdiction. Hybridon is not aware of
any jurisdiction where the making of the Offer or the tender of the Notes would
not be in compliance with applicable law. If Hybridon becomes aware of any
jurisdiction where the making of the Offer or the tender of the Notes is not in
compliance with any applicable law, Hybridon will make a good faith effort to
comply with such law. If, after such good faith effort, Hybridon cannot comply
with such law, the Offer will not be made to (nor will tenders be accepted from
or on behalf of) the holders of the Notes residing in such jurisdiction. In any
jurisdiction in which the securities, blue sky or other laws require the Offer
to be made by a licensed broker or dealer, the Offer will be deemed to be made
on Hybridon's behalf by one or more registered brokers or dealers licensed under
the laws of such jurisdiction.
Facsimile copies of the Letter of Transmittal for the Notes to be tendered will
be accepted. The Letter of Transmittal and certificates for Notes (or in case of
book entry transfer of Notes, a copy of confirmation of such transfer) should be
sent or delivered by each tendering Noteholder or such Noteholder's broker,
dealer, bank or trust company to the Depositary at its address set forth on the
back cover of this Offer to Exchange.
23
<PAGE>
The Depositary for the Offer is:
ChaseMellon Shareholder Services, L.L.C.
By Mail: By Overnight Delivery: By Hand:
P.O. Box 3301 85 Challenger Road 120 Broadway
South Hackensack, NJ 07606 Mail Drop-Reorg 13th Floor
Ridgefield Park, NJ 07660 New York, NY 10271
Attn: Reorganization Dept.
Facsimile (for eligible institutions): (201) 329-8936
Confirm facsimile by telephone ONLY: (201) 296-4860
Any questions or requests for assistance may be directed to Hybridon at its
telephone number and address listed below. Requests for additional copies of
this Offer to Exchange, the Letter of Transmittal or other tender offer
materials may also be directed to, and such copies will be furnished promptly at
Hybridon's expense. Noteholders may also contact their local broker, dealer,
bank or trust company for assistance concerning the Offer.
Hybridon, Inc.
620 Memorial Drive
Cambridge, MA 02139
(617) 528-7000
24
<PAGE>
ANNEX A
-------
CERTIFICATE OF DESIGNATION
for
SERIES A CONVERTIBLE PREFERRED STOCK
of
HYBRIDON INC.
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
HYBRIDON INC., a corporation organized and existing under the laws of
the State of Delaware (the "Corporation"), does hereby certify that pursuant to
the authority conferred on the board of directors of the Corporation (the "Board
of Directors") by the Restated Certificate of Incorporation (the "Certificate of
Incorporation") of the Corporation and in accordance with Section 151 of the
General Corporation Law of the State of Delaware, the Board of Directors adopted
the following resolution establishing a series of 1,033,232 shares of preferred
stock of the Corporation designated as "Series A Convertible Preferred Stock":
RESOLVED, that pursuant to the authority conferred on the Board of
Directors by the Certificate of Incorporation, a series of preferred stock,
par value $.01 per share, of the Corporation is hereby established and
created, and that the designation and number of shares thereof and the
voting and other powers, preferences and relative participating, optional
or other special rights of, the shares of such series and the
qualifications, limitations and restrictions thereof are as follows:
Series A Convertible Preferred Stock
1. Designation and Amount and Definitions. (a) There shall be a series
of Preferred Stock designated as "Series A Convertible Preferred Stock" and the
number of shares constituting such series shall be 1,033,232. Such series is
referred to herein as the "Series A Preferred Stock". Notwithstanding any other
provision in this Certificate of Designation of the Series A Preferred Stock
(the "Certificate of Designation") to the contrary, such series shall be senior
to the Series B Convertible Preferred Stock, par value $.01 per share, of the
Corporation (the "Series B Preferred Stock") and the common stock, par value
$.001 per share of the Corporation (the "Common Stock") with respect to
dividends and the distribution of assets upon liquidation, dissolution or
winding up. Such number of shares may be increased or decreased by resolution of
the Board of Directors, subject to the provisions of Section 7 hereof; provided,
<PAGE>
however, that no decrease shall reduce the number of shares of Series A
Preferred Stock to fewer than the number of shares then issued and outstanding.
(b) As used in this Certificate of Designation, except as otherwise
provided in Subsection 4(c), the following terms shall have the following
meanings:
(i) The "Closing Bid Price" for any security for each trading day
shall be the reported per share closing bid price of such security
regular way on the Stock Market on such trading day, or, if there were
no transactions on such trading day, the average of the reported
closing bid and asked prices, regular way, of such security on the
relevant Stock Market on such trading day.
(ii) "Fair Market Value" of any asset (including any security)
means the fair market value thereof as mutually determined by the
Corporation and the holders of a majority of the Series A Preferred
Stock then outstanding. If the Corporation and the holders of a
majority of the Series A Preferred Stock then outstanding are unable
to reach agreement on any valuation matter, such valuation shall be
submitted to and determined by a nationally recognized independent
investment bank selected by the Board of Directors and the holders of
a majority of the Series A Preferred Stock then outstanding (or, if
such selection cannot be agreed upon promptly, or in any event within
ten days, then such valuation shall be made by a nationally recognized
independent investment banking firm selected by the American
Arbitration Association in New York City in accordance with its
rules), the costs of which valuation shall be paid for by the
Corporation.
(iii) "Market Price" shall mean the average Closing Bid Price for
twenty (20) consecutive trading days, ending with the trading day
prior to the date as of which the Market Price is being determined
(with appropriate adjustments for subdivisions or combinations of
shares effected during such period), provided that if the prices
referred to in the definition of Closing Bid Price cannot be
determined on any trading day, the Closing Bid Price for such trading
day will be deemed to equal Fair Market Value of such security on such
trading day.
(iv) "Registered Holders" shall mean, at any time, the holders of
record of the Series A Preferred Stock.
(v) The "Stock Market" shall mean, with respect to any security,
the principal national securities exchange on which such security is
listed or admitted to trading or, if such security is not listed or
admitted to trading on any national securities exchange, shall mean
The Nasdaq National Market System ("NNM") or The Nasdaq SmallCap
Market ("SCM" and, together with NNM, "Nasdaq") or, if such security
is not quoted on Nasdaq, shall mean the OTC Bulletin Board or, if such
security is not quoted on the OTC Bulletin Board, shall mean the over-
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the-counter market as furnished by any NASD member firm selected from
time to time by the Corporation for that purpose.
(vi) A "trading day" shall mean a day on which the relevant Stock
Market is open for the transaction of business.
2. Dividends and Distributions. (a) The holders, as of the Dividend
Record Date (as defined below), of the Series A Preferred Stock shall be
entitled to receive semi-annual dividends on their respective shares of Series A
Preferred Stock (aggregating, for this purpose, all shares of Series A Preferred
Stock held of record or, to the Corporation's knowledge, beneficially by such
holder), payable, at the option of the Corporation, in cash or additional shares
of Series A Preferred Stock, at the rate of 6.5% per annum (computed on the
basis of a 360-day year of twelve 30 day months) of the Dividend Base Amount (as
defined below), payable semi-annually in arrears; provided that, to the extent
the declaration or payment of such dividend is prohibited by applicable law,
such dividend need not be paid but shall nevertheless accrue and shall be paid
promptly when applicable law permits. Such dividends shall accrue from the date
of issuance of such share and shall be paid semi-annually on April 1 and October
1 of each year or, if any such day is not a business day, on the next succeeding
business day. Such dividends shall be paid, at the election of the Corporation,
either in cash or additional duly authorized, fully paid and non assessable
shares of Series A Preferred Stock. In calculating the number of shares of
Series A Preferred Stock to be paid with respect to each dividend, the Series A
Preferred Stock shall be valued at $100.00 per share (subject to appropriate
adjustment to reflect any stock split, combination, reclassification or
reorganization of the Series A Preferred Stock). Notwithstanding the foregoing,
the Corporation shall not be required to issue fractional shares of Series A
Preferred Stock; the Corporation may elect, in its sole discretion,
independently for each holder, whether such number of shares (on an aggregated
basis) will be rounded to the nearest whole share (with .5 of a share rounded
upward) or whether such holder will be given cash in lieu of any fractional
shares. The "Dividend Base Amount" of a share of Series A Preferred Stock shall
be $100.00 plus all accrued but unpaid dividends (subject to appropriate
adjustment to reflect any stock split, combination, reclassification or
reorganization of the Series A Preferred Stock). The "Dividend Record Date"
shall mean, for each semi-annual dividend, the March 15 or September 15, as the
case may be, immediately preceding the dividend payment date.
(b) In addition to the foregoing, subject to the rights of the holders
of any shares of any series or class of capital stock ranking prior, and
superior to, or pari passu with, the shares of Series A Preferred Stock with
respect to dividends, the holders of shares of Series A Preferred Stock shall be
entitled to receive, as, when and if declared by the Board of Directors, out of
assets legally available for that purpose, dividends or distributions in cash,
stock or otherwise.
(c) The Corporation shall not declare any dividend or distribution on
any Junior Stock (as defined below) of the Corporation unless all dividends
required by Section 2(a)
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have been or contemporaneously are declared and paid, or declared and a sum
sufficient for the payment thereof set apart for such payment, on the Series A
Preferred Stock.
(d) [Reserved]
(e) All dividends or distributions declared upon the Series A Preferred
Stock shall be declared pro rata per share.
(f) Any reference to "distribution" contained in this Section 2 shall
not be deemed to include any distribution made in connection with or in lieu of
any Liquidation Event (as defined below).
(g) No interest, or sum of money in lieu of interest, shall be payable
in respect of any dividend payment or payments on the Series A Preferred Stock
which may be in arrears (it being understood that this provision does not alter
the Company's obligations under Section 2(a)).
(h) So long as any shares of the Series A Preferred Stock are
outstanding, no dividends, except as described in the next succeeding sentence,
shall be declared or paid or set apart for payment on any class or series of
stock of the Corporation ranking, as to dividends, on a parity with the Series A
Preferred Stock, for any period unless all dividends have been or
contemporaneously are declared and paid, or declared and a sum sufficient for
the payment thereof set apart for such payment, on the Series A Preferred Stock.
When dividends are not paid in full or a sum sufficient for such payment is not
set apart, as aforesaid, upon the shares of the Series A Preferred Stock and any
other class or series of stock ranking on a parity as to dividends with the
Series A Preferred Stock, all dividends declared upon such other stock shall be
declared pro rata so that the amounts of dividends per share declared on the
Series A Preferred Stock and such other stock shall in all cases bear to each
other the same ratio that accrued dividends per share on the shares of the
Series A Preferred Stock and on such other stock bear to each other.
(i) So long as any shares of the Series A Preferred Stock are
outstanding, no other stock of the Corporation ranking on a parity with the
Series A Preferred Stock as to dividends or upon liquidation, dissolution or
winding up shall be redeemed, purchased or otherwise acquired for any
consideration (or any moneys be paid to or made available for a sinking fund or
otherwise for the purchase or redemption of any shares of any such stock) by the
Corporation unless the dividends, if any, accrued on all outstanding shares of
the Series A Preferred Stock shall have been paid or set apart for payment.
(j) "Junior Stock" shall mean the Common Stock and any shares of
preferred stock of any series or class of the Corporation, whether presently
outstanding or hereafter issued, which are junior to the shares of Series A
Preferred Stock with respect to (i) the distribution of assets on any voluntary
or involuntary liquidation, dissolution or winding up of the
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Corporation, (ii) dividends or (iii) voting. The Junior Stock shall expressly
include the Series B Preferred Stock.
3. Liquidation Preference. (a) In the event of a (i) liquidation,
dissolution or winding up of the Corporation, whether voluntary or involuntary,
(ii) a sale or other disposition of all or substantially all of the assets of
the Corporation or (iii) any consolidation, merger, combination, reorganization
or other transaction in which the Corporation is not the surviving entity or
shares of Common Stock constituting in excess of 50% of the voting power of the
Corporation are exchanged for or changed into stock or securities of another
entity, cash and/or any other property (a "Merger Transaction") (items (i), (ii)
and (iii) of this sentence being collectively referred to as a "Liquidation
Event"), after payment or provision for payment of debts and other liabilities
of the Corporation, the holders of the Series A Preferred Stock then outstanding
shall be entitled to be paid out of the assets of the Corporation available for
distribution to its stockholders, whether such assets are capital, surplus, or
earnings, before any payment or declaration and setting apart for payment of any
amount shall be made in respect of any Junior Stock of the Corporation, an
amount equal to the Dividend Base Amount at such time; provided, however, in the
case of a Merger Transaction, such payment may be made in cash, property (valued
as provided in Subsection 3(b)) and/or securities (valued as provided in
Subsection 3(b)) of the entity surviving such Merger Transaction. In the case of
property or in the event that any such securities are subject to an investment
letter or other similar restriction on transferability, the value of such
property or securities shall be determined by agreement between the Corporation
and the holders of a majority of the Series A Preferred Stock then outstanding.
If upon any Liquidation Event, whether voluntary or involuntary, the assets to
be distributed to the holders of the Series A Preferred Stock shall be
insufficient to permit the payment to such shareholders of the full preferential
amounts aforesaid, then all of the assets of the Corporation to be distributed
shall be so distributed ratably to the holders of the Series A Preferred Stock
on the basis of the number of shares of Series A Preferred Stock held.
Notwithstanding item (iii) of the first sentence of this Subsection 3(a), any
consolidation, merger, combination, reorganization or other transaction in which
the Corporation is not the surviving entity but the stockholders of the
Corporation immediately prior to such transaction own in excess of 50% of the
voting power of the corporation surviving such transaction and own such interest
in substantially the same proportions as prior to such transaction, shall not be
considered a Liquidation Event provided that the surviving corporation shall
make appropriate provisions to ensure that the terms of this Certificate of
Designation survive any such transaction. All shares of Series A Preferred Stock
shall rank as to payment upon the occurrence of any Liquidation Event senior to
the shares of Series B Preferred Stock, senior to the Common Stock and, unless
the terms of such series shall provide otherwise, senior to all other series of
the Corporation's preferred stock.
(b) Any securities or other property to be delivered to the holders of
the Series A Preferred Stock pursuant to Subsection 3(a) hereof shall be valued
as follows:
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(i) Securities not subject to an investment letter or other
similar restriction on free marketability:
(A) If actively traded on a Stock Market, the per share
value shall be deemed to be the Market Price of such
securities as of the third day prior to the date of
valuation.
(B) If not actively traded on a Stock Market, the value
shall be the Fair Market Value of such securities.
(ii) For securities for which there is an active public market
but which are subject to an investment letter or other restrictions on
free marketability, the value shall be the Fair Market Value thereof,
determined by discounting appropriately the per share Market Price
thereof.
(iii) For all other securities, the value shall be the Fair
Market Value thereof.
4. Conversion.
(a) Right of Conversion. The shares of Series A Preferred Stock shall
be convertible, in whole or in part, at the option of the holder thereof and
upon notice to the Corporation as set forth in Subsection 4(b), into fully paid
and nonassessable shares of Common Stock and such other securities and property
as hereinafter provided. The initial conversion price per share of Common Stock
(the "Conversion Price"), effective beginning on April 2, 2000 (or, with respect
to any shares of Series A Preferred Stock called for mandatory redemption
pursuant to Subsection 5(b) prior to such date, upon delivery of the notice of
such redemption by the Corporation), shall be equal to the product of 2.125
multiplied by the initial conversion price of the Series B Preferred Stock (the
initial "Series B Conversion Price") and shall be subject to adjustment as
provided herein. The rate at which each share Series A Preferred Stock is
convertible at any time into Common Stock (the "Conversion Rate") shall be
determined by dividing the then existing conversion price (determined in
accordance with this Section 4, including the last paragraph hereof) into the
Dividend Base Amount.
Subject to adjustment pursuant to the provisions of Subsection 4(c)
below, in the event that the Series B Conversion Price is adjusted upon the
initial closing date of the issuance and sale, as contemplated by a Unit
Purchase Agreement dated January [__], 1998 (the "Offering"), of Notes due 2007
of the Corporation ("Offering Notes") or Series B Preferred Stock offered in
lieu of such Offering Notes (the "Initial Closing Date"), any interim closing
date of the Offering (each an "Interim Closing Date") or the final closing date
of the Offering (the "Final Closing Date") contemplated by such Unit Purchase
Agreement (the "Purchase Agreement"), then the Conversion Price shall be
adjusted to equal 212.5% of such Series B
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Conversion Price. If there is any change in Conversion Price as a result of the
preceding sentence, then the Conversion Rate shall be changed accordingly as set
forth above.
If the Board of Directors, or a committee designated by it for such
purpose, pursuant to the provisions of the third paragraph of the Certificate of
Designation for the Series B Preferred Stock, specifies an initial conversion
price applicable to the shares of Series B Preferred Stock lower than the
initial conversion price that would otherwise obtain pursuant to the first two
paragraphs of Subsection 4(a) of the Certificate of Designation for the Series B
Preferred Stock, then the Board of Directors shall make a pro rata adjustment to
the Conversion Price hereunder.
The Corporation shall prepare a certificate signed by the Chairman or
President, and by the Treasurer or an Assistant Treasurer or the Secretary or an
Assistant Secretary, of the Corporation setting forth the Conversion Rate as of
the Final Closing Date, showing in reasonable detail the facts upon which such
adjusted Conversion Rate is based, and such certificate shall forthwith be filed
with the transfer agent of the Series A Preferred Stock. A notice stating that
the Conversion Rate has been adjusted pursuant to the second paragraph of this
Subsection 4(a), or that no adjustment is necessary, and setting forth the
Conversion Rate in effect as of the Final Closing Date shall be mailed as
promptly as practicable after the Final Closing Date by the Corporation to all
record holders of the Series A Preferred Stock at their last addresses as they
shall appear in the stock transfer books of the Corporation.
The Conversion Price (subject to adjustment pursuant to the provisions
of Subsection 4(c)) in effect immediately prior to the date that is 12 months
after the Final Closing Date (the "Reset Date") shall be adjusted and reset
effective as of the Reset Date if the conversion price of the Series B Preferred
Stock (the "Series B Conversion Price") is reset at such time (a "Series B
Reset") pursuant to Subsection 4(a) of the Certificate of Designation for the
Series B Preferred Stock. Upon any Series B Reset, the Conversion Price shall be
reset (a "Reset Event") to equal 212.5% of the Series B Conversion Price
immediately following the Series B Reset. Furthermore, upon the occurrence of a
Reset Event, each Registered Holder as of the Reset Date shall be issued a
warrant (the "Reset Warrant") to purchase the number of shares of Common Stock
equal to the quotient of (1) the difference between (a) the quotient of (x) the
Dividend Base Amount divided by (y) the Series B Conversion Price, immediately
following the Reset Event and (b) the quotient of (x) the Dividend Base Amount
divided by (y) the Series B Conversion Price, immediately prior to the Reset
Event, divided by (2) 2.125. The Reset Warrants shall be exercisable for a
period of seven years from the Final Closing Date at an initial exercise price
equal to the Conversion Price immediately following the Reset Event. The
Corporation shall not be required to issue any fractional shares upon exercise
of the Reset Warrants or pay any cash in lieu thereof. The Corporation shall
prepare a certificate signed by the principal financial officer of the
Corporation setting forth the Conversion Rate as of the Reset Date, showing in
reasonable detail the facts upon which such Conversion Rate is based, and such
certificate shall forthwith be filed with the transfer agent of the Series A
Preferred Stock. A notice stating that the Conversion Rate has been adjusted
pursuant to this paragraph,
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or that no adjustment is necessary, and setting forth the Conversion Rate in
effect as of the Reset Date shall be mailed as promptly as practicable after the
Reset Date by the Corporation to all record holders of the Series A Preferred
Stock at their last addresses as they shall appear in the stock transfer books
of the Corporation.
Until April 2, 2000 (or, with respect to any shares of Series A
Preferred Stock called for mandatory redemption pursuant to Subsection 5(b)
prior to such date ("Redemption Shares"), upon delivery of the notice of such
redemption by the Corporation), notwithstanding any other provisions hereof,
shares of Series A Preferred Stock may only be converted into Common Stock,
other than at the election of the Corporation pursuant to Section 5 hereof, at
the following conversion prices (subject to appropriate adjustment to reflect
any stock split, combination, reclassification or reorganization of the Common
Stock): (1) through April 1, 2000, $35.00 per share; and (2) thereafter (or at
any time with respect to the conversion of Redemption Shares), at the Conversion
Price.
(b) Conversion Procedures. Any holder of shares of Series A Preferred
Stock desiring to convert such shares into Common Stock shall surrender the
certificate or certificates evidencing such shares of Series A Preferred Stock
at the office of the transfer agent for the Series A Preferred Stock, which
certificate or certificates, if the Corporation shall so require, shall be duly
endorsed to the Corporation or in blank, or accompanied by proper instruments of
transfer to the Corporation or in blank, accompanied by irrevocable written
notice to the Corporation that the holder elects so to convert such shares of
Series A Preferred Stock and specifying the name or names (with address) in
which a certificate or certificates evidencing shares of Common Stock are to be
issued. The Corporation need not deem a notice of conversion to be received
unless the holder complies with all the provisions hereof. The Corporation will
instruct the transfer agent (which may be the Corporation) to make a notation of
the date that a notice of conversion is received, which date of receipt shall be
deemed to be the date of receipt for purposes hereof.
The Corporation shall, as soon as practicable after such deposit of
certificates evidencing shares of Series A Preferred Stock accompanied by the
written notice and compliance with any other conditions herein contained,
deliver at such office of such transfer agent to the person for whose account
such shares of Series A Preferred Stock were so surrendered, or to the nominee
or nominees of such person, certificates evidencing the number of full shares of
Common Stock to which such person shall be entitled as aforesaid, subject to
Section 4(d). Subject to the following provisions of this paragraph, such
conversion shall be deemed to have been made as of the date of such surrender of
the shares of Series A Preferred Stock to be converted, and the person or
persons entitled to receive the Common Stock deliverable upon conversion of such
Series A Preferred Stock shall be treated for all purposes as the record holder
or holders of such Common Stock on such date; provided, however, that the
Corporation shall not be required to convert any shares of Series A Preferred
Stock while the stock transfer books of the Corporation are closed for any
purpose, but the surrender of Series A Preferred Stock for conversion during any
period while such books are so closed shall become effective for
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conversion immediately upon the reopening of such books as if the surrender had
been made on the date of such reopening, and the conversion shall be at the
conversion rate in effect on such date. No adjustments in respect of any
dividends on shares surrendered for conversion or any dividend on the Common
Stock issued upon conversion shall be made upon the conversion of any shares of
Series A Preferred Stock.
The Corporation shall at all times, reserve and keep available out of
its authorized but unissued shares of Common Stock, solely for the purpose of
effecting the conversion of the shares of Series A Preferred Stock, such number
of shares of Common Stock as shall from time to time be sufficient to effect the
conversion of all outstanding shares of the Series A Preferred Stock.
All notices of conversion shall be irrevocable; provided, however, that
if the Corporation has sent notice of an event pursuant to Subsection 4(g)
hereof, a holder of Series A Preferred Stock may, at its election, provide in
its notice of conversion that the conversion of its shares of Series A Preferred
Stock shall be contingent upon the occurrence of the record date or
effectiveness of such event (as specified by such holder), provided that such
notice of conversion is received by the Corporation prior to such record date or
effective date, as the case may be.
(c) Adjustment of Conversion Rate and Conversion Price.
(i) As used in this Subsection 4(c), the following terms shall
have the following meanings:
"Capital Stock" of any Person means the Common Stock or Preferred
Stock of such Person. Unless otherwise stated herein or the context
otherwise requires, "Capital Stock" means Capital Stock of the
Corporation;
"Common Stock" of any Person other than the Corporation means the
common equity (however designated), including, without limitation,
common stock or partnership or membership interests of, or
participation or interests in such Person (or equivalents thereof).
"Common Stock" of the Corporation means the Common Stock, par value
$.001 per share, of the Corporation, any successor class or classes of
common equity (however designated) of the Corporation into or for
which such Common Stock may hereafter be converted, exchanged or
reclassified and any class or classes of common equity (however
designated) of the Corporation which may be distributed or issued with
respect to such Common Stock or successor class of classes to holders
thereof generally. Unless otherwise stated herein or the context
requires otherwise, "Common Stock" means Common Stock of the
Corporation;
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"Current Market Price" means, when used with respect to any
security as of any date, the last sale price, regular way, or, in case
no such sale takes place on such date, the average of the closing bid
and asked prices, regular way, of such security in either case as
reported for consolidated transactions on the New York Stock Exchange
or, if such security is not listed or admitted to trading on the New
York Stock Exchange, as reported for consolidated transactions with
respect to securities listed on the principal national securities
exchange on which such security is listed or admitted to trading or,
if such security is not listed or admitted to trading on any national
securities exchange, as reported on the Nasdaq National Market, or, if
such security is not listed or admitted to trading on the Nasdaq
National Market, as reported on the Nasdaq SmallCap Market, or if such
security is not listed or admitted to trading on any national
securities exchange or the Nasdaq National Market or the Nasdaq
SmallCap Market, the average of the high bid and low asked prices of
such security in the over-the-counter market, as reported by the
National Association of Securities Dealers, Inc. Automated Quotations
System or such other system then in use or, if such security is not
quoted by any such organization, the average of the closing bid and
asked prices of such security furnished by a New York Stock Exchange
member firm selected by the Corporation. If such security is not
quoted by any such organization and no such New York Stock Exchange
member firm is able to provide such prices, the Current Market Price
of such security shall be the Fair Market Value thereof;
"Fair Market Value" means, at any date as to any asset, Property
or right (including without limitation, Capital Stock of any Person,
evidence of indebtedness or other securities, but excluding cash), the
fair market value of such item as determined in good faith by the
Board of Directors, whose determination shall be conclusive; provided,
however, that such determination is described in an Officers'
Certificate filed with the transfer agent and that, if there is a
Current Market Price for such item on such date, "Fair Market Value"
means such Current Market Price (without giving effect to the last
sentence of the definition thereof);
"GAAP" means, as of any date, generally accepted accounting
principles in the United States and does not include any
interpretations or regulations that have been proposed but that have
not become effective;
"Officer" means, with respect to any Person, the Chairman of the
Board, the Chief Executive Officer, the President, the Chief Operating
Officer, the Chief Financial Officer, the Treasurer, any Assistant
Treasurer, the Controller, the Secretary, any Assistant Secretary or
any Vice President of such Person;
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"Officers' Certificate" means a certificate signed on behalf of
the Corporation by two Officers, one of whom must be the Chairman of
the Board, the President, the Treasurer or a Vice-President of the
Corporation;
"Person" means any individual, corporation, partnership,
association, trust or any other entity or organization, including a
government or political subdivision or any agency or instrumentality
thereof;
"Preferred Stock" of any Person means the class or classes of
equity, ownership or participation interests (however designated) in
such Person, including, without limitation, stock, share, partnership
and membership interests, which are preferred as to the payment of
dividends or distributions by, or as to the distribution of assets
upon any voluntary or involuntary liquidation or dissolution of, such
Person (or equivalent thereof) over interests of any other class of
interests of such Person. Unless otherwise stated herein or the
context otherwise requires, "Preferred Stock" means Preferred Stock of
the Corporation;
"Property" of any Person means any and all types of real,
personal, tangible, intangible or mixed property owned by such Person
whether or not included on the most recent consolidated balance sheet
of such Person in accordance with GAAP;
"Subsidiary" of a Person on any date means any other Person of
whom such Person owns, directly or indirectly through a Subsidiary or
Subsidiaries of such Person, Capital Stock with voting power, acting
independently and under ordinary circumstances, entitling such person
to elect a majority of the board of directors or other governing body
of such other Person. Unless otherwise stated herein or the context
otherwise requires, "Subsidiary" means a Subsidiary of the
Corporation.
(ii) If the Corporation shall (i) pay a dividend or other
distribution, in Common Stock, on any class of Capital Stock of the
Corporation, (ii) subdivide the outstanding Common Stock into a
greater number of shares by any means or (iii) combine the outstanding
Common Stock into a smaller number of shares by any means including,
without limitation, a reverse stock split), then in each such case the
Conversion Price in effect immediately prior thereto shall be adjusted
so that the Registered Holder of any shares of Series A Preferred
Stock thereafter surrendered for conversion shall be entitled to
receive the number of shares of Common Stock that such Registered
Holder would have owned or have been entitled to receive upon the
happening of such event had such Series A Preferred Stock been
converted immediately prior to the relevant record date or, if there
is no such record date, the effective date of such event. An
adjustment made pursuant to this Paragraph 4(c)(ii) shall become
effective immediately after the
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record date for the determination of stockholders entitled to receive
such dividend or distribution and shall become effective immediately
after the effective date of such subdivision or combination, as the
case may be.
(iii) If the Corporation shall (i) issue or distribute (at a
price per share less than the Current Market Price per share of such
Capital Stock on the date of such issuance or distribution) Capital
Stock generally to holders of Common Stock or to holders of any class
or series of Capital Stock which is convertible into or exchangeable
or exercisable for Common Stock (excluding an issuance or distribution
of Common Stock described in Paragraph 4(c)(ii)) or (ii) issue or
distribute generally to such holders rights, warrants, options or
convertible or exchangeable securities entitling the holder thereof to
subscribe for, purchase, convert into or exchange for Capital Stock at
a price per share less than the Current Market Price per share of such
Capital Stock on the date of issuance or distribution, then, in each
such case, at the earliest of (A) the date the Corporation enters into
a firm contract for such issuance or distribution, (B) the record date
for the determination of stockholders entitled to receive any such
Capital Stock or any such rights, warrants, options or convertible or
exchangeable securities or (C) the date of actual issuance or
distribution of any such Capital Stock or any such rights, warrants,
options or convertible or exchangeable securities, the Conversion
Price shall be reduced by multiplying the Conversion Price in effect
immediately prior to such earliest date by:
(A) if such Capital Stock is Common Stock, a
fraction the numerator of which is the number of
shares of Common Stock outstanding, on such earliest
date plus the number of shares of Common Stock which
could be purchased at the Current Market Price per
share of Common Stock on the date of such issuance or
distribution with the aggregate consideration (based
on the Fair Market Value thereof) received or
receivable by the Corporation either (A) in
connection with such issuance or distribution or (B)
upon the conversion, exchange, purchase or
subscription of all such rights, warrants, options or
convertible or exchangeable securities (the
"Aggregate Consideration"), and the denominator of
which is the number of shares of Common Stock
outstanding on such earliest date plus the number of
shares of Common Stock to be so issued or distributed
or to be issued upon the conversion, exchange,
purchase or subscription of all such rights,
warrants, options or convertible or exchangeable
securities; or
(B) if such Capital Stock is other than
Common Stock, a fraction the numerator of which is
the Current Market Price per share of Common Stock on
such earliest date minus an amount equal to (A) the
difference between (1) the Current Market Price per
share of such Capital
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Stock multiplied by the number of shares of such
Capital Stock to be so issued and (2) the Aggregate
Consideration, divided by (B) the number of shares of
Common Stock outstanding on such date, and the
denominator of which is the Current Market Price per
share of Common Stock on such earliest date.
Such adjustment shall be made successively whenever any such Capital
Stock, rights, warrants, options or convertible or exchangeable
securities are so issued or distributed. In determining whether any
rights, warrants, options or convertible or exchangeable securities
entitle the holders thereof to subscribe for, purchase, convert into
or exchange for shares of such Capital Stock at less than such Current
Market Price, there shall be taken into account the Fair Market Value
of any consideration received or receivable by the Corporation for
such rights, warrants, options or convertible or exchangeable
securities. If any right, warrant,option or convertible or
exchangeable security, the issuance of which resulted in an adjustment
in the Conversion Price pursuant to this Paragraph 4(c)(iii), shall
expire and shall not have been exercised, the Conversion Price shall
immediately upon such expiration be recomputed to the Conversion Price
which would have been in effect if such right, warrant, option or
convertible or exchangeable securities had never been distributed or
issued. Notwithstanding anything contained in this paragraph to the
contrary, (i) the issuance of Capital Stock upon the exercise of such
rights, warrants or options or the conversion or exchange of such
convertible or exchangeable securities will not cause an adjustment in
the Conversion Price if no such adjustment would have been required at
the time such right, warrant, option or convertible or exchangeable
security was issued or distributed; provided, however, that, if the
consideration payable upon such exercise, conversion or exchange
and/or the Capital Stock receivable thereupon are changed after the
time of the issuance or distribution of such right, warrant, option or
convertible or exchangeable security then such change shall be deemed
to be the expiration thereof without having been exercised and the
issuance or distribution of new options, rights, warrants or
convertible or exchangeable securities and (ii) the issuance of
convertible preferred stock of the Corporation as a dividend on
convertible preferred stock of the Corporation will not cause an
adjustment in the Conversion Price if no such adjustment would have
been required at the time such underlying convertible preferred stock
was issued (or as a result of any subsequent modification to the terms
thereof) and the conversion provisions of such convertible stock so
issued as a dividend are the same as in such underlying convertible
preferred stock.
Notwithstanding any contained in this Certificate of Designation
to the contrary, options, rights or warrants issued or distributed by
the Corporation, including options, rights or warrants distributed
prior to the date of filing of this Certificate of Designation, to
holders of Common Stock generally which, until the
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occurrence of a specified event or events (a "Trigger Event"), (i) are
deemed to be transferred with Common Stock, (ii) are not exercisable
and (iii) are also issued on a pro rata basis with respect to future
issuances of Common Stock, shall be deemed not to have been issued or
distributed for purposes of this Subsection 4(c) (and no adjustment to
the Conversion Price under this Subsection 4(c) will be required)
until the occurrence of the earliest Trigger Event. Upon the
occurrence of a Trigger Event, such options, rights or warrants shall
continue to be deemed not to have been issued or distributed for
purposes of this Subsection 4(c) (and no adjustment to the Conversion
Price under this Subsection 4(c) will be required) if and for so long
as each Registered Holder who thereafter converts such Registered
Holder's Series A Preferred Stock shall be entitled to receive upon
such conversion, in addition to the shares of Common Stock issuable
upon such conversion, a number of such options, rights or warrants, as
the case may be, equal to the number of options, rights or warrants to
which a holder of the number of shares of Common Stock equal to the
number of shares of Common Stock issuable upon conversion of such
Registered Holder's Series A Preferred Stock is entitled to receive at
the time of such conversion in accordance with the terms and provision
of an applicable to such options, rights or warrants. Upon the
expiration of any such options, rights or warrants or at such time, if
any, as a Registered Holder is not entitled to receive such options,
rights or warrants upon conversion of such Registered Holder's Series
A Preferred Stock, an adjustment (if any is required) to the
Conversion Price shall be made in accordance with this Paragraph
4(c)(iii) with respect to the issuance of all such options, rights and
warrants as of the date of issuance thereof, but subject to the
provisions of the preceding paragraph, if any such option, right or
warrant, including any such options right or warrants distributed
prior to the date of filing of this Certificate of Designation, are
subject to events, upon the occurrence of which such options, rights
or warrants become exercisable to purchase different securities,
evidence of indebtedness, cash, Properties or other assets or
different amounts thereof, then, subject to the preceding provision of
this paragraph, the date of the occurrence of any and each such event
shall be deemed to be the date of distribution and record date with
respect to new options, right or warrants with such new purchase
rights (and a termination or expiration of the existing options,
rights or warrants without exercise thereof). In addition, in the
event of any distribution (or deemed distribution) of options, rights
or warrants, or any Trigger Event or other event of the type described
in the preceding sentence, that required (or would have required but
for the provisions of Paragraph 4(c)(vi) or this paragraph) an
adjustment to the Conversion Price under this Subsection 4(c) and such
options, rights or warrants shall thereafter have been redeemed or
repurchased without having been exercised, then the Conversion Price
shall be adjusted upon such redemption or repurchase to give effect to
such distribution, Trigger Event or other event, as the case may, as
though it had instead been a cash distribution, equal on a per share
basis to the result of the aggregate
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redemption or repurchase price received by holders of such options,
rights or warrants divided by the number of shares of Common Stock
outstanding as of the date of such repurchase or redemption, made to
holders of Common Stock generally as of the date of such redemption or
repurchase.
(iv) If the Corporation shall pay or distribute, as a dividend or
otherwise, generally to holders of Common Stock or any class or series
of Capital Stock which is convertible into or exercisable or
exchangeable for Common Stock any assets, Properties or rights
(including, without limitation, evidences of indebtedness of the
Corporation, any Subsidiary or any other Person, cash or Capital Stock
or other securities of the Corporation, any Subsidiary or any other
Person, but excluding payments and distributions as described in
Paragraphs 4(c)(ii) or (iii), dividends and distributions in
connection with a Liquidation Event and distributions consisting
solely of cash described in Paragraph 4(c)(v)), then in each such case
the Conversion Price shall be reduced by multiplying the Conversion
Price in effect immediately prior to the date of such payment or
distribution by a fraction, the numerator of which is the Current
Market Price per share of Common Stock on the record date for the
determination of stockholders entitled to receive such payment or
distribution less the Fair Market Value per share of Common Stock on
such record date of the assets, Properties or rights so paid or
distributed, and the denominator of which is the Current Market Price
per share of Common Stock on such record date. Such adjustment shall
become effective immediately after such record date. For purposes of
this Paragraph 4(c)(iv), such Fair Market Value per share shall equal
the aggregate Fair Market Value on such record date of the assets,
Properties or rights so paid or distributed divided by the number of
shares of Common Stock outstanding on such record date. For all
purposes of this Certificate of Designation, adjustments to any
security's conversion or exercise price pursuant to such security's
original terms shall not be deemed a distribution or dividend to
holders thereof.
(v) If the Corporation shall, by dividend or otherwise, make a
distribution (other than in connection with the liquidation,
dissolution or winding up of the Corporation in its entirety),
generally to holders of Common Stock or any class or series of Capital
Stock which is convertible into or exercisable or exchangeable for
Common Stock, consisting solely of cash where (x) the sum of (i) the
aggregate amount for such cash plus (ii) the aggregate amount of all
cash so distributed (by dividend or otherwise) to such holders within
the 12-month period ending on the record date for determining
stockholder entitled to receive such distribution with respect to
which no adjustment has been made to the Conversion Price pursuant to
this Paragraph 4(c)(v) exceeds (y) 10% of the result of the
multiplication of (1) the Current Market Price per share of Common
Stock on such record date times (2) the number of shares of Common
Stock outstanding on such record date, then the Conversion Price shall
be reduced, effective
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immediately prior to the opening of business on the day following such
record date, by multiplying the Conversion Price in effect immediately
prior to the close of business on the day prior to such record date by
a fraction, the numerator of which is the Current Market Price per
share of Common Stock on such record date less the aggregate amount of
cash per share so distributed and the denominator of which is such
Current Market Price; provided, however, that, if the aggregate amount
of cash per share is equal to or greater than such Current Market
Price, then, in lieu of the foregoing adjustment, adequate provisions
shall be made so that each Registered Holder shall have the right to
receive upon conversion (with respect to each share of Common Stock
issued upon such conversion and in addition to the Common Stock
issuable upon conversion) the aggregate amount of cash per share such
Registered Holder would have received had such Registered Holder's
Series A Preferred Stock been converted immediately prior to such
record date. In no event shall the Conversion Price be increased
pursuant to this Paragraph 4(c)(v); provided, however, that if such
distribution is not so made, the Conversion Price shall be adjusted to
be the Conversion Price which would have been in effect if such
distribution had not been declared. For purposes of this Paragraph
4(c)(v), such aggregate amount of cash per share shall equal such sum
divided by the number of shares of Common Stock outstanding on such
record date.
(vi) The provisions of this Subsection 4(c) shall similarly apply
to all successive events of the type described in this Subsection
4(c). Notwithstanding anything contained herein to the contrary, no
adjustment in the Conversion Price shall be required unless such
adjustment would require an increase or decrease of at least 1% in the
Conversion Price then in effect; provided, however, that any
adjustments which by reason of this Paragraph 4(c)(vi) are not
required to be made shall be carried forward and taken into account in
any subsequent adjustment. All calculations under this Section 4 shall
be made by the Corporation and shall be made to the nearest cent or to
the nearest one hundredth of a share, as the case may be, and the
transfer agent shall be entitled to rely conclusively thereon. Except
as provided in this Section 4, no adjustment in the Conversion Price
will be made for the issuance of Common Stock or any securities
convertible into or exchangeable for Common Stock or carrying the
right to purchase Common Stock or any securities so convertible or
exchangeable.
(vii) Whenever the Conversion Price is adjusted as provided
herein, the Corporation shall promptly file with the transfer agent an
Officers' Certificate setting forth the Conversion Price in effect
after such adjustment and setting forth a brief statement of the facts
requiring such adjustment. Promptly after delivery of such Officers'
Certificate, the Corporation shall give or cause to be given to each
Registered Holder a notice of such adjustment of the Conversion Price
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setting forth the adjusted Conversion Price and the date on which such
adjustment becomes effective.
(viii) Notwithstanding anything contained herein to the contrary,
in any case in which this Subsection 4(c) provides that an adjustment
in the Conversion Price shall become effective immediately after a
record date for an event, the Corporation may defer until the
occurrence of such event (i) issuing to the Registered Holder of any
Series A Preferred Stock converted after such record date and before
the occurrence of such event the additional shares of Common Stock
issuable upon such conversion by reason of the adjustment required by
such event over and above the number of shares of Common Stock
issuable upon such conversion before giving effect to such adjustment
and (ii) paying to such Registered Holder any amount in cash in lieu
of any fractional share of Common Stock pursuant to Subsection 4(d).
(ix) Notwithstanding any other provision hereof, no adjustment to
the Conversion Price shall be made upon the issuance or exercise or
conversion of (1) options or warrants to purchase, in the aggregate,
up to 25% of the securities sold in the Offering issued to any
placement agent or financial advisor in connection with the private
placement of the Offering Notes or Series B Preferred Stock offered in
lieu of Offering Notes and, in each case, warrants to purchase Common
Stock (such options or warrants, the "Offering Warrants"), (2) any
Offering Notes, including any Offering Notes issued pursuant to the
exercise of the Offering Warrants, (3) any Series B Preferred Stock,
including any Series B Preferred Stock issued in the Offering,
pursuant to the exercise of any Offering Warrants or upon conversion
of any Offering Notes, (4) any equity securities or warrants of the
Corporation (including, without limitation, the Series A Preferred
Stock, warrants and equity securities underlying warrants) issued in
exchange for 9% Convertible Subordinated Notes due 2004 (the "9%
Notes") of the Corporation or accrued interest thereon or pursuant to
the conversion or exercise provisions thereof, (5) any warrants issued
in connection with the Offering or upon any Reset Event or Series B
Reset, (6) any warrants issued to Forum Capital Markets, LLC ("Forum")
in exchange for or in addition to, or any amendment to, any warrants
held by Forum, in each case, pursuant to a letter agreement dated
January 5, 1998, between the Corporation and Forum, (7) any Capital
Stock issued or cash paid as dividends on the Series A Preferred Stock
or (8) any Capital Stock issued or cash paid upon the mandatory
conversion or redemption of any Series A Preferred Stock or Series B
Preferred Stock in accordance with Section 5 of this Certificate of
Designation or Section 5 of the Certificate of Designation for the
Series B Preferred Stock.
(d) No Fractional Shares. No fractional shares or scrip representing
fractional shares of Common Stock shall be issued upon conversion of Series A
Preferred Stock. If more
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than one certificate evidencing shares of Series A Preferred Stock shall be
surrendered for conversion at one time by the same holder, the number of full
shares issuable upon conversion thereof shall be computed on the basis of the
aggregate number of shares of Series A Preferred Stock so surrendered. Instead
of any fractional share of Common Stock which would otherwise be issuable upon
conversion of such aggregate number of shares of Series A Preferred Stock, the
Corporation may elect, in its sole discretion, independently for each holder,
whether such number of shares of Common Stock will be rounded to the nearest
whole share (with a .5 of a share rounded upward) or whether such holder will be
given cash, in lieu of any fractional share, in an amount equal to the same
fraction of the Market Price of the Common Stock as of the close of business on
the day of conversion.
(e) [Reserved]
(f) Reservation of Shares; Transfer Taxes, Etc. The Corporation shall
at all times reserve and keep available, out of its authorized and unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the Series A Preferred Stock, such number of shares of its Common Stock free of
preemptive rights as shall be sufficient to effect the conversion of all shares
of Series A Preferred Stock from time to time outstanding. The Corporation shall
use its best efforts from time to time, in accordance with the laws of the State
of Delaware to increase the authorized number of shares of Common Stock if at
any time the number of shares of authorized, unissued and unreserved Common
Stock shall not be sufficient to permit the conversion of all the
then-outstanding shares of Series A Preferred Stock.
The Corporation shall pay any and all issue or other taxes (excluding
any income taxes) that may be payable in respect of any issue or delivery of
shares of Common Stock on conversion of the Series A Preferred Stock. The
Corporation shall not, however, be required to pay any tax which may be payable
in respect of any transfer involved in the issue or delivery of Common Stock (or
other securities or assets) in a name other than that in which the shares of
Series A Preferred Stock so converted were registered. and no such issue or
delivery shall be made unless and until the person requesting such issue has
paid to the Corporation the amount of such tax or has established, to the
satisfaction of the Corporation, that such tax has been paid.
(g) Prior Notice of Certain Events. In case:
(i) the Corporation shall declare any dividend (or any other
distribution); or
(ii) the Corporation shall authorize the granting to the holders
of Common Stock of rights or warrants to subscribe for or purchase any
shares of stock of any class or of any other rights or warrants; or
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(iii) of any reclassification of Common Stock (other than a
subdivision or combination of the outstanding Common Stock, or a
change in par value, or from par value to no par value, or from no par
value to par value); or
(iv) of any consolidation or merger to which the Corporation is a
party and for which approval of any stockholders of the Corporation
shall be required, or of the sale or transfer of all or substantially
all of the assets of the Corporation or of any compulsory share
exchange whereby the Common Stock is converted into other securities,
cash or other property; or
(v) of any Liquidation Event;
then the Corporation shall cause to be filed with the transfer agent for the
Series A Preferred Stock, and shall cause to be mailed to the Registered
Holders, at their last addresses as they shall appear upon the stock transfer
books of the Corporation, at least 20 days prior to the applicable record date
hereinafter specified, a notice stating (x) the date on which a record (if any)
is to be taken for the purpose of such dividend. distribution or granting of
rights or warrants or, if a record is not to be taken, the date as of which the
holders of Common Stock of record to be entitled to such dividend, distribution,
rights or warrants are to be determined and a description of the cash,
securities or other property to be received by such holders upon such dividend,
distribution or granting of rights or warrants or (y) the date on which such
reclassification, consolidation, merger, sale, transfer, share exchange or
Liquidation Event is expected to become effective, the date as of which it is
expected that holders of Common Stock of record shall be entitled to exchange
their shares of Common Stock for securities or other property deliverable upon
such exchange or Liquidation Event and the consideration, including securities
or other property, to be received by such holders upon such exchange; provided,
however, that no failure to mail such notice or any defect therein or in the
mailing thereof shall affect the validity of the corporate action required to be
specified in such notice.
(h) Other Changes in Conversion Rate. The Corporation from time to time
may increase the Conversion Rate by any amount for any period of time if the
period is at least 20 days and if the increase is irrevocable during the period.
Whenever the Conversion Rate is so increased, the Corporation shall mail to the
Registered Holders a notice of the increase at least 15 days before the date the
increased Conversion Rate takes effect, and such notice shall state the
increased Conversion Rate and the period it will be in effect.
The Corporation may make such increases in the Conversion Rate, in
addition to those required or allowed by this Section 4, as shall be determined
by it, as evidenced by a resolution of the Board of Directors, to be advisable
in order to avoid or diminish any income tax to holders of Common Stock
resulting from any dividend or distribution of stock or issuance of rights or
warrants to purchase or subscribe for stock or from any event treated as such
for income tax purposes.
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Notwithstanding the foregoing, the Corporation shall not increase the
Conversion Rate, as provided in this Subsection 4(h), unless the Corporation, at
such time, makes a pro rata increase to the conversion rate of any outstanding
shares of Series B Preferred Stock pursuant to Subsection 4(h) of the
Certificate of Designation for the Series B Preferred Stock. Moreover, the
Corporation shall not increase the conversion rate of the Series B Preferred
Stock pursuant to Subsection 4(h) of the Certificate of Designation for the
Series B Preferred Stock, unless the Corporation, at such time, makes a pro rata
increase in the Conversion Rate applicable after April 1, 2000, pursuant to this
Subsection 4(h).
Notwithstanding anything to the contrary herein, in no case shall the
Conversion Price be adjusted to an amount less than $.001 per share, the current
par value of the Common Stock into which the Series A Preferred Stock is
convertible.
(i) Ambiguities/Errors. The Board of Directors of the Corporation shall
have the power to resolve any ambiguity or correct any error in the provisions
relating to the convertibility of the Series A Preferred Stock, and its actions
in so doing shall be final and conclusive.
5. Mandatory Conversion and Redemption. (a) At any time after the Reset
Date, the Corporation at its option, may cause the Series A Preferred Stock to
be converted in whole or in part, on a pro rata basis, into fully paid and
nonassessable shares of Common Stock using a conversion price equal to 200% of
the then effective Series B Conversion Price if the Closing Bid Price (or, if
the price referenced in the definition of Closing Bid Price cannot be
determined, the Fair Market Value) of the Common Stock shall have exceeded 250%
of the then applicable Series B Conversion Price for at least 20 trading days in
any 30 consecutive trading day period ending three days prior to the date of
notice of conversion (such event, the "Market Trigger"). Any shares of Series A
Preferred Stock so converted shall be treated as having been surrendered by the
holder thereof for conversion pursuant to Section 4 on the date of such
mandatory conversion (unless previously converted at the option of the holder).
(b) At any time after April 1, 2000, the Corporation, at its option,
may redeem the Series A Preferred Stock for cash equal to the Dividend Base
Amount at such time, if the Market Trigger has occurred in the period ending
three days prior to the date of notice of redemption (unless previously
converted at the option of the holder).
(c) If the Corporation elects to convert or redeem (whether by
conversion or redemption, to "Take-Out") any shares of Series A Preferred Stock
pursuant to this Section 5, then the Corporation shall, at the same time,
mandatorily convert shares of Series B Preferred Stock pursuant to Section 5 of
the Certificate of Designation for the Series B Preferred Stock. Moreover, if
the Corporation elects to Take-Out any shares of Series B Preferred Stock
pursuant to Section 5 of the Certificate of Designation for the Series B
Preferred Stock, then the Corporation shall, at the same time, Take-Out shares
of Series A Preferred Stock pursuant to this Section 5. If the Corporation
chooses to Take-Out fewer than all of the shares of the Series
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A Preferred Stock and the Series B Preferred Stock, then the Corporation must
Take-Out an equal percentage of the outstanding shares of both the Series A
Preferred Stock and the Series B Preferred Stock.
(d) No greater than 60 nor fewer than 20 days prior to the date of any
such mandatory conversion or redemption, notice by first class mail, postage
prepaid, shall be given to the holders of record of the Series A Preferred Stock
to be converted or redeemed, addressed to such holders at their last addresses
as shown on the stock transfer books of the Corporation. Each such notice shall
specify the date fixed for conversion or redemption, the place or places for
surrender of shares of Series A Preferred Stock and the then effective
Conversion Rate pursuant to Section 4.
Any notice which is mailed as herein provided shall be conclusively
presumed to have been duly given by the Corporation on the date deposited in the
mail, whether or not the holder of the Series A Preferred Stock receives such
notice; and failure properly to give such notice by mail, or any defect in such
notice, to the holders of the shares to be converted or redeemed shall not
affect the validity of the proceedings for the conversion or redemption of any
other shares of Series A Preferred Stock. On or after the date fixed for
conversion or redemption (the "Take-Out Date") as stated in such notice, each
holder of shares called to be converted or redeemed shall surrender the
certificate evidencing such shares to the Corporation at the place designated in
such notice for conversion or redemption. After the mailing of such notice, but
before the Take-Out Date as stated therein, all rights whatsoever with respect
to the shares so called for conversion or redemption (except the right of the
holders to convert such shares pursuant to Section 4 and to have such shares
converted or redeemed, as the case may be, upon surrender of their certificates
therefor, pursuant to this Section 5) shall terminate. On or after the Take-Out
Date, notwithstanding that the certificates evidencing any shares properly
called for conversion or redemption shall not have been surrendered, such shares
shall no longer be deemed outstanding and all rights whatsoever with respect to
the shares so called for conversion or redemption (except the right of the
holders to have such shares converted or redeemed, as the case may be, upon
surrender of their certificates therefor, pursuant to this Section 5) shall
terminate.
6. Outstanding Shares. For purposes of this Certificate of Designation,
a share of Series A Preferred Stock, when issued, shall be deemed outstanding
except (i) from the date, or the deemed date, of surrender of certificates
evidencing shares of Series A Preferred Stock, all shares of Series A Preferred
Stock converted into Common Stock or redeemed pursuant to Section 5 and (ii)
from the date of registration of transfer, all shares of Series A Preferred
Stock held of record by the Corporation or any subsidiary of the Corporation.
7. Class Voting Rights. The Corporation shall not, without the
affirmative vote or consent of the holders of at least 50% of all outstanding
Series A Preferred Stock, voting separately as a class, (i) amend, alter or
repeal any provision of the Certificate of Incorporation or the Bylaws of the
Corporation so as adversely to affect the relative rights, preferences,
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qualifications, limitations or restrictions of the Series A Preferred Stock (it
being understood that the issuance of securities ranking prior to, or pari passu
with, the Series A Preferred Stock (A) upon a Liquidation Event or (B) with
respect to the payment of dividends or distributions shall not be considered
adversely to affect such relative rights, preferences, qualifications,
limitations or restrictions; provided, however, that the exchange of any shares
of Series B Preferred Stock for shares of a series of preferred stock of the
Corporation ranking prior to the Series A Preferred Stock shall be considered
adversely to affect such relative rights, preferences, qualifications,
limitations or restrictions) or (ii) authorize or issue, or increase the
authorized amount of, Series A Preferred Stock, other than Series A Preferred
Stock issuable in exchange for 9% Notes or accrued interest thereon or issuable
as dividends on Series A Preferred Stock.
8. Status of Acquired Shares. Shares of Series A Preferred Stock
received upon conversion or redemption pursuant to Section 4 or Section 5 or
otherwise acquired by the Corporation will be restored to the status of
authorized but unissued shares of Preferred Stock, without designation as to
class, and may thereafter be issued, but not as shares of Series A Preferred
Stock.
9. Preemptive Rights. The Series A Preferred Stock is not entitled to
any preemptive or subscription rights in respect of any securities of the
Corporation.
10. Severability of Provisions. Whenever possible, each provision
hereof shall be interpreted in a manner as to be effective and valid under
applicable law, but if any provision hereof is held to be prohibited by or
invalid under applicable law, such provision shall be ineffective only to the
extent of such prohibition or invalidity, without invalidating or otherwise
adversely affecting the remaining provisions hereof. If a court of competent
jurisdiction should determine that a provision hereof would be valid or
enforceable if a period of time were extended or shortened or a particular
percentage were increased or decreased, then such court may make such changes as
shall be necessary to render the provision in question effective and valid under
applicable law.
[Signature page follows]
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IN WITNESS WHEREOF, ____________, __________ of the Corporation, acting
for and on behalf of the Corporation, has hereunto subscribed his name this ____
day of ________, 199_.
HYBRIDON, INC.
By:_____________________________
Name:
Title:
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ANNEX B
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FORM OF WARRANT AGREEMENT
AGREEMENT, dated as of this ______th day of ________, 1998, by and
among HYBRIDON, INC., a Delaware corporation ("Company"), and CHASEMELLON
SHAREHOLDER SERVICES, L.L.C., a New Jersey limited liability company, as warrant
agent ("Warrant Agent").
W I T N E S S E T H
WHEREAS, the Company has accepted 9% Convertible Subordinated Notes Due
2004 ("9% Notes") of the Company in exchange for shares of Series A Convertible
Preferred Stock, par value $0.01 per share, (the "Series A Preferred Stock") of
the Company and warrants to be issued pursuant to this Agreement ("Class A
Warrants") pursuant to an Offer to Exchange dated February 3, 1998 disseminated
to all of the holders of the 9% Notes (the "Offer to Exchange," and such
exchange offer, the "Exchange Offer");
WHEREAS, pursuant to the Exchange Offer, the Company may issue a number
of Class A Warrants equal to the Warrant Coverage Quantity (as defined below);
WHEREAS, each Class A Warrant initially entitles the Registered Holder
(as defined below) thereof to purchase one (1) share of Common Stock at the
Exercise Price (as defined below);
WHEREAS, the Company desires the Warrant Agent to act on behalf of the
Company, and the Warrant Agent is willing so to act, in connection with the
issuance, registration, transfer, exchange and redemption of the Class A
Warrants, the issuance of certificates representing the Class A Warrants, the
exercise of the Class A Warrants, and the rights of the holders thereof;
NOW THEREFORE, in consideration of the premises and the mutual
agreements hereinafter set forth and for the purpose of defining the terms and
provisions of the Class A Warrants and the certificates representing the Class A
Warrants and the respective rights and obligations thereunder of the Company,
the holders of certificates representing the Class A Warrants and the Warrant
Agent, the parties hereto agree as follows:
SECTION 1. Definitions. As used herein, the following terms shall have
the following meanings, unless the context shall otherwise require:
(a) "Common Stock" shall mean stock of the Company of any class,
whether now or hereafter authorized, which has the right to participate in the
distribution of earnings and assets of the Company without limit as to amount or
percentage, which at the Initial Closing Date consisted of 100,000,000
authorized shares of Common Stock, par value $.001 per share.
<PAGE>
(b) The "Closing Bid Price," for each trading day, shall be the
reported per share closing bid price of the Common Stock regular way on the
Stock Market on such trading day or, if there were no transactions on such
trading day, shall mean the average of the reported per share closing bid and
asked prices, regular way, of the Common Stock on the Stock Market on such
trading day.
(c) "Corporate Office" shall mean the office of the Warrant Agent (or
its successor) at which, at any particular time, its principal business shall be
administered, which office is located at the date hereof at 450 West 33rd
Street, New York, New York, 10001.
(d) "Exercise Date" shall mean, as to any Class A Warrant, the date on
which the Warrant Agent shall have received both (a) the Warrant Certificate
representing such Class A Warrant, with the subscription form thereon duly
executed by the Registered Holder thereof or his attorney duly authorized in
writing, and (b) payment in cash, or by official bank or certified check made
payable to the Company, of an amount in lawful money of the United States of
America equal to the applicable Exercise Price.
(e) "Exercise Price" shall mean the exercise price per share of Common
Stock to be paid upon exercise of any Class A Warrants in accordance with the
terms hereof, which price shall be as follows: (1) through April 1, 2000
(except, with respect to any Class A Warrants called for mandatory redemption
pursuant to Section 8 prior to such date ("Redemption Warrants"), until delivery
of the notice of such redemption by the Company), $35.00 per share (subject to
appropriate adjustment to reflect any stock split, combination, reclassification
or reorganization of the Common Stock); and (2) thereafter (or at any time with
respect to the exercise of Redemption Warrants), at the Purchase Price.
(f) "Fair Market Value" means, with respect to any security or other
asset, the fair market value set by, or determined in a manner established by,
the Board of Directors of the Company.
(g) "Final Closing Date" shall mean the final closing date of the
Offering.
(h) "Initial Closing Date" shall mean the date of the initial closing
of the Offering.
(i) "Initial Warrant Exercise Date" shall mean, as to each Class A
Warrant, the Final Closing Date.
(j) "Interim Closing Date" shall mean, as to each Class A Warrant, any
closing date of the Offering other than the Initial Closing Date and the Final
Closing Date.
(k) "Market Price" shall mean the average Closing Bid Price, for twenty
(20) consecutive trading days, ending with the trading day prior to the date as
of which the Market Price is being determined (with appropriate adjustments for
subdivisions or combinations of shares effected during such period), provided
that if the prices referred to in the definition of Closing Bid Price cannot be
determined for such period, "Market Price" shall mean Fair Market Value.
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(l) "Offering" shall mean the New Offering (as defined in the
Offer to Exchange) of units each consisting of $100,000 principal amount of
Notes due 2007 ("Offering Notes") of the Company and warrants to purchase Common
Stock ("Class B Warrants").
(m) The "Purchase Price" per share of Common Stock shall mean
the lesser of (i) $6.375 and (ii) 170% of the Trading Price as of the day
immediately preceding (a) the Initial Closing Date, (b) any Interim Closing
Date, or (c) the Final Closing Date of the Offering, whichever is lowest,
subject to adjustment from time to time pursuant to the provisions of Section 9,
and subject to the Company's right to reduce the Purchase Price upon notice to
all Registered Holders (which may be given, without limitation, prior to the
Final Closing Date).
(n) "Redemption Price" shall mean the price at which the
Company may, at its option in accordance with the terms hereof, redeem the Class
A Warrants, which price shall be $.01 per share of Common Stock subject to such
Class A Warrants, as adjusted as provided in Section 8.
(o) "Registered Holder" shall mean, as to any Class A Warrant
and as of any particular date, the person in whose name the certificate
representing the Class A Warrant shall be registered on that date on the books
maintained by the Warrant Agent pursuant to Section 6.
(p) "Series A Preferred Stock" shall mean the Series A
Convertible Preferred Stock of the Company, stated value $100.00 per share, par
value $.01 per share.
(q) "Series B Preferred Stock" shall mean the Series B
Convertible Preferred Stock of the Company, stated value $100.00 per share, par
value $.01 per share.
(r) The "Stock Market" shall mean the principal national
securities exchange on which the Common Stock is listed or admitted to trading
or, if the Common Stock is not listed or admitted to trading on any national
securities exchange, shall mean The Nasdaq National Market System or The Nasdaq
SmallCap Market (collectively, "Nasdaq") or, if the Common Stock is not quoted
on Nasdaq, shall mean the OTC Bulletin Board or, if the Common Stock is not
quoted on the OTC Bulletin Board, shall mean the over-the-counter market as
furnished by any NASD member firm selected from time to time by the Company for
that purpose.
(s) "Trading Price" shall mean the lower of (i) the average
Closing Bid Price (with appropriate adjustments for subdivisions or combinations
of shares effected during such period) for thirty (30) consecutive trading days,
ending with the trading day immediately prior to the date as of which the
Trading Price is being determined, and (ii) the average Closing Bid Price (with
appropriate adjustments for subdivisions or combinations of shares effected
during such period) for five (5) consecutive trading days, ending with the
trading day immediately prior to the date as of which the Trading Price is being
determined.
(t) A "trading day" shall mean a day on which the Stock Market
is open for the transaction of business.
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(u) "Transfer Agent" shall mean ChaseMellon Shareholder
Services, L.L.C., as the Company's transfer agent, or its authorized successor,
as such.
(v) "Warrant Coverage Quantity" shall mean 15% of the quotient
of (i) the initial aggregate Dividend Base Amount (as defined in the Certificate
of Designation for the Series A Preferred Stock) of the Series A Preferred Stock
issued pursuant to the Exchange Offer, divided by (ii) the Purchase Price
without giving effect to any adjustments to such Purchase Price occurring after
the Final Closing Date.
(w) "Warrant Expiration Date" shall mean 5:00 P.M. (New York
time) on (a) the day prior to the seventh anniversary of the Final Closing Date
or (b) the Redemption Date as defined in Section 8, whichever is earlier;
provided that if such date shall in the State of New York be a holiday or a day
on which banks are authorized or required to close, then "Warrant Expiration
Date" shall mean 5:00 P.M. (New York time) on the next following day which in
the State of New York is neither a holiday nor a day on which banks are
authorized or required to close. Upon notice to all Registered Holders, the
Company shall have the right to extend the Warrant Expiration Date.
(x) Unless otherwise stated, section references used within
this Warrant Agreement refer to sections of this Warrant Agreement.
SECTION 2. Warrants and Issuance of Warrant Certificates.
(a) A Class A Warrant initially shall entitle the Registered
Holder of the Warrant Certificate representing such Class A Warrant to purchase
one share of Common Stock upon the exercise thereof, in accordance with the
terms hereof, subject to modification and adjustment as provided in Section 9.
(b) The Class A Warrants issued pursuant to the Exchange Offer
will immediately be detachable and separately transferable from the shares of
Series A Preferred Stock also issued pursuant thereto.
(c) Within five business days after the later of (i) the Final
Closing Date and (ii) the date that 9% Notes are irrevocably exchanged pursuant
to the Exchange Offer, Warrant Certificates representing the number of Class A
Warrants to be issued pursuant to the Exchange Offer shall be executed by the
Company and delivered to the Warrant Agent. Within five business days of receipt
of the Warrant Certificates by the Warrant Agent, the Warrant Agent shall send
the Warrant Certificates to the Registered Holders. The Company shall issue a
written order, signed by its Chairman of the Board, President or any Vice
President and by its Secretary or an Assistant Secretary, to the Warrant Agent
directing that the Warrant Certificates shall be countersigned, issued and
delivered by the Warrant Agent in accordance with the preceding sentence.
(d) From time to time, until the Warrant Expiration Date, the
Transfer Agent shall countersign and deliver stock certificates in required
whole number denominations of
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Common Stock, subject to adjustment as described herein, upon the exercise of
Class A Warrants in accordance with this Agreement.
(e) From time to time, until the Warrant Expiration Date, the Warrant
Agent shall countersign and deliver Warrant Certificates in required whole
number denominations to the persons entitled thereto in connection with any
transfer or exchange permitted under this Agreement; provided that no Warrant
Certificates shall be issued except (i) those initially issued hereunder, (ii)
those issued on or after the Initial Warrant Exercise Date, upon the exercise of
fewer than all Class A Warrants represented by any Warrant Certificate, to
evidence any unexercised Class A Warrants held by the exercising Registered
Holder, (iii) those issued upon any transfer or exchange pursuant to Section 6;
(iv) those issued in replacement of lost, stolen, destroyed or mutilated Warrant
Certificates pursuant to Section 7 and (v) at the option of the Company, in such
form as may be approved by its Board of Directors, to reflect any adjustment to,
or change in: the Purchase Price; the number of shares of Common Stock
purchasable upon exercise of the Class A Warrants; the Redemption Price of the
Class A Warrants; or the Warrant Expiration Date.
SECTION 3. Form and Execution of Warrant Certificates.
(a) The Warrant Certificates shall be substantially in the form annexed
hereto as Exhibit A (the provisions of which are hereby incorporated herein) and
may have such letters, numbers or other marks of identification or designation
and such legends, summaries or endorsements printed, lithographed or engraved
thereon as the Company may deem appropriate and as are not inconsistent with the
provisions of this Agreement, or as may be required to comply with any law or
with any rule or regulation made pursuant thereto or with any rule or regulation
of any stock exchange on which the Class A Warrants may be listed, or to conform
to usage or to the requirements of Section 2. The Warrant Certificates shall be
dated the date of issuance thereof (whether upon initial issuance, transfer,
exchange or in lieu of mutilated, lost, stolen, or destroyed Warrant
Certificates) and issued in registered form. Warrant Certificates shall be
numbered serially with the letters AW on Class A Warrants of all denominations.
(b) Warrant Certificates shall be executed on behalf of the Company by
its Chairman of the Board, President or any Vice President and by its Secretary
or an Assistant Secretary, by manual signatures or by facsimile signatures
printed thereon. Warrant Certificates shall be manually countersigned by the
Warrant Agent and shall not be valid for any purpose unless so countersigned. In
case any officer of the Company who shall have signed any of the Warrant
Certificates shall cease to be an officer of the Company or to hold the
particular office referenced in the Warrant Certificate before the date of
issuance of the Warrant Certificates or before countersignature by the Warrant
Agent and issuance and delivery thereof, such Warrant Certificates may
nevertheless be countersigned by the Warrant Agent, issued and delivered with
the same force and effect as though the person who signed such Warrant
Certificates had not ceased to be an officer of the Company or to hold such
office. After countersignature by the Warrant Agent, Warrant Certificates shall
be delivered by the Warrant Agent to the Registered Holder without further
action by the Company, except as otherwise provided herein.
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SECTION 4. Exercise. Each Class A Warrant may be exercised by the
Registered Holder thereof at any time on or after the Initial Exercise Date, but
not after the Warrant Expiration Date, upon the terms and subject to the
conditions set forth herein and in the applicable Warrant Certificate. A Class A
Warrant shall be deemed to have been exercised immediately prior to the close of
business on the Exercise Date and the person entitled to receive the securities
deliverable upon such exercise shall be treated for all purposes as the holder
of those securities upon the exercise of the Class A Warrant as of the close of
business on the Exercise Date. As soon as practicable on or after the Exercise
Date, the Warrant Agent shall deposit the proceeds received from the exercise of
a Class A Warrant and shall notify the Company in writing of the exercise of the
Class A Warrants. Promptly following, and in any event within five business days
after the date of such notice from the Warrant Agent, the Warrant Agent, on
behalf of the Company, shall cause to be issued and delivered by the Transfer
Agent, to the person or persons entitled to receive the same, a certificate or
certificates for the securities deliverable upon such exercise, (plus a
certificate for any remaining unexercised Class A Warrants of the Registered
Holder). In the case of payment made in the form of a check drawn on an account
of such investment banks and brokerage houses as the Company shall approve in
writing to the Warrant Agent, certificates shall promptly be issued without
prior notice to the Company nor any delay. Upon the exercise of any Class A
Warrant and clearance of the funds received, the Warrant Agent shall promptly
remit the payment received for the Class A Warrant (the "Warrant Proceeds") to
the Company or as the Company may otherwise direct in writing.
SECTION 5. Reservation of Shares; Listing; Payment of Taxes; etc.
(a) The Company covenants that it will at all times reserve and keep
available out of its authorized Common Stock, solely for the purpose of issue
upon exercise of Class A Warrants, such number of shares of Common Stock as
shall then be issuable upon the exercise of all outstanding Class A Warrants.
The Company covenants that all shares of Common Stock which shall be issuable
upon exercise of the Class A Warrants shall, at the time of delivery (assuming
full payment of the Exercise Price thereof), be duly and validly issued, fully
paid, nonassessable and free from all issuance taxes, liens and charges with
respect to the issue thereof including, without limitation, adverse claims
whatsoever (with the exception of claims arising through the acts of the
Registered Holders themselves and except as arising from applicable Federal and
state securities laws) and that the Company shall have paid all taxes, if any,
in respect of the original issuance thereof (except as otherwise provided in
Subsection 5(c)).
(b) The Registered Holders of Class A Warrants shall have the
registration rights provided in Article II of the Letters of Transmittal
referred to in the Offer to Exchange. The Class A Warrants shall not be
exercisable in any state where such exercise would be unlawful.
(c) The Company shall pay all documentary, stamp or similar taxes and
other similar governmental charges (but in no case income taxes) that may be
imposed with respect to the issuance of Class A Warrants, or the issuance or
delivery of any shares upon exercise of the Class A Warrants; provided, however,
that if the shares of Common Stock are to be delivered in a name other than the
name of the Registered Holder of the Warrant Certificate
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representing any Class A Warrant being exercised, then no such delivery shall be
made unless the person requesting the same has paid to the Warrant Agent the
amount of transfer taxes or charges incident thereto, if any.
(d) The Warrant Agent is hereby irrevocably authorized to requisition
the Company's Transfer Agent from time to time for certificates representing
shares of Common Stock issuable upon exercise of the Class A Warrants, and the
Company will authorize the Transfer Agent to comply with all such proper
requisitions. The Company will file with the Warrant Agent a statement setting
forth the name and address of the Transfer Agent of the Company for shares of
Common Stock issuable upon exercise of the Class A Warrants.
SECTION 6. Exchange and Registration of Transfer.
(a) Warrant Certificates may be exchanged for other Warrant
Certificates representing an equal aggregate number of Class A Warrants of the
same class or may be transferred in whole or in part. Warrant Certificates to be
exchanged shall be surrendered to the Warrant Agent at its Corporate Office, and
upon satisfaction of the terms and provisions hereof, the Company shall execute,
and the Warrant Agent shall countersign, issue and deliver in exchange therefor,
the Warrant Certificate or Warrant Certificates that the Registered Holder
making the exchange shall be entitled to receive.
(b) The Warrant Agent shall keep at its office books in which, subject
to such reasonable regulations as it may prescribe, it shall register Warrant
Certificates and any transfers thereof in accordance with its regular practice.
Upon due presentment for registration of transfer of any Warrant Certificate at
such office, the Company shall execute and the Warrant Agent shall issue and
deliver to the transferee or transferees, a new Warrant Certificate or Warrant
Certificates representing an equal aggregate number of Class A Warrants.
(c) With respect to all Warrant Certificates presented for registration
or transfer, or for exchange or exercise, the subscription form on the reverse
thereof shall be duly endorsed, or be accompanied by a written instrument or
instruments of transfer and subscription, in form satisfactory to the Company
and the Warrant Agent, duly executed by the Registered Holder or his
attorney-in-fact duly authorized in writing.
(d) A service charge may be imposed by the Warrant Agent on holders for
any exchange or registration of transfer of Warrant Certificates of such
holders. In addition, the Company may require payment by such holder of a sum
sufficient to cover any tax or governmental or other charge that may be imposed
in connection therewith.
(e) All Warrant Certificates surrendered for exercise, or for exchange
in case of mutilated Warrant Certificates, shall be promptly cancelled by the
Warrant Agent and thereafter retained by the Warrant Agent in a manner
consistent with its customary practices until termination of this Warrant
Agreement or resignation as Warrant Agent or disposed of or destroyed at the
direction of the Company.
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(f) Prior to due presentment for registration of transfer thereof, the
Company and the Warrant Agent may deem and treat the Registered Holder of any
Warrant Certificate as the absolute owner thereof and of each Class A Warrant
represented thereby (notwithstanding any notations of ownership or writing
thereon made by anyone other than a duly authorized officer of the Company or
the Warrant Agent) for all purposes and shall not be affected by any notice to
the contrary.
SECTION 7. Loss or Mutilation. Upon receipt by the Warrant Agent of
evidence satisfactory to it of the ownership of and loss, theft, destruction or
mutilation of any Warrant Certificate and (in case of loss, theft or
destruction) of indemnity satisfactory to it, and (in the case of mutilation)
upon surrender and cancellation thereof, the Company shall execute and the
Warrant Agent shall ( in the absence of notice to the Company and/or Warrant
Agent that the Warrant Certificate has been acquired by a bona fide purchaser)
countersign and deliver to the Registered Holder in lieu thereof a new Warrant
Certificate of like tenor representing an equal aggregate number of Class A
Warrants. Applicants for a substitute Warrant Certificate shall comply with such
other reasonable regulations and pay such other reasonable charges as the
Warrant Agent may prescribe.
SECTION 8. Redemption.
(a) At any time after the first anniversary of the Final Closing Date,
on no fewer than sixty (60) days' prior written notice to Registered Holders of
the Class A Warrants being redeemed, the Company may, at its option, redeem the
Class A Warrants at the Redemption Price, provided the Closing Bid Price exceeds
250% of the conversion price per share of Common Stock of the Series B Preferred
Stock for at least 20 trading days in any 30 consecutive trading day period
ending three days prior to the date of notice of redemption (which shall be the
date of mailing of such notice). All outstanding Class A Warrants must be
redeemed if any are redeemed. The date fixed for redemption of the Class A
Warrants is the "Redemption Date."
(b) If the conditions set forth in Subsection 8(a) are met, and the
Company desires to exercise its right to redeem the Class A Warrants, it shall
request the Warrant Agent to mail a notice of redemption to each of the
Registered Holders of the Class A Warrants to be redeemed, first class, postage
prepaid, not later than the sixtieth day before the date fixed for redemption,
at their last address as shall appear on the records maintained pursuant to
Subsection 6(b). Any notice mailed in the manner provided herein shall be
conclusively presumed to have been duly given whether or not the Registered
Holder receives such notice.
(c) The notice of redemption shall specify (i) the Redemption Price,
(ii) the Redemption Date, (iii) the place where the Warrant Certificates shall
be delivered and the Redemption Price paid and (iv) that the right to exercise
the Class A Warrant shall terminate at 5:00 P.M. (New York time) on the business
day immediately preceding the Redemption Date. No failure to mail such notice
nor any defect therein or in the mailing thereof shall affect the validity of
the proceedings for such redemption except as to a Registered Holder (a) to whom
notice was not mailed or (b) whose notice was defective. An affidavit of the
Warrant Agent or
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<PAGE>
of the Secretary or an Assistant Secretary of the Company that notice of
redemption has been mailed shall, in the absence of fraud, be prima facie
evidence of the facts stated therein.
(d) Any right to exercise a Class A Warrant shall terminate at 5:00
P.M. (New York time) on the business day immediately preceding the Redemption
Date. On and after the Redemption Date, Holders of the Class A Warrants shall
have no further rights except to receive, upon surrender of the Class A Warrant,
the Redemption Price.
(e) From and after the Redemption Date, the Company shall, at the place
specified in the notice of redemption, upon presentation and surrender to the
Company by or on behalf of the Registered Holder thereof of one or more Warrant
Certificates evidencing Class A Warrants to be redeemed, deliver or cause to be
delivered to or upon the written order of such Registered Holder a sum in cash
equal to the Redemption Price of such Class A Warrants. From and after the
Redemption Date and upon the deposit or setting aside by the Company of a sum
sufficient to redeem all the Class A Warrants called for redemption, such Class
A Warrants shall expire and become void and all rights hereunder and under the
Warrant Certificates, except the right to receive payment of the Redemption
Price, shall cease.
(f) The Redemption Price is subject to adjustment upon any issuance of
dividends consisting of Common Stock with respect to the Common Stock, stock
splits or combinations of the outstanding Common Stock and the like (each, a
"Division Event"). Upon any Division Event, the Redemption Price shall be
adjusted to equal the product of the Redemption Price in effect immediately
prior to the Division Event multiplied by a fraction, the numerator of which
shall be the number of outstanding shares of Common Stock immediately preceding
the Division Event, and the denominator of which shall be the number of
outstanding shares of Common Stock immediately following the Division Event.
SECTION 9. Adjustment of Purchase Price and Number of Shares of Common
Stock or Class A Warrants. Upon, and only upon, each adjustment of the Purchase
Price pursuant to this Section 9, the total number of shares of Common Stock
purchasable upon the exercise of each Class A Warrant shall (subject to the
provisions contained in Subsection 9(c)) be such number of shares (calculated to
the nearest tenth) purchasable at the Purchase Price in effect immediately prior
to such adjustment multiplied by a fraction, the numerator of which shall be the
Purchase Price in effect immediately prior to such adjustment and the
denominator of which shall be the Purchase Price in effect immediately after
such adjustment.
(a) The Company may elect, upon any adjustment of the Purchase Price
hereunder, to adjust the number of Class A Warrants outstanding, in lieu of the
adjustment in the number of shares of Common Stock purchasable upon the exercise
of each Class A Warrant as herein provided, so that each Class A Warrant
outstanding after such adjustment shall represent the right to purchase one
share of Common Stock. Each Class A Warrant held of record prior to such
adjustment of the number of Class A Warrants shall become that number of Class A
Warrants (calculated to the nearest tenth) equal to a fraction, the numerator of
which shall be the Purchase Price in effect immediately prior to such adjustment
and the denominator of which shall be the Purchase Price in effect immediately
after such adjustment. Upon each adjustment of the number of Class A Warrants
pursuant to this Section 9, the Company shall,
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as promptly as practicable, cause to be distributed to each Registered Holder of
Warrant Certificates on the date of such adjustment Warrant Certificates
evidencing, subject to Section 10, the number of additional Class A Warrants to
which such Holder shall be entitled as a result of such adjustment or, at the
option of the Company, cause to be distributed to such Holder in substitution
and replacement for the Warrant Certificates held by him prior to the date of
adjustment (and upon surrender thereof, if required by the Company) new Warrant
Certificates evidencing the number of Class A Warrants to which such Holder
shall be entitled after such adjustment.
(b) Irrespective of any adjustments or changes in the Purchase Price or
the number of shares of Common Stock purchasable upon exercise of the Class A
Warrants, the Warrant Certificates theretofore and thereafter issued shall,
unless the Company shall exercise its option to issue new Warrant Certificates
pursuant to Subsection 2(e), continue to express the same Purchase Price per
share, number of shares purchasable thereunder and Redemption Price therefor as
when the same were originally issued.
(c) As used in this Section 9, the following terms shall have the
following meanings:
"Capital Stock" of any Person means the Common Stock or Preferred
Stock of such Person. Unless otherwise stated herein or the context
otherwise requires, "Capital Stock" means Capital Stock of the
Company;
"Common Stock" of any Person other than the Company means the
common equity (however designated), including, without limitation,
common stock or partnership or membership interests of, or
participation or interests in such Person (or equivalents thereof).
"Common Stock" of the Company means the Common Stock, par value $.001
per share, of the Company, any successor class or classes of common
equity (however designated) of the Company into or for which such
Common Stock may hereafter be converted, exchanged or reclassified and
any class or classes of common equity (however designated) of the
Company which may be distributed or issued with respect to such Common
Stock or successor class of classes to holders thereof generally.
Unless otherwise stated herein or the context requires otherwise,
"Common Stock" means Common Stock of the Company;
"Current Market Price" means, when used with respect to any
security as of any date, the last sale price, regular way, or, in case
no such sale takes place on such date, the average of the closing bid
and asked prices, regular way, of such security in either case as
reported for consolidated transactions on the New York Stock Exchange
or, if such security is not listed or admitted to trading on the New
York Stock Exchange, as reported for consolidated transactions with
respect to securities listed on the principal national securities
exchange on which such security is listed or admitted to trading or,
if such security is not listed or admitted to trading on any national
securities exchange, as reported on the Nasdaq National Market, or, if
such security is not listed or admitted to trading
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on the Nasdaq National Market, as reported on the Nasdaq SmallCap
Market, or if such security is not listed or admitted to trading on
any national securities exchange or the Nasdaq National Market or the
Nasdaq SmallCap Market, the average of the high bid and low asked
prices of such security in the over-the-counter market, as reported by
the National Association of Securities Dealers, Inc. Automated
Quotations System or such other system then in use or, if such
security is not quoted by any such organization, the average of the
closing bid and asked prices of such security furnished by a New York
Stock Exchange member firm selected by the Company. If such security
is not quoted by any such organization and no such New York Stock
Exchange member firm is able to provide such prices, the Current
Market Price of such security shall be the Fair Market Value thereof;
"Fair Market Value" means, at any date as to any asset, Property
or right (including without limitation, Capital Stock of any Person,
evidence of indebtedness or other securities, but excluding cash), the
fair market value of such item as determined in good faith by the
Board of Directors, whose determination shall be conclusive; provided,
however, that such determination is described in an Officers'
Certificate filed with the transfer agent and that, if there is a
Current Market Price for such item on such date, "Fair Market Value"
means such Current Market Price (without giving effect to the last
sentence of the definition thereof);
"GAAP" means, as of any date, generally accepted accounting
principles in the United States and does not include any
interpretations or regulations that have been proposed but that have
not become effective;
"Officer" means, with respect to any Person, the Chairman of the
Board, the Chief Executive Officer, the President, the Chief Operating
Officer, the Chief Financial Officer, the Treasurer, any Assistant
Treasurer, the Controller, the Secretary, any Assistant Secretary or
any Vice President of such Person;
"Officers' Certificate" means a certificate signed on behalf of
the Company by two Officers, one of whom must be the Chairman of the
Board, the President, the Treasurer or a Vice-President of the
Company;
"Person" means any individual, corporation, partnership,
association, trust or any other entity or organization, including a
government or political subdivision or any agency or instrumentality
thereof;
"Preferred Stock" of any Person means the class or classes of
equity, ownership or participation interests (however designated) in
such Person, including, without limitation, stock, share, partnership
and membership interests, which are preferred as to the payment of
dividends or distributions by, or as to the distribution of assets
upon any voluntary or involuntary liquidation or dissolution of, such
Person (or equivalent thereof) over interests of any other
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class of interests of such Person. Unless otherwise stated herein or
the context otherwise requires, "Preferred Stock" means Preferred
Stock of the Company;
"Property" of any Person means any and all types of real,
personal, tangible, intangible or mixed property owned by such Person
whether or not included on the most recent consolidated balance sheet
of such Person in accordance with GAAP;
"Subsidiary" of a Person on any date means any other Person of
whom such Person owns, directly or indirectly through a Subsidiary or
Subsidiaries of such Person, Capital Stock with voting power, acting
independently and under ordinary circumstances, entitling such person
to elect a majority of the board of directors or other governing body
of such other Person. Unless otherwise stated herein or the context
otherwise requires, "Subsidiary" means a Subsidiary of the Company.
(d) If the Company shall (i) pay a dividend or other distribution, in
Common Stock, on any class of Capital Stock of the Company, (ii) subdivide the
outstanding Common Stock into a greater number of shares by any means or (iii)
combine the outstanding Common Stock into a smaller number of shares by any
means including, without limitation, a reverse stock split), then in each such
case the Purchase Price in effect immediately prior thereto shall be adjusted so
that the Registered Holder of any Class A Warrants thereafter surrendered for
exercise shall be entitled to receive the number of shares of Common Stock that
such Registered Holder would have owned or have been entitled to receive upon
the happening of such event had such Class A Warrants been exercised immediately
prior to the relevant record date or, if there is no such record date, the
effective date of such event. An adjustment made pursuant to this Subsection
9(d) shall become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or distribution
and shall become effective immediately after the effective date of such
subdivision or combination, as the case may be.
(e) If the Company shall (i) issue or distribute (at a price per share
less than the Current Market Price per share of such Capital Stock on the date
of such issuance or distribution) Capital Stock generally to holders of Common
Stock or to holders of any class or series of Capital Stock which is convertible
into or exchangeable or exercisable for Common Stock (excluding an issuance or
distribution of Common Stock described in Subsection 9(d) or (ii) issue or
distribute generally to such holders rights, warrants, options or convertible or
exchangeable securities entitling the holder thereof to subscribe for, purchase,
convert into or exchange for Capital Stock at a price per share less than the
Current Market Price per share of such Capital Stock on the date of issuance or
distribution, then, in each such case, at the earliest of (A) the date the
Company enters into a firm contract for such issuance or distribution, (B) the
record date for the determination of stockholders entitled to receive any such
Capital Stock or any such rights, warrants, options or convertible or
exchangeable securities or (C) the date of actual issuance or distribution of
any such Capital Stock or any such rights, warrants, options or convertible or
exchangeable securities, the Purchase Price shall be reduced by multiplying the
Purchase Price in effect immediately prior to such earliest date by:
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(i) if such Capital Stock is Common Stock, a fraction the numerator of
which is the number of shares of Common Stock outstanding, on such earliest
date plus the number of shares of Common Stock which could be purchased at
the Current Market Price per share of Common Stock on the date of such
issuance or distribution with the aggregate consideration (based on the
Fair Market Value thereof) received or receivable by the Company either (A)
in connection with such issuance or distribution or (B) upon the
conversion, exchange, purchase or subscription of all such rights,
warrants, options or convertible or exchangeable securities (the "Aggregate
Consideration"), and the denominator of which is the number of shares of
Common Stock outstanding on such earliest date plus the number of shares of
Common Stock to be so issued or distributed or to be issued upon the
conversion, exchange, purchase or subscription of all such rights,
warrants, options or convertible or exchangeable securities; or
(ii) if such Capital Stock is other than Common Stock, a fraction the
numerator of which is the Current Market Price per share of Common Stock on
such earliest date minus an amount equal to (A) the difference between (1)
the Current Market Price per share of such Capital Stock multiplied by the
number of shares of such Capital Stock to be so issued and (2) the
Aggregate Consideration, divided by (B) the number of shares of Common
Stock outstanding on such date, and the denominator of which is the Current
Market Price per share of Common Stock on such earliest date.
Such adjustment shall be made successively whenever any such Capital
Stock, rights, warrants, options or convertible or exchangeable securities are
so issued or distributed. In determining whether any rights, warrants, options
or convertible or exchangeable securities entitle the holders thereof to
subscribe for, purchase, convert into or exchange for shares of such Capital
Stock at less than such Current Market Price, there shall be taken into account
the Fair Market Value of any consideration received or receivable by the Company
for such rights, warrants, options or convertible or exchangeable securities. If
any right, warrant, option or convertible or exchangeable security, the issuance
of which resulted in an adjustment in the Purchase Price pursuant to this
Subsection 9(e), shall expire and shall not have been exercised, the Purchase
Price shall immediately upon such expiration be recomputed to the Purchase Price
which would have been in effect if such right, warrant, option or convertible or
exchangeable securities had never been distributed or issued. Notwithstanding
anything contained in this paragraph to the contrary, (i) the issuance of
Capital Stock upon the exercise of such rights, warrants or options or the
conversion or exchange of such convertible or exchangeable securities will not
cause an adjustment in the Purchase Price if no such adjustment would have been
required at the time such right, warrant, option or convertible or exchangeable
security was issued or distributed; provided, however, that, if the
consideration payable upon such exercise, conversion or exchange and/or the
Capital Stock receivable thereupon are changed after the time of the issuance or
distribution of such right, warrant, option or convertible or exchangeable
security then such change shall be deemed to be the expiration thereof without
having been exercised and the issuance or distribution of new options, rights,
warrants or convertible or exchangeable securities and (ii) the issuance of
convertible preferred stock of the Company as a dividend on convertible
preferred stock of the Company will not cause an adjustment in the Purchase
Price if no such adjustment would have been required at the time such underlying
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convertible preferred stock was issued (or as a result of any subsequent
modification to the terms thereof) and the conversion provisions of such
convertible stock so issued as a dividend are the same as in such underlying
convertible preferred stock.
Notwithstanding anything contained in this Warrant Agreement to the
contrary, options, rights or warrants issued or distributed by the Company,
including options, rights or warrants distributed prior to the date of this
Warrant Agreement, to holders of Common Stock generally which, until the
occurrence of a specified event or events (a "Trigger Event"), (i) are deemed to
be transferred with Common Stock, (ii) are not exercisable and (iii) are also
issued on a pro rata basis with respect to future issuances of Common Stock,
shall be deemed not to have been issued or distributed for purposes of this
Section 9 (and no adjustment to the Purchase Price under this Section 9 will be
required) until the occurrence of the earliest Trigger Event. Upon the
occurrence of a Trigger Event, such options, rights or warrants shall continue
to be deemed not to have been issued or distributed for purposes of this Section
9 (and no adjustment to the Purchase Price under this Section 9 will be
required) if and for so long as each Registered Holder who thereafter exercises
such Registered Holder's Class A Warrants shall be entitled to receive upon such
exercise, in addition to the shares of Common Stock issuable upon such exercise,
a number of such options, rights or warrants, as the case may be, equal to the
number of options, rights or warrants to which a holder of the number of shares
of Common Stock equal to the number of shares of Common Stock issuable upon
exercise of such Registered Holder's Class A Warrants is entitled to receive at
the time of such exercise in accordance with the terms and provision of, and
applicable to, such options, rights or warrants. Upon the expiration of any such
options, rights or warrants or at such time, if any, as a Registered Holder is
not entitled to receive such options, rights or warrants upon exercise of such
Registered Holder's Class A Warrants, an adjustment (if any is required) to the
Purchase Price shall be made in accordance with this Subsection 9(e) with
respect to the issuance of all such options, rights and warrants as of the date
of issuance thereof, but subject to the provisions of the preceding paragraph,
if any such option, right or warrant, including any such options right or
warrants distributed prior to the date of this Warrant Agreement, are subject to
events, upon the occurrence of which such options, rights or warrants become
exercisable to purchase different securities, evidence of indebtedness, cash,
Properties or other assets or different amounts thereof, then, subject to the
preceding provision of this paragraph, the date of the occurrence of any and
each such event shall be deemed to be the date of distribution and record date
with respect to new options, right or warrants with such new purchase rights
(and a termination or expiration of the existing options, rights or warrants
without exercise thereof). In addition, in the event of any distribution (or
deemed distribution) of options, rights or warrants, or any Trigger Event or
other event of the type described in the preceding sentence, that required (or
would have required but for the provisions of Subsection 9(h) or of this
paragraph) an adjustment to the Purchase Price under this Section 9 and such
options, rights or warrants shall thereafter have been redeemed or repurchased
without having been exercised, then the Purchase Price shall be adjusted upon
such redemption or repurchase to give effect to such distribution, Trigger Event
or other event, as the case may, as though it had instead been a cash
distribution, equal on a per share basis to the result of the aggregate
redemption or repurchase price received by holders of such options, rights or
warrants divided by the number of shares of Common Stock outstanding as of the
date of such repurchase or redemption, made to holders of Common Stock generally
as of the date of such redemption or repurchase.
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(f) If the Company shall pay or distribute, as a dividend or otherwise,
generally to holders of Common Stock or any class or series of Capital Stock
which is convertible into or exercisable or exchangeable for Common Stock any
assets, Properties or rights (including, without limitation, evidences of
indebtedness of the Company, any Subsidiary or any other Person, cash or Capital
Stock or other securities of the Company, any Subsidiary or any other Person,
but excluding payments and distributions as described in Subsections 9(d) or
(e), dividends and distributions in connection with a Liquidation Event (as
defined in the Certificate of Designation for the Series A Preferred Stock) and
distributions consisting solely of cash described in Subsection 9(g), then in
each such case the Purchase Price shall be reduced by multiplying the Purchase
Price in effect immediately prior to the date of such payment or distribution by
a fraction, the numerator of which is the Current Market Price per share of
Common Stock on the record date for the determination of stockholders entitled
to receive such payment or distribution less the Fair Market Value per share of
Common Stock on such record date of the assets, Properties or rights so paid or
distributed, and the denominator of which is the Current Market Price per share
of Common Stock on such record date. Such adjustment shall become effective
immediately after such record date. For purposes of this Subsection 9(f), such
Fair Market Value per share shall equal the aggregate Fair Market Value on such
record date of the assets, Properties or rights so paid or distributed divided
by the number of shares of Common Stock outstanding on such record date. For all
purposes of this Warrant Agreement, adjustments to any security's exercise or
exercise price pursuant to such security's original terms shall not be deemed a
distribution or dividend to holders thereof.
(g) If the Company shall, by dividend or otherwise, make a distribution
(other than in connection with the liquidation, dissolution or winding up of the
Company in its entirety), generally to holders of Common Stock or any class or
series of Capital Stock which is convertible into or exercisable or exchangeable
for Common Stock, consisting solely of cash where (x) the sum of (i) the
aggregate amount for such cash plus (ii) the aggregate amount of all cash so
distributed (by dividend or otherwise) to such holders within the 12-month
period ending on the record date for determining stockholder entitled to receive
such distribution with respect to which no adjustment has been made to the
Purchase Price pursuant to this Subsection 9(g) exceeds (y) 10% of the result of
the multiplication of (1) the Current Market Price per share of Common Stock on
such record date times (2) the number of shares of Common Stock outstanding on
such record date, then the Purchase Price shall be reduced, effective
immediately prior to the opening of business on the day following such record
date, by multiplying the Purchase Price in effect immediately prior to the close
of business on the day prior to such record date by a fraction, the numerator of
which is the Current Market Price per share of Common Stock on such record date
less the aggregate amount of cash per share so distributed and the denominator
of which is such Current Market Price; provided, however, that, if the aggregate
amount of cash per share is equal to or greater than such Current Market Price,
then, in lieu of the foregoing adjustment, adequate provisions shall be made so
that each Registered Holder shall have the right to receive upon exercise (with
respect to each share of Common Stock issued upon such exercise and in addition
to the Common Stock issuable upon exercise) the aggregate amount of cash per
share such Registered Holder would have received had such Registered Holder's
Class A Warrant been exercised immediately prior to such record date. In no
event shall the Purchase Price be increased pursuant to this Subsection 9(g);
provided, however, that if such distribution is not so made, the Purchase Price
shall be adjusted to be the
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Purchase Price which would have been in effect if such distribution had not been
declared. For purposes of this Subsection 9(g), such aggregate amount of cash
per share shall equal such sum divided by the number of shares of Common Stock
outstanding on such record date.
(h) The provisions of this Section 9 shall similarly apply to all
successive events of the type described in this Section 9. Notwithstanding
anything contained herein to the contrary, no adjustment in the Purchase Price
shall be required unless such adjustment would require an increase or decrease
of at least 1% in the Purchase Price then in effect; provided, however, that any
adjustments which by reason of this Subsection 9(h) are not required to be made
shall be carried forward and taken into account in any subsequent adjustment.
All calculations under this Section 9 shall be made by the Company and shall be
made to the nearest cent or to the nearest one hundredth of a share, as the case
may be, and the Transfer Agent shall be entitled to rely conclusively thereon.
Except as provided in this Section 9, no adjustment in the Purchase Price will
be made for the issuance of Common Stock or any securities convertible into or
exchangeable for Common Stock or carrying the right to purchase Common Stock or
any securities so convertible or exchangeable.
(i) Whenever the Purchase Price is adjusted as provided herein, the
Company shall promptly file with the Warrant Agent an Officers' Certificate
setting forth the Purchase Price in effect after such adjustment and setting
forth a brief statement of the facts requiring such adjustment. Promptly after
delivery of such Officers' Certificate, the Company shall give or cause to be
given to each Registered Holder a notice of such adjustment of the Purchase
Price setting forth the adjusted Purchase Price and the date on which such
adjustment becomes effective. The Warrant Agent may rely on the information in
such Officers' Certificate as true and correct and has no duty or obligation
independently to verify the amounts or calculations set forth therein.
(j) Notwithstanding anything contained herein to the contrary, in any
case in which this Section 9 provides that an adjustment in the Purchase Price
shall become effective immediately after a record date for an event, the Company
may defer (and shall promptly give the Warrant Agent notice of any such
deferral) until the occurrence of such event (i) issuing to the Registered
Holder of any Class A Warrants exercised after such record date and before the
occurrence of such event the additional shares of Common Stock issuable upon
such exercise by reason of the adjustment required by such event over and above
the number of shares of Common Stock issuable upon such exercise before giving
effect to such adjustment and (ii) paying to such Registered Holder any amount
in cash in lieu of any fractional share of Common Stock pursuant to Section 10.
(k) Notwithstanding any other provision hereof, no adjustment to the
Purchase Price shall be made upon the issuance or exercise or conversion of (1)
options or warrants to purchase, in the aggregate, up to 25% of the securities
sold in the Offering issued to any placement agent or financial advisor in
connection with the private placement of the Offering Notes or Series B
Preferred Stock offered in lieu of Offering Notes and, in each case, warrants to
purchase Common Stock (such options or warrants, the "Offering Warrants"), (2)
any Offering Notes, including any Offering Notes issued pursuant to the exercise
of the Offering Warrants, (3) any Series B Preferred Stock, including any Series
B Preferred Stock issued in the
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Offering, pursuant to the exercise of any Offering Warrants or upon conversion
of any Offering Notes, (4) any equity securities or warrants of the Company
(including, without limitation, the Series A Preferred Stock, warrants and
equity securities underlying warrants) issued in exchange for 9% Notes or
accrued interest thereon or pursuant to the conversion or exercise provisions
thereof, (5) any warrants issued in connection with the Offering or upon any
Reset Event (as defined in the Certificate of Designation for the Series A
Preferred Stock) or Series B Reset (as defined in the Certificate of Designation
for the Series A Preferred Stock), (6) any warrants issued to Forum Capital
Markets, LLC ("Forum") in exchange for or in addition to, or any amendment to,
any warrants held by Forum, in each case, pursuant to a letter agreement dated
January 5, 1998, between the Company and Forum, (7) any Capital Stock issued or
cash paid as dividends on the Series A Preferred Stock or (8) any Capital Stock
issued or cash paid upon the mandatory conversion or redemption of any Series A
Preferred Stock or Series B Preferred Stock in accordance with Section 5 of the
Certificate of Designation for the Series A Preferred Stock or Section 5 of the
Certificate of Designation for the Series B Preferred Stock.
(l) Any determination as to whether an adjustment in the Purchase Price
in effect hereunder is required pursuant to Section 9, or as to the amount of
any such adjustment, if required, shall be binding upon the holders of the Class
A Warrants and the Company if made in good faith by the Board of Directors of
the Company.
SECTION 10. Fractional Warrants and Fractional Shares. No fractional
shares or scrip representing fractional shares of Common Stock shall be issued
upon exercise of Class A Warrants. If more than one certificate evidencing Class
A Warrants shall be surrendered for exercise at one time by the same holder, the
number of full shares issuable upon exercise thereof shall be computed on the
basis of the aggregate number of Class A Warrants so surrendered. Instead of any
fractional share of Common Stock which would otherwise be issuable upon exercise
of such aggregate number of Class A Warrants, the Company may elect in its sole
discretion, independently for each holder, whether such number of shares of
Common Stock will be rounded to the nearest whole share (with .5 of a share
rounded upward) or whether such holder will be given cash, in lieu of any
fractional share, in an amount equal to the same fraction of the Market Price of
the Common Stock as of the Exercise Date.
SECTION 11. Warrant Holders Not Deemed Stockholders. No holder of Class
A Warrants shall, as such, be entitled to vote or to receive dividends or be
deemed the holder of Common Stock that may at any time be issuable upon exercise
of such Class A Warrants for any purpose whatsoever, nor shall anything
contained herein be construed to confer upon the holder of Class A Warrants, as
such, any of the rights of a stockholder of the Company or any right to vote for
the election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action (whether
upon any recapitalization, issue or reclassification of stock, change of par
value or change of stock to no par value, consolidation, merger or conveyance or
otherwise), or to receive notice of meetings, or to receive dividends or
subscription rights, until such Holder shall have exercised such Class A
Warrants and been issued shares of Common Stock in accordance with the
provisions hereof.
SECTION 12. Rights of Action. All rights of action with respect to this
Agreement are vested in the respective Registered Holders of the Class A
Warrants, and any
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Registered Holder of a Class A Warrant, without consent of the Warrant Agent or
of the holder of any other Class A Warrant, may, in his own behalf and for his
own benefit, enforce against the Company his right to exercise his Class A
Warrants for the purchase of shares of Common Stock in the manner provided in
the Warrant Certificate and this Agreement.
SECTION 13. Agreement of Warrant Holders. Every holder of any Class A
Warrant, by his acceptance thereof, consents and agrees with the Company, the
Warrant Agent and every other holder of any Class A Warrant that:
(a) The Class A Warrants are transferable only on the registry books of
the Warrant Agent by the Registered Holder thereof in person or by his or her
attorney duly authorized in writing and only if the Warrant Certificates
representing such Class A Warrants are surrendered at the office of the Warrant
Agent, duly endorsed or accompanied by a proper instrument of transfer
satisfactory to the Warrant Agent, in its sole discretion, together with payment
of any applicable transfer taxes; and
(b) The Company and the Warrant Agent may deem and treat the person in
whose name the Warrant Certificate is registered as the holder and as the
absolute, true and lawful owner of the Class A Warrants represented thereby for
all purposes, and neither the Company nor the Warrant Agent shall be affected by
any notice or knowledge to the contrary, except as otherwise expressly provided
in Section 6.
SECTION 14. Cancellation of Warrant Certificates. If the Company shall
purchase or acquire any Class A Warrant or Class A Warrants, the Warrant
Certificate or Warrant Certificates evidencing the same, by redemption or
otherwise, shall thereupon be delivered to the Warrant Agent and canceled by it
and retired. The Warrant Agent shall also cancel the Warrant Certificate or
Warrant Certificates following exercise of any or all of the Class A Warrants
represented thereby or delivered to it for transfer, split up, combination or
exchange.
SECTION 15. Concerning the Warrant Agent. The Warrant Agent acts
hereunder as agent and in a ministerial capacity for the Company, and its duties
shall be determined solely by the provisions hereof. The Warrant Agent does not
hereby assume any obligation, relationship, agency or trust for or with any of
the holders of Warrant Certificates or beneficial owners of Class A Warrants.
The Warrant Agent shall not, by issuing and delivering Warrant Certificates, or
by any other act hereunder, be deemed to make any representations as to the
validity, value or authorization of the Warrant Certificates or the Class A
Warrants represented thereby or of any securities or other property delivered
upon exercise of any Class A Warrant or whether any stock issued upon exercise
of any Class A Warrant is fully paid and nonassessable.
The Warrant Agent shall not at any time be under any duty or
responsibility to any holder of Warrant Certificates to make or cause to be made
any adjustment of the Purchase Price or the Redemption Price provided in this
Agreement, or to determine whether any fact exists that may require any such
adjustments, or with respect to the nature or extent of any such adjustment,
when made, or with respect to the method employed in making the same. It shall
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not (i) be liable for any recital or statement of facts contained herein or for
any action taken, suffered or omitted by it in reliance on any Warrant
Certificate or other document or instrument believed by it in good faith to be
genuine and to have been signed or presented by the proper party or parties,
(ii) be responsible for any failure on the part of the Company to comply with
any of its covenants and obligations contained in this Agreement or in any
Warrant Certificate, or (iii) be liable for any act or omission in connection
with this Agreement except for its own negligence or willful misconduct.
The Warrant Agent may at any time consult with counsel satisfactory to
it (who may be counsel for the Company) and shall incur no liability or
responsibility for any action taken, suffered or omitted by it in good faith in
accordance with the opinion or advice of such counsel.
Any notice, statement, instruction, request, direction, order or demand
of the Company shall be sufficiently evidenced by an instrument signed by the
Chairman of the Board, President, or any Vice President and the Secretary, or
any Assistant Secretary (unless other evidence in respect thereof is herein
specifically prescribed). The Warrant Agent shall not be liable for any action
taken, suffered or omitted by it in accordance with such notice, statement,
instruction, request, direction, order or demand believed by it to be genuine.
The Company agrees to pay the Warrant Agent reasonable compensation for
its services hereunder and to reimburse it for its reasonable expenses hereunder
as governed by a separate agreement to be entered into between the Warrant Agent
and the Company; the Company further agrees to indemnify the Warrant Agent and
save it harmless against any and all losses, expenses and liabilities, including
judgments, costs and reasonable counsel fees and expenses, for anything done or
omitted by the Warrant Agent in the execution of its duties and powers hereunder
except losses, expenses and liabilities arising as a result of the Warrant
Agent's negligence or willful misconduct.
The Warrant Agent may resign its duties and be discharged from all
further duties and liabilities hereunder (except liabilities arising as a result
of the Warrant Agent's own negligence or willful misconduct), after giving 30
days' prior written notice to the Company. At least 15 days prior to the date
such resignation is to become effective, the Warrant Agent shall cause a copy of
such notice of resignation to be mailed to the Registered Holders of each
Warrant Certificate at the Company's expense. Upon such resignation, or any
inability of the Warrant Agent to act as such hereunder, the Company shall
appoint a new warrant agent in writing. If the Company shall fail to make such
appointment within a period of 15 days after it has been notified in writing of
such resignation by the resigning Warrant Agent, then the Registered Holder of
any Warrant Certificate may apply to any court of competent jurisdiction for the
appointment of a new warrant agent. Any new warrant agent, whether appointed by
the Company or by such a court, shall be a bank or trust company having capital
and surplus, as shown by its last published report to its stockholders, of not
less than $10,000,000 or a stock transfer company. After acceptance in writing
of such appointment by the new warrant agent is received by the Company, such
new warrant agent shall be vested with the same powers, rights, duties and
responsibilities as if it had been originally named herein as the Warrant Agent,
without any further assurance, conveyance, act or deed; but if for any reason it
shall be
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necessary or expedient to execute and deliver any further assurance, conveyance,
act or deed, the same shall be done at the expense of the Company and shall be
legally and validly executed and delivered by the resigning Warrant Agent. Not
later than the effective date of any such appointment, the Company shall file
notice thereof with the resigning Warrant Agent and shall forthwith cause a copy
of such notice to be mailed to the Registered Holder of each Warrant
Certificate.
Any entity into which the Warrant Agent or any new warrant agent may be
converted or merged or any entity resulting from any consolidation to which the
Warrant Agent or any new warrant agent shall be a party or any entity succeeding
to the trust business of the Warrant Agent shall be a successor warrant agent
under this Agreement without any further act, provided that such entity is
eligible for appointment as successor to the Warrant Agent under the provisions
of the preceding paragraph. Any such successor warrant agent shall promptly
cause notice of its succession as warrant agent to be mailed to the Company and
to the Registered Holder of each Warrant Certificate.
The Warrant Agent, its subsidiaries and affiliates, and any of its or
their officers or directors, may buy and hold or sell Class A Warrants or other
securities of the Company and otherwise deal with the Company in the same manner
and to the same extent and with like effects as though it were not Warrant
Agent. Nothing herein shall preclude the Warrant Agent from acting in any other
capacity for the Company or for any other legal entity.
SECTION 16. Modification of Agreement. The parties hereto and the
Company may by supplemental agreement make any changes or corrections in this
Agreement (i) that they shall deem appropriate to cure any ambiguity or to
correct any defective or inconsistent provision or manifest mistake or error
herein contained; (ii) to reflect an increase in the number of Class A Warrants
which are to be governed by this Agreement resulting from a subsequent offering
of Company securities which includes Class A Warrants having the same terms and
conditions as the Class A Warrants, originally covered by or subsequently added
to this Agreement under this Section 16; or (iii) that they may deem necessary
or desirable and that shall not adversely affect the interests of the holders of
Warrant Certificates; provided, however, that this Agreement shall not otherwise
be modified, supplemented or altered in any respect except with the consent in
writing of the Registered Holders of Warrant Certificates representing more than
50% of the Class A Warrants then outstanding; and provided, further, that no
change in the number or nature of the securities purchasable upon the exercise
of any Class A Warrant, or the Exercise Price therefor, or the acceleration of
the Warrant Expiration Date, shall be made without the consent in writing of the
Registered Holder of the Warrant Certificate representing such Class A Warrant,
other than such changes as are specifically prescribed by this Agreement as
originally executed or are made in compliance with applicable law.
SECTION 17. Notices. All notices, requests, consents and other
communications hereunder shall be in writing and shall be deemed to have been
made when delivered or mailed by means of first class registered or certified
mail, postage prepaid as follows: if to the Registered Holder of a Warrant
Certificate, at the address of such holder as shown on the registry books
maintained by the Warrant Agent; and if to the Company, at 620 Memorial Drive,
Cambridge, Massachusetts, 02139, or at such other address as may have been
furnished
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to the Warrant Agent in writing by the Company; if to the Warrant Agent, at its
Corporate Office, Attention: Relationship Manager.
SECTION 18. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York, without
reference to principles of conflict of laws.
SECTION 19. Binding Effect. This Agreement shall be binding upon and
inure to the benefit of the Company, the Warrant Agent and their respective
successors and assigns, and the holders from time to time of Warrant
Certificates. Nothing in this Agreement is intended nor shall be construed to
confer upon any other person any right, remedy or claim, in equity or at law, or
to impose upon any other person any duty, liability or obligation.
SECTION 20. Termination. This Agreement shall terminate at the close of
business on the Warrant Expiration Date of all the Class A Warrants or such
earlier date upon which all Class A Warrants have been exercised or redeemed,
except that the Warrant Agent shall account to the Company for cash held by it
and Section 15 shall survive such termination.
SECTION 21. Counterparts. This Agreement may be executed in several
counterparts, which taken together shall constitute a single document.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
HYBRIDON, INC.
By:_______________________
Authorized Officer
CHASEMELLON SHAREHOLDER
SERVICES, L.L.C., as Warrant Agent
By:_______________________
Authorized Officer
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EXHIBIT A
[FORM OF FACE OF CLASS A WARRANT CERTIFICATE]
THE TERMS OF THIS WARRANT ARE SUBJECT TO THE TERMS OF A WARRANT AGREEMENT, A
COPY OF WHICH IS AVAILABLE FROM HYBRIDON, INC. (THE "COMPANY"). THE SECURITIES
REPRESENTED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY APPLICABLE
STATE SECURITIES LAWS, AND MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF A REGISTRATION STATEMENT
IN EFFECT WITH RESPECT TO THE SECURITIES UNDER THE SECURITIES ACT OR AN
EXEMPTION FROM THE SECURITIES ACT. ANY SUCH TRANSFER MAY ALSO BE SUBJECT TO
COMPLIANCE WITH APPLICABLE STATE SECURITIES LAWS AND THE LAWS OF OTHER
APPLICABLE JURISDICTIONS.
No. __ _______________ Class A Warrants
VOID AFTER __________________, 2005
CLASS A WARRANT CERTIFICATE FOR PURCHASE
OF COMMON STOCK
HYBRIDON, INC.
This certifies that FOR VALUE RECEIVED
________________________________________________________________________________
____________________________ or registered assigns (the "Registered Holder") is
the owner of the number of Class A Warrants ("Class A Warrants") specified
above. Each Class A Warrant represented hereby initially entitles the Registered
Holder to purchase, subject to the terms and conditions set forth in this
Warrant Certificate and the Warrant Agreement (as hereinafter defined), one
fully paid and nonassessable share of Common Stock, par value $.001 per share
("Common Stock"), of Hybridon, Inc., a Delaware corporation (the "Company"), at
any time between _______________, 1998, and the Expiration Date (as hereinafter
defined), upon the presentation and surrender of this Warrant Certificate with
the Subscription Form on the reverse hereof duly executed, at the corporate
office of ChaseMellon Shareholder Services, L.L.C., as Warrant Agent, or its
successor (the "Warrant Agent"), accompanied by payment of the Exercise Price
(as defined in the Warrant Agreement) in lawful money of the United States of
America in cash or by official bank or certified check made payable to the
Company.
This Warrant Certificate and each Class A Warrant represented hereby
are issued pursuant to, and are subject in all respects to, the terms and
conditions set forth in the Warrant Agreement (the "Warrant Agreement"), dated
________ _____, 1998, by and among the Company and the Warrant Agent.
<PAGE>
In the event of certain contingencies provided for in the Warrant
Agreement, the Exercise Price, Purchase Price and/or the number of shares of
Common Stock subject to purchase upon the exercise of each Class A Warrant
represented hereby are subject to modification or adjustment.
Each Class A Warrant represented hereby is exercisable at the option of
the Registered Holder, but no fractional shares of Common Stock will be issued.
In the case of the exercise of fewer than every Class A Warrant represented
hereby, the Company shall cancel this Warrant Certificate upon the surrender
hereof and shall execute and deliver a new Warrant Certificate or Warrant
Certificates of like tenor, which the Warrant Agent shall countersign, for the
balance of such Class A Warrants.
The term "Expiration Date" shall mean 5:00 P.M. (New York time) on
____________, 2005, or such earlier date as the Class A Warrants shall be
redeemed. If such date shall in the State of New York be a holiday or a day on
which banks are authorized to close, then the Expiration Date shall mean 5:00
P.M. (New York time) the next following day which in the State of New York is
not a holiday or a day on which banks are authorized to close. Upon notice to
all Registered Holders of the Class A Warrants, the Company shall have the right
to extend the Expiration Date.
The Class A Warrants represented hereby shall not be exercisable in any
state where such exercise would be unlawful.
This Warrant Certificate is exchangeable, upon the surrender hereof by
the Registered Holder at the corporate office of the Warrant Agent, for a new
Warrant Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Class A Warrants, each of such new Warrant Certificates to
represent such number of Class A Warrants as shall be designated by such
Registered Holder at the time of such surrender. Upon due presentment with any
applicable transfer fee per certificate in addition to any tax or other
governmental charge imposed in connection therewith, for registration of
transfer of this Warrant Certificate at such office, a new Warrant Certificate
or Warrant Certificates representing an equal aggregate number of Class A
Warrants will be issued to the transferee in exchange therefor, subject to the
limitations provided in the Warrant Agreement.
The Registered Holder shall not be entitled to any rights of a
stockholder of the Company in respect of any unexercised Class A Warrants held
by such Registered Holder, including, without limitation, the right to vote or
to receive dividends or other distributions, and shall not be entitled to
receive any notice of any proceedings of the Company, except as provided in the
Warrant Agreement.
The Class A Warrants represented hereby may be redeemed at the option
of the Company, at a redemption price of $.01 per Class A Warrant (subject to
adjustment under the circumstances set forth in Section 8 of the Warrant
Agreement) (the "Redemption Price"). Notice of redemption shall be given not
later than the sixtieth day before the date fixed for redemption, all as
provided in the Warrant Agreement. On and after the date fixed for redemption,
the Registered Holder shall have no rights with respect to the Class A Warrants
<PAGE>
represented hereby except to receive the Redemption Price upon surrender of this
Warrant Certificate.
Prior to due presentment for registration of transfer hereof, the
Company and the Warrant Agent may deem and treat the Registered Holder as the
absolute owner hereof and of each Class A Warrant represented hereby
(notwithstanding any notations of ownership or writing hereon made by anyone
other than a duly authorized officer of the Company or the Warrant Agent) for
all purposes and shall not be affected by any notice to the contrary.
This Warrant Certificate shall be governed by and construed in
accordance with the laws of the State of New York.
This Warrant Certificate is not valid unless countersigned by the
Warrant Agent.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed, manually or in facsimile, by two of its officers thereunto
duly authorized and a facsimile of its corporate seal to be imprinted hereon.
HYBRIDON, INC.
Dated: _____________________ By:_______________________
By:_______________________
[seal]
Countersigned:
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.,
as Warrant Agent
By: ______________________________
Authorized Officer
<PAGE>
[FORM OF REVERSE OF WARRANT CERTIFICATE]
TRANSFER FEE: $___________ PER CERTIFICATE ISSUED
SUBSCRIPTION FORM
To Be Executed by the Registered Holder
in Order to Exercise Class A Warrants
The undersigned Registered Holder hereby irrevocably elects to exercise
_________ Class A Warrants represented by this Warrant Certificate, and to
purchase the securities issuable upon the exercise of such Class A Warrants, and
requests that certificates for such securities shall be issued in the name of
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
___________________________________
___________________________________
___________________________________
___________________________________
[please print or type name and address]
and be delivered to
___________________________________
___________________________________
___________________________________
___________________________________
[please print or type name and address]
and if such number of Class A Warrants shall not be all the Class A Warrants
evidenced by this Warrant Certificate, that a new Warrant Certificate for the
balance of such Class A Warrants be registered in the name of, and delivered to,
the Registered Holder at the address stated below.
<PAGE>
The undersigned represents that the exercise of the within Class A Warrant was
solicited by a member of the National Association of Securities Dealers, Inc. If
not solicited by an NASD member, please write "unsolicited" in the space below.
------------------------------------
(Name of NASD Member)
Dated: __________________________ X___________________________________
___________________________________
___________________________________
Address
___________________________________
Taxpayer Identification Number
___________________________________
Signature Guaranteed
___________________________________
<PAGE>
ASSIGNMENT
To Be Executed by the Registered Holder
in Order to Assign Class A Warrants
FOR VALUE RECEIVED, _______________________________________________ hereby
sells, assigns and transfers unto
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
___________________________________
___________________________________
___________________________________
___________________________________
[please print or type name and address]
________________________________ of the Class A Warrants represented by this
Warrant Certificate, and hereby irrevocably constitutes and appoints
______________________________
________________________________________________________________________________
Attorney to transfer this Warrant Certificate on the books of the Company, with
full power of substitution in the premises.
Dated: __________________________ X_________________________________________
Signature Guaranteed
_________________________________________
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE
GUARANTEED BY A MEMBER OF THE MEDALLION STAMP PROGRAM.
<PAGE>
ANNEX C
-------
CERTIFICATE OF DESIGNATION
for
SERIES B CONVERTIBLE PREFERRED STOCK
of
HYBRIDON INC.
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
HYBRIDON INC., a corporation organized and existing under the laws of
the State of Delaware (the "Corporation"), does hereby certify that pursuant to
the authority conferred on the board of directors of the Corporation (the "Board
of Directors") by the Restated Certificate of Incorporation (the "Certificate of
Incorporation") of the Corporation and in accordance with Section 151 of the
General Corporation Law of the State of Delaware, the Board of Directors adopted
the following resolution establishing a series of 2,616,918 shares of preferred
stock of the Corporation designated as "Series B Convertible Preferred Stock":
RESOLVED, that pursuant to the authority conferred on the Board of
Directors by the Certificate of Incorporation, a series of preferred stock,
par value $.01 per share, of the Corporation is hereby established and
created, and that the designation and number of shares thereof and the
voting and other powers, preferences and relative participating, optional
or other special rights of, the shares of such series and the
qualifications, limitations and restrictions thereof are as follows:
Series B Convertible Preferred Stock
1. Designation and Amount and Definitions. (a) There shall be a series
of Preferred Stock designated as "Series B Convertible Preferred Stock" and the
number of shares constituting such series shall be 2,616,918. Such series is
referred to herein as the "Series B Preferred Stock". Notwithstanding any other
provision in this Certificate of Designation of the Series B Preferred Stock
(the "Certificate of Designation") to the contrary, such series shall be junior
to the Series A Convertible Preferred Stock of the Corporation, par value $.01
per share, (the "Series A Preferred Stock"), and senior to the common stock, par
value $.001 per share, of the Corporation (the "Common Stock") with respect to
dividends and the distribution of assets
<PAGE>
upon liquidation, dissolution or winding up. Such number of shares may be
increased or decreased by resolution of the Board of Directors, subject to the
provisions of Section 6 hereof, provided, however, that no decrease shall reduce
the number of shares of Series B Preferred Stock to fewer than the number of
shares then issued and outstanding.
(b) As used in this Certificate of Designation, the following terms
shall have the following meanings:
(i) The "Closing Bid Price" for any security for each trading day
shall be the reported per share closing bid price of such security
regular way on the Stock Market on such trading day, or, if there were
no transactions on such trading day, the average of the reported
closing bid and asked prices, regular way, of such security on the
relevant Stock Market on such trading day.
(ii) "Fair Market Value" of any asset (including any security)
means the fair market value thereof as mutually determined by the
Corporation and the holders of a majority of the Series B Preferred
Stock then outstanding. If the Corporation and the holders of a
majority of the Series B Preferred Stock then outstanding are unable
to reach agreement on any valuation matter, such valuation shall be
submitted to and determined by a nationally recognized independent
investment bank selected by the Board of Directors and the holders of
a majority of the Series B Preferred Stock then outstanding (or, if
such selection cannot be agreed upon promptly, or in any event within
ten days, then such valuation shall be made by a nationally recognized
independent investment banking firm selected by the American
Arbitration Association in New York City in accordance with its
rules), the costs of which valuation shall be paid for by the
Corporation.
(iii) "Market Price" shall mean the average Closing Bid Price for
twenty (20) consecutive trading days, ending with the trading day
prior to the date as of which the Market Price is being determined
(with appropriate adjustments for subdivisions or combinations of
shares effected during such period); provided that if the prices
referred to in the definition of Closing Bid Price cannot be
determined on any trading day, the Closing Bid Price for such trading
day will be deemed to equal Fair Market Value of such security on such
trading day.
(iv) "Registered Holders" shall mean, at any time, the holders of
record of the Series B Preferred Stock.
(v) The "Stock Market" shall mean, with respect to any security,
the principal national securities exchange on which such security is
listed or admitted to trading or, if such security is not listed or
admitted to trading on any national securities exchange, shall mean
The Nasdaq National Market System ("NNM") or The Nasdaq SmallCap
Market ("SCM" and, together with NNM, "Nasdaq")
-2-
<PAGE>
or, if such security is not quoted on Nasdaq, shall mean the OTC
Bulletin Board or, if such security is not quoted on the OTC Bulletin
Board, shall mean the over-the-counter market as furnished by any NASD
member firm selected from time to time by the Corporation for that
purpose.
(vi) "Trading Price" shall mean the lower of (i) the average
Closing Bid Price of the Common Stock (with appropriate adjustments
for subdivisions or combinations of shares effected during such
period) for thirty (30) consecutive trading days, ending with the
trading day prior to the date as of which the Trading Price is being
determined, and (ii) the average Closing Bid Price of the Common Stock
(with appropriate adjustments for subdivisions or combinations of
shares effected during such period) for five (5) consecutive trading
days, ending with the trading day prior to the date as of which the
Trading Price is being determined, provided that if the prices
referred to in the definition of Closing Bid Price cannot be
determined for any of such periods, "Trading Price" shall mean Fair
Market Value.
(vii) A "trading day" shall mean a day on which the relevant
Stock Market is open for the transaction of business.
2. Dividends and Distributions. (a) Subject to the rights of the
holders of any shares of any series or class of capital stock ranking prior, and
superior to, or pari passu with, the shares of Series B Preferred Stock with
respect to dividends (including the Series A Preferred Stock, which ranks prior
and superior to the Series B Preferred Stock in such respects), the holders of
shares of Series B Preferred Stock shall be entitled to receive, as, when and if
declared by the Board of Directors, out of assets legally available for that
purpose, dividends or distributions in cash, stock or otherwise.
(b) [Reserved]
(c) The Corporation shall not declare any dividend or distribution on
any Junior Stock (as defined below) of the Corporation (other than a dividend or
distribution payable solely in Junior Stock) unless all dividends have been, or
contemporaneously are, declared and paid, or declared and a sum sufficient for
the payment thereof set apart for such payment, on the Series B Preferred Stock.
(d) [Reserved]
(e) All dividends or distributions declared upon the Series B Preferred
Stock shall be declared pro rata per share.
-3-
<PAGE>
(f) Any reference to "distribution" contained in this Section 2 shall
not be deemed to include any distribution made in connection with or in lieu of
any Liquidation Event (as defined below).
(g) [Reserved]
(h) So long as any shares of the Series B Preferred Stock are
outstanding, no dividends, except as described in the next succeeding sentence,
shall be declared or paid or set apart for payment on any class or series of
stock of the Corporation ranking, as to dividends, on a parity with the Series B
Preferred Stock, for any period unless all dividends have been or
contemporaneously are declared and paid, or declared and a sum sufficient for
the payment thereof set apart for such payment, on the Series B Preferred Stock.
When dividends are not paid in full or a sum sufficient for such payment is not
set apart, as aforesaid, upon the shares of the Series B Preferred Stock and any
other class or series of stock ranking on a parity as to dividends with the
Series B Preferred Stock, all dividends declared upon such other stock shall be
declared pro rata so that the amounts of dividends per share declared on the
Series B Preferred Stock and such other stock shall in all cases bear to each
other the same ratio that accrued dividends per share on the shares of the
Series B Preferred Stock and on such other stock bear to each other.
(i) So long as any shares of the Series B Preferred Stock are
outstanding, no other stock of the Corporation ranking on a parity with the
Series B Preferred Stock as to dividends or upon liquidation, dissolution or
winding up shall be redeemed, purchased or otherwise acquired for any
consideration (or any moneys be paid to or made available for a sinking fund or
otherwise for the purchase or redemption of any shares of any such stock) by the
Corporation unless the dividends, if any, accrued on all outstanding shares of
the Series B Preferred Stock shall have been paid or set apart for payment.
(j) "Junior Stock" shall mean the Common Stock and any shares of
preferred stock of any series or class of the Corporation, whether presently
outstanding or hereafter issued, which are junior to the shares of Series B
Preferred Stock with respect to (i) the distribution of assets on any voluntary
or involuntary liquidation, dissolution or winding up of the Corporation, (ii)
dividends or (iii) voting. The Junior Stock shall expressly not include the
Series A Preferred Stock.
3. Liquidation Preference. (a) In the event of a (i) liquidation,
dissolution or winding up of the Corporation, whether voluntary or involuntary,
(ii) a sale or other disposition of all or substantially all of the assets of
the Corporation or (iii) any consolidation, merger, combination, reorganization
or other transaction in which the Corporation is not the surviving entity or
shares of Common Stock constituting in excess of 50% of the voting power of the
Corporation are exchanged for or changed into stock or securities of another
entity, cash and/or any other property (a "Merger Transaction") (items (i), (ii)
and (iii) of this sentence being collectively referred to as a "Liquidation
Event"), after payment or provision for payment of
-4-
<PAGE>
debts and other liabilities of the Corporation, and subject to the senior
liquidation preference of the Series A Preferred Stock, the holders of the
Series B Preferred Stock then outstanding shall be entitled to be paid out of
the assets of the Corporation available for distribution to its stockholders,
whether such assets are capital, surplus, or earnings, before any payment or
declaration and setting apart for payment of any amount shall be made in respect
of any Junior Stock of the Corporation, an amount equal to $125.00 per share
(or, after the first anniversary of the Final Closing Date (as defined below),
$100.00 per share) plus, in either case, an amount equal to all declared and/or
accrued unpaid dividends thereon; provided, however, in the case of a Merger
Transaction, such $125.00 or $100.00 per share may be paid in cash, property
(valued as provided in Subsection 3(b)) and/or securities (valued as provided in
Subsection 3(b)) of the entity surviving such Merger Transaction. In the case of
property or in the event that any such securities are subject to an investment
letter or other similar restriction on transferability, the value of such
property or securities shall be determined by agreement between the Corporation
and the holders of a majority of the Series B Preferred Stock then outstanding.
If upon any Liquidation Event, whether voluntary or involuntary, the assets to
be distributed to the holders of the Series B Preferred Stock shall be
insufficient to permit the payment to such shareholders of the full preferential
amounts aforesaid, then all of the assets of the Corporation to be distributed
shall be so distributed ratably to the holders of the Series B Preferred Stock
on the basis of the number of shares of Series B Preferred Stock held.
Notwithstanding item (iii) of the first sentence of this Subsection 3(a), any
consolidation, merger, combination, reorganization or other transaction in which
the Corporation is not the surviving entity but the stockholders of the
Corporation immediately prior to such transaction own in excess of 50% of the
voting power of the corporation surviving such transaction and own such interest
in substantially the same proportions as prior to such transaction, shall not be
considered a Liquidation Event provided that the surviving corporation shall
make appropriate provisions to ensure that the terms of this Certificate of
Designation survive any such transaction as provided in Subsection 4(c)(ii). All
shares of Series B Preferred Stock shall rank as to payment upon the occurrence
of any Liquidation Event senior to the Common Stock as provided herein, junior
to the shares of Series A Preferred Stock and, unless the terms of such series
shall provide otherwise, senior to all other series of the Corporation's
preferred stock.
(b) Any securities or other property to be delivered to the holders of
the Series B Preferred Stock pursuant to Subsection 3(a) hereof shall be valued
as follows:
(i) Securities not subject to an investment letter or other
similar restriction on free marketability:
(A) If actively traded on a Stock Market,
the per share value shall be deemed to be the Market
Price of such securities as of the third day prior to
the date of valuation.
(B) If not actively traded on a Stock
Market, the value shall be the Fair Market Value of
such securities.
-5-
<PAGE>
(ii) For securities for which there is an active public market
but which are subject to an investment letter or other restrictions on
free marketability, the value shall be the Fair Market Value thereof,
determined by discounting appropriately the per share Market Price
thereof.
(iii) For all other securities, the value shall be the Fair
Market Value thereof.
4. Conversion.
(a) Right of Conversion. The shares of Series B Preferred Stock shall
be convertible, in whole or in part, at the option of the holder thereof and
upon notice to the Corporation as set forth in Subsection 4(b), into fully paid
and nonassessable shares of Common Stock and such other securities and property
as hereinafter provided. The initial conversion price per share of Common Stock
shall be equal to $3.00 (the "Conversion Price") and shall be subject to
adjustment as provided herein. The rate at which each share Series B Preferred
Stock is convertible at any time into Common Stock (the "Conversion Rate") shall
be determined by dividing the then existing Conversion Price into $100.00.
Subject to adjustment pursuant to the provisions of Subsection 4(c)
below, in the event that the Conversion Price in effect at the time of the
Initial Closing Date (as defined below), any Interim Closing Date (as defined
below) or the Final Closing Date (as defined below) is greater than 80% of the
Trading Price of the Common Stock as of (x) the initial closing date of the
issuance and sale, as contemplated by a Unit Purchase Agreement dated January
__, 1998 (the "Offering"), of Notes due 2007 of the Corporation ("Offering
Notes") or Series B Preferred Stock offered in lieu of such Offering Notes (the
"Initial Closing Date"), (y) any interim closing date of the Offering (each an
"Interim Closing Date") or (z) the final closing date of the Offering (the
"Final Closing Date") contemplated by such Unit Purchase Agreement (the
"Purchase Agreement"), then the Conversion Price shall be adjusted to equal 80%
of the lesser of any such Trading Price. If there is any change in Conversion
Price as a result of the preceding sentence, then the Conversion Rate shall be
changed accordingly as set forth above.
The Board of Directors, or a committee designated by it for such
purpose, may, until the Termination Date (as defined in the Purchase Agreement),
specify an initial conversion price applicable to the shares of Series B
Preferred Stock issued at any closing lower than the initial conversion price
that would otherwise obtain pursuant to the preceding paragraphs of this
Subsection 4(a) and, in the event an initial conversion price is so specified,
it shall be applicable to all shares of the Series B Preferred Stock.
The Corporation shall prepare a certificate signed by the Chairman or
President, and by the Treasurer or an Assistant Treasurer or the Secretary or an
Assistant Secretary, of the Corporation setting forth the Conversion Rate as of
the Final Closing Date, showing in reasonable detail the facts upon which such
adjusted Conversion Rate is based, and such
-6-
<PAGE>
certificate shall forthwith be filed with the transfer agent of the Series B
Preferred Stock. A notice stating that the Conversion Rate has been adjusted
pursuant to the second preceding paragraph of this Subsection 4(a), or that no
adjustment is necessary, and setting forth the Conversion Rate in effect as of
the Final Closing Date shall be mailed as promptly as practicable after the
Final Closing Date by the Corporation to all record holders of the Series B
Preferred Stock at their last addresses as they shall appear in the stock
transfer books of the Corporation.
The Conversion Price (subject to adjustment pursuant to the provisions
of Subsection 4(c)) in effect immediately prior to the date that is 12 months
after the Final Closing Date (the "Reset Date") shall be adjusted and reset
effective as of the Reset Date if the Market Price of the Common Stock as of the
Reset Date (the "12-Month Trading Price") is less than 125% of the then
applicable Conversion Price (a "Reset Event"). Upon the occurrence of a Reset
Event, the Conversion Price shall be reduced to be equal to the greater of (A)
the 12- Month Trading Price divided by 1.25, and (B) 50% of the then applicable
Conversion Price. If there is any change in the Conversion Price as a result of
the preceding sentence, then the Conversion Rate shall be changed accordingly as
set forth above. The Corporation shall prepare a certificate signed by the
principal financial officer of the Corporation setting forth the Conversion Rate
as of the Reset Date, showing in reasonable detail the facts upon which such
Conversion Rate is based, and such certificate shall forthwith be filed with the
transfer agent of the Series B Preferred Stock. A notice stating that the
Conversion Rate has been adjusted pursuant to this paragraph, or that no
adjustment is necessary, and setting forth the Conversion Rate in effect as of
the Reset Date shall be mailed as promptly as practicable after the Reset Date
by the Corporation to all record holders of the Series B Preferred Stock at
their last addresses as they shall appear in the stock transfer books of the
Corporation.
(b) Conversion Procedures. Any holder of shares of Series B Preferred
Stock desiring to convert such shares into Common Stock shall comply with
Section 12 to the extent applicable and then shall surrender the certificate or
certificates evidencing such shares of Series B Preferred Stock at the office of
the transfer agent for the Series B Preferred Stock, which certificate or
certificates, if the Corporation shall so require, shall be duly endorsed to the
Corporation or in blank, or accompanied by proper instruments of transfer to the
Corporation or in blank, accompanied by irrevocable written notice to the
Corporation that the holder elects so to convert such shares of Series B
Preferred Stock and specifying the name or names (with address) in which a
certificate or certificates evidencing shares of Common Stock are to be issued.
The Corporation need not deem a notice of conversion to be received unless the
holder complies with all the provisions hereof. The Corporation will instruct
the transfer agent (which may be the Corporation) to make a notation of the date
that a notice of conversion is received, which date of receipt shall be deemed
to be the date of receipt for purposes hereof.
The Corporation shall, as soon as practicable after such deposit of
certificates evidencing shares of Series B Preferred Stock accompanied by the
written notice and compliance with any other conditions herein contained,
deliver at such office of such transfer agent to the person for whose account
such shares of Series B Preferred Stock were so surrendered, or to
-7-
<PAGE>
the nominee or nominees of such person, certificates evidencing the number of
full shares of Common Stock to which such person shall be entitled as aforesaid,
subject to Section 4(d). Subject to the following provisions of this paragraph,
such conversion shall be deemed to have been made as of the date of such
surrender of the shares of Series B Preferred Stock to be converted, and the
person or persons entitled to receive the Common Stock deliverable upon
conversion of such Series B Preferred Stock shall be treated for all purposes as
the record holder or holders of such Common Stock on such date; provided,
however, that the Corporation shall not be required to convert any shares of
Series B Preferred Stock while the stock transfer books of the Corporation are
closed for any purpose, but the surrender of Series B Preferred Stock for
conversion during any period while such books are so closed shall become
effective for conversion immediately upon the reopening of such books as if the
surrender had been made on the date of such reopening, and the conversion shall
be at the conversion rate in effect on such date. No adjustments in respect of
any dividends on shares surrendered for conversion or any dividend on the Common
Stock issued upon conversion shall be made upon the conversion of any shares of
Series B Preferred Stock.
The Corporation shall at all times, reserve and keep available out of
its authorized but unissued shares of Common Stock, solely for the purpose of
effecting the conversion of the shares of Series B Preferred Stock, such number
of shares of Common Stock as shall from time to time be sufficient to effect the
conversion of all outstanding shares of the Series B Preferred Stock.
All notices of conversion shall be irrevocable; provided, however, that
if the Corporation has sent notice of an event pursuant to Subsection 4(g)
hereof, a holder of Series B Preferred Stock may, at its election, provide in
its notice of conversion that the conversion of its shares of Series B Preferred
Stock shall be contingent upon the occurrence of the record date or
effectiveness of such event (as specified by such holder), provided that such
notice of conversion is received by the Corporation prior to such record date or
effective date, as the case may be.
(c) Adjustment of Conversion Rate and Conversion Price.
(i) Except as otherwise provided herein, in the event the Corporation
shall, at any time or from time to time after the date hereof, (1) sell or issue
any shares of Common Stock for a consideration per share less than either (i)
the Conversion Price in effect on the date of such sale or issuance or (ii) the
Market Price of the Common Stock as of the date of the sale or issuance, (2)
issue any shares of Common Stock as a stock dividend to the holders of Common
Stock, or (3) subdivide or combine the outstanding shares of Common Stock into a
greater or lesser number of shares (any such sale, issuance, subdivision or
combination being herein called a "Change of Shares"), then, and thereafter upon
each further Change of Shares, the Conversion Price in effect immediately prior
to such Change of Shares shall be changed to a price (rounded to the nearest
cent) determined by multiplying the Conversion Price in effect immediately prior
thereto by a fraction, the numerator of which shall be the sum of the number
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<PAGE>
of shares of Common Stock outstanding immediately prior to the sale or issuance
of such additional shares or such subdivision or combination and the number of
shares of Common Stock which the aggregate consideration received (determined as
provided in Subparagraph 4(c)(v)(F)) for the issuance of such additional shares
would purchase at the greater of (i) the Conversion Price in effect on the date
of such issuance or (ii) the Market Price of the Common Stock as of such date,
and the denominator of which shall be the number of shares of Common Stock
outstanding immediately after the sale or issuance of such additional shares or
such subdivision or combination. Such adjustment shall be made successively
whenever such an issuance is made.
(ii) In case of any reclassification, capital reorganization or other
change of outstanding shares of Common Stock, or in case of any consolidation or
merger of the Corporation with or into another entity (other than a
consolidation or merger in which the Corporation is the continuing entity and
which does not result in any reclassification, capital reorganization or other
change of outstanding shares of Common Stock other than the number thereof), or
in case of any sale or conveyance to another entity of the property of the
Corporation as, or substantially as, an entirety (other than a sale/leaseback,
mortgage or other financing transaction), the Corporation shall cause effective
provision to be made so that each holder of a share of Series B Preferred Stock
shall be entitled to receive, upon conversion of such share of Series B
Preferred Stock, the kind and number of shares of stock or other securities or
property (including cash) receivable upon such reclassification, capital
reorganization or other change, consolidation, merger, sale or conveyance by a
holder of the number of shares of Common Stock into which such share of Series B
Preferred Stock was convertible immediately prior to such reclassification,
capital reorganization or other change, consolidation, merger, sale or
conveyance. Any such provision shall include provision for adjustments that
shall be as nearly equivalent as may be practicable to the adjustments provided
for in this Subsection 4(c). The Corporation shall not effect any such
consolidation, merger or sale unless prior to or simultaneously with the
consummation thereof the successor (if other than the Corporation) resulting
from such consolidation or merger or the entity purchasing assets or other
appropriate entity shall assume, by written instrument executed and delivered to
the transfer agent for the Series B Preferred Stock (the "Transfer Agent"), the
obligation to deliver to the holder of each share of Series B Preferred Stock
such shares of stock, securities or assets as, in accordance with the foregoing
provisions, such holders may be entitled to receive and the other obligations
under this Agreement. The foregoing provisions shall similarly apply to
successive reclassifications, capital reorganizations and other changes of
outstanding shares of Common Stock and to successive consolidations, mergers,
sales or conveyances.
(iii) Notwithstanding anything contained in this Certificate of
Designation to the contrary, options, rights or warrants issued or distributed
by the Corporation, including options, rights or warrants distributed prior to
the date of this Certificate of Designation, to holders of Common Stock
generally which, until the occurrence of a specified event or events (a "Trigger
Event"), (i) are deemed to be transferred with Common Stock, (ii) are not
exercisable and (iii) are also issued on a pro rata basis with respect to future
issuances
-9-
<PAGE>
of Common Stock, shall be deemed not to have been issued or distributed for
purposes of this Subsection 4(c) (and no adjustment to the Conversion Price
under this Subsection 4(c) will be required) until the occurrence of the
earliest Trigger Event. Upon the occurrence of a Trigger Event, such options,
rights or warrants shall continue to be deemed not to have been issued or
distributed for purposes of this Subsection 4(c) (and no adjustment to the
Conversion Price under this Subsection 4(c) will be required) if and for so long
as each Registered Holder who thereafter converts such Registered Holder's
Series B Preferred Stock shall be entitled to receive upon such conversion, in
addition to the shares of Common Stock issuable upon such conversion, a number
of such options, rights or warrants, as the case may be, equal to the number of
options, rights or warrants to which a holder of the number of shares of Common
Stock equal to the number of shares of Common Stock issuable upon conversion of
such Registered Holder's Series B Preferred Stock is entitled to receive at the
time of such conversion in accordance with the terms and provisions of, and
applicable to, such options, rights or warrants. If any such option, right to
warrant is subject to events, upon the occurrence of which such options, rights
or warrants become exercisable to purchase different securities, evidences of
indebtedness, cash, properties or other assets or different amounts thereof,
then, subject to the preceding provisions of this paragraph, the date of the
occurrence of any and each such event shall be deemed to be the date of
distribution and record date with respect to new options, rights or warrants
with such new purchase rights (and a termination or expiration of the existing
options, rights or warrants without exercise thereof). In addition, in the event
of any distribution (or deemed distribution) of options, rights or warrants, or
any Trigger Event or other event of the type described in the preceding
sentence, that required (or would have required but for the provisions of
Subparagraph 4(c)(v)(B) of this paragraph) an adjustment to the Conversion Price
under this Subsection 4(c) and such options, rights or warrants shall thereafter
have been redeemed or repurchased without having been exercised, then the
Conversion Price shall be adjusted upon such redemption or repurchase to give
effect to such distribution, Trigger Event or other event, as the case may be,
as though it had instead been a cash distribution, equal on a per share basis to
the result of the aggregate redemption or repurchase price received by holders
of such options, rights or warrants divided by the number of shares of Common
Stock outstanding as of the date of such repurchase or redemption, made to
holders of Common Stock generally as of the date of such redemption or
repurchase.
(iv) After each adjustment of the Conversion Price pursuant to this
Subsection 4(c), the Corporation will promptly prepare a certificate signed by
the Chairman or President, and by the Treasurer or an Assistant Treasurer or the
Secretary or an Assistant Secretary, of the Corporation setting forth: (i) the
Conversion Price as so adjusted, (ii) the Conversion Rate corresponding to such
Conversion Price and (iii) a brief statement of the facts accounting for such
adjustment. The Corporation will promptly file such certificate with the
Transfer Agent and cause a brief summary thereof to be sent by ordinary first
class mail to each registered holder of Series B Preferred Stock at his or her
last address as it shall appear on the registry books of the Transfer Agent. No
failure to mail such notice nor any defect therein or in the mailing thereof
shall affect the validity of such adjustment. The affidavit of an officer of the
Transfer Agent or the Secretary or an Assistant Secretary of the Corporation
that such notice
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has been mailed shall, in the absence of fraud, be prima facie evidence of the
facts stated therein. The Transfer Agent may rely on the information in the
certificate as true and correct and has no duty or obligation to independently
verify the amounts or calculations set forth therein.
(v) For purposes of Subsection 4(c)(i) hereof, the following provisions
(A) to (F) shall also be applicable:
(A) The number of shares of Common Stock
deemed outstanding at any given time shall include
all shares of capital stock convertible into, or
exchangeable for, Common Stock (on an as converted
basis) as well as all shares of Common Stock issuable
upon the exercise of (x) any convertible debt, (y)
warrants outstanding at such time and (z) options
outstanding at such time.
(B) No adjustment of the Conversion Price
shall be made unless such adjustment would require an
increase or decrease of at least $.01 in such
Conversion Price; provided that any adjustments which
by reason of this Subparagraph (B) are not required
to be made shall be carried forward and shall be made
at the time of and together with the next subsequent
adjustment which, together with adjustments so
carried forward, shall require an increase or
decrease of at least $.01 in the Conversion Price
then in effect hereunder.
(C) In case of (1) the sale or other
issuance by the Corporation (including as a component
of a unit) of any rights or warrants to subscribe for
or purchase, or any options for the purchase of,
Common Stock or any securities convertible into or
exchangeable for Common Stock (such securities
convertible, exercisable or exchangeable into Common
Stock being herein called "Convertible Securities"),
or (2) the issuance by the Corporation, without the
receipt by the Corporation of any consideration
therefor, of any rights or warrants to subscribe for
or purchase, or any options for the purchase of,
Common Stock or Convertible Securities, whether or
not such rights, warrants or options, or the right to
convert or exchange such Convertible Securities, are
immediately exercisable, and the consideration per
share for which Common Stock is issuable upon the
exercise of such rights, warrants or options or upon
the conversion or exchange of such Convertible
Securities (determined by dividing (x) the minimum
aggregate consideration, as set forth in the
instrument relating thereto without regard to any
antidilution or similar provisions contained therein
for a subsequent adjustment of such amount, payable
to the Corporation upon the exercise of such rights,
warrants or options, plus the consideration received
by the Corporation for the issuance or sale of such
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rights, warrants or options, plus, in the case of
such Convertible Securities, the minimum aggregate
amount, as set forth in the instrument relating
thereto without regard to any antidilution or similar
provisions contained therein for a subsequent
adjustment of such amount, of additional
consideration, if any, other than such Convertible
Securities, payable upon the conversion or exchange
thereof, by (y) the total maximum number, as set
forth in the instrument relating thereto without
regard to any antidilution or similar provisions
contained therein for a subsequent adjustment of such
amount, of shares of Common Stock issuable upon the
exercise of such rights, warrants or options or upon
the conversion or exchange of such Convertible
Securities issuable upon the exercise of such rights,
warrants or options) is less than either the
Conversion Price or the Market Price of the Common
Stock as of the date of the issuance or sale of such
rights, warrants or options, then such total maximum
number of shares of Common Stock issuable upon the
exercise of such rights, warrants or options or upon
the conversion or exchange of such Convertible
Securities (as of the date of the issuance or sale of
such rights, warrants or options) shall be deemed to
be "Common Stock" for purposes of Subsection 4(c)(i)
and shall be deemed to have been sold for an amount
equal to such consideration per share and shall cause
an adjustment to be made in accordance with
Subsection 4(c)(i).
(D) In case of the sale by the Corporation
of any Convertible Securities, whether or not the
right of conversion or exchange thereunder is
immediately exercisable, and the price per share for
which Common Stock is issuable upon the conversion or
exchange of such Convertible Securities (determined
by dividing (x) the total amount of consideration
received by the Corporation for the sale of such
Convertible Securities, plus the minimum aggregate
amount, as set forth in the instrument relating
thereto without regard to any antidilution or similar
provisions contained therein for a subsequent
adjustment of such amount, of additional
consideration, if any, other than such Convertible
Securities, payable upon the conversion or exchange
thereof, by (y) the total maximum number, as set
forth in the instrument relating thereto without
regard to any antidilution or similar provisions
contained therein for a subsequent adjustment of such
amount, of shares of Common Stock issuable upon the
conversion or exchange of such Convertible
Securities) is less than either the Conversion Price
or the Market Price of the Common Stock as of the
date of the sale of such Convertible Securities, then
such total maximum number of shares of Common Stock
issuable upon the conversion or exchange of such
Convertible Securities (as of the date of the sale of
such Convertible Securities) shall be deemed to be
"Common Stock" for purposes of Subsection 4(c)(i) and
shall be deemed to have been sold for
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<PAGE>
an amount equal to such consideration per share and
shall cause an adjustment to be made in accordance
with Subsection 4(c)(i).
(E) In case the Corporation shall modify the
rights of conversion, exchange or exercise of any of
the securities referred to in (C) and (D) above or
any other securities of the Corporation convertible,
exchangeable or exercisable for shares of Common
Stock, for any reason other than an event that would
require adjustment to prevent dilution, so that the
consideration per share received by the Corporation
after such modification is less than either the
Conversion Price or the Market Price as of the date
prior to such modification, then such securities, to
the extent not theretofore exercised, converted or
exchanged, shall be deemed to have expired or
terminated immediately prior to the date of such
modification and the Corporation shall be deemed for
purposes of calculating any adjustments pursuant to
this Subsection 4(c) to have issued such new
securities upon such new terms on the date of
modification. Such adjustment shall become effective
as of the date upon which such modification shall
take effect. On the expiration or cancellation of any
such right, warrant or option or the termination or
cancellation of any such right to convert or exchange
any such Convertible Securities, the Conversion Price
then in effect hereunder shall forthwith be
readjusted to such Conversion Price as would have
obtained (a) had the adjustments made upon the
issuance or sale of such rights, warrants, options or
Convertible Securities been made upon the basis of
the issuance of only the number of shares of Common
Stock theretofore actually delivered (and the total
consideration received therefor) upon the exercise of
such rights, warrants or options or upon the
conversion or exchange of such Convertible Securities
and (b) had adjustments been made on the basis of the
Conversion Price as adjusted under clause (a) of this
sentence for all transactions (which would have
affected such adjusted Conversion Price) made after
the issuance or sale of such rights, warrants,
options or Convertible Securities.
(F) In case of the sale of any shares of
Common Stock, any Convertible Securities, any rights
or warrants to subscribe for or purchase, or any
options for the purchase of, Common Stock or
Convertible Securities, the consideration received by
the Corporation therefor shall be deemed to be the
gross sales price therefor without deducting
therefrom any expense paid or incurred by the
Corporation or any underwriting discounts or
commissions or concessions paid or allowed by the
Corporation in connection therewith. In the event
that any securities shall be issued in connection
with any other securities of the Corporation,
together comprising one integral transaction in which
no
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<PAGE>
specific consideration is allocated among the
securities, then each of such securities shall be
deemed to have been issued for such consideration as
the Board of Directors of the Corporation determines
in good faith; provided, however that if the
Registered Holders of in excess of 50% of the then
outstanding Series B Preferred Stock disagree with
such determination, the Corporation shall retain, at
its own expense, an independent investment banking
firm for the purpose of obtaining an appraisal.
(vi) Notwithstanding any other provision hereof, no adjustment to the
Conversion Price will be made:
(A) upon the exercise of any of the options
previously granted and outstanding on the date hereof
under the Corporation's existing stock option plans;
or
(B) upon the issuance or exercise of options
which may hereafter be granted with the approval of
the Board of Directors or an authorized committee of
the Board of Directors, or exercised, under any
employee benefit plan of the Corporation to officers,
directors, consultants or employees; or
(C) upon the issuance or exercise or
conversion of (1) options or warrants to purchase, in
the aggregate, up to 25% of the securities sold in
the Offering issued to any placement agent or
financial advisor in connection with the private
placement of the Offering Notes or Series B Preferred
Stock offered in lieu of Offering Notes and, in each
case, warrants to purchase Common Stock (such options
or warrants, the "Offering Warrants"), (2) any
Offering Notes, including any Offering Notes issued
pursuant to the exercise of the Offering Warrants,
(3) any Series B Preferred Stock, including any
Series B Preferred Stock issued in the Offering,
pursuant to the exercise of any Offering Warrants or
upon conversion of any Offering Notes, (4) any equity
securities or warrants of the Corporation (including,
without limitation, the Series A Preferred Stock,
warrants and equity securities underlying warrants)
issued in exchange for 9% Convertible Subordinated
Notes due 2004 (the "9% Notes") of the Corporation or
accrued interest thereon or pursuant to the
conversion or exercise provisions thereof, (5) any
warrants issued in connection with the Offering or
upon any Reset Event (as defined herein or in the
Certificate of Designation for the Series A Preferred
Stock), (6) any warrants issued to Forum Capital
Markets, LLC ("Forum") in exchange for or in addition
to, or any amendment to, any warrants held by Forum,
in each case, pursuant to a letter agreement dated
January 5,
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<PAGE>
1998, between the Corporation and Forum, (7) any
Series A Preferred Stock issued as dividends on the
Series A Preferred Stock, or (8) any Common Stock
issued or cash paid upon the mandatory conversion or
redemption of any Series A Preferred Stock or Series
B Preferred Stock in accordance with Section 5 of
this Certificate of Designation or Section 5 of the
Certificate of Designation for the Series A Preferred
Stock, or
(D) upon the issuance or sale of Common
Stock or Convertible Securities pursuant to the
exercise of any rights, options or warrants to
receive, subscribe for or purchase, or any options
for the purchase of, Common Stock or Convertible
Securities, whether or not such rights, warrants or
options were outstanding on the Final Closing Date or
were thereafter issued or sold, provided that an
adjustment was either made or not required to be made
in accordance with Paragraph 4(c)(i) in connection
with the issuance or sale of such securities or any
modification of the terms thereof; or
(E) upon the issuance or sale of Common
Stock upon conversion or exchange of any Convertible
Securities, provided that any adjustments required to
be made upon the issuance or sale of such Convertible
Securities or any modification of the terms thereof
were so made, and whether or not such Convertible
Securities were outstanding on the Final Closing Date
or were thereafter issued or sold; or
(F) upon the issuance of stock which may
hereafter be purchased or sold with the approval of
the Board of Directors, under the 1995 Employee Stock
Purchase Plan of the Corporation to officers,
directors, consultants or employees, but only with
respect to such shares as are purchased and/or sold
in accordance with the current plan and at prices no
lower than 85% of the Closing Bid Price (or, if the
prices referenced in the definition of Closing Bid
Price cannot be determined, 85% of the Fair Market
Value) of the Common Stock as of the date of purchase
and/or sale thereof; or
(G) upon the issuance or sale of Common
Stock incident to transactions or series of
transactions which consist primarily of technology
licensing agreements and strategic alliances with
pharmaceutical companies (such as partnerships, joint
ventures or SWORDS financing of research and
development programs directed at one or more
specified disease targets).
Subparagraph 4(c)(v)(E) shall nevertheless apply to any modification of
the rights of conversion, exchange or exercise of any of the securities referred
to in this Paragraph
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<PAGE>
4(c)(vi), except that Subparagraph 4(c)(v)(E) shall not apply to any
modification of the rights of conversion, exchange or exercise of the securities
excepted by Subparagraph (C) of this paragraph 4(c)(vi) that are required by the
original terms of those respective instruments.
(vii) As used in this Subsection 4(c), the term "Common Stock" shall
mean and include the Corporation's Common Stock authorized on the date of the
original issue of the Series B Preferred Stock and shall also include any
capital stock of any class of the Corporation thereafter authorized which shall
not be limited to a fixed sum or percentage in respect of the rights of the
holders thereof to participate in dividends and in the distribution of assets
upon the voluntary liquidation, dissolution or winding up of the Corporation;
provided, however, that the shares issuable upon conversion of the Series B
Preferred Stock shall include only shares of such class designated in the
Certificate of Incorporation as Common Stock on the date of the original issue
of the Series B Preferred Stock or (i), in the case of any reclassification,
change, consolidation, merger, sale or conveyance of the character referred to
in Subsection 4(c)(ii) hereof, the stock, securities or property provided for in
such section or (ii), in the case of any reclassification or change in the
outstanding shares of Common Stock issuable upon conversion of the Series B
Preferred Stock as a result of a subdivision or combination or consisting of a
change in par value, or from par value to no par value, or from no par value to
par value, such shares of Common Stock as so reclassified or changed.
(viii) Any determination as to whether an adjustment in the Conversion
Price in effect hereunder is required pursuant to Subsection 4(a) or 4(c), or as
to the amount of any such adjustment, if required, shall be binding upon the
holders of the Series B Preferred Stock and the Corporation if made in good
faith by the Board of Directors of the Corporation.
(d) No Fractional Shares. No fractional shares or scrip representing
fractional shares of Common Stock shall be issued upon conversion of Series B
Preferred Stock. If more than one certificate evidencing shares of Series B
Preferred Stock shall be surrendered for conversion at one time by the same
holder, the number of full shares issuable upon conversion thereof shall be
computed on the basis of the aggregate number of shares of Series B Preferred
Stock so surrendered. Instead of any fractional share of Common Stock which
would otherwise be issuable upon conversion of such aggregate number of shares
of Series B Preferred Stock, the Corporation may elect in its sole discretion
independently for each holder, whether such number of shares of Common Stock
will be rounded to the nearest whole share (with .5 of a share rounded upward)
or whether such holder will be given cash, in lieu of any fractional share, in
an amount equal to the same fraction of the Market Price of the Common Stock as
of the close of business on the day of conversion.
(e) [Reserved]
(f) Reservation of Shares; Transfer Taxes, Etc. The Corporation shall
at all times reserve and keep available, out of its authorized and unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the Series B Preferred Stock, such number
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<PAGE>
of shares of its Common Stock free of preemptive rights as shall be sufficient
to effect the conversion of all shares of Series B Preferred Stock from time to
time outstanding (including, without limitation, shares of Common Stock issuable
upon conversion of the Series B Preferred Stock in the case of a Reset Event).
The Corporation shall use its best efforts from time to time, in accordance with
the laws of the State of Delaware to increase the authorized number of shares of
Common Stock if at any time the number of shares of authorized, unissued and
unreserved Common Stock shall not be sufficient to permit the conversion of all
the then-outstanding shares of Series B Preferred Stock.
The Corporation shall pay any and all issue or other taxes (excluding
any income taxes) that may be payable in respect of any issue or delivery of
shares of Common Stock on conversion of the Series B Preferred Stock. The
Corporation shall not, however, be required to pay any tax which may be payable
in respect of any transfer involved in the issue or delivery of Common Stock (or
other securities or assets) in a name other than that in which the shares of
Series B Preferred Stock so converted were registered. and no such issue or
delivery shall be made unless and until the person requesting such issue has
paid to the Corporation the amount of such tax or has established, to the
satisfaction of the Corporation, that such tax has been paid.
(g) Prior Notice of Certain Events. In case:
(i) the Corporation shall declare any dividend (or any other
distribution); or
(ii) the Corporation shall authorize the granting to the holders
of Common Stock of rights or warrants to subscribe for or purchase any
shares of stock of any class or of any other rights or warrants; or
(iii) of any reclassification of Common Stock (other than a
subdivision or combination of the outstanding Common Stock, or a
change in par value, or from par value to no par value, or from no par
value to par value); or
(iv) of any consolidation or merger (including, without
limitation, a Merger Transaction) to which the Corporation is a party
and for which approval of any stockholders of the Corporation shall be
required, or of the sale or transfer of all or substantially all of
the assets of the Corporation or of any compulsory share exchange
whereby the Common Stock is converted into other securities, cash or
other property; or
(v) of the voluntary or involuntary dissolution, liquidation or
winding up of the Corporation (including, without limitation, a
Liquidation Event);
then the Corporation shall cause to be filed with the transfer agent for the
Series B Preferred Stock, and shall cause to be mailed to the Registered
Holders, at their last addresses as they shall
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<PAGE>
appear upon the stock transfer books of the Corporation, at least 20 days prior
to the applicable record date hereinafter specified, a notice stating (x) the
date on which a record (if any) is to be taken for the purpose of such dividend.
distribution or granting of rights or warrants or, if a record is not to be
taken, the date as of which the holders of Common Stock of record to be entitled
to such dividend, distribution, rights or warrants are to be determined and a
description of the cash, securities or other property to be received by such
holders upon such dividend, distribution or granting of rights or warrants or
(y) the date on which such reclassification, consolidation, merger, sale,
transfer, share exchange, dissolution, liquidation or winding up or other
Liquidation Event is expected to become effective, the date as of which it is
expected that holders of Common Stock of record shall be entitled to exchange
their shares of Common Stock for securities or other property deliverable upon
such exchange, dissolution, liquidation or winding up or other Liquidation Event
and the consideration, including securities or other property, to be received by
such holders upon such exchange; provided, however, that no failure to mail such
notice or any defect therein or in the mailing thereof shall affect the validity
of the corporate action required to be specified in such notice.
(h) Other Changes in Conversion Rate. The Corporation from time to time
may increase the Conversion Rate by any amount for any period of time if the
period is at least 20 days and if the increase is irrevocable during the period.
Whenever the Conversion Rate is so increased, the Corporation shall mail to the
Registered Holders a notice of the increase at least 15 days before the date the
increased Conversion Rate takes effect, and such notice shall state the
increased Conversion Rate and the period it will be in effect.
The Corporation may make such increases in the Conversion Rate, in
addition to those required or allowed by this Section 4, as shall be determined
by it, as evidenced by a resolution of the Board of Directors, to be advisable
in order to avoid or diminish any income tax to holders of Common Stock
resulting from any dividend or distribution of stock or issuance of rights or
warrants to purchase or subscribe for stock or from any event treated as such
for income tax purposes.
Notwithstanding the foregoing, the Corporation shall not increase the
Conversion Rate, as provided in this subsection 4(h), unless the Corporation, at
such time, makes a pro rata increase to the conversion rate of any outstanding
shares of Series A Preferred Stock pursuant to Subsection 4(h) of the
Certificate of Designation for the Series A Preferred Stock. Moreover, the
Corporation shall not increase the conversion rate of the Series A Preferred
Stock pursuant to subsection 4(h) of the Certificate of Designation for the
Series A Preferred Stock, unless the Corporation, at such time, makes a pro rata
increase in the Conversion Rate
Notwithstanding anything to the contrary herein, in no case shall the
Conversion Price be adjusted to an amount less than $.001 per share, the current
par value of the Common Stock into which the Series B Preferred Stock is
convertible.
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<PAGE>
(i) Ambiguities/Errors. The Board of Directors of the Corporation shall
have the power to resolve any ambiguity or correct any error in the provisions
relating to the convertibility of the Series B Preferred Stock, and its actions
in so doing shall be final and conclusive.
5. Mandatory Conversion. At any time on or after the Reset Date, the
Corporation at its option, may cause the Series B Preferred Stock to be
converted in whole or in part, on a pro rata basis, into fully paid and
nonassessable shares of Common Stock at the then effective Conversion Rate if
the Closing Bid Price (or, if the price referenced in the definition of Closing
Bid Price cannot be determined, the Fair Market Value) of the Common Stock shall
have exceeded 250% of the then applicable Conversion Price for at least 20
trading days in any 30 consecutive trading day period ending three days prior to
the date of notice of conversion. Any shares of Series B Preferred Stock so
converted shall be treated as having been surrendered by the holder thereof for
conversion pursuant to Section 4 on the date of such mandatory conversion
(unless previously converted at the option of the holder).
If the Corporation elects to cause the mandatory conversion of Series B
Preferred Stock pursuant to this Section 5, then the Corporation shall, at the
same time, convert or redeem (whether by conversion or redemption, to
"Take-Out") Series A Preferred Stock pursuant to Section 5 of the Certificate of
Designation for the Series A Preferred Stock. Moreover, if the Corporation
elects to Take-Out any shares of Series A Preferred Stock pursuant to Section 5
of the Certificate of Designation for the Series A Preferred Stock, then the
Corporation shall, at the same time, Take-Out shares of Series B Preferred Stock
pursuant to this Section 5. If the Corporation chooses to Take-Out fewer than
all of the shares of Series A Preferred Stock and the Series B Preferred Stock,
then the Corporation must Take-Out an equal percentage of the outstanding shares
of both the Series A Preferred Stock and the Series B Preferred Stock.
No greater than 60 nor fewer than 20 days prior to the date of any such
mandatory conversion, notice by first class mail, postage prepaid, shall be
given to the holders of record of the Series B Preferred Stock to be converted,
addressed to such holders at their last addresses as shown on the stock transfer
books of the Corporation. Each such notice shall specify the date fixed for
conversion, the place or places for surrender of shares of Series B Preferred
Stock, and the then effective Conversion Rate pursuant to Section 4.
Any notice which is mailed as herein provided shall be conclusively
presumed to have been duly given by the Corporation on the date deposited in the
mail, whether or not the holder of the Series B Preferred Stock receives such
notice; and failure properly to give such notice by mail, or any defect in such
notice, to the holders of the shares to be converted shall not affect the
validity of the proceedings for the conversion of any other shares of Series B
Preferred Stock. On or after the date fixed for conversion as stated in such
notice, each holder of shares called to be converted shall surrender the
certificate evidencing such shares to the Corporation at the place designated in
such notice for conversion. Notwithstanding that the certificates evidencing any
shares properly called for conversion shall not have been surrendered,
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the shares shall no longer be deemed outstanding and all rights whatsoever with
respect to the shares so called for conversion (except the right of the holders
to convert such shares upon surrender of their certificates therefor) shall
terminate.
Notwithstanding the above, the Corporation shall not be required to
deliver Common Stock to any Registered Holder upon any Take-Out, to the extent
that such issuance would violate Section 12.
6. Voting Rights.
(a) General. Except as otherwise provided herein, in the Certificate of
Incorporation or the By-laws of the Corporation or as required by applicable
law, the holders of shares of Series B Preferred Stock, the holders of shares of
Common Stock and the holders of any other class or series of shares entitled to
vote with the Common Stock shall vote together as one class on all matters
submitted to a vote of stockholders of the Corporation. In any such vote, each
share of Series B Preferred Stock shall entitle the holder thereof to cast the
number of votes equal to the number of votes which could be cast in such vote by
a holder of the Common Stock into which such share of Series B Preferred Stock
is convertible on the record date for such vote, or if no record date has been
established, on the date such vote is taken. Any shares of Series B Preferred
Stock held by the Corporation or any entity controlled by the Corporation shall
not have voting rights hereunder and shall not be counted in determining the
presence of a quorum.
(b) Class Voting Rights. In addition to any vote specified in Section
6(a), so long as at least 50% of the shares of Series B Preferred Stock shall be
outstanding, the Corporation shall not, without the affirmative vote or consent
of the holders of at least 50% of all outstanding Series B Preferred Stock,
voting separately as a class, (i) amend, alter or repeal any provision of the
Certificate of Incorporation or the Bylaws of the Corporation so as adversely to
affect the relative rights, preferences, qualifications, limitations or
restrictions of the Series B Preferred Stock or (ii) approve the alteration or
change to the rights, preferences or privileges of the Series B Preferred Stock,
(iii) authorize or issue, or increase the authorized amount of, any equity
security ranking prior to the Series B Preferred Stock (except shares of Series
A Preferred Stock issued in exchange for 9% Notes or accrued interest thereon or
as dividends on or otherwise pursuant to the terms of the Certificate of
Designation for, the Series A Preferred Stock) (A) upon a Liquidation Event, (B)
with respect to the payment of any dividends or distributions or (C) with
respect to voting rights (except for class voting rights required by law) or
(iv) authorize or issue, or increase the authorized amount of, Series B
Preferred Stock, other than Series B Preferred Stock issuable upon conversion of
Offering Notes or accrued interest thereon.
7. Outstanding Shares. For purposes of this Certificate of Designation,
a share of Series B Preferred Stock, when issued, shall be deemed outstanding
except (i) from the date, or the deemed date, of surrender of certificates
evidencing shares of Series B Preferred
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Stock, all shares of Series B Preferred Stock converted into Common Stock and
(ii) from the date of registration of transfer, all shares of Series B Preferred
Stock held of record by the Corporation or any subsidiary of the Corporation.
8. Status of Acquired Shares. Shares of Series B Preferred Stock
received upon conversion pursuant to Section 4 or Section 5 or otherwise
acquired by the Corporation will be restored to the status of authorized but
unissued shares of Preferred Stock, without designation as to class, and may
thereafter be issued, but not as shares of Series B Preferred Stock.
9. Preemptive Rights. The Series B Preferred Stock is not entitled to
any preemptive or subscription rights in respect of any securities of the
Corporation.
10. Severability of Provisions. Whenever possible, each provision
hereof shall be interpreted in a manner as to be effective and valid under
applicable law, but if any provision hereof is held to be prohibited by or
invalid under applicable law, such provision shall be ineffective only to the
extent of such prohibition or invalidity, without invalidating or otherwise
adversely affecting the remaining provisions hereof. If a court of competent
jurisdiction should determine that a provision hereof would be valid or
enforceable if a period of time were extended or shortened or a particular
percentage were increased or decreased, then such court may make such changes as
shall be necessary to render the provision in question effective and valid under
applicable law.
11. No Amendment or Impairment. The Corporation shall not amend its
Certificate of Incorporation or participate in any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, for the purpose of avoiding or seeking to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Corporation, but will at all times in good faith assist in
carrying out all such action as may be reasonably necessary or appropriate in
order to protect the rights of the holders of the Series B Preferred Stock
against impairment.
12. Restrictions on Change of Control. Notwithstanding anything to the
contrary contained in this Certificate of Designation, without the prior written
consent of the Corporation, so long as any 9% Notes remain outstanding under
that certain Indenture dated as of March 26, 1997 ("Indenture"), no holder of
Series B Preferred Stock shall have voting rights granted hereunder, be entitled
to receive voting securities of the Corporation pursuant hereto or be entitled
to exercise any of the conversion rights set forth herein (each, a "Restricted
Event"), to the extent that any such Restricted Event could, in the
Corporation's reasonable judgment, either alone or in conjunction with other
issuances or holdings of capital stock, warrants or convertible securities of
the Corporation, result in a Change of Control (as defined in the Indenture
relating to the 9% Notes).
[Signature page follows]
-21-
<PAGE>
IN WITNESS WHEREOF, ____________, __________ of the Corporation, acting
for and on behalf of the Corporation, has hereunto subscribed his name this ____
day of ________, 199_.
HYBRIDON, INC.
By:____________________________
Name:
Title:
-22-
<PAGE>
ANNEX D
-------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the Year Ended December 31, 1996
COMMISSION FILE NO. 0-27352
HYBRIDON, INC.
---------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 3072298
- ------------------------------- ---------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
620 Memorial Drive, Cambridge, Massachusetts 02139
- ------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (617) 528-7000
Securities registered pursuant to Section 12(b) of the Act:
NONE
----
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
On March 14, 1997, the aggregate market value of voting Common Stock held
by nonaffiliates of the registrant was $118,762,093, based on the last reported
sale price of the registrant's Common Stock on the Nasdaq National Market on
March 14, 1997. There were 25,173,502 shares of Common Stock outstanding as of
March 14, 1997.
DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------
Part of Form 10-K
DOCUMENT INTO WHICH INCORPORATED
-------- -----------------------
Portions of the Registrant's Proxy Statement Items 10, 11, 12 and 13
with respect to the Annual Meeting of Stockholders of Part III
to be held on May 19, 1997
<PAGE>
PART I
ITEM 1. BUSINESS.
--------
GENERAL
Hybridon, Inc. ("Hybridon" or the "Company"), established in 1989, is a
leader in the discovery and development of novel genetic medicines based
primarily on antisense technology. Antisense technology involves the use of
synthetic segments of DNA (oligonucleotides) constructed through rational drug
design to interact at the genetic level with target messenger RNA, which codes
for the production of proteins. In contrast to traditional drugs, which are
designed to interact with protein molecules associated with diseases, antisense
drugs work at the genetic level to interrupt the process by which
disease-causing proteins are produced. Drugs based on antisense technology may
have broader applicability, greater efficacy and fewer side effects than
conventional drugs because antisense compounds are designed to intervene early
in the disease process at the genetic level and in a highly specific fashion.
Hybridon has established a leadership position in the antisense field by
developing an integrated antisense technology platform based on a combination of
patented and proprietary medicinal chemistries, synthetic DNA manufacturing
technology and analytical processes. The Company's strategy is to leverage this
technology platform by applying its oligonucleotides against a range of genetic
targets associated with major diseases, by manufacturing oligonucleotides for
its own internal use and on a custom contract basis for sale to third parties
and by extending its medicinal chemistries to additional targets through
collaborations with large pharmaceutical company partners.
Hybridon's first gene expressive modulation ("GEM") drug candidate, GEM 91
for the treatment of HIV-1 infection and AIDS, is in a confirmatory Phase II
clinical trial in advanced AIDS patients. This trial is designed to confirm the
preliminary findings from the Company's Ib/II clinical trials of GEM 91 in the
U.S. in which a significant decrease was observed in the quantities of cell-
associated HIV-1 in circulating blood cells of patients with characteristics of
advanced HIV disease. Hybridon is also conducting clinical trials of GEM 132, an
advanced chemistry antisense compound for the treatment of CMV. The first trial
involves the treatment of CMV retinitis in AIDS patients by intravitreal
injection in the eye; the second trial involves the treatment of systemic CMV by
intravenous administration. Hybridon believes that its clinical trials of GEM 91
were the first human clinical trials involving intravenous or other systemic
administration of an antisense oligonucleotide for the treatment of a viral
disease and that its clinical trials of GEM 132 were the first human clinical
trials involving administration of an advanced chemistry oligonucleotide into
humans.
The Company plans to commence clinical trials of three additional product
candidates in the second half of 1997: GEM 231, an antisense compound being
developed to inhibit the production of protein kinase A, which is associated
with many cancers; GEM 92, an antisense compound being developed for the
treatment of HIV-1 infection and AIDS by oral administration; and GEM 220, an
antisense compound being developed to target vascular endothelial growth factor
for the treatment of various cancers. All three of these compounds are based on
Hybridon's advanced antisense chemistries and, the Company believes, have the
potential for oral administration.
In 1996, Hybridon formed its Hybridon Specialty Products Division to
manufacture highly purified oligonucleotide compounds both for the Company's
internal use and on a custom contract basis for sale to third parties, including
the Company's collaborative partners. The Company is manufacturing
oligonucleotides in compliance with GMP at its 36,000 square foot leased
manufacturing facility, which the Company believes is the first commercial-scale
synthetic DNA production facility with a fully integrated manufacturing
technology platform, including large-scale synthesis, purification
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<PAGE> 3
and proprietary analytical support. The Division first began production of
oligonucleotide compounds for sale to third parties in June 1996 and by the end
of 1996 had achieved sales revenues of approximately $1.1 million. The Division
also has received orders to provide analytical services and plans to expand its
product offerings to include proprietary intermediates used in the manufacture
of oligonucleotides. In order to strengthen the marketing of the Division's
products, the Company has entered into a sales and supply agreement with the
Applied Biosystems Division of the Perkin-Elmer Corporation ("Perkin-Elmer")
under which Perkin-Elmer refers potential customers to the Company.
Because of the broad applicability of Hybridon's antisense technology
platform and its patent estate, the Company's strategy is both to pursue
research and development programs on its own and to form a variety of
collaborations with pharmaceutical and biotechnology companies and academic and
research institutions. These collaborations provide Hybridon with access to
resources and expertise not otherwise available and enable the Company to
conserve its resources while accelerating research and development. To date,
Hybridon has entered into corporate collaborations with G.D. Searle & Co.
("Searle"), a subsidiary of Monsanto Company, in the field of
inflammation/immunomodulation, F. Hoffmann-La Roche Ltd. ("Roche") relating to
human papilloma virus and hepatitis C virus, and Medtronic, Inc. ("Medtronic")
involving the development of a drug delivery device for use in delivering
Hybridon's antisense compounds for the treatment of Alzheimer's disease. The
Company has developed lead compounds for each of the two disease targets in the
Roche collaboration and has received associated milestone payments from Roche.
The Company's accomplishments to date have been based on its integrated
antisense technology platform, which includes:
- Advanced Medicinal Chemistries. Hybridon's scientists have designed and
produced over 20 proprietary families of synthetic antisense
oligonucleotide chemistries. The Company believes that antisense
compounds based on these chemistries will demonstrate a range of
favorable pharmaceutical attributes and provide flexibility in
addressing many biological targets. In particular, the Company believes
that its advanced chemistries provide the potential for enhanced
metabolic stability, which may result in less frequent dosing and
therefore lower costs of therapy. In addition, the Company believes that
its advanced chemistries provide the potential for oral administration.
In this regard, in a preclinical test in which an advanced antisense
oligonucleotide developed by the Company was administered orally to nude
mice in which human colon and breast cancer cells had been implanted, a
significant antisense-specific anti-tumor effect was exhibited.
- Manufacturing Technology. The Company has developed a manufacturing
technology platform which integrates key elements of the manufacturing
process. In 1996, the Company completed development of two separate
commercial scale oligonucleotide synthesizers, one in an internal
program and one in a collaboration with Pharmacia Biotech, Inc.
("Pharmacia"). The synthesizer developed by Hybridon is specifically
designed to produce advanced chemistry antisense oligonucleotides. In
addition, the Company has implemented proprietary purification
processes, which use water in place of chemical solvents, simplifying
environmental compliance and permitting purification of kilogram batches
of oligonucleotides. The advances made by the Company in oligonucleotide
manufacturing technology have enabled the Company to reduce its direct
oligonucleotide unit production costs by approximately 50% annually
since 1991. Because antisense compounds targeted at different diseases
can be manufactured with the same nucleotide building blocks and using
the same manufacturing processes and equipment with minimal adjustments,
the knowledge and experience that the Company obtains in the manufacture
of each compound is substantially applicable to the manufacture of other
oligonucleotide compounds for the treatment of other diseases and
results in significant manufacturing efficiencies.
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<PAGE> 4
- Proprietary Analytical Tools and Processes. Hybridon has developed
proprietary analytical tools and processes that enable the Company to
analyze the chemical purity, base sequencing and composition of its
oligonucleotides with greater speed and accuracy than existing
analytical processes. In particular, the Company has developed
proprietary laser induced fluorescence and physical sequencing mass
spectrometry which enables the Company to directly sequence advanced
chemistry oligonucleotides which is not possible using more traditional
enzymatic and chemical methods. The Company uses the information that it
obtains with its analytical tools and processes to improve production
quality control, to comply with regulatory requirements and to monitor
the pharmacokinetic behavior of its oligonucleotide compounds in
preclinical studies and clinical trials.
Hybridon seeks to establish a comprehensive proprietary position through a
"layered" patent strategy covering the Company's families of oligonucleotide
chemistries, the antisense sequences of the Company's oligonucleotide compounds
and the chemical compositions of these oligonucleotide compounds. The Company
believes that this approach may provide it with at least three independent
levels of protection. Hybridon also seeks to protect its proprietary analytical
and manufacturing processes. Hybridon owns or exclusively licenses 23 issued
U.S. patents, six issued European patents, 31 allowed U.S. patent applications,
eight allowed European patent applications and 168 other U.S. patent
applications. One of the issued U.S. patents and one of the issued European
patents broadly claim antisense oligonucleotides targeted at HIV, four of the
issued U.S. patents and 63 of the U.S. patent applications relate to antisense
oligonucleotides targeted at genes which are implicated in diseases such as
cancer and viral and bacterial infections, seven of the issued U.S. patents and
38 of the U.S. patent applications relate to the Company's medicinal
chemistries, including one issued U.S. patent that broadly claims methods of
orally-administering advanced chemistry oligonucleotides, and six of the issued
U.S. patents and 47 of the U.S. patent applications relate to oligonucleotide
production.
TECHNOLOGY OVERVIEW
Introduction
Proteins play a central role in virtually every aspect of human
metabolism. Almost all human diseases are the result of inappropriate protein
production or performance. Traditional drugs are designed to interact with
protein molecules that support or create diseases. Antisense drugs work at the
genetic level to interrupt the process by which disease-causing proteins are
produced.
The information necessary to produce a specific protein is encoded in a
specific gene. The information required to produce all human proteins is
contained in the human genome and its collection of more than 100,000 genes.
Each gene is made up of DNA, which is a duplex of entwined strands -- a "double
helix." In each duplex, the building blocks of DNA, called nucleotides, are
bound or "paired" with complementary nucleotides on the other strand. The
precise sequence of a nucleotide chain that is the blueprint for the information
that is used during protein production is called the "sense" sequence. The
sequence of a nucleotide chain that is precisely complementary to a given sense
sequence is called its "antisense" sequence.
Protein synthesis or expression typically involves a two-phase process.
First, the information contained in the gene is transcribed from the sense
strand of DNA into one or more molecules of messenger RNA. Second, the
information encoded in the messenger RNA is translated into the sequence of
amino acids that comprise the protein. The information contained in a single
gene is often repeatedly transcribed into multiple copies of messenger RNA,
which in turn are repeatedly translated, giving rise to multiple copies of the
same protein.
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<PAGE> 5
Conventional Drugs
Most drugs are chemicals designed to induce or inhibit the function of a
target molecule, typically a protein, with as few unwanted side effects as
possible. However, conventional drugs are not available for the treatment of
many diseases because of their relatively low level of selectivity. The
selectivity of conventional drugs is usually determined by only a few, generally
two or three, points of interaction at the binding site of the target molecule.
Frequently, sites on other non-target molecules resemble the target binding site
sufficiently to permit the conventional drug to bind to some degree. This lack
of selectivity may result in decreased efficacy, unwanted side effects or a need
to administer the drug in less than optimal dosages due to toxicity concerns. In
addition, the development of conventional drugs is generally time consuming and
expensive, as thousands of compounds must be synthesized to find one with the
right efficacy and side effect profile.
Gene Expression Modulation
In contrast to conventional drugs, which usually interact with
disease-associated proteins after they have been produced, gene expression
modulation technology is intended to regulate the production of
disease-associated proteins, thus targeting an earlier biochemical process.
Advances in genomic science have identified many targets for gene expression
modulation products. Once a gene that codes for a disease-associated protein is
identified, an oligonucleotide based on the complementary sequence for the
selected site can be synthesized and its pharmaceutical properties optimized by
chemical modification. These chemically-modified oligonucleotides may be
composed of DNA, RNA or a combination of the two.
Chemically-modified oligonucleotides can be designed to attack a disease
at the genetic level by binding to messenger RNA or DNA to prevent production of
disease-associated proteins. Binding to messenger RNA generally is used in the
"antisense" and "ribozyme" approaches to gene expression modulation, while
binding to the DNA generally is used in the "triplex" approach to gene
expression modulation.
In the antisense approach to gene expression modulation,
chemically-modified oligonucleotides, which consist of the antisense sequence to
a selected region on a target messenger RNA, are used to inhibit the synthesis
of a particular protein. Because the sequence of nucleic acid bases of a
chemically-modified antisense oligonucleotide is complementary to its target
sequence on a messenger RNA, the antisense oligonucleotide forms a large number
of bonds at the target site, typically in excess of 35, practically assuring
that the oligonucleotide will hybridize (bind) tightly to the selected type of
messenger RNA. Since a single messenger RNA may be translated repeatedly into a
protein, a single chemically-modified antisense oligonucleotide may inhibit the
synthesis of many copies of a protein. Moreover, in vitro tests have shown that
certain chemically-modified antisense oligonucleotides form complexes with their
target messenger RNAs. These complexes activate RNase H, a cellular enzyme, in a
manner that destroys the messenger RNA to which the oligonucleotide is bound,
without destroying the oligonucleotide itself, thus freeing the oligonucleotide
to bind with another identical messenger RNA.
Ribozymes are RNA molecules that have the ability to cleave other RNA
molecules. Ribozymes contain a catalytic core along with an oligonucleotide
sequence complementary to a sequence on the target messenger RNA. As with
enzymes, ribozymes function catalytically when cleaving other RNA molecules and
thus are not themselves permanently affected by the process. As with antisense
oligonucleotides, ribozymes bind selectively with target RNAs. Therefore, a
single ribozyme molecule will cleave a specific target messenger RNA molecule
with which the ribozyme becomes bound. That same ribozyme will then be free to
bind with another identical messenger RNA molecule and repeat the cleaving
function. Because of their catalytic activity, ribozymes may have advantages
over antisense oligonucleotides in situations in which cellular RNase H is not
abundant or
5
<PAGE> 6
cannot be activated. Ribozymes have had limited utility as potential drugs
because of their relatively large size, which increases the expense of
synthesizing these molecules; the difficulty in increasing their stability
through chemical modification; and the limited nature of the catalytic activity
of synthetic ribozymes, particularly at magnesium levels present in human cells.
The triplex approach involves the interaction of oligonucleotides directly
with the appropriate region of the double-stranded DNA comprising the target
gene, thus resulting in a triplex structure and physically interfering with the
transcription of DNA into messenger RNA. The triplex approach typically does not
involve the destruction of the region of DNA to which the oligonucleotides are
bound, in contrast with the effects of antisense oligonucleotides and ribozymes
on messenger RNA. Constraining factors to the triplex approach to date have been
the difficulty of obtaining access for oligonucleotides to the DNA, the relative
weakness of the bonding of the oligonucleotides with the DNA and concerns over
compounds that interact directly with the DNA genetic information.
HYBRIDON TECHNOLOGY
Antisense
Hybridon has developed an integrated antisense technology platform based
on proprietary medicinal chemistries, analytical chemistry and manufacturing
technology. The development of Hybridon's antisense technology has been directed
by Dr. Sudhir Agrawal, the Company's Chief Scientific Officer, along with Drs.
John Goodchild and Jin-Yan Tang, two of the Company's principal scientists, and
builds on the pioneering work in the antisense field begun in the 1970s by Dr.
Paul C. Zamecnik, a founder and director of the Company and Chairman of its
Scientific Advisory Board, at the Massachusetts General Hospital ("MGH") and
continued by Dr. Zamecnik at the Worcester Foundation for Biomedical Research,
Inc. (the "Worcester Foundation").
Medicinal Chemistries. Hybridon's scientists have designed and synthesized
over 20 proprietary families of synthetic antisense oligonucleotide chemistries.
The Company believes that antisense compounds based on these chemistries may
demonstrate a range of favorable pharmaceutical attributes, including: reduced
side effects, increased duration of action, increased potency and susceptibility
to lower dosing, less frequent dosing, controlled release formulation and
alternative routes of administration, including oral administration. Hybridon
designed its first generation phosphorothioate oligonucleotides to increase
their resistance to enzymatic degradation and their biological activity and to
act catalytically by triggering RNase H. GEM 91 is such a phosphorothioate-
modified oligonucleotide. Hybridon has used the insights gained by it in the
development and ongoing human clinical trials of GEM 91 in the design of its
more advanced oligonucleotide chemistries.
In addition to developing advanced oligonucleotide chemistries, Hybridon
is developing new formulations of its antisense oligonucleotides to optimize
their pharmaceutical properties. Data from in vivo studies in a rat model of
Hybridon's antisense oligonucleotide formulated with the chemical cyclodextrin
suggest that such compounds would exhibit increased cellular uptake, lower
immunostimulatory effects, a generally enhanced safety profile and improved
stability. In in vitro tests, a formulation of Hybridon's antisense
oligonucleotide with protamine also demonstrated reduced immunostimulatory
effects.
Hybridon has also developed substantial expertise in the selection of
molecular targets for its antisense compounds. The Company's studies of DNA and
messenger RNA from a large number of viruses, other infectious organisms and
cancer cells have yielded an improved understanding by Company scientists of RNA
structure and the importance of particular RNA sequences to the processing of
messenger RNA and the translation of proteins. This knowledge enhances the
Company's ability to select attractive target sites and thereby increases the
efficiency of Hybridon's
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drug development programs. The Company has developed in vitro tests which can
select preferred oligonucleotide binding sequences on messenger RNA. The Company
also employs conventional computer-based rational drug design to select
attractive binding sequences.
Manufacturing Technology. The Company's expertise in the structure, design
and analysis of chemically-modified oligonucleotides has served as the
foundation of its manufacturing technology and know-how. The Company has
developed proprietary technology to increase the purity of oligonucleotide
products, enhance the efficiency of the production process and increase the
scale of production. In 1996, the Company completed development of two separate
commercial scale oligonucleotide synthesizers, one in an internal program and
one in a collaboration with Pharmacia. The synthesizer developed by Hybridon is
specifically designed to produce advanced chemistry antisense oligonucleotides.
In addition, the Company has implemented proprietary purification processes,
which use water in place of chemical solvents, simplifying environmental
compliance and permitting purification of kilogram batches of oligonucleotides.
The Company has also developed proprietary chemical synthesis processes and
novel reagents used in the synthesis process, which the Company believes may
further decrease the cost of production of its modified oligonucleotides.
Proprietary Analytical Tools and Processes. The Company has established
proprietary analytical tools and processes that enable it to analyze
oligonucleotide compounds with greater speed and accuracy when compared to
traditional methods. Hybridon has developed a novel method of determining
antisense purity that is sensitive to a single DNA base difference; this method
is significantly more accurate than traditional chromatography methods. The
Company is also able to sequence and identify short strands of DNA at the
subparts-per-billion level, allowing Hybridon's scientists to trace the compound
through the metabolic pathway and assess the compound's bioavailability. The
Company uses the information that it obtains with its proprietary analytical
tools and processes to improve production quality control, to comply with
regulatory requirements and to monitor the pharmacokinetic behavior of its
oligonucleotide compounds in preclinical studies and clinical trials.
Ribozyme
Hybridon believes that the ribozyme approach of gene expression modulation
is complementary to the Company's antisense technology because the Company's
oligonucleotide drug development, production and analytic and advanced medicinal
chemistry technology are all directly applicable to this approach.
Hybridon's ribozyme research group is working on the development of
ribozymes which may exhibit favorable pharmaceutical attributes, such as
improved catalytic activity and greater resistance to degradation by cellular
enzymes, the development of oligonucleotides with ribonuclease-like activity
that do not contain enzymatic RNA and the development of shorter length
ribozymes which are easier and less expensive to synthesize. The Company has
developed a method of using ribozymes in the presence of antisense
oligonucleotides that bind to a site on the target messenger RNA immediately
adjacent to the site of ribozyme binding. These antisense oligonucleotides act
as facilitators for the binding of ribozymes and, in in vitro tests, have
allowed the use of shorter length ribozymes. Also in in vitro tests, the Company
has shown that the presence of antisense oligonucleotide facilitators increases
the catalytic activity of ribozymes, thereby potentially increasing the potency
of these compounds, and promotes ribozyme activity at concentrations of
magnesium naturally occurring in human cells. Synthetic ribozymes generally
cleave poorly or not at all in such low levels of magnesium. Another ribozyme
approach under research by the Company involves the combination of
oligonucleotides that do not activate RNase H with ribozymes that act in a
catalytic manner, thereby offering the prospect of lower dosing of the
oligonucleotide. The Company is engaged in additional studies to improve the
pharmaceutical properties of ribozymes against various disease targets.
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HYBRIDON DRUG DEVELOPMENT AND DISCOVERY PROGRAMS
Hybridon is focusing its development efforts on products for the treatment
of diseases for which the gene encoding the target protein is well
characterized; that afflict a substantial number of people; for which there are
significant unmet clinical needs, particularly diseases for which there is no
current drug therapy or for which available therapies have unacceptable side
effects; and for which expedited regulatory review processes reasonably may be
expected. Based on these criteria, Hybridon is directing its drug development
efforts at the treatment of HIV-1 infection and AIDS, other viral and infectious
diseases, cancers and certain metabolic disorders.
The following table summarizes Hybridon's principal product development
and discovery programs. All of these programs involve the discovery and
development of chemically-modified oligonucleotides using the antisense approach
to gene expression modulation. This table is qualified in its entirety by
reference to the more detailed descriptions elsewhere in this Annual Report on
Form 10-K.
8
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<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------------
Primary Therapeutic
TARGET Indication(s) STATUS(1)
- - ----------------------------- --------------------------- -----------------------------
<S> <C> <C>
HIV-1 AND AIDS
HIV-1........................ HIV-1 Infection and AIDS GEM 91 - Phase II Clinical
Trials
HIV-1 Infection and AIDS GEM 92 - Preclinical
(Intravenous and Oral
Formulations)
VIRAL AND INFECTIOUS
DISEASES
Cytomegalovirus.............. CMV Retinitis GEM 132 for Intravitreal
Injection - Phase I/II Clinical
Trials
CMV (Systemic) GEM 132 for Systemic
Injection - Phase II Clinical
Trials
Human Papilloma Virus........ Genital Warts; Cancer Preclinical (2)
Hepatitis C Virus............ Hepatitis; Liver Cancer Lead Compounds (2)
Hepatitis B Virus............ Hepatitis; Liver Cancer Research Compounds
CANCERS
Protein Kinase A............. Cancer GEM 231 - Preclinical
(Intravenous and Oral
Formulations)
Vascular Endothelial Growth
Factor....................... Cancer Angiogenesis GEM 220 - Preclinical
Multiple Drug Resistance..... Cancer Chemotherapy Preclinical
DNA Methyltransferase........ Cancer Lead Compounds (3)
METABOLIC DISORDERS
Vascular Endothelial Growth
Factor....................... Retinopathies Preclinical
Psoriasis Preclinical
Amyloid Precursor Protein.... Alzheimer's Disease Lead Compounds
ApoE-4....................... Alzheimer's Disease Lead Compounds
- - ----------------------------- --------------------------- -----------------------------
(1) Preclinical: Compounds are undergoing additional testing and alternative
chemistries are being evaluated in biological assays and/or appropriate
animal models in order to assess efficacy, toxicology and pharmacokinetics
and to select particular chemistries with optimal pharmaceutical
attributes. If these procedures are completed satisfactorily and other
scientific and financial criteria are met, the Company may initiate
investigational new drug ("IND")- enabling Good Laboratory Practices
("GLP") studies and begin preparation of an IND application.
Lead Compounds: One or more antisense compounds have demonstrated
biological activity for a particular gene target in a specific and relevant
biological assay.
</TABLE>
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<PAGE> 10
Research Compounds: Appropriate target gene(s) and sequence(s) are being
determined; antisense compounds are being synthesized and screened for
biological activity.
(2) Being developed as part of collaboration with Roche. See "Item 1. Business
-- Corporate Collaborations -- F. Hoffmann-La Roche Ltd."
(3) Technology relating to target has been licensed to and is being developed
by Methylgene Inc., a Canadian company co-founded by the Company and in
which the Company owns a minority interest ("Methylgene"). See "Item 1.
Business -- Financial Collaborations -- Methylgene Inc."
HIV-1 and AIDS
AIDS is caused by infection with HIV and leads to severe, life-threatening
impairment of the immune system. HIV causes immunosuppression by attacking and
destroying T-cells, which coordinate much of the network of normal immune
responses. HIV infection usually leads to AIDS, although progression to
symptomatic disease may take many years. The process of HIV replication involves
the integration of a DNA copy of the viral RNA into the human genome, the
transcription of the DNA copy into messenger RNA ("reverse transcription") and
the synthesis of viral proteins and copies of viral RNA for packaging into new
virus particles that may infect other cells.
As of June 30, 1996, approximately 548,100 cases of AIDS had been reported
to the U.S. Centers for Disease Control and Prevention, and the current
population of surviving AIDS patients in the U.S. was estimated to be
approximately 200,000. As of June 30, 1996, AIDS was the leading cause of death
in the U.S. for men between the ages of 25 and 44 and the third leading cause of
death in the U.S. for women between the ages of 25 and 44. The U.S. Public
Health Service estimates that more than 1,000,000 other people in the U.S. are
infected with HIV. As of June 30, 1996, the World Health Organization (the
"WHO") reported that approximately 1,394,000 AIDS cases had been reported
worldwide, but it estimated that the actual total number of cases was over
7,700,000. The WHO also estimated that, as of June 30, 1996, approximately
21,800,000 individuals were infected with HIV/AIDS worldwide.
Therapies that have received U.S. Food and Drug Administration ("FDA")
marketing approval for the treatment of HIV infection and AIDS include two
classes of products: reverse transcriptase inhibitors and inhibitors of HIV-1
protease, known as protease inhibitors. Both types of drugs are inhibitors of
viral enzymes and have shown efficacy in reducing the concentration of viral RNA
(HIV) in the blood and in prolonging the asymptomatic periods in HIV-positive
individuals, especially when administered in combination. However, not all
patients have benefitted from these drugs, when used in combination or
otherwise, and problems remain with respect to patient compliance regimens and
certain toxic side effects. In addition, it is not known to what extent HIV will
develop resistance over time to these drugs.
GEM 91. The Company is enrolling patients for a Phase II clinical trial of
GEM 91 in the U.S. This trial will involve the administration of GEM 91 in an
open label trial in which GEM 91 will be administered for a two-week period to
up to 24 HIV-positive patients with characteristics of advanced HIV disease.
This trial is designed to confirm the preliminary findings from the Company's
Phase Ib/II clinical trials of GEM 91 in the U.S. in which a decrease was
observed in the quantities of cell-associated HIV-1 in circulating blood cells
of patients with characteristics of advanced HIV disease.
In 1993 and 1994, the Company conducted Phase Ia clinical trials of GEM 91
in the U.S. and in France in conjunction with the Agence Nationale de Recherches
sur le SIDA (the "ANRS"). The Company believes that these trials were the first
human clinical trials involving intravenous or other systemic administration of
an antisense oligonucleotide for the treatment of a viral disease. In these
trials, the Company administered ascending single doses of up to 3.5 mg/kg of
GEM 91 to 72 HIV-
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<PAGE> 11
positive patients, administered by two-hour intravenous infusions. The Company
also conducted additional Phase Ia clinical trials of GEM 91 in Europe involving
27 normal volunteers to study the pharmacokinetic interaction of a combined
treatment of GEM 91 and AZT and to investigate the absolute bioavailability of
subcutaneously and intramuscularly administered GEM 91. GEM 91 was well
tolerated by all patients in the Phase Ia clinical trials without dose-limiting
toxicity or side effects.
In 1995, the Company initiated Phase Ib/II clinical trials of GEM 91 in
the U.S. and in France in conjunction with the ANRS. These trials are designed
to assess the safety and pharmacokinetics of repeated doses of GEM 91 and to
provide preliminary data on the drug's antiviral action in reducing viral load.
In the U.S. trials, daily doses of up to 4.4 mg/kg/day of GEM 91 have been
administered by continuous intravenous infusion for periods of between eight and
14 days. In the French trials, GEM 91 was administered by intermittent two hour
intravenous infusions for periods of up to 27 days at daily doses of up to 3.0
mg/kg/day. Through February 28, 1997, these trials have involved 176
HIV-positive patients. GEM 91 has been well tolerated by all patients in the
Phase Ib/II clinical trials without dose-limiting toxicity or side effects. In
addition, unblinded analysis of the on-going Phase Ib/II trials showed a
significant difference between treated and untreated patients in cellular
viremia (e.g. the quantities of infectious virus in circulating blood cells)
with a more pronounced difference in patients with characteristics of advanced
HIV. The Company is continuing these Phase Ib/II clinical trials in the U.S.
GEM 91 is a phosphorothioate antisense oligonucleotide comprised of 25
nucleotides. In certain specially-designed cell culture tests, GEM 91
demonstrated inhibition of HIV-1 replication at multiple stages in the virus
replication cycle: (i) by binding with surface proteins and inhibiting the
absorption of HIV into cells, (ii) by interfering with the reverse transcription
of viral RNA into DNA, and (iii) by binding with the gag-messenger RNA of HIV-1,
which is common to different viral strains (referred to as a "conserved region")
and which codes for a protein essential to viral replication. The multiple
mechanisms of action exhibited by GEM 91 in these in vitro tests may enhance the
likelihood that GEM 91 may delay the emergence of viral resistance to its
activity.
GEM 91 has demonstrated significant inhibition of the replication of HIV-1
in various cell culture tests of AZT-resistant and other primary human isolates.
In a cell culture model that was monitored for 187 days, GEM 91 inhibited HIV-1
replication without any significant resistance being observed. In a parallel
model that was monitored for 174 days, AZT inhibition of HIV-1 replication was
accompanied by the development of significant AZT resistance in the virus
population. In similar tests of protease inhibitors, significant resistance also
developed in the virus population. In tissue culture assays, GEM 91 suppressed
HIV-1 induced cytopathic effects on CD4 cells, thereby maintaining CD4 cell
population in a dose-dependent fashion. There can be no assurance that
preclinical tests will be predictive of the effect of GEM 91 in humans. See
"Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations -- Certain Factors That May Affect Future Results -- Early Stage
of Development; Technological Uncertainty."
GEM 92. Using the insights gained in the development and ongoing clinical
trials of GEM 91 and employing chemistry advances developed by the Company, the
Company is developing GEM 92 for the treatment of HIV-1 infection and AIDS. GEM
92 is based on one of the Company's more advanced oligonucleotide chemistries.
Because GEM 92 also targets the gag messenger RNA, the Company believes that the
various attributes of GEM 91, including the multiple mechanisms of action, may
be equally applicable to GEM 92. GEM 92 has demonstrated significant inhibition
of the replication of HIV-1 in various human cell culture systems. In addition,
based on in vitro tests, the Company believes that GEM 92 may demonstrate
increased stability in comparison with GEM 91 and, as a result, longer duration
of action, thereby potentially permitting lower and less frequent dosing.
Because preclinical tests have demonstrated that other molecules with similar
chemical properties have the potential for oral administration, the Company
plans to systematically evaluate GEM 92 for potential oral use.
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Other Viral and Infectious Diseases
Cytomegalovirus. CMV is widespread in the human population as a persistent
subclinical infection. Approximately 70,000 to 150,000 cases occur each year in
the U.S., of which approximately one-half involve congenitally infected infants.
Infection by CMV is manifested clinically in certain individuals, particularly
in newborns, transplant recipients, cancer patients and AIDS patients. In
approximately 40% of all AIDS patients, clinical CMV may develop as a
progressive destruction of the retina (retinitis), resulting in blindness. In
transplant recipients, CMV may develop as a variety of diseases, including
pneumonitis.
The Company is conducting two clinical trials of GEM 132, its advanced
chemistry compound for the treatment of CMV: a Phase I/II clinical trial of GEM
132 for the treatment of CMV retinitis in AIDS patients by intravitreal
injection in the eye (the "IVT Formulation") and a Phase II clinical trial of
another formulation of GEM 132 for the treatment of systemic CMV by intravenous
administration (the "Systemic Formulation"). The Company's Phase I/II clinical
trials of the IVT Formulation are being conducted in the U.S. and France and
will involve the injection of the IVT Formulation into the vitreous humor of the
affected eye in up to 29 HIV-positive patients with CMV retinitis. These trials
are designed to assess the safety of GEM 132 and to provide preliminary data as
to the ability of GEM 132 to inhibit the progression of CMV retinitis in
individuals with AIDS.
The Company's Phase II clinical trials of the Systemic Formulation are
currently being conducted in France. The Company recently submitted an IND
covering the Systemic Formulation with the FDA and, subject to such IND becoming
effective, expects trials to begin in the U.S. in the second quarter of 1997.
These clinical trials will involve the intravenous administration of the
Systemic Formulation to up to 30 HIV-positive patients with CMV infections and
are designed to study the safety and pharmacokinetics of the Systemic
Formulation and the usefulness of several currently available tests as surrogate
markers to evaluate the efficacy of anti-CMV therapies.
In October 1996, the Company completed a Phase I safety and
pharmacokinetic trial of the Systemic Formulation in healthy, adult male
volunteers in the United Kingdom. In this trial, subjects received doses of the
Systemic Formulation ranging from 0.125 to 0.5 mg/kg in a single two hour
intravenous infusion. Results of this study provided data on safety, drug
distribution and metabolism. GEM 132 was well-tolerated by the subjects without
dose-limiting toxicity or side effects during administration and for the
subsequent 14-day follow-up period.
GEM 132 has demonstrated significant inhibition of the replication of
human cytomegalovirus in tissue culture assays. GEM 132 has demonstrated
activity in cell culture against both clinical isolates and viruses which have
become resistant to current therapies, such as ganciclovir. In addition, in cell
culture studies, GEM 132 has demonstrated significantly more potent anti-viral
activity than the two existing therapies against which it has been tested,
ganciclovir and foscarnet.
Human Papilloma Viruses. Human papilloma viruses are associated with a
variety of warts, including benign genital warts which, if untreated, can lead
to cervical cancer. Human papilloma viruses are found in more than 24,000,000
Americans, with an estimated 500,000 to 1,000,000 new cases each year. Genital
warts currently are among the most prevalent sexually transmitted diseases in
the U.S. Pursuant to its collaboration with Roche, Hybridon has identified
through joint research with Roche specific sequences on the messenger RNA of the
papilloma virus as targets for chemically- modified antisense oligonucleotides
and has synthesized chemically-modified antisense oligonucleotides that inhibit
human papilloma virus gene expression in tissue culture assays. These compounds
also have been shown in an animal model to be active in preventing virus damage
to tissues. Hybridon has achieved the first contractually specified development
milestone, designation of a lead compound, in the human papilloma virus program
under its collaboration with Roche.
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Hepatitis C Virus. There are approximately 3,500,000 people in the U.S.
carrying the hepatitis C virus, and approximately 150,000 individuals in the
U.S. become infected with hepatitis C each year. Approximately 80% of those who
contract the virus each year develop chronic hepatitis C infections and
approximately 30,000 cases each year ultimately result in cirrhosis of the
liver. Chronic infection due to hepatitis C is a significant disease in Japan
and other Pacific Rim countries that has been linked to the development of
primary liver cancer. Pursuant to its collaboration with Roche, Hybridon has
identified through joint research with Roche specific sequences on the messenger
RNA as targets for chemically modified antisense oligonucleotides and has
synthesized chemically-modified antisense oligonucleotides that inhibit
hepatitis C viral gene expression in in vitro and tissue culture assays.
Hybridon has achieved the first contractually specified development milestone,
designation of a lead compound, in the hepatitis C program under its
collaboration with Roche.
Hepatitis B Virus. Hepatitis B is a major health problem throughout the
world, with endemic infection in some less developed countries. Approximately
1,200,000 individuals in the U.S. carry the hepatitis B virus. There are an
estimated 200,000 to 300,000 new hepatitis B infections in the U.S. each year.
Hepatitis B infections can lead to liver cirrhosis and cancer of the liver.
Pursuant to its collaboration with Roche, Hybridon identified through joint
research with Roche specific sequences on the messenger RNA as targets for
chemically-modified antisense oligonucleotides and synthesized
chemically-modified antisense oligonucleotides that inhibit the expression of
hepatitis B virus in cell cultures. Although Roche has since determined not to
pursue this program, the Company is continuing its development efforts. All
rights relating to the Roche-sponsored research with respect to hepatitis B have
reverted to the Company.
Cancer
Approximately 1,380,000 new cancer cases are reported in the U.S.
annually. Cancers of all types result in approximately 560,000 deaths in the
U.S. each year, making cancer the second leading cause of death in the U.S. In
addition to surgery and radiotherapy, there are nearly 50 FDA-approved drug
therapies for the treatment of a variety of cancers, although many of these
therapies suffer from severe adverse side effects.
Protein Kinase A. Protein Kinase A ("PKA") is a protein that has been
shown to be expressed in human cancer cell lines and in primary tumors after
cells have been transformed with various oncogenes or after stimulation of cell
growth with cell growth stimulating factors. Based on cell culture studies, the
Company believes that overexpression of PKA may be associated with colon,
breast, ovarian and lung cancer. Hybridon has identified specific sequences on
the PKA gene as targets for chemically-modified antisense oligonucleotides and
has synthesized an advanced chemically-modified antisense compound, GEM 231,
that has demonstrated inhibition of the expression of PKA and tumor growth in
animal model studies. In these studies, repeated daily doses of Hybridon's
oligonucleotide compound administered either intraperitoneally or orally
resulted in reduction of PKA, with suppression of tumor growth for seven days.
The Company plans to commence clinical trials of GEM 231 in the second half of
1997.
Vascular Endothelial Growth Factor -- Cancer Angiogenesis. Vascular
Endothelial Growth Factor ("VEGF") is a growth factor that stimulates
angiogenesis, the process of new blood vessel formation. Angiogenesis plays a
major role in wound healing and organ regeneration and also is involved in
certain pathological processes, such as tumor growth and metastasis. VEGF has
been shown to be overexpressed in developing tumors and is believed to be a key
factor in providing new blood supply to feed developing tumors. Hybridon has
identified specific sequences on the VEGF messenger RNA as targets for
chemically-modified antisense oligonucleotides and has synthesized an advanced
chemically-modified antisense oligonucleotide, GEM 220, that has inhibited the
expression of the VEGF gene in in vitro and tissue culture assays. In an animal
model for solid tumor growth, this compound
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demonstrated tumor growth suppression. The Company plans to commence clinical
trials of GEM 220 in the second half of 1997.
Multiple Drug Resistance. Approximately 500,000 (or one-half) of the new
cancer cases reported each year are not curable by any conventional treatment.
In approximately one-half of these incurable cases, Multiple Drug Resistance
("MDR-1") gene expression is thought to play a predominant role in the cancers'
resistance to chemotherapy. Hybridon has identified specific sequences on the
messenger RNA as targets for chemically-modified antisense oligonucleotides and
has synthesized chemically- modified antisense oligonucleotides that inhibit the
expression of the MDR-1 gene in drug-resistant human cancer cells in tissue
culture assays and increase their sensitivity to anti-cancer drugs in such
assays. These compounds also have decreased MDR-1 expression in human tumors in
a mouse model and have shown activity in a murine leukemia model. In addition,
in in vitro and in vivo tests, these compounds sensitized formerly resistant
cancer cells to chemotherapeutic agents.
DNA Methyltransferase. DNA methyltransferase is a regulatory protein that
has been implicated in the processes of cell growth and differentiation and has
been shown to be overexpressed in some tumors, such as small cell lung cancer,
colon cancer and breast cancer. Hybridon has identified specific sequences on
the messenger RNA as targets for chemically-modified antisense oligonucleotides
and has synthesized chemically-modified antisense oligonucleotides that alter
DNA methylation of cultured human cancer cells and inhibit the ability of such
cells to grow in cell culture and their ability to form tumors in mice. The
Company has licensed the technology relating to the development of this compound
to Methylgene, which is currently developing this technology. See "Item 1.
Business -- Financial Collaborations -- Methylgene Inc."
Metabolic Disorders
Vascular Endothelial Growth Factor -- Retinopathies. Overexpression of
VEGF has been implicated in four major causes of blindness: late stage,
age-related macular degeneration, which currently afflicts approximately 500,000
people in the U.S.; proliferative diabetic retinopathy, the major cause of
blindness in diabetics which currently affects approximately 250,000 people in
the U.S.; central retinal vein occlusion, which currently afflicts approximately
200,000 people in the U.S.; and retinopathy of prematurity, which affects
approximately 10,000 premature newborns annually in the U.S. Hybridon has
identified specific sequences on the VEGF messenger RNA as targets for
chemically-modified antisense oligonucleotides and is synthesizing
chemically-modified antisense oligonucleotides designed to inhibit the
expression of the VEGF gene in retinal cells. These oligonucleotides have been
shown in an animal model of retinopathy to inhibit vascular proliferation and
prevent aberrant angiogenesis in the retinas of mice in a model for retinopathy
of prematurity. Hybridon's antisense oligonucleotides have also been shown to
inhibit neovascularization in a primate animal model of neovascularization.
Vascular Endothelial Growth Factor--Psoriasis. VEGF, in association with
its role in angiogenesis, has recently been implicated in psoriasis, which
currently afflicts more than 6,000,000 people in the U.S. with between 150,000
and 260,000 new cases in the U.S. each year. Hybridon has identified specific
sequences on the VEGF messenger RNA as targets for chemically-modified antisense
oligonucleotides and has synthesized chemically-modified antisense
oligonucleotides that have inhibited the expression of the VEGF gene in in vitro
and tissue culture assays. The Company is currently investigating optimal forms
of topical delivery to the basal layers of the epidermis, where VEGF has been
found to be overexpressed in psoriasis.
Amyloid Precursor Protein. Alzheimer's disease is a neurodegenerative
disease which is the most common cause of dementia in the elderly. It is
estimated to affect approximately 4,000,000 individuals in the U.S. The presence
of amyloid precursor protein ("APP") in the brain at abnormal sites and in
abnormal amounts has been reported to be associated with Alzheimer's disease.
Hybridon has identified specific sequences on the messenger RNA as targets for
chemically-modified antisense
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oligonucleotides and has synthesized chemically-modified antisense
oligonucleotides that inhibit APP production in tissue culture assays. In
addition, the Company is continuing to conduct studies of APP regulation in
rats.
ApoE-4. Apolipoprotein E4 ("ApoE-4") is a plasma protein involved in
cholesterol transport and is associated with Alzheimer's disease. The two gene
products from the APP and ApoE-4 locus appear to interact and provide a
strategic site for therapeutic intervention in Alzheimer's disease. Hybridon and
has identified specific sequences on the messenger RNA as targets for
chemically- modified antisense oligonucleotides and is continuing to conduct
preclinical studies of ApoE-4. The Company is a party to a collaboration with
Medtronic involving the testing of a drug delivery device which could be used to
deliver Hybridon's antisense oligonucleotides targeting Alzheimer's disease and
other neurodegenerative diseases. See "Item 1. Business -- Corporate
Collaborations -- Medtronic, Inc."
CORPORATE COLLABORATIONS
An important part of Hybridon's business strategy is to enter into
research and development collaborations, licensing agreements or other strategic
alliances with third parties, primarily biotechnology and pharmaceutical
corporations, for the development and commercialization of certain products. As
of the date hereof, the Company had entered into corporate collaborations with
Searle, Roche and Medtronic, all as summarized below. The Company intends to
retain manufacturing rights for many of the products it may license pursuant to
these collaborations.
G.D. Searle & Co.
In January 1996, the Company and Searle entered into a collaboration
relating to research and development of therapeutic antisense compounds directed
at up to eight molecular targets in the field of inflammation/immunomodulation
(the "Searle Field").
Pursuant to the collaboration, the parties are conducting research and
development relating to a compound directed at a molecular target in the Searle
Field designated by Searle. In this project, Searle is funding certain research
and development efforts by Hybridon, and each of Searle and Hybridon have
committed certain of its own personnel to the collaboration. The initial phase
of research and development activities relating to the initial target will be
conducted through the earlier of (i) the achievement of certain product
candidate milestones and (ii) 36 months after commencement of the collaboration,
subject to early termination by Searle (although in any event Searle is required
to pay 18 months of research and development funding). The parties may extend
the initial collaboration by mutual agreement, including agreement as to
additional research funding by Searle.
In addition, under the collaboration Searle has the right, at its option,
to designate up to six additional molecular targets in the Searle Field (the
"Additional Targets") for collaborative research and development with Hybridon
on terms substantially consistent with the terms of the collaboration applicable
to the initial molecular target. This right is exercisable by Searle with
respect to each of the Additional Targets upon the payment by Searle of certain
research payments (beyond the project specific payments relating to the
particular Additional Target) and the purchase of additional Common Stock from
the Company by Searle (at the then fair market value). The aggregate amount to
be paid by Searle for such research payments and equity investment in order to
designate each of the Additional Targets is $10,000,000 per Additional Target.
In the event that Searle designates all of the Additional Targets, the aggregate
amount to be paid by Searle for research payments will be $24,000,000 and the
aggregate amount to be paid by Searle in equity investment will be $36,000,000.
If Searle has not designated all of the Additional Targets by the time it
advances the product candidate for the initial molecular target to certain
stages of preclinical development, Searle will be required to purchase an
additional $10,000,000 of Common Stock (at the then fair market value) on
specified dates in order to maintain its right to designate any of the
Additional Targets that it has not yet designated.
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The payment for any such Common Stock will be creditable against the equity
investment portion of the payments to be made by Searle with respect to the
designation of any of the Additional Targets that Searle has not yet designated.
Searle also has the right, at its option, to designate a molecular target
in the Searle Field to develop a therapeutic agent for cancer that acts through
immunomodulation (the "Searle Cancer Target") for collaborative research and
development with Hybridon on terms substantially consistent with the terms of
the collaboration applicable to the initial molecular target. At the time of
such designation, Searle will be required to make certain research payments to
Hybridon and purchase additional Common Stock from the Company (at the then fair
market value). The aggregate amount to be paid by Searle for such research
payments and equity investment will range from $12,000,000 (comprised of
$5,000,000 in research payments and $7,000,000 in equity investment) if the
Searle Cancer Target is designated in 1997 to $26,000,000 (comprised of
$21,000,000 in research payments and $5,000,000 in equity investment) if the
Searle Cancer Target is designated in 2000.
Searle has exclusive rights to commercialize any products resulting from
the collaboration. If Searle determines, in its sole discretion, to
commercialize a product, Searle will fund and perform preclinical tests and
clinical trials of the product candidate and will be responsible for regulatory
approvals for and marketing of the product. In certain instances and for
specified periods of time, Hybridon has agreed to perform research and
development work in the Searle Field exclusively with Searle. In addition, as to
each product candidate, Hybridon will be entitled to milestone payments from
Searle totalling up to an aggregate of $10,000,000 upon the achievement of
certain development benchmarks. Hybridon also will be entitled to royalties from
net sales of products resulting from the collaboration. Subject to satisfying
certain conditions relating to its manufacturing capacities and capabilities,
Hybridon will retain manufacturing rights, and Searle will be required to
purchase its requirements of products from Hybridon on an exclusive basis at
specified transfer prices. Upon a change in control of the Company, Searle would
have the right to terminate Hybridon's manufacturing rights, although the
royalty payable in respect of net sales would be increased in such event.
Under the collaboration, in the event that Searle designates (and makes
the required payments and equity investments for) all of the Additional Targets
or in certain other instances relating to Hybridon's failure to satisfy certain
requirements relating to its manufacturing capacities and capabilities, Searle
will have the right, exercisable in its sole discretion, to require Hybridon to
form a joint venture with Searle for the development of products in the Searle
Field (other than products relating to molecular targets that have already been
designated by Searle) to which each party will contribute $50,000,000 in cash,
although Hybridon's cash contribution would be reduced by the value of the
technology and other rights contributed by Hybridon to the joint venture.
Hybridon and Searle would each own 50% of the joint venture, although Searle's
ownership interest in the joint venture would increase based upon a formula to
up to a maximum of 75% if the joint venture is established in certain instances
relating to Hybridon's failure to satisfy certain requirements relating to its
manufacturing capacities and capabilities.
Under the collaboration, Searle also purchased 1,000,000 shares of Common
Stock in the Company's initial public offering.
F. Hoffmann-La Roche Ltd.
In December 1992, the Company and Roche entered into a collaboration
involving the application of Hybridon's antisense oligonucleotide chemistry to
the development of compounds for the treatment of hepatitis B, hepatitis C and
human papilloma virus. See "Item 1. Business -- Hybridon Drug Development and
Discovery Programs." Under this collaboration, Roche funded research and
development efforts relating to the collaboration and committed personnel of its
own to the collaboration. In 1995, Roche notified the Company that it had
selected an antisense
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oligonucleotide directed at hepatitis C as a lead compound for further
development and made a milestone payment to Hybridon in connection with such
designation. In the third quarter of 1996, Roche notified the Company that it
had selected an antisense oligonucleotide directed at human papilloma virus as a
lead compound for further development, and in the fourth quarter of 1996, made a
milestone payment to the Company in connection with such designation. At such
time, Roche also notified the Company that Roche had elected not to continue the
hepatitis B program under the research and development collaboration. As a
result, in light of the selection by Roche of lead compounds directed at
hepatitis C and human papilloma virus for further development and its
determination to discontinue the hepatitis B program, Roche notified the Company
that Roche was exercising its option to terminate the research phase of the
collaboration as of March 31, 1997. The Company and Roche are engaged in ongoing
discussions as to the manner in which they will collaborate in connection with
the further development of the two antisense oligonucleotides that have been
selected by Roche as lead compounds. All rights relating to the hepatitis B
program have reverted to the Company.
The Company has licensed to Roche any products resulting from the
collaboration on a royalty-bearing, worldwide exclusive basis. Subject to
compliance with certain production cost requirements, Roche is required to
purchase from Hybridon, and Hybridon is required to supply to Roche, Roche's
requirements of products at specified transfer prices.
As part of this collaboration, Roche purchased 551,724 shares of the
Company's Series E Convertible Preferred Stock and 200,000 shares of the
Company's Series F Convertible Preferred Stock, which shares were automatically
converted into an aggregate of 818,390 shares of Common Stock upon the Company's
initial public offering. In addition, the Company issued Roche a five-year
(subject to earlier expiration in certain circumstances) warrant to purchase
551,724 shares of Common Stock, which has a current exercise price of $17.97 per
share.
Medtronic, Inc.
In May 1994, the Company and Medtronic entered into a collaboration
involving the testing of a drug delivery device for use in delivering Hybridon's
antisense oligonucleotides for the treatment of Alzheimer's disease. See "Item
1. Business -- Hybridon Drug Development and Discovery Programs -- Metabolic
Disorders -- Amyloid Precursor Protein and Beta-amyloid Protein." Hybridon will
be responsible for the development of, and hold all rights to, any drug
developed pursuant to this collaboration, and Medtronic will be responsible for
the development of, and hold all rights to, any delivery system developed
pursuant to this collaboration. The parties may extend this collaboration by
mutual agreement to other neurodegenerative disease targets. The research and
development to be conducted is determined and supervised by a committee
comprised of an equal number of designees of the Company and Medtronic.
As part of the collaboration, Medtronic purchased 400,000 shares of the
Company's Series F Convertible Preferred Stock and 125,000 preferred stock units
of the Company (each unit consisting of one share of Series G Convertible
Preferred Stock and one warrant to purchase one-half of one share of the
Company's Common Stock). Upon the closing of the Company's initial public
offering, the shares of Series F Convertible Preferred Stock and Series G
Convertible Preferred Stock purchased by Medtronic automatically converted into
an aggregate of 658,333 shares of the Company's Common Stock. In addition, the
Company issued to Medtronic a warrant expiring on May 10, 1997 to purchase
53,333 shares of the Company's Common Stock at an exercise price equal to $7.50
per share (subject to increase under certain circumstances).
FINANCIAL COLLABORATIONS
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In order to maintain financial flexibility, Hybridon considers innovative
arrangements to finance certain applications of its GEM technology, particularly
applications that it would not develop in the near term without external
funding. The Company has entered into one such arrangement and has executed a
letter of intent with respect to a second. These arrangements are summarized
below.
Methylgene Inc.
The Company and certain Canadian institutional investors have formed a
Quebec company, Methylgene, to develop and market (i) antisense compounds to
inhibit DNA methyltransferase for the treatment of cancers, (ii) other methods
of inhibiting DNA methyltransferase for the treatment of any indications and
(iii) antisense compounds to inhibit a second molecular target other than DNA
methyltransferase for the treatment of cancers, to be agreed upon by Hybridon
and Methylgene (such three product areas being referred to herein as the
"Methylgene Fields").
Hybridon acquired a 49% minority interest in Methylgene for approximately
CDN$1,000,000, and the Canadian investors acquired a majority interest in
Methylgene for a total of approximately CDN$7,500,000. It is anticipated that
Methylgene will issue stock and stock options to certain key employees of and
consultants to Methylgene, including certain directors and officers of the
Company.
The Canadian investors have the right to exchange all (but not less than
all) of their shares of stock in Methylgene for shares of Common Stock of
Hybridon on the basis of 7.5 Methylgene shares (for which they paid
approximately US $11.25) for one share of Hybridon Common Stock (subject to
adjustment for stock splits, stock dividends and the like). This option is
exercisable only during a 90- day period commencing on the earlier of the date
five years after the closing of the Canadian investors' investment in Methylgene
or the date on which Methylgene ceases operations, and terminates sooner if
Methylgene satisfies certain conditions.
Hybridon has granted to Methylgene exclusive worldwide licenses and
sublicenses in respect of certain technology relating to the Methylgene Fields.
In addition, Hybridon and Methylgene have entered into a supply agreement
pursuant to which Methylgene is obligated to purchase from Hybridon all required
formulated bulk oligonucleotides at specified transfer prices.
It is anticipated that Methylgene will qualify to receive certain Canadian
tax benefits with respect to the research and development activities which it
carries on in Canada.
Symbiotech, Inc.
Hybridon and Symbiotech, Inc., a development stage biotechnology company
("Symbiotech"), have entered into a letter of intent to form a new company for
the development of quantitative in vitro diagnostic, detection and biological
amplification products using certain of the Company's antisense oligonucleotides
and Symbiotech's phage technology. The letter of intent provides for each of
Hybridon and Symbiotech to grant the new company exclusive worldwide
royalty-free licenses of certain of their respective technologies for the
development of these products. The letter of intent also has been signed by
Medical Science Partners, L.P. ("MSP") and Pillar S.A., which have indicated an
intention initially to invest a total of $250,000 in the new company. It is
anticipated that each of Hybridon and Symbiotech initially will own
approximately one-third of the equity in the new company, with the balance held
by MSP, Pillar S.A. and certain key employees or consultants, including certain
officers and directors of the Company. The majority of the capital stock of
Symbiotech is owned by MSP.
Because a definitive agreement relating to this transaction has not yet
been executed by the parties, it is possible that the final terms of this
arrangement may differ from those summarized above, possibly materially, or that
this transaction will not be consummated.
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MANUFACTURING TECHNOLOGY AND THE HYBRIDON SPECIALTY PRODUCTS DIVISION
The Company has developed a manufacturing technology platform which
integrates key elements of the manufacturing process to increase the purity of
oligonucleotide products, enhance the efficiency of the production process and
increase the scale of production. The Company has developed two separate
commercial scale oligonucleotide synthesizers. One of these machines was
developed in an internal program and the other in a collaboration with
Pharmacia. Both machines are designed with a capacity of up to 100 millimoles
(approximately 300 grams per batch), although the Company believes that these
machines may be able to exceed such capacity. Pharmacia has retained the right
to sell the machine developed under the collaboration to third parties, subject
to an obligation to pay Hybridon royalties on such third party sales. The
Company believes that its machine is the first commercial scale synthesizer
designed for more advanced chemistries. In addition, the Company has implemented
proprietary purification processes, which use water in place of chemical
solvents, simplifying environmental compliance and permitting purification of
kilogram batches of oligonucleotides. The Company has also developed proprietary
chemical synthesis processes and novel reagents used in the synthesis process,
which the Company believes will further decrease the cost of production of
advanced oligonucleotides.
In 1996, Hybridon formed the Hybridon Specialty Products Division to
capitalize on this technology and know-how and manufacture highly purified
oligonucleotide compounds both for Hybridon's internal use and for sale to third
parties, including the Company's collaborative partners, on a custom contract
basis. The Company is manufacturing oligonucleotides at its 36,000 square foot
leased manufacturing facility, which the Company believes is the first
commercial-scale synthetic DNA production facility with a fully integrated
manufacturing technology platform, including large-scale synthesis, purification
and proprietary analytical support. The Company first began production of
oligonucleotide compounds for sale to third parties in June 1996 and by the end
of 1996 had achieved sales revenues of approximately $1.1 million. The Company
also has received orders to provide analytical services and plans to expand its
product offerings to include proprietary intermediates used in the manufacture
of oligonucleotides.
In order to strengthen the marketing of the Division's products, in 1996
the Company entered into a four-year sales and supply agreement with the Applied
Biosystems Division of Perkin-Elmer. Under the agreement, Perkin-Elmer agreed to
refer potential customers for the custom contract manufacture of
oligonucleotides to Hybridon, and Hybridon agreed to purchase amidites from
Perkin- Elmer for the manufacture of oligonucleotides sold to such customers and
to pay Perkin-Elmer a percentage of the sales price paid by such customers. In
addition, Perkin-Elmer licensed to Hybridon its oligonucleotide synthesis
patents and agreed to discuss a future collaboration with respect to the
development, marketing and distribution of Hybridon's proprietary intermediates.
The production of antisense compounds is similar to the chemical synthesis
used in the production of conventional pharmaceuticals, and in contrast with
typical biopharmaceuticals, does not involve any fermentation processes or
living cells. Moreover, unlike many conventional drugs, antisense compounds
targeted at different diseases can be manufactured with the same nucleotide
building blocks and using the same manufacturing processes and equipment with
minimal adjustments. As a result, the knowledge and experience that the Company
obtains in the manufacture of one compound is substantially applicable to the
manufacture of other oligonucleotide compounds for the treatment of other
diseases and results in other manufacturing efficiencies.
The Company will need to further increase its manufacturing capacity
through the purchase or construction of additional large-scale oligonucleotide
synthesizers in order to satisfy its anticipated future requirements for GEM 91
and the Company's other product candidates and in order to manufacture
oligonucleotides on a custom contract basis for sale to third parties. In
addition, in order to successfully commercialize its product candidates or
achieve satisfactory margins on sales, the
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Company may be required to reduce further the cost of production of its
oligonucleotide compounds. See "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations - - Certain Factors That May
Affect Future Results -- Limited Manufacturing Capability."
The Company believes that it is currently manufacturing oligonucleotides
in substantial compliance with FDA requirements for manufacturing in compliance
with GMP, although its facility and procedures have not been formally inspected
by the FDA and the procedures and documentation followed may have to be enhanced
in the future as the Company expands its oligonucleotide production activities.
Failure to establish to the FDA's satisfaction compliance with GMP can result in
the FDA denying authorization to initiate or continue clinical trials, to
receive approval of a product or to begin or to continue commercial marketing.
In addition, the Company's manufacturing processes are subject to federal,
state and local laws and regulations governing the use, manufacture, storage,
handling and disposal of certain materials and waste products.
MARKETING STRATEGY
Hybridon plans to market the pharmaceutical products it is developing
either directly or through co-marketing, licensing, distribution or other
arrangements with pharmaceutical and biotechnology companies. Hybridon's current
strategy with respect to these products in development is to build a
hospital-targeted direct sales group for products for HIV-1 infection and AIDS
and other market areas that can be accessed with a small to medium size sales
force. Implementation of this strategy will depend on many factors, including
the market potential of any such products the Company develops as well as on the
Company's financial resources. The Company does not expect to establish a direct
sales capability with respect to such products until such time as one or more of
such products approach marketing approval. To market those products that will
serve a large, geographically diverse patient population, the Company expects to
enter into licensing, distribution or partnering agreements with pharmaceutical
and biotechnology companies that have large, established sales organizations. To
the extent the Company enters into marketing arrangements with third parties,
any revenues received by the Company will be dependent on the efforts of such
third parties, and there can be no assurance that such efforts will be
successful. While the Company has developed general marketing strategies, it has
not begun the implementation of any of these strategies with respect to any of
these potential products.
ACADEMIC AND RESEARCH COLLABORATIONS
Hybridon has entered into over 50 collaborative research agreements
relating to specific disease targets and other research activities in order to
augment its internal research capabilities and to obtain access to the
specialized knowledge or expertise of its collaborative partners. With respect
to certain of the Company's drug development programs, the Company relies
primarily upon outside collaborators. Accordingly, termination of the Company's
collaborative research agreements with any of these collaborators could result
in the termination of the related research program.
In general, the Company's collaborative research agreements require the
payment by Hybridon of various amounts in support of the research to be
conducted. The Company usually provides the collaborator with selected
oligonucleotides, which the collaborator then tests in his or her assay systems.
If the collaborator creates any invention during the course of his or her
efforts, solely or jointly with the Company, Hybridon generally has an option to
negotiate an exclusive, worldwide, royalty-bearing license of the collaborator's
rights in the invention for the purpose of commercializing any product
incorporating such invention. Inventions developed solely by Hybridon's
scientists as part of the collaboration generally are owned exclusively by
Hybridon. Most of these collaborative agreements are non-exclusive and can be
cancelled on relatively short notice.
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PATENTS, TRADE SECRETS AND LICENSES
Proprietary protection for the Company's product candidates, processes and
know-how is important to Hybridon's business. Thus, the Company plans to
prosecute and enforce aggressively its patents and proprietary technology. The
Company's policy is to file patent applications to protect technology,
inventions and improvements that are considered important to the development of
its business. Hybridon seeks to establish a comprehensive proprietary position
through a "layered" patent strategy covering the Company's families of
oligonucleotide chemistries, the antisense sequences of the Company's
oligonucleotide compounds and the overall chemical compositions of these
oligonucleotide compounds. The Company believes that this approach may provide
it with at least three independent levels of protection. Hybridon also seeks to
protect its proprietary analytical and manufacturing processes. The patents and
patent applications owned or exclusively licensed by the Company also are
directed to many aspects of the Company's proprietary oligonucleotide production
and analysis technology and ribozyme technology. The Company also relies upon
trade secrets, know-how, continuing technological innovation and licensing
opportunities to develop and maintain its competitive position.
As of February 28, 1997, Hybridon owned or exclusively licensed 23 issued
U.S. patents, six issued European patents, 31 allowed U.S. patent applications,
eight allowed European applications and 168 other U.S. patent applications. Of
these, the Company owned (as opposed to licensed) nine issued U.S. patents, 22
allowed U.S. patent applications and 159 other U.S. patent applications along
with corresponding patent applications in many cases in other major industrial
countries. The patents and applications owned by the Company cover various
chemically advanced oligonucleotides, proprietary target sequences, specific
preferred oligonucleotide products, methods for making and purifying
oligonucleotides, analytical methods and methods for oligonucleotide-based
therapeutic treatment of various diseases. The U.S. patents owned or exclusively
licensed by Hybridon expire at various dates ranging from 2006 to 2014.
Under the terms of a license agreement with the Worcester Foundation (the
"Foundation License"), Hybridon is the worldwide, exclusive licensee under
twelve issued U.S. patents, four issued European patents, six allowed U.S.
patent applications, two allowed European patent applications and six other U.S.
patent applications owned by the Worcester Foundation relating to
oligonucleotides and their production and use, as well as certain
ribozyme-related technology. Many of these patents and patent applications have
corresponding applications on file in other major industrial countries.
One of the issued U.S. patents (the "HIV Patent") and one of the issued
European patents licensed from the Worcester Foundation broadly claim antisense
oligonucleotides as new compositions of matter for inhibiting the replication of
HIV. The other issued U.S. patents include claims covering composition and uses
of oligonucleotides based on the Company's advanced chemistries, methods of
oligonucleotide synthesis that are potentially applicable to large-scale
commercial production, compositions of certain modified oligonucleotides that
are useful for diagnostic tests or assays and methods of purifying full-length
oligonucleotides after synthesis. The earliest expiration of the patents
licensed to the Company by the Worcester Foundation is 2006, when the HIV Patent
expires.
The Company also is the exclusive licensee under various other U.S. and
foreign patents and patent applications, including one U.S. patent, one allowed
U.S. patent application and one U.S. patent applications jointly owned by the
Worcester Foundation and the Mount Sinai Medical Center of New York claiming the
use of antisense oligonucleotides for the inhibition of influenza viruses and
two U.S. patent applications owned by McGill University relating to
oligonucleotides and DNA methyltransferase. The Company and MGH jointly own
three patent applications and one allowed U.S. patent application directed to
compositions and use of antisense applied to Alzheimer's disease. The Company
holds an exclusive license to MGH's interests under such patent applications.
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The Company is a non-exclusive licensee of certain patents held by the NIH
relating to oligonucleotide phosphorothioates and a non-exclusive licensee of an
NIH patent covering the phosphorothiolation of oligonucleotides. The field of
each of these licenses extends to a wide variety of genetic targets. If certain
of the claims of the NIH patents non-exclusively licensed to Hybridon are valid,
GEM 91 and certain of the Company's other products in development would infringe
these patents in the absence of the license.
The U.S. PTO has informed Hybridon that certain otherwise allowable patent
applications exclusively licensed by the Company from Worcester Foundation have
been submitted to the Board of Patent Appeals and Interferences to determine
whether an interference should be declared with issued U.S. patents held by the
NIH relating to oligonucleotide phosphorothioates. Banner & Witcoff, the
Company's U.S. patent counsel, is of the opinion that the Worcester Foundation
patent application has a prima-facie case for priority against the NIH for an
invention that includes phosphorothioate-modified oligonucleotides. However,
there can be no assurance an interference can be declared, or if declared, as to
the outcome thereof. In addition, Hybridon has filed an opposition to the NIH
oligonucleotide phosphorothioate patent in Europe. There can be no assurance as
to the outcome of the opposition. An adverse outcome in either the interference
or the European opposition would not affect the non-exclusive license from the
NIH to Hybridon of the NIH phosphorothioate patents.
Under the licenses to which it is a party, the Company is obligated to pay
royalties on net sales by the Company of products or processes covered by a
valid claim of a patent or patent application licensed to it. The Company also
is required in some cases to pay a specified percentage of any sublicense income
that the Company may receive. These licenses impose various commercialization,
sublicensing, insurance and other obligations on the Company. Failure of the
Company to comply with these requirements could result in termination of the
license. The Foundation License also grants the Company a right of first refusal
to certain technology developed by the Worcester Foundation.
The patent positions of pharmaceutical and biotechnology firms, including
Hybridon, are generally uncertain and involve complex legal and factual
questions. Consequently, even though Hybridon and its licensors are currently
prosecuting their respective patent applications with the U.S. Patent and
Trademark Office and certain foreign patent authorities, the Company does not
know whether any of its applications or those of third parties under which the
Company has or may obtain a license will result in the issuance of any patents
or, if any patents are issued, whether they will provide significant proprietary
protection or will be circumvented or invalidated. Since patent applications in
the U.S. are maintained in secrecy until patents issue, and since publication of
discoveries in the scientific or patent literature tend to lag behind actual
discoveries by several months, Hybridon cannot be certain that it, or any
licensor of patents to it, as the case may be, was the first creator of
inventions claimed by pending patent applications or that Hybridon or any
licensor, as the case may be, was the first to file patent applications for such
inventions. See "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Certain Factors That May Affect Future
Results -- Patents and Proprietary Rights."
Competitors of the Company and other third parties hold issued patents and
pending patent applications relating to antisense and other gene expression
modulation technologies, and it is uncertain whether these patents and patent
applications will require the Company to alter its products or processes, pay
licensing fees or cease certain activities. See "Item 7. Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Certain Factors
That May Affect Future Results -- Patents and Proprietary." In particular, the
Company is aware of a European patent granted to a third party relating to
certain types of stabilized synthetic oligonucleotides for use as therapeutic
agents for selectively blocking the translation of a messenger RNA into a
targeted protein by binding with a portion of the messenger RNA to which the
stabilized synthetic oligonucleotide is substantially
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complementary. This European patent was revoked in entirety in an opposition
proceeding before the European Patent Office in September 1995. The holder of
this patent has appealed such decision.
The Company is also aware of various issued U.S. patents and patent
applications owned by third parties that claim various uses of ribozymes,
including their use to modulate gene expression, particular ribozymes of
specific molecular sequences and methods of ribozyme production. Foreign
counterparts of certain of these patents and patent applications have been filed
in other major industrialized countries. There can be no assurance that the
Company will be successful in designing or producing ribozymes that fall outside
the valid scope of these patents and patent applications or that any license
that may be required for the Company to exploit ribozyme products, if any, will
be available on acceptable terms or at all. None of the Company's antisense
oligonucleotides infringe any of these patents. In addition, Banner & Witcoff is
of the opinion that the Company's finderons, oligonucleotides with
ribonuclease-like activity that do not contain enzymatic RNA, do not infringe
the claims of these patents and patent applications.
Hybridon's practice is to require its employees, consultants, members of
its Scientific and Clinical Advisory Boards, outside scientific collaborators
and sponsored researchers and other advisors to execute confidentiality
agreements upon the commencement of employment or consulting relationships with
the Company. These agreements provide that all confidential information
developed or made known to the individual during the course of the individual's
relationship with Hybridon is to be kept confidential and not disclosed to third
parties, subject to a right to publish certain information in the scientific
literature in certain circumstances and subject to other specific exceptions. In
the case of employees, the agreements provide that all inventions conceived by
the individual shall be the exclusive property of the Company. There can be no
assurance, however, that these agreements will provide meaningful protection for
the Company's trade secrets or adequate remedies in the event of unauthorized
use or disclosure of such information.
Hybridon engages in collaborations and sponsored research agreements and
enters into preclinical and clinical testing agreements with academic and
research institutions and U.S. government agencies, such as the NIH, to take
advantage of their technical expertise and staff and to gain access to clinical
evaluation models, patients, and related technology. Consistent with
pharmaceutical industry and academic standards, and the rules and regulations
under the Federal Technology Transfer Act of 1986, these agreements may provide
that developments and results will be freely published, that information or
materials supplied by Hybridon will not be treated as confidential and that
Hybridon may be required to negotiate a license to any such developments and
results in order to commercialize products incorporating them. There can be no
assurance that the Company will be able successfully to obtain any such license
at a reasonable cost or that such developments and results will not be made
available to competitors of the Company on an exclusive or nonexclusive basis.
See "Item 1. Business -- Academic and Research Collaborations."
GOVERNMENT REGULATION
The production and marketing of the Company's products and its research
and development activities are subject to regulation for safety, effectiveness
and quality by numerous governmental authorities in the U.S. and other
countries. The Company believes that it is in material compliance with all
federal, state and foreign legal and regulatory requirements under which it
operates. However, there can be no assurance that such legal or regulatory
requirements will not be amended or that new legal or regulatory requirements
will not be adopted, any one of which could have a material adverse effect on
the Company's business or results of operations.
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FDA Approval
In the U.S., pharmaceutical products intended for therapeutic or
diagnostic use in humans are subject to rigorous FDA regulation. The process of
completing clinical trials and obtaining FDA approvals for a new drug is likely
to take a number of years and requires the expenditure of substantial resources.
There can be no assurance that any product will receive such approval on a
timely basis, if at all. See "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Certain Factors That May Affect
Future Results -- No Assurance of Regulatory Approval; Government Regulation."
The steps required before a new oligonucleotide-based pharmaceutical
product for use in humans may be marketed in the U.S. include (i) preclinical
tests, (ii) submission to the FDA of an IND application, which must become
effective before human clinical trials commence, (iii) adequate and
well-controlled human clinical trials to establish the safety and effectiveness
of the product, (iv) submission of a New Drug Application ("NDA") to the FDA,
and (v) FDA approval of the NDA prior to any commercial sale or shipment of the
product.
Preclinical tests include laboratory evaluation of product chemistry and
formulation, as well as animal studies, to assess the potential safety and
effectiveness of the product. Compounds must be manufactured according to GMP
and preclinical safety tests must be conducted by laboratories that comply with
FDA regulations regarding GLP. See "Item 1. Business -- Manufacturing." The
results of the preclinical tests are submitted to the FDA as part of an IND and
are reviewed by the FDA prior to the commencement of human clinical trials.
Unless the FDA objects to, or makes comments or raises questions concerning, an
IND, the IND will become effective 30 days following its receipt by the FDA.
There can be no assurance that submission of an IND will result in FDA
authorization to commence clinical trials.
Clinical trials involve the administration of the investigational new drug
to healthy volunteers and to patients, under the supervision of a qualified
principal investigator. Clinical trials are conducted in accordance with Good
Clinical Practices under protocols that detail the objectives of the study, the
parameters to be used to monitor safety and the effectiveness criteria to be
evaluated. Each protocol must be submitted to the FDA as part of the IND.
Further, each clinical study must be conducted under the auspices of an
independent Institutional Review Board (an "IRB"). The IRB will consider, among
other things, ethical factors, the safety of human subjects and the possible
liability of the institution.
Clinical trials are typically conducted in three sequential phases,
although the phases may overlap. In Phase I, the investigational new drug
usually is administered to healthy human subjects and is tested for safety
(adverse effects), dosage, tolerance, metabolism, distribution, excretion and
pharmacodynamics (clinical pharmacology). Phase II involves studies in a limited
patient population to (i) determine the effectiveness of the investigational new
drug for specific indications, (ii) determine dosage tolerance and optimal
dosage, and (iii) identify possible adverse effects and safety risks. When an
investigational new drug is found to be effective and to have an acceptable
safety profile in Phase II evaluation, Phase III trials are undertaken to
further evaluate clinical effectiveness and to further test for safety within an
expanded patient population at geographically dispersed clinical study sites.
There can be no assurance that Phase I, Phase II or Phase III testing will be
completed successfully within any specified time period, if at all, with respect
to any of the Company's products subject to such testing. Furthermore, the
Company, an IRB or the FDA may suspend clinical trials at any time if it is felt
that the participants are being exposed to an unacceptable health risk.
The results of the pharmaceutical development, preclinical studies and
clinical studies are submitted to the FDA in the form of an NDA for approval of
the marketing and commercial shipment of the product. The FDA may require
additional testing or information before approving the NDA. In
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any event, the FDA may deny an NDA if applicable regulatory criteria are not
satisfied. Moreover, if regulatory approval of a product is granted, such
approval may require postmarketing testing and surveillance to monitor the
safety of the product or may entail limitations on the indicated uses for which
it may be marketed. Finally, product approvals may be withdrawn if compliance
with regulatory standards is not maintained or if problems occur following
initial marketing.
In addition to product approval, the Company may be required to obtain a
satisfactory inspection by the FDA covering the Company's manufacturing
facilities before a product manufactured by the Company can be marketed in the
U.S. The FDA will review the Company's manufacturing procedures and inspect its
facilities and equipment for compliance with GMP and other applicable rules and
regulations. Any material change by the Company in its manufacturing process,
equipment or location would necessitate additional FDA review and approval.
Foreign Regulatory Approval
Whether or not FDA approval has been obtained, approval of a
pharmaceutical product by comparable governmental regulatory authorities in
foreign countries must be obtained prior to the commencement of clinical trials
and subsequent marketing of such product in such countries. The approval
procedure varies from country to country, and the time required may be longer or
shorter than that required for FDA approval.
Under European Community ("EC") law, either of two approval procedures may
apply to the Company's products: a centralized procedure, administered by the
EMEA (the European Medicines Evaluation Agency); or a decentralized procedure,
which requires approval by the medicines agency in each EC Member State where
the Company's products will be marketed. The centralized procedure is mandatory
for certain biotechnology products and available at the applicant's option for
certain other products. Whichever procedure is used, the safety, efficacy and
quality of the Company's products must be demonstrated according to demanding
criteria under EC law and extensive nonclinical tests and clinical trials are
likely to be required. In addition to premarket approval requirements, national
laws in EC Member States will govern clinical trials of the Company's products,
adherence to good manufacturing practice, advertising and promotion and other
matters. In certain EC Member States, pricing or reimbursement approval may be a
legal or practical precondition to marketing.
At present, pharmaceutical products generally may not be exported from the
U.S. for other than research purposes until the FDA has approved the product for
marketing in the U.S. However, a company may apply to the FDA for permission to
export finished products or partially processed products to a limited number of
countries prior to obtaining FDA approval for marketing in the U.S.
The Company has FDA permission for the export of GEM 91 to France.
Other Regulation
In addition to regulations enforced by the FDA, the Company also is
subject to regulation under the Occupational Safety and Health Act and other
present and potential future federal, state or local regulations. Furthermore,
because the Company's research and development involves the controlled use of
hazardous materials, chemicals, viruses and various radioactive compounds, the
Company's operations are subject to U.S. Department of Transportation and
Environmental Protection Agency requirements and other federal, state and
foreign laws and regulations regarding hazardous waste disposal, air emissions
and wastewater discharge, including without limitation the Environmental
Protection Act, the Toxic Substances Control Act and the Resource Conservation
and Recovery Act. Although the Company believes that its procedures for handling
and disposing of such materials comply with the standards prescribed by
applicable regulations, the risk of accidental contamination or injury from
these materials cannot be completely eliminated. In the event of such an
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accident, the Company could be held liable for any damages that result and any
such liability could have a material adverse effect on the Company.
COMPETITION
The Company's products under development are expected to address several
different markets defined by the potential indications for which such products
are developed and ultimately approved by regulatory authorities. For several of
these indications, the Company's proposed products will be competing with
products and therapies either currently existing or expected to be developed,
including antisense oligonucleotides developed by third parties. Competition
among these products will be based, among other things, on product efficacy,
safety, reliability, availability, price and patent position. An important
factor will be the timing of market introduction of the Company's or competitive
products. Accordingly, the relative speed with which Hybridon can develop
products, complete the clinical trials and approval processes and supply
commercial quantities of the products to the market is expected to be an
important competitive factor. The Company's competitive position will also
depend upon its ability to attract and retain qualified personnel, to obtain
patent protection or otherwise develop proprietary products or processes, and to
secure sufficient capital resources for the often substantial period between
technological conception and commercial sales.
There are a number of companies, both privately and publicly held, that
are conducting research and development activities on technologies and products
aimed at therapeutic modulation of gene expression. The Company believes that
the industry-wide interest in these technologies and products will continue and
will accelerate as the techniques which permit their application to drug
development become more widely understood. There can be no assurance that the
Company's competitors will not succeed in developing products based on
oligonucleotides or other novel technologies that are more effective than any
which are being developed by the Company or which would render the Company's
technology and products obsolete and noncompetitive prior to recovery by the
Company of the research, development and commercialization expenses incurred
with respect to those products. Furthermore, because of the fundamental
differences between gene expression modulation and other technologies, there may
be indications for which such other technologies are superior to gene expression
modulation. The development by others of new treatment methods not based on gene
expression modulation technology for those indications for which the Company is
developing compounds could render the Company's compounds noncompetitive or
obsolete.
Competitors of the Company engaged in all areas of drug discovery in the
U.S. and other countries are numerous and include, among others, major
pharmaceutical and chemical companies, biotechnology firms, universities and
other research institutions. Many of these competitors have substantially
greater financial, technical and human resources than the Company. In addition,
many of these competitors have significantly greater experience than the Company
in undertaking preclinical studies and human clinical trials of new
pharmaceutical products and obtaining FDA and other regulatory approvals of
products for use in health care. Accordingly, the Company's competitors may
succeed in obtaining FDA or other regulatory approvals for products more rapidly
than the Company. Furthermore, if the Company is permitted to commence
commercial sales of products, it will also be competing with respect to
manufacturing efficiency and marketing capabilities, areas in which it has
limited or no experience. See "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Certain Factors That May Affect
Future Results -- Competition."
EMPLOYEES
As of February 28, 1997, Hybridon employed 206 individuals full-time, of
whom 99 held advanced degrees. 165 of these employees are engaged in research
and development activities and 31 are employed in finance, corporate development
and legal and general administrative activities. In addition, 90 of these
employees are employees of the Hybridon Specialty Products Division, of whom
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35 are employed in analytical research and quality control. Many of the
Company's management and professional employees have had prior experience with
pharmaceutical, biotechnology or medical products companies. None of the
Company's employees is covered by collective bargaining agreements, and
management considers relations with its employees to be good.
SCIENTIFIC ADVISORY BOARD
The Company's Scientific Advisory Board consists of individuals with
recognized expertise in gene expression modulation technology, antisense
oligonucleotides, oligonucleotide biochemistry, human genetics, medicine and
related fields who advise the Company about current and long-term scientific
planning, research and development. The Scientific Advisory Board holds
approximately three or four formal meetings annually. All members of the
Scientific Advisory Board are employed by employers other than the Company,
primarily academic institutions, and may have commitments to or consulting or
advisory agreements with other entities that may limit their availability to the
Company. These companies may also be competitors of Hybridon. Several members of
the Scientific Advisory Board have, from time to time, devoted significant time
and energy to the affairs of the Company. However, except for Drs. Zamecnik and
Wyngaarden, who are parties to consulting agreements with the Company, no
members are regularly expected to devote more than a small portion of their time
to Hybridon.
The following persons are members of the Scientific Advisory Board:
Paul C. Zamecnik, M.D. (Chairman) is a founder of Hybridon and serves as a
director of the Company. Dr. Zamecnik has served as a Principal Scientist of the
Worcester Foundation and as the Collis P. Huntington Professor of Oncologic
Medicine Emeritus at the Harvard Medical School since 1979.
Daniel M. Brown, Sc.D., F.R.S. has been a Fellow of King's College,
University of Cambridge, since 1953, and currently serves as Vice-Provost of
King's College and as an Attached Scientific Worker in the Medical Research
Council Laboratory of Molecular Biology at the University of Cambridge. Dr.
Brown is also an Emeritus Reader in Organic Chemistry at the University of
Cambridge and became a Fellow of the Royal Society in 1982.
Edgar Haber, M.D. has served as the Elkan R. Blout Professor of Health
Science and Director of the Division of Biological Sciences at the Harvard
School of Public Health and as a Clinical Professor of Medicine at Harvard
Medical School since 1991. From 1990 to 1991, Dr. Haber served as President of
the Bristol-Myers Squibb Pharmaceutical Research Institute, and from 1988 to
1990, he was President of the Squibb Institute for Medical Research.
Har Gobind Khorana, Ph.D. has served as a Sloan Professor in the
Departments of Biology and Chemistry at the Massachusetts Institute of
Technology since 1970. Dr. Khorana has been awarded numerous prestigious honors,
including the Nobel Prize in Medicine or Physiology in 1968 and the National
Medal of Science in 1987.
Roger E. Monier, Ph.D. has served as Director of Molecular Oncology at the
Institute Gustave Roussy in Paris since 1985. From 1980 to 1985, Dr. Monier
served as the Director of Life Sciences at the Centre Nationale de Recherches
Scientifiques in Paris. Dr. Monier was elected to the French Academy of Science
in 1992.
Peter Palese, Ph.D. has served as a Professor in the Department of
Microbiology at Mount Sinai School of Medicine in New York since 1978 and has
served as Chairman of the Department of Microbiology since 1987.
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Thoru Pederson, Ph.D. is a Principal Scientist of Cell Biology at the
Worcester Foundation and has served as its President and Director since 1985.
From February 1990 to November 1993, Dr. Pederson served as a director of the
Company.
Jerry A. Weisbach, Ph.D. a director of the Company, is an independent
consultant to biotechnology and pharmaceutical companies. Dr. Weisbach served as
Director of Technology Transfer and as an Adjunct Professor at The Rockefeller
University from 1988 to 1994. Dr. Weisbach served as Corporate Vice President of
Warner-Lambert Company, an international pharmaceutical company, from 1981 to
1987 and President of the Parke-Davis Pharmaceutical Research Division of
Warner-Lambert Company from 1979 to 1987.
James B. Wyngaarden, M.D. a director of the Company, served as the Foreign
Secretary of the National Academy of Sciences and the Institute of Medicine of
the National Academy of Sciences from 1990 to 1994. Dr. Wyngaarden also served
as the Director of the NIH from 1982 to 1989 and as a council member of the
Human Genome Organization from 1990 to 1993 and as its Director from 1990 to
1991.
Members of the Company's Scientific Advisory Board are paid $2,500 per
calendar quarter for their services in such capacity and are reimbursed for
their expenses incurred in connection with attendance at its meetings. Members
of the Scientific Advisory Board also have received options to purchase Common
Stock of the Company under the Company's stock option plans.
CLINICAL ADVISORY BOARD
The Company's Clinical Advisory Board was formally established in November
1993 to advise the Company with respect to clinical trials of the Company's
product candidates. The Clinical Advisory Board holds approximately three or
four formal meetings annually. The Clinical Advisory Board consists of
individuals with recognized expertise in the conduct of clinical trials and the
regulatory approval process. All members of the Clinical Advisory Board are
employed by employers other than the Company, primarily academic institutions,
and may have commitments to or consulting or advisory agreements with other
entities that may limit their availability to the Company. These companies may
also be competitors of Hybridon. Several members of the Clinical Advisory Board
have, from time to time, devoted significant time and energy to the affairs of
the Company. However, except for Drs. Wyngaarden and Weisbach, who are directors
of and consultants to the Company, and Dr. Groopman, who is a consultant to the
Company, no members are regularly expected to devote more than a small portion
of their time to Hybridon.
The following persons are members of the Clinical Advisory Board:
Dr. Wyngaarden's (Chairman) background and experience are described above
under "Item 1. Business -- Scientific Advisory Board."
Robert M. Chanock, M.D. has served as an infectious disease epidemiologist
and laboratory virologist at the NIH since 1957. Prior to that Dr. Chanock held
academic appointments at the University of Cincinnati College of Medicine and
the Johns Hopkins University School of Hygiene and Public Health. Dr. Chanock
has been awarded numerous prestigious honors, including the ICN International
Prize in Virology in 1990, the Bristol-Myers Squibb Award for Distinguished
Achievement in Infectious Diseases Research in 1993 and the Albert B. Sabin
Foundation award.
Vincent T. DeVita, Jr., M.D. has served as Director of the Yale Cancer
Center since 1993. Dr. DeVita served as an attending physician and member of the
Program of Molecular Pharmacology and Therapeutics from 1988 to 1993, and as
Physician-in-Chief from 1988 to 1991, at Memorial Sloan Kettering Cancer Center.
From 1980 to 1988, Dr. DeVita served as Director of the National Cancer
Institute, NIH. In 1995, he was honored with the City of Medicine Award.
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Jerome Groopman, M.D. has served as Chief of the Division of
Hematology/Oncology at the New England Deaconess Hospital since 1985. He has
also served as a Professor of Medicine at Harvard Medical School since 1993. Dr.
Groopman is a member of the AIDS Advisory Committee, the Biologics Committee of
the FDA, the AIDS Clinical Trials Group of the NIH and the AIDS Basic Science
Research Study Section A, NIAID.
Paul Meier, Ph.D. has served as Professor and Chairman of the Department of
Statistics and Division of Biological Sciences at Columbia University since
1985. Dr. Meier has served as an advisor to the FDA on the statistical analysis
of clinical trials since 1991.
Dr. Weisbach's background and experience are described under "Item 1.
Business -- Scientific Advisory Board."
Members of the Company's Clinical Advisory Board are paid $2,500 per
calendar quarter for their services in such capacity and are reimbursed for
their expenses incurred in connection with attendance at its meetings.
ITEM 2. PROPERTIES.
----------
The Company's executive, administrative and research and development
facilities, comprising approximately 90,000 square fee, currently are located in
Cambridge, Massachusetts. These facilities are held under a lease which expires
in 2007, but may be extended at Hybridon's option for three additional five-year
terms. The lease provides for an annual rent of approximately $38.00 per square
foot for the first five years and approximately $42.00 per square foot for the
second five years.
The Company leases its 36,000 square foot manufacturing facility in
Milford, Massachusetts under a lease which expires in 2004. The term of the
lease may be extended at Hybridon's option for two additional five-year terms.
In addition to its manufacturing operations, the Company conducts process and
analytical chemistry operations at this facility.
The Company also leases approximately 1,800 square feet of space in Paris,
France under a lease expiring on May 1, 2003 for administrative offices for its
European operations.
For a description of various arrangements relating to the Cambridge
facility and the Paris facility, see "Certain Transactions -- Transactions with
Pillar S.A. and Certain Affiliates" in the Company's 1997 Proxy Statement (as
defined in "Item 10. Directors and Executive Officers of the Registrant").
ITEM 3. LEGAL PROCEEDINGS.
-----------------
The Company is not a party to any litigation that it believes could have a
material adverse effect on the Company or its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS.
--------------------------------------------------
No matters were submitted to a vote of securityholders of the Company,
through solicitation of proxies or otherwise, during the last quarter of the
year ended December 31, 1996.
29
<PAGE> 30
EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES OF THE COMPANY
- - -----------------------------------------------------------
The executive officers and significant employees of the Company and their
ages as of March 15, 1997 are as follows:
NAME AGE POSITION
---- --- --------
Executive Officers
E. Andrews Grinstead, III......... 51 Chairman of the Board of Directors,
President and Chief Executive Officer
Sudhir Agrawal, D. Phil........... 43 Senior Vice President of Discovery,
Chief Scientific Officer and Director
Anthony J. Payne.................. 50 Senior Vice President of Finance and
Administration, International
Operations, Chief Financial Officer,
Treasurer and Secretary
Significant Employees
Robert G. Andersen . . . . . . . . .46 Vice.President of Systems Engineering
and Management Information Systems
Aharon Cohen, Ph.D. . . . . . . . . 52 Vice President of Analytical Research
and Chief Analytical Scientist
Jose E. Gonzalez, Ph.D. . . . . . . 50 Vice President of Manufacturing
John Goodchild, Ph.D. . . . . . . . 52 Vice President of Applied Chemistry
and Ribozyme Research
J. Michael Grindel, Ph.D. . . . . . 50 Vice President of Pre-Clinical
Development
Philippe Guinot, M.D., Ph.D. . . . .47 Vice President of Drug Development and
General Manager, Hybridon Europe
Charles R. Hogen, Jr. . . . . . . . 49 Vice President of Corporate
Communications and Public Affairs
Douglas J. Jensen . . . . . . . . . 44 Vice President of Corporate
Administration and Development
Monroe I. Klein, Ph.D. . . . . . . .54 Vice.President of Regulatory Affairs
R. Russell Martin, M.D. . . . . . . 61 Vice President of Drug Development
Jin-Yan Tang, Ph.D. . . . . . . . . 52 Vice President of Process Development
Darlene A. Van Stone . . . . . . . .34 Patent.Counsel
Mark C. Wiggins . . . . . . . . . . 41 Vice President of Business
Development and Marketing
Mr. Grinstead joined the Company in June 1991 and was appointed Chairman of
the Board and Chief Executive Officer in August 1991 and President in January
1993. He has served on the Board of Directors since June 1991. Prior to joining
the Company, Mr. Grinstead served as Managing Director and Group Head of the
life sciences group at PaineWebber, Incorporated, an investment banking firm,
from 1987 to October 1990; Managing Director and Group Head of the life sciences
group at Drexel Burnham Lambert, Inc., an investment banking firm, from 1986 to
1987; and Vice President at Kidder, Peabody & Co. Incorporated, an investment
banking firm, from 1984 to 1986, where he developed the life sciences corporate
finance specialty group. Mr. Grinstead served in a variety of operational and
executive positions with Eli Lilly and Company ("Eli Lilly"), an international
pharmaceutical company, from 1976 to 1984, most recently as General Manager of
Venezuelan Pharmaceutical, Animal Health and Agricultural Chemical Operations
and as Administrator, Strategic Planning and Acquisitions. Since 1991, Mr.
Grinstead has served as a director of EcoScience Corporation, a development
stage company engaged in the development of biopesticides, and as a director of
Pharmos Corporation, a development stage company engaged in the development of
drug
30
<PAGE> 31
delivery systems. Mr. Grinstead also serves as a director of Meridian Medical
Technologies, Inc., a pharmaceutical and medical device company. Mr. Grinstead
was appointed to The President's Council of the National Academy of Sciences and
the Institute of Medicine in January 1992. Since 1994, Mr. Grinstead has served
as a member of the Board of Trustees of the Albert B. Sabin Vaccine Foundation,
a charitable foundation dedicated to disease prevention. Mr. Grinstead received
an A.B. from Harvard College in 1967, a J.D. from the University of Virginia
School of Law in 1974 and an M.B.A. from the Harvard Graduate School of Business
Administration in 1976.
Dr. Agrawal joined the Company in February 1990 and served as Principal Research
Scientist from February 1990 to January 1993 and as Vice President of Discovery
from December 1991 to January 1993 prior to being appointed Chief Scientific
Officer in January 1993 and Senior Vice President of Discovery in March 1994. He
has served on the Board of Directors since March 1993. Prior to joining the
Company, Dr. Agrawal served as a Foundation Scholar at the Worcester Foundation
from 1987 through 1991 and currently maintains Visiting Scholar status. Dr.
Agrawal served as a Research Associate at the Medical Research Council
Laboratory of Molecular Biology in Cambridge, England, from 1985 to 1986,
studying synthetic oligonucleotides. Dr. Agrawal received a B.Sc. in chemistry,
botany and zoology in 1973, an M.Sc. in organic chemistry in 1975 and a D. Phil.
in chemistry in 1980 from Allahabad University in India.
Mr. Payne joined the Company in June 1991 and was appointed Chief Financial
Officer in August 1991, Treasurer in September 1991, Secretary in April 1992 and
Senior Vice President of Finance and Administration, International Operations in
January 1993. Prior to joining the Company, Mr. Payne served as Audit Director
at The First National Bank of Boston, an international commercial bank, from
1990 to 1991, where he directed that bank's audit coverage in global banking and
treasury. He served in a variety of financial and accounting positions with
Manufacturers Hanover Trust Corporation, an international commercial bank, from
1980 to 1990, most recently as Vice President and Audit Director. From 1974 to
1979, Mr. Payne was associated with Price Waterhouse, an international public
accounting firm. Mr. Payne received a B.Sc. in mathematics and physics from the
University of London in 1970 and an M.Sc. in computer science from the
University of Essex in 1973. Mr. Payne is both a chartered accountant and a
certified public accountant.
Mr. Andersen joined the Company and was appointed Vice President of Systems
Engineering and Management Information Systems in November 1996. Prior to
joining the Company, Mr. Andersen served in a variety of positions at Digital
Equipment Corporation, a computer company, from 1986 to 1996, most recently as
Group Manager of the Applied Objects Group. From 1978 to 1986, Mr. Andersen
served in a variety of positions at United Technologies Corporation, an aviation
technology company, most recently as Director of Quality. Mr. Andersen received
his B.E.E. in Electrical Engineering from The City College of New York in 1972
and a M.S. from Northeastern University in 1978.
Dr. Cohen joined the Company in March 1992 and served as Director of
Analytical Research from 1992 to June 1993 prior to being appointed Vice
President of Analytical Research in June 1993. Prior to joining the Company, Dr.
Cohen served as Senior Staff Scientist in the Barnett Institute at Northeastern
University from 1987 to 1992 and as a Postdoctoral Research Associate at
Northeastern University from 1985 to 1987. Dr. Cohen received a B.S. in
chemistry in 1970, an M.S. in analytical chemistry in 1980 and a Ph.D. in
analytical chemistry in 1985 from Hebrew University.
Dr. Gonzalez joined the Company and was appointed Vice President of
Manufacturing in August 1995. Prior to joining the Company, Dr. Gonzalez served
as Vice President of Manufacturing Operations at Enzon Corporation, a
biotechnology company, from 1993 to 1995. From 1977 to 1993, Dr. Gonzalez served
in a variety of positions at The Upjohn Company, a pharmaceutical company, most
recently as Associate Director of Bioprocess Development. Dr. Gonzalez received
a B.S. in
31
<PAGE> 32
chemistry from the University of Miami in 1969 and a Ph.D. in biochemistry from
Purdue University in 1974.
Dr. Goodchild joined the Company in March 1992 and served as Vice President
of Ribozyme Research from March 1992 to July 1993 prior to being appointed Vice
President of Applied Chemistry and Ribozyme Research in July 1993. He also has
served as an Adjunct Associate Professor at the University of Massachusetts
Medical Center Department of Pharmacology since September 1992. Prior to joining
the Company, Dr. Goodchild was a faculty member and Staff Scientist from 1987 to
1992 and a Visiting Scientist from 1984 to 1987 at the Worcester Foundation and
a Visiting Scientist at the National Research Council of Canada from 1982 to
1984. From 1971 to 1982, he was a Senior Research Scientist and Group Leader at
Searle. Dr. Goodchild is a Fellow of the Royal Society of Chemistry and became a
chartered chemist in 1979. Dr. Goodchild received a B.Sc. in chemistry in 1965
and a Ph.D. in organic chemistry in 1968 from Liverpool University.
Dr. Grindel joined the Company and was appointed Vice President of
Preclinical Development in September 1994. Prior to joining the Company, Dr.
Grindel served in a variety of positions at R.W. Johnson Pharmaceutical Research
Institute, a division of Johnson & Johnson, from 1988 to 1994, most recently as
Vice President of Strategic Planning, Project Planning and Management. Dr.
Grindel received a B.S. in chemistry from St. Benedict's College in 1969 and a
Ph.D. in medicinal chemistry from the University of Kansas in 1973.
Dr. Guinot joined the Company and was appointed Vice President of European
Drug Development and General Manager of Hybridon Europe in September 1995. Prior
to joining the Company, Dr. Guinot served as a consultant to the Laboratoire
Francais du Fractionnemant et des Biotechnologies (the "LFB") from 1994 to 1995,
where he was responsible for conducting audits of all of the LFB's research and
development programs. From 1981 to 1994, Dr. Guinot served in a variety of
positions at the Beaufour-Ipsen Group, a group of affiliated pharmaceutical
companies, most recently as General Manager of the Institute Henri Beaufour
where he was responsible for the planning, strategy, budget and coordination of
the Beaufour-Ipsen Group's product development efforts. In addition, Dr. Guinot
has served as an Adjunct Professor of Medicine at the University of California,
Davis since 1992, an Adjunct Professor of Physiology at New York Medical College
since 1991 and Consultant Physician in Internal Medicine at Broussais Hospital
in Paris. Dr. Guinot received an M.D. from the University of Paris in 1975 and a
Ph.D. in biophysics from Clermont Ferrand in 1994.
Mr. Hogen joined the Company and was appointed Vice President of Corporate
Communications and Public Affairs in February 1996. Prior to joining the
Company, Mr. Hogen served in a variety of positions at Merck & Co., a
pharmaceutical company, from 1988 to 1995, most recently as Executive Director
of Public Affairs. From 1978 to 1988, Mr. Hogen served in a variety of positions
at United Technologies Corporation, most recently as Director of Contributions
and Community Affairs. Mr. Hogen received a B.A. from Yale University in 1970.
Mr. Jensen joined the Company and served as Vice President of
Administration and Corporate Communications from March 1994 to May 1996 prior to
being appointed Vice President of Corporate Administration and Development in
May 1996. Prior to joining the Company, Mr. Jensen served as Managing Partner of
Parkway Capital Corporation, a securities firm which he co-founded, from 1990 to
1994. From 1984 to 1990, Mr. Jensen served as Senior Vice President of
Oppenheimer & Co., Inc., where he was responsible for marketing the firm's
proprietary trading strategies, and, from 1983 to 1984, as a registered
representative of Merrill Lynch. Mr. Jensen received a B.A. from Wheaton College
in 1976.
Dr. Klein joined the Company and was appointed Vice President of Regulatory
Affairs in November 1996. Prior to joining the Company, Dr. Klein served as the
Vice President of Worldwide Regulatory Affairs at Cephalon, Inc., a
pharmaceutical company, from 1994 to 1996. From 1990 to
32
<PAGE> 33
1993, Dr. Klein served as the Vice President of Regulatory Affairs at
Carter-Wallace, Inc., a pharmaceutical company, and from 1983 to 1990 he held a
variety of regulatory positions at SmithKline & French Laboratories. Dr. Klein
received his B.Sc. in Pharmacy from Philadelphia College of Pharmacy and Science
in 1965 and a Ph.D. in Pharmacology from the Albert Einstein College of Medicine
in 1972.
Dr. Martin joined the Company and served as Vice President of Clinical
Research from April 1994 to February 1997 prior to being appointed Vice
President of Drug Development in February 1997. Prior to joining the Company,
Dr. Martin served in a variety of positions at Bristol Myers Squibb from 1983 to
1994, most recently as Vice President of Clinical Research (Infectious
Diseases). During such period, he served as an Adjunct Associate Professor of
Medicine and Associate Clinical Professor at Yale University School of Medicine
from 1987 to 1994, Clinical Professor at University of Connecticut School of
Medicine from 1986 to 1993 and Adjunct Professor of Medicine at Baylor College
of Medicine from 1983 to 1994. Prior to joining Bristol Myers Squibb, Dr. Martin
served as Professor of Medicine, Microbiology and Immunology at Baylor College
from 1975 to 1983. Dr. Martin received an A.B. in American studies from Yale
University in 1956 and an M.D. from the Medical College of Georgia in 1960.
Dr. Tang joined the Company in 1991 and served as Senior Research Scientist
from 1991 to 1993, Director of Oligonucleotide Chemistry from 1993 to 1994 and
Executive Director of Process Chemistry from 1994 to April 1995 prior to being
appointed Vice President of Process Development in April 1995. Prior to joining
the Company, Dr. Tang served as a Visiting Fellow at the Worcester Foundation
from 1988 to 1991. He also served as a Visiting Professor at the University of
Colorado in 1988. Dr. Tang received a B.S. in biochemistry from Shanghai
University of Sciences and Technology in 1965 and a Ph.D. from the Shanghai
Institute of biochemistry in 1978.
Ms. VanStone joined the Company in May 1995 as its patent counsel. Prior to
joining the Company, Ms. VanStone served as patent counsel at ImmuLogic
Pharmaceutical Corporation from 1992 to 1995 and as an associate attorney at the
law firm of Weingarten, Schurgin, Gabnebin & Hayes from 1989 to 1992. Ms.
VanStone received an A.B. in biochemistry from Mount Holyoke College in 1984 and
a J.D. from Suffolk University Law School in 1989.
Mr. Wiggins joined the Company and was appointed Vice President of Business
Development and Marketing in November 1996. Prior to joining the Company, Mr.
Wiggins served in a variety of positions at Schering-Plough Corporation, a
pharmaceutical company, from 1986 to 1996, most recently as the Director of
Business Development. From 1980 to 1986, Mr. Wiggins held various marketing
positions at Ortho Pharmaceuticals, Inc., a pharmaceutical company, and Pfizer,
Inc., a pharmaceutical company. Mr. Wiggins received his B.S. in Finance from
Syracuse University in 1978 and a M.B.A. from the University of Arizona in 1980.
33
<PAGE> 34
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
---------------------------------------------------------------------
Since January 24, 1996, the Company's Common Stock has traded on the
Nasdaq National Market under the symbol "HYBN." Prior to January 24, 1996, there
was no established public trading market for the Company's Common Stock.
<TABLE>
The following table sets forth for the periods indicated the high and low
sales prices per share of the Common Stock during each of the quarters set forth
below as reported on the Nasdaq National Market since January 24, 1996.
<CAPTION>
HIGH LOW
---- ---
1996
- - ----
<S> <C> <C>
First Quarter (from January 24, 1996)............ $14.25 $ 8.75
Second Quarter................................... 11.875 5.125
Third Quarter.................................... 11.875 6.625
Fourth Quarter................................... 8.625 5.25
1997
- - ----
First Quarter (through March 26, 1997)........... 8.625 5.625
</TABLE>
The reported closing bid price of the Common Stock on the Nasdaq National
Market on March 26, 1997 was $6.375 per share. The number of stockholders of
record on March 14, 1997 was 352.
The Company has never declared or paid cash dividends on its capital
stock, and the Company does not expect to pay any cash dividends on its Common
Stock in the foreseeable future. The indenture under which the Company has
agreed to issue $50.0 million of 9% Convertible Subordinated Notes due 2004
(the "Notes") on April 2, 1997 limits the Company's ability to pay dividends or
make other distributions on its Common Stock. In addition, the Company is
currently prohibited from paying cash dividends under a credit facility with a
commercial bank (the "Bank Credit Facility").
RECENT SALES OF UNREGISTERED SECURITIES
- - ---------------------------------------
During the quarterly period ended December 31, 1996, the Company sold the
following securities that were not registered under the Securities Act of 1933,
as amended (the "Securities Act"):
1. On October 25, 1996, the Company issued, for an aggregate purchase
price of $1,637,352, a total of 204,669 shares of Common Stock to nine
individuals and one entity upon exercise by such individuals and entity of
warrants to purchase shares of Common Stock.
The shares of Common Stock issued in the above transactions were offered
and sold in reliance upon the exemption from registration under Regulation S
promulgated under the Securities Act, relative to sales by an issuer made
outside of the United States.
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<PAGE> 35
ITEM 6. SELECTED FINANCIAL DATA.
-----------------------
The selected financial data presented below for each of the years ended
December 31, 1992, 1993, 1994, 1995 and 1996 have been derived from the
Company's Consolidated Financial Statements that have been audited by Arthur
Andersen LLP, independent public accountants. These financial data should be
read in conjunction with the Management's Discussion and Analysis of Financial
Condition and Results of Operations, the Consolidated Financial Statements and
the Notes thereto and the other financial information appearing elsewhere in
this Annual Report on Form 10-K.
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues
Research and Development.......... $ -- $ 917 $ 1,032 $ 1,186 $ 1,419
Product revenue................... -- -- -- -- 1,080
Royalty and other income.......... -- -- -- -- 62
Interest income................... 12 267 135 219 1,447
======== ======== ======== ======== ========
12 1,184 1,167 1,405 4,008
Operating Expenses
Research and development.......... 8,762 16,168 20,024 29,685 39,390
General and administrative........ 5,163 4,372 6,678 6,094 11,347
Interest.......................... 782 380 69 173 124
-------- -------- -------- -------- --------
Total operating expenses..... 14,707 20,920 26,771 35,952 50,861
-------- -------- -------- -------- --------
Net Loss.............................. $(14,695) $(19,736) $(25,604) $(34,547) $(46,853)
======== ======== ======== ======== ========
Pro forma net loss per common share(1) $ (2.13) $ (1.93)
======== ========
Pro forma weighted average common shares
outstanding(1).................. 16,195 24,261
======== ========
<CAPTION>
As of December 31,
------------------------------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term
investments(2)...................... $ 945 $ 8,767 $ 3,396 $ 5,284 $ 16,419
Working capital (deficit)............. (301) 8,357 (1,713) 210 8,888
Total assets.......................... 5,187 15,243 11,989 19,618 41,537
Long-term debt, net of current portion 293 79 1,522 1,145 9,032
Convertible promissory notes payable.. 9,430 -- -- -- --
Deficit accumulated in the development (22,454) (42,190) (67,794) (102,341) (149,194)
Total stockholders' equity (deficit).. (7,069) 12,178 4,774 12,447 22,855
- - --------------
(1) Computed on the basis described in Note 2(b) of Notes to Consolidated
Financial Statements attached as APPENDIX A hereto.
(2) Short-term investments consisted of U.S. government securities with
maturities greater than three months but less than one year from the
purchase date.
</TABLE>
35
<PAGE> 36
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
-----------------------------------------------------------------------
OF OPERATIONS
-------------
The Company is engaged in the discovery and development of genetic
medicines based primarily on antisense technology. The Company commenced
operations in February 1990 and since that time has been engaged primarily in
research and development efforts, development of its manufacturing capabilities
and organizational efforts, including recruitment of scientific and management
personnel, and raising capital. To date, the Company has not received revenue
from the sale of biopharmaceutical products developed by it. In order to
commercialize its own products, the Company will need to address a number of
technological challenges and comply with comprehensive regulatory requirements.
Accordingly, it is not possible to predict the amount of funds that will be
required or the length of time that will pass before the Company receives
revenues from sales of any of these products. All revenues received by the
Company to date have been derived from collaborative agreements, interest on
invested funds and revenues from the custom contract manufacturing of synthetic
DNA and reagent products by the Company's Hybridon Specialty Products Division.
The Company has incurred losses since its inception and expects to incur
significant operating losses in the future. The Company expects that its
research and development expenses will increase significantly during 1997 and
future years as it moves its principal research and development programs to more
advanced preclinical studies, clinical trials and later phase clinical trials.
In addition, the Company expects that its facilities costs will increase in 1997
and future years over 1996 levels as a result of the relocation of the Company's
executive offices and its primary research and development laboratories to
Cambridge, Massachusetts in February 1997. The Company also expects that its
personnel and patent costs will increase significantly in the future. Costs
associated with the Company's patent applications are expected to increase as
the Company continues to file and prosecute such applications. Patent costs also
would increase significantly if the Company became involved in litigation or
administrative proceedings involving its patents or those of third parties. The
Company has incurred cumulative losses from inception through December 31, 1996
of approximately $149.2 million.
This Annual Report on Form 10-K contains forward-looking statements. For
this purpose, any statements contained herein that are not statements of
historical fact may be deemed to be forward- looking statements. Without
limiting the foregoing, the words "believes," "anticipates," "plans," "expects"
and similar expressions are intended to identify forward-looking statements.
There are a number of important factors that could cause the Company's actual
results to differ materially from those indicated by such forward-looking
statements. These factors include, without limitation, those set forth below
under the caption "Certain Factors That May Affect Future Results."
RESULTS OF OPERATIONS
The Company had total revenues of $4.0 million in 1996, $1.4 million in
1995 and $1.2 million in 1994. During the years ended December 31, 1996, 1995
and 1994, the Company received revenues from research and development
collaborations of $1.4 million, $1.2 million and $1.0 million, respectively.
Research and development collaboration revenue includes revenues earned under a
collaborative agreement with Roche, which included milestone payments for the
designation of lead compounds in the human papilloma virus and hepatitis C
programs in the years ended December 31, 1996 and 1995, respectively. For the
year ended December 31, 1996, collaborative revenues also included revenues
earned under a collaborative agreement with Searle. Revenues from the custom
contract manufacturing of synthetic DNA and reagent products by the Hybridon
Specialty Products Division were $1.1 million for the year ended December 31,
1996. Revenues from interest income for the years ended December 31, 1996, 1995
and 1994 were $1.4 million, $219,000 and $135,000, respectively. The increase in
interest income in the year ended December 31, 1996 was the result of
36
<PAGE> 37
substantially higher cash balances available for investment as a result of the
Company's initial public offering completed on February 2, 1996.
During the years ended December 31, 1996, 1995 and 1994, the Company
expended $39.4 million, $29.7 million and $20.0 million, respectively, on
research and development activities. The increases in research and development
expenses in 1996, 1995 and 1994 reflect increasing expenses related primarily to
ongoing clinical trials of the Company's product candidates. Clinical trials for
GEM 91 were initiated in France in October 1993 and in the U.S. in May 1994.
During the year ended December 31, 1996, GEM 132 for the treatment of systemic
CMV and CMV retinitis entered into clinical trials. Research and development
staffing and related costs also increased significantly in 1996 and 1995 as the
number of employees engaged in research and development increased to 206 at
December 31, 1996 from 124 at December 31, 1995 and from 102 at December 31,
1994. In addition, due to increased activity in preclinical studies and the
initiation of clinical trials, expenditures for outside testing services,
laboratory supplies and consulting fees increased significantly in 1996 and
1995. Patent expenses also increased in 1996, as the Company continued to
develop a patent portfolio both domestically and internationally and prosecuted
its patent applications. The Company expects to invest significant resources in
1997 in connection with the ongoing trials of GEM 91 and GEM 132 and the
performance of preclinical studies and the preparation of IND applications with
respect to additional antisense compounds.
The Company incurred general and administrative expenses of $11.3 million,
$6.1 million and $6.7 million in the years ended December 31, 1996, 1995 and
1994, respectively. The increase in general and administrative expenses in 1996
from 1995 was primarily attributable to an increase in expenses for business
development activity, public relations and legal expenses incurred primarily as
a result of being a public company and salaries and related costs. The decrease
in general and administrative expenditures in 1995 from 1994 was primarily
attributable to decreases in staffing and related costs and in outside
consultants previously used to develop a presence in foreign markets, offset
partially by an increase in occupancy costs of certain new facilities.
Interest expense was $124,000 in 1996, $173,000 in 1995 and $69,000 in
1994. Interest expense in 1996, 1995 and 1994 was comprised primarily of
interest incurred on borrowings to finance the purchase of property and
equipment and leasehold improvements. The decrease in interest expense in 1996
reflects a decrease in the outstanding balance of borrowings to finance the
purchase of property and equipment. The increase in interest expense in 1995
over 1994 reflects an increase in the average long-term debt outstanding during
1995. The Company's future interest expense will increase significantly as a
result of the Notes.
As a result of the above factors, the Company incurred net losses of $46.9
million, $34.5 million and $25.6 million for the years ended December 31, 1996,
1995 and 1994, respectively.
LIQUIDITY AND CAPITAL RESOURCES
From inception through December 31, 1996, the Company has financed its
operations, including capital expenditures, through a public offering of common
stock, private placements of equity securities and the exercise of stock options
and warrants with gross proceeds totalling $175.4 million, as well as through
bank and other borrowings of $9.5 million and capital leases of $3.2 million.
The Company has utilized approximately $127.8 million to fund operating
activities and $30.5 million to finance capital expenditures, including
leasehold improvements at the Company's Cambridge, Massachusetts corporate
headquarters and at its manufacturing facility in Milford, Massachusetts and a
$5.5 million investment in the partnership which owns the Cambridge facility.
On March 26, 1997, the Company entered into a Purchase Agreement pursuant
to which it agreed to issue and sell $50.0 million of the Notes to certain
investors. The Notes bear interest at a rate of 9% per annum and have a
maturity date of April 1, 2004. Under the terms of the
37
<PAGE> 38
Notes, the Company will be required to make semiannual interest payments on the
outstanding principal balance of the Notes on April 1 and October 1 of each
year during which the Notes are outstanding. The Notes will be convertible at
the option of the holder into the Company's Common Stock at any time prior to
maturity, unless previously redeemed or repurchased by the Company under
certain specified circumstances, at a conversion price of $7.0125 per share
(subject to adjustment). In connection with the execution of the agreement, the
Company also granted a 60-day option (which expires on May 25, 1997) to
purchase up to an additional $10.0 million principal amount of the Notes.
During the year ended December 31, 1996, the Company utilized
approximately $42.1 million to fund operating activities and approximately $8.9
million for capital expenditures. The primary use of cash for operating
activities was to fund the cash operating loss of $43.7 million. Capital
expenditures during the year ended December 31, 1996 included amounts expended
for the build-out and equipping of the Company's corporate headquarters and
primary research and development laboratories in Cambridge, Massachusetts and of
its leased manufacturing facility in Milford, Massachusetts. During the fourth
quarter of 1996, the build-out of the Company's leased manufacturing facility in
Milford, Massachusetts was completed. The Company plans to equip the facility in
phases as necessary to satisfy its production requirements. The Company plans to
expend approximately $2.3 million for its equipment requirements for this
facility in 1997. The Company also expects to incur an additional $2.0 million
to complete the Cambridge facility and approximately $1.0 million for other
capital expenditures in 1997.
In December 1996, the Company entered into a four-year $7.5 million credit
facility with a bank to finance the leasehold improvements of its Milford
manufacturing facility. The Bank Credit Facility is payable in equal monthly
payments of $62,500 plus interest with a balloon payment of $3.8 million due on
January 1, 2002. Interest is payable at the lesser of (i) such financial
institution's prime rate plus 1%, or (ii) such financial institution's LIBOR
rate plus 3.5%. The Bank Credit Facility contains certain financial covenants,
including minimum liquidity and net worth requirements, and prohibits the
payment of dividends. The Company has secured its obligations under the Bank
Credit Facility with a lien on all of its assets. If, at specified times, the
Company's minimum liquidity is less than $15.0 million, $10.0 million or $5.0
million, the Company is required to pledge cash collateral to the bank equal to
25%, 50% and 100%, respectively, of the then outstanding balance due under the
Bank Credit Facility pursuant to a cash pledge agreement.
In 1996, the Company financed the purchase of manufacturing equipment and
other equipment at the Milford manufacturing facility through a sale/leaseback
transaction of approximately $1.7 million under a $2.8 million lease line with a
leasing company in the fourth quarter of 1996. These borrowings are payable in
48 monthly payments ranging from $36,000 to $50,000.
In 1994 and 1995, the Company financed the purchase of certain property
and equipment through a $500,000 secured note payable to a financial
institution, a $750,000 note payable to one of its landlords and $1.5 million of
capital lease obligations. The $500,000 secured note was repaid in 1995,
$661,000 of the $750,000 note is outstanding at December 31, 1996 and bears
interest at a rate of 13% per annum and $457,000 of the capital lease
obligations is currently outstanding and bears interest at a rate of 4.29% per
annum.
The Company has entered into a lease for its corporate headquarters and
primary research and development laboratories in Cambridge, Massachusetts and
moved its operations to this facility in the first quarter of 1997. The
Company's facilities costs increased significantly upon occupying the Cambridge
facility. As part of the lease agreement, the Company has elected to treat $5.5
million of payments to the landlord (primarily related to tenant improvements)
as contributions to the capital of the Cambridge landlord in exchange for a
limited partnership interest in the Cambridge landlord. All other expenses
incurred to equip and build-out the facility in excess of $5.5 million are
included in
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leasehold improvements and are not exchangeable for a partnership interest under
the lease. The Cambridge landlord is an affiliate of three directors of the
Company.
The Company had cash, cash equivalents and short-term investments of $16.4
million at December 31, 1996. Based on its current operating plan, the Company
believes that its existing capital resources, together with the committed
collaborative research and development payments from Searle, anticipated sales
of the Hybridon Specialty Products Division and margins on such sales, which
are expected to increase significantly over historic levels, and the net
proceeds from the sale of the Notes and the interest earned thereon, will be
adequate to fund the Company's capital requirements through at least the first
quarter of 1998.
The Company's future capital requirements will depend on many factors,
including continued scientific progress in its research, drug discovery and
development programs, the magnitude of these programs, progress with preclinical
and clinical trials, sales of DNA products and reagents manufactured on a custom
contract basis by the Hybridon Specialty Products Division and the margins on
such sales, the time and costs involved in obtaining regulatory approvals, the
costs involved in filing, prosecuting and enforcing patent claims, competing
technological and market developments, the ability of the Company to establish
and maintain collaborative academic and commercial research, development and
marketing relationships, the ability of the Company to obtain third party
financing for leasehold improvements and other capital expenditures and the
costs of manufacturing scale-up and commercialization activities and
arrangements.
The Company intends to seek additional equity, debt and lease financing to
fund future operations. The Company also intends to seek additional
collaborative development and commercialization relationships with potential
corporate partners in order to fund certain of its programs. Except for research
and development funding from Searle under Hybridon's collaborative agreement
with Searle (which is subject to early termination in certain circumstances),
Hybridon has no committed external sources of capital, and, as discussed above,
expects no product revenues for several years from sales of the products that it
is developing (as opposed to sales of DNA products and reagents manufactured on
a custom contract basis by the Hybridon Specialty Products Division). If the
Company is unable to obtain necessary additional funds, it would be required to
scale back or eliminate certain of its research and development programs or
license to third parties certain technologies which the Company would otherwise
pursue on its own.
As of December 31, 1996, the Company had approximately $138.2 million and
$3.0 million of net operating loss and tax credit carryforwards, respectively,
which expire at various dates between 2005 and 2011. The Tax Reform Act of 1986
(the "Tax Act") contains certain provisions that may limit the Company's ability
to utilize net operating loss and tax credit carryforwards in any given year if
certain events occur, including cumulative changes in ownership interests in
excess of 50% over a three-year period. The Company has completed several
financings since the effective date of the Tax Act, which, as of December 31,
1996, have resulted in ownership changes in excess of 50%, as defined under the
Tax Act. The Company does not believe that such ownership changes will
significantly impact the Company's ability to utilize the net operating loss and
credit carryforward existing at December 31, 1996. There can be no assurance
that ownership changes in future periods will not significantly limit the
Company's use of net operating loss and tax credit carryforwards.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
The following important factors, among others, could cause actual results
to differ materially from those contained in forward-looking statements made in
this Annual Report on Form 10-K and presented elsewhere by management from time
to time.
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Early Stage of Development; Technological Uncertainty
Hybridon's potential pharmaceutical products are at various stages of
research, preclinical testing or clinical development. There are a number of
technological challenges that the Company must successfully address to complete
any of its development efforts. To date, most of the Company's resources have
been dedicated to applying oligonucleotide chemistry and cell biology to the
research and development of potential pharmaceutical products based upon
antisense technology. As in most drug discovery programs, the results of in
vitro, tissue culture and preclinical studies by the Company may be inconclusive
and may not be indicative of results that will be obtained in human clinical
trials. In addition, results attained in early human clinical trials by the
Company may not be indicative of results that will be obtained in later clinical
trials. Neither the Company, nor to its knowledge, any other company has
successfully completed human clinical trials of a product based on antisense
technology, and there can be no assurance that any of the Company's products
will be successfully developed.
The success of any of the Company's potential pharmaceutical products
depends in part on the molecular target on the genetic material chosen as the
site of action of the oligonucleotide. There can be no assurance that the
Company's choice will be appropriate for the treatment of the targeted disease
indication in humans or that mutations in the genetic material will not result
in a reduction in or loss of the efficacy or utility of a Company product.
Uncertainty Associated with Clinical Trials
Before obtaining regulatory approvals for the commercial sale of any of
its pharmaceutical products under development, the Company must undertake
extensive and costly preclinical studies and clinical trials to demonstrate that
such products are safe and efficacious. The results from preclinical studies and
early clinical trials are not necessarily predictive of results that will be
obtained in later stages of testing or development, and there can be no
assurance that the Company's clinical trials will demonstrate the safety and
efficacy of any pharmaceutical products or will result in pharmaceutical
products capable of being produced in commercial quantities at reasonable cost
or in a marketable form.
Although the Company is conducting clinical trials of certain
oligonucleotide compounds and is developing several oligonucleotide compounds on
which it plans to file IND applications with the FDA and equivalent filings
outside of the U.S., there can be no assurance that necessary preclinical
studies on these compounds will be completed satisfactorily or that the Company
otherwise will be able to make its intended filings. Further, there can be no
assurance that the Company will be permitted to undertake and complete human
clinical trials of any of the Company's potential products, either in the U.S.
or elsewhere, or, if permitted, that such products will not have undesirable
side effects or other characteristics that may prevent or limit their commercial
use.
The rate of completion of the Company's human clinical trials, if
permitted, will be dependent upon, among other factors, the rate of patient
enrollment. Patient enrollment is a function of many factors, including the size
of the patient population, the nature of the protocol, the availability of
alternative treatments, the proximity to clinical sites and the eligibility
criteria for the study. Delays in planned patient enrollment might result in
increased costs and delays, which could have a material adverse effect on the
Company. The Company or the FDA or other regulatory agencies may suspend
clinical trials at any time if the subjects or patients participating in such
trials are being exposed to unacceptable health risks.
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Future Capital Needs; Uncertainty of Additional Funding
The Company's future capital requirements will depend on many factors,
including continued scientific progress in its research, drug discovery and
development programs, the magnitude of these programs, progress with preclinical
and clinical trials, sales of DNA products and reagents to third parties
manufactured on a custom contract basis by the Hybridon Specialty Products
Division and the margins on such sales, the time and costs involved in obtaining
regulatory approvals, the costs involved in filing, prosecuting and enforcing
patent claims, competing technological and market developments, the ability of
the Company to establish and maintain collaborative academic and commercial
research, development and marketing relationships, the ability of the Company to
obtain third-party financing for leasehold improvements and other capital
expenditures and the costs of manufacturing scale-up and commercialization
activities and arrangements.
Based on its current operating plan, the Company believes that its
existing capital resources, together with the committed collaborative research
and development payments from Searle, anticipated sales of the Hybridon
Specialty Products Division and margins on such sales, which are expected to
increase significantly over historic levels, and the net proceeds from the sale
of the Notes and the interest earned thereon, will be adequate to fund the
Company's capital requirements through at least the first quarter of 1998. The
Company anticipates that it will be required to raise substantial additional
funds through external sources, including through collaborative relationships
and public or private financings, to support the Company's operations beyond
that time. No assurance can be given that additional financing will be
available, or, if available, that it will be available on acceptable terms. If
additional funds are raised by issuing equity securities, further dilution to
then existing stockholders will result. Additionally, the terms of any such
additional financing may adversely affect the holdings or rights of then
existing stockholders. If adequate funds are not available, the Company may be
required to curtail significantly one or more of its research, drug discovery or
development programs, or obtain funds through arrangements with collaborative
partners or others that may require the Company to relinquish rights to certain
of its technologies, product candidates or products which the Company would
otherwise pursue on its own. See "Item 1. Business -- Hybridon Drug Development
and Discovery Programs."
History of Operating Losses and Accumulated Deficit
Hybridon has incurred net losses since its inception. At December 31,
1996, the Company's accumulated deficit was approximately $149.2 million. Such
losses have resulted principally from costs incurred in the Company's research
and development programs and from general and administrative costs associated
with the Company's development. No revenues have been generated from sales of
pharmaceutical products developed by the Company and no revenues from the sale
of such products are anticipated for a number of years, if ever. The Company
expects to incur additional operating losses over the next several years and
expects cumulative losses to increase significantly as the Company's research
and development and clinical trial efforts expand. The Company expects that
losses will fluctuate from quarter to quarter and that such fluctuations may be
substantial. Although the Company's Hybridon Specialty Products Division has
begun to generate revenues from the sale of synthetic DNA products and reagents
manufactured by it on a custom contract basis, there can be no assurance that
demand for and margins on these products will not be lower than anticipated. The
Company's ability to achieve profitability is dependent in part on obtaining
regulatory approvals for its pharmaceutical products and entering into
agreements for drug discovery, development and commercialization. There can be
no assurance that the Company will obtain required regulatory approvals, enter
into any additional agreements for drug discovery, development and
commercialization or ever achieve sales or profitability.
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Patents and Proprietary Rights
The Company's success will depend in part on its ability to develop
patentable products and obtain and enforce patent protection for its products
both in the U.S. and in other countries. The Company has filed and intends to
file applications as appropriate for patents covering both its products and
processes. However, the patent positions of pharmaceutical and biotechnology
firms, including Hybridon, are generally uncertain and involve complex legal and
factual questions. No assurance can be given that patents will issue from any
pending or future patent applications owned by or licensed to Hybridon. Since
patent applications in the U.S. are maintained in secrecy until patents issue,
and since publication of discoveries in the scientific or patent literature tend
to lag behind actual discoveries by several months, the Company cannot be
certain that it was the first creator of inventions covered by pending patent
applications or that it was the first to file patent applications for such
inventions. Further, there can be no assurance that the claims allowed under any
issued patents will be sufficiently broad to protect the Company's technology.
In addition, no assurance can be given that any issued patents owned by or
licensed to the Company will not be challenged, invalidated or circumvented, or
that the rights granted thereunder will provide competitive advantages to the
Company.
The commercial success of the Company will also depend in part on its
neither infringing patents issued to competitors or others nor breaching the
technology licenses upon which the Company's products might be based. The
Company's licenses of patents and patent applications impose various
commercialization, sublicensing, insurance and other obligations on the Company.
Failure of the Company to comply with these requirements could result in
termination of the license. The Company is aware of patents and patent
applications belonging to competitors, and it is uncertain whether these patents
and patent applications will require the Company to alter its products or
processes, pay licensing fees or cease certain activities. In particular,
competitors of the Company and other third parties hold issued patents and
pending patent applications relating to antisense and other gene expression
modulation technologies which may result in claims of infringement against the
Company or other patent litigation. There can be no assurance that the Company
will be able successfully to obtain a license to any technology that it may
require or that, if obtainable, such technology can be licensed at a reasonable
cost or on an exclusive basis. See "Item 1. Business -- Patents, Trade Secrets
and Licenses."
The pharmaceutical and biotechnology industries have been characterized by
extensive litigation regarding patents and other intellectual property rights.
Litigation, which could result in substantial cost to the Company, may be
necessary to enforce any patents issued or licensed to the Company and/or to
determine the scope and validity of others' proprietary rights. The Company also
may have to participate in interference proceedings declared by the U.S. Patent
and Trademark Office, which could result in substantial cost to the Company, to
determine the priority of inventions. Furthermore, the Company may have to
participate at substantial cost in International Trade Commission proceedings to
abate importation of products which would compete unfairly with products of the
Company.
Hybridon engages in collaborations, sponsored research agreements and
other agreements with academic researchers and institutions and government
agencies. Under the terms of such agreements, third parties may have rights in
certain inventions developed during the course of the performance of such
collaborations and agreements.
The Company relies on trade secrets and proprietary know-how which it
seeks to protect, in part, by confidentiality agreements with its collaborators,
employees and consultants. There can be no assurance that these agreements will
not be breached, that the Company would have adequate remedies for any breach or
that the Company's trade secrets will not otherwise become known or be
independently developed by competitors. See "Item 1. Business -- Patents, Trade
Secrets and Licenses."
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Risks Associated with Hybridon Specialty Products Division
Through its Hybridon Specialty Products Division, the Company manufactures
oligonucleotide compounds on a custom contract basis for third parties. The
results of operations of the Hybridon Specialty Products Division will be
dependent upon the demand for and margins on these products, which may be lower
than anticipated by the Company. The results of operations of the Hybridon
Specialty Products Division also may be affected by the price and availability
of raw materials. It is possible that Hybridon's manufacturing capacity may not
be sufficient for production of oligonucleotides both for the Company's internal
needs and for sale to third parties. The Company's manufacturing facility must
comply with GMP and other FDA regulations. See "Item 7. Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Certain Factors
That May Affect Future Results -- Limited Manufacturing Capability."
The Company will be competing against a number of third parties, as well
as the possibility of internal production by the Company's customers, in
connection with the operations of the Hybridon Specialty Products Division. Many
of these third parties are likely to have greater financial, technical and human
resources than the Company. Key competitive factors will include the price and
quality of the products as well as manufacturing capacity and ability to comply
with specifications and to fulfill orders on a timely basis. The Company may be
required to reduce the cost of its product offerings to meet competition. See
"Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations -- Certain Factors That May Affect Future Results -- Competition."
Failure to manufacture oligonucleotide compounds in accordance with the
purchaser's specifications could expose the Company to breach of contract and/or
product liability claims from the purchaser or the purchaser's customers. The
Company has limited experience in sales, marketing and distribution and is
relying in part upon the efforts of a third party, Perkin-Elmer, in connection
with the marketing and sale of products by the Hybridon Specialty Products
Division. See "Item 7. Management's Discussion and Analysis of Financial
Conditions and Results of Operations -- Certain Factors That May Affect Future
Results -- Absence of Sales and Marketing Experience."
Need to Establish Collaborative Commercial Relationships; Dependence on Partners
Hybridon's business strategy includes entering into strategic alliances or
licensing arrangements with corporate partners, primarily pharmaceutical and
biotechnology companies, relating to the development and commercialization of
certain of its potential products. Although the Company is a party to corporate
collaborations with Searle, Roche and Medtronic, there can be no assurance that
these collaborations will be scientifically or commercially successful, that the
Company will be able to negotiate additional collaborations, that such
collaborations will be available to the Company on acceptable terms or that any
such relationships, if established, will be scientifically or commercially
successful. The Company expects that under certain of these arrangements, the
collaborative partner will have the responsibility for conducting human clinical
trials and the submission for regulatory approval of the product candidate with
the FDA and certain other regulatory agencies. Should the collaborative partner
fail to develop a marketable product, the Company's business may be materially
adversely affected. There can be no assurance that the Company's collaborative
partners will not be pursuing alternative technologies or developing alternative
compounds either on their own or in collaboration with others, including the
Company's competitors, as a means for developing treatments for the diseases
targeted by these collaborative programs. The Company's business also will be
affected by the performance of its corporate partners in marketing any
successfully developed products within the geographic areas in which such
partners are granted marketing rights. The Company's plan is to retain
manufacturing rights for many of the products it may license pursuant to
arrangements with corporate partners. However, there can be no assurance that
the Company will be able to retain such rights on acceptable terms, if at all,
or that the Company will have the ability to produce the quantities of product
required under the terms of such
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arrangements. See "Item 1. Business -- Hybridon Drug Development and Discovery
Programs" and "-- Corporate Collaborations."
No Assurance of Regulatory Approval; Government Regulation
The Company's preclinical studies and clinical trials, as well as the
manufacturing and marketing of the potential products being developed by it and
the products sold by the Hybridon Specialty Products Division, are subject to
extensive regulation by numerous federal, state and local governmental
authorities in the U.S. Similar regulatory requirements exist in other countries
where the Company intends to test and market its drug candidates. Preclinical
studies of the Company's product development candidates are subject to GLP
requirements and the manufacture of any products by the Company, including
products developed by the Company and products manufactured for third parties on
a custom contract basis by the Hybridon Specialty Products Division, will be
subject to GMP requirements prescribed by the FDA.
The regulatory process, which includes preclinical studies, clinical
trials and post-clinical testing of each compound to establish its safety and
effectiveness, takes many years and requires the expenditure of substantial
resources. Delays may also be encountered and substantial costs incurred in
foreign countries. There can be no assurance that, even after the passage of
such time and the expenditure of such resources, regulatory approval will be
obtained for any drugs developed by the Company. Data obtained from preclinical
and clinical activities are subject to varying interpretations which could
delay, limit or prevent regulatory approval by the FDA or other regulatory
agencies. The Company, an IRB, the FDA or other regulatory agencies may suspend
clinical trials at any time if the participants in such trials are being exposed
to unacceptable health risks. Moreover, if regulatory approval of a drug is
granted, such approval may entail limitations on the indicated uses for which it
may be marketed. Failure to comply with applicable regulatory requirements can,
among other things, result in fines, suspension of regulatory approvals, product
recalls, seizure of products, operating restrictions and criminal prosecutions.
FDA policy may change and additional government regulations may be established
that could prevent or delay regulatory approval of the Company's potential
products. In addition, a marketed drug and its manufacturer are subject to
continual review, and subsequent discovery of previously unknown problems with a
product or manufacturer may result in restrictions on such product or
manufacturer, including withdrawal of the product from the market and withdrawal
of the right to manufacture the product. All of the foregoing regulatory matters
also will be applicable to development, manufacturing and marketing undertaken
by any strategic partners or licensees of the Company. See "Item 1. Business --
Government Regulation."
Competition
There are many companies, both private and publicly traded, that are
conducting research and development activities on technologies and products
similar to or competitive with the Company's antisense technologies and proposed
products. For example, many other companies are actively seeking to develop
products, including antisense oligonucleotides, with disease targets similar to
those being pursued by the Company. Some of these competitive products are in
clinical trials. The Company believes that the industry-wide interest in
investigating the potential of gene expression modulation technologies will
continue and will accelerate as the techniques which permit the design and
development of drugs based on such technologies become more widely understood.
There can be no assurance that the Company's competitors will not succeed in
developing products based on oligonucleotides or other technologies, existing or
new, which are more effective than any that are being developed by the Company,
or which would render Hybridon's antisense technologies obsolete and
noncompetitive. Moreover, there currently are commercially available products
for the treatment of many of the disease targets being pursued by the Company.
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Competitors of the Company engaged in all areas of biotechnology and drug
discovery in the U.S. and other countries are numerous and include, among
others, pharmaceutical and chemical companies, biotechnology firms, universities
and other research institutions. Many of the Company's competitors have
substantially greater financial, technical and human resources than the Company.
In addition, many of these competitors have significantly greater experience
than the Company in undertaking preclinical studies and human clinical trials of
new pharmaceutical products and obtaining FDA and other regulatory approvals of
products for use in health care. Furthermore, if the Company is permitted to
commence commercial sales of products, it will also be competing with respect to
manufacturing efficiency and marketing capabilities, areas in which it has
limited or no experience. Accordingly, the Company's competitors may succeed in
obtaining FDA or other regulatory approvals for products or in commercializing
such products more rapidly than the Company. See "Item 1. Business --
Competition."
Limited Manufacturing Capability
While the Company believes that its existing production capacity will be
sufficient to enable it to satisfy its current research needs and to support the
Company's preclinical and clinical requirements for oligonucleotide compounds,
the Company will need to purchase additional equipment to expand its
manufacturing capacity in order to satisfy its future requirements, subject to
obtaining regulatory approvals, for commercial production of its product
candidates. In addition, Hybridon Specialty Products Division is using the
Company's existing production capacity to custom contract manufacture synthetic
DNA products for commercial sale. As a result, depending on the level of sales
by the Hybridon Specialty Products Division, and the success of the Company's
product development programs, Hybridon's manufacturing capacity may not be
sufficient for production for both its internal needs and sales to third
parties. In addition, in order to successfully commercialize its product
candidates or achieve satisfactory margins on sales, the Company may be required
to reduce further the cost of production of its oligonucleotide compounds, and
there can be no assurance that the Company will be able to do so.
The manufacture of the Company's products is subject to GMP requirements
prescribed by the FDA or other standards prescribed by the appropriate
regulatory agency in the country of use. To the Company's knowledge, therapeutic
products based on chemically-modified oligonucleotides have never been
manufactured on a commercial scale. There can be no assurance that the Company
will be able to manufacture products in a timely fashion and at acceptable
quality and price levels, that it or its suppliers can manufacture in compliance
with GMP or other regulatory requirements or that it or its suppliers will be
able to manufacture an adequate supply of product. The Company has in the past
relied in part and may in the future rely upon third party contractors in
connection with the manufacture of some compounds. Reliance on such third
parties entails a number of risks, including the possibility that such third
parties may fail to perform on an effective or timely basis or fail to abide by
regulatory or contractual restrictions applicable to the Company. See "Item 1.
Business -- Manufacturing Technology and the Hybridon Specialty Products
Division."
There are three sources of supply for the nucleotide building blocks used
by the Company in its current oligonucleotide manufacturing process. This
process is covered by issued patents either held by or licensed to these three
companies. Therefore, these companies are likely the sole suppliers to Hybridon
of these nucleotide building blocks. The inability of Hybridon to obtain these
nucleotide building blocks from one of these suppliers could have a material
adverse effect on Hybridon.
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Absence of Sales and Marketing Experience
The Company expects to market and sell certain of its products directly
and certain of its products through co-marketing or other licensing arrangements
with third parties. The Company has limited experience in sales, marketing or
distribution, and does not expect to establish a sales and marketing plan or
direct sales capability with respect to the products being developed by it until
such time as one or more of such products approaches marketing approval. In
addition, although the Company does have a limited direct sales capability with
respect to the sales of custom contract manufactured DNA products to third
parties by the Hybridon Specialty Products Division, the Company has entered
into a sales and marketing arrangement with Perkin-Elmer with respect to such
products and is reliant in part on the efforts of Perkin-Elmer to promote these
products. In order to market the products being developed by it directly, the
Company will be required to develop a substantial marketing staff and sales
force with technical expertise and with supporting distribution capability.
There can be no assurance that the Company will be able to build such a
marketing staff or sales force, that the cost of establishing such a marketing
staff or sales force will be justifiable in light of any product revenues or
that the Company's direct sales and marketing efforts will be successful. In
addition, if the Company succeeds in bringing one or more products to market, it
may compete with other companies that currently have extensive and well-funded
marketing and sales operations. There can be no assurance that the Company's
marketing and sales efforts would enable it to compete successfully against such
other companies. To the extent the Company enters into co- marketing or other
licensing arrangements, any revenues received by the Company will be dependent
in part on the efforts of third parties and there can be no assurance that such
efforts will be successful. See "Item 1. Business -- Marketing Strategy."
No Assurance of Market Acceptance
Pharmaceutical products, if any, resulting from the Company's research and
development programs are not expected to be commercially available for a number
of years. There can be no assurance that, if approved for marketing, such
products will achieve market acceptance. The degree of market acceptance will
depend upon a number of factors, including the receipt of regulatory approvals,
the establishment and demonstration in the medical community of the clinical
efficacy and safety of the Company's products and their potential advantages
over existing treatment methods and reimbursement policies of government and
third-party payors. There is no assurance that physicians, patients, payors or
the medical community in general will accept or utilize any products that may be
developed by the Company.
Product Liability Exposure and Insurance
The use of any of the Company's potential products in clinical trials and
the commercial sale of any products, including the products being developed by
it and the DNA products and reagents manufactured and sold on a custom contract
basis by the Hybridon Specialty Products Division, may expose the Company to
liability claims. These claims might be made directly by consumers, health care
providers or by pharmaceutical and biotechnology companies or others selling
such products. Hybridon has product liability insurance coverage, and such
coverage is subject to various deductibles. Such coverage is becoming
increasingly expensive, and no assurance can be given that the Company will be
able to maintain or obtain such insurance at reasonable cost or in sufficient
amounts to protect the Company against losses due to liability claims that
could have a material adverse effect on the Company.
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Hazardous Materials
The Company's research and development and manufacturing activities
involves the controlled use of hazardous materials, chemicals, viruses and
various radioactive compounds. Although the Company believes that its safety
procedures for handling and disposing of such materials comply with the
standards prescribed by federal, state and local regulations, the risk of
accidental contamination or injury from these materials cannot be completely
eliminated. In the event of such an accident, the Company could be held liable
for any damages that result and any such liability could have a material adverse
effect on the Company.
Uncertainty of Pharmaceutical Pricing and Adequate Reimbursement
The Company's ability to commercialize its pharmaceutical products
successfully will depend in part on the extent to which appropriate
reimbursement levels for the cost of such products and related treatment are
obtained from government authorities, private health insurers and other
organizations, such as health maintenance organizations ("HMOs"). Third-party
payors are increasingly challenging the prices charged for medical products and
services. Also the trend towards managed health care in the U.S. and the
concurrent growth of organizations such as HMOs, which could control or
significantly influence the purchase of health care services and products, as
well as legislative proposals to reduce government insurance programs, may all
result in lower prices for the Company's products. The cost containment measures
that health care providers are instituting could affect the Company's ability to
sell its products and may have a material adverse effect on the Company.
Uncertainty of Health Care Reform Measures
Federal, state and local officials and legislators (and certain foreign
government officials and legislators) have proposed or are reportedly
considering proposing a variety of reforms to the health care systems in the
U.S. and abroad. The Company cannot predict what health care reform legislation,
if any, will be enacted in the U.S. or elsewhere. Significant changes in the
health care system in the U.S. or elsewhere are likely to have a substantial
impact over time on the manner in which the Company conducts its business. Such
changes could have a material adverse effect on the Company. The existence of
pending health care reform proposals could have a material adverse effect on the
Company's ability to raise capital. Furthermore, the Company's ability to
commercialize its potential products may be adversely affected to the extent
that such proposals have a material adverse effect on the business, financial
condition and profitability of other companies that are prospective corporate
partners with respect to certain of the Company's proposed products.
Attraction and Retention of Key Employees and Scientific Collaborators
The Company is highly dependent on the principal members of its management
and scientific staff, including E. Andrews Grinstead, III, the Company's
Chairman of the Board, President and Chief Executive Officer, and Sudhir
Agrawal, the Company's Senior Vice President of Discovery and Chief Scientific
Officer, the loss of whose services could have a material adverse effect on the
Company. Furthermore, recruiting and retaining qualified scientific personnel to
perform research and development work in the future will also be critical to the
Company's success. There can be no assurance that the Company will be able to
attract and retain such personnel on acceptable terms given the competition for
experienced scientists among numerous pharmaceutical, biotechnology and health
care companies, universities and non-profit research institutions.
The Company's anticipated growth and expansion into areas and activities
requiring additional expertise, such as clinical testing, governmental
approvals, production and marketing, are expected to require the addition of new
management personnel and the development of additional expertise by
47
<PAGE> 48
existing management personnel. The failure to acquire such services or to
develop such expertise could have a material adverse effect on the Company.
The Company's success will depend in part on its continued ability to
develop and maintain relationships with independent researchers and leading
academic and research institutions. The competition for such relationships is
intense, and there can be no assurance that the Company will be able to develop
and maintain such relationships on acceptable terms. The Company has entered
into a number of such collaborative relationships relating to specific disease
targets and other research activities in order to augment its internal research
capabilities and to obtain access to the specialized knowledge or expertise of
its collaborative partners. The loss of any such collaborative relationship
could have an adverse effect on the Company's ability to conduct research and
development in the area targeted by such collaboration. See "Item 1. Business --
Hybridon Drug Development and Discovery Programs" and "-- Academic and Research
Collaborations."
Concentration of Ownership by Directors and Executive Officers
The Company's directors and executive officers and their affiliates
beneficially own approximately 18.89% of the Company's outstanding Common Stock
(including 4,217,857 shares issuable upon the exercise of outstanding warrants
and options held by the Company's directors and executive officers and their
affiliates which are exercisable within the 60-day period following February 28,
1997). As a result, these stockholders, if acting together, may have the ability
to influence the outcome of corporate actions requiring stockholder approval.
This concentration of ownership may have the effect of delaying or preventing a
change in control of the Company.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
-------------------------------------------
All financial statements required to be filed hereunder are filed as
APPENDIX A hereto, are listed under Item 14(a), and are incorporated herein by
this reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
---------------------------------------------------------------
FINANCIAL DISCLOSURE.
--------------------
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
--------------------------------------------------
The response to this item is contained in part under the caption
"Executive Officers and Significant Employees of the Company" in Part I of this
Annual Report on Form 10-K and in part in the Company's Proxy Statement for the
Annual Meeting of Stockholders to be held on May 19, 1997 (the "1997 Proxy
Statement") under the caption "Proposal 1--Election of Directors," which section
is incorporated herein by this reference.
Officers are elected on an annual basis and serve at the discretion of the
Board of Directors.
ITEM 11. EXECUTIVE COMPENSATION.
----------------------
The response to this item is contained in the 1997 Proxy Statement under
the caption "Proposal 1--Election of Directors," which section is incorporated
herein by this reference.
48
<PAGE> 49
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
--------------------------------------------------------------
The response to this item is contained in the 1997 Proxy Statement under
the caption "Stock Ownership of Certain Beneficial Owners and Management," which
section is incorporated herein by this reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
----------------------------------------------
The response to this item is contained in the 1997 Proxy Statement under
the caption "Certain Transactions," which section is incorporated herein by this
reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
----------------------------------------------------------------
(a) The following documents are filed as APPENDIX A hereto and are
included as part of this Annual Report on Form 10-K:
Financial Statements:
Report of Independent Public Accountants
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Stockholders' Equity (Deficit)
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
(b) The Company is not filing any financial statement schedules as part
of this Annual Report on Form 10-K because they are not applicable or
the required information is included in the financial statements or
notes thereto.
(c) The list of Exhibits filed as a part of this Annual Report on Form
10-K are set forth on the Exhibit Index immediately preceding such
Exhibits, and is incorporated herein by this reference.
(d) REPORTS ON FORM 8-K. No reports on Form 8-K were filed during the
last quarter of the Company's fiscal year ended December 31, 1996.
49
<PAGE> 50
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
HYBRIDON, INC.
By: /s/ E. ANDREWS GRINSTEAD, III
-------------------------------------
E. Andrews Grinstead, III
Chairman of the Board, President and
Chief Executive Officer
Date: March 24, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ E. Andrews Grinstead, II Chairman of the Board, President March 24, 1997
- - -------------------------- and Chief Executive Officer and
E. Andrews Grinstead, III Director (Principal Executive
Officer)
/s/ Anthony J. Payne Senior Vice President of Finance March 24, 1997
- - -------------------------- and Administration, International
Anthony J. Payne Operations, Treasurer, Secretary
and Chief Financial Officer
(Principal Financial and
Accounting Officer)
/s/ Sudhir Agrawal Director March 24, 1997
- - --------------------------
Sudhir Agrawal
Director March __, 1997
- - --------------------------
J. Robert Buchanan
/s/ Mohamed El-Khereiji Director March 24, 1997
- - --------------------------
Mohamed El-Khereiji
50
<PAGE> 51
/s/ Youssef El-Zein Director March 24, 1997
- - --------------------------
Youssef El-Zein
/s/ Nasser Menhall Director March 24, 1997
- - --------------------------
Nasser Menhall
/s/ Jerry A. Weisbach Director March 24, 1997
- - ---------------------------
Jerry A. Weisbach
/s/ James B. Wyngaarden Director March 24, 1997
- - ---------------------------
James B. Wyngaarden
/s/ Paul C. Zamecnik Director March 24, 1997
- - ---------------------------
Paul C. Zamecnik
51
<PAGE> 52
APPENDIX A
----------
<TABLE>
INDEX
<CAPTION>
PAGE
<S> <C>
Report of Independent Public Accountants F-2
Consolidated Balance Sheets as of December 31, 1995 and 1996 and
unaudited pro forma balance sheet as of December 31, 1996 F-3
Consolidated Statements of Operations for each of the three years in the period
ended December 31, 1996, and for the period from
May 25, 1989 (inception) to December 31, 1996 F-4
Consolidated Statements of Stockholders' Equity (Deficit) for the
period from May 25, 1989 (inception) to December 31, 1996 F-5
Consolidated Statements of Cash Flows for each of the three years in the period
ended December 31, 1996, and for the period from
May 25, 1989 (inception) to December 31, 1996 F-6
Notes to Consolidated Financial Statements F-7
</TABLE>
F-1
<PAGE> 53
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Hybridon, Inc.:
We have audited the accompanying consolidated balance sheets of Hybridon, Inc.
(a Delaware corporation in the development stage) and subsidiaries as of
December 31, 1995 and 1996, and the related consolidated statements of
operations, stockholders' equity (deficit) and cash flows for each of the three
years in the period ended December 31, 1996 and for the period from May 25,
1989 (inception) to December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Hybridon, Inc. and subsidiaries
as of December 31, 1995 and 1996 and for the period from May 25, 1989
(inception) to December 31, 1996, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
February 21, 1997 (except with respect to
the matter discussed in Note 1, as to
which the date is March 26, 1997)
F-2
<PAGE> 54
HYBRIDON, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
<TABLE>
CONSOLIDATED BALANCE SHEETS
ASSETS
<CAPTION>
PRO FORMA
DECEMBER 31, DECEMBER 31,
1995 1996 1996
(Unaudited)
(See Note 1)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 5,284,262 $ 12,633,742 $ 59,633,742
Short-term investments - 3,785,146 3,785,146
Prepaid expenses and other current assets 951,526 2,119,220 2,119,220
------------- ------------- -------------
Total current assets 6,235,788 18,538,108 65,538,108
------------- ------------- -------------
PROPERTY AND EQUIPMENT, AT COST:
Leasehold improvements 1,965,754 9,257,516 9,257,516
Laboratory equipment 5,153,550 5,884,861 5,884,861
Equipment under capital leases 1,507,535 2,904,688 2,904,688
Office equipment 1,149,141 1,496,639 1,496,639
Furniture and fixtures 321,763 499,957 499,957
Construction-in-progress 3,236,330 2,193,400 2,193,400
------------- ------------- -------------
13,334,073 22,237,062 22,237,062
Less--Accumulated depreciation and amortization 4,202,543 6,596,294 6,596,294
------------- ------------- -------------
9,131,530 15,640,768 15,640,768
------------- ------------- -------------
OTHER ASSETS:
Restricted cash 1,025,856 437,714 437,714
Notes receivable from officers 308,133 317,978 317,978
Deferred financing costs and other assets 1,217,804 1,152,034 4,152,034
Investment in real estate partnership 1,698,448 5,450,000 5,450,000
------------- ------------- -------------
4,250,241 7,357,726 10,357,726
------------- ------------- -------------
$ 19,617,559 $ 41,536,602 $ 91,536,602
============= ============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt and capital lease $ 418,713 $ 1,308,511 $ 1,308,511
obligations
Accounts payable 2,053,438 4,064,419 4,064,419
Accrued expenses 3,454,625 4,190,766 4,190,766
Deferred revenue 86,250 86,250 86,250
Amounts payable to related parties 12,500 - -
------------- ------------- -------------
Total current liabilities 6,025,526 9,649,946 9,649,946
------------- ------------- -------------
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS,
NET OF CURRENT PORTION 1,145,480 9,031,852 9,031,852
------------- ------------- -------------
9% CONVERTIBLE SUBORDINATED NOTES PAYABLE - - 50,000,000
------------- ------------- -------------
COMMITMENTS (Notes 10, and 15)
STOCKHOLDERS' EQUITY:
Convertible preferred stock, $.01 par value-
Authorized--23,026,323 shares at December 31, 1995 and no
shares at December 31, 1996
Issued and outstanding-- 15,982,179 and no shares at
December 31, 1995 and 1996, respectively (converted into
16,856,649 shares of common stock in February 1996) 159,822 - -
Preferred stock, $.01 par value-
Authorized--5,000,000 shares at December 31, 1996
Issued and outstanding--None - - -
Common stock, $.001 par value-
Authorized--100,000,000 shares
Issued and outstanding-- 1,843,666 and 25,146,577 at
December 31, 1995 and 1996, respectively 1,844 25,147 25,147
Additional paid-in capital 114,626,062 173,227,358 173,227,358
Deficit accumulated during the development stage (102,341,175) (149,193,775) (149,193,775)
Deferred compensation - (1,203,926) (1,203,926)
------------- ------------- -------------
Total stockholders' equity 12,446,553 22,854,804 22,854,804
------------- ------------- -------------
$ 19,617,559 $ 41,536,602 $ 91,536,602
============= ============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 55
HYBRIDON, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
CUMULATIVE
FROM MAY 25,
1989 (INCEPTION)
YEARS ENDED DECEMBER 31, TO DECEMBER 31,
1994 1995 1996 1996
<S> <C> <C> <C> <C>
REVENUES:
Research and development $ 1,032,083 $ 1,186,124 $ 1,419,389 $ 4,554,263
Product revenue - - 1,080,175 1,080,175
Royalty income - - 62,321 62,321
Interest income 134,828 218,749 1,446,762 2,141,617
------------ ------------ ------------ -------------
1,166,911 1,404,873 4,008,647 7,838,376
------------ ------------ ------------ -------------
OPERATING EXPENSES:
Research and development 20,024,310 29,684,707 39,390,525 118,631,900
General and administrative 6,677,717 6,094,085 11,346,670 36,789,868
Interest 69,045 172,757 124,052 1,610,383
------------ ------------ ------------ -------------
26,771,072 35,951,549 50,861,247 157,032,151
------------ ------------ ------------ -------------
Net loss $(25,604,161) $(34,546,676) $(46,852,600) $(149,193,775)
============ ============ ============ =============
PRO FORMA NET LOSS PER COMMON SHARE (Note
2(b)) $ (2.13) $ (1.93)
============ ============
PRO FORMA WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING (Note 2(b)) 16,195,100 24,260,702
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 56
F-5
HYBRIDON, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
<TABLE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<CAPTION>
CONVERTIBLE
PREFERRED STOCK COMMON STOCK ADDITIONAL
NUMBER $.01 NUMBER $.001 PAID-IN
OF SHARES PAR VALUE OF SHARES PAR VALUE CAPITAL
<S> <C> <C> <C> <C> <C>
INITIAL ISSUANCE OF COMMON STOCK - $ - 668,500 $ 669 $ -
Issuance of Series A convertible preferred stock, net of cash 875,000 8,750 - - 848,250
issuance costs of $18,000
Issuance of Series B convertible preferred stock, net of cash 648,147 6,481 - - 1,731,616
issuance costs of $11,900
Issuance of common stock - - 667,300 667 -
Net loss - - - - -
----------- --------- ---------- -------- ------------
BALANCE, DECEMBER 31, 1990 1,523,147 15,231 1,335,800 1,336 2,579,866
Issuance of Series C convertible preferred stock, net of cash 520,000 5,200 - - 2,571,603
issuance costs of $23,197
Repurchase of common stock - - (262,500) (263) -
Deferred compensation related to restricted stock awards - - - - 2,328,764
Amortization of deferred compensation - - - - -
Compensation expense related to stock option grants - - - - 669,433
Net loss - - - - -
----------- --------- ---------- -------- ------------
BALANCE, DECEMBER 31, 1991 2,043,147 20,431 1,073,300 1,073 8,149,666
Issuance of Series C convertible preferred stock, net of cash 920,000 9,200 - - 4,570,509
issuance costs of $20,291
Issuance of common stock related to restricted stock awards - - 500,266 501 122,243
Issuance of common stock related to the exercise of stock - - 173,075 173 3,165
options
Issuance of warrants - - - - 2,776,130
Deferred compensation related to stock options and restricted - - - - 2,249,428
stock awards
Amortization of deferred compensation - - - - -
Net loss - - - - -
----------- --------- ---------- -------- ------------
BALANCE, DECEMBER 31, 1992 2,963,147 29,631 1,746,641 1,747 17,871,141
Issuance of Series D convertible preferred stock in exchange
for convertible promissory notes payable, including accrued 1,891,757 18,918 - - 9,581,633
interest, net of cash issuance costs of $113,955
Issuance of Series E convertible preferred stock, net of cash 1,379,310 13,793 - - 9,924,954
issuance costs of $61,251
Issuance of Series F convertible preferred stock, net of cash 2,039,000 20,390 - - 18,272,006
issuance costs of $2,097,604
Issuance of common stock related to the exercise of stock - - 43,625 43 26,645
options
Reduction in deferred compensation due to stock option - - - - (290,287)
termination prior to vesting
Amortization of deferred compensation - - - - -
Net loss - - - - -
----------- --------- ---------- -------- ------------
BALANCE, DECEMBER 31, 1993 8,273,214 82,732 1,790,266 1,790 55,386,092
Issuance of Series F convertible preferred stock, net of cash 584,500 5,845 - - 5,759,478
issuance costs of $79,677
Issuance of Series G convertible preferred stock, net of cash 1,591,512 15,915 - - 11,709,340
issuance costs of $1,006,841
Issuance of common stock related to the exercise of stock - - 24,000 24 13,376
options
Cancellation of warrants - - - - (68,000)
Reduction in deferred compensation due to stock option - - - - (14,062)
termination prior to vesting
Amortization of deferred compensation - - - - -
Net loss - - - - -
----------- --------- ---------- -------- ------------
BALANCE, DECEMBER 31, 1994 10,449,226 104,492 1,814,266 1,814 72,786,224
Issuance of Series G convertible preferred stock, net of cash 5,532,953 55,330 - - 41,798,368
issuance costs of $2,409,926
Issuance of common stock related to the exercise of stock - - 29,400 30 41,470
options
Amortization of deferred compensation - - - - -
Net loss - - - - -
----------- --------- ---------- -------- ------------
BALANCE, DECEMBER 31, 1995 15,982,179 159,822 1,843,666 1,844 114,626,062
Issuance of common stock related to initial public offering,
net of issuance costs of $ 5,268,756 - - 5,750,000 5,750 52,225,494
Conversion of convertible preferred stock to common stock (15,982,179) (159,822) 16,856,649 16,857 142,965
Issuance of common stock related to the exercise of stock - - 288,700 289 1,089,387
options
Issuance of common stock related to the exercise of warrants - - 407,562 407 3,176,334
Deferred compensation related to grants of common stock - - 1,967,116
options to non-employees
Amortization of deferred compensation relating to grants of
common stock options to non-employees - - - - -
Net loss - - - - -
------------ --------- ---------- -------- ------------
BALANCE, DECEMBER 31, 1996 - $ - 25,146,577 $ 25,147 $173,227,358
============ ========= ========== ======== ============
<CAPTION>
DEFICIT
ACCUMULATED TOTAL
DURING THE DEFERRED STOCKHOLDERS'
DEVELOPMENT COMPENSATION EQUITY
STAGE (DEFICIT)
<S> <C> <C> <C>
INITIAL ISSUANCE OF COMMON STOCK $ - $ - $ 669
Issuance of Series A convertible preferred stock, net of cash - - 857,000
issuance costs of $18,000
Issuance of Series B convertible preferred stock, net of cash - - 1,738,097
issuance costs of $11,900
Issuance of common stock - - 667
Net loss (1,110,381) - (1,110,381)
------------- ----------- ------------
BALANCE, DECEMBER 31, 1990 (1,110,381) - 1,486,052
Issuance of Series C convertible preferred stock, net of cash - - 2,576,803
issuance costs of $23,197
Repurchase of common stock - - (263)
Deferred compensation related to restricted stock awards - (2,328,764) -
Amortization of deferred compensation - 727,738 727,738
Compensation expense related to stock option grants - - 669,433
Net loss (6,648,899) - (6,648,899)
------------- ----------- ------------
BALANCE, DECEMBER 31, 1991 (7,759,280) (1,601,026) (1,189,136)
Issuance of Series C convertible preferred stock, net of cash - - 4,579,709
issuance costs of $20,291
Issuance of common stock related to restricted stock awards - - 122,744
Issuance of common stock related to the exercise of stock - - 3,338
options
Issuance of warrants - - 2,776,130
Deferred compensation related to stock options and restricted - (2,249,428) -
stock awards
Amortization of deferred compensation - 1,332,864 1,332,864
Net loss (14,694,693) - (14,694,693)
------------- ----------- ------------
BALANCE, DECEMBER 31, 1992 (22,453,973) (2,517,590) (7,069,044)
Issuance of Series D convertible preferred stock in exchange
for convertible promissory notes payable, including accrued - - 9,600,551
interest, net of cash issuance costs of $113,955
Issuance of Series E convertible preferred stock, net of cash - - 9,938,747
issuance costs of $61,251
Issuance of Series F convertible preferred stock, net of cash - - 18,292,396
issuance costs of $2,097,604
Issuance of common stock related to the exercise of stock - - 26,688
options
Reduction in deferred compensation due to stock option - 290,287 -
termination prior to vesting
Amortization of deferred compensation - 1,124,839 1,124,839
Net loss (19,736,365) - (19,736,365)
------------- ----------- ------------
BALANCE, DECEMBER 31, 1993 (42,190,338) (1,102,464) 12,177,812
Issuance of Series F convertible preferred stock, net of cash - - 5,765,323
issuance costs of $79,677
Issuance of Series G convertible preferred stock, net of cash - - 11,725,255
issuance costs of $1,006,841
Issuance of common stock related to the exercise of stock - - 13,400
options
Cancellation of warrants - - (68,000)
Reduction in deferred compensation due to stock option - 14,062 -
termination prior to vesting
Amortization of deferred compensation - 764,228 764,228
Net loss (25,604,161) - (25,604,161)
------------- ----------- ------------
BALANCE, DECEMBER 31, 1994 (67,794,499) (324,174) 4,773,857
Issuance of Series G convertible preferred stock, net of cash - - 41,853,698
issuance costs of $2,409,926
Issuance of common stock related to the exercise of stock - - 41,500
options
Amortization of deferred compensation - 324,174 324,174
Net loss (34,546,676) - (34,546,676)
------------- ----------- ------------
BALANCE, DECEMBER 31, 1995 (102,341,175) - 12,446,553
Issuance of common stock related to initial public offering,
net of issuance costs of $ 5,268,756 - - 52,231,244
Conversion of convertible preferred stock to common stock - - -
Issuance of common stock related to the exercise of stock - - 1,089,676
options
Issuance of common stock related to the exercise of warrants - - 3,176,741
Deferred compensation related to grants of common stock - (1,967,116) -
options to non-employees
Amortization of deferred compensation relating to grants of
common stock options to non-employees - 763,190 763,190
Net loss (46,852,600) - (46,852,600)
------------- ----------- ------------
BALANCE, DECEMBER 31, 1996 $(149,193,775) $(1,203,926) $ 22,854,804
============= =========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 57
HYBRIDON, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
CUMULATIVE FROM
MAY 25, 1989
(INCEPTION) TO
YEARS ENDED DECEMBER 31, DECEMBER 31,
1994 1995 1996 1996
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(25,604,161) $(34,546,676) $(46,852,600) $(149,193,775)
Adjustments to reconcile net loss to net
cash used in operating activities-
Depreciation and amortization 1,110,167 2,023,553 2,393,751 6,697,735
Compensation on grant of stock options,
warrants and restricted stock 764,228 324,174 763,190 7,807,731
Amortization of discount on convertible
promissory notes payable - - - 690,157
Amortization of deferred financing costs 34,000 - - 216,732
Noncash interest on convertible
promissory notes payable - - - 260,799
Changes in assets and liabilities-
Prepaid and other current assets (292,710) (769,562) (1,167,693) (2,119,219)
Notes receivable from officers 87,126 8,446 (9,845) (317,978)
Amounts payable to related parties (333,925) (80,351) (12,500) (200,000)
Accounts payable and accrued expenses 2,781,934 483,585 2,747,122 8,255,185
Deferred revenue 2,917 - - 86,250
------------ ------------ ------------ -------------
Net cash used in operating (21,450,424) (32,556,831) (42,138,575) (127,816,383)
------------ ------------ ------------ -------------
activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in short-term investments - - (3,785,146) (3,785,146)
Purchases of property and equipment (3,656,640) (4,889,624) (8,902,989) (21,802,710)
(Increase) decrease in restricted cash and
other assets (1,481,829) (44,912) 401,990 (1,664,183)
Investment in real estate partnership - (1,698,448) (3,751,552) (5,450,000)
----------- ------------- ------------- -------------
Net cash used in investing (5,138,469) (6,632,984) (16,037,697) (32,702,039)
------------- ------------- ------------- -------------
activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of convertible
preferred stock 19,775,578 41,853,698 - 96,584,154
Proceeds from issuance of common stock
related to stock options and restricted
stock grants 13,400 41,500 1,089,676 1,174,602
Net proceeds from issuance of common stock - - 52,231,244 52,355,324
Repurchase of common stock - - - (263)
Proceeds from notes payable 750,000 - 7,500,000 9,450,000
Proceeds from issuance of convertible
promissory notes payable - - - 9,191,744
Proceeds from long-term debt - - - 662,107
Proceeds from issuance of common stock
related to stock warrants - - 3,176,741 3,176,741
Proceeds from sale/leaseback 1,073,183 - 1,722,333 2,795,516
Payments on long-term debt and capital (394,585) (537,977) (446,163) (1,801,612)
leases
(Increase) decrease in deferred financing - (278,927) 251,921 (436,149)
------------ ------------ ------------ -------------
costs
Net cash provided by financing
activities 21,217,576 41,078,294 65,525,752 173,152,164
------------ ------------ ------------ -------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (5,371,317) 1,888,479 7,349,480 12,633,742
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
8,767,100 3,395,783 5,284,262 -
------------ ------------ ------------ -------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 3,395,783 $ 5,284,262 $ 12,633,742 $ 12,633,742
============ ============ ============ =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 58
HYBRIDON, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) ORGANIZATION
Hybridon, Inc. (the Company) was incorporated in the State of Delaware on
May 25, 1989. The Company is engaged in the discovery and development of
novel genetic medicines based primarily on antisense technology.
The Company is in the development stage. Since inception, the Company has
devoted substantially all of its efforts toward product research and
development and raising capital. Management anticipates that
substantially all future revenues will be derived from the sale of
proprietary biopharmaceutical products under development or to be
developed in the future, and custom contract manufacturing of synthetic
DNA products and reagent products (by the Hybridon Specialty Products
Division (HSPD)), as well as from research and development revenues and
fees and royalties derived from licensing of the Company's technology.
Accordingly, although the Company has begun to generate revenues from its
custom contract manufacturing business, the Company is dependent on the
proceeds from possible future sales of equity securities, debt financings
and research and development collaborations in order to fund future
operations.
On March 26, 1997, the Company entered into a binding Agreement to
issue $50,000,000 of 9% convertible subordinated notes (the Notes). The
closing on the issuance of the Notes is to occur in April 1997. Under
the terms of the Notes, the Company must make semiannual interest
payments on the outstanding principle balance through the maturity date
of April 1, 2004. If the Notes are converted prior to April 1, 2000, the
Noteholders are entitled to receive accrued interest from the date of
the most recent interest payment through the conversion date. The Notes
are subordinate to substantially all of the Company's existing
indebtedness. The Notes are convertible at any time prior to the
maturity date at a conversion price equal to $7.0125, subject to
adjustment under certain circumstances, as defined.
Beginning April 1, 2000, the Company may redeem the Notes at its option
for a 4.5% premium over the original issuance price provided that from
April 1, 2000 to March 31, 2001, the Notes may not be redeemed unless
the closing price of the common stock equals or exceeds 150% of the
conversion price for a period of at least 20 out of 30 consecutive
trading days and the Notes are redeemed within 60 days after such
trading period. The premium decreases by 1.5% each year through March
31, 2003. Upon a change of control of the Company, as defined, the
Company will be required to offer to repurchase the Notes at 150% of the
original issuance price.
The unaudited pro forma consolidated balance sheet as of December
31, 1996 shows the financial position of the Company assuming that the
Notes were issued on December 31, 1996.
In January 1997, the Company entered into a five year $1,169,000 lease
with a leasing company to finance certain furniture and fixtures in the
Cambridge facility. The lease bears interest at a rate of 13.7% and is
payable in 60 equal monthly installments of principle and interest of
approximately $26,500 through February 2002.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
F-7
<PAGE> 59
HYBRIDON, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(b) Pro Forma Net Loss per Common Share
Pro forma net loss per common share is computed using the weighted
average number of shares of common stock outstanding during the
period. Pursuant to the requirements of the Securities and
Exchange Commission, common stock issued by the Company during the
12 months immediately preceding its initial public offering on
February 2, 1996, plus shares of common stock that became issuable
during the same period pursuant to the grant of common stock
options and preferred and common stock warrants, has been included
in the calculation of pro forma weighted average number of common
shares outstanding for all periods presented (using the
treasury-stock method and the initial public offering price of $10
per share). In addition, the calculation of the pro forma weighted
average number of common shares outstanding also includes shares
of common stock as if all shares of preferred stock were converted
into common stock on the respective original dates of issuance.
(c) Principles of Consolidation
The accompanying consolidated financial statements include the
results of the Company and its subsidiaries, Hybridon S.A.
(Europe), a French corporation and Hybridon Canada, Inc. (an
inactive majority-owned subsidiary). The consolidated financial
statements also reflect the Company's 49% interest in MethylGene,
Inc. (MethylGene), a Canadian corporation which is accounted for
under the equity method (See Note 12). All material intercompany
balances and transactions have been eliminated in consolidation.
(d) Cash Equivalents and Short-Term Investments
The Company applies Statement of Financial Accounting Standards
(SFAS) No. 115, Accounting for Certain Investments in Debt and
Equity Securities. Under SFAS No. 115, debt securities that the
Company has the positive intent and ability to hold to maturity
are reported at amortized cost and are classified as
held-to-maturity securities. These securities include cash
equivalents and short term investments. At December 31, 1995 and
1996, the Company has classified all investments as
held-to-maturity. The Company considers all highly liquid
investments with maturities of three months or less when purchased
to be cash equivalents. Short-term investments mature within one
year of the balance sheet date. Cash and cash equivalents and
F-8
<PAGE> 60
HYBRIDON, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(d) Cash Equivalents and Short-Term Investments (Continued)
<TABLE>
short-term investments at December 31, 1995 and 1996 consisted of
the following (at amortized cost, which approximates fair market
value):
<CAPTION>
DECEMBER 31,
1995 1996
<S> <C> <C>
Cash and Cash Equivalents-
Cash and money market funds $5,284,262 $10,144,367
U.S. government securities - 2,489,375
---------- -----------
Total Cash and Cash Equivalents $5,284,262 $12,633,742
========== ===========
Short-Term Investments-
U.S. government securities $ - $ 3,785,146
========== ===========
</TABLE>
(e) Depreciation and Amortization
<TABLE>
Depreciation and amortization are computed using the straight-line
method based on the estimated useful lives of the related assets
as follows:
<CAPTION>
ESTIMATED
ASSET CLASSIFICATION USEFUL LIFE
<S> <C>
Laboratory equipment 5 Years
Leasehold improvements Life of lease
Equipment under capital lease 5 Years
Office equipment 3-5 Years
Furniture and fixtures 5 Years
</TABLE>
F-9
<PAGE> 61
HYBRIDON, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(f) Accrued Expenses
<TABLE>
Accrued expenses on the accompanying consolidated balance sheets
consist of the following:
<CAPTION>
DECEMBER 31,
1995 1996
<S> <C> <C>
Payroll and related costs $1,327,057 $1,593,451
Outside research and clinical costs 1,132,860 1,381,124
Professional and consulting fees 214,788 390,440
Construction costs 205,920 -
Other 574,000 825,751
---------- ----------
$3,454,625 4,190,766
========== ==========
</TABLE>
(g) Revenue Recognition
The Company has recorded revenue under the consulting and research
agreements discussed in Notes 6 and 7. Revenue is recognized as
earned on a straight-line basis over the term of the agreement,
which approximates when work is performed and costs are incurred.
Revenues from product sales are recognized when the products are
shipped. Product revenue for the year ended December 31, 1996
represents revenues from the sale of DNA and reagent products
manufactured on a custom contract basis by HSPD.
(h) Research and Development Expenses
The Company charges research and development expenses to
operations as incurred.
(i) Patent Costs
The Company charges patent expenses to operations as incurred.
(j) Reclassifications
Certain amounts in the prior periods consolidated financial
statements have been reclassified to conform with the current
periods presentation.
F-10
<PAGE> 62
HYBRIDON, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(3) NOTES RECEIVABLE FROM OFFICERS
At December 31, 1995, and 1996 the Company had notes receivable,
including accrued interest, from officers of $308,133, and $317,978
respectively. The notes bear interest at rates varying between 6% and
6.5% per annum and mature at various dates through April 2001.
(4) RESTRICTED CASH
At December 31, 1995, the Company classified $225,000 as restricted cash
related to the lease of its manufacturing plant discussed in Note 5(b).
The restricted cash was in the form of a two-year letter of credit held
in escrow until June 1996 in favor of the lessor of the manufacturing
facility. In addition at December 31, 1995 and 1996, the Company had
$800,856 and $437,714, respectively, in restricted cash related to the
capital lease obligations as discussed in Note 5(c). The Company's cash
balances may become subject to restrictions in accordance with the terms
of its note payable to a bank (see Note 5(a)).
(5) LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
(a) Note Payable to a Bank
In December 1996, the Company entered into a four year $7,500,000
note payable with a bank. The note bears interest at either the
bank's prime rate plus 1% or LIBOR plus 3.5% (9.25% at December
31, 1996), at the Company's election. The note is payable in 59
equal installments or $62,500 commencing on February 1, 1997 with
a balloon payment of $3,812,500, due on January 1, 2002. The note
contains certain financial covenants that require the Company to
maintain minimum tangible net worth and minimum liquidity and
prohibits the payment of dividends. The Company has secured the
obligations under the note with a lien on all of its assets. If,
at specified times, the Company's minimum liquidity is less than
$15,000,000, $10,000,000, or $5,000,000, the Company is required
to pledge cash collateral to the bank equal to 25%, 50% or 100%,
respectively, of the then outstanding balance under the note,
pursuant to a cash pledge agreement. The notes also contain
certain non-financial covenants. Also, in connection with the
note, the Company issued 5 year warrants to purchase 65,000 shares
of common stock at an exercise price of $6.90 per share. These
warrants are fully exercisable at December 31, 1996.
F-11
<PAGE> 63
HYBRIDON, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(5) LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS (Continued)
(b) Note Payable to Landlord
In December 1994, the Company issued a $750,000 promissory note to
its landlord to fund specific construction costs associated with
the development of its manufacturing plant in Milford,
Massachusetts. The promissory note bears interest at 13% per annum
and is to be paid in equal monthly installments of principal and
interest over the remainder of the 10-year lease term.
(c) Capital Lease Obligations
The Company has entered into various capital leases for equipment.
Under a lease line agreement with a leasing company, the Company
can borrow up to $1,200,000. In 1994, the Company borrowed
$1,073,000 under this agreement as a part of a sale/leaseback
transaction. These amounts are subject to interest at an effective
rate of 4.29% and are being paid in equal installments of
principal and interest over 48-months through June 1998.
In connection with this lease agreement, the Company is required
to maintain a certain amount of cash in escrow as collateral. At
December 31, 1996, the Company had $437,714 in escrow related to
the agreement.
In December 1996, the Company sold certain laboratory equipment to
a leasing company, at its original cost of $1,722,333 under a
$2,800,000 lease line. In connection with this transaction, the
Company entered into a capital lease to lease the equipment from
this leasing company for 48 monthly payments ranging from $36,169
to $49,948. The sale of the equipment resulted in a gain of
$291,960 which has been offset against the cost of the asset in
the accompanying consolidated balance sheet and will be amortized
over the life of the lease.
F-12
<PAGE> 64
HYBRIDON, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(5) LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS (Continued)
<TABLE>
Future minimum payments due under various notes payable and capital lease
obligations are as follows at December 31, 1996:
<CAPTION>
CALENDAR YEAR AMOUNT
<S> <C>
1997 $ 1,495,389
1998 1,444,345
1999 1,420,324
2000 1,328,882
2001 841,832
Thereafter 4,112,956
-----------
Total minimum lease payments 10,643,728
Less--Amount representing interest 303,365
-----------
Principal obligations 10,340,363
Less--Current portion 1,308,511
-----------
$ 9,031,852
===========
</TABLE>
(6) G.D. SEARLE & CO. AGREEMENT
In January 1996, the Company and G.D. Searle & Co. (Searle) entered into
a collaboration relating to research and development of therapeutic
antisense compounds directed at up to eight molecular targets in the
field of inflammation/immunomodulation (the Searle Field).
Pursuant to the collaboration, the parties are conducting research and
development relating to a compound directed at a molecular target in the
Searle Field designated by Searle. In this project, Searle is funding
certain research and development efforts by the Company, and each of
Searle and the Company have committed certain of its own personnel to the
collaboration. The initial phase of research and development activities
relating to the initial target will be conducted through the earlier of
(i) the achievement of certain product candidate milestones or (ii) 36
months after commencement of the collaboration, subject to early
termination by Searle (although in any event Searle is required to pay 18
months of research and development funding). The parties may extend the
initial collaboration by mutual agreement, including agreement as to
additional research funding by Searle.
F-13
<PAGE> 65
HYBRIDON, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(6) G.D. SEARLE & CO. AGREEMENT (Continued)
In addition, Searle has the right, at its option, to designate up to six
additional molecular targets in the Searle Field (the Additional Targets)
for collaborative research and development with the Company on terms
substantially consistent with the terms of the collaboration applicable
to the initial molecular target. This right is exercisable by Searle with
respect to each of the Additional Targets upon the payment by Searle of
certain research payments (beyond the project-specific payments relating
to the particular Additional Target) and the purchase of additional
common stock from the Company by Searle (at the then fair market value).
The aggregate amount to be paid by Searle for such research payments and
equity investment in order to designate each of the Additional Targets is
$10,000,000 per Additional Target. In the event that Searle designates
all of the Additional Targets, the aggregate amount to be paid by Searle
for research payments will be $24,000,000, and the aggregate amount to be
paid by Searle in equity investment will be $36,000,000. If Searle has
not designated all of the Additional Targets by the time it advances the
product candidate for the initial molecular target to certain stages of
preclinical development, Searle will be required to purchase an
additional $10,000,000 of common stock (at the then fair market value) on
specified dates in order to maintain its right to designate any of the
Additional Targets that it has not yet designated. The payment for any
such common stock will be creditable against the equity investment
portion of the payments to be made by Searle with respect to the
designation of any of the Additional Targets that Searle has not yet
designated.
Searle also has the right, at its option, to designate a molecular target
in the Searle Field to develop a therapeutic agent for cancer that acts
through immunomodulation (the Searle Cancer Target) for collaborative
research and development with the Company on terms substantially
consistent with the terms of the collaboration applicable to the initial
molecular target. At the time of such designation, Searle will be
required to make certain research payments to the Company and purchase
additional common stock from the Company (at the then fair market value).
The aggregate amount to be paid by Searle for such research payments and
equity investment will range from $12,000,000 (composed of $5,000,000 in
research payments and $7,000,000 in equity investment) if the Searle
Cancer Target is designated in 1997 to $26,000,000 (composed of
$21,000,000 in research payments and $5,000,000 in equity investment) if
the Searle Cancer Target is designated in 2000.
Searle has exclusive rights to commercialize any products resulting from
the collaboration. If Searle determines, in its sole discretion, to
commercialize a product, Searle will fund and perform preclinical tests
and clinical trials of the product candidate and will be responsible for
regulatory approvals for and marketing of the product. In certain
instances and for specified periods of time, the Company has agreed to
perform research and development work in the Searle Field exclusively
with Searle. In addition, as to each product candidate, the Company will
be entitled to milestone payments from Searle totaling up to an aggregate
of $10,000,000 upon the achievement of certain development benchmarks.
The Company also will be entitled to royalties from net sales of products
resulting from the
F-14
<PAGE> 66
HYBRIDON, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(6) G.D. SEARLE & CO. AGREEMENT (Continued)
collaboration. Subject to satisfying certain conditions relating to its
manufacturing capacities and capabilities, the Company will retain
manufacturing rights, and Searle will be required to purchase its
requirements of products from the Company on an exclusive basis at
specified transfer prices. Upon a change in control of the Company,
Searle would have the right to terminate the Company's manufacturing
rights, although the royalty payable would be increased in such event.
Under the collaboration, in the event that Searle designates (and makes
the required payments and equity investments for) all of the Additional
Targets or in certain other instances relating to Hybridon's failure to
satisfy certain requirements relating to its manufacturing capacities and
capabilities, Searle will have the right, exercisable in its sole
discretion, to require Hybridon to form a joint venture with Searle for
the development of products in the Searle Field (other than products
relating to molecular targets that have already been designated by
Searle) to which each party will contribute $50,000,000 in cash, although
the Company's cash contribution would be reduced by the value of the
technology and other rights contributed by the Company to the joint
venture. The Company and Searle would each own 50% of the joint venture,
although Searle's ownership interest in the joint venture would increase
based upon a formula to up to a maximum of 75% if the joint venture is
established in certain instances relating to the Company's failure to
satisfy certain requirements relating to its manufacturing capacities and
capabilities.
As of December 31, 1996, the Company has received $400,000 in research
and development revenues from Searle. Under the collaboration, Searle
also purchased 1,000,000 shares of common stock in the Company's initial
public offering of common stock at the initial public offering price as
discussed in Note 13(b).
(7) F. HOFFMANN-LA ROCHE LTD. COLLABORATION
In December 1992, the Company and Roche entered into a collaboration
involving the application of Hybridon's antisense oligonucleotide
chemistry to the development of compounds for the treatment of hepatitis
B, hepatitis C and human papilloma virus.
Under this collaboration, Roche funded research and development efforts
relating to the collaboration and committed personnel of its own to the
collaboration. In 1995, Roche notified the Company that it had selected
an antisense oligonucleotide directed at hepatitis C as a lead compound
for further development and made a milestone payment to the Company in
connection with such designation. In the third quarter of 1996, Roche
notified the Company that it had selected an antisense oligonucleotide
directed at human papilloma virus as a lead compound for further
development, and in the fourth quarter of 1996, made a milestone payment
to the Company in connection with such designation. At such time, Roche
also notified the Company that Roche had elected not to continue the
hepatitis B
F-15
<PAGE> 67
HYBRIDON, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(7) F. HOFFMANN-LA ROCHE LTD. COLLABORATION (Continued)
program under the research and development collaboration. As a result, in
light of the selection by Roche of lead compounds directed at hepatitis C
and human papilloma virus for further development and its determination
to discontinue the hepatitis B program, Roche notified the Company that
Roche was exercising its option to terminate the research and development
phase of the collaboration as of March 31, 1997. The Company and Roche
are engaged in ongoing discussions as to the manner in which they will
collaborate in connection with the further development of the two
antisense oligonucleotides that have been selected by Roche as lead
compounds.
The Company had licensed to Roche any products resulting from the
collaboration on a royalty-bearing, worldwide exclusive basis. Subject to
compliance with certain production cost requirements, Roche is required
to purchase from the Company, and the Company is required to supply to
Roche, Roche's requirements of products at specified transfer prices. The
Company has recorded $1,032,083, $1,186,124, and $1,019,389 of research
and development revenue related to this collaboration in the years ended
December 31, 1994, 1995, and 1996, respectively.
In conjunction with the Roche Collaboration, Roche purchased 818,390
shares of common stock for $6,000,000. Roche was also issued five-year
warrants for the purchase of 551,724 shares of common stock at an initial
price of $11.50 per share, such exercise price increases commencing on
August 12, 1995 on an annual basis at a compound rate of 25%. At December
31, 1996, the exercise price of these warrants are $17.969 per share. The
warrants expire on February 12, 1998 (subject to early expiration if the
Roche Collaboration is terminated).
(8) MEDTRONIC, INC. COLLABORATIVE STUDY AGREEMENT
In May 1994, the Company and Medtronic, Inc. (Medtronic) entered into a
collaborative study agreement (the Medtronic Agreement) involving the
development of antisense compounds for the treatment of Alzheimer's
disease and a drug delivery system to deliver such compounds into the
central nervous system. The Company will be responsible for the
development of, and hold all rights to, any drug developed pursuant to
this collaboration, and Medtronic will be responsible for the development
of, and hold all rights to, any delivery system developed pursuant to
this collaboration. The parties may extend this collaboration by mutual
agreement to other neurodegenerative disease targets. The research and
development to be conducted is determined and supervised by a committee
comprised of an equal number of designees of the Company and Medtronic.
As part of the Medtronic Agreement, Medtronic purchased 658,333 shares of
common stock for $5,000,000. In addition, the Company issued to
Medtronic, Inc. a warrant expiring on May 10, 1997 to purchase 53,333
shares of common stock at $7.50 per share.
F-16
<PAGE> 68
HYBRIDON, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(9) LICENSING AGREEMENT
The Company has entered into a licensing agreement with the Worcester
Foundation for Biomedical Research, Inc. (the Worcester Foundation),
under which the Company has received exclusive licenses to technology in
certain patents and patent applications. The Company is required to make
royalty payments based on future sales of products employing the
technology or falling under claims of a patent, as well as a specified
percentage of sublicense income received related to the licensed
technology. Additionally, the Company is required to pay an annual
maintenance fee through the life of the patents. In addition, in the year
ended December 31, 1993, the terms of the license agreement were amended
and, in conjunction with such amendment, the Company agreed to make a
$500,000 contribution to the Worcester Foundation. The Company paid
$210,000 in both 1993 and 1994; the remaining $80,000 was paid in 1995.
The Company expensed the $500,000 contribution in the year ended December
31, 1993.
(10) PHARMACIA BIOTECH, INC. AGREEMENT
In December 1994, the Company and Pharmacia Biotech, Inc. (Pharmacia)
entered into a collaboration involving the design and development of a
large-scale oligonucleotide synthesis machine. Following completion of
the machine, the collaboration expired in December 1996, and Pharmacia
retained the right to sell the machine to third parties, subject to an
obligation to pay the Company royalties on such third party sales. For
the year ended December 31, 1996, the Company has received $62,321 of
royalty income related to such third party sales.
(11) PERKIN-ELMER CORPORATION SUPPLY AGREEMENT
In September 1996 the Company and the Applied Biosystems Division of
Perkin-Elmer signed a four year sales and supply agreement under which
Perkin-Elmer agreed to refer potential customers to HSPD for the
manufacture of custom oligonucleotides and the Company agreed that
amidites for the manufacture of these oligonucleotides are purchased from
Perkin-Elmer and a percentage of the sales price will be paid to
Perkin-Elmer. In addition, Perkin-Elmer licensed to the Company its
oligonucleotide synthesis patents and agreed to discuss a future
collaboration with respect to the development, marketing and distribution
of the Company's proprietary intermediates.
(12) INVESTMENT IN METHYLGENE, INC.
In January 1996, the Company and certain institutional investors formed a
Quebec company, MethylGene, Inc. (MethylGene) to develop and market
certain compounds and procedures to be agreed upon by the Company and
MethylGene.
F-17
<PAGE> 69
HYBRIDON, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(12) INVESTMENT IN METHYLGENE, INC. (Continued)
The Company has granted to MethylGene exclusive worldwide licenses and
sublicenses in respect of certain technology relating to the methylgene
fields. These fields are defined as (i) antisense compounds to inhibit
DNA methyltransferase for the treatment of cancers, (ii) other methods of
inhibiting DNA methyltransferase for the treatment of any indications,
and (iii) antisense compounds to inhibit a second molecular target other
than DNA methyltransferase for the treatment of cancers, to be agreed
upon by the Company and MethylGene. In addition, the Company and
MethylGene have entered into a supply agreement pursuant to which
MethylGene is obligated to purchase from the Company all required
formulated bulk oligonucleotides at specified transfer prices.
The Company acquired a 49% interest in MethylGene for approximately
$734,000, and the Canadian investors acquired a 51% interest in
MethylGene for a total of approximately $5,500,000. The institutional
investors have the right to exchange all (but not less than all) of their
shares of stock in MethylGene for an aggregate of 500,000 shares of
Hybridon common stock (subject to adjustment for stock splits, stock
dividends and the like). This option is exercisable only during a 90-day
period commencing on the earlier of the date five years after the closing
of the institutional investors' investment in MethylGene or the date on
which MethylGene ceases operations. This option terminates sooner if
MethylGene raises certain additional amounts of equity or debt financing
or if MethylGene enters into a corporation collaboration that meets
certain requirements. The Company is accounting for its investment in
MethylGene under the equity method and, due to the existence of the
investors exchange rights, the Company has recorded 100% of MethylGene's
losses in the accompanying consolidated statement of operations.
(13) STOCKHOLDERS' EQUITY
(a) Common Stock
The Company has 100,000,000 authorized shares of common stock,
$.001 par value, of which 25,146,577 shares were issued and
outstanding at December 31, 1996. Upon the consummation of the
Company's initial public offering of common stock in February 1996
all outstanding shares of preferred stock converted into
16,856,649 shares of common stock.
(b) Initial Public Offering
On February 2, 1996, the Company completed its initial public
offering of 5,750,000 shares of common stock at $10.00 per share.
The sale of common stock resulted in net proceeds to the Company
of approximately $52,231,000 after deducting expenses related to
the offering.
F-18
<PAGE> 70
HYBRIDON, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(13) STOCKHOLDERS' EQUITY (Continued)
(c) Warrants
<TABLE>
The Company has the following warrants outstanding for the
purchase of common stock:
<CAPTION>
EXERCISE PRICE
PER SHARE
EXPIRATION DATE SHARES
<S> <C> <C>
February 12, 1998 551,724 $17.97
March 31, 1998- October 25, 2000 4,769,670 10.00
November 10, 1997 350,000 9.50
May 10, 1997- February 28, 2000 955,459 7.50
December 31, 2001 65,000 6.90
September 16, 1997 603,689 5.50
--------- ------
7,295,542
=========
Average price per share $ 9.85
======
</TABLE>
In connection with the Roche Collaboration, the Company issued
Roche five-year warrants for the purchase of 551,724 shares of
common stock at an initial exercise price of $11.50 per share,
such exercise price increases commencing on August 12, 1995 on an
annual basis at a compound rate of 25% ($17.97 at December 31,
1996). The warrants expire on February 12, 1998, subject to
earlier expiration if the Roche Collaboration is terminated.
In connection with the Medtronic Agreement, the Company issued
Medtronic, Inc. a three-year warrant for the purchase of 53,333
shares of common stock at $7.50 per share.
As a component of the sale of preferred stock in 1994 and 1995,
the Company issued to the investors in such offering warrants for
the purchase of 2,927,124 shares of common stock at $8.00 to
$10.00 per share. Warrants to purchase 1,656,910 shares of common
stock at an exercise price of $10.00 per share expire on March 31,
1998, and the remaining warrants for the purchase of 1,270,214
shares of common stock at an exercise price of $8.00 per share
expire on October 25, 1996. During 1996, 396,336 of the $8.00
warrants were exercised and the unexercised $8.00 warrants expired
on October 25, 1996.
F-19
<PAGE> 71
HYBRIDON, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(13) STOCKHOLDERS' EQUITY (Continued)
(c) Warrants (Continued)
Five-year warrants to purchase 1,843,100 shares of common stock at
$10.00 per share were issued in 1994 and 1995 as a component of
the compensation for services of several placement agents of the
Company's convertible preferred stock. Of these warrants,
1,521,674 were issued to a company that is controlled by two
directors of the Company (See Note 14(b)). The remaining 321,426
warrants were issued to various other companies that acted as
placement agents.
All of the warrants included in the aforementioned table are
exercisable as of December 31, 1996 except for the warrants to
purchase 500,000 shares at $10.00 per share which expire on
February 4, 1999; these warrants became exercisable subsequent to
December 31, 1996.
In addition, warrants for common stock may be issued under a
certain consulting agreement if the Company meets certain product
registration requirements in any of certain European countries
prior to December 31, 1997. These warrants have not been included
in the aforementioned table.
(d) Stock Options
In 1990 and 1995, the Company established the 1990 Stock Option
Plan (the 1990 Option Plan) and the 1995 Stock Option Plan (the
1995 Option Plan), respectively, which provide for the grant of
incentive stock options and nonqualified stock options. Options
granted under these plans vest over various periods and expire no
later than 10 years from the date of grant. However, under the
1990 Option Plan in the event of a change in control (as defined
in the 1990 Plan), the exercise dates of all options then
outstanding shall be accelerated in full and any restrictions on
exercising outstanding options issued pursuant to the 1990 Option
Plan shall terminate. In October 1995, the Company terminated the
issuance of additional options under the 1990 Option Plan. As of
December 31, 1996, options to purchase a total of 3,356,840 shares
of common stock remained outstanding under the 1990 Option Plan.
A total of 3,500,000 shares of common stock may be issued upon the
exercise of options granted under the 1995 Option Plan. The
maximum number of shares with respect to which options may be
granted to any employee under the 1995 Option Plan shall not
exceed 500,000 shares of common stock during any calendar year.
The Compensation Committee of the Board of Directors has the
authority to select the employees to whom options are granted and
determine the terms of each option, including (i) the number of
shares of common stock subject to the option; (ii) when the option
becomes exercisable; (iii) the option exercise price, which, in
the
F-20
<PAGE> 72
HYBRIDON, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(13) STOCKHOLDERS' EQUITY (Continued)
(d) Stock Options (Continued)
case of incentive stock options, must be at least 100% (110% in
the case of incentive stock options granted to a stockholder
owning in excess of 10% of the Company's common stock) of the fair
market value of the common stock as of the date of grant; and (iv)
the duration of the option (which, in the case of incentive stock
options, may not exceed 10 years). As of December 31, 1996,
options to purchase a total of 2,280,100 shares of common stock
remained outstanding under the 1995 Option Plan.
In October 1995, the Company adopted the 1995 Director Stock
Option Plan (the Director Plan). A total of 250,000 shares of
common stock may be issued upon the exercise of options granted
under the Director Plan. Under the terms of the Director Plan,
options to purchase 5,000 shares of common stock were granted to
eligible directors upon the closing of the Company's initial
public offering at the fair market value of the common stock on
the date of the closing. Thereafter, options to purchase 5,000
shares of common stock will be granted to each eligible director
on May 1 of each year commencing in 1997. 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. As of December 31, 1996, options to
purchase a total of 45,000 shares of common stock remained
outstanding under the Director Plan.
F-21
<PAGE> 73
HYBRIDON, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(13) STOCKHOLDERS' EQUITY (Continued)
(d) Stock Options (Continued)
<TABLE>
All stock option activity since inception is summarized as
follows:
<CAPTION>
WEIGHTED
NUMBER EXERCISE PRICE AVERAGE PRICE
OF SHARES PER SHARE PER SHARE
<S> <C> <C> <C>
Options granted 334,700 $ - $ -
Options exercised (167,300) - -
---------- --------------- -----
Outstanding, December 31, 1990 167,400 - -
Options granted 8,500 - -
Options terminated (2,700) - -
---------- --------------- -----
Outstanding, December 31, 1991 173,200 - -
Options granted 962,702 .25 - 5.00 1.98
Options exercised (173,075) - 1.00 .02
Options terminated (24,325) .50 - 1.00 .56
---------- --------------- -----
Outstanding, December 31, 1992 938,502 - 5.00 2.01
Options granted 1,440,538 3.50 - 12.50 8.38
Options exercised (43,625) - 1.00 .61
Options terminated (126,375) - 10.00 .79
---------- --------------- -----
Outstanding, December 31, 1993 2,209,040 - 12.50 6.26
Options granted 672,500 5.00 - 7.00 5.33
Options exercised (24,000) - 1.00 .56
Options terminated (75,000) - 5.00 3.83
---------- --------------- -----
Outstanding, December 31, 1994 2,782,540 - 12.50 6.10
Options granted 2,035,538 7.50 - 10.00 7.55
Options exercised (29,400) .50 - 5.00 1.41
Options terminated (1,097,641) .50 - 12.50 9.82
---------- --------------- -----
Outstanding, December 31, 1995 3,691,037 - 10.00 5.83
Options granted 2,380,100 5.00 - 13.12 9.91
Options exercised (288,700) - 7.50 3.77
Options terminated (100,497) 5.00 - 11.57 8.04
---------- --------------- -----
Outstanding, December 31, 1996 5,681,940 $ .25 - 13.12 $7.61
========== =============== =====
Exercisable, December 31, 1996 3,114,650 $ .25 - 11.57 $6.51
========== =============== =====
</TABLE>
F-22
<PAGE> 74
HYBRIDON, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(13) STOCKHOLDERS' EQUITY (Continued)
(d) Stock Options (Continued)
In October 1995, the Financial Accounting Standards Board issued
SFAS No. 123, Accounting for Stock-Based Compensation. SFAS No.
123 requires the measurement of the fair value of stock options or
warrants to be included in the statement of operations or
disclosed in the notes to financial statements. The Company has
determined that it will continue to account for stock-based
compensation for employees under Accounting Principles Board
Opinion No. 25 and elect the disclosure-only alternative under
SFAS No. 123. The Company has recorded compensation expense of
$763,190 for options granted to non-employees. In addition, the
Company has recorded $1,203,926 of deferred compensation related
to these grants which will be amortized over the vesting period of
the options.
<TABLE>
Options and warrants granted in 1995 and 1996 have been valued
using the Black-Scholes option pricing model prescribed by SFAS
No. 123. The weighted-average assumptions used for the year ended
December 31, 1995 and 1996 are as follows:
<CAPTION>
DECEMBER 31,
1995 1996
<S> <C> <C>
Risk free interest rate 6.41% 6.14%
Expected dividend yield - -
Expected lives 6 Years 6 Years
Expected volatility 60% 60%
</TABLE>
The Black-Scholes option-pricing model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition,
option-pricing models require the input of highly subjective
assumptions including expected stock price volatility. Because the
Company's employee stock options have characteristics
significantly different from those of traded options, and because
changes in the subjective input assumptions can materially affect
the fair value estimate, in management's opinion, the existing
models do not necessarily provide a reliable single measure of the
fair value of its employee stock options.
F-23
<PAGE> 75
HYBRIDON, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(13) STOCKHOLDERS' EQUITY (Continued)
(d) Stock Options (Continued)
<TABLE>
Had compensation cost for these plans been determined consistent
with SFAS No. 123, the Company's net loss and pro forma net loss
per common share would have been affected as follows:
<CAPTION>
DECEMBER 31,
1995 1996
<S> <C> <C> <C>
Net Loss: As Reported $(34,546,676) $(46,852,600)
============ ============
Pro Forma $(41,447,381) $(52,890,455)
============ ============
Net Loss
Per Common Share: As Reported $ (2.13) $ (1.93)
============ ============
Pro Forma $ (2.56) $ (2.18)
============ ============
</TABLE>
(e) Employee Stock Purchase Plan
In October 1995, the Company adopted the 1995 Employee Stock
Purchase Plan (the Purchase Plan), under which up to 500,000
shares of common stock may be issued to participating employees of
the Company or its subsidiaries. All full-time employees of the
Company, except those who would immediately after the grant own 5%
or more of the total combined voting power or value of the stock
of the Company or any subsidiary, are eligible to participate.
On the first day of a designated payroll deduction period (the
Offering Period), the Company will grant to each eligible employee
who has elected to participate in the Purchase Plan an option to
purchase shares of common stock as follows: the employee may
authorize an amount (a whole percentage from 1% to 10% of such
employee's regular pay) to be deducted by the Company from such
pay during the Offering Period. On the last day of the Offering
Period, the employee is deemed to have exercised the option, at
the option exercise price, to the extent of accumulated payroll
deductions. Under the terms of the Purchase Plan, the option price
is an amount equal to 85% of the fair market value per share of
the common stock on either the first day or the last day of the
Offering Period, whichever is lower. In no event may an employee
purchase in any one Offering Period a number of shares which is
more than 15% of the employee's annualized base pay divided by 85%
of the market value of a share of common stock on the commencement
date of the Offering Period. The Compensation Committee may, in
its discretion, choose an Offering Period of 12 months or less for
each of the Offerings and choose a different Offering Period for
each Offering. No shares have been issued under the Plan.
F-24
<PAGE> 76
HYBRIDON, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(14) COMMITMENTS
(a) Operating Leases
The Company has entered into a lease for a production plant in
Milford, Massachusetts. The lease has a 10-year term, which
commenced on July 1, 1994, with certain extension options. In
addition, the Company entered into a nine-year lease for office
space in Paris, France, commencing on May 1, 1994. The Company
previously occupied office and laboratory space at the
Massachusetts Biotechnology Research Park in Worcester,
Massachusetts. The Company's extended lease agreement expired in
February 1997, at which time the Company moved to a new facility,
described below.
On February 4, 1994, the Company entered into a lease for an
approximately 90,000-square-foot building in Cambridge,
Massachusetts. In 1996, this lease was amended as discussed below
and is herein referred to as the Cambridge Lease. The Cambridge
Lease is with a partnership that is affiliated with three
directors of the Company. The Cambridge Lease has an initial term
of 10 years, commencing February 1, 1997, and may be extended for
three additional five-year terms at the option of the Company. The
Cambridge Lease provides for annual rent of $37.79 per square foot
for the first five years and $41.57 per square foot for the second
five years. As compensation for arranging this lease, the Company
issued Pillar Limited (see Note 14(b)) five-year warrants for the
purchase of 500,000 shares of the Company's common stock at an
exercise price of $10.00 per share. These warrants become
exercisable subsequent to December 31, 1996 and are exercisable
through February 4, 1999.
Under the terms of the Cambridge Lease, the Company elected to
treat $5,450,000 of its payments for a portion of the costs of the
construction of the leased premises (primarily relating to tenant
improvements) as contributions to the capital of the Cambridge
landlord in exchange for a limited partnership interest in the
Cambridge landlord (the Partnership Interest). The Company's
Partnership Interest represents a 32.15% interest in the Cambridge
Landlord. The Company's right to receive distributions of cash
generated from operations or from any sale or refinancing of the
property would be subordinate to the distribution to certain other
limited partners of priority amounts currently totaling
approximately $6,500,000 (approximately $3,500,000 of which is
subject to annual increase at a rate of between 12% and 15% as a
result of a cumulative return to one of the limited partners of
the Cambridge Landlord). In the case of a sale or refinancing of
the property, after payment of the priorities described in the
preceding sentence, the Company would be entitled to a return of
its capital contribution and, thereafter, to its pro rata share of
the remaining funds available for distribution. The Company has
the right, for a period of three years following completion of the
building, to sell the Partnership Interest back to certain limited
partners of the Cambridge Landlord for a price equal to the
greater of
F-25
<PAGE> 77
HYBRIDON, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(14) COMMITMENTS (Continued)
(a) Operating Leases (Continued)
(i) the total paid for the Partnership Interest ($5,450,000) 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.
<TABLE>
Future approximate minimum rent payments as of December 31, 1996,
under the lease agreements discussed above are as follows:
<CAPTION>
CALENDAR YEAR AMOUNT
<S> <C>
1996 $ 4,072,000
1997 4,091,000
1998 4,109,000
2000 4,118,000
2001 4,127,000
Thereafter 20,930,000
-----------
$41,447,000
===========
</TABLE>
During the years ended December 31, 1994, 1995, 1996, facility
rent expense was approximately $1,142,000, $2,142,000, and
$2,352,000 respectively.
(b) Consulting Agreements with Affiliates of Stockholders and
Directors
The Company has entered into consulting agreements, stock
placement agreements and an advisory agreement with several
companies that are controlled by two shareholders and directors of
the Company. The terms of the agreements with the affiliated
companies, S.A. Pillar Investment N.V. (Pillar Investment), Pillar
S.A. (formerly Commerce Consult S.A.) and Pillar Investment
Limited (formerly Ash Properties Limited) (Pillar Limited), are
described below.
In March 1994, the Company entered into a consulting agreement
with Pillar S.A., which was amended in March 1995 (the 1994 Pillar
Consulting Agreement). Under the 1994 Pillar Consulting Agreement,
the Company agreed to pay to Pillar S.A. cash compensation for
financial advisory and managerial services in connection with the
Company's overseas operations, including support services in
connection with contracts, agreements and arrangements with the
Agence Nationale de Recherches sur le SIDA (ANRS), and for
overhead costs and reimbursement of certain authorized
out-of-pocket expenditures. The Company is
F-26
<PAGE> 78
HYBRIDON, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(14) COMMITMENTS (Continued)
(b) Consulting Agreements with Affiliates of Stockholders and
Directors (Continued)
committed to pay Pillar S.A. a monthly fee of approximately
$96,000 with respect to this agreement. The agreement expires on
February 28, 1997. For the years ended December 31, 1994, 1995 and
1996, the Company had expensed $830,000, $1,226,000 and $1,106,000
under this consulting agreement, respectively.
In connection with the 1994 Pillar Consulting Agreement, the
Company issued to Pillar S.A. two, five-year warrants to purchase
up to 200,000 shares of the Company's common stock. The first
warrant was issued on March 1, 1994 at an exercise price of $10.00
per share and will expire on February 28, 1999. This warrant vests
in four equal quarterly installments in arrears commencing on
March 1, 1994. The second warrant was issued on March 1, 1995 at
an exercise price of $7.50 per share and will expire on February
28, 2000 and began vesting in four equal quarterly installments in
arrears commencing on June 1, 1995.
The 1994 Pillar Consulting Agreement also provides that if the
Company obtains all necessary governmental and regulatory
approvals for the commercial sale of an antisense drug for the
treatment of AIDS and HIV infection (the Drug) in one or more of
certain specified European countries prior to December 31, 1997,
the Company will issue Pillar S.A. a five-year warrant to purchase
a number of shares of common stock equal to 25,000 shares for each
quarter sooner than the last quarter of 1997 in which the Company
has approval for commercial sale of the Drug. The exercise price
will be equal to the average closing price of a share of the
Company's common stock for the 20 trading days preceding the last
day of the quarter preceding the quarter in which the Drug is
registered, or, if the Company's common stock is not publicly
traded, the fair market value of one share of common stock as
determined by the Company's Board of Directors. The Company will
expense the fair market value of these warrants as they are earned
by Pillar S.A. These warrants have not been included in the table
in Note 13(c).
All of the warrants issued to Pillar S.A. under the 1994 Pillar
Consulting Agreements and certain other warrants previously issued
to Pillar S.A. provide that within 15 days after the date of any
exercise, in full or in part, Pillar S.A. will pay to the Company
an amount in cash equal to the lesser of (i) 50% of all amounts
paid to Pillar S.A. as compensation under the various Pillar S.A.
consulting agreements and (ii) the positive difference, if any,
between the aggregate fair market value of the shares of common
stock purchased upon such exercise and the aggregate exercise
price for such shares.
F-27
<PAGE> 79
HYBRIDON, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(14) COMMITMENTS (Continued)
(b) Consulting Agreements with Affiliates of Stockholders and
Directors (Continued)
On September 9, 1994, the Company entered into modifications to
its arrangements with Pillar S.A. and its affiliates, including:
(i) a reduction in the exercise price of certain warrants
previously issued to $10.00 per share; (ii) an amendment to the
terms of each of the warrants issued to Pillar S.A. and its
affiliates described above to provide for cashless exercise in
connection with a sale or change in control of the Company; (iii)
a grant of additional five-year warrants (the "Additional Pillar
Warrants") to purchase 114,000 shares of Common Stock at an
exercise price of $10.00 per share; and (iv) an amendment to the
1994 Pillar Consulting Agreement to provide for (a) a fixed term
of three years and (b) a right of first negotiation for Pillar
S.A. to provide seed financing for any spin-offs by the Company
which do not involve or relate to antisense therapeutic compounds.
On July 8, 1995, the Company entered into an 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 and serve as the Company's exclusive agent in
connection with potential corporate partnerships in Europe and as
a nonexclusive placement agent of the Company in connection with
future private placements of securities of the Company for a
period of two years. As discussed below, the Pillar Europe
Agreement was significantly amended on November 1, 1995.
The Company and Pillar S.A. agreed to modify the Pillar Europe
Agreement to provide that (i) Pillar 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
nonexclusive agent in such respect; (ii) Pillar would receive a
retainer of $26,470 per month for the balance of the term of the
Pillar Europe Agreement; (iii) certain fees to be received by
Pillar in connection with European license or collaboration
agreements would only be payable to Pillar in connection with
potential collaborations with five specified French pharmaceutical
companies; 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 case-by-case basis and would be subject to the approval of
the independent members of the Board of Directors of the Company.
In consideration of such modification, the Company paid Pillar a
fee totaling $300,000.
Pillar Limited acted as a placement agent for the Company for
certain sales of convertible preferred stock outside the United
States and, in addition, provided the Company with certain
financial advisory services with respect to the sale of such
preferred stock outside the United States. In connection with such
services, Pillar earned fees of $492,604 and $2,020,751 in the
F-28
<PAGE> 80
HYBRIDON, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(14) COMMITMENTS (Continued)
(b) Consulting Agreements with Affiliates of Stockholders and
Directors (Continued)
years ended December 31, 1994 and 1995, respectively. Pillar
received payment for such fees through $2,435,883 of cash payments
and through the issuance of five-year warrants for the purchase of
2,191,334 shares of common stock at $10.00 per share, expiring on
various dates beginning on July 14, 1998 through October 25, 2000.
(c) Other Research and Development Agreements
<TABLE>
The Company has entered into consulting and research agreements
with the Foundation, universities, research and testing
organizations and individuals, under which consulting and research
support is provided to the Company. These agreements are for
varying terms through and provide for certain minimum annual or
per diem fees plus reimbursable expenses to be paid during the
contract periods. Future minimum fees payable under these
contracts as of December 31, 1996 are approximately as follows:
<CAPTION>
CALENDAR YEAR AMOUNT
<S> <C>
1997 $2,096,000
1998 339,000
1999 211,000
2000 82,000
----------
$2,728,000
==========
</TABLE>
Total fees and expenses under these contracts were approximately
$2,715,000, $5,470,000, and $7,171,000 during the years ended
December 31, 1994, 1995 and 1996 respectively.
(d) Employment Agreements
The Company has entered into employment agreements with certain of
its executive officers which provide for, among other things, each
officer's annual salary, cash bonus, fringe benefits, and
vacation and severance arrangements. Under the agreements, the
officers are generally entitled to receive severance payments of
two to three year's base salary.
F-29
<PAGE> 81
HYBRIDON, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(15) INCOME TAXES
The Company applies SFAS No. 109, Accounting for Income Taxes. At
December 31, 1996, the Company had net operating loss and tax credit
carryforwards for income tax purposes of approximately $138,191,000 and
$2,989,000, respectively, available to reduce federal taxable income and
federal income taxes, respectively. The Tax Reform Act of 1986 (the Act),
enacted in October 1986, limits the amount of net operating loss and
credit carryforwards that companies may utilize in any one year in the
event of cumulative changes in ownership over a three-year period in
excess of 50%. The Company has completed several financings since the
effective date of the Act, which, as of December 31, 1996, have resulted
in ownership changes in excess of 50%, as defined under the Act. The
Company does not believe that such ownership changes will significantly
impact the Company's ability to utilize the net operating loss and credit
carryforwards existing at December 31, 1996. Ownership changes in future
periods may limit the Company's ability to utilize net operating loss and
tax credit carryforwards.
<TABLE>
The federal net operating loss carryforwards and tax credit carryforwards
expire approximately as follows:
<CAPTION>
NET
OPERATING LOSS TAX CREDIT
EXPIRATION DATE CARRYFORWARDS CARRYFORWARDS
<S> <C> <C>
December 31-
2005 $ 666,000 $ 15,000
2006 3,040,000 88,000
2007 7,897,000 278,000
2008 18,300,000 627,000
2009 25,670,000 689,000
2010 36,134,000 496,000
2011 46,484,000 796,000
------------ ----------
$138,191,000 $2,989,000
============ ==========
</TABLE>
F-30
<PAGE> 82
HYBRIDON, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(15) INCOME TAXES (Continued)
<TABLE>
The components of the deferred tax amounts, carryforwards and the
valuation allowance are approximately as follows:
<CAPTION>
DECEMBER 31,
1995 1996
<S> <C> <C>
Operating loss carryforwards $ 36,664,000 $ 55,276,000
Temporary differences 1,108,000 851,000
Tax credit carryforwards 2,193,000 2,989,000
------------ ------------
39,965,000 59,116,000
Valuation allowance (39,965,000) (59,116,000)
------------ ------------
$ - $ -
============ ============
</TABLE>
A valuation allowance has been provided, as it is uncertain if the
Company will realize the deferred tax asset. The net change in the total
valuation allowance during the year ended December 31, 1996 was an
increase of approximately $19,151,000.
(16) EMPLOYEE BENEFIT PLAN
On October 10, 1991, the Company adopted an employee benefit plan under
Section 401(k) of the Internal Revenue Code. The plan allows employees to
make contributions up to a specified percentage of their compensation.
Under the plan, the Company may, but is not obligated to, match a portion
of the employees' contributions up to a defined maximum. The Company is
currently matching 50% of employee contributions to the plan, up to 6% of
the employee's annual base salary, and charged to operations
approximately $77,000, $125,000, and $224,000 for the years ended
December 31, 1994, 1995, and 1996, respectively, for such matching
contributions.
F-31
<PAGE> 83
HYBRIDON, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(17) SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES
<TABLE>
The accompanying consolidated financial statements include the following
noncash investing and financing activities:
<CAPTION>
CUMULATIVE FROM
MAY 25, 1989
(INCEPTION) TO
DECEMBER 31. DECEMBER 31,
--------------------------------------------- 1996
1994 1995 1996
<S> <C> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for $ 69,045 $ 172,757 $ 124,052 $ 365,854
interest
SUPPLEMENTAL DISCLOSURE OF NONCASH
INVESTING ACTIVITIES:
Purchase of property and equipment
under capital leases 1,343,720 90,562 1,722,333 3,229,868
========== =========== ============ ============
SUPPLEMENTAL DISCLOSURE OF NONCASH
FINANCING ACTIVITIES:
Issuance of Series C convertible
preferred stock in exchange for
convertible promissory notes $ - $ - $ - $ 1,700,000
Issuance of convertible promissory
notes in exchange for
subscriptions receivable - - - 937,000
Issuance of stock warrants in
exchange for deferred financing - - 238,000
costs
Issuance of Series D convertible
preferred stock in exchange for
convertible promissory notes and
accrued interest - - - 9,382,384
Issuance of Series E convertible
preferred stock in exchange for
subscriptions receivable - - - 555,117
Issuance of Series F convertible
preferred stock in exchange for
subscriptions receivable 250,000 - - 2,535,000
Issuance of Series G convertible
preferred stock in exchange for
subscriptions receivable - - - 906,016
Cancellation of warrants and
reduction of deferred financing 68,000 - - 68,000
costs
Conversion of preferred stock into
common stock - - 159,822 159,822
========== =========== ============ ============
</TABLE>
F-32
<PAGE> 84
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- - ---------- -----------
3.1** Restated Certificate of Incorporation of the Registrant.
3.2* Amended and Restated By-Laws of the Registrant.
4.* Specimen Certificate for shares of Common Stock, $.001 par
value, of the Registrant.
+10.1* License Agreement dated February 21, 1990 and restated as of
September 8, 1993 between the Registrant and the Worcester
Foundation for Biomedical Research, Inc., as amended.
+10.2* Patent License Agreement dated September 21, 1995 between the
Registrant and National Institutes of Health.
+10.3* License Agreement effective as of October 13, 1994 between the
Registrant and McGill University.
+10.4* License Agreement effective as of October 25, 1995 between the
Registrant and The General Hospital Corporation.
+10.5* License Agreement dated as of October 30, 1995 between the
Registrant and Yoon S. Cho-Chung.
+10.6* Agreement dated as of December 30, 1992 between the Registrant
and Hoffmann- La Roche Inc.
+10.7* Research and License Agreement effective as of December 30, 1992
between the Registrant and F. Hoffmann-La Roche Ltd.
+10.8* Collaborative Study Agreement effective as of December 30, 1992
between the Registrant and Medtronic, Inc.
+10.9* System Design and Procurement Agreement dated as of December 16,
1994 between the Registrant and Pharmacia Biotech, Inc.
10.10* Lease dated April 9, 1992 between Worcester Business Development
Corporation and the Registrant for offices and laboratory space
located in Two Biotech Park, Worcester, Massachusetts.
10.11* Lease dated February 15, 1991 between Worcester Business
Development Corporation and the Registrant, as amended, for
offices and laboratory space located in Three Biotech Park,
Worcester, Massachusetts.
10.12* Sublease dated November 1, 1994 between EcoScience Corporation
and the Registrant, as amended, for offices and laboratory space
located in Four Biotech Park, Worcester, Massachusetts.
10.13* Lease dated March 10, 1994 between the Registrant and Laborer's
Pension/Milford Investment Corporation for space located at 155
Fortune Boulevard, Milford, Massachusetts, including Note in the
original principal amount of $750,000.
<PAGE> 85
10.14* Lease dated February 4, 1994 between the Registrant and Charles
River Building Limited Partnership for space located at 620
Memorial Drive, Cambridge, Massachusetts.
10.15* Loan and Security Agreement dated as of March 29, 1991 between
the Registrant and Technology Funding Secured Investors II.
10.16* Series G Convertible Preferred Stock and Warrant Purchase
Agreement dated as of September 9, 1994 among the Registrant and
certain Purchasers, as amended (the "Series G Agreement").
10.17* Registration Rights Agreement dated as of February 21, 1990
between the Registrant, the Worcester Foundation for Biomedical
Research, Inc. and Paul C. Zamecnik.
10.18* Registration Rights Agreement dated as of June 25, 1990 between
the Registrant and Nigel L. Webb.
10.19* Registration Rights Agreement dated as of February 6, 1992
between the Registrant and E. Andrews Grinstead, III.
10.20* Registration Rights Agreement dated as of February 6, 1992
between the Registrant and Anthony J. Payne.
++10.21* 1990 Stock Option Plan, as amended.
++10.22* 1995 Stock Option Plan.
++10.23* 1995 Director Stock Plan.
++10.24* 1995 Employee Stock Purchase Plan.
10.25* Form of Warrant to purchase shares of Series C Convertible
Preferred Stock originally issued to Pillar Investment Limited
(formerly known as Ash Properties Limited), as amended.
10.26* Form of Warrant to purchase shares of Common Stock issued in
connection with the issuance of the Registrant's series of notes
known as its 10% Convertible Subordinated Notes due September 16,
1993 and the Registrant's 10% Convertible Subordinated Note Due
March 19, 1993, as amended.
10.27* Warrant issued to Pillar S.A. to purchase up to 175,000 shares of
Common Stock dated as of December 1, 1992, as amended.
10.28* Warrant issued to F. Hoffmann-La Roche Ltd. to purchase 551,724
shares of Common Stock dated as of February 12, 1993.
10.29* Form of Warrant originally issued to Pillar Investment Limited to
purchase 427,126 shares of Common Stock dated as of February 15,
1993, as amended.
10.30* Form of Warrant originally issued to Pillar Investment Limited to
purchase 350,000 shares of Common Stock dated as of February 15,
1993, as amended.
10.31* Warrant issued to Pillar Investment Limited to purchase 500,000
shares of Common Stock dated as of February 4, 1994, as amended.
<PAGE> 86
10.32* Form of Warrant issued to Pillar Investment Limited to purchase
shares of Common Stock issued as placement commissions in
connection with the sale of shares of Series F Convertible
Preferred Stock and in consideration of financial advisory
services, as amended.
10.33* Warrant issued to Pillar S.A. to purchase 100,000 shares of
Common Stock dated as of March 1, 1994, as amended.
10.34* Form of Warrant to purchase shares of Common Stock issued as part
of the Units (as defined in the Series G Agreement) issued and
sold to investors pursuant to the Series G Agreement on or prior
to March 31, 1995, as amended.
10.35* Form of Warrant to purchase shares of Common Stock issued as part
of the Units issued and sold to investors pursuant to the Series
G; Agreement after March 31, 1995.
10.36* Warrant issued to Pillar S.A. to purchase 100,000 shares of
Common Stock dated as of March 1, 1995.
10.37* Form of Warrant issued to Pillar Investment Limited to purchase
shares of Common Stock issued as placement commissions in
connection with the sale of Units pursuant to the Series G
Agreement.
++10.38 Employment Agreement dated as of March 1, 1997 between the
Registrant and E. Andrews Grinstead, III.
10.39* Indemnification Agreement dated as of February 6, 1992 between
the Registrant and E. Andrews Grinstead, III.
++10.40 Employment Agreement dated as of March 1, 1997 between the
Registrant and Anthony J. Payne.
10.41* Indemnification Agreement dated as of February 6, 1992 between
the Registrant and Anthony J. Payne.
++10.42 Employment Agreement dated March 1, 1997 between the Registrant
and Dr. Sudhir Agrawal.
++10.43* Employment Agreement dated October 1, 1993 between the Registrant
and Dr. Paul Schechter.
++10.44* Consulting Agreement dated as of February 21, 1990 between the
Registrant and Dr. Paul C. Zamecnik.
10.45* Consulting Agreement dated as of March 1, 1994 between the
Registrant and Pillar S.A.
10.46* Consulting Agreement dated as of July 8, 1995 between the
Registrant and Pillar S.A., as amended.
10.47* Master Lease Agreement dated as of March 1, 1994 between the
Registrant and General Electric Capital Corporation.
<PAGE> 87
10.48* First Amendment to Lease dated as of November 30, 1995 between
the Registrant and Charles River Building Limited Partnership for
space located at 620 Memorial Drive, Cambridge, Massachusetts.
+10.49** Research, Development and License Agreement dated as of January
24, 1996 between the Registrant and G.D. Searle & Co.
+10.50** Manufacturing and Supply Agreement dated as of January 24, 1996
between the Registrant and G.D. Searle & Co.
10.51** Registration Rights Agreement dated as of January 24, 1996
between the Registrant and G.D. Searle & Co.
10.52** Second Amendment to Lease dated as of February 23, 1996 between
the Registrant and Charles River Building Limited Partnership for
space located at 620 Memorial Drive, Cambridge, Massachusetts.
10.53** Third Amendment to Lease dated as of February 28, 1996 between
the Registrant and Charles River Building Limited Partnership for
space located at 620 Memorial Drive, Cambridge, Massachusetts.
10.54 Fourth Amendment to Lease dated as of July 25, 1996 between the
Registrant and Charles River Building Limited Partnership for
space located at 620 Memorial Drive, Cambridge, Massachusetts.
10.55 Fifth Amendment to Lease dated as of March 14, 1997 between the
Registrant and Charles River Building Limited Partnership for
space located at 620 Memorial Drive, Cambridge, Massachusetts.
10.56 Loan and Security Agreement dated as of December 31, 1996 between
the Registrant and Silicon Valley Bank.
10.57 Warrant issued to Silicon Valley Bank to purchase 65,000 shares
of Common Stock dated as of December 31, 1996.
10.58 Registration Rights Agreement dated as of December 31, 1996
between the Registrant and Silicon Valley Bank.
10.59 Master Equipment Lease Agreement dated as of October 25, 1996
between the Registrant and Finova Technology Finance, Inc.
+++10.60 Supply and Sales Agreement dated as of September 1, 1996 between
the Registrant and P.E. Applied Biosystems.
11. Computation of pro forma net loss per common share.
21.* Subsidiaries of the Registrant.
23.1 Consent of Arthur Andersen LLP.
<PAGE> 88
23.2 Consent of Banner & Witcoff, Ltd.
27 Financial Data Schedule [EDGAR]
- - --------------
* Incorporated by reference to Exhibits to the Registrant's Registration
Statement on Form S-1 (File No. 33-99024).
** Incorporated by reference to Exhibits to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1995.
+ Confidential treatment granted as to certain portions, which portions are
omitted and filed separately with the Commission.
++ Management contract or compensatory plan or arrangement required to be
filed as an Exhibit to this Annual Report on Form 10-K.
+++ Confidential treatment requested as to certain portions, which portions are
omitted and filed separately with the Commission.
<PAGE>
ANNEX E
-------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
-------
For the Quarterly Period Ended: 0-27352
September 30, 1997 Commission File Number
HYBRIDON, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 04-3072298
(State or other jurisdiction of (I.R.S. Employer
organization or incorporation) Identification Number)
620 MEMORIAL DRIVE
CAMBRIDGE, MA 02139
------------------------------------------------------------
(Address of principal executive offices, including zip code)
(617) 528-7000
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
YES X NO
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, Par Value $.001 Per Share 25,292,252
- - --------------------------------------- ----------
Class Outstanding as of October 31, 1997
<PAGE> 2
HYBRIDON, INC.
FORM 10-Q
INDEX
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
CONSOLIDATED CONDENSED BALANCE SHEETS AS OF SEPTEMBER 30, 1997 AND
DECEMBER 31, 1996
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS FOR THE THREE AND NINE
MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 AND CUMULATIVE FROM MAY 25,
1989 (INCEPTION) TO SEPTEMBER 30, 1997
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1997 AND 1996, AND CUMULATIVE FROM MAY 25,
1989 (INCEPTION) TO SEPTEMBER 30, 1997
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PART II - OTHER INFORMATION
ITEM 5 - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURES
<PAGE> 3
HYBRIDON, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- -------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 5,892,967 $ 12,633,742
Short-term investments 8,898,715 3,785,146
Accounts receivable 297,351 573,896
Prepaid expenses and other current assets 1,956,043 1,545,324
------------- -------------
Total current assets 17,045,076 18,538,108
------------- -------------
PROPERTY AND EQUIPMENT, AT COST:
Leasehold improvements 14,266,008 9,257,516
Laboratory equipment 6,681,385 5,884,861
Equipment under capital leases 5,371,707 2,904,688
Office equipment 1,785,376 1,496,639
Furniture and fixtures 684,595 499,958
Construction-in-progress 1,176,785 2,193,400
------------- -------------
29,965,856 22,237,062
Less--Accumulated depreciation and amortization 10,678,014 6,596,294
------------- -------------
19,287,842 15,640,768
------------- -------------
OTHER ASSETS:
Restricted cash 1,326,840 437,714
Notes receivable from officers 262,026 317,978
Deferred financing costs and other assets 3,230,945 1,152,034
Investment in real estate partnership 5,450,000 5,450,000
------------- -------------
10,269,811 7,357,726
------------- -------------
$ 46,602,729 $ 41,536,602
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Current portion of long-term debt and capital lease obligations $ 8,062,535 $ 1,308,511
Accounts payable 4,476,576 4,064,419
Accrued expenses 7,128,573 4,190,766
Deferred revenue -- 86,250
------------- -------------
Total current liabilities 19,667,684 9,649,946
------------- -------------
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS, NET OF CURRENT PORTION 3,556,763 9,031,852
------------- -------------
CONVERTIBLE SUBORDINATED NOTES PAYABLE 50,000,000 --
------------- -------------
STOCKHOLDERS' EQUITY(DEFICIT):
Preferred stock, $.01 par value-
Authorized--5,000,000 shares
Issued and outstanding--None -- --
Common stock, $.001 par value-
Authorized--100,000,000 shares
Issued and outstanding--25,292,252 shares at September 30, 1997, and
25,146,577 shares at December 31, 1996 respectively 25,292 25,147
Additional paid-in capital 173,672,464 173,227,358
Deficit accumulated during the development stage (199,171,091) (149,193,775)
Deferred Compensation (1,148,383) (1,203,926)
------------- -------------
Total stockholders' equity(deficit) (26,621,718) 22,854,804
------------- -------------
$ 46,602,729 $ 41,536,602
============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
<PAGE> 4
HYBRIDON, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
CUMULATIVE FROM
MAY 25, 1989
THREE MONTHS ENDED NINE MONTHS ENDED (INCEPTION) TO
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1997 1996 1997 1996 1997
<S> <C> <C> <C> <C> <C>
REVENUES:
Research and development $ 200,000 $ 358,750 $ 980,150 $ 1,076,250 $ 5,534,413
Product revenue 155,368 611,520 1,231,226 611,520 2,311,401
Interest income 294,246 560,376 898,160 1,195,871 3,039,777
Royalty and other income 18,247 -- 33,218 62,321 95,539
------------ ------------ ------------ ------------ -------------
667,861 1,530,646 3,142,754 2,945,962 10,981,130
------------ ------------ ------------ ------------ -------------
OPERATING EXPENSES:
Research and development 11,338,913 10,242,296 37,784,718 27,326,434 156,416,618
General and administrative 3,057,380 2,766,429 9,011,879 7,989,722 45,801,747
Restructuring charge 3,100,000 -- 3,100,000 -- 3,100,000
Interest 1,605,918 18,070 3,223,473 87,651 4,833,856
------------ ------------ ------------ ------------ -------------
19,102,211 13,026,795 53,120,070 35,403,807 210,152,221
------------ ------------ ------------ ------------ -------------
Net loss $(18,434,350) $(11,496,149) $(49,977,316) $(32,457,845) $(199,171,091)
------------ ------------ ------------ ------------ -------------
NET LOSS PER COMMON SHARE
(Note 2) $ (.73) $ (.45) $ (1.98) $ (1.35)
============ ============ ============ ============
SHARES USED IN COMPUTING NET
LOSS PER COMMON SHARE (Note 2) 25,277,563 25,732,987 25,234,031 23,989,439
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements
<PAGE> 5
HYBRIDON, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
CUMULATIVE FROM
MAY 25,1989
NINE MONTHS ENDED (INCEPTION) TO
SEPTEMBER 30, SEPTEMBER 30,
1997 1996 1997
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(49,977,316) $(32,457,845) $(199,171,091)
Adjustments to reconcile net loss to net cash used in
operating activities-
Depreciation and amortization 4,081,720 1,626,080 10,779,455
Issuance of common stock for services rendered 146,875 -- 146,875
Compensation on grant of stock options, warrants and 261,519 -- 8,069,250
restricted stock
Amortization of discount on convertible promissory notes -- -- 690,157
payable
Amortization of deferred financing costs 358,904 -- 575,636
Noncash interest on convertible promissory notes payable -- -- 260,799
Write-down of assets related to restructuring 331,000 331,000
Changes in operating assets and liabilities-
Accounts receivable 276,545 -- (297,350)
Prepaid and other current assets (541,718) (1,427,049) (2,087,042)
Notes receivable from officers 55,952 (7,371) (262,026)
Amounts payable to related parties -- 21,500 (200,000)
Accounts payable and accrued expenses 3,349,962 756,899 11,605,147
Deferred revenue (86,250) -- --
------------ ------------ -------------
Net cash used in operating activities (41,742,807) (31,487,786) (169,559,190)
------------ ------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in short-term investments (5,113,569) (11,063,626) (8,898,715)
Purchases of property and equipment, net (6,645,439) (7,576,520) (28,448,149)
Decrease (increase) in restricted cash and other assets (626,985) 418,118 (2,291,168)
Investment in real estate partnership -- (3,751,552) (5,450,000)
------------ ------------ -------------
Net cash used in investing activities (12,385,993) (21,973,580) (45,088,032)
------------ ------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of convertible preferred stock -- -- 96,584,154
Proceeds from issuance of common stock related to stock 83,327 598,676 1,257,929
options and restricted stock grants
Proceeds from issuance of common stock related to stock 9,075 1,539,386 3,185,816
warrants
Net proceeds from issuance of common stock -- 52,231,244 52,355,324
Repurchase of common stock -- -- (263)
Proceeds from notes payable -- -- 9,450,000
Proceeds from issuance of convertible promissory notes payable 50,000,000 -- 59,191,744
Proceeds from long-term debt -- -- 662,107
Payments on long-term debt and capital leases (1,169,656) (351,849) (2,971,268)
Proceeds from sale/leaseback 1,165,236 -- 3,960,752
(Increase) decrease in deferred financing costs (2,699,957) 526,721 (3,136,106)
------------ ------------ -------------
Net cash provided by financing activities 47,388,025 54,544,178 220,540,189
------------ ------------ -------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (6,740,775) 1,082,812 5,892,967
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 12,633,742 5,284,262 --
------------ ------------ -------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 5,892,967 $ 6,367,074 $ 5,892,967
============ ============ =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 786,005 $ 87,651 $ 2,396,388
============ ============ =============
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
<PAGE> 6
HYBRIDON, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(1) ORGANIZATION
Hybridon, Inc. (the Company) was incorporated in the State of Delaware on
May 25, 1989. The Company is engaged in the discovery and development of
novel genetic medicines based primarily on antisense technology.
The Company is in the development stage. Since inception, the Company has
been engaged primarily in research and development efforts, development
of its manufacturing capabilities and organizational efforts, including
recruiting of scientific and management personnel and raising capital. To
date, the Company has not received revenue from the sale of
biopharmaceutical products developed by it based on antisense technology.
In order to commercialize its own products, the Company will need to
address a number of technological challenges and comply with
comprehensive regulatory requirements. Accordingly, it is not possible to
predict the amount of funds that will be required or the length of time
that will pass before the Company receives revenues from sales of any of
these products. All revenues received by the Company to date have been
derived from collaboration agreements, interest on investment funds and
revenues from the custom contract manufacturing of synthetic DNA and
reagent products by the Company's Hybridon Specialty Products Division.
As a result, although the Company has begun to generate revenues from its
contract manufacturing business, the Company is dependent on the proceeds
from possible future sales of equity securities, debt financings and
research and development collaborations in order to fund future
operations. Based on its current operating plan, the Company believes
that its existing resources, together with committed collaborative
research payments, the Company will have sufficient capital requirements
to fund its operations into December 1997. As noted, the Company will
require substantial additional funding to enable the Company to continue
operations beyond such time.
The unaudited consolidated condensed financial statements included herein
have been prepared by the Company, without audit, pursuant to the rules
and regulations of the Securities and Exchange Commission and include, in
the opinion of management, all adjustments, consisting of normal,
recurring adjustments, necessary for a fair presentation of interim
period results. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to
such rules and regulations. The Company believes, however, that its
disclosures are adequate to make the information presented not
misleading. The results for the interim periods presented are not
necessarily indicative of results to be expected for the full fiscal
year. It is suggested that these financial statements be read in
conjunction with the audited consolidated financial statements and notes
thereto included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1996, as filed with the Securities and Exchange
Commission.
<PAGE> 7
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Net Loss per Common Share
Net loss per common share is computed using the weighted average number
of shares of common stock outstanding during the period. Pursuant to the
requirements of the Securities and Exchange Commission, common stock
issued by the Company during the 12 months immediately preceding its
initial public offering, plus shares of common stock that became issuable
during the same period pursuant to the grant of common stock options and
preferred and common stock warrants, has been included in the calculation
of weighted average number of shares outstanding for the period from
January 1, 1996 through February 2, 1996 (using the treasury-stock method
and the initial public offering price of $10 per share). In addition, the
calculation of the weighted average number of shares outstanding includes
shares of common stock as if all shares of preferred stock were converted
into common stock on the respective original dates of issuance.
(3) CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
The Company applies Statement of Financial Accounting Standards (SFAS)
No. 115, Accounting for Certain Investments in Debt and Equity
Securities. Accordingly, the Company has classified its cash equivalents
and short-term investments as held-to-maturity, and has recorded them at
amortized cost, which approximates market value. Short-term investments
mature within one year of the balance sheet date. Cash equivalents have
original maturities of less than three months. Cash and cash equivalents
and short-term investments at September 30, 1997 and December 31, 1996
consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
<S> <C> <C>
Cash and cash equivalents-
Cash and money market funds $5,892,967 $10,144,367
U.S. government securities -- 2,489,375
---------- -----------
$5,892,967 $12,633,742
========== ===========
Short-term investments-
U.S. government securities $ -- $ 3,785,146
Commercial paper and certificates of deposit 8,898,715 --
---------- -----------
$8,898,715 $ 3,785,146
========== ===========
</TABLE>
(4) CONVERTIBLE SUBORDINATED NOTES PAYABLE
On April 2, 1997, the Company issued $50,000,000 of 9% convertible
subordinated notes (the Notes). Under the terms of the Notes, the Company
must make semi-annual interest payments on the outstanding principal
balance through the maturity date of April 1, 2004. If the Notes are
converted prior to April 1, 2000, the Noteholders are entitled to receive
accrued interest from the date of the most recent interest payment
through the conversion date. The Notes are subordinate to substantially
all of the Company's existing indebtedness. The Notes are convertible at
any time prior to the maturity date at a conversion price equal to
$7.0125 per share, subject to adjustment under certain circumstances, as
defined.
<PAGE> 8
Beginning April 1, 2000, the Company may redeem the Notes at its option
for a 4.5% premium over the original issuance price, provided that from
April 1, 2000 to March 31, 2001, the Notes may not be redeemed unless the
closing price of the common stock equals or exceeds 150% of the
conversion price for a period of at least 20 out of 30 consecutive
trading days and the Notes redeemed within 60 days after such trading
period. The premium decreases by 1.5% each year through March 31, 2003.
Upon a change of control of the Company, as defined, the Company will be
required to offer to repurchase the Notes at 150% of the original
issuance price.
(5) NEW ACCOUNTING STANDARDS
On March 31, 1997, the Financial Accounting Standards Board (FASB) issued
SFAS No. 128, Earnings per Share. SFAS No. 128 establishes standards for
computing and presenting earnings per share and applies to entities with
publicly held common stock or potential common stock. SFAS No. 128 is
effective for fiscal years ending after December 15, 1997 and early
adoption is not permitted. When adopted by the Company, SFAS No. 128 will
require restatement of prior years' earnings per share. The Company will
adopt SFAS No. 128 for its fiscal year ended December 31, 1997. The
Company believes that the adoption of SFAS No. 128 will not have a
material effect on its financial statements.
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive
Income. SFAS No. 130 requires disclosure of all components of
comprehensive income on an annual basis and interim basis. Comprehensive
income is defined as the change in equity of a business enterprise during
a period from transactions and other events and circumstances from
nonowner sources. SFAS No. 130 is effective for fiscal years beginning
after December 15, 1997.
In July 1997, the FASB issued SFAS No. 131, Disclosures About Segments of
an Enterprise and Related Information. SFAS No. 131 requires certain
financial and supplementary information to be disclosed on an annual and
interim basis for each reportable segment of an enterprise. SFAS No. 131
is effective for fiscal years beginning after December 15, 1997. Unless
impracticable, companies would be required to restate prior period
information upon adoption.
(6) RESTRUCTURING
In July and August 1997 the Company implemented a restructuring plan to
reduce expenditures on a phased basis over the balance of 1997 in an
effort to conserve its cash resources. As part of this restructuring
plan, in addition to stopping the clinical development of GEM 91, the
Company's first generation antisense drug for the treatment of AIDS and
HIV the Company reduced or suspended selected programs unrelated to its
core drug development programs involving four second generation antisense
compounds based on the Company's proprietary mixed backbone chemistries.
To begin the implementation of these changes the Company terminated the
employment of 34 employees at its Cambridge and Milford, Massachusetts
facilities in July 1997 and substantially reduced operations at its
Paris, France office and terminated 10 employees at that location in
August 1997.
Also, in connection with the restructuring the Company entered into two
different sub-leasing arrangements. The Company has sub-leased one
facility in Cambridge, MA and a portion of its corporate headquarters
located at 620 Memorial Drive, Cambridge, MA. The Company incurred
expenses relating to these sub-leases for broker fees and renovation
expenses incurred in preparing the Memorial Drive space for the new
tenant. In addition, the Company plans to sub-lease its office in Paris,
France and has accrued the remaining lease payments net of anticipated
sub-lease income.
The Company is continuing to review its expenditure rate and implement
additional measures to conserve its cash resources. See Note 9(a).
<PAGE> 9
Because of the significant costs involved in terminating employees and
substantially reducing operations at its Paris, France office, the
Company does not expect its expenditure rate to materially decrease
until at least October 1997. The following are the significant components
of the charge for restructuring:
<TABLE>
<S> <C>
Employee severance, benefits and related costs $2,214,000
Development programs terminated 356,000
Facility costs 330,000
Writedown of assets to net realizable value 200,000
----------
$3,100,000
==========
</TABLE>
The total cash impact of the restructuring amounted to approximately $2.7
million. The total cash paid as of September 30, 1997 was approximately
$500,000 and the remaining amount of approximately $2.2 million will be
paid through the first quarter of 1998.
(7) NOTE PAYABLE TO A BANK
The note payable to Silicon Valley Bank (the "Bank") contains certain
financial covenants that require the Company to maintain minimum tangible
net worth (as defined) and minimum liquidity (as defined) and prohibits
the payment of dividends. The Company has secured the obligations under
the note with a lien on all of its assets. If, at specified times, the
Company's minimum liquidity is less than $15,000,000, $10,000,000, or
$5,000,000, the Company is required to pledge cash collateral to the bank
equal to 25%, 50% or 100%, respectively, of the then outstanding balance
under the note, pursuant to a cash pledge agreement. The notes also
contain certain non-financial covenants. As of September 30, 1997, the
Company's minimum liquidity had fallen below $15,000,000 and subsequent
to September 30, 1997 the Company pledged cash collateral to the bank of
$1,750,000. If the Company does not obtain additional financing by the
end of November, the Company's minimum liquidity as of November 30, 1997
may be less than $5,000,000 and the balance of the note will need to be
pledged by December 31, 1997. The Company has classified the entire
balance as a current liability in the accompanying September 30, 1997
balance sheet as it does not currently have the financing to remain in
compliance with the financial covenants as of November 19, 1997 (see
Note 9(c)). Failure by the Company to pledge cash collateral when
required would result in a default under the Company's credit facility
with the bank.
(8) RESTRICTED CASH
In November 1997 the Company was notified by Bank Fur Vermogensanlagen
Und Handel AG ("BVH") that the Federal Banking Supervisory Office
("BAKred") in Germany had imposed a moratorium, effective as of August
19, 1997 on BVH and had closed BVH for business. Accordingly, the Company
classified its $1,021,000 deposit with BVH as restricted at September 30,
1997. The Company has contacted BVH and is actively pursuing the release
of its deposit or sale of the deposit to a third party, including
possibly an entity affiliated with a director of the Company. The Company
expects to recover substantially all of its deposit in BVH through such
means. However, the timing of the recovery may be over a period of up to
one year. There can be no assurance that the Company will be able to
recover any or all of its deposit or that the Company will not be
required to write off all or a portion of the $1,021,000.
(9) SUBSEQUENT EVENTS
a) Additional Restructuring
In November 1997, the Company implemented an additional restructuring
plan by reducing the number of employees in its Cambridge and Milford,
Massachusetts facilities by approximately 50 employees. The Company
estimates that the restructuring charge with respect to such reductions,
which will be taken in the fourth quarter of 1997, will total between
approximately $1.5 million and $2.0 million, and expects that it will
make the associated cash payments through the first quarter of 1998.
b) NASDAQ Delisting
On September 19, 1997, the Company received a notice of delisting from
the Nasdaq Stock Market, Inc. ("NASDAQ") indicating that because the
Company was not in compliance with the continued listing requirements of
the Nasdaq National Market, the Company's Common Stock would be delisted
from the Nasdaq National Market. The Company appealed the decision with
NASDAQ and a hearing was held on November 6, 1997. On November 17, 1997,
NASDAQ informed the Company that the Company's Common Stock would not be
delisted and would continue to trade on the Nasdaq National Market,
subject to certain specified conditions, including (i) the closing of a
minimum $12,000,000 from the Private Offering on or before December 1,
1997, (ii) the closing of an additional minimum $20,000,000 from the
Private Offering on or before January 2, 1998, (iii) the closing of
certain corporate transactions on or before January 2, 1998, and (iv)
the filing of a report on or before January 2, 1998 evidencing that the
Company had a minimum of $12,000,000 in net tangible assets as of
November 30, 1997, with pro forma adjustments for any transactions
occurring prior to the filing of such report. The Company is seeking
clarification with respect to certain of these conditions. There can be
no assurance that the Company will be able to satisfy one or more of
these conditions and that the Company's Common Stock will continue to be
listed on the Nasdaq National Market.
c) Private Offering of Equity Securities
The Company has entered into a letter of intent with a placement agent
related to a proposed "best efforts" private offering (the "Private
Offering") by the placement agent on behalf of the Company of shares of
the Company's Common Stock pursuant to which the Company is seeking to
sell at one or more closing s up to $50.0 million of its Common Stock
(with a minimum first closing of $12.5 million). If the Private Offering
is consummated as contemplated by the letter of intent, the Common Stock
to be issued and sold in the Private Offering will be offered and sold at
all closings at an effective price per share equal to the lowest of (i)
$1.25 per shares, (ii) 85% of the closing bid price of the Company's
Common Stock at the time the Private Offering is commenced, (iii) the
average closing bid price of the Company's Common Stock for the 30
consecutive days immediately preceding any closing and (iv) the average
closing bid price of the Company's Common Stock for the five consecutive
trading days immediately preceding any closing. The letter of intent also
contemplates that the purchasers of Common Stock sold in the Private
Offering will be afforded significant contractual voting rights and other
protective provisions. For example, if the average closing price of the
Company's Common Stock for 20 consecutive trading days immediately
preceding the first anniversary of the Final closing Date is less than
125% of the offering price, the Company will be required to issue to the
purchasers additional shares of Common Stock such that the value of their
original investment, plus these newly issued shares, equals 125% of their
original investment; provided that the Company will not be obligated in
any event to issue at such time a number of shares in excess of the
number of shares originally issued. The Company has agreed that the
placement agent will serve as its exclusive agent for a period of up to
120 days and that the Company will not engage in specified activities
pending completion or termination of the Private Offering, subject to
certain specified limitations.
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The Company is engaged in the discovery and development of genetic medicines
based primarily on antisense technology. The Company commenced operations in
February 1990 and since that time has been engaged primarily in research and
development efforts, development of its manufacturing capabilities and
organizational efforts, including recruitment of scientific and management
personnel and raising capital. To date, the Company has not received revenue
from the sale of biopharmaceutical products developed by it based on antisense
technology. In order to commercialize its own products, the Company will need to
address a number of technological challenges and comply with comprehensive
regulatory requirements. Accordingly, it is not possible to predict the amount
of funds that will be required or the length of time that will pass before the
Company receives revenues from sales of any of these products. All revenues
received by the Company to date have been derived from collaborative agreements,
interest on invested funds and revenues from the custom contract manufacturing
of synthetic DNA and reagent products by the Company's Hybridon Specialty
Products Division.
In July and August 1997 the Company implemented a restructuring plan to reduce
expenditures on a phased basis over the balance of 1997 in an effort to conserve
its cash resources. As part of this restructuring plan, in addition to stopping
the clinical development of GEM 91, the Company's first generation antisense
drug for the treatment of AIDS and HIV infection, the Company reduced or
suspended selected programs unrelated to its core drug development programs
involving four second generation antisense compounds based on the Company's
proprietary mixed backbone chemistries. To begin the implementation of these
changes the Company terminated the employment of 34 employees at its Cambridge
and Milford, Massachusetts facilities in July 1997 and substantially reduced
operations at its Paris, France office and terminated 10 employees at that
location in August 1997.
Also, in connection with the restructuring the Company entered into two
different sub-leasing arrangements. The Company has sub-leased one facility in
Cambridge, MA and a portion of its corporate headquarters located at 620
Memorial Drive, Cambridge, MA. The Company incurred expenses relating to these
sub-leases for broker fees and renovation expenses incurred in preparing the
Memorial Drive space for the new tenant. In addition, the Company plans to
sub-lease its office in Paris, France and has accrued the remaining lease
payments net of anticipated sub-lease income.
Because of the significant costs involved in terminating employees and
substantially reducing operations at its Paris, France office, the Company does
not expect its expenditure rate to materially decrease until at least October
1997. The Company recorded a restructuring charge of $3,100,000 from the actions
taken to date and will make the remaining associated cash payments through the
first quarter of 1998.
In November 1997, the Company implemented an additional restructuring plan by
further reducing the number of employees in its Cambridge and Milford,
Massachusetts facilities by approximately 50 employees. The Company estimates
that the restructuring charge to be taken in the fourth quarter will total
between approximately $1.5 million and $2.0 million, and expects that it will
make the related cash payments through the first quarter of 1998.
The Company has incurred losses since its inception and, despite its
restructuring plan, expects to incur significant operating losses in the future.
The Company expects that its research and development expenses will continue to
be significant during the balance of 1997 and in future years as it pursues its
four core development programs. The Company has incurred cumulative losses from
inception through September 30, 1997 of approximately, $199,171,000.
This Quarterly Report on Form 10-Q contains forward-looking statements. For this
purpose, any statements contained herein that are not statements of historical
fact may be deemed to be forward-looking statements. Without limiting the
foregoing, the words "believes," "anticipates," "plans," "intends," "may," and
other similar expressions are intended to identify forward-looking statements.
<PAGE> 11
There are a number of important factors that could cause the Company's actual
results to differ materially from those indicated by such forward-looking
statements. These factors include the matters set forth under the heading
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Certain Factors that May Affect Future Results" in the Company's
Annual Report on Form 10-K for the year ended December 31, 1996, which is hereby
incorporated herein by this reference. Any statement contained in such matters
shall be deemed to be modified or superseded for purposes of this Quarterly
Report on Form 10-Q to the extent that a statement contained herein modifies or
supersedes such statement. Moreover, there can be no assurance that the Company
will be able to successfully implement its restructuring plan or as to the
timing thereof.
RESULTS OF OPERATIONS
Three and Nine Months Ended September 30, 1997 and 1996
REVENUES
The Company had total revenues of $668,000 and $1,531,000 in the three months
ended September 30, 1997 and 1996, respectively, and $3,143,000 and $2,946,000
in the nine months ended September 30, 1997 and 1996, respectively.
Revenues from research and development collaborations were $200,000 and $359,000
for the three months ended September 30, 1997 and 1996, respectively, and
$980,000 and $1,076,000 for the nine months ended September, 1997 and 1996,
respectively. Revenues for the three months ended September 30, 1997 decreased
because the research funding, which the Company received under the Company's
research phase of a collaboration with F. Hoffmann-La Roche Ltd. ("Roche") was
terminated as of March 31, 1997 in connection with Roche's termination of the
research phase of the collaboration. On September 3, 1997 the Company
announced that it had received notification that Roche had decided not to pursue
further its antisense collaboration with Hybridon, and was terminating the
development phase of the collaboration effective February 28, 1998. During the
three and nine months ended September 30, 1997 and 1996, revenues also included
payments under the Company's collaboration with G. D. Searle & Co. (Searle).
Revenues from the custom contract manufacturing of synthetic DNA and reagent
products by the Hybridon Specialty Products Division ("HSPD") were $155,000 and
$1,231,000, respectively, for the three and nine months ended September 30,
1997. Revenues from the custom contract manufacturing of synthetic DNA and
reagent products by HSPD for the three and nine months ended September 30 were
$612,000. HSPD commenced operations in the third quarter of 1996. The decrease
in revenues for the three months ended September 30, 1997 was the result of a
decrease in orders due to the timing of customer requirements. The Specialty
Products Division currently has firm bookings of $800,000 which it anticipates
shipping in the three months ending December 31, 1997. There can be no assurance
however that such bookings will not be cancelled prior to shipping or that
shipping will occur in the three months ending December 31, 1997.
Interest income was $294,000 and $560,000 for the three months ended September
30, 1997 and 1996, respectively, and $898,000 and $1,196,000 for the nine months
ended September 30, 1997 and 1996, respectively. The decrease in interest income
in the three and nine months ended September 30, 1997 was the result of lower
cash balances in such periods than in the corresponding periods in 1996.
RESEARCH AND DEVELOPMENT EXPENSES
The Company had research and development expenses of $37,785,000 and $27,326,000
in the nine months ended September 30, 1997 and 1996, respectively. The increase
in research and development expenses for the nine months ended September 30,
1997 primarily reflected increased
<PAGE> 12
expenses related to ongoing clinical trials of the Company's product candidates,
including trials of GEM 91 (which were terminated in July of 1997), trials of
two different formulations of GEM 132 (an antisense compound for the treatment
of systemic CMV and CMV retinitis), which were first initiated with respect to
GEM 132 intravenous in Europe during the third quarter of 1996 and with respect
to GEM 132 intravitreal for the treatment of CMV retinitis in the United States
during the first quarter of 1997, and trials of the Company's second generation
GEM 92 product for the treatment of AIDS and HIV infection which were initiated
in Europe in 1997. The increase in research and development expenses for the
nine months ended September 30, 1997 also reflects an increase in preclinical
costs related to GEM 132, GEM 92 and the Company's GEM 231 product for the
treatment of solid tumors for which an Investigational New Drug application was
filed in November 1997 with respect to which the Company anticipates initiating
clinical trials for this product during the beginning of 1998. Significant
preclinical costs were incurred to meet the filing requirements to launch the
domestic clinical trials for GEM 132 intravitreal and systemic, and GEM 231.
The $11,339,000 in research and development expenses for the three months ended
September 30, 1997 is $1,097,000 higher than the corresponding quarter of 1996
and $3,630,000 lower than the research and development expenses reported for the
three months ended June 30, 1997. This decrease from the second quarter of 1997
is substantially due to the Company suspending development of GEM 91, its first
generation antisense drug for the treatment of AIDS and HIV infection and the
related restructuring efforts at the Company. All ongoing research and
development efforts related to GEM 91 at the Company and at all clinical sites
were suspended in July. Also, during July 1997 as part of the Company's
restructuring, approximately 24 research and development positions were
eliminated. As part of the restructuring all outside testing and consulting
arrangements were reviewed and where appropriate the terms were renegotiated or
the arrangements were cancelled. The Company does not anticipate that its
expenditure rate will materially decrease as a result of these measures until at
least October 1997.
GENERAL AND ADMINISTRATIVE EXPENSES
The Company had general and administrative expenses of $9,012,000 and $7,990,000
in the nine months ended September 30, 1997 and 1996, respectively. The increase
in general and administrative expenses for the nine months ended September 30,
1997 was attributable primarily to increased public relations and business
development costs as the Company continued to focus its efforts on obtaining
financing and strategic pharmaceutical collaborations. In addition, during the
nine months ended September 30, 1997 the increase was due to higher facilities
costs related to its Cambridge facility, certain financing activities which were
terminated during such period, and a one-time charge related to the Company's
investment in MethylGene, Inc., a Canadian company in which the Company owns a
minority interest.
The Company had general and administrative expenses of $3,057,000 and
$2,766,000 in the three months ended September 30, 1997 and 1996,
respectively. This increase is primarily due to the increase in facilities
costs and the termination of certain financing activities during the period. In
July 1997, as part of the restructuring, approximately 7 general and
administrative positions were eliminated. Also as part of the restructuring all
expenses including outside consulting, public relations, travel and
entertainment were reviewed and where appropriate eliminated or significantly
reduced.
<PAGE> 13
RESTRUCTURING CHARGE
In July and August 1997, the Company implemented a restructuring plan to reduce
expenditures on a phased basis over the balance of 1997 in an effort to conserve
its cash resources. As part of this restructuring plan, in addition to stopping
the clinical development of GEM 91, the Company reduced or suspended selected
programs unrelated to its four core programs. To begin the implementation of
these changes the Company terminated the employment of 34 employees at its
Cambridge and Milford, Massachusetts facilities in July 1997 and substantially
reduced operations at its Paris, France office and terminated 10 employees at
that location in August 1997. Because of the significant costs involved in
terminating employees and substantially reducing operations at its Paris, France
offices, the Company does not expect its expenditure rate to materially decrease
until at least October 1997. Also, in connection with the restructuring the
Company entered into two different sub-leasing arrangements. The Company has
sub-leased one facility in Cambridge, MA and a portion of its corporate
headquarters located at 620 Memorial Drive, Cambridge, MA. The Company incurred
expenses relating to these sub-leases for broker fees and renovation expenses
incurred in preparing the Memorial Drive space for the new tenant. In addition,
the Company plans to sub-lease its office in Paris, France and has accrued the
remaining lease payments net of anticipated sub-lease income. As a result of the
above actions the Company has recorded a restructuring charge of $3,100,000 in
the three and nine months ending September 30, 1997.
The Company is continuing to review its expenditure rate and implement
additional measures to conserve its cash resources. In November 1997, the
Company implemented an additional restructuring plan by reducing the number of
employees at its Cambridge and Milford, Massachusetts facilities by
approximately 50 employees. The Company estimates that the restructuring charges
taken in the fourth quarter of 1997 will range between $1,500,000 and
$2,000,000, and expects to make the related cash payments during the fourth
quarter of 1997 and through the first quarter of 1998.
INTEREST EXPENSE
The Company had interest expense of $1,606,000 and $18,000 in the three months
ended September 30, 1997 and 1996, respectively, and $3,223,000 and $88,000 in
the nine months ended September 30, 1997 and 1996, respectively. The increase in
interest expense for the three and nine months ended September 30, 1997
reflected an increase in the debt outstanding associated with the Company's
issuance of $50,000,000 of 9% Convertible Subordinated Notes (the"Notes") on
April 2, 1997 and interest incurred on borrowing to finance the purchase of
property and equipment, and leasehold improvements.
NET LOSS
As a result of the above factors, the Company incurred net losses of $18,434,000
and $11,496,000 for the three months ended September 30, 1997 and 1996,
respectively, and $49,977,000 and $32,458,000 for the nine months ended
September 30, 1997 and 1996, respectively.
LIQUIDITY AND CAPITAL RESOURCES
During the nine months ended September 30,1997, the Company used $41,743,000 of
net cash for
<PAGE> 14
operating activities, principally for ongoing research and development programs,
and $11,364,000 of net cash for investment in property and equipment, consisting
primarily of costs related to leasehold improvements, equipment and furnishings
of the Cambridge facility which the Company moved into on February 1, 1997.
The Company had cash, cash equivalents and short term investments of $14,792,000
at September 30, 1997. Based on its current operating plan, including the
expenditure rate reduction initiatives being undertaken by the Company as part
of its restructuring plan, the Company believes that its existing capital
resources, together with the committed collaborative research and development
payments from Searle, and anticipated sales of the Hybridon Specialty Products
Division and margins on such sales, will be adequate to fund the Company's
capital requirements into December 1997. The Company will require substantial
additional funds from external sources in the fourth quarter of 1997 to support
the Company's operations through the end of the fourth quarter of 1997 and
thereafter.
The Company is seeking additional equity, debt and lease financing to fund
future operations as well as additional collaborative development and
commercialization relationships with potential corporate partners in order to
fund certain of its programs. In particular, the Company is exploring selling
certain assets or business units to third parties or conducting a financing
which could be significantly dilutive to holders of the Company's existing
securities and contain certain terms that would adversely affect the rights of
holders of the Company's existing securities.
In connection with these efforts, the Company has entered into a letter of
intent with a placement agent related to a proposed "best efforts" private
offering (the "Private Offering") by the placement agent on behalf of the
Company of shares of the Company's Common Stock pursuant to which the Company is
seeking to sell at one or more closings up to $50.0 million of its Common Stock
(with a minimum first closing of $12.5 million). If the Private Offering is
consummated as contemplated by the letter of intent, the Common Stock to be
issued and sold in the Private Offering will be offered and sold at all closings
at an effective price per share equal to the lowest of (i) $1.25 per share, (ii)
85% of the closing bid price of the Company's Common Stock at the time the
Private Offering is commenced, (iii) the average closing bid price of the
Company's Common Stock for the 30 consecutive trading days immediately preceding
any closing and (iv) the average closing bid price of the Company's Common Stock
for the five consecutive trading days immediately preceding any closing. The
letter of intent also contemplates that the purchasers of Common Stock sold in
the Private Offering will be afforded significant contractual voting rights and
other protective provisions. For example, if the average closing price of the
Company's Common Stock for 20 consecutive trading days immediately preceding the
first anniversary of the Final Closing Date is less than 125% of the offering
price, the Company will be required to issue to the purchasers additional shares
of Common Stock such that the value of their original investment, plus these
newly issued shares, equals 125% of their original investment; provided that the
Company will not be obligated in any event to issue at such time a number of
shares in excess of the number of shares originally issued. The Company has
agreed that the placement agent will serve as its exclusive agent for a period
of up to 120 days and that the Company will not engage in specified activities
pending completion or termination of the Private Offering, subject to certain
specified limitations.
If none of these transactions are consummated by the second week in December,
the Company will likely cease operations or be required to seek relief under the
applicable bankruptcy laws. There can be no assurance that the Company will be
able to consummate any of these transactions including the financing
contemplated in the letter of intent by the second week in December, if at all,
or as to the terms of any such transactions.
Except for research and development funding from Searle under Hybridon's
collaborative agreement with Searle (which is subject to early termination in
certain circumstances), Hybridon has no committed external sources of capital,
and, as discussed above, expects no product revenues for several years from
sales of the products that it is developing (as opposed to sales of DNA products
and reagents manufactured on a custom contract basis by the Hybridon Specialty
Products Division).
On April 2, 1997, the Company sold $50.0 million of Notes to certain investors.
The Notes bear interest at a rate of 9% per annum and have a maturity date of
April 1, 2004. Under the Notes, the Company is required to make semi-annual
interest payments on the outstanding principal balance through the maturity date
of April 1, 2004. The Notes are unsecured and subordinate to substantially all
of the Company's existing indebtedness. The Notes are convertible at the option
of the holder into the Company's Common Stock at any time prior to maturity,
unless previously redeemed or repurchased by the Company under certain specified
circumstances, at a conversion price of $7.0125 per share (subject to
adjustment). Upon change of control of the Company (as defined), the Company is
required to offer to repurchase the Notes at 150% of the original issuance
price.
The note payable to Silicon Valley Bank (the "Bank") contains certain financial
covenants that require the Company to maintain minimum tangible net worth (as
defined) and minimum liquidity (as defined) and prohibits the payment of
dividends. The Company has secured the obligations under the note with a lien on
all of its assets. If, at specified times, the Company's minimum liquidity is
less than $15,000,000, $10,000,000, or $5,000,000, the Company is required to
pledge cash collateral to the bank equal to 25%, 50% or 100%, respectively, of
the then outstanding balance under the note, pursuant to a cash pledge
agreement. The notes also contain certain non-financial covenants. As of
September 30, 1997, the Company's minimum liquidity had fallen below $15,000,000
and subsequent to September 30, 1997 Company pledged cash collateral to the bank
of $1,750,000. If the Company does not obtain additional financing by the end of
November, the Company's minimum liquidity as of November 30, 1997 may be less
than $5,000,000 and the balance of the note will need to be pledged by December
31, 1997. The Company has classified the entire balance as a current liability
in the accompanying September 30, 1997 balance sheet as it does not currently
have the financing to remain in compliance with the financial covenants as of
November 19, 1997 (see Note 9(c)) during the fourth quarter of 1997. Failure by
the Company to pledge cash collateral when required would result in a default
under the Company's credit facility with the bank.
<PAGE> 15
HYBRIDON, INC.
PART II
OTHER INFORMATION
-------
ITEM 5. OTHER INFORMATION
On September 18, 1997, the Company received a notice of delisting from
The Nasdaq Stock Market, Inc. ("NASDAQ") indicating that because the
Company was not in compliance with the continued listing requirements
of the Nasdaq National Market, the Company's Common Stock would be
delisted from the Nasdaq National Market. The Company appealed the
decision with NASDAQ and a hearing was held on November 6, 1997. On
November 17, 1997, NASDAQ informed the Company that the Company's
Common Stock would not be delisted and would continue to trade on the
Nasdaq National Market, subject to certain specified conditions,
including (i) the closing of a minimum $12,000,000 from the Private
Offering on or before December 1, 1997, (ii) the closing of an
additional minimum $20,000,000 from the Private Offering on or before
January 2, 1998, (iii) the closing of certain corporate transactions
on or before January 2, 1998 and (iv) the filing of a report on or
before January 2, 1998 evidencing that the Company had a minimum of
$12,000,000 in net tangible assets as of November 30, 1997, with pro
forma adjustments for any transactions occurring prior to the filing
of such report. The Company is seeking clarification with respect to
certain of these conditions. There can be no assurance that the
Company will be able to satisfy one or more of these conditions and
that the Company's Common Stock will continue to be listed on the
Nasdaq National Market.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The Exhibits listed in the Exhibit Index immediately preceding
such Exhibits are filed as part of this Quarterly Report on
Form 10-Q.
(b) Reports on Form 8-K
1. On July 25, 1997, the Company filed a Current Report on
Form 8-K dated July 25, 1997 reporting, among other things, its
announcement that (i) it had elected to stop further development
of its lead compound GEM 91, (ii) it would be focusing its
resources on its second generation chemistries and (iii) its
goal for the second half of 1997 was to effect a reduction in its
expenditure rate on a phased basis over the balance of 1997.
2. On September 5, 1997, the Company filed a Current
Report on Form 8-K dated September 3, 1997 reporting its
announcement of the termination of the Company's research and
development collaboration with Hoffman-La Roche Ltd.
3. On September 19, 1997, the Company filed a Current
Report on Form 8-K dated September 19, 1997 reporting its
announcement of the scheduled delisting of its Common Stock from
the Nasdaq National Market.
4. On September 24, 1997, the Company filed a Current
Report on Form 8-K dated September 23, 1997 reporting its
announcement that the Company was moving forward with the appeal
process with respect to the scheduled delisting.
<PAGE> 16
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HYBRIDON, INC.
November 13, 1997 /s/ E. Andrews Grinstead III
- ----------------- -----------------------------------------------
Date E. Andrews Grinstead, III
Chairman, President and Chief Executive Officer
(Principal Executive Officer)
November 13, 1997 /s/ Lynne J. Rudert
- ----------------- ----------------------------------------------
Date Lynne J. Rudert
Director of Finance and Controller
(Chief Accounting Officer)
<PAGE>
HYBRIDON, INC.
EXHIBIT INDEX
Exhibit No. Description
- - ----------- -----------
11 Computation of Net Loss Per Common Share.
27 Financial Data Schedule (EDGAR)
99 Pages 39-48 of the Company's Annual Report on Form 10-K for the
period ended December 31, 1996 (which is not deemed to be filed
except to the extent that portions thereof are expressly
incorporated by reference herein).
<PAGE>
ANNEX F
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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 [ ]
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Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] 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, if other than the Registrant)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) 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:
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<PAGE>
HYBRIDON, INC.
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD NOVEMBER 18, 1997
NOTICE IS HEREBY GIVEN that a Special Meeting of the Stockholders of
Hybridon, Inc., a Delaware corporation (the "Company"), will be held on Tuesday,
November 18, 1997 at 10:00 a.m. at the offices of the Company, 620 Memorial
Drive, Cambridge, Massachusetts 02139 (the "Meeting") for the purpose of
considering and voting upon the following matters:
1. To approve an amendment to the Company's Certificate of Incorporation
to effect a reverse split of the Company's Common Stock, $.001 par
value per share (the "Common Stock"), pursuant to which each five
shares of Common Stock then outstanding will be converted into one
share.
2. To transact such other business, if any, 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, October
30, 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 list of
the Company's stockholders is open for examination to any stockholder at the
principal executive offices of the Company, 620 Memorial Drive, Cambridge,
Massachusetts 02139 and will be available at the Meeting.
By Order of the Board of Directors,
E. ANDREWS GRINSTEAD, III,
Chairman of the Board,
President and Chief Executive
Officer
October 30, 1997
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE PROMPTLY COMPLETE, SIGN,
DATE AND RETURN THE ENCLOSED PROXY CARD IN THE ACCOMPANYING ENVELOPE. NO POSTAGE
NEED BE AFFIXED IF THE PROXY CARD IS MAILED IN THE UNITED STATES.
<PAGE>
HYBRIDON, INC.
620 MEMORIAL DRIVE
CAMBRIDGE, MASSACHUSETTS 02139
PROXY STATEMENT
FOR THE SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON NOVEMBER 18, 1997
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of Hybridon, Inc., a Delaware corporation (the
"Company"), of proxies for use at the Special Meeting of Stockholders to be held
on Tuesday, November 18, 1997 at 10:00 a.m. at the offices of the Company, 620
Memorial Drive, Cambridge, Massachusetts 02139 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.
THE NOTICE OF MEETING, THIS PROXY STATEMENT AND THE ENCLOSED PROXY CARD ARE
BEING MAILED TO STOCKHOLDERS ON OR ABOUT OCTOBER 31, 1997.
VOTING SECURITIES AND VOTES REQUIRED
On October 30, 1997, the record date for determination of stockholders
entitled to vote at the Meeting, there were outstanding and entitled to vote an
aggregate of [ ] shares of Common Stock of the Company, $.001 par value
per share (the "Common Stock"). Each recordholder of Common Stock is entitled to
one vote per share.
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 majority of the shares of Common
Stock issued and outstanding is required for approval of the amendment to the
Company's Certificate of Incorporation. Shares which abstain from voting as to
the amendment to the Company's Certificate of Incorporation, 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 such matter are
nonetheless considered outstanding shares and will have the same effect as a
vote again the amendment to the Company's Certificate of Incorporation.
<PAGE> 4
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of October 1, 1997,
with respect to the beneficial ownership of shares of Common Stock by (i) each
person known to the Company to beneficially own more than 5% of the outstanding
shares of Common Stock, (ii) the directors of the Company, (iii) the Chief
Executive Officer of the Company and the most highly compensated executive
officer (other than the Chief Executive Officer) whose total annual salary and
bonus exceeded $100,000 in fiscal 1996, and (iv) all current 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(2)
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<S> <C> <C>
5% STOCKHOLDERS
Morgan Grenfell International Funds Management Limited............. 2,441,026(3) 9.65%
c/o The Royal Bank of Scotland PLC
London, England
Yahia M.A. Bin Laden............................................... 2,043,750(4) 8.03%
2, rue Charles Bonnet
1206 Geneva, Switzerland
HTI Investments, N.V............................................... 1,708,335 6.75%
c/o Healthcare Technologies
International, Ltd.
P.O. Box 42124
Jeddah, 21541
Saudi Arabia
Nicris Limited..................................................... 1,550,000 6.13%
2, rue Charles Bonnet
1206 Geneva, Switzerland
Youssef El-Zein.................................................... 1,498,945(5) 5.61%
c/o Pillar S.A
28, Avenue de Messine
75008 Paris, France
F. Hoffmann-La Roche Ltd........................................... 1,370,114(6) 5.30%
Postfach
CH 4002 Basel
Switzerland
OTHER DIRECTORS AND EXECUTIVE OFFICERS
Nasser Menhall..................................................... 1,276,204(7) 4.81%
E. Andrews Grinstead, III.......................................... 1,177,266(8) 4.48%
Mohamed A. El-Khereiji............................................. 904,666(9) 3.51%
Paul C. Zamecnik................................................... 555,100(10) 2.18%
Sudhir Agrawal..................................................... 476,063(11) 1.85%
James B. Wyngaarden................................................ 80,000(12) *
All directors and executive officers as a group (7 persons)........ 5,164,175(13) 18.02%
</TABLE>
2
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- ---------------
* 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 (the "SEC"), 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 October 1,
1997 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 investment power (or shares such power with his or
her spouse) with respect to all shares of capital stock listed as
beneficially owned by such person or entity.
(2) Number of shares deemed outstanding includes 25,300,252 shares outstanding
as of October 1, 1997, plus any shares subject to options or warrants held
by the person or entity in question that are currently exercisable or
exercisable within 60 days following October 1, 1997.
(3) Share ownership based on Schedule 13D filed with the Commission on
September 6, 1996.
(4) Includes (a) 156,250 shares issuable upon the exercise of warrants held by
Mr. Bin Laden, and (b) 1,550,000 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.
(5) Includes (a) 780,697 shares issuable upon the exercise of warrants held by
Mr. El-Zein, (b) 284,416 shares issuable upon the exercise of warrants held
by Pillar Limited, (c) 64,000 shares held by Pillar Investment, (d) 1,832
shares issuable upon the exercise of warrants held by Pillar Investment,
and (e) 325,000 shares issuable upon the exercise of warrants held by
Pillar S.A. Also includes 35,000 shares subject to outstanding stock
options held by Mr. El-Zein which are exercisable within the 60-day period
following October 1, 1997. Mr. El-Zein, an affiliate of Pillar Investment,
Pillar Limited and Pillar S.A., may be considered a beneficial owner of the
shares beneficially owned by such entities.
(6) Includes 551,724 shares issuable upon the exercise of a warrant.
(7) Includes (a) 565,956 shares issuable upon the exercise of warrants held by
Mr. Menhall, (b) 284,416 shares issuable upon the exercise of warrants held
by Pillar Limited, (c) 64,000 shares held by Pillar Investment, (d) 1,832
shares issuable upon the exercise of warrants held by Pillar Investment,
and (e) 325,000 shares issuable upon the exercise of warrants held by
Pillar S.A. Also includes 35,000 shares subject to outstanding stock
options held by Mr. Menhall which are exercisable within the 60-day period
following October 1, 1997. Mr. Menhall, an affiliate of Pillar Limited,
Pillar Investment, and Pillar S.A., may be considered a beneficial owner of
the shares beneficially owned by such entities.
(8) Includes 959,370 shares subject to outstanding stock options which are
exercisable within the 60-day period following October 1, 1997.
(9) Includes (a) 420,300 shares issuable upon the exercise of warrants held by
Mr. El-Khereiji and (b) 30,000 shares subject to outstanding stock options
held by Mr. El-Khereiji which are exercisable within the 60-day period
following October 1, 1997. Also includes 454,366 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.
(10) Includes 125,000 shares subject to outstanding stock options which are
exercisable within the 60-day period following October 1, 1997.
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<PAGE>
(11) Includes 402,263 shares subject to outstanding stock options which are
exercisable within the 60-day period following October 1, 1997.
(12) Includes 3,000 shares held by Dr. Wyngaarden's children and 50,000 shares
subject to outstanding stock options which are exercisable within the
60-day period following October 1, 1997.
(13) Includes an aggregate of 1,728,201 shares issuable upon the exercise of
outstanding warrants exercisable within the 60-day period following October
1, 1997 and an aggregate of 1,636,633 shares issuable upon the exercise of
outstanding stock options exercisable within the 60-day period following
October 1, 1997.
APPROVAL OF AN AMENDMENT TO THE COMPANY'S
CERTIFICATE OF INCORPORATION TO EFFECT
ONE-FOR-FIVE REVERSE STOCK SPLIT
The Board of Directors has adopted a resolution declaring the advisability
of, and submitting to the stockholders for approval, a proposal to amend the
Company's Certificate of Incorporation (the "Proposed Amendment") to effect a
reverse split of the Company's Common Stock, pursuant to which each five shares
of Common Stock will be automatically converted into one share without any
action on the part of the stockholder (the "Reverse Split"). The text of the
Proposed Amendment is set forth in Exhibit A to this Proxy Statement.
Consummation of the Reverse Split will not change the number of shares of
Common Stock authorized by the Company's Certificate of Incorporation, which
will remain at 100,000,000 shares, or the par value of the Common Stock per
share. The Reverse Split will become effective as of 5:00 p.m., Boston time (the
"Effective Date"), on the date that the certificate of amendment to the
Company's Certificate of Incorporation is filed with the Secretary of State of
Delaware. If for any reason the Board of Directors deems it advisable, the
Proposed Amendment may be abandoned at any time before the Effective Date,
whether before or after the Meeting (even if such proposal has been approved by
the stockholders).
In lieu of issuing less than one whole share resulting from the Reverse
Split to holders of an odd number of shares, the Company will determine the fair
value of each outstanding share of Common Stock held on the Effective Date of
the Reverse Split (the "Fractional Share Purchase Price"). The Company currently
anticipates that the Fractional Share Purchase Price will be based on the
average daily closing bid price per share of the Common Stock as reported by the
primary trading market for the Company's Common Stock for the ten (10) trading
days immediately preceding the Effective Date. In the event the Company
determines that unusual trading activity would cause such amount to be an
inappropriate measure of the fair value of the Common Stock, the Company may
base the Fractional Share Purchase Price on the fair market value of the Common
Stock as reasonably determined in good faith by the Board of Directors of the
Company. Stockholders who hold an odd number of shares on the Effective Date
will be entitled to receive, in lieu of the less than one whole share arising as
a result of the Reverse Split, cash in the amount of the relevant portion of the
Fractional Share Purchase Price.
As soon as practical after the Effective Date, the Company will mail a
letter of transmittal to each holder of record of a stock certificate or
certificates which represent issued Common Stock outstanding on the Effective
Date. The letter of transmittal will contain instructions for the surrender of
such certificate or certificates to the Company's designated exchange agent in
exchange for certificates representing the number of whole shares of Common
Stock (plus the relevant portion of the Fractional Share Purchase Price, if any)
into which the shares of Common Stock have been converted as a result of the
Reverse Split. No cash payment will be made or new certificate issued to a
stockholder until he has surrendered his outstanding
4
<PAGE>
certificates together with the letter of transmittal to the Company's exchange
agent. See "-- Exchange of Stock Certificates."
THE BOARD OF DIRECTORS BELIEVES THE ADOPTION OF THE PROPOSED AMENDMENT IS
IN THE BEST INTERESTS OF THE COMPANY AND ITS STOCKHOLDERS AND RECOMMENDS THAT
STOCKHOLDERS VOTE "FOR" THE PROPOSED AMENDMENT.
PURPOSE OF THE REVERSE SPLIT
The Company's shares of Common Stock have been listed, and have traded, on
the Nasdaq National Market ("Nasdaq NM") since January 1996 when the Company
completed its initial public offering. On September 18, 1997, the Company
received a notice of delisting from The Nasdaq Stock Market, Inc. ("NASDAQ")
indicating that because the Company was not in compliance with the continued
listing requirements of the Nasdaq NM, the Company's Common Stock would be
delisted from the Nasdaq NM. The Company has appealed the decision with NASDAQ
and a hearing has been scheduled for Thursday, November 6, 1997. The delisting
action has been stayed pending the outcome of the appeal.
The rules of the Nasdaq NM require that as a condition of the continued
listing of a company's securities on the Nasdaq NM, a company satisfy at least
one of several alternative maintenance requirements, which generally require
that a company meet certain minimum criteria relating to its financial
condition, results of operations and trading market for its listed securities.
Under one such maintenance requirement, the minimum bid price of the Company's
shares of Common Stock must equal or exceed $5.00, among other criteria. The
closing price of the Company's Common Stock on October 9, 1997 was $1.875 per
share.
The Company believes that if the Reverse Split is approved by the
stockholders at the Meeting, and the Reverse Split is effectuated, the Company's
shares of Common Stock will have a minimum bid price in excess of $5.00 per
share, and therefore will satisfy one of the criteria of the above-mentioned
Nasdaq NM maintenance requirement. However, the Company would also need to
satisfy other criteria to continue to have the Common Stock be eligible for
continued listing and trading on the Nasdaq NM. These other criteria consist of
maintaining (i) a market capitalization of at least $50 million, (ii) a public
float of at 1.1 million shares, (iii) a market value of the public float of at
least $15 million, (iv) at least 400 shareholders (round lot holders), (v) at
least four market makers and (vi) compliance with certain corporate governance
requirements. The Company believes that it satisfies all of these other
maintenance criteria except for the market capitalization criteria. As of
October 9, 1997, the Company's market capitalization was approximately $47.4
million. The Company is currently exploring financing alternatives to permit it
to meet the market capitalization criteria even if the price per share of the
Common Stock does not increase. There can be no assurance, however, that the
Company will be successful in meeting all requisite maintenance criteria.
If the Reverse Split is not approved by the stockholders at the Meeting,
then it is highly likely that the Company's shares of Common Stock will cease to
be listed and traded on the Nasdaq NM, which could adversely affect the
liquidity of the Company's Common Stock and the ability of the Company to raise
capital. In such event, the Company intends to make application for listing on
the Nasdaq Small Cap Market. If not approved for listing on the Nasdaq Small Cap
Market, the shares of Common Stock will likely be quoted in the "pink sheets"
maintained by the National Quotation Bureau, Inc. or the NASD Electronic
Bulletin Board and the spread between the bid and ask price of the shares of
Common Stock is likely to be greater than at present and stockholders may
experience a greater degree of difficulty in engaging in trades of shares of
Common Stock.
In addition, the Board of Directors further believes that low trading
prices of the Company's Common Stock may have an adverse impact upon the
efficient operation of the trading market in the securities. In particular,
brokerage firms often charge a greater percentage commission on low-priced
shares than that which would be charged on a transaction in the same dollar
amount of securities with a higher per share price. A
5
<PAGE>
number of brokerage firms will not recommend purchases of low-priced stock to
their clients or make a market in such shares, which tendencies may adversely
affect the Company.
Stockholders should note that the effect of the Reverse Split upon the
market prices for the Company's Common Stock cannot be accurately predicted. In
particular, there is no assurance that prices for shares of the Common Stock
after the Reverse Split will be five times the prices for shares of the Common
Stock immediately prior to the Reverse Split. Furthermore, there can be no
assurance that the proposed Reverse Split will achieve the desired results which
have been outlined above, nor can there be any assurance that the Reverse Split
will not adversely impact the market price of the Common Stock or,
alternatively, that any increased price per share of the Common Stock
immediately after the proposed Reverse Split will be sustained for any prolonged
period of time. In addition, the Reverse Split may have the effect of creating
odd lots of stock for some stockholders and such odd lots may be more difficult
to sell or have higher brokerage commissions associated with the sale of such
odd lots.
EFFECT OF THE REVERSE SPLIT
As a result of the Reverse Split, the number of whole shares of Common
Stock held by stockholders of record as of the close of business on the
Effective Date will automatically, without any action required by the
stockholders, be equal to the number of shares of Common Stock held immediately
prior to the close of business on the Effective Date divided by five, plus cash
in lieu of any fractional share. The Reverse Split will not affect a
stockholder's percentage ownership interest in the Company or proportional
voting power, except for minor differences resulting from the payment of cash in
lieu of fractional shares. The rights and privileges of the holders of shares of
Common Stock will be unaffected by the Reverse Split. The par value of the
Common Stock will remain at $.001 per share following the Effective Date of the
Reverse Split, and the number of shares of Common Stock issued will be reduced.
Consequently, the aggregate par value of the issued Common Stock also will be
reduced. In addition, the number of authorized but unissued shares of Common
Stock will be increased by the Reverse Split, the issuance of which may have the
effect of diluting the earnings per share and book value per share, as well as
the stock ownership and voting rights, of outstanding Common Stock. As the
Reverse Split will increase the number of authorized but unissued shares of
Common Stock, it may be construed as having an anti-takeover effect by
permitting the issuance of shares to purchasers who might oppose a hostile
takeover bid or oppose any efforts to amend or repeal certain provisions of the
Company's Certificate of Incorporation or By-laws.
Stockholders have no right under Delaware law or under the Company's
Certificate of Incorporation or By-laws to dissent from the Reverse Split.
The Common Stock is currently registered under Section 12(g) of the
Exchange Act and as a result, the Company is subject to the periodic reporting
and other requirements of the Exchange Act. The Reverse Split will not affect
the registration of the Common Stock under the Exchange Act, and the Company has
no current intention of terminating its registration under the Exchange Act.
Upon consummation of the Reverse Split, the total number of shares
currently reserved for grants of stock options and all stock options previously
granted would be decreased proportionately. The cash consideration payable per
share upon exercise of the stock options would be increased proportionately.
EXCHANGE OF STOCK CERTIFICATES
As soon as practicable after the Effective Date, the Company intends to
require stockholders to exchange their stock certificates ("Old Certificates")
for new certificates ("New Certificates") representing the number of whole
shares of Common Stock into which their shares of Common Stock have been
converted as a result of the Reverse Split (as well as cash in lieu of
fractional shares resulting from the reverse split). Stockholders
6
<PAGE> 9
will be furnished with the necessary materials and instructions for the
surrender and exchange of stock certificates at the appropriate time by the
Company's transfer agent. Stockholders will not be required to pay a transfer or
other fee in connection with the exchange of certificates. STOCKHOLDERS SHOULD
NOT SUBMIT ANY CERTIFICATES TO THE TRANSFER AGENT UNTIL REQUESTED TO DO SO.
FEDERAL INCOME TAX CONSEQUENCES OF THE REVERSE SPLIT
The following description of the material federal income tax consequences
of the Reverse Split is based upon the Internal Revenue Code of 1986, as
amended, the applicable Treasury Regulations promulgated thereunder, judicial
authority and current administrative rulings and practices all as in effect on
the date of this Proxy Statement. The Company has not sought and will not seek
an opinion of counsel or a ruling from the Internal Revenue Service regarding
the federal income tax consequences of the Reverse Split. This discussion is for
general information only and does not discuss consequences which may apply to
special classes of taxpayers (e.g., non-resident aliens, broker-dealers or
insurance companies) and does not discuss the tax consequences under the laws of
any foreign, state or local jurisdictions. Stockholders are urged to consult
their own tax advisors to determine the particular consequences to them.
In general, the federal income tax consequences of the proposed Reverse
Split will vary among stockholders depending upon whether they receive the
Fractional Share Purchase Price or solely New Certificates in exchange for Old
Certificates. The Company believes that because the Reverse Split is not part of
a plan to increase periodically a stockholder's proportionate interest in the
Company's assets or earnings and profits, the Reverse Split probably will have
the following federal income tax effects:
1. A stockholder who receives solely New Certificates will not
recognize gain or loss on the exchange. In the aggregate, the stockholder's
basis in the Common Stock represented by New Certificates will equal the
holder's basis in the Common Stock represented by Old Certificates.
2. A stockholder who receives a portion of the Fractional Share
Purchase Price as a result of the Reverse Split will generally be treated
as having received the payment as a distribution in redemption of the
Fractional Share, as provided in Section 302(a) of the Internal Revenue
Code of 1986, as amended (the "Code"). Each affected stockholder will be
required to consult such stockholder's own tax advisor for the tax effect
of such redemption (i.e., exchange or dividend treatment) in light of such
stockholder's particular facts and circumstances.
3. The Reverse Split will constitute a reorganization within the
meaning of Section 368(a)(1)(E) of the Code, and the Company will not
recognize any gain or loss as a result of the Reverse Split.
7
<PAGE> 10
GENERAL
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 the intention of the
persons named in the enclosed Proxy to vote, or otherwise act, in accordance
with their best judgment on such matters.
STOCKHOLDER PROPOSALS FOR 1998 ANNUAL MEETING
Any proposal that a stockholder intends to present at the 1998 Annual
Meeting of Stockholders must be submitted to the Secretary of the Company at its
principal executive offices, 620 Memorial Drive, Cambridge, Massachusetts 02139,
no later than December 19, 1997 in order to be considered for inclusion in the
proxy statement relating to that meeting.
COSTS OF SOLICITATION
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, 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.
By Order of the Board of Directors,
E. ANDREWS GRINSTEAD, III,
Chairman of the Board,
President and Chief Executive
Officer
October 30, 1997
THE BOARD OF DIRECTORS HOPES THAT STOCKHOLDERS WILL ATTEND THE MEETING.
WHETHER OR NOT YOU PLAN TO ATTEND, YOU ARE URGED TO COMPLETE, SIGN, DATE, AND
RETURN THE ENCLOSED PROXY CARD IN THE ACCOMPANYING ENVELOPE. PROMPT RESPONSE
WILL GREATLY FACILITATE ARRANGEMENTS FOR THE MEETING AND YOUR COOPERATION IS
APPRECIATED.
8
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ANNEX F-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:
[X] Preliminary Proxy Statement
[ ] 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, if other than the Registrant)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) 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>
HYBRIDON, INC.
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD NOVEMBER 18, 1997
NOTICE IS HEREBY GIVEN that a Special Meeting of the Stockholders of
Hybridon, Inc., a Delaware corporation (the "Company"), will be held on Tuesday,
November 18, 1997 at 10:00 a.m. at the offices of the Company, 620 Memorial
Drive, Cambridge, Massachusetts 02139 (the "Meeting") for the purpose of
considering and voting upon the following matters:
1. To approve an amendment to the Company's Certificate of Incorporation
to effect a reverse split of the Company's Common Stock, $.001 par
value per share (the "Common Stock"), pursuant to which each five
shares of Common Stock then outstanding will be converted into one
share.
2. To transact such other business, if any, 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, October
30, 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 list of
the Company's stockholders is open for examination to any stockholder at the
principal executive offices of the Company, 620 Memorial Drive, Cambridge,
Massachusetts 02139 and will be available at the Meeting.
By Order of the Board of Directors,
E. ANDREWS GRINSTEAD, III,
Chairman of the Board,
President and Chief Executive
Officer
October 30, 1997
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE PROMPTLY COMPLETE, SIGN,
DATE AND RETURN THE ENCLOSED PROXY CARD IN THE ACCOMPANYING ENVELOPE. NO POSTAGE
NEED BE AFFIXED IF THE PROXY CARD IS MAILED IN THE UNITED STATES.
<PAGE>
HYBRIDON, INC.
620 MEMORIAL DRIVE
CAMBRIDGE, MASSACHUSETTS 02139
PROXY STATEMENT
FOR THE SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON NOVEMBER 18, 1997
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of Hybridon, Inc., a Delaware corporation (the
"Company"), of proxies for use at the Special Meeting of Stockholders to be held
on Tuesday, November 18, 1997 at 10:00 a.m. at the offices of the Company, 620
Memorial Drive, Cambridge, Massachusetts 02139 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.
THE NOTICE OF MEETING, THIS PROXY STATEMENT AND THE ENCLOSED PROXY CARD ARE
BEING MAILED TO STOCKHOLDERS ON OR ABOUT OCTOBER 31, 1997.
VOTING SECURITIES AND VOTES REQUIRED
On October 30, 1997, the record date for determination of stockholders
entitled to vote at the Meeting, there were outstanding and entitled to vote an
aggregate of [ ] shares of Common Stock of the Company, $.001 par value
per share (the "Common Stock"). Each recordholder of Common Stock is entitled to
one vote per share.
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 majority of the shares of Common
Stock issued and outstanding is required for approval of the amendment to the
Company's Certificate of Incorporation. Shares which abstain from voting as to
the amendment to the Company's Certificate of Incorporation, 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 such matter are
nonetheless considered outstanding shares and will have the same effect as a
vote again the amendment to the Company's Certificate of Incorporation.
<PAGE> 4
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of October 1, 1997,
with respect to the beneficial ownership of shares of Common Stock by (i) each
person known to the Company to beneficially own more than 5% of the outstanding
shares of Common Stock, (ii) the directors of the Company, (iii) the Chief
Executive Officer of the Company and the most highly compensated executive
officer (other than the Chief Executive Officer) whose total annual salary and
bonus exceeded $100,000 in fiscal 1996, and (iv) all current 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(2)
- ------------------------------------------------------------------- --------- ----------
<S> <C> <C>
5% STOCKHOLDERS
Morgan Grenfell International Funds Management Limited............. 2,441,026(3) 9.65%
c/o The Royal Bank of Scotland PLC
London, England
Yahia M.A. Bin Laden............................................... 2,043,750(4) 8.03%
2, rue Charles Bonnet
1206 Geneva, Switzerland
HTI Investments, N.V............................................... 1,708,335 6.75%
c/o Healthcare Technologies
International, Ltd.
P.O. Box 42124
Jeddah, 21541
Saudi Arabia
Nicris Limited..................................................... 1,550,000 6.13%
2, rue Charles Bonnet
1206 Geneva, Switzerland
Youssef El-Zein.................................................... 1,498,945(5) 5.61%
c/o Pillar S.A
28, Avenue de Messine
75008 Paris, France
F. Hoffmann-La Roche Ltd........................................... 1,370,114(6) 5.30%
Postfach
CH 4002 Basel
Switzerland
OTHER DIRECTORS AND EXECUTIVE OFFICERS
Nasser Menhall..................................................... 1,276,204(7) 4.81%
E. Andrews Grinstead, III.......................................... 1,177,266(8) 4.48%
Mohamed A. El-Khereiji............................................. 904,666(9) 3.51%
Paul C. Zamecnik................................................... 555,100(10) 2.18%
Sudhir Agrawal..................................................... 476,063(11) 1.85%
James B. Wyngaarden................................................ 80,000(12) *
All directors and executive officers as a group (7 persons)........ 5,164,175(13) 18.02%
</TABLE>
2
<PAGE>
- ---------------
* 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 (the "SEC"), 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 October 1,
1997 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 investment power (or shares such power with his or
her spouse) with respect to all shares of capital stock listed as
beneficially owned by such person or entity.
(2) Number of shares deemed outstanding includes 25,300,252 shares outstanding
as of October 1, 1997, plus any shares subject to options or warrants held
by the person or entity in question that are currently exercisable or
exercisable within 60 days following October 1, 1997.
(3) Share ownership based on Schedule 13D filed with the Commission on
September 6, 1996.
(4) Includes (a) 156,250 shares issuable upon the exercise of warrants held by
Mr. Bin Laden, and (b) 1,550,000 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.
(5) Includes (a) 780,697 shares issuable upon the exercise of warrants held by
Mr. El-Zein, (b) 284,416 shares issuable upon the exercise of warrants held
by Pillar Limited, (c) 64,000 shares held by Pillar Investment, (d) 1,832
shares issuable upon the exercise of warrants held by Pillar Investment,
and (e) 325,000 shares issuable upon the exercise of warrants held by
Pillar S.A. Also includes 35,000 shares subject to outstanding stock
options held by Mr. El-Zein which are exercisable within the 60-day period
following October 1, 1997. Mr. El-Zein, an affiliate of Pillar Investment,
Pillar Limited and Pillar S.A., may be considered a beneficial owner of the
shares beneficially owned by such entities.
(6) Includes 551,724 shares issuable upon the exercise of a warrant.
(7) Includes (a) 565,956 shares issuable upon the exercise of warrants held by
Mr. Menhall, (b) 284,416 shares issuable upon the exercise of warrants held
by Pillar Limited, (c) 64,000 shares held by Pillar Investment, (d) 1,832
shares issuable upon the exercise of warrants held by Pillar Investment,
and (e) 325,000 shares issuable upon the exercise of warrants held by
Pillar S.A. Also includes 35,000 shares subject to outstanding stock
options held by Mr. Menhall which are exercisable within the 60-day period
following October 1, 1997. Mr. Menhall, an affiliate of Pillar Limited,
Pillar Investment, and Pillar S.A., may be considered a beneficial owner of
the shares beneficially owned by such entities.
(8) Includes 959,370 shares subject to outstanding stock options which are
exercisable within the 60-day period following October 1, 1997.
(9) Includes (a) 420,300 shares issuable upon the exercise of warrants held by
Mr. El-Khereiji and (b) 30,000 shares subject to outstanding stock options
held by Mr. El-Khereiji which are exercisable within the 60-day period
following October 1, 1997. Also includes 454,366 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.
(10) Includes 125,000 shares subject to outstanding stock options which are
exercisable within the 60-day period following October 1, 1997.
3
<PAGE>
(11) Includes 402,263 shares subject to outstanding stock options which are
exercisable within the 60-day period following October 1, 1997.
(12) Includes 3,000 shares held by Dr. Wyngaarden's children and 50,000 shares
subject to outstanding stock options which are exercisable within the
60-day period following October 1, 1997.
(13) Includes an aggregate of 1,728,201 shares issuable upon the exercise of
outstanding warrants exercisable within the 60-day period following October
1, 1997 and an aggregate of 1,636,633 shares issuable upon the exercise of
outstanding stock options exercisable within the 60-day period following
October 1, 1997.
APPROVAL OF AN AMENDMENT TO THE COMPANY'S
CERTIFICATE OF INCORPORATION TO EFFECT
ONE-FOR-FIVE REVERSE STOCK SPLIT
The Board of Directors has adopted a resolution declaring the advisability
of, and submitting to the stockholders for approval, a proposal to amend the
Company's Certificate of Incorporation (the "Proposed Amendment") to effect a
reverse split of the Company's Common Stock, pursuant to which each five shares
of Common Stock will be automatically converted into one share without any
action on the part of the stockholder (the "Reverse Split"). The text of the
Proposed Amendment is set forth in Exhibit A to this Proxy Statement.
Consummation of the Reverse Split will not change the number of shares of
Common Stock authorized by the Company's Certificate of Incorporation, which
will remain at 100,000,000 shares, or the par value of the Common Stock per
share. The Reverse Split will become effective as of 5:00 p.m., Boston time (the
"Effective Date"), on the date that the certificate of amendment to the
Company's Certificate of Incorporation is filed with the Secretary of State of
Delaware. If for any reason the Board of Directors deems it advisable, the
Proposed Amendment may be abandoned at any time before the Effective Date,
whether before or after the Meeting (even if such proposal has been approved by
the stockholders).
In lieu of issuing less than one whole share resulting from the Reverse
Split to holders of an odd number of shares, the Company will determine the fair
value of each outstanding share of Common Stock held on the Effective Date of
the Reverse Split (the "Fractional Share Purchase Price"). The Company currently
anticipates that the Fractional Share Purchase Price will be based on the
average daily closing bid price per share of the Common Stock as reported by the
primary trading market for the Company's Common Stock for the ten (10) trading
days immediately preceding the Effective Date. In the event the Company
determines that unusual trading activity would cause such amount to be an
inappropriate measure of the fair value of the Common Stock, the Company may
base the Fractional Share Purchase Price on the fair market value of the Common
Stock as reasonably determined in good faith by the Board of Directors of the
Company. Stockholders who hold an odd number of shares on the Effective Date
will be entitled to receive, in lieu of the less than one whole share arising as
a result of the Reverse Split, cash in the amount of the relevant portion of the
Fractional Share Purchase Price.
As soon as practical after the Effective Date, the Company will mail a
letter of transmittal to each holder of record of a stock certificate or
certificates which represent issued Common Stock outstanding on the Effective
Date. The letter of transmittal will contain instructions for the surrender of
such certificate or certificates to the Company's designated exchange agent in
exchange for certificates representing the number of whole shares of Common
Stock (plus the relevant portion of the Fractional Share Purchase Price, if any)
into which the shares of Common Stock have been converted as a result of the
Reverse Split. No cash payment will be made or new certificate issued to a
stockholder until he has surrendered his outstanding
4
<PAGE>
certificates together with the letter of transmittal to the Company's exchange
agent. See "-- Exchange of Stock Certificates."
THE BOARD OF DIRECTORS BELIEVES THE ADOPTION OF THE PROPOSED AMENDMENT IS
IN THE BEST INTERESTS OF THE COMPANY AND ITS STOCKHOLDERS AND RECOMMENDS THAT
STOCKHOLDERS VOTE "FOR" THE PROPOSED AMENDMENT.
PURPOSE OF THE REVERSE SPLIT
The Company's shares of Common Stock have been listed, and have traded, on
the Nasdaq National Market ("Nasdaq NM") since January 1996 when the Company
completed its initial public offering. On September 18, 1997, the Company
received a notice of delisting from The Nasdaq Stock Market, Inc. ("NASDAQ")
indicating that because the Company was not in compliance with the continued
listing requirements of the Nasdaq NM, the Company's Common Stock would be
delisted from the Nasdaq NM. The Company has appealed the decision with NASDAQ
and a hearing has been scheduled for Thursday, November 6, 1997. The delisting
action has been stayed pending the outcome of the appeal.
The rules of the Nasdaq NM require that as a condition of the continued
listing of a company's securities on the Nasdaq NM, a company satisfy at least
one of several alternative maintenance requirements, which generally require
that a company meet certain minimum criteria relating to its financial
condition, results of operations and trading market for its listed securities.
Under one such maintenance requirement, the minimum bid price of the Company's
shares of Common Stock must equal or exceed $5.00, among other criteria. The
closing price of the Company's Common Stock on October 9, 1997 was $1.875 per
share.
The Company believes that if the Reverse Split is approved by the
stockholders at the Meeting, and the Reverse Split is effectuated, the Company's
shares of Common Stock will have a minimum bid price in excess of $5.00 per
share, and therefore will satisfy one of the criteria of the above-mentioned
Nasdaq NM maintenance requirement. However, the Company would also need to
satisfy other criteria to continue to have the Common Stock be eligible for
continued listing and trading on the Nasdaq NM. These other criteria consist of
maintaining (i) a market capitalization of at least $50 million, (ii) a public
float of at 1.1 million shares, (iii) a market value of the public float of at
least $15 million, (iv) at least 400 shareholders (round lot holders), (v) at
least four market makers and (vi) compliance with certain corporate governance
requirements. The Company believes that it satisfies all of these other
maintenance criteria except for the market capitalization criteria. As of
October 9, 1997, the Company's market capitalization was approximately $47.4
million. The Company is currently exploring financing alternatives to permit it
to meet the market capitalization criteria even if the price per share of the
Common Stock does not increase. There can be no assurance, however, that the
Company will be successful in meeting all requisite maintenance criteria.
If the Reverse Split is not approved by the stockholders at the Meeting,
then it is highly likely that the Company's shares of Common Stock will cease to
be listed and traded on the Nasdaq NM, which could adversely affect the
liquidity of the Company's Common Stock and the ability of the Company to raise
capital. In such event, the Company intends to make application for listing on
the Nasdaq Small Cap Market. If not approved for listing on the Nasdaq Small Cap
Market, the shares of Common Stock will likely be quoted in the "pink sheets"
maintained by the National Quotation Bureau, Inc. or the NASD Electronic
Bulletin Board and the spread between the bid and ask price of the shares of
Common Stock is likely to be greater than at present and stockholders may
experience a greater degree of difficulty in engaging in trades of shares of
Common Stock.
In addition, the Board of Directors further believes that low trading
prices of the Company's Common Stock may have an adverse impact upon the
efficient operation of the trading market in the securities. In particular,
brokerage firms often charge a greater percentage commission on low-priced
shares than that which would be charged on a transaction in the same dollar
amount of securities with a higher per share price. A
5
<PAGE>
number of brokerage firms will not recommend purchases of low-priced stock to
their clients or make a market in such shares, which tendencies may adversely
affect the Company.
Stockholders should note that the effect of the Reverse Split upon the
market prices for the Company's Common Stock cannot be accurately predicted. In
particular, there is no assurance that prices for shares of the Common Stock
after the Reverse Split will be five times the prices for shares of the Common
Stock immediately prior to the Reverse Split. Furthermore, there can be no
assurance that the proposed Reverse Split will achieve the desired results which
have been outlined above, nor can there be any assurance that the Reverse Split
will not adversely impact the market price of the Common Stock or,
alternatively, that any increased price per share of the Common Stock
immediately after the proposed Reverse Split will be sustained for any prolonged
period of time. In addition, the Reverse Split may have the effect of creating
odd lots of stock for some stockholders and such odd lots may be more difficult
to sell or have higher brokerage commissions associated with the sale of such
odd lots.
EFFECT OF THE REVERSE SPLIT
As a result of the Reverse Split, the number of whole shares of Common
Stock held by stockholders of record as of the close of business on the
Effective Date will automatically, without any action required by the
stockholders, be equal to the number of shares of Common Stock held immediately
prior to the close of business on the Effective Date divided by five, plus cash
in lieu of any fractional share. The Reverse Split will not affect a
stockholder's percentage ownership interest in the Company or proportional
voting power, except for minor differences resulting from the payment of cash in
lieu of fractional shares. The rights and privileges of the holders of shares of
Common Stock will be unaffected by the Reverse Split. The par value of the
Common Stock will remain at $.001 per share following the Effective Date of the
Reverse Split, and the number of shares of Common Stock issued will be reduced.
Consequently, the aggregate par value of the issued Common Stock also will be
reduced. In addition, the number of authorized but unissued shares of Common
Stock will be increased by the Reverse Split, the issuance of which may have the
effect of diluting the earnings per share and book value per share, as well as
the stock ownership and voting rights, of outstanding Common Stock. As the
Reverse Split will increase the number of authorized but unissued shares of
Common Stock, it may be construed as having an anti-takeover effect by
permitting the issuance of shares to purchasers who might oppose a hostile
takeover bid or oppose any efforts to amend or repeal certain provisions of the
Company's Certificate of Incorporation or By-laws.
Stockholders have no right under Delaware law or under the Company's
Certificate of Incorporation or By-laws to dissent from the Reverse Split.
The Common Stock is currently registered under Section 12(g) of the
Exchange Act and as a result, the Company is subject to the periodic reporting
and other requirements of the Exchange Act. The Reverse Split will not affect
the registration of the Common Stock under the Exchange Act, and the Company has
no current intention of terminating its registration under the Exchange Act.
Upon consummation of the Reverse Split, the total number of shares
currently reserved for grants of stock options and all stock options previously
granted would be decreased proportionately. The cash consideration payable per
share upon exercise of the stock options would be increased proportionately.
EXCHANGE OF STOCK CERTIFICATES
As soon as practicable after the Effective Date, the Company intends to
require stockholders to exchange their stock certificates ("Old Certificates")
for new certificates ("New Certificates") representing the number of whole
shares of Common Stock into which their shares of Common Stock have been
converted as a result of the Reverse Split (as well as cash in lieu of
fractional shares resulting from the reverse split). Stockholders
6
<PAGE> 9
will be furnished with the necessary materials and instructions for the
surrender and exchange of stock certificates at the appropriate time by the
Company's transfer agent. Stockholders will not be required to pay a transfer or
other fee in connection with the exchange of certificates. STOCKHOLDERS SHOULD
NOT SUBMIT ANY CERTIFICATES TO THE TRANSFER AGENT UNTIL REQUESTED TO DO SO.
FEDERAL INCOME TAX CONSEQUENCES OF THE REVERSE SPLIT
The following description of the material federal income tax consequences
of the Reverse Split is based upon the Internal Revenue Code of 1986, as
amended, the applicable Treasury Regulations promulgated thereunder, judicial
authority and current administrative rulings and practices all as in effect on
the date of this Proxy Statement. The Company has not sought and will not seek
an opinion of counsel or a ruling from the Internal Revenue Service regarding
the federal income tax consequences of the Reverse Split. This discussion is for
general information only and does not discuss consequences which may apply to
special classes of taxpayers (e.g., non-resident aliens, broker-dealers or
insurance companies) and does not discuss the tax consequences under the laws of
any foreign, state or local jurisdictions. Stockholders are urged to consult
their own tax advisors to determine the particular consequences to them.
In general, the federal income tax consequences of the proposed Reverse
Split will vary among stockholders depending upon whether they receive the
Fractional Share Purchase Price or solely New Certificates in exchange for Old
Certificates. The Company believes that because the Reverse Split is not part of
a plan to increase periodically a stockholder's proportionate interest in the
Company's assets or earnings and profits, the Reverse Split probably will have
the following federal income tax effects:
1. A stockholder who receives solely New Certificates will not
recognize gain or loss on the exchange. In the aggregate, the stockholder's
basis in the Common Stock represented by New Certificates will equal the
holder's basis in the Common Stock represented by Old Certificates.
2. A stockholder who receives a portion of the Fractional Share
Purchase Price as a result of the Reverse Split will generally be treated
as having received the payment as a distribution in redemption of the
Fractional Share, as provided in Section 302(a) of the Internal Revenue
Code of 1986, as amended (the "Code"). Each affected stockholder will be
required to consult such stockholder's own tax advisor for the tax effect
of such redemption (i.e., exchange or dividend treatment) in light of such
stockholder's particular facts and circumstances.
3. The Reverse Split will constitute a reorganization within the
meaning of Section 368(a)(1)(E) of the Code, and the Company will not
recognize any gain or loss as a result of the Reverse Split.
7
<PAGE> 10
GENERAL
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 the intention of the
persons named in the enclosed Proxy to vote, or otherwise act, in accordance
with their best judgment on such matters.
STOCKHOLDER PROPOSALS FOR 1998 ANNUAL MEETING
Any proposal that a stockholder intends to present at the 1998 Annual
Meeting of Stockholders must be submitted to the Secretary of the Company at its
principal executive offices, 620 Memorial Drive, Cambridge, Massachusetts 02139,
no later than December 19, 1997 in order to be considered for inclusion in the
proxy statement relating to that meeting.
COSTS OF SOLICITATION
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, 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.
By Order of the Board of Directors,
E. ANDREWS GRINSTEAD, III,
Chairman of the Board,
President and Chief Executive
Officer
October 30, 1997
THE BOARD OF DIRECTORS HOPES THAT STOCKHOLDERS WILL ATTEND THE MEETING.
WHETHER OR NOT YOU PLAN TO ATTEND, YOU ARE URGED TO COMPLETE, SIGN, DATE, AND
RETURN THE ENCLOSED PROXY CARD IN THE ACCOMPANYING ENVELOPE. PROMPT RESPONSE
WILL GREATLY FACILITATE ARRANGEMENTS FOR THE MEETING AND YOUR COOPERATION IS
APPRECIATED.
8
<PAGE> 11
EXHIBIT A
RESOLVED: That, subject to stockholder approval, the following paragraph be
inserted prior to the first paragraph of Article FOURTH of the
Certificate of Incorporation:
"That upon the filing date of the Certificate of Amendment of
Restated Certificate of Incorporation of the Corporation (the
"Effective Date"), a one-for-five reverse split of the Corporation's
Common Stock (as defined below) shall become effective, such that
each five shares of Common Stock outstanding and held of record by
each stockholder of the Corporation (including treasury shares)
immediately prior to the Effective Date shall represent one share of
Common Stock from and after the Effective Date."
A-1
<PAGE> 12
HYBRIDON, INC.
PROXY FOR THE SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD NOVEMBER 18, 1997
THIS PROXY IS SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS OF THE COMPANY
AND SHOULD BE RETURNED AS SOON AS POSSIBLE
The undersigned, having received notice of the Special Meeting of
Stockholders and the Board of Directors' proxy statement therefor, and revoking
all prior proxies, hereby appoint(s) E. Andrews Grinstead, III, Douglas J.
Jensen and David E. Redlick, and each of them, attorneys or attorney of the
undersigned (with full power of substitution in them and each of them) for and
in the name(s) of the undersigned to attend the Special Meeting of Stockholders
of HYBRIDON, INC. (the "Company") to be held on Tuesday, November 18, 1997 at
10:00 a.m. at the offices of the Company, 620 Memorial Drive, Cambridge,
Massachusetts 02139, and any adjournments thereof, and there to vote and act
upon the following matters in respect of all shares of stock of the Company
which the undersigned may be entitled to vote or act upon, with all the powers
the undersigned would possess if personally present.
In their discretion, the proxy holders are authorized to vote upon such
other matters as may properly come before the meeting or any adjournments
thereof. The shares represented by this proxy will be voted as directed by the
undersigned. If no direction is given with respect to any election to office or
proposal, this proxy will be voted as recommended by the Board of Directors.
Attendance of the undersigned at the meeting or at any adjournment thereof will
not be deemed to revoke this proxy unless the undersigned shall revoke this
proxy in writing.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, YOU ARE URGED TO COMPLETE,
DATE, SIGN AND RETURN THIS PROXY IN THE ACCOMPANYING ENVELOPE.
A VOTE "FOR" THE AMENDMENT TO THE COMPANY'S CERTIFICATE OF INCORPORATION IS
RECOMMENDED BY THE BOARD OF DIRECTORS.
IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER
BUSINESS AS MAY PROPERLY COME BEFORE THE ANNUAL MEETING AND ANY ADJOURNMENT
THEREOF.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED BY
THE UNDERSIGNED STOCKHOLDER(S). IF NO OTHER INDICATION IS MADE, THE PROXIES
SHALL VOTE "FOR" THE AMENDMENT TO THE COMPANY'S CERTIFICATE OF INCORPORATION.
<PAGE> 13
1. To approve the amendment to the Company's Certificate of Incorporation to
effect a one-for-five reverse split of the Common Stock.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
Please mark your votes
as indicated in this example [X]
MARK HERE MARK HERE IF
FOR ADDRESS [ ] YOU PLAN TO [ ]
CHANGE AND ATTEND THE
NOTE AT LEFT MEETING
Dated: ______________________, 1997
-----------------------------------
Signature
-----------------------------------
Signature if held jointly
NOTE: PLEASE SIGN EXACTLY AS NAME
APPEARS HEREON. WHEN SHARES ARE HELD BY
JOINT OWNERS, BOTH SHOULD SIGN. WHEN
SIGNING AS ATTORNEY, EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN,
PLEASE GIVE FULL TITLE AS SUCH. IF A
CORPORATION, PLEASE SIGN IN FULL
CORPORATE NAME BY AUTHORIZED OFFICER,
GIVING FULL TITLE. IF A PARTNERSHIP,
PLEASE SIGN IN PARTNERSHIP NAME BY
AUTHORIZED PERSON, GIVING FULL TITLE.
<PAGE>
ANNEX G
-------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
-------
For the Quarter Ended: March 31, 1997 Commission File Number 0-27352
Hybridon, Inc.
(Exact name of registrant as specified in its charter)
Delaware 04-3072298
(State or other jurisdiction of (I.R.S. Employer Identification Number)
organization or incorporation)
620 Memorial Drive
Cambridge, MA 02139
(Address of principal executive offices, including zip code)
(508) 752-7000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
YES X NO
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
<TABLE>
<S> <C>
Common Stock, par value $.001 per share 25,246,352
- - --------------------------------------- --------------------------------
Class Outstanding as of April 30, 1997
</TABLE>
<PAGE> 2
HYBRIDON, INC.
FORM 10-Q
INDEX
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
CONSOLIDATED CONDENSED BALANCE SHEETS AS OF MARCH 31, 1997 AND
DECEMBER 31, 1996 AND PROFORMA BALANCE SHEET AS OF MARCH 31, 1997
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS
ENDED MARCH 31, 1997 AND 1996 AND CUMULATIVE FROM MAY 25, 1989
(INCEPTION) TO MARCH 31, 1997
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS
ENDED MARCH 31, 1997 AND 1996, AND CUMULATIVE FROM MAY 25, 1989
(INCEPTION) TO MARCH 31, 1997
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PART II - OTHER INFORMATION
ITEM 2 - CHANGES IN SECURITIES
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURES
<PAGE> 3
HYBRIDON, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS
DECEMBER 31, MARCH 31, PRO FORMA
1996 1997 MARCH 31, 1997
(SEE NOTE 1)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 12,633,742 $ 2,489,882 $ 49,489,882
Short-term investments 3,785,146 -- --
Accounts receivable 573,896 737,880 737,880
Prepaid expenses and other current assets 1,545,324 1,735,601 1,735,601
------------- ------------- -------------
Total current assets 18,538,108 4,963,363 51,963,363
------------- ------------- -------------
PROPERTY AND EQUIPMENT, AT COST:
Leasehold improvements 9,257,516 9,235,836 9,235,836
Laboratory equipment 5,884,861 6,096,150 6,096,150
Equipment under capital leases 2,904,688 4,042,140 4,042,140
Office equipment 1,496,639 1,525,998 1,525,998
Furniture and fixtures 499,958 548,076 548,076
Construction-in-progress 2,193,400 5,739,721 5,739,721
------------- ------------- -------------
22,237,062 27,187,921 27,187,921
Less -- Accumulated depreciation and amortization 6,596,294 7,823,430 7,823,430
------------- ------------- -------------
15,640,768 19,364,491 19,364,491
------------- ------------- -------------
OTHER ASSETS:
Restricted cash 437,714 395,000 395,000
Notes receivable from officers 317,978 320,282 320,282
Deferred financing costs and other assets 1,152,034 474,028 3,474,028
Investment in real estate partnership 5,450,000 5,450,000 5,450,000
------------- ------------- -------------
7,357,726 6,639,310 9,639,310
------------- ------------- -------------
$ 41,536,602 $ 30,967,164 $ 80,967,164
============= ============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt and capital lease $ 1,308,511 1,583,230 1,583,230
obligations
Accounts payable 4,064,419 6,270,436 6,270,436
Accrued expenses 4,190,766 4,361,677 4,361,677
Deferred revenue 86,250 86,250 86,250
------------- ------------- -------------
Total current liabilities 9,649,946 12,301,593 12,301,593
------------- ------------- -------------
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS, NET OF CURRENT
PORTION 9,031,852 9,500,463 59,500,463
------------- ------------- -------------
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value - -- --
Authorized -- 5,000,000 shares at March 31, 1997
Issued and outstanding -- None -- --
Common stock, $.001 par value -
Authorized -- 100,000,000 shares
Issued and outstanding -- 25,146,577 shares at December 31,
1996, and 25,232,352 shares at March 31, 1997
respectively 25,147 25,233 25,233
Additional paid-in capital 173,227,358 173,612,808 173,612,808
Deficit accumulated during the development stage (149,193,775) (163,211,408) (163,211,408)
Deferred Compensation (1,203,926) (1,261,525) (1,261,525)
------------- ------------- -------------
Total stockholders' equity 22,854,804 9,165,108 9,165,108
------------- ------------- -------------
$ 41,536,602 $ 30,967,164 $ 80,967,164
============= ============= =============
</TABLE>
The accompanying notes are an integral part of these
consolidated condensed financial statements.
<PAGE> 4
HYBRIDON, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
CUMULATIVE FROM
MAY 25, 1989
THREE MONTHS ENDED (INCEPTION)
MARCH 31 TO
1997 1996 MARCH 31, 1997
<S> <C> <C> <C>
REVENUES:
Research and development $ 593,900 $ 259,350 $ 5,148,163
Product Revenue 348,154 -- 1,428,329
Interest income 117,412 294,873 2,259,029
Royalty and other income -- -- 62,321
------------ ------------- -------------
1,059,466 554,223 8,897,842
------------ ------------- -------------
OPERATING EXPENSES:
Research and development 11,476,439 7,383,297 130,108,337
General and administrative 3,430,453 2,418,386 40,220,321
Interest 170,207 39,604 1,780,590
------------ ------------- -------------
15,077,099 9,841,287 172,109,248
------------ ------------- -------------
Net loss $(14,017,633) $ (9,287,064) $(163,211,406)
------------ ------------- =============
NET LOSS PER COMMON SHARE
(Note 2) $ (.56) $ (.41)
============ =============
SHARES USED IN COMPUTING NET LOSS
PER COMMON SHARE (Note 2) 25,224,728 22,708,394
============ =============
</TABLE>
The accompanying notes are an integral part of these
consolidated condensed financial statements.
<PAGE> 5
HYBRIDON, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
CUMULATIVE FROM
MAY 25, 1989
THREE MONTHS ENDED (INCEPTION) TO
MARCH 31 MARCH 31,
1997 1996 1997
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(14,017,633) $ (9,287,064) $(163,211,406)
Adjustments to reconcile net loss to net cash used in
operating activities -
Depreciation and amortization 1,227,136 499,930 7,924,871
Issuance of common stock for services rendered 146,875 -- 146,875
Compensation on grant of stock options, warrants and
restricted stock 133,859 -- 7,941,590
Amortization of discount on convertible promissory
notes payable -- -- 690,157
Amortization of deferred financing costs 274,800 -- 491,532
Noncash interest on convertible promissory notes payable
-- -- 260,799
Changes in operating assets and liabilities -
Accounts Receivable (163,984) -- (737,880)
Prepaid and other current assets (190,277) (1,079,723) (1,735,600)
Notes receivable from officers (2,304) (2,516) (320,282)
Amounts payable to related parties -- 73,000 (200,000)
Accounts payable and accrued expenses 2,376,928 (675,583) 10,632,113
Deferred revenue -- -- 86,250
------------ ------------ -------------
Net cash used in operating activities (10,214,600) (10,471,956) (138,030,981)
------------ ------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease (increase) in short-term investments 3,785,146 (9,914,429) --
Purchases of property and equipment, net (3,831,655) (1,867,151) (25,634,365)
Decrease (increase) in restricted cash and other assets 445,919 (3,827) (1,218,264)
Investment in real estate partnership -- (2,911,456) (5,450,000)
------------ ------------ -------------
Net cash used in investing activities 399,410 (14,696,863) (32,302,629)
------------ ------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of convertible preferred stock -- -- 96,584,154
Proceeds from issuance of common stock related to stock
options and restricted stock grants 47,203 43,750 1,221,805
Proceeds from issuance of common stock related to stock
warrants -- -- 3,176,741
Net proceeds from issuance of common stock -- 52,231,244 52,355,324
Repurchase of common stock -- -- (263)
Proceeds from notes payable -- -- 9,450,000
Proceeds from issuance of convertible
promissory notes payable -- -- 9,191,744
Proceeds from long-term debt -- -- 662,107
Payments on long-term debt and capital leases (375,874) (108,148) (2,177,487)
Proceeds from sale/leaseback -- -- 2,795,516
Decrease (increase) in deferred financing costs -- 526,721 (436,149)
------------ ------------ -------------
Net cash provided by financing activities (328,671) 52,693,567 172,823,492
------------ ------------ -------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (10,143,861) 27,524,748 2,489,882
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 12,633,742 5,284,262 --
------------ ------------ -------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 2,489,882 $ 32,809,010 $ 2,489,882
============ ============ =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 170,207 $ 39,604 $ 1,780,590
============ ============ =============
</TABLE>
The accompanying notes are an integral part of these
consolidated condensed financial statements.
<PAGE> 6
HYBRIDON, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(1) ORGANIZATION
Hybridon, Inc. (the Company) was incorporated in the State of Delaware on
May 25, 1989. The Company is engaged in the discovery and development of
novel genetic medicines based primarily on antisense technology.
The Company is in the development stage. Since inception, the Company has
devoted substantially all of its efforts toward product research and
development and raising capital. Management anticipates that
substantially all future revenues will be derived from the sale of
proprietary biopharmaceutical products under development or to be
developed in the future, and contract manufacturing of synthetic DNA/RNA
products and reagent products (manufactured by the Hybridon Specialty
Products Division), as well as from research and development revenues and
fees and royalties derived from licensing of the Company's technology.
Accordingly, although the Company has begun to generate revenues from its
contract manufacturing business, the Company is dependent on the proceeds
from possible future sales of equity securities, debt financings and
research and development collaborations in order to fund future
operations.
On April 2, 1997, the Company issued $50,000,000 of 9% convertible
subordinated notes (the Notes). Under the terms of the Notes, the Company
must make semi-annual interest payments on the outstanding principle
balance through the maturity date of April 1, 2004. If the Notes are
converted prior to April 1, 2000, the Noteholders are entitled to receive
accrued interest from the date of the most recent interest payment
through the conversion date. The Notes are subordinate to substantially
all of the Company's existing indebtedness. The Notes are convertible at
any time prior to the maturity date at a conversion price equal to
$7.0125, subject to adjustment under certain circumstances, as defined.
Beginning April 1, 2000, the Company may redeem the Notes at its option
for a 4.5% premium over the original issuance price, provided that from
April 1, 2000 to March 31, 2001, the Notes may not be redeemed unless the
closing price of the common stock equals or exceeds 150% of the
conversion price for a period of at least 20 out of 30 consecutive
trading days and the Notes are redeemed within 60 days after such trading
period. The premium decreases by 1.5% each year through March 31, 2003.
Upon a change of control of the Company, as defined, the Company will be
required to offer to repurchase the Notes at 150% of the original
issuance price.
The unaudited pro forma consolidated balance sheet as of March 31, 1997
shows the financial position of the Company assuming the Notes were
issued on March 31, 1997.
<PAGE> 7
HYBRIDON, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(Continued)
(1) ORGANIZATION (Continued)
The unaudited consolidated condensed financial statements included herein
have been prepared by the Company, without audit, pursuant to the rules
and regulations of the Securities and Exchange Commission and include, in
the opinion of management, all adjustments, consisting of normal,
recurring adjustments, necessary for a fair presentation of interim
period results. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to
such rules and regulations. The Company believes, however, that its
disclosures are adequate to make the information presented not
misleading. The results for the interim periods presented are not
necessarily indicative of results to be expected for the full fiscal
year. It is suggested that these financial statements be read in
conjunction with the audited consolidated financial statements and notes
thereto included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1996, as filed with the Securities and Exchange
Commission.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Net Loss per Common Share
Net loss per common share is computed using the weighted average number
of shares of common stock outstanding during the period. Pursuant to the
requirements of the Securities and Exchange Commission, common stock
issued by the Company during the 12 months immediately preceding its
initial public offering, plus shares of common stock that became issuable
during the same period pursuant to the grant of common stock options and
preferred and common stock warrants, has been included in the calculation
of weighted average number of shares outstanding for the period from
January 1, 1996 through February 2, 1996 (using the treasury-stock method
and the initial public offering price of $10 per share). In addition, the
calculation of the weighted average number of shares outstanding includes
shares of common stock as if all shares of preferred stock were converted
into common stock on the respective original dates of issuance.
<PAGE> 8
HYBRIDON, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(Continued)
(3) CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
The Company applies SFAS No. 115, Accounting for Certain Investments in
Debt and Equity Securities. Accordingly, the Company has classified its
cash equivalents and short-term investments as held-to-maturity, and has
recorded them at amortized cost, which approximates market value.
Short-term investments mature within one year of the balance sheet date.
Cash equivalents have original maturities of less than three months. Cash
and cash equivalents and short-term investments at March 31, 1997 and
December 31, 1996 consisted of the following:
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
<S> <C> <C>
Cash and Cash Equivalents -
Cash and money market funds $ 1,492,184 $10,144,367
U.S. government securities 997,698 2,489,375
----------- -----------
$ 2,489,882 $12,633,742
=========== ===========
Short-term Investments -
U.S. government securities $ -- $ 3,785,146
=========== ===========
</TABLE>
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The Company is engaged in the discovery and development of genetic medicines
based primarily on antisense technology. The Company commenced operations in
February 1990 and since that time has been engaged primarily in research and
development efforts, development of its manufacturing capabilities and
organizational efforts, including recruitment of scientific and management
personnel and raising capital. To date, the Company has not received revenue
from the sale of biopharmaceutical products developed by it based on antisense
technology. In order to commercialize its own products, the Company will need to
address a number of technological challenges and comply with comprehensive
regulatory requirements. Accordingly, it is not possible to predict the amount
of funds that will be required or the length of time that will pass before the
Company receives revenues from sales of any of these products. All revenues
received by the Company to date have been derived from collaborative agreements,
interest on invested funds and revenues from the custom contract manufacturing
of synthetic DNA and reagent products by the Company's Hybridon Specialty
Products Division.
The Company has incurred losses since its inception and expects to incur
significant operating losses in the future. The Company expects that its
research and development expenses will increase significantly during the balance
of 1997 and in future years as it moves its principal research and development
programs to more advanced preclinical studies, clinical trials and later phase
clinical trials. In addition, the Company expects that its facilities costs will
increase in 1997 and future years over 1996 levels as a result of the relocation
of the Company's executive offices and its primary research and development
laboratories to Cambridge, Massachusetts on February 1, 1997. The Company also
expects that its personnel and patent costs will increase significantly in the
future. Costs associated with the Company's patent applications are expected to
increase as the Company continues to file and prosecute such applications.
Patent costs also would increase significantly if the Company became involved in
litigation or administrative proceedings involving its patents or those of third
parties. The Company has incurred cumulative losses from inception through March
31, 1997 of 163.2 million.
This Quarterly Report on Form 10-Q contains forward-looking statements. For this
purpose, any statements contained herein that are not statements of historical
fact may be deemed to be forward-looking statements. Without limiting the
foregoing, the words "believes," "anticipates," "plans," "intends," "may," and
other similar expressions are intended to identify forward-looking statements.
There are a number of important factors that could cause the Company's actual
results to differ materially from those indicated by such forward-looking
statements. These factors include the matters set forth under the heading
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Certain Factors that May Affect Future Results" in the Company's
Annual Report on Form 10-K for the year ended December 31, 1996, which is hereby
incorporated herein by this reference.
RESULTS OF OPERATIONS
Three Months Ended March 31, 1997 and 1996
The Company had total revenues of $1,059,000 and $554,000 in the three months
ended March 31, 1997 and 1996, respectively. Revenues from research and
development collaborations were $594,000 and $259,000 for the three months ended
March 31, 1997 and 1996, respectively. Revenues for the three month period ended
March 31, 1997 and 1996 included payments earned under a collaborative agreement
with F. Hoffmann-La Roche Ltd (Roche). For the three month period ended March
31, 1997, revenues also included payments under a collaborative agreement with
G. D. Searle & Co. (Searle). Revenues from the custom contract manufacturing of
synthetic DNA and reagent products by the Hybridon Specialty Products Division
were $348,000 for the three month period ended March 31, 1997. Revenues from
interest income were $117,000 and $295,000 for the three months ended March 31,
1997 and 1996, respectively. The decrease in interest income in the three month
period ended March 31, 1997 was the result of substantially lower cash balances
<PAGE> 10
available for investment during the three month period ended March 31, 1997 as
compared to the three month period ended March 31, 1996 during which the Company
completed its initial public offering on February 2, 1996.
The Company had research and development expenses of $11,476,000 and 7,383,000
in the three months ended March 31, 1997 and 1996, respectively. The increase in
research and development expenses for the three months ended March 31, 1997
reflects increased expenses related primarily to ongoing clinical trials of the
Company's product candidates, including trials of two different formulations of
GEM(R) 132 (an antisense compound for the treatment of systemic CMV and CMV
Retinitis) which were initiated in the United States and Europe during the
three months ended March 31, 1997. The increase also reflects increased expenses
associated with salaries and related costs, facilities equipment costs related
to additional laboratories, consulting and professional expense, expenses
related to the production of GEM(R) 91 (an antisense oligonucleotide targeted
at AIDS), and GEM(R) 132 and expenses for preclinical compounds. Research and
development staffing and related costs increased significantly as the number of
employees engaged in research and development activities increased by
approximately 32% for the three month period ending March 31, 1997. The
Company expects to invest significant resources during the remainder of 1997
and in future years in connection with the ongoing clinical trials of GEM(R)91
and GEM(R)132, the performance of preclinical studies, and the preparation of
IND applications and the initiation of clinical trials.
The Company had general and administrative expenses of $3,430,000 and $2,418,000
in the three months ended March 31, 1997 and 1996, respectively. The increase in
general and administrative expenses for the three months ended March 31, 1997
was attributable primarily to an increase in expenses associated with the
termination of certain financing activities, a one time expense associated with
the Company's investment in MethylGene, consulting services and salaries and
related costs.
The Company had interest expense of $170,207 and $40,000 in the three months
ended March 31, 1997 and 1996, respectively. Interest expense for the three
months ended March 31, 1997 and 1996 primarily consisted of interest incurred on
borrowings to finance the purchase of property and equipment, and leasehold
improvements. The increase in interest expense for the three months ended March
31, 1997 reflected an increase in the debt outstanding during the three months
ended March 31, 1997. The Company's future interest expense will increase
significantly in the future as a result of the issuance of $50,000,000 of 9%
Convertible Subordinated Notes (the Notes) which was completed on April 2, 1997.
As a result of the above factors, the Company incurred net losses of $14,017,000
and $9,287,000 for the three months ended March 31, 1997 and 1996, respectively.
LIQUIDITY AND CAPITAL RESOURCES
During the three months ended March 31,1997, the Company's net cash used in
operating activity was $10,214,600, principally for use in the Company's ongoing
research and development programs. The Company also increased its investment in
property and equipment by $3,831,655, consisting primarily of costs associated
with finishing the buildout of the Company's Milford manufacturing facility and
costs associated with leasehold improvements and furnishings of the Cambridge
facility which the Company moved into on February 1, 1997.
On April 2, 1997, the Company sold $50.0 million of Notes to certain investors.
The Notes bear interest at a rate of 9% per annum and have a maturity date of
April 1, 2004. Under the Notes, the Company is required to make semi-annual
interest payments on the outstanding principal balance through the maturity date
of April 1, 2004. The Notes are convertible at the option of the holder into the
Company's Common Stock at any time prior to maturity, unless previously redeemed
or repurchased by the Company under certain specified circumstances, at a
conversion price of $7.0125 per share (subject to adjustment). In connection
with the sale of the Notes, the Company also granted a 60-day option (which
expires on May 25, 1997) to purchase up to an additional $10,000,000 principal
amount of the Notes.
<PAGE> 11
The Company had cash and cash equivalents of $2,490,000 at March 31, 1997.
Based on its current operating plan, the Company believes that its existing
capital resources, together with the committed collaborative research and
development payments from Searle, anticipated sales of the Hybridon Specialty
Products Division and margins on such sales, which are expected to increase
significantly over historic levels, and the net proceeds from the sale of the
Notes and the interest earned thereon, will be adequate to fund the Company's
capital requirements through at least the first quarter of 1998.
The Company's future capital requirements will depend on many factors, including
continued scientific progress in its research, drug discovery and development
programs, the magnitude of these programs, progress with preclinical and
clinical trials, sales of DNA products and reagents manufactured on a custom
contract basis by the Hybridon Specialty Products Division and the margins on
such sales, the time and costs involved in obtaining regulatory approvals, the
costs involved in filing, prosecuting and enforcing patent claims, competing
technological and market developments, the ability of the Company to establish
and maintain collaborative academic and commercial research, development and
marketing relationships, the ability of the Company to obtain third party
financing for leasehold improvements and other capital expenditures and the cost
of manufacturing scale-up and commercialization activities and arrangements.
The Company intends to seek additional equity, debt and lease financing to fund
future operations. The Company also intends to seek additional collaborative
development and commercialization relationships with potential corporate
partners in order to fund certain of its programs. Except for research and
development funding from Searle under Hybridon's collaborative agreement with
Searle (which is subject to early termination in certain circumstances),
Hybridon has no committed external sources of capital, and, as discussed above,
expects no product revenues for several years from sales of the products that it
is developing (as opposed to sales of DNA products and reagents manufactured on
a custom contract basis by the Hybridon Specialty Products Division). If the
Company is unable to obtain necessary additional funds, it would be required to
scale back or eliminate certain of its research and development programs or
license to third parties certain technologies which the Company would otherwise
pursue on its own.
<PAGE> 12
HYBRIDON, INC.
PART II
OTHER INFORMATION
-------
Item 1 None
Item 2 Changes in Securities
During the quarter ended March 31, 1997, the Company issued and sold
the following securities that were not registered under the Securities Act of
1933, as amended (the "Securities Act"):
1. On January 20, 1997, the Company issued 25,000 shares of its Common
Stock to an investment bank as compensation under a financial advisory services
agreement entered into with such investment bank on such date.
2. On January 25, 1997, the Company issued, for an aggregate purchase
price of $9,075, 1650 shares of its Common Stock to one investor upon exercise
by such investor of warrants to purchase Common Stock.
The shares of Common Stock issued in the above transaction were offered
and sold in reliance upon the exemption from registration under Section 4(2) of
the Securities Act, relating to sales by an issuer not involving any public
offering.
Item 3-5 None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11 Computation of Net Loss Per Common Share.
27 Financial Data Schedule (EDGAR)
99 Pages 39-48 of the Company's Annual Report on Form
10-K for the period ended December 31, 1996 (which is
not deemed to be filed except to the extent that
portions thereof are expressly incorporated by
reference herein).
(b) No reports were filed on Form 8-K during the three months
ended March 31, 1997.
<PAGE> 13
SIGNATURES
-------
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HYBRIDON, INC.
May 15, 1997 /s/ E. Andrews Grinstead III
- - ---------------- -----------------------------------------------
Date E. Andrews Grinstead, III
Chairman, President and Chief Executive Officer
(Principal Executive Officer)
May 15, 1997 /s/ Anthony J. Payne
- - ---------------- -----------------------------------------------
Date Anthony J. Payne
Senior Vice President of Finance and Administration
and Chief Financial Officer (Principal Financial
and Accounting Officer)
<PAGE> 14
HYBRIDON, INC.
EXHIBIT INDEX
-------
11 Computation of Net Loss Per Common Share.
27 Financial Data Schedule (EDGAR)
99 Pages 39-48 of the Company's Annual Report on Form 10-K for the period
ended December 31, 1996 (which is not deemed to be filed except to the
extent that portions thereof are expressly incorporated by reference
herein).
<PAGE>
ANNEX H
-------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended: June 30, 1997 Commission File Number 0-27352
Hybridon, Inc.
--------------
(Exact name of registrant as specified in its charter)
Delaware 04-3072298
-------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
organization or incorporation)
620 Memorial Drive
Cambridge, MA 02139
-------------------
(Address of principal executive offices, including zip code)
(617) 528-7000
-------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
YES X NO
------ ------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, par value $.001 per share 25,260,252
- - --------------------------------------- ----------
Class Outstanding as of July 31, 1997
<PAGE> 2
HYBRIDON, INC.
FORM 10-Q
INDEX
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
CONSOLIDATED CONDENSED BALANCE SHEETS AS OF JUNE 30, 1997 AND
DECEMBER 31, 1996
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS FOR THE THREE
AND SIX MONTHS ENDED JUNE 30, 1997 AND 1996 AND
CUMULATIVE FROM MAY 25, 1989 (INCEPTION) TO JUNE 30,
1997
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS FOR THE SIX
MONTHS ENDED JUNE 30, 1997 AND 1996, AND CUMULATIVE
FROM MAY 25, 1989 (INCEPTION) TO JUNE 30, 1997
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PART II - OTHER INFORMATION
ITEM 2 - CHANGES IN SECURITIES
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
ITEM 5 - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURES
<PAGE>
HYBRIDON, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS JUNE 30, DECEMBER 31,
1997 1996
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 8,594,921 $ 12,633,742
Short-term investments 20,052,761 3,785,146
Accounts receivable 644,505 573,896
Prepaid expenses and other current assets 1,660,867 1,545,324
------------- -------------
Total current assets 30,953,054 18,538,108
------------- -------------
PROPERTY AND EQUIPMENT, AT COST:
Leasehold improvements 13,606,246 9,257,516
Laboratory equipment 6,051,548 5,884,861
Equipment under capital leases 5,353,458 2,904,688
Office equipment 1,760,020 1,496,639
Furniture and fixtures 515,012 499,958
Construction-in-progress 2,086,000 2,193,400
------------- -------------
29,372,284 22,237,062
Less--Accumulated depreciation and amortization 8,837,668 6,596,294
------------- -------------
20,534,616 15,640,768
------------- -------------
OTHER ASSETS:
Restricted cash 350,000 437,714
Notes receivable from officers 322,641 317,978
Deferred financing costs and other assets 3,698,501 1,152,034
Investment in real estate partnership 5,450,000 5,450,000
------------- -------------
9,821,142 7,357,726
------------- -------------
$ 61,308,812 $ 41,536,602
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY(DEFICIT)
CURRENT LIABILITIES:
Current portion of long-term debt and
capital lease obligations $ 1,887,863 $ 1,308,511
Accounts payable 3,895,988 4,064,419
Accrued expenses 3,786,842 4,190,766
Deferred revenue -- 86,250
------------- -------------
Total current liabilities 9,570,693 9,649,946
------------- -------------
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS,
NET OF CURRENT PORTION 10,019,593 9,031,852
------------- -------------
CONVERTIBLE SUBORDINATED NOTES 50,000,000 --
------------- -------------
STOCKHOLDERS' EQUITY(DEFICIT):
Preferred stock, $.01 par value-
Authorized--5,000,000 shares
Issued and outstanding--None -- --
Common stock, $.001 par value-
Authorized--100,000,000 shares
Issued and outstanding--25,250,252 shares
at June 30, 1997, and 25,146,577 shares
at December 31, 1996 respectively
25,250 25,147
Additional paid-in capital 173,636,989 173,227,358
Deficit accumulated during the development stage (180,736,741) (149,193,775)
Deferred Compensation (1,206,972) (1,203,926)
------------- -------------
Total stockholders' equity(deficit) (8,281,474) 22,854,804
------------- -------------
$ 61,308,812 $ 41,536,602
============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
<PAGE> 4
HYBRIDON, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
CUMULATIVE FROM
MAY 25,1989
THREE MONTHS ENDED SIX MONTHS ENDED (INCEPTION)
JUNE 30, JUNE 30, TO JUNE 30, 1997
1997 1996 1997 1996
<S> <C> <C> <C> <C> <C>
REVENUES:
Research and development $ 186,250 $ 458,150 $ 780,150 $ 717,500 $ 5,334,413
Product Revenue 727,704 -- 1,075,858 -- 2,156,033
Interest income 486,502 340,622 603,914 635,495 2,745,531
Royalty and other income 14,971 62,321 14,971 62,321 77,292
------------ ------------ ------------ ------------- -------------
1,415,427 861,093 2,474,893 1,415,316 10,313,269
------------ ------------ ------------ ------------- -------------
OPERATING EXPENSES:
Research and development 14,969,366 9,700,841 26,445,805 17,084,138 145,077,705
General and administrative 2,524,046 2,804,907 5,954,499 5,223,293 42,744,367
Interest 1,447,348 29,978 1,617,555 69,581 3,227,938
------------ ------------ ------------ ------------- -------------
18,940,760 12,535,726 34,017,859 22,377,012 191,050,010
------------ ------------ ------------ ------------- -------------
Net loss $(17,525,333) $(11,674,633) $(31,542,966) $ (20,961,696) $(180,736,741)
------------ ------------ ------------ ------------- -------------
NET LOSS PER COMMON SHARE
(Note 2) $ (.69) $ (.48) $ (1.25) $ (.89)
============ ============ ============ =============
SHARES USED IN COMPUTING NET LOSS
PER COMMON SHARE (Note 2) 25,241,956 24,518,126 25,211,845 23,613,260
============ ============ ============ =============
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
<PAGE> 5
HYBRIDON, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED CUMULATIVE FROM
JUNE 30, MAY 25, 1989
(INCEPTION) TO
JUNE 30,
1997 1996 1997
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(31,542,966) $(20,961,696) $(180,736,741)
Adjustments to reconcile net loss to net cash used in operating activities-
Depreciation and amortization 2,241,374 985,840 8,939,109
Issuance of common stock for services rendered 146,875 -- 146,875
Compensation on grant of stock options, warrants and restricted stock 188,412 -- 7,996,143
Amortization of discount on convertible promissary notes payable -- -- 690,157
Amortization of deferred financing costs 250,395 -- 467,127
Noncash interest on convertible promissory notes payable -- -- 260,799
Changes in operating assets and liabilities-
Accounts Receivable (70,609) -- (644,505)
Prepaid and other current assets (108,610) (931,251) (1,653,933)
Notes receivable from officers (4,663) (4,953) (322,641)
Amounts payable to related parties -- (12,500) (200,000)
Accounts payable and accrued expenses (572,356) (269,454) 7,682,830
Deferred revenue (86,250) -- --
------------ ------------ -------------
Net cash used in operating activities (29,558,398) (21,194,014) (157,374,780)
------------ ------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in short-term investments (16,267,615) (19,282,850) (20,052,761)
Purchases of property and equipment, net (5,838,183) (3,991,072) (27,640,893)
Decrease (increase) in restricted cash and other assets 133,878 184,588 (1,530,305)
Investment in real estate partnership -- (4,230,539) (5,450,000
------------ ------------ -------------
Net cash used in investing activities (21,971,920) (27,319,873) (54,673,959)
------------ ------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of convertible preferred stock -- -- 96,584,154
Proceeds from issuance of common stock related to
stock options and restricted stock grants 62,327 260,426 1,236,929
Proceeds from issuance of common stock related to stock warrants 9,075 3,185,816
Net proceeds from issuance of common stock -- 52,231,244 52,355,324
Repurchase of common stock -- -- (263)
Proceeds from notes payable -- -- 9,450,000
Proceeds from issuance of convertible promissory notes payable 50,000,000 59,191,744
Proceeds from long-term debt -- -- 662,107
Payments on long-term debt and capital leases (895,183) (206,913) (2,696,796)
Proceeds from sale/leaseback 1,165,236 2,042,811 3,960,752
(Increase) decrease in deferred financing costs (2,849,958) 526,721 (3,286,107)
------------ ------------ -------------
Net cash provided by financing activities 47,491,497 54,854,289 220,643,660
------------ ------------ -------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (4,038,821) 6,340,042 8,594,921
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 12,633,742 5,284,262 --
------------ ------------ -------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 8,594,921 $ 11,624,664 $ 8,594,921
============ ============ =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 492,555 $ 69,581 $ 2,102,938
============ ============ =============
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
<PAGE> 6
HYBRIDON, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(1) ORGANIZATION
Hybridon, Inc. (the Company) was incorporated in the State of Delaware on
May 25, 1989. The Company is engaged in the discovery and development of
novel genetic medicines based primarily on antisense technology.
The Company is in the development stage. Since inception, the Company has
been engaged primarily in research and development efforts, development
of its manufacturing capabilities and organizational efforts, including
recruitment of scientific and management personnel and raising capital. To
date, the Company has not received revenue from the sale of
biopharmaceutical products developed by it based on antisense technology.
In order to commercialize its own products, the Company will need to
address a number of technological challenges and comply with comprehensive
regulatory requirements. Accordingly, it is not possible to predict the
amount of funds that will be required or the length of time that will pass
before the Company receives revenues from sales of any of these products.
All revenues received by the Company to date have been derived from
collaborative agreements, interest on invested funds and revenues from the
custom contract manufacturing of synthetic DNA and reagent products by the
Company's Hybridon Specialty Products Division. As a result, although the
Company has begun to generate revenues from its contract manufacturing
business, the Company is dependent on the proceeds from possible future
sales of equity securities, debt financings and research and development
collaborations in order to fund future operations.
<PAGE> 7
HYBRIDON, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(Continued)
(1) ORGANIZATION (Continued)
The unaudited consolidated condensed financial statements included herein
have been prepared by the Company, without audit, pursuant to the rules
and regulations of the Securities and Exchange Commission and include, in
the opinion of management, all adjustments, consisting of normal,
recurring adjustments, necessary for a fair presentation of interim period
results. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such
rules and regulations. The Company believes, however, that its disclosures
are adequate to make the information presented not misleading. The results
for the interim periods presented are not necessarily indicative of
results to be expected for the full fiscal year. It is suggested that
these financial statements be read in conjunction with the audited
consolidated financial statements and notes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1996,
as filed with the Securities and Exchange Commission.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Net Loss per Common Share
Net loss per common share is computed using the weighted average number of
shares of common stock outstanding during the period. Pursuant to the
requirements of the Securities and Exchange Commission, common stock
issued by the Company during the 12 months immediately preceding its
initial public offering, plus shares of common stock that became issuable
during the same period pursuant to the grant of common stock options and
preferred and common stock warrants, has been included in the calculation
of weighted average number of shares outstanding for the period from
January 1, 1996 through February 2, 1996 (using the treasury-stock method
and the initial public offering price of $10 per share). In addition, the
calculation of the weighted average number of shares outstanding includes
shares of common stock as if all shares of preferred stock were converted
into common stock on the respective original dates of issuance.
<PAGE> 8
HYBRIDON, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(Continued)
(3) CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
The Company applies SFAS No. 115, Accounting for Certain Investments in
Debt and Equity Securities. Accordingly, the Company has classified its
cash equivalents and short-term investments as held-to-maturity, and has
recorded them at amortized cost, which approximates market value.
Short-term investments mature within one year of the balance sheet date.
Cash equivalents have original maturities of less than three months. Cash
and cash equivalents and short-term investments at June 30, 1997 and
December 31, 1996 consisted of the following:
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
<S> <C> <C>
Cash and Cash Equivalents-
Cash and money market funds $ 3,621,326 $10,144,367
U.S. government securities 974,701 2,489,375
Commercial paper and certificates of deposit 3,998,894 --
----------- -----------
$ 8,594,921 $12,633,742
=========== ===========
Short-term Investments-
U.S. government securities $ - $ 3,785,146
Commercial paper and certificates of deposit 20,052,761 --
----------- -----------
$20,052,761 $ 3,785,146
=========== ===========
</TABLE>
(4) CONVERTIBLE SUBORDINATED NOTES PAYABLE
On April 2, 1997, the Company issued $50,000,000 of 9% convertible
subordinated notes (the Notes). Under the terms of the Notes, the Company
must make semi-annual interest payments on the outstanding principal
balance through the maturity date of April 1, 2004. If the Notes are
converted prior to April 1, 2000, the Noteholders are entitled to receive
accrued interest from the date of the most recent interest payment through
the conversion date. The Notes are subordinate to substantially all of the
Company's existing indebtedness. The Notes are convertible at any time
prior to the maturity date at a conversion price equal to $7.0125, subject
to adjustment under certain circumstances, as defined.
Beginning April 1, 2000, the Company may redeem the Notes at its option
for a 4.5% premium over the original issuance price, provided that from
April 1, 2000 to March 31, 2001, the Notes may not be redeemed unless the
closing price of the common stock equals or
<PAGE> 9
HYBRIDON, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(Continued)
(4) CONVERTIBLE SUBORDINATED NOTES PAYABLE (continued)
exceeds 150% of the conversion price for a period of at least 20 out of 30
consecutive trading days and the Notes redeemed within 60 days after such
trading period. The premium decreases by 1.5% each year through March 31,
2003. Upon a change of control of the Company, as defined, the Company
will be required to offer to repurchase the Notes at 150% of the original
issuance price.
(5) NEW ACCOUNTING STANDARD
On March 31, 1997, the Financial Accounting Standards Board issued SFAS
No. 128, Earnings Per Share. SFAS No. 128 establishes standards for
computing and presenting earnings per share and applies to entities with
publicly held common stock or potential common stock. SFAS No. 128 is
effective for fiscal years ending after December 15, 1997 and early
adoption is not permitted. When adopted by the Company, SFAS No. 128 will
require restatement of prior years' earnings per share. The Company will
adopt SFAS No. 128 for its fiscal year ended December 31, 1997. The
Company believes that the adoption of SFAS No. 128 will not have a
material effect on its financial statements.
(6) SUBSEQUENT EVENTS
In July 1997, the Company stopped the development of GEM 91, its first
generation antisense drug for the treateent of AIDS and HIV infection,
based on a review of new data from an open label Phase II clinical trial
of patients with advanced HIV infection. In the Phase II trial, three of
the nine subjects tested experienced decreases in platelet counts that
required dose interruption. In addition, a review of the data showed
inconsistent responses to the treatment and failed to confirm the
decrease in cellular viremia observed in an earlier clinical trial. As a
result, the Company now plans to focus its resources on core drug
development programs involving four second generation antisense compounds
based on the Company's proprietary mixed backbone chemistries.
The Company is implementing a restructuring plan to reduce expenditures
on a phased basis over the balance of 1997 in an effort to conserve its
cash resources. As part of this restructuring plan, in addition to
stopping the clinical development of GEM 91, the Company is reducing or
suspending selected programs unrelated to the four core programs. To
begin the implementation of these changes the Company terminated the
employment of 28 employees at its Cambridge and Milford, Massachusetts
facilities in July 1997 and plans to substantially reduce operations at
its Paris, France office and terminate 11 employees at that location in
August 1997. The Company is continuing to review its expenditure rate and
implement additional measures to conserve its cash resources.
Because of the significant costs involved in terminating employees and
substantially reducing operations at its Paris, France office, the Company
does not expect its expenditure rate to materially decrease until at least
October 1997. The Company estimates that restructuring charges from the
actions taken to date and the substantial reduction of operations at its
Paris, France office will total between approximately $2.0 million and
$3.0 million, and expects that it will recognize such charges in the third
quarter of 1997 and that it will make the associated cash payments over
the third and fourth quarters of 1997.
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The Company is engaged in the discovery and development of genetic medicines
based primarily on antisense technology. The Company commenced operations in
February 1990 and since that time has been engaged primarily in research and
development efforts, development of its manufacturing capabilities and
organizational efforts, including recruitment of scientific and management
personnel and raising capital. To date, the Company has not received revenue
from the sale of biopharmaceutical products developed by it based on antisense
technology. In order to commercialize its own products, the Company will need to
address a number of technological challenges and comply with comprehensive
regulatory requirements. Accordingly, it is not possible to predict the amount
of funds that will be required or the length of time that will pass before the
Company receives revenues from sales of any of these products. All revenues
received by the Company to date have been derived from collaborative agreements,
interest on invested funds and revenues from the custom contract manufacturing
of synthetic DNA and reagent products by the Company's Hybridon Specialty
Products Division.
In July 1997, the Company stopped the development of GEM 91, its first
generation antisense drug for the treatment of AIDS and HIV infection, based on
a review of new data from an open label Phase II clinical trial of patients
with advanced HIV infection. In the Phase II trial, three of the nine subjects
tested experienced decreases in platelet counts that required dose
interruption. In addition, a review of the data showed inconsistent responses
to the treatment and failed to confirm the decrease in cellular viremia
observed in an earlier clinical trial. As a result, the Company now plans to
focus its resources on core drug development programs involving four second
generation antisense compounds based on the Company's proprietary mixed
backbone chemistries.
The Company is implementing a restructuring plan to reduce expenditures on a
phased basis over the balance of 1997 in an effort to conserve its cash
resources. As part of this restructuring plan, in addition to stopping the
clinical development of GEM 91, the Company is reducing or suspending selected
programs unrelated to the four core programs. To begin the implementation of
these changes the Company terminated the employment of 28 employees at its
Cambridge and Milford, Massachusetts facilities in July 1997 and plans to
substantially reduce operations at its Paris, France office and terminate 11
employees at that location in August 1997. The Company is continuing to review
its expenditure rate and implement additional measures to conserve its cash
resources.
Because of the significant costs involved in terminating employees and
substantially reducing operations at its Paris, France office, the Company does
not expect its expenditure rate to materially decrease until at least October
1997. The Company estimates that restructuring charges from the actions taken to
date and the substantial reduction of operations at its Paris France office will
total between approximately $2.0 million and $3.0 million, and expects that it
will recognize such charges in the third quarter of 1997 and that it will make
the associated cash payments over the third and fourth quarters of 1997.
The Company has incurred losses since its inception and, despite its
restructuring plan, expects to incur significant operating losses in the future.
The Company expects that its research and development expenses will continue to
be significant during the balance of 1997 and in future years as it pursues its
four core development programs. The Company has incurred cumulative losses from
inception through June 30, 1997 of approximately $180.7 million.
This Quarterly Report on Form 10-Q contains forward-looking statements. For this
purpose, any statements contained herein that are not statements of historical
fact may be deemed to be forward-looking statements. Without limiting the
foregoing, the words "believes," "anticipates," "plans,"
<PAGE> 11
"intends," "may," and other similar expressions are intended to identify
forward-looking statements. There are a number of important factors that could
cause the Company's actual results to differ materially from those indicated by
such forward-looking statements. These factors include the matters set forth
under the heading "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Certain Factors that May Affect Future Results" in
the Company's Annual Report on Form 10-K for the year ended December 31, 1996,
which is hereby incorporated herein by this reference. Any statement contained
in such matters shall be deemed to be modified or superseded for purposes of
this Quarterly Report on Form 10-Q to the extent that a statement contained
herein modifies or supersedes such statement. Moreover, there can be no
assurance that the Company will be able to successfully implement its
restructuring plan or as to the timing thereof.
RESULTS OF OPERATIONS
Three and Six Months Ended June 30, 1997 and 1996
Revenues
The Company had total revenues of $1,415,000 and $861,000 in the three months
ended June 30, 1997 and 1996, respectively, and $2,475,000 and $1,415,000 in the
six months ended June 30, 1997 and 1996, respectively.
Revenues from research and development collaborations were $186,000 and $458,000
for the three months ended June 30, 1997 and 1996, respectively, and $780,000
and $718,000 for the six months ended June 30, 1997 and 1996, respectively.
Revenues for the three months ended June 30, 1997 decreased because the research
funding, which the Company received under the Company's collaboration with F.
Hoffmann-La Roche Ltd. ("Roche") during the three months ended June 30, 1996,
was terminated by Roche as of March 31, 1997 in connection with Roche's
termination of the research phase of the collaboration. Despite the decrease in
revenues for the three months ended June 30, 1997 as a result of the termination
of research funding by Roche, revenues for the six months ended June 30, 1997
were comparable to revenues for the six months ended June 30, 1996 because of
the inclusion of revenues earned under the Company's collaboration with G.D.
Searle & Co. ("Searle") during the full six months ended June 30, 1997. During
the six months ended June 30, 1996, the Company did not receive revenues under
the Searle collaboration until the second quarter of 1996.
Revenues from the custom contract manufacturing of synthetic DNA and reagent
products by the Hybridon Specialty Products Division were $727,000 and
$1,075,000, respectively, for the three and six months ended June 30, 1997.
The Hybridon Specialty Products Division commenced operations in June
1996. Accordingly, the Company did not receive any revenues from the custom
contract manufacturing of synthetic DNA and reagent products during the six
months ended June 30, 1996.
Interest income was $487,000 and $341,000 for the three months ended June 30,
1997 and 1996, respectively, and $604,000 and $635,000 for the six months ended
June 30, 1997 and 1996, respectively. The increase in interest income in the
three months ended June 30, 1997 was the result of more favorable interest
rates during such period then during the three months ended June 30, 1996.
<PAGE> 12
Research and Development Expenses
The Company had research and development expenses of $14,969,000 and $9,701,000
in the three months ended June 30, 1997 and 1996, respectively, and $26,446,000
and $17,084,000 in the six months ended June 30, 1997 and 1996, respectively.
The increase in research and development expenses for the three and six months
ended June 30, 1997 primarily reflected increased expenses related to ongoing
clinical trials of the Company's product candidates, including trials of GEM 91
(which were terminated in July of 1997) and trials of two different formulations
of GEM 132 (an antisense compound for the treatment of systemic CMV and CMV
retinitis), which were first initiated with respect to GEM 132 intravenous in
Europe during the third quarter of 1996 and with respect to GEM 132 intravitreal
for the treatment of CMV retinitis in the United States during the first quarter
of 1997. The increase also reflected increased salaries and related costs,
facilities equipment costs related to additional laboratories, consulting and
professional expenses and expenses related to the production of GEM 91, GEM 132
and preclinical compounds. Research and development staffing and related costs
increased significantly as the number of employees engaged in research and
development activities increased from 157 employees as of March 31, 1997 to 161
employees as of June 30, 1997.
General and Administrative Expenses
The Company had general and administrative expenses of $2,524,000 and $2,805,000
in the three months ended June 30, 1997 and 1996, respectively, and $5,954,000
and $5,223,000 in the six months ended June 30, 1997 and 1996, respectively. The
decrease in general and administrative expenses for the three months ended June
30, 1997 was attributable primarily to a reduction in travel and consulting
expenses in such period. The increase in general and administrative expenses for
the six months ended June 30, 1997 was attributable primarily to increased
expenses in the three months ended March 31, 1997 related to certain financing
activities which were terminated during such period and a one-time charge
related to the Company's investment in MethylGene, Inc., a Canadian company in
which the Company owns a minority interest.
Interest Expense
The Company had interest expense of $1,447,000 and $30,000 in the three months
ended June 30, 1997 and 1996, respectively, and $1,618,000 and $70,000 in the
six months ended June 30, 1997 and 1996, respectively. The increase in interest
expense for the three and six months ended June 30, 1997 reflected an increase
in the debt outstanding during the three months ended June 30, 1997 associated
with the Company's issuance of $50,000,000 of 9% Convertible Subordinated Notes
(the "Notes") on April 2, 1997 and interest incurred on borrowing to finance the
purchase of property and equipment, and leasehold improvements.
Net Loss
As a result of the above factors, the Company incurred net losses of $17,525,000
and $11,675,000 for the three months ended June 30, 1997 and 1996, respectively,
and $31,543,000 and $20,962,000 for the six months ended June 30, 1997 and 1996,
respectively.
LIQUIDITY AND CAPITAL RESOURCES
During the six months ended June 30,1997, the Company used $29,558,000 of net
cash for operating activities, principally for ongoing research and development
programs, and $5,838,000 of net cash for investment in property and equipment,
consisting primarily of costs related to leasehold improvements, equipment and
furnishings of the Cambridge facility which the Company moved into on February
1, 1997.
On April 2, 1997, the Company sold $50.0 million of Notes to certain investors.
The Notes bear interest at a rate of 9% per annum and have a maturity date of
April 1, 2004. Under the Notes, the Company is required to make semi-annual
interest payments on the outstanding principal balance through the maturity date
of April 1, 2004. The Notes are unsecured and subordinate to substantially all
of the Company's existing indebtedness. The Notes are convertible at the option
of the holder into the Company's Common Stock at any time prior to maturity,
unless previously redeemed or repurchased by the Company under certain specified
circumstances, at a conversion price of $7.0125 per share (subject to
adjustment). Upon change of control of the Company (as defined), the Company is
required to offer to repurchase the Notes at 150% of the original issuance
price.
<PAGE> 13
The Company had cash, cash equivalents and short term investments of $28,648,000
at June 30, 1997. Based on its current operating plan, including the expenditure
rate reduction initiatives being undertaken by the Company as part of its
restructuring plan, the Company believes that its existing capital resources,
together with the committed collaborative research and development payments from
Searle, and anticipated sales of the Hybridon Specialty Products Division and
margins on such sales, will be adequate to fund the Company's capital
requirements into the fourth quarter of 1997. The Company will require
substantial additional funds from external sources in the fourth quarter of 1997
to support the Company's operations through the end of the fourth quarter of
1997 and thereafter.
A significant factor affecting the Company's future capital requirements is the
level of sales of the Hybridon Specialty Products Division and the margins on
such sales. Revenues from the sale of custom contract manufacturing of synthetic
DNA and reagent products by the Hybridon Specialty Products Division were lower
than anticipated in the three months ended June 30, 1997. During such period,
the Company received repeat customer orders and expanded its customer base from
17 customers to 30 customers. The Company expects revenues from sale of custom
contract manufacturing of synthetic DNA and reagent products by the Hybridon
Specialty Products Division in the three months ending September 30, 1997 to
exceed revenues in the three months ended June 30, 1997. However, based on the
Hybridon Specialty Products Division's backlog of orders at June 30, 1997, the
Company believes that such revenues may be lower than initially anticipated for
the three months ending September 30, 1997 and for the balance of 1997.
The Company intends to seek additional equity, debt and lease financing to fund
future operations. The Company also intends to seek additional collaborative
development and commercialization relationships with potential corporate
partners in order to fund certain of its programs. Except for research and
development funding from Searle under Hybridon's collaborative agreement with
Searle (which is subject to early termination in certain circumstances),
Hybridon has no committed external sources of capital, and, as discussed above,
expects no product revenues for several years from sales of the products that
it is developing (as opposed to sales of DNA products and reagents
manufactured on a custom contract basis by the Hybridon Specialty Products
Division). If the Company is unable to obtain necessary additional funds, it
may be required to further scale back or eliminate certain of its core
development programs, license to third parties certain technologies which the
Company would otherwise pursue on its own, sell certain assets or business
units to third parties, conduct a financing which could be dilutive to holders
of the Company's existing securities and contain certain terms that would
adversely affect the rights of holders of the Company's existing securities or
cease operations.
<PAGE> 14
HYBRIDON, INC.,
PART II
OTHER INFORMATION
Item 2 Changes in Securities
During the three months ended June 30, 1997, the Company issued and sold
the following securities that were not registered under the Securities
Act of 1933, as amended (the "Securities Act"):
1. On April 2, 1997, the Company issued $50,000,000 of its 9%
Convertible Subordinated Notes Due 2004 to an investment bank (the
"Bank") pursuant to Rule 506 under the Securities Act.
2. On April 2, 1997, the Company issued to the Bank warrants to
purchase 356,506 shares of Common Stock at an exercise price of
$7.0125 per share pursuant to Section 4(2) of the Securities Act.
Item 4 Submission of Matters to a Vote of Security Holders
At the Company's Annual Meeting of Stockholders held on May 19, 1997, the
following proposals were adopted by the vote specified below:
1. Election of Class II Directors
For Withheld Authority
--- ------------------
Mohamed A. El-Khereiji 15,046,792 14,666
Jerry A. Weisbach 15,027,192 34,266
James B. Wyngaarden 15,046,892 14,566
Paul C. Zamecnik 15,047,092 14,366
2. Adoption of the 1997 Stock Incentive Plan
For Against Abstain Broker Nonvotes
10,704,147 244,725 12,641 4,099,945
3. Ratification of the Selection of Independent Auditors
For Against Abstain Broker Nonvotes
15,003,091 9,801 48,566 --
<PAGE> 15
Item 5. Other Information
1. Effective July 28, 1997, Jerry A. Weisbach, a Class II director of
the Company resigned from the Board of Directors of the Company.
2. Effective August 11, 1997, J. Robert Buchanan, a Class I director
of the Company, resigned from the Board of Directors of the
Company.
3. On August 8, 1997, the Company withdrew Post-effective Amendment
No. 1 to its Registration Statement on Form S-3 ( Registration No.
333-28409) ( the "Registration Statement"). The Company filed
Post-effective Amendment No. 1 to the Registration Statement on
July 25, 1997 to remove from registration the 5,000,000 shares of
Common Stock registered under the Registration Statement. Although
the Company is not offering shares of Common Stock pursuant to the
Registration Statement at this time, the Company may do so in the
future at such time as it considers, in its sole discretion, to
be appropriate.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The Exhibits listed in the Exhibit Index immediately preceding such
Exhibits are filed as part of this Quarterly Report on Form 10-Q.
(b) Reports on Form 8-K
On April 14, 1997, the Company filed a Current Report on Form 8-K
dated April 2, 1997 announcing the completion of the sale of
$50,000,000 of the Company's 9% Convertible Subordinated Notes Due
2004.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HYBRIDON, INC.
August 13, 1997 /s/ E. Andrews Grinstead III
- - --------------- ----------------------------
Date E. Andrews Grinstead, III
Chairman, President and Chief Executive
Officer (Principal Executive Officer)
August 13, 1997 /s/ Anthony J. Payne
- - --------------- --------------------
Date Anthony J. Payne
Senior Vice President of Finance and
Administration and Chief Financial Officer
(Principal Financial and Accounting Officer)
<PAGE> 17
HYBRIDON, INC.
EXHIBIT INDEX
Exhibit No. Description
- - ---------- -----------
*10.1 Amendment No. 1 to License Agreement, dated as February 21, 1990 and
restated as of September 8, 1993, by and between the Worcester
Foundation for Biomedical Research, Inc. and the Company, dated as
of November 26, 1996.
10.2 Letter Agreement dated May 12, 1997 between the Company and Pillar
S.A. amending the Consulting Agreement dated as of March 1, 1994
between the Company and Pillar S.A..
10.3 Amendment dated July 15, 1997 to the Series G Convertible Preferred
Stock and Warrant Purchase Agreement dated as of September 9, 1994
among the Company and certain purchasers, as amended.
10.4 Sixth Amendment to the lease dated April 1997 between the Company and
Charles River Building Limited Partnership for space located at 620
Memorial Drive, Cambridge, Massachusetts.
11 Computation of Net Loss Per Common Share.
27 Financial Data Schedule (EDGAR)
99 Pages 39-48 of the Company's Annual Report on Form 10-K for the
period ended December 31, 1996 (which is not deemed to be filed
except to the extent that portions thereof are expressly incorporated
by reference herein).
* Confidential treatment requested as to certain portions of exhibit,
which portions have been omitted and filed separately with the
commission
<PAGE>
ANNEX H-1
---------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
AMENDMENT NO. 1 TO FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended: June 30, 1997 Commission File Number 0-27352
Hybridon, Inc.
--------------
(Exact name of registrant as specified in its charter)
Delaware 04-3072298
-------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
organization or incorporation)
620 Memorial Drive
Cambridge, MA 02139
-------------------
(Address of principal executive offices, including zip code)
(617) 528-7000
-------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
YES X NO
------ ------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, par value $.001 per share 25,260,252
- - --------------------------------------- ----------
Class Outstanding as of July 31, 1997
<PAGE> 2
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HYBRIDON, INC.
August 15, 1997 /s/ E. Andrews Grinstead III
- - --------------- ----------------------------
Date E. Andrews Grinstead, III
Chairman, President and Chief Executive
Officer (Principal Executive Officer)
August 15, 1997 /s/ Anthony J. Payne
- - --------------- --------------------
Date Anthony J. Payne
Senior Vice President of Finance and
Administration and Chief Financial Officer
(Principal Financial and Accounting Officer)
<PAGE> 3
HYBRIDON, INC.
EXHIBIT INDEX
Exhibit No. Description
- - ---------- -----------
*+10.1 Amendment No. 1 to License Agreement, dated as February 21, 1990 and
restated as of September 8, 1993, by and between the Worcester
Foundation for Biomedical Research, Inc. and the Company, dated as
of November 26, 1996.
+10.2 Letter Agreement dated May 12, 1997 between the Company and Pillar
S.A. amending the Consulting Agreement dated as of March 1, 1994
between the Company and Pillar S.A..
+10.3 Amendment dated July 15, 1997 to the Series G Convertible Preferred
Stock and Warrant Purchase Agreement dated as of September 9, 1994
among the Company and certain purchasers, as amended.
10.4 Sixth Amendment to the lease dated April 1997 between the Company and
Charles River Building Limited Partnership for space located at 620
Memorial Drive, Cambridge, Massachusetts.
+11 Computation of Net Loss Per Common Share.
+27 Financial Data Schedule (EDGAR)
+99 Pages 39-48 of the Company's Annual Report on Form 10-K for the
period ended December 31, 1996 (which is not deemed to be filed
except to the extent that portions thereof are expressly incorporated
by reference herein).
* Confidential treatment requested as to certain portions of exhibit,
which portions have been omitted and filed separately with the
commission
+ Incorporated by reference to Exhibits to the Registrant's Quarterly
Report on Form 10-Q for the three months ended June 30, 1997, filed
with the Commission on August 14, 1997
<PAGE>
ANNEX I
-------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report: APRIL 2, 1997 Commission File No. 0-27352
------------- -------
(Date of earliest event reported)
HYBRIDON, INC.
--------------
(Exact name of registrant as specified in its Charter)
DELAWARE 04-3072298
-------- ----------
(State of other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
620 MEMORIAL DRIVE, CAMBRIDGE, MASSACHUSETTS 02139
- - -------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
(617) 528-7000
--------------
(Registrant's telephone number, including area code)
<PAGE>
ITEM 5. OTHER EVENTS
On April 2, 1997, Hybridon, Inc. (the "Company") completed the sale of
$50,000,000 aggregate principal amount of 9% Convertible Subordinated Notes Due
2004 (the "Notes"). Interest on the Notes will be payable semi-annually in
arrears on April 1 and October 1 of each year, commencing October 1, 1997. The
Notes are convertible at the option of the holder at any time prior to maturity,
unless previously redeemed or repurchased, into shares of Common Stock, $.001
par value per share (the "Common Stock"), of the Company at a conversion price
of $7.0125 per share, subject to adjustment under certain circumstances (the
"Conversion Price").
The Notes are unsecured and subordinate to all Senior Indebtedness (as
defined). The indenture under which the Notes were issued does not restrict the
incurrence of additional indebtedness by the Company or any of its subsidiaries.
The Notes are not redeemable prior to April 1, 2000. Thereafter, the Notes are
redeemable at any time, in whole or in part, at the Company's option, at
specified redemption prices, in each case, plus accrued dividends to the date of
repurchase; provided that from April 1, 2000 to March 31, 2001, the Notes may
not be redeemed unless the closing market price of the Common Stock equals or
exceeds 150% of the Conversion Price for a period of at least 20 out of 30
consecutive trading days and the Notes are redeemed within 60 days after such
trading period.
Upon a Change of Control (as defined), the Company will offer to repurchase
each holder's Notes at a purchase price equal to 150% of the principal amount
thereof, plus accrued and unpaid interest to the date of repurchase.
The Notes have been accepted for inclusion in the Private Offerings,
Resales and Trading through Automated Linkages ("PORTAL") Market. Pursuant to a
Registration Rights Agreement dated as of March 26, 1997, the Company has agreed
to file a Shelf Registration Statement (as defined) relating to the Notes and
the shares of Common Stock issuable upon conversion of the Notes.
ITEM 7. EXHIBITS
1. Purchase Agreement dated as of March 26, 1997 between Forum Capital
Markets L.P. ("Forum") and the Company.
4. Indenture dated as of March 26, 1997 between State Street Bank and Trust
Company and the Company.
10.1 Registration Rights Agreement dated as of March 26, 1997 between Forum and
the Company.
-2-
<PAGE> 3
10.2 Warrant Agreement dated as of March 26, 1997 between Forum and the Company.
99.1 Press release dated March 27, 1997.
99.2 Press release dated April 2, 1997.
-3-
<PAGE> 4
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: April 9, 1997 HYBRIDON, INC.
/s/ E. Andrews Grinstead, III
------------------------------
E. Andrews Grinstead, III
Chairman, President and Chief Executive
Officer
-4-
<PAGE> 5
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<S> <C>
1 Purchase Agreement dated as of March 26, 1997 between Forum
Capital Markets L.P. ("Forum") and the Company.
4 Indenture dated as of March 26, 1997 between State Street Bank
and Trust Company and the Company.
10.1 Registration Rights Agreement dated as of March 26, 1997 between
Forum and the Company.
10.2 Warrant Agreement dated as of March 26, 1997 between Forum and
the Company.
99.1 Press release dated March 27, 1997.
99.2 Press release dated April 2, 1997.
</TABLE>
<PAGE>
ANNEX J
-------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report: July 25, 1997 Commission File No. 0-27352
------------- -------
(Date of earliest event reported)
HYBRIDON, INC.
-------------
(Exact name of registrant as specified in its Charter)
Delaware 04-3072298
-------- ----------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
620 Memorial Drive, Cambridge, Massachusetts 02139
- - -------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
(617) 528-7000
--------------
(Registrant's telephone number, including area code)
<PAGE>
ITEM 5. OTHER EVENTS
On July 25, 1997, Hybridon, Inc. (the "Company") issued a press release
announcing that it had elected to stop further development of its lead
compound, GEM(R) 91, based on its preliminary review of the data from an open
label Phase II clinical trial. In the press release, the Company also announced
that it would be focusing its resources on its second generation chemistries,
that its goal for the second half of 1997 is to effect a reduction in its
expenditure rate on a phased basis over the balance of 1997, and that it had
withdrawn its shelf registration statement filed with the SEC relating to a
primary offering by the Company of up to 5,000,000 shares of its common stock.
A copy of the press release has been filed with this Report on Form 8-K as
Exhibit 99.1 and is incorporated herein by reference.
ITEM 7. EXHIBITS
99.1 Press release dated July 25, 1997.
-2-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: July 24, 1997 HYBRIDON, INC.
/s/ E. Andrews Grinstead, III
---------------------------------
E. Andrews Grinstead, III
Chairman, President and Chief Executive
Officer
-3-
<PAGE>
INDEX TO EXHIBITS
Exhibit
No. Description
- - ------- -----------
99.1 Press release dated July 25, 1997.
<PAGE>
ANNEX K
-------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report: September 3, 1997 Commission File No. 0-27352
----------------- -------
(Date of earliest event reported)
HYBRIDON, INC.
--------------
(Exact name of registrant as specified in its Charter)
Delaware 04-3072298
-------- ----------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
620 Memorial Drive, Cambridge, Massachusetts 02139
- - -------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
(617) 528-7000
--------------
(Registrant's telephone number, including area code)
<PAGE>
ITEM 5. OTHER EVENTS
On September 3, 1997, Hybridon, Inc. (the "Company") issued a press release
announcing the termination of its research and development collaboration with F.
Hoffmann-LaRoche, Ltd. A copy of the press release has been filed with this
Current Report on Form 8-K as Exhibit 99.1 and is incorporated herein by
reference.
ITEM 7. EXHIBITS
99.1 Press release dated September 3, 1997.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: September 5, 1997 HYBRIDON, INC.
/s/ E. Andrews Grinstead, III
---------------------------------------
E. Andrews Grinstead, III
Chairman, President and Chief Executive
Officer
<PAGE>
INDEX TO EXHIBITS
Exhibit
No. Description
- ------- -----------
99.1 Press release dated September 3, 1997.
<PAGE>
ANNEX L
-------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report: September 19, 1997 Commission File No. 0-27352
------------------ -------
(Date of earliest event reported)
HYBRIDON, INC.
--------------
(Exact name of registrant as specified in its Charter)
Delaware 04-3072298
-------- ----------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
620 Memorial Drive, Cambridge, Massachusetts 02139
- - -------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(617) 528-7000
--------------
(Registrant's telephone number, including area code)
<PAGE>
ITEM 5. OTHER EVENTS
On September 19, 1997, Hybridon, Inc. issued a press release announcing
its scheduled delisting from the Nasdaq National Market. A copy of the press
release has been filed with this Current Report on Form 8-K as Exhibit 99.1 and
is incorporated herein by reference.
ITEM 7. EXHIBITS
99.1 Press release dated September 19, 1997.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: September 19, 1997 HYBRIDON, INC.
/s/ E. Andrews Grinstead, III
---------------------------------------
E. Andrews Grinstead, III
Chairman, President and Chief Executive
Officer
<PAGE>
INDEX TO EXHIBITS
EXHIBIT
NO. DESCRIPTION
- - ------- -----------
99.1 Press release dated September 19, 1997.
<PAGE>
ANNEX M
-------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report: September 23, 1997 Commission File No. 0-27352
------------------ -------
(Date of earliest event reported)
HYBRIDON, INC.
--------------
(Exact name of registrant as specified in its Charter)
Delaware 04-3072298
-------- ----------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
620 Memorial Drive, Cambridge, Massachusetts 02139
- - -------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(617) 528-7000
--------------
(Registrant's telephone number, including area code)
<PAGE>
ITEM 5. OTHER EVENTS
On September 23, 1997, Hybridon, Inc. (the "Company") issued a press
release announcing that (i) the Company is moving forward with the appeal
process with The Nasdaq Stock Market Inc., in response to the notification of
delisting that the Company announced last week; and (ii) the Company's common
stock, $.001 par value per share, will continue to trade on the Nasdaq National
Market until the appeal is resolved. A copy of the press release has been filed
with this Current Report on Form 8-K as Exhibit 99.1 and is incorporated herein
by reference.
ITEM 7. EXHIBITS
99.1 Press release dated September 23, 1997.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: September 24, 1997 HYBRIDON, INC.
/s/ E. Andrews Grinstead, III
---------------------------------------
E. Andrews Grinstead, III
Chairman, President and Chief Executive
Officer
<PAGE>
INDEX TO EXHIBITS
EXHIBIT
NO. DESCRIPTION
- - ------- -----------
99.1 Press release dated September 23, 1997.
<PAGE>
ANNEX N
-------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report: November 18, 1997 Commission File No. 0-27352
------------------ -------
(Date of earliest event reported)
HYBRIDON, INC.
--------------
(Exact name of registrant as specified in its Charter)
Delaware 04-3072298
-------- ----------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
620 Memorial Drive, Cambridge, Massachusetts 02139
- - -------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(617) 528-7000
--------------
(Registrant's telephone number, including area code)
<PAGE> 2
ITEM 5. OTHER EVENTS
On November 18, 1997, Hybridon, Inc. (the "Company") issued a press
release announcing that the Company plans to commence a private offering of
shares of its common stock, $.001 par value per share (the "Common Stock"),
pursuant to which the Company intends to sell at one or more closings an
aggregate of up to $50.0 million of its Common Stock (with a minimum first
closing of at least $12.5 million). A copy of the release has been filed with
this Current Report on Form 8-K as Exhibit 99.1 and is incorporated herein by
reference.
ITEM 7. EXHIBITS
99.1 Press release dated November 18, 1997.
<PAGE> 3
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: November 19, 1997 HYBRIDON, INC.
/s/ E. Andrews Grinstead, III
---------------------------------------
E. Andrews Grinstead, III
Chairman, President and Chief Executive
Officer
<PAGE> 4
INDEX TO EXHIBITS
EXHIBIT
NO. DESCRIPTION
- - ------- -----------
99.1 Press release dated November 18, 1997.
<PAGE>
ANNEX O
-------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report: December 3, 1997 Commission File No. 0-27352
---------------- -------
(Date of earliest event reported)
HYBRIDON, INC.
--------------
(Exact name of registrant as specified in its Charter)
Delaware 04-3072298
-------- ----------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
620 Memorial Drive, Cambridge, Massachusetts 02139
- - -------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
(617) 528-7000
--------------
(Registrant's telephone number, including area code)
<PAGE>
ITEM 5. OTHER EVENTS
On December 3, 1997, Hybridon, Inc. (the "Company") issued a press release
announcing that, effective as of the close of business on December 2, 1997, the
Company's Common Stock was delisted from the Nasdaq National Market and that the
Company's Common Stock would be quoted on the OTC Bulletin Board under the
symbol "HYBN" commencing on December 3, 1997. A copy of the press release has
been filed with this Current Report on Form 8-K as Exhibit 99.1 and is
incorporated herein by reference.
ITEM 7. EXHIBITS
99.1 Press release dated December 3, 1997.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: December 3, 1997 HYBRIDON, INC.
/s/ E. Andrews Grinstead, III
---------------------------------------
E. Andrews Grinstead, III
Chairman, President and Chief Executive
Officer
<PAGE>
INDEX TO EXHIBITS
Exhibit
No. Description
- - ------- -----------
99.1 Press release dated December 3, 1997.
<PAGE>
ANNEX P
-------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): January 11, 1998
0-27352
(Commission File Number)
------------------------------
HYBRIDON, INC.
(Exact name of registrant as specified in its charter)
Delaware 3072298
- --------------------------------------------------------------------------------
(State of Incorporation) (IRS Employer
Identification Number)
620 Memorial Drive, Cambridge, Massachusetts 02139
- --------------------------------------------------------------------------------
(Address of registrant's principal executive office)
(617) 528-7000
- --------------------------------------------------------------------------------
(Registrant's telephone number)
------------------------------
- --------------------------------------------------------------------------------
<PAGE>
ITEM 5. Other Events
Hybridon, Inc. (the "Company") has commenced a consent solicitation
(the "Consent Solicitation") with respect to certain proposed amendments to the
Indenture, dated as of March 26, 1997, by and between the Company and State
Street Bank and Trust Company, as trustee (the "Indenture"), which governs the
Company's 9% Convertible Subordinated Notes due 2004 (the "Notes"). Such an
amendment to the Indenture will affect the rights of the holders of the Notes
and subsequent transferees. Prior to making any investment decision with respect
to the Notes, all offerors and offerees of the Notes are urged to inform
themselves as to the then-current status of the Consent Solicitation and such
Indenture amendment.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
HYBRIDON, INC.
By: /s/ E. ANDREWS GRINSTEAD, III
-----------------------------
Name: E. Andrews Grinstead, III
Title: Chairman of the Board,
President and Chief
Executive Officer
Date: January 12, 1998
<PAGE>
ANNEX Q
-------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): January 13, 1998
0-27352
(Commission File Number)
------------------------------
HYBRIDON, INC.
(Exact name of registrant as specified in its charter)
Delaware 3072298
- --------------------------------------------------------------------------------
(State of Incorporation) (IRS Employer
Identification Number)
620 Memorial Drive, Cambridge, Massachusetts 02139
- --------------------------------------------------------------------------------
(Address of registrant's principal executive office)
(617) 528-7000
- --------------------------------------------------------------------------------
(Registrant's telephone number)
------------------------------
- --------------------------------------------------------------------------------
<PAGE>
ITEM 5. Other Events
Hybridon, Inc. (the "Company") and State Street Bank and Trust Company,
as trustee (the "Trustee"), have entered into a First Supplemental Indenture,
dated as of January 13, 1998 (the "Supplemental Indenture"). The Supplemental
Indenture amended the Indenture, dated as of March 26, 1997, between the Company
and Trustee (the "Original Indenture"), which governs the Company's 9%
Convertible Subordinated Notes due 2004 (the "Notes"). The resulting
modifications to the Original Indenture affect the rights of the holders of the
Notes and subsequent transferees. Prior to making any investment decision with
respect to the Notes, all offerors and offerees of the Notes are urged to review
carefully the Supplemental Indenture, the text of which is attached hereto as an
exhibit and is incorporated herein by reference, and to ascertain from the
Company or otherwise whether such Notes are Consenting Notes (as defined in the
Supplemental Indenture).
ITEM 7. Financial Statements, Pro Forma Financial Information and Exhibits
(c) Exhibits.
Exhibit Number Title
- -------------- -----
99 First Supplemental Indenture, dated as of January 13, 1998,
by and between Hybridon, Inc. and State Street Bank and
Trust Company, as Trustee
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
HYBRIDON, INC.
By: /s/ E. ANDREWS GRINSTEAD, III
-----------------------------
Name: E. Andrews Grinstead, III
Title: Chairman of the Board,
President and Chief
Executive Officer
Date: January 15, 1998
<PAGE>
ANNEX R
-------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): January 22, 1998
0-27352
(Commission File Number)
------------------------------
HYBRIDON, INC.
(Exact name of registrant as specified in its charter)
Delaware 3072298
- --------------------------------------------------------------------------------
(State of Incorporation) (IRS Employer
Identification Number)
620 Memorial Drive, Cambridge, Massachusetts 02139
- --------------------------------------------------------------------------------
(Address of registrant's principal executive office)
(617) 528-7000
- --------------------------------------------------------------------------------
(Registrant's telephone number)
------------------------------
- --------------------------------------------------------------------------------
<PAGE>
ITEM 5. Other Events
On January 22, 1998, Hybridon, Inc. (the "Company") issued a press
release announcing that the Company has determined not to proceed with the
offering described in its press release dated November 18, 1997 and filed with a
Current Report on Form 8-K on that date. In lieu thereof, the Company has
commenced a private offering, on a best efforts basis, to overseas investors in
accordance with Regulation S under the Securities Act of 1933 of units
("Units"), each Unit consisting of $100,000 principal amount of Notes due 2007
and certain warrants to purchase Common Stock, pursuant to which the Company
intends to offer (together with a private offering, on a best efforts basis, on
substantially the same terms which the Company may commence in the United
States) a maximum of 400 Units (with an over-allotment option covering an
additional 150 Units), at a purchase price of $100,00 per Unit. A copy of the
release has been filed with this Current Report on Form 8-K as Exhibit 99.1 and
is incorporated herein by reference.
ITEM 7. Financial Statements, Pro Forma Financial Information and Exhibits
(c) Exhibits.
Exhibit Number Title
- - -------------- -----
99.1 Press Release dated January 22, 1998
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
HYBRIDON, INC.
By: /s/ E. ANDREWS GRINSTEAD, III
-----------------------------
Name: E. Andrews Grinstead, III
Title: Chairman of the Board,
President and Chief
Executive Officer
Date: January 22, 1998
<PAGE>
ANNEX S
-------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): January 16, 1998
0-27352
(Commission File Number)
------------------------------
HYBRIDON, INC.
(Exact name of registrant as specified in its charter)
Delaware 3072298
- --------------------------------------------------------------------------------
(State of Incorporation) (IRS Employer
Identification Number)
620 Memorial Drive, Cambridge, Massachusetts 02139
- --------------------------------------------------------------------------------
(Address of registrant's principal executive office)
(617) 528-7000
- --------------------------------------------------------------------------------
(Registrant's telephone number)
------------------------------
- --------------------------------------------------------------------------------
<PAGE>
ITEM 5. Other Events
On January 23, 1998, Hybridon, Inc. (the "Company") issued a press
release announcing that the Company has satisfied the 20 Unit minimum offering
threshold for the private placement, the commencement of which was previously
announced by the Company. A copy of the release has been filed with this Current
Report on Form 8-K as Exhibit 99.1 and is incorporated herein by reference.
ITEM 7. Financial Statements, Pro Forma Financial Information and Exhibits
(c) Exhibits.
Exhibit Number Title
- -------------- -----
99.1 Press Release dated January 23, 1998
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
HYBRIDON, INC.
By: /s/ E. ANDREWS GRINSTEAD, III
-----------------------------
Name: E. Andrews Grinstead, III
Title: Chairman of the Board,
President and Chief
Executive Officer
Date: February 2, 1998
<PAGE>
ANNEX T
-------
FORM OF UNIT PURCHASE AGREEMENT
UNIT PURCHASE AGREEMENT (this "Agreement"), dated as of
________, 1998, by and among HYBRIDON, INC., a Delaware corporation
(the "Company") and the Persons listed on the signature pages hereof
(the "Current Purchasers") and such other Persons that from time to
time hereafter may become party hereto pursuant to Section 13.10, (the
"Additional Purchasers" and collectively with the Current Purchasers,
the "Purchasers").
The Company desires to issue and sell to Purchasers, and Purchasers
desire to purchase from the Company, units consisting of an aggregate of up to
$55,000,000 aggregate principal amount of Notes due 2007 (the "Notes") in
substantially the form attached hereto as Exhibit A, together with certain
warrants to purchase common stock of the Company, upon and subject to the terms
and conditions hereinafter set forth. As used herein, the terms "Unit Offering"
and "Offering" shall mean the offering of Units by the Company during the
Offering Period hereinafter referred to pursuant to this Agreement and
substantially similar agreements.
Accordingly, in consideration of the premises and the mutual agreements
contained herein, Purchasers and the Company hereby agree as follows:
1. Purchase and Sale of the Units.
1.1. Purchase and Sale of the Units. Subject to the terms and
conditions set forth herein, the Company hereby agrees to issue and sell to
Purchasers, and Purchasers, severally and not jointly, hereby agree to purchase
from the Company, units ("Units"), each consisting of (i) $100,000 principal
amount of Notes and (ii) Equity Warrants in accordance with Section 2.2 hereof,
at a Closing (as such term is defined in Section 2.1 hereof), provided however,
that upon the occurrence of the Mandatory Conversion Event (as defined in the
Note), Units will consist of the Series B Preferred Stock that would otherwise
underlie such Notes and such Equity Warrants. The aggregate purchase price for
the respective Units sold to each Purchaser pursuant to this Agreement shall be
the product of (x) the aggregate number of Units purchased by such Purchaser set
forth on the signature page hereto executed by such Purchaser and (y) $100,000.
"Operative Documents" as used herein shall mean this Agreement, the Notes, the
Certificate of Designation for the Series B Preferred Stock of the Company in
substantially the form attached hereto as Exhibit B (the "Certificate of
Designation") (such Preferred Stock, the "Conversion Securities"), the Warrant
Agreement in substantially the form attached hereto as Exhibit C and the
Negative Pledge Agreement in substantially the form attached hereto as Exhibit
D.
1.2. Regulation D Offering. The Company intends to use its best efforts
to retain a placement agent to conduct, on a "best efforts" basis, a private
placement offering of
<PAGE>
the Units in the United States in reliance on Regulation D (the "Regulation D
Offering") to commence no sooner than February 1, 1998.
1.3. Regulation S Offering. The Company has retained [__________] as
placement agent (the "Placement Agent" and, together with any placement agent
for the Regulation D Offering, the "Placement Agents"), to conduct, on a "best
efforts" basis, a private placement offering of the Units in reliance on
Regulation S (the "Regulation S Offering") for sale outside of the "United
States" (as defined in Section 11.26 hereof).
2. Delivery of Units.
2.1. Delivery of Units. (a) The Company shall offer for sale a minimum
of 20 Units (the "Minimum Offering Amount") and an aggregate maximum of up to
400 Units (the "Maximum Offering Amount") (with an option (the "Placement
Agents' Option") in favor of the Placement Agents for an additional 150 Units
(plus warrants to be sold to the Placement Agents or their designees, for $0.01
per warrant, to purchase Units equal, in the aggregate, to 25% of the Units sold
in the Unit Offering). The offering period (the "Offering Period") for the Units
in the Regulation S Offering shall begin on January __, 1998. Upon receipt of
the Minimum Offering Amount, the Company may conduct an initial closing (any
closing hereunder, a "Closing") (the date of which being the "Initial Closing
Date") and may conduct subsequent Closings on an interim basis until the Maximum
Offering Amount (and any additional amount, pursuant to the Placement Agents'
Option) has been reached (the "Final Closing Date"). The Offering Period shall
terminate at 12:00 noon (New York Time) on October __, 1998, subject to
extension at the sole option of the Placement Agents, for an additional 60 days
(the "Termination Date").
(b) Contemporaneously with the execution and delivery of this Agreement
by a Purchaser and pending the sale of Units at a Closing, such Purchaser will
be required to deposit the Purchase Price in escrow with the Escrow Agent (as
defined in the Escrow Agreement hereinafter referred to) by wire transfer of
immediately available funds for the account of the Escrow Agent made payable to
"MeesPierson (Cayman) Limited, Escrow Agent, F/B/O Hybridon, Inc," pursuant to
the terms of an escrow agreement in substantially the form attached hereto as
Exhibit E (the "Escrow Agreement").
(c) At a Closing, the funds required for the purchase of the Units by
respective Purchasers will be released by the Escrow Agent from the escrow
account in accordance with the terms of the Escrow Agreement. The Company will
promptly deliver to Purchasers the Notes underlying the Units to be purchased on
the date of a Closing as set forth in Article 1 hereof against the receipt by
the Company of the Purchase Price from escrow in accordance with the Escrow
Agreement. Each Purchaser hereby authorizes the Placement Agent to accept
delivery of Notes on such Purchaser's behalf in Paris, France unless the
Purchaser is in attendance at such Closing. The Notes shall be registered in the
Purchasers' respective names or the name of the nominee(s) of such Purchasers in
denominations of $1,000 and integral multiples thereof pursuant to instructions
delivered to the Company not less than two days prior to a Closing. Interest on
each Note sold in the Unit Offering shall accrue only from the date of issuance
of such Note. Each Purchaser understands that the purchase of the Units
hereunder
2
<PAGE>
is contingent upon the Company making sales of Units of at least the Minimum
Offering Amount on or before the Termination Date.
(d) Each Closing of the purchase and sale of the Units in the
Regulation S Offering will take place at the offices of the Placement Agent at
[__________]. Any Unit to be sold by the Company under this Agreement must be
sold outside of the United States.
2.2. Equity Warrants. Promptly following the Termination Date or at
such earlier time as shall be determined by the Placement Agent, each Purchaser
shall be entitled to be issued Unit Warrants (as defined below) as follows. All
Units sold in the Offering will contain Unit Warrants (as defined below) to
purchase up to the number of shares of Common Stock equal to 15% (rounded to the
nearest whole share) of the number of shares of Common Stock underlying the
Conversion Securities (as defined below) underlying the principal amount of
Notes included in the number of Units purchased by such Purchaser in the
Offering (or underlying the Conversion Securities sold directly) (such number of
shares of Common Stock, the "Common Equivalent Shares"). In addition, Units
purchased prior to the date on which the Mandatory Conversion Event (as defined
in the Note) occurs will contain Unit Warrants permitting the purchase of up to
an additional 5% of the Common Equivalent Shares (rounded to the nearest whole
share). "Unit Warrants" shall mean warrants exercisable for a period of seven
years from the Final Closing Date (as defined below) at an initial exercise
price equal to the conversion price per share of Common Stock of the Conversion
Securities as in effect on the Final Closing Date. The terms of the Unit
Warrants shall be as more fully described in the Warrant Agreement between the
Company and ChaseMellon Shareholder Services LLC, as Warrant Agent (the "Warrant
Agreement"), a form of which is attached hereto as Exhibit C. Furthermore, in
the event that the Mandatory Conversion Event does not occur on or before the
Termination Date, each Purchaser shall be entitled to receive additional
warrants (the "Additional Warrants") to purchase, at an exercise price of $.001
per share of Common Stock, a number of shares of Common Stock equal to 100%
(rounded to the nearest whole share) of the Common Equivalent Shares underlying
the Units purchased by such Purchaser in the Offering, which Additional Warrants
will be exercisable immediately; provided, however, that if by the Termination
Date the Company has received proceeds, net of cash fees, commissions and
expenses, of at least $20,000,000 but the Exchange Offer has not been open until
the expiration of 20 (or, if required by law, 30) business days (i.e., the
minimum period required by Federal law), such Additional Warrants will be
exercisable beginning on the first day following the end of such statutory
period unless the Mandatory Conversion Event (as defined in the Note) has
occurred. After the occurrence of any Mandatory Conversion Event, upon the
occurrence of a Reset Event (as defined in the Certificate of Designation), each
Purchaser shall be issued additional Unit Warrants to purchase the number of
shares of Common Stock equal to 50% of the product of (x) the number of
Conversion Securities held of record by such Purchaser at such time, multiplied
by (y) the difference between (1) the Conversion Rate (as defined in the
Certificate of Designation) immediately following the Reset Event minus (2) the
Conversion Rate immediately preceding the Reset Event. The Company shall not be
required to issue any fractional shares upon exercise of the Unit Warrants or
the Additional Warrants (collectively, the "Equity Warrants") or pay any cash in
lieu thereof. Notwithstanding the foregoing, so long as any 9% Notes due 2004
("9% Notes") of the Company remain outstanding, warrantholders may not exercise
Equity Warrants to the extent that such exercise
3
<PAGE>
could, in the Company's judgment, either alone or in conjunction with other
issuances or holdings of capital stock, other warrants or convertible securities
of the Company, result in a Change of Control (as defined in the Indenture
referred to in the Note).
3. Conditions to the Obligations of Purchasers at a Closing. The
obligation of Purchasers to purchase and pay for the Units to be purchased by
Purchasers at a Closing is subject to the satisfaction on or prior to the
relevant Closing Date of the following conditions, which may only be waived by
written consent of the Placement Agent.
3.1. Representations and Warranties. The representations and warranties
of the Company contained in this Agreement shall be true and correct in all
material respects when made, and shall be true and correct in all material
respects at and as of the date of such Closing as if they had been made on and
as of such Closing.
3.2. Performance of Covenants. All of the covenants and agreements of
the Company contained in this Agreement and required to be performed on or prior
to the relevant Closing Date shall have been performed in a manner reasonably
satisfactory to the Secured Party.
3.3. Closing Documents. The Company shall have delivered to the
Placement Agent the following:
(a) a certificate executed by the President or Chief Executive Officer
of the Company dated the relevant Closing Date stating that the conditions set
forth in Sections 3.1 and 3.2 have been satisfied; and
(b) a certificate of the Secretary or Assistant Secretary of the
Company, dated the relevant Closing Date, certifying the attached copy of the
By-laws of the Company, the authorization of the execution, delivery and
performance of this Agreement, and the resolutions authorizing the actions to be
taken by the Company under this Agreement.
3.4. Negative Pledge. The Company shall have entered into the Negative
Pledge Agreement with the Secured Party on behalf of Purchasers, in
substantially the form of Exhibit D hereto, covering the intellectual property
of the Company.
3.5. No Legal Order Pending. There shall not then be in effect any
legal or other order enjoining or restraining the transactions contemplated by
this Agreement.
3.6. No Law Prohibiting or Restricting Such Sale. There shall not be in
effect any law, rule or regulation prohibiting or restricting such sale or
requiring any consent or approval of any person which shall not have been
obtained to issue the Units (except as otherwise provided in this Agreement).
3.7. Minimum Offering Amount. The Company shall have previously
received (or shall receive at such Closing) at least the Minimum Offering
Amount.
4
<PAGE>
3.8. Legal Opinion. If requested by the Placement Agent at a Closing,
counsel to the Company shall have delivered to the Placement Agent for the
benefit of such Placement Agent and the Purchasers at such Closing, a legal
opinion concerning legal matters relating to this Agreement and the Term Sheet
as the Placement Agent may require.
3.9. Comfort Letter. If requested by the Placement Agent at a Closing,
the Company's auditors, Arthur Andersen LLP, shall have delivered to the
Placement Agent for the benefit of the Placement Agent and the Purchasers at
such Closing, a comfort letter to such effect as the Placement Agent may
require.
3.10. Proceedings. All corporate and other proceedings taken or to be
taken in connection with the transactions contemplated hereby to be consummated
at each Closing and all documents incident thereto shall be reasonably
satisfactory in form and substance to the Secured Party, including but not
limited to the authorization of the issuance of the Conversion Securities,
Equity Warrants, Placement and Advisory Warrants (as defined in Section 11.11)
and the Unit-Underlying Common Stock (as defined in Section 11.24).
4. Conditions to the Obligations of the Company at a Closing. The
obligation of the Company to issue and sell Units to Purchasers at a Closing is
subject to the satisfaction of the following conditions, each of which may be
waived by the Company:
4.1. Representations and Warranties. The representations and warranties
of each Purchaser contained in this Agreement shall be true and correct when
made, and shall be true and correct at and as of the date of such Closing as if
they had been made on and as of such Closing.
4.2. No Law Prohibiting or Restricting Such Sale. There shall not be in
effect any law, rule or regulation prohibiting or restricting such sale or
requiring any consent or approval of any person which shall not have been
obtained to issue the Notes (except as otherwise provided in this Agreement).
5. Creation of Security Interest.
5.1. Grant of Security Interest.
(a) The Company hereby grants and pledges to [__________] (or his
designee) (the "Secured Party"), solely as agent for Purchasers and not in his
individual capacity, a continuing security interest in all presently existing
and hereafter acquired or arising assets and property of the Company described
on Exhibit F hereto (the "Collateral") in order to secure prompt payment of the
principal sum and interest evidenced by the Notes, and the performance by the
Company of each of its obligations under this Agreement and the Notes. Such
security interest shall automatically terminate upon the earlier of (i) the
payment of principal and interest on the Notes and (ii) such time as the Notes
are no longer outstanding (the "Security Interest Termination Date"). Purchasers
hereby acknowledge and agree that the security interests granted hereby are
subordinate and subject to any prior security interest in the Collateral granted
by the Company and are subordinate and subject to any lien granted in the future
to secure
5
<PAGE>
Senior Indebtedness of the Company. Purchasers and the Secured Party hereby
agree not to exercise any of their rights with respect to the Collateral under
this Agreement, at law, in equity or otherwise until the holders of Senior
Indebtedness have been paid in full.
(b) Purchasers, by their acceptance of the benefits of this Agreement
and the Notes, hereby irrevocably designate the Secured Party to act as Secured
Party with respect to this Agreement and as specified in the other Operative
Documents. Each Purchaser hereby irrevocably authorizes, and each holder of any
Note, by such holder's acceptance of such Note, shall be deemed irrevocably to
authorize, the Secured Party to take such action on its behalf under the
provisions of this Agreement and the other Operative Documents and any other
instruments and agreements referred to herein or therein and to exercise such
powers and to perform such duties hereunder and thereunder as are specifically
delegated to, or required of, the Secured Party by the terms hereof or thereof
and such other powers as are reasonably incidental thereto. Each Purchaser, on
behalf of itself and future holders of the Notes issued to such Purchaser,
hereby authorizes and directs the Secured Party, from time to time in the
Secured Party's discretion to take any action and promptly to execute and
deliver on its behalf any document or instrument that the Company may reasonably
request to effect, confirm or evidence the provisions of this Article 5,
including, without limitation, the occurrence of the Security Interest
Termination Date, any subordination agreement, or otherwise. In addition,
Purchasers and Secured Party hereby covenant and agree promptly to execute and
deliver any such document or instrument in respect of such subordination, and in
respect of the occurrence of the Security Interest Termination Date, as the
Company may reasonably request.
5.2. Delivery of Additional Documentation Required. The Company shall
from time to time execute and deliver to Secured Party, at the request of
Secured Party, all financing statements and other documents that Secured Party
may reasonably request to perfect and continue perfected Secured Party's
security interests in the Collateral and in order fully to consummate all of the
transactions contemplated under this Agreement, it being understood and agreed
by the Purchasers and the Secured Party that the Company need not deliver
possession of any Collateral to the Secured Party, take any action to perfect
the security interest granted hereby other than the filing of financing
statements under the Uniform Commercial Code or take any other action that
would, in its sole judgment, conflict with the terms of or pertaining to any
Senior Indebtedness.
6. Representations and Warranties of Purchasers. Purchasers hereby
severally represent and warrant to the Company as follows:
6.1. Investment Intent. Each Purchaser recognizes that the purchase of
the Units involves a high degree of risk including, but not limited to, the
following: (i) the Company remains a development stage business with limited
operating history and requires substantial funds in addition to the proceeds of
the Unit Offering; (ii) an investment in the Company is highly speculative, and
only investors who can afford the loss of their entire investment should
consider investing in the Company, the Units, the Notes, the Equity Warrants, or
the shares of Conversion Securities of the Company issued on conversion of, or
in lieu of, the Notes or the Unit-Underlying Common Stock, (iii) such Purchaser
may not be able to liquidate his investment; (iv) transferability of the Notes,
the Equity Warrants, any shares of Conversion Securities
6
<PAGE>
of the Company which may be issued upon conversion of, or in lieu of, the Notes
and the Unit-Underlying Common Stock is extremely limited; (v) in the event of a
disposition of the Notes, the Equity Warrants, the Conversion Securities or the
Unit-Underlying Common Stock, such Purchaser could sustain the loss of his
entire investment and (vi) the Company has not paid any dividends since
inception and does not anticipate the payment of dividends on the Common Stock
or the Conversion Securities in the foreseeable future. Such risks are more
fully set forth in the Term Sheet (as hereinafter defined) furnished by the
Company to such Purchaser.
6.2. Lack of Liquidity. Each Purchaser confirms that he or it is able
(i) to bear the economic risk of this investment, (ii) to hold the Notes, the
Equity Warrants, any shares of Conversion Securities of the Company issued upon
conversion of, or in lieu of, the Notes and any shares of Unit-Underlying Common
Stock for an indefinite period of time, and (iii) presently to afford a complete
loss of his or its investment; and represents that he or it has sufficient
liquid assets so that the illiquidity associated with this investment will not
cause any undue financial difficulties or affect such Purchaser's ability to
provide for his or its current needs and possible financial contingencies, and
that his or its commitment to all speculative investments is reasonable in
relation to his or its net worth and annual income. Furthermore, each Purchaser
acknowledges that the Equity Warrants and the Conversion Securities contain
certain restrictions on exercise, voting, conversion and certain other rights,
as more particularly set forth in the Warrant Agreement and the Certificate of
Designation for the Conversion Securities, attached hereto as Exhibits C and B,
respectively.
6.3. Knowledge and Experience. Each Purchaser hereby acknowledges and
represents that such Purchaser has prior investment experience, including
investment in securities that are non-listed, unregistered and are not traded on
the Nasdaq National or SmallCap Market, nor on the National Association of
Securities Dealers, Inc.'s (the "NASD") automated quotation system, or such
Purchaser has employed at its own expense the services of an investment advisor,
attorney and/or accountant to request documents from the Company pursuant to
Section 6.5 hereof and to read all of the documents furnished or made available
by the Company to such Purchaser and to evaluate the investment, tax and legal
merits and the consequences and risks of such a transaction on such Purchaser's
behalf, that such Purchaser or such professional advisor has such knowledge and
experience in financial and business matters and that such Purchaser or such
professional advisor is capable of evaluating the merits and risks of the
prospective investment and, if applicable, satisfies the conditions set out in
Rule 501(h) under the Securities Act.
6.4. Purchaser Capacity. Each Purchaser hereby represents that such
Purchaser either by reason of such Purchaser's business or financial experience,
or the business or financial experience of such Purchaser's professional
advisors (who are unaffiliated with, and who are not compensated by, the Company
or any affiliate or selling agent of the Company, including the Placement Agent,
directly or indirectly), has the capacity to protect such Purchaser's own
interests in connection with the transaction contemplated hereby.
6.5. Term Sheet. Each Purchaser hereby acknowledges receipt and careful
review of (a) the Confidential Term Sheet of the Company attached hereto as
Exhibit G, as supplemented and amended, and the attachments and exhibits
thereto, all of which constitute an
7
<PAGE>
integral part thereof (the "Term Sheet"), and (b) this Agreement and all
attachments to it, and hereby represents that such Purchaser has been furnished
by the Company during the course of this transaction with all information
regarding the Company which such Purchaser or its representative has requested
or desired to know, has been afforded the opportunity to ask questions of, and
to receive answers from, duly authorized officers or other representatives of
the Company concerning the terms and conditions of the Unit Offering, the Notes,
the Equity Warrants, the Conversion Securities and the Unit-Underlying Common
Stock and the affairs of the Company and has received any additional information
which such Purchaser or its representative has requested.
6.6. Reliance on Information. Each Purchaser has relied solely upon the
information provided by the Company in the Term Sheet and in this Agreement in
making the decision to invest in the Units. To the extent necessary, each
Purchaser has retained, at the sole expense of such Purchaser, and relied upon,
appropriate professional advice regarding the investment, tax and legal merits
and consequences of this Agreement and its purchase of the Units, the Notes, the
Equity Warrants, the conversion of the Notes into, or the purchase of, the
Conversion Securities and the conversion into or exercise for Unit-Underlying
Common Stock hereunder. Each Purchaser acknowledges and agrees that (i) the
Company has prepared the Term Sheet and that no other Person, including, without
limitation, any of the Placement Agents, has supplied any information for
inclusion in the Term Sheet other than information furnished in writing to the
Company by the Placement Agents specifically for inclusion in the Term Sheet
relating to such respective placement agent, (ii) the Placement Agents have no
responsibility for the accuracy or completeness of the Term Sheet and (iii) such
Purchaser has not relied upon the independent investigation or verification, if
any, which may have been undertaken by the Placement Agents.
6.7. No Solicitation. Each Purchaser represents that (i) such Purchaser
was contacted regarding the sale of the Units by the Placement Agent (or an
authorized agent or representative thereof) with whom such Purchaser had a prior
substantial pre-existing relationship and (ii) no Units were offered or sold to
such Purchaser by means of any form of general solicitation or general
advertising, and in connection therewith no Purchaser (A) received or reviewed
any advertisement, article, notice or other communication published in a
newspaper or magazine or similar media or broadcast over television or radio
whether closed circuit, or generally available; or (B) attended any seminar
meeting or industry investor conference whose attendees were invited by any
general solicitation or general advertising.
6.8. Registration. Each Purchaser hereby acknowledges that the Unit
Offering has not been reviewed by the Securities and Exchange Commission or any
state regulatory authority, since the Unit Offering is intended to be exempt
from the registration requirements of Section 5 of the Securities Act pursuant
to Regulation S. No Purchaser shall sell or otherwise transfer the Units, the
Notes, the Conversion Securities, the Equity Warrants or any Unit-Underlying
Common Stock unless such securities are registered under the Securities Act or
unless an exemption from such registration is available.
6.9. Purchase for own Account. Each Purchaser understands that neither
the Units nor the Notes nor the Equity Warrants nor any shares of Conversion
Securities issued or
8
<PAGE>
issuable upon conversion of, or in lieu of, the Notes nor any shares of
Unit-Underlying Common Stock have been registered under the Securities Act by
reason of a claimed exemption under the provisions of the Securities Act which
depends, in part, upon such Purchaser's investment intention. In this
connection, each Purchaser hereby represents that such Purchaser is purchasing
Units for such Purchaser's own account for investment and not with a view toward
the resale or distribution to others or for resale in connection with, any
distribution or public offering (within the meaning of the Securities Act), nor
with any present intention of distributing or selling the same and such
Purchaser has no present or contemplated agreement, undertaking, arrangement,
obligation or commitment providing for the disposition thereof. No Purchaser, if
an entity, was formed for the purpose of purchasing the Units.
6.10. Holding Period. Each Purchaser understands that there is no
public market for the Notes, the Equity Warrants or any shares of the Conversion
Securities issued upon conversion of the Notes and that no market is expected to
develop for any such Notes, such Equity Warrants or such shares. Each Purchaser
understands that even if a public market develops for such Notes, such Equity
Warrants or such shares, reliance upon Rule 144 under the Securities Act for
resales requires, among other conditions, a one-year holding period prior to the
resale (in limited amounts) of securities acquired in a non-public offering
without having to satisfy the registration requirements under the Securities
Act. Each Purchaser understands and hereby acknowledges that the Company is
under no obligation to register any of the Notes, any Equity Warrants or any
shares of the Conversion Securities under the Securities Act or any applicable
non-United States, state securities or "blue sky" laws. Each Purchaser shall
hold the Company and its directors, officers, employees, controlling persons and
agents (including the Placement Agents and their respective officers, directors,
employees, counsel, controlling persons and agents) and their respective heirs,
representatives, successors and assigns harmless from, and shall indemnify them
against, all liabilities, costs and expenses incurred by them as a result of (i)
any misrepresentation made by such Purchaser contained in this Agreement
(including in Article 14 hereof), (ii) any sale or distribution by such
Purchaser in violation of the Securities Act or any applicable non-United
States, state securities or "blue sky" laws or (iii) any untrue statement made
by such Purchaser.
6.11. Legends. Each Purchaser consents to the placement of the legend
set forth below on any certificate or other document evidencing the Notes:
"THE TERMS OF THIS NOTE ARE SUBJECT TO THE TERMS OF A UNIT PURCHASE
AGREEMENT, A COPY OF WHICH IS AVAILABLE FROM HYBRIDON, INC. (THE
"COMPANY"). THE SECURITIES REPRESENTED BY THIS NOTE HAVE NOT BEEN
REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), OR ANY APPLICABLE STATE SECURITIES LAWS, AND
MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED OR OTHERWISE
TRANSFERRED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH
RESPECT TO THE SECURITIES UNDER
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THE SECURITIES ACT OR AN EXEMPTION FROM THE SECURITIES ACT. ANY SUCH
TRANSFER MAY ALSO BE SUBJECT TO COMPLIANCE WITH APPLICABLE STATE
SECURITIES LAWS AND THE LAWS OF OTHER APPLICABLE JURISDICTIONS."
Each Purchaser further consents to the placement of one or more restrictive
legends on the shares of Conversion Securities, the Equity Warrants and the
Unit-Underlying Common Stock as required by applicable securities laws. Each
Purchaser is aware that the Company will make a notation in its appropriate
records with respect to the restrictions on the transferability of such Notes,
Equity Warrants, Conversion Securities and Unit-Underlying Common Stock.
6.12. Financial Review. Each Purchaser understands that the Company
will review this Agreement and is hereby given authority by each Purchaser to
call such Purchaser's bank or place of employment or otherwise review the
financial standing of such Purchaser; and it is further agreed that the Company
(with the consent of the Placement Agent) and the Placement Agent, at its sole
discretion, reserves the unrestricted right, without further documentation or
agreement on the part of such Purchaser, to reject or limit any purchase, and to
close the Unit Offering to such Purchaser at any time.
6.13. Residence of Purchaser. Each Purchaser hereby represents that the
address of such Purchaser furnished by such Purchaser on the signature page
hereof is such Purchaser's principal residence if such Purchaser is an
individual or its principal business address if it is a corporation or other
entity.
6.14. Power and Authority. Each Purchaser represents that such
Purchaser has full power and authority (corporate, statutory and otherwise) to
execute and deliver this Agreement and to purchase the Units, the Equity
Warrants, the Notes, the shares of Conversion Securities issuable upon
conversion of, or in lieu of, the Notes and any shares of Unit-Underlying Common
Stock. This Agreement constitutes the legal, valid and binding obligation of
each Purchaser, enforceable against such Purchaser in accordance with its terms.
6.15. Plans. If a Purchaser is a corporation, partnership, limited
liability company, trust, employee benefit plan, individual retirement account
or other entity, then subject to the terms contained in this Agreement (a) it is
authorized and qualified to become an investor in the Company and the person
signing this Agreement on behalf of such entity has been duly authorized by such
entity to do so, and (b) it is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization.
6.16. NASD. Each Purchaser acknowledges that if he or she is a
registered representative of an NASD member firm, he or she must give such firm
the notice required by the NASD's Rules of Fair Practice, receipt of which must
be acknowledged by such firm in Section 14.3 below.
6.17. Securities Laws. Each Purchaser acknowledges that at such time,
if ever, as the Notes, the Equity Warrants, Conversion Securities or
Unit-Underlying Common Stock
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are registered, sales of the Notes, the Equity Warrants the Conversion
Securities and Unit-Underlying Common Stock will be subject to applicable
non-United States and state securities laws, including those of the State of New
Jersey which require any securities sold in New Jersey to be sold through a
registered broker-dealer or in reliance upon an exemption from registration.
6.18. Brokers. Each Purchaser represents and warrants that it has not
engaged, consented to nor authorized any broker, finder or intermediary to act
on its behalf, directly or indirectly, as a broker, finder or intermediary in
connection with the transactions contemplated by this Agreement. Each Purchaser
shall indemnify and hold harmless the Company from and against all fees,
commissions or other payments owing to any such person or firm acting on behalf
of such Purchaser hereunder.
6.19. Placement Agent. Each Purchaser acknowledges that (a) the Company
has engaged, consented to and authorized the Placement Agent in connection with
the transactions contemplated by this Agreement, (b) the Company shall pay the
Placement Agent (and the placement agent in the Regulation D Offering) certain
advisory and restructuring fees and a commission and reimburse the Placement
Agents' expenses in accordance with their respective placement agency
agreements, and the Company shall indemnify and hold harmless such Purchaser
from and against all fees, commissions or other payments owing by the Company to
the Placement Agents or any other person or firm acting on behalf of the Company
hereunder and (c) registered representatives of the Placement Agents and/or
their respective designees (including, without limitation, registered
representatives of the Placement Agents and/or their respective designees who
participate in the Unit Offering or in the issuance of shares of the Conversion
Securities upon conversion of the Notes) will be paid a portion of the
commissions paid to the relevant placement agent including a portion of the
Placement and Advisory Warrants (as defined in Section 11.11 hereof).
6.20. Beneficial Owner. Each Purchaser, whose name appears on the
signature line below, will be the beneficial owner of the Units that such
Purchaser acquires.
6.21. Accredited Investor. Each Purchaser represents that it is an
"accredited investor" as such term is defined in Rule 501 of Regulation D.
6.22. Reliance on Representation and Warranties. Each Purchaser
understands that the Units are being offered and sold to the undersigned in
reliance on specific exemptions from the registration requirements of United
States Federal and state securities laws and that the Company is relying upon
the truth and accuracy of the representations, warranties, agreements,
acknowledgments and understandings of the undersigned set forth herein in order
to determine the applicability of such exemptions and the suitability of the
undersigned to acquire the Notes, the Equity Warrants, the Conversion Securities
and the Unit-Underlying Common Stock.
6.23. Lock-Up Period. Subject to the proviso below, and to Section
7.1(c), from the date hereof and continuing for a period (the "Lock-Up Period")
of nine (9) months from the effective date of the Registration Statement (as
defined in Section 12.2 hereof) (the "Effective Date"), each Purchaser shall
not, without the prior written consent of the Placement Agent, offer, pledge,
sell, contract to sell, grant any option for the sale of, or otherwise dispose
of,
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directly or indirectly, 75% of the Registrable Securities (as defined in Section
12.1) purchased or acquired by each Purchaser, provided, however, that,
following each three month period after the Effective Date, an amount of
Registrable Securities equal to 25% of the number of Registrable Securities
purchased or acquired by each Purchaser shall become exempt from the lock-up
provisions contained in this sentence. For the sake of clarity, subject to
Section 7.1(c), 25% of the Registrable Securities will not be subject to any
lock-up. In addition, each Purchaser agrees that during the period from the date
that such Purchaser was first contacted with respect to the potential purchase
of Transfer Restricted Securities through the last date upon which such
Purchaser holds any Transfer Restricted Securities (as defined in Section 12.1)
or Registrable Securities, such Purchaser shall not, directly or indirectly,
through related parties, affiliates or otherwise, (i) sell "short" or "short
against the box" (as those terms are generally understood) any security of the
Company or (ii) otherwise engage in any transaction, except for any transaction
contemplated by this Agreement, that involves hedging of such Purchaser's
position in any security of the Company.
6.24. Conversion Securities Certificates. Each Purchaser consents to
the placement of a statement on the face or back of any certificates
representing Conversion Securities, in substantially the following form:
"Hybridon, Inc. (the "Corporation") will furnish without charge to each
stockholder who so requests the powers, designations, preferences and
relative, participating, optional, or other special rights of each
class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights."
7. Additional Representations and Warranties Relating to Regulation S.
7.1. Each Purchaser hereby additionally represents and warrants to the
Company as follows:
(a) such Purchaser is not a U.S. Person or a Person in the United
States, is purchasing the Units for such Purchaser's own account and is not
acquiring the Notes or the Equity Warrants purchased hereunder or any Conversion
Securities or Unit-Underlying Common Stock for the account or benefit of any
U.S. Person;
(b) such Purchaser understands and acknowledges that (i) neither the
Units, nor the Notes, nor the Equity Warrants nor the Conversion Securities nor
the Unit-Underlying Common Stock have been registered under the Securities Act
and that the Units, the Notes, the Equity Warrants, the Conversion Securities
and the Unit-Underlying Common Stock may not be offered or sold in the United
States or to, or for the account or benefit of, any U.S. Person unless the
Units, the Notes, the Equity Warrants or shares of Conversion Securities or
Unit-Underlying Common Stock are registered under the Securities Act or such
offer or sale is made pursuant to an exemption from the registration
requirements of the Securities Act and (ii) the Units are being distributed
pursuant to the terms of Regulation S, which permits securities to be sold to
Persons outside the United States or to Persons that are not U.S. Persons in an
"offshore
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transaction" (as defined in the Securities Act Rule 902(i)), subject to certain
terms and conditions;
(c) such Purchaser acknowledges that for a period of one year following
the Final Closing Date (the "Restricted Period"), such Purchaser shall not (i)
engage in any activity undertaken for the purpose of, or that could reasonably
be expected to have the effect of, conditioning the market in the United States
for the Units, the Notes, the Equity Warrants, the Conversion Securities or the
Company's Common Stock or (ii) unless such Units, Notes, Equity Warrants or
shares of Conversion Securities or Common Stock are registered under the
Securities Act or an exemption from the registration requirements of the
Securities Act is available, offer, sell or transfer any of the Units, the
Notes, the Equity Warrants, or any shares of Conversion Securities or
Unit-Underlying Common Stock in the United States or to, or for the account or
benefit of, a U.S. Person. Such Purchaser understands that the Notes, the Equity
Warrants, shares of Conversion Securities and Unit-Underlying Common Stock or
any interest therein are only transferable on the books and records of the
transfer agent and registrar of the Company. Such Purchaser further understands
that such transfer agent and registrar will not register any transfer of the
Units, the Notes, the Equity Warrants or shares of Conversion Securities or
Unit-Underlying Common Stock which the Company believes may violate the
restrictions set forth in this paragraph (c), and that the Company may place
stop transfer orders with its transfer agent with respect to certificates
representing Notes, Equity Warrants, Conversion Securities and Unit-Underlying
Common Stock. The Company may require a certification satisfactory to it from
such Purchaser as a condition to such registration and transfer;
(d) such person did not receive any offer to purchase Units in the
United States, no directed selling efforts were made to such Purchaser in the
United States in contravention of the requirements of Regulation S and, at the
time of both the offer and sale of the Units to such Purchaser, such Purchaser
was outside the United States;
(e) to the best knowledge of the Purchaser, each distributor (as the
term is defined in Regulation S) participating in the Regulation S Offering, if
any, has agreed that all offers and sales of the Units prior to the expiration
of a period of one year commencing on the Final Closing Date shall only be made
in compliance with the safe harbor provisions contained in Regulation S and the
Restricted Period, or pursuant to registration of the Units, the Notes, the
Equity Warrants, the Conversion Securities and/or the Unit-Underlying Common
Stock under the Securities Act or pursuant to an applicable exemption from
registration under the Securities Act;
(f) such Purchaser agrees that for the duration of the Restricted
Period the Notes shall bear the legend set forth below and the Conversion
Securities, Equity Warrants and Unit-Underlying Common Stock shall bear a
similar legend:
"THE TERMS OF THIS NOTE ARE SUBJECT TO THE TERMS OF A UNIT PURCHASE
AGREEMENT, A COPY OF WHICH IS AVAILABLE FROM HYBRIDON, INC. (THE
"COMPANY"). THE SECURITIES REPRESENTED BY THIS NOTE HAVE NOT BEEN
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REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED
(THE"SECURITIES ACT"), OR ANY APPLICABLE STATE SECURITIES LAWS, AND MAY
NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED OR OTHERWISE
TRANSFERRED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH
RESPECT TO THE SECURITIES UNDER THE SECURITIES ACT OR AN EXEMPTION FROM
THE SECURITIES ACT. ANY SUCH TRANSFER MAY ALSO BE SUBJECT TO COMPLIANCE
WITH APPLICABLE STATE SECURITIES LAWS AND THE LAWS OF OTHER APPLICABLE
JURISDICTIONS.
THIS NOTE MAY NOT BE OFFERED OR SOLD IN THE UNITED STATES OR TO A U.S.
PERSON OR FOR THE ACCOUNT OR BENEFIT OF A U.S. PERSON PRIOR TO THE
EXPIRATION OF THE RESTRICTED PERIOD (AS DEFINED IN THE PURCHASE
AGREEMENT), AND NO TRANSFER OR EXCHANGE OF THIS NOTE MAY BE MADE UNTIL
AFTER THE LATER OF THE DATE OF EXPIRATION OF THE RESTRICTED PERIOD AND
THE DATE ON WHICH THE REQUIRED CERTIFICATION RELATING TO SUCH INTEREST
HAS BEEN PROVIDED IN ACCORDANCE WITH THE TERMS OF THE PURCHASE
AGREEMENT";
(g) Following the expiration of the Restricted Period each Purchaser
requesting removal of any legend shall provide to the Company a written
representation that, during the Restricted Period, neither Units nor any Notes
nor any Conversion Securities nor any Equity Warrants nor any Unit-Underlying
Common Stock were sold or arranged to be sold in the United States or to a U.S.
Person and that neither the Units nor any Notes nor any Conversion Securities
nor any Equity Warrants nor any Unit-Underlying Common Stock will be used to
cover a short sale or other borrowing of any securities of the Company in the
United States made during the Restricted Period; and
(h) Such Purchaser is not purchasing the Units nor any Notes nor any
Conversion Securities nor any Equity Warrants nor any Unit-Underlying Common
Stock as part of any plan or scheme to evade the registration requirements of
the Securities Act.
7.2. Foreign Status The Purchaser hereby represents that (a) such
Purchaser (1) is not a citizen or resident of the United States, a corporation
or partnership organized under the laws of the United States or any state
thereof or a trust or estate whose income is includable in gross income for
United States Federal income tax purposes regardless of its source and (2) has
accurately completed the Form W-8 attached hereto as Exhibit H, or (b) such
Purchaser will promptly provide the Company with an accurately completed Form
W-9 or substitute Form W-9 providing such Purchaser's U.S. taxpayer
identification number. The Purchaser hereby consents to the withholding from
payments otherwise due and payable by the Company of amounts required to be
withheld under applicable tax law.
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8. Representation, Warranties and Covenants of the Company. Except as
set forth on the Schedule of Exceptions attached hereto as Exhibit I, the
Company hereby represents, warrants and covenants to each Purchaser that:
8.1. Organization, Good Standing and Qualification. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has the corporate power and authority to conduct
its business as described in the Term Sheet. The Company is duly qualified to do
business as a foreign corporation and is in good standing in Massachusetts and
in each jurisdiction in which the nature of the business conducted, or as
proposed to be conducted in the Term Sheet, by it or the properties owned,
leased or operated by it, makes such qualification or licensing necessary and
where the failure to be so qualified or licensed would have a material adverse
effect upon the business, operations or financial condition of the Company.
8.2. Capitalization and Voting Rights. The authorized, issued and
outstanding capital stock of the Company, as of the date of the Term Sheet, is
as set forth in the Term Sheet under the heading "Equity Capitalization and
Indebtedness"; all issued and outstanding shares of capital stock of the Company
are validly issued, fully paid and nonassessable. Except as set forth in the
Term Sheet, as of the date of the Term Sheet, there are no outstanding options,
warrants, agreements, convertible securities, preemptive rights or other rights
to subscribe for or to purchase any shares of capital stock of the Company.
Except as set forth in the Term Sheet, in this Agreement and as otherwise
required by law, there are no restrictions upon the voting or transfer of the
Transfer Restricted Securities (as defined in Section 12.1) pursuant to the
Company's Certificate of Incorporation, as amended (the "Certificate of
Incorporation"), Bylaws or other governing documents or any agreement or other
instruments to which the Company is a party or by which the Company is bound.
8.3. Authorization; Enforceability. The Company has the corporate power
and authority to enter into this Agreement and to consummate the transactions
contemplated hereby. All corporate action on the part of the Company, its
directors and stockholders necessary for the execution, delivery and performance
of this Agreement by the Company, the sale, issuance and delivery of the Units
contemplated hereby and the performance of the Company's obligations hereunder
has been taken. This Agreement has been duly executed and delivered by the
Company and constitutes a legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, subject to laws of
general application relating to bankruptcy, insolvency and the relief of debtors
and rules of law governing specific performance, injunctive relief or other
equitable remedies, and to limitations of public policy. Upon the issuance and
delivery of the Conversion Securities and Registrable Securities, as
contemplated by this Agreement, such securities will be duly and validly
authorized and issued, fully paid and nonassessable. The issuance and sale of
the securities contemplated hereby will not give rise to any preemptive rights
or rights of first refusal on behalf of any person.
8.4. No Conflict; Governmental Consents.
(a) The execution and delivery by the Company of this Agreement and the
consummation by the Company of the transactions contemplated hereby will not
result in the
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violation of any law, statute, rule, regulation, order, writ, injunction,
judgment or decree of any court or governmental authority to or by which the
Company is bound, or of any provision of the Certificate of Incorporation or
By-laws of the Company, and will not conflict with, or result in a material
breach or violation of, any of the terms or provisions of, or constitute (with
due notice or lapse of time or both) a material default under, any material
lease, loan agreement, mortgage, security agreement, note, trust indenture or
other agreement or instrument to which the Company is a party or by which it is
bound or to which any of its properties or assets is subject nor result in the
creation or imposition of any lien upon any of the properties or assets of the
Company other than in favor of the Secured Party.
(b) No consent, approval, authorization or other order of any
governmental authority or other third-party under any material agreement to
which the Company is a party is required to be obtained by the Company in
connection with the authorization, execution and delivery of this Agreement or
with the authorization, issuance and sale of the Units, except such as have
already been obtained and such filings as may be required to be made with the
Securities and Exchange Commission and with any state or foreign "blue sky" or
securities regulatory authority.
8.5. Governmental Authorizations. Except as set forth in the Term
Sheet, the Company has, on the date hereof and on the relevant Closing Date, all
material licenses, permits and other governmental authorizations currently
required for the conduct of its business or ownership of properties and is in
all material respects complying therewith.
8.6. Litigation. Except as set forth in the Term Sheet, on the date
hereof and on the relevant Closing Date, the Company knows of no pending or, to
the knowledge of the Company, threatened legal or governmental proceedings
against the Company which could materially adversely affect the business,
financial condition or operations of the Company.
8.7. Accuracy of Reports. All reports required to be filed by the
Company since and including the most recent filing of the Company's Annual
Report on Form 10-K, to and including the relevant Closing Date, have been duly
filed with the Securities and Exchange Commission, complied at the time of
filing in all material respects with the requirements of their respective forms
and were complete and correct in all material respects as of the dates at which
the information was furnished, and contained (as of such dates) no untrue
statement of a material fact or omitted to state a material fact necessary in
order to make the statements contained therein, in light of the circumstances
under which they were made, not misleading.
8.8. Investment Company. The Company is not an "investment company"
within the meaning of such term under the Investment Company Act of 1940, as
amended, and the rules and regulations of the Securities and Exchange Commission
thereunder.
8.9. Payment of Notes. The Company shall pay the principal of and
interest on the Notes on the dates and in the manner provided in the Notes and
this Agreement. To the extent lawful, the Company shall pay interest (including
post-petition interest in any proceeding under any Bankruptcy Law) on (i)
overdue principal of the Notes at the rate borne by the Notes and (ii) overdue
installments of interest at the same rate.
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8.10. Stay, Extension and Usury Laws. The Company covenants (to the
extent that it may lawfully do so) that it will not at any time insist upon,
plead, or in any manner whatsoever claim or take the benefit or advantage of,
any stay, extension or usury law wherever enacted, now or at any time
hereinafter in force, which may affect the covenants or the performance of the
transactions contemplated by this Agreement; and the Company (to the extent it
may lawfully do so) hereby expressly waives all benefit or advantage of any such
law.
8.11. Insurance. The Company will at all times so long as Notes are
outstanding maintain valid policies of worker's compensation and such other
insurance with respect to its properties and business of the kinds and in
amounts not less than is customarily maintained by corporations engaged in the
same or similar business and similarly situated.
8.12. Corporate Existence; Maintenance of Properties. The Company will
at all times, so long as Notes are outstanding, cause to be done all things
necessary to maintain, preserve and renew its existence and will preserve and
keep in force and effect, all licenses, permits and authorizations necessary to
the conduct of its business, the loss of which would have a material adverse
effect on the business and operations of the Company. The Company will also
maintain and keep its properties in good repair, working order and condition,
ordinary wear and tear excepted, so long as Notes are outstanding.
8.13. Taxes and Liens. So long as Notes are outstanding, the Company
will duly pay and discharge when payable, all taxes, assessments and
governmental charges imposed upon or against the Company or its properties, or
any part thereof or upon the income or profits therefrom, in each case before
the same become delinquent and before penalties accrue thereon, as well as all
claims for labor, materials or supplies which if unpaid might by law become a
lien upon any of its property, unless and to the extent that the same are being
contested in good faith and by appropriate proceedings and the Company has set
aside on its books adequate reserves with respect thereto.
8.14. Merger; Sale of Assets. So long as Notes are outstanding, the
Company shall not consolidate with or merge into, or sell, lease, convey or
otherwise dispose of all or substantially all of its assets to, any Person in a
single transaction or series of related transactions, without the consent of the
Secured Party, unless:
(a) the Company is the continuing corporation or the Person formed by
or surviving any such consolidation or merger (if other than the Company), or to
which such sale, lease, conveyance or other disposition of assets shall have
been made, is organized and existing under the laws of the United States, any
state thereof or the District of Columbia and such Person (if other than the
Company) expressly assumes by supplemental agreement executed and delivered to
the Secured Party, all the obligations of the Company under the Notes and, in
respect of the Notes, this Agreement;
(b) immediately before and immediately after giving effect to the
transaction no Event of Default (as such term is defined in the Notes), and no
event which, after notice or lapse of time, or both, would become an Event of
Default (a "Default"), shall have occurred and be continuing; and
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(c) immediately after giving effect to such transaction, the Notes and
this Agreement (as supplemented by any such supplemental agreement) will be
valid and enforceable obligations of the Company or such successor.
8.15. Term Sheet Disclosure. No information set forth in the Term Sheet
contains, as of the date hereof or the relevant Closing Date, any untrue
statement of a material fact or omits to state a material fact necessary in
order to make the statements contained therein, in light of the circumstances
under which they were made, not misleading.
8.16. Reservation of Shares; Transfer Taxes, Etc. The Company shall at
all times reserve and keep available, out of its authorized and unissued shares
of Conversion Securities, solely for the purpose of effecting the conversion of
the Notes and the exercise of the Placement and Advisory Warrants, such number
of shares of its Conversion Securities free of preemptive rights as shall be
sufficient to effect the conversion of all Notes from time to time outstanding
and the exercise of all Placement and Advisory Warrants from time to time
outstanding. The Company shall use its best efforts from time to time, in
accordance with the laws of the State of Delaware to increase the authorized
number of shares of Conversion Securities if at any time the number of shares of
authorized, unissued and unreserved shares of Conversion Securities shall not be
sufficient to permit the conversion of all the then-outstanding Notes and the
exercise of all the then-outstanding Placement and Advisory Warrants. The
Company shall not issue any Conversion Securities other than to effect the
conversion of the Notes or accrued interest thereon, Conversion Securities sold
in lieu of Notes in the Offering and Conversion Securities issuable upon
exercise of Placement and Advisory Warrants.
The Company shall pay any and all issue or other taxes (but in no event
income taxes) that may be payable in respect of any issue or delivery of shares
of Conversion Securities on conversion of the Notes or the exercise of the
Placement and Advisory Warrants. The Company shall not, however, be required to
pay any tax which may be payable in respect of any transfer involved in the
issue or delivery of Conversion Securities (or other securities or assets) in a
name other than that in which the Notes so converted, or the Placement and
Advisory Warrants so exercised, were registered, and no such issue or delivery
shall be made unless and until the person requesting such issue has paid to the
Company the amount of such tax or has established, to the satisfaction of the
Company, that such tax has been paid.
8.17 Listing. If the Company's Common Stock becomes traded on the
Nasdaq National Market (the "Nasdaq"), the Company shall take such action as is
necessary in accordance with the rules of the Nasdaq to enable the Registrable
Securities (as defined in Section 12.1) to trade on the Nasdaq.
8.18 Proprietary Rights. Except as has been or will be reflected in the
Term Sheet prior to the relevant Closing, the Company owns or possesses adequate
and enforceable rights to use all patents, patent applications, trademarks,
service marks, trade names, corporate names, copyrights, trade secrets,
processes, mask works, licenses, inventions, formulations, technology and
know-how and other intangible property used or proposed to be used in the
conduct of its business as described in, or contemplated by, the Term Sheet (the
"Proprietary Rights"). Except as has been or will be reflected in the Term Sheet
prior to the relevant
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Closing, the Company or the entities from whom the Company has acquired rights
has taken all necessary action to protect all of the Company's Proprietary
Rights. Except as set forth in the Term Sheet, as of the relevant Closing: the
Company has not received any notice of, and there are not any facts known to the
Company that indicate the existence of (i) any infringement or misappropriation
by any third party of any of the Proprietary Rights or (ii) any claim by a third
party contesting the validity of any of the Proprietary Rights; the Company has
not received any notice of any infringement, misappropriation or violation by
the Company or any of its employees of any Proprietary Rights of third parties,
and, to the best of the Company's knowledge, neither the Company nor any of its
employees has infringed, misappropriated or otherwise violated any Proprietary
Rights of any third parties; and, to the best of the Company's knowledge, no
infringement, illicit copying, misappropriation or violation of any intellectual
property rights of any third party by the Company has occurred or will occur
with respect to any products currently being sold by the Company or with respect
to any products currently under development by the Company or with respect to
the conduct of the Company's business as currently contemplated. Except as
described in the Term Sheet, as of the relevant Closing, the Company is not
aware that any of its employees are obligated under any contract (including
licenses, covenants or commitments of any nature) or other agreement, or subject
to any judgment, decree or order of any court or administrative agency, which
would interfere with the use of the employee's best efforts to promote the
interests of the Company or that would conflict with the Company's business as
currently conducted or as proposed to be conducted. To the best of the Company's
knowledge, as of the relevant Closing, neither the execution nor delivery of
this Agreement, nor the carrying on of the Company's business by the employees
of the Company, nor the conduct of the Company's business, as currently
conducted or as proposed to be conducted, will conflict with, or result in, a
breach of the terms, conditions or provisions of, or constitute a default under,
any contract, covenant or instrument under which any such employee is now
obligated. In addition, as of each Closing, all employees are required to assign
intellectual property rights to the Company.
9. Subordination.
9.1. Agreement to Subordinate. The Company covenants and agrees, and
each Purchaser and any subsequent holder of a Note (each, a "Holder"), by such
Holder's acceptance of a Note, likewise covenants and agrees, that, to the
extent and in the manner hereinafter set forth in this Article 9, the
indebtedness represented by the Notes and the payment of the principal of and
interest on each and all of the Notes and the security interest given as
security for the Notes are hereby expressly made subordinate and subject in
right of payment to the prior payment in full of all Senior Indebtedness.
No provision of this Article 9 shall prevent the occurrence of any
default or event of default hereunder.
9.2. Payment Over of Proceeds Upon Dissolution. Etc. In the event of
(a) any insolvency or bankruptcy case or proceeding, or any receivership,
liquidation, reorganization or other similar case or proceeding in connection
therewith, relative to the Company or to its creditors, as such, or to its
assets, or (b) any liquidation, dissolution or other winding-up of the Company,
whether voluntary or involuntary and whether or not involving insolvency or
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bankruptcy, (c) any assignment for the benefit of creditors or any other
marshalling of assets and liabilities of the Company, then and in any such event
the holders of Senior Indebtedness shall be entitled to receive payment in full
of all amounts due or to become due on or with respect to all Senior
Indebtedness, or provision shall be made for such payment in money or money's
worth, before the Holders are entitled to receive any payment on account of
principal of, or interest on, the Notes, and to that end the holders of Senior
Indebtedness shall be entitled to receive, for application to the payment
thereof, any payment or distribution of any kind or character, whether in cash,
property or securities, which may be payable or deliverable with respect to the
Notes in any such case, proceeding, liquidation, dissolution or other winding up
or event.
In the event that, notwithstanding the foregoing provisions of this
Section 9.2, any Holder shall have received any payment or distribution of
assets of the Company of any kind or character, whether in cash, property or
securities, before all Senior Indebtedness is paid in full or payment thereof
provided for, then and in such event such payment or distribution shall be held
in trust by such recipient and shall be paid over or delivered forthwith to the
trustee in bankruptcy, receiver, liquidating trustee, custodian, assignee, agent
or other Person making payment or distribution of assets of the Company for
application in the form received to the payment of all Senior Indebtedness
remaining unpaid, to the extent necessary to pay all Senior Indebtedness in
full, after giving effect to any concurrent payment or distribution to or for
the holders of Senior Indebtedness.
The consolidation of the Company with, or the merger of the Company
into, another Person or the liquidation or dissolution of the Company following
the conveyance or transfer of its properties and assets substantially as an
entirety to another Person upon the terms and conditions set forth in Section
8.14 shall not be deemed a dissolution, winding-up, liquidation, reorganization,
assignment for the benefit of creditors or marshalling of assets and liabilities
of the Company for the purposes of this Section 9.2 if the Person formed by such
consolidation or into which the Company is merged or the Person which acquires
by conveyance or transfer such properties and assets substantially as an
entirety, as the case may be, shall, as a part of such consolidation, merger,
conveyance or transfer, comply with the conditions set forth in Section 8.14.
9.3. Prior Payment to Senior Indebtedness Upon Acceleration of Notes.
In the event that any Notes are declared due and payable before their stated
maturity, then in such event the holders of Senior Indebtedness outstanding at
the time such Notes so become due and payable shall be entitled to receive
payment in full of all amounts due or to become due on or with respect to such
Senior Indebtedness, or provision shall be made for such payment in money or
money's worth, before the Holders are entitled to receive any payment by the
Company on account of the principal of or interest on the Notes or on account of
the purchase or other acquisition of Notes. The Holders shall provide notice to
the holders of the Senior Indebtedness of the occurrence of any default or Event
of Default under the Notes at the time that such notice is provided to the
Company.
In the event that, notwithstanding the foregoing, the Company shall
make any payment to any Holder prohibited by the foregoing provision of this
Section 9.3, then and in
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such event such payment shall be held in trust by such recipient and shall be
paid over and delivered forthwith to the Company in the form received.
The provisions of this Section 9.3 shall not apply to any payment with
respect to which Section 9.2 would be applicable.
9.4. No Payment When Senior Indebtedness in Default.
(a) In the event and during the continuation of any default in the
payment of principal of or interest on any Senior Indebtedness beyond any
applicable grace period with respect thereto, or in the event that any event of
default with respect to any Senior Indebtedness shall have occurred and be
continuing (or would arise by reason of a payment required hereunder by the
Company with respect to the principal of or interest on the Notes) permitting
the holders of such Senior Indebtedness (or a trustee on behalf of the holders
thereof) to declare such Senior Indebtedness due and payable prior to the date
on which it would otherwise have become due and payable, unless and until such
event of default shall have been cured or waived or shall have ceased to exist
or the Company shall have received written notice from an authorized
representative of the Senior Indebtedness with respect to which such event of
default relates approving payment on the Notes, then no payment shall be made by
the Company with respect to the principal of or interest on the Notes or to
acquire any of the Notes; provided that no such default will prevent any payment
on, or with respect to, the Notes for more than 120 days after written notice of
such default or Event of Default has been given to the Secured Party unless the
maturity of such Senior Indebtedness has been accelerated. Not more than one
such 120 day delay may be made in any consecutive 360 day period with respect to
a covenant default, irrespective of the number of defaults with respect to
Senior Indebtedness during such period.
In the event that, notwithstanding the foregoing, the Company shall
make any payment to any Holder prohibited by the foregoing provision of this
Section 9.4, then and in such event such payment shall be held in trust by such
recipient and shall be paid over and delivered forthwith to the Company in the
form received.
The provisions of this Section 9.4 shall not apply to any payment with
respect to which Section 9.2 would be applicable.
9.5. Payment Permitted If No Default. Nothing contained in this Article
9 or elsewhere in this Agreement or in any of the Notes shall prevent the
Company, at any time except when any of the conditions described in Section 9.2,
9.3 or 9.4 exist, from making payments at any time of principal of or interest
on the Notes.
9.6. Subrogation to Rights of Holders of Senior Indebtedness. Subject
to the payment in full of all Senior Indebtedness, Holders shall be subrogated
to the extent of the payments or distributions made to the holders of such
Senior Indebtedness pursuant to the provisions of this Article 9 (equally and
ratably with the holders of all indebtedness of the Company which is not Senior
Indebtedness and which is entitled to like rights of subrogation) to the rights
of the holders of such Senior Indebtedness to receive payments and distributions
of
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cash, property and securities applicable to the Senior Indebtedness until the
principal of and interest on the Notes shall be paid in full. For purposes of
such subrogation, no payments or distributions to the holders of Senior
Indebtedness of any cash, property or securities to which Holders would be
entitled except for the provisions of this Article 9, and no payments over
pursuant to the provisions of this Article 9 to the holders of Senior
Indebtedness by Holders, shall, as among the Company, its creditors other than
holders of Senior Indebtedness and Holders be deemed to be a payment or
distribution by the Company to or on account of Senior Indebtedness.
9.7. Provisions Solely to Define Relative Rights. The provisions of
this Article 9 are and are intended solely for the purpose of defining the
relative rights of the Holders on the one hand and the holders of Senior
Indebtedness on the other hand. Nothing contained in this Article 9 or elsewhere
in this Agreement or in the Notes is intended to or shall: (a) impair, as among
the Company, its creditors other than holders of Senior Indebtedness and the
Holders, the obligation of the Company, its creditors other than holders of
Senior Indebtedness and the Holders, the obligation of the Company, which is
absolute and unconditional (and which, subject to the rights under this Article
9 of the holders of Senior Indebtedness, is intended to rank equally with all
other general obligations of the Company), to pay to the Holders the principal
of and interest on the Notes as and when the same shall become due and payable
in accordance with their terms; or (b) affect the relative rights against the
Company of the Holders and creditors of the Company other than the holders of
Senior Indebtedness; or (c) prevent the Secured Party or any Holder from
exercising all remedies otherwise permitted by applicable law upon default under
this Agreement, subject to the rights, if any, under this Article 9 of the
holders of Senior Indebtedness to receive cash, property and securities
otherwise payable or deliverable to the Secured Party or such Holder.
9.8. Secured Party to Effectuate Subordination. Each Holder of a Note
by acceptance thereof authorizes and directs the Secured Party on such Holder's
behalf to take such action as may be necessary or appropriate to effectuate the
subordination provided in this Article 9 and appoints the Secured Party as such
Holder's attorney-in-fact for any and all such purposes.
9.9. No Waiver of Subordination Provisions. No right of any present or
future holder of any Senior Indebtedness to enforce subordination as herein
provided shall at any time in any way be prejudiced or impaired by any act or
failure to act by the Company or by any act or failure to act, in good faith, by
any such holder, or by any non-compliance by the Company with the terms,
provisions and covenants of this Agreement, regardless of any knowledge thereof
any such holder may have or be otherwise charged with. Without in any way
limiting the generality of the foregoing paragraph, the holders of Senior
Indebtedness may, at any time and from time to time, without the consent of or
notice to Holders, without incurring responsibility to Holders and without
impairing or releasing the subordination provided in this Article 9 or the
obligations hereunder of Holders to the holders of Senior Indebtedness, do any
one or more of the following: (i) change the manner, place or terms of payment
or extend the time of payment of, or renew or alter, Senior Indebtedness, or
otherwise amend or supplement in any manner Senior Indebtedness or any
instrument evidencing the same or any agreement under which Senior Indebtedness
is outstanding; (ii) sell, exchange, release or otherwise deal with any property
pledged, mortgaged or otherwise securing Senior Indebtedness; (iii) release any
Person liable
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in any manner for the collection of Senior Indebtedness; and (iv) exercise or
refrain from exercising any rights against the Company and any other Person.
9.10. Reliance on Judicial Order or Certificate of Liquidating Agent.
Upon any payment or distribution of assets of the Company referred to in this
Article 9, the Secured Party and the Holders shall be entitled to rely upon any
order or decree entered by any court of competent jurisdiction in which such
insolvency, bankruptcy, receivership, liquidation, reorganization, dissolution,
winding-up or similar case or proceeding is pending, or a certificate of the
trustee in bankruptcy, receiver, liquidating trustee, custodian, assignee for
the benefit of creditors, agent or other Person making such payment or
distribution, delivered to the Secured Party or to the Holders, for the purpose
of ascertaining the Persons entitled to participate in such payment or
distribution, the holders of the Senior Indebtedness and other indebtedness of
the Company, the amount thereof or payable thereon, the amount or amounts paid
or distributed thereon and all other facts pertinent thereto or to this Article
9.
9.11. Certain Conversions Deemed Payment. For the purposes of this
Article 9 only, (a) the issuance and delivery of Junior Securities upon
conversion of Notes in accordance with Section 3 of the Notes or in lieu of cash
interest in accordance with Section 1 of the Notes shall not be deemed to
constitute a payment or distribution on account of the principal, of or interest
on Notes or on account of the purchase or other acquisition of Notes and (b) the
payment, issuance or delivery of cash, property or securities (other than Junior
Securities) upon conversion of a Note shall be deemed to constitute payment on
account of the principal of such Note. Nothing contained in this Article 9 or
elsewhere in this Agreement or in the Notes is intended to or shall impair, as
among the Company, its creditors other than holders of Senior Indebtedness and
the Holders, the right, which is absolute and unconditional, of a Holder to
convert any Note in accordance with Section 3 of the Notes.
10. Secured Party's Rights and Remedies
10.1. Rights and Remedies. Upon the occurrence and during the
continuance of an Event of Default (as defined in the Note), the Secured Party
may, in addition to the remedies pursuant to Section 6 of the Notes, at its
election, without notice of its election and without demand, take any action
permitted by law and not in contravention or inconsistent with Article 9.
11. Certain Definitions. For the purposes of this Agreement the
following terms have the respective meanings set forth below:
11.1. "Business Day" means a Monday through Friday on which banks are
generally open for business in New York, Massachusetts and California.
11.2. "Certificate of Designation" shall have the meaning ascribed to
such term in Section 1.1.
11.3. "Common Stock" means the Company's common stock.
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11.4. "Conversion Securities" shall have the meaning ascribed to such
term in Section 1.1.
11.5. "Exchange Offer" means the Company's offer to the holders of its
9% Convertible Subordinated Notes due 2004 to exchange such notes and all
accrued interest thereon for preferred stock and warrants of the Company.
11.6. "Junior Securities" means (a) shares of any and all classes of
capital stock of the Company and (b) securities of the Company which are
subordinated in right of payment to Senior Indebtedness at the time of issuance
or delivery of such securities to substantially the same extent as, or to a
greater extent than, the Notes are so subordinated as provided in Article 9.
11.7. "Lien" means any mortgage, lien, deed of trust, charge, pledge,
security interest or other encumbrance.
11.8. "Minimum Offering Amount" shall have the meaning ascribed to such
term in Section 2.1.
11.9. "Person" means any individual, sole proprietorship, partnership,
limited liability company, joint venture, trust, unincorporated organization,
association, corporation, institution, public benefit corporation, firm, joint
stock company, estate, entity or governmental agency.
11.10. "Placement Agent" shall have the meaning ascribed to such term
in Section 1.3 and "Placement Agents" shall mean the placement agents for the
Regulation D Offering and the Regulation S Offering, referred to in Sections 1.2
and 1.3, respectively.
11.11. "Placement and Advisory Warrants" shall mean the placement and
advisory warrants to be granted to the Placement Agents and/or their respective
designees pursuant to separate placement agency agreements and financial
advisory agreements between the Company and the Placement Agents.
11.12. "Regulation D" means Regulation D promulgated under the
Securities Act.
11.13. "Regulation D Offering" shall have the meaning ascribed to such
term in Section 1.2.
11.14. "Regulation S" means Regulation S promulgated under the
Securities Act.
11.15. "Regulation S Offering" shall have the meaning ascribed to such
term in Section 1.3.
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11.16. "Secured Party" shall have the meaning ascribed to such term in
Section 5.1.
11.17. "Securities Act" means, as of any given time, the Securities Act
of 1933, as amended, or any similar federal law then in force.
11.18. "Securities and Exchange Commission" includes any governmental
body or agency succeeding to the functions thereof.
11.19. "Senior Indebtedness" means the principal of (and premium, if
any) and accrued interest on (including all interest accruing subsequent to the
commencement of any bankruptcy or similar proceeding, whether or not a claim for
post-petition interest is allowable as a claim in any such proceeding) (a)
obligations of the Company under the Loan and Security Agreement, dated December
31, 1996, between Silicon Valley Bank and the Company, including any related
notes, guarantees, collateral documents, instruments and agreements executed in
connection therewith, and in each case as amended, modified, renewed, replaced,
restated, supplemented, refunded or refinanced from time to time (provided that
the principal amount does not exceed $7,500,000 and the maturity date is not
advanced), (b) obligations of the Company, whether outstanding on the date of
this Agreement or hereafter created, incurred or assumed, as lessee under leases
required to be capitalized on the balance sheet of the lessee under generally
accepted accounting principles and leases of property or assets made as part of
any sale and leaseback transaction to which the Company is a party, (c) all
reimbursement obligations and other liabilities (contingent or otherwise) with
respect to letters of credit, bank guarantees or bankers' acceptances, and (d)
any amendments, renewals, extensions, modifications and refundings of any such
indebtedness or obligation under clauses (a) (provided that the principal amount
does not exceed $7,500,000 and the maturity date is not advanced), (b) or (c),
above.
11.20. "Subsidiary" means any person, corporation, firm or entity at
least the majority of the equity securities (or equivalent interest) of which
are, at the time as of which any determination is being made, owned of record or
beneficially by the Company, directly or indirectly, through any Subsidiary or
otherwise.
11.21. "Term Sheet" shall have the meaning ascribed to such term in
Section 6.5.
11.22. "Trading Day" means (i) if the applicable security is listed or
admitted for trading on a national security exchange, a day on which such
exchange is open for business, (ii) if the applicable security is quoted on the
Nasdaq Stock Market, a day on which trades may be made thereon or (iii) if the
applicable security is not so listed, admitted for trading or quoted, any
Business Day.
11.23. "Unit Offering" and "Offering" shall have the meaning ascribed
to such terms in the first paragraph of this Agreement.
11.24. "Unit-Underlying Common Stock" shall mean the Common Stock
issuable upon conversion of any Conversion Securities issuable upon conversion
of, or in lieu
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of, Notes or upon exercise of any Equity Warrants, in each case including any
such Conversion Securities or Equity Warrants issuable upon exercise of any
Placement and Advisory Warrants or upon conversion of Notes issuable upon
exercise of any Placement and Advisory Warrants.
11.25. (1) "U.S. Person" means:
(i) Any natural person resident in the United States;
(ii) Any partnership or corporation organized or incorporated under
the laws of the United States;
(iii) Any estate of which any executor or administrator is a U.S.
Person;
(iv) Any trust of which any trustee is a U.S. Person;
(v) Any agency or branch of a foreign entity located in the United
States.
(vi) Any non-discretionary account or similar account (other than
an estate or trust) held by a dealer or other fiduciary for
the benefit or account of a U.S. Person;
(vii) Any discretionary account or similar account (other than an
estate or trust) held by a dealer or other fiduciary
organized, incorporated, or (if an individual) resident in the
United States; and
(viii) Any partnership or corporation if: (A) organized or
incorporated under the laws of any foreign jurisdiction; and
(B) formed by a U.S. Person principally for the purpose of
investing in securities not registered under the Securities
Act, unless it is organized or incorporated, and owned, by
accredited investors (as defined in Rule 501(a) of the
Securities Act) who are not natural persons, estates or
trusts.
(2) Notwithstanding clause (1) of this Section 11.25, any discretionary
account or similar account (other than an estate or trust) held for the benefit
or account of a non-U.S. Person by a dealer or other professional fiduciary
organized, incorporated, or (if an individual) resident in the United States
shall not be deemed a "U.S. Person."
(3) Notwithstanding clause (1) of this Section 11.25, any estate of
which any professional fiduciary acting as executor or administrator is a U.S.
Person shall not be deemed a U.S. Person if:
(i) An executor or administrator of the estate who is not a U.S.
Person has sole or shared investment discretion with respect
to the assets of the estate; and
(ii) The estate is governed by foreign law.
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(4) Notwithstanding clause (1) of this Section 11.25, any trust of
which any professional fiduciary acting as trustee is a U.S. Person shall not be
deemed a U.S. Person if a trustee who is not a U.S. Person has sole or shared
investment discretion with respect to the trust assets, and no beneficiary of
the trust (and no settlor if the trust is revocable) is a U.S. Person.
(5) Notwithstanding clause (1) of this Section 11.25, an employee
benefit plan established and administered in accordance with the law of a
country other than the United States and customary practices and documentation
of such country shall not be deemed a U.S. Person.
(6) Notwithstanding clause (1) of this Section 11.25, any agency or
branch of a U.S. Person located outside the United States shall not be deemed a
"U.S. Person" if:
(i) The agency or branch operates for valid business reasons; and
(ii) The agency or branch is engaged in the business of insurance
or banking and is subject to substantive insurance or banking
regulation, respectively, in the jurisdiction where located.
(7) The International Monetary Fund, the International Bank for
Reconstruction and Development, the Inter-American Development Bank, the Asian
Development Bank, the African Development Bank, the United Nations, and their
agencies, affiliates and pension plans, and any other similar international
organizations, their agencies, affiliates and pension plans shall not be deemed
"U.S. Persons."
11.26. "United States" means the United States of America, its
territories and possessions, any state of the United States, and the District of
Columbia.
12. Registration Rights.
12.1 As used in this Article 12, the following terms shall have the
following meanings:
(a) "Affiliate" shall mean, with respect to any Person (as defined
below), any other Person controlling, controlled by, or under direct or indirect
common control with, such Person (for the purposes of this definition "control,"
when used with respect to any specified Person, shall mean the power to direct
the management and policies of such person, directly or indirectly, whether
through ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" shall have meanings correlative to the
foregoing).
(b) "Business Day" shall mean a day Monday through Friday on which
banks are generally open for business in New York.
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(c) "Holders" shall mean the Purchasers and any person holding
Registrable Securities or any person to whom the rights under Article 12 have
been transferred in accordance with Section 12.10 hereof.
(d) "Person" shall mean any person, individual, corporation, limited
liability company, partnership, trust or other non-governmental entity or any
governmental agency, court, authority or other body.
(e) The terms "register," "registered" and "registration" refer to the
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
(f) "Registrable Securities" shall mean (i) the shares of
Unit-Underlying Common Stock and (ii) any shares of Common Stock issued as (or
issuable upon the conversion of any warrant, right or other security which is
issued as) a dividend or other distribution with respect to or in replacement of
the Transfer Restricted Securities (as defined below); provided, however, that
securities shall only be treated as Registrable Securities if and only for so
long as they (A) have not been disposed of pursuant to a registration statement
declared effective by the Securities and Exchange Commission, (B) have not been
sold in a transaction exempt from the registration and prospectus delivery
requirements of the Securities Act so that all transfer restrictions and
restrictive legends with respect thereto are removed upon the consummation of
such sale, (C) are held by a Holder or a permitted transferee pursuant to
Section 12.10 or (D) are not freely tradeable under applicable federal
securities laws.
(g) "Registration Expenses" shall mean all expenses incurred by the
Company in complying with Section 12.2 hereof, including, without limitation,
all registration, qualification and filing fees, printing expenses, escrow fees,
fees and expenses of counsel for the Company, blue sky fees and expenses and the
expense of any special audits incident to, or required by, any such registration
(but excluding the fees of legal counsel for any Holder).
(h) "Registration Statement" shall have the meaning ascribed to such
term in Section 12.2.
(i) "Registration Period" shall have the meaning ascribed to such term
in Section 12.4.
(j) "Selling Expenses" shall mean all underwriting discounts and
selling commissions applicable to the sale of Registrable Securities and all
fees and expenses of legal counsel for any Holder.
(k) "Transfer Restricted Securities" means each Equity Warrant, each
Note, each share of Conversion Securities and, if such Equity Warrants have been
exercised or such Conversion Securities have been converted, the Registrable
Securities, until the earlier of (a) the date on which such Note, Equity
Warrants, Conversion Securities or Registrable Securities, as applicable, has
been effectively registered under the Securities Act and disposed of pursuant
to, and in accordance with, an effective Registration Statement, (b) the date on
which such Note,
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Equity Warrants, Conversion Securities or Registrable Securities, as applicable,
is distributed to the public pursuant to Rule 144 or any other applicable
exemption under the Securities Act without additional restriction upon public
resale or (c) at such time as such Note, Equity Warrants, Conversion Securities
or Registrable Securities, as applicable, may be sold by a Holder under Rule
144(k).
12.2. The Company shall use its best efforts to file a "shelf"
registration statement on the appropriate form (the "Registration Statement")
with the Securities and Exchange Commission, by the later of (A) the earlier to
occur of (i) the expiration of thirty (30) days after the Final Closing Date,
(ii) the later of (x) the expiration of sixty (60) days from the date on which
the Company has received proceeds in the Offering, net of cash fees, commissions
and expenses, equal to or exceeding $20,000,000 in the aggregate, and (y)
November __, 1998, and (iii) the date of the filing of any registration
statement with the Securities and Exchange Commission in connection with the
Exchange Offer, and (B) the date on which shares of Series B Preferred Stock are
first issued, with respect to the resale of the Registrable Securities, and
shall use its best efforts to effect the registration, qualifications or
compliances (including, without limitation, the execution of any required
undertaking to file post-effective amendments, appropriate qualifications or
exemptions under applicable blue sky or other state securities laws and
appropriate compliance with applicable securities laws, requirements or
regulations) prior to the date which is 75 days after the Final Closing Date.
Notwithstanding the foregoing, the Company shall not be obligated to enter into
any underwriting agreement for the sale of any of the Registrable Securities.
12.3. All Registration Expenses incurred in connection with any
registration, qualification or compliance pursuant to Section 12.2 shall be
borne by the Company. All Selling Expenses relating to the sale of securities
registered by or on behalf of Holders shall be borne by such Holders pro rata on
the basis of the number of securities so registered; provided that if a Holder
uses its own legal counsel in addition to one counsel for all of the Holders of
securities registered on behalf of the Holders, such Holder shall bear the cost
of such counsel.
12.4. In the case of the registration, qualification or compliance
effected by the Company pursuant to this Agreement, the Company shall, upon
reasonable request, inform each Holder as to the status of such registration,
qualification and compliance. At its expense the Company shall:
(a) use its best efforts to keep such registration, and any
qualification, exemption or compliance under state securities laws which the
Company determines to obtain, continuously effective until the Holders have
completed the distribution described in the registration statement relating
thereto. The period of time during which the Company is required hereunder to
keep the Registration Statement effective is referred to herein as the
"Registration Period." Notwithstanding the foregoing, at the Company's election,
the Company may cease to keep such registration, qualification or compliance
effective with respect to any Registrable Securities, and the registration
rights of a Holder shall expire, at such time as the Holder may sell under Rule
144(k) under the Securities Act (or other exemption from registration acceptable
to the Company) in a three-month period all Registrable Securities then held by
such Holder; and
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(b) advise the Holders:
(i) when the Registration Statement or any amendment thereto has been
filed with the Securities and Exchange Commission and when the Registration
Statement or any post-effective amendment thereto has become effective;
(ii) of any request by the Securities and Exchange Commission for
amendments or supplements to the Registration Statement or the prospectus
included therein or for additional information;
(iii) of the issuance by the Securities and Exchange Commission of any
stop order suspending the effectiveness of the Registration Statement or the
initiation of any proceedings for such purpose;
(iv) of the receipt by the Company of any notification with respect to
the suspension of the qualification of the Registrable Securities included
therein for sale in any jurisdiction or the initiation or threatening of any
proceeding for such purpose; and
(v) of the happening of any event that requires the making of any
changes in the Registration Statement or the prospectus included therein so
that, as of such date, the statements therein are not misleading and do not omit
to state a material fact required to be stated therein or necessary to make the
statements therein (in the case of the prospectus, in the light of the
circumstances under which they were made) not misleading;
(vi) make every reasonable effort to obtain the withdrawal of any order
suspending the effectiveness of any Registration Statement at the earliest
possible time;
(vii) furnish to each Holder, without charge, at least one copy of such
Registration Statement and any post-effective amendment thereto, including
financial statements and schedules, and, if the Holder so requests in writing,
all exhibits (including those incorporated by reference) in the form filed with
the Securities and Exchange Commission;
(viii) during the Registration Period, deliver to each Holder, without
charge, as many copies of the prospectus included in such Registration Statement
and any amendment or supplement thereto as such Holder may reasonably request;
and the Company consents to the use, consistent with the provisions hereof, of
the prospectus or any amendment or supplement thereto by each of the selling
Holders of Registrable Securities in connection with the offering and sale of
the Registrable Securities covered by the prospectus and any amendment or
supplement thereto. In addition, upon the reasonable request of the Holder and
subject in all cases to confidentiality protections reasonably acceptable to the
Company, the Company will meet with a Holder or a representative thereof at the
Company's headquarters to discuss all information relevant for disclosure in the
Registration Statement covering the Registrable Securities, and will otherwise
cooperate with any Holder conducting an investigation for the purpose of
reducing or eliminating such Holder's exposure to liability under the Securities
Act, including the reasonable production of information at the Company's
headquarters;
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<PAGE>
(ix) during the Registration Period, deliver to each Holder, without
charge, (i) as soon as practicable (but in the case of the annual report of the
Company to its stockholders, within 120 days after the end of each fiscal year
of the Company) one copy of: (A) its annual report to its stockholders, if any
(which annual report shall contain financial statements audited in accordance
with generally accepted accounting principles in the United States of America by
a firm of certified public accountants of recognized standing); (B) if not
included in substance in its annual report to stockholders, its annual report on
Form 10-K (or similar form); (C) each of its quarterly reports to its
stockholders, and, if not included in substance in its quarterly reports to
stockholders, its quarterly report on Form 10-Q (or similar form), and (D) a
copy of the full Registration Statement (the foregoing, in each case, excluding
exhibits); and (ii) upon reasonable request, all exhibits excluded by the
parenthetical to the immediately preceding clause (D), and all other information
that is generally available to the public;
(x) prior to any public offering of Registrable Securities pursuant to
any Registration Statement, register or qualify for offer and sale under the
securities or blue sky laws of such jurisdictions as any such Holders reasonably
request in writing, provided that the Company shall not for any such purpose be
required to qualify generally to transact business as a foreign corporation in
any jurisdiction where it is not so qualified or to consent to general service
of process in any such jurisdiction, and do any and all other acts or things
reasonably necessary or advisable to enable the offer and sale in such
jurisdictions of the Registrable Securities covered by such Registration
Statement;
(xi) cooperate with the Holders to facilitate the timely preparation
and delivery of certificates representing Registrable Securities to be sold
pursuant to any Registration Statement free of any restrictive legends to the
extent not required at such time and in such denominations and registered in
such names as Holders may request at least three (3) business days prior to
sales of Registrable Securities pursuant to such Registration Statement;
(xii) upon the occurrence of any event contemplated by Section
12.4(b)(v) above, the Company shall promptly prepare a post-effective amendment
to the Registration Statement or a supplement to the related prospectus, or file
any other required document so that, as thereafter delivered to purchasers of
the Registrable Securities included therein, the prospectus will not include any
untrue statement of a material fact or omit to state any material fact necessary
to make the statements therein, in the light of the circumstances under which
they were made, not misleading; and
(xiii) use its best efforts to comply with all applicable rules and
regulations of the Securities and Exchange Commission, and will make generally
available to the Holders not later than 45 days (or 90 days if the fiscal
quarter is the fourth fiscal quarter) after the end of its fiscal quarter in
which the first anniversary date of the effective date of the Registration
Statement occurs, an earnings statement satisfying the provisions of Section
11(a) of the Securities Act.
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<PAGE>
12.5. Delay Periods; Suspension of Sales. Each Holder shall suspend,
upon request of the Company, any disposition of Registrable Securities pursuant
to the Registration Statement and prospectus contemplated by Section 12.2 during
(i) any period not to exceed two 30-day periods within any one 12-month period
the Company requires in connection with a primary underwritten offering of
equity securities and (ii) any period, not to exceed one 45-day period per
circumstance or development, when the Company determines in good faith that
offers and sales pursuant thereto should not be made by reason of the presence
of material undisclosed circumstances or developments with respect to which the
disclosure that would be required in such a prospectus is premature, would have
an adverse effect on the Company or is otherwise inadvisable.
12.6. The Holders shall have no right to take any action to restrain,
enjoin or otherwise delay any registration pursuant to Section 12.2 hereof as a
result of any controversy that may arise with respect to the interpretation or
implementation of this Agreement.
12.7. (a) To the extent permitted by law, the Company shall indemnify
each Holder, each underwriter of the Registrable Securities and each person
controlling such Holder within the meaning of Section 15 of the Securities Act,
with respect to which any registration, qualification or compliance has been
effected pursuant to this Agreement, against all claims, losses, damages and
liabilities (or action in respect thereof), including any of the foregoing
incurred in settlement of any litigation, commenced or threatened (subject to
Subsection 12.7(c) below), arising out of or based on any untrue statement (or
alleged untrue statement) of a material fact contained in any registration
statement, prospectus or offering circular, or any amendment or supplement
thereof, incident to any such registration, qualification or compliance, or
based on any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, in light of the circumstances in which they were made, and shall
reimburse each Holder, each underwriter of the Registrable Securities and each
person controlling such Holder, for legal and other expenses reasonably incurred
in connection with investigating or defending any such claim, loss, damage,
liability or action as incurred; provided that the Company shall not be liable
in any such case to the extent that any untrue statement or omission or
allegation thereof is made in reliance upon and in conformity with information
furnished to the Company by or on behalf of such Holder and stated to be
specifically for use in preparation of such registration statement, prospectus
or offering circular; provided that the Company shall not be liable in any such
case where the claim, loss, damage or liability arises out of or is related to
the failure of the Holder to comply with the covenants and agreements contained
in this Agreement respecting sales of Registrable Securities, and except that
the foregoing indemnity agreement is subject to the condition that, insofar as
it relates to any such untrue statement or alleged untrue statement or omission
or alleged omission made in the preliminary prospectus but eliminated or
remedied in the amended prospectus on file with the Securities and Exchange
Commission at the time the registration statement becomes effective or in the
amended prospectus filed with the Securities and Exchange Commission pursuant to
Rule 424(b) of the Securities Act or in the prospectus subject to completion and
term sheet under Rule 434 of the Securities Act, which together meet the
requirements of Section 10(a) of the Securities Act (the "Final Prospectus"),
such indemnity agreement shall not inure to the benefit of any such Holder, any
such underwriter or any such controlling person, if a copy of the Final
Prospectus furnished by the Company to the Holder
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<PAGE>
for delivery was not furnished to the person or entity asserting the loss,
liability, claim or damage at or prior to the time such furnishing is required
by the Securities Act and the Final Prospectus would have cured the defect
giving rise to such loss, liability, claim or damage.
(b) Each Holder will severally, if Registrable Securities held by such
Holder are included in the securities as to which such registration,
qualification or compliance is being effected, indemnify the Company, each of
its directors and officers, each underwriter of the Registrable Securities and
each person who controls the Company within the meaning of Section 15 of the
Securities Act, against all claims, losses, damages and liabilities (or actions
in respect thereof), including any of the foregoing incurred in settlement of
any litigation, commenced or threatened (subject to Subsection 12.7(c) below),
arising out of or based on any untrue statement (or alleged untrue statement) of
a material fact contained in any registration statement, prospectus or offering
circular, or any amendment or supplement thereof, incident to any such
registration, qualification or compliance, or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, in light of the
circumstances in which they were made, and will reimburse the Company, such
directors and officers, each underwriter of the Registrable Securities and each
person controlling the Company for reasonable legal and any other expenses
reasonably incurred in connection with investigating or defending any such
claim, loss, damage, liability or action as incurred, in each case to the
extent, but only to the extent, that such untrue statement or omission or
allegation thereof is made in reliance upon and in conformity with written
information furnished to the Company by or on behalf of the Holder and stated to
be specifically for use in preparation of such registration statement,
prospectus or offering circular; provided that the indemnity shall not apply to
the extent that such claim, loss, damage or liability results from the fact that
a current copy of the prospectus was not made available to the Holder and such
current copy of the prospectus would have cured the defect giving rise to such
loss, claim, damage or liability. Notwithstanding the foregoing, in no event
shall a Holder be liable for any such claims, losses, damages or liabilities in
excess of the proceeds received by such Holder in the offering, except in the
event of fraud by such Holder.
(c) Each party entitled to indemnification under this Section 12.7 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not unreasonably be
withheld), and the Indemnified Party may participate in such defense at such
Indemnified Party's expense, and provided further that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Agreement, unless such failure
is materially prejudicial to the Indemnifying Party in defending such claim or
litigation. An Indemnifying Party shall not be liable for any settlement of an
action or claim effected without its written consent (which consent will not be
unreasonably withheld).
(d) If the indemnification provided for in this Section 12.7 is held by
a court of competent jurisdiction to be unavailable to an Indemnified Party with
respect to any loss,
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<PAGE>
liability, claim, damage or expense referred to therein, then the Indemnifying
Party, in lieu of indemnifying such Indemnified Party thereunder, shall
contribute to the amount paid or payable by such Indemnified Party as a result
of such loss, liability, claim, damage or expense in such proportion as is
appropriate to reflect the relative fault of the Indemnifying Party on the one
hand and of the Indemnified Party on the other in connection with the statements
or omissions which resulted in such loss, liability, claim, damage or expense as
well as any other relevant equitable considerations. The relative fault of the
Indemnifying Party and of the Indemnified Party shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission to state a material fact relates to information
supplied by the Indemnifying Party or by the Indemnified Party and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.
12.8. (a) Each Holder agrees that, upon receipt of any notice from the
Company of the happening of any event requiring the preparation of a supplement
or amendment to a prospectus relating to Registrable Securities so that, as
thereafter delivered to the Holders, such prospectus will not contain an 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 not misleading, each
Holder will forthwith discontinue disposition of Registrable Securities pursuant
to the registration statement contemplated by Section 12.2 until its receipt of
copies of the supplemented or amended prospectus from the Company and, if so
directed by the Company, each Holder shall deliver to the Company all copies,
other than permanent file copies then in such Holder's possession, of the
prospectus covering such Registrable Securities current at the time of receipt
of such notice.
(b) As a condition to the inclusion of its Registrable Securities, each
Holder shall furnish to the Company such information regarding such Holder and
the distribution proposed by such Holder as the Company may request in writing
or as shall be required in connection with any registration, qualification or
compliance referred to in this Article 12.
(c) Each Holder hereby covenants with the Company (i) not to make any
sale of the Registrable Securities without effectively causing the prospectus
delivery requirements under the Securities Act to be satisfied, and (ii) if such
Registrable Securities are to be sold by any method or in any transaction other
than on a national securities exchange, the Nasdaq National Market, Nasdaq
SmallCap Market or in the over-the-counter market, in privately negotiated
transactions, or in a combination of such methods, to notify the Company at
least five (5) business days prior to the date on which the Holder first offers
to sell any such Registrable Securities.
(d) Each Holder acknowledges and agrees that the Registrable Securities
sold pursuant to the Registration Statement described in this Article 12 are not
transferable on the books of the Company unless the stock certificate submitted
to the transfer agent evidencing such Registrable Securities is accompanied by a
certificate reasonably satisfactory to the Company to the effect that (i) the
Registrable Securities have been sold in accordance with such Registration
Statement and (ii) the requirement of delivering a current prospectus has been
satisfied.
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<PAGE>
(e) Each Holder shall not take any action with respect to any
distribution deemed to be made pursuant to such registration statement, which
would constitute a violation of Regulation M under the Securities Exchange Act
of 1934, as amended (the "Exchange Act") or any other applicable rule,
regulation or law.
(f) At the end of the period during which the Company is obligated to
keep the Registration Statement current and effective as described above, the
Holders of Registrable Securities included in the Registration Statement shall
discontinue sales of shares pursuant to such Registration Statement upon receipt
of notice from the Company of its intention to remove from registration the
shares covered by such Registration Statement which remain unsold, and such
Holders shall notify the Company of the number of shares registered which remain
unsold immediately upon receipt of such notice from the Company.
12.9. With a view to making available to the Holders the benefits of
certain rules and regulations of the Securities and Exchange Commission which at
any time permit the sale of the Registrable Securities to the public without
registration, the Company shall use its reasonable best efforts:
(a) to make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act, at all times;
(b) to file with the Securities and Exchange Commission in a timely
manner all reports and other documents required of the Company under the
Exchange Act; and
(c) so long as a Holder owns any unregistered Registrable Securities,
to furnish to such Holder upon any reasonable request a written statement by the
Company as to its compliance with Rule 144 under the Securities Act, and of the
Exchange Act, a copy of the most recent annual or quarterly report of the
Company, and such other reports and documents of the Company as such Holder may
reasonably request in availing itself of any rule or regulation of the
Securities and Exchange Commission allowing a Holder to sell any such securities
without registration.
12.10. The rights to cause the Company to register Registrable
Securities granted to the Holders by the Company under Section 12.2 may be
assigned in full by a Holder in connection with a transfer by such Holder of its
Registrable Securities, provided that (i) such transfer may otherwise be
effected in accordance with applicable securities laws; (ii) such transfer
involves not less than the lesser of all or 5,000 shares of such Holder's
Registrable Securities, (iii) such Holder gives prior written notice to the
Company; and (iv) such transferee agrees to comply with the terms and provisions
of this Agreement, and such transfer is otherwise in compliance with this
Agreement. Except as specifically permitted by this Section 12.10, the rights of
a Holder with respect to Registrable Securities as set out herein shall not be
transferable to any other Person, and any attempted transfer shall cause all
rights of such Holder therein to be forfeited.
12.11. With the written consent of the Company and the Holders holding
at least a majority of the Registrable Securities that are then outstanding, any
provision of this
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Article 12 may be waived (either generally or in a particular instance, either
retroactively or prospectively and either for a specified period of time or
indefinitely) or amended. Upon the effectuation of each such waiver or
amendment, the Company shall promptly give written notice thereof to the
Holders, if any, who have not previously received notice thereof or consented
thereto in writing. Notwithstanding the foregoing or Section 13.1, a waiver or
consent to depart from the provisions hereof with respect to a matter that
relates exclusively to the rights of the Holders of Common Stock being sold
pursuant to the Registration Statement and that does not directly or indirectly
affect the rights of other Holders may be given by Holders of a majority of the
shares of Common Stock included among such shares being sold.
13. Miscellaneous.
13.1. Amendments and Waivers. (a) This Agreement and all exhibits and
schedules hereto set forth the entire agreement and understanding among the
parties as to the subject matter hereof and merges and supersedes all prior
discussions, agreements and understandings of any and every nature among them.
This Agreement may be amended only by mutual written agreement of the Company
and either by the holders of at least fifty percent (50%) or more in principal
amount of outstanding Notes or by the Secured Party, and the Company may take
any action herein prohibited or omit to take any action herein required to be
performed by it, and any breach of any covenant, agreement, warranty or
representation may be waived, only if the Company has obtained the written
consent or waiver of the holders of at least fifty percent (50%) in principal
amount of outstanding Notes or of the Secured Party; provided, however, that the
holders of at least 50% in principal amount of Notes sold at any particular
Closing (or of at least 50% of the voting power of any securities underlying
such Notes) may amend this Agreement or consent to or waive any covenant,
agreement, warranty or representation on behalf of all Purchasers at such
Closing that do not adversely affect the securities sold to Purchasers at any
other Closing or such other Purchasers. No course of dealing between or among
any persons having any interest in this Agreement will be deemed effective to
modify, amend or discharge any part of this Agreement or any rights or
obligations of any person under or by reason of this Agreement. To secure a
consent of the Holders under this Section 13.1, it shall not be necessary for
the holders to approve the particular form of any proposed amendment or waiver,
but it shall be sufficient if such consent approves the substance thereof.
(b) Until an amendment or waiver becomes effective, a consent to it by
a holder of a Note is a continuing consent by such holder and every subsequent
holder of a Note or portion of a Note that evidences the same debt as such
consenting holder's Note, even if notation of the consent is not made on any
Note. However, prior to becoming effective, any such holder or subsequent holder
may revoke the consent as to its Notes or a portion thereof it the Company
receives written notice of revocation before the consent of holders of the
requisite aggregate principal amount of Notes then outstanding has been obtained
and not revoked.
The Company may, but shall not be obligated to, fix a record date
pursuant to paragraph (c) for the purpose of determining the holders entitled to
consent to any amendment or waiver. If a record date is fixed, then
notwithstanding the provisions of the immediately preceding paragraph, those
Persons who were holders at such record date (or their duly
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<PAGE>
designated proxies), and only those Persons, shall be entitled to consent to
such amendment or waiver or to revoke any consent previously given, whether or
not such Persons continue to be holders after such record date. After an
amendment or waiver becomes effective it shall bind every holder of a Note. In
such case, the amendment or waiver shall bind each holder of a Note who has
consented to it and every subsequent holder of a Note that evidences the same
debt as the consenting holder's Note.
(c) Whenever in this Agreement it is provided that the holders of a
specified percentage in aggregate principal amount of the Notes may take any
action (including the making of any demand or request, the giving of any notice,
consent or waiver or the taking of any other action), the fact that at the time
of taking any such action, the holders of such specified percentage have joined
therein may be evidenced (i) by any instrument or any number of instruments of
similar tenor executed by holders in person or by proxy appointed in writing or
(ii) by the record of the holders voting in favor thereof at any meeting of
holders. Whenever the Company solicits the taking of action by the holders, the
Company may fix in advance of such solicitation a date as the record date for
determining holders entitled to take such action. If a record date is fixed,
those and only those Persons who are holders at the record date so fixed, or
their proxies, shall be entitled to take action regardless of whether they are
holders at the time of such action.
13.2. Successors and Assigns. Except as contemplated by Section 8.14,
this Agreement may not be assigned by the Company except with the prior written
consent of the holders of a majority of outstanding principal amount of the
Notes. This Agreement shall be binding upon and inure to the benefit of the
Company and its permitted successors and assigns and Purchasers and their
successors and registered assigns. The provisions hereof which are for
Purchasers' benefit as purchasers or holders of the Notes are also for the
benefit of, and enforceable by, any subsequent registered holder of such Notes.
13.3. Notices. All notices, demands and other communications to be
given or delivered under or by reason of the provisions of this Agreement shall
be in writing and shall be deemed to have been given personally or when mailed
by certified or registered mail, return receipt requested and postage prepaid,
and addressed to the addresses of the respective parties set forth below or to
such changed addresses as such parties may have fixed by notice; provided,
however, that any notice of change of address shall be effective only upon
receipt:
If to the Company:
Hybridon, Inc.
620 Memorial Drive
Cambridge, MA 02139
Attn: E. Andrews Grinstead, III
If to Purchasers:
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[__________], as Secured Party
[-----------------]
[-------------]
13.4. Governing Law. The validity, performance, construction and effect
of this Agreement shall be governed by the internal laws of the State of New
York without giving effect to such State's principles of conflict of laws.
13.5. Counterparts. This Agreement may be executed in any number of
counterparts and, notwithstanding that any of the parties did not execute the
same counterpart, each of such counterparts (and facsimile copies thereof, if
electronically delivered to the Placement Agent) shall, for all purposes, be
deemed an original, and all such counterparts shall constitute one and the same
instrument binding on all of the parties hereto. Delivery of an executed
counterpart of a signature page to this Agreement by telecopier shall be as
effective as delivery of a manually executed counterpart of a signature page of
this Agreement.
13.6. Headings. The headings of the Sections hereof are inserted as a
matter of convenience and for reference only and in no way define, limit or
describe the scope of this Agreement or the meaning of any provision hereof.
13.7. Severability. In the event that any provision of this Agreement
or the application of any provision hereof is declared to be illegal, invalid or
otherwise unenforceable by a court of competent jurisdiction, the remainder of
this Agreement shall not be affected except to the extent necessary to delete
such illegal, invalid or unenforceable provision unless the provision held
invalid shall substantially impair the benefit of the remaining portion of this
Agreement.
13.8. Exculpation Among Purchasers. Each Purchaser acknowledges and
agrees that it is not relying upon any other Purchaser, or any officer,
director, employee partner or affiliate of any such other Purchaser, in making
its investment or decision to invest in the Company or in monitoring such
investment. Each Purchaser agrees that no Purchaser nor any controlling person,
officer, director, stockholder, partner, agent or employee of any Purchaser
shall be liable for any action heretofore or hereafter taken or omitted to be
taken by any of them relating to or in connection with the Company or the
securities, or both.
13.9. Actions by Purchasers. Any actions permitted to be taken by
holders or Purchasers of Notes (or subgroups thereof, as contemplated by Section
13.1 ("Consenting Subgroups")) and any consents required to be obtained from the
same under this Agreement, may be taken or given only by holders of at least
fifty percent (50%) in principal amount of outstanding Notes (or as otherwise
provided in Section 13.1 with respect to Consenting Subgroups) and if such
holders or Purchasers constituting at least fifty percent (50%) (the "Majority
Purchasers") take any action or grant any consent, such action or consent shall
be deemed given or taken by all holders or Purchasers' who shall be bound by the
decision or action taken by the Majority Purchasers without any liability on the
part of the Majority Purchasers to any other holder or Purchasers of securities
hereunder.
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13.10. Additional Purchasers. Upon the execution and delivery by any
Person of this Agreement after the date hereof with the written consent of the
Company, such Person shall be referred to as an Additional Purchaser and shall
become a Purchaser, and each reference in this Agreement to "Purchaser" shall
also mean and be a reference to such Additional Purchaser.
14. Confidential Investor Questionnaire.
14.1. Each Purchaser represents and warrants that he, she or it comes
within one of category A through H below. ALL INFORMATION IN RESPONSE TO THIS
SECTION WILL BE KEPT STRICTLY CONFIDENTIAL. The undersigned agrees to furnish
any additional information which the Company deems necessary in order to verify
the answers set forth below.
Category A: The undersigned is an individual (not a partnership,
corporation, etc.) whose individual net worth, or joint net
worth with his or her spouse, presently exceeds $1,000,000.
Explanation. In calculating net worth you
may include equity in personal property and
real estate, including your principal
residence, cash, short-term investments,
stock and securities. Equity in personal
property and real estate should be based on
the fair market value of such property less
debt secured by such property.
Category B: The undersigned is an individual (not a partnership,
corporation, etc.) who had an individual income in excess of
$200,000 in each of the two most recent years, or joint income
with his or her spouse in excess of $300,000 in each of those
years (in each case including foreign income, tax exempt
income and full amount of capital gains and losses but
excluding any in- come of other family members and any
unrealized capital appreciation) and has a reasonable
expectation of reaching the same income level in the current
year.
Category C: The undersigned is a director or executive officer of the
Company which is issuing and selling the Units.
Category D: The undersigned is a bank; a savings and loan association;
insurance company; registered investment company; registered
business development company; licensed small business
investment company ("SBIC"); or employee benefit plan within
the meaning of Title 1 of ERISA and (a) the investment
decision is made by a plan fiduciary which is either a bank,
savings and loan association, insurance company or registered
investment advisor, or (b) the plan has total assets in excess
of $5,000,000 or is a self
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directed plan with investment decisions made solely by persons
that are accredited investors.
Category E: The undersigned is a private business development company as
defined in section 202(a)(22) of the Investment Advisors Act
of 1940.
Category F: The undersigned is either a corporation, partnership,
Massachusetts business trust, or non-profit organization
within the meaning of Section 501(c)(3) of the Internal
Revenue Code, in each case not formed for the specific purpose
of acquiring the Units and with total assets in excess of
$5,000,000.
Category G: The undersigned is a trust with total assets in excess of
$5,000,000, not formed for the specific purpose of acquiring
the Units, where the purchase is directed by a "sophisticated
person" as defined in Regulation 506(b)(2- )(ii) under the
Securities Act.
Category H: The undersigned is an entity (other than a trust) all the
equity owners of which are "accredited investors" within one
or more of the above categories. If relying upon this Category
alone, each equity owner must complete a separate copy of this
Agreement.
The undersigned agrees that the undersigned will notify the Company at any time
on or prior to the Final Closing Date in the event that the representations and
warranties in this Agreement shall cease to be true, accurate and complete.
14.2. Manner in Which Title Is To Be Held. (circle one)
(a) Individual Ownership
(b) Community Property
(c) Joint Tenant with Right of
Survivorship (both parties
must sign)
(d) Partnership*
(e) Tenants in Common
(f) Company*
(g) Trust*
(h) Other
*If Units are being subscribed for by an entity, the attached
Certificate of Signatory must also be completed.
14.3. NASD Affiliation.
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Are you affiliated or associated with an NASD member firm (please check one):
Yes _________ No __________
If Yes, please describe:
- ---------------------------------------------------------
- ---------------------------------------------------------
- ---------------------------------------------------------
*If Purchaser is a Registered Representative with an NASD member firm, have the
following acknowledgment signed by the appropriate party:
The undersigned NASD member firm acknowledges receipt of the notice required by
Article 3, Sections 28(a) and (b) of the Rules of Fair Practice.
- ---------------------------------
Name of NASD Member Firm
By: ______________________________
Authorized Officer
Date: ____________________________
14.4. Reliance on Confidential Investor Questionnaire. The undersigned
is informed of the significance to the Company of the foregoing representations
and answers contained in the Confidential Investor Questionnaire contained in
this Article 14 and such answers have been provided under the assumption that
the Company will rely on them.
41
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year indicated. [Signature Page for each Purchaser]
_____________ Units at $ 100,000 per Unit, or an aggregate of $___________ (the
"Purchase Price")
By its execution and delivery of this signature page, the undersigned Purchaser
hereby joins in and agrees to be bound by the terms and conditions of the Unit
Purchase Agreement (the "Purchase Agreement") by and among Hybridon, Inc. (the
"Company") and the Purchasers (as defined therein), as to the aggregate number
of Units set forth above and authorizes this signature page to be attached to
the Purchase Agreement or counterparts thereof.
- -------------------------------- ---------------------------------
Signature Signature (if purchasing jointly)
- -------------------------------- ---------------------------------
Name Typed or Printed Name Typed or Printed
- -------------------------------- ---------------------------------
Entity Name Entity Name
- -------------------------------- ---------------------------------
Address Address
- -------------------------------- ---------------------------------
City, State and Zip Code City, State and Zip Code
- -------------------------------- ---------------------------------
Telephone-Business Telephone--Business
- -------------------------------- ---------------------------------
Telephone-Residence Telephone--Residence
- -------------------------------- ---------------------------------
Facsimile-Business Facsimile--Business
- -------------------------------- ---------------------------------
Facsimile-Residence Facsimile--Residence
- -------------------------------- ---------------------------------
Tax ID # or Social Security # Tax ID # or Social Security #
Dated: ___________ _____, 199_
42
<PAGE>
This Agreement is agreed to and accepted as of ___________________,
1998.
HYBRIDON, INC.
By: __________________________
Name:
Title:
43
<PAGE>
CERTIFICATE OF SIGNATORY
(To be completed if Units are
being subscribed for by an entity)
I, _____________________________, am the _________________________ (the
"Entity"). I certify that I am empowered and duly authorized by the Entity to
execute and carry out the terms of the Unit Purchase Agreement, dated as of ,
and to purchase and hold the Units, and certify further that the Unit Purchase
Agreement has been duly and validly executed on behalf of the Entity and
constitutes a legal and binding obligation of the Entity.
IN WITNESS WHEREOF, I have set my hand this ____ day of
_________________, 199_.
------------------------------
(Signature)
44
<PAGE>
ANNEX U
-------
THE TERMS OF THIS NOTE ARE SUBJECT TO THE TERMS OF A UNIT PURCHASE AGREEMENT, A
COPY OF WHICH IS AVAILABLE FROM HYBRIDON, INC. (THE "COMPANY"). THE SECURITIES
REPRESENTED BY THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY APPLICABLE
STATE SECURITIES LAWS, AND MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF A REGISTRATION STATEMENT
IN EFFECT WITH RESPECT TO THE SECURITIES UNDER THE SECURITIES ACT OR AN
EXEMPTION FROM THE SECURITIES ACT. ANY SUCH TRANSFER MAY ALSO BE SUBJECT TO
COMPLIANCE WITH APPLICABLE STATE SECURITIES LAWS AND THE LAWS OF OTHER
APPLICABLE JURISDICTIONS.
THIS NOTE MAY NOT BE OFFERED OR SOLD IN THE UNITED STATES OR TO A U.S. PERSON OR
FOR THE ACCOUNT OR BENEFIT OF A U.S. PERSON PRIOR TO THE EXPIRATION OF THE
RESTRICTED PERIOD (AS DEFINED IN THE PURCHASE AGREEMENT), AND NO TRANSFER OR
EXCHANGE OF THIS NOTE MAY BE MADE UNTIL AFTER THE LATER OF THE DATE OF
EXPIRATION OF THE RESTRICTED PERIOD AND THE DATE ON WHICH THE REQUIRED
CERTIFICATION RELATING TO SUCH INTEREST HAS BEEN PROVIDED IN ACCORDANCE WITH THE
TERMS OF THE PURCHASE AGREEMENT.
HYBRIDON, INC.
No.___
Note due 2007
$---------
[DATE OF ISSUANCE]
Hybridon, Inc., a Delaware corporation, (the "Company"), for value
received, hereby promises to pay to ___________________________ (the "Holder"),
or registered assigns, the principal sum set forth above, with accrued but
unpaid interest thereon at a rate equal to fourteen percent (14%) per annum, on
December 31, 2007 (the "Maturity Date"); provided, however, that if the offering
(the "Unit Offering") of units ("Units") consisting of Notes (as defined below)
and Warrants is terminated before the Mandatory Conversion Event (as defined
below) has occurred, then the interest rate will increase to eighteen percent
(18%) per annum, effective as of the date the Additional Warrants become
exercisable. Payment shall be made at such place as designated by the Company
upon surrender of this Note, and shall be in such coin
<PAGE>
or currency of the United States of America as at the time of payment shall be
legal tender for the payment of public and private debts. This Note is one of a
duly authorized issue of Hybridon, Inc. Notes due 2007 (individually a "Note"
and collectively the "Notes") in an aggregate original principal amount of up to
$68,750,000 plus any Notes issued in lieu of cash interest on Notes, issued
pursuant to a Unit Purchase Agreement which is available from the Company (the
"Purchase Agreement") and similar agreements. The Notes shall be senior in right
of payment to the Company's 9% Convertible Subordinated Notes Due 2004 (the "9%
Notes") to the extent provided in a First Supplemental Indenture, dated as of
January 13, 1998, to an Indenture, dated as of March 26, 1997, pursuant to which
such 9% Notes were issued. The Notes shall be subordinated in right of payment
to all existing and future Senior Indebtedness of the Company. The Notes are
secured by certain assets of the Company pursuant to the Purchase Agreement on a
subordinated basis. Capitalized terms used herein without definition have the
respective meanings specified therefor in the Purchase Agreement.
SECTION 1. Interest.
The Company will pay interest semi-annually in arrears on April 1 and
October 1 of each year (each an "Interest Payment Date"), or if any such day is
not a Business Day, on the next succeeding Business Day to the registered Holder
hereof as of the preceding March 15 or September 15 (each, a "Record Date").
Interest on this Note will accrue from the most recent Interest Payment Date to
which interest has been paid or, if no interest has been paid, from the date of
its issuance set forth above; provided that if there is no existing Default in
the payment of interest, and if this Note is authenticated between a Record
Date, and the next succeeding Interest Payment Date, interest shall accrue from
such next succeeding Interest Payment Date; provided, further, that the first
Interest Payment Date shall be April 1, 1998 or, if interest is paid in cash,
October 1, 1998. The Company may, with respect to each Interest Payment Date, at
its option and in its sole discretion, in lieu of payment of interest on the
Notes in cash, issue additional Notes ("Interest Notes") in an aggregate
principal amount equal to the amount of interest not paid in cash on such
Interest Payment Date. Each issuance of Interest Notes in lieu of the payment of
cash interest on the Notes shall be made pro rata with respect to the
outstanding Notes; provided, however, that the Company may at its option pay
cash in lieu of issuing Interest Notes in any denomination of less than $1,000.
Interest will be computed on the basis of a 360-day year comprised of twelve
30-day months.
SECTION 2. Prepayment.
This Note (including interest accrued on the principal hereof) may be
prepaid by the Company, at any time without penalty or premium.
SECTION 3. Mandatory Conversion
(a) Mandatory Conversion. Upon the occurrence of a Mandatory Conversion
Event (as hereinafter defined), and not before such occurrence under any
circumstances, the Notes and all accrued interest thereon shall automatically
convert into the number of shares of Series B Preferred Stock of the Company in
substantially the form attached to the Purchase Agreement as Exhibit C (the
"Conversion Securities") equal to the Conversion Amount (as
- 2 -
<PAGE>
defined below) divided by the then current Conversion Price (as defined below).
The "Conversion Amount" shall be the Liquidation Amount (as defined below). The
"Liquidation Amount" shall be the aggregate principal amount of, plus any
accrued but unpaid interest on, the Notes held by such Holder. The "Conversion
Price" shall initially be $100, subject to adjustment as provided below,
representing an initial conversion rate (subject to adjustment) of 10 shares of
Conversion Securities per $1,000 of Conversion Amount (the "Conversion Rate").
A "Mandatory Conversion Event" shall be deemed to have occurred,
effective immediately, when all of the following shall have occurred:
(i) the holders of $40,000,000 or more in aggregate principal amount of
the 9% Convertible Subordinated Notes due 2004 (the "Subordinated Notes") issued
pursuant to the Indenture between the Company and State Street Bank and Trust
Company, as Trustee, dated as of March 26, 1997 (the "Indenture"), irrevocably
exchange such Subordinated Notes and all accrued but unpaid interest thereon for
Series A Preferred Stock of the Company and warrants to purchase Common Stock of
the Company; and
(ii) the Company has received proceeds in the Unit Offering, net of
cash fees, commissions and expenses, equal to or exceeding $20,000,000 in the
aggregate.
(b) Conversion Procedures. Such conversion shall be deemed to have been
made automatically, irrevocably and immediately upon the occurrence of a
Mandatory Conversion Event and, upon such Mandatory Conversion Event, Notes
shall no longer be deemed outstanding and all rights whatsoever in respect
thereof (including the right to receive interest thereon) shall terminate except
as provided in the following sentence. The Company shall deliver to each Holder
certificates evidencing the number of full shares of Conversion Securities to
which such person shall be entitled as provided in Subsection 3(a), subject to
Section 4 hereof. (c) [Reserved]
(d) Reservation of Shares; Transfer Taxes; Etc. The Company shall at
all times reserve and keep available, out of its authorized and unissued shares
of Conversion Securities, solely for the purpose of effecting the conversion of
the Notes, such number of shares of its Conversion Securities free of preemptive
rights as shall be sufficient to effect the conversion of all Notes from time to
time outstanding. The Company shall use its best efforts from time to time, in
accordance with the laws of the State of Delaware, to increase the authorized
number of shares of Conversion Securities if at any time the number of shares of
Conversion Securities not outstanding shall not be sufficient to permit the
conversion of all the then-outstanding Notes.
The Company shall pay any and all issue or other taxes (other than
income taxes) that may be payable in respect of any issue or delivery of shares
of Conversion Securities on conversion of the Notes. The Company shall not,
however, be required to pay any tax which may be payable in respect of any
transfer involved in the issue or delivery of Conversion Securities (or other
securities or assets) in a name other than that in which the Notes so converted
were registered, and no such issue or delivery shall be made unless and until
the
- 3 -
<PAGE>
person requesting such issue has paid to the Company the amount of such tax or
has established, to the satisfaction of the Company, that such tax has been
paid.
(e) Other Changes in Conversion Rate. The Company from time to time may
increase the Conversion Rate by any amount for any period of time if the period
is at least 20 days and if the increase is irrevocable during the period.
Whenever the Conversion Rate is so increased, the Company shall mail to the
holder of record of this Note a notice of the increase at least 15 days before
the date the increased Conversion Rate takes effect, and such notice shall state
the increased Conversion Rate and the period it will be in effect.
The Company may make such increases in the Conversion Rate, in addition
to those required or allowed by this paragraph (e), as shall be determined by
it, as evidenced by a resolution of the Board of Directors of the Company, to be
advisable in order to avoid or diminish any income tax to holders of Common
Stock resulting from any dividend or distribution of stock or issuance of rights
or warrants to purchase or subscribe for stock or from any event treated as such
for income tax purposes.
SECTION 4. Fractional Shares.
The Company shall not be required to issue fractions of shares of
Conversion Securities or other capital stock of the Company upon conversion of
any Notes. If any fraction of a share would be issuable on conversion of any
Notes (aggregating, for this purpose, all Notes held by a record holder), the
number of shares of Conversion Securities issuable shall be rounded to the
nearest whole share, with .5 of a share rounded upward.
SECTION 5. Events of Default Defined.
The following shall each constitute an "Event of Default" hereunder:
(a) the failure of the Company to make any payment of (i) principal of
this Note when due and payable and such failure shall continue for five (5) or
more days and (ii) interest on this Note when due and payable and such failure
shall continue for thirty (30) or more days, whether or not such payment is
prohibited by the subordination provisions of this Note or the Purchase
Agreement;
(b) the failure of the Company to observe or perform any covenant in
this Note or in the Purchase Agreement, and such failure shall have continued
unremedied for a period of sixty (60) days after written notice as provided in
the last paragraph of this Section 5;
(c) a default occurs (after giving effect to any applicable grace
periods or any extension of any maturity date) in the payment when due of
principal of, or an acceleration of, any indebtedness for money borrowed by the
Company or any of its Subsidiaries (other than an Unrestricted Subsidiary (as
defined below) which is not a Significant Subsidiary and provided there is no
recourse against the Company or any other Subsidiary with respect to the
obligations of such Unrestricted Subsidiary arising as a result of such default)
in excess of $2 million, individually or in the aggregate, if such indebtedness
is not discharged, or such acceleration is
- 4 -
<PAGE>
not annulled, within 30 days after written notice as provided in the last
paragraph of this Section 5;
(d) the Company or any of its Significant Subsidiaries, pursuant to or
within the meaning of any Bankruptcy Law:
(i) commences a voluntary case,
(ii) consents to the entry of an order for relief against it in
an involuntary case,
(iii) consents to the appointment of a Custodian of it or for all
or substantially all of its property, and such Custodian is not
discharged within 30 days,
(iv) makes a general assignment for the benefit of its creditors,
or
(v) admits in writing that it is generally unable to pay its
debts as the same become due;
(e) a court of competent jurisdiction enters and order or decree under
any Bankruptcy Law that:
(i) is for relief in any involuntary case against the Company or
any Significant Subsidiary,
(ii) appoints a Custodian of the Company or any Significant
Subsidiary or for all or substantially all of the property of the
Company or any Significant Subsidiary, or
(iii) orders the liquidation of the Company or any Significant
Subsidiary, and, in each case, the order or decree remains unstayed
and in effect for 60 consecutive days.
The term "Bankruptcy Law" means Title 11 of the U.S. Code or any
similar federal, foreign or state law for the relief of debtors. The term
"Custodian" means any receiver, trustee, assignee, liquidator, examiner or
similar official under any Bankruptcy Law. The term "Significant Subsidiary" has
the same meaning as significant subsidiary has under Regulation S-X under the
Securities Act as in effect on the date hereof. "Unrestricted Subsidiary" means
any Subsidiary of the Company which (i) is not wholly-owned by the Company, (ii)
is designated as an Unrestricted Subsidiary by the Board of Directors of the
Company and (iii) at the time of any investment by the Company in such
Subsidiary, in the aggregate holds or comprises less than 20% of the Company's
assets as shown on the Company's consolidated balance sheet prepared in
accordance with generally accepted accounting principles consistently applied as
at the time of such investment.
A Default under Subsection (b) of this Section 5 (other than a Default
under Section 8.14 of the Purchase Agreement, which Default shall be an Event of
Default with the
- 5 -
<PAGE>
notice but without the passage of time specified in Subsection (b) of this
Section 5) or Subsection (c) of this Section 5 shall not be an Event of Default
until (i) the holders of at least 25% in aggregate principal amount of the Notes
then outstanding shall have notified the Company of the Default and (ii) the
Company shall have failed to cure the Default under such Subsection (b) within
60 days after receipt of the notice or under such Subsection (c) within 10 days
after receipt of the notice, respectively. Any such notice must specify the
Default, demand that it be remedied and state that the notice is a "Notice of
Default."
SECTION 6. Remedies upon Event of Default.
(a) If an Event of Default (other than an Event of Default specified in
Subsections (d) and (e) of Section 5) occurs and is continuing, the Holders of
at least 25% in aggregate principal amount of the Notes then outstanding (by
notice to the Company and the Secured Party), may declare the unpaid principal
of and accrued interest on all the Notes then outstanding to be due and payable.
Upon any such declaration, such principal and accrued interest shall be due and
payable immediately. If an Event of Default specified in Subsection (d) or (e)
of Section 5 occurs, such an amount shall ipso facto become and be immediately
due and payable without any declaration or other act on the part of any Holder.
The Holders of at least fifty percent (50%) or more in aggregate principal
amount of the Notes then outstanding may rescind an acceleration and its
consequences if (a) the Company has paid a sum sufficient to pay (i) all overdue
interest on all Notes then outstanding and (ii) the principal of the Notes then
outstanding which have become due otherwise than by such declaration of
acceleration and accrued interest thereon at a rate borne by the Notes and (b)
the rescission would not conflict with any judgment or decree and if all
existing Events of Default have been cured or waived except nonpayment of
principal or interest that has become due solely because of acceleration. No
such rescission shall effect any subsequent Default or impair any right
consequent thereto.
(b) The Holders of at least fifty percent (50%) or more in aggregate
principal amount of the Notes then outstanding may waive an existing Default or
Event of Default and its consequences. Upon any such waiver, such Default shall
cease to exist and any Event of Default arising therefrom shall be deemed to
have been cured for every purpose of this Note and the Purchase Agreement; but
no such waiver shall extend to any subsequent or other Default or impair any
right consequent thereon.
(c) If the Company defaults in a payment of interest on the Notes, the
Company shall pay defaulted interest (plus interest on such defaulted interest,
to the extent lawful, at the rate borne by this Note) in any lawful manner. The
Company shall pay the defaulted interest to the Holders of the Notes on a
special record date. The Company shall fix or cause to be fixed any such special
record date and payment date, which specified record date shall not be less than
10 days prior to the payment date for such defaulted interest, and shall
promptly mail or cause to be mailed to each Holder a notice that states the
special record date, the payment date and the amount of defaulted interest to be
paid.
(d) No remedy herein conferred upon the Holder of this Note is intended
to be exclusive of any other remedy and each and every such remedy shall be
cumulative and shall
- 6 -
<PAGE>
be in addition to every other remedy given hereunder or now or hereafter
existing at law or in equity or by statute or otherwise.
(e) In any suit for the enforcement of any right or remedy under this
Note or the Purchase Agreement, a court in its discretion may require the filing
by any party litigant in the suit of an undertaking to pay the costs of the
suit, and the court in its discretion may assess reasonable costs, including
reasonable attorneys' fees, against any party litigant in the suit, having due
regard to the merits and good faith of the claims or defenses made by the party
litigant. This Subsection 6(e) does not apply to a suit by Holders of more than
10% in aggregate principal amount of the then outstanding Notes or any suit for
the enforcement of the mandatory conversion right set forth in Section 3.
SECTION 7. Note Register.
(a) The Company shall keep at its principal executive office a register
(herein sometimes referred to as the "Note Register"), in which, subject to such
reasonable regulations as it may prescribe, but at its expense (other than
transfer taxes, if any), the Company shall provide for the registration and
transfer of this Note.
(b) Whenever this Note shall be surrendered at the principal executive
office of the Company for transfer or exchange, accompanied by a written
instrument of transfer in form reasonably satisfactory to the Company duly
executed by the Holder hereof or his attorney duly authorized in writing, and,
subject to compliance with applicable securities laws, the Company shall execute
and deliver in exchange therefor a new Note or Notes, as may be requested by
such Holder, in the same aggregate unpaid principal amount and payable on the
same date as the principal amount of the Note or Notes so surrendered; each such
new Note shall be dated as of the date to which interest has been paid on the
unpaid principal amount of the Note or Notes so surrendered and shall be in such
principal amount and registered in such name or names as such Holder may
designate in writing.
(c) Upon receipt by the Company of evidence reasonably satisfactory to
it of the loss, theft, destruction or mutilation of this Note and of indemnity
reasonably satisfactory to it, and upon reimbursement to the Company of all
reasonable expenses incidental thereto, and upon surrender and cancellation of
this Note (in case of mutilation) the Company will make and deliver in lieu of
this Note a new Note of like tenor and unpaid principal amount and dated as of
the date to which interest has been paid on the unpaid principal amount of this
Note in lieu of which such new Note is made and delivered.
SECTION 8. Miscellaneous.
(a) Amendments and Waivers. The holders of at least fifty percent (50%)
or more in principal amount of outstanding Notes or the Secured Party on behalf
of the holders of the Notes may waive or otherwise consent to the amendment of
any of the provisions hereof, provided that no such waiver or amendment may
reduce the principal amount of or interest on any of the Notes or change the
stated maturity of the principal or reduce the percentage of
- 7 -
<PAGE>
holders of Notes necessary to waive or amend the provisions of this Note,
without the consent of each holder of any Note affected thereby.
(b) Restrictions on Transferability. In addition to the restrictions
set forth in the Purchase Agreement, the securities represented by this Note
have been acquired for investment and have not been registered under the
Securities Act of 1933, as amended, or the securities laws of any state or other
jurisdiction. Without such registration, such securities may not be sold,
pledged, hypothecated or otherwise transferred, except pursuant to exemptions
from the Securities Act of 1933, as amended, and the securities laws of any
state or other jurisdiction.
(c) Forbearance from Suit. No holder of Notes shall institute any suit
or proceeding for the enforcement of the payment of principal or interest unless
the holders of at least 25% in principal amount of all of the outstanding Notes
join in such suit or proceeding.
(d) No Recourse Against Others. No directors, officer, employee,
incorporator or stockholder of the Company, as such, shall have any liability
for any obligations of the Company under this Note, the Purchase Agreement or
for any claim based on, in respect of, or by reason of, such obligations or
their creation. The Holder of this Note by accepting this Note waives and
releases all such liability. The waiver and release are part of the
consideration for the issuance of this Note.
(e) Subordination. The Holder by accepting this Note agrees that the
payment (by set-off or otherwise) of principal of and interest on the Notes is
subordinated in right of payment, to the extent and in the manner provided in
Section 9 of the Purchase Agreement, to the prior payment in full of all
obligations in respect of Senior Indebtedness of the Company, whether
outstanding on the date of the Purchase Agreement or thereafter incurred.
(f) Denominations. This Note is issuable in minimum denominations of
$1,000 and integral multiples of $1,000 in excess thereof, except as otherwise
provided in Section 1 hereof.
(g) Governing Law. This Note shall be governed by, and construed in
accordance with, the laws of the State of New York, excluding the body of law
relating to conflict of laws. Notwithstanding anything to the contrary contained
herein, in no event may the effective rate of interest collected or received by
the Holder exceed that which may be charged, collected or received by the Holder
under applicable law.
(h) Interpretation. If any term or provision of this Note shall be held
invalid, illegal or unenforceable, the validity of all other terms and
provisions hereof shall in no way be affected thereby.
(i) Successors and Assigns. This Note shall be binding upon the Company
and its successors and assigns and shall inure to the benefit of the Holder and
its successors and registered assigns.
- 8 -
<PAGE>
(j) Notices. All notices, requests, consents and demands shall be made
in writing and shall be mailed postage prepaid, or delivered by hand, to the
Company or to the Holder thereof at their respective addresses set forth below
or to such other address as may be furnished in writing to the other party
hereto:
If to the Holder: At the address shown on Schedule A attached hereto
If to the Company: Hybridon, Inc.
620 Memorial Drive
Cambridge, Massachusetts 02139
Attention: E. Andrews Grinstead, III
(k) Saturdays, Sundays, Holidays. If any date that may at any time be
specified in this Note as a date for the making of any payment of principal or
interest under this Note shall fall on Saturday, Sunday or on a day which in New
York or Massachusetts or California shall be a legal holiday, then the date for
the making of that payment shall be the next subsequent day which is not a
Saturday, Sunday or legal holiday.
(l) Purchase Agreement. This Note is subject to the terms contained in
the Purchase Agreement and the registered Holder of this Note is entitled to the
benefits of such Purchase Agreement to the extent provided therein and may, in
addition to any rights hereunder, enforce the agreements of the Company
contained therein and exercise the remedies provided for thereby or otherwise
available in respect thereof.
(m) No Adverse Interpretation of Other Agreements. This Note and the
Purchase Agreement may not be used to interpret another note, indenture, loan or
debt agreement of the Company or a Subsidiary. Any such note, indenture, loan or
debt agreement may not be used to interpret this Note or the Purchase Agreement.
- 9 -
<PAGE>
IN WITNESS WHEREOF, this Note has been executed and delivered on the
date first above written by the duly authorized representative of the Company.
HYBRIDON, INC.
By:________________________
Name:
Title:
- 10 -
<PAGE>
SCHEDULE A
Name of Holder Address of Holder
- -------------- -----------------
- 11 -
EXHIBIT 9(a)(2)
HYBRIDON, INC.
EXCHANGE AGREEMENT AND LETTER OF TRANSMITTAL
TO TENDER AND TO ENTER INTO CERTAIN AGREEMENTS
IN RESPECT OF ITS 9% CONVERTIBLE SUBORDINATED
NOTES DUE 2004 IN EXCHANGE FOR ITS SERIES A
PREFERRED STOCK AND EXCHANGE WARRANTS
PURSUANT TO ITS OFFER TO EXCHANGE DATED FEBRUARY 6, 1998
THE OFFER WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON MARCH 9, 1998,
UNLESS EXTENDED (THE "EXPIRATION DATE"). THE OFFER MAY BE WITHDRAWN AT ANY TIME
PRIOR TO 12:00 MIDNIGHT, NEW YORK TIME, ON THE EXPIRATION DATE.
Hybridon, Inc., a Delaware corporation ("Hybridon"), invites the holders of its
9% Convertible Subordinated Notes due 2004 (the "Notes") to tender any and all
of the principal amount of and accrued interest on (together, the "Exchange
Value") their Notes in exchange (the "Exchange") for (i) 10 shares of Series A
Preferred Stock, par value $.01 per share, of Hybridon ("Series A Preferred
Stock") and (ii) warrants ("Exchange Warrants") to purchase such number of
shares of common stock, par value $.001 per share, of Hybridon ("Hybridon Common
Stock") equal to 15% of the number of shares of Hybridon Common Stock into which
such Series A Preferred Stock would be convertible at the Exercise Price (as
defined in the Offer to Exchange (defined below)), for each $1,000 in Exchange
Value of the Notes tendered, upon the terms and subject to the conditions set
forth in this Exchange Agreement and Letter of Transmittal (this "Exchange
Agreement and Letter of Transmittal" or "Letter of Transmittal") and the
accompanying Offer to Exchange (the "Offer to Exchange").
No Noteholder may tender any or all of the Exchange Value attributable to
accrued but unpaid interest on the principal amount of the Notes being tendered
without also tendering the Exchange Value attributable to such principal amount,
or vice versa.
--------------
TO: CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
DEPOSITARY
TELEPHONE NUMBER: (201) 296-4860
<PAGE>
By Hand: By Mail: Overnight Delivery:
-------- -------- -------------------
120 Broadway P.O. Box 3301 85 Challenger Road
13th Floor South Hackensack, NJ 07606 Mail Drop-Reorg
New York, NY 10271 Ridgefield Park, NJ 07660
Attn: Reorganization Dept.
Facsimile (for eligible institutions): (201) 329-8936
Confirm facsimile by telephone ONLY: (201) 296-4860
DELIVERY OF THIS EXCHANGE AGREEMENT AND LETTER OF TRANSMITTAL TO AN ADDRESS
OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE
NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
-------------
ANY TENDER OF NOTES WHICH INVOLVES DENOMINATIONS OF LESS THAN $1,000 IN EXCHANGE
VALUE THEREOF WILL BE EXCHANGED ON A PRO RATA BASIS, EXCEPT TO THE EXTENT THAT
SUCH PRORATION WOULD RESULT IN THE ISSUANCE OF A FRACTIONAL SHARE OF SERIES A
PREFERRED STOCK. IN THE EVENT THAT SUCH FRACTIONAL SHARE WOULD RESULT, HYBRIDON
SHALL, AT ITS SOLE DISCRETION, EITHER (A) ROUND SUCH FRACTIONAL SHARE TO THE
NEAREST WHOLE NUMBER OF SHARES (WITH 0.5 BEING ROUNDED UP), OR (B) PAY IN CASH
AN AMOUNT EQUAL TO SUCH FRACTION MULTIPLIED BY $100 (WHICH IS THE PER SHARE
STATED VALUE OF SERIES A PREFERRED STOCK). HYBRIDON WILL NOT ISSUE ANY
FRACTIONAL SHARES OF SERIES A PREFERRED STOCK IN THE OFFER. IN THE EVENT THAT A
TENDERING NOTEHOLDER WOULD OTHERWISE BE ENTITLED TO RECEIVE A FRACTIONAL
EXCHANGE WARRANT, HYBRIDON SHALL ROUND UP SUCH FRACTIONAL EXCHANGE WARRANT TO
THE NEAREST WHOLE NUMBER OF EXCHANGE WARRANTS.
-------------
THE OFFER IS NOT CONDITIONED UPON ANY MINIMUM AMOUNT OF EXCHANGE VALUE OF THE
NOTES BEING TENDERED. THE OFFER, HOWEVER, IS SUBJECT TO CERTAIN CONDITIONS. SEE
"TERMS OF THE OFFER--CERTAIN CONDITIONS OF THE OFFER" IN THE OFFER TO EXCHANGE.
-------------
AS SET FORTH IN MORE DETAIL IN THIS LETTER OF TRANSMITTAL UNDER THE CAPTION
"EXCHANGE AGREEMENT", BY SIGNING AND SENDING SUCH LETTER OF TRANSMITTAL, THE
TENDERING NOTEHOLDERS ARE MAKING
- 2 -
<PAGE>
CERTAIN REPRESENTATIONS AND AGREEING TO BE BOUND BY CERTAIN COVENANTS CONTAINED
HEREIN. IN ADDITION, HYBRIDON WILL MAKE CERTAIN REPRESENTATIONS AND AGREEMENTS
WITH RESPECT TO CERTAIN MATTERS PURSUANT TO THIS LETTER OF TRANSMITTAL. SUCH
COVENANTS OF THE TENDERING NOTEHOLDERS AND REPRESENTATIONS AND AGREEMENTS OF
HYBRIDON WILL BECOME EFFECTIVE AND BINDING ON SUCH NOTEHOLDERS AND HYBRIDON,
RESPECTIVELY, AT SUCH TIME THAT HYBRIDON ACCEPTS FOR EXCHANGE ANY OF THE
EXCHANGE VALUE OF THE NOTES TENDERED BY A TENDERING NOTEHOLDER. IN THE EVENT
THAT THE OFFER IS TERMINATED BY HYBRIDON OR HYBRIDON DOES NOT ACCEPT FOR
EXCHANGE ANY EXCHANGE VALUE OF THE NOTES VALIDLY TENDERED BY A TENDERING
NOTEHOLDER, NONE OF THE COVENANTS, AGREEMENTS AND REPRESENTATIONS MADE BY EITHER
SUCH TENDERING NOTEHOLDER OR HYBRIDON IN THIS LETTER OF TRANSMITTAL WILL BE
VALID AGAINST OR BINDING UPON THE PARTY WHO MADE ANY SUCH COVENANTS, AGREEMENTS
OF REPRESENTATIONS. ANY TENDER NOT ACCOMPANIED BY THIS LETTER OF TRANSMITTAL
WILL BE DEEMED INVALID. PLEASE READ CAREFULLY THIS LETTER OF TRANSMITTAL.
-------------
NEITHER HYBRIDON, ITS BOARD OF DIRECTORS NOR ANY OF ITS EXECUTIVE OFFICERS MAKES
ANY RECOMMENDATION TO ANY NOTEHOLDER AS TO WHETHER TO TENDER ANY OR ALL OF THE
EXCHANGE VALUE OF THE NOTES OWNED BY SUCH NOTEHOLDER. EACH NOTEHOLDER MUST MAKE
HIS, HER OR ITS OWN DECISIONS AS TO WHETHER TO TENDER NOTES AND, IF SO, HOW MUCH
IN EXCHANGE VALUE TO TENDER.
-------------
This Letter of Transmittal is to be used (i) if certificates for the
Notes are to be physically delivered to ChaseMellon Shareholder Services, L.L.C.
(the "Depositary") herewith, (ii) if tenders are to be made by book entry
transfer to one of the accounts to be established by the Depositary at The
Depository Trust Company (the "Book-Entry Transfer Facility") pursuant to the
procedures set forth in the Offer to Exchange under the caption "Procedures for
Tendering Notes," or (iii) if tenders are to be made according to the guaranteed
delivery procedures set forth in the Offer to Exchange under "Procedures for
Tendering Notes--Guaranteed Delivery Procedure." Delivery of the Notes, this
Letter of Transmittal and/or any other required documents to the Book-Entry
Transfer Facility does not constitute delivery to the Depositary. Capitalized
terms used herein and not otherwise defined shall have the respective meanings
ascribed to them in the Offer to Exchange.
PLEASE READ THE ENTIRE LETTER OF TRANSMITTAL CAREFULLY BEFORE CHECKING
ANY BOX BELOW. YOUR BANKER OR BROKER CAN ASSIST YOU IN COMPLETING THIS FORM. THE
INSTRUCTIONS INCLUDED IN THIS LETTER OF TRANSMITTAL MUST BE FOLLOWED. QUESTIONS
AND REQUESTS FOR ASSISTANCE SHOULD BE DIRECTED TO THE DEPOSITARY AT THE ADDRESS
AND
- 3 -
<PAGE>
TELEPHONE NUMBER SET FORTH ABOVE. REQUESTS FOR ADDITIONAL COPIES OF THE OFFER TO
EXCHANGE AND THIS LETTER OF TRANSMITTAL SHOULD BE DIRECTED TO HYBRIDON AT 620
MEMORIAL DRIVE, CAMBRIDGE, MA 02139, TELEPHONE (617) 528-7000.
Noteholders who wish to tender their Notes must complete the table in
Box One and complete and sign in Box Three. If only columns (1) through (3) are
completed in Box One, the Noteholder will be deemed to have tendered for
exchange all Exchange Value attributable to the principal amount listed in the
table in Box One. If a Noteholder wishes to tender less than all of such
Exchange Value, column (4) in Box One must be completed in full and such
Noteholder should refer to Instruction 3.
SIGNATURE(S) MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Noteholders who wish to tender their Notes pursuant to the Offer and
whose certificates representing such Notes are in their possession but are not
immediately available, or who will be unable to submit all required documents to
the Depositary on or before the Expiration Date or who cannot complete the
procedures for book entry transfer on a timely basis may tender their Notes
according to the guaranteed delivery procedures set forth in the Offer to
Exchange under "Procedures for Tendering Notes--Guaranteed Delivery Procedures."
See Instruction 1.
[_] CHECK HERE IF TENDERED NOTES ARE ENCLOSED HEREWITH.
[_] CHECK HERE IF TENDERED NOTES ARE BEING DELIVERED BY BOOK ENTRY TRANSFER
MADE TO AN ACCOUNT MAINTAINED BY THE DEPOSITARY WITH A BOOK ENTRY
TRANSFER FACILITY, AND COMPLETE THE FOLLOWING (ONLY PARTICIPANTS IN A
BOOK ENTRY TRANSFER FACILITY SYSTEM MAY DELIVER NOTES BY BOOK ENTRY
TRANSFER):
Name of Tendering Institution:
--------------------------------------------------
Book Entry Transfer Facility:
--------------------------------------------------
Account Number:
----------------------------------------------------------------
Transaction Code Number:--------------------------------------------------------
|_| CHECK HERE IF TENDERED NOTES ARE BEING DELIVERED PURSUANT TO
A NOTICE OF GUARANTEED DELIVERY AND COMPLETE THE FOLLOWING:
Name(s) of Registered Owner(s):
-------------------------------------------------
Date of Execution of Notice of Guaranteed Delivery:
-----------------------------
- 4 -
<PAGE>
Name of Institution which Guaranteed Delivery:
----------------------------------
Account Number if delivered by book entry transfer:
-----------------------------
[_] CHECK HERE IF NOTES HAVE BEEN PREVIOUSLY DELIVERED PURSUANT
TO AN EXCHANGE AGREEMENT AND LETTER OF TRANSMITTAL.
- --------------------------------------------------------------------------------
BOX ONE
- --------------------------------------------------------------------------------
LIST BELOW THE NOTES TO WHICH THIS EXCHANGE AGREEMENT AND LETTER
OF TRANSMITTAL RELATES. IF THE SPACE PROVIDED BELOW IS INADEQUATE,
THE CERTIFICATE NUMBERS AND PRINCIPAL AMOUNTS SHOULD BE LISTED ON
A SEPARATE SIGNED SCHEDULE AFFIXED HERETO.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
DESCRIPTION OF NOTES
- -----------------------------------------------------------------------------------------------------------------------------
1 2 3 4
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CERTIFICATE NUMBER(S) AGGREGATE
NAME(S) AND ADDRESS(ES) OF (ATTACH LIST IF PRINCIPAL PRINCIPAL AMOUNT
REGISTERED HOLDER(S) NECESSARY)* AMOUNT(S) TENDERED**
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
* NEED NOT BE COMPLETED BY NOTEHOLDERS TENDERING BY BOOK ENTRY TRANSFER.
** UNLESS OTHERWISE INDICATED, THE NOTEHOLDER WILL BE DEEMED TO HAVE TENDERED
THE ENTIRE PRINCIPAL AMOUNT (TOGETHER WITH ALL ACCRUED BUT UNPAID INTEREST
THEREON) OF NOTES REPRESENTED BY TENDERED CERTIFICATES. SEE INSTRUCTION 3.
- --------------------------------------------------------------------------------
- 5 -
<PAGE>
EXCHANGE AGREEMENT
BY SIGNING AND SENDING THIS EXCHANGE AGREEMENT AND LETTER OF
TRANSMITTAL TO THE DEPOSITARY, THE TENDERING NOTEHOLDERS SHALL THEREBY BE MAKING
CERTAIN REPRESENTATIONS AND AGREEING TO BE BOUND BY THE TERMS OF THIS EXCHANGE
AGREEMENT AND LETTER OF TRANSMITTAL. BY ACCEPTING FOR EXCHANGE ANY PORTION OF
THE EXCHANGE VALUE OF THE NOTES TENDERED, HYBRIDON SHALL THEREBY BE MAKING THE
REPRESENTATIONS AND AGREEMENTS CONTAINED IN THIS EXCHANGE AGREEMENT AND LETTER
OF TRANSMITTAL. SUCH RESPECTIVE AGREEMENTS AND REPRESENTATIONS OF HYBRIDON AND
THE TENDERING NOTEHOLDERS WILL BECOME EFFECTIVE AND BINDING ON THE RESPECTIVE
PARTIES UPON, AND ONLY UPON, ACCEPTANCE BY HYBRIDON FOR EXCHANGE OF ANY EXCHANGE
VALUE OF THE NOTES TENDERED BY EACH TENDERING NOTEHOLDER. IN THE EVENT THAT THE
OFFER IS TERMINATED BY HYBRIDON OR HYBRIDON DOES NOT ACCEPT FOR EXCHANGE ANY
PORTION OF THE EXCHANGE VALUE OF THE NOTES VALIDLY TENDERED, NONE OF THE
REPRESENTATIONS AND AGREEMENTS MADE HEREBY BY EITHER PARTY WILL BE VALID AGAINST
OR BINDING UPON SUCH PARTY.
ARTICLE I. MATTERS APPLICABLE TO TENDERING NOTEHOLDERS.
In accordance with the terms and subject to the conditions set forth in
the Offer to Exchange, the undersigned hereby tenders to Hybridon the
above-described Exchange Value of the Notes. Subject to, and effective upon
acceptance for exchange of the Notes tendered herewith, the undersigned hereby
exchanges, assigns and transfers to, or upon the order of, Hybridon all right,
title and interest in and to all the Notes that are being tendered hereby and
that are being accepted for exchange pursuant to the Offer, and irrevocably
constitutes and appoints the Depositary the true and lawful agent and
attorney-in-fact of the undersigned with respect to such Notes (with full
knowledge that the Depositary also acts as agent for Hybridon), with full power
of substitution (such power of attorney being deemed to be an irrevocable power
coupled with an interest), to (a) deliver such Notes to Hybridon or cause
ownership of such Notes to be transferred to Hybridon on its books and deliver
all accompanying evidences to transfer and authenticity to or upon the order of
Hybridon upon receipt by the Depositary, as the undersigned's agent, of the
shares of Series A Preferred Stock and Exchange Warrants to which the
undersigned is entitled upon the acceptance by Hybridon of such Notes under the
Offer, and (b) receive all benefits and otherwise exercise all rights to
beneficial ownership of such Notes, all in accordance with the terms of the
Offer. The undersigned agrees and acknowledges, by the execution and delivery
hereof, that the undersigned agrees to the matters covered by this Exchange
Agreement and Letter of Transmittal.
The undersigned hereby represents and warrants that the undersigned has
full and power and authority to tender, exchange, assign and transfer the Notes
tendered hereby, and that when the same are accepted for exchange by Hybridon,
Hybridon will acquire good and unencumbered title thereto, free and clear of all
liens, restrictions, charges and encumbrances, and such Notes
- 6 -
<PAGE>
shall not be subject to any adverse claims. The undersigned will, upon request,
execute and deliver any additional documents deemed by the Depositary or
Hybridon to be necessary or desirable to complete the exchange, assignment and
transfer of the Notes tendered hereby. The undersigned hereby represents that
the Notes tendered are valid and that the undersigned is duly authorized to
tender such Notes.
The undersigned understands that, upon acceptance by Hybridon of the
Notes tendered hereby, the undersigned will be deemed to have accepted the
shares of Series A Preferred Stock and Exchange Warrants issued in exchange
therefor and will be deemed to have otherwise waived all rights with respect to
interest accrued on the Notes.
Notes properly tendered and not withdrawn will be accepted on the
Expiration Date as soon as practicable after the satisfaction or waiver of all
conditions to the Offer. The undersigned understands that the shares of Series A
Preferred Stock and Exchange Warrants will be delivered as promptly as
practicable upon acceptance of the tendered Notes by Hybridon. The Offer is
subject to a number of conditions, as more particularly set forth in the Offer
to Exchange. See "Terms of the Offer--Certain Conditions of the Offer" in the
Offer to Exchange. The undersigned recognizes that as a result of such
conditions Hybridon may not be required to exchange any or all of the Exchange
Value of the Notes tendered hereby. In such event, the Notes not exchanged will
be returned to the undersigned at the address shown below the undersigned's
signature(s).
The undersigned understands that tenders of Notes pursuant to any of
the procedures described in the Offer to Exchange and in this Exchange Agreement
and Letter of Transmittal will constitute a binding agreement between the
undersigned and Hybridon upon the terms and subject to the conditions of the
Offer.
Unless otherwise indicated herein under "Book Entry Return
Instructions," please issue the certificates for the Series A Preferred Stock
and Exchange Warrants and return any Notes not tendered or not accepted for
exchange, in the name(s) of the undersigned at the address set forth above under
"Description of Notes" in Box One. Similarly, please deliver the certificates
for shares of Series A Preferred Stock and Exchange Warrants and any Notes not
tendered or not accepted for exchange (and accompanying documents, as
appropriate) to the undersigned at the address set forth above under
"Description of Notes" in Box One. Noteholders tendering by book entry transfer
may request that any Notes not tendered or not accepted for exchange be returned
by crediting such account maintained at the Book Entry Transfer Facility as such
Noteholders may designate by making an appropriate entry under "Book Entry
Return Instructions."
All authority conferred or agreed to be conferred in this Exchange
Agreement and Letter of Transmittal shall survive the death or incapacity of the
undersigned, and any obligation of the undersigned hereunder shall be binding
upon the heirs, executors, administrators, legal and personal representatives,
successors in interest and assigns of the undersigned.
- 7 -
<PAGE>
ARTICLE II. REGISTRATION RIGHTS.
1. Definitions
As used in this Article II, the following terms shall have the
following meanings:
"Affiliate" shall mean, with respect to any Person (as defined
below), any other Person controlling, controlled by, or under direct or indirect
common control with, such Person (for the purposes of this definition,
"control," when used with respect to any specified Person, shall mean the power
to direct the management and policies of such person, directly or indirectly,
whether through ownership of voting securities, by contract or otherwise; and
the terms "controlling" and "controlled" shall have meanings correlative to the
foregoing).
"Business Day" shall mean a day Monday through Friday on which
banks are generally open for business in New York.
"Holders" shall mean the undersigned and any Person to whom
the undersigned's rights under this Article II have been transferred in
accordance with Section 10 hereof.
"Person" shall mean any person, individual, corporation,
limited liability company, partnership, trust or other non-governmental entity
or any governmental agency, court, authority or other body.
The terms "register," "registered" and "registration" refer to
the registration effected by preparing and filing a registration statement in
compliance with the Securities Act of 1933, as amended (the "Securities Act"),
and the declaration or ordering of the effectiveness of such registration
statement.
"Registrable Securities" shall mean the shares of Series A
Preferred Stock issued in exchange for the Notes in the Offer and shares of
Hybridon Common Stock issued upon conversion or exercise of the Series A
Preferred Stock and the Exchange Warrants; provided, however, that securities
shall only be treated as Registrable Securities if and only for so long as they
(A) have not been disposed of pursuant to a registration statement declared
effective by the Securities and Exchange Commission (the "Commission"), (B) have
not been sold in a transaction exempt from the registration and prospectus
delivery requirements of the Securities Act so that all transfer restrictions
and restrictive legends with respect thereto are removed upon the consummation
of such sale, (C) are held by a Holder or a permitted transferee pursuant to
Section 10 of this Article II, or (D) are not freely tradeable under applicable
federal securities laws (including, without limitation, pursuant to Rule 144(k)
promulgated under the Securities Act).
"Registration Expenses" shall mean all expenses incurred by
Hybridon in complying with Section 2 of this Article II, including, without
limitation, all registration, qualification and filing fees, printing expenses,
fees and expenses of counsel for Hybridon, blue sky fees and expenses and the
expense of any special audits incident to, or required by, any such registration
(but excluding the fees of legal counsel for any Holder).
- 8 -
<PAGE>
"Registration Statement" shall have the meaning ascribed to
such term in Section 2 of this Article II.
"Registration Period" shall have the meaning ascribed to such
term in Section 4 of this Article II.
"Selling Expenses" shall mean all underwriting discounts and
selling commissions applicable to the sale of Registrable Securities and all
fees and expenses of legal counsel for any Holder.
2. Shelf Registration.
Hybridon shall use its best efforts to file with the
Commission a registration statement on the appropriate form (the "Registration
Statement") pursuant to Rule 415 under the Securities Act, by the later of (A)
the earlier to occur of (i) the filing date of the registration statement to be
filed pursuant to the Unit Purchase Agreement relating to the New Offering (as
defined in the Offer to Exchange), (ii) the expiration of thirty (30) days after
the Final Closing Date (as defined in the Offer to Exchange), and (iii) the
later of (x) the expiration of sixty (60) days from the date on which Hybridon
has received proceeds in the Offering, net of cash fees, commissions and
expenses, equal to or exceeding $20,000,000 in the aggregate, and (y) November
16, 1998, and (B) the date on which shares of Series A Preferred Stock are first
issued, with respect to the resale of the Registrable Securities, and shall use
its best efforts to effect the registration, qualifications or compliances
(including, without limitation, the execution of any required undertaking to
file post-effective amendments, appropriate qualifications or exemptions under
applicable Blue Sky or other state securities laws and appropriate compliance
with applicable securities laws, requirements or regulations) as soon as
practicable thereafter. Notwithstanding the foregoing, Hybridon shall not be
obligated to enter into any underwriting agreement for the sale of any of the
Registrable Securities.
3. Expenses.
All Registration Expenses incurred in connection with any
registration, qualification or compliance pursuant to Section 2 of this Article
II shall be borne by Hybridon. All Selling Expenses relating to the sale of
securities registered by or on behalf of Holders shall be borne by such Holders.
4. Registration Procedures.
In the case of the registration, qualification or compliance
effected by Hybridon pursuant to this Article II, Hybridon shall, upon
reasonable request, inform each Holder as to the status of such registration,
qualification and compliance. At its expense Hybridon shall:
(a) Subject to Section 5 of this Article II, use its best
efforts to keep such registration, and any qualification, exemption or
compliance under state securities laws which Hybridon determines to obtain,
continuously effective until the Holders have completed the distribution
described in the Registration Statement. The period of time during which
Hybridon
- 9 -
<PAGE>
is required hereunder to keep the Registration Statement effective is referred
to herein as the "Registration Period." Notwithstanding the foregoing, at
Hybridon's election, Hybridon may cease to keep such registration, qualification
or compliance effective with respect to any Registrable Securities, and the
registration rights of a Holder shall expire, at such time as the Holder may
sell under Rule 144(k) under the Securities Act in a three-month period all
Registrable Securities then held by such Holder; and
(b) advise the Holders:
(i) when the Registration Statement or any amendment thereto
has been filed with the Commission and when the Registration Statement or any
post-effective amendment thereto has become effective;
(ii) of any request by the Commission for amendments or
supplements to the Registration Statement or the prospectus included therein or
for additional information;
(iii) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or the initiation of
any proceedings for such purpose;
(iv) of the receipt by Hybridon of any notification with
respect to the suspension of the qualification of the Registrable Securities
included therein 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 requires the making of
any changes in the Registration Statement or the prospectus included therein so
that, as of such date, the statements therein are not misleading and do not omit
to state a material fact required to be stated therein or necessary to make the
statements therein (in the case of the prospectus, in the light of the
circumstances under which they were made) not misleading;
(vi) make every reasonable effort to obtain the withdrawal of
any order suspending the effectiveness of the Registration Statement at the
earliest possible time;
(vii) furnish to each Holder, without charge, at least one
copy of such Registration Statement and any post-effective amendment thereto,
including financial statements and schedules and, if the Holder so requests in
writing, all exhibits (including those incorporated by reference) in the form
filed with the Commission;
(viii) during the Registration Period, deliver to each Holder,
without charge, as many copies of the prospectus included in such Registration
Statement and any amendment or supplement thereto as such Holder may reasonably
request; and Hybridon consents to the use, consistent with the provisions
hereof, of the prospectus or any amendment or supplement thereto by each of the
selling Holders of Registrable Securities in connection with the offering and
sale of the Registrable Securities covered by the prospectus and any amendment
or supplement thereto. In addition, upon the reasonable request of the Holder
and subject in all cases to confidentiality protections reasonably acceptable to
Hybridon, Hybridon will meet with a Holder or a representative thereof at
Hybridon's headquarters to discuss all information relevant for
- 10 -
<PAGE>
disclosure in the Registration Statement, and will otherwise cooperate with any
Holder conducting an investigation for the purpose of reducing or eliminating
such Holder's exposure to liability under the Securities Act, including the
reasonable production of information at Hybridon's headquarters;
(ix) during the Registration Period, deliver to each Holder,
without charge, (i) as soon as practicable (but in the case of the annual report
of Hybridon to its stockholders, contemporaneously with the mailing of such
report to its stockholders) one copy of: (A) its annual report to its
stockholders, if any (which annual report shall contain financial statements
audited in accordance with generally accepted accounting principles in the
United States of America by a firm of certified public accountants of recognized
standing); (B) if not included in substance in its annual report to
stockholders, its annual report on Form 10-K (or similar form); (C) each of its
quarterly reports to its stockholders, and, if not included in substance in its
quarterly reports to stockholders, its quarterly report on Form 10-Q (or similar
form), and (D) a copy of the full Registration Statement (the foregoing, in each
case, excluding exhibits); and (ii) upon reasonable request, all exhibits
excluded by the parenthetical to the immediately preceding clause (D), and all
other information that is generally available to the public;
(x) prior to any public offering of Registrable Securities
pursuant to the Registration Statement, register or qualify for offer and sale
under the securities or blue sky laws of such jurisdictions as any such Holders
reasonably request in writing, provided that Hybridon shall not for any such
purpose be required to qualify generally to transact business as a foreign
corporation in any jurisdiction where it is not so qualified or to consent to
general service of process in any such jurisdiction, and do any and all other
acts or things reasonably necessary or advisable to enable the offer and sale in
such jurisdictions of the Registrable Securities covered by such Registration
Statement;
(xi) cooperate with the Holders to facilitate the timely
preparation and delivery of certificates representing Registrable Securities to
be sold pursuant to any Registration Statement free of any restrictive legends
to the extent not required at such time and in such denominations and registered
in such names as Holders may request within three (3) business days of sales of
Registrable Securities pursuant to such Registration Statement;
(xii) upon the occurrence of any event contemplated by Section
4(b)(v) of this Article II, Hybridon shall promptly prepare a post-effective
amendment to the Registration Statement or a supplement to the related
prospectus, or file any other required document so that, as thereafter delivered
to purchasers of the Registrable Securities included therein, the prospectus
will not include any untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; and
(xiii) use its best efforts to comply with all applicable
rules and regulations of the Commission, and will make generally available to
the Holders not later than 45 days (or 90 days if the fiscal quarter is the
fourth fiscal quarter) after the end of its fiscal quarter in which the first
anniversary date of the effective date of the Registration Statement occurs, an
earnings statement satisfying the provisions of Section 11(a) of the Securities
Act.
- 11 -
<PAGE>
5. Delay Periods; Suspension of Sales. Each Holder shall
suspend, upon request of Hybridon, any disposition of Registrable Securities
pursuant to the Registration Statement and prospectus contemplated by Section 2
of this Article II during (i) any period not to exceed two 30-day periods within
any one 12-month period Hybridon requires in connection with a primary
underwritten offering of equity securities, and (ii) any period, not to exceed
one 45-day period per circumstance or development, when Hybridon determines in
good faith that offers and sales pursuant thereto should not be made by reason
of the presence of material undisclosed circumstances or developments with
respect to which the disclosure that would be required in such a prospectus is
premature, would have an adverse effect on Hybridon or is otherwise inadvisable
(a "Material Development Condition"). In connection therewith, Hybridon may also
(x) cause the Registration Statement to be withdrawn and the effectiveness of
the Registration Statement terminated, or (y) in the event no Registration
Statement has yet been filed, to delay filing any such Registration Statement,
until the earlier of (a) in the good faith judgment of Hybridon, such Material
Development Condition no longer exists (notice of which Hybridon shall promptly
deliver to each Holder of Registrable Securities) and (b) the expiration of
Hybridon's right to cause the suspension of disposition of Registrable
Securities pursuant to the first sentence of this Section 5 of Article II,
provided, however, in the event a Registration Statement is filed and
subsequently withdrawn by reason of any existing or anticipated Material
Development Condition as hereinbefore provided, Hybridon shall cause a new
Registration Statement covering the Registrable Securities to be filed with the
Commission as soon as such Material Development Condition expires or, if sooner,
as soon as Hybridon's right to cause the suspension of disposition of
Registrable Securities pursuant to the first sentence of this Section 5 of
Article II expires.
6. No Holder shall have any right to take any action to
restrain, enjoin or otherwise delay any registration pursuant to Section 2 of
this Article II as a result of any controversy that may arise with respect to
the interpretation or implementation of this Article II.
7. Indemnification; Contribution. (a) To the extent permitted
by law, Hybridon shall indemnify each Holder and each person controlling such
Holder within the meaning of Section 15 of the Securities Act, with respect to
which any registration, qualification or compliance has been effected pursuant
to this Article II, against all claims, losses, damages and liabilities (or
action in respect thereof), including any of the foregoing incurred in
settlement of any litigation, commenced or threatened (subject to Subsection
7(c) below), arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any registration statement,
prospectus or offering circular, or any amendment or supplement thereof,
incident to any such registration, qualification or compliance, or based on any
omission (or alleged omission) to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, in
light of the circumstances in which they were made, and shall reimburse each
Holder and each person controlling such Holder for legal and other expenses
reasonably incurred in connection with investigating or defending any such
claim, loss, damage, liability or action as incurred; provided that Hybridon
shall not be liable in any such case to the extent that any untrue statement or
omission or allegation thereof is made in reliance upon and in conformity with
information furnished to Hybridon by or on behalf of such Holder and stated to
be specifically for use in preparation of such registration statement,
- 12 -
<PAGE>
prospectus or offering circular; provided, further, that Hybridon shall not be
liable in any such case where the claim, loss, damage or liability arises out of
or is related to the failure of the Holder to comply with the covenants and
agreements contained in this Article II respecting sales of Registrable
Securities, and except that the foregoing indemnity agreement is subject to the
condition that, insofar as it relates to any such untrue statement or alleged
untrue statement or omission or alleged omission made in the preliminary
prospectus but eliminated or remedied in the amended prospectus on file with the
Commission at the time the registration statement becomes effective or in the
amended prospectus filed with the Commission pursuant to Rule 424(b) of the
Securities Act or in the prospectus subject to completion and term sheet under
Rule 434 of the Securities Act, which together meet the requirements of Section
10(a) of the Securities Act (the "Final Prospectus"), such indemnity agreement
shall not inure to the benefit of any such Holder or any such controlling
person, if a copy of the Final Prospectus furnished by Hybridon to the Holder
for delivery was not furnished to the person or entity asserting the loss,
liability, claim or damage at or prior to the time such furnishing is required
by the Securities Act and the Final Prospectus would have cured the defect
giving rise to such loss, liability, claim or damage.
(b) Each Holder will severally, if Registrable Securities held
by such Holder are included in the securities as to which such registration,
qualification or compliance is being effected, indemnify Hybridon, each of its
directors and officers and each other person who controls Hybridon within the
meaning of Section 15 of the Securities Act, against all claims, losses, damages
and liabilities (or actions in respect thereof), including any of the foregoing
incurred in settlement of any litigation, commenced or threatened (subject to
Subsection 7(c) below), arising out of or based on any untrue statement (or
alleged untrue statement) of a material fact contained in any registration
statement, prospectus or offering circular, or any amendment or supplement
thereof, incident to any such registration, qualification or compliance, or
based on any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, in light of the circumstances in which they were made, and will
reimburse Hybridon, such directors and officers and each other person
controlling Hybridon for reasonable legal and any other expenses reasonably
incurred in connection with investigating or defending any such claim, loss,
damage, liability or action as incurred, in each case to the extent, but only to
the extent, that such untrue statement or omission or allegation thereof is made
in reliance upon and in conformity with written information furnished to
Hybridon by or on behalf of the Holder and stated to be specifically for use in
preparation of such registration statement, prospectus or offering circular;
provided that the indemnity shall not apply to the extent that such claim, loss,
damage or liability results from the fact that a current copy of the prospectus
was not made available to the Holder and such current copy of the prospectus
would have cured the defect giving rise to such loss, claim, damage or
liability. Notwithstanding the foregoing, in no event shall a Holder be liable
for any such claims, losses, damages or liabilities in excess of the proceeds
received by such Holder in the offering, except in the event of fraud by such
Holder.
(c) Each party entitled to indemnification under this Section
7 of this Article II (the "Indemnified Party") shall give notice to the party
required to provide indemnification (the "Indemnifying Party") promptly after
such Indemnified Party has actual knowledge of any claim as to which indemnity
may be sought, and shall permit the Indemnifying Party to assume
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<PAGE>
the defense of any such claim or any litigation resulting therefrom, provided
that counsel for the Indemnifying Party, who shall conduct the defense of such
claim or litigation, shall be approved by the Indemnified Party (whose approval
shall not unreasonably be withheld), and the Indemnified Party may participate
in such defense at such Indemnified Party's expense, and provided further that
the failure of any Indemnified Party to give notice as provided herein shall not
relieve the Indemnifying Party of its obligations under this Agreement, unless
such failure is materially prejudicial to the Indemnifying Party in defending
such claim or litigation. An Indemnifying Party shall not be liable for any
settlement of an action or claim effected without its written consent (which
consent will not be unreasonably withheld).
(d) If the indemnification provided for in this Section 7 of
this Article II is held by a court of competent jurisdiction to be unavailable
to an Indemnified Party with respect to any loss, liability, claim, damage or
expense referred to therein, then the Indemnifying Party, in lieu of
indemnifying such Indemnified Party thereunder, shall contribute to the amount
paid or payable by such Indemnified Party as a result of such loss, liability,
claim, damage or expense in such proportion as is appropriate to reflect the
relative fault of the Indemnifying Party on the one hand and of the Indemnified
Party on the other in connection with the statements or omissions which resulted
in such loss, liability, claim, damage or expense as well as any other relevant
equitable considerations. The relative fault of the Indemnifying Party and of
the Indemnified Party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
Indemnifying Party or by the Indemnified Party and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
8. Discontinuance of Sale; Certain Other Matters. (a) Each
Holder agrees that, upon receipt of any notice from Hybridon of the occurrence
of any event requiring the preparation of a supplement or amendment to a
prospectus relating to Registrable Securities so that, as thereafter delivered
to the Holders, such prospectus will not contain an 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 not misleading, each Holder will
forthwith discontinue disposition of Registrable Securities pursuant to the
Registration Statement until its receipt of copies of the supplemented or
amended prospectus from Hybridon and, if so directed by Hybridon, each Holder
shall deliver to Hybridon all copies, other than permanent file copies then in
such Holder's possession, of the prospectus covering such Registrable Securities
current at the time of receipt of such notice.
(b) As a condition to the inclusion of its Registrable
Securities, each Holder shall furnish to Hybridon such information regarding
such Holder and the distribution proposed by such Holder as Hybridon may request
in writing or as shall be required in connection with any registration,
qualification or compliance referred to in this Article II.
(c) Each Holder hereby covenants with Hybridon (i) not to make
any sale of the Registrable Securities without complying with the prospectus
delivery requirements under the Securities Act, and (ii) if such Registrable
Securities are to be sold by any method or in any transaction other than on a
national securities exchange, the Nasdaq National Market, Nasdaq
- 14 -
<PAGE>
SmallCap Market or in the over-the-counter market, to notify Hybridon at least
five (5) business days prior to the date on which the Holder first offers to
sell any such Registrable Securities.
(d) Each Holder acknowledges and agrees that the Registrable
Securities sold pursuant to the Registration Statement described in this Article
II are not transferable on the books of Hybridon unless the stock certificate
submitted to the transfer agent evidencing such Registrable Securities is
accompanied by a certificate reasonably satisfactory to Hybridon to the effect
that (i) the Registrable Securities have been sold in accordance with such
Registration Statement and (ii) the requirement of delivering a current
prospectus has been satisfied.
(e) Each Holder shall not take any action with respect to any
distribution deemed to be made pursuant to the Registration Statement, which
would constitute a violation of Regulation M under the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), or any other applicable rule,
regulation or law.
(f) At the end of the period during which Hybridon is
obligated to keep the Registration Statement current and effective as described
above, the Holders of Registrable Securities included in the Registration
Statement shall discontinue sales of shares pursuant to such Registration
Statement upon receipt of notice from Hybridon of its intention to remove from
registration the shares covered by such Registration Statement which remain
unsold, and such Holders shall notify Hybridon of the number of shares
registered which remain unsold immediately upon receipt of such notice from
Hybridon.
9. Rule 144. With a view to making available to the Holders
the benefits of certain rules and regulations of the Commission which at any
time permit the sale of the Registrable Securities to the public without
registration, Hybridon shall use its reasonable best efforts:
(a) to make and keep public information available, as those
terms are understood and defined in Rule 144 under the Securities Act, at all
times;
(b) to file with the Commission in a timely manner all reports
and other documents required of Hybridon under the Exchange Act; and
(c) so long as a Holder owns any unregistered Registrable
Securities, to furnish to such Holder upon any reasonable request a written
statement by Hybridon as to its compliance with Rule 144 under the Securities
Act, and of the Exchange Act, a copy of the most recent annual or quarterly
report of Hybridon, and such other reports and documents of Hybridon as such
Holder may reasonably request in availing itself of any rule or regulation of
the Commission allowing a Holder to sell any such securities without
registration.
10. Assignment. The rights to cause Hybridon to register
Registrable Securities granted to the Holders by Hybridon under Section 2 of
this Article II may be assigned in full by a Holder in connection with a
transfer by such Holder of its Registrable Securities, provided that (i) such
transfer may otherwise be effected in accordance with applicable securities
laws; (ii) such transfer involves not less than the lesser of all or 5,000
shares (with Series A
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<PAGE>
Preferred Stock being counted as equivalent to the number of shares of Hybridon
Common Stock into which the Series A Preferred Stock is then convertible) of
such Holder's Registrable Securities, (iii) such Holder gives prior written
notice to Hybridon; and (iv) such transferee agrees to comply with the terms and
provisions of this Exchange Agreement and Letter of Transmittal (other than
those contained in Article IV), and such transfer is otherwise in compliance
with this Exchange Agreement and Letter of Transmittal. Except as specifically
permitted by this Section 10 of this Article II, the rights of a Holder with
respect to Registrable Securities as set out herein shall not be transferable to
any other Person, and any attempted transfer shall cause all rights of such
Holder therein to be forfeited.
11. Waiver; Amendment. With the written consent of Hybridon
and the Holders holding at least a majority of the Registrable Securities that
are then outstanding, any provision of this Article II may be waived (either
generally or in a particular instance, either retroactively or prospectively and
either for a specified period of time or indefinitely) or amended. Upon the
effectuation of each such waiver or amendment, Hybridon shall promptly give
written notice thereof to the Holders, if any, who have not previously received
notice thereof or consented thereto in writing. Notwithstanding the foregoing or
Section 1 of Article VI, a waiver or consent to depart from the provisions
hereof with respect to a matter that relates exclusively to the rights of the
Holders of Hybridon Common Stock or Series A Preferred Stock, as the case may
be, being sold pursuant to the Registration Statement and that does not directly
or indirectly affect the rights of other Holders may be given by Holders of a
majority of the shares of Hybridon Common Stock or Series A Preferred Stock, as
the case may be, included among such shares being sold.
ARTICLE III. THE BOARD OF DIRECTORS.
Upon the occurrence of the Restructuring Trigger, for so long as at
least 50% of the Series A Preferred Stock initially issued in the Offer remains
outstanding, the holders of Series A Preferred Stock as a class shall be
entitled to designate one member for nomination to the Board of Directors of
Hybridon (the "Designated Director"), provided that such nominee shall be
reasonably acceptable to Hybridon.
ARTICLE IV. CERTAIN SALE RESTRICTIONS.
The undersigned, and each beneficial owner of Notes tendered pursuant
to this Exchange Agreement and Letter of Transmittal, in consideration of
Hybridon's acceptance of the Notes tendered hereby, agrees not to, directly or
indirectly, through related parties, affiliates or otherwise, (i) sell "short"
or "short against the box" (as those terms are generally understood) any
security of Hybridon or (ii) otherwise engage in any transaction, except for any
transaction approved by Hybridon in writing, that involves hedging of the
undersigned's position in any security of Hybridon; provided, however, that the
undersigned or such a beneficial owner may have an aggregate short position
covering any number of shares of Hybridon Common Stock fewer than the quotient
of (a) the product of (x) the number of shares of Series A Preferred Stock held
by the undersigned multiplied by (y) the Dividend Base Amount (as defined in the
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<PAGE>
Certificate of Designation for the Series A Preferred Stock which is attached as
Annex A to the Offer to Exchange), divided by (b) the conversion price of the
Series A Preferred Stock as in effect from time to time.
ARTICLE V. RESTRICTION ON INDEBTEDNESS AND SENIOR EQUITY
ISSUANCES; AFFILIATE TRANSACTIONS; THE BOARD OF DIRECTORS.
1. Restriction on Indebtedness and Senior Equity Issuances.
Hybridon agrees that, following the Restructuring Trigger (as defined
in the Offer to Exchange), it will not, without the consent of the Designated
Director, (i) for the first 12 months thereafter, incur, assume or guarantee any
additional indebtedness (A) for money borrowed, (B) evidenced by a note,
debenture or similar instrument given in connection with the acquisition of any
business, Property (as defined in the Indenture (as defined in the Offer to
Exchange)) or assets, (C) consisting of obligations of Hybridon as lessee under
leases required to be capitalized on the balance sheet of the lessee under GAAP
(as defined in the Indenture) or (D) consisting of reimbursement obligations and
other liabilities (contingent or otherwise) with respect to letters of credit,
bank guarantees or bankers' acceptances (collectively, "Indebtedness"), or issue
any equity securities senior in dividends or liquidation preference to the
Series A Preferred Stock other than with respect to: (a) any amendments,
renewals, extensions, modifications, refinanc- ings and refundings of the Loan
and Security Agreement, dated December 31, 1996, as amended, between Silicon
Valley Bank and Hybridon, provided that the principal amount does not exceed
$7,500,000 and the maturity date is not advanced; (b) capitalized leases with a
capitalized amount not exceeding $3,000,000; (c) the Offering Notes (as defined
in the Offer to Exchange) (including Offering Notes issued as interest thereon);
and (d) any amendments, renewals, extensions, modifications, refinancings and
refundings of the above (provided that the maturity date is not advanced and the
original amount thereof is not increased); and (ii) for the second 12 months,
(A) incur any additional Indebtedness in excess of $10 million over the
permitted level for the first 12 months (provided that capitalized leases
entered into in the first 24 months will count against the $10 million basket)
or (B) issue more than $15 million in liquidation preference of any equity
securities senior in dividends or liquidation preference to the Series A
Preferred Stock.
2. Affiliate Transactions.
Hybridon agrees that, for so long as the Series A Preferred Stock
remains outstanding, following the Restructuring Trigger, it will not, without
the consent of the Designated Director, enter into any transaction with any
Affiliate (as defined in the Indenture) of Hybridon unless such transaction is
approved by a majority of the independent directors of Hybridon.
3. Issuance of Reset Warrants.
Hybridon hereby agrees to issue, upon the occurrence of the Series A
Reset (as defined in the Offer to Exchange), to the undersigned, for each share
of Series A Preferred Stock issued in the Offer to the undersigned, warrants
(the "Reset Warrants") to purchase a number of shares of Hybridon Common Stock
equal to the quotient of (a) the number of shares of Hybridon
- 17 -
<PAGE>
Common Stock underlying the warrants issuable to the holders of Series B
Preferred Stock (as defined in the Offer to Exchange), for each share thereof,
upon the Series B One-Year Reset (as defined in the Offer to Exchange), divided
by (b) 2.125. If the foregoing calculation results in a fractional Reset
Warrant, such fractional Reset Warrant shall be rounded up to the nearest whole
number of Reset Warrants. The Reset Warrants will be substantially in the form
of the Exchange Warrants and be governed by a warrant agreement substantially in
the form of the Warrant Agreement (a form of which is annexed to the Offer to
Exchange as Annex B) for the Exchange Warrants, except as described above.
Without limiting the generality of the foregoing, such Reset Warrants will be
subject to redemption at the option of Hybridon on the same terms applicable to
the Exchange Warrants, and may contain any legends required by applicable laws.
In the event that any shares of Series A Preferred Stock are converted into
shares of Hybridon Common Stock prior to the occurrence of the Series A Reset,
no Reset Warrants would be issuable with respect to such shares of Series A
Preferred Stock.
ARTICLE V. CERTAIN ADDITIONAL COVENANTS AND REPRESENTATIONS OF
HYBRIDON.
Hybridon hereby represents and warrants to the undersigned that, since
March 26, 1997, no event has occurred which would change the Conversion Price
(as defined in the Indenture) other than the reverse stock split effected by
Hybridon in December 1997. Hybridon also covenants not to engage in any act that
would change such Conversion Price without adjusting the conversion price and
conversion rate of the Series A Preferred Stock to the extent that such
adjustment would be required pursuant to the Certificate of Designation of the
Series A Preferred Stock. In the event that the rate of conversion of the
Offering Notes into Series B Preferred Stock is increased pursuant to Section
3(e) of the Offering Notes, the Series A Preferred Stock then held by the
undersigned shall be adjusted so as to have the same increased conversion rate.
ARTICLE VI. MISCELLANEOUS.
1. Amendments and Waivers. (a) This Exchange Agreement and
Letter of Transmittal and all exhibits and schedules hereto set forth the entire
agreement and understanding among the parties as to the subject matter hereof
and merges and supersedes all prior discussions, agreements and understandings
of any and every nature among them. Except as otherwise provided in Section 11
of Article II, this Exchange Agreement and Letter of Transmittal may be amended
only by mutual written agreement of Hybridon and by the holders of at least
fifty percent (50%) of the outstanding number of shares of Series A Preferred
Stock, and Hybridon may take any action herein prohibited or omit to take any
action herein required to be performed by it, and any breach of any covenant,
agreement, warranty or representation may be waived, only if Hybridon has
obtained the written consent or waiver of the holders of at least fifty percent
(50%) of the outstanding number of shares of Series A Preferred Stock. No course
of dealing between or among any Persons having any interest in this Exchange
Agreement and Letter of Transmittal will be deemed effective to modify, amend or
discharge any part of the same or any rights or obligations of any Person under
or by reason of the same. To secure a consent of the Holders under this Section
1, Article VI, it shall not be necessary for
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<PAGE>
the holders to approve the particular form of any proposed amendment or waiver,
but it shall be sufficient if such consent approves the substance thereof.
(b) Until an amendment or waiver becomes effective, a consent
to Hybridon by a holder of Series A Preferred Stock is a continuing consent by
such holder and every subsequent holder of the same or any Series A Preferred
Stock declared and issued as dividend with respect to the same, even if notation
of the consent is not made on the certificate representing such Series A
Preferred Stock. However, prior to becoming effective, any such holder or
subsequent holder may revoke the consent as to its Series A Preferred Stock if
Hybridon receives written notice of revocation before the consent of holders of
the requisite number of shares of Series A Preferred Stock then outstanding has
been obtained and not revoked.
Hybridon may, but shall not be obligated to, fix a record date
pursuant to paragraph (c) below for the purpose of determining the holders
entitled to consent to any amendment or waiver. If a record date is fixed, then
notwithstanding the provisions of the immediately preceding paragraph, those
Persons who were holders at such record date (or their duly designated proxies),
and only those Persons, shall be entitled to consent to such amendment or waiver
or to revoke any consent previously given, whether or not such Persons continue
to be holders after such record date. After an amendment or waiver becomes
effective it shall bind every holder of the Series A Preferred Stock. In such
case, the amendment or waiver shall bind each holder of the Series A Preferred
Stock who has consented to it and every subsequent holder of such Series A
Preferred Stock (including any shares declared and issued as a dividend).
(c) Whenever in this Exchange Agreement and Letter of
Transmittal it is provided that the holders of a specified percentage of
outstanding number of shares of Series A Preferred Stock may take any action
(including the making of any demand or request, the giving of any notice,
consent or waiver or the taking of any other action), the fact that at the time
of taking any such action, the holders of such specified number have joined
therein may be evidenced (i) by any instrument or any number of instruments of
similar tenor executed by holders in person or by proxy appointed in writing or
(ii) by the record of the holders voting in favor thereof at any meeting of
holders. Whenever Hybridon solicits the taking of action by the holders,
Hybridon may fix in advance of such solicitation a date as the record date for
determining holders entitled to take such action. If a record date is fixed,
those and only those Persons who are holders at the record date so fixed, or
their proxies, shall be entitled to take action regardless of whether they are
holders at the time of such action.
2. Successors and Assigns. Once effective, this Exchange
Agreement and Letter of Transmittal may not be assigned by Hybridon. Upon
acceptance of any of the Notes tendered by the undersigned, this Exchange
Agreement and Letter of Transmittal shall be binding upon and inure to the
benefit of Hybridon and its permitted successors and assigns and the undersigned
and its permitted successors and assigns.
3. Notices. All notices, demands and other communications to
be given or delivered under or by reason of the provisions of this Exchange
Agreement and Letter of Transmittal shall be in writing and shall be deemed to
have been given personally or when
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<PAGE>
mailed by certified or registered mail, return receipt requested and postage
prepaid, and addressed to the addresses of the respective parties set forth
below or to such changed addresses as such parties may have fixed by notice;
provided, however, that any notice of change of address shall be effective only
upon receipt:
If to Hybridon:
Hybridon, Inc.
620 Memorial Drive
Cambridge, MA 02139
Attn: E. Andrews Grinstead, III
If to the undersigned:
At its address indicated under "Description of Notes"
in Box One above.
4. Governing Law. The validity, performance, construction and
effect of this Exchange Agreement and Letter of Transmittal shall be governed by
the internal laws of the State of New York without giving effect to such State's
principles of conflict of laws.
5. Headings. The headings of the Articles and Sections hereof
are inserted as a matter of convenience and for reference only and in no way
define, limit or describe the scope of this Exchange Agreement and Letter of
Transmittal or the meaning of any provision hereof.
6. Severability. In the event that any provision of this
Exchange Agreement and Letter of Transmittal or the application of any provision
hereof is declared to be illegal, invalid or otherwise unenforceable by a court
of competent jurisdiction, the remainder of this Exchange Agreement and Letter
of Transmittal shall not be affected except to the extent necessary to delete
such illegal, invalid or unenforceable provision unless the provision held
invalid shall substantially impair the benefit of the remaining portion of this
Exchange Agreement and Letter of Transmittal.
- --------------------------------------------------------------------------------
BOX TWO
- --------------------------------------------------------------------------------
BOOK ENTRY RETURN INSTRUCTIONS
(SEE INSTRUCTIONS 1, 4 AND 5)
To be completed ONLY if the Notes tendered by book entry transfer which are not
tendered in full or not accepted for exchange are to be returned by credit to an
account maintained at a Book Entry Transfer Facility.
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<PAGE>
ISSUE AND MAIL NOTES TO:
Name(s):
------------------------------------------
(Please print)
------------------------------------------
(Please print)
Address:
------------------------------------------
------------------------------------------
(Zip Code)
------------------------------------------
(Tax Identification or Social Security No.)
(Complete Substitute Form W-9)
Credit unexchanged Notes tendered by book entry transfer to the Book Entry
Transfer Facility Account set forth below:
------------------------------------------
Account No.
------------------------------
- --------------------------------------------------------------------------------
BOX THREE
- --------------------------------------------------------------------------------
PLEASE SIGN HERE
TO BE COMPLETED BY ALL HOLDERS TENDERING NOTES
(WHETHER OR NOT NOTES ARE BEING PHYSICALLY
TENDERED)
I have read this Exchange Agreement and Letter of Transmittal and agree to be
bound by the foregoing.
x
----------------------------------------------------------------------
Signature(s) of Registered Noteholder(s) or Authorized Signatory
x
----------------------------------------------------------------------
Type or Print Name
Dated: , 1998
--------------------------------------------------------
Area Code and telephone No(s).:
---------------------------------------
Tax Identification or Social Security No(s).:--------------------------
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<PAGE>
Must be signed by the registered Noteholder(s) exactly as the name(s) appear(s)
on the certificate and by person(s) authorized to become registered
Noteholder(s) as evidenced by endorsements and documents. See Instruction 4. If
signature is by a trustee, executor, administrator, guardian, attorney-in-fact,
officer of a corporation, agent, or other person acting in a fiduciary or
representative capacity, please see Instruction 4.
Name(s):
Address(es) (include zip code)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Type or Print
Capacity (Full Title):----------------------------------------------------------
GUARANTEE OF SIGNATURE(S)
(IF REQUIRED -- SEE INSTRUCTIONS 1 AND 4)
Name of firm:
-------------------------------------------------------------------
Authorized Signature:
-----------------------------------------------------------
Title:
--------------------------------------------------------------------------
Dated: , 1998
----------------------------------------------------
PLEASE COMPLETE SUBSTITUTE FORM W-9 BELOW
PAYOR'S NAME:
- --------------------------------------------------------------------------------
Name as shown on account (if joint account, list first and circle the
name of the person or entity whose number you enter below)
- --------------------------------------------------------------------------------
Address (if Holder does not complete, signature below will constitute
certification that the address indicated in Box One above is correct)
- --------------------------------------------------------------------------------
City, State and Zip Code
SUBSTITUTE
FORM W-9
DEPARTMENT OF THE TREASURY INTERNAL REVENUE SERVICE
PAYOR'S REQUEST FOR TAXPAYER IDENTIFICATION NO. FOR ALL ACCOUNTS
Enter your taxpayer identification number on the appropriate line. For
most individuals, this is your Social Security number.
Social Security Number
or Employer Identification Number
- -----------------------------------------------
If you do not have a TIN but are awaiting one, write "Applied For" in the space
above for the TIN and sign and date below.
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<PAGE>
CERTIFICATION -- UNDER PENALTIES OF PERJURY, I CERTIFY THAT:
(1) The number shown on this form is my correct Taxpayer Identification
Number (or I am waiting for a number to be issued to me),
(2) I am not subject to backup withholding either because I have not
been notified by the Internal Revenue Service ("IRS") that I am subject to
backup withholding as a result of the failure to report all interest or
dividends, or the IRS has notified me that I am not longer subject to backup
withholding, and
(3) any other information provided on this form is true and correct.
CERTIFICATION INSTRUCTIONS -- You must cross out item (2) above if you have been
notified by the IRS that you are subject to backup withholding because of
under-reporting interest or dividends on you tax return. However, if after being
notified by the IRS that you were subject to backup withholding, you received
another notification from the IRS that you are no longer subject to backup
withholding, do not cross out item (2).
SIGNATURE
----------------------------
DATE , 1998
------------------
CERTIFICATE OF AWAITING
TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification
number has not been issued to me, and either (a) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or (b)
I intend to mail or deliver an application in the near future. I understand that
if I do not provide a taxpayer identification number within sixty (60) days, 31%
of any payments made to me thereafter may be withheld until I provide a number.
, 1998
- ------------------------------------ -------------------
SIGNATURE DATE
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY IN CERTAIN CIRCUMSTANCES
RESULT IN BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU
PURSUANT TO THE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR
CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9
FOR ADDITIONAL DETAILS.
YOU MUST COMPLETE THE CERTIFICATE OF AWAITING TAXPAYER
IDENTIFICATION NUMBER IF YOU WROTE "APPLIED FOR" IN THE SPACE FOR
THE TIN ABOVE.
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS
OF THE OFFER
1. DELIVERY OF THIS EXCHANGE AGREEMENT AND LETTER OF TRANSMITTAL AND
CERTIFICATES; GUARANTEED DELIVERY PROCEDURES; BOOK ENTRY TRANSFER PROCEDURES.
This Exchange Agreement and Letter of Transmittal is to be
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<PAGE>
used if (a) certificates for Notes are to be physically delivered to the
Depositary herewith, (b) tenders are to be made by book entry transfer to the
accounts maintained by the Depositary at the Book Entry Transfer Facility
pursuant to the procedures set forth in the Offer to Exchange, or (c) tenders
are to be made according to the guaranteed delivery procedures set forth in the
Offer to Exchange.
To validly tender Notes pursuant to the Offer, either (a) a properly
completed and duly executed copy of the Exchange Agreement and Letter of
Transmittal (or facsimile thereof) with all required signature guarantees,
together with either a properly completed and duly executed Notice of Guaranteed
Delivery or certificates for the Notes and any other documents required by this
Exchange Agreement and Letter of Transmittal must be received by the Depositary
at one of its addresses or numbers set forth on the first page of this Exchange
Agreement and Letter of Transmittal or the tender of Notes pursuant to the
procedures for book entry transfer as set forth below must be effected prior to
12:00 midnight, New York City time, on the Expiration Date, or (b) a Noteholder
must comply with the guaranteed delivery procedures described in the next
succeeding paragraph.
Noteholders who desire to tender their Notes pursuant to the Offer and
whose certificates representing such Notes are not lost but are not immediately
available, or time will not permit all required documents to reach the
Depositary prior to 12:00 midnight, New York City time, on the Expiration Date
or who cannot complete the procedure for book entry transfer on a timely basis
may tender their Notes pursuant to the guaranteed delivery procedures set forth
in the Offer to Exchange under "Procedure for Tendering Notes -- Guaranteed
Delivery Procedure." Pursuant to such procedures, (i) tender must be made
through a commercial bank or trust company having an office or branch in the
United States or by a firm which is a member of a registered national securities
exchange or of the National Association of Securities Dealers, Inc. (an
"Eligible Institution"), (ii) the Depositary must have received from such
Eligible Institution, prior to 12:00 midnight, New York City time, on the
Expiration Date, a properly completed and duly executed Notice of Guaranteed
Delivery (by mail, hand delivery, telegram or facsimile transmission), and (iii)
the certificates for all tendered Notes in proper form for transfer, or a
confirmation of book entry transfer of such Notes into the Depositary's
applicable account at the Book Entry Transfer Facility, together with a properly
completed and duly executed Exchange Agreement and Letter of Transmittal (or
facsimile thereof) and all other documents required by this Exchange Agreement
and Letter of Transmittal, must be received by the Depositary no later than 5:00
P.M., New York City time, on the third business day after the date of execution
of the Notice of Guaranteed Delivery, all as provided in the Offer to Exchange
under the caption "Procedure for Tendering Notes - Guaranteed Delivery
Procedure."
THE METHOD OF DELIVERY OF THIS EXCHANGE AGREEMENT AND LETTER OF
TRANSMITTAL, THE CERTIFICATES FOR NOTES AND OTHER REQUIRED DOCUMENTS IS AT THE
ELECTION AND RISK OF THE TENDERING NOTEHOLDER. EXCEPT AS OTHERWISE PROVIDED
HEREIN AND IN THE OFFER TO EXCHANGE, SUCH DELIVERY WILL BE DEEMED MADE ONLY WHEN
ACTUALLY RECEIVED BY THE DEPOSITARY. INSTEAD OF EFFECTING DELIVERY BY MAIL, IT
IS RECOMMENDED THAT NOTEHOLDERS USE AN OVERNIGHT OR HAND DELIVERY SERVICE. IF
DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT THE NOTEHOLDER USES PROPERLY
INSURED, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, AND THAT THE MAILING BE
MADE SUFFICIENTLY IN ADVANCE OF THE EXPIRATION DATE TO PERMIT DELIVERY TO THE
DEPOSITARY PRIOR TO 12:00 MIDNIGHT, NEW YORK CITY TIME, ON THE EXPIRATION DATE.
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<PAGE>
The Depositary has established an account with respect to the Notes at
the Book Entry Transfer Facility for the purpose of the Offer, and any financial
institution that is a participant in a Book Entry Transfer Facility system may
make a book entry transfer of the Notes by causing the Book Entry Transfer
Facility to transfer such Notes into the Depositary's account in accordance with
such Book Entry Transfer Facility's procedures for such transfer. Although
delivery of Notes may be effected through book entry transfer into the
Depositary's account at the Book Entry Transfer Facility, this Exchange
Agreement and Letter of Transmittal (or a facsimile thereof), together with any
required signature guarantees and any other required documents, must, in any
case, be transmitted to and received or confirmed by the Depositary at one of
the addresses or numbers set forth on the first page hereof prior to 12:00
midnight, New York City time, on the Expiration Date, except as otherwise
provided herein. DELIVERY OF SUCH DOCUMENTS TO THE DEPOSITARY'S ACCOUNT AT THE
BOOK ENTRY TRANSFER FACILITY IN ACCORDANCE WITH ITS PROCEDURES DOES NOT
CONSTITUTE DELIVERY TO THE DEPOSITARY. NOTWITHSTANDING COMPLIANCE WITH BOOK
ENTRY TRANSFER DELIVERY PROCEDURES, FAILURE TO DELIVER THIS EXECUTED EXCHANGE
AGREEMENT AND LETTER OF TRANSMITTAL TO THE DEPOSITARY PRIOR TO 12:00 MIDNIGHT,
NEW YORK CITY TIME, ON THE EXPIRATION DATE WILL RESULT IN THE TENDERED NOTES NOT
BEING ACCEPTED FOR EXCHANGE.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance, withdrawal and revocation of tendered Notes and delivered
Exchange Agreement and Letter of Transmittal will be determined by Hybridon,
whose determination will be final and binding. Hybridon reserves the absolute
right to reject any or all tenders or withdrawals of Notes and deliveries or
revocations of Exchange Agreement and Letter of Transmittal that are not in
proper form or the acceptance of which would, in the opinion of counsel to
Hybridon, be unlawful. Hybridon also reserves the right to waive any
irregularities or conditions of tenders and this Exchange Agreement and Letter
of Transmittal as to particular Notes. The interpretation of Hybridon of the
terms and conditions of the Offer (including the Instructions herein) will be
final and binding and irregularities in connection with tenders and this
Exchange Agreement and Letter of Transmittal must be cured (if so permitted)
within such time as Hybridon shall determine. No alternative, conditional or
contingent tenders will be accepted by Hybridon. Neither Hybridon nor the
Depositary nor any other person will be under any duty to give notification of
any defects or irregularities in any tender nor will incur any liability for
failure to give any such notification. Tenders of Notes will not be deemed to
have been made until irregularities have been cured or waived. Any Notes
received by the Depositary that are not properly tendered and as to which
irregularities have not been cured or waived will be returned by the Depositary
to the tendering Noteholders, unless otherwise provided in this Exchange
Agreement and Letter of Transmittal, as soon as practicable following the
Expiration Date.
Any tendered Notes which are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth in the Offer to
Exchange or otherwise, will be returned without expense to the appropriate
tendering Noteholder (or in the case of Notes tendered by book entry transfer,
to an account maintained at the Book Entry Transfer Facility), as promptly as
practicable following the expiration, withdrawal or termination of the Offer.
2. WITHDRAWAL RIGHTS. Notes tendered pursuant to the Offer may be
withdrawn, as hereinafter provided, at any time prior to 12:00 midnight, New
York City time, on the Expiration Date. In addition, tenders of Notes may be
withdrawn after April 6, 1998, if not yet accepted by Hybridon.
- 25 -
<PAGE>
For the withdrawal of a tender to be effective, a written or facsimile
transmission notice of withdrawal must be received by the Depositary at one of
the addresses or numbers set forth on the front page of this Exchange Agreement
and Letter of Transmittal prior to the Expiration Date. Any such notice of
withdrawal must specify the name of the person who tendered the Notes, the
principal amount of Notes to be withdrawn and (where certificates for Notes have
been tendered) the names in which such Notes are registered, if different from
that of the person tendering such Notes. If the Notes have been delivered or
otherwise identified to the Depositary, then, prior to the release of such
Notes, the serial numbers of the particular certificates evidencing the Notes to
be withdrawn and a notice of withdrawal signed by the registered Noteholder in
the same manner as the original Exchange Agreement and Letter of Transmittal
with the signature(s) guaranteed by an Eligible Institution (except in the case
of Notes tendered by an Eligible Institution) must be submitted. Withdrawals of
tenders of Notes may not be rescinded; however, withdrawn Notes may be
retendered on or prior to 12:00 midnight, New York City time, on the Expiration
Date by following any of the procedures described above under Instruction 1.
All questions as to the validity (including time of receipt) of notices
of withdrawal will be determined by Hybridon, whose determination will be final
and binding. Neither Hybridon, the Depositary nor any other person will be under
any duty to give notification of any defects or irregularities in any notice of
withdrawal or will incur any liability for failure to give such notification.
3. ACCEPTANCE OF NOTES FOR EXCHANGE; DELIVERY OF
CONSIDERATION; PARTIAL TENDERS. Any tender of Notes which involves denominations
of less than $1,000 in Exchange Value thereof will be exchanged on a pro rata
basis, except to the extent that such proration would result in the issuance of
a fractional share of Series A Preferred Stock. In the event that such
fractional share would result, Hybridon shall, at its sole discretion, either
(a) round such fractional share to the nearest whole number of shares (with 0.5
being rounded up), or (b) pay in cash an amount equal to such fraction
multiplied by $100 (which is the per share stated value of Series A Preferred
Stock). Hybridon will not issue any fractional shares of Series A Preferred
Stock in the Offer. In the event that a tendering Noteholder would otherwise be
entitled to receive a fractional Exchange Warrant, Hybridon shall round up such
fractional Exchange Warrant to the nearest whole number of Exchange Warrants.
The entire Exchange Value of the Notes will be deemed to have been tendered
unless otherwise indicated. If less than the entire Exchange Value of any Notes
evidenced by a submitted certificate is to be tendered, the tendering Noteholder
should fill in the principal amount of the Notes which is to be tendered in
column (4) of the table in Box One above. No Noteholder may tender any or all of
the Exchange Value attributable to accrued but unpaid interest on the principal
amount of the Notes being tendered without also tendering the Exchange Value
attributable to such principal amount, and vice versa.
Upon the terms and subject to the conditions of the Offer, the
acceptance for exchange of Notes validly tendered under the Offer and not
withdrawn and the delivery of shares of Series A Preferred Stock and Exchange
Warrants will be made promptly after the Expiration Date.
For purposes of the Offer, Hybridon shall be deemed to have accepted
for exchange validly tendered Notes when, as and if Hybridon has given oral or
written notice thereof to the Depositary. The Depositary will act as agent for
the tendering Noteholders for the purpose of receiving the shares of Series A
Preferred Stock and Exchange Warrants and transmitting the same to such
Noteholders. Tendered Notes not accepted for exchange by Hybridon will be
returned without expense to tendering Noteholders as soon as practicable
following the Expiration Date.
- 26 -
<PAGE>
4. SIGNATURES ON THIS EXCHANGE AGREEMENT AND LETTER OF TRANSMITTAL;
BOND POWERS AND ENDORSEMENTS; GUARANTEE OF SIGNATURES.
With respect to a tender of Notes, this Exchange Agreement and Letter of
Transmittal must be signed by the registered holder(s) of the Notes tendered,
and such signatures must correspond with the name(s) of such holder(s) as
written on the face of the certificate without alteration, enlargement or any
change whatsoever. If this Exchange Agreement and Letter of Transmittal is
signed by a person other than the registered holder(s) of the Notes, such must
be endorsed or accompanied by appropriate bond powers and proxies, in either
case, signed exactly as the name(s) of the registered holder(s) appear(s) on
such Notes. Signatures of endorsement on any such Notes or bond powers must be
guaranteed by an Eligible Institution.
(a) If any of the Notes are held of record by two or more
persons, all such persons must sign this Exchange Agreement and Letter
of Transmittal.
(b) If any of the Notes are registered in different names, it
will be necessary to complete, sign and submit as many separate
Exchange Agreements and Letters of Transmittal and any necessary
accompanying documents as there are different registrations.
(c) If this Exchange Agreement and Letter of Transmittal is
signed by a person other than the registered holder(s) of the Notes,
such Notes must be endorsed or accompanied by appropriate bond powers
and proxies, and in either case, signed exactly as the name(s) of the
registered holders(s) appear(s) on such Notes. Signatures on any such
Notes or bond powers must be guaranteed by an Eligible Institution
(unless signed by an Eligible Institution).
(d) If this Exchange Agreement and Letter of Transmittal or
any certificates or bond powers are signed by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation, or
other person acting in a fiduciary or representative capacity, such
person should so indicate when signing and, unless waived by Hybridon,
proper evidence satisfactory to Hybridon of the authority of such
person to so act must be submitted with this Exchange Agreement and
Letter of Transmittal.
ENDORSEMENTS ON NOTES OR BOND POWERS REQUIRED BY THIS INSTRUCTION 4
MUST BE GUARANTEED BY AN ELIGIBLE INSTITUTION.
THE AUTHENTICITY OF THE SIGNATURE ON THIS EXCHANGE AGREEMENT AND LETTER
OF TRANSMITTAL MUST BE GUARANTEED BY AN ELIGIBLE INSTITUTION, UNLESS (A) THIS
EXCHANGE AGREEMENT AND LETTER OF TRANSMITTAL IS SIGNED BY THE REGISTERED HOLDER
OF THE NOTES TENDERED HEREWITH AND THE BOX ENTITLED "BOOK ENTRY RETURN
INSTRUCTIONS" IN THIS EXCHANGE AGREEMENT AND LETTER OF TRANSMITTAL HAS BEEN
COMPLETED, OR (B) THE NOTES ARE TENDERED FOR THE ACCOUNT OF AN ELIGIBLE
INSTITUTION.
5. BROKERAGE FEES AND TRANSFER TAXES. Tendering Noteholders will not be
required to pay brokerage commissions or fees or transfer taxes with respect to
the exchange of Notes pursuant to the Offer. If, however, a transfer tax is
imposed for any reason other than the transfer or sale of Notes to Hybridon
pursuant to the Offer, the amount of any transfer taxes (whether imposed on the
registered holders(s), such other person or otherwise) will be payable by the
tendering Noteholders. Unless satisfactory evidence of the payment of such
taxes, or exemption therefrom, is submitted herewith, the amount of such
transfer taxes will be billed directly to the tendering
- 27 -
<PAGE>
Noteholder(s). EXCEPT AS PROVIDED IN THIS INSTRUCTION 5, IT WILL NOT BE
NECESSARY FOR TRANSFER TAX STAMPS TO BE AFFIXED TO THE CERTIFICATES TENDERED
PURSUANT TO THIS EXCHANGE AGREEMENT AND LETTER OF TRANSMITTAL.
6. SUBSTITUTE FORM W-9. Under federal income tax laws, each tendering
Noteholder must provide the Depositary with such Noteholder's correct taxpayer
identification number by completing the Substitute Form W-9 as set forth above.
In general, if a Noteholder is an individual, the taxpayer identification number
is the Social Security number of such individual. If the Depositary is not
provided with the correct taxpayer identification number, the Noteholder may be
subject to a $50 penalty imposed by the IRS, as well as "backup withholding" as
described below. Certain Noteholders (including, among others, all corporations
and certain foreign individuals) are not subject to these backup withholding and
reporting requirements. In order to satisfy the Depositary that a foreign
individual qualifies as an exempt recipient, such Noteholder must submit a
statement (Form W-8), signed under penalties of perjury, attesting to that
individual's exempt status. Such Form W-8 can be obtained from Hybridon. For
further information concerning backup withholding and instructions for
completing the Substitute Form W-9 (including how to obtain a taxpayer
identification number if you do not have one and how to complete the Substitute
Form W-9 if the Notes are held in more than one name), please consult your
counsel.
Failure to complete the Substitute Form W-9 will not, by itself, cause
the Notes to be deemed to be invalidly tendered, but may require the Depositary,
in certain circumstances, to withhold 31% of the amount of any payments made
pursuant to the Offer. Backup withholding is not an additional federal income
tax. Rather, the federal income tax liability of a person subject to backup
withholding will be reduced by the amount of tax withheld. If withholding
results in an overpayment of taxes, a refund may be obtained from the IRS.
7. WAIVER OF CONDITIONS. Hybridon reserves the absolute right to waive
certain of the specified conditions to the Offer, as described in the Offer to
Exchange under "Terms of the Offer--Certain Conditions of the Offer."
8. MUTILATED, LOST, STOLEN OR DESTROYED CERTIFICATES. Any Noteholder
whose certificates for the Notes have been mutilated, lost, stolen or destroyed
should contact the Depositary at the address indicated above for further
instructions.
9. EXPIRATION DATE. The Offer will expire at 12:00 midnight, New York
City time, on the Expiration Date, unless extended by Hybridon. Hybridon
reserves the right to extend the Offer for such period or periods as it may
determine in its sole discretion, in which event the Expiration Date shall be
the time and date on which such Offer, as so extended, shall expire. Hybridon
will notify the Depositary of any extension by written or oral notice and will
make a public announcement thereof by release to the Dow Jones News Service
prior to 9:00 a.m., New York City time, on the next business day following the
previously scheduled Expiration Date. During any such extension, all Notes
previously tendered and not accepted for exchange will remain subject to the
Offer and may, subject to the terms and conditions hereof, be accepted for
exchange by Hybridon, subject to the withdrawal rights of tendering Noteholders.
10. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions and
requests for assistance may be directed to the Depositary at its address and
telephone number set forth above. Additional copies of the Offer to Exchange and
this Exchange Agreement and Letter of
- 28 -
<PAGE>
Transmittal may be obtained from Hybridon at the address and telephone number
set forth on the back cover page of the Offer to Exchange.
IMPORTANT: A MANUALLY SIGNED EXCHANGE AGREEMENT AND LETTER OF TRANSMITTAL OR
FACSIMILE COPY HEREOF (TOGETHER WITH CERTIFICATES OR CONFIRMATION OF BOOK ENTRY
TRANSFER AND ALL OTHER REQUIRED DOCUMENTS) OR THE NOTICE OF GUARANTEED DELIVERY
MUST BE RECEIVED BY THE DEPOSITARY PRIOR TO 12:00 MIDNIGHT, NEW YORK CITY TIME,
ON THE EXPIRATION DATE.
- 29 -
EXHIBIT 9(a)(3)
HYBRIDON, INC.
Notice of Guaranteed Delivery of 9%
Convertible Subordinated Notes due 2004 of
Hybridon, Inc.
This form, or a form substantially equivalent to this form, must be used to
accept the Offer (as defined below) if certificates for 9% Convertible
Subordinated Notes due 2004 of Hybridon, Inc. (the "Notes") are not immediately
available, if the procedure for book-entry transfer cannot be completed on a
timely basis, or if time will not permit all other documents required by the
Exchange Agreement and Letter of Transmittal to be delivered to ChaseMellon
Shareholder Services, L.L.C., as a Depositary, on or prior to the expiration of
the Offer. Such form may be delivered by hand or transmitted by mail, or by
facsimile transmission, to the Depositary. See "Procedure for Tendering Notes"
in the Offer to Exchange (as defined below). THE ELIGIBLE INSTITUTION (AS
DEFINED BELOW) WHICH COMPLETES THIS FORM MUST COMMUNICATE THE GUARANTEE TO THE
DEPOSITARY AND EITHER (A) THE EXCHANGE AGREEMENT AND LETTER OF TRANSMITTAL AND
CERTIFICATES FOR NOTES MUST BE DELIVERED TO THE DEPOSITARY OR (B) THE DEPOSITARY
MUST RECEIVE CONFIRMATION OF BOOK-ENTRY TRANSFER OF THE NOTES TO THE
DEPOSITARY'S ACCOUNT AT THE DEPOSITORY TRUST COMPANY AND THE EXCHANGE AGREEMENT
AND LETTER OF TRANSMITTAL MUST BE DELIVERED TO THE DEPOSITARY WITHIN THREE
BUSINESS DAYS AFTER THE DATE OF EXECUTION OF THIS NOTICE OF GUARANTEED DELIVERY.
Failure to do so could result in a financial loss to such Eligible Institution.
To: CHASEMELLON SHAREHOLDER SERVICES, L.L.C., DEPOSITARY
By Mail: By Overnight Delivery: By Hand:
P.O. Box 3301 85 Challenger Road 120 Broadway
South Hackensack, NJ 07606 Mail Drop-Reorg 13th Floor
Ridgefield Park, NJ 07660 New York, NY 10271
Attn: Reorganization Dept.
Facsimile (for eligible institutions): (201) 329-8936
Confirm facsimile by telephone ONLY: (201) 296-4860
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN
AS SET FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER
THAN THE ONE LISTED ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
THIS NOTICE OF GUARANTEED DELIVERY IS TO BE USED FOR THE TENDER OF THE
NOTES ONLY.
This form is not to be used to guarantee signatures. If a signature on
an Exchange Agreement and Letter of Transmittal is required to be guaranteed by
an Eligible Institution (as defined herein) under the
<PAGE>
instructions thereto, such signature guarantee must appear in the applicable
space provided in the signature box on the Exchange Agreement and Letter of
Transmittal.
- 2 -
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to Hybridon, Inc., a Delaware
corporation, upon the terms and subject to the conditions set forth in the Offer
to Exchange, dated February 6, 1998 (the "Offer to Exchange"), and the Exchange
Agreement and Letter of Transmittal (which, together with the Offer to Exchange,
constitutes the "Offer"), receipt of which hereby is acknowledged, the principal
amount of the Notes listed below, pursuant to the guaranteed delivery procedure
set forth in "Procedure for Tendering Shares -- Guaranteed Delivery Procedure"
in the Offer to Exchange.
Principal Amount of the Notes: Signature
- -------------------------------------- -------------------------------
Certificate Nos. (if available): Name(s) of Record Holder(s)
(Please print)
- --------------------------------------- -------------------------------
If the Notes will be tendered by Address
Book-entry Transfer,
Name of Tendering Institution:
- --------------------------------------- -------------------------------
- --------------------------------------- -------------------------------
Account No. at The Depository Trust Area Code and Telephone Number
Company
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned financial institution (including most banks, savings and loan
associations and brokerage houses) that is a participant in the Security
Transfer Agents Medallion Program or the Stock Exchange Medallion Program (each,
an "Eligible Institution") guarantees to deliver to the Depositary at one of its
addresses set forth above (i) certificate(s) for the Notes tendered hereby, in
proper form for transfer, together with a properly completed and duly executed
Exchange Agreement and Letter of Transmittal, with any required signature
guarantee(s) and any other required documents, or (ii) confirmation of the
book-entry transfer of the Notes tendered hereby into the Depositary's account
at The Depository Trust Company, together with a properly completed and duly
executed Exchange Agreement and Letter of Transmittal, with any required
signature guarantee(s) and any other required documents, all within three
business days after the date of execution of this Notice of Guaranteed Delivery.
- -------------------------------------- ----------------------------------
Name of Firm Authorized Signature
- -------------------------------------- ----------------------------------
Address Name
- -------------------------------------- ----------------------------------
City, State, Zip Code Title
- --------------------------------------
Area Code and Telephone Number
Dated: , 1998
------------------
DO NOT SEND CERTIFICATES WITH THIS FORM. YOUR CERTIFICATES MUST BE SENT WITH THE
EXCHANGE AGREEMENT LETTER OF TRANSMITTAL.
- 3 -
EXHIBIT 9(a)(4)
Company Press Release
SOURCE: Hybridon, Inc.
Hybridon Announces Commencement of Exchange Offer for its 9% Convertible
Subordinated Notes Due 2004
CAMBRIDGE, Mass., February 6, 1998/PRNewswire/ -- Hybridon, Inc. (OTC Bulletin
Board: HYBN news) (the "Company") today announced that it has commenced an
exchange offer to the holders of its 9% Convertible Subordinated Notes due 2004
(the "9% Notes") to exchange such 9% Notes for Series A Preferred Stock and
certain warrants of the Company (the "Exchange Offer"). As more fully described
in the applicable Offer to Exchange, in the Exchange Offer, each $1,000 of
principal amount and accrued but unpaid interest will be exchanged, upon the
terms and subject to the conditions set forth in the applicable Offer to
Exchange, for 10 shares of Series A Preferred Stock and warrants to purchase
such number of shares of Common Stock of the Company equal to 15% of the number
of shares of Common Stock into which such Series A Preferred Stock would be
convertible at the Exercise Price (as defined in the Offer to Exchange). There
can be no assurance that such Exchange Offer will be successful.
This announcement is neither an offer to purchase or exchange nor a solicitation
of an offer to sell or exchange the 9% Notes. The offers are made solely by the
Offer to Exchange, dated as of the date hereof, and are subject to certain
conditions specified therein.
The depositary for the exchange offer is ChaseMellon Shareholder Services,
L.L.C.
Holders of 9% Notes who have questions or requests for assistance should call
the Company at (617) 528- 7000. The Company has filed with the Securities and
Exchange Commission (the "Commission") a Schedule 13e-4, together with all
exhibits thereto (including the Offer to Exchange). Copies of such Schedule
13e-4 and exhibits may be obtained from the Company or from the web site
maintained on the World Wide Web by the Commission at http://www.sec.gov.
The Company, headquartered in Cambridge, Massachusetts, is engaged in the
discovery and development of genetic medicines for the treatment of certain
diseases, based primarily on antisense technology. Antisense technology attempts
to use synthetic segments of DNA and RNA to stop the production of
disease-associated proteins by interacting at the genetic level with target
strands of messenger RNA.
EXHIBIT 9(g)(3)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation by reference in this Schedule 13E-4 of our report dated February
21, 1997 (except with respect to the matter discussed in Note 1, as to which the
date is March 26, 1997) included in Hybridon's Form 10-K for the year ended
December 31, 1996, and to all references to our Firm included in this Schedule
13E-4.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
February 2, 1998
