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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 10-K/A
AMENDMENT NO. 1
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1997
COMMISSION FILE NUMBER 0-27352
----------------------
HYBRIDON, INC.
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------------
DELAWARE 04-3072298
- ------------------------------- ----------------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
620 MEMORIAL DRIVE, CAMBRIDGE, MASSACHUSETTS 02142
- -------------------------------------------- ----------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
----------------------
(617) 528-7000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE.
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT
TITLE OF CLASS
----------------------
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 [ ]
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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. [X]
As of March 13, 1998, 5,061,650 shares of the registrant's Common Stock,
$.001 par value, were issued and outstanding. The aggregate market value of the
registrant's voting stock held by non-affiliates of the registrant as of March
13, 1998, based upon the closing price of such stock on the Nasdaq OTC Bulletin
Board on that date was $9,066,247.
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Part III of the Annual Report on Form 10-K of Hybridon, Inc. (the
"Company") for the fiscal year ended December 31, 1997, as filed with the
Securities and Exchange Commission (the "SEC") on March 31, 1998, is hereby
amended and restated in its entirety as follows:
PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Directors of the Company
Set forth below is certain information regarding all of the persons
currently serving as members of the Board of Directors of the Company, including
his principal occupation and business experience for the past five years, the
name of other publicly held companies of which he serves as a director and his
age and length of service as a director of the Company. No director or executive
officer is related by blood, marriage or adoption to any other director or
executive officer.
<TABLE>
<CAPTION>
DIRECTOR PRINCIPAL OCCUPATION, OTHER
----------- BUSINESS EXPERIENCE DURING PAST
NAME AGE SINCE FIVE YEARS AND OTHER DIRECTORSHIPS
---- --- ----- ----------------------------------
<S> <C> <C> <C>
DIRECTORS WHOSE TERMS EXPIRE IN 1998 (CLASS III DIRECTORS)
Sudhir Agrawal, D.Phil....... 44 1993 Senior Vice President of the Company
since March 1994; Chief Scientific
Officer of the Company since January
1993; Vice President of Discovery of the
Company from December 1991 to January
1993; Principal Research Scientist of
the Company from February 1990 to
January 1993.
Youssef El-Zein.............. 49 1992 Vice Chairman of the Board of Directors
of the Company since February 1997;
Executive Officer of Pillar S.A., a
private investment and management
consulting firm, since 1991; Chairman of
the WorldCare Group since 1993; Member
of the Board of Directors of Pillar
Investment Limited, a private investment
and management consulting firm, since
1991.
E. Andrews Grinstead, III.... 52 1991 Chairman of the Board and Chief
Executive Officer of the Company since
1991; President of the Company since
1993; Member of the Board of Directors
of EcoScience Corporation, Pharmos
Corporation and Meridian Medical
Technologies.
DIRECTORS WHOSE TERMS EXPIRE IN 1999 (CLASS I DIRECTORS)
Nasser Menhall.............. 42 1992 Member of the Board of Directors and
Chief Executive Officer of the WorldCare
Group, a teleradiology company, since
1993; President of Pillar Limited, a
private investment and management
consulting firm, since 1990; President
of Biomedical Associates, a private
investment firm, since 1990.
</TABLE>
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<TABLE>
DIRECTORS WHOSE TERMS EXPIRE IN 2000 (CLASS II DIRECTORS)
<S> <C> <C> <C>
Mohamed A. El-Khereji....... 44 1993 Chairman of the International Centre for
Commerce and Contracting, a contracting
and trading company, since 1979;
Chairman of Faisal Investment E.C., a
leasing company, since 1989.
James B. Wyngaarden, M.D.... 73 1990 Vice Chairman of the Board of Directors
of the Company since February 1997;
Foreign Secretary of the National
Academy of Sciences and the Institute of
Medicine of the National Academy of
Sciences from 1990 to 1994; Council
member of the Human Genome Organization
from 1990 to 1993 and Director from 1990
to 1991; Director of the National
Institutes of Health from 1982 to 1989;
Member of the Board of Directors of
Human Genome Sciences, Inc. and Magainin
Pharmaceuticals, Inc.
Paul C. Zamecnik, M.D....... 85 1990 Principal Scientist at the Worcester
Foundation for Biomedical Research, Inc.
(the "Worcester Foundation") from 1979
to 1996 and Collis P. Huntington
Professor of Oncologic Medicine Emeritus
at the Harvard Medical School since
1979.
</TABLE>
Effective February 17, 1997, Dr. Andre L. Lamotte, a Class I Director of
the Company, resigned from the Board of Directors of the Company. Effective
July 29, 1997 Jerry A. Weisbach, a Class II Director of the Company, resigned
from the Board of Directors of the Company. Effective August 11, 1997 J. Robert
Buchanan, a Class I Director of the Company, resigned from the Board of
Directors of the Company.
For information relating to shares of Common Stock owned by each of the
directors and executive officers of the Company, see "Security Ownership of
Certain Beneficial Owners and Management."
The Board of Directors met seven times (including by telephone conference
and by written consent) during 1997. All directors attended at least 75% of the
meetings of the Board of Directors.
The Board of Directors has an Audit Committee, which reviews the results
and scope of the audit and other services provided by the Company's independent
public accountants. The Audit Committee held two meetings during 1997. The
members of the Audit Committee are Mr. Menhall and Dr. Wyngaarden.
The Board of Directors does not currently have a compensation committee.
The Company has no nominating committee of the Board of Directors.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors, executive officers and
holders of more than 10% of the Company's Common Stock to file with the
Securities and Exchange Commission initial reports of ownership and reports of
changes in ownership of Common Stock and other equity securities of the Company.
Such persons are required by Commission regulations to furnish the Company with
copies of all Section 16(a) forms filed by such person with respect to the
Company.
Based solely on its review of copies of reports filed by reporting persons
pursuant to Section 16(a) of the Exchange Act, or written representations from
reporting persons that no Form 5 filing was required for such person, the
Company believes that, during 1997, all filings required to be made by reporting
persons of the Company were timely made in accordance with the requirements of
the Exchange Act.
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ITEM 11: EXECUTIVE COMPENSATION
Compensation of Executive Officers
Summary Compensation Table. The following table sets forth the compensation
for services in all capacities to the Company for the fiscal years ended
December 31, 1997 ("fiscal 1997"), December 31, 1996 and December 31, 1995 for
the Company's Chief Executive Officer and up to four of the other most highly
compensated executive officers who were serving as executive officers at
December 31, 1997 whose total annual salary and bonus exceeded $100,000 in
fiscal 1997 and up to two additional individuals who would have been among such
other four most highly compensated executive officers if such individuals had
been serving as executive officers at December 31, 1997 (the Chief Executive
Officer and such other executive officers are hereinafter referred to as the
"Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------- AWARDS
OTHER ------------
ANNUAL SECURITIES
COMPEN- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS SATION OPTIONS COMPENSATION
--------------------------- ------ ----- ------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
E. Andrews Grinstead, III.... .... 1997 $375,000 0 $72,486(1) 66,806 $ 75,048(2)(3)
Chairman of the Board, 1996 $375,000 $225,000 $82,386(6) 50,000 $ 43,527(7)(8)
President and Chief Executive 1995 $270,000 $235,000 $19,655(9) 119,846 118,332(10)(11)
Officer
Anthony J. Payne.................. 1997 $172,656 0 $47,778(1) 31,316 $158,628(2)(3)(4)
Former Senior Vice President 1996 $243,750 $107,000 $45,616(6) 25,000 $ 14,853(7)(8)
Of Finance and Administration, 1995 $175,000 $137,500 $30,469(9) 43,162 $ 45,250(10)(11)
Chief Financial Officer,
Treasurer and Secretary(12)
Sudhir Agrawal, D. Phil.......... 1997 $250,000 0 0 32,263 $ 22,757(3)(6)
Senior Vice President of 1996 $250,000 $100,000 0 25,000 $ 28,676(5)(8)
Discovery, Chief Scientific 1995 $178,250 $114,125 0 32,263 $ 38,523(5)(11)
Officer and Director
</TABLE>
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(1) Includes $51,386 and $33,817 paid by the Company to Messrs. Grinstead and
Payne, respectively, in lieu of employee benefits in 1998.
(2) Includes $37,748 and $972 paid by the Company to Messrs. Grinstead and
Payne, respectively, during 1997 with respect to life insurance for the
benefit of the Named Executive Officer.
(3) Includes $37,300, $15,468 and $18,269 paid by the Company to Mr. Grinstead,
Mr. Payne and Dr. Agrawal, respectively, in connection with the surrender
of accrued but unused vacation days during 1997.
(4) Includes $142,188 paid by the Company to Mr. Payne in connection with the
termination of his employment during 1997.
(5) Includes $4,500, $4,277 and $4,488 contributed by the Company on behalf of
Dr. Agrawal pursuant to the Company's 401(k) Plan in 1995, 1996 and 1997
respectively.
(6) Includes $76,017 and $36,938 paid by the Company to Messrs. Grinstead and
Payne, respectively, in lieu of employee benefits in 1997.
(7) Includes $11,364 and $3,134 paid by the Company to Messrs. Grinstead and
Payne, respectively, during 1996 with respect to life insurance for the
benefit of the Named Executive Officer.
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(8) Includes $32,163, $11,719 and $24,399 paid to Mr. Grinstead, Mr. Payne,
and Dr. Agrawal, respectively, in consideration of the surrender of
accrued but unused vacation days during 1996.
(9) Includes $12,510 and $23,594 paid by the Company to Messrs. Grinstead and
Payne, respectively, in lieu of employee benefits in 1996.
(10) Includes $34,345 and $4,531 paid by the Company to Messrs. Grinstead and
Payne, respectively, during 1995 with respect to life insurance for the
benefit of the Named Executive Officer.
(11) Includes $83,987, $40,719 and $34,023 paid to Mr. Grinstead, Mr. Payne, and
Dr. Agrawal in consideration of the surrender of accrued but unused
vacation days during the period from the commencement of such Named
Executive Officer's employment with the Company through December 31, 1995.
(12) Mr. Payne's employment with the Company terminated as of September 15,
1997.
Option Grants Table. The following table sets forth certain information
concerning grants of stock options made during fiscal 1997 to each of the
executive officers named in the Summary Compensation Table:
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
---------------------------------------
POTENTIAL REALIZABLE
PERCENTAGE VALUE AT ASSUMED
NUMBER OF OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS EXERCISE PRICE APPRECIATION FOR
UNDERLYING GRANTED TO PRICE EXPIRA- OPTION TERMS(2)
OPTIONS EMPLOYEES IN PER TION ---=------------------
GRANTED FISCAL YEAR SHARE DATE(1) 5% 10%
---------- ------------ -------- ------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
E. Andrews Grinstead, III 16,806(3) 5.32% $31.25 2/19/07 $330,246 $ 839,959
38,000(4) 12.04 30.00 4/09/07 716,300 1,818,400
12,000(5) 3.80 31.88 5/21/07 240,300 609,900
Sudhir Agrawal.......... 7,323(3) 2.30 31.25 2/19/97 142,722 361,707
19,000(4) 6.02 30.00 4/09/07 358,150 908,200
6,000(5) 1.90 31.88 5/21/07 120,150 304,950
Anthony J. Payne........ 6,316(3) 2.00 31.25 2/19/07 124,113 314,547
19,000(4) 6.02 30.00 4/09/07 358,150 908,200
6,000(5) 1.90 31.88 5/21/07 120,150 304,950
</TABLE>
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(1) The expiration date of an option is the tenth anniversary of the date on
which the option was originally granted.
(2) The amounts shown on this table represent hypothetical gains that could be
achieved for the respective options if exercised at the end of the option
term. These gains are based on assumed rates of stock appreciation of 5%
and 10%, compounded annually from the date the respective options were
granted to their expiration date. The gains shown are net of the option
exercise price, but do not include deductions for taxes or other expenses
associated with the exercise. Actual gains, if any, on stock option
exercises will depend on the future performance of the Common Stock, the
optionholders' continued employment through the option period, and the date
on which the options are exercised. As of March 31, 1998, the last sale
price of the Common Stock of the Company was significantly lower than the
exercise price of the options reflected in this table.
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(3) These stock options are immediately exercisable with respect to 40% of the
shares covered thereby and will become exercisable with respect to the
remaining 60% of the shares covered thereby in three equal installments in
arrears commencing on February 19, 1999.
(4) These stock options are immediately exercisable with respect to 40% of the
shares covered thereby and will become exercisable with respect to the
remaining 60% of the shares covered thereby in three equal installments in
arrears commencing on April 9, 1999.
(5) These stock options are immediately exercisable with respect to 20% of the
shares covered thereby and will become exercisable with respect to the
remaining 80% of the shares covered thereby in four equal annual
installments in arrears commencing on May 21, 1998.
Aggregated Option Exercises and Fiscal Year-End Option Value Table. The
following table sets forth certain information concerning each exercise of a
stock option during fiscal 1997 by each of the Named Executive Officers and the
number and value of unexercised options held by each of the Named Executive
Officers on December 31, 1997:
AGGREGATED OPTION EXERCISES IN LAST
FISCAL YEAR AND FISCAL YEAR-END
-----------------------------------
<TABLE>
<CAPTION>
OPTION VALUES
NUMBER OF VALUE OF
SHARES UNEXERCISED
UNDERLYING IN THE MONEY
OPTIONS AT OPTIONS AT FISCAL
FISCAL YEAR-END YEAR-END(1)
--------------- -----------------
EXERCISABLE/ EXERCISABLE/
UNEXERCISABLE UNEXERCISABLE
------------- -----------------
<S> <C> <C>
E. Andrews Grinstead, III................... 191,874/71,445 $ --/--
Anthony J. Payne(2)......................... 70,592/40,053 --/--
Sudhir Agrawal.............................. 80,453/37,811 17,500/--
</TABLE>
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(1) The closing price for the Common Stock as reported by The Nasdaq OTC
Bulletin Board on December 31, 1997 (the last day of trading) in 1997 was
$3.00. Value is calculated on the basis of the difference between the
option exercise price and $3.00, multiplied by the number of shares of
Common Stock underlying the option.
(2) Mr. Payne's employment with the Company terminated as of September 15,
1997.
Compensation of Directors
Each non-employee director is paid $1,500 for personal or telephonic
attendance at a Board or committee meeting. Other directors are not entitled to
compensation in their capacities as directors. All of the directors are
reimbursed for their expenses incurred in connection with their attendance at
Board and committee meetings. In addition, Drs. Wyngaarden and Zamecnik received
compensation in the amounts of $49,250 and $58,000, respectively, in 1997 in
connection with the provision of certain consulting services to the Company and
for
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serving on the Company's Scientific and/or Clinical Advisory Boards. The Company
also is a party to various consulting, advisory and other arrangements with
affiliates of Messrs. El-Khereiji, El-Zein and Menhall. For a description of the
foregoing arrangements with the Company and certain other transactions between
the Company and affiliates of certain directors, see Item 13 "Certain
Relationships and Related Transactions."
In October 1995, the Company adopted the 1995 Director Stock Option Plan
(the "Director Plan"). Under the terms of the Director Plan, options to purchase
1,000 shares of Common Stock were granted to each director of the Company other
than Mr. Grinstead and Dr. Agrawal as of January 30, 1996 at an exercise price
of $65.625 per share, and options to purchase 1,000 shares of Common Stock were
granted to each director other than Mr. Grinstead and Dr. Agrawal as of May 1,
1997 at an exercise price of $27.50 per share. The Director Plan also provides
that options to purchase 1,000 shares of Common Stock will be granted to each
new director upon his or her initial election to the Board of Directors. Annual
options to purchase 1,000 shares of Common Stock will be granted to each
eligible director on May 1 of each year. All options will vest on the first
anniversary of the date of grant (or, in the case of annual options, on April 30
of each year with respect to options granted in the previous year); provided,
that the exercisability of these options will be accelerated upon the occurrence
of a change in control (as defined in the Director Plan). A total of 50,000
shares of Common Stock may be issued upon the exercise of stock options granted
under the Director Plan. The exercise price of options granted under the
Director Plan will equal the closing price of the Common Stock on the date of
grant. As of March 31, 1998, options to purchase an aggregate of 14,000 shares
of Common Stock were outstanding under the Director Plan.
Non-employee directors also have received options to purchase Common Stock
of the Company under the Company's 1997 Stock Option Plan (the "1997 Plan") and
the Company's 1995 Stock Option Plan (the "1995 Plan Employment Contracts,
Termination of Employment and Change-in-Control Arrangements
The Company is party to an employment agreement with Mr. Grinstead for
the period commencing July 1, 1996 and ending June 30, 2001. Under this
agreement, Mr. Grinstead is currently entitled to receive an annual base salary
of $375,000. Mr. Grinstead also is eligible to receive (i) a cash bonus each
year related to the attainment of management objectives specified by the Board
of Directors and (ii) additional payments of $16,000 in 1997 and 1998. In the
event Mr. Grinstead's employment is terminated by the Company without cause (as
defined) or by him for good cause (as defined), the Company will pay Mr.
Grinstead during the 24-month period following his termination a monthly amount
equal to one-twelfth of the sum of Mr. Grinstead's annual base salary as of the
date of termination and the average bonus paid to him during the three years
preceding his termination (the "Average Bonus Amount"). The Company also will
continue Mr. Grinstead's benefits for such period, subject to earlier
termination under certain circumstances. If his employment is terminated by the
Company for failure to perform his assigned duties, he will continue to receive
his annual base salary and benefits during the six-month period following such
termination. Notwithstanding the foregoing, in the event that Mr. Grinstead's
employment is terminated for any of the above reasons within 12 months following
a Change in Control (as defined) of the Company, Mr. Grinstead will be entitled
to receive, in lieu of the payments described above, a lump sum payment equal to
300% of the sum of his annual base salary and his Average Bonus Amount.
In accordance with the terms of Mr. Grinstead's previous employment
agreement, the Company loaned $190,000 to Mr. Grinstead in December 1992
pursuant to the terms of a promissory note bearing simple interest at a rate of
6% per year, which originally provided for the payment of principal and all
accrued interest on the earlier of December 23, 1995 or the expiration or
termination of Mr. Grinstead's employment by the Company, but is currently
payable on demand. Such loan remained outstanding as of March 31, 1998, at which
date the total unpaid balance of principal and interest was $250,100.
The Company is party to an employment agreement with Dr. Agrawal for the
period commencing July 1, 1996 and ending June 30, 2000. Under this agreement,
Dr. Agrawal serves as Senior Vice President of Discovery and Chief Scientific
Officer of the Company and is currently entitled to receive an annual base
salary of $250,000. Dr. Agrawal is eligible to receive a cash bonus each year
related to the attainment of management objectives specified by the Chief
Executive Officer and the Board of Directors. In the event Dr. Agrawal's
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employment is terminated by the Company without cause (as defined) or by him for
good cause (as defined), the Company will pay Dr. Agrawal during the 24-month
period following his termination a monthly amount equal to one-twelfth of the
sum of Dr. Agrawal's annual base salary as of the date of termination and the
average bonus paid to him during the three years preceding his termination (the
"Average Bonus Amount"). The Company will also continue Dr. Agrawal's benefits
for such period, subject to earlier termination under certain circumstances. If
his employment is terminated by the Company for failure to perform his assigned
duties, he will continue to receive his annual base salary and benefits during
the six-month period following such termination. Notwithstanding the foregoing,
in the event that Dr. Agrawal's employment is terminated for any of the above
reasons within 12 months following a Change in Control (as defined) of the
Company, Dr. Agrawal will be entitled to receive, in lieu of the payments
described above, a lump sum payment equal to 300% of the sum of his annual base
salary and his Average Bonus Amount.
The employment agreements entered into between the Company and each of Mr.
Grinstead and Dr. Agrawal also provide that all stock options held by any of the
Named Executive Officers (including existing options and options to be granted
in the future) shall include terms providing (i) that in the event that such
Named Executive Officer's employment is terminated by the Company without cause
or by him for good cause the exercisability of such stock options will be
accelerated by two years and such stock options will be exercisable for a
two-year period following termination and (ii) that in the event of certain
changes in control of the Company, its liquidation or the sale of all or
substantially all of its assets, all such stock options not then exercisable
will vest and become immediately exercisable. The Company is also a party to
registration rights agreements with Mr. Grinstead that provide that in the event
the Company proposes to register any of its securities under the Securities Act
of 1933, as amended (the "Securities Act"), at any time, with certain
exceptions, Mr. Grinstead shall be entitled to include the shares of Common
Stock held by him in such registration, subject to the right of the managing
underwriter of any underwritten offering to exclude from such registration for
marketing reasons some or all of such shares. The Company also is a party to
indemnification agreements with Mr. Grinstead pursuant to which the Company has
agreed to indemnify him for certain liabilities, including liabilities arising
under the Securities Act.
Mr. Payne's employment with the Company terminated as of September 15,
1997. The Company is party to an agreement with Mr. Payne regarding the
termination of his employment. Pursuant to this agreement, options to purchase
an aggregate of 62,493 shares of Common Stock were amended to provide for the
acceleration by two years of the exercisability of such options and to extend
the period during which such options may be exercised until the second
anniversary of the termination of Mr. Payne's employment. In addition, under
this agreement, the Company agreed to pay Mr. Payne during the 12-month period
following his termination a monthly amount equal to one-sixth of the sum of Mr.
Payne's annual base salary as of September 15, 1997. Under this agreement, Mr.
Payne agreed to repay a personal loan from the Company in the amount of
$221,521.25 upon his acceptance of employment by a third party, at which time
the remaining severance payments would be applied to the loan balance. As of
March 31, 1998, such loan had been repaid in full and the Company's obligation
to continue making severance payments to Mr. Payne had terminated. The Company
has also agreed to continue Mr. Payne's benefits for a two-year period, subject
to earlier termination under certain circumstances.
Stock options to purchase an aggregate of 261,841 shares of Common Stock
granted to the Named Executive Officers pursuant to the 1990 Plan provide that,
upon a change in control (as defined in the 1990 Plan), all options granted
thereunder will become fully exercisable. In addition, pursuant to the terms of
the employment agreements entered into between the Company and each of the Named
Executive Officers described above (i) in April 1997, stock options to purchase
an aggregate of 130,386 shares of Common Stock granted to the Named Executive
Officers under the Company's 1995 Plan were amended to provide that such options
will become fully exercisable upon a change in control of the Company, and (ii)
all stock options granted to the Named Executive Officers after March 1, 1997
will provide that such options will become fully exercisable upon a change of
control of the Company.
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Compensation Committee Interlocks and Insider Participation
The Board of Directors does not currently have a compensation committee.
The Board of Directors as a whole, including Mr. Grinstead and Dr. Agrawal, who
are employees of the Company, perform equivalent functions. None of the
directors or executive officers of the Company had any "interlock" relationships
to report during the Company's fiscal year ended December 31, 1997.
Since January 1, 1997, the Company has entered into or engaged in certain
transactions with Pillar S.A., Pillar Investment Ltd. Pillar Limited and
Charles River Building Limited Partnership (the "Cambridge Landlord"), entities
of which Messrs. El-Zein and Menhall are affiliates. See Item 13 "Certain
Relationships and Related Transactions."
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of March 31, 1998
with respect to the beneficial ownership of shares of Common Stock by (i) each
person known to the Company to own beneficially more than 5% of the outstanding
shares of Common Stock, (ii) the directors and director nominees of the Company,
(iii) the Chief Executive Officer and the other Named Executive Officers, and
(iv) the directors and executive officers of the Company as a group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL OWNERSHIP(1)
--------------------------
NUMBER OF PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER SHARES CLASS
- ------------------------------------ --------- -----------
<S> <C> <C> <C>
5% STOCKHOLDERS
Yahia M.A. Bin Laden............................... 377,500 (2) 7.46%
2, rue Charles Bonnet
1206 Geneva, Switzerland
Pecks Management Partners, Ltd..................... 356,500 (3) 6.58%
One Rockefeller Plaza, Suite 900
New York, New York 10020
Nicris Limited..................................... 310,000 6.12%
2 rue Charles Bonnet
1206 Geneva, Switzerland
Intercity Holdings, LTD............................ 341,667 6.75%
c/o Coson Corporate Services
P.O. Box HM 1561
Hamilton, HM FX, Bermuda
DIRECTORS
Youssef El-Zein.................................... 142,192 (4) 2.74%
Nasser Menhall..................................... 118,605 (5) 2.30%
E. Andrews Grinstead, III.......................... 254,814 (6) 4.83%
Mohamed A. El-Khereji.............................. 179,287 (7) 3.48%
Paul C. Zamecnik................................... 112,020 (8) 2.20%
Sudhir Agrawal..................................... 105,665 (9) 1.74%
James B. Wyngaarden................................ 15,000(10) *
OTHER EXECUTIVE OFFICERS
Anthony J. Payne................................... 92,250(11) 1.66%
All directors and executive officers as a
group (8 persons)................................ 1,021,833(12) 17.92%
</TABLE>
- --------------------
* Less than 1%
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(1) The number of shares beneficially owned by each director and executive
officer is determined under rules promulgated by the Securities and
Exchange Commission, and the information is not necessarily indicative of
beneficial ownership for any other purpose. Under such rules, beneficial
ownership includes any shares as to which the individual has sole or shared
voting power or investment power and also any shares which the individual
has the right to acquire within 60 days after March 31, 1998 through the
exercise of any stock option or other right. The inclusion herein of such
shares, however, does not constitute an admission that the named
stockholder is a direct or indirect beneficial owner of such shares. Unless
otherwise indicated, each person or entity named in the table has sole
voting power and investment power (or shares such power with his or her
spouse) with respect to all shares of capital stock listed as owned by such
person or entity.
(2) Includes 310,000 shares held by Nicris Limited ("Nicris"). Mr. Bin Laden, a
controlling stockholder of Nicris, may be considered a beneficial owner of
the shares beneficially owned by such entity.
(3) Share ownership based on Schedule 13D filed with the Commission on
February 17, 1998. Share ownership is based on shares issuable upon the
conversion of debt securities of the Company.
(4) Includes (a) 74,183 shares issuable upon the exercise of warrants held by
Mr. El-Zein, (b) 366 shares issuable upon the exercise of warrants held by
Pillar Associated, (c) 12,800 shares held by Pillar Investment, (d) 5,243
shares issuable upon the exercise of warrants held by Pillar Investment,
(e) 20,000 shares issuable upon the exercise of warrants held by Pillar
S.A., and (f) 20,000 shares issuable upon the exercise of warrants by
Pillar S.A.R.L. Also includes 8,000 shares subject to outstanding stock
options held by Mr. El-Zein which are exercisable within the 60-day period
following March 31, 1998. Mr. El-Zein, an affiliate of Pillar Investment,
Pillar Limited, Pillar S.A., Pillar Associated and Pillar S.A.R.L., may be
considered a beneficial owner of the shares beneficially owned by such
entities.
(5) Includes (a) 52,195 shares issuable upon the exercise of warrants held by
Mr. Menhall, (b) 366 shares issuable upon the exercise of warrants held by
Pillar Associated, (c) 12,800 shares held by Pillar Investment, (d) 5,243
shares issuable upon the exercise of warrants held by Pillar Investment,
(e) 20,000 shares issuable upon the exercise of warrants held by Pillar
S.A., and (f) 20,000 shares issuable upon the exercise of warrants by
Pillar S.A.R.L. Also includes 8,000 shares subject to outstanding stock
options held by Mr. Menhall which are exercisable within the 60-day period
following March 31, 1998. Mr. Menhall, an affiliate of Pillar Limited,
Pillar Investment, Pillar S.A., Pillar Associated and Pillar S.A.R.L., may
be considered a beneficial owner of the shares beneficially owned by such
entities.
(6) Includes 211,235 shares subject to outstanding stock options which are
exercisable within the 60-day period following March 31, 1998.
(7) Includes (a) 80,414 shares issuable upon the exercise of warrants held by
Mr. El-Khereiji and (b) 8,000 shares subject to outstanding stock options
held by Mr. El-Khereiji which are exercisable within the 60-day period
following March 31, 1998. Also includes 90,873 shares beneficially owned by
Solter Corporation. Mr. El-Khereiji, an affiliate of Solter Corporation,
may be considered a beneficial owner of the shares beneficially owned by
such entity.
(8) Includes 26,000 shares subject to outstanding stock options which are
exercisable within the 60-day period following March 31, 1998.
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(9) Includes 90,905 shares subject to outstanding stock options which are
exercisable within the 60-day period following March 31, 1998.
(10) Includes 700 shares held by Dr. Wyngaarden's children and 11,000 shares
subject to outstanding stock options which are exercisable within the
60-day period following March 31, 1998.
(11) Includes 82,355 shares subject to outstanding stock options which are
exercisable within the 60-day period following March 31, 1998. Mr. Payne's
employment with the Company terminated on September 15, 1997.
(12) Includes an aggregate of 298,011 shares issuable upon the exercise of
outstanding warrants exercisable within the 60-day period following March
31, 1998 and an aggregate of 445,494 shares issuable upon the exercise of
outstanding stock options exercisable within the 60-day period following
March 31, 1998. Does not include 112,733 shares issuable upon the exercise
of outstanding stock options not exercisable within the 60-day period
following March 31, 1998.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Since January 1, 1997, the Company has entered into or engaged in the
following transactions with the following directors, officers, stockholders who
beneficially own more than 5% of the outstanding Common Stock of the Company
("5% Stockholders") and affiliates or immediate family members of such
directors, officers and 5% Stockholders.
Transactions with Pillar S.A. and Certain of its Affiliates
Since January 1, 1997, the Company has entered into or engaged in certain
transactions with Pillar S.A., Pillar Limited and the Cambridge Landlord. Pillar
S.A. and Pillar Limited are affiliates of Messrs. El-Zein and Menhall, two
directors of the Company. The Cambridge Landlord is an affiliate of Messrs.
El-Zein and Menhall and Mr. El-Khereiji, a third director of the Company. The
following is a summary of these transactions.
In 1997, the Company was a party to a consulting agreement (the "1994
Pillar Consulting Agreement") with Pillar S.A., dated as of March 1, 1994,
pursuant to which Pillar S.A. provided the Company with financial advisory and
managerial services in connection with the Company's overseas operations,
including support services in connection with contracts and agreements. Under
the terms of the 1994 Pillar Consulting Agreement, the Company paid Pillar S.A.
continuing consulting fees of $60,000 per month and $23,000 per month for
overhead costs, and reimbursement of certain authorized out-of-pocket expenses.
The 1994 Pillar Consulting Agreement expired on February 28, 1998.
Pursuant to the 1994 Pillar Consulting Agreement, the Company issued to
Pillar S.A. two five-year warrants to purchase an aggregate of 40,000 shares of
Common Stock of the Company.
On July 8, 1995, the Company entered into an additional agreement (the
"Pillar Europe Agreement") with Pillar S.A. pursuant to which Pillar S.A. agreed
to provide to the Company certain consulting, advisory and related services (in
addition to the services to be provided pursuant to the 1994 Pillar Consulting
Agreement) and serve as the Company's exclusive agent in connection with
potential corporate partnerships in Europe and as a non- exclusive placement
agent of the Company in connection with private placements of securities of the
Company for a period of two years. On November 1, 1995, the Pillar Europe
Agreement was amended to provide that (i) Pillar S.A. would cease to serve as
the Company's exclusive agent in connection with potential corporate
partnerships in Europe, but would continue to serve as a non-exclusive agent in
such respect, (ii) Pillar S.A. would receive a retainer of $26,470 per month for
the balance of the term of the Pillar Europe Agreement (April 1, 1997), (iii)
the fees set forth in the Pillar Europe Agreement would only be payable to
Pillar S.A. in connection
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with potential collaborations with any French pharmaceutical company with which
the Company engaged in discussions during the 12- month period ended November 1,
1995 as a result of introductions by Pillar S.A. and (iv) any compensation
payable to Pillar S.A. in connection with its services with respect to other
corporate collaborations or any placements of securities would be negotiated on
a case-by-case basis and would be subject to the approval of the independent
members of the Board of Directors of the Company. The Pillar Europe Agreement
expired on April 1, 1997.
During the year ended December 31, 1997, the Company paid Pillar S.A. an
aggregate of $998,000 under the 1994 Pillar Consulting Agreement and the Pillar
Europe Agreement, as amended.
The Company has retained Pillar Investments as a placement agent of the
Company in connection with a private placement of securities of the Company (the
"Offshore Offering"). Pillar Investments Ltd. Is entitled to receive fees
consisting of (i) 9% of the gross proceeds of such Offshore Offering and (ii) a
non-accountable expense allowance equal to 4% such gross proceeds. In addition,
Pillar Investments Ltd. Is entitled to purchase warrants, at $.001 per warrant
as follows. If the Equity Conditions referred to in the Company's Annual Report
on Form 10-K for the year ended December 31, 1997 (the "1997 10-K") under the
caption entitled "Management's Discussion and Analysis of Financial Condition
and Results of Operations - - 1998 Financing Conditions" are met, Pillar
Investments Ltd. will be entitled to purchase warrants to purchase such number
of shares of the Common Stock of the Company equal to 10% of the aggregate
number of shares of Common Stock sold in the Offshore Offering (including share
of Common Stock issued in exchange for Units which included 1998 Unit Notes
(such Units being referred to herein as the "Note Units")), exercisable at 120%
of the Common Stock Offering Price (as defined in the 1997 10-K) for a period of
five years from the date of the closing of the Offshore Offering. If the Equity
Conditions are not met, Pillar Investments Ltd. will be entitled to receive
warrants to purchase 10% of the Note Units issued in the Offshore Offering,
exercisable at 100% of the offering price of the Note Units, for a period of
seven years commencing six months after the final closing date of the Offshore
Offering.
In addition, in connection with the Offshore Offering, at the final
closing of the Offshore Offering, the Company and Pillar Investment Ltd. will
enter into an advisory agreement (the "Financial Advisory Agreement") pursuant
to which Pillar Investment Ltd. shall act as the Company's non-exclusive
financial advisor. Such Financial Advisory Agreements will provide that (i)
Pillar Investment Ltd. receive a monthly retainer of $5,000 (minimum engagement
of 24 months beginning on the final closing date), and will be entitled to
receive (ii) out-of-pocket expenses, (iii) a consulting/restructuring fee of
$960,000 payable in Common Stock of the Company valued at the market price and
payable in three equal installments as net proceeds of $25,000,000, $30,000,000
and $35,000,000 are received in the Offshore Offering, (iv) warrants to purchase
such number of shares of Common Stock equal to 15% of the number of shares of
Common Stock included in units received by purchasers who exchange such Note
Units for units consisting of Common Stock and warrants and (v) certain cash and
equity success fees in the event Pillar Investment Ltd. assists the Company in
connection with certain financial and strategic transactions.
The Company is a party to a lease (the "Cambridge Lease") with the
Cambridge Landlord dated as of February 4, 1994. The Cambridge Lease covers
approximately 91,500 square feet of space in Cambridge, Massachusetts, has an
initial term of fifteen years commencing on February 1, 1997, and may be
extended for three additional five-year terms at the option of the Company. The
Cambridge Lease originally provided for an annual rent equal to $30 per square
foot on a triple net basis for the first five years, $33 per square foot on a
triple net basis for the next five years and the greater of $30 per square foot
on a triple net basis or the then market value of leased property for each of
the five-year renewal terms. In connection with the Company's election to
acquire an interest in the Cambridge Landlord described below, the annual rent
due under the Cambridge Lease was increased for the first five years of the
lease term to $38 per square foot on a triple net basis and for the second five
years to $42 per square foot on a triple net basis and for the third five years
to $47 per square foot on a triple net basis.
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On July 1, 1996, the Company elected to fund approximately $5.5 million of
the costs (primarily relating to tenant improvements) of the construction of the
leased premises through contributions to the capital of the Cambridge Landlord
in exchange for a limited partnership interest in the Cambridge Landlord (the
"Partnership Interest"). The Partnership Interest entitles the Company to an
approximately 32% interest in the Cambridge Landlord. Hybridon's right to
receive distributions of cash generated from operations or from any sale or
refinancing of the property is subordinate to the distribution to certain other
limited partners of priority amounts currently totalling approximately $6.5
million. In the case of a sale or refinancing of the property, after payment of
the priorities described in the immediately preceding sentence, Hybridon is
entitled to a return of its capital contribution and, thereafter, to its pro
rata share of the remaining funds available for distribution. The Company also
has the right, for a period of three years ending February 2000, to sell the
Partnership Interest back to certain limited partners of the Cambridge Landlord
for a price equal to the greater of (i) the aggregate cash contribution made by
Hybridon to the Cambridge Landlord or (ii) the fair market value of the
Partnership Interest at the time. The assets of these limited partners are
limited to their investment in the Cambridge Landlord.
In 1997, the Company had on deposit with Bank Fur Vermogensanlagen Und
Handel ("BVH") the amount of $1,034,618. In November, 1997, German banking
authorities imposed a moratorium on BVH and closed BVH for business. Pursuant to
an agreement dated November 28, 1998, the Cambridge Landlord has agreed to
assume the risk for the BVH deposit and to pay to the Company the amount of
$75,000 a month after each rent payment under the Cambridge Lease is made until
such time as $1,000,000 has been paid to the Company or the BVH deposit is
released. The Company will reimburse the Cambridge Landlord for any cash
received under this agreement, up to the amount realized by the Company from the
final settlement of the BVH deposit, after the moratorium is lifted. As of March
31, 1998, the Cambridge Landlord had paid $250,000 to the Company under this
agreement.
The Company was a party to a lease (the "Paris Lease") with a third party
dated March 23, 1994 for approximately 1,800 square feet of space in Paris,
France. The Company's obligations under the Paris Lease were guaranteed by
Pillar S.A. Effective March 31, 1998, the Company terminated the Paris Lease.
Other Transactions
Certain persons and entities (the "Rightsholders"), including Dr. Zamecnik,
Pillar S.A., Pillar Limited, Intercity Holdings, Mr. Bin Laden and Nicris, are
entitled to certain rights with respect to the registration under the Securities
Act of certain shares of the Company's Common Stock (the "Registrable Shares"),
including shares of Common Stock that may be acquired pursuant to the exercise
of options or warrants, under the terms of agreements among the Company and the
Rightsholders (the "Registration Agreements"). The Registration Agreements
generally provide that in the event the Company proposes to register any of its
securities under the Securities Act at any time, with certain exceptions, the
Rightsholders shall be entitled to include Registrable Shares in such
registration, subject to certain conditions and limitations. Certain
Rightsholders, including Pillar S.A., Pillar Limited, Intercity Holdings, Mr.
Bin Laden and Nicris, but excluding, among others, Dr. Zamecnik, have the
additional right under certain Registration Agreements to require the Company to
prepare and file registration statements under the Securities Act, if such
Rightsholders holding specified percentages of the Registrable Shares so
request, and the Company is required to use its best efforts to effect such
registration, subject to certain conditions and limitations.
For a description of certain employment and other arrangements between the
Company and its executive officers, see "Compensation of Executive Officers"
above. For a description of stock options granted to certain directors of the
Company, see "Director Compensation" above.
The Company believes that the terms of the transactions described above
were no less favorable than the Company could have obtained from unaffiliated
third parties.
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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.
/s/ E. Andrews Grinstead, III
------------------------------------
E. Andrews Grinstead, III
President
Dated: April 30, 1998
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.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ E. Andrews Grinstead, III Chairman of the Board, April 30, 1998
- ----------------------------- President and Chief Executive
E. Andrews Grinstead, III Officer and Director (Principal
Executive Officer)
/s/ Robert G. Andersen Treasurer (Principal Financial April 30, 1998
- ----------------------------- and Accounting Officer)
Robert G. Andersen
/s/ Sudhir Agrawal Director April 30, 1998
- -----------------------------
Sudhir Agrawal
Director April 30, 1998
- -----------------------------
Mohamed El-Khereiji
/s/ Youssef El-Zein Director April 30, 1998
- -----------------------------
Youssef El-Zein
/s/ Nasser Menhall Director April 30, 1998
- -----------------------------
Nasser Menhall
Director April 30, 1998
- -----------------------------
James B. Wyngaarden
/s/ Paul C. Zamecnik Director April 30, 1998
- -----------------------------
Paul C. Zamecnik
</TABLE>
