<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party Other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] CONFIDENTIAL, FOR USE OF THE COMMISSION
[ ] ONLY [AS PERMITTED BY RULE 14a-6(e)(2)]
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12.
HYBRIDON, INC.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 011.
(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: $15,000,000
(5) Total fee paid: $3,000 paid by wire transfer by Registrant
[X] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
HYBRIDON, INC.
155 FORTUNE BOULEVARD
MILFORD, MASSACHUSETTS 01757
August 8, 2000
Dear Stockholder:
Hybridon, Inc. (the "Company") will hold a special meeting of its
common and Series A Preferred stockholders on September 12, 2000, to consider
and vote on proposals to approve the Company's sale of its Hybridon Specialty
Products business (the "Transaction") and to amend its Certificate of
Incorporation to acknowledge that the Transaction will not constitute a
liquidation event for the benefit of Series A Preferred stockholders. I have
recommended these proposals to the Board of Directors, which has approved them.
The Board recommends that you vote in favor of each proposal.
We believe that Delaware corporate law does not require us to obtain
stockholder approval for this transaction because the Transaction will not
constitute a sale of all or substantially all of the assets of the Company.
However, our agreement with the purchaser, Boston Biosystems, Inc., a
wholly-owned subsidiary of Avecia, Inc., requires us to obtain your approval.
We believe that the timing is right for the sale of the Hybridon
Specialty Products business. The Transaction will allow management to
concentrate attention and resources on and provide working capital for the
Company's highest value-added core drug discovery and development business.
The special meeting will begin promptly at 10:00 a.m. at the Radisson
Hotel, 11 Beaver Street, Milford, Massachusetts. The official notice of meeting,
proxy statement and form of proxy are included with this letter.
The vote of every stockholder is particularly important for this
special meeting.
Please sign, date and promptly mail your proxy. Your cooperation will
be greatly appreciated.
Sincerely,
/s/ James B. Wyngaarden
James B. Wyngaarden, Chairman
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HYBRIDON, INC.
155 FORTUNE BLVD.
MILFORD, MASSACHUSETTS 01757
August 8, 2000
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
A special meeting of common and Series A Preferred stockholders (the
"Special Meeting") of Hybridon, Inc. (the "Company") will be held at the
Radisson Hotel, 11 Beaver Street, Milford, Massachusetts, on September 12, 2000,
at 10:00 a.m., for the following purposes:
1. To approve the proposed sale of the Company's Hybridon Specialty
Products business to Boston Biosystems, Inc., a subsidiary of Avecia, Inc. (the
"Transaction");
2. To consider and vote upon the proposed amendment to the Company's
Certificate of Incorporation to acknowledge that the Transaction will not
constitute a liquidation event for the benefit of Series A or other Preferred
stockholders; and
3. To transact such other business as may properly come before the
Special Meeting or any adjournment or postponement thereof.
Holders of record of common and Series A Preferred stock of the Company
at the close of business on August 4, 2000, are being given notice and the right
to vote at the special meeting or any adjournment thereof.
By Order of the Board of Directors
/s/ Robert G. Andersen
Robert G. Andersen
Assistant Secretary
YOUR VOTE IS VERY IMPORTANT. EVEN IF YOU PLAN TO ATTEND THE SPECIAL
MEETING IN PERSON, WE REQUEST THAT YOU COMPLETE, SIGN, DATE AND RETURN THE
ACCOMPANYING PROXY IN THE ENCLOSED SELF-ADDRESSED STAMPED ENVELOPE AND THUS
ENSURE THAT YOUR SHARES WILL BE REPRESENTED AT THE SPECIAL MEETING IF YOU ARE
UNABLE TO ATTEND. IF YOU ATTEND THE SPECIAL MEETING AND WISH TO VOTE IN PERSON,
YOU MAY WITHDRAW YOUR PROXY AND VOTE IN PERSON.
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[THIS PAGE INTENTIONALLY LEFT BLANK]
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HYBRIDON, INC.
PROXY STATEMENT
This proxy statement is being furnished to the common and Series A
Preferred stockholders of Hybridon, Inc. (the "Company") in connection with the
solicitation of proxies on behalf of the Company's Board of Directors to be used
at a special meeting to be held on September 12, 2000, at 10:00 a.m. at the
Radisson Hotel, 11 Beaver Street, Milford, Massachusetts (the "Special Meeting")
and any adjournment thereof.
This proxy statement is being mailed to the Company's common and Series
A Preferred stockholders on or about August 11, 2000.
Only common and Series A Preferred stockholders of record as of the
close of business on August 4, 2000 are being given notice and the right to vote
at the Special Meeting or any adjournment thereof. On August 4, 2000, the
Company had 17,789,444 shares of common stock outstanding and 615,115 shares of
Series A Preferred stock outstanding. Each share is entitled to one vote, and
the common stock and Series A Preferred stock will vote as separate classes.
Shares cannot be voted at the Special Meeting unless the holder thereof is
present or represented by proxy.
Any stockholder executing the accompanying form of proxy has the power
to revoke it at any time before it is voted. Such revocation may be made in
person at the Special Meeting or by written notification to the Secretary of the
Company. Every properly signed proxy will be voted unless previously revoked if
the proxy is returned to the Company properly executed and in sufficient time to
permit the necessary examination and tabulation before a vote is taken.
At the Special Meeting, stockholders will be asked to vote on the
following proposals:
1. The proposed sale of the Company's Hybridon Specialty Products
business to Boston Biosystems, Inc., a subsidiary of Avecia, Inc. (the
"Transaction");
2. The proposed amendment to the Company's Certificate of Incorporation
to acknowledge that the Transaction will not constitute a liquidation event for
the benefit of the Company's Series A or other Preferred stockholders; and
3. Such other business as may properly come before the Special Meeting
or any adjournment or postponement thereof.
The accompanying proxy, unless the shareholder otherwise specifies in
the proxy, will be voted (i) in favor of the Transaction and for adoption and
approval of the Amendment to the Company's Certificate of Incorporation, and
(ii) at the discretion of the proxy holders on any other matter that may
properly come before the meeting or any adjournment or postponement thereof.
Where shareholders have appropriately specified how their proxies are to be
voted, they will be voted accordingly. If any other matter or business is
brought before the Special Meeting, the proxy holders may vote the proxies in
their discretion. The directors do not know of any such other matter or
business.
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THE PROXY STATEMENT, AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED. THIS PROXY STATEMENT DOES NOT CONSTITUTE A SOLICITATION OF A
PROXY IN ANY JURISDICTION FROM ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH
PROXY SOLICITATION IN SUCH JURISDICTION. THE DELIVERY OF THIS PROXY STATEMENT
SHALL NOT, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN
NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION (THE "COMMISSION") NOR HAS THE COMMISSION PASSED UPON
THE FAIRNESS OR MERITS OF SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF
THE INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY
IS UNLAWFUL.
The Company's address is 155 Fortune Boulevard, Milford, Massachusetts
01757, and its telephone number is (508) 482-7500.
The date of this Proxy Statement is August 8, 2000.
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SUMMARY
This summary is qualified by the more detailed information set forth
elsewhere in this proxy statement, including the financial information set forth
herein.
THE SPECIAL MEETING
Date, Time and Place. The Special Meeting of the common and Series A
Preferred stockholders of the Company will be held at the Radisson Hotel, 11
Beaver Street, Milford, Massachusetts, on September 12, 2000, at 10:00 a.m.
Purpose. The Special Meeting is being held to consider, vote on and
approve a proposal to sell the Company's Hybridon Specialty Products business to
Boston Biosystems, Inc. (the "Transaction") and to amend the Company's
Certificate of Incorporation to specifically acknowledge that the Transaction is
not a liquidation event for the benefit of the Company's Series A Preferred
stockholders (the "Charter Amendment").
Recommendation of the Company's Board. The Board of Directors of the
Company has approved the Transaction and the Charter Amendment and recommends
that stockholders vote FOR these proposals. For a description of the reasons for
each proposal, see "The Transaction Proposal -- Reasons for the Transaction" and
"The Charter Amendment Proposal --Reasons for Charter Amendment."
Record Date. August 4, 2000 (the "Special Meeting Record Date").
Common Stock. Under Delaware's General Corporation Law, the affirmative
vote of the holders of a majority of a corporation's outstanding stock is
required to approve a sale of all or substantially all of the a corporation's
assets. The Company believes that the sale of its Hybridon Specialty Products
business will not constitute a sale of all or substantially all of its assets,
such as would require stockholder approval under Delaware law. However, as a
condition to consummating the Transaction, the Sale Agreement requires that the
Company obtain the approval of the holders of at least seventy-five percent
(75%) of the total number of common shares outstanding.
Preferred Stock. The provisions of the Company's Certificate of
Incorporation governing the rights and privileges of the Company's Series A
Preferred stock do not afford any voting rights to the holders of Series A
Preferred stock. However, under such provisions, a sale of all or substantially
all of the Company's assets is considered to be a "Liquidation Event" such that
the holders of the Series A Preferred stock would be entitled to a liquidation
payment of $100.00 per share after the payment of all debts but prior to any
distributions to any other class of stockholder. Although the Company does not
believe that the Transaction will constitute a sale of all or substantially all
of its assets, as a condition to consummating the Transaction, the Sale
Agreement requires that the Transaction be approved by the holders of at least
75% of the of Series A Preferred stock. In addition, the agreement between the
Company and the Purchaser requires that the holders of 75% of Series A Preferred
stock vote to amend the Company's charter to provide that the Transaction will
not constitute a Liquidation Event with the result that no liquidating
preference payment will become payable upon the consummation of the Transaction.
As a result of these requirements, the Company is asking that the
Transaction be approved by a separate vote of the holders of seventy-five
percent (75%) of the common stock and seventy five percent (75%) of the Series A
Preferred stock, each voting as a separate class. In addition, the Company is
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asking that the holders of a majority of the common stock and seventy-five
percent (75%) of the holders of the Series A Preferred stock approve an
amendment to the Company's certificate of incorporation providing, in effect,
that the Transaction will not constitute a Liquidation Event.
Voting. At the Special Meeting, each holder of record of common stock
and Series A Preferred stock as of the Special Meeting Record Date will be
entitled to one vote for each share held as of such date. Holders of
approximately 86% of Series A Preferred stock have agreed to vote their shares
in favor of the Transaction and the Charter Amendment and have entered into an
agreement with the Company and the Purchaser to vote all of such shares in favor
of the Transaction.
THE TRANSACTION
Assets to be Sold. The Company has contracted to sell certain assets
related to its Hybridon Specialty Products business. Assets associated with the
Company's core business of drug discovery and development will not be sold and
this business will be moved to premises at 345 Vassar Street, Cambridge,
Massachusetts, which the Company has leased with a remaining term of seven (7)
years.
Purchaser. The purchaser of the Company's DNA manufacturing business
known as Hybridon Specialty Products will be Boston Biosystems, Inc., a Delaware
corporation (the "Purchaser"), a wholly-owned subsidiary of Avecia, Inc. Avecia,
Inc., including its global affiliates, is one of the world's largest producers
of advanced medicines such as DNA medicines and biologics. Avecia, Inc. employs
over 4,800 people at 28 sites across the world, and had sales in 1999 of
approximately $1.2 billion. The Purchaser is located at 75A Wiggins Avenue,
Bedford, Massachusetts 01730 (telephone number: 781-271-1580).
Sale Price. The Company has contracted to sell the assets of its
Hybridon Specialty Products business to the Purchaser for $15,000,000. In
addition, the Purchaser will also assume approximately $447,000 of liabilities
related to the assets to be sold. The Company will receive $11,550,000 of the
purchase price at closing prior to any transaction costs, $450,000 will be
retained for thirty (30) days by the Purchaser to cover potential
indemnification claims and raw materials inventory requirements, and $3,000,000
will be payable as contingent consideration one year from the date of Closing
upon the satisfaction of certain conditions.
Reasons for the Transaction. The purpose of the Transaction is to allow
the Company's management to concentrate attention and resources on and provide
working capital for the Company's highest value-added core drug discovery and
development business. The Company believes that this portion of its business
offers more promise for the future and greater opportunities for growth.
Retention of Certain Liabilities. The Company will retain all
liabilities arising out of or relating to the Hybridon Specialty Products
business prior to the Closing, other than those specifically assumed by the
Purchaser. The Company does not expect any of the retained liabilities to have a
material adverse effect on its future results of operations.
Representations, Warranties and Covenants. The agreement governing the
Transaction (the "Sale Agreement") contains representations, warranties and
covenants of the parties customary in transactions similar to the Transaction.
Conditions to Closing. The Sale Agreement contains conditions to
closing customary in transactions similar in size and nature to the Transaction,
including approval of the stockholders of the Company.
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Termination of Sale. The Company and the Purchaser each have the right
to terminate the Sale Agreement under certain circumstances customary to
transactions similar to the Transaction.
U. S. Tax Consequences. The Company does not expect that there will be
any material tax consequence to it as a result of the Transaction.
Governing Law. The Sale Agreement and the Transaction are governed by
the laws of the State of Delaware.
Closing. The closing of the Transaction will take place as soon as
practicable following the Special Meeting provided that the Transaction and the
Charter Amendment are approved by the stockholders and all other closing
conditions are met.
Absence of Appraisal Rights. Neither Delaware's General Corporation Law
nor the Company's Certificate of Incorporation accords any appraisal remedies in
the case of the Transaction or the Charter Amendment.
THE CHARTER AMENDMENT
Reasons for Charter Amendment. Certain provisions of the Company's
Certificate of Incorporation provide the Company's Series A Preferred stock with
preferential treatment after payment of all debts in the event of certain
transactions, such as a sale of all or substantially all of the Company's
assets. While the Company does not believe that the Transaction constitutes a
sale of all or substantially all of the Company's assets, the Sale Agreement
requires that the Company revise its Certificate of Incorporation to provide
that this transaction will not give rise to any preferential payments to the
Series A Preferred stockholders.
FORWARD LOOKING INFORMATION
This proxy statement contains forward-looking statements within the
meaning of the Securities Exchange Act of 1934, as amended. Pro forma
information contained within this proxy statement, to the extent it is
predictive of financial condition and results of operations that would have
occurred on the basis of certain stated assumptions, may also be characterized
as forward-looking statements. Although forward-looking statements are based on
assumptions made and information believed by management to be reasonable, no
assurance can be given that such statements will prove to be correct. Such
statements are subject to certain risks, uncertainties and assumptions. Should
one or more of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results may vary materially from those
results anticipated, estimated, projected or expected.
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SUMMARY HISTORICAL AND PRO FORMA
CONSOLIDATED FINANCIAL INFORMATION
SELECTED HISTORICAL FINANCIAL DATA
The following is a summary of certain consolidated financial
information that has been derived from the consolidated financial statements of
the Company and subsidiaries. This summary should be read in conjunction with
the related consolidated financial statements and notes thereto that are
incorporated by reference in this proxy statement.
HYBRIDON, INC.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEAR ENDED
MARCH 31, 2000 DECEMBER 31, 1999
----------------- --------------------
<S> <C> <C>
SELECTED INCOME STATEMENT DATA
(UNAUDITED):
Product and service revenue ............... $ 1,564,675 $ 6,186,136
Loss from operations ...................... (2,703,962) (10,503,042)
Net loss applicable to common stockholders (3,774,762) (14,735,293)
Basic and diluted net loss per common share (.23) (.93)
</TABLE>
<TABLE>
<CAPTION>
AS OF
MARCH 31,2000
-------------
<S> <C>
SELECTED BALANCE SHEET DATA
(UNAUDITED):
Cash ...................................... $ 1,795,124
Working capital deficit ................... (14,415,166)
Total assets .............................. 10,481,021
Current liabilities ....................... 17,313,500
Long-term debt ............................ 1,669,931
Total shareholders' equity (deficit) ...... (8,502,410)
</TABLE>
PRO FORMA CONSOLIDATED (UNAUDITED) FINANCIAL DATA
The following pro forma consolidated (unaudited) financial information
should be read in conjunction with the pro forma consolidated (unaudited)
financial information included elsewhere herein, including the assumptions for
such presentation, and the separate historical financial statements of the
Company and subsidiaries and notes thereto that are incorporated by reference in
this proxy statement.
The pro forma consolidated (unaudited) financial data are not
necessarily indicative of the operating results that would have been achieved
had the Transaction and discontinuation of the Hybridon Specialty Products (HSP)
operations been effective during the periods presented or the results that may
be obtained in the future. The gain resulting directly from the Transaction has
been excluded from the pro forma selected income statement data.
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SUMMARY PRO FORMA (UNAUDITED) CONSOLIDATED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
THREE MONTHS YEAR ENDED
ENDED DECEMBER 31,
MARCH 31, 2000 1999
--------------- ---------------
<S> <C> <C>
SELECTED INCOME STATEMENT DATA (UNAUDITED):
Product and service revenue ............... $ 45,000 $ 365,000
Loss from operations ...................... (2,133,385) (7,693,828)
Net loss applicable to common stockholders (3,204,185) (11,926,079)
Basic and diluted net loss per common share (.20) (.75)
</TABLE>
<TABLE>
<CAPTION>
AS OF
MARCH 31, 2000
--------------
<S> <C>
SELECTED BALANCE SHEET DATA (UNAUDITED):
Cash, including restricted cash of $5.0M .. $ 12,665,124
Working capital deficit ................... (5,011,767)
Total assets .............................. 18,933,488
Current liabilities ....................... 17,230,101
Long-term debt ............................ 1,306,000
Total shareholders' equity ................ 397,387
</TABLE>
COMPARATIVE (UNAUDITED) PER SHARE DATA
The following table sets forth certain historical per share data of
Hybridon, Inc. and subsidiaries and per share data on a pro forma basis after
giving effect to the Transaction. The gain resulting directly from the
Transaction has been excluded from the pro forma earnings and per share amounts.
<TABLE>
<CAPTION>
THREE MONTHS YEAR ENDED
ENDED DECEMBER 31, 1999
MARCH 31, 2000
-------------- -----------------
<S> <C> <C>
HYBRIDON, INC. - - HISTORICAL (UNAUDITED):
Basic and diluted net loss per common share $(.23) $(.93)
===== =====
Book value per common share ............... $(.52) $(.37)
===== =====
PRO FORMA (UNAUDITED):
Basic and diluted net loss per common share $(.20) $(.75)
===== =====
Book value per common share ............... $.02 $ N/A
===== =====
</TABLE>
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THE SPECIAL MEETING
PURPOSE
The Special Meeting is being held to consider and vote on the
Transaction and the Charter Amendment.
The Board of Directors of the Company has approved the Transaction and
the Charter Amendment and recommends that stockholders vote FOR each of these
transactions. For a description of the reasons for the Transaction, see "The
Transaction Proposal -- Reasons for the Transaction." For a description of the
reasons for the Charter Amendment, see "The Charter Amendment Proposal --Reasons
for Charter Amendment".
VOTING INFORMATION AND REQUIREMENTS
Only holders of record of common stock and Series A Preferred stock at
the close of business on the Special Meeting Record Date will be entitled to
notice of and to vote at the Special Meeting or any adjournment thereof. As of
the Special Meeting Record Date, there were 17,789,444 common shares and 615,115
Series A Preferred shares outstanding.
Holders of such shares are entitled to one vote per share on each proposal.
The Company believes that under Delaware law a vote of stockholders is
not required in connection with the Transaction. Delaware law requires the
approval of the holders of at least a majority of a corporation's outstanding
voting shares for a sale, lease, exchange or other disposition of all or
substantially all of the assets of a corporation. Based on an opinion of law
provided by Richards, Layton & Finger, which is attached hereto as Appendix A,
the Company believes that the Transaction is not a sale, lease, exchange or
other disposition of all or substantially all of its assets. Although the
Company believes that stockholder approval is not required, the Company is
seeking such approval because the Purchaser has requested such action as a
condition to consummating the Transaction. Thus, the Company is seeking approval
of the Transaction by the holders of at least seventy-five percent (75%) of the
outstanding common and Series A Preferred stock. If the Transaction is not
approved by the holders of at least seventy-five percent (75%) of such
outstanding common and Series A Preferred stock, voting separately, the
Purchaser may terminate the Sale Agreement and decline to consummate the
Transaction.
Holders of approximately 86% of Series A Preferred stock have agreed to
vote their shares in favor of the Transaction and have entered into an agreement
with the Company and the Purchaser to vote such shares in favor of the
Transaction.
Under Delaware law, the affirmative vote of the holders of a majority
of the Company's outstanding common shares and (assuming Series A Preferred
stockholders rights are adversely affected) a majority of the holders of the
Company's outstanding Series A Preferred stock, voting as a separate class, is
required to approve the Charter Amendment. As a condition to consummating the
Transaction, the Purchaser has requested the Company to seek Series A Preferred
stockholder approval to amend the Company's Certificate of Incorporation to
specifically exclude the Transaction as a liquidation event for Series A
Preferred stockholders. If the Transaction were deemed a liquidation event then
the Series A Preferred stockholders would be entitled to a cash distribution
from the Transaction proceeds after payment of all debts. The Purchaser may
terminate the Sale Agreement and decline to consummate the Transaction if 75%
percent approval by the Series A Preferred stockholders is not obtained.
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Holders of approximately 86% of Series A Preferred stock have agreed to
vote their shares in favor of the Charter Amendment and have entered into an
agreement with the Company and the Purchaser to vote such shares in favor of the
Charter Amendment.
Abstentions and broker non-votes will be counted as shares present for
determination of a quorum at the Special Meeting. For purposes of determining
whether the Transaction and the Charter Amendment are approved, abstentions and
broker non-votes will have the same effect as votes against such proposals.
All shares that are represented by properly executed proxies received
before or at the Special Meeting and not revoked will be voted in accordance
with the instructions indicated on such proxies. If no instructions are
indicated on the executed proxies, shares represented by such proxies will be
voted FOR approval of each proposal.
Any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before it is voted. Such revocation may be made in
person at the Special Meeting or by written notification to the Secretary of the
Company.
THE TRANSACTION PROPOSAL
BACKGROUND OF THE TRANSACTION
In 1996, the Company formed Hybridon Specialty Products (HSP) to
manufacture oligonucleotide ("oligo") compounds both for its own use and for use
by its spin-off companies and collaborators. The Company's internal requirements
were initially driven by its GEM(R)91 clinical program, for which no external
supplier could meet the projected needs. This development program was terminated
in 1997 after adverse side effects (decreases in platelet counts) were observed
following the administration of this compound to patients enrolled in a phase II
clinical trial. However, the Company continued to require significant quantities
of oligo for other research projects. HSP was retained to meet those needs and
to assist the Company in funding its core research projects with revenue from
the sale of oligo compounds to unrelated and related parties.
HSP manufactures oligonucleotides at its 36,000-square-foot leased
facility, which is capable of manufacturing oligo compounds on a large scale.
HSP first began producing oligonucleotide compounds for sale in June 1996 and
had revenues of approximately $1.1 million in 1996, $1.9 million in 1997, $2.8
million in 1998 and $5.8 in 1999. HSP's principal customers in 1999 included
Genta Incorporated, MethylGene Inc., and Ribozyme Pharmaceuticals, Inc. Each of
those customers accounted for more than 10% of HSP's 1999 revenues.
Although manufacturing sales have increased steadily since production
began, HSP's capacity remains substantially underutilized and has not yet
achieved break-even operation. In addition, the state-of-the-art of
oligonucleotide production has advanced significantly in recent years, narrowing
the Company's technological lead and allowing a number of other oligo
manufacturers to emerge as qualified suppliers of clinical grade oligo
compounds.
Given these trends, the Company's Board of Directors made the decision
in early 2000 to sell HSP in order to affect the following goals:
- Allow the Company to focus on its highest value-added
core competencies by divesting itself of the DNA
manufacturing business while retaining a source of
supply
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for oligo compounds.
- Place oligo manufacturing in the hands of a chemical
manufacturing company already engaged in oligo
manufacturing and able to more fully utilize the HSP
facilities. The resulting economies of scale should
have a favorable impact on the cost of synthetic DNA
compounds, which would favorably impact the cost of
Hybridon's clinical materials.
- Eliminate the sales barrier currently being
encountered as other companies in the field of
DNA-based therapeutics are reluctant to place their
manufacturing orders in the hands of a competitor
(Hybridon).
- Secure a supply agreement for oligo compounds with
preferential pricing going forward for the Company,
its spin-offs, and collaborators.
- Derive cash from the transaction to fund the
Company's drug discovery and development activities.
Following discussions with a number of biotech companies similar to the
Company, as well as several manufacturing companies, the opportunity with Avecia
emerged as the best fit in accomplishing the Company's goals. Avecia had
recently acquired Boston Biosystems in Bedford, Massachusetts, and was seeking
to establish a capability for full-scale oligo manufacturing in North America.
With their customer base representing approximately 16 compounds currently in
human clinical trials, and a strong patent portfolio, partnering with Avecia
would allow a pooling of know-how and of production orders sufficient to sustain
a profitable manufacturing entity in North America.
As negotiations progressed, Avecia expressed interest in the cash
purchase and supply relationship required by the Company. The Company believed,
given Avecia's resources and worldwide presence, that Avecia was well equipped
to satisfy the ongoing oligo production needs of the Company's customers while
rapidly achieving an efficient operating level by consolidating operations at
the Milford, Massachusetts site. Avecia transmitted proposed terms to the
Company on April 12, 2000. The Sale Agreement was signed on June 29, 2000.
REASONS FOR THE TRANSACTION
The Board of Directors of the Company believes that it is in the best
interests of the Company and its stockholders to sell the HSP business and focus
the operations of the Company solely on its drug discovery and development
business, which the Company believes has more potential for growth. The Board's
belief is based on a number of factors, such as the rate of growth in the
Company's HSP business over the past four years, the operating losses
experienced by such business over the past four years and the intense
competition and customer pricing pressure within the oligo manufacturing sector.
In reaching a decision to recommend the Transaction to the Company's
stockholders, the Board considered, among other factors, the following: (i) the
financial condition, results of operations, capital resources, capital
requirements, risk profiles, management teams, growth, and prospects of the
Hybridon Specialty Products business as compared to its drug discovery and
development business, (ii) the economic and competitive environments in which
the two businesses operate, (iii) conditions and trends related to each
business, (iv) the fact that the Transaction will enable the Company to operate
as a focused drug discovery and development company, and (v) the perceived
beneficial effect of the Transaction on investors' ability to evaluate the
performance and investment characteristics of the Company.
10
<PAGE> 16
SALE AGREEMENT
General Information. The Board of Directors has approved the sale of
the Company's HSP business to the Purchaser pursuant to the Transaction. The
consummation of the Transaction (the "Closing") is expected to occur as soon as
practicable after approval by the stockholders at the Special Meeting.
Sale Price. On June 28, 2000, the Company's Board of Directors approved
the Transaction, and on June 29, 2000, the parties executed the Sale Agreement.
Pursuant to the Sale Agreement, the Company will sell the assets of the HSP
business to the Purchaser, and the Purchaser will assume and agree to pay,
perform or discharge when due certain obligations and liabilities of the Company
relating to the HSP business. The Purchaser will, at the Closing, pay to the
Company a total of $11,550,000 and assume approximately $447,330 in liabilities.
Subsequent to Closing, $450,000 will be retained by the Purchaser for a period
of 30 days pending its confirmation that at Closing, the Assets being purchased
included at least $450,000 in value of current raw inventory used for the
manufacture of oligonucleotides. The $450,000 will be due upon the expiration of
30 days less a dollar for dollar adjustment to the extent that the book value of
the inventory delivered at Closing was less than $450,000. In addition to the
$12,000,000, the purchase price also includes the sum of $3,000,000 which the
Purchaser is obliged to pay one year from Closing, subject, however, to certain
set off and escrow provisions detailed below and the satisfaction of certain
additional conditions.
Assets. The assets to be sold to the Purchaser include the Company's
leasehold interest, building and fixtures at Milford, Massachusetts, inventory,
machinery, equipment, furnishings, licenses and permits, intellectual property
relating to the DNA manufacturing business, other intangible assets, customer
contracts and leases.
Assumed Liabilities. The Purchaser will assume customer contracts,
certain leases and certain employee benefit obligations. The Purchaser will also
assume accrued personal property taxes and a leasehold improvement loan with a
balance of approximately $447,330.
Retained Liabilities. The Company will retain liabilities arising out
of or relating to the conduct of the HSP business prior to the Closing other
than those liabilities assumed by the Purchaser. The Company will remain
responsible for all litigation or claims pending at or arising after the Closing
relating to operation of the HSP business prior to the Closing.
Noncompetition. The Company has agreed that it will not compete with
the Purchaser in the business of oligo manufacturing for third parties for a
period of five years after the Closing. In the event that the Supply Agreement
is terminated for reasons other than the Company's default, the Company will be
allowed to produce oligonucleotides for its own use and use by its affiliates.
Use of Sale Proceeds. After payment of expenses related to the
Transaction, the Company intends to use the proceeds of the Transaction for
working capital and general corporate purposes. The Company will also use
approximately $5 million to establish a money market account that will be used
to secure the payment of certain indebtedness. This account will be reduced as
the debt is converted to equity, if such conversion occurs.
Representations and Warranties. The Sale Agreement contains
representations and warranties of the Company and the Purchaser customary for
transactions of the type contemplated by the Transaction, including
representations and warranties concerning such matters as necessary consents and
approvals, title to and condition of the purchased assets, content of financial
statements, absence of material adverse
11
<PAGE> 17
changes in the business, environmental matters pertaining to real property owned
or leased, condition of inventories, collectability of accounts receivables,
warranty claims, relations with customers and suppliers and employee and
employee benefit matters.
Covenants. The Sale Agreement contains covenants of the Company and the
Purchaser customary for transactions of the type contemplated by the
Transaction, including the covenant of the Company to carry on the HSP business
in the ordinary course consistent with past practice through the Closing Date.
Company's Indemnification Obligations. The Company has agreed to
indemnify the Purchaser in an amount up to $12,000,000 with respect to any
breach of its representations or warranties (subject to a $150,000 deductible)
or any breach of any covenant of the Company contained in the Sale Agreement.
The Company has also agreed to indemnify the Purchaser with respect to claims or
actions pending at or arising after the Closing Date that relate to the
operation of the HSP business prior to that date, or that relate to any
condition existing on that date.
Buyer's Indemnification Obligations. The Purchaser has agreed to
indemnify the Company with respect to any breach of its representations or
warranties (subject to a $150,000 deductible) or any breach of any covenant of
the Purchaser contained in the Sale Agreement.
Closing Contingencies. The consummation of the Transaction is subject
to certain conditions, including consents to assignment of material contracts,
accuracy in all material respects of representations and warranties, performance
in all material respects of covenants and other obligations, delivery of
customary closing documents, and approval of the Transaction by seventy-five
percent (75%) of the common and Series A Preferred stockholders of the Company,
approval of the Charter Amendment by seventy-five percent (75%) of the Series A
Preferred stockholders and a majority of its common stockholders of the Company,
and execution of a Consent and Release Agreement by the holders of the Company's
outstanding debt.
Termination and Amendment. The Sale Agreement may be amended or
terminated by the mutual consent of the Company and the Purchaser at any time,
and either party may terminate the Sale Agreement if the Closing has not
occurred on or before November 30, 2000, provided the terminating party has not
breached its obligations thereunder. If either party defaults, then the
nondefaulting party may terminate its obligations under the Sale Agreement.
Thus, the Board of Directors and the Purchaser have rights under certain
circumstances to terminate the Transaction after approval by the Company's
stockholders.
Expense Payments upon Termination. In the event either party terminates
the Agreement on account of other party's default, the defaulting party will be
obliged to pay the nondefaulting party a Transaction Fee covering its costs and
expenses not to exceed $500,000. In addition, the Company will be liable for
Expense Payments if (a) the holders of at least 51% of the Company's common
stock and 51% of its Series A Preferred stock do not approve the Transaction, or
(b) if the Company's board fails to recommend stockholder approval or withdraws
its recommendation including by reason of its receiving a superior proposal.
Finally, the Company will be obliged to pay the Purchaser a so-called
Transaction Fee in the amount of $500,000 if the Agreement is terminated other
than by mutual consent, or the Purchaser's breach and the Company completes a
so-called Alternative Transaction with a third party within one year.
12
<PAGE> 18
"No-Shop" Provision. Under the Sale Agreement, the Company is not
permitted to initiate, solicit, negotiate, or encourage any proposal or offer to
acquire all or any substantial part of the HSP business, whether by merger,
purchase of assets, tender offer or otherwise.
Supply Agreement. As a condition to the Transaction, the Company must
enter into a Supply Agreement with the Purchaser to purchase a minimum amount of
oligonucleotides (the "Product") over a period of three years. The purpose of
the Supply Agreement is to provide the Purchaser with a reliable customer and
the Company with a reliable source of Product. The Company and its spin-offs,
collaborators and affiliates must purchase enough Product to cover $2 million in
fixed costs over an 18-month period. During the first payment period commencing
at Closing and ending December 31, 2000, the Company has agreed to purchase a
minimum of $1,000,000 worth of Product (equivalent to $700,000 of fixed cost
commitment) and during the second payment period, commencing January 1, 2001 and
ending December 31, 2001, the Company must purchase a minimum of $2 million
worth of Product (equivalent to $1.3 million of fixed cost commitment). During
the last period, commencing January 1, 2002 and ending December 31, 2002, the
Company has no obligation to purchase Product. The Company believes that the
price it will pay for product will be no greater than the fair market price
charged by an unrelated third party supplier.
Absence of Appraisal Rights. Neither Delaware's General Corporation Law
nor the Company's Certificate of Incorporation accords any appraisal remedies in
the case of the Transaction or the Charter Amendment.
Contingent Payments. One year from the closing of the Transaction, the
Company is entitled to an additional payment of $3 million contingent upon the
on-going effectiveness of the Supply Agreement. If the Company fails to meet its
obligations under the Supply Agreement as they relate to payment and any other
obligations the Purchaser may seek indemnity for such obligations by withholding
a portion of the $3 million payment due the Company. The Purchaser's claim to
any portion of the $3 million payment will be subject to certain procedural
protections for the Company. The Purchaser will escrow any portion of the $3
million payment it has claimed for indemnification purposes and the Company may
challenge any claims for indemnity by the Purchaser.
13
<PAGE> 19
MAY 2000 LOANS
On May 30, 2000, the Board of Directors of the Company approved a Line
of Credit Agreement (the "Loan Agreement") with certain lenders (the "Lenders")
who provided the Company with a $2,000,000 credit facility. The table which
follows identifies the lenders and indicates, at the time of the loan (the
"Loan"), (i) such lenders' equity interests in the company, (ii) their interests
in other Company debt facilities, and (iii) whether such lenders are directors
or have designees on the Company's board.
<TABLE>
<CAPTION>
Name of Lender Beneficial Common Ownership of 8% Ownership Board Position
-------------- Stock Ownership* Convertible Notes Interest - Silicon --------------
(31 March 00) (Shares) (Amount) Bank Loans
---------------------- ----------------- -------------------
<S> <C> <C> <C> <C>
Kimcroft Ltd. 125,000 --- None ---
Oussama Salam 465,530 $ 93,679 None ---
(individually)
H.K. Properties, Ltd. --- --- None ---
Dr. Paul Zamecnik 401,830 $ 26,000 None Director
Global Investments --- --- None
Enterprises, Ltd.
Dr. James Wyngaarden 143,100 --- None Director,
Chairman of the
Board
Motasim F. Hajaj --- $ 50,000 None ---
Keith Hartley 6,083,394 --- $1,250,000 Director
Abdelraof M. Abou Anza 246,452 $ 18,000 None ---
Mark Germain --- --- None ---
</TABLE>
* Exclusive of shares issuable upon conversion of ownership in 8% Convertible
Notes.
The Loan is intended to provide the Company with working capital
pending the closing of the Transaction. The Company may draw upon the facility
by notice at any time prior to the earlier of September 30, 2000, and the date
the Transaction is consummated. The Company may provide for a draw date of not
earlier than seven business days following the notice. Each draw is subject to
customary conditions such as the absence of defaults, the absence of material
adverse changes and the continued effectiveness of the Transaction. On July 10,
2000, the Company drew down approximately $500,000 under the Loan Agreement.
Loans made under the Loan Agreement will mature and be due on the
earlier of September 30, 2000 or the date the Transaction is consummated. At the
maturity date, each Lender may elect either (a) conversion of its portion of the
loan into shares of the Company's common stock at the rate of one share for each
$1.08 of principal and interest then accrued (the $1.08 conversion price being
equal to the closing price of the Company's common stock at the time the Lenders
expressed their willingness to make the Loan), or (b) repayment of its portion
of the Loan. In the later case, such repayment, equaling $2 million, will be
funded from the proceeds of the Transaction.
14
<PAGE> 20
The Lenders have joined with the holders of the Company's 8% Senior
Convertible Notes issued in 1999 and the successors to the 1996 Bank Loan in an
amendment to the Subordination and Intercreditor Agreement to which the Company
and the latter two groups were parties. That Agreement, first entered into on
December 7, 1999, provided that the successors to the Bank Loan would
subordinate their payment rights to those of the 8% Noteholders and would also
subordinate their rights in the collateral securing the Bank Loan. This
collateral consisted of substantially all of the Company's assets. The current
amendment provides that the Lenders will have payment rights and interest in the
collateral which are equal with the 8% Noteholders and senior to the rights of
the successors to the Bank Loan.
The amendment also provides that all parties to the Subordination and
Intercreditor Agreement agree to release their lien on that portion of the
collateral, i.e. the Hybridon Specialty Products business, which are to be
conveyed to the Purchaser in the Transaction. In return for this partial
release, the Company has agreed, upon consummation of the Transaction, to set
aside from the proceeds thereof, the sum of $5,000,000, with which the Company
will purchase a money market instrument and pledge the same as substitute
collateral to secure its obligations to the Lenders, the 8% Noteholders and the
successors of the Bank Loan, as their interests appear in the Subordination and
Intercreditor Agreement. These lenders will continue to have a lien on
substantially all of the assets of the Company remaining after the Transaction
(excluding the Hybridon Specialty Products business being sold).
Finally, in connection with the Loan, the Company has agreed (a) to
issue to the representatives of the Lenders warrants to purchase up to 500,000
shares of the Company's common stock at an exercise price of $1.08 per share,
and (b) to issue to the Lenders, proportionate to their respective interests in
the Loan, warrants to purchase 1,000,000 shares of the Company's common stock at
an exercise price of $1.08.
CERTAIN TAX CONSEQUENCES OF THE TRANSACTION
U. S. Tax Consequences. Although the Transaction is a taxable
transaction, the Company does not expect to incur any material additional tax in
the year of the Transaction as a result of the Transaction.
Stockholder Tax Consequences. The Company's security holders will not
recognize any gain or loss on the Transaction.
OPINION OF THE COMPANY'S FINANCIAL ADVISOR
The Company has engaged Adams, Harkness & Hill, Inc. ("AH&H") to render
an opinion as to the fairness from a financial point of view to the Company's
shareholders of the consideration to be received by the Company in connection
with the Transaction. AH&H was selected by the Company Board of Directors based
on AH&H's qualifications, expertise and reputation. AH&H rendered its oral
opinion to the Company's Board of Directors on June 29th, 2000 which was
subsequently confirmed in writing, that, as of such date, the consideration to
be received by the Company in connection with the Transaction is fair from a
financial point of view.
THE FULL TEXT OF THE OPINION DELIVERED BY AH&H TO THE HYBRIDON BOARD OF
DIRECTORS DATED JUNE 29, 2000, WHICH SETS FORTH THE ASSUMPTIONS MADE, GENERAL
PROCEDURES FOLLOWED, MATTERS CONSIDERED, AND THE LIMITATIONS ON THE SCOPE OF
REVIEW UNDERTAKEN BY AH&H IN RENDERING ITS OPINION, IS ATTACHED AS APPENDIX B TO
THIS PROXY STATEMENT AND IS INCORPORATED HEREIN BY REFERENCE. THE AH&H OPINION
IS DIRECTED ONLY TO
15
<PAGE> 21
THE FAIRNESS, FROM A FINANCIAL POINT OF VIEW, OF THE CONSIDERATION TO BE
RECEIVED BY HYBRIDON IN CONNECTION WITH THE TRANSACTION AND DOES NOT CONSTITUTE
A RECOMMENDATION TO ANY HYBRIDON STOCKHOLDER AS TO HOW SUCH STOCKHOLDER SHOULD
VOTE WITH RESPECT TO THE TRANSACTION. THE SUMMARY OF AH&H'S OPINION SET FORTH
BELOW IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH
OPINION. HYBRIDON STOCKHOLDERS ARE URGED TO READ THE OPINION CAREFULLY IN ITS
ENTIRETY.
In its review of the Transaction, and in arriving at its opinion, AH&H,
among other things:
- Reviewed the financial information contained in the
Company's Form 10-Q for the quarterly period ended
March 31, 2000;
- Reviewed the financial information contained in the
Company's Annual Report, Form 10-K, and related
financial information for the fiscal year ended
December 31, 1999;
- Analyzed certain financial statements and other
financial and operating data concerning HSP,
including forecasts, prepared by the senior
management of the Company;
- Visited the facilities of Hybridon and conducted due
diligence discussions with the senior management of
the Company;
- Reviewed the historical financial performance of HSP
and compared it with that of certain publicly traded
companies deemed to be relevant;
- Compared the financial terms of the Transaction with
the financial terms of certain other mergers and
acquisitions deemed to be relevant and comparable to
the Transaction;
- Reviewed a draft of the Sale Agreement and the Supply
Agreement; and
- Reviewed such other financial studies and analyses
and performed such other investigations and took into
account such other matters that AH&H deemed
necessary, including the assessment of general
economic, market, monetary and currency rate
conditions as of June 29, 2000.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. The summary
of the AH&H analyses set forth below does not purport to be a complete
description of the presentation by AH&H to the Company's Board of Directors. In
arriving at its opinion, AH&H did not attribute any particular weight to any
analyses or factors considered by it, but rather made qualitative judgments as
to the significance and relevance of each analysis and factor. Accordingly, AH&H
believes that its analyses and the summary set forth below must be considered as
a whole and that selecting portions of its analyses, without considering all
factors of the analyses, could create an incomplete view of the processes
underlying the analyses set forth in the AH&H presentation to the Company Board
of Directors and its opinion. In performing its analyses, AH&H made numerous
assumptions with respect to industry performance, general business and economic
conditions and other matters, many of which are beyond the control of the
Company. The analyses performed by AH&H and summarized below are not necessarily
indicative of actual values or
16
<PAGE> 22
actual future results, which may be significantly more or less favorable than
suggested by such analyses. Additionally, analyses relating to the values of
businesses do not purport to be appraisals or to reflect the prices at which
businesses actually may be acquired.
HSP is an operating division of the Company, a development-stage
biopharmaceutical company. As such, analysis of the financial performance of HSP
independent of the Company requires the use of significant assumptions and
approximations. Moreover, analyses involving the historical market activity of
the Company's common stock are of limited usefulness in a determination of the
fairness of the consideration received by Hybridon in connection with the
Transaction. Accordingly, AH&H determined that relevant metrics for its analysis
are the multiple of enterprise value to last twelve months ("LTM") revenue for
companies comparable to HSP, the multiple of transaction value to LTM revenue
for select precedent mergers and acquisitions, and the analysis of discounted
HSP projected cash flows.
The following is a brief summary of certain financial analyses
performed by AH&H in connection with providing its opinion to the Company Board
of Directors on June 29, 2000.
Analysis of Publicly Traded Comparable Companies. AH&H compared certain
financial information of HSP to certain corresponding information for a group of
publicly traded biotechnology companies AH&H deemed to be comparable to HSP.
AH&H selected these companies based on its review of their respective business
activities and, to a lesser extent, financial performance, balance sheet
condition, and equity capitalization. Companies deemed comparable to HSP were
BioSource International, Inc., Cambrex Corporation, Life Technologies Inc.,
Sigma-Aldrich Corporation, Stepan Company, Inc., and Techne Corporation (the
"HSP Peer Group"). The financial information used in connection with the
analysis with respect to HSP and the HSP Peer Group was based on the latest
reported quarterly period and derived from publicly available information. AH&H
noted that, based on the common stock closing price per share as of June 28,
2000, the multiple of enterprise value to LTM revenue for the HSP Peer Group
ranged from a high of 28.2 to a low of 0.5, with a mean, excluding the high and
low values, of 3.7. From this analysis, AH&H concluded that the consideration to
be received by the Company in connection with the Transaction was within the
trading range of the HSP Peer Group, based on HSP LTM revenues of $5.7 million.
Analysis of Selected Merger and Acquisition Transactions. AH&H reviewed
the financial terms, to the extent publicly available, of eight completed
mergers and acquisitions since April 1997 in the specialty and fine chemicals
industry. The eight specialty and fine chemical industry transactions reviewed,
in chronological order of public announcement, were: Research Biochemicals, Inc
/ Sigma Aldrich Corporation, April 1997; PharMingen / Becton, Dickinson &
Company, Inc., April 1997; Biowhittaker, Inc. / Cambrex Corp., August 1997;
Perseptive Biosystems, Inc. / Perkin Elmer Corporation, August 1997; Genzyme
Research Products division of Genzyme Corporation / Techne Corporation, June
1998; Quality Control Biochemicals, Inc. / BioSource International, Inc.,
October 1998; CN Biosciences, Inc. / EM Industries, Inc., November 1998; and
Endogen, Inc. / Perstorp AB, May 1999 (together, the "Selected Transactions").
AH&H noted that the multiple of transaction value to LTM revenue for target
companies in the Selected Transactions ranged from a high of 4.4 to a low of 1.7
with a mean, excluding the high and low values, of 3.1. From this analysis, AH&H
determined that the consideration to be received by the Company in connection
with the Transaction was within a comparable range for comparable merger and
acquisition transactions, based on HSP LTM revenues of $5.7 million.
17
<PAGE> 23
Discounted Cash Flow Analysis. AH&H prepared an analysis of the present
value of projected future cash flows for HSP through the use of annual cash flow
projections developed by Hybridon through 2004 with a terminal value estimate of
the residual value of cash flows received in subsequent years added to the
projected 2004 cash flow. These cash flows and terminal value were then
discounted to present value at annual discount rates ranging from 25% to 35%,
reflecting the development stage, financial position, and future business
prospects of HSP. AH&H noted that present value of future projected HSP cash
flows ranged from a high of $10.5 million to a low of $8.1 million. From this
analysis, AH&H determined that the consideration to be received by the Company
in connection with the Transaction compared favorably to the present value of
projected future HSP cash flows.
No company or transaction used in the above analyses is identical to
HSP or the Transaction, respectively. Accordingly, an analysis of the results of
the foregoing is not mathematical; rather it involves complex considerations and
judgments concerning differences in financial and operating characteristics of
the companies and other factors that could affect the public trading values of
the companies or company to which HSP is compared.
AH&H, as part of its investment banking activities, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, secondary distributions of
listed and unlisted securities, private placements and valuations for corporate
and other purposes. AH&H has acted as a financial advisor to the board of
directors of the Company in connection with the merger, and will receive a fee
for its services, which includes a fee payable upon rendering this opinion. AH&H
may in the future provide investment banking or other financial advisory
services to the Company.
Pursuant to an engagement letter dated June 21st, 2000, the Company has
agreed to pay AH&H a fee of $250,000 in connection with the delivery of the
fairness opinion rendered on June 29th, 2000. In addition, the Company also has
agreed to reimburse AH&H for its reasonable out-of-pocket expenses and to
indemnify AH&H against certain liabilities, including liabilities under the
federal securities laws or relating to or arising out of AH&H's engagement as
financial advisor.
BOARD RECOMMENDATION
The Board of Directors has evaluated the terms of the Transaction and
has determined they are fair to the Company and its stockholders. The Board's
determination is based primarily upon the present condition of and prospects for
the Hybridon Specialty Products business, the book value and earning power of
the assets of the Hybridon Specialty Products business, the price for which the
Board believes the assets could be sold if the Hybridon Specialty Products
business were discontinued and such assets sold separately, and the opinion of
its financial advisor.
The Board believes that the Transaction is fair to and in the best
interests of the Company and its stockholders and unanimously recommends that
stockholders vote IN FAVOR OF the Transaction. Copies of the Sale Agreement and
Supply Agreement are attached hereto as Appendix C and Appendix D, respectively.
18
<PAGE> 24
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
PRO FORMA CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 2000
The following unaudited pro forma consolidated balance sheet gives
effect to the proposed Transaction and discontinuation of the HSP operations of
Hybridon, Inc. and subsidiaries assuming the Transaction was consummated as of
March 31, 2000. The pro forma consolidated balance sheet reflects the purchase
price of $15,000,000, including the $3,450,000 of contingent consideration, and
the assumption by the Purchaser of $447,330 in liabilities (consisting of a
leasehold improvement loan) of Hybridon, Inc.
The pro forma adjustments described in the accompanying notes to the
pro forma consolidated balance sheet should be read in conjunction with the pro
forma consolidated balance sheet. The pro forma balance sheet should also be
read in conjunction with Hybridon, Inc. and subsidiaries consolidated financial
statements and notes that are incorporated by reference herein.
The following pro forma consolidated balance sheet information is
presented for informational purposes only and is not necessarily indicative of
the financial position that would have been reported had the Transaction been
consummated as of March 31, 2000 or of the future financial position of
Hybridon, Inc., and subsidiaries which will result from consummation of the
Transaction.
HYBRIDON, INC.
PRO FORMA CONSOLIDATED BALANCE SHEET
MARCH 31, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
PORTION
ASSETS ATTRIBUTABLE TO PRO FORMA
------ AS REPORTED TRANSACTION ADJUSTMENTS PRO FORMA
----------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,795,124 $90,000(1) $5,780,000(4) $7,665,124
Accounts receivable 1,003,052 1,003,052
Contingent purchase price receivable 3,450,000(5) 3,450,000
Prepaid expenses and other current assets 100,158 100,158
----------------------------------------------------------------------
Total current assets 2,898,334 90,000 9,230,000 12,218,334
----------------------------------------------------------------------
PROPERTY AND EQUIPMENT, AT
COST:
Leasehold improvements 11,127,035 (10,976,694)(2) 150,341
Laboratory and other equipment 9,943,170 (4,742,442)(2) 5,200,728
----------------------------------------------------------------------
21,070,205 (15,719,136)(2) 5,351,069
Less -- Accumulated depreciation and
amortization 15,168,917 (9,941,603)(2) 5,227,314
----------------------------------------------------------------------
5,901,288 (5,777,533)(2) 123,755
----------------------------------------------------------------------
OTHER ASSETS:
Restricted cash proceeds from transaction 5,000,000(6) 5,000,000
Deferred financing costs and other assets 1,408,499 (90,000)(1) 1,318,499
</TABLE>
19
<PAGE> 25
<TABLE>
<S> <C> <C> <C> <C>
Notes receivable from officers 272,900 272,900
----------------------------------------------------------------------
1,681,399 (90,000) 5,000,000 6,591,399
----------------------------------------------------------------------
----------------------------------------------------------------------
$10,481,021 ($5,777,533) $14,230,000 $18,933,488
======================================================================
LIABILITIES AND STOCKHOLDERS'
DEFICIT
CURRENT LIABILITIES:
Current portion of long-term debt $13,662,853 ($83,399)(3) $13,579,454
Accounts payable 1,395,963 1,395,963
Accrued expenses 2,254,684 2,254,684
----------------------------------------------------------------------
Total current liabilities 17,313,500 (83,399) 17,230,101
----------------------------------------------------------------------
LONG-TERM DEBT, NET OF CURRENT
PORTION 363,931 (363,931)(3)
----------------------------------------------------------------------
9% CONVERTIBLE SUBORDINATED
NOTES PAYABLE 1,306,000 1,306,000
----------------------------------------------------------------------
8% CONVERTIBLE SUBORDINATED
NOTES PAYABLE
----------------------------------------------------------------------
STOCKHOLDERS' EQUITY(DEFICIT):
Preferred stock, $.01 par value
Authorized -- 5,000,000 shares
Series A convertible preferred stock-
Designated - 1,500,000 shares
Issued and outstanding -- 661,856
shares (Liquidation preference
of $67,256,400 at March 31, 2000) 6,618 6,618
Common stock, $.001 par value -
Authorized -- 100,000,000 shares
Issued and outstanding - 16,260,722
shares 16,261 16,261
Additional paid-in capital 248,884,132 248,884,132
Accumulated deficit (256,957,892) 8,899,797(7) (248,058,095)
Deferred compensation (451,529) (451,529)
----------------------------------------------------------------------
Total stockholders' equity (deficit) (8,502,410) 0 8,899,797 397,387
----------------------------------------------------------------------
$ 10,481,021 ($447,330) $8,899,797 $18,933,488
======================================================================
</TABLE>
Notes to the Pro Forma Consolidated Balance Sheets
The following adjustments have been made to reflect the pro forma
effect of the Transaction and discontinuation of the HSP operations as if those
transactions were consummated as of the March 31, 2000 pro forma balance sheet
date (in thousands):
(1) To reflect the lease deposit amount currently held by
Laborers' Pension/Milford Investment Corporation, which is
refundable to the Company at the close of the Transaction.
20
<PAGE> 26
(2) To reflect the book value, as of March 31, 2000, of the
leasehold improvements and equipment being transferred to the
Purchaser under the Transaction.
(3) To reflect the remaining balances of the Laborers'
Pension/Milford Investment Corporation's note, both current
and long-term portions, to be assumed by the Purchaser at the
close of the Transaction.
(4) To reflect the initial proceeds from this Transaction:
<TABLE>
<S> <C>
First installment: Unrestricted portion $ 7,000,000
Less: Holdback (which will be adjusted, up or down, according to the raw material
physical inventory value at the time of closing) (450,000)
Less: Estimated expenses of sale (770,000)
-----------
Net initial cash payment $ 5,780,000
===========
</TABLE>
(5) To reflect the contingent purchase price receivable:
<TABLE>
<S> <C>
Contingent purchase price due one year from the closing date $ 3,000,000
Plus: Inventory holdback due 30 days from closing date 450,000
-----------
$ 3,450,000
===========
</TABLE>
(6) To reflect the restricted portion of the cash received from
the transaction which will serve as collateral for the
Company's secured debt in lieu of the HSP assets. This
restricted amount will be reduced as the debt is converted to
equity, if such conversion occurs.
(7) To reflect the estimated net gain on the sale as follows:
<TABLE>
<S> <C>
Estimated net proceeds, including $3,450,000 of contingent consideration $15,000,000
Plus: Liabilities assumed by Buyer 447,330
Less: Net book value of assets sold (5,777,533)
Less: Estimated expenses of sale (770,000)
-----------
Estimated net gain $ 8,899,797
===========
</TABLE>
PRO FORMA (UNAUDITED) CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTH PERIOD ENDED MARCH 31, 2000 AND THE
YEAR ENDED DECEMBER 31, 1999.
The following unaudited pro forma consolidated statements of operations
give effect to the proposed Transaction and discontinuation of the HSP
operations of Hybridon, Inc., and subsidiaries and assumes that the Transaction
was consummated as of December 31, 1998. The pro forma statement of operations
reflects the purchase price of $15,000,000 and the assumption of $447,330 in
liabilities (consisting of a leasehold improvement loan) of Hybridon, Inc.
The pro forma adjustments are described in the accompanying notes to
the pro forma condensed consolidated statements of operations and should be read
in conjunction with such pro forma condensed consolidated statements of
operations. Such pro forma statements should also be read in conjunction with
Hybridon, Inc. and subsidiaries consolidated financial statements and notes that
are incorporated by reference herein. The estimated gain resulting directly from
the Transaction has been excluded from the pro forma condensed consolidated
statements of operations.
21
<PAGE> 27
The following pro forma (unaudited) consolidated statements of
operations do not purport to be indicative of the actual results that would have
occurred had the Transaction been consummated on December 31, 1998 or of future
results of operations which will be obtained as a result of the consummation of
the Transaction.
HYBRIDON, INC.
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
PORTION
ATTRIBUTABLE TO PRO FORMA
AS REPORTED TRANSACTION(1) ADJUSTMENTS PRO FORMA
----------- --------------- ----------- ---------
<S> <C> <C> <C> <C>
REVENUES:
Product and service revenue $ 1,564,675 ($1,519,675) $ 45,000
Research and development 0
Interest 34,641 $165,000(2) 199,641
Royalty and other income 32,448 32,448
------------------------------------------------------------------------------
1,631,764 (1,519,675) 165,000 277,089
------------------------------------------------------------------------------
OPERATING EXPENSES:
Research and development 3,066,370 (1,813,935) 1,252,435
General and administrative 903,195 (97,780) 805,415
Interest 366,161 (13,538) 352,624
------------------------------------------------------------------------------
Total operating expenses 4,335,726 (1,925,253) 2,410,474
------------------------------------------------------------------------------
Net loss (2,703,962) (405,578) 165,000 (2,133,385)
Accretion of preferred stock 1,070,800 1,070,800
dividends
------------------------------------------------------------------------------
Net loss applicable to common
stockholders ($3,774,762) ($405,578) $165,000 ($3,204,185)
==============================================================================
BASIC AND DILUTED NET LOSS PER
COMMON SHARE (UNAUDITED):
Net loss per share ($0.17) ($0.13)
Accretion of preferred stock
dividends (0.06) (0.06)
------------- ------------
Net loss per share applicable to
common stockholders ($0.23) ($0.20)
=========== ============
SHARES USED IN COMPUTING
BASIC AND DILUTED NET
LOSS PER COMMON SHARE 16,260,722 16,260,722
=========== ============
</TABLE>
See notes to pro forma consolidated statements of operations.
22
<PAGE> 28
HYBRIDON, INC.
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA PORTION
ATTRIBUTABLE
TO PRO FORMA
AS REPORTED TRANSACTION(1) ADJUSTMENTS PRO FORMA
----------- -------------- ----------- ---------
<S> <C> <C> <C> <C>
REVENUES:
Product and service revenue $6,186,136 ($5,821,136) $365,000
Research and development 600,000 600,000
Interest 92,201 $660,000(2) 752,201
Royalty and other income 122,544 122,544
-----------------------------------------------------------------------
7,000,881 (5,821,136) 660,000 1,839,745
-----------------------------------------------------------------------
OPERATING EXPENSES:
Research and development 13,090,381 (7,595,603) 5,494,778
General and administrative 3,663,811 (320,597) 3,343,214
Interest 749,731 (54,150) 695,581
-----------------------------------------------------------------------
Total operating expenses 17,503,923 (7,970,350) 9,533,573
-----------------------------------------------------------------------
Net gain (loss) (10,503,042) (2,149,214) 660,000 (7,693,828)
Accretion of preferred stock dividends 4,232,251 4,232,251
----------------------------------------------------------------------
Net gain (loss) applicable to common
stockholders ($14,735,293) ($2,149,214) $660,000 ($11,926,079)
======================================================================
BASIC AND DILUTED NET LOSS PER COMMON
SHARE (UNAUDITED):
Net loss per share ($0.66) ($0.48)
Accretion of preferred stock dividends (0.27) (0.27)
------------- ------------
Net loss per share applicable to
common stockholders ($0.93) ($0.75)
============= ============
SHARES USED IN COMPUTING
BASIC AND DILUTED NET LOSS
PER COMMON SHARE 15,810,664 15,810,664
============= ============
</TABLE>
See notes to pro forma consolidated statements of operations.
Notes to the Pro Forma Consolidated Statements of Operations (Unaudited)
The following adjustments have been made to reflect the pro forma
effect of the Transaction as if the Transaction were consummated on December 31,
1998 (in thousands).
23
<PAGE> 29
(1) To reflect the HSP portion of the Company's statement of
operations.
(2) To reflect the increase in interest income that would result
from investing the net proceeds in short-term securities at an
interest rate of 5.5% for the three-month period ended March
31, 2000 and for the year ended December 31, 1999.
THE CHARTER AMENDMENT PROPOSAL
The Charter Amendment has been approved unanimously by the Company's
Board of Directors. If approved by the stockholders, the Charter Amendment will
become effective upon the filing of the Certificate of Amendment in Delaware
(the "Effective Date"). The Board of Directors intends that the Charter
Amendment be consummated as soon as practicable following the Special Meeting.
REASONS FOR CHARTER AMENDMENT
Certain provisions of holders of the Company's Certificate of
Incorporation provide for a liquidation payment to the Company's Series A
Preferred stock in the event of certain transactions, such as a sale of all or
substantially all of the Company's assets. While the Company does not believe
that the Transaction constitutes a sale of all or substantially all of the
Company's assets, the Sale Agreement requires that the Company revise its
Certificate of Incorporation to provide that the Transaction will not constitute
a liquidation event which could give rise to the payment to the holders of
Series A Preferred stock.
RECOMMENDATION OF THE BOARD
The Board of Directors unanimously recommends a vote IN FAVOR OF the
proposal to amend the Company's Certificate of Incorporation. A copy of the
Certificate of Incorporation as proposed to be amended is attached as Appendix
E.
24
<PAGE> 30
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of March 31, 2000
with respect to the beneficial ownership of shares of common stock by each
person known to the Company to own beneficially more than 5% of the outstanding
shares of common stock, assuming conversion of all convertible debt or Series A
Preferred stock and exercise of all warrants and stock options by such person
and only by such person.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL OWNERSHIP(1)
NAME AND ADDRESS OF NUMBER OF PERCENT OF
BENEFICIAL OWNER SHARES CLASS
---------------- ------ -----
<S> <C> <C>
5% STOCKHOLDERS
Pecks Management Partners Ltd. .......... 8,001,139(2) 32.89%
One Rockefeller Plaza
New York, New York 10022
Forum Capital Markets LLC ............... 6,083,394(3) 28.15%
53 Forest Ave.
Old Greenwich, CT 06870
Michael A. Boyd ......................... 6,083,394(4) 28.15%
c/o Forum Capital Markets LLC
53 Forest Ave.
Old Greenwich, CT 06870
General Motors Employees ................ 3,832,220(5) 19.01%
Domestic Group Trust
c/o Pecks Management Partners Ltd.
One Rockefeller Plaza
New York, New York 10020
Guardian Life Insurance ................. 3,255,110(6) 16.63%
Company of America
201 Park Avenue South, 7A
New York, New York 10003
</TABLE>
25
<PAGE> 31
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL OWNERSHIP(1)
NAME AND ADDRESS OF NUMBER OF PERCENT OF
BENEFICIAL OWNER SHARES CLASS
---------------- ------ -----
<S> <C> <C>
Delaware State Employees ................ 2,549,934(7) 13.51%
Retirement Fund
c/o Pecks Management Partners Ltd.
One Rockefeller Plaza
New York, New York 10020
Yahia M. A. Bin Laden ................... 2,373,977(8) 13.52%
2 rue Charles Bonnet
1206 Geneva, Switzerland
Nicris Limited .......................... 2,360,644(9) 13.44%
c/o Magnin Dunand & Associates
2 rue Charles Bonnet
1206 Geneva, Switzerland
Intercity Holdings Ltd. ................. 2,216,666(10) 13.27%
c/o Cuson Milner House
18 Parliament Street
Hamilton, Bermuda
Abdelah Bin Mahfouz ..................... 2,216,666(11) 13.27%
c/o SEDCO
P.O. Box 4384
Jeddah 21491
Saudi Arabia
Darrier Hentsch & Cie ................... 1,317,755(12) 7.69%
4, rue de Saussure
1204 Geneva, Switzerland
Lincoln National Life Insurance Co. ..... 1,279,717(13) 7.27%
c/o Lynch & Mayer
520 Madison Avenue
New York, New York 10022
Faisal Finance Switzerland SA ........... 1,043,112(14) 6.30%
84 Ave Louis Casi
1216 Geneva, Switzerland
Mohamed A. El-Khereiji .................. 1,029,825(15) 6.06%
P.O. Box 8632
Jeddah 21492
Saudi Arabia
</TABLE>
26
<PAGE> 32
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL OWNERSHIP(1)
NAME AND ADDRESS OF NUMBER OF PERCENT OF
BENEFICIAL OWNER SHARES CLASS
---------------- ------ -----
<S> <C> <C>
Finova Technology Finance Inc. .......... 896,875(16) 5.41%
10 Waterside Drive
Farmington, CT 06032
Declaration of Trust for the ............ 924,456(17) 5.36%
Defined Benefit Plan of ICI
American Holdings, Inc.
c/o Pecks Management Partners Ltd.
One Rockefeller Plaza
New York, New York 10022
</TABLE>
(1) The number of shares beneficially owned 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 these 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, 2000, 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 240,342 shares of Series A Preferred stock owned by investment
advisory clients of Pecks, which clients would receive dividends and
the proceeds from the sale of such shares. Three of these clients are
General Motors Employees Domestic Group Trust, Delaware State Employees
Retirement Fund and Declaration of Trust for the Defined Benefit Plan
of ICI American Holdings, Inc. These shares of Series A Preferred stock
are convertible into 5,655,106 shares of common stock of Hybridon. This
amount also includes a total of 701,678 shares issuable upon the
exercise of Class A warrants and a total of 394,355 shares issuable
upon the exercise of Class D warrants held by the foregoing entities.
This number also includes 1,250,000 shares issuable upon conversion of
a portion of the $6,000,000 bank loan to Hybridon owned by the
foregoing entities.
(3) Forum Capital Markets LLC holdings includes:
- 328,677 shares issuable upon exercise of Class B warrants
- 280,517 shares issuable upon the exercise of Class C warrants
- 468,859 shares issuable upon exercise of Class A warrants
- 25,812 shares issuable upon the exercise of Class D warrants
- 761,568 shares issuable upon exercise of other warrants
- 1,250,000 shares issuable upon conversion of Forum's portion
of the $6,000,000 bank loan to Hybridon,
27
<PAGE> 33
- 1,755,035 shares issuable upon conversion of 74,589 shares of
Series A Preferred stock owned by Forum and
- 416,667 shares issuable upon conversion of $250,000 in
convertible debt.
(4) Includes the following owned by Forum Capital Markets LLC:
- 796,259 shares of common stock
- 328,677 shares issuable upon exercise of Class B warrants
- 280,517 shares issuable upon the exercise of Class C warrants
- 468,859 shares issuable upon exercise of Class A warrants
- 25,812 shares issuable upon the exercise of Class D warrants
- 761,568 shares issuable upon exercise of other warrants
- 1,250,000 shares issuable upon conversion of Forum's portion
of the $6,000,000 bank loan to Hybridon
- 1,755,035 shares issuable upon conversion of 74,589 shares of
Series A Preferred stock owned by Forum and
- 416,667 shares issuable upon conversion of $250,000 in
convertible debt.
Mr. Boyd is the sole director and shareholder of Michael A. Boyd, Inc.
which is the general partner of Founders Financial Group, L.P. which
owns a controlling interest of Forum Capital Markets LLC. Hence, Mr.
Boyd controls Forum Capital Markets LLC and may be considered a
beneficial owner of the shares beneficially owned by such entity.
(5) Includes 117,887 shares of Series A Preferred stock which are
convertible into 2,773,812 shares of Hybridon common stock. This amount
also includes 492,783 shares issuable upon the exercise of Class A
warrants and 565,625 shares issuable upon conversion of a portion of a
$6,000,000 bank loan to Hybridon owned by this entity.
(6) Includes 112,612 shares of Series A Preferred stock which are
convertible into 2,649,694 shares of common stock of Hybridon. This
amount also includes 353,316 shares issuable upon the exercise of Class
A warrants and 252,100 shares issuable upon the exercise of Class D
warrants.
(7) Includes 75,926 shares of Series A Preferred stock which are
convertible into 1,786,494 shares of common stock of Hybridon. This
amount also includes 137,918 shares issuable upon the exercise of Class
A warrants, 270,272 shares issuable upon the exercise of Class D
warrants and 355,250 shares issuable upon conversion of portion of the
$6,000,000 bank loan to Hybridon owned by this entity.
(8) Includes 1,125,880 shares held by Nicris Limited and 234,764 shares
issuable upon the exercise of Class B warrants held by Nicris Limited
and 1,000,000 shares issuable upon the conversion of 600,000 in
convertible debt owed to Nicris Limited. Mr. Bin Laden, a controlling
stockholder of Nicris, may be considered a beneficial owner of the
shares beneficially owned by such entity.
28
<PAGE> 34
(9) Includes 234,764 shares issuable upon the exercise of Class B warrants
held by Nicris Limited and 1,000,000 shares issuable upon the
conversion of 600,000 in convertible debt owed to Nicris Limited.
(10) Includes 375,000 shares issuable upon the exercise of Class B warrants
held by Intercity Holdings Ltd.
(11) Includes 1,841,666 shares held by Intercity Holdings Ltd. and 375,000
shares issuable upon exercise of Class B warrants held by Intercity
Holdings. Mr. Bin Mahfouz, a controlling stockholder of Intercity
Holdings Ltd., may be considered a beneficial owner of the shares
beneficially owned by such entity.
(12) Includes 143,636 shares issuable upon the exercise of Class B warrants
held by Darrier Hentsch and 666,667 shares issuable upon the conversion
of $400,000 in convertible debt owned by Darrier Hentsch.
(13) Includes 44,272 shares of Series A Preferred stock which are
convertible into 1,041,694 shares of common stock of Hybridon. This
amount also includes 238,023 shares issuable upon the exercise of Class
A warrants.
(14) Includes 233,026 shares issuable upon the exercise of Class B warrants
held by Faisal Finance Switzerland SA.
(15) Includes 228,345 shares beneficially owned by Solter Corporation;
45,242 shares issuable upon the exercise of warrants held by Solter
Corporation; 250,000 shares issuable upon the conversion of $150,000 in
convertible debt owed to Solter Corporation; 217,282 shares issuable
upon the exercise of warrants held by Mr. El-Khereiji; 9,000 shares
issuable upon the exercise of stock options held by Mr. El-Khereiji;
67,500 shares issuable upon the conversion of $40,500 in convertible
debt to be issued to Mr. El-Khereiji; and 75,000 shares issuable upon
the conversion of $45,000 in convertible debt that Mr. El-Khereiji has
the right to acquire upon exercise of warrants. Mr. El-Khereiji, an
affiliate of Solter Corporation, may be considered a beneficial owner
of the shares beneficially owned by such entity.
(16) Includes 259,375 shares issuable upon the exercise of Class C warrants
held by Finova Technology Finance Inc
(17) Includes 27,412 shares of Series A Preferred stock which are
convertible into 644,988 shares of common stock of Hybridon. This
amount also includes 42,153 shares issuable upon the exercise of Class
A warrants, 74,265 shares issuable upon the exercise of Class D
warrants and 163,050 shares issuable upon conversion of a portion of
the $6,000,000 bank loan to Hybridon owned by this entity.
29
<PAGE> 35
The following table sets forth certain information as of March 31,
2000, with respect to the beneficial ownership of shares of common stock and
Series A Preferred stock by the directors of Hybridon, the Chief Executive
Officer and other Named Executive Officers, and the directors and executive
officers of Hybridon as a group, assuming conversion of all convertible debt or
Series A Preferred stock and exercise of all warrants and stock options by such
person and only by such person.
<TABLE>
<CAPTION>
SERIES A
COMMON STOCK CONVERTIBLE PREFERRED
------------ ---------------------
STOCK
-----
NAME OF BENEFICIAL OWNER Amount and Percent Amount and Percent
Nature of of Class Nature of of Class
Beneficial Beneficial
Ownership(1) Ownership(1)
DIRECTORS
<S> <C> <C> <C> <C>
Arthur W. Berry 8,336,472(2) 33.81% 240,342(3) 36.44%
Harold L. Purkey** 6,252,061(4) 28.71% 74,589(5) 11.31%
Youssef El-Zein 657,353(6) 3.89% 0 0
Nasser Menhall 205,334(7) 1.24% 0 0
E. Andrews Grinstead III 3,414,204(8) 17.34% 0 0
Sudhir Agrawal 794,714(9) 4.65% 0 0
Paul Z. Zamecnik 445,163(10) 2.70% 0 0
James B. Wyngaarden 143,100(11) * 0 0
Camille A. Chebeir 26,000(12) * 0 0
All directors and executive officers as
a group (9 persons) 20,271,300(13) 57.55% 314,931 47.75%
</TABLE>
* Less than 1%
** Replaced by Mr. C. Keith Hartley on May 12, 2000.
(1) The number of shares beneficially owned by each director and executive
officer is determined under rules promulgated by 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 March 31, 2000 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 240,342 shares of Series A Preferred stock owned by investment
advisory clients of Pecks, which clients would receive dividends and
the proceeds from the sale of such shares. Three of these clients are
General Motors Employees Domestic Group Trust, Delaware State Employees
Retirement Fund and Declaration of Trust for the Defined Benefit Plan
of ICI American Holdings, Inc. These shares of Series A Preferred stock
are convertible into 5,655,106 shares of common stock of Hybridon. This
amount also includes a total of 701,678 shares issuable upon the
exercise of Class A warrants and a total of 394,355 shares issuable
upon the exercise of Class D warrants held by the foregoing entities.
This number also includes 1,250,000 shares issuable upon conversion of
a portion of the $6,000,000 bank loan to Hybridon owned by
30
<PAGE> 36
the foregoing entities. Mr. Berry, a principal of Pecks, may be
considered a beneficial owner of the shares owned by such entities. Mr.
Berry disclaims beneficial ownership of these shares. This number also
includes 333,333 shares issuable upon conversion of $200,000 in
convertible debt owned by Mr. Berry.
(3) Includes 240,342 shares of Series A Preferred stock owned by investment
advisory clients of Pecks, which clients would receive dividends and
the proceeds from the sale of such shares. Mr. Berry, a principal of
Pecks, may be considered a beneficial owner of the shares owned by such
entities. Mr. Berry disclaims beneficial ownership of these shares.
(4) Harold L. Purkey's holdings include the following:
- 796,259 shares of common stock owned by Forum Capital Markets
LLC
- 328,677 shares issuable upon the exercise of Class B warrants
owned by Forum
- 280,517 shares issuable upon the exercise of Class C warrants
owned by Forum
- 468,859 shares issuable upon the exercise of Class A warrants
owned by Forum
- 25,812 shares issuable upon the exercise of Class D warrants
owned by Forum
- 761,568 shares issuable upon the exercise of other warrants
held by Forum
- 1,250,000 shares issuable upon conversion of Forum's portion
of the $6,000,000 bank loan to Hybridon
- 1,755,035 shares issuable upon conversion of 74,589 shares of
Series A Preferred stock owned by Forum, and
- 416,667 shares issuable upon conversion of $250,000 in
convertible debt owned by Forum
Mr. Purkey, an affiliate of Forum, may be considered a beneficial owner
of the shares beneficially owned by such entity. This amount also
includes 166,667 shares issuable upon conversion of $100,000 in
convertible debt owned by Mr. Purkey.
(5) Consists of 74,589 shares of Series A Preferred stock owned by Forum.
Mr. Purkey, an affiliate of Forum, may be considered a beneficial owner
of the shares beneficially owned by Forum.
(6) Youssef El-Zein's holdings include:
- 343,959 shares issuable upon the exercise of warrants held by
Mr. El-Zein
- 3,101 shares issuable upon the exercise of warrants held by
Pillar Investment Limited
- 10,000 shares issuable upon the exercise of stock options held
by Mr. El-Zein
- 48,032 shares issuable upon the conversion of $28,819 in
convertible debt to be issued to Mr. El-Zein
- 149,572 shares issuable upon the conversion of $89,743 in
convertible debt that Mr. El-Zein has the right to acquire
upon exercise of warrants
Mr. El-Zein, an affiliate of Pillar Investment Limited, may be
considered a beneficial owner of the shares beneficially owned by such
entity.
31
<PAGE> 37
(7) Nasser Menhall's holdings include the following:
- 109,774 shares issuable upon the exercise of warrants held by
Mr. Menhall
- 3,101 shares issuable upon the exercise of warrants held by
Pillar Investment Limited
- 10,000 shares issuable upon the exercise of stock options held
by Mr. Menhall
- 26,862 shares issuable upon the conversion of $16,117 in
convertible debt to be issued to Mr. Menhall
- 21,367 shares issuable upon the conversion of $12,820 in
convertible debt that Mr. Menhall has the right to acquire
upon exercise of warrants
Mr. Menhall, an affiliate of Pillar Investment Limited, may be
considered a beneficial owner of the shares beneficially owned by such
entity.
(8) Includes 799,957 shares subject to outstanding stock options which are
exercisable within the 60-day period following March 31,2000 as well as
2,566,667 shares issuable upon the conversion of $1,540,000 in
convertible debt owned by Mr. Grinstead.
(9) Includes 776,954 shares subject to outstanding stock options which are
exercisable within the 60-day period following March 31, 2000.
(10) Paul Zamecnik's holdings include the following:
- 109,200 shares subject to outstanding stock options which are
exercisable within the 60-day period following March 31, 2000
- 31,250 shares issuable upon the exercise of Class C warrants
- 43,333 shares issuable upon the conversion of $26,000 in
convertible debt owned by Dr. Zamecnik
(11) Includes 138,000 shares subject to outstanding stock options which are
exercisable within the 60-day period following March 31, 2000 and 700
shares held by Mr. Wyngaarden's children.
(12) Includes 1,000 shares subject to outstanding stock options which are
exercisable within the 60-day period following March 31, 2000.
(13) Securities owned by Pillar Investment Limited are included only once,
although such amounts were included above for both Messrs. El-Zein and
Menhall.
**replaced by Mr. C. Keith Hartley on May 12, 2000.
32
<PAGE> 38
CERTAIN TRANSACTIONS
Since January 1, 1999, the Company has entered into or has been
engaged in the following transactions with the following Company directors and
officers, stockholders who beneficially own more than 5% of the outstanding
common stock of the Company and affiliates or immediate family members of those
directors, officers and 5% stockholders.
TRANSACTIONS WITH PILLAR S.A. AND OTHER PARTIES
The Company has entered into certain transactions with Pillar S.A.
and, its affiliate, Pillar Investment Limited (collectively referred to as
"Pillar"). Pillar is an affiliate of Messrs. El-Zein and Menhall, two directors
of the Company. Until it distributed substantially all of its holdings in the
Company in 2000, Pillar beneficially owned over 5% of the Company's common
stock.
The following is a summary of those transactions that relate to the
Company's 1999 fiscal year.
Prior to 1999, the Company had been a party to consulting agreements
with Pillar under which Pillar provided the Company with financial advisory and
managerial services including assistance with the Company's overseas operations,
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.
During 1998, the Company retained Pillar as placement agent in
connection with the private placements of securities of the Company in offshore
transactions in reliance upon an exemption from registration under Regulation S
promulgated under the Securities Act of 1933.
In connection with the 1998 Regulation S offerings, the Company and
Pillar entered into an advisory agreement dated May 5, 1998, under which Pillar
acted as the Company's non-exclusive financial advisor. This agreement required
that the Company pay Pillar a monthly retainer of $5,000, with a minimum
engagement of 24 months beginning on May 5, 1998, and further provided that
Pillar was entitled to receive the following:
- out-of-pocket expenses
- subject to the Company's receiving a fairness opinion
on such matter, 300,000 shares of common stock in
connection with Pillar's efforts in assisting the
Company in restructuring its balance sheet
- certain cash and equity success fees in the event
Pillar assisted the Company in connection with
certain financial and strategic transactions
Pillar also received $1,635,400 in cash and warrants to purchase
1,111,630 shares of common stock pursuant to these arrangements. During 1999,
the Company issued the 300,000 shares of common stock to Pillar. The Company
received a fairness opinion in connection with such issuance.
Pursuant to a 1999 private placement offering, the Company sold 8%
notes to certain investors, including some investors that Pillar introduced to
the Company. In connection with this offering, and in lieu of any compensation
due under the financial advisory agreement between the Company and Pillar, the
Company agreed to pay Pillar's reasonable expenses and to issue to Pillar and
its designees
33
<PAGE> 39
additional 8% notes in an aggregate principal amount equal to 9% of the
aggregate principal amount of 8% notes purchased by those Pillar-introduced
investors. The Company also agreed to issue to Pillar Investment and its
designees warrants to purchase additional 8% notes in an aggregate principal
amount equal to 10% of the aggregate principal amount of 8% notes purchased by
those Pillar-introduced investors. These warrants have a strike price equal to
110% of the principal amount of the 8% notes purchasable thereunder. The
Company's obligations to issue the 8% notes and the warrants and to reimburse
Pillar Investment's expenses are subject to the condition precedent that the
Company will have had delivered to it a fairness opinion in form and substance
deemed by the Company, in its sole discretion, to satisfy the requirements of
the indenture relating to the Company's 9% notes. The Company received a
fairness opinion in connection with such issuance. As of March 31, 2000, Pillar
Investment had earned the right to receive $366,685 in 8% notes and warrants to
purchase an additional $407,428 in 8% notes.
TRANSACTIONS WITH FORUM CAPITAL MARKETS LLC AND PECKS MANAGEMENT PARTNERS LTD.
In 1998, the Company entered into certain transactions with Forum,
which is an affiliate of both Mr. Hartley, who became a director of the Company
on May 12, 2000, and Mr. Purkey, who, at the time was a director of the Company,
and entities advised by Pecks Management Partners Ltd. Mr. Berry, a principal of
Pecks, is a director of the Company. One of the transactions was the November
1998 purchase of the Company's bank loan by Forum and entities advised by Pecks.
In connection with the purchase of the loan, the purchasing entities advanced an
additional amount to the Company so as to increase the outstanding principal
amount of the loan to $6,000,000. In addition, the purchasing entities agreed to
amend the terms of the loan. This principal amount of the loan and unpaid
interest thereon is convertible, in whole or in part, at the lenders' option
into common stock at a conversion price of $2.40 per share.
In connection with the purchase of the loan, Forum received a fee of
$400,000, which Forum has reinvested by purchasing from the Company 160,000
shares of common stock and warrants to purchase an additional 40,000 shares of
common stock at $3.00 per share during 1999. In addition, Forum received
warrants exercisable until maturity of the Loan to purchase 133,333 shares of
common stock at $3.00 per share.
During 1999, the Company maintained an investment account at Forest
Investment Management LLC, an affiliate of Forum and Messrs. Hartley and Purkey.
Also see "1999 Convertible Notes Offering" section which follows.
1999 CONVERTIBLE NOTES OFFERING
The Company sold an aggregate of $1,500,000 principal amount of
promissory notes to E. Andrews Grinstead III, the Company's Chief Executive
Officer at the time and Director, at face value during September and November of
1999. These notes accrued interest at 12% per annum, or at 15% upon the
Company's election to pay this interest in shares of common stock rather than
cash, and, upon the closing of any third-party debt financing that closed on or
before March 1, 2000, were intended to be converted into the debt sold in that
financing. These notes, together with $40,000 in accrued interest, have been
converted into 8% notes of the Company due 2002.
34
<PAGE> 40
In addition, in connection with the financing conducted in December
1999, other Company directors and certain affiliates of the Company directors
purchased the Company's 8% notes in the amounts set forth below:
<TABLE>
<S> <C>
Nicris Limited (over 5% stockholder & affiliate of Mr. Bin Ladin) $600,000
Darrier Hentsch & Cie (over 5% stockholder) $400,000
Forum Capital Markets LLC (over 5% stockholder &
affiliate of Messrs. Hartley and Purkey) $250,000
Harold L. Purkey (Former Director) $100,000
Arthur W. Berry (Director) $200,000
H.F. Powell (Former Director) $100,000
R. Russell Martin (Sr. VP) $ 32,000
Paul Zamecnik (Director) $ 26,000
</TABLE>
Two other principals of Forum Capital Markets LLC each purchased
$100,000 of the 8% notes.
In connection with the offering of these notes, Forum and the entities
advised by Pecks entered into a Subordination and Intercreditor Agreement with
the Company and the representative of the purchasers of the notes whereby, among
other things, they agreed to subordinate their loan to the 8% notes, subject to
certain conditions. Also in connection with this offering, the Company agreed to
issue warrants to purchase an aggregate of 2.75 million shares of the Company's
common stock to designees of Pecks and Forum. These warrants are exercisable
from December 31, 2000 until December 31, 2002 at $0.60 per share.
Additional information on the 1999 Convertible Notes Offering is
included under the caption "Transactions with Pillar S.A. and Affiliates".
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.
OTHER TRANSACTIONS
The Company has a note receivable from Mr. Grinstead which amounted to
$270,050, including interest accrued at 6%, at December 31, 1999.
Certain persons and entities, including Dr. Zamecnik, Pillar S.A.,
Pillar Limited, Forum, the entities advised by Pecks, Intercity Holdings, Mr.
Bin Laden and Nicris Limited, are entitled to certain rights with respect to the
registration under the Securities Act of certain shares of the Company's common
stock, 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 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,
including Pillar S.A., Pillar Limited, Intercity Holdings, Mr. Bin Laden and
Nicris Limited, 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 rightsholders
holding specified percentages of the registrable shares so request, and the
Company is required to use its best efforts to effect that registration, subject
to certain conditions and limitations.
35
<PAGE> 41
MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
From January 24, 1996 until December 2, 1997, the Company's common
stock was 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.
On December 2, 1997, the Company's common stock was removed from the
Nasdaq National Market and began being quoted on the NASD OTC Bulletin Board.
Quotes on the NASD OTC Bulletin Board may reflect inter-dealer prices, without
retail markups, markdowns or commissions and do not necessarily represent actual
transactions.
On December 10, 1997, the Company effected a one-for-five reverse stock
split of its common stock. As a result of the reverse stock split, each five
shares of common stock was automatically converted into one share of common
stock, with cash payments for any fractional shares.
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 and the NASD OTC Bulletin
Board since January 1, 1998:
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
1998
First Quarter $ 3.359 $ 1.000
Second Quarter 2.75 1.609
Third Quarter 2.516 1.125
Fourth Quarter 3.25 1.125
1999
First Quarter $ 1.875 $ 1.000
Second Quarter 1.50 0.250
Third Quarter 1.50 0.350
Fourth Quarter 1.75 0.406
2000
First Quarter $ 6.5000 $ 1.000
Second Quarter 3.0625 0.9375
</TABLE>
On June 28, the last day on which the Company's common shares were
traded before the announcement of the proposed Transaction and the execution of
the Sale Agreement, the high and low sale prices of a common share were $1.91
and $1.78, respectively.
The reported closing bid price of the common stock on the NASD OTC
Bulletin Board on August 4, 2000 was $1.00 per share.
36
<PAGE> 42
DIVIDEND POLICY
The convertible preferred stock pays dividends at 6.5% per year,
payable semi-annually in arrears. These dividends may be paid either in cash or
in additional shares of convertible preferred stock, at the discretion of the
Company.
The Company has never declared or paid cash dividends on its capital
stock, and the Company does not expect to pay any dividends on its common stock
or any cash dividends on the convertible preferred stock in the foreseeable
future. The indenture under which the Company issued 9% convertible subordinated
notes on April 2, 1997, limits the Company's ability to pay dividends or make
other distributions on its common stock or to pay cash dividends on the
convertible preferred stock. As of June 30, 2000, $1.3 million in total
principal amount of the 9% notes remained outstanding.
INDEPENDENT AUDITORS
Arthur Andersen, LLP, independent public accountants, have audited the
Company's financial statements and schedules which are incorporated by reference
in this Proxy, as indicated in their reports with respect thereto, which reports
include a paragraph stating that there is substantial doubt about the Company's
ability to continue as ongoing concern, and are included herein in reliance upon
the authority of said firm as experts in accounting and auditing.
STOCKHOLDER PROPOSALS FOR 2001 ANNUAL MEETING
Any proposal that a stockholder intends to present at the 2001 Annual
Meeting of stockholders must be submitted to the Secretary of the Company at its
offices, 155 Fortune Boulevard, Milford, Massachusetts 01757, no later than
January 10, 2001 in order to be considered for inclusion in the Proxy Statement
relating to that meeting.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934 and the rules and regulations promulgated
thereunder and in accordance therewith files reports, proxy statements and other
information with the Securities and Exchange Commission. Reports, proxy
statements and other information filed by the Company may be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, 450 Fifth Street, N. W., Washington, D. C. 20549 and at the Regional
Offices thereof at 7 World Trade Center, Suite 1300, New York, New York and at
Northwestern Atrium Center, Suite 1400, 500 West Madison Street, Chicago,
Illinois. Copies of such information can be obtained by mail from the Public
Reference Section of the Commission at 450 Fifth Street, N. W., Washington, D.
C. 20549 at prescribed rates. The Commission maintains a Web site at
http://www.sec.gov containing reports, proxy and information statements and
other information regarding registrants, including the Company, that file
electronically.
37
<PAGE> 43
CONSENT OF INDEPENDENT ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation by reference in this proxy statement of our reports dated February
25, 2000 included in the Company's Form 10-K/A for the year ended December 31,
1999, and to all references to our Firm included in this proxy statement.
Boston, Massachusetts /s/ Arthur Andersen
August 8, 2000
DOCUMENTS INCORPORATED BY REFERENCE
The following documents of the Company are incorporated by reference herein:
(i) Current Report on Form 8-K dated June 29, 2000;
(ii) Proxy Statement on Schedule 14A dated May 22, 2000;
(iii) Quarterly Report on Form 10-Q for the period ended March 31,
2000;
(iv) Annual Report on Form 10-K for the year ended December 31,
1999;
(v) Amendment to Annual Report on Form 10-KA for the year ended
December 31, 1999.
All documents filed by the Company with the Commission pursuant to
Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act after the date hereof
and prior to the date of the Special Meeting shall be deemed to be incorporated
by reference herein and shall be a part hereof from the date of filing of such
documents. Any statements contained in a document incorporated by reference
herein or contained in this Proxy Statement shall be deemed to be modified or
superseded for purposes hereof to the extent that a statement contained herein
(or in any other subsequently filed document which also is incorporated by
reference herein) modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed to constitute a part hereof except as
so modified or superseded.
THIS PROXY STATEMENT INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT
PRESENTED HEREIN OR DELIVERED HEREWITH. SUCH DOCUMENTS (OTHER THAN EXHIBITS TO
SUCH DOCUMENTS UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE)
ARE AVAILABLE, WITHOUT CHARGE, TO ANY PERSON, INCLUDING ANY BENEFICIAL OWNER, TO
WHOM THIS PROXY STATEMENT IS DELIVERED, ON WRITTEN OR ORAL REQUEST TO THE
COMPANY AT 155 FORTUNE BOULEVARD, MILFORD, MASSACHUSETTS 01757 ATTN: INVESTOR
RELATIONS DEPARTMENT (TELEPHONE NUMBER 508-482-7500). SUCH DOCUMENTS WILL BE
PROVIDED TO SUCH PERSON BY FIRST CLASS MAIL OR OTHER EQUALLY PROMPT MEANS WITHIN
ONE BUSINESS DAY OF RECEIPT OF SUCH REQUEST. IN ORDER TO ENSURE DELIVERY OF THE
DOCUMENTS PRIOR TO THE SPECIAL MEETING, REQUESTS SHOULD BE RECEIVED BY SEPTEMBER
4, 2000.
38
<PAGE> 44
APPENDIX LIST
Appendix A Opinion of Richards, Layton & Finger, P.A.
Appendix B Opinion by Adams, Harkness & Hill, Inc.
Appendix C Sale Agreement
Appendix D Supply Agreement
Appendix E Certificate of Incorporation
39
<PAGE> 45
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 46
APPENDIX A
CONFIDENTIAL
ATTORNEY-CLIENT PRIVILEGED
[Letterhead of Richards, Layton & Finger, P.A.]
August 8, 2000
Board of Directors
Hybridon, Inc.
155 Fortune Blvd.
Milford, MA 01757
Avecia LifeScience Molecules
c/o McDermott, Will & Emery
28 State Street, 34th Floor
Boston, MA 02109
Ladies and Gentlemen:
We have acted as special Delaware counsel to Hybridon, Inc., a Delaware
corporation (the "Company"), in connection with the proposed sale (as further
described below, the "Proposed Sale") of certain assets used in connection with
the oligonucleotide manufacturing business (collectively, the "Divested
Assets"). In this connection, you have requested our opinion whether the
Proposed Sale must be approved by the stockholders of the Company under Section
271 of the General Corporation Law of the State of Delaware (the "General
Corporation Law") and whether the Company would be required to pay the
liquidation preference under Section 3(a)(ii) of the Certificate of Designation
(as defined below) as a result of the Proposed Sale.
For the purpose of rendering our opinions as expressed herein, we have
been furnished and have reviewed the following documents:
(i) the Restated Certificate of Incorporation of the
Company as filed with the Secretary of State of the State of Delaware (the
"Secretary of State") on March 28, 1996, the Certificate of Amendment of the
Company as filed with the Secretary of State on December 10, 1997
A-1
<PAGE> 47
Board of Directors
Hybridon, Inc.
Avecia LifeScience Molecules
August 8, 2000
Page 2
and the Certificate of Designation of the Company (the "Certificate of
Designation") as filed with the Secretary of State on May 6, 1998 (collectively,
the "Certificate of Incorporation");
(ii) the Amended and Restated By-laws of the Company,
dated March 15, 1994 (the "By-laws");
(iii) the Annual Reports on Form 10-K of the Company for
the fiscal years ended December 31, 1999, December 31, 1998 and December 31,
1997;
(iv) certain financial data provided to us by the Company
setting forth the contribution of the Divested Assets to the revenues, net
income and total assets (on a book value basis) of the Company, on a
consolidated basis, for the fiscal years ended December 31, 1999, December 31,
1998 and December 31, 1997 and for the four months ended April 30, 2000; and
(v) a certificate of the Secretary of State, dated the
date hereof, as to the good standing of the Company.
The items listed in (iii) and (iv) above are sometimes collectively referred to
herein as the "Financial Statements."
With respect to the foregoing documents, we have assumed the
authenticity of all documents submitted to us as originals, the conformity to
authentic originals of all documents submitted to us as copies or forms, the
genuineness of all signatures, the legal capacity of natural persons, and that
the foregoing documents, in the forms submitted to us for our review, have not
been and will not be altered or amended in any respect material to our opinions
as expressed herein. For the purpose of rendering our opinions as expressed
herein, we have not reviewed any document of or pertaining to the Company other
than the documents listed above, and we assume that there exists no provision of
any such other document that bears upon or is inconsistent with our opinions as
expressed herein. We have conducted no independent factual investigation of our
own, but rather have relied solely upon the foregoing documents, the statements
and information set forth therein, and the additional matters recited or assumed
herein, all of which we assume to be true, complete and accurate in all material
respects.
In addition to the foregoing, we have, with your consent, assumed the
following matters: (i) that the Certificate of Incorporation and the By-laws
constitute the certificate of incorporation and the by-laws, respectively, of
the Company as presently in effect; and (ii) that the financial and other data
and information concerning the Company set forth in the Financial Statements and
discussed herein fairly and accurately represent the matters set forth therein
and herein, and as of the date
A-2
<PAGE> 48
Board of Directors
Hybridon, Inc.
Avecia LifeScience Molecules
August 8, 2000
Page 3
hereof there has not been, and prior to the consummation of the Proposed Sale
there will not be, any material change in such data and information.
BACKGROUND
The Company was incorporated in Delaware in 1989. Since its
organization, the Company has been involved in the discovery and development of
genetic drugs, which are drugs that treat diseases by acting on a particular
gene or protein. Traditionally drugs have been designed to interact with disease
causing proteins and inhibit their function. In contrast, antisense technology
permits the design of genetic drugs, called antisense oligonucleotides, that
intervene at the genetic level and stop the production of disease causing
proteins.
The Company has developed and owns antisense technology that includes
important new medicinal chemistries (relating to the design and manufacture of
new antisense compounds), analytical chemistry (relating to the detection and
identification of compounds inside and out of the body) and manufacturing
technology. The Company has rights to technology allowing the chemical
modification of oligonucleotides, has particular expertise in the efficient
design and development of antisense drugs and has devised innovations in the
manufacture of oligonucleotides.
An oligonucleotide with a sequence exactly complimentary to that of the
messenger RNA of a specific gene can bind to and inhibit the expression of
messenger RNA, thereby decreasing or eliminating the production of
disease-causing or disease-supporting proteins. Antisense technology involves
the design and synthesis of such oligonucleotides. The Company believes that
drugs based on antisense technology may be more effective, cause fewer side
effects and have a greater range of applications than conventional drugs because
antisense drugs are designed to intervene in the production of proteins, rather
than after the proteins are made, and in a highly specific fashion.
Advances mapping the human genome have allowed many targets for
antisense drugs to be identified. Once a gene associated with a
disease-associated protein is identified, an antisense oligonucleotide can be
designed, and the pharmaceutical effects of that oligonucleotide can be improved
by chemical modification. The Company's antisense chemistry is based on the
Company's ability to alter the chemical makeup of the oligonucleotide backbone
in a manner that makes oligonucleotides safer and more stable without adversely
affecting their ability to promote the destruction of messenger RNA.
This antisense technology platform is applicable to a broad range of
diseases. The Company is focusing its drug development and discovery efforts on
developing antisense compounds for the treatment of diseases in three major
therapeutic areas: cancer, viral infections and diseases of the eye.
A-3
<PAGE> 49
Board of Directors
Hybridon, Inc.
Avecia LifeScience Molecules
August 8, 2000
Page 4
The Company believes there are significant additional opportunities for
the use of antisense technology, particularly in the treatment of cancer.
Compared to conventional anti-cancer drugs, antisense technology may provide
more specific therapy, more rapid development of drugs targeting
newly-discovered cancer-related proteins and fewer toxic side effects. The
Company is developing a cancer drug, GEM(R) 231, that is designed to reduce the
production of the harmful protein molecule protein kinase A ("PKA") type I
without interfering with the production of PKA type II. Monotherapy and
combination Phase II studies of GEM(R) 231 are ongoing in patients with solid
tumors who have failed other treatment. In addition, the Company has completed a
Pilot Phase I clinical study in Europe of GEM(R) 92, the Company's advanced
chemistry compound for the treatment of HIV-1 infection and AIDS. This study
demonstrated oral absorption of the antisense drug. These and other drug
candidates are based on advanced antisense chemistries, which have significant
safety, stability and dosing advantages over first generation antisense
compounds.
The Company has used multiple strategies to fund applications of its
antisense technology that it cannot develop at present without external funding.
The Company has used one such strategy to form MethylGene, Inc. ("MethylGene")
and OriGenix Technologies, Inc. ("OriGenix") for the continued development of
certain product candidates. MethylGene was formed by the Company and three
Canadian institutional investors to develop advanced chemistry compounds
targeted to DNA methyltransferase in cancer. The Company owns approximately 30%
of MethylGene. The Company recently transferred its human papillomavirus and
hepatitis B virus programs to OriGenix, which was formed by the Company and
three Canadian institutional investors. The Company owns approximately 40% of
OriGenix. Each of these companies utilizes the Company's advanced chemistry,
drug development expertise and manufacturing capability. In addition, an
important part of the Company'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, to
assist in the development of certain products.
In 1996, the Company consummated an initial public offering of its
shares. The Company used the proceeds from the public offering to expand its
research and development efforts and to build a facility in Milford,
Massachusetts for manufacturing oligonucleotides in large volumes for its own
use and for sale to others. The manufacturing facility was built in connection
with the Company's establishment of its Hybridon Specialty Products Division
("HSP"). This division was formed 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. HSP
manufactures oligonucleotides for many applications, at different stages of
development. HSP has developed a manufacturing technology platform that combines
multiple methods to improve the production process and increase the amount of
compounds produced in a single batch, thereby permitting economies of scale. HSP
is targeting three market areas for
A-4
<PAGE> 50
Board of Directors
Hybridon, Inc.
Avecia LifeScience Molecules
August 8, 2000
Page 5
oligonucleotides: antisense therapeutics, non-antisense therapeutics and
diagnostic/genomic DNA probes, which are oligonucleotides designed to detect the
presence of specific genes.
A-5
<PAGE> 51
Board of Directors
Hybridon, Inc.
Avecia LifeScience Molecules
August 8, 2000
Page 6
THE PROPOSED SALE
The Company has decided to sell its HSP business. The Divested Assets
will include the Company's lease of the Milford facility, the facility's
fixtures and the intellectual property used in the manufacturing of
oligonucleotides. The Company will retain all of its intellectual property and
patents relating to the discovery and development of antisense drugs, which will
continue to be the focus of the Company's business.
Pursuant to the Proposed Sale, Avecia LifeScience Molecules ("Avecia")
will purchase the assets used in connection with the oligonucleotide
manufacturing business for $15 million. Avecia is a world-wide leader in the
provision of research, development and manufacturing solutions for
pharmaceutical, agrochemical, and biotechnology companies. As part of the
Proposed Sale, the Company and Avecia will enter into a three year contract
whereby Avecia will agree to manufacture oligonucleotides for the Company. There
is an aggregate $3 million discount built into the price at which Avecia will
supply product to the Company. After the Proposed Sale, the Company will
continue in its historical line of business of conducting research for and
developing antisense drugs.
We have been advised that the relative contribution of the Divested
Assets to the revenue, net income and total assets (on a book value basis) of
the Company, on a consolidated basis, for the fiscal years ended December 31,
1997, December 31, 1998, December 31, 1999 and the four months ended April 30,
2000 was as set forth in the table below:
<TABLE>
<CAPTION>
Fiscal Year Ended Fiscal Year Ended Fiscal Year Ended Four Months Ended
December 31, 1997 December 31, 1998 December 31, 1999 April 30, 2000
(Estimated)
<S> <C> <C> <C> <C>
TOTAL ASSETS
(BOOK VALUE)
Divested Assets -- (1) 8,976,494 7,325,045 6,127,338
Company Total 35,071,532 16,535,665 11,935,248 9,500,000
</TABLE>
(1)We have been advised that the Company is unable to calculate the
asset value of the Divested Assets on a book value basis for the fiscal year
ended December 31, 1997.
A-6
<PAGE> 52
Board of Directors
Hybridon, Inc.
Avecia LifeScience Molecules
August 8, 2000
Page 7
<TABLE>
<CAPTION>
Fiscal Year Ended Fiscal Year Ended Fiscal Year Ended Four Months Ended
December 31, 1997 December 31, 1998 December 31, 1999 April 30, 2000
(Estimated)
<S> <C> <C> <C> <C>
Divested Assets -- 54.29% 61.37% 64.50%
divided by Total
REVENUES
Divested Assets 1,924,862 2,878,879 5,821,136 1,732,575
Company Total 3,948,984 4,501,861 7,000,881 2,165,709
Divested Assets 48.74% 63.95% 83.15% 80.00%
divided by Total
NET INCOME
Divested Assets -- (2) ($3,743,111) ($1,621,670) ($555,445)
Company Total ($69,461,326) ($19,792,73) ($14,735,293) ($3,723,844)
Divested Assets -- -- -- --
divided by Total
</TABLE>
(2)We have been advised that the Company is unable to calculate the net
income of the Divested Assets for the fiscal year ended December 31, 1997.
A-7
<PAGE> 53
Board of Directors
Hybridon, Inc.
Avecia LifeScience Molecules
August 8, 2000
Page 8
We have been advised, and accordingly assume for purposes of our
opinions as expressed herein, that the Divested Assets are not essential to the
conduct of the Company's business and following the Proposed Sale, the Company
will continue as an ongoing, viable business and will continue to operate its
historical line of business. We also are advised, and accordingly assume for
purposes of our opinions as expressed herein, that on a fair market value
basis,3 the Divested Assets represent approximately 22% of the total assets of
the Company. In addition, we have been advised that the Company does not have
any present plans to sell any specific assets or interests of significance,
other than pursuant to the Proposed Sale.
DISCUSSION
A. SECTION 271 OF THE GENERAL CORPORATION LAW
Section 271 of the General Corporation Law provides in pertinent part
as follows:
Every corporation may at any meeting of its board of
directors or governing body sell, lease or exchange all or
substantially all of its property and assets, including its
goodwill and its corporate franchises, upon such terms and
conditions and for such consideration . . . as its board of
directors or governing body deems expedient and for the best
interests of the corporation, when and as authorized by a
resolution adopted by the holders of a majority of the
outstanding stock of the corporation entitled to vote thereon
. . . .
8 Del. C. Section 271(a).
Sales, leases or exchanges of assets are within the general powers of a
Delaware corporation and within its specific powers under the General
Corporation Law. 8 Del. C. Sections 121, 122(4), 122(8). The exercise of
these powers is within the province of the board of directors. 8 Del. C. Section
141(a).
(3)For such purpose, "fair market value" is defined as the price that
would be agreed upon by a willing seller and a willing buyer under usual and
ordinary circumstances, after consideration of all available uses and purposes
without any compulsion upon the seller to sell or the buyer to buy. See Poole v.
N.V. Deli Maatschappij, 243 A.2d 67, 70 n.1 (Del. 1968).
A-8
<PAGE> 54
Board of Directors
Hybridon, Inc.
Avecia LifeScience Molecules
August 8, 2000
Page 9
The only substantive limitation on this power is provided in subsection
271(a), which requires that the holders of a majority of the outstanding stock
entitled to vote thereon approve action taken by the board of directors of the
corporation to "sell, lease or exchange all or substantially all of its property
and assets, including its goodwill and its corporate franchises . . . ." 8 Del.
C. Section 271(a).
Section 271 was first enacted in 1917 to supersede and mitigate the
common law requirement, as set forth in Butler v. New Keystone Copper Co., 93 A.
380, 383 (Del. Ch. 1915), of unanimous stockholder consent to the alienation of
all, or substantially all, of the corporation's property. See Allied Chem. & Dye
Corp. v. Steel & Tube Co. of Am., 120 A. 486, 490 (Del. Ch. 1923). The statutory
changes were intended to eliminate the veto power of minority stockholders and
were not intended to limit the powers of the directors to manage the business of
the corporation. Warren v. Fitzgerald, 56 A.2d 827, 834 (Md. 1948).
The language of Section 271 was modified slightly by the 1967
comprehensive revision of the General Corporation Law. Prior to that revision,
the statute did not include the words "or substantially all." The addition of
this language was intended only to codify the interpretation generally accorded
to the language of the pre-1967 statute that the word "all" meant "substantially
all," so that the statute could not be evaded merely by retaining a small amount
of property. See Cottrell v. Pawcatuck Co., 128 A.2d 225, 233 (Del. 1956), cert.
denied and appeal dismissed, 355 U.S. 12 (1957).
The leading decision of the Delaware courts on the application of
Section 271 is Gimbel v. Signal Cos., 316 A.2d 599 (Del. Ch.), aff'd on other
grounds, 316 A.2d 619 (Del. 1974). In Gimbel, the Court established a
two-pronged analysis for determining whether a corporation is disposing of "all
or substantially all" of its assets. The test is conjunctive and requires that a
transaction be both "quantitatively" and "qualitatively" a sale of "all or
substantially all" of the assets of a corporation in order to be subject to the
requirements of Section 271. Id. at 608. The Gimbel Court stated that, for
Section 271 to apply, the sale must not only be unusual and out of the ordinary
and regular course of business, but also "[t]he unusual nature of the
transaction must strike at the heart of the corporate existence and purpose."
Id. at 606. The Court cited with approval the following quotation:
The purpose of the consent statutes is to protect the
shareholders from fundamental change, or more specifically to
protect the shareholder from the destruction of the means to
accomplish the purposes or objects for which the corporation
was incorporated and actually performs.
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Avecia LifeScience Molecules
August 8, 2000
Page 10
Id. (quoting 6A Charles R.P. Keating & Stephen M. Flanagan, Fletcher Cyclopedia
of the Law of Private Corporations Section 2949.2[10] (perm. ed. rev. vol.
1968)). In referring to this quotation, the Court observed:
It is in this sense that the "unusual transaction"
judgment is to be made and the statute's applicability
determined. If the sale is of assets quantitatively vital to
the operation of the corporation and is out of the ordinary
and substantially affects the existence and purpose of the
corporation, then it is beyond the power of the Board of
Directors.
Gimbel, 316 A.2d at 606.
The interpretation of the Court in Gimbel is consistent with the
language of Section 271 which refers to a sale of "all or substantially all of
its property and assets, including its goodwill and its corporate franchises." 8
Del. C. Section 271 (emphasis added); see also Good v. Lackawanna Leather Co.,
233 A.2d 201, 210 (N.J. Super. Ch. Div. 1967) (interpreting similar provisions
of a New Jersey statute). The implication of the reference to goodwill and
corporate franchises is that if the proposed sale will not disable the
corporation from conducting its business, then the sale does not come within the
ambit of Section 271.
Under Delaware law, it is unclear what percentage of assets constitutes
"all or substantially all" of the assets for purposes of determining a
quantitative "threshold" requiring a stockholder vote under Section 271, See,
e.g., Winston v. Mandor, 710 A.2d 835, 843 (Del. Ch. 1997) ("[T]he transaction
must be viewed in terms of its overall effect on the corporation, and there is
no necessary quantifying percentage."). On the one hand, a sale of less than 50%
of the assets is not "all or substantially all" of the assets in most cases. See
Andrew G.T. Moore, II, The Sale of All or Substantially All Corporate Assets
Under Section 271 of the Delaware Code, l Del. J. Corp. L. 56, 58 (1976); 1 R.
Franklin Balotti & Jesse A. Finkelstein, The Delaware Law of Corporations and
Business Organizations Section 10.2 (3d ed. 2000); 2 David A. Drexler et al.,
Delaware Corporation Law and Practice Section 37.03 (1999); see also Whittaker
Corp. v. Edgar, 535 F. Supp. 933, 951 (N.D. Ill. 1982); cf. Bacine v.
Scharffenberger, C.A. Nos. 7862, 7866, slip op. at 8 (Del. Ch. Dec. 11, 1984).
On the other hand, in our view there is no line of demarcation at 50% (or any
other arbitrary percentage), and some percentage of assets in excess of 50%
likely would be held not to constitute "all or substantially all" of the assets,
depending on the facts of the particular case. See generally In re General
Motors Class H Shareholders Litig., 734 A.2d 611, 623 (Del. Ch. 1999) (noting
that "[o]ur jurisprudence eschew[s] a definitional approach to Section 271
focussing on the interpretation of the words 'substantially all,' in favor of a
contextual approach focussing upon whether a transaction involves the sale 'of
assets quantitatively vital to the operation of the corporation and is out of
the
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Avecia LifeScience Molecules
August 8, 2000
Page 11
ordinary and substantially affects the existence and purpose of the
corporation'") (quoting Gimbel, 316 A.2d at 606).
Although in our view there is no "bright line" at any particular
percentage, several Delaware cases have held, under the particular facts there
presented, that the "all or substantially all" threshold of Section 271, was
reached. In Katz v. Bregman, 431 A.2d 1274 (Del. Ch.), appeal refused sub nom.,
Plant Indus., Inc. v. Katz, 435 A.2d 1044 (Del. 1981), the Court held that a
parent manufacturing corporation's sale of a subsidiary that represented more
than 51% of the parent's total assets and generated approximately 45% of the
parent's net sales and 52% of the parent's pre-tax income in the immediately
preceding year constituted a sale of "all or substantially all" of the parent's
assets. The Katz Court quoted the statement in Gimbel, 316 A.2d at 606, that
Section 271 applies if a sale is "'quantitatively vital to the operation of the
corporation and is out of the ordinary and substantially affects the existence
and purpose of the corporation."' Katz, 431 A.2d at 1275 (emphasis supplied).
Noting that the sale in Katz was outside the ordinary course of business and
that it "represent[ed] a radical departure from [its] historically successful
line of business," the Court held that Section 271 applied. Id. at 1276. It
should be noted, however, that the subsidiary sold in Katz allegedly constituted
the parent corporation's only income producing asset over the previous four
years. Id. at l275.
More recently, in Thorpe v. CERBCO, Inc., C.A. No. 11713 (Del. Ch. Aug.
9, 1995), aff'd in part, rev'd in part on other grounds, 676 A.2d 436 (Del.
1996), the Court relied on both Gimbel and Katz in determining the applicability
of Section 271 to a proposed sale of stock of a subsidiary of CERBCO, Inc.
("CERBCO"), which sale was proposed by minority stockholders of CERBCO as an
alternative to a transaction which the controlling stockholders of CERBCO
attempted to consummate with a third party. The Court found that the stock of
the subsidiary constituted 68% of CERBCO's assets and that, after the proposed
sale, "CERBCO would have been left with a substantial amount of cash, a small
subsidiary that was about to be liquidated, and a single operating company . . .
that was minimally profitable." Slip op. at 22. The Court held that "[u]nder the
existing authorities, particularly in light of the fact that [the subsidiary]
was CERBCO's primary profitable operating company," the sale would have been a
sale of "substantially all" of CERBCO's assets, thereby requiring the approval
of the controlling stockholders. Slip op. at 23-24.(4)
--------
(4)While the Court did not specify the income data for CERBCO, the
assets which the plaintiffs proposed could be sold as an alternative transaction
apparently contributed: (i) all of CERBCO's total operating profit for each of
the preceding three years; (ii) between 73% and 100+% of the positive operating
profit of CERBCO for each of the three preceding years in respect of the
business segments of CERBCO that generated positive operating profit during
those years; (iii) all of the net earnings of CERBCO for each of the three
preceding years; and (iv) between 89% and 95% of the positive net earnings of
CERBCO for each of the three preceding years in respect of the
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Hybridon, Inc.
Avecia LifeScience Molecules
August 8, 2000
Page 12
The Delaware Supreme Court subsequently held in Thorpe that the Court
of Chancery correctly applied Section 271. In so holding, the Court relied on
both Gimbel and Oberly v. Kirby, 592 A.2d 445 (Del. 1991), and stated as
follows:
In the opinion below, the Chancellor determined that the sale
of East would constitute a radical transformation of CERBCO.
In addition, CERBCO's East stock accounted for 68% of CERBCO's
assets in 1990 and this stock was its primary income
generating asset. We therefore affirm the decision that East
stock constituted "substantially all" of CERBCO's assets as
consistent with Delaware law.
Thorpe v. CERBCO, Inc., 676 A.2d 436, 444 (Del. 1996); accord Apple Computer,
Inc. v. Exponential Tech., Inc., C.A. No.16315, slip op. at 14 (Del. Ch. Jan.
21,1999) (holding that plaintiff's allegation that the corporate defendant had
sold its most valuable asset adequately stated a claim that the asset sale
constituted a sale of all or substantially all the assets of the corporation
under Section 271 since, based on such claim, plaintiff could be able to
demonstrate at trial that the other asset of the corporation (a pending lawsuit)
was of negligible value and that the sale was a "watershed event that
fundamentally altered [the corporate defendant's] business mission" from
designing microprocessing chips to litigating the pending lawsuit and,
therefore, might reasonably prevail); Winston, 710 A.2d 835 (denying defendants'
motion to dismiss plaintiff's claim that his rights under a certificate of
designation triggered by a sale of "all or substantially all" of the
corporation's assets had been violated based on plaintiff's allegations that the
corporation had radically changed its business as a result of the transactions
and that they had resulted in the disposition of the corporation's only
income-generating assets, representing at least 60% of the corporation's net
assets).
Thus, the Delaware law on what constitutes "all or substantially all"
of the assets of a corporation for purposes of Section 271 is not entirely
settled. The Delaware Supreme Court has not definitively ruled on the question
and the decisions of the Court of Chancery are not definitive. Likewise, the
Delaware cases do not provide uniform teaching on those indicia of value that
would be determinative for the quantitative analysis under Section 271. While
there appears to emerge
------------
business segments of CERBCO that generated positive net earnings during those
years. Pretrial Brief of Defendants Robert W. and George Wm. Erikson at 11 (Feb.
16, 1995), Thorpe v. CERBCO, Inc., C.A. No. 11713 (Del. Ch. Aug. 9, 1995).
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Avecia LifeScience Molecules
August 8, 2000
Page 13
from the cases a heavy emphasis on the analysis of earnings, the commentators
(including attorneys associated with this firm) share a view that the Delaware
Supreme Court would be likely to consider other indicia of fair value,
including, in particular, the present fair value of the assets being sold. See 1
R. Franklin Balotti & Jesse A. Finkelstein, The Delaware Law of Corporations and
Business Organizations Section 10.2 (3d ed. 2000); 2 David A. Drexler et al.,
Delaware Corporation Law and Practice Section 37.03 (1999); see also Thorpe,
slip op. at 22-23; Bacine, slip op. at 8-9. Thus, we cannot predict with
certainty the particular elements of value that a Delaware court would find
determinative in deciding whether the Divested Assets constitute "all or
substantially all" of the assets of the Company.
Applying the above analysis, the Divested Assets, in our view, do not
constitute "all or substantially all" of the assets of the Company within the
meaning of Section 271. With respect to the quantitative analyses under Gimbel,
the Divested Assets and the Company as a whole showed losses for each of the two
preceding fiscal years and the four months ended April 30, 2000. The Divested
Assets did contribute a significant portion of the Company's total revenues in
each of the three preceding fiscal years and the four months ended April 30,
2000. However, the high percentage of revenues contributed by the Divested
Assets is due to the unique nature of the historical operations of the Company
as compared to the operations of the Divested Assets. HSP is a manufacturing
operation which generates revenue on a regular basis by virtue of the
manufacture and sale of product to third parties. On the other hand, the primary
business of the Company is the research and development of drugs based on
antisense technology. Such a business does not result in a steady revenue
stream. For example, the Company does not have any drugs on the market and the
drug candidates the Company is working on are still in development. Thus, other
than revenues generated from certain research and development collaboration
agreements with other companies, currently the Company is not generating revenue
from its research and development of new drugs. Before the Company can derive
revenue from its research and development efforts, the Company will need to
address a number of technological challenges and comply with comprehensive
regulatory requirements. In our view, therefore, the revenue data for this
Company is not as relevant in respect of the quantitative analysis as other
quantitative data (such as the asset data). In this connection, most
importantly, the Divested Assets presently represent on a fair market value
basis approximately 22% of the total assets of the Company. In our view, the
phrase "all or substantially all" means some amount closer to "all" than this.
Cottrell, 128 A.2d at 233. Where Delaware courts have found that sales of assets
constituted "substantially all" for the purposes of Section 271, the conclusion
has been based on the fact that the divested assets represented greater than 50%
of the corporation's total assets, plus the divested assets represented a vital
component in the corporation's financial situation, such as contributing all or
virtually all of the corporation's income or profit, plus a finding that the
transaction resulted in a fundamental change in the corporation's make-up or
line of business. Thorpe, slip op. at 20-25; Katz, 431 A.2d at 1274; see also
Philadelphia Nat'l Bank v. B.S.F. Co., 199 A.2d 557, 562 (Del. Ch.), rev'd on
other grounds, 204 A.2d 746 (Del. 1964) (holding
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Avecia LifeScience Molecules
August 8, 2000
Page 14
that a sale of assets constituting 75% of a corporation's assets, which
allegedly produced the only income of the corporation during the four years
prior to the sale, constituted "substantially all" of the assets of the
corporation for purposes of the interpretation of an indenture governed by
Pennsylvania law). In our view those circumstances are not presented here.
Similarly, we do not believe that the Divested Assets should be viewed
as qualitatively constituting "all or substantially all" of the assets of the
Company. HSP was not established by the Company until 1996. Following the
effectuation of the Proposed Sale, the Company will continue to operate its
remaining business segment, specifically the research and development of
medications based on antisense technology. Such remaining business segment
constitutes the historical operations of the Company. Moreover, the Proposed
Sale, rather than terminating or adversely affecting the Company, is expected to
enhance the Company and its remaining operations by enabling the Company to
dedicate all its resources and efforts on its research and development business.
In addition, the Proposed Sale will not adversely affect the Company's supply of
oligonucleotides for its own use. In connection with the Proposed Sale, Avecia
will contract with the Company to manufacture oligonucleotides for the Company
at a discounted price for three years. Accordingly, we do not believe that the
Proposed Sale can be fairly viewed as qualitatively striking "at the heart of
the corporate existence and purpose" of the Company. Gimbel, 316 A.2d at 606.
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Avecia LifeScience Molecules
August 8, 2000
Page 15
B. SECTION 3(a)(ii) OF THE CERTIFICATE OF DESIGNATION
A separate but related question is whether the liquidation preference
of the Series A Convertible Preferred Stock of the Company would be triggered by
the Proposed Sale. Section 3(a)(ii) of the Certificate of Designation for the
Series A Convertible Preferred Stock of the Company provides, in relevant part,
that:
In the event of . . . (ii) a sale or other disposition of all
or substantially all of the assets of the Corporation . . .
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 . . .
The determination of whether the liquidation preference is triggered in
connection with the Proposed Sale depends upon the meaning of the language "all
or substantially all of the assets of the Corporation" set forth in Section
3(a)(ii).
The rules of contract interpretation apply to the interpretation of a
certificate of designation. See Centaur Partners, IV v. National Intergroup,
Inc., 582 A.2d 923, 928 (Del. 1990); Waggoner v. Laster, 581 A.2d 1127, 1134
(Del. 1990). Accordingly, "[c]ourts must give effect to the intent of the
parties as revealed by the language of the certificate and the circumstances
surrounding its creation and adoption." Waggoner, 581 A.2d at 1134. "Except in
the case where a charter provision is found ambiguous, [the] Court must give
effect to its clear language." Pasternak v. Glazer, C.A. No. 15026, slip op. at
4 (Del. Ch. Sept. 24, 1996). Courts "construe the [provision] as it is written,
and ... give language which is clear, simple and unambiguous the force and
effect required." Hibbert v. Hollywood Park, Inc., 457 A.2d 339, 343 (Del.
1983).
In construing language in a certificate of designation, the Delaware
courts have applied the law applicable to parallel statutory provisions. See,
e.g., Air Line Pilots Ass'n, Int'l v. Eastern Air Lines, Inc., 701 F. Supp. 865
(D.D.C. 1988), aff'd, 889 F.2d 291 (D.C. Cir. 1989) (TABLE) (referring to 8
Del.C. Section 271 and case law thereunder in determining whether asset sale
triggered provision in preferred stock granting voting rights upon sale of "all
or substantially all" of the company's assets); In re General Motors Class H
Shareholders Litig., 734 A.2d at 623 (referring to 8 Del.C. Section 271 and case
law thereunder in determining whether a transaction triggered a provision
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August 8, 2000
Page 16
in the GM certificate of incorporation entitling holders of a series of
preferred stock to receive certain consideration upon the disposition of
substantially all of the business of Hughes Aircraft Company); Winston, 710 A.2d
at 843 (using case law interpreting 8 Del. C. Section 271 to determine the
meaning of the language "all or substantially all" in a certificate of
designation); Warner Communications Inc. v. Chris-Craft Indus., Inc., 583 A.2d
962 (Del. Ch.), aff'd, 567 A.2d 419 (Del. 1989) (TABLE) (referring to 8 Del.C.
Section 242(b)(2) and case law thereunder in determining whether language in a
certificate of designation similar to Section 242(b)(2) entitled the holders of
preferred stock to a class vote on a merger). In this regard, it is noteworthy
that the pertinent language of the Certificate of Designation is comparable to
the pertinent language of Section 271 of the General Corporation Law.
Accordingly, such language should be interpreted in accordance with the case law
relating to the provision of the General Corporation Law (i.e., Section 271)
which contains a similar standard. See Air Line Pilots Ass'n Int'l, 701 F. Supp.
865; In re General Motors Class H Shareholders Litig., 734 A.2d at 623; Winston,
710 A.2d at 843. As discussed above, based on the analysis set forth in Gimbel,
the Divested Assets, in our view, do not constitute "all or substantially all"
of the assets of the Company on either a quantitative or qualitative basis.
CONCLUSION
We are not aware of any decision of the Delaware Supreme Court that
directly addresses the question presented for our consideration herein. Based
upon and subject to the foregoing and upon our review of such matters of law as
we have deemed necessary and appropriate, however, and subject to the
assumptions, exceptions, limitations and qualifications set forth herein, it is
our opinion that: (i) approval of the stockholders of the Company is not
required under Section 271 of the General Corporation Law to effect the Proposed
Sale, and (ii) the Company is not required to pay the liquidation preference
under Section 3(a)(ii) of the Certificate of Designation as a result of the
Proposed Sale.
We are admitted to practice law in the State of Delaware and do not
hold ourselves out as being experts on the law of any other jurisdiction. The
foregoing opinions are limited to the laws of the State of Delaware, and we have
not considered and express no opinion on the effect of the laws of any other
state or jurisdiction, including state or federal laws regulating securities or
other federal laws, or the rules and regulations of stock exchanges or of any
other regulatory body.
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Board of Directors
Hybridon, Inc.
Avecia LifeScience Molecules
August 8, 2000
Page 17
Our opinions as expressed herein are rendered solely for your benefit
in connection with the matters discussed herein and, without our prior written
consent, may not be relied upon by you for any other purpose or be furnished or
quoted to, or be relied upon by, any other person or entity for any purpose.
Very truly yours,
/s/ Richards, Layton & Finger, P.A.
WH/LJR
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<PAGE> 64
APPENDIX B
[Letterhead of Adams, Harkness & Hill, Inc.]
June 29, 2000
Board of Directors
Hybridon, Inc.
155 Fortune Boulevard
Milford, MA 01757
Attention: Dr. James B. Wyngaarden, Chairman
Members of the Board:
You have requested our opinion (the "Fairness Opinion"), as investment bankers,
as to the fairness, from a financial point of view, to the shareholders of
Hybridon, Inc., a Delaware corporation (the "Company"), of the consideration to
be received by the Company in connection with the proposed sale (the "Asset
Sale") of the assets of the Hybridon Specialty Products business ("HSP") to
Avecia plc, an English Corporation (together with its subsidiaries and
affiliates, "Avecia") pursuant to the Purchase and Sale Agreement dated as of
June 29th, 2000 (the "Purchase Agreement"), among the Company and Avecia.
The Company proposes entering into a transaction with Avecia, whereby Avecia
acquires from Hybridon the assets related to HSP, excluding cash and
equivalents, and assumes certain HSP-related liabilities, for which Hybridon is
to receive as consideration: (i) $11,550,000 in cash immediately upon
consummation of the Asset Sale; (ii) $450,000 45 days after consummation of the
Asset Sale, subject to reduction under certain circumstances; (iii) $3,000,000
in cash on the first anniversary of the consummation of the Asset Sale, net any
amount due Avecia by the Company related to a supply agreement (the "Supply
Agreement"), as more fully described below; and (iv) certain pricing preferences
on oligonucleotide and oligonucleotide-related products (the "Products")
purchased by the Company from Avecia pursuant to the Supply Agreement. Neither
the Company nor its shareholders are anticipated to incur a tax liability as a
result of the Asset Sale.
In connection with the Purchase Agreement, the Company proposes entering into
the Supply Agreement with Avecia related to the Company's purchase of Products
from Avecia. Pursuant to the Supply Agreement, the Company agrees to pay Avecia
$700,000 (the "First Period Minimum") prior to January 1st, 2001 (the "First
Period") and $1,300,000 (the "Second Period Minimum") between January 1st, 2001
and December 31st, 2001 (the "Second Period") in quarterly increments of at
least $325,000 prior to the end of each calendar quarter of the Second Period.
Both the First Period Minimum and the Second Period Minimum are subject to
reduction under certain circumstances related to the operating performance of
HSP. During the First Period, the Company may purchase Products at the lesser
of: (a) Avecia's cost to produce Products, or, (b)
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Board of Directors
Hybridon, Inc.
Page 2
the Company's cost to produce Products prior to consummation of the Asset Sale,
with the First Period Minimum reduced by an amount equal to 70% of the total
dollar amount of Products purchased during the First Period by the Company. The
Company may, during the Second Period, purchase Products at the lesser of: (a)
Avecia's cost to produce Products multiplied by 1.10, or, (b) the price paid by
the Company during the First Period, with the Second Period Minimum reduced by
an amount equal to 65% of the total dollar amount of Products purchased during
the Second Period by the Company. Any and all Products purchased by the Company,
MethylGene, Inc., OriGenix Technologies, Inc., certain related entities
organized by the Company after consummation of the Purchase Agreement, and both
established and newly-formed corporate collaborators of the Company (the "Supply
Parties") are to be included in the calculation of reductions to the First
Period Minimum and the Second Period Minimum. For the period between January
1st, 2002, and December 31st, 2002, the Company may purchase Products from
Avecia at the lesser of (a) Avecia's cost to produce Products multiplied by
1.20, or, (b) the price paid by the Company during the Second Period.
Adams, Harkness & Hill, Inc., as part of its investment banking activities, is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, secondary
distributions of listed and unlisted securities, private placements and
valuations for corporate and other purposes. We have been engaged to render a
Fairness Opinion by the Board of Directors of the Company in connection with the
Asset Sale and will receive a fee payable upon rendering this Fairness Opinion.
In the ordinary course of our business, we may trade in the common stock of the
Company ("the Common Stock") for our own account and for the accounts of our
customers. Accordingly, we may at any time hold a long or short position in the
Common Stock.
Our Fairness Opinion addresses only the fairness of the consideration to be
received by the Company in connection with the proposed Asset Sale from a
financial point of view and does not address any other aspect of the Merger, nor
does it constitute a recommendation to any holder of equity securities in the
Company as to how to vote with respect to the Asset Sale.
In developing our Fairness Opinion, we have, among other things: (i) reviewed
the financial information contained in the Company's Form 10-Q for the quarterly
period ended March 31, 2000; (ii) reviewed the financial information contained
in the Company's Annual Report, Form 10-K, and related financial information for
the fiscal year ended December 31, 1999; (iii) analyzed and discussed certain
financial statements and other financial and operating data concerning HSP,
including forecasts, prepared by members of the senior management of the
Company; (iv) visited the facilities of the Company and conducted due diligence
discussions with members of senior management of the Company; (v) reviewed the
historical financial performance of HSP and compared it with that of certain
publicly traded companies we deem to be relevant; (vi) compared the financial
terms of the Asset Sale with the financial terms of certain other mergers and
acquisitions we deemed to be relevant and comparable to the Asset Sale; (vii)
reviewed a draft of the Purchase Agreement and the Supply
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Board of Directors
Hybridon, Inc.
Page 3
Agreement dated June 29th, 2000; and (viii) reviewed such other financial
studies and analyses and performed such other investigations and took into
account such other matters as we deemed necessary, including our assessment of
general economic, market, monetary and currency rate conditions as of the date
hereof.
In connection with our review and arriving at our Fairness Opinion, we have not
independently verified any information received from the Company, have relied on
such information, and have assumed that all such information is complete and
accurate in all material respects. With respect to any forecasts reviewed
relating to the prospects of HSP, we have assumed that they have been reasonably
prepared on bases reflecting the best currently available estimates and
judgments of Company management as to the future financial performance of HSP.
Our Fairness Opinion is rendered on the basis of securities market conditions
prevailing as of the date hereof and on the conditions and prospects, financial
and otherwise, of HSP as known to us on the date hereof. We have not conducted,
nor have we received copies of, any independent valuation or appraisal of any of
the assets of HSP. In addition, we have assumed, with the Company's consent,
that any material liabilities (contingent or otherwise, known or unknown) of HSP
are as set forth in the consolidated financial statements of the Company.
It is understood that this letter is for the information of the Board of
Directors of the Company and may not be used for any other purpose without our
prior written consent, except that this opinion may be included in its entirety
in any filing made by the Company with the Securities and Exchange Commission
with respect to the Asset Sale as contemplated.
Based upon and subject to the foregoing, it is our opinion that, as of the date
hereof, from a financial point of view, the consideration to be received by the
Company in connection with the proposed Asset Sale is fair to the shareholders
of the Company.
Sincerely,
ADAMS, HARKNESS & HILL, INC.
By: /s/ James A. Simms
------------------
James A. Simms
Managing Director
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<PAGE> 68
APPENDIX C
ASSET PURCHASE AGREEMENT
BETWEEN
HYBRIDON, INC. ("Seller")
AND
BOSTON BIOSYSTEMS, INC. ("Buyer")
Dated as of June 29, 2000
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ASSET PURCHASE AGREEMENT
Agreement entered into as of June 29, 2000, by and between Boston
Biosystems, Inc., a Delaware corporation (the "Buyer"), having a principal place
of business located at 75A Wiggins Avenue, Bedford, Massachusetts 01730, and
Hybridon, Inc., a Delaware corporation (together with any Subsidiaries, the
"Seller"), having a principal place of business located at 155 Fortune Blvd.,
Milford, Massachusetts 01757. The Buyer and the Seller may each be referred to
hereinafter as a "Party" or collectively as the "Parties".
This Agreement contemplates a transaction more fully set forth below in
which the Buyer desires to purchase for cash substantially all of the Seller's
assets relating to or used or useful in the manufacture and sale of advanced
chemistry compounds and pharmaceuticals (the "Business"), which Business
includes, without limitation, assets for the manufacturing of oligonucleotide
compounds and intermediate compounds and phosphorothioate oligonucleotides, and
to assume only certain liabilities specified below, and in which the Seller
desires to sell and transfer those assets and liabilities, while retaining all
other liabilities of Seller not specifically assumed by the Buyer ("Retained
Liabilities"). The transactions contemplated by this Agreement are referred to
as the "Asset Purchase."
Now, therefore, in consideration of the premises and the mutual
promises herein made, and in consideration of the representations, warranties,
and covenants herein contained, the Parties agree as follows.
1. Definitions. Capitalized terms used herein shall have the meanings
set forth in this Article 1.
"Acquired Assets" means the assets of the Seller listed on
Exhibit A-1 hereto and all other assets, properties, rights and interests of the
Seller of every kind, nature or description, whether tangible or intangible
relating to or used or useful to the Business including, without limitation, any
and all of the following to which the Seller has an interest: (i) all documents,
records, books and ledgers relating to the Business (including without
limitation those relating to outstanding purchase orders); (ii) all rights and
interests in the Facility Lease, improvements, fixtures, and fittings thereon,
and easements, rights-of-way, and other appurtenances (such as appurtenant
rights in and to public streets set forth in the Facility Lease) to and at the
facility of the Business located at 155 Fortune Blvd., Milford, Massachusetts
(the "Facility"), (iii) all inventory, machinery, equipment, furniture, fixtures
and leasehold improvements located at the Facility; (iv) tangible personal
property (such as machinery, equipment, inventories of raw materials and
supplies, manufactured and purchased parts, goods in process and finished goods,
furniture, automobiles, trucks, tools, jigs, and dies), (v) Intellectual
Property, all goodwill associated therewith, licenses and sublicenses granted
and obtained with respect thereto, and rights thereunder, remedies against
infringements thereof, and rights to protection of interests therein under the
laws of all jurisdictions (with the exception of Seller's trademarks, service
marks, logos, trade names, and corporate names, (collectively, "Seller's Names
and Marks") which shall be licensed to Buyer for a limited period of time
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pursuant to the Names and Marks License Agreement), (vi) agreements, contracts,
instruments, Security Interests, guaranties, other similar arrangements, and
rights thereunder, (vii) accounts, notes, and other receivables (other than
accounts receivable rendered prior to Closing for which Seller is able as of the
Closing Date to recognize revenue (including "bill and hold" arrangements in
compliance with the SEC's Staff Accounting Bulletin No. 101) in accordance with
GAAP, which accounts receivable shall be retained by the Seller ("Excluded
Receivables")), (viii) franchises, approvals, permits, licenses, orders,
registrations, certificates, variances, and similar rights obtained from
governments and governmental agencies, (ix) all files, correspondence, lists,
plats, architectural plans, drawings, and specifications, creative materials,
advertising and promotional materials, studies, reports, and other printed or
written materials, (x) all sales, marketing and expansion plans, strategic
plans, projections, studies, reports and other documents and data (including,
without limitation, creative materials, advertising and promotional matters and
current and past lists of customers, suppliers, vendors and sources), and all
training materials and marketing brochures; except that the Acquired Assets
shall exclude the following (the "Excluded Assets"): (a) any Cash relating to
the Business (other than Cash held in the form of utility security deposits),
(b) the $90,000 security deposit paid to and held by the landlord of the
Facility and interest thereon, (c) Excluded Receivables, (d) Seller's Names and
Marks, (e) any of the Seller's assets, properties, rights and interests which
are not or have not been used by and which do not relate to the Business, (f)
all causes of action, choses in action and rights of recovery that may arise in
connection with the discharge by the Seller of any liability of Seller which is
not a Retained Liability or rights of recovery or contribution in respect of any
of the Retained Liabilities; (g) the leased telephone system currently in place
at the Facility and the attendant financing lease by and between the Seller and
Lucent Technologies, Inc. or any of its affiliates; (h) the leased fax machine,
postage meter and photocopy machines currently in place at the Facility (the
"Miscellaneous Office Equipment") and the attendant financing leases by and
between the Seller and any record owner or vendor of such Miscellaneous Office
Equipment; (i) the Methylgene Agreement; (j) the OriGenex Agreement; and (i) all
assets listed on Exhibit A-2 (as initialed by Buyer).
"Acquisition Proposal" has the meaning set forth in Section 5(g) below.
"Actions" has the meaning set forth in Section 3(n) below.
"AH&H" has the meaning set forth in Section 5(m) below.
"Adjustment Proposal" has the meaning set forth in Section 2(d) below.
"Adverse Consequences" means all actions, suits, proceedings, hearings,
investigations, charges, complaints, claims, demands, injunctions, judgments,
orders, decrees, rulings, damages, dues, penalties, fines, costs, amounts paid
in settlement, Liabilities, obligations, Taxes, liens, losses, expenses, and
fees, including court costs and attorneys' fees and expenses.
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act.
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"Alternative Transaction" has the meaning set forth in Section 9(c)(v)
below.
"Asset Purchase" has the meaning set forth in the preface above.
"Assumed Liabilities" means (a) the liabilities of the Seller set forth
on Exhibit B hereto (as initialed by Buyer), if any; (b) all obligations and
liabilities, in addition to those listed on Exhibit B, to be paid or otherwise
performed after the Closing Date under the agreements, contracts, licenses and
leases the rights to which are among the Acquired Assets, provided that the
Buyer shall not assume any obligation or liability whatsoever relating to (i)
product warranty, liability or similar claims relating to products delivered or
services performed on or prior to the date of the Closing, or (ii) any other
claims arising out of actions (or inaction) or other events initially occurring
on or prior to the date of the Closing; (iii) the leased telephone system
currently in place at the Facility and the attendant financing lease by and
between the Seller and Lucent Technologies, Inc. or any of its affiliates; or
(iv) the Miscellaneous Office Equipment and the attendant financing leases by
and between the Seller and any record owner or vendor of such Miscellaneous
Office Equipment; (c) liabilities of the Seller accruing after the Closing Date
under the Lease Agreement dated March 10, 1994 between the Seller and Laborer's
Pension/Milford Investment Corporation ("Lessor") with respect to the Facility
(together will all amendments, ancillary agreements between Lessor and Seller
and supplements related thereto, the "Facility Lease"; and (d) accrued vacation
not to exceed four weeks (or earned but unpaid vacation pay in lieu thereof, the
maximum anticipated amount of which as of the Closing Date Seller has estimated
in good faith in Section 3(q) to the Disclosure Schedule) owing to each employee
of Seller who accepts employment with Buyer prior to Closing.
"Benefit Arrangement" means any employment, severance or similar
contract or arrangement (whether or not written) or any plan, policy, fund,
program or contract or arrangement (whether or not written) providing for
compensation, bonus, profit-sharing, stock option, or other stock related rights
or other forms of incentive or deferred compensation, vacation benefits,
insurance coverage (including any self-insured arrangements), health or medical
benefits, disability benefits, workers' compensation, supplemental unemployment
benefits, severance benefits and post-employment or retirement benefits
(including compensation, pension, health, medical or life insurance or other
benefits) that (i) is not an Employee Plan and (ii) is entered into, maintained,
administered or contributed to, as the case may be, by Seller or any of its
Affiliates.
"Business" has the meaning set forth in the preface above.
"Business Financial Statements" has the meaning set forth in Section
3(f)(i) below.
"Business Inventory" has the meaning set forth in Section 3(j) below.
"Buyer" has the meaning set forth in the preface above.
"Buyer Expense Payment" has the meaning set forth in Section 9(c)(iii)
below.
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"Cash" means cash and cash equivalents (including marketable securities
and short term investments) calculated in accordance with GAAP applied on a
basis consistent with the preparation of the Seller's financial statements
included in the SEC Filings.
"CERCLA" has the meaning set forth in Section 3(r) below.
"Closing" has the meaning set forth in Section 2(e) below.
"Closing Date" has the meaning set forth in Section 2(e) below.
"Code" means the Internal Revenue Code of 1986, as amended.
"Confidential Information" means any information concerning the
businesses and affairs of the Seller that is not already generally available to
the public.
"Consent and Release" has the meaning set forth in Section 7(a)(vii)
below.
"Contingent Consideration" has the meaning set forth in Section 2(c)
below.
"Contingent Consideration Payment Date" has the meaning set forth in
Section 2(c) below.
"Disclosure Schedule" has the meaning set forth in Section 3 below.
"Dispute Notice" has the meaning set forth in Section 2(d) below.
"Employee Plan" means any "employee benefit plan", as defined in
Section 3(3) of ERISA, that (i) is subject to any provision of ERISA, (ii) is
maintained, administered or contributed to by the Seller or any of its
Affiliates and (iii) covers any employee or former employee of the Seller.
"Environmental, Health, and Safety Requirements" shall mean all
applicable federal, state, local and foreign statutes, regulations, ordinances
and other provisions having the force or effect of law, all judicial and
administrative orders and determinations, all contractual obligations and all
common law concerning public health and safety, worker health and safety, and
pollution or protection of the environment, including without limitation all
those relating to the presence, use, production, generation, handling,
transportation, treatment, storage, disposal, distribution, labeling, testing,
processing, discharge, release, threatened release, control, or cleanup of any
hazardous materials, substances or wastes, chemical substances or mixtures,
pesticides, pollutants, contaminants, toxic chemicals, petroleum products or
byproducts, asbestos, polychlorinated biphenyls, noise, hazardous viruses or
radiation, each as amended and as now or hereafter in effect.
"Environmental and Safety Permits Schedule" has the meaning set forth
in Section 3(r)(ii) below.
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"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended and the rules and regulations promulgated thereunder.
"Escrow Agreement" has the meaning set forth in Section 2(j) below.
"Excluded Assets" has the meaning set forth in the definition of
Acquired Assets above.
"Excluded Receivables" has the meaning set forth in the definition of
Acquired Assets above.
"Facility" has the meaning set forth in the definition of Acquired
Assets above.
"Facility Lease" has the meaning set forth in the definition of Assumed
Liabilities above.
"Fairness Opinion" has the meaning set forth in Section 5(m) below.
"GAAP" means United States generally accepted accounting principles as
in effect from time to time and at the time in question.
"Government Regulation" means any applicable federal, state or local
laws, regulations and ordinances, including without limitation, environmental,
zoning, building, health and safety laws, regulations and ordinances relating to
the Business or the Facility.
"Identified Patents and Applications" has the meaning set forth in
Section 2(m) below.
"Indemnified Party" has the meaning set forth in Section 8(d) below.
"Indemnifying Party" has the meaning set forth in Section 8(d) below.
"Independent Auditor" has the meaning set forth in Section 2(d) below.
"Initial Payment" has the meaning set forth in Section 2(c) below.
"Intellectual Property" means (a) all inventions (whether patentable or
unpatentable and whether or not reduced to practice), all improvements thereto,
and all patents, patent applications, patent disclosures and invention
disclosures, together with all reissuances, continuations,
continuations-in-part, revisions, extensions and re-examinations thereof, (b)
all trademarks, service marks, trade dress, logos, trade names, and corporate
names, together with all translations, adaptations, derivations, and
combinations thereof and including all goodwill associated therewith, and all
applications, registrations, and renewals in connection therewith, (c) all
copyrightable works, all copyrights, and all applications, registrations, and
renewals in connection therewith, (d) all trade secrets and confidential
business information (including ideas, research and development, know-how,
formulas, compositions, manufacturing and production processes and techniques,
technical data, designs, drawings, specifications, customer and
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supplier lists, pricing and cost information, and business and marketing plans
and proposals), (e) all computer software (including data and related
documentation), (f) all other proprietary rights, and (g) all copies and
tangible embodiments thereof (in whatever form or medium); including, without
limitation, certain Intellectual Property of the Seller listed on Exhibit A-1
hereto.
"Knowledge" means actual knowledge, after reasonable investigation.
"Lessor" has the meaning set forth in the definition of Assumed
Liabilities above.
"Liability" means any liability (whether known or unknown, whether
asserted or unasserted, whether absolute or contingent, whether accrued or
unaccrued, whether liquidated or unliquidated, and whether due or to become
due), including any liability for Taxes.
"Methylgene Agreement" means that certain License Agreement dated as of
January 4, 1996 between Seller and Methylgene, Inc. ("Methylgene"), as amended
to the date of this Agreement, a true and complete copy of which the Seller
represents it has delivered to the Buyer.
"Miscellaneous Office Equipment" has the meaning set forth in the
definition of Acquired Assets.
"Most Recent Balance Sheet" means the balance sheet contained within
the Most Recent Financial Statements.
"Most Recent Financial Statements" has the meaning set forth in Section
3(f) below.
"Most Recent Fiscal Year End" has the meaning set forth in Section 3(f)
below.
"Names and Marks License Agreement" has the meaning set forth in
Section 7(a)(xvi) below.
"Novel Process Claims" has the meaning set forth in Section 2(m) below.
"OriGenix Agreement" means that certain Supply Agreement dated as of
January 22, 1999 between Seller and OriGenix Technologies Inc., as amended to
the date of this Agreement, a true and complete copy of which the Seller
represents it has delivered to the Buyer.
"Orders" has the meaning set forth in Section 3(m) below.
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity and
frequency) as it relates to the Business.
"Party" has the meaning set forth in the preface above.
"Permits" has the meaning set forth in Section 3(m) below.
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"Person" means an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization, or a governmental entity (or any department, agency, or political
subdivision thereof).
"Personnel" has the meaning set forth in Section 3(q) below.
"PS Technology Sublicense Option Agreement" has the meaning set forth
in Section 7(a)(xvii) below.
"Purchase Price" has the meaning set forth in Section 2(c) below.
"Resolution" means (i) as to any claim for indemnification by the Buyer
under Section 8 of this Agreement or a claim under the Supply Agreement,
agreement of the Buyer and the Seller or final court judgment not subject to
further appeal, or (ii) the passage of 60 days following a claim without a
response by the other Party, and "Resolved" means any such matter which has had
a Resolution.
"Restricted Interests" has the meaning set forth in Section 2(l)(i)
below.
"Retained Liabilities" has the meaning set forth in the preface above.
"SEC" means the Securities and Exchange Commission.
"SEC Filings" has the meaning set forth in Section 3(f) below.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Security Interest" means any mortgage, pledge, lien, encumbrance,
charge, or other security interest, other than (a) mechanics', materialmens',
and similar liens, (b) liens for Taxes not yet due and payable, (c) purchase
money liens and liens securing rental payments under capital lease arrangements,
and (d) other liens arising in the Ordinary Course of Business and not incurred
in connection with the borrowing of money.
"Seller" has the meaning set forth in the preface above.
"Seller Expense Payment" has the meaning set forth in Section 9(c)(i)
below.
"Seller's Names and Marks" has the meaning set forth in the definition
of Acquired Assets above.
"Seller Proxy Statement" has the meaning set forth in Section 5(j)
below.
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"Series A Amendment" has the meaning set forth in Section 7(a)(vi)
below.
"Stockholders Meeting" has the meaning set forth in Section 5(k) below.
"Subsidiary" means any corporation with respect to which a specified
Person (or a Subsidiary thereof) owns a majority of the common stock or has the
power to vote or direct the voting of sufficient securities to elect a majority
of the directors.
"Superior Proposal" has the meaning set forth in Section 5(g) below.
"Supply Agreement" has the meaning set forth in Section 7(a)(xiii)
below.
"Survey" has the meaning set forth in Section 5(i) below.
"SWDA" has the meaning set forth in Section 3(r) below.
"Tax" means any federal, state, local, or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental (including taxes under Code Section
59A), customs duties, capital stock, franchise, profits, withholding, social
security (or similar), unemployment, disability, real property, personal
property, sales, use, transfer, registration, value added, alternative or add-on
minimum, estimated, or other tax of any kind whatsoever, including any interest,
penalty, or addition thereto, whether disputed or not.
"Terminating Breach" has the meaning set forth in Section 9(a) below.
"Third Party" has the meaning set forth in Section 9(c)(v) below.
"Third Party Claim" has the meaning set forth in Section 8(d) below.
"Transaction Documents" has the meaning set forth in Section 3(b)
below.
"Transaction Fee" has the meaning set forth in Section 9(c)(v) below.
"Unearned Prepayments" has the meaning set forth in Section 2(d) below.
"WFI" has the meaning set forth in Section 3(u) below.
2. Basic Transaction.
(a) Purchase and Sale of Assets. On and subject to the terms and
conditions of this Agreement, the Buyer agrees to purchase from the Seller, and
the Seller agrees to sell, transfer, convey, and deliver to the Buyer, all of
the Acquired Assets at the Closing for the consideration specified below in this
Section 2.
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(b) Assumption of Liabilities. On and subject to the terms and conditions
of this Agreement, the Buyer agrees to assume and become responsible for all of
the Assumed Liabilities at the Closing. The Buyer will not assume or have any
responsibility, however, with respect to any other obligation or Liability of
the Seller not included within the definition of Assumed Liabilities, and the
Seller shall be solely and fully liable for all liabilities and obligations
arising from the Seller's ownership, use or operation of the Acquired Assets,
the sale, licensing or other disposition of its products, the operation of the
Business, and other incidents and occurrences relating to the Acquired Assets of
the Business during the period on or prior to the Closing Date.
(c) Purchase Price. The payment by the Buyer to the Seller for Acquired
Assets on the Closing Date (the "Purchase Price") shall consist of:
(i) $12,000,000 (the "Initial Payment"), subject to reduction at
Closing or thereafter pursuant to Section 2(d), to be paid to the Seller at the
Closing in cash by wire transfer, $450,000 of which shall be retained by Buyer
and shall accrue interest at a rate equivalent to the then prevailing savings
deposit rate at FleetBoston, N.A. for a period of thirty (30) days (or with
respect to any portion thereof subject to a dispute, until such dispute is
resolved as set forth in Section 2(d)(ii) below) from the Closing Date as a
non-exclusive means of providing security toward the rights of the Buyer to any
adjustment provided for in Section 2(d) (with the interest on all amounts paid
to Seller to follow such payments); and
(ii) additional contingent consideration (the "Contingent
Consideration") of $3,000,000, payable in cash or by wire transfer, except as
provided otherwise below. The Seller acknowledges that the Buyer has been
induced to agree to pay Contingent Consideration in reliance on Seller's
willingness and prospective ability to be a customer of the Business pursuant to
the Supply Agreement and otherwise. Accordingly, the Contingent Consideration
shall be paid to the Seller on the first anniversary of the Closing Date (the
"Contingent Consideration Payment Date") only if, on the Contingent
Consideration Payment Date, (A) the Seller remains in existence, engaged in the
business in which it is currently engaged (excluding the Business as acquired by
the Buyer), has not sold all or a substantial portion of its assets (except
pursuant to this Agreement), has not made a general assignment for the benefit
of its creditors or consented to the appointment of a receiver, trustee,
custodian or liquidator for all or a substantial portion of its property, assets
or business, or filed a voluntary petition under any bankruptcy, insolvency or
similar law, and neither the Seller nor any portion of its assets has become the
subject of an involuntary proceeding or petition for its dissolution or
reorganization for the benefit of its creditors, and (B) the Supply Agreement is
in full force and effect and the Seller is in full compliance with the terms
thereof. If on the Contingent Consideration Payment Date, (1) the Supply
Agreement has been previously terminated by Seller for any reason other than
Buyer's default thereunder or terminated by Buyer for valid cause, or (2) Seller
has failed by such date to effect any right to cure (regardless of when such
right to cure may otherwise expire) it may have to a breach by it of any
material obligation under the Supply Agreement for which Buyer has previously
given Seller notice of termination of the Supply Agreement for valid cause
subject to such right of Seller to cure, or (3) Buyer has previously given
Seller notice of termination of the Supply Agreement for valid cause subject
only to the passage of time, then in the event of the
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occurrence of any one or more of (1), (2) or (3), all obligations of the Buyer
to pay the Contingent Consideration shall forever cease. In addition, without
prejudice to the provisions of the preceding sentence, any Contingent
Consideration due shall be payable only to the extent such Contingent
Consideration or portion thereof is not (x) placed in escrow pursuant to the
terms of the Escrow Agreement by the Buyer in its discretion for any amounts due
to Buyer under the Supply Agreement which Seller disputes is owed or with
respect to any pending indemnification claims of the Buyer for which there has
not been a Resolution, or (y) set off by the Buyer for any disputed amounts owed
Buyer under the Supply Agreement or indemnification claims of the Buyer that are
Resolved or any undisputed amounts owed Buyer under the Supply Agreement.
(d) Adjustment to Purchase Price.
(i) Purchase Price Adjustment. The Purchase Price is subject to
reduction by an aggregate dollar amount equal to (A) the amount, if any, that
raw materials included among the Business Inventory is less than $450,000 (the
value determined by Seller's cost) at the Closing Date, plus (B) the full
amount, if any, of prepayments Seller has received as of the Closing Date in
respect of goods and services to be delivered or performed by the Business or
for which Seller is otherwise as of the Closing Date unable to recognize revenue
(including "bill and hold" arrangements not in compliance with the SEC's Staff
Accounting Bulletin No. 101) in accordance with GAAP (the "Unearned
Prepayments").
(ii) Preliminary Settlement Statement; Dispute Resolution. On the
Closing Date, the Seller shall deliver to the Buyer a preliminary settlement
statement setting forth its calculation as of the Closing Date of the amount of
raw materials included among the Business Inventory (valued at Seller's cost)
and the amount of Unearned Prepayments. If at any time thereafter within thirty
(30) days after the Closing Date, the Buyer believes that such preliminary
statement did not accurately set forth the amount of raw materials, valued at
Seller's cost, included among the Business Inventory and the amount of Unearned
Prepayments on the Closing Date, then the Buyer may deliver to the Seller a
statement (the "Adjustment Proposal") setting forth in detail its proposed
adjustments to Buyer's preliminary settlement statement. The Buyer shall provide
the Seller with full access to all assets, records and work papers necessary to
compute and verify the accuracy of the Adjustment Proposal. This Adjustment
Proposal as delivered to the Seller shall be final for purposes of this
Agreement unless, within thirty (30) days after delivery to the Seller, the
Seller shall deliver to the Buyer a notice setting forth in detail its
disagreement with the Adjustment Proposal ("Dispute Notice"). After delivery of
a Dispute Notice, the Buyer and the Seller shall promptly negotiate in good
faith with respect to the subject of the Dispute Notice, and if they are unable
to reach an agreement within thirty (30) days after receipt by the Buyer of the
Dispute Notice, the dispute (but only such disputed items) shall be submitted to
the Independent Auditor. The Independent Auditor shall not have authority to
redetermine any matter except those which are submitted to it. The Independent
Auditor shall be directed to issue a final and binding decision within sixty
(60) days of submission of the Dispute Notice, as to the issues of disagreement
referred to in the Dispute Notice and not resolved by the parties. The
Adjustment Proposal, as so adjusted by agreement of the Buyer and the Seller or
by the Independent Auditor (if required) shall be final and binding on the
parties.
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The "Independent Auditor" shall mean one of the "Big Five" U.S. public
accounting firms with no material relationship to either of the parties chosen
by agreement of the parties, or if they are unable to agree, shall mean one of
the "Big Five" firms with no such material relationship chosen by lot. The fees
and expenses of the Independent Auditor shall be equitably allocated between
Buyer and Seller by the Independent Auditor based upon his decision. The
decision of the Independent Auditor with respect to the Adjustment Proposal
shall be final and binding on the parties.
(e) The Closing. The closing of the Asset Purchase (the "Closing") shall
take place at the offices of McDermott, Will & Emery in Boston, Massachusetts,
commencing at 9:00 a.m. local time on the fifth clear business day following the
satisfaction or waiver of all conditions to the obligations of the Parties to
consummate the Asset Purchase (other than conditions with respect to actions the
respective Parties will take at the Closing itself) or such other date as the
Parties may mutually determine (the "Closing Date").
(f) Deliveries at the Closing. At the Closing, (i) the Seller will deliver
to the Buyer the various certificates, instruments, and documents referred to in
Section 7(a) below; (ii) the Buyer will deliver to the Seller the various
certificates, instruments, and documents referred to in Section 7(b) below;
(iii) the Seller will execute, acknowledge (if appropriate), and deliver to the
Buyer (A) a Bill of Sale, assignments (including real property and Intellectual
Property transfer documents) and related documents in substantially the forms
attached hereto as Exhibits A-3 through A-6 and (B) such other instruments of
sale, transfer, conveyance, and assignment as the Buyer and its counsel may
reasonably request; (iv) the Buyer will execute, acknowledge (if appropriate),
and deliver to the Seller (A) an assumption in the form attached hereto as
Exhibit D and (B) such other instruments of assumption as the Seller and its
counsel may reasonably request; and (v) the Buyer will deliver to the Seller the
consideration specified in Section 2(c)(i) above).
(g) Price Allocation. The parties agree to allocate the Purchase Price as
set forth on Exhibit E for all federal, state and local income tax purposes
(including IRS Form 8594), and will not take any inconsistent or contrary
position therewith for any other purpose.
(h) Sale and Transfer Taxes. The Seller shall pay any and all transfer,
sales, purchase, use, value added, excise or similar tax imposed under the laws
of the United States, or any state or political subdivision thereof, which
arises out of the transfer by the Seller to the Buyer of any of the Acquired
Assets.
(i) Prorations.
(i) Real and personal property taxes for the Acquired Assets shall
be prorated on the Closing Date based upon the taxes assessed for the current
tax year; but if the taxes assessed for the current tax year are not known on
the Closing Date, such taxes shall be prorated based upon the taxes assessed for
the prior tax year and shall be re-prorated within ten (10) days after the
current year tax assessment and rate shall become available with appropriate
payment made.
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(ii) The Seller shall order final readings for utility services,
such as gas, electricity, water and sewer services, as of the Seller's close of
business on the day before the Closing Date, and prorated charges for such
utility services shall be reflected on a Closing settlement statement.
(j) Escrow Agent. The Escrow Agent shall be Boston Private Bank. In the
event Boston Private Bank or any successor declines or is unable to serve, it
shall be succeeded by such person or entity, reasonably acceptable to the Buyer.
All payments made to the Escrow Agent shall be held and distributed in
accordance with an agreement substantially in the form of Exhibit F hereto (the
"Escrow Agreement").
(k) Employee Benefit Plans. Except as specifically set forth in this
Section 2(k), the Buyer shall not assume, honor or accept any Employee Plan or
Benefit Arrangement. Except for vacation benefits expressly included in the
Assumed Liabilities, the Seller shall be solely liable and responsible for
satisfying all obligations (whether arising under federal, state or local law,
or pursuant to contract) that may arise or that may have arisen on or before the
Closing in connection with (i) the employment by Seller of the Seller's
employees, (ii) the engagement of consultants, agents or other non-employee
service providers, (iii) the creation, funding or operation of any of the
Seller's Employee Plans and Benefit Arrangements that cover any of the Seller's
employees, consultants, agents or non-employee service providers, or (iv) the
transactions described in this Agreement, including but not limited to
compliance with the health care continuation requirements under ERISA and the
Code.
(i) Group Health Plans. Buyer will use its reasonable best efforts
to cause its group health benefit plans to (i) waive any exclusions for
pre-existing conditions affecting employees of Seller who are offered and accept
employment with Buyer ("Transferred Employees") pursuant to Section 5(r) and
their eligible family members, and (ii) recognize any out-of-pocket medical and
dental expenses incurred by Transferred Employees and their eligible family
members during 2000, but prior to the Closing Date, for purposes of determining
their deductibles and out-of-pocket maximums under Buyer's plans. In the event
that notwithstanding Buyer's exercise of such reasonable best efforts, Buyer is
unable prior to Closing to cause its group health benefit plans to make such
waivers and recognize such expenses, Buyer shall give notice to the Seller and
Seller shall give prior to Closing the Transferred Employees such notices and
election forms with respect to health care continuation requirements as are
required under ERISA and the Code and provide evidence thereof to Buyer prior to
Closing.
(ii) Future Vacation Benefits. From and after the Closing Date, the
Transferred Employees will be covered by and begin accruing benefits under
Buyer's vacation plan covering its hourly and salaried employees. Buyer's
vacation plan shall recognize all of the Transferred Employees' years of service
with Seller for the purpose of determining their future vacation benefits.
(iii) Service Credit. Buyer shall cause each of its benefit plans to
recognize all of the service that the Transferred Employees completed with
Seller for purposes of determining their eligibility to participate in,
eligibility for benefits under, vesting in accrued benefits, and
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accrual of benefits under such plans. Buyer shall cause its sick leave plan to
credit each Transferred Employee with fourteen (14) hours of accrued sick leave
effective upon their date of hire.
(iv) 401(k) Benefits. The Seller represents and warrants that no
distribution of plan assets (including, without limitation, insurance policies)
or benefits shall be made from the Seller's 401(k) Plan to Transferred Employees
on account of the partial termination of said 401(k) Plan as a result of the
Asset Purchase, unless the Seller has received a favorable determination letter
from the IRS, as a post closing condition, on the qualified status of Seller's
401(k) Plan. The determination letter request by the Seller shall include a
disclosure of this asset sale, the termination of employment of the Transferred
Employees by the Seller, and a description of the tax-qualified plan or plans
covering the Transferred Employees maintained by the Buyer following the
Closing. Seller will cause the account balances of all Transferred Employees
under the 401(k) Plan as of the Closing Date to be fully vested as of such date.
Upon obtaining such a favorable determination letter from the IRS, Seller shall
offer such Transferred Employees the following options with respect to their
account balances:
(A) receive immediate lump sum distributions of their vested
account balances and such other options as required by law;
(B) make a direct rollover of all or any portion of their
vested cash account balances to the Buyer's 401(k) plan ("Buyers
401(k) Plan") (and specifically excluding outstanding participant
loans or "in-kind" transfers);
(C) leave such account balances in Seller's 401(k) Plan, where
they will be governed by the regular provisions of such plan
applicable to former employees; or
(D) make a direct rollover of all or any portion of their
vested cash account balances to a rollover IRA.
As soon as practicable after Seller receives the IRS determination letter
referenced above, Seller shall cause the trustee of its 401(k) Plan to make
direct rollovers to the trust forming a part of the Buyer's 401(k) Plan of cash
in an amount equal to the account balances or portions of the account balances
of the Transferred Employees under the Seller's 401(k) Plan who elect to make
direct rollovers to Buyer's 401(k) Plan as of the transfer rollover date (the
"Account Balances"). Following the Closing, Buyer shall deliver to Seller a
favorable opinion letter or determination letter issued by the Internal Revenue
Service with respect to the Buyer's 401(k) Plan and the related trust regarding
the Plan's qualification under Sections 401(a) and 401(k) of the Code. No direct
rollover shall be made unless Buyer provides Seller with the opinion letter or
determination letter referred to in this Subsection (iv).
(v) Seller represents and warrants that it will file all necessary
reports, notices, disclosures, and filings required by the distribution of the
account balances in the Seller's 401(k) Plan to Transferred Employees, and any
noncompliance or failure properly to administer the Seller's 401(k) Plan or
related trust has not exposed said 401(k) Plan or related trust, Seller or
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any ERISA Affiliate, and will not expose Buyer, to any taxes, penalties or
liabilities, the Seller's 401(k) Plan to disqualification, or the trust to a
loss of tax-exempt status.
(l) Assets Not Assignable.
(i) To the extent that any interest in any of the Acquired Assets is
not capable of being assigned, transferred or conveyed without the consent,
waiver or authorization of any Person and that consent, waiver or authorization
is not obtained, or if such assignment, transfer or conveyance or attempted
assignment, transfer or conveyance would constitute a material breach of any
contract that is called for to be set forth on the Disclosure Schedule in
response or as an exception to Section 3(k) below, or a violation of any law,
statute, decree, rule, regulation or other governmental edict or is not
immediately practicable, then this Agreement shall not constitute an assignment,
transfer or conveyance of such interest, or an attempted assignment, transfer or
conveyance of such interest (such interests being hereinafter collectively
referred to as "Restricted Interests"). The entire beneficial interest in any
Acquired Assets subject to a restriction as described above, and any other
interest in such Acquired Assets, which are transferable notwithstanding such
restriction, shall be transferred at Closing from the Seller to the Buyer as
provided in this Section 2(l).
(ii) In consultation with the Buyer as to the practicalities of
proposed actions, the Seller shall use its reasonable efforts to assist the
Buyer in obtaining such consents, waivers and authorizations and to resolve any
impracticalities of assignment referred to in Section 2(l)(i) hereof.
(iii) To the extent that the consents, waivers and authorizations
referred to in Section 2(l)(i) hereof are not obtained by the Buyer or the
Seller, or until the impracticalities of transfer referred to therein are
resolved, the Seller shall use reasonable efforts to (A) provide to the Buyer,
at the request of the Buyer and at the Seller's expense, the benefits of any
Restricted Interests, (B) cooperate in reasonable and lawful arrangements
designed to provide such benefits to the Buyer and (C) enforce, at the request
of the Buyer for the account of the Buyer, any rights of the Seller arising from
any Restricted Interests (including the right to elect to terminate the
Restricted Interest in accordance with the terms thereof upon the request of the
Buyer).
(iv) Nothing in this Section 2(l) shall limit or alter Buyer's
rights to terminate this Agreement in the event any of the conditions to Closing
set forth in Section 7(a) are not satisfied.
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(m) Assets Subject to Review by Buyer. The patents and patent applications
of Seller listed on Exhibit C (the "Identified Patents and Applications") remain
to be reviewed by Buyer. Seller represents that the Identified Patents and
Applications are foreign applications corresponding to U.S. applications
appearing on Exhibit A-2, continuations, continuations-in-part and divisionals
corresponding to United States patents and patent applications of Seller
appearing on Exhibit A-2 as well as a few cases in which the Identified Patents
and Applications may contain claims other than composition of matter. Prior to
Closing, the Identified Patents and Applications will be reviewed by and on
behalf of the Buyer to ascertain whether any of them contain claims for novel
manufacturing processes useful to the Business ("Novel Process Claims"). Seller
shall cooperate fully in such review by providing access to the Identified
Patents and Applications in a manner similar to that contemplated in Section
5(e) below. In the event that the Buyer determines in good faith that any of the
Identified Patents and Applications contain Novel Process Claims and so
certifies to the Seller then the Seller will grant at Closing to Buyer and its
Affiliates a perpetual, royalty-free, non-exclusive, worldwide license for any
purpose to make, have made, use, sell offer to sell or import products under the
Novel Process Claims in such Identified Patents and Applications certified to
the Seller.
3. Representations and Warranties of the Seller. The Seller represents and
warrants to the Buyer that the statements contained in this Section 3 are
correct and complete as of the date of this Agreement and will be correct and
complete as of the Closing Date (as though made then and as though the Closing
Date were substituted for the date of this Agreement throughout this Section 3),
except as set forth in the disclosure schedule accompanying this Agreement (the
Disclosure Schedule). The Disclosure Schedule will be arranged in paragraphs
corresponding to the lettered and numbered paragraphs contained in this Section
3.
(a) Organization of the Seller. The Seller is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
Delaware with full power and authority to own or lease its properties and to
conduct its business in the manner and in the places where such properties are
owned or leased or such business is currently conducted or proposed to be
conducted. The copies of the Seller's Certificate of incorporation, as amended
to date, certified by the Secretary of State of the State of Delaware, and the
Seller's By-Laws, as amended to date, certified by the Seller's Secretary, and
heretofore delivered to the Buyer, are complete and correct, and no amendments
thereto are pending. The Seller is not in violation of any term of its
Certificate of Incorporation or its By-Laws. The Seller is duly qualified and in
good standing to do business in The Commonwealth of Massachusetts, which is the
only foreign jurisdiction where it is required to be licensed or qualified to
conduct its business or own its property except where the failure to do so would
not have a material adverse effect on the financial condition or business of the
Seller or the Business.
(b) Authorization of Transaction.
(i) The Seller has full power and authority (including full
corporate power and authority) to execute and deliver this Agreement and each
agreement, document and instrument to be executed and delivered by the Seller
(collectively, the "Transaction Documents") and to perform its obligations
hereunder. Without limiting the generality of the
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foregoing, the board of directors of the Seller have unanimously duly authorized
the execution, delivery, and performance of this Agreement and the Transaction
Documents by the Seller. This Agreement and the Transaction Documents constitute
the valid and legally binding obligation of the Seller, enforceable in
accordance with their terms and conditions. Other than as required by this
Agreement, there is no vote of the holders of any class or series of the
Seller's capital stock necessary under applicable law or the Seller's
Certificate of Incorporation or other governing instrument to approve this
Agreement and the Asset Purchase.
(c) Noncontravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the Asset Purchase (including the assignments
and assumptions referred to in Section 2 above), will (i) violate any
constitution, statute, regulation, rule, injunction, judgment, order, decree,
ruling, charge, or other restriction of any government, governmental agency, or
court to which the Seller is subject or any provision of the charter or bylaws
of the Seller or (ii) conflict with, result in a breach of, constitute a default
under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under, any
agreement, contract, lease, license, instrument, or other arrangement to which
the Seller is a party or by which it is bound or to which any of its assets is
subject (or result in the imposition of any Security Interest upon any of its
assets). The Seller needs not give any notice to, make any filing with, or
obtain any authorization, consent, or approval of any government or governmental
agency in order for the Seller to consummate the Asset Purchase or any other
Transaction Documents (including the assignments and assumptions referred to in
Section 2 above).
(d) Brokers' Fees. The Seller has no Liability or obligation to pay any
fees or commissions to any broker, finder, or agent with respect to the Asset
Purchase for which the Buyer could become liable or obligated.
(e) Title to Assets. The Seller has good and marketable title to, or a
valid leasehold interest in, the properties and assets used in the operation of
the Business, located at the Facility, shown on the Most Recent Balance Sheet or
acquired after the date thereof, free and clear of all Security Interests,
except for properties and assets disposed of in the Ordinary Course of Business
since the date of the Most Recent Balance Sheet. Without limiting the generality
of the foregoing, the Seller has good and marketable title to all of the
Acquired Assets, free and clear of any Security Interest or restriction on
transfer. There are no Security Interests on any of the Acquired Assets that
arose or will arise in connection with any failure by Seller to pay any Tax.
(f) Financial Statements; SEC Filings; Proxy Statement.
(i) Seller's unaudited statements of revenues and expenses of the
Business as of and for the year ended December 31, 1999 and as of and for the
five month period ending May 31, 2000 (the "Business Financial Statements"),
including statements of income for and statements of assets and liabilities as
of the end of each of said year and interim period and a detailed description of
the assumptions made in presenting the Business Financial Statements separately
from the financial statements of the Seller, copies of which have been delivered
to Buyer, fairly and consistently with past practice present the financial
position of the Business as
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of said dates and the results of its operations for said years and interim
period, respectively (subject, in the case of the interim statements to normal
year end recurring adjustments, none of which shall be material), have been
prepared and delivered by Seller's management based upon the Seller's management
accounts to the Buyer at its request in connection with the Asset Purchase, are
believed by Seller's management to fairly reflect the revenues and an
appropriate allocation of expenses of the Business during said periods
consistent with prior practice and represent the good faith judgment of Seller's
management.
(ii) The Seller has filed with the SEC all reports, registration
statements, proxy statements and other filings (including all notes, exhibits
and schedules thereto and documents incorporated by reference therein) required
to be filed with the SEC since January 1, 1997 (such reports, registration,
statements and other filings, together with any amendments thereto, are
sometimes collectively referred to as the "SEC Filings"). The SEC Filings and
any forms, reports and other documents filed by the Seller with the SEC after
the date of this Agreement (a) were or will be prepared in all material respects
in accordance with the requirements of the Securities Act and the Exchange Act,
as the case may be, and (b) at the time they were or will be filed with the SEC,
did not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
made therein, in light of the circumstances under which they were made, not
misleading. The audited consolidated financial statements and unaudited interim
financial statements (including any related notes or schedules) included in the
SEC Filings of the Seller for each of the three years in the period ended
December 31, 1999 (the "Most Recent Fiscal Year End") and the three month period
ended March 31, 2000 (the "Most Recent Financial Statements"), were prepared in
accordance with GAAP applied on a consistent basis except as may be indicated
therein or in the notes or schedules thereto, and fairly present the financial
position of the Seller as at the dates thereof and the results of their
operations, cash flows, changes in financial position and changes in
stockholders' equity for the periods then ended (subject, in the case of the
interim statements to normal year end recurring adjustments, none of which shall
be material).
(iii) At the time the Seller Proxy Statement or any amendment or
supplement thereto is first mailed to stockholders of the Seller and at the time
such stockholders vote on approval of the Asset Purchase, the Seller Proxy
Statement, as supplemented or amended, if applicable, will not contain any
untrue statement of a material fact or omit to state any material fact necessary
in order to make the statements made therein, in the light of the circumstances
under which they were made, not misleading.
(g) Events Subsequent to Most Recent Fiscal Year End. Since the Most
Recent Fiscal Year End, there has not been any adverse change in the business,
financial condition, operations, results of operations, or future prospects of
the Business. Without limiting the generality of the foregoing, since that date:
(i) the Seller has not sold, leased, transferred, or assigned any of
its assets relating to or used in the Business, tangible or intangible, other
than for a fair consideration in the Ordinary Course of Business;
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(ii) the Seller has not have entered into any agreement, contract,
lease, or license (or series of related agreements, contracts, leases, and
licenses) relating to the Business either involving more than $5,000 or outside
the Ordinary Course of Business;
(iii) no party has accelerated, terminated, modified, or cancelled
any agreement, contract, lease, or license (or series of related agreements,
contracts, leases, and licenses) relating to the Business involving more than
$5,000 to which the Seller is a party or by which it is bound;
(iv) the Seller has not imposed any Security Interest upon any of
the Acquired Assets;
(v) the Seller has not made any capital expenditure (or series of
related capital expenditures) relating to the Business either involving more
than $5,000 or outside the Ordinary Course of Business;
(vi) the Seller has not made any capital investment in, any loan to,
or any acquisition of the securities or assets of, any other Person (or series
of related capital investments, loans, and acquisitions) relating to the
Business;
(vii) the Seller has not issued any note, bond, or other debt
security or created, incurred, assumed, or guaranteed any indebtedness for
borrowed money or capitalized lease obligation relating to the Business;
(viii) the Seller has not delayed or postponed the payment of
accounts payable and other Liabilities in a materially adverse fashion relating
to the Business outside the Ordinary Course of Business;
(ix) the Seller has not cancelled, compromised, waived, or released
any right or claim (or series of related rights and claims) relating to the
Business either involving more than $5,000 or outside the Ordinary Course of
Business;
(x) the Seller has not granted any license or sublicense of any
rights under or with respect to any Intellectual Property relating to the
Business;
(xi) the Seller has not experienced any damage, destruction, or loss
(whether or not covered by insurance) to the Acquired Assets;
(xii) the Seller has not entered into any employment contract or
collective bargaining agreement relating to the Business, written or oral, or
modified the terms of any existing such contract or agreement;
(xiii) the Seller has not granted any increase in the base
compensation of any of the employees of the Business outside the Ordinary Course
of Business;
(xiv) the Seller has not made any other change in employment terms
for any of the employees of the Business outside the Ordinary Course of
Business;
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(xv) the Seller has not been subject to audit or investigation by
the Internal Revenue Service, the U.S. Department of Labor, the Pension Benefit
Guaranty Corporation or any other governmental agency with respect to any
Employee Plan or Benefit Arrangement maintained or contributed to by the Seller;
(xvi) there has not been any other occurrence, event, incident,
action, failure to act, or transaction outside the Ordinary Course of Business
involving the Business; and
(xvii) the Seller has not committed to any of the foregoing.
(h) Real Property.
(i) The Seller does not own any real property.
(ii) The Facility Lease is the only real property leased or
subleased to the Seller and/or used in or relating to the Business. The Seller
has delivered to the Buyer a correct and complete copy of the Facility Lease (as
amended to date). Furthermore (assuming no breach of the Facility Lease by the
Lessor, of which none of Seller and its officers have any Knowledge):
(A) the Facility Lease is legal, valid, binding, enforceable,
and in full force and effect;
(B) upon Lessor's consent to the assignment of the Lease to
Buyer, the Facility Lease will continue to be legal, valid, binding,
enforceable, and in full force and effect on identical terms
following the consummation of the Asset Purchase (including the
assignments and assumptions referred to in Section 2 above);
(C) no party to the Facility Lease is in breach or default,
and no event has occurred which, with notice or lapse of time, would
constitute a breach or default or permit termination, modification,
or acceleration thereunder;
(D) no party to the Facility Lease has repudiated any
provision thereof;
(E) there are no disputes, oral agreements, or forbearance
programs in effect as to the Facility Lease;
(F) with respect to each sublease, the representations and
warranties set forth in subsections (A)--(E) above are true and
correct with respect to the underlying lease;
(G) the Seller has not assigned, transferred, conveyed,
mortgaged, deeded in trust, or encumbered any interest in the
Facility Lease;
(H) all facilities leased or subleased thereunder have
received all approvals of governmental authorities (including
licenses and permits) required in
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connection with the operation thereof and have been operated and
maintained in accordance with applicable laws, rules, and
regulations; and
(I) all facilities leased or subleased thereunder are supplied
with utilities and other services necessary for the operation of
said facilities.
(i) Intellectual Property.
(i) The Seller owns or has the right to use pursuant to license,
sublicense, agreement, or permission all Intellectual Property necessary or
desirable for the operation of the Business as previously and presently
conducted and as presently proposed to be conducted. Each item of Intellectual
Property owned or used by the Seller immediately prior to the Closing will be
indefeasibly owned or available for use by the Buyer on identical terms and
conditions immediately subsequent to the Closing hereunder and shall not be
subject to any expiration, forfeiture or interference by reason of the Asset
Purchase. The Seller has taken all possible actions to maintain and protect each
item of Intellectual Property included among the Acquired Assets that it owns or
uses.
(ii) The Seller, in the conduct of the Business, has not interfered
with, infringed upon, misappropriated, or otherwise come into conflict with any
Intellectual Property rights of third parties, and none of the directors and
officers (and employees (and to Seller's Knowledge, its consultants), with
responsibility for Intellectual Property matters) of the Seller has ever
received any charge, complaint, claim, demand, or notice alleging any such
interference, infringement, misappropriation, or violation (including any claim
that the Seller must license or refrain from using any Intellectual Property
rights of any third party). To the Knowledge of the Seller and any of the
directors and officers (and employees and consultants with responsibility for
Intellectual Property matters) of the Seller, no third party has interfered
with, infringed upon, misappropriated, or otherwise come into conflict with any
Intellectual Property rights included among the Acquired Assets.
(iii) Section 3(i)(iii) of the Disclosure Schedule identifies each
patent or registration which has been issued to the Seller with respect to any
of the Intellectual Property included among the Acquired Assets, identifies each
pending patent application or application for registration which the Seller has
made with respect to any of its Intellectual Property included among the
Acquired Assets, and identifies each license, agreement, or other permission
which the Seller has granted to any third party with respect to any of the
Intellectual Property (together with any exceptions) included among the Acquired
Assets. The Seller has delivered to the Buyer correct and complete copies of all
such patents, registrations, applications, licenses, agreements, and permissions
(as amended to date) and has made available to the Buyer correct and complete
copies of all other written documentation evidencing ownership and prosecution
(if applicable) of each such item. Section 3(i)(iii) of the Disclosure Schedule
also identifies each trade name or unregistered trademark used by the Seller in
connection with the Business. With respect to each item of Intellectual Property
required to be identified in Section 3(i)(iii) of the Disclosure Schedule:
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(A) the Seller possess all right, title, and interest in and
to the item, free and clear of any Security Interest, license, or
other restriction;
(B) the item is not subject to any outstanding injunction,
judgment, order, decree, ruling, or charge;
(C) no action, suit, proceeding, hearing, investigation,
charge, complaint, claim, or demand is pending or, to the Knowledge
of the Seller or any of the directors and officers (and employees
and consultants with responsibility for Intellectual Property
matters) of the Seller, is threatened which challenges the legality,
validity, enforceability, use, or ownership of the item; and
(D) the Seller have not agreed to indemnify any Person for or
against any interference, infringement, misappropriation, or other
conflict with respect to the item.
(E) for the issued U.S. patents as well as issued foreign
patents and pending foreign patent applications, all maintenance
fees, renewal fees, annuities, and other fees have been paid and are
current and such patents and applications have not lapsed.
(iv) Section 3(i)(iv) of the Disclosure Schedule identifies each
item of Intellectual Property that any third party owns and that the Seller uses
pursuant to license, sublicense, agreement, or permission. The Seller has
delivered to the Buyer correct and complete copies of all such licenses,
sublicenses, agreements, and permissions (as amended to date). With respect to
each item of Intellectual Property required to be identified in Section 3(i)(iv)
of the Disclosure Schedule:
(A) the license, sublicense, agreement, or permission covering
the item is legal, valid, binding, enforceable, and in full force
and effect;
(B) the license, sublicense, agreement, or permission will
continue to be legal, valid, binding, enforceable, and in full force
and effect on identical terms following the consummation of the
Asset Purchase (including the assignments and assumptions referred
to in Section 2 above);
(C) no party to the license, sublicense, agreement, or
permission is in breach or default, and no event has occurred which
with notice or lapse of time would constitute a breach or default or
permit termination, modification, or acceleration thereunder;
(D) no party to the license, sublicense, agreement, or
permission has repudiated any provision thereof;
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(E) with respect to each sublicense, the representations and
warranties set forth in subsections (A) through (D) above are true
and correct with respect to the underlying license;
(F) the underlying item of Intellectual Property is not
subject to any outstanding injunction, judgment, order, decree,
ruling, or charge;
(G) no action, suit, proceeding, hearing, investigation,
charge, complaint, claim, or demand is pending or, to the Knowledge
of the Seller or any of the directors and officers (and employees
and consultants with responsibility for Intellectual Property
matters) of the Seller, is threatened which challenges the legality,
validity, or enforceability of the underlying item of Intellectual
Property; and
(H) the Seller has not granted any sublicense or similar right
with respect to the license, sublicense, agreement, or permission.
(v) To the Knowledge of the Seller or any of the directors and
officers (and employees and consultants with responsibility for Intellectual
Property matters) of the Seller, the Seller will not interfere with, infringe
upon, misappropriate, or otherwise come into conflict with, any Intellectual
Property rights of third parties as a result of the continued operation of its
businesses as presently conducted and as presently proposed to be conducted.
(j) Inventory and Work-in-Process . All inventory and work-in-process of
the Seller included among the Acquired Assets consists of raw materials, goods
in process, and finished goods, all of which is merchantable and fit for the
purpose for which it was procured or manufactured, and none of which is
slow-moving, obsolete, damaged, or defective (the "Business Inventory"), subject
only to the reserve for inventory writedown set forth on the face of the Most
Recent Balance Sheet (rather than in any notes thereto) as adjusted for the
passage of time through the Closing Date in accordance with the past custom and
practice of the Seller.
(k) Contracts. Section 3(k) of the Disclosure Schedule lists all contracts
and other agreements to which the Seller is a party and which are material to
the Business, the Acquired Assets or the Assumed Liabilities, other than those
listed in other Exhibits hereto, including, without limitation:
(i) any agreement (or group of related agreements) for the lease of
personal property to or from any Person;
(ii) any agreement (or group of related agreements), including
purchase orders, for the purchase or sale of raw materials, commodities,
supplies, products, or other personal property, or for the furnishing or receipt
of services, other than (A) any such agreements which have been completely
performed and (B) individual purchase and sales orders issued in the Ordinary
Course of Business for amounts in each case not in excess of $5,000.
(iii) any agreement concerning a partnership or joint venture;
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(iv) any agreement (or group of related agreements) under which it
has created, incurred, assumed, or guaranteed any indebtedness for borrowed
money, or any capitalized lease obligation or under which it has imposed a
Security Interest on any of its assets, tangible or intangible;
(v) any agreement concerning confidentiality or noncompetition;
(vi) any collective bargaining agreement;
(vii) any agreement for the employment relating to the Business of
any individual on a full-time, part-time, consulting, or other basis providing
annual compensation in excess of $25,000 or providing severance benefits;
(viii) any agreement under which the consequences of a default or
termination could have an adverse effect on the business, financial condition,
operations, results of operations, or future prospects of the Business; or
(ix) any other agreement (or group of related agreements) the
performance of which involves consideration in excess of $5,000.
The Seller has delivered to the Buyer a correct and complete copy of each
written agreement listed in Section 3(k) of the Disclosure Schedule (as amended
to date) and a written summary setting forth the terms and conditions of each
oral agreement referred to in Section 3(k) of the Disclosure Schedule. With
respect to each such agreement: (A) the agreement is legal, valid, binding,
enforceable, and in full force and effect; (B) the agreement will continue to be
legal, valid, binding, enforceable, and in full force and effect on identical
terms following the consummation of the Asset Purchase (including the
assignments and assumptions referred to in Section 2 above); (C) no party is in
breach or default, and no event has occurred which with notice or lapse of time
would constitute a breach or default, or permit termination, modification, or
acceleration, under the agreement; and (D) no party has repudiated any provision
of the agreement.
(l) Insurance. Section 3(l) of the Disclosure Schedule sets forth a list
and description of each insurance policy (including policies providing property,
casualty, liability, and workers' compensation coverage and bond and surety
arrangements) to which the Seller has been a party and that relates to the
Business. With respect to each such insurance policy: (A) the policy is legal,
valid, binding, enforceable, and in full force and effect; (B) neither the
Seller nor any other party to the policy is in breach or default (including with
respect to the payment of premiums or the giving of notices), and no event has
occurred which, with notice or the lapse of time, would constitute such a breach
or default, or permit termination, modification or acceleration, under the
policy; and (C) no party to the policy has repudiated any provision thereof. The
Seller has been covered during Seller's business existence by insurance in scope
and amount customary and reasonable for the businesses in which it has engaged
during the aforementioned period. Section 3(l) of the Disclosure Schedule
describes any self-insurance arrangements affecting the Seller.
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(m) Compliance With Laws. The Seller is not in violation of any material
order, decree, consent or judgment (collectively, "Orders"). The Seller (a) is
not in violation of any Governmental Regulations, the violation of which would
materially and adversely affect the assets, business, operations or condition
(financial or otherwise) of the Business, or (b) to the Knowledge of the Seller,
would not be in violation of any such Governmental Regulation that has been
enacted or adopted but is not yet effective, if it were effective at the date
hereof. The Seller (including each of its professional employees) has all
permits, licenses, orders or approvals of any federal, state or local
governmental or regulatory body that are necessary in the conduct of the
Business except for permits, licenses, orders or approvals which, if not held by
the Seller, would not have a material adverse effect on the Business or the
Acquired Assets (collectively, "Permits"). All Permits are in full force and
effect, no violations are known to, nor have any notices of any violations been
received by, the Seller in respect of any Permit, and no proceeding is pending
or, to the Knowledge of the Seller, threatened to revoke or limit any Permit.
(n) Actions and Proceedings. There are no suits, actions, claims or legal,
administrative or arbitration proceedings or investigations, (collectively,
"Actions") (whether or not the defense thereof or liabilities in respect thereof
are covered by policies of insurance), pending or, to the Knowledge of the
Seller, threatened, against, involving or affecting the Business, or, to the
Knowledge of the Seller, any employee of the Business, or any of the Acquired
Assets, which, individually or in the aggregate, if adversely decided against
the Seller or the Business, could reasonably be expected to have a material
adverse effect on the Asset Purchase or upon the assets, business, operations or
condition (financial or otherwise) of the Business, and there are no outstanding
Orders against, or, to the Knowledge of the Seller, involving or materially
affecting, the Business. There are no Actions pending or, to the Knowledge of
the Seller, threatened which would give rise to any material right of
indemnification from the Seller or any successor to the Business. To the
Knowledge of the Seller, no valid basis exists for any Action of the nature
referred to above.
(o) Undisclosed Liabilities. The Seller does not have any Liability (and
there is no basis for any present or future action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand against any of them giving
rise to any Liability), except for (i) Liabilities set forth on the face of the
Most Recent Balance Sheet and (ii) Liabilities which have arisen after the Most
Recent Fiscal Year End in the Ordinary Course of Business (none of which results
from, arises out of, relates to, is in the nature of, or was caused by any
breach of contract, breach of warranty, tort, infringement, or violation of
law).
(p) Customers; Purchase Orders . The Seller has previously provided to
Buyer a list which sets forth the names and addresses of the twenty-five largest
customers of the Business (in dollar volume) during 1999 and 2000 to date, which
list is true and correct as of the date of its delivery and shall be true and
correct as of the Closing. Seller is in full compliance with all its obligations
under all agreements and outstanding purchase orders included among the Acquired
Assets for products or services of the Business and the Business Inventory and
other necessary materials on hand on the Closing Date shall be sufficient to
enable all such open purchase orders to be fulfilled by the Business on a timely
basis.
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(q) Employment Agreements and Arrangements.
(i) Section 3(q)(i) of the Disclosure Schedule contains a true and
complete list of the names, salaries, total compensation, title or functional
position of each employee, consultant, representative, salesman or agent serving
the Business on or subsequent to March 31, 2000 (collectively, the "Personnel"),
together with a description of any related employment or remuneration agreements
and an estimate of accrued vacation through the Closing Date. There is no
agreement to increase the wages from those indicated in said Exhibit, or to
modify the current conditions or terms of employment of any Personnel. Except
for agreements and arrangements listed in Section 3(q)(i) of the Disclosure
Schedule, the Seller has no Employee Plans or Benefits Arrangements.
(ii) the Seller has not at any time had, nor, to its Knowledge, is
there now threatened, a strike, picket, work stoppage, work slowdown or other
labor trouble that had or may have a material adverse effect on the assets,
operations or condition (financial or otherwise) or, in the reasonable business
judgment of the Seller, prospects of the Business. No unfair labor practice
complaint relating to the Business is pending before the National Labor
Relations Board or any state or local agency, and no labor strike, grievance or
other labor trouble affecting the Business is pending or, to the Knowledge of
the Seller, threatened, and, to the Knowledge of the Seller, no basis exists for
any such complaint or labor trouble.
(iii) No claim relating to the Business with respect to labor
organization or representation, or with respect to any kind of discrimination
made unlawful by federal, state or local law, including without limitation
discrimination on the basis of race, national origin, gender, religion, age, or
disability is pending before any federal, state or local governmental body
respecting the Business; no such claim has been raised in a writing received by
the Seller since January 1, 1997; and, to the Knowledge of the Seller, no basis
for any such claim exists.
(iv) No arbitration proceeding respecting the Business arising out
of or under any collective bargaining agreement is pending before a governmental
body and, to the Knowledge of the Seller, no basis for any such proceeding
exists.
(v) All reasonably anticipated material obligations, whether arising
by operation of law, contract, past custom or otherwise, for unemployment and
workmen's compensation benefits, pension benefits, advances, salaries, overtime
or vacation pay, bonuses, sick leave and other forms of compensation payable to
the employees, consultants or agents of the Business in respect of the services
rendered by any of them have been paid or accrued for in accordance with GAAP.
(vi) No employee of the Seller who accepts employment with the Buyer
will be subject to the "golden parachute" excise tax under Section 4999 of the
Code with respect to any Employee Plan or Benefit Arrangement in connection with
the Asset Purchase.
(r) Environmental, Health, and Safety Matters.
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(i) Each of the Seller and to the Seller's actual knowledge, its
predecessors and Affiliates, has, at all times in the past, complied and is in
compliance with all Environmental, Health, and Safety Requirements applicable to
the Business and the Acquired Assets.
(ii) Without limiting the generality of the foregoing, each of the
Seller and its Affiliates has obtained and complied with, and is in compliance
with, all permits, licenses and other authorizations that are required pursuant
to Environmental, Health, and Safety Requirements for the occupation of the
Facility and the operation of the Business and the Acquired Assets; a list of
all such permits, licenses and other authorizations is set forth on the attached
"Environmental and Safety Permits Schedule."
(iii) Neither the Seller nor to the Seller's actual knowledge, its
predecessors or Affiliates, has received any written or oral notice, report or
other information regarding any actual or alleged violation of Environmental,
Health, and Safety Requirements, or any liabilities or potential liabilities
(whether accrued, absolute, contingent, unliquidated or otherwise), including
any investigatory, remedial or corrective obligations, relating to any of them
or their facilities or the Business or the Acquired Assets arising under
Environmental, Health, and Safety Requirements.
(iv) None of the following exists at any property or facility owned,
leased or operated by the Seller with respect to the Business: (1) underground
storage tanks, (2) asbestos-containing material in any form or condition, (3)
materials or equipment containing polychlorinated biphenyls, or (4) landfills,
surface impoundments, or disposal areas.
(v) None of the Seller or to the Seller's actual knowledge, its
predecessors or Affiliates, has treated, stored, disposed of, transported,
arranged for the treatment, storage, disposal or transport of, handled, or
released any of the materials, substances, or wastes specified in the definition
of Environmental, Health and Safety Requirements, or owned or operated any
property or facility (and no such property or facility is contaminated by any
such substance) in a manner that has given or would give rise to liabilities,
including any liability for response costs, corrective action costs, personal
injury, property damage, natural resources damages or attorney fees, pursuant to
the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended ("CERCLA"), the Solid Waste Disposal Act, as amended ("SWDA")
or any other Environmental, Health, and Safety Requirements.
(vi) Neither this Agreement nor the consummation of the transaction
that is the subject of this Agreement will result in any obligations for site
investigation or cleanup, or notification to or consent of government agencies
or third parties, pursuant to any Environmental, Health, and Safety
Requirements.
(vii) Neither the Seller nor to the Seller's actual knowledge, any
of its predecessors or Affiliates has, either expressly or by operation of law,
assumed or undertaken any liability, including without limitation any obligation
for corrective or remedial action, of any other Person relating to
Environmental, Health, and Safety Requirements.
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(viii) No facts, events or conditions relating to the past or
present facilities, properties or operations of the Seller or, to the Seller's
actual knowledge, any of its predecessors or Affiliates will prevent, hinder or
limit continued compliance with Environmental, Health, and Safety Requirements,
give rise to any investigatory, remedial or corrective obligations pursuant to
Environmental, Health, and Safety Requirements, or give rise to any other
liabilities (whether accrued, absolute, contingent, unliquidated or otherwise)
pursuant to Environmental, Health, and Safety Requirements, including without
limitation any relating to onsite or offsite releases or threatened releases of
hazardous materials, substances or wastes, personal injury, property damage or
natural resources damage.
(s) Product Warranty. Each product manufactured, sold, leased, or
delivered by the Business has been in conformity with all applicable contractual
commitments and all express and implied warranties, and the Seller does not have
any Liability (and to Seller's Knowledge there is no basis for any present or
future action, suit, proceeding, hearing, investigation, charge, complaint,
claim, or demand against any of them giving rise to any Liability) for
replacement or repair thereof or other damages in connection therewith, subject
only to the reserve for product warranty claims set forth on the face of the
Most Recent Balance Sheet as adjusted for the passage of time through the
Closing Date in accordance with the past custom and practice of the Seller. No
product manufactured, sold, leased, or delivered by the Business is subject to
any guaranty, warranty, or other indemnity beyond the applicable standard terms
and conditions of sale or lease. Section 3(s) of the Disclosure Schedule
includes copies of the standard terms and conditions of sale or lease for the
Seller (containing applicable guaranty, warranty, and indemnity provisions).
(t) Subsidiaries. The Seller presently has no Subsidiaries and except as
set forth in Section 3(t) of the Disclosure Schedule, owns no stock or other
securities of nor has any investment in any corporation, joint venture,
partnership or other business enterprise.
(u) Personal Property. Except for tangible personal property that has been
disposed of in the Ordinary Course of Business since the Most Recent Balance
Sheet, the Seller owns all tangible personal property constituting the Acquired
Assets, necessary for the operation of the Business and reflected on the Most
Recent Balance Sheet. All tangible personal property of the Seller is located
upon the Seller's premises, except items in transit or identified as otherwise
located in Section 3(u) of the Disclosure Schedule. To the Knowledge of the
Seller, all such tangible personal property is in good condition and repair
(normal wear and tear excepted); provided, that this Section 3(u) shall not
apply to the Water for Injection plant ("WFI") and, provided that the Seller
shall provide to Buyer a certification of a qualified independent third party
that all equipment necessary for the operation of the WFI is in situ and
provided that such certification is provided not less than four weeks prior to
Closing.
(v) Third Party Consents. Except as set forth Section 3(v) of the
Disclosure Schedule, no third party consents, approvals or authorizations are
necessary for the execution and consummation of the Asset Purchase, nor are any
such consents, approvals or authorizations required in order for any of the
Acquired Assets to be assigned to the Buyer or to prevent the creation, material
modification or acceleration of any termination or other material right of any
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party other than Seller under any contract or agreement that is or is required
to be set forth on the Disclosure Schedule in response or as an exception to
Section 3(k) above.
(w) Product Liability. The Seller has no Liability (and to Seller's
Knowledge there is no basis for any present or future action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand giving rise to any
Liability) arising out of any injury to individuals or property as a result of
the ownership, possession, or use of any product manufactured, sold, leased, or
delivered by the Seller.
(x) Certain Business Relationships with the Seller . Except as described
in the SEC Filings, no Affiliate of the Seller has been involved in any business
arrangement or relationship with the Seller within the past 12 months, and no
Affiliate of the Seller owns any asset, tangible or intangible, which is used in
the Business.
(y) Other Assets. The Acquired Assets transferred to the Buyer by the Bill
of Sale and other instruments of transfer referred to in Section 2 of this
Agreement are all of the assets, properties, rights or interests which are
material to the conduct and operations of the Business.
(z) Disclosure. The representations and warranties contained in this
Section 3 do not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements and
information contained in this Section 3 not misleading.
4. Representations and Warranties of the Buyer. The Buyer represents and
warrants to the Seller that the statements contained in this Section 4 are
correct and complete as of the date of this Agreement and will be correct and
complete as of the Closing Date (as though made then and as though the Closing
Date were substituted for the date of this Agreement throughout this Section 4).
(a) Organization of the Buyer. The Buyer is a corporation duly organized,
validly existing, and in good standing under the laws of the jurisdiction of its
incorporation.
(b) Authorization of Transaction. The Buyer has full power and authority
(including full corporate power and authority) to execute and deliver this
Agreement and to perform its obligations hereunder. This Agreement constitutes
the valid and legally binding obligation of the Buyer, enforceable in accordance
with its terms and conditions.
(c) Noncontravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the Asset Purchase (including the assignments
and assumptions referred to in Section 2 above), will (i) violate any
constitution, statute, regulation, rule, injunction, judgment, order, decree,
ruling, charge, or other restriction of any government, governmental agency, or
court to which the Buyer is subject or any provision of its charter or bylaws or
(ii) conflict with, result in a breach of, constitute a default under, result in
the acceleration of, create in any party the right to accelerate, terminate,
modify, or cancel, or require any notice under any agreement, contract, lease,
license, instrument, or other arrangement to which the Buyer is a party or by
which it is bound or to which any of its assets is subject. The Buyer does not
need to give any notice to, make any filing with, or obtain any authorization,
consent, or approval of any
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government or governmental agency in order for the Parties to consummate the
Asset Purchase (including the assignments and assumptions referred to in Section
2 above).
(d) Brokers' Fees. The Buyer has no Liability or obligation to pay any
fees or commissions to any broker, finder, or agent with respect to the Asset
Purchase for which the Seller could become liable or obligated.
(e) Disclosure. The representations and warranties contained in this
Section 4 do not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements and
information contained in this Section 4 not misleading.
5. Pre-Closing Covenants. The Parties agree as follows with respect to the
period between the execution of this Agreement and the Closing.
(a) General. Each of the Parties will use its reasonable best efforts to
take all action and to do all things necessary proper, or advisable in order to
consummate and make effective the Asset Purchase (including satisfaction, but
not waiver, of the Closing conditions set forth in Section 7 below).
(b) Notices and Consents. The Seller will give the notices to third
parties and obtain the third party consents and waivers listed on Schedule 5(b)
hereto including consents and waivers of rights of first offer or rights of
first refusal for the transfer of all Intellectual Property controlled or
administered by the National Institutes of Health and licensed to Seller and all
third party license agreements, including agreements with Methylgene and
OriGenix, to the extent such licenses or agreements are to be transferred), and
will use its best efforts to obtain any other third party consents or waivers
that the Buyer may reasonably request in connection with the matters referred to
in Section 3 above it being expressly agreed that if Seller seeks prior to
Closing to add to or modify the Disclosure Schedule to disclose the necessity of
obtaining any notice, waiver or consent in connection with the matters referred
to in Section 3 above in order to make its representations and warranties in
Section 3 accurate, Buyer shall be entitled to require Seller to obtain any such
notice, waiver or consent as a condition to Closing. Each of the Parties will
give any notices to, make any filings with, and use its reasonable best efforts
to obtain any authorizations, consents, and approvals of governments and
governmental agencies in connection with the matters referred to in Section 3(c)
and Section 4(c) above.
(c) Operation of Business. The Seller will not engage in any practice,
take any action, or enter into any transaction outside the Ordinary Course of
Business. Without limiting the generality of the foregoing, the Seller will not
otherwise engage in any practice, take any action, or enter into any transaction
of the sort described in Section 3(g) above.
(d) Preservation of Business. The Seller will keep its business and
properties, including the Business, substantially intact, including its present
operations, physical facilities, working conditions, and relationships with
lessors, licensors, suppliers, customers, and employees.
(e) Full Access.
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(i) The Seller will permit representatives of the Buyer to have full
access at all reasonable times during normal business hours, and in a manner so
as not to interfere with the normal business operations of the Seller, to all
premises, properties, personnel, books, records (including Tax records),
contracts, and documents of or pertaining to the Seller for the purpose of
examination and review of Seller's affairs solely with respect to the Business.
Subject to the limitations set forth in the preceding sentence, Seller shall
cooperate fully with Buyer to allow Buyer to study and review the operation of
the Business, including accounting and information systems arrangements to
facilitate an orderly transition to the independent operation of the Business
after closing.
(ii) The Seller will permit and facilitate Buyer's access to
Seller's customers in order to (i) ensure a smooth transition of the Business to
Buyer at and subsequent to Closing; and (ii) to prevent any erosion of sales or
customer loyalty following the Asset Purchase.
(f) Notice of Developments. Each Party will give prompt written notice to
the other Party of any material adverse development causing a breach of any of
its own representations and warranties in Section 3 and Section 4 above. No
disclosure by any Party pursuant to this Section 5(f), however, shall be deemed
to amend or supplement the Disclosure Schedule or to prevent or cure any
misrepresentation, breach of warranty, or breach of covenant, provided that,
without prejudice to Buyer's rights to terminate this Agreement prior to Closing
for the failure of any condition set forth under Section 7(a) hereto, any such
misrepresentation or breach so disclosed prior to the Closing Date with receipt
thereof acknowledged by Buyer in writing prior to Closing will not survive the
Closing.
(g) Exclusivity.
(i) During the period from the date of this Agreement and continuing
until the earlier of the termination of this Agreement or the Closing, the
Seller shall not, directly or indirectly, through any officer, director,
employee, representative or agent of the Seller or any of its Subsidiaries,
solicit or encourage the initiation of any inquiries or proposals regarding any
merger, sale of assets (including the Acquired Assets), sale of shares of
capital stock (including without limitation by way of a tender offer) or similar
transactions involving the Seller or any of its Subsidiaries (any of the
foregoing inquiries or proposals being referred to herein as an "Acquisition
Proposal"). Nothing contained in this Section 5(g) shall prevent the Board of
Directors of the Seller from considering, negotiating, approving and
recommending to the stockholders of the Seller an unsolicited bona fide
Acquisition Proposal; provided, however, that with regard to such Acquisition
Proposal, (A) the Board of Directors of the Seller determines in good faith
(after consultation with its financial advisors, and upon the written advice of
counsel that the Board of Directors is required to do so under applicable law)
such an acquisition would result in at least 5% greater value to Seller than the
consideration to be paid by Buyer in the Asset Purchase or as modified by any
new proposal made by Buyer pursuant to a counter described in (D) below, (B)
such Acquisition Proposal is without any material conditions to closing
(including, without limitation, financing or material adverse change
conditions), (C) the party making the Acquisition Proposal has demonstrable
financial wherewithal to complete the proposed transaction or an unconditional
(other than customary non-substantive conditions)
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commitment for adequate financing to so do from a recognized institutional
lender, and (D) the Buyer has first been provided an opportunity to counter any
such Acquisition Proposal which Seller's Board of Directors intends to recommend
to the stockholders of Seller (any such Acquisition Proposal satisfying the
conditions of (A), (B), (C) and (D) being referred to herein as a "Superior
Proposal")
(ii) the Seller shall promptly (and in any event within two business
days) notify the Buyer after receipt of any Acquisition Proposal or any request
for nonpublic information relating to the Seller or any of its subsidiaries in
connection with an Acquisition Proposal or for access to the properties, books
or records of the Seller or any Subsidiary by any person that informs the Board
of Directors or officers of the Seller or such Subsidiary that it intends to
make, or has made, an Acquisition Proposal. Such notice to the Buyer shall be
made orally and in writing and shall indicate in reasonable detail the identity
of the offer and the terms and conditions of such proposal, inquiry or contact.
(iii) If the Board of Directors of the Seller receives a request for
material nonpublic information by a party who makes a bona fide Acquisition
Proposal and the Board of Directors of the Seller determines that such proposal
is a Superior Proposal then, and only in such case, the Seller may, subject to
the execution of a confidentiality agreement between the Seller and such party
substantially similar to that now in effect between the Seller and the Buyer,
provide such party with access to information regarding the Seller, provided
that any information provided to such party that was not previously provided to
the Buyer shall be contemporaneously provided to the Buyer.
(iv) the Seller shall immediately cease and cause to be terminated
any existing discussions or negotiations with any parties (other than the Buyer)
conducted heretofore with respect to any of the foregoing. The Seller shall not
release any third party from any confidentiality or standstill agreement to
which the Seller is a party.
(v) the Seller shall use reasonable efforts to ensure that the
officers and directors of the Seller and any investment banker or other advisor
or representative retained by the Seller are aware of, and comply with, the
restrictions described in this section.
(h) Leasehold Title Insurance. The Seller shall cooperate fully with
Buyer's election to obtain, at Buyer's expense, any leasehold title insurance
commitments, policies, and riders with respect to the Facility Lease as Buyer
shall reasonably desire to obtain in preparation for the Closing.
(i) Surveys. With respect to each parcel of real property that the Seller
owns, leases, or subleases, and as to which a title insurance policy is to be
procured pursuant to Section 5(h) above, the Seller will fully cooperate with
Buyer's efforts to procure (at Buyer's expense) in preparation for the Closing a
current survey of the real property certified to the Buyer, prepared by a
licensed surveyor and conforming to current ALTA Minimum Detail Requirements for
Land Title Surveys, disclosing the location of all improvements, easements,
party walls, sidewalks, roadways, utility lines, and other matters shown
customarily on such surveys, and showing access affirmatively to public streets
and roads (the "Survey"). Any such Survey
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obtained by Buyer shall not disclose any survey defect or encroachment from or
onto the real property which has not been cured or insured over prior to the
Closing.
(j) Proxy Statement. As promptly as practicable after the execution of
this Agreement, and in any event within three weeks of the date hereof, the
Seller shall prepare and (after providing the Buyer a reasonable opportunity to
review and comment thereon) file with the SEC a preliminary form of proxy
statement and other proxy materials related thereto on a confidential basis
under Exchange Act Rule 14a-6(e)(2). As promptly as practicable after comments
are received from the SEC thereon the Seller shall respond thereto (after
providing the Buyer a reasonable opportunity to review and comment on such
comments and proposed response) and use its best efforts to obtain the consent
of the SEC to print and mail a definitive form of the proxy statement (the
"Seller Proxy Statement") as soon thereafter as practicable. The Seller Proxy
Statement shall include the unanimous recommendation of the Board of Directors
of the Seller in favor of the consummation of the Asset Purchase.
(k) Stockholders Meeting. The Seller shall call and hold a special
stockholders meeting (the "Stockholders Meeting") of the holders of its common
stock and Series A preferred stock as promptly as practicable subsequent to the
execution of this Agreement for the purpose of voting to approve the Asset
Purchase. The Seller shall use reasonable efforts to solicit from its
stockholders proxies in favor of the Asset Purchase, and shall take all other
action necessary or advisable to secure the vote or consent of stockholders
required by applicable law to obtain such approvals; provided, however, that the
Seller's Board of Directors shall not be required to take any actions in
contravention of the applicable fiduciary duties of the respective directors, as
determined by such directors in good faith after consultation with and based
upon the advice of legal counsel.
(l) Voting Agreements. Within four weeks of the date hereof, or if
earlier, prior to the mailing of the Seller Proxy Statement, the Seller shall
deliver to the Buyer agreements in substantially the form of Exhibit I hereto
executed by each of such security holders of the Seller as are identified by
Buyer to Seller in writing within two weeks of the date hereof from those listed
on Exhibit J hereto, which agreements shall not be modified or terminated prior
to Closing.
(m) Fairness Opinion. Within one week of the execution of this Agreement,
the Seller shall obtain an opinion of Adams, Harkness & Hill ("AH&H") addressed
to the Board of Directors of Seller (the "Fairness Opinion"), which Fairness
Opinion shall be annexed to the Seller Proxy Statement and a copy of which shall
be delivered to the Buyer immediately upon being rendered by AH&H. The Fairness
Opinion shall opine that the Purchase Price for the Acquired Assets is fair to
the Seller from a financial point of view. Buyer agrees to reimburse Seller for
the fees and expenses charged by AH&H in rendering the Fairness Opinion, such
reimbursement amount not to exceed the lesser of (i) one half of the fees and
expenses charged by AH&H, or (ii) $100,000.
(n) Supplemental Disclosure. On or before the Closing Date, the Seller
shall inform the Buyer in writing of all information, events or actions which,
if this Agreement were signed on the Closing Date, would be required to be
disclosed on the Disclosure Schedule in order to
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make the Seller's representations and warranties contained herein true and not
misleading. The delivery thereof by the Seller shall not absolve the Seller from
liability for breach of any representation or warranty which was untrue when
made if Buyer terminates this Agreement on account of such breach as provided in
Section 9(a)(vi).
(o) Tax Lien Waiver. Within two weeks of the date hereof, the Seller shall
apply to obtain a Tax Lien Waiver Certificate from the Massachusetts Department
of Revenue and shall deliver a copy of such application to Buyer upon filing.
(p) Fulfill Conditions. The Seller shall use its best efforts to cause to
be fulfilled on or prior to the Closing each of the conditions set forth in
Section 7(a) hereof.
(q) Regulatory Approvals. All consents, approvals, authorizations and
other requirements prescribed by any law, rule or regulation which must be
obtained or satisfied by the Buyer and which are necessary for the consummation
of the Asset Purchase will be, prior to the Closing Date, obtained, waived or
otherwise satisfied. Notwithstanding anything contained herein to the contrary,
in the event Buyer has diligently pursued any such consents, approvals,
authorizations or requirements but has not obtained same at Closing, the Parties
shall, at Buyer's election, proceed with the Closing, provided Buyer shall
indemnify Seller for liability associated with a continued failure to obtain any
required consents, approvals or authorizations;
(r) Employee Offers. Prior to and contingent upon the Closing, Buyer shall
offer employment positions to such current employees of the Business as it may
choose in its sole discretion, provided that the employment benefits (other than
benefits regarding any bonus, profit-sharing, stock option, or other stock
related rights or other forms of incentive or deferred compensation) offered by
Buyer shall be (i) substantially similar to those currently enjoyed by each such
employee (as determined by Buyer using reasonable valuation methods) and (ii)
subject to such additional terms and conditions as Buyer may reasonably require,
including that such employment be on an "at-will" basis and that such employees
execute acknowledgements and estoppel agreements as to the absence of any
obligations of Seller or any of the Seller's Employee Plans and Benefit
Arrangements (whether arising under federal, state or local law, or pursuant to
contract) that may arise or that may have arisen on or before the Closing in
connection with the employment by Seller of such employee, other than accrued
vacation not to exceed four weeks (or earned but unpaid vacation pay in lieu
thereof) which constitutes an Assumed Liability.
(s) Pharmacia Oligo Process System. Seller shall engage a qualified,
independent third party to perform a maintenance overhaul on the machinery and
equipment known as the Pharmacia Oligo Process System (Reference No. PO 12152).
Such maintenance overhaul shall be sufficient to establish that the Pharmacia
Oligo Process System is in good repair and operates within the manufacturer's
specifications. Upon completion of the maintenance overhaul (and in no event
later than 4 weeks prior to Closing), the third party technician shall provide a
certificate to the condition of the equipment and its operating parameters,
which shall be satisfactory to the Buyer.
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(t) Monthly Financial Information. Seller shall furnish to the Buyer
within three weeks of the end of each month prior to Closing (commencing with
the month ended June 30, 2000) statements of revenues and expenses of the
Business as of such date and for each such month, including statements of income
for and statements of assets and liabilities as of the end of each of such month
and a detailed description of the assumptions made in presenting such monthly
statements separately from the financial statements of the Seller, together with
a detailed listing of all customer purchase orders for products of the Business
which have not been fulfilled or invoiced as of such month end. Such monthly
financial statements shall fairly and consistently with past practice present
the financial position of the Business as of said dates and the results of its
operations for said monthly period (subject to normal year end recurring
adjustments, none of which shall be material), shall fairly reflect the revenues
and an appropriate allocation of expenses of the Business during said months
consistent with prior practice and represent the good faith judgment of Seller's
management.
6. Post-Closing Covenants. The Parties agree as follows with respect to
the period following the Closing.
(a) General. In case at any time after the Closing any further action is
necessary or desirable to carry out the purposes of this Agreement, each of the
Parties will take such further action (including the execution and delivery of
such further instruments and documents) as the other Party reasonably may
request (including, without, limitation assignments of patents, patent
applications and patent rights and inventions included among the Acquired
Assets), at the sole cost and expense of the requesting Party (unless the
requesting Party is entitled to indemnification therefor under Section 8 below).
The Seller acknowledges and agrees that from and after the Closing the Buyer
will be entitled to possession of all documents, books, records (including Tax
records), agreements, and financial data of any sort relating to the Business.
(b) Litigation Support. In the event and for so long as any Party actively
is contesting or defending against any action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand in connection with (i) any
transaction contemplated under this Agreement or (ii) any fact, situation,
circumstance, status, condition, activity, practice, plan, occurrence, event,
incident, action, failure to act, or transaction on or prior to the Closing Date
involving the Seller and its activities in connection with the Business, the
other Party will cooperate with the contesting or defending Party and its
counsel in the contest or defense, make available its personnel, and provide
such testimony and access to its books and records as shall be necessary in
connection with the contest or defense, all at the sole cost and expense of the
contesting or defending Party (unless the contesting or defending Party is
entitled to indemnification therefor under Section 8 below).
(c) Transition. The Seller will not take any action that is designed or
intended to have the effect of discouraging any lessor, licensor, customer,
supplier, or other business associate of any of the Seller from maintaining the
same business relationships with the Buyer after the Closing as it maintained
with the Seller prior to the Closing. The Seller will refer all customer
inquiries relating to the businesses of the Seller to the Buyer from and after
the Closing.
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(d) Confidentiality. All information which is not public knowledge
disclosed heretofore or hereafter by any party to any other party (including its
attorneys, accountants or other representatives) in connection with this
Agreement (including the existence of this Agreement and the terms thereof)
shall be kept confidential by such other party, and shall not be used by such
other party except for use as herein contemplated, except to the extent (a) it
is or hereafter becomes public knowledge or becomes lawfully obtainable from
other sources, including a third party who is under no obligation of
confidentiality to the party disclosing such information or to whom information
was released without restriction; (b) such other party is compelled to disclose
such information by judicial or administrative process or, in the opinion of its
counsel, by other requirements of law; or (c) such duty as to confidentiality
and non-use is required by such disclosing party. In the event of termination of
this Agreement, each party shall exercise all reasonable efforts to return, upon
request, to the other parties all documents and reproductions thereof received
from such other parties (and, in the case of reproductions, all such
reproductions made by the receiving party) that include information not within
the exceptions contained in the first sentence of this Section 6(d).
(e) Covenant Not to Compete. For a period of five years from and after the
Closing Date, the Seller will not engage directly or indirectly (including by
ownership of more than 5% of the voting power or economic interest of any entity
that so engages, other than ownership of not more than 20% of the voting power
or economic interest of Methylgene or OriGenix) in the manufacture and sale of
advanced chemistry compounds and pharmaceuticals, including, without limitation,
assets for the manufacturing of oligonucleotide compounds and intermediate
compounds and phosphorothioate oligonucleotides. If the final judgment of a
court of competent jurisdiction declares that any term or provision of this
Section 6(e) is invalid or unenforceable, the Parties agree that the court
making the determination of invalidity or unenforceability shall have the power
to reduce the scope, duration, or area of the term or provision, to delete
specific words or phrases, or to replace any invalid or unenforceable term or
provision with a term or provision that is valid and enforceable and that comes
closest to expressing the intention of the invalid or unenforceable term or
provision, and this Agreement shall be enforceable as so modified after the
expiration of the time within which the judgment may be appealed.
Notwithstanding the foregoing, if the Supply Agreement is terminated for
any reason other than a breach by Seller, the Seller may engage in the
manufacture of phosphorothioate oligonucleotides for its own use and research,
but not for sale to or use by any third party other than use by Methylgene or
OriGenix and except as may be specifically provided in the Supply Agreement.
(f) Non-Solicitation Except as may be allowed by law, or otherwise agreed
to by the Buyer and the Seller, pending the Closing and for a period of three
years thereafter, neither Buyer nor Seller shall solicit any person who was an
employee of the other Party on the Closing Date (or is an employee of Seller
within six months thereafter) for the purpose of becoming an employee of the
soliciting Party. Notwithstanding this provision, Buyer shall be entitled to
solicit and employ individuals as set forth in Section 5(r)(Employee Offers)
above.
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(g) Sharing of Data The Seller shall have the right for a period of three
years following the Closing Date to have reasonable access to such books,
records and accounts, including financial and tax information, correspondence,
production records, employment records and other similar information as are
transferred to the Buyer pursuant to the terms of this Agreement for the limited
purposes of concluding Seller's involvement in the Business prior to the Closing
Date and for complying with its obligations under applicable securities, tax,
environmental, employment or other laws and regulations. Buyer shall have the
right for a period of three years following the Closing Date to have reasonable
access to those books, records and accounts, including financial and tax
information, correspondence, production records, employment records and other
records which are retained by the Seller pursuant to the terms of this Agreement
to the extent that any of the foregoing relates to Business or is otherwise
needed by the Buyer in order to comply with its obligations under applicable
securities, tax, environmental, employment or other laws and regulations.
(h) Patent Applications. In all current patent applications which Seller
owns in which are subject matter useful in a method of manufacturing
phosphorothioate oligonucleotides and/or pharmaceutical compositions thereof,
Seller will not allow such applications to go abandoned and will not fail to
timely file any appropriate Divisional Applications with respect thereto without
the prior written consent of Buyer, not to be unreasonably withheld.
7. Conditions to Obligations to Close.
(a) Conditions to Obligation of the Buyer . The obligation of the Buyer to
consummate the Asset Purchase and to perform its obligations hereunder and in
connection with the Closing is subject to satisfaction of the following
conditions:
(i) the representations and warranties set forth in Section 3 above
shall be true and correct in all material respects at and as of the Closing
Date;
(ii) there shall not have been since the date hereof any material
adverse change to the Facility or the Acquired Assets (included any insured
damage which cannot be fully repaired within 30 days) or the financial condition
or prospects of the Seller or the Business;
(iii) the Seller shall have performed and complied with all of its
covenants hereunder in all material respects through the Closing;
(iv) the Seller shall have procured all of the third party consents
set forth in Schedule 5(b), and the Seller shall have obtained any
authorizations, consents, and approvals of governments and governmental agencies
that is or is required to be set forth in Section 3(c) of the Disclosure
Schedule;
(v) no action, suit, or proceeding shall be pending or threatened
before any court or quasi-judicial or administrative agency of any federal,
state, local, or foreign jurisdiction or before any arbitrator wherein an
unfavorable injunction, judgment, order, decree, ruling, or charge would (A)
prevent consummation of the Asset Purchase, (B) cause the Asset Purchase (or any
portion thereof) to be rescinded following consummation, (C) affect adversely
the right of
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the Buyer to own the Acquired Assets or to operate the Business, or (D) affect
adversely the right of the Seller to own its assets and to operate its remaining
businesses (and no such injunction, judgment, order, decree, ruling, or charge
shall be in effect);
(vi) holders of at least 75% of the Seller's outstanding shares of
Series A Preferred Stock (as of the record date for the Stockholders Meeting and
as of the Closing Date) shall have approved (at the Stockholder's Meeting or by
written consent in lieu of votes at the Stockholders Meeting if such consents
meet the requirements of this Section 7(a)(vi) and comply with the requirements
of the Delaware General Corporation Law) the Asset Purchase and duly consented
to an amendment to the Certificate of Designation for the Series A Preferred
Stock (the "Series A Amendment") such that the Asset Purchase shall not
constitute a "Liquidation Event" as defined in such Certificate of Designation,
the Series A Amendment shall have been duly filed with the Delaware Secretary of
State, and no other Liquidation Event under the Certificate of Designation shall
have occurred on or prior to the Closing Date;
(vii) all of the holders (as of the Closing Date) of the Seller's 8%
Convertible Notes, Seller's 9% Convertible Subordinated Notes and Seller's
$6,000,000 senior secured notes shall have executed and delivered a consent to
the Asset Purchase and release of the Buyer in substantially the form of Exhibit
K hereto (a "Consent and Release") as of the Closing Date (and all such holders
shall have released all Security Interests in their favor with respect to the
Acquired Assets as further set forth in Section 7(a)(xii) below);
(viii) the Asset Purchase shall have been approved at the
Stockholders Meeting by holders (as of the record date for the Stockholders
Meeting) of not less than 75% of the total number of outstanding shares of
common stock of the Seller;
(ix) the Seller shall have delivered to the Buyer a certificate of
its Chief Executive Officer and Chief Financial Officer to the effect that each
of the conditions specified above in Section 7(a)(i) through (viii), inclusive,
is satisfied in all respects;
(x) the Seller shall deliver in a form reasonably satisfactory to
Buyer detailed current (not earlier than two weeks prior to Closing) liquidity
and pro forma cash flow statements, each certified by the Chief Executive
Officer and Chief Financial Officer of the Seller as having been prepared in
good faith and based on reasonable assumptions of Seller's management, which
statements demonstrate to Buyer's reasonable satisfaction Seller's ability as of
such date (giving effect to the Asset Purchase) to meet its obligations to its
secured and unsecured creditors as and when they become due for a period not
less than thirteen (13) months, at the times and on the terms then in effect
between Seller and such creditors;
(xi) AH&H shall have delivered the Fairness Opinion;
(xii) the Seller shall, on or prior to the Closing Date, deliver to
the Buyer such documents as are necessary to terminate and release all Security
Interests in the Acquired Assets, which documents shall be in form and substance
acceptable to the Buyer and shall include without limitation, all documents
necessary to terminate of record all Security Interests on the Acquired Assets;
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(xiii) the Seller shall have entered into a Supply Agreement with
the Buyer in substantially the form of Exhibit L hereto (the "Supply
Agreement");
(xiv) Sudhir Agrawal shall have executed a noncompetition agreement
for a term of 24 months beginning on the Closing Date, in substantially the form
of Exhibit M hereto;
(xv) Jin Yang Tang shall have executed a consulting and
noncompetition agreement, in form and substance satisfactory to Buyer,
containing a consulting term of a minimum of six months and a noncompetition
term of twenty-four months, beginning on the Closing Date;
(xvi) the Seller shall have entered into a License Agreement in the
form of Exhibit N hereto (the "Names and Marks License Agreement") providing for
the non-exclusive, royalty-free license of certain of Seller's trade names and
trademarks for a period of one year following the Closing;
(xvii) the Seller shall have entered into a License Agreement in
substantially the form of Exhibit O hereto (the "PS Technology Sublicense Option
Agreement");
(xviii) the Seller shall have entered into a Oligonucleotide
Manufacturing Patent License Agreement in substantially the form of Exhibit P
hereto;
(xix) the Seller shall have entered into a PNT Monomer Patent
License Agreement in substantially the form of Exhibit Q hereto;
(xx) the Seller shall have entered into amendments to each of the
Methylgene Agreement and the OriGenix Agreement, satisfactory in form and
substance to the Buyer, with the respective other parties thereto, in which the
parties to such agreements acknowledge that the Buyer shall not assume any
obligations of Seller thereunder, but that Buyer shall be designated as the
third party manufacturer of all product to be supplied under each such agreement
(except as may be provided therein);
(xxi) the Buyer shall have received from Holland & Knight as counsel
to the Seller an opinion substantially to the effect set forth in Exhibit R
attached hereto, addressed to the Buyer, and dated as of the Closing Date;
(xxii) A sufficient number of operational employees of the Business
prior to Closing shall have accepted offers of employment with Buyer such that
Buyer may reasonably anticipate being able to conduct the Business after Closing
(including without limitation, operation of the Facility) in a manner
substantially similar to Seller's operation of the Business in the twelve months
prior to Closing and without a reasonable prospect of material adverse harm to
the Business due to the absence of such employees, such employees to include a
minimum of four production employees, three quality assurance/ quality control
employees and six manufacturing employees, and provided, that Buyer shall have
made offers to such number of operational employees in the manner provided for
in Section 5(r) above;
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(xxiii) the Seller shall have vacated the Facility, subject to any
mutually acceptable use and occupancy arrangements which may be made between
Buyer and Seller pending the Closing;
(xxiv) the Seller shall have executed and delivered such other
customary certificates and instruments as Buyer may reasonably request; and
(xxv) all actions to be taken by the Seller in connection with
consummation of the Asset Purchase and all certificates, opinions, instruments,
and other documents required to effect the Asset Purchase will be satisfactory
in form and substance to the Buyer.
The Buyer may waive any condition specified in this Section 7(a) if it
executes a writing so stating at or prior to the Closing.
(b) Conditions to Obligation of the Seller. The obligation of the Seller
to consummate the Asset Purchase and to perform its obligations hereunder and in
connection with the Closing is subject to satisfaction of the following
conditions:
(i) the representations and warranties set forth in Section 4 above
shall be true and correct in all material respects at and as of the Closing
Date;
(ii) the Buyer shall have performed and complied with all of its
covenants hereunder (including without limitation under Section 5(r)) in all
material respects through the Closing;
(iii) no action, suit, or proceeding shall be pending or threatened
before any court or quasi-judicial or administrative agency of any federal,
state, local, or foreign jurisdiction or before any arbitrator wherein an
unfavorable injunction, judgment, order, decree, ruling, or charge would (A)
prevent consummation of the Asset Purchase or (B) cause the Asset Purchase to be
rescinded (or any portion thereof) following consummation (and no such
injunction, judgment, order, decree, ruling, or charge shall be in effect);
(iv) the Buyer shall have delivered to the Seller a certificate to
the effect that each of the conditions specified above in Section 7(b)(i)-(iii)
is satisfied in all respects; and
(v) the Seller shall have received from McDermott, Will & Emery as
counsel to the Buyer an opinion substantially to the effect set forth in Exhibit
S attached hereto, addressed to the Seller, and dated as of the Closing Date.
The Seller may waive any condition specified in this Section 7(b) if it
executes a writing so stating at or prior to the Closing.
8. Remedies for Breach of This Agreement.
(a) Survival of Representations and Warranties. The representations and
warranties of Seller made in this Agreement and in the documents and
certificates delivered in connection herewith shall survive the Closing,
provided that in no event shall any Party be entitled to seek
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indemnification in respect of any breach of any representation or warranty made
herein (except any made in Section 3(e), 3(i) or 3(r), as to which such remedy
shall not be so limited) pursuant to this Section 8 unless the Party seeking
indemnification has made a written claim therefor pursuant to Section 10(g)
below on or prior to the date of the second anniversary of the Closing Date, or
with respect to a claim by Buyer for breach of the representation made by Seller
in the last sentence of Section 3(u) above, prior to the 90th day after the
Closing Date.
(b) Indemnification Provisions for Benefit of the Buyer.
(i) In the event the Seller breaches (or in the event any third
party alleges facts that, if true, would mean the Seller has breached) any of
its representations, warranties, and covenants contained in this Agreement, and,
provided that the Buyer makes a written claim for indemnification against the
Seller pursuant to Section 10(g) below within the applicable period set forth in
Section 8(a) above, then the Seller agrees to indemnify the Buyer from and
against any Adverse Consequences the Buyer may suffer through and after the date
of the claim for indemnification resulting from, arising out of, relating to, in
the nature of, or caused by the breach (or the alleged breach);
(ii) The Seller agrees to indemnify the Buyer from and against any
Adverse Consequences the Buyer may suffer resulting from, arising out of,
relating to, in the nature of, or caused by:
(A) any Liability of the Seller or an Employee Plan or Benefit
Arrangement which is not an Assumed Liability (including any
Liability of the Seller that becomes a Liability of the Buyer under
any bulk transfer law of any jurisdiction, under any common law
doctrine of de facto merger or successor liability, or otherwise by
operation of law);
(B) any Liability of any of Seller or its Subsidiaries for
unpaid Taxes with respect to any Tax year or portion thereof ending
on or before the Closing Date (or for any Tax year beginning before
and ending after the Closing Date to the extent allocable to the
portion of such period beginning before and ending on the Closing
Date); or
(C) any Liability of any of Seller or its Subsidiaries for the
unpaid Taxes of any Person (including the Seller and its
Subsidiaries) under Reg. Section 1.1502-6 (or any similar provision
of state, local, or foreign law), as a transferee or successor, by
contract, or otherwise.
(iii) The Seller agrees to indemnify the Buyer from and against any
Adverse Consequences the Buyer may suffer resulting from, arising out of,
relating to, in the nature of, or caused by any claim of any third party,
including governmental entities, not due to any action or omission by Buyer,
which preclude or otherwise interfere with the Buyer's post-closing ownership of
the Intellectual Property.
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(c) Indemnification Provisions for Benefit of the Seller.
(i) In the event the Buyer breaches (or in the event any third party
alleges facts that, if true, would mean the Buyer has breached) any of its
representations, warranties, and covenants contained in this Agreement, and,
provided that the Seller makes a written claim for indemnification against the
Buyer pursuant to Section 10(g) below within the applicable period set forth in
Section 8(a) above, then the Buyer agrees to indemnify the Seller from and
against any Adverse Consequences the Seller may suffer through and after the
date of the claim for indemnification resulting from, arising out of, relating
to, in the nature of, or caused by the breach (or the alleged breach).
(ii) The Buyer agrees to indemnify the Seller from and against any
Adverse Consequences the Seller may suffer resulting from, arising out of,
relating to, in the nature of, or caused by any action or failure to act by
Buyer with respect to an Assumed Liability.
(d) Matters Involving Third Parties.
(i) If any third party shall notify any Party (the "Indemnified
Party") with respect to any matter (a "Third Party Claim") which may give rise
to a claim for indemnification against the other Party (the "Indemnifying
Party") under this Section 8, then the Indemnified Party shall promptly notify
the Indemnifying Party thereof in writing; provided, however, that no delay on
the part of the Indemnified Party in notifying the Indemnifying Party shall
relieve the Indemnifying Party from any obligation hereunder unless (and then
solely to the extent) the Indemnifying Party thereby is prejudiced.
(ii) The Indemnifying Party will have the right to defend the
Indemnified Party against the Third Party Claim with counsel of its choice
reasonably satisfactory to the Indemnified Party so long as (A) the Indemnifying
Party notifies the Indemnified Party in writing within 15 days after the
Indemnified Party has given notice of the Third Party Claim that the
Indemnifying Party will indemnify the Indemnified Party from and against the
entirety of any Adverse Consequences the Indemnified Party may suffer resulting
from, arising out of, relating to, in the nature of, or caused by the Third
Party Claim, (B) the Indemnifying Party provides the Indemnified Party with
evidence reasonably acceptable to the Indemnified Party that the Indemnifying
Party will have the financial resources to defend against the Third Party Claim
and fulfill its indemnification obligations hereunder, (C) the Third Party Claim
involves only money damages and does not seek an injunction or other equitable
relief, (D) settlement of, or an adverse judgment with respect to, the Third
Party Claim is not, in the good faith judgment of the Indemnified Party, likely
to establish a precedential custom or practice materially adverse to the
continuing business interests of the Indemnified Party, and (E) the Indemnifying
Party conducts the defense of the Third Party Claim actively and diligently.
(iii) So long as the Indemnifying Party is conducting the defense of
the Third Party Claim in accordance with Section 8(d)(ii) above, (A) the
Indemnified Party may retain separate co-counsel at its sole cost and expense
and participate in the defense of the Third Party Claim, (B) the Indemnified
Party will not consent to the entry of any judgment or enter into any settlement
with respect to the Third Party Claim without the prior written consent of the
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Indemnifying Party (not to be withheld unreasonably), and (C) the Indemnifying
Party will not consent to the entry of any judgment or enter into any settlement
with respect to the Third Party Claim without the prior written consent of the
Indemnified Party (not to be withheld unreasonably).
(iv) In the event any of the conditions in Section 8(d)(ii) above is
or becomes unsatisfied or the Indemnifying Party does not seek to defend the
Third Party Claim, however, (A) the Indemnified Party may defend against, and
consent to the entry of any judgment or enter into any settlement with respect
to, the Third Party Claim in any manner it reasonably may deem appropriate (and
the Indemnified Party need not consult with, or obtain any consent from, the
Indemnifying Party in connection therewith), (B) the Indemnifying Party will
reimburse the Indemnified Party promptly and periodically for the costs of
defending against the Third Party Claim (including reasonable attorneys' fees
and expenses), and (C) the Indemnifying Party will remain responsible for any
Adverse Consequences the Indemnified Party may suffer resulting from, arising
out of, relating to, in the nature of, or caused by the Third Party Claim to the
fullest extent provided in this Section 8.
(e) Determination of Adverse Consequences. The Parties shall take into
account the time cost of money in determining Adverse Consequences for purposes
of this Section 8. All indemnification payments under this Section 8 shall be
deemed adjustments to the Purchase Price.
(f) Right to Set Off. Without prejudice to the circumstances under which
the Contingent Consideration shall not become due under Section 2(c)(ii), Buyer
shall have the right to set off any portion of the Contingent Consideration due
to Seller against (i) any amounts due to the Buyer under the Supply Agreement,
(ii) the reasonable estimate of any pending indemnification claims of the Buyer
under Section 8 of this Agreement for which there has not been a Resolution, or
(iii) the full amount of any such indemnification claims of the Buyer that are
Resolved. The right of setoff of all or any portion of any Contingent
Consideration otherwise payable hereunder pursuant to Section 2(c)(ii) shall
not, under any circumstances, be deemed to be an exclusive remedy, but shall be
in addition to all other rights contained herein and deemed to be additional
security for any breach of the representations, warranties and covenants
contained herein and in the Supply Agreement, and the Seller's obligations set
forth herein and therein.
(g) Limitations on Indemnification. Notwithstanding anything to the
contrary in this Agreement (including Section 8(f) above), neither the Seller
nor the Buyer shall be liable (for indemnification or otherwise) with respect to
the matters described herein unless the aggregate amount of claims made that
individually exceed $10,000 shall collectively exceed a total of $150,000, in
which case such Indemnifying Party shall be liable for all indemnified claims
(i.e., without regard to any deductible or threshold amount); provided that
neither the Seller nor the Buyer shall be liable (for indemnification or
otherwise) with respect to such matters in an aggregate amount in excess of the
greater of $12,000,000 or the total Purchase Price paid to the Seller (less, in
the case of liability of Seller, any amount Buyer sets off against Contingent
Consideration pursuant to Section 2(c)(ii)). However, neither the foregoing
$150,000 "basket
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skip" nor the foregoing Purchase Price "cap" on liability shall apply to claims
based upon (i) any intentional misrepresentation of any matter contained herein
or fraud; (ii) any environmental liability unknown to the Buyer at the time of
the Closing; or (iii) any Retained Liability.
(h) Other Indemnification Provisions. The foregoing indemnification
provisions are in lieu of any statutory, equitable, or common law remedy any
Party may have for breach of representation, warranty, or covenant except in the
case of any intentional misrepresentation of any matter contained herein or
fraud.
9. Termination.
(a) This Agreement may be terminated at any time prior to the Closing,
notwithstanding approval thereof by the stockholders of the Seller:
(i) by mutual written consent duly authorized by the Boards of
Directors of the Buyer and the Seller; or
(ii) by the Buyer or the Seller if the Closing shall not have
occurred by November 30, 2000, or such other later date or dates as may be
mutually agreed in writing between Buyer and Seller (provided that the right to
terminate this Agreement under this Section 9(a)(ii) not be available to a Party
if it has willfully failed to fulfill any obligation under this Agreement that
has been the cause of or resulted in the failure of the Closing to occur on or
before any such date); or
(iii) by either the Buyer or the Seller if a court of competent
jurisdiction or governmental, regulatory or administrative agency or commission
shall have issued a non-appealable final order, decree or ruling or taken any
other action, in each case having the effect of permanently restraining,
enjoining or otherwise prohibiting the consummation of the Asset Purchase; or
(iv) by the Buyer, if holders of 75% of the outstanding shares of
Common Stock (as of the record date for the Stockholders Meeting) shall not have
voted in favor of the Asset Purchase at the Stockholders Meeting and holders of
at least 75% of the Seller's outstanding shares of Series A Preferred Stock (as
of the record date for the Stockholders Meeting and as of the Closing Date)
shall not have duly consented to the Series A Amendment and such percentage of
holders shall not have approved the Asset Purchase; or
(v) by the Buyer, if the Board of Directors of the Seller shall fail
to unanimously recommend stockholder approval of the Asset Purchase or shall
withdraw, modify or change its recommendation of stockholder approval of the
Asset Purchase, including by reason of its recommendation of a Superior
Proposal, in a manner adverse to the Buyer or shall have resolved to do any of
the foregoing; or
(vi) by the Buyer or the Seller, upon a breach of any
representation, warranty, covenant or agreement on the part of the Seller or the
Buyer, respectively, set forth in this Agreement or a failure of the
satisfaction of the conditions precedent to the consummation of the
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Asset Purchase (a "Terminating Breach"), provided, however, that if such
Terminating Breach is curable prior to November 30, 2000, by the Buyer or the
Seller, as the case may be, through the exercise of its reasonable efforts and
for so long as the Buyer or the Seller, as the case may be, continues to
exercise such reasonable efforts, neither the Seller nor the Buyer,
respectively, may terminate this Agreement.
(b) Effect of Termination. In the event of the termination of this
Agreement pursuant to Section 9(a), this Agreement shall forthwith become void,
except that Sections 6(d), 6(f) and 9(c) shall survive any termination of this
Agreement and there shall be no liability on the part of any party hereto or any
of its affiliates, directors, officers or stockholders, except as set forth in
Section 9(c), and except that nothing herein shall relieve any party from
liability for any willful breach hereof.
(c) Fees and Expenses. All fees and expenses incurred in connection with
this Agreement and the Asset Purchase shall be paid by the party incurring such
expenses, whether or not the Asset Purchase is consummated, except as set forth
in Section 5(m) and as follows:
(i) the Buyer shall pay to Seller an amount equal to its costs and
expenses (including the out-of-pocket expenses of the Seller incurred with
respect to investigation, negotiation and document preparation directly related
to the Asset Purchase incurred from April 11, 2000 to the date this Agreement is
terminated, including the fees and disbursements of counsel and the aggregate
travel, meals and lodging expense of Seller's personnel but excluding any salary
or internal or other overhead burden attributed to such personnel) not to exceed
$500,000 (the "Seller Expense Payment"), upon the termination of this Agreement
by the Seller pursuant to Section 9(a)(vi) due to a breach of any
representation, warranty, covenant or agreement on the part of the Buyer;
(ii) The Seller Expense Payment shall be paid within five business
days after termination of this Agreement as described in (9)(c)(i);
(iii) the Seller shall pay the Buyer an amount equal to its costs
and expenses (including the out-of-pocket expenses of the Buyer incurred with
respect to investigation, negotiation and document preparation directly related
to the Asset Purchase incurred from April 11, 2000 to the date the Agreement may
be terminated, the fees and disbursements of counsel and the aggregate travel,
meals and lodging expense of Buyer's personnel but excluding any salary or
internal or other overhead burden attributed to such personnel and any amount
reimbursed by Buyer under Section 5(m)) not to exceed $500,000 (the "Buyer
Expense Payment"), upon the termination of this Agreement by the Buyer (A)
pursuant to Section 9(a)(iv) if holders (as of the record date for the
Stockholders Meeting) of at least 51% of the total number of outstanding shares
of common stock of the Seller entitled to vote at the Stockholders Meeting have
not approved the Asset Purchase, or holders of at least 51% of the Seller's
outstanding shares of Series A Preferred Stock have not consented to the Series
A Amendment or 51% of such of holders of Series A Preferred Stock have not
approved the Asset Purchase; or (B) pursuant to Section 9(a)(v), or (C) pursuant
to Section 9(a)(vi) due to a breach of any representation, warranty, covenant or
agreement on the part of the Seller;
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(iv) The Buyer Expense Payment shall be paid within five business
days after such termination of this Agreement as set forth in (9)(c)(iii);
(v) the Seller shall pay the Buyer the amount of $500,000 (the
"Transaction Fee") in addition to any Buyer Expense Payment upon the occurrence
of an Alternative Transaction (defined below) within one year of the date of
termination of this Agreement; provided, however, that no Transaction Fee shall
be payable if this Agreement is terminated by (A) the parties pursuant to
Section 9(a)(i), or (B) by either party pursuant to Section 9(a)(iii), or (C) by
the Seller pursuant to Section 9(a)(vi), if the Terminating Breach is due to a
breach of any representation, warranty, covenant or agreement on the part of the
Buyer. As used herein, "Alternative Transaction" means either (X) a transaction
pursuant to which any person (or group of persons) other than the Buyer or its
Affiliates (a "Third Party") acquires more than fifty percent of the voting
power of the capital stock of the Seller, whether from the Seller or pursuant to
a tender offer or exchange offer or otherwise, (Y) a merger or other business
combination involving the Seller pursuant to which any Third Party acquires more
than fifty percent of the outstanding equity securities of the Seller or the
entity surviving such merger or business combination, or (Z) any other
transaction pursuant to which any Third Party acquires control of the Business
or a substantial portion thereof.
(vi) The Transaction Fee shall be paid within five business days
after the occurrence of any Alternative Transaction.
10. Miscellaneous.
(a) Press Releases and Public Announcements. The parties shall consult
with each other before issuing any press release or other public statement with
respect to the Asset Purchase or this Agreement and shall not issue any such
press release or make any such public statement without the prior consent of the
other party, which shall not be unreasonably withheld; provided, however, that a
party may, without the prior consent of the other party, issue such press
release or make such public statement as may upon the advice of counsel be
required by law if it has used reasonable efforts to consult first with the
other party. In no event, however, shall the Seller avail itself of Rule 135
under the Securities Act or otherwise so as to preclude confidential treatment
by the SEC of preliminary proxy materials which shall be filed under Exchange
Act Rule 14a-6(e)(2) with the SEC in connection with the Stockholders Meeting.
(b) No Third-Party Beneficiaries. This Agreement shall not confer any
rights or remedies upon any Person other than the Parties and their respective
successors and permitted assigns.
(c) Entire Agreement. This Agreement (including the documents referred to
herein) constitutes the entire agreement between the Parties and supersedes any
prior understandings, agreements, or representations by or between the Parties,
written or oral, to the extent they have related in any way to the subject
matter hereof.
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(d) Succession and Assignment. This Agreement shall be binding upon and
inure to the benefit of the Parties named herein and their respective successors
and permitted assigns. No Party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written approval
of the other Party; provided however, that the Buyer may (i) assign any or all
of its rights and interests hereunder to one or more of its Affiliates and (ii)
designate one or more of its Affiliates to perform its obligations hereunder (in
any or all of which cases the Buyer nonetheless shall remain responsible for the
performance of all of its obligations hereunder).
(e) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(f) Headings. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(g) Notices. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given if (and then two
business days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set forth
below:
If to the Seller: Hybridon, Inc. Copy to: Holland & Knight
155 Fortune Boulevard One Beacon Street
Milford, Massachusetts Boston, MA
Attn: Robert Andersen Attn: James Pollock, Esq.
If to the Buyer: Boston Biosystems, Inc. Copy to: McDermott, Will & Emery
75A Wiggins Avenue 28 State Street
Bedford, MA 01730 Boston, MA 02109-1775
Attn: Michael Kallelis Attn: Susan Cooke, Esq.
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
Party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other Party
notice in the manner herein set forth.
(h) Governing Law. This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of Delaware without giving effect
to any choice or conflict of law provision or rule that would cause the
application of the laws of any jurisdiction other than the State of Delaware.
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(i) Amendments and Waivers. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by the
Buyer and the Seller The Seller may consent to any such amendment at any time
prior to the Closing with the prior authorization of its board of directors;
provided, however, that any amendment effected after the Seller Stockholders
have approved this Agreement will be subject to the restrictions contained in
the Delaware General Corporation Law. No waiver by any Party of any default,
misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent such
occurrence.
(j) Severability. Any term or provision of this Agreement that is invalid
or unenforceable in any situation in any jurisdiction shall not affect the
validity or enforceability of the remaining terms and provisions hereof or the
validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
(k) Construction. The Parties have participated jointly in the negotiation
and drafting of this Agreement. In the event an ambiguity or question of intent
or interpretation arises, this Agreement shall be construed as if drafted
jointly by the Parties and no presumption or burden of proof shall arise
favoring or disfavoring any Party by virtue of the authorship of any of the
provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation. Nothing in the
Disclosure Schedule shall be deemed adequate to disclose an exception to a
representation or warranty made herein unless the Disclosure Schedule identifies
the exception with reasonable particularity and describes the relevant facts in
reasonable detail. Without limiting the generality of the foregoing, the mere
listing (or inclusion of a copy) of a document or other item shall not be deemed
adequate to disclose an exception to a representation or warranty made herein
(unless the representation or warranty has to do with the existence of the
document or other item itself). The Parties intend that each representation,
warranty, and covenant contained herein shall have independent significance. If
any Party has breached any representation, warranty, or covenant contained
herein in any respect, the fact that there exists another representation,
warranty, or covenant relating to the same subject matter (regardless of the
relative levels of specificity) which the Party has not breached shall not
detract from or mitigate the fact that the Party is in breach of the first
representation, warranty, or covenant.
(l) Incorporation of Exhibits and Schedules. The Exhibits and Schedules
identified in this Agreement are incorporated herein by reference and made a
part hereof.
(m) Specific Performance. Each of the Parties acknowledges and agrees that
the other Party would be damaged irreparably in the event any of the provisions
of this Agreement are not performed in accordance with their specific terms or
otherwise are breached. Accordingly, each of the Parties agrees that the other
Party shall be entitled to an injunction or injunctions to prevent breaches of
the provisions of this Agreement and to enforce specifically this Agreement and
the terms and provisions hereof in any action instituted in any court of the
United States or
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any state thereof having jurisdiction over the Parties and the matter (subject
to the provisions set forth in Section 10(o) below), in addition to any other
remedy to which it may be entitled, at law or in equity.
(n) Submission to Jurisdiction. Each of the Parties submits to the
jurisdiction of any state or federal court sitting in the state of Delaware or
in Boston, Massachusetts, in any action or proceeding arising out of or relating
to this Agreement and agrees that all claims in respect of the action or
proceeding may be heard and determined in any such court. Each of the Parties
waives any defense of inconvenient forum to the maintenance of any action or
proceeding so brought and waives any bond, surety, or other security that might
be required of any other Party with respect thereto. Any Party may make service
on the other Party by sending or delivering a copy of the process (i) to the
Party to be served at the address and in the manner provided for the giving of
notices in Section 10(g) above or (ii) to the Party to be served at the address
and in the manner provided for the giving of notices in Section 10(g) above.
Nothing in this Section 10(n), however, shall affect the right of any Party to
bring any action or proceeding arising out of or relating to this Agreement in
any other court or to serve legal process in any other manner permitted by law
or in equity. Each Party agrees that a final judgment in any action or
proceeding so brought shall be conclusive and may be enforced by suit on the
judgment or in any other manner provided by law or in equity.
(o) Guarantee of Avecia Inc. Avecia Inc. join in this Agreement as a
non-Party solely for the purposes of and hereby agreeing to guarantee the
obligations of the Buyer under this Agreement, including, without limitation and
to the extent required, the obligations of Buyer with respect to the Assumed
Liabilities.
* * * * *
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IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of
the date first above written.
HYBRIDON, INC.
By: /s/ Sudhir Agrawal
---------------------------
Title: President & CEO
------------------------
BOSTON BIOSYSTEMS, INC.
By: /s/ Gregory S. Kurey
---------------------------
Title: General Counsel
------------------------
AVECIA INC.
(Solely for purposes of Section
10(o))
By: /s/ Gregory S. Kurey
---------------------------
Title: General Counsel
------------------------
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APPENDIX D
DATED 2000
BOSTON BIOSYSTEMS, INC. (1)
AND
HYBRIDON, INC. (2)
-----------------------------------
SUPPLY AGREEMENT
-----------------------------------
<PAGE> 119
INDEX
1. Definitions
2. Duration
3. Sale and Purchase
4. Forecasting and Delivery
5. Delivery and Title
6. Price
7. Payment
8. Quality of the Product
9. Warranties and Product Liability
10. Compliance and Regulatory Issues
11. Force Majeure
12. Termination/Consequence of Termination
13. Confidentiality
14. Press Releases and Public Announcements
15. No Third-Party Beneficiaries
16. Entire Agreement
17. Succession and Assignment
18. Counterparts
19. Headings
20. Notices
21. Governing Law
22. Amendments and Waivers
23. Severability
24. Construction
25. Incorporation of Exhibits and Schedules
26. Submission to Jurisdiction
Schedule I Product Specification
Schedule II Packaging Specification
Schedule III Sample Certificate of Analysis
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THIS AGREEMENT is dated 2000 and is made between:
1. BOSTON BIOSYSTEMS, INC., a Delaware corporation having a principal place
of business located at 75A Wiggins Avenue, Bedford, Massachusetts ("the
Supplier"); and
2. HYBRIDON, INC., a Delaware corporation having a principal place of
business located at 155 Fortune Blvd., Milford, Massachusetts ("the
Buyer").
WHEREAS
(A) The Buyer has a requirement for the Product (as defined below) for itself,
its Affiliates and any collaborators and licencees of the Buyer's
intellectual property.
(B) The parties wish to enter into this Agreement to provide for the supply of
the Product by the Supplier to the Buyer upon and subject to the terms and
conditions contained in this Agreement.
NOW IT IS HEREBY AGREED as follows:-
1. DEFINITIONS
"AFFILIATES" means a corporation, partnership or other business
organisation which controls, is directly or indirectly
controlled by, or is under common control with either
party. Control shall mean the direct or indirect holding
of 50% or more of the voting stock or ownership
interest.
"METHYLGENE" means Methylgene Inc., a corporation incorporated under
the laws of the Province of Quebec, Canada, having a
principal place of business at 7200 Frederick-Banting,
Montreal, Quebec H4S 2A1.
"ORIGENIX" means Origenix Technologies Inc., a corporation
incorporated under the laws of the Province of Quebec,
Canada, having a principal place of business at230
Bernard Belleau, Suite 123, Laval, H7V4A9, Canada.
"GOOD means (a) the current good manufacturing practices
MANUFACTURING required time to time, and (b) the corresponding
PRACTICES" OR requirements of by the FDA under 21 CFR Parts 210 and
"GMP" 211, as the European Union, member states of the
European Union, amended from and other countries to the
extent they are applicable provided that Buyer shall
have given Supplier not less than 60 days advance
written notice that such corresponding requirements are
applicable and Supplier has agreed in writing to comply
with such requirements.
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"PRODUCT" means the active pharmaceutical ingredient, being the
bulk oligonucleotides of 18-25 residues in length and
containing not more than 50% 2' O-methyl nucleoside
residues with a backbone comprising mixtures of
phosphorothioates and phosphates, to be supplied by the
Supplier to the Buyer pursuant to this Agreement for use
in conducting pre-clinical and human clinical testing.
"EFFECTIVE DATE" means [ ];
"PRODUCT means the specification(s) for the Product set out in
SPECIFICATION" Schedule I..
"PACKAGING means the specification for packaging of the Product
SPECIFICATION" for delivery as set out in Part II of the Schedule.
"CERTIFICATE OF means the certificate of analysis in the form set out
ANALYSIS" in Schedule III, accompanying quantities of Product
supplied by the Supplier to the Buyer
2. DURATION
This Agreement shall commence on the Effective Date and subject to Clause
12 shall continue until 31 March 2003 and unless terminated by either
party giving to the other not less than six months' prior written notice
of termination to expire on 31March 2003, the Agreement shall continue on
a rolling twelve month basis on terms to be agreed.
3. SALE AND PURCHASE
3.1 The Supplier shall supply Product to the Buyer and the Buyer shall
purchase Product from the Supplier upon the terms of this Agreement
for use by the Buyer or for resale by the Buyer to Methylgene,
Origenix, its Affiliates and any collaborators and licencees of the
Buyer's intellectual property.
3.2 The Supplier will be entitled to have any quantity of Product
manufactured at any of its Affiliate's facilities subject to such
Affiliate complying fully with the terms of this Agreement, and in
such case the Supplier shall remain responsible for the performance
of all its obligations hereunder.
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4. FORECASTING AND ORDERING
4.1 To facilitate the Supplier's planning for the supply of Product, the
Buyer shall give the Supplier at the beginning of every calendar
quarter an estimate of its requirements of Product for the next
twenty-four (24) months (the "Rolling Forecast"). The Rolling
Forecast shall specify the monthly estimate for the first six (6)
months of the forecast period, the quarterly estimate for the next
twelve (12) months based on calendar quarters, and finally a
semi-annual estimate for the final six months of the forecast
period.
4.2 The Buyer shall furnish the Supplier with firm written purchase
orders for its requirements of Product not later than ninety (90)
days prior to the required date for receipt of the delivery for each
order, provided the quantity ordered is not in excess of 1250 grams.
The lead time for orders greater than this shall be agreed by the
parties on a case by case basis.
4.3 The Supplier shall inform the Buyer as soon as possible regarding
any anticipated long-term or short-term supply problems.
5. DELIVERY AND TITLE
5.1 Unless otherwise agreed in writing all quantities of Product
supplied pursuant to this Agreement shall be delivered D.D.U.
(Incoterms 2000) to an address in North America specified by the
Buyer. Risk in respect of all Product supplied to the Buyer pursuant
to this Agreement shall pass accordingly. Title to all Product
supplied to the Buyer shall pass upon receipt of payment by the
Supplier.
5.2 If the Supplier fails to deliver any quantity of ordered Product
within sixty days of the agreed delivery date, then the Buyer may
have that quantity manufactured by a third party, and such quantity
shall be deemed to fall within the amounts purchased by the Buyer
pursuant to Clause 6.5(a).
5.3 Failure by the Supplier to meet any Product delivery date shall not
entitle the Buyer to terminate this Agreement.
6. PRICE
For the purposes of this Clause 6 only:
"Product" shall be further defined to mean Product which is used for
research and development purposes including, but not limited to, clinical
trials, but excluding commercial use;
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"Cost to Manufacture" shall be defined as all variable and fixed costs of
manufacturing at the 155 Fortune Blvd, Milford facility plus allocated
overheads associated with the LifeScience Molecules business of the
Supplier and its Affiliates in North America.
(A) PERIOD FROM EFFECTIVE DATE UNTIL 31 DECEMBER 2000
("the First Period")
6.1 The price for Product ordered by the Buyer for delivery to it during
the First Period shall be US$1,253 per gram.
6.2 The Buyer agrees to pay the Supplier a minimum payment of US$700,000
("the First Period Minimum Payment") during the First Period, such
payment to be due on or before 31 December 2000.
6.3(a)If the Buyer orders Product for delivery and payment during the
First Period then seventy percent (70%) of the said price for each
gram of the Product will be offset against the First Period Minimum
Payment.
(b) The Supplier will calculate the amount of sales to the buyer during
the First Period to determine whether any balance is payable by the
Buyer in respect of the First Period Minimum Payment. If any balance
is due then the Supplier will calculate any reduction to which the
Buyer is entitled pursuant to Clause 6.4. If any balance still
remains to be paid by the Buyer it will be due on or before 31
December 2000.
6.4 If the Supplier sells more than 2 kilograms in aggregate of Product
to third parties, to be delivered and paid for during the First
Period, then the Buyer will be entitled to a reduction in the First
Period Minimum Payment of US$35,000 for each 100 grams net (but not
pro rata for less than 100 grams) of such Product purchased by the
said third parties in excess of the said 2 kilograms, up to a
maximum of the outstanding balance of the First Period Minimum
Payment as calculated pursuant to Clause 6.3(b), or US$700,000,
whichever is the lesser.
6.5(a)If the Buyer purchases a quantity of Product for delivery and
payment during the First Period which results in the First Period
Minimum Payment being exceeded, pursuant to the calculation in
Clause 6.3(a), then such excess will be offset against the Buyer's
Second Period Minimum Payment.
(b) The Supplier will, at the end of the First Period, calculate the
amount, if any, pursuant of this Clause 6.5, which can be offset
against the Second Period Minimum Payment and the fourth instalment
of the Second Period Minimum Payment will then be adjusted
accordingly.
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(B) PERIOD FROM 1 JANUARY 2001 TO 31 DECEMBER 2001
("the Second Period")
6.6 The price for Product ordered by the Buyer for delivery to it during
the Second Period shall be calculated on the following basis:
Cost of Manufacture in 2001 +10%
---------------------------
number of kilograms of Product manufactured in 2001
such price not to exceed US$1,253 per gram. As the actual price per
kilogram cannot be calculated until the end of the Second Period,
the invoice price per kilogram during the Second Period shall be
US$1,253 per gram, but a reconciliation will be carried out at the
end of the second calender quarter of the Second Period if the Buyer
has (i) ordered and paid for more than one kilogram of an identical
Product from the Supplier in the first two calender quarters of the
Second Period, and (ii) has placed a binding purchase order for a
further one kilogram of the identical Product for delivery and
payment during the remainder of the Second Period.
6.7 The Buyer agrees to pay the Supplier a minimum payment of
US$1,300,000 ("the Second Period Minimum Payment") during the Second
Period, such payment to be made in advance at the rate of
US$325,000, on or before the first day of each calendar quarter in
2001, subject to the offset provisions in Clause 6.5 above.
6.8(a)If the Buyer orders Product for delivery and payment during the
Second Period then for such deliveries in the first calendar quarter
of the Second Period seventy per cent (70%) of the said price for
each gram of the Product will be off-set against the Second Period
Minimum Payment and for such deliveries in the second, third and
fourth quarters of the Second Period sixty-five percent (65%) of the
said price for each gram of the Product will be offset against the
Second Period Minimum Payment.
(b) The Supplier will calculate the amount of sales to the Buyer during
the Second Period to determine whether any balance is payable by the
Buyer in respect of product delivered during each quarter. . If any
balance is due then the Supplier will render an invoice to the Buyer
for payment.
6.9 If the Supplier sells more than 10 kilograms in aggregate of Product
to third parties to be delivered and paid for during the Second
Period, then the Buyer will be entitled to a reduction in the Second
Period Minimum Payment of US$65,000 for each 100 grams net (but not
pro rata for less than 100 grams) of such Product purchased by the
said third parties in excess of the said 10 kilograms, up to a
maximum of the outstanding balance of the Second Period Minimum
Payment as calculated pursuant to Clause 6.8(b), or US$1,300,000,
whichever is the lesser.
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(C) PERIOD FROM 1 JANUARY 2002 TO 31 DECEMBER 2002
("the Third Period")
6.10 The price for Product ordered by the Buyer for delivery to it during
the Third Period shall be calculated on the following basis:-
Cost of Manufacture in 2002 +20%
---------------------------
number of kilograms of Product manufactured in 2002
As the actual price per kilogram cannot be calculated until the end
of the calender year, the invoice price per kilogram during the
Third Period shall be the actual price per gram charged in the
Second Period, not to exceed US$1,253 per gram, and a reconciliation
will be carried out at the end of the calender year.
6.11 During the Third Period there shall be no obligation upon the Buyer
to make any minimum payment to the Supplier.
6.12 All sums payable by the Buyer under this Agreement are exclusive of
import duties, Value Added Tax or any other duties or taxes which,
if payable, shall be borne and paid by the Buyer.
6.13 The Buyer shall have the right, no more than once in any calendar
year, to have the Supplier's books and records audited to the extent
necessary to confirm the Supplier's Cost of Manufacture. Such audit
shall take place on no less than ten days written notice and shall
be conducted during normal business hours. Such audit will be
performed by an independent auditor chosen by the Buyer in good
faith and reasonably acceptable to the Supplier. Such audit shall be
conducted at the Buyer's expense; provided, however, that if the
results of the audit show that the Supplier has over-reported its
Cost of Manufacture by ten percent (10%) or more, then the Supplier
will reimburse the Buyer for the costs of the audit. If the Supplier
has over-reported its Cost of Manufacture, then the Supplier shall
refund to the Buyer any amounts overpaid hereunder.
7. PAYMENT
All invoices for Product shall be paid in United States dollars and shall
be due and payable within thirty (30) days from the date of invoice to the
Buyer for the shipment of such Product, (such date not to be earlier than
the date of shipment) unless the Buyer has rejected the quantity of
Product delivered in accordance with Clause 8.1(b) and the Supplier has
not disagreed with this rejection of Product in accordance with Clause
8.2(a). In the event that the Buyer is late in paying for any shipment and
fails to pay for such shipment within thirty (30) days of receiving
written notice of such late payment, the Supplier reserves the right to
require payment by letter of credit or in cash with respect to all
subsequent shipments.
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8. QUALITY OF THE PRODUCT
8.1(a)Upon receipt of Product, the Buyer, at its expense, shall have the
right for up to thirty (30) days after delivery (the "Testing
Period") to test a portion of each delivery of Product against the
Certificate of Analysis for such delivery of Product to confirm
whether such delivery meets the Product Specification.
(b) During the Testing Period, the Buyer may reject any Product which
does not conform in all material respects with the Product
Specification; provided, however, that if the Buyer rejects in whole
or in part any "out of specification" delivery of the Product, the
Buyer shall immediately provide the Supplier with written notice of
such rejection together with sufficient analytical evidence to
substantiate the impairment. Upon receipt of such notice and
evidence, the Supplier shall use commercially reasonable efforts to
re-work or replace the rejected amount, at no additional cost to the
Buyer, so long as the failure to meet the Product Specification was
not the result of improper storage or handling following delivery to
the the Supplier's facility.
(c) The Supplier shall be permitted to retain samples of each delivery
of Product at its facility to assist the parties in making any such
determinations of whether or not Product meets the Product
Specification. At the conclusion of the Testing Period, all Product
not rejected by the Buyer in accordance with the provisions of this
Clause 8.1 (c) shall be deemed accepted by the Buyer.
8.2(a)If the Supplier disagrees with the Buyer's determination that the
rejected delivery did not meet the Product Specification at the time
of delivery, a sample of the rejected delivery and/or any samples
retained by the Supplier pursuant to Clause 8.1(c) shall be
submitted to an independent, qualified third-party laboratory that
is mutually acceptable and selected by the parties in good faith
within five (5) business days of the date the Supplier notifies the
Buyer that it disagrees with the Buyer's determination.
(b) Such laboratory shall determine whether the rejected Product met the
Product Specification at the time of delivery in all material
respects, and such laboratory's determinations shall be final and
determinative for purposes of the Agreement.
(c) The party against whom the laboratory rules shall bear all costs of
the laboratory testing. If the laboratory rules that the delivery
failed to meet the Product Specification at the time of delivery in
all material respects, any replacement quantity of Product delivered
pursuant to Clause 8.1(b) shall be at no charge to the Buyer
(provided the Buyer paid for the initial delivery). If the
laboratory rules the rejected delivery met the Product Specification
in all material respects, then the Buyer shall accept such lot for
use (and shall pay for same if the Buyer has not done so) and shall
also pay the Supplier for any replacement quantity delivered
pursuant to Clause 8.1(b) at the same rate of payment as was agreed
for the original delivery.
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(d) Deliveries of Product not meeting the Product Specification in all
material respects at the time of delivery by the Supplier may, at
the Supplier's option, be returned to the Supplier or destroyed by
the Buyer, at the Supplier's expense.
8.3 Transportation charges for the return of the Products shall not be
paid unless authorised in advance by the Supplier.
9. WARRANTIES AND PRODUCT LIABILITY
9.1 The Supplier warrants that Product to be supplied to the Buyer
hereunder will conform in all material respects to the Product
Specification, and when supplied for clinical or commercial use will
have been manufactured in accordance with the current Good
Manufacturing Practice requirements and all applicable laws, rules,
directives and regulations.
9.2 The Supplier's only liability for breach of the warranty in Clause
9.1 shall be to replace any impaired Product with conforming Product
in accordance with Clause 8 above.
9.3 EXCEPT AS STATED ABOVE, THE SUPPLIER DISCLAIMS ALL WARRANTIES,
EXPRESS OR IMPLIED, WRITTEN OR ORAL, WITH RESPECT TO THE PRODUCT,
INCLUDING WITHOUT LIMITATION, ALL IMPLIED WARRANTIES OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, OR
NON-INFRINGEMENT.
9.4 The Buyer warrants to the Supplier that it has the necessary rights
and licences to permit the Product to be manufactured by the
Supplier, and agrees to indemnify the Supplier against all costs,
expenses and damages which arise in the event that the Buyer does
not have the said rights and licences.
10. COMPLIANCE AND REGULATORY ISSUES
10.1 All facilities and equipment used for manufacturing the Product
shall be owned by or leased to the Supplier, and operated by the
Supplier in compliance with GMP regulations and guidelines and as
applicable to this Agreement, unless agreed otherwise by the parties
in writing.
10.2 All services rendered and Product delivered by the Supplier to the
Buyer hereunder shall be provided in accordance with applicable GMP
and other regulations and regulatory guidelines required for the
performance of services by the Supplier hereunder and issued by the
FDA during the term of this Agreement. The Supplier shall provide
the Buyer with reasonable access to its technical personnel
pertaining to the manufacture and quality control of the Product and
other matters related to GMP compliance.
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10.3 The Supplier shall be responsible for obtaining and maintaining all
necessary plant registrations, plant licenses, or approvals to
manufacture, package, and deliver the Product to the Buyer.
10.4 (a) During the term of this Agreement, the Supplier shall create and
maintain GMP records as reasonably specified by the Buyer in order
to comply with all applicable laws, rules and regulations related to
the manufacture and supply of Product.
(b) Subject to Clause 13, the Supplier shall provide the Buyer with
copies of any such records at the Buyer's request and expense, and
shall allow the Buyer and the FDA or if applicable other relevant
regulatory agencies (e.g., regulatory agencies of European
countries) to review any Supplier Drug Master File directly
pertaining to the Buyer's Product, as appropriate.
(c) The Supplier may provide reasonable assistance to the Buyer, at the
Buyer's request and expense, in preparing and revising the (i)
chemistry, manufacturing and control, (ii) drug substance, (iii)
drug product, (iv) labeling and (v) other product-related
information that must be included in INDs, NDAs or equivalent
submissions for the Product in any country at the Buyer's choice,
subject to the negotiation and execution of a mutually acceptable
agreement for consulting services whereby the Supplier agrees to
provide and the Buyer agrees to pay for such assistance. Until such
agreement is executed by the parties, the Supplier shall have no
obligation to provide such assistance.
10.5 The Supplier shall maintain a quality control program that has
trained personnel and procedures able to conduct quality control
work consistent with the requirements of this Agreement.
10.6 In carrying out its obligations under this Agreement, the Supplier
shall comply with all applicable U.S. environmental and health and
safety laws. Except as set forth in this Agreement, the Supplier
shall be solely responsible for determining how to carry out these
obligations.
10.7 The Buyer shall have the right, at its own expense during normal
business days and hours, to conduct reasonable confidential
regulatory audits of all of the Supplier's owned and leased
manufacturing and testing facilities which are being used in
connection with this Agreement to assure the Supplier's compliance
with GMP, provided, however, that such audit shall not be undertaken
more frequently than once per calendar year. The Supplier shall make
a good faith effort to reconcile GMP deficiencies found by the
Buyer. The Supplier shall be given reasonable notice of any audit
and shall have the right to delay any audit for up to thirty (30)
days.
10.8(a) The Supplier agrees to permit properly authorized representatives
of the FDA or other relevant regulatory agencies to examine at any
reasonable time (i) the facilities where the Product is
manufactured; (ii) data directly pertaining to the manufacture or
testing of the Product, and (iii) such other directly pertinent
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information necessary for the FDA or the regulatory agencies to
confirm that the Product is manufactured in compliance with GMP and
other applicable requirements.
(b) The Supplier shall notify the Buyer immediately if the FDA or
another regulatory agency schedules or without scheduling begins an
inspection directly pertaining to the Product, and shall promptly
notify the Buyer of any regulatory actions likely to affect the
ability of the Supplier to manufacture the Product in accordance
with GMP.
11. FORCE MAJEURE
11.1 Subject to Clause 11.3, each party shall be released from its
obligations under this Agreement during any period when its
performance hereunder is delayed, hindered or prevented by
circumstances which are not within its reasonable control,
including, without limitation, acts or restraints of governments or
public authorities; war, revolution, riot or civil commotion;
strikes, lock-outs or other industrial action; blockage or embargo;
failure of supplies of power, fuel, transport, equipment or other
goods or services; and explosion, fire, flood or natural disaster to
the extent the same are beyond the reasonable control of the
affected party.
11.2 The party affected by such circumstances shall, as soon as it
becomes aware of them, give full written particulars of them to the
other party, and shall use all reasonable endeavours to resume full
performance of its obligations under this Agreement without delay,
and pending such resumption shall use all reasonable endeavours to
facilitate any efforts that the other party may make to procure an
alternative method by which its obligations under this Agreement may
be performed.
11.3 Neither party shall be entitled to relief under this Clause 11 for
any delay or failure in performing any of its payment obligations
under this Agreement.
12. TERMINATION/CONSEQUENCES OF TERMINATION
12.1 Without prejudice to any other rights or remedies which may be
available to them, either party may terminate this Agreement with
immediate effect by giving written notice of termination to the
other party if the other commits any act of insolvency, including,
without limitation, having a liquidator, receiver, administrator or
administrative receiver appointed in respect of any material part of
its undertaking or assets, entering into any arrangement with its
creditors, an order being made or a resolution passed for the
winding up of the other or any process being levied or enforced upon
or against any of the material assets of that party, or any event
analogous to any of those referred to in this clause occurring in
respect of that party under the laws of any jurisdiction in which it
is constituted or registered.
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12.2 Subject to Clause 12.3 and without prejudice to any other rights or
remedies which either party may have, upon the termination of this
Agreement, howsoever the same occurs, each party shall:
(a) immediately pay to the other party all sums which at the date
of termination are due and payable to the other party
hereunder;
(b) immediately cease all use of any property of the other party,
including without limitation any patents, registered designs,
trade marks and other intellectual property of the other
party; and
(c) within fourteen (14) days of such termination, at its own
expense, return to the other party any property of the other
party in its possession, custody or control.
12.3 The Buyer's exclusive remedy in respect of any claim whatsoever
under this Agreement shall be for damages, and the Supplier's
liability for any and all losses or damages resulting from any cause
whatsoever, including alleged negligence, shall in no event exceed
the purchase price paid by the Buyer for the Products with respect
to which the claim is made or liability has arisen, or, at the
election of the Supplier, the repair or replacement of such Products
(in which event the Supplier shall not be deemed to be in breach of
this Agreement or have any other liability to the Buyer).
12.4 In no event shall the Supplier be liable for special, incidental or
consequential damages (including loss of profits), whether the
Buyer's claim is in contract, negligence, strict liability or
otherwise.
12.5 Clauses 5-10, 12-16 and 19-26 shall survive the termination of this
Agreement, howsoever the same occurs.
13. CONFIDENTIALITY
13.1 Any know-how or other information proprietary to either party to
this Agreement which is disclosed by that party or on its behalf to
the other party ("Recipient") in connection with this Agreement
("Confidential Information") shall remain the property of the party
making the disclosure and shall not, without the prior written
consent of that party, be disclosed to any third party or used by
the Recipient except for the performance of the Recipient's
obligations under this Agreement. The obligations of non-use and
confidentiality contained in this Clause shall not apply to any
information which the Recipient can reasonably demonstrate;
(a) was already in the possession of the Recipient and at the
Recipient's free use and disposal or in the public domain
(through no fault of the Recipient) prior to its disclosure by
the other party hereunder; or
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(b) is purchased or otherwise legally acquired by the Recipient at
any time from a third party having good title thereto and the
right to disclose the same; or
(c) comes into the public domain, otherwise than through the fault
of the Recipient; or
(d) is independently generated by the Recipient without any
recourse or reference to the information disclosed by the
other party.
All documents supplied by either party to this Agreement to the
other party which contain Confidential Information within the scope
of this Clause 12 shall be promptly returned by the Recipient to the
party which supplied them upon the expiry or termination of this
Agreement. The obligations of each party under this Clause shall
survive the expiry or termination of this Agreement for a period of
ten years provided that the Recipient shall have the right to retain
in its legal department a single copy for archival purposes to
ensure compliance with the above obligations.
13.2 In addition to the Confidential Information identified in Clause
13.1, each party shall treat as Confidential Information all
information which it receives or obtains relating to:
(a) the contents of or negotiations relating to this Agreement;
and
(b) the business and customers of the other party.
13.3 Nothing in this Clause 13 shall preclude disclosure of any
Confidential Information required by any governmental or regulatory
authority or court entitled by law to disclosure of the same
including, for the avoidance of doubt, any information required for
disclosure in the offering of securities in accordance with the
regulations of any recognised stock exchange, or which is required
by law, provided that the party concerned promptly notifies the
other party when such requirement to disclose has arisen to enable
the other party to
seek an appropriate protective order and to make known to the said
governmental or regulatory authority or court the proprietary nature
of the Confidential Information and to make any applicable claim of
confidentiality in respect thereof.
14. PRESS RELEASES AND PUBLIC ANNOUNCEMENTS
The parties shall consult with each other before issuing any press release
or other public statement with respect to this Agreement and shall not
issue any such press release or make any such public statement without the
prior consent of the other party, which shall not be unreasonably
withheld; provided, however, that a party may, without the prior consent
of the other party, issue such press release or make such
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public statement as may upon the advice of counsel be required by law if
it has used reasonable efforts to consult first with the other party.
15. NO THIRD-PARTY BENEFICIARIES
This Agreement shall not confer any rights or remedies upon any person
other than the parties and their respective successors and permitted
assigns.
16. ENTIRE AGREEMENT
This Agreement (including the documents referred to herein) constitutes
the entire agreement between the parties and supersedes any prior
understandings, agreements, or representations by or between the parties,
written or oral, to the extent they have related in any way to the subject
matter hereof.
17. SUCCESSION AND ASSIGNMENT
This Agreement shall be binding upon and inure to the benefit of the
parties named herein and their respective successors and permitted
assigns. Without prejudice to Clause 3.2, no party may assign either this
Agreement or any of its rights, interests, or obligations hereunder
without the prior written approval of the other party, unless such
assignment is to an Affiliate, in which case no written approval is
required.
18. COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of which
shall be deemed an original but all of which together will constitute one
and the same instrument.
19. HEADINGS
The section headings contained in this Agreement are inserted for
convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
20. NOTICES
All notices, requests, demands, claims, and other communications hereunder
will be in writing. Any notice, request, demand, claim, or other
communication hereunder shall be deemed duly given if (and then two
business days after) it is sent by registered or certified mail, return
receipt requested, postage prepaid, and addressed to the intended
recipient as set forth below:
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If to the Buyer: Hybridon, Inc. Copy to: Holland & Knight
155 Fortune Boulevard One Beacon Street
Milford, Massachusetts Boston, MA
Attn: Robert Andersen Attn: James Pollack, Esq.
Fax:
If to the Supplier: Boston Biosystems, Inc. Copy to: The Company Secretary
75A Wiggins Avenue Avecia Limited
Bedford, MA 01730 PO Box 42
Attn: Hexagon House
Blackley
Manchester M9 8ZS
Fax: Fax: + 44 161 721 1886
Any party may send any notice, request, demand, claim, or other
communication hereunder to the intended recipient at the address set forth
above using any other means (including personal delivery, expedited
courier, messenger service, telecopy, ordinary mail, or electronic mail),
but no such notice, request, demand, claim, or other communication shall
be deemed to have been duly given unless and until it actually is received
by the intended recipient. Any party may change the address to which
notices, requests, demands, claims, and other communications hereunder are
to be delivered by giving the other Party notice in the manner herein set
forth.
21. GOVERNING LAW
This Agreement shall be governed by and construed in accordance with the
domestic laws of the State of Delaware without giving effect to any choice
or conflict of law provision or rule that would cause the application of
the laws of any jurisdiction other than the State of Delaware.
22. AMENDMENTS AND WAIVERS
No amendment of any provision of this Agreement shall be valid unless the
same shall be in writing and signed by the Supplier and the Buyer. No
waiver by any party of any default, misrepresentation, or breach of
warranty or covenant hereunder, whether intentional or not, shall be
deemed to extend to any prior or subsequent default, misrepresentation, or
breach of warranty or covenant hereunder or affect in any way any rights
arising by virtue of any prior or subsequent such occurrence.
23. SEVERABILITY
Any term or provision of this Agreement that is invalid or unenforceable
in any situation in any jurisdiction shall not affect the validity or
enforceability of the
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remaining terms and provisions hereof or the validity or enforceability of
the offending term or provision in any other situation or in any other
jurisdiction.
24. CONSTRUCTION
The parties have participated jointly in the negotiation and drafting of
this Agreement. In the event an ambiguity or question of intent or
interpretation arises, this Agreement shall be construed as if drafted
jointly by the parties and no presumption or burden of proof shall arise
favoring or disfavoring any party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state,
local, or foreign statute or law shall be deemed also to refer to all
rules and regulations promulgated thereunder, unless the context requires
otherwise.
25. INCORPORATION OF EXHIBITS AND SCHEDULES
The Schedules identified in this Agreement are incorporated herein by
reference and made a part hereof.
26. SUBMISSION TO JURISDICTION
Each of the parties submits to the jurisdiction of any state or federal
court sitting in the state of Delaware or in Boston, Massachusetts, in any
action or proceeding arising out of or relating to this Agreement and
agrees that all claims in respect of the action or proceeding may be heard
and determined in any such court. Each of the parties waives any defense
of inconvenient forum to the maintenance of any action or proceeding so
brought and waives any bond, surety, or other security that might be
required of any other party with respect thereto. Any party may make
service on the other party by sending or delivering a copy of the process
to the party to be served at the address and in the manner provided for
the giving of notices in Clause 20 above. Nothing in this Clause 26,
however, shall affect the right of any Party to bring any action or
proceeding arising out of or relating to this Agreement in any other court
or to serve legal process in any other manner permitted by law or in
equity. Each Party agrees that a final judgment in any action or
proceeding so brought shall be conclusive and may be enforced by suit on
the judgment or in any other manner provided by law or in equity.
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SCHEDULE I
PRODUCT SPECIFICATION
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SCHEDULE II
PACKAGING SPECIFICATION
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SCHEDULE III
SAMPLE CERTIFICATE OF ANALYSIS
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IN WITNESS whereof this Agreement has been entered into by authorised
representatives of each party on the date first above written.
SIGNED for and on behalf of
BOSTON BIOSYSTEMS, INC
Signed: ..................................
Name: ..................................
Position: ..................................
SIGNED for and on behalf of
HYBRIDON, INC
Signed: ..................................
Name: ..................................
Position: ..................................
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APPENDIX E
PROPOSED
CERTIFICATE OF INCORPORATION
OF
HYBRIDON, INC.
Hybridon, Inc., a corporation organized and existing under and by virtue
of the General Corporation Law of the State of Delaware, does hereby certify as
follows:
FIRST. The name of the Corporation is:
Hybridon, Inc.
SECOND. The address of its registered office in the State of Delaware is
Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County
of New Castle. The name of its registered agent at such address is The
Corporation Trust Company.
THIRD. The nature of the business or purposes to be conducted or promoted
by the Corporation is as follows:
To engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of Delaware.
FOURTH. The total number of shares of all classes of stock which the
Corporation shall have authority to issues is One Hundred Million (100,000,000)
shares of Common Stock, $.001 par value per share ("Common Stock"), and (ii)
Five Million ($5,000,000)shares of Preferred Stock, $.01 par value per share
("Preferred Stock"), which may be issued from time to time in one or more series
as set forth in Part B of this Articles FOURTH.
The following is a statement of the designations and the powers,
privileges and rights, and the qualifications, limitations or restrictions
thereof in respect of each class of capital stock of the Corporation.
A. COMMON STOCK.
1. GENERAL. The voting, dividend and liquidation rights of the holders of
the Common Stock are subject to and qualified by the rights of the holders of
the Preferred Stock of any series as may be designated by the Board of Directors
upon any issuance of the Preferred Stock of any series.
2. VOTING. The holders of the Common Stock are entitled to one vote for
each share held at all meetings of stockholders (and written actions in lieu of
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meetings). There shall be no cumulative voting.
The number of authorized shares of Common Stock may be increased or
decreased (but not below the number of shares thereof then outstanding) by the
affirmative vote of the holders of a majority of the stock of the Corporation
entitled to vote, irrespective of the provisions of Section 242(b)(2) of the
General Corporation Law of Delaware.
3. DIVIDENDS. Dividends may be declared and paid on the Common Stock from
funds lawfully available therefor as and when determined by the Board of
Directors and subject to any preferential dividend rights of any then
outstanding Preferred Stock.
4. LIQUIDATION. Upon the dissolution or liquidation of the Corporation,
whether voluntary or involuntary, holders of Common Stock will be entitled to
receive all assets of the Corporation available for distribution to its
stockholders, subject to any preferential rights of any then outstanding
Preferred Stock. Notwithstanding the foregoing, and notwithstanding any
amendments to, or resolutions of the Board of Directors in connection with, this
Certificate of Incorporation, the transaction between the Corporation and Boston
Biosystems, Inc, pursuant to that certain Asset Purchase Agreement of June 29,
2000, shall not constitute a dissolution or liquidation of the Corporation such
as would entitle any holder of the Series A Preferred Stock to a preferred
distribution.
B. PREFERRED STOCK.
Preferred Stock may be issued from time to time in one or more series,
each of such series to have such terms as stated or expressed herein and in the
resolution or resolutions providing for the issue of such series adopted by the
Board of Directors of the Corporation as hereinafter provided. Any shares of
Preferred Stock which may be redeemed, purchased or acquired by the Corporation
may be reissued except as otherwise provided by law. Different series of
Preferred Stock shall not be construed to constitute different classes of shares
for the purposes of voting by classes unless expressly provided.
Authority is hereby expressly granted to the Board of Directors from time
to time to issue the Preferred Stock in one or more series, and in connection
with the creation of any such series, by resolution or resolutions providing for
the issue of the shares thereof, to determine and fix such voting powers, full
or limited, or no voting powers, and such designations, preferences and relative
participating, optional or other special rights, and qualifications, limitations
or restrictions thereof, including without limitation thereof, dividend rights,
conversion rights, redemption privileges and liquidation preferences, as shall
be stated and expressed in such resolutions, all to the full extent now or
hereafter permitted by the General Corporation Law of Delaware. Without limiting
the generality of the foregoing, the resolutions providing for issuance of any
series of Preferred Stock may provide that such series shall be superior or rank
equally or be junior to the Preferred Stock of any other
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series to the extent permitted by law. Except as otherwise specifically provided
in this Certificate of Incorporation, no vote of the holders of the Preferred
Stock or Common Stock shall be a prerequisite to the issuance of any shares of
any series of the Preferred Stock authorized by and complying with the
conditions of the Certificate of Incorporation, the right to have such vote
being expressly waived by all present and future holders of the capital stock of
the Corporation.
Notwithstanding the foregoing, and notwithstanding any amendments to, or
resolutions of the Board of Directors in connection with, this Certificate of
Incorporation, the transaction between the Corporation and Boston Biosystems,
Inc, pursuant to that certain Asset Purchase Agreement of June 29, 2000, shall
not constitute a dissolution or liquidation of the Corporation such as would
entitle any holder of the Series A Preferred Stock to a preferred distribution.
FIFTH. The name and mailing address of the sole incorporator are as
follows:
NAME MAILING ADDRESS
David P. Johst 60 State Street
Boston, MA 02109
SIXTH. In furtherance of and not in limitation of powers conferred by
statute, it is further provided:
1. Election of directors need not be by written ballot.
2. The Board of Directors is expressly authorized to adopt, amend or
repeal the By-Laws of the Corporation.
SEVENTH. Whenever a compromise or arrangement is proposed between this
corporation and its creditors or any class of them and/or between this
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this corporation or of any creditor or stockholder thereof, or on the
application of any receiver or receivers appointed for this corporation under
the provisions of section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this corporation under the provisions of section 279 of Title 8 of the
Delaware Code order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
corporation, as the case may be, agree to any compromise or arrangement and to
any promise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said application
has been made, be binding on all the creditors or class of creditors, and/or on
all the
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stockholders or class of stockholders, of this corporation, as the case may be,
and also on this corporation.
EIGHTH. Except to the extent that the General Corporation Law of the State
of Delaware prohibits the elimination or limitation of liability of directors
for breaches of fiduciary duty, no director of the Corporation shall be
personally liable to the Corporation or its stockholders for monetary damages
for any breach of fiduciary duty as a director, notwithstanding any provision of
law imposing such liability. No amendment to or repeal of this provision shall
apply to or have any effect on the liability or alleged liability of any
director of the Corporation for or with respect to any acts or omissions of such
director occurring prior to such amendment.
NINTH. 1. ACTION, SUITS AND PROCEEDINGS OTHER THAN BY OR IN THE RIGHT OF
THE CORPORATION. The Corporation shall indemnify each person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation), by
reason of the fact that he is or was, or has agreed to become, a director or
officer of the Corporation, or is or was serving, or has agreed to serve, at the
request of the Corporation, as a director, officer or trustee of, or in a
similar capacity with, another corporation, partnership, joint venture, trust or
other enterprise (including any employee benefit plan) (all such persons being
referred to hereafter as an "Indemnitee"), or by reason of any action alleged to
have been taken or omitted in such capacity, against all expenses (including
attorneys' fees) judgment, fines and amounts paid in settlement actually and
reasonably incurred by him or on his behalf in connection with such action, suit
or proceeding and any appeal therefrom, if he acted in good faith and in a
manner he reasonably believed to be in, or not opposed to, the best interests of
the Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction or upon a
plea of NOLO CONTENDERE or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in, or not opposed to, the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful. Notwithstanding
anything to the contrary in this Article, except as set forth in Section 6
below, the Corporation shall not indemnify an Indemnitee seeking indemnification
in connection with a proceeding (or part thereof) initiated by the Indemnitee
unless the initiation thereof was approved by the Board of Directors of the
Corporation.
2. ACTIONS OR SUITS BY OR IN THE RIGHT OF THE CORPORATION. The Corporation
shall indemnify any Indemnitee who was or is a party or is threatened to be made
a party to any threatened, pending or completed action or suit by or in the
right of the Corporation to procure a judgment in its favor
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by reason of the fact that he is or was, or has agreed to become, a director or
officer of the Corporation, or is or was serving, or has agreed to serve, at the
request of the Corporation, as a director, officer or trustee of, or in a
similar capacity with, another corporation, partnership, joint venture, trust or
other enterprise (including any employee benefit plan), or by reason of any
action alleged to have been taken or omitted in such capacity, against all
expenses (including attorneys' fees) and amounts paid in settlement actually and
reasonably incurred by him or on his behalf in connection with such action, suit
or proceeding and any appeal therefrom, if he acted in good faith and in a
manner he reasonably believed to be in, or not opposed to, the best interests of
the Corporation, except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the Corporation unless and only to the extent that the Court of
Chancery of Delaware or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of such liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses (including attorneys' fees)
which the Court of Chancery of Delaware or such other court shall deem proper.
3. INDEMNIFICATION FOR EXPENSES OF SUCCESSFUL PARTY. Notwithstanding the
other provisions of this Article, to the extent that an Indemnitee has been
successful, on the merits or otherwise, in defense of any action, suit or
proceeding referred to in Sections 1 and 2 of this Article, or in defense of any
claim, issue or matter therein, or on appeal from any such action, suit or
proceeding, he shall be indemnified against all expenses (including attorneys'
fees) actually and reasonably incurred by him or on his behalf in connection
therewith. Without limiting the foregoing, if any action, suit or proceeding is
disposed of, on the merits or otherwise (including a disposition without
prejudice), without (i) the disposition being adverse to the Indemnitee, (ii) an
adjudication that the Indemnitee was liable to the Corporation, (iii) a plea of
guilty or NOLO CONTENDERE by the Indemnitee, (iv) an adjudication that the
Indemnitee did not act in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the Corporation, and (v) with
respect to any criminal proceeding, an adjudication that the Indemnitee had
reasonable cause to believe his conduct was unlawful, the Indemnitee shall be
considered for the purposes hereof to have been wholly successful with respect
thereto.
4. NOTIFICATION AND DEFENSE OF CLAIM. As a condition precedent to his
right to be indemnified, the Indemnitee must notify the Corporation in writing
as soon as practicable of any action, suit, proceeding or investigation
involving him for which indemnity will or could be sought. With respect to any
action, suit, proceeding or investigation of which the Corporation is so
notified, the Corporation will be entitled to participate therein at its own
expense and/or to assume the defense thereof at its own expense, with legal
counsel reasonably acceptable to the Indemnitee. After notice from the
Corporation to the
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Indemnitee of its election so to assume such defense, the Corporation shall not
be liable to the Indemnitee for any legal or other expenses subsequently
incurred by the Indemnitee in connection with such claim, other than as provided
below in this Section 4. The Indemnitee shall have the right to employ his own
counsel in connection with such claim, but the fees and expenses of such counsel
incurred after notice from the Corporation of its assumption of the defense
thereof shall be at the expense of the Indemnitee unless (i) the employment of
counsel by the Indemnitee has been authorized by the Corporation, (ii) counsel
to the Indemnitee shall have reasonably concluded that there may be a conflict
of interest or position on any significant issue between the Corporation and the
Indemnitee in the conduct of the defense of such action or (iii) the Corporation
shall not in fact have employed counsel to assume the defense of such action, in
each of which cases the fees and expenses of counsel for the Indemnitee shall be
at the expense of the Corporation, except as otherwise expressly provided by
this Article. The Corporation shall not be entitled, without the consent of the
Indemnitee, to assume the defense of any claim brought by or in the right of the
Corporation or as to which counsel for the Indemnitee shall have reasonably made
the conclusion provided for in clause (ii) above.
5. ADVANCE OF EXPENSES. Subject to the provisions of Section 6 below, in
the event that the Corporation does not assume the defense pursuant to Section 4
of this Article of any action, suit, proceeding or investigation of which the
Corporation receives notice under this Article, any expenses (including
attorneys' fees) incurred by an Indemnitee in defending a civil or criminal
action, suit, proceeding or investigation or any appeal therefrom shall be paid
by the Corporation in advance of the final disposition of such matter, PROVIDED,
HOWEVER, that the payment of such expense incurred by an Indemnitee in advance
of the final disposition of such matter shall be made only upon receipt of an
undertaking by or on behalf of the Indemnitee to repay all amounts so advanced
in the event that it shall ultimately be determined that the Indemnitee is not
entitled to be indemnified by the Corporation as authorized in this Article.
Such undertaking may be accepted without reference to the financial ability of
such person to make such repayment.
6. PROCEDURE FOR INDEMNIFICATION. In order to obtain indemnification or
advancement of expenses pursuant to Section 1, 2, 3 or 5 of this Article, the
Indemnitee shall submit to the Corporation a written request, including in such
request such documentation and information as is reasonably available to the
Indemnitee and is reasonably necessary to determine whether and to what extent
the Indemnitee is entitled to indemnification or advancement of expenses. Any
such indemnification or advancement of expenses shall be made promptly, and in
any event within 60 days after receipt by the Corporation of the written request
of the Indemnitee, unless with respect to requests under Section 1, 2 or 5 the
Corporation determines, by clear and convincing evidence, within such 60-day
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period that the Indemnitee did not meet the applicable standard of conduct set
forth in Section 1 or 2, as the case may be. Such determination shall be made in
each instance by (a) a majority vote of a quorum of the directors of the
Corporation consisting of persons who are not at that time parties to the
action, suit or proceeding in question ("disinterested directors"), (b) if no
such quorum is obtainable, a majority vote of a committee of two or more
disinterested directors, (c) a majority vote of a quorum of the outstanding
shares of stock of all classes entitled to vote for directors, voting as a
single class, which quorum shall consist of stockholders who are not at that
time parties to the action, suit or proceeding in question, (d) independent
legal counsel (who may be regular legal counsel to the Corporation), or (e) a
court of competent jurisdiction.
7. REMEDIES. The right to indemnification or advances as granted by this
Article shall be enforceable by the Indemnitee in any court of competent
jurisdiction if the Corporation denies such request, in whole or in part, or if
no disposition thereof is made within the 60-day period referred to above in
Section 6. Unless otherwise provided by law, the burden of proving that the
Indemnitee is not entitled to indemnification or advanced of expenses under this
Article shall be on the Corporation. Neither the failure of the Corporation to
have made a determination prior to the commencement of such action that
indemnification is proper in the circumstances because the Indemnitee has met
the applicable standard of conduct, nor an actual determination by the
Corporation pursuant to Section 6 that the Indemnitee has not met such
applicable standard of conduct, shall be a defense to the action or create a
presumption that the Indemnitee has not met the applicable standard of conduct.
The Indemnitee's expenses (including attorneys' fees) incurred in connection
with successfully establishing his right to indemnification, in whole or in
part, in any such proceeding shall also be indemnified by the Corporation.
8. SUBSEQUENT AMENDMENT. No amendment, termination or repeal of this
Article or of the relevant provisions of the General Corporation Law of Delaware
or any other applicable laws shall affect or diminish in any way the rights of
any Indemnitee to indemnification under the provisions hereof with respect to
any action, suit, proceeding or investigation arising out of or relating to any
actions, transactions or facts occurring prior to the final adoption of such
amendment, termination or repeal.
9. OTHER RIGHTS. The indemnification and advancement of expenses provided
by this Article shall not be deemed exclusive of any other rights to which an
Indemnitee seeking indemnification or advancement of expenses may be entitled
under any law (common or statutory), agreement or vote of stockholders or
disinterested directors or otherwise, both as to action in his official capacity
and as to action in any other capacity while holding office for the Corporation,
and shall continue as to an Indemnitee who has ceased to be a director or
officer, and shall inure to the benefit of the estate, heirs, executors and
administrators of the
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Indemnitee. Nothing contained in this Article shall be deemed to prohibit, and
the Corporation is specifically authorized to enter into, agreements with
officers and directors providing indemnification rights and procedures different
from those set forth in this Article. In addition, the Corporation may, to the
extent authorized from time to time by its Board of Directors, grant
indemnification rights to other employees or agents of the Corporation or other
persons serving the Corporation and such rights may be equivalent to, or greater
or less than, those set forth in this Article.
10. PARTIAL INDEMNIFICATION. If an Indemnitee is entitled under any
provision of this Article to indemnification by the Corporation for some or a
portion of the expenses (including attorneys' fees), judgments, fines or amounts
paid in settlement actually and reasonably incurred by him or on his behalf in
connection with any action, suit, proceeding or investigation and any appeal,
therefrom but not, however, for the total amount thereof, the Corporation shall
nevertheless indemnify the Indemnitee for the portion of such expenses
(including attorneys' fees), judgments, fines or amounts paid in settlement to
which the Indemnitee is entitled.
11. INSURANCE. The Corporation may purchase and maintain insurance, at its
expense, to protect itself and any director, officer, employee or agent of the
Corporation or another corporation, partnership, joint venture, trust or other
enterprise (including any employee benefit plan) against any expense, liability
or loss incurred by him in any such capacity, or arising out of his status as
such, whether or not the Corporation would have the power to indemnify such
person against such expense, liability or loss under the General Corporation law
of Delaware.
12. MERGER OR CONSOLIDATION. If the Corporation is merged into or
consolidated with another corporation and the Corporation is not the surviving
corporation, the surviving corporation shall assume the obligations of the
Corporation under this Article with respect to any action, suit, proceeding or
investigation arising out of or relating to any actions, transactions or facts
occurring prior to the date of such merger or consolidation.
13. SAVINGS CLAUSE. If this Article or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
Corporation shall nevertheless indemnify each Indemnitee as to any expenses
(including attorneys' fees) judgments, fines and amounts paid in settlement in
connection with any action, suit, proceeding or investigation, whether civil,
criminal or administrative, including an action by or in the right of the
Corporation, to the fullest extent permitted by any applicable portion of this
Article that shall not have been invalidated and to the fullest extent permitted
by applicable law.
14. DEFINITIONS. Terms used herein and defined in Section 145(h) and
Section 145(i) of the General Corporation Law of Delaware shall have the
respective
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meanings assigned to such terms in such Section 145(h) and Section 145(i).
15. SUBSEQUENT LEGISLATION. If the General Corporation Law of Delaware is
amended after adoption of this Article to expand further the indemnification
permitted to Indemnitees, then the Corporation shall indemnify such persons to
the fullest extent permitted by the General Corporation Law of Delaware, as so
amended.
TENTH. The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Restated Certificate of Incorporation, in
the manner now or hereafter prescribed by statute and this Restated Certificate
of Incorporation, and all rights conferred upon stockholders herein are granted
subject to this reservation.
ELEVENTH. This Article is inserted for the management of the business and
for the conduct of the affairs of the Corporation and shall not become effective
until the closing of the sale of shares of Common Stock in an underwritten
public offering pursuant to an effective registration statement under the
Securities Act of 1933, as amended, resulting in at least $10,000,000 of gross
proceeds to the Corporation (a "Public Offering").
1. NUMBER OF DIRECTORS. The number of directors of the Corporation shall
not be less than three. The exact number of directors within the limitations
specified in the preceding sentence shall be fixed from time to time by, or in
the manner provided in, the Corporation's By-Laws.
2. CLASSES OF DIRECTORS. The Board of Directors shall be and is divided
into three classes: Class I, Class II and Class III. No one class shall have
more than one director more than any other class. If a fraction is contained in
the quotient arrived at by dividing the designated number of directors by three,
then, if such fraction is one-third, the extra director shall be a member of
Class II, and if such fraction is two-thirds, one of the extra directors shall
be a member of Class I and one of the extra directors shall be a member of Class
II, unless otherwise provided from time to time by resolution adopted by the
Board of Directors.
3. ELECTION OF DIRECTORS. Elections of directors need not be by
written ballot except as and to the extent provided in the By-Laws of the
Corporation.
4. TERMS OF OFFICE. Each director shall serve for a term ending on the
date of the third annual meeting following the annual meeting at which such
director was elected; PROVIDED, that each initial director in Class I shall
serve for a term ending on the date of the annual meeting in 1996; each initial
director in Class II shall serve for a term ending on the date of the annual
meeting in 1997; and each initial director in Class III shall serve for a term
ending on the date of the annual meeting in 1998; and PROVIDED FURTHER, that the
term of each director
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shall be subject to the election and qualification of his successor and to his
earlier death, resignation or removal.
5. ALLOCATION OF DIRECTORS AMONG CLASSES IN THE EVENT OF INCREASES OR
DECREASES IN THE NUMBER OF DIRECTORS. In the event of any increase or decrease
in the authorized number of directors, (i) each director then serving as such
shall nevertheless continue as a director of the class of which he is a member
and (ii) the newly created or eliminated directorships resulting from such
increase or decrease shall be apportioned by the Board of Directors among the
three classes of directors so as to ensure that no one class has more than one
director more than any other class. To the extent possible, consistent with the
foregoing rule, any newly created directorships shall be added to those classes
whose terms of office are to expire at the latest dates following such
allocation, and any newly eliminated directorships shall be subtracted from
those classes whose terms of offices are to expire at the earliest dates
following such allocation, unless otherwise provided from time to time by
resolution adopted by the Board of Directors.
6. QUORUM; ACTION AT MEETING. A majority of the directors at any time in
office shall constitute a quorum for the transaction of business. In the event
one or more of the directors shall be disqualified to vote at any meeting, then
the required quorum shall be reduced by one for each director so disqualified,
provided that in no case shall less than one-third of the number of directors
fixed pursuant to Section 1 above constitute a quorum. If at any meeting of the
Board of Directors there shall be less than such a quorum, a majority of those
present may adjourn the meeting from time to time. Every act or decision done or
made by a majority of the directors present at a meeting duly held at which a
quorum is present shall be regarded as the act of the Board of Directors unless
a greater number is required by law, by the By-Laws of the Corporation or by
this Restated Certificate of Incorporation.
7. REMOVAL. Directors of the Corporation may be removed only for cause by
the affirmative vote of the holders of at least two-thirds of the shares of the
capital stock of the Corporation issued and outstanding and entitled to vote.
8. VACANCIES. Any vacancy in the Board of Directors, however occurring,
including a vacancy resulting from an enlargement of the board, shall be filled
only by a vote of a majority of the directors then in office, although less than
a quorum, or by a sole remaining director. A director elected to fill a vacancy
shall be elected to hold office until the next election of the class for which
such director shall have been chosen, subject to the election and qualification
of his successor and to his earlier death, resignation or removal.
9. STOCKHOLDER NOMINATIONS AND INTRODUCTION OF BUSINESS, ETC. Advance
notice of stockholder nominations for election of
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directors and other business to be brought by stockholders before a meeting of
stockholders shall be given in the manner provided by the By-Laws of the
Corporation.
10. AMENDMENTS TO ARTICLE. Notwithstanding any other provisions of law,
this Restated Certificate of Incorporation or the By-Laws of the Corporation,
and notwithstanding the fact that a lesser percentage may be specified by law,
the affirmative vote of the holders of at least seventy-five percent (75%) of
the shares of capital stock of the Corporation issued and outstanding and
entitled to vote shall be required to amend or repeal, or to adopt any provision
inconsistent with, this Article ELEVENTH.
TWELFTH. Until the closing of a Public Offering, any action which is
required to be taken or which may be taken at any annual or special meeting of
stockholders of the Corporation may be taken without a meeting, without prior
notice and without a vote, if a consent in writing, setting forth the action so
taken, is signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote on such action were present
and voted. Effective upon the closing of a Public Offering, stockholders of the
Corporation may not take any action by written consent in lieu of a meeting.
Notwithstanding any other provisions of law, the Restated Certificate of
Incorporation or the By-Laws of the Corporation, and notwithstanding the fact
that a lesser percentage may be specified by law, the affirmative vote of the
holders of at least seventy-five percent (75%) of the shares of capital stock of
the Corporation issued and outstanding and entitled to vote shall be required to
amend or repeal, or to adopt any provision inconsistent with, this Article
TWELFTH.
THIRTEENTH. Effective upon the closing of a Public Offering, special
meetings of stockholders may be called at any time by only the Chief Executive
Officer (or if there is no Chief Executive Officer, the President) or the Board
of Directors. Business transacted at any special meeting of stockholders shall
be limited to matters relating to the purpose or purposes stated in the notice
of meeting. Notwithstanding any other provision of law, this Restated
Certificate of Incorporation or the By-Laws of the Corporation, as amended, and
notwithstanding the fact that a lesser percentage may be specified by law, the
affirmative vote of the holders of at least seventy-five percent (75%) of the
shares of capital stock of the Corporation issued and outstanding and entitled
to vote shall be required to amend or repeal, or to adopt any provision
inconsistent with this Article THIRTEENTH.
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IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be
affixed hereto and this Restated Certificate of Incorporation to be signed by
its Chairman this ____ of __________, 2000.
HYBRIDON, INC.
By: ___________________________
[Corporate Seal]
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SPECIAL MEETING
OF
STOCKHOLDERS
OF
HYBRIDON, INC.
TUESDAY, SEPTEMBER 12, 2000
10:00 A.M. EASTERN STANDARD TIME
RADISSON HOTEL
11 BEAVER STREET
MILFORD, MA
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Sudhir Agrawal and Robert G. Andersen as
Proxies, each with the power to appoint his substitute, and hereby authorizes
them to represent and to vote as designated below, all of the common and Series
A Preferred shares of Hybridon, Inc. held of record by the undersigned on the
record date of August 4, 2000.
(Continued on the reverse side)
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<S> <C>
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THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED Please mark [X]
HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL your votes as
BE VOTED FOR EACH OF THE PROPOSALS. indicated in
this example
1. Proposal to approve the sale of the Company's Hybridon Specialty And to transact such other business as may
Products Business. properly come before the Special Meeting or
any adjournment thereof.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
2. Proposal to approve the amendment to the Company's Certificate
of Incorporation to acknowledge that the sale of the Hybridon
Specialty Products Business will not constitute a liquidation
event for the benefit of the Series A or other Preferred stockholders.
FOR AGAINST ABSTAIN When shares are held by joint tenants,
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 an
authorized officer. If a partnership,
please sign in partnership name by an
authorized person.
Date ___________________________________, 2000
Signature(s)__________________________________
Signature(s)__________________________________
PLEASE MARK, SIGN, DATE AND RETURN THIS
PROXY PROMPTLY
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