<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 29, 2000
REGISTRATION NO. 333-69649
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
HYBRIDON, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 2836 04-3072298
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
345 VASSAR STREET
CAMBRIDGE, MA 02139
(617) 679-5517
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
SUDHIR AGRAWAL
PRESIDENT AND ACTING CHIEF EXECUTIVE OFFICER
HYBRIDON, INC.
345 VASSAR STREET
CAMBRIDGE, MA 02139
(617) 679-5517
(NAME, ADDRESS INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPY TO:
JAMES POLLOCK, ESQ.
HOLLAND & KNIGHT LLP
ONE BEACON STREET
BOSTON, MA 02108
(617) 523-2700
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after this registration statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] ------------------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ------------------
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ------------------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
(Calculation of Registration Fees Table on next page)
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE, ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2
(Continued from previous page)
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------------
PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF AMOUNT
SECURITIES TO BE REGISTERED REGISTERED(10) PER SHARE OFFERING PRICE REGISTRATION FEE PREVIOUSLY PAID AMOUNT DUE
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Series A convertible
preferred stock, $.01 par
value...................... 724,295 $ 100.00 (2) $ 72,429,500 $21,728.85 $20,063.59 $ 1553.20
---------------------------------------------------------------------------------------------------------------------------------
Common stock, $.001 par
value...................... 7,178,706 $1.15625 (3) $ 8,300,379 $ 2,490.11 $ 3,571.82 $ 0
---------------------------------------------------------------------------------------------------------------------------------
Common stock, $.001 par
value...................... 460,000 $0.54687 (4) $ 251,560 $ 76.23 $ 76.23 $ 0
---------------------------------------------------------------------------------------------------------------------------------
Common stock, $.001 par
value...................... 384,240 $ 1.00 (8) $ 348,240 $ 101.44 $ 0.00 $ 96.06
---------------------------------------------------------------------------------------------------------------------------------
Common stock, $.001 par
value, issuable upon
exercise of Founders
warrants................... 173,333 $ 3.00 (1)(6) $ 519,999 $ 157.58 $ 157.58 $ 0
---------------------------------------------------------------------------------------------------------------------------------
Common stock, $.001 par
value, issuable upon
conversion of Series A
convertible preferred
stock...................... 19,071,741 -- (1)(5) -- -- -- --
---------------------------------------------------------------------------------------------------------------------------------
Common stock, $.001 par
value, issuable upon
exercise of Class A
warrants................... 3,002,956 $ 4.25 (1)(6) $ 12,762,563 $ 3,867.05 $ 3,867.05 $ 0
---------------------------------------------------------------------------------------------------------------------------------
Common stock, $.001 par
value, issuable upon
exercise of Class B
warrants................... 1,752,945 $ 2.40 (1)(6) $ 4,207,068 $ 1,274.74 $ 1,274.74 $ 0
---------------------------------------------------------------------------------------------------------------------------------
Common stock, $.001 par
value, issuable upon
exercise of Class C
warrants................... 841,774 $ 2.40 (1)(6) $ 2,020,258 $ 657.88 $ 657.88 $ 0
---------------------------------------------------------------------------------------------------------------------------------
Common stock, $.001 par
value, issuable upon
exercise of Class D
warrants................... 672,267 $ 2.40 (1)(6) $ 1,613,441 $ 488.87 $ 488.87 $ 0
---------------------------------------------------------------------------------------------------------------------------------
Common stock, $.001 par
value, issuable upon
exercise of Founders
warrants................... 609,194 $ 2.40 (1)(6) $ 1,462,066 $ 443.01 $ 443.01 $ 0
---------------------------------------------------------------------------------------------------------------------------------
Common stock, $.001 par
value, issuable upon
exercise of Founders
warrants................... 588,235 $ 4.25 (1)(6) $ 2,499,999 $ 757.50 $ 757.50 $ 0
---------------------------------------------------------------------------------------------------------------------------------
Common stock, $.001 par
value, issuable upon
exercise of warrants....... 1,111,630 $ 2.40 (1)(6) $ 2,667,912 $ 808.38 $ 808.38 $ 0
---------------------------------------------------------------------------------------------------------------------------------
Common stock, $.001 par
value, issuable upon
conversion of
Pecks/Founders convertible
debt....................... 2,500,000 $ 2.40 (1)(9) $ 6,000,000 $ 15.00 $ 0.00 $ 15.00
---------------------------------------------------------------------------------------------------------------------------------
Common stock, $.001 par
value, issuable upon
conversion of December 1999
convertible debt........... 15,897,808 $ 0.60 (1)(9) $ 9,538,685 $ 2,384.68 $ 0.00 $2,384.68
---------------------------------------------------------------------------------------------------------------------------------
Common stock, $.001 par
value, issuable upon
conversion of convertible
debt that may be acquired
upon the exercise of
December 1999 warrants..... 679,046 $ 0.66 (1)(7) $ 448,170 $ 112.05 $ 0.00 $ 112.05
---------------------------------------------------------------------------------------------------------------------------------
Common stock, $.001 par
value, issuable upon
exercise of Pecks/Founders
subordination fee
warrants................... 2,750,000 $ 0.60 (1)(6) $ 1,650,000 $ 412.50 $ 0.00 $ 412.50
---------------------------------------------------------------------------------------------------------------------------------
Common stock, $.001 par
value, issuable upon
conversion of May 2000
convertible debt........... 214,043 $ 1.08 (1)(9) $ 231,166 $ 57.80 $ 0.00 $ 57.80
---------------------------------------------------------------------------------------------------------------------------------
Common stock, $.001 par
value, issuable upon
exercise of May 2000
placement agent warrants... 500,000 $ 1.08 (1)(6) $ 540,000 $ 135. $ 0.00 $ 135.
---------------------------------------------------------------------------------------------------------------------------------
Common stock, $.001 par
value, issuable upon
exercise of May 2000
lenders warrants........... 1,000,000 $ 1.08 (1)(6) $ 1,080,000 $ 270. $ 0.00 $ 270.
---------------------------------------------------------------------------------------------------------------------------------
Total Common Registered Per
Calculation of Fee table... 59,387,918 6,521.29
---------------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Pursuant to Rule 416, Hybridon is also registering that number of
additional shares of capital stock that may become issuable pursuant to
applicable anti-dilution provisions or pursuant to a stock dividend.
(2) Estimated solely for purposes of calculating the registration fee using the
proposed offering price of the Series A preferred stock, as required by
Rule 457(i). Does not include any shares of Series A preferred stock that
may be issued in the future as a dividend, which shares are expressly
excluded from this registration statement pursuant to Rule 416(b) under the
Securities Act.
(3) Estimated solely for purposes of calculating the registration fee using the
average of the bid and ask price for the common stock on December 17, 1998,
as required by Rule 457(c).
(4) Estimated solely for purposes of calculating the registration fee using the
average of the bid and ask price for the common stock on June 29, 1999, as
required by Rule 457(c).
(5) Pursuant to Rule 457(i) no additional registration fee is required.
(6) Estimated solely for purposes of calculating the Registration Fee using the
exercise price of the warrants, as required by Rule 457(g)(1).
<PAGE> 3
(7)Estimated solely for purposes of calculating the registration fee using the
exercise price of warrants to purchase convertible debt at a 10% premium and
a $0.60 per share price to convert the debt into common stock, as required
by Rule 457(g)(1).
(8)Estimated solely for purposes of calculating the registration fee using
$1.00 per share, which was above the average of the bid and ask price for
the common stock on December 22, 2000, which exceeds the price required by
Rule 457(c).
(9)Estimated solely for purposes of calculating the registration fee using the
conversion price of the convertible notes, as required by Rule 457(g)(1).
(10)The following is a reconciliation of the shares being registered on this
Form S-1, as listed above in the "Calculation of Registration Fee" table to
the "Common Stock Included in Offering" column of the "Stockholders Selling
Common Stock" table that begins on page 48 and the "Convertible Preferred
Stock Included in Offering" column of the "Stockholders Selling Preferred
Stock" table that begins on page 53.
------------------------
RECONCILIATION OF SHARES BEING REGISTERED
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------
COMMON COMMON COMMON
STOCK STOCK STOCK
ISSUABLE UPON ISSUABLE UPON ISSUABLE UPON
SERIES A THE CONVERSION THE CONVERSION THE EXERCISE OF OTHER COMMON
CONVERTIBLE OF SERIES A OF DECEMBER SUBORDINATION STOCK BEING
PREFERRED STOCK PREFERRED 1999 DEBT FEE WARRANTS REGISTERED
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Composition of Shares:
----------------------------------------------------------------------------------------------------------------------------
Original Issuance................... 624,790 14,700,941 11,978,805 2,750,000
----------------------------------------------------------------------------------------------------------------------------
Accumulated dividends............... 99,505 2,341,294
----------------------------------------------------------------------------------------------------------------------------
Future dividends.................... 2,029,506
----------------------------------------------------------------------------------------------------------------------------
Commissions......................... 611,142
----------------------------------------------------------------------------------------------------------------------------
Accumulated interest................ 820,756
----------------------------------------------------------------------------------------------------------------------------
Future interest..................... 2,487,105
----------------------------------------------------------------------------------------------------------------------------
Shares registered per Fee Table..... 724,295 19,071,741 15,897,808 2,750,000 21,668,369
----------------------------------------------------------------------------------------------------------------------------
Conversions to common............... (92,285) (2,171,442)
----------------------------------------------------------------------------------------------------------------------------
Future dividends.................... (2,029,506)
----------------------------------------------------------------------------------------------------------------------------
Future interest..................... (2,487,105)
----------------------------------------------------------------------------------------------------------------------------
Warrants not exercisable until
12/31/00.......................... (2,750,000)
----------------------------------------------------------------------------------------------------------------------------
Registered-Selling Shareholder
Table............................. 632,010 14,870,793 13,410,703 0 21,668,369
----------------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
------------------------------------ ------------
------------------------------------ ------------
TOTAL COMMON
STOCK BEING
REGISTERED
------------------------------------ ------------
<S> <C>
Composition of Shares:
---------------------------------------------------------------
Original Issuance...................
----------------------------------------------------------------------------
Accumulated dividends...............
-----------------------------------------------------------------------------------------
Future dividends....................
------------------------------------------------------------------------------------------------------
Commissions.........................
-------------------------------------------------------------------------------------------------------------------
Accumulated interest................
----------------------------------------------------------------------------------------------------------------------------
Future interest.....................
----------------------------------------------------------------------------------------------------------------------------
Shares registered per Fee Table..... 59,387,918
----------------------------------------------------------------------------------------------------------------------------
Conversions to common............... (2,171,442)
----------------------------------------------------------------------------------------------------------------------------
Future dividends.................... (2,029,506)
----------------------------------------------------------------------------------------------------------------------------
Future interest..................... (2,487,105)
----------------------------------------------------------------------------------------------------------------------------
Warrants not exercisable until
12/31/00.......................... (2,750,000)
----------------------------------------------------------------------------------------------------------------------------
Registered-Selling Shareholder
Table............................. 49,949,865
----------------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 4
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IS NOT
SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER
OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION DECEMBER 29, 2000
HYBRIDON, INC.
345 VASSAR STREET
CAMBRIDGE, MASSACHUSETTS 02139
SECONDARY OFFERING PROSPECTUS
724,295 SHARES OF SERIES A CONVERTIBLE PREFERRED STOCK
AND
59,387,918 SHARES OF COMMON STOCK
The shareholders named on pages 48-54 are offering to sell up to 724,295
shares of our series A preferred stock and up to 59,387,918 shares of our common
stock.
The common stock is quoted on the NASD Over-the-Counter or "OTC," Bulletin
Board under the symbol "HYBN." The reported closing bid price of the common
stock on the NASD OTC Bulletin Board on December 28, 2000, was $.42 per share.
Prior to this offering there has been no public market for the convertible
preferred stock.
SEE "RISK FACTORS" BEGINNING ON PAGE 3 OF THIS PROSPECTUS FOR A DISCUSSION
OF CERTAIN FACTORS THAT YOU SHOULD CONSIDER IN EVALUATING AN INVESTMENT IN THE
HYBRIDON'S COMMON STOCK OR SERIES A PREFERRED STOCK.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The date of this prospectus is , 2001.
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary Financial Data...................................... 1
Risk Factors................................................ 3
Forward-Looking Statements.................................. 5
Business.................................................... 6
Properties.................................................. 17
Legal Proceedings........................................... 17
Market for Registrant's Common Equity and Related
Stockholder Matters....................................... 17
Dividend Policy............................................. 18
Use of Proceeds............................................. 18
Selected Financial Data..................................... 19
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 21
Directors and Executive Officers of Hybridon................ 29
Executive Compensation...................................... 31
Security Ownership of Certain Beneficial Owners and
Management................................................ 37
Certain Relationships and Related Transactions.............. 42
Selling Stockholders........................................ 48
Description of Capital Stock................................ 54
Transfer Agent and Registrar................................ 57
Delaware Law and Certain Provisions of Hybridon's Restated
Certificate of Incorporation, Bylaws and Indebtedness..... 57
Plan of Distribution........................................ 58
Legal Matters............................................... 59
Experts..................................................... 59
Additional Information...................................... 59
Index to Consolidated Financial Statements.................. F-1
</TABLE>
<PAGE> 6
SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
-------------------------------------- -------------------
1997 1998 1999 1999 2000
---------- ---------- ---------- -------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues:
Service revenue.................... $ -- $ 375 $ 365 $ 295 $ 70
Research and development........... 945 1,100 600 450 --
Royalty and other income........... -- -- 123 107 77
Interest income.................... 1,079 148 92 82 66
-------- -------- -------- -------- -------
Total revenues............. 2,024 1,623 1,180 934 213
-------- -------- -------- -------- -------
Operating Expenses:
Research and development........... 35,326 14,183 5,783 4,525 2,794
General and administrative......... 11,027 6,573 3,664 2,947 2,340
Interest........................... 4,278 2,820 683 511 1,857
Restructuring...................... 10,345 -- -- -- --
-------- -------- -------- -------- -------
Total operating expenses... 60,976 23,576 10,130 7,983 6,991
-------- -------- -------- -------- -------
Loss from continuing
operations............... (58,952) (21,953) (8,950) (7,049) (6,778)
Income (loss) from
discontinued
operations............... (10,509) (4,028) (1,553) (1,283) 5,292
-------- -------- -------- -------- -------
Loss before extraordinary gain....... (69,461) (25,981) (10,503) (8,332) (1,486)
-------- -------- -------- -------- -------
Extraordinary item:
Gain on conversion of 9%
convertible Subordinated notes
payable......................... -- 8,877 -- -- --
-------- -------- -------- -------- -------
Net loss............................. (69,461) (17,104) (10,503) (8,332) (1,486)
Accretion of preferred stock
dividend........................... -- (2,689) (4,232) (3,194) (3,112)
-------- -------- -------- -------- -------
Net loss applicable to common
stockholders....................... $(69,461) $(19,793) $(14,735) $(11,526) $(4,598)
======== ======== ======== ======== =======
Basic and diluted net loss per common
share from:
Continuing operations.............. $ (11.67) $ (1.85) $ (0.57) $ (0.45) $ (0.40)
Discontinued operations............ (2.08) (0.34) (0.10) (0.08) 0.31
Extraordinary gain................. -- 0.75 -- -- --
-------- -------- -------- -------- -------
Net loss per share................. (13.76) (1.44) (0.66) (0.53) (0.09)
Accretion of preferred stock
dividends....................... -- (0.23) (0.27) (0.20) (0.18)
-------- -------- -------- -------- -------
Net loss per share applicable to
common stockholders............. $ (13.76) $ (1.67) $ (0.93) $ (0.74) $ (0.27)
======== ======== ======== ======== =======
Shares used in computing basic and
Diluted net loss per common
share(1)........................... 5,050 11,859 15,811 15,654 17,130
</TABLE>
1
<PAGE> 7
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- SEPTEMBER 30,
1998 1999 2000
--------- --------- -------------
<S> <C> <C> <C>
Balance Sheet Data:
Cash, cash equivalents and short-term Investments(2)... $ 5,608 $ 2,552 $ 5,236
Working capital deficit................................ (5,306) (6,534) (3,253)
Total assets........................................... 15,092 10,717 11,430
Line of credit......................................... -- -- 231
9% convertible subordinated notes payable.............. 1,306 1,306 1,306
8% convertible subordinated notes payable.............. -- 6,100 7,737
Accumulated deficit.................................... (238,448) (253,183) (257,781)
Total stockholders' equity (deficit)................... 2,249 (6,072) (6,378)
</TABLE>
---------------
(1) Computed on the basis described in Note 2(l) of Notes to Consolidated
Financial Statements appearing elsewhere in this Prospectus.
(2) Short-term investments consisted of U.S. government securities with
maturities greater than ninety days but less than one year from the purchase
date.
2
<PAGE> 8
RISK FACTORS
Investing in our common stock is very risky. You should be able to bear the
complete loss of your investment. You should carefully consider the risks
presented by the following factors, in addition to the other information in this
prospectus.
OUR FINANCIAL CONDITION AND NEED FOR SUBSTANTIAL ADDITIONAL FUNDING
YOUR INVESTMENT COULD BE SUBSTANTIALLY DILUTED IF WE ISSUE SHARES TO OBTAIN
FINANCING WE NEED.
Our business is the discovery and development of drugs which act on genes
either to increase the production of proteins that combat disease or suppress
the production of proteins which cause or support diseases. In addition, we are
focusing on the design of immunostimulatory oligonucleotide compounds. Since our
founding in 1989, we have not produced any commercially viable drugs and we have
operated at a loss. In the past, we have financed our operations largely from
the sale of shares of common or preferred stock and the sale of debt or other
securities convertible into common stock.
In order to obtain the funds we needed to continue our operations, we will
need to issue shares of common stock or debt or securities convertible into
shares of common stock. We will probably need to issue a significant number of
shares in order to raise sufficient funds to pay our creditors, meet covenants
of our credit facility and continue our operations. This will result in
substantial dilution to your investment.
WE ARE NOT IN COMPLIANCE WITH ONE OF THE COVENANTS IN OUR LOAN AGREEMENT. IF OUR
LENDERS FORECLOSE, WE WILL HAVE FEW, OR NO, ASSETS TO DISTRIBUTE TO OUR
SHAREHOLDERS.
We have taken out a $6 million loan and have completed a $7.1 million 8%
note offering, both of which are secured by substantially all of our assets. The
loan and the 8% notes are owned in part by our affiliates. The loan agreement
for the $6 million loan requires us to maintain liquidity of $2,000,000 and a
net worth of $6,000,000. The 8% notes require us to maintain liquidity of
$1,500,000. On certain occasions in the past, our lenders have waived our
compliance with these requirements, but they may not be willing to do so in the
future. If our lenders and noteholders ever decline to give us waivers, we will
be in default and they will have the right to accelerate the repayment date on
the loan and the 8% notes and foreclose on our assets. Foreclosure will likely
force us to cease doing business or file for bankruptcy. If this should happen,
and we are liquidated, there will be few or no assets available for distribution
to our shareholders. Since the debt is owned in part by our affiliates, the
court may treat the loan as a capital contribution in which case there may be
assets available for distribution to our shareholders, along with the lenders.
WE EXPECT OUR OPERATING LOSSES TO CONTINUE INTO THE FUTURE.
As of September 30, 2000, we have incurred operating losses of
approximately $258 million. We expect to continue incurring operating losses
until revenues from the sale of any drugs that we succeed in developing exceed
our research and development and administrative costs. We will need to spend
substantial additional amounts on research and development, including
preclinical studies and clinical trials, in order to obtain the necessary
regulatory approvals. If we obtain regulatory approval, we will then need to
spend substantial amounts on sales and marketing efforts. See "Business --
Anticipated and Potential Costs."
OUR OPERATIONS
WE MAY NOT SUCCEED IN DEVELOPING A COMMERCIALLY VIABLE DRUG.
We do not currently have any drugs on the market and the drug candidates we
are working on are still in development. Before commercialization, a drug
candidate which has undergone pre-clinical trials with animals to test activity
and safety, must then pass several clinical trials with humans. Phase I testing
is conducted on a small group of healthy individuals for safety and dosage.
Phase I/II testing is on patients with targeted diseases to test safety and, to
a degree, effectiveness. Phase II is conducted on a large group of patients to
3
<PAGE> 9
evaluate safety and effectiveness at different doses and Phase III is on a large
patient group to confirm effectiveness. Our drug closest to commercialization,
GEM(R) 231, is still in Phase II clinical trials. All of our other drug
candidates are in pre-clinical trials and have not been tested on humans.
Drug candidates, in general, have a low overall probability of being
commercialized, but that probability increases as the drug advances through the
various development stages. A drug may, for instance, be ineffective, have
undesirable side effects, or demonstrate other therapeutic characteristics that
prevent or limit its commercial use, or may prove too costly to produce in
commercial quantities. If our drug candidates cannot be successfully developed,
or if we are unable to obtain the necessary regulatory approval, we will not be
able to generate the revenues from the sale of drugs that we would need in order
to be profitable.
WE SOLD SUBSTANTIALLY ALL OF OUR REVENUE-GENERATING OPERATIONS.
Throughout our history we have engaged primarily in the research and
development of genetic drugs, however, in 1996 we formed Hybridon Speciality
Products to manufacture certain compounds for Hybridon's internal use, for use
by our collaborators and for sale to third parties. We sold the business and
assets of Hybridon Speciality Products on September 21, 2000, for approximately
$15,000,000. We are now even more dependent upon ultimate success of our drug
research and development activities for our long-term viability.
WE HAVE MANY COMPETITORS, AND MAY NOT BE ABLE TO COMPETE SUCCESSFULLY AGAINST
THEM.
Several companies, in particular Isis Pharmaceuticals, Inc. and Genta
Incorporated, are also in the business of developing antisense drugs. Isis has
received the approval of the U.S. Food and Drug Administration, or "FDA," for
Vitravene, is currently marketing this drug for the treatment of CMV retinitis,
and has several other drugs in clinical testing for the possible treatment of
cancer, including ISIS 3521 and 2503. Genta is testing G3139 in humans, also for
the treatment of cancer. These drugs candidates are further along in clinical
testing than Hybridon's cancer drug GEM(R) 231. Other companies have antisense
drugs in preclinical and clinical development, including Inex and AVI Biopharma.
In general, the human health care products industry is extremely
competitive. Many drugs are currently marketed for the treatment of cancer, such
as Taxol, Carboplatin, Taxotere and Camptosar. While it is unlikely that GEM(R)
231 will compete against these drugs, it may be used in combination with them.
GEM(R) 231 and other Hybridon antisense drugs may not, however, be able to
capture sufficient market share to be profitable.
To our knowledge two privately held companies are developing
immunostimulatory oligonucleotide drugs. These drug candidates are in clinical
trials for various indications, either alone or in combination with vaccines.
Furthermore, biotechnology and related pharmaceutical technologies have
undergone rapid and significant change and we expect that the technologies
associated with biotechnology research and development will continue to develop
rapidly. Our prospects depend in large part on our ability to compete with these
technologies. Any compounds, drugs or processes that we develop may become
obsolete before we recover the expenses incurred in developing them.
OUR ABILITY TO COMPETE WILL SUFFER IF WE ARE UNABLE TO PROTECT OUR PATENT RIGHTS
AND TRADE SECRETS OR IF WE INFRINGE THE PROPRIETARY RIGHTS OF THIRD PARTIES.
Our success will depend to a large extent on our ability to obtain U.S. and
foreign patent protection for drug candidates and processes, preserve trade
secrets and operate without infringing the proprietary rights of third parties.
To obtain a patent on an invention, the inventor must be the first to
invent it or the first to file a patent application for it. We cannot be sure
that the inventors of subject matter covered by patents and patent applications
that we own or license were the first to invent, or the first to file patent
applications for, those inventions. Furthermore, patents we own or license may
be challenged, infringed upon, invalidated, found to be unenforceable, or
circumvented by others, and our rights under any issued patents may not provide
4
<PAGE> 10
sufficient protection against competing drugs or otherwise cover commercially
valuable drugs or processes. See "Business -- Patents, Trade Secrets, and
Licenses."
We seek to protect trade secrets and other unpatented proprietary
information, in part by means of confidentiality agreements with our
collaborators, employees, and consultants. If any of these agreements is
breached, we may be without adequate remedies. Also, our trade secrets may
become known or be independently developed by competitors.
OUR SECURITIES
BECAUSE "PENNY STOCK" RULES APPLY TO TRADING IN OUR COMMON STOCK, YOU MAY FIND
IT DIFFICULT TO SELL THE SHARES YOU PURCHASE IN THIS OFFERING.
Our common stock is a "penny stock," as it is not listed on an exchange and
trades at less than $5.00 a share. Broker-dealers who sell penny stocks must
provide purchasers of these stocks with a standardized risk-disclosure document.
It provides information about penny stocks and the nature and level of risks
involved in investing in the penny-stock market. A broker must also give a
purchaser, orally or in writing, bid and offer quotations and information
regarding broker and salesperson compensation, make a written determination that
the penny stock is a suitable investment for the purchaser, and obtain the
purchaser's written agreement to the purchase. The penny stock rules may make it
difficult for you to sell your shares of our stock. Because of the rules, there
is less trading in penny stocks. Also, many brokers choose not to participate in
penny stock transactions.
CERTAIN EXISTING STOCKHOLDERS HOLD A SUBSTANTIAL PORTION OF OUR STOCK, AND
CONSEQUENTLY COULD CONTROL MOST MATTERS REQUIRING APPROVAL BY STOCKHOLDERS.
Our officers, directors and principal stockholders own or control more than
60% of our common stock on a fully-diluted basis. As a result, these
stockholders, acting together, have the ability to control most matters
requiring approval by the stockholders. This concentration of ownership may have
the effect of delaying or preventing a change in control of Hybridon.
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that do not reflect
historical facts, but instead reflect Hybridon's current expectations, estimates
and projections regarding its business. Forward-looking statements can be found
in the material set forth under "Risk Factors," "Business," and "Management's
Discussion and Analysis of Financial Condition and Results of Operations," and
are characterized by use of words such as "believes," "plans," "expects," and
"anticipates." Forward-looking statements are not guarantees of future
performance, and necessarily involve risks and uncertainties, and Hybridon's
results could differ materially from those anticipated in the forward-looking
statements contained in this prospectus.
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BUSINESS
HYBRIDON
Hybridon, established in 1989, engages in the discovery and development of
genetic drugs which treat diseases by acting on a particular gene or protein.
The genetic drugs being developed by Hybridon are based on "antisense"
technology, in that they use synthetic genetic material, also called
oligonucleotides, with the aim of inhibiting or reducing the body's production
of proteins that directly or indirectly cause or support a given disease.
Hybridon has developed and owns certain innovations in antisense
technology. These include important innovations in areas of medicinal chemistry,
which concern the design of new antisense oligonucleotide compounds. Hybridon
also has rights to technology allowing the chemical modifications of
oligonucleotides.
Hybridon has also developed a portfolio of chemically modified
immunostimulatory oligonucleotide compounds.
Lastly, until September 21, 2000, the day Hybridon sold its Hybridon
Speciality Products ("HSP") business, Hybridon manufactured and sold
oligonucleotide compounds. Hybridon sold the business and assets of HSP in order
to focus on its drug research and development activities and to provide working
capital to fund its activities.
These aspects of Hybridon's business are discussed below.
TECHNOLOGY OVERVIEW
INTRODUCTION
The heart, brain, liver and other organs in the human body function
together to support life. Each microscopic cell within these organs produces
proteins that affect how that cell functions within its organ, and ultimately
how efficiently each organ functions within the body. Most human diseases are
caused by abnormal production or performance of proteins within individual
cells. In some instances, cell proteins act directly to cause or support a
disease. In other instances, cell proteins interfere with other proteins that
prevent or combat disease. Traditional drugs are designed to interact with
protein molecules that cause or support diseases. Antisense drugs are designed
to work at an earlier stage to stop the production of disease-causing or
disease-supporting proteins.
The information that controls a cell's production of a specific protein is
contained in the gene relating to that protein. Each gene is made up of two
intertwined strands of DNA that form a structure called a "double helix." Each
strand of DNA consists of a string of individual DNA building blocks, called
nucleotides, arranged in a specific sequence. Each strand is made of linked
molecules, known as the "backbone," and attached to the backbone are molecules
known as "bases." It is the sequence of bases that contains genetic information.
One of the paired strands contains the information that directs the composition
of a specific protein, and is called the "coding" strand. The other strand, the
"non-coding" strand, contains a different but complementary sequence of
nucleotides.
The full complement of human genes, known as the human "genome," consists
of over 100,000 genes and contains the information required to produce all human
proteins. A copy of the complete human genome is present in each cell, and each
cell makes proteins based on its copy of the genome. Cells make proteins in a
two-stage process. First, the cell creates a molecule of messenger RNA
consisting of a string of nucleotides in a sequence complementary to the
sequence of the coding strand of DNA. This is called the "sense" sequence. A
sequence that is complementary to the sense sequence is called the "antisense"
sequence. Then, the cell then produces proteins based on the information
contained in the messenger RNA. The number of copies of messenger RNA the cell
produces will affect how many copies of a given protein it produces.
A normal cell produces a given set of normal proteins in the right amount
for the body to function properly. A diseased cell produces inappropriate or
mutant proteins, or produces the wrong amount of normal
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proteins. A cell produces mutant proteins when its DNA changes, either through
mutation, as in many types of cancer cells, or by infection with a virus.
CONVENTIONAL DRUGS
Most drugs are chemicals that stimulate or suppress the function of a
particular molecule, usually a protein, with tolerable side effects. Most drug
side effects arise when a drug interacts with proteins in addition to the target
protein. Generally, the fewer other proteins a drug interacts with, the fewer
the side effects.
Conventional drugs generally aim to bind only two or three points of the
target molecule. Frequently, however, sites on other non-target molecules
resemble the target binding site enough to permit the conventional drug to bind
to some degree to those non-target molecules. This lack of selectivity can
result in unwanted side effects, potentially leading to decreased effectiveness.
A further characteristic of conventional drugs is that developing them is a
time-consuming and expensive process. For every compound that is found to be
effective and have tolerable side effects, thousands may be investigated and
rejected.
ANTISENSE DRUGS
An oligonucleotide with a sequence exactly complementary to that of the
messenger RNA of a specific gene can bind to and inhibit the expression of the
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. Hybridon 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 in mapping the human genome, including work conducted by academic
institutions, biotechnology companies and pharmaceutical companies, 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. Chemically-modified oligonucleotides can be composed
of DNA, RNA, or a combination of the two.
Because the nucleotide sequence of a chemically-modified antisense
oligonucleotide is complementary to its target sequence on the messenger RNA of
a given gene, the antisense oligonucleotide forms a large number of bonds at the
target site, typically between 40 and 60. This allows it to form a strong bond
with the messenger RNA. A few identical messenger RNA molecules can cause the
cell to produce many copies of a protein; similarly, a few identical
chemically-modified antisense oligonucleotides can stop this process. This is
due in part to an enzyme called RNase H that can destroy messenger RNA bound to
an oligonucleotide without destroying the oligonucleotide itself, thus freeing
the oligonucleotide to bind with, and cause the destruction of, other messenger
RNA molecules. This process is generally known as catalytic activity. All of
Hybridon's drugs are designed to take advantage of this catalytic activity so
that a relatively small number of antisense molecules can effectively inhibit
production of disease-associated proteins.
HYBRIDON ANTISENSE TECHNOLOGY
Hybridon's antisense chemistry builds on the pioneering work in the
antisense field begun in the 1970s by Dr. Paul C. Zamecnik, a founder,
consultant and director of Hybridon. Development of Hybridon's antisense
chemistry has been directed by Dr. Sudhir Agrawal, Hybridon's Chief Scientific
Officer and now also President and Acting Chief Executive Officer. It has been
based on what is referred to in this prospectus as "advanced chemistries,"
namely Hybridon'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.
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MEDICINAL CHEMISTRIES. Hybridon's first antisense drug, GEM(R) 91, targets
the messenger RNA that codes for an essential protein in Type 1 Human
Immunodeficiency Virus, or "HIV-1." GEM(R) 91 is based on first-generation
phosphorothioate chemistry, which altered the naturally-occurring, or native,
form of oligonucleotides by replacing certain oxygen atoms in the backbone with
sulfur atoms. GEM(R) 91 was more stable than native DNA, but was still able to
trigger the action of RNaseH, leading to catalytic activity. However, there were
side effects caused by the administration of this modified DNA into the body. In
particular, in the last clinical trial of GEM(R) 91 treatment of three of the
nine patients with advanced HIV disease was interrupted due to unacceptable
decreases in platelet counts. As a result, Hybridon discontinued the GEM(R) 91
program. Hybridon has, however, used the information gained from the human
clinical trials of GEM(R) 91 to design its advanced oligonucleotide chemistries.
Hybridon's scientists have designed and made over twenty families of
advanced oligonucleotide chemistries, including DNA/RNA combinations, also
called hybrid or mixed backbone chemistries. Hybridon believes that antisense
compounds based on these advanced chemistries will show favorable pharmaceutical
characteristics and significantly improve therapeutic value compared to earlier
antisense drug candidates. These compounds are likely to have the following
desirable characteristics:
- fewer side effects
- greater stability in the body, thereby permitting a patient to take doses
less frequently
- greater potency, thereby permitting a patient to take lower doses
- potential for multiple routes of administration, including by injection,
orally, or topically
DRUG POTENTIATION TECHNOLOGY. Hybridon has discovered that certain
oligonucleotides are able to enhance the activity of irinotecan, a marketed
anti-cancer drug, when the two are used together in animal models of cancer. The
observed increase in activity is not solely due to an antisense mechanism. This
discovery is being further studied to determine the mechanism of the effect and
to possibly prepare for human clinical trials.
FUNCTIONAL GENOMIC TECHNOLOGY. With the advent of human genome project,
there have been hundreds of newly discovered genes whose functions have not yet
been established. A reliable, fast and economic way to study the function of any
gene is through the use of antisense oligonucleotides specifically designed for
a specific messinger RNA. It is important to understand the role of each gene in
normal and disease conditions before designing drugs for that specific target.
Hybridon has an established program for the use of antisense
oligonucleotides for the study of the function of any newly discovered gene
(functional genomics). Hybridon's antisense obligonucleotides are especially
useful in these studies because of their increased specificity. The target
validation protocols used for the design of antisense oligonucleotides for
functional genomics studies use stringent principles developed at Hybridon
through its extensive experience in the antisense field to increase specificity
and reduce non-antisense effects.
REGULATORY KNOW-HOW. Hybridon drug development personnel have extensive
experience in working with the FDA and other drug regulatory agencies in an
efficient and cost-effective manner. Hybridon has assisted its spinoff companies
in preparing essential components of their submissions to the FDA.
IMMUNOSTIMULATORY OLIGONUCLEOTIDE TECHNOLOGY
Oligonucleotides containing cytosine-guanosine dinucleotides (CpG-motif)
are known to mobilize the body's immune defense system. This effect is called
immunostimulation. Independently published reports have shown that
CpG-motif-containing oligonucleotide compounds have therapeutic potential as a
vaccine adjuvant and as immunotherapy treatment for cancer, infectious and
allergic diseases.
Hybridon has found that by introducing modifications in sugar, heterocyclic
ring and internucleotide linkages at specific points relative to CpG-motif in
the oligonucleotide compounds causes significant increase in immunostimulatory
activity. These discoveries are being used to synthesize proprietary
immunostimulatory
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oligonucleotide compounds that are potent immunostimulatory agents. These potent
proprietary immunostimulatory oligonucleotide compounds could be used as
immunotherapy treatment of cancer, infectious or allergic diseases, or used
together with various vaccines.
Hybridon has entered into materials transfer agreements with several
biotech and pharmaceutical companies whereby Hybridon supplies modified
oligonucleotides to these companies which will evaluate their potential for
immunostimulatory effects.
DRUG DEVELOPMENT AND DISCOVERY
DRUG DEVELOPMENT AND APPROVAL PROCESS
The process of taking a compound from the laboratory to human patients
generally takes 10 to 15 years. This process is extremely expensive and is
rigorously regulated by governmental agencies, including, in the U.S., the Food
and Drug Administration, or the "FDA." Each drug must undergo a series of
trials, both preclinical and clinical, before the FDA will consider approving it
for commercial sale. The FDA or any company conducting drug trials can
discontinue those trials at any time if it feels that patients are being exposed
to an unacceptable health risk or if there is not enough evidence that the drug
is effective. The FDA may also require a company to provide additional
information or conduct additional tests before it will permit a drug to proceed
from one phase of trials to the next.
The phases of preclinical and clinical trials are described below:
- Preclinical Studies. Preclinical trials involve the testing of a given
compound in animals to provide data on the activity and safety of the
compound before the compound is administered to humans.
- Investigational New Drug Application. If the data from research and
preclinical trials are promising, Hybridon may file an Investigational
New Drug Application, or "IND," with the FDA. The IND contains the
results of the preclinical trials and the protocol for the first clinical
trial. The IND becomes active in 30 days unless the FDA disapproves it or
requires additional information. Once the IND becomes active, Hybridon
can begin clinical trials in the U.S.
- Phase I Clinical Trials. In Phase I trials, the drug is given to a small
group of healthy individuals or patients with the disease. These trials
are designed to produce data on the drug's safety, the maximum safe dose,
and how the drug is absorbed, distributed, metabolized and excreted over
time. In some cases, Phase I trials can give an early indication of a
drug's effectiveness. A limited Phase I trial is sometimes called a Pilot
Phase I trial.
- Phase I/II Clinical Trials. In Phase I/II trials, the drug is given to
patients with the diseases to evaluate safety and to get an early
indication of a drug's effectiveness. This type of trial is commonly used
in the evaluation of oncology drugs.
- Phase II Clinical Trials. In Phase II trials, the drug is given to a
larger group of patients with the disease for purposes of evaluating the
drug's effectiveness and side effects at varying doses and schedules of
administration and thereby determining the optimal dose and schedule for
the larger Phase III trials that follow.
- Phase III Clinical Trials. These trials generally have a large number of
patients. The primary purpose of a Phase III trial is to confirm the
drug's effectiveness and produce additional information on side effects.
- New Drug Application. Once Phase III trials are complete, Hybridon will
file a New Drug Application, or "NDA," with the FDA. The NDA contains all
of the information gathered from the Phase I, I/II, II and III trials.
Based on the FDA's review of the NDA, the FDA may approve the drug for
commercial sale. The FDA may deny an NDA if the applicable regulatory
requirements are not met. The FDA may also require additional tests
before approving an NDA. Even after approval by the FDA, Hybridon must
file additional reports about the drug with the FDA from time to time.
The
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FDA may withdraw product approvals if a company fails to comply with
ongoing regulatory standards or if problems occur after a company starts
marketing a drug.
- Accelerated Approval. The FDA is authorized to grant accelerated review
to NDAs for drugs that are intended to treat persons with debilitating
and life-threatening illnesses, especially if no satisfactory
alternatives are available. The more severe the disease, the more likely
it is that the drug will qualify for accelerated review. If a new drug is
approved after accelerated review, the FDA may require Hybridon to
conduct specific post-marketing studies regarding the drug's safety,
benefits and optimal use.
The regulatory process in other countries is generally similar to the U.S.
regulatory process.
DRUG DEVELOPMENT AND DISCOVERY PROGRAMS
Hybridon 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.
Hybridon believes there are significant additional opportunities for the
use of antisense. For example, in the treatment of cancer, compared to
conventional anti-cancer drugs, antisense may provide:
- more specific therapy
- more rapid development of drugs targeting newly-discovered cancer-related
proteins
- fewer toxic side effects, thereby allowing repeat and long-term therapy,
either alone or in combination with other cancer therapies, such as
radiation or chemotherapy
- when used in combination therapy, therapeutic effects that complement the
benefits of conventional drugs
For these reasons, Hybridon is exploring new antisense targets relevant to
the treatment of cancer.
CLINICAL PROGRAMS
Hybridon has conducted clinical trials with antisense drugs targeting
cancer and HIV-1 AIDS. Hybridon is seeking partners for each of its compounds in
clinical development.
CANCER
Unlike normal human cells, cancer cells grow in an uncontrolled and harmful
manner. The protein molecule protein kinase A, or "PKA," has been implicated in
the formation and growth of various solid tumors, including colon, ovarian,
breast, and lung tumors. There are two kinds of PKA. It is normal to find type I
in developing fetuses, but abnormal to find it in adults. By contrast, PKA type
II is found in, and is necessary to the health of, normal adults. Certain cancer
cells produce PKA type I in adults. Hybridon is developing a cancer drug, GEM(R)
231, that is designed to reduce the production of the harmful PKA type I without
interfering with the production of PKA type II. Most current drug candidates
based on conventional mechanisms have unacceptable side effects.
Hybridon has conducted a Phase I clinical trial to evaluate the safety of
GEM(R) 231 at multiple doses, and has found that patients tolerate it well. This
trial explored the maximum tolerated dose of GEM(R) 231 for both single doses
and multiple doses, and even high doses of GEM(R) 231 did not show the side
effects normally seen with current cancer treatments. This trial was not
conducted for the purpose of evaluating the efficiency of GEM(R) 231.
Hybridon is currently conducting additional studies with GEM(R) 231 in
patients with solid tumors that had not been cured by prior therapy. These
studies include a pilot Phase II trial and a Phase I/II trial. In addition,
Hybridon has begun the first in a series of Phase I/II trials treating patients
with solid tumors with GEM(R) 231 in combination with the anti-cancer therapies
Taxol(R) and Taxotere(R).
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HIV-1 AND AIDS
Acquired Immune Deficiency Syndrome, "AIDS," is caused by infection with
HIV-1 and leads to severe, life-threatening impairment of the immune system.
AIDS therapy using a combination of drugs has resulted in decreased rates of
death and improvement in the quality of life for patients who are HIV-positive
or have AIDS. There are, however, reports that this therapy may be failing to
give sustained clinical benefit. Hybridon believes this underscores the need for
new AIDS therapies.
Hybridon has completed a Pilot Phase I clinical study in Europe of GEM(R)
92, Hybridon's advanced chemistry compound for the treatment of HIV-1 infection
and AIDS. This study was designed to explore the safety of GEM(R) 92 and to
provide information on its absorption after oral dosing and injection. The
patients tolerated well all doses that they were given in the pilot study.
Further, GEM(R) 92 was detected in the blood after both oral dosing and
injection, suggesting that it may be possible to develop GEM(R) 92 as an oral
drug. Hybridon believes this was the first study of the oral administration of
an antisense molecule to humans. In in-vitro studies, beneficial effects were
observed when GEM(R) 92 was used in combination with several marketed AIDS
drugs. Importantly, both its medicinal approach and genetic target are unique,
in that no antisense drug has been approved for the treatment of AIDS, and no
other drug has the same target on the HIV-1 genome.
PRECLINICAL PROGRAMS
Hybridon has also conducted preclinical studies in the following areas:
<TABLE>
<CAPTION>
TARGET PRIMARY THERAPEUTIC INDICATION(S) STATUS
------ --------------------------------- ------
<S> <C> <C>
MDM2 (a protein involved in Cancer Seeking marketing
programmed cell death) partner
Vascular Endothelial Growth Factor Cancer Seeking marketing
(a protein that can cause partner
abnormal formation of new blood
vessels)
Retinopathies (e.g. macular Seeking marketing
degeneration and diabetic partner
retinopathy)
Hepatitis C Virus Hepatitis C (which can lead to Seeking marketing
liver cancer) partner
</TABLE>
HYBRIDON SPINOUTS
Hybridon has used multiple strategies to fund applications of its antisense
technology that it cannot develop at present without external funding. Hybridon
has used one such strategy, formation of spinout companies, to form MethylGene,
Inc. and OriGenix Technologies Inc. for the continued development of certain
product candidates.
METHYLGENE, INC.
In 1996, Hybridon and three Canadian institutional investors formed
MethylGene. Hybridon owns approximately 22% of MethylGene. Hybridon has granted
exclusive worldwide licenses and sublicenses to MethylGene to develop and market
the following:
- antisense compounds to inhibit the protein DNA methyltransferase for the
treatment of any disease
- other methods of inhibiting DNA methyltransferase for the treatment of
any disease
- antisense compounds to inhibit up to two additional targets for the
treatment of cancers
Research has shown that DNA methyltransferase, a protein, is overproduced
in some tumors, such as non-small-cell lung cancer, colon cancer, and breast
cancer tumors.
The Canadian investors who invested in MethylGene have the right to
exchange all of the shares of stock in MethylGene that they initially purchased
for shares of Hybridon common stock on the basis of 37.5 MethylGene shares, for
which they paid approximately U.S. $56.25, for one share of Hybridon common
stock, subject to adjustments.
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On September 21, 2000, Hybridon sold its HSP business. Prior to such sale,
Hybridon supplied MethylGene with its oligonucleotide supply needs. In
connection with the Asset Sale, the purchaser now supplies MethylGene with
oligonucleotides.
MethylGene commenced Phase I clinical trials of its first compound, MG98,
for the treatment of cancer in May 1999. Hybridon is also performing drug
development and other services for MethylGene. The continuation of these
services is currently being reviewed by both parties.
ORIGENIX TECHNOLOGIES INC.
In January 1999, Hybridon and three Canadian institutional investors formed
OriGenix to develop and market drugs for the treatment of infectious diseases,
with an initial focus on viral diseases. Hybridon owns approximately 28% of
OriGenix.
Hybridon has granted to OriGenix exclusive worldwide licenses and
sublicenses to antisense technology developed by Hybridon for the treatment of
human papillomavirus, or "HPV," and hepatitis B virus infections. HPV infection
can cause a variety of warts, including benign genital warts. HPV infection can
also lead to cervical cancer. Hepatitis B infections can lead to liver cirrhosis
and cancer of the liver. OriGenix may in the future negotiate with Hybridon for
licenses or sublicenses relating to additional targets. Hybridon may also
perform drug development and other services for OriGenix.
On September 21, 2000, Hybridon sold certain of its assets relating to the
manufacture of oligonucleotides ("Asset Sale"). Prior to such sale, Hybridon
supplied OriGenix with its oligonucleotide supply needs. In connection with the
Asset Sale, the purchaser now supplies OriGenix with oligonucleotides.
Otherwise, the relationship between Hybridon and OriGenix is substantially
unchanged.
CORPORATE COLLABORATION
An important part of Hybridon's business strategy is to enter into research
and development collaborations, licensing agreements, or other strategic
alliances, primarily with biotechnology and pharmaceutical corporations, to
develop certain products. Subject to sufficient funds being available, Hybridon
intends to proceed with Phase II clinical trials of its cancer drug GEM(R) 231.
For drugs other than drug GEM(R) 231, Hybridon does not anticipate proceeding
with any of its other clinical programs beyond their current stages of
development without a collaborative arrangement with a corporate partner.
Hybridon expects to retain the rights to manufacture many of the products it may
license pursuant to its existing and any future collaborations.
G.D. SEARLE & CO.
From January 1996 to March 2000 Hybridon and Searle engaged in a research
and development collaboration for the development of antisense compounds. Most
recently, Searle and Hybridon were investigating antisense inhibitors of MDM2, a
protein involved in programmed cell death, or apoptosis. It is believed that
MDM2 may play an important role in many types of cancer.
Through January 2000, Searle made annual research payments to Hybridon of
$600,000. In March 2000, however, Searle elected not to extend this research and
development collaboration. Hybridon may seek a new development partner for this
program.
Consistent with its January 1996 agreement with Hybridon, Searle is
required to return to Hybridon all licenses granted to Searle, including the
recently issued U.S. patent 6,013,786, which covers specific antisense
inhibitors of human MDM2. Hybridon has the right to use any of Searle's patent
rights relating to the work performed under the collaboration, including all
antisense rights relating to MDM2.
Hybridon will pay Searle a royalty if it successfully commercializes any
antisense compounds discovered as a result of their collaboration.
Pursuant to their collaboration, Searle also purchased 200,000 shares of
common stock in Hybridon's 1996 initial public offering.
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HYBRIDON SPECIALTY PRODUCTS
In 1996, Hybridon formed HSP to manufacture oligonucleotide compounds both
for Hybridon's internal use, for use by its collaborators and for sale to third
parties. On September 21, 2000, the Company sold the business and the assets of
its Hybridon Specialty Products business ("HSP") for $15,000,000 to Boston
Biosystems, Inc., a Delaware corporation (the "Purchaser") and wholly owned
subsidiary of Avecia, Inc. In addition, the Purchaser assumed approximately
$414,000 of liabilities related to the assets to be sold. The Company received
$11,550,000 of the purchase price at closing prior to any transaction costs,
$450,000 was retained for thirty (30) days by the Purchaser to cover potential
indemnification claims and raw materials inventory requirements. To date,
Hybridon has received approximately $176,000 of the amount owed. Lastly,
$3,000,000 will be payable as contingent consideration one year from the date of
Closing upon the satisfaction of certain conditions.
The purpose of the transaction was 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.
The Company will retain all liabilities arising out of or relating to HSP
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. The agreement governing the
sale of HSP to the Purchaser contains representations, warranties and covenants
of the parties customary in such transactions.
MARKETING STRATEGY
When and if any drugs Hybridon is developing are ready for market, Hybridon
plans to market the drugs either directly, using its own sales force, or through
co-marketing, licensing, distribution or similar arrangements with other
pharmaceutical and biotechnology companies, particularly if the products are
intended to serve a large, geographically-diverse patient population. On the
other hand, direct marketing of any of its proposed drugs would require a
substantial marketing staff and sales force supported by a distribution system.
By contrast, co-marketing or other arrangements with other pharmaceutical or
biotechnology companies would allow Hybridon to avoid the significant cost
involved in direct marketing, but would make Hybridon reliant on the efforts of
others. While Hybridon has developed general marketing strategies, it has not
reached this stage in development with respect to any drugs, and thus
necessitating the implementation of any of these strategies.
ACADEMIC AND RESEARCH COLLABORATIONS
Hybridon has entered into a number of collaborative research relationships
with independent researchers and leading academic and research institutions and
U.S. government agencies, including the National Institutes of Health, or "NIH."
Such research relationships allow Hybridon to augment its internal research
capabilities and obtain access to specialized knowledge or expertise.
In general, Hybridon's collaborative research agreements require Hybridon
to pay various amounts to support the research. Hybridon usually procures the
oligonucleotides, which the collaborator then tests. If in the course of
conducting research under its agreement with Hybridon a collaborator, solely or
jointly with Hybridon, creates any invention, Hybridon generally has an option
to negotiate an exclusive, worldwide, royalty-bearing license to the invention.
Inventions developed solely by Hybridon's scientists in connection with a
collaborative relationship generally are owned exclusively by Hybridon. Most of
these collaborative agreements are nonexclusive and can be cancelled on short
notice.
Since July 1997, as part of its restructuring, Hybridon has allowed a
number of its collaborative research agreements to expire and has terminated
certain others, but has maintained those that it believes support its current
drug discovery and development programs.
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DRUG DEVELOPMENT SERVICES
Hybridon's Drug Development Department has experience in the design and
conduct of preclinical and clinical trials and has prepared and submitted
reports and other regulatory documents in connection with the three Hybridon
advanced chemistry antisense compounds that have entered clinical studies.
Pursuant to a contract with MethylGene, Hybridon's Drug Development Department
has also used its expertise to help design and monitor the preclinical trials of
MethylGene's antisense compound, MG98, that led to MethylGene's submission of
IND applications in Canada and the U.S. MethylGene compensated Hybridon for
these services. Hybridon may perform similar services for OriGenix.
PATENTS, TRADE SECRETS, AND LICENSES
Hybridon's success will largely depend on its ability to:
- obtain U.S. and foreign patent protection for drug candidates and
processes
- preserve trade secrets
- operate without infringing the proprietary rights of third parties
Hybridon's policy is to file patent applications to protect technology,
inventions and improvements that it considers important to the development of
its business, and to obtain licenses to other patents that could help Hybridon
maintain or enhance its competitive position. As of December 15, 2000, Hybridon
owned or exclusively licensed in excess of 89 U.S. and foreign issued and
allowed patents, of which 71 are U.S. patents. Hybridon also has 45 U.S. and 84
foreign patent applications. The foreign patent and patent application counts
include Japan, Canada and Europe as a whole, as well as other non-European
individual countries. These patents and applications cover various chemically
advanced oligonucleotides, target sequences, oligonucleotide products,
analytical methods, and methods for antisense treatment of various diseases. The
patents expire on dates ranging from 2006 to 2015.
Hybridon is the worldwide exclusive licensee under several U.S. issued
patents or allowed patent applications owned by University of Massachusetts
Medical Center, or "UMMC," relating to oligonucleotides and hybrid or mixed
backbone chemistries. Many of these patents and patent applications have
corresponding patents issued by, or corresponding patent applications on file
in, other major industrial countries. One of the issued U.S. patents and one of
the issued European patents cover antisense oligonucleotides as new compositions
of matter for stopping the replication of HIV. Coverage of the other issued U.S.
patents includes composition and use of oligonucleotides based on advanced
chemistries, composition of certain modified oligonucleotides that are useful
for diagnostic tests or assays, and methods of purifying oligonucleotides. The
UMMC patents licensed to Hybridon expire at various dates starting in 2006.
Hybridon is the exclusive licensee under various other U.S. and foreign
patents and patent applications, including two U.S. patent applications owned by
McGill University relating to oligonucleotides and DNA methyltransferase.
Hybridon and Massachusetts General Hospital jointly own one issued U.S. patent
applicable to Alzheimer's disease. Hybridon holds an exclusive license to
Massachusetts General Hospital's interests under this patent.
The field of each of these licenses extends to a wide variety of genetic
targets. Hybridon is also a nonexclusive licensee of certain patents exclusively
licensed to Genzyme covering certain technology relating to MDM2.
The U.S. Patent and Trademark Office, or "PTO," has informed Hybridon that
certain patent applications exclusively licensed by Hybridon from UMMC will be
submitted to the Board of Patent Appeals and Interferences of the PTO to
determine whether an interference should be declared with issued U.S. patents
held by the NIH relating to oligonucleotide phosphorothioates. An interference
proceeding is a proceeding to determine who was the first to invent, and thus
who is entitled to a patent for, a claimed invention. While Hybridon is of the
opinion that the UMMC patent application has a prima-facie case for priority
against the NIH for an invention that includes phosphorothioate-modified
oligonucleotides, there can be no assurance, however, that the PTO will declare
an interference, or if it does, what the outcome will be. If
14
<PAGE> 20
Hybridon were to win the interference, others making, using or selling certain
phosphothioate-modified oligonucleotides would be required to obtain a license
from Hybridon. As part of the HSP sale, the Company granted the Purchaser an
option to a license to use the patent applications that are the subject of the
potential interference.
The PTO declared a four-way interference involving two UMMC U.S. patents,
for which Hybridon is the exclusive licensee, relating to a particular type of
modified oligonucleotides. The other parties to this interference were
Integrated DNA Technologies, Isis Pharmaceuticals, Inc. and Gilead Sciences,
Inc. This interference was settled in early 1999. In connection with the
settlement, Hybridon has obtained a nonexclusive license to certain patents and
patent applications owned by IDT that broadly claim chemical modifications to
oligonucleotides. Hybridon has also granted a nonexclusive license to IDT to
make, use, and sell limited quantities of oligonucleotides incorporating certain
of Hybridon's advanced chemistries.
Under its licenses, Hybridon is obligated to pay royalties on its net sales
of products or processes covered by the licensed technology and, in some cases,
to pay a percentage of sublicense income that it receives. These licenses impose
various commercialization, sublicensing, insurance and other obligations on
Hybridon. If Hybridon fails to comply with these requirements, the license could
be terminated.
Legal standards relating to the validity of patents covering pharmaceutical
and biotechnological inventions and the scope of claims made under such patents
are still developing. As a result, Hybridon's ability to obtain and enforce
patents that protect its drugs is uncertain and involves complex legal and
factual questions.
That Hybridon owns or licenses pending or future patent applications does
not mean that patents based on those applications will ultimately be issued.
First, to obtain a patent on an invention, one must be the first to invent it or
the first to file a patent application for it. Patent applications in the U.S.
are maintained in secrecy until patents are issued, and publication of any given
discovery in the scientific or patent literature tends to lag behind the actual
date of that discovery by several months. Consequently, Hybridon cannot be
certain that the inventors of subject matter covered by patents and patent
applications that it owns or licenses were the first to invent, or the first to
file patent applications for, those inventions.
Others, including Hybridon's competitors, also hold issued patents and
patent applications relating to antisense technology or particular genetic
targets. Holders of any of these patents or patent applications may be able to
require Hybridon to change or cease making or using certain products or
processes, or obtain an exclusive or nonexclusive license in return for
licensing fees, which may be substantial. Hybridon may not be able to obtain any
such licenses at a reasonable cost. Furthermore, such licenses may be made
available to competitors of Hybridon on an exclusive or nonexclusive basis.
Failure to obtain such licenses could have a material adverse effect on
Hybridon.
Hybridon requires its employees, consultants, outside scientific
collaborators, sponsored researchers and other advisors to execute
confidentiality agreements. These agreements provide that all confidential
information developed or made known by Hybridon to the individual is to be kept
confidential, subject to specific exceptions. In the case of employees, the
agreements provide that all inventions conceived by the individual are the
exclusive property of Hybridon. These agreements may not, however, provide
meaningful protection for Hybridon's trade secrets or adequate remedies in the
event of breach.
Consistent with pharmaceutical industry and academic standards, Hybridon's
agreements with academic and research institutions and U.S. government agencies
may provide that the results of a given collaboration, or any developments that
derive from the collaboration, will be freely published, that information or
materials supplied by Hybridon will not be treated as confidential, and that
Hybridon must negotiate a license to developments and results in order to
commercialize products incorporating them. There can be no assurance that
Hybridon will be able successfully to obtain any such license at a reasonable
cost or that such developments and results will not be made available to
competitors of Hybridon on an exclusive or nonexclusive basis. See
"Business -- Academic and Research Collaborations."
15
<PAGE> 21
GOVERNMENT REGULATION
Hybridon's research and clinical development activities are regulated for
safety, effectiveness and quality by numerous governmental authorities in the
U.S. and other countries. Hybridon believes that it is in material compliance
with all applicable federal, state and foreign legal and regulatory
requirements.
In addition to regulations enforced by the FDA in connection with product
approvals, Hybridon also is subject to regulation under the Occupational Safety
and Health Act and other present and potential future federal, state or local
regulations. Furthermore, because Hybridon uses hazardous materials, chemicals,
viruses, and various radioactive compounds, it must comply with U.S. Department
of Transportation and Environmental Protection Agency regulations and other
federal, state, and foreign laws and regulations regarding hazardous waste
disposal, air emissions, and waste-water discharge. Although Hybridon believes
that it complies with these laws and regulations, it cannot completely eliminate
the risk of accidental contamination or injury from these materials.
COMPETITION
There are a number of companies, both privately and publicly held, that are
conducting research and development activities on technologies and products
aimed at therapeutic regulation of gene expression, including antisense drugs.
One competitor of Hybridon has recently received FDA approval to market an
antisense therapeutic product for the treatment of CMV retinitis. To our
knowledge two privately held companies are developing immunostimulatory
oligonucleotide drugs. These drug candidates are in clinical trials for various
indications, either alone or in combination with vaccines. Hybridon believes
that the interest in these technologies and products will increase. It is
possible that Hybridon's competitors will succeed in developing products that
are more effective than Hybridon's. Furthermore, Hybridon's proposed drugs will
be competing with other kinds of drugs. Given the fundamental differences
between antisense technology and other drug technologies, antisense drugs may be
less effective at treating some diseases than other kinds of drugs.
Biotechnology and related pharmaceutical technologies have undergone and
continue to be subject to rapid and significant change. Hybridon expects that
the technologies associated with biotechnology research and development will
continue to develop rapidly. Hybridon's future will depend in large part on its
ability to compete with these technologies.
Hybridon has many competitors, including major pharmaceutical and chemical
companies, biotechnology firms, and universities and other research
institutions. Many of these competitors have substantially greater financial,
technical, and human resources than Hybridon, and many have significantly
greater experience than Hybridon in undertaking preclinical studies and clinical
trials of new pharmaceutical products and obtaining FDA and other regulatory
approvals. Accordingly, Hybridon's competitors may succeed in obtaining
regulatory approvals for products more rapidly than Hybridon. Furthermore, if
Hybridon receives approval to commence commercial sales of products, it will
also be competing with respect to marketing capabilities, an area in which it
has limited experience.
EMPLOYEES
As of December 21, 2000, Hybridon employed 14 individuals full-time, of
whom 10 held advanced degrees. 10 of these employees are engaged in research and
development activities and 4 are employed in finance, corporate development, and
legal and general administrative activities. Many of Hybridon's management and
professional employees have had prior experience with pharmaceutical,
biotechnology, or medical products companies. None of Hybridon's employees is
covered by a collective bargaining agreement, and management considers relations
with its employees to be good.
On February 15, 2000, Hybridon announced that E. Andrews Grinstead, III,
Hybridon's former Chief Executive Officer, had taken an unexpected medical leave
of absence of indefinite duration due to a serious illness and that Mr.
Grinstead had been replaced as President. Dr. Sudhir Agrawal, formerly Senior
Vice
16
<PAGE> 22
President of Discovery, has assumed the position of President and Acting Chief
Executive Officer during Mr. Grinstead's absence and subsequent termination of
employment.
PROPERTIES
Hybridon leases approximately 26,000 square feet of laboratory space in
Cambridge, Massachusetts under a lease that expires April 30, 2007. The annual
rent for this space is approximately $650,000. Hybridon intends to sublease
approximately 7,500 square feet of this to a third party under a sublease that
would expire in mid-2002.
LEGAL PROCEEDINGS
Hybridon is not a party to any litigation that it believes could damage
Hybridon or its business.
MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
From January 24, 1996 until December 2, 1997, Hybridon'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 Hybridon's common
stock.
On December 2, 1997, Hybridon'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, Hybridon 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 indicate 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.............................................. $6.875 $0.844
Second Quarter............................................. 3.436 0.750
Third Quarter.............................................. 1.313 0.500
</TABLE>
The reported closing bid price of the common stock on the NASD OTC Bulletin
Board on December 28, 2000 was $.42 per share.
17
<PAGE> 23
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 Hybridon.
Hybridon has never declared or paid cash dividends on its capital stock,
and Hybridon 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 Hybridon issued 9% convertible subordinated notes on April
2, 1997, limits Hybridon'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 November 3, 2000, $1.3 million in total principal amount of the 9% notes
remained outstanding.
In addition, Hybridon is currently prohibited from paying cash dividends
under the loan held by the Lender. See "Management's Discussion and Analysis of
Financial Condition and Results of Operation -- 1998 Financing
Activities -- $6.0 Million Loan."
USE OF PROCEEDS
Hybridon will not receive any proceeds from the sale of the securities by
selling stockholders other than proceeds upon exercise of certain Hybridon
warrants. Those proceeds will be added to Hybridon's general working capital.
18
<PAGE> 24
SELECTED FINANCIAL DATA
The selected balance sheet data set forth below, as of December 31, 1998
and 1999, and the statements of operations data for each of the three years in
the period ending December 31, 1999, come from Hybridon's consolidated financial
statements which have been audited by Arthur Andersen LLP, independent public
accountants, and which are included elsewhere in this prospectus. The selected
financial data as of December 31, 1995, 1996 and 1997 and for the years ended
December 31, 1995 and 1996 have been derived from Hybridon's consolidated
financial statements, as adjusted to reflect the disposition of Hybridon's
Hybridon Specialty Products business as discontinued operations, not included in
this prospectus, all of which have been audited by Arthur Andersen LLP,
independent public accountants. The selected financial data as of September 30,
2000 and for the nine months ended September 30, 1999 and 2000 are derived from
Hybridon's unaudited consolidated financial statements which are included
elsewhere in this Prospectus and which include, in the opinion of Hybridon, all
adjustments (consisting only of normal recurring adjustments) that are necessary
for a fair presentation of its financial position and the results of its
operations for those periods. Operating results for the nine months ended
September 30, 2000 are not necessarily indicative of the results that may be
expected for the fiscal year ending December 31, 2000. The selected consolidated
financial data should be read along with, and are qualified by reference to,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," Hybridon's consolidated financial statements and notes thereto and
the Report of Independent Public Accountants included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED DECEMBER 31,
---------------------------------------------------- ------------------
1995 1996 1997 1998 1999 1999 2000
-------- -------- -------- -------- -------- -------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues:
Service revenue..................................... $ -- $ -- $ -- $ 375 $ 365 $ 295 $ 70
Research and development............................ 1,186 1,419 945 1,100 600 450 --
Royalty and other income............................ -- 62 -- -- 123 107 77
Interest income..................................... 219 1,447 1,079 148 92 82 66
-------- -------- -------- -------- -------- -------- -------
Total revenues................................ 1,405 2,928 2,024 1,623 1,180 934 213
-------- -------- -------- -------- -------- -------- -------
Operating Expenses:
Research and development............................ 28,531 33,150 35,326 14,183 5,783 4,525 2,794
General and administrative.......................... 6,094 11,347 11,027 6,573 3,664 2,947 2,340
Interest............................................ 81 34 4,278 2,820 683 511 1,857
Restructuring....................................... -- -- 10,345 -- -- -- --
-------- -------- -------- -------- -------- -------- -------
Total operating expenses............................ 34,706 44,531 60,976 23,576 10,130 7,983 6,991
-------- -------- -------- -------- -------- -------- -------
Loss from continuing operations..................... (33,301) (41,603) (58,952) (21,953) (8,950) (7,049) (6,778)
Income (loss) from discontinued operations.......... (1,246) (5,250) (10,509) (4,028) (1,553) (1,283) 5,292
-------- -------- -------- -------- -------- -------- -------
Loss before extraordinary gain........................ -- (46,853) (69,461) (25,981) (10,503) (8,332) (1,486)
Extraordinary item:
Gain on conversion of 9% convertible Subordinated
notes payable..................................... -- -- -- 8,877 -- -- --
-------- -------- -------- -------- -------- -------- -------
Net loss.............................................. (34,547) (46,853) (69,461) (17,104) (10,503) (8,332) (1,486)
Accretion of preferred stock dividend................. -- -- -- (2,689) (4,232) (3,194) (3,112)
-------- -------- -------- -------- -------- -------- -------
Net loss applicable to common stockholders............ $(34,547) $(46,853) $(69,461) $(19,793) $(14,735) $(11,526) $(4,598)
======== ======== ======== ======== ======== ======== =======
Basic and diluted net loss per common share from:
Continuing operations............................... $ (91.28) $ (9.09) $ (11.67) $ (1.85) $ (0.57) $ (0.45) $ (0.40)
Discontinued operations............................. (3.41) (1.15) (2.08) (0.34) (0.10) (0.08) 0.31
Extraordinary gain.................................. -- -- -- 0.75 -- -- --
-------- -------- -------- -------- -------- -------- -------
Net loss per share.................................. (94.70) (10.24) (13.76) (1.44) (0.66) (0.53) (0.09)
Accretion of preferred stock dividends.............. -- -- -- (0.23) (0.27) (0.20) (0.18)
-------- -------- -------- -------- -------- -------- -------
Net loss per share applicable to common
stockholders...................................... $ (94.70) $ (10.24) $ (13.76) $ (1.67) $ (0.93) $ (0.74) $ (0.27)
======== ======== ======== ======== ======== ======== =======
Shares Used in Computing Basic and diluted Net Loss
per common share(1)............................... 365 4,576 5,050 11,859 15,811 15,654 17,130
======== ======== ======== ======== ======== ======== =======
</TABLE>
19
<PAGE> 25
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
------------------------------------------------------------- -------------
1995 1996 1997 1998 1999 2000
--------- --------- --------- --------- --------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash, cash equivalents and short-term
investments(2).............................. $ 5,284 $ 16,419 $ 2,202 $ 5,608 $ 2,552 $ 5,236
Working capital (deficit)..................... 258 9,483 (21,992) (5,306) (6,534) (3,253)
Total assets.................................. 18,908 38,295 30,480 15,092 10,717 11,430
Long-term debt and capital lease obligations,
net of current portion...................... 484 6,959 1,328 -- -- --
Line of credit................................ -- -- -- -- -- 231
9% convertible subordinated notes payable..... -- -- 50,000 1,306 1,306 1,306
8% convertible subordinated notes payable..... -- -- -- -- 6,100 7,737
Accumulated deficit........................... (102,341) (149,194) (218,655) (238,448) (253,183) (257,781)
Total stockholders' equity (deficit).......... 12,447 22,855 (46,048) 2,249 (6,072) (6,378)
--------- --------- --------- --------- --------- ---------
</TABLE>
---------------
(1) Computed on the basis described in Note 2(l) of Notes to consolidated
financial statements appearing elsewhere in this prospectus.
(2) Short-term investments consisted of U.S. government securities with
maturities greater than ninety days but less than one year from the purchase
date.
20
<PAGE> 26
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
Hybridon is involved in the discovery and development of genetic medicines
based on antisense technology and the design of immunostimulatory
oligonucleotide compounds. Hybridon began operations in February 1990 and since
that time has been involved primarily in research and development efforts,
developing its manufacturing capabilities, and raising capital. In order to
commercialize its therapeutic products, Hybridon will need to address a number
of technological challenges and comply with comprehensive regulatory
requirements. All revenues received by Hybridon to date have been from
collaborative agreements, interest on invested funds and revenues from the
custom contract manufacturing of synthetic DNA and reagent products by its
manufacturing business, Hybridon Specialty Products ("HSP") prior to the
disposal thereof in September 2000.
Hybridon has incurred total losses of approximately $257.8 million through
September 30, 2000. Hybridon expects that its research and development and
general and administrative expenses will be significant in 2000 and future years
as it pursues its core drug development programs and expects to continue to
incur operating losses and significant capital needs.
Hybridon has completed the sale of its Hybridon Specialty Products business
to Avecia Limited ("Avecia"); one of Europe's leading specialty chemicals
companies, through its subsidiary, Boston Biosystems, Inc. Avecia acquired the
oligonucleotide manufacturing business and certain related intellectual property
of Hybridon Specialty Products business for US$15.0 million, of which $12.0
million, less $0.5 million for certain indemnity purposes, is payable at closing
and $3.0 million is payable after one year, subject to offset rights under the
contract (this sale, the "Asset Sale"). Avecia and Hybridon have also agreed
that through 2002 Avecia will supply oligonucleotides for Hybridon and its
associated operations. Hybridon will be required to purchase certain amounts of
oligonucleotides from Avecia until approximately the end of 2001.
On May 30, 2000, Hybridon entered into a Line of Credit Agreement pursuant
to which certain lenders (the "LOC Lenders") agreed to provide Hybridon with an
8%, $2.0 million credit facility (the "Line of Credit" or "LOC"). The Line of
Credit was intended to provide Hybridon with working capital any time prior to
the earlier of September 30, 2000, and the date the Asset Sale was consummated.
On July 10, 2000 and August 10, 2000, Hybridon drew down approximately $0.5
million on each of these dates under the Line of Credit, representing a total
draw down of $1.0 million. On September 28, 2000 Hybridon paid back
approximately $0.8 million and converted the remaining, approximately $0.2
million to common stock in October 2000. Hybridon has no additional borrowing
capacity under this Line of Credit.
Hybridon's existing cash resources are expected to be sufficient to operate
into the third quarter of 2001, at which time it expects to collect the second
installment of the proceeds from the Asset Sale in the amount of $3.0 million,
which should enable it to sustain its operations through the year 2001. Hybridon
will be required to raise substantial additional funds from external sources to
support its operations in 2002 and beyond.
As of December 21, 2000, Hybridon had 14 full-time employees.
The financial statements of Hybridon have been restated to reflect the
financial results of the Hybridon Specialty Products business as a discontinued
operation for the periods ended September 30, 2000 and 1999, and the years ended
December 31, 1999, 1998 and 1997.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
REVENUES
Hybridon had total revenues of $0.2 million and $0.9 million for the nine
months ended September 30, 2000 and 1999, respectively.
Receipt of service revenues from MethylGene, Inc. and OriGenix
Technologies, Inc., entities in which Hybridon has an equity interest, were $0.1
million and $0.3 million for the nine months ended September 30,
21
<PAGE> 27
2000 and 1999, respectively. This decrease represents a decrease in support
services provided to these entities by Hybridon.
Revenues from research and development collaborations were zero and $0.5
million for the nine months ended September 30, 2000 and 1999, respectively.
This decrease is primarily due to the termination by Searle of its collaboration
agreement with Hybridon.
RESEARCH AND DEVELOPMENT EXPENSES
Hybridon's research and development expenses were $2.8 million and $4.5
million for the nine months ended September 30, 2000 and 1999, respectively.
This decrease reflects Hybridon's lower levels of cash available for
expenditures in 2000. Research and development salaries and related costs
remained at approximately the same level in 2000 as 1999. Hybridon's patent
expenses remained at approximately the same level in 2000 as 1999.
GENERAL AND ADMINISTRATIVE EXPENSES
Hybridon's general and administrative expenses were $2.3 million and $2.9
million for the nine months ended September 30, 2000 and 1999, respectively. The
decrease reflects Hybridon's lower levels of cash available for expenditures in
2000. General and administrative expenses related to business development and
public relations remained at approximately the same level in 2000 as 1999, as
did legal and accounting expenses.
INTEREST EXPENSE
Hybridon's interest expense was $1.9 million and $0.5 million for the nine
months ended September 30, 2000 and 1999, respectively. This increase is
attributable to the issuance of the 8% convertible subordinated notes in
December 1999 and the draw down on the Line of Credit.
LOSS FROM CONTINUING OPERATIONS
As a result of the above factors, Hybridon incurred losses from continuing
operations of $6.8 million and $7.0 million for the nine months ended September
30, 2000 and 1999, respectively.
LOSS FROM DISCONTINUING OPERATIONS
Hybridon incurred income from discontinued operations of $5.3 million and a
loss of $1.3 million for the nine months ended September 30, 2000 and 1999,
respectively. The net income from discontinued operations, as presented on the
consolidated statement of operations for the nine months ended September 30,
2000, includes the gain on sale of its Hybridon Specialty Products Business of
$6.1 million as well as the operating loss from discontinued operations for the
nine months ended September 30, 2000, totaling $0.8 million. For all other
periods presented, the net loss relates solely to the operating results of the
Hybridon Specialty Products business.
NET LOSS
Hybridon recorded preferred stock dividends on the Series A convertible
preferred stock of $3.1 million and $3.2 million for the nine months ended
September 30, 2000 and 1999, respectively, resulting in a net loss applicable to
common stockholders of $4.6 million and $11.5 million for the nine months ended
September 30, 2000 and 1999, respectively.
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
REVENUES
Hybridon had total revenues from continuing operations of $2.0 million in
1997, $1.6 million in 1998, and $1.2 million in 1999. During 1997, 1998 and
1999, Hybridon received revenues from research and development collaborations of
$0.9 million, $1.1 million and $0.6 million, respectively. Research and
development collaboration revenues increased in 1998 from 1997, primarily due to
Hybridon receiving certain payments under its license agreement with MethylGene,
Inc. Research and development collaboration revenues decreased in 1999 from
1998, primarily due to a reduction in revenues recorded under this license
22
<PAGE> 28
agreement. Also, in March 2000, Hybridon announced that Searle, a collaborative
partner of Hybridon, was terminating its collaboration agreement with Hybridon.
Product and service revenues were zero in 1997, $0.4 million in 1998 and
$0.4 million in 1999. The increase in revenues in 1998 over those in 1997 was
primarily the result of service revenue from MethylGene, an entity in which
Hybridon has an approximately 30% equity interest. The revenues in 1999 were
primarily derived from MethylGene, Inc. and OriGenix Technologies, Inc.,
entities in which Hybridon has an equity interest. The service revenues received
from MethylGene decreased from $0.4 million to $0.3 million and increased for
OriGenix from zero to $0.1 million for 1998 and 1999, respectively.
Revenues from royalty and other income were zero in 1997, zero in 1998 and
$0.1 million in 1999. The 1999 revenue consisted primarily of a NIH grant and an
equipment lease between Hybridon and OriGenix Technologies, Inc.
Revenues from interest income were $1.1 million in 1997, $0.1 million in
1998 and $0.1 million in 1999. The decrease in interest income in 1998 from 1997
was the result of lower cash balances available for investment.
RESEARCH AND DEVELOPMENT EXPENSES
During 1997, 1998 and 1999, Hybridon expended $35.3 million, $14.2 million
and $5.8 million, respectively, on research and development activities.
The decreases in research and development expenses each year reflect
Hybridon's reduction of its operating expenses in 1997 and 1998 pursuant to the
restructuring that began in 1997 and was completed in 1998 and the lower levels
of cash available for expenditures in 1999. The restructuring included the
termination of operations at Hybridon's facilities in Europe, and also resulted
in significant reductions in employees and employee-related expenses, clinical
and outside testing, consulting, materials and lab expenses.
In addition, the facilities expense included in research and development
expenses decreased significantly in 1998 and 1999 as a result of moving
Hybridon's corporate offices and lab space in July 1998 from Cambridge to
Milford, Massachusetts and the sublease of its remaining unused Cambridge
facilities.
Research and development salaries and related costs decreased in 1998 from
1997 due to the substantial reduction in the number of employees involved in
research and development in 1998. Research and development salaries and related
costs remained at approximately the same level in 1999 as 1998.
Hybridon's patent expenses remained at approximately the same level in 1997
as 1998 and 1999.
GENERAL AND ADMINISTRATIVE EXPENSES
Hybridon incurred general and administrative expenses of $11.0 million in
1997, $6.6 million in 1998 and $3.7 million in 1999. The decreases reflect
Hybridon's reduction of its operating expenses in 1997 and 1998 pursuant to the
restructuring which began in 1997 and was completed in 1998, which resulted in
significant reduction in employees and employee-related expenses and consulting
expenses. General and administrative expenses related to business development,
public relations and legal and accounting expenses also decreased in 1999.
In addition, the facilities expense included in general and administrative
expenses also decreased significantly in 1999 as a result of moving Hybridon's
corporate offices to Milford, Massachusetts in 1998.
INTEREST EXPENSE
Interest expense was $4.3 million in 1997, $2.8 million in 1998 and $0.7
million in 1999. The decreases are attributable to the exchange of approximately
$48.7 million of the 9% convertible subordinated notes issued in the second
quarter of 1997 for Series A preferred stock on May 5, 1998. In addition, the
outstanding balance of loans needed to finance the purchase of property and
equipment was reduced in May 1998, resulting in a subsequent reduction in
interest expense. Due to the issuance of the 8% convertible subordinated notes
in December 1999, Hybridon's interest expense will increase beginning in 2000.
23
<PAGE> 29
RESTRUCTURING CHARGE
As a part of its restructuring plan, Hybridon recorded an $10.3 million
restructuring charge in 1997 to provide for the following:
- the termination costs of certain research programs and other contracts
- the loss of certain leased facilities, net of sublease income and other
contracts
- severance, benefits and related costs for terminated employees
- the write down of assets to net realizable value.
LOSS FROM CONTINUING OPERATIONS
As a result of the above factors, Hybridon incurred losses from continuing
operations of $59.0 million in 1997, $22.0 million in 1998 and $9.0 million in
1999.
LOSS FROM DISCONTINUING OPERATIONS
Hybridon incurred losses from discontinued operations of $10.5 million in
1997, $4.0 million in 1998 and $1.6 million in 1999.
NET LOSS
Hybridon incurred losses from operations before extraordinary items of
$69.5 million in 1997, $26.0 million in 1998 and $10.5 million in 1999. Hybridon
had extraordinary income of $8.9 million in 1998 resulting from the conversion
of $48.7 million principal amount of its 9% notes to Series A preferred stock in
the second quarter of 1998. In accordance with Statement of Financial Accounting
Standards No. 15, Accounting by Debtors and Creditors for Troubled Debt
Restructurings, Hybridon recorded an extraordinary gain of approximately $8.9
million related to the exchange. The extraordinary gain represents the
difference between the carrying value of the 9% notes offered for exchange and
the fair value of the Series A preferred stock issued upon the exchange, as
determined by the per share sales price of such stock sold in May 1998 in the
private offering described below. As a result of this extraordinary gain,
Hybridon's net loss was reduced to $17.1 million for 1998.
Hybridon had recorded preferred stock dividends on the Series A convertible
preferred stock of $2.7 million and $4.2 million in 1998 and 1999, respectively,
resulting in a net loss applicable to common stockholders of $19.8 million and
$14.7 million for 1998 and 1999, respectively. The net loss applicable to common
stockholders for 1997 was $69.5 million.
LIQUIDITY AND CAPITAL RESOURCES
GENERAL
Since inception, Hybridon has incurred significant losses, which it has
funded through the issuance of equity securities, debt issuances, sales by
Hybridon Specialty Products, which has been sold, and through research and
development collaborations and licensing arrangements.
During the nine months ended September 30, 2000, Hybridon utilized
approximately $5.4 million to fund continuing operating activities and did not
incur any capital expenditures. For the same period, net cash utilized by
discontinued operations was $0.2 million. The primary use of cash for operating
activities was to fund Hybridon's loss, before the gain from discontinued
operations, of $6.8 million. Hybridon expects to purchase a minimal amount of
capital equipment in 2000 as part of its effort to conserve cash resources.
During the year ended December 31, 1999, Hybridon utilized approximately
$8.6 million to fund continuing operating activities and approximately $8,000
for capital expenditures. The primary use of cash for operating activities was
to fund Hybridon's continuing loss of $9.0 million. Hybridon expects to purchase
a minimal amount of capital equipment in 2000 as part of its effort to conserve
cash resources.
CASH RESOURCES
Hybridon had cash and cash equivalents of $10.2 million at September 30,
2000, of which $5.0 million is classified as restricted cash. This restricted
cash is pledged the same as collateral, to secure Hybridon's
24
<PAGE> 30
obligation to, among others, the holders of the 8% Convertible Notes. The amount
of the pledge will be reduced as Hybridon's obligations are converted to equity
or repaid. On November 3, 2000, Hybridon's obligations included $1.3 million
principal amount of 9% notes, a $6.0 million loan from Founders Financial Group
LP (formerly Forum Capital Markets, LLC) (Founders) and others (collectively,
the "Lenders"), approximately $8.0 million in 8% Convertible Notes and accrued
interest as described below, and approximately $0.6 million of accounts payable.
The loan agreement covering the $6.0 million loan from the Lenders contains
certain financial covenants that require Hybridon to maintain minimum tangible
net worth and minimum liquidity requirements. The Lenders have granted Hybridon
a waiver of compliance with the minimum tangible net worth requirement at
September 30, 2000, and has agreed not to require that Hybridon comply with that
requirement for any periods commencing October 1, 2000 through December 31,
2000.
Hybridon received approximately $11.5 million of the $15.0 million from the
sale of its Hybridon Specialty Products business to Avecia. In October 2000,
Hybridon received approximately $0.2 million. Also, $0.3 million is currently
subject to negotiation. The remaining $3.0 million is payable after one year,
subject to offset rights under the contract, including Hybridon's performance
under a supply agreement that requires it to buy certain amounts of
oligonucleotides.
On May 30, 2000, Hybridon entered into a Line of Credit Agreement pursuant
to which the Line of Credit Lenders agreed to provide Hybridon with an 8%, $2.0
million Line of Credit. The Line of Credit was intended to provide Hybridon with
working capital until the Asset Sale was consummated. On July 10, 2000 and
August 10, 2000, Hybridon drew down approximately $0.5 million each under the
Line of Credit representing a total draw down of $1.0 million. On September 28,
2000, following the close of the Asset Sale, Hybridon repaid approximately $0.8
million of principal and interest in cash. In October 2000, Hybridon converted
the remaining $0.2 million of principal and interest into equivalent shares of
common stock at $1.08 per share (214,043 shares), pursuant to the terms of the
original agreement. Hybridon has no additional borrowing capacity under this
Line of Credit.
The Line of Credit Lenders have joined with the holders of Hybridon's 8%
Convertible Notes issued in 1999 and the Lender in a July 10, 2000 amendment
(the "Amendment") to the Subordination and Intercreditor Agreement.
In the Amendment all parties to the Subordination and Intercreditor
Agreement agree to release their lien on the portion of the collateral that
includes assets to be conveyed in the Asset Sale. In return for this partial
release, Hybridon set aside, from the proceeds of the Asset Sale, the sum of
$5.0 million which it classifies as restricted cash on its balance sheet and
pledged the same as collateral to secure its obligation to the 8% Convertible
Noteholders and the Lenders. The amount of the pledge will be reduced as the
debt is converted to equity or repaid. Hybridon can collect and keep the
interest on this $5.0 million. The parties to the Subordination and
Intercreditor Agreement, as amended, will continue to have a lien on
substantially all of the assets of Hybridon remaining after the Asset Sale.
In connection with the Line of Credit, Hybridon has (a) issued to the
representatives of the Line of Credit Lenders warrants to purchase up to 500,000
shares of Hybridon's common stock at an exercise price of $1.08 per share and
(b) issued to the Line of Credit Lenders, proportionate to their respective
interests in the Letter of Credit, warrants to purchase 1,000,000 shares of
Hybridon's common stock at an exercise price of $1.08 per share.
1999 FINANCING ACTIVITIES
Hybridon sold an aggregate of $1,500,000 principal amount of promissory
notes to E. Andrews Grinstead, III, Hybridon's Chief Executive Officer, at face
value during September and November of 1999. These notes accrued interest at 12%
per annum and in December 1999 were converted into 8% Convertible Notes due
2002. Hybridon also sold an aggregate of approximately $525,000 of debt to
purchasers in a private placement transaction in October and November 1999; as
of December 13, 1999, this debt automatically converted into 8% Convertible
Notes.
On December 13, 1999, Hybridon sold an aggregate of an additional $4.1
million principal amount of 8% Convertible Notes to purchasers in a private
placement transaction. At December 31, 1999, including the 8% Convertible Notes
issued upon conversion of the debt issued to Mr. Grinstead and other purchasers,
the
25
<PAGE> 31
principal amount of 8% notes outstanding was $6.1 million. After the financing
was completed in the first quarter of 2000, the principal amount of 8%
Convertible Notes outstanding, including financing costs and accrued interest,
was approximately $7.7 million.
Under the terms of the 8% Convertible Notes, Hybridon must make semiannual
interest payments on the outstanding principal balance through the maturity date
of November 30, 2002. The 8% Convertible Notes are convertible at any time prior
to the maturity date at a conversion price equal to $0.60 per share of common
stock (the Conversion Ratio), subject to adjustment under certain circumstances,
as defined. If the 8% Convertible Notes are prepaid before the maturity date,
all noteholders are entitled to receive warrants to purchase the number of
shares of common stock equal to the number of shares of common stock that would
be issued using the Conversion Ratio, with an exercise price of $0.60 per share
of common stock.
In connection with the 8% Convertible Notes, Hybridon must comply with
certain covenants. These covenants include, without limitation, the requirement
that Hybridon make all payments of interest when due and maintain consolidated
cash balances of at least $1.5 million as of the last day of any calendar month.
At September 30, 2000, Hybridon is in compliance with the covenant regarding
consolidated cash balances. If an event of default (as defined) occurs, the
noteholders may declare the unpaid principal and interest due and payable
immediately. If Hybridon defaults with respect to payment of interest, Hybridon
will be required to pay interest at a default rate equal to 12%.
In addition, in connection with the issuance of the 8% Convertible Notes,
the Lenders of the $6.0 Million Loan received a warrant to purchase 2,750,000
shares of common stock at $.60 per share. The warrant was granted as
consideration to the Lenders for relinquishing to holders of the 8% Convertible
Notes seniority upon liquidation of Hybridon. Hybridon computed the value of the
warrant to be $547,328, using the Black-Scholes option-pricing model. Hybridon
has recorded this amount as a deferred financing cost, which will be amortized
to interest expense over the term of the 8% Convertible Notes.
1998 FINANCING ACTIVITIES
On February 6, 1998, Hybridon commenced an offer to the holders of the 9%
notes to exchange the 9% notes for Series A preferred stock and certain warrants
of Hybridon. On May 5, 1998, noteholders holding $48.7 million of principal and
$2.4 million of interest tendered such principal and accrued interest to
Hybridon for 510,505 shares of Series A preferred stock and warrants to purchase
3,002,958 shares of common stock with an exercise price of $4.25 per share.
On May 5, 1998, Hybridon completed a private offering of equity securities
raising total gross proceeds of approximately $26.7 million from the issuance of
9,597,476 shares of common stock, 114,285 shares of Series A preferred stock and
warrants to purchase 3,329,486 shares of common stock at $2.40 per share. The
gross proceeds include the conversion of approximately $5.9 million of accounts
payable, capital lease obligations and other obligations into common stock.
Hybridon incurred approximately $1.6 million of cash expenses related to the
private offering and issued 597,699 shares of common stock and warrants to
purchase 1,720,825 shares of common stock at $2.40 per share to the placement
agents. In addition, Hybridon was obligated to issue an additional 300,000
shares in connection with this transaction. For more information about this
transaction, see note 10(b) of the notes to consolidated statements.
Beginning April 1, 2000, Hybridon may redeem the 9% notes at its option for
a 4.5% premium over the original issuance price, provided that from April 1,
2000 to March 31, 2001, the 9% notes may not be redeemed unless the closing
price of the common stock equals or exceeds 150% of the conversion price for a
period of at least 20 out of 30 consecutive trading days and the 9% Notes are
redeemed within 60 days after such trading period. The premium decreases by 1.5%
each year through March 31, 2003. Upon a change of control of Hybridon, as
defined, Hybridon will be required to offer to repurchase the 9% notes at 150%
of the original issuance price.
$6.0 MILLION LOAN
In December 1996, Hybridon entered into a five-year $7,500,000 note payable
with a bank. The note contained certain financial obligations that required
Hybridon to maintain a minimum worth and a minimum liquidity and prohibited the
payment of dividends. The note was payable in 59 equal installments of $62,500
26
<PAGE> 32
beginning on February 1, 1997, with a balloon payment of the then remaining
outstanding principal balance due on January 1, 2002. Because Hybridon was
required to make certain prepayments of principal during 1998, the outstanding
principal balance of the loan at November 16, 1998 was approximately $2.8
million. Effective November 20, 1998, the Lenders purchased the loan from the
bank. Founders and Pecks are affiliates of two members of Hybridon's board of
directors. In connection with this purchase, Founders and Pecks loaned an
additional $3.2 million to Hybridon so as to increase the outstanding principal
amount of the note to $6,000,000. In addition, the terms of the note payable
were amended as follows:
- the maturity was extended to November 30, 2003
- the interest rate was decreased to 8%
- interest is payable monthly in arrears, with the principal due in full at
maturity
- the note payable is convertible, at the option of Founders and Pecks, in
whole or in part, into shares of common stock of Hybridon at a conversion
price equal to $2.40 a share
- the threshold of the minimum liquidity obligation was reduced from
$4,000,000 to $2,000,000
- the note payable may not be prepaid, in whole or in part, at any time
prior to December 1, 2000
The other terms of the note payable were unchanged.
FACILITY LEASES
As of December 31, 1999, Hybridon had future operating lease commitments of
approximately $4.5 million through 2007 for its existing leases.
NET OPERATING LOSS CARRYFORWARDS
As of December 31, 1999, Hybridon had approximately $228.7 million and $4.2
million of net operating loss and tax credit carryforwards, respectively. The
Tax Reform Act of 1986 contains certain provisions that may limit Hybridon's
ability to utilize net operating loss and tax credit carryforwards in any given
year if certain events occur, including cumulative changes in ownership
interests in excess of 50% over a three-year period. Hybridon has completed
several financings since the effective date of the Tax Act, which, as of
December 31, 1999, have resulted in ownership changes in excess of 50%, as
defined under the Tax Act and which will limit Hybridon's ability to utilize its
net operating loss carryforwards.
HISTORY OF OPERATING LOSSES; UNCERTAINTY OF FUTURE PROFITABILITY
Since inception, Hybridon has incurred significant losses, which it has
funded through the issuance of equity securities, debt issuances, revenue from
the HSP business, and through research and development collaborations and
licensing arrangements.
FUTURE CAPITAL NEEDS
THE ASSET SALE
The purchase price in the Asset Sale was payable in two parts: $12.0
million at closing (of which the Purchaser has retained $273,856 and is in
negotiations with Hybridon over that amount, and $3.0 million, payable one year
from the date of closing. Receipt of the additional $3.0 million payment one
year from the date of closing is subject to additional conditions, notably
Hybridon's purchase of certain quantities of product from Boston Biosystems
under a supply agreement, and is also subject to offset rights granted to Boston
Biosystems.
Hybridon expects that the first installment of the proceeds from the Asset
Sale, in the amount of approximately $12 million, should enable it to operate
into the third quarter of 2001, at which time it expects to collect the second
installment of the proceeds from the Asset Sale in the amount of $3.0 million,
which should enable it to sustain its operations through the year 2001, assuming
that Avecia claims no offset pursuant to offset rights granted it. Even though
Hybridon expects to have sufficient cash to fund its operations through 2001, it
will be required to raise substantial additional funds from external sources to
support its operations in 2002 and beyond.
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<PAGE> 33
UNCERTAINTY OF ADDITIONAL FUNDING
Hybridon's future capital needs will depend on many factors, including the
following:
- the amount received under the contingent portion of the Asset Sale
consideration
- continued scientific progress in its research
- whether or not its drug discovery and development programs succeed
- progress with preclinical and clinical trials
- the time and costs involved in obtaining regulatory approvals
- the costs involved in filing, prosecuting and enforcing patent claims
- competing technological and market developments
- establishing and maintaining collaborative academic and commercial
research, development and marketing relationships
- the costs of manufacturing scale-up and commercialization activities and
arrangements
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<PAGE> 34
DIRECTORS AND EXECUTIVE OFFICERS OF HYBRIDON
The following table sets forth certain information regarding the executive
officers and directors of Hybridon as of November 3, 2000.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Sudhir Agrawal, D.Phil................... 47 President and Acting Chief Executive
Officer, Senior Vice President of
Discovery, Chief Scientific Officer,
and Director (Class III)
James B. Wyngaarden, M.D. ............... 76 Chairman of the Board of Directors (Class
II)
Nasser Menhall........................... 45 Director (Class I)
Arthur W. Berry.......................... 59 Director (Class I)
C. Keith Hartley......................... 58 Director (Class I)
Paul C. Zamecnik, M.D.................... 88 Director (Class II)
Camille Chebeir.......................... 62 Director (Class II)
Youssef El-Zein.......................... 52 Director (Class III)
</TABLE>
Sudhir Agrawal joined Hybridon in February 1990 and served as Principal
Research Scientist from February 1990 to January 1993 and as Vice President of
Discovery from December 1991 to January 1993 prior to being appointed Chief
Scientific Officer in January 1993, Senior Vice President of Discovery in March
1994, and President and Acting Chief Executive Officer in February 2000. He has
served on the board of directors since March 1993. Prior to joining Hybridon,
Dr. Agrawal served as a Foundation Scholar at the Worcester Foundation from 1987
through 1991. Dr. Agrawal served as a Research Associate at Research Council
Laboratory of Molecular Biology in Cambridge, England from 1985 to 1986,
studying synthetic oligonucleotides. Dr. Agrawal received a B.Sc. in chemistry,
botany and zoology in 1973, an M.Sc. in organic chemistry in 1975 and a D.Phil.
in chemistry in 1980 from Allahabad University in India.
James B. Wyngaarden was appointed member of the board of directors of
Hybridon in 1990, was Vice Chairman of the board of directors of Hybridon from
February 1997 to February 2000, and in February 2000 was appointed Chairman of
the board of directors of Hybridon. He was Foreign Secretary of the National
Academy of Sciences and the Institute of Medicine of the National Academy of
Sciences from 1990 to 1994; council member of the Human Genome Organization from
1990 to 1993 and Director from 1990 to 1991; and Director of the National
Institutes of Health from 1982 to 1989. He is a member of the board of directors
of Human Genome Sciences, Inc. and Magainin Pharmaceuticals, Inc.
Nasser Menhall was appointed member of the board of directors of Hybridon
in 1992. He has been a member of the board of directors and Chief Executive
Officer of the WorldCare Group, a teleradiology company, since 1993; President
of Pillar Limited, a private investment and management consulting firm, since
1990; and President of Biomedical Associates, a private investment firm, since
1990.
Arthur W. Berry was appointed member of the board of directors of Hybridon
in 1998. He has been Chairman and Managing Partner of Pecks Management Partners,
since 1990, and was Vice President and Co-Manager of the Alliance Convertible
Securities Group and President of the Alliance Convertible Fund from 1985 to
1990. Prior to joining Alliance, he was Vice President and Head of Special Funds
Section and Manager of the Harris Convertible Fund at Harris Bank and Senior
Portfolio Manager in the bank's Individual Investment Management Group. He is
also a member of the board of directors of Intellicorp, Inc.
Keith Hartley was appointed member of the board of directors of Hybridon in
2000. Mr. Hartley is Managing Partner of Hartley Capital Advisors, Merchant
Bankers. He was Managing Partner of Forum Capital Markets L.L.C. from August
1995 to August 2000. Prior to that Mr. Hartley was an independent financial
consultant from May 1991 to August 1995. He also serves as a Director of
Comdisco, Inc., Swisher International Group, Inc. and U.S. Diagnostics, Inc.
Paul C. Zamecnik was appointed member of the board of directors of Hybridon
in 1990. He was Principal Scientist at the Worcester Foundation for Biomedical
Research, Inc. from 1979 to 1996, and has been Collis P. Huntington Professor of
Oncologic Medicine Emeritus at the Harvard Medical School since 1979. He is also
currently Senior Scientist and Honorary Physician at Massachusetts General
Hospital in Boston.
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<PAGE> 35
Youssef El-Zein was appointed member of the board of directors of Hybridon
in 1992, and has been Vice Chairman of the board of directors of Hybridon since
February 1997. He has been Executive Officer of Pillar S.A., a private
investment and management consulting firm, since 1991; Chairman of the WorldCare
Group since 1993; and member of the board of directors of Pillar Investment
Limited ("Pillar Investment"), a private investment and management consulting
firm, since 1991.
Camille Chebeir was appointed member of the board of directors of Hybridon
in 1999. Since 1995, he has been President of Sedco Services, Inc., a company
which manages investments of the bin Mafouz Saudi Arabian family. In that
capacity, he serves on the boards of various entities in which Sedco Services,
Inc. invests. Mr. Chebeir was previously the Executive Vice President/General
Manager of National Commercial Bank, New York branch. Mr. Chebeir is a former
President of the Arab Bankers Association of North America.
Hybridon's restated certificate of incorporation provides for a staggered
board of directors consisting of three classes, with each class being as nearly
equal in number as possible. At each annual meeting of Hybridon's stockholders,
the term of one class ends and the successors of the directors in that class are
elected for a term of three years. Hybridon has designated two Class III
directors, three Class I directors, and three Class II directors; they are
identified in the above table. They are to serve until the annual meeting of
stockholders to be held in 2001, 2002 and 2003, respectively, and until their
respective successors are elected and qualified, or until their earlier
resignation or removal. The restated certificate of incorporation provides that
directors may be removed only for cause by a majority of stockholders.
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<PAGE> 36
EXECUTIVE COMPENSATION
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation for the fiscal years ended
December 31, 1999 ("fiscal 1999"), December 31, 1998 and December 31, 1997 for
Hybridon's former Chief Executive Officer and Chief Scientific Officer, who were
serving as Executive Officers at December 31, 1999 and whose total annual salary
and bonus exceeded $100,000 in fiscal 1999:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
-------------------------------------------- AWARDS
OTHER SECURITIES ------------
ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION OPTIONS COMPENSATION
--------------------------- -------- ----- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
E. Andrews Grinstead, III........... 1999 $375,000 0 $93,750(1) 1,763,319(3) $42,548(2)
former Chief Executive Officer and 1998 $375,000 0 $93,750(1) 500,000 $44,832(2)
former Director 1997 $375,000 0 $93,750(1) 66,806 $53,784(2)
Sudhir Agrawal, D.Phil.............. 1999 $250,000 0 $50,000(1) 1,618,263(3) $25,962(2)
President and Acting Chief 1998 $250,000 0 $50,000(1) 500,000 $22,115(2)
Executive Officer, Senior 1997 $250,000 0 $50,000(1) 32,263 $13,462(2)
Vice President of Discovery,
and Chief Scientific Officer
and Director
</TABLE>
---------------
(1) Other annual compensation paid, or to be paid, by Hybridon to, or for the
benefit of, the named executive officers is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
E. Andrews Grinstead, III
Paid in lieu of employee benefits..... $79,288 $79,903 $34,902
Purchase of life insurance and other
payments to third parties........... 14,462 13,487 58,848
------- ------- -------
Total................................. $93,750 $93,750 $93,750
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Sudhir Agrawal, D.Phil.
Paid in lieu of employee benefits..... $36,789 $37,462 $38,132
Purchase of life insurance and other
payments to third parties........... 13,211 12,538 11,868
------- ------- -------
Total................................. $50,000 $50,000 $50,000
======= ======= =======
</TABLE>
(2) All other compensation paid, or to be paid, by Hybridon to, or for the
benefit of, the named executive officers is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
E. Andrews Grinstead, III
Surrender of unused vacation days..... $42,548 $28,832 $37,300
Additional payments................... 0 16,000 16,484
------- ------- -------
Total................................. $42,548 $44,832 $53,784
======= ======= =======
</TABLE>
31
<PAGE> 37
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Sudhir Agrawal, D.Phil.
Surrender of unused vacation days..... $25,962 $22,115 $13,462
------- ------- -------
Total................................. $25,962 $22,115 $13,462
======= ======= =======
</TABLE>
(3) During 1999 Hybridon reduced the exercise price of all employee stock
options to $.50 per share. The number of repriced stock options amounts to
1,263,319 and 1,118,263 for Mr. Grinstead and Dr. Agrawal, respectively.
These repriced stock options are included in the "Summary Compensation
Table."
OPTION GRANTS AND REPRICINGS TABLE
The following table sets forth certain information concerning grants and
repricings of stock options made during fiscal 1999 to each of the named
executive officers:
OPTION GRANTS AND REPRICINGS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------- POTENTIAL REALIZABLE
PERCENTAGE VALUE AT ASSUMED
NUMBER OF OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS EXERCISE PRICE APPRECIATION FOR
UNDERLYING GRANTED TO PRICE OPTIONS TERM(2)
OPTIONS EMPLOYEES IN PER EXPIRATION -----------------------
GRANTED FISCAL YEAR SHARE DATE(1) 5% 10%
---------- ------------ -------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
E. Andrews Grinstead, III
01/01/99 grant................ 500,000 7.7% $2.00 01/01/09 $323,477 $1,107,416
1999 repricings............... 1,263,319 19.4% $0.50 Various $ 79,821 $ 423,299
---------
Total granted or repriced in
1999....................... 1,763,319
Less duplication for options
granted and repriced in
1999....................... (500,000)
Total options outstanding at
12/31/99................... 1,263,319
=========
Sudhir Agrawal, D.Phil 01/01/99
grant......................... 500,000 7.7% $2.00 01/01/09 $323,477 $1,107,416
1999 repricings............... 1,118,263 17.2% $0.50 Various $ 82,267 $ 405,914
---------
Total granted or repriced in
1999....................... 1,618,263
Less duplication for options
granted and repriced in
1999....................... (500,000)
---------
Total options outstanding at
12/31/99................... 1,118,263
=========
</TABLE>
---------------
(1) The expiration date of each option is the tenth anniversary of the date on
which the option was originally granted.
(2) The amounts shown on this table represent hypothetical gains that could be
achieved for the respective options if exercised at the end of the option
term. These gains are based on assumed rates of stock increase of 5% and
10%, compounded annually from the date the respective options were repriced
or granted to their expiration date. The gains shown are net of the option
exercise price, but do not include deductions for taxes or other expenses
associated with the exercise. Actual gains, if any, on stock option
exercises will depend on the future performance of the common stock, the
optionholder's continued employment through the option period, and the date
on which the options are exercised. As of February 2, 2000, the last sale
price of common stock of Hybridon was $1.75.
(3) Mr. Grinstead and Dr. Agrawal had 680,596 and 551,356 exercisable options,
respectively, at 12/31/99. The remaining options become exercisable over
various periods through 9/30/03.
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<PAGE> 38
STOCK OPTION REPRICING
The following table sets forth all repricings of stock options held by E.
Andrews Grinstead, III, Hybridon's former Chief Executive Officer, and Sudhir
Agrawal, Hybridon's President and Acting Chief Executive Officer, since
Hybridon's initial public offering on February 2, 1996.
10-YEAR OPTION/SAR REPRICINGS
<TABLE>
<CAPTION>
NUMBER OF LENGTH OF
SECURITIES MARKET PRICE EXERCISE ORIGINAL
UNDERLYING OF STOCK AT PRICE AT OPTION TERM
OPTIONS/SARS' TIME OF TIME OF NEW REMAINING
REPRICED OR REPRICING OR REPRICING OR EXERCISE AT DATE OF
DATE AMENDED AMENDMENT AMENDMENT PRICE AMENDMENT
-------- ------------- ------------ ------------ -------- -----------
<S> <C> <C> <C> <C> <C> <C>
E. Andrews Grinstead, III.... 09/23/99 500,000 $0.38 $ 2.00 $0.50 9.28
09/23/99 500,000 $0.38 $ 2.00 $0.50 8.83
09/23/99 12,000 $0.38 $31.88 $0.50 7.66
09/23/99 38,000 $0.38 $30.00 $0.50 7.54
09/23/99 16,806 $0.38 $31.25 $0.50 7.41
09/23/99 50,000 $0.38 $57.85 $0.50 6.42
09/23/99 30,000 $0.38 $37.50 $0.50 5.48
09/23/99 19,600 $0.38 $37.50 $0.50 3.96
09/23/99 70,246 $0.38 $37.50 $0.50 3.62
09/23/99 26,667 $0.38 $25.00 $0.50 2.38
Sudhir Agrawal............... 09/23/99 500,000 $0.38 $ 2.00 $0.50 9.28
09/23/99 500,000 $0.38 $ 2.00 $0.50 8.83
09/23/99 6,000 $0.38 $31.88 $0.50 7.66
09/23/99 19,000 $0.38 $30.00 $0.50 7.54
09/23/99 7,263 $0.38 $31.25 $0.50 7.41
09/23/99 25,000 $0.38 $57.85 $0.50 6.42
09/23/99 20,000 $0.38 $37.50 $0.50 5.48
09/23/99 10,000 $0.38 $37.50 $0.50 3.29
09/23/99 21,000 $0.38 $17.50 $0.50 3.29
09/23/99 10,000 $0.38 $ 1.25 $0.50 2.38
</TABLE>
The board of directors repriced all employee stock options effective
September 23, 1999. The options were repriced in order to provide additional
incentives to employees, since the previous option exercise prices were greater
than the market price of Hybridon's common stock.
AGGREGATED OPTION EXERCISES AND YEAR-END OPTION TABLE
The following table sets forth certain information concerning the number
and value of unexercised options held by each of the named executive officers on
December 31, 1999:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
SHARES UNEXERCISED
UNDERLYING IN THE MONEY
OPTIONS AT OPTIONS AT FISCAL
FISCAL YEAR-END YEAR-END(1)
--------------- -----------------
EXERCISABLE/ EXERCISABLE/
UNEXERCISABLE UNEXERCISABLE
--------------- -----------------
<S> <C> <C>
E. Andrews Grinstead, III............................... 680,596/582,723 $347,104/$297,189
Sudhir Agrawal.......................................... 551,356/566,907 $281,192/$289,123
</TABLE>
---------------
(1) The closing price for the common stock as reported by The Nasdaq OTC
Bulletin Board on December 31, 1999 was $1.01. Value is calculated on the
basis of the difference between the option exercise price and $1.01,
multiplied by the number of shares of common stock underlying the option.
33
<PAGE> 39
DIRECTOR COMPENSATION
Each non-employee director is paid $1,500 for personal or telephonic
attendance at a board of directors or committee meeting. Other directors are not
entitled to compensation in their capacities as directors. All of the directors
are reimbursed for their expenses incurred in connection with their attendance
at board of directors and committee meetings. In addition, Dr. Zamecnik received
compensation in the amount of $83,995 in 1998 and $26,000 in 1999 in connection
with certain consulting services to Hybridon. Of this amount, Dr. Zamecnik
received 25,000 shares of common stock and warrants to purchase 6,250 shares of
common stock in lieu of $50,000 in cash, and $26,000 in convertible debt in lieu
of $26,000 in cash, which is convertible, at Dr. Zamecnik's option, into 43,333
shares of common stock. The remaining $33,995 was paid in cash. Hybridon also is
a party to consulting, advisory and other arrangements with various directors
and their affiliates. For a description of the foregoing arrangements with
Hybridon and certain other transactions between Hybridon and affiliates of
certain directors, see "Certain Transactions."
In October 1995, Hybridon adopted the 1995 director stock option plan.
Under the terms of the director plan, options to purchase 1,000 shares of common
stock were granted to each director of Hybridon, other than Mr. Grinstead and
Dr. Agrawal, on the following dates under the following terms:
- as of January 24, 1996 at an exercise price of $65.625 per share
- as of May 1, 1997, at an exercise price of $27.50 per share
- as of May 1, 1998 at an exercise price of $2.375 per share
- as of May 1, 1999 at an exercise price of $1.22 per share
The director plan also provides that options to purchase 5,000 shares of common
stock will be granted to each new director upon his or her initial election to
the board of directors. However, because of the one-for-five reverse stock split
described below, options to purchase 1,000 shares of common stock were granted
to Camille Chebeir and H.F. (Jake) Powell upon their appointment to the board of
directors in 1999. Mr. Powell has since resigned from Hybridon's board of
directors. In addition, on June 8, 1999, Hybridon's stockholders approved a
one-time grant of options to purchase 8,000 shares of Hybridon's common stock at
an exercise price of $0.47 per share to each director other than Mr. Grinstead
and Dr. Agrawal. Annual options to purchase 5,000 shares of common stock will be
granted to each eligible director on May 1 of each year. All options will vest
on the first anniversary of the date of grant or, in the case of options granted
automatically each year, on April 30 of the year following the date of the
grant; provided, that the exercisability of these options will be accelerated
upon the occurrence of a change in control, as defined in the director plan. A
total of 400,000 shares of common stock may be issued upon the exercise of stock
options granted under the director plan. The exercise price of options granted
under the director plan will equal the closing price of the common stock on the
date of grant. As of June 15, 1999, options to purchase an aggregate of 93,000
shares of common stock were outstanding under the director plan.
Non-employee directors also have received options to purchase common stock
of Hybridon under Hybridon's 1997 stock incentive plan and Hybridon's 1995 stock
option plan. In particular, in 1998, the board of directors voted to grant an
option to purchase 50,000 shares of common stock at $2.00 per share to Dr.
Wyngaarden and Mr. El-Zein, in recognition of their services as Vice Chairmen of
the board of directors during the previous twelve months. Mr. El-Zein declined
this grant. In addition, in 1998, the board of directors voted to grant 50,000
shares of common stock of Hybridon to Dr. Zamecnik in recognition of his
outstanding contributions to Hybridon.
EMPLOYMENT AGREEMENTS, TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
ARRANGEMENTS
Hybridon was a party to an employment agreement with Mr. Grinstead for a
term commencing July 1, 1996 and ending June 30, 2001. On February 15, 2000,
Hybridon announced that Mr. Grinstead had taken an unexpected medical leave of
absence of indefinite duration due to a serious illness. Dr. Agrawal assumed the
position of President and Acting Chief Executive Officer. Mr. Grinstead's
agreement was terminated effective as of April 30, 2000. Ultimately, Hybridon
and Mr. Grinstead entered into a severance arrangement (the "Severance
Arrangement") on November 20, 2000, whereby Mr. Grinstead received his current
salary through May 1, 2000, health benefits, unused vacation allowance, payments
toward Cobra obligations, loan
34
<PAGE> 40
forgiveness, acceleration of stock options and payment of legal fees associated
with his severance. Under this agreement, Mr. Grinstead had been entitled to
receive an annual base salary of $375,000. Mr. Grinstead also was eligible to
receive (a) a cash bonus each year related to the attainment of management
objectives specified by the board of directors and (b) additional payments of
$16,000 in years 1996 through 1999.
In accordance with the terms of Mr. Grinstead's previous employment
agreement, Hybridon loaned $190,000 to Mr. Grinstead in December 1992 pursuant
to the terms of a promissory note bearing simple interest at a rate of 6% per
year, which originally provided for the payment of principal and all interest on
the earlier of December 23, 1995 or the expiration or termination of Mr.
Grinstead's employment by Hybridon, but is currently payable on demand. This
loan remained outstanding as of December 31, 1999, at which date the total
unpaid balance of principal and interest was $270,050. Under the terms of the
Severance Arrangement Hybridon forgave, this loan obligation.
Hybridon was party to an employment agreement with Dr. Agrawal for the
period beginning July 1, 1996 and ending June 30, 2000. Although this agreement
has expired, Hybridon continues to honor the material components of this
Agreement until a new agreement is negotiated. Under this agreement, Dr. Agrawal
serves as Senior Vice President of Discovery and Chief Scientific Officer of
Hybridon and is currently entitled to receive an annual base salary of $250,000.
When Dr. Agrawal was appointed President and Acting Chief Executive Officer in
February 2000, he received an increase in salary to $300,000 per year. Other the
terms of his employment remained unchanged. Dr. Agrawal is eligible to receive a
cash bonus each year for achieving management objectives specified by the Chief
Executive Officer in and the board of directors. In the event Dr. Agrawal's
employment is terminated by Hybridon without cause or by him for good cause,
Hybridon will pay Dr. Agrawal during the 24-month period following his
termination a monthly amount equal to one-twelfth of the sum of Dr. Agrawal's
annual base salary as of the date of termination and the average bonus paid to
him during the three years preceding his termination. Hybridon will also
continue Dr. Agrawal's benefits for such period, subject to earlier termination
under certain circumstances. If his employment is terminated by Hybridon for
failure to perform his assigned duties, he will continue to receive his annual
base salary and benefits during the six-month period following such termination.
Notwithstanding the foregoing, in the event that Dr. Agrawal's employment is
terminated for any of the above reasons within 12 months following a change in
control of Hybridon, Dr. Agrawal will be entitled to receive, in lieu of the
payments described above, a lump sum payment equal to 300% of the sum of his
annual base salary and his average bonus amount.
The employment agreements entered into between Hybridon and each of Mr.
Grinstead and Dr. Agrawal provides that all stock options held by them,
including existing options and options to be granted in the future, shall
include the following terms:
- that in the event that either of them is terminated by Hybridon without
cause or by him for good cause the exercisability of such stock options
will be accelerated by two years and such stock options will be
exercisable for a two-year period following termination.
- that in the event of certain changes in control of Hybridon, its
liquidation or the sale of all or substantially all of its assets, all
such stock options not then exercisable will vest and become immediately
exercisable.
Hybridon is also a party to registration rights agreements with Mr.
Grinstead that provide that in the event Hybridon proposes to register any of
its securities under the Securities Act, at any time, with certain exceptions,
Mr. Grinstead shall be entitled to include the shares of common stock held by
him in such registration, subject to the right of the managing underwriter of
any underwritten offering to exclude from such registration for marketing
reasons some or all of such shares. Hybridon also is a party to indemnification
agreements with Mr. Grinstead pursuant to which Hybridon has agreed to indemnify
him for certain liabilities, including liabilities arising under the Securities
Act.
Stock options to purchase an aggregate of 207,513 shares of common stock
granted to the Named Executive Officers pursuant to the 1990 Plan provide that,
upon a change in control, all options granted thereunder will become fully
exercisable. In addition, pursuant to the terms of the employment agreements
entered into between Hybridon and each of them as described above, in April
1997, stock options to purchase an aggregate of 156,069 shares of common stock
granted to the Named Executive Officers under Hybridon's
35
<PAGE> 41
1995 plan were amended to provide that such options will become fully
exercisable upon a change in control of Hybridon, and all stock options granted
to the Named Executive Officers after March 1, 1997 will provide that such
options will become fully exercisable upon a change of control of Hybridon.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
On June 16, 1998 the board of directors re-established a Compensation
Committee consisting of Messrs. Berry and El-Zein and Dr. Wyngaarden. None of
the directors or executive officers of Hybridon had any "interlock"
relationships to report during Hybridon's fiscal year ended December 31, 1999.
Since January 1, 1999, Hybridon has entered into or is involved in certain
ongoing transactions with the following:
- Pillar S.A., Pillar Investment, Pillar Limited and Charles River Building
Limited Partnership, entities of which Messrs. El-Zein and Menhall are
affiliates
- entities advised by Pecks, an entity of which Mr. Berry is a principal
- Founders Financial Group, an entity of which Messrs. Purkey and Hartley
are affiliates
- each of Drs. Wyngaarden and Zamecnik and Mr. Powell
For further details of these transactions, see "Certain Transactions."
36
<PAGE> 42
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of October 2, 2000
with respect to the beneficial ownership of shares of common stock by each
person known to Hybridon to own beneficially more than 5% of the outstanding
shares of common stock, assuming conversion of all convertible debt or 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)
--------------------------
NUMBER OF PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER SHARES CLASS
------------------------------------ ---------- -----------
<S> <C> <C>
5% STOCKHOLDERS
Founders Financial Group, L.P. ............................. 6,365,463(2) 27.03%
53 Forest Ave.
Old Greenwich, CT 06870
Michael A. Boyd............................................. 6,365,463(3) 27.03%
c/o Founders Financial Group, L.P.
53 Forest Ave.
Old Greenwich, CT 06870
Pecks Management Partners Ltd............................... 4,283,198(4) 19.27%
One Rockefeller Plaza
New York, New York 10022
General Motors Employees.................................... 4,015,488(5) 18.29%
Domestic Group Trust
c/o General Motors Investment Management
767 Fifth Avenue
New York, New York 10153
E. Andrews Grinstead III.................................... 3,791,502(6) 17.48%
c/o Hybridon, Inc.
345 Vassar St.
Cambridge, MA 02139
Guardian Life Insurance..................................... 3,535,469(7) 16.46%
Company of America
201 Park Avenue South, 7A
New York, New York 10003
Delaware State Employees Retirement Fund.................... 2,667,952(8) 12.94%
c/o Pecks Management Partners Ltd.
One Rockefeller Plaza
New York, New York 10020
Yahia M. A. Bin Laden....................................... 2,439,169(9) 12.67%
2 rue Charles Bonnet
1206 Geneva, Switzerland
Nicris Limited.............................................. 2,425,836(10) 12.61%
c/o Magnin Dunand & Associates
2 rue Charles Bonnet
1206 Geneva, Switzerland
Intercity Holdings Ltd...................................... 2,216,666(11) 12.10%
c/o Cuson Milner House
18 Parliament Street
Hamilton, Bermuda
Abdelah Bin Mahfouz......................................... 2,216,666(12) 12.10%
c/o SEDCO
P.O. Box 4384
Jeddah 21491
Saudi Arabia
Lincoln National Life Insurance Co. ........................ 1,871,819(13) 9.45%
c/o Lynch & Mayer
520 Madison Avenue
New York, New York 10022
</TABLE>
37
<PAGE> 43
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL OWNERSHIP(1)
--------------------------
NUMBER OF PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER SHARES CLASS
------------------------------------ ---------- -----------
<S> <C> <C>
Darrier Hentsch & Cie....................................... 1,361,215(14) 7.24%
4 rue de Saussure
1204 Geneva, Switzerland
Aegon USA................................................... 1,057,848(15) 5.57%
c/o Camden Asset Management, L.P.
Suite 330
Los Angeles, CA 90067
Ousamma Salem............................................... 995,601(16) 5.32%
28 Avenue de Messine
75008 Paris, France
Declaration of Trust for the Defined Benefit Plan of ICI.... 967,064(17) 5.11%
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 October 2, 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) Founders Financial Group, L.P. holdings include:
- 468,859 shares issuable upon exercise of Class A warrants
- 328,677 shares issuable upon exercise of Class B warrants
- 280,517 shares issuable upon the exercise of Class C warrants
- 25,818 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 Founders' portion of the
$6,000,000 bank loan to Hybridon
- 1,870,963 shares issuable upon conversion of 79,516 shares of Series A
preferred stock owned by Founders
- 443,830 shares issuable upon conversion of $266,298 in convertible debt
and
- 177,532 shares issuable upon conversion of $106,519 in convertible debt
owned by Founders Defined Benefit Plan
(3)Includes the following owned by Founders Financial Group, L.P.:
- 757,699 shares of common stock
- 468,859 shares issuable upon exercise of Class A warrants
- 328,677 shares issuable upon exercise of Class B warrants
- 280,517 shares issuable upon the exercise of Class C warrants
- 25,818 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 Founders portion of the
$6,000,000 bank loan to Hybridon
38
<PAGE> 44
- 1,870,963 shares issuable upon conversion of 79,516 shares of Series A
preferred stock owned by Founders
- 443,830 shares issuable upon conversion of $266,298 in convertible debt
and
- 177,532 shares issuable upon conversion of $106,519 in convertible debt
owned by Founders Defined Benefit Plan
Mr. Boyd is the sole director and shareholder of Michael A. Boyd, Inc. which
is the general partner of Founders Financial Group, L.P. Hence, Mr. Boyd
controls Founders Financial Group, L.P. and may be considered a beneficial
owner of the shares beneficially owned by such entity.
(4)Includes 129,735 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. Two of these clients are 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 3,052,580 shares of common stock of
Hybridon. This amount also includes a total of 208,895 shares issuable upon
the exercise of Class A warrants and a total of 394,348 shares issuable upon
the exercise of Class D warrants held by the foregoing entities. This number
also includes 627,375 shares issuable upon conversion of a portion of the
$6,000,000 bank loan to Hybridon owned by the foregoing entities.
(5) Includes 125,676 shares of Series A preferred stock which are convertible
into 2,957,080 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 1,010,919 shares subject to outstanding stock options which are
exercisable within the 60-day period following October 2, 2000 as well as
2,733,990 shares issuable upon the conversion of $1,640,394 in convertible
debt owned by Mr. Grinstead.
(7) Includes 120,051 shares of Series A preferred stock which are convertible
into 2,824,726 shares of common stock of Hybridon. This amount also
includes 353,316 shares issuable upon the exercise of Class A warrants and
252,101 shares issuable upon the exercise of Class D warrants. This amount
also includes the following holdings of the Guardian Pension Trust Fund:
- 3,686 shares of Series A preferred stock which are convertible into
86,730 shares of Hybridon common stock and
- 18,596 shares issuable upon the exercise of class A warrants.
(8)Includes 80,942 shares of Series A preferred stock which are convertible
into 1,904,513 shares of common stock of Hybridon. This amount also includes
137,918 shares issuable upon the exercise of Class A warrants, 270,271
shares issuable upon the exercise of Class D warrants and 355,250 shares
issuable upon conversion of a portion of the $6,000,000 bank loan to
Hybridon owned by this entity.
(9) 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
1,065,192 shares issuable upon the conversion of $639,115 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.
(10) Includes 234,764 shares issuable upon the exercise of Class B warrants held
by Nicris Limited and 1,065,192 shares issuable upon the conversion of
$639,115 in convertible debt owed to Nicris Limited.
(11)Includes 375,000 shares issuable upon the exercise of Class B warrants held
by Intercity Holdings Ltd.
(12)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.
(13)Includes 47,197 shares of Series A preferred stock which are convertible
into 1,110,508 shares of common stock of Hybridon. This amount also includes
238,023 shares issuable upon the exercise of Class A warrants. This amount
also includes the following holdings of Lincoln National Convertible
Securities Fund:
- 18,314 shares of Series A preferred stock which are convertible into
430,929 shares of Hybridon common stock.
39
<PAGE> 45
- 92,359 shares issuable upon the exercise of Class A warrants
(14)Includes 140,636 shares issuable upon the exercise of Class B warrants held
by Darrier Hentsch and 710,127 shares issuable upon the conversion of
$426,076 in convertible debt owned by Darrier Hentsch
(15) Includes the following owned by the listed companies:
<TABLE>
<CAPTION>
PEOPLE'S BENEFIT
LIFE INSURANCE MONUMENTAL LIFE TRANSAMERICA
COMPANY INSURANCE COMPANY CORPORATION
---------------- ----------------- ------------
<S> <C> <C> <C>
Shares issuable upon the conversion of
-10,313 shares of preferred stock owned by
People's Life............................. 242,650 -- --
-18,052 shares of preferred stock owned by
Monumental Life........................... -- 424,758 --
Shares issuable upon the conversion of
Class A warrants......................... 148,345 148,345 --
Shares issuable upon the conversion of
Class C warrants......................... -- -- 93,750
</TABLE>
Aegon USA is a controlling stockholder of People's Benefit Life Insurance
Company, Monumental Life Insurance Company and Transamerica Corporation
and may be considered a beneficial owner of the shares beneficially owned
by such entities.
(16) Includes 443,894 shares issuable upon the exercise of warrants held by Mr.
Salem; 299,458 shares issuable upon the conversion of $179,675 in
convertible debt owned by Mr. Salem; and 148,882 shares issuable upon the
conversion of $89,329 in convertible debt that Mr. Salem has the right to
acquire upon exercise of warrants.
(17) Includes 29,223 shares of Series A preferred stock which are convertible
into 687,596 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.
The following table sets forth certain information as of October 2, 2000,
with respect to the beneficial ownership of shares of common stock and Series A
preferred stock by each of Hybridon's directors and executive officers
individually, and the directors and executive officers of Hybridon as a group,
assuming conversion of all convertible debt or 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
-------------------------- ----------------------------
AMOUNT AND AMOUNT AND
NATURE OF NATURE OF
BENEFICIAL PERCENT OF BENEFICIAL PERCENT OF
NAME OF BENEFICIAL OWNER OWNERSHIP(1) CLASS OWNERSHIP(1) CLASS
------------------------ ------------ ---------- ------------- -----------
<S> <C> <C> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS
C. Keith Hartley............................ 6,504,034(2) 27.45% 79,516(3) 12.58%
Arthur W. Berry............................. 4,648,262(4) 20.57% 129,735(5) 20.53%
Sudhir Agrawal.............................. 1,125,004(6) 5.90% -- --
Paul Z. Zamecnik............................ 904,753(7) 4.87% -- --
Youssef El-Zein............................. 621,815(8) 3.37% -- --
James B. Wyngaarden......................... 300,448(9) 1.65% -- --
Robert G. Andersen.......................... 244,316(10) 1.34% -- --
Nasser Menhall.............................. 231,887(11) 1.28% -- --
Camille A. Chebeir.......................... 9,000(12) * -- --
All directors and executive officers as
a group (9 persons)....................... 14,589,519 46.53% 209,251 33.11%
</TABLE>
---------------
* Less than 1%
40
<PAGE> 46
(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 October 2, 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)C. Keith Hartley's holdings include the following:
- 757,699 shares of common stock owned by Founders Financial Group, L.P.
- 468,859 shares issuable upon the exercise of Class A warrants owned by
Founders
- 328,677 shares issuable upon the exercise of Class B warrants owned by
Founders
- 280,517 shares issuable upon the exercise of Class C warrants owned by
Founders
- 25,818 shares issuable upon the exercise of Class D warrants owned by
Founders
- 761,568 shares issuable upon the exercise of other warrants held by
Founders
- 1,250,000 shares issuable upon conversion of Founders' portion of the
$6,000,000 bank loan to Hybridon
- 1,870,963 shares issuable upon conversion of 79,516 shares of Series A
preferred stock owned by Founders
- 443,830 shares issuable upon conversion of $266,298 in convertible debt
owned by Founders
- 177,532 shares issuable upon conversion of $106,519 in convertible debt
owned by Founders Defined Benefit Plan
Mr. Hartley, an affiliate of Founders, may be considered a beneficial owner
of the shares beneficially owned by such entity. This amount also includes
125,000 shares issuable upon the exercise of warrants owned by Mr. Hartley.
(3)Consists of 79,516 shares of Series A preferred stock owned by Founders. Mr.
Hartley, an affiliate of Founders, may be considered a beneficial owner of
the shares beneficially owned by Founders.
(4)Includes 129,735 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. Two of these clients are 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 3,052,580 shares of common stock of
Hybridon. This amount also includes a total of 208,895 shares issuable upon
the exercise of Class A warrants and a total of 394,348 shares issuable upon
the exercise of Class D warrants held by the foregoing entities. This number
also includes 627,375 shares issuable upon conversion of a portion of the
$6,000,000 bank loan to Hybridon owned by the foregoing entities. Mr. Berry
is an investment advisor to these companies and 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 10,000
shares issuable upon the exercise of stock options held by Mr. Berry and
355,064 shares issuable upon conversion of $213,038 in convertible debt
owned by Mr. Berry.
(5) Includes 129,735 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 is an investment advisor
to these companies and may be considered a beneficial owner of the shares
owned by such entities. Mr. Berry disclaims beneficial ownership of these
shares.
(6) Includes 1,107,244 shares subject to outstanding stock options which are
exercisable within the 60-day period following October 2, 2000.
41
<PAGE> 47
(7)Paul Zamecnik's holdings include the following:
- 178,500 shares subject to outstanding stock options which are exercisable
within the 60-day period following October 2, 2000
- 230,793 shares issuable upon the exercise of warrants
- 234,080 shares issuable upon the conversion of $230,651 in convertible
debt owned by Dr. Zamecnik
(8) Youssef El-Zein's holdings include:
- 403,080 shares issuable upon the exercise of warrants held by Mr. El-Zein
- 18,000 shares issuable upon the exercise of stock options held by Mr.
El-Zein
- 51,163 shares issuable upon the conversion of $30,698 in convertible debt
owned by 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
(9)Includes 242,590 shares subject to outstanding stock options which are
exercisable within the 60-day period following October 2, 2000, 26,121
shares issuable upon the conversion of $28,211 in convertible debt owned by
Dr. Wyngaarden, 27,737 shares issuable upon the exercise of warrants and 700
shares held by Dr. Wyngaarden's children.
(10) Includes 244,316 shares subject to outstanding stock options which are
exercisable within the 60-day period following October 2, 2000.
(11)Nasser Menhall's holdings include the following:
- 18,000 shares issuable upon the exercise of stock options held by Mr.
Menhall
- 129,677 shares issuable upon the exercise of warrants held by Mr. Menhall
- 28,613 shares issuable upon the conversion of $17,168 in convertible debt
owned by 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.
(12) Includes 9,000 shares subject to outstanding stock options which are
exercisable within the 60-day period following October 2, 2000.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Since January 1, 1997, Hybridon has entered into or has been engaged in the
following transactions with the following Hybridon directors and officers,
stockholders who beneficially own more than 5% of the outstanding common stock
of Hybridon, and affiliates or immediate family members of those directors,
officers and 5% Stockholders.
TRANSACTIONS WITH PILLAR S.A. AND CERTAIN OF ITS AFFILIATES
Hybridon has entered into certain transactions with Pillar S.A., Pillar
Investment and Charles River Building Limited Partnership, the entity which
owned Hybridon's former headquarters in Cambridge, Massachusetts (the "Cambridge
Landlord"). Pillar S.A. and Pillar Investment are affiliates of Messrs. El-Zein
and Menhall, two directors of Hybridon. The Cambridge Landlord is an affiliate
of Messrs. El-Zein and Menhall and Mohamed El-Khereiji, a former director of
Hybridon.
In 1997 and 1998, Hybridon was a party to a consulting agreement with
Pillar S.A. dated as of March 1, 1994, under which Pillar S.A. provided Hybridon
with financial advisory and managerial services in connection with Hybridon's
overseas operations, including support services in connection with contracts and
agreements. Under the terms of the 1994 Pillar consulting agreement, Hybridon
paid Pillar S.A. consulting fees of $60,000 per month and $23,000 per month for
overhead costs, and reimbursed certain authorized out-of-pocket expenses. The
1994 Pillar consulting agreement expired on February 28, 1998. Pursuant to the
1994 Pillar consulting agreement, Hybridon issued to Pillar S.A two five year
warrants to purchase an aggregate of 40,000 shares of Hybridon common stock.
On July 8, 1995, Hybridon entered into an additional agreement with Pillar
S.A. pursuant to which Pillar S.A. agreed for a period of two years to provide
to Hybridon certain consulting, advisory and related services, in addition to
the services to be provided under the 1994 Pillar Consulting Agreement, and
serve as Hybridon's exclusive agent in connection with potential corporate
partnerships in Europe and as a non-exclusive
42
<PAGE> 48
placement agent of Hybridon in connection with private placements of securities
of Hybridon. On November 1, 1995, the Pillar Europe agreement was amended to
provide as follows:
- Pillar S.A. would cease to serve as Hybridon's executive agent in
connection with potential corporate partnerships in Europe, but would
continue to serve as a non-exclusive agent in that connection
- Pillar S.A. would receive a retainer of $26,470 per month for the balance
of the term of the Pillar Europe agreement
- the fees provided for in the Pillar Europe agreement would only be
payable to Pillar S.A. in connection with potential collaborations with
any French pharmaceutical company with which Hybridon was involved in
discussions during the 12-month period ended November 1, 1995 as a result
of introductions by Pillar S.A.
- any compensation payable to Pillar S.A. in connection with its services
with respect to other corporate collaborations or any placements of
securities would be negotiated on a case-by-case basis and would be
subject to the approval of the independent members of the board of
directors of Hybridon
The Pillar Europe agreement expired on April 1, 1997.
In 1998, Hybridon paid Pillar Investment a total of $300,000 under these
agreements, in the form of 150,000 shares of common stock and warrants to
purchase 37,500 shares of common stock, at an exercise price of $2.40 per share,
subject to adjustment, in lieu of cash. In 1997, Hybridon paid Pillar S.A.
$903,267 under the 1994 Pillar consulting agreement and the Pillar Europe
agreement.
Hybridon has retained Pillar Investment as placement agent in connection
with the private placements of securities of Hybridon in offshore transactions
in reliance upon an exemption from registration under Regulation S promulgated
under the Securities Act of 1933. Pillar Investment received fees consisting of
the following:
- 9% of the gross proceeds of each Regulation S Offering
- a non-accountable expense allowance equal to 4% of those gross proceeds
- the right to purchase, for nominal consideration, warrants to purchase
473,598 shares of common stock, at an exercise price of $2.40 per share,
subject to adjustment
- the right to purchase, for nominal consideration, warrants to purchase a
number of shares of the common stock of Hybridon equal to 10% of the
total number of shares of common stock sold by Hybridon for which Pillar
Investment acted as placement agent, exercisable at 120% of the relevant
common stock offering price, for a period of five years, resulting, as of
the date hereof, in the right to receive warrants to purchase 638,032
shares at $2.40 per share, subject to adjustment
- a consulting/restructuring fee of $960,000 payable in common stock of
Hybridon valued at the market price and payable in three equal
installments as net proceeds of $25,000,000, $30,000,000 and $35,000,000
are received in the aggregate from private placements effected by
Hybridon in 1998 to the extent contemplated by the consent and waiver
dated as of January 12, 1998, given by certain beneficial holders of
Hybridon's 9% convertible subordinated notes, or otherwise to the extent
contemplated by the Placement Agency agreement between Hybridon and
Pillar Investment, subject to Hybridon's receiving of a fairness opinion
regarding this: Pillar Investment may not receive compensation in excess
of the level that was approved by the holders of the 9% notes
Pillar Investment has received $1,635,400 in cash pursuant to these
arrangements and Pillar has received warrants to purchase 1,111,630 shares of
common stock.
In addition, in connection with the Regulation S offerings, Hybridon and
Pillar Investment had entered into an advisory agreement dated May 5, 1998,
under which Pillar Investment acted as Hybridon's non-exclusive financial
advisor. This agreement required Hybridon to pay an affiliate of Pillar
Investment a
43
<PAGE> 49
monthly retainer of $5,000, with a minimum engagement of 24 months beginning on
May 5, 1998, and further provides that Pillar Investment is entitled to receive
the following:
- out-of-pocket expenses,
- subject to Hybridon's receiving a fairness opinion on this matter,
300,000 shares of common stock in connection with Pillar Investment's
efforts in assisting Hybridon in restructuring its balance sheet,
- certain cash and equity success fees in the event Pillar Investment
assisted Hybridon in connection with certain financial and strategic
transactions.
This advisory agreement expired on May 5, 2000 and was not renewed.
As of April 16, 1999, Hybridon issued to Pillar Investment the stipulated
300,000 shares of common stock. Hybridon received a fairness opinion in
connection with that issuance. In addition, Hybridon was a party to a lease with
a third party dated March 23, 1994 for approximately 1,800 square feet of space
in Paris, France. Hybridon's obligations under the Paris lease was guaranteed by
Pillar S.A. Hybridon terminated the Paris lease on March 31, 1998. Pursuant to a
1999 private placement offering, Hybridon sold 8% notes to certain investors,
including some investors that Pillar Investment introduced to Hybridon. In
connection with this offering, and in lieu of any compensation due under the
financial advisory agreement between Hybridon and Pillar Investment, Hybridon
agreed to pay Pillar Investment's reasonable expenses and to issue to Pillar
Investment and its designees 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. Hybridon 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. Hybridon's obligations to issue the 8% notes and the warrants and to
reimburse Pillar Investment's expenses are subject to the condition precedent
that Hybridon will have had delivered to it a fairness opinion in form and
substance deemed by Hybridon, in its sole discretion, to satisfy the
requirements of the indenture relating to Hybridon's 9% notes. As of December
31, 1999, Pillar Investment had earned the right to receive $269,290 in 8% notes
and warrants to purchase an additional $298,100 in 8% notes.
TRANSACTIONS WITH THE CAMBRIDGE LANDLORD
From February 4, 1997 to September 16, 1998, Hybridon was a party to a
lease with the Cambridge Landlord for its Cambridge facilities. This lease
originally provided for an annual rent equal to $30 per square foot on a
triple-net basis, where the tenant pays taxes, insurance, and operating costs,
for the first five years, $33 per square foot on a triple-net basis for the next
five years and the greater of $30 per square foot on a triple-net basis or the
then-market value of leased property for each of the five-year renewal terms. In
connection with Hybridon's election to acquire an interest in the Cambridge
Landlord, as described below, the annual rent due under the Cambridge lease was
increased for the first five years of the lease term to $38 per square foot on a
triple-net basis, for the second five years to $42 per square foot on a
triple-net basis and for the third five years to $47 per square foot on a
triple-net basis.
On July 1, 1996, Hybridon decided to fund approximately $5.5 million of the
costs, primarily relating to tenant improvements, of the construction of the
leased premises through contributions to the capital of the Cambridge Landlord
in exchange for a limited partnership interest in the Cambridge Landlord. The
partnership interest entitled Hybridon to an approximately 32% interest in the
Cambridge Landlord. Hybridon had the right, for a period of three years ending
February 2000, to sell the partnership interest back to certain limited partners
of the Cambridge Landlord for a price equal to the greater of (1) the total cash
contribution made by Hybridon to the Cambridge Landlord or (2) the fair market
value of the partnership interest at the time.
In 1997, Hybridon had on deposit with Bank fur Vermogensanlagen und Handel
the amount of $1,034,618. In November 1997, German banking authorities imposed a
moratorium on Bank fur Vermogensanlagen und Handel and closed Bank fur
Vermogensanlagen und Handel for business. Pursuant to an agreement dated
November 28, 1997, the Cambridge Landlord agreed to assume the risk for the Bank
fur Vermogensanlagen und Handel deposit and to pay to Hybridon the amount of
$75,000 a month after each rent
44
<PAGE> 50
payment under the Cambridge lease was made until such time as $1,000,000 had
been paid to Hybridon or the Bank fur Vermogensanlagen und Handel deposit was
released.
In June 1998, Hybridon moved its headquarters from the Cambridge facility
to its facility in Milford, Massachusetts. The Cambridge facility was re-leased
in September 1998 to a third party, subject to a sublease of a portion of the
facility. As a result, Hybridon terminated the Cambridge lease and was relieved
of its substantial lease obligations under the Cambridge lease, subject to a
contingent continuing liability for any sublessee defaults. Further, in November
1998 Hybridon completed the sale of its partnership interest. As a result of
these transactions, Hybridon received $6,163,000 from the Cambridge Landlord,
which included payment for the partnership interest, the return of a portion of
the security deposit required under the Cambridge lease, and payment in full of
the Bank fur Vermogensanlagen und Handel deposit. Hybridon has agreed to
reimburse the Cambridge landlord for any cash received under this agreement, up
to the amount realized by Hybridon from the final settlement of the Bank fur
Vermogensanlagen und Handel deposit, after the moratorium is lifted. Hybridon
has subsequently sold its Milford facility and relocated to Cambridge,
Massachusetts.
TRANSACTIONS WITH FORUM CAPITAL MARKETS LLC/FOUNDERS FINANCIAL GROUP, L.P. AND
PECKS MANAGEMENT PARTNERS LTD.
In 1998, Hybridon entered into certain transactions with Forum Capital
Markets LLC (Forum), an affiliate of Mr. Purkey, a former director of Hybridon,
and entities advised by Pecks Management Partners Ltd. Mr. Berry, a principal of
Pecks, is a director of Hybridon.
Hybridon retained Forum as a placement agent of Hybridon in connection with
Hybridon's 1998 Regulation D offering of Series A preferred stock and Class D
warrants in the U.S. Forum received as compensation for its services as
placement agent with regard to the Regulation D offering and its assistance with
an exchange offer made by Hybridon to the holders of its 9% notes, 597,699
shares of common stock and warrants to purchase prior to May 4, 2003 a total of
609,194 shares of common stock exercisable at $2.40 per share, in each case
subject to adjustment. In addition, in exchange of the agreements made by Forum
consenting to the Regulation D offering and waiving certain obligations of
Hybridon to Forum, Hybridon agreed to amend Forum's warrant dated as of April 2,
1997, to purchase up to 71,301 shares of common stock of Hybridon, to change the
exercise price to $4.25 per share, subject to adjustment, and increase the
number of shares of common stock purchasable upon exercise to 588,235, in each
case subject to adjustment, and to provide that it may not be exercised until
May 5, 1999 and the transactions contemplated by those private placements and by
the exchange offer will not trigger any anti-dilution adjustments to its
exercise price or the number of shares of common stock purchasable upon
exercise.
In November 1998, Forum and entities advised by Pecks purchased Hybridon's
bank loan. In connection with the purchase of the loan, the purchasing entities
advanced an additional amount to Hybridon 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 Hybridon 160,000 shares
of common stock and warrants to purchase an additional 40,000 shares of common
stock at $3.00 per share. In addition, Forum received warrants exercisable until
maturity of the Loan to purchase 133,333 shares of common stock at $3.00 per
share.
In connection with Hybridon's offering of the 8% Convertible Notes, Forum
and the entities advised by Pecks entered into a Subordination and Intercreditor
Agreement with Hybridon and the representative of the purchasers of the notes
whereby, among other things, they agreed to subordinate their loan to the 8%
Convertible Notes, subject to certain conditions. Also in connection with this
offering, Hybridon agreed to issue warrants to purchase an aggregate of 2.75
million shares of Hybridon'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.
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<PAGE> 51
Founders Financial Group L.P. (Founders) owned a controlling interest in
Forum while these transactions occurred. Founders subsequently sold its interest
in Forum but Founders retained ownership of the Hybridon securities previously
held by Forum.
OTHER TRANSACTIONS AND TRANSACTIONS ASSOCIATED WITH ASSET SALE
In March 1999, Hybridon entered into consulting arrangements with each of
Mr. Powell, Dr. Zamecnik and Dr. Wyngaarden providing that each of them will act
as a consultant to Hybridon for a two-year period and will receive a consulting
fee of $20,000 per year for general consulting services. In addition, each
agreement provides that they each will receive a consulting fee of $1,500 per
day of on-site consulting services they provide at Hybridon's corporate offices,
or at an alternative site agreed upon by the parties, and at Hybridon's prior
request. Additional fees for special projects will be negotiated separately
between the parties. Each of Mr. Powell, Dr. Zamecnik and Dr. Wyngaarden also
received options to purchase 150,000 shares of Hybridon's common stock at $2.00
per share; such options will vest over a two-year period. Dr. Zamecnik has
received $26,000 in convertible notes for his 1999 consulting services and board
fees, which he may at his option convert into 43,333 shares of common stock. Mr.
Powell's consulting agreement terminated when Mr. Powell resigned from the board
of directors of Hybridon in February 2000. Dr. Wyngaarden's Consulting Agreement
was replaced with a quarterly stipend of $15,000 upon Dr. Wyngaarden's
appointment to Chairman of the Board of Directors in February 2000.
Certain persons and entities, including Dr. Zamecnik, Pillar S.A., Pillar
Limited, Founders, 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 Hybridon'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 Hybridon
and the rightsholders. The registration agreements generally provide that in the
event Hybridon 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 Hybridon to prepare and file registration
statements under the Securities Act, if rightsholders holding specified
percentages of the registrable shares so request, and Hybridon is required to
use its best efforts to effect that registration, subject to certain conditions
and limitations.
Hybridon sold an aggregate of $1,500,000 principal amount of promissory
notes to E. Andrews Grinstead, III, Hybridon's former Chief Executive Officer,
at face value during September and November of 1999. These notes accrued
interest at 12% per annum, or at 15% upon Hybridon'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 have,
together with $40,000 in accrued interest, been converted into 8% notes of
Hybridon due 2002.
In addition, in connection with the financing conducted in December 1999,
other Hybridon directors and certain affiliates of Hybridon directors purchased
Hybridon 8% notes in the amounts set forth below:
<TABLE>
<S> <C>
Nicris Limited (over 5% stockholder and affiliate of Mr. Bin
Ladin).................................................... $600,000
Darrier Hentsch & Cie (over 5% stockholder)................. $400,000
Founders Financial Group, L.P. (over 5% stockholder and
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
Paul Zamecnik (Director).................................... $ 26,000
</TABLE>
Two other principals of Founders each purchased $100,000 of the 8% notes.
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<PAGE> 52
On May 30, 2000 Hybridon entered into a Line of Credit Agreement (the "Loan
Agreement") with certain lenders (the "Lenders") who provided Hybridon with a
$2,000,000 credit facility. The Lenders included directors and certain investors
of Hybridon set forth below:
<TABLE>
<S> <C>
Name of Lender
-----------------------------------------
Kincroft Ltd.
Oussama Salam (individually)
H.K. Properties, Ltd.
Dr. Paul Zamecnik
Global Investments Enterprises, Ltd.
Dr. James Wyngaarden
Motasim F. Hajaj
Keith Hartley
Abdelraof M. Abou Anza
Mark Germain
</TABLE>
The Loan was intended to provide Hybridon with working capital pending the
closing of the Asset Sale. Hybridon was permitted to draw upon the facility at
any time prior to the earlier of September 30, 2000, and the date the Asset Sale
was consummated. On July 10, 2000, Hybridon drew down approximately $500,000
under the Loan Agreement and on August 10, 2000 another $500,000 was drawn down.
Loans made under the Loan Agreement matured and became due on the earlier
of September 30, 2000 or the date the Asset Sale was consummated. At the
maturity date, each Lender could elect either (a) conversion of its portion of
the loan into shares of Hybridon's common stock at the rate of one share for
each $1.08 of principal and interest then accrued (the $1.08 conversation price
being equal to the closing price of the Hybridon 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 was funded from the
proceeds of the Asset Sale.
Hybridon believes that the terms of the transactions described above were
no less favorable than Hybridon could have obtained from unaffiliated third
parties.
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<PAGE> 53
SELLING STOCKHOLDERS
The tables set forth below, to the knowledge of Hybridon, contain certain
information as of October 2, 2000 with respect to the selling stockholders. The
table entitled "Stockholders Selling Common Stock" includes information with
respect to selling stockholders who are selling common stock in this offering.
The table entitled "Stockholders Selling Preferred Stock" includes information
with respect to selling stockholders who are selling preferred stock in this
offering. Except as noted below, no selling stockholder selling common or
preferred stock in this offering will beneficially own 1% or more of the
outstanding stock of Hybridon after the offering.
Except as described below, none of the selling stockholders holds any
position or office with, or has otherwise had a material relationship with,
Hybridon within the past three years.
STOCKHOLDERS SELLING COMMON STOCK
<TABLE>
<CAPTION>
COMMON STOCK COMMON STOCK
BENEFICIALLY COMMON STOCK BENEFICIALLY
OWNED PRIOR TO INCLUDED IN OWNED AFTER
NAME OF SELLING STOCKHOLDER OFFERING(1) OFFERING OFFERING(1)
--------------------------- -------------- ------------ ------------
<S> <C> <C> <C>
Aboutakka, Faouzi................................. 5,000 5,000 0
Abu Anza, Abdul Raof M. .......................... 388,656 388,656 0
Agrawal, Sudhir(6,11,12).......................... 1,125,004 17,760 1,107,244
Alamdar, Essam Ahmad Jawadm....................... 525,804 525,804 0
Al-Battal, Abdullha............................... 9,000 4,000 5,000
Alhegian, Nouha Tarazi............................ 2,500 2,500 0
Al Jalab, Saleh Ali A............................. 10,000 7,500 2,500
Al-Jindi, Nafez M.M. ............................. 119,232 119,232 0
Allstate Insurance Company........................ 142,780 142,780 0
Al-Sharif, Mansour S.M.A. ........................ 110,355 110,355 0
Altobaishi, MAA & Malek, SS....................... 10,000 10,000 0
Alyoum Ltd. ...................................... 7,500 7,500 0
Amor Ltd. ........................................ 9,383 9,383 0
Angelo Gordon & Co., L.P. ........................ 24,878 24,878 0
Arab Islamic Bank (E.C.).......................... 503,394 503,394 0
Awwa, Moufied..................................... 3,074 3,074 0
Bajrai International Group Ltd. .................. 481,517 481,517 0
Bajrai, Mohammed.................................. 925,347 443,830 0
Bamas, Patrick.................................... 129 29 100
Bank Ehinger & Cie................................ 1,200 1,200 0
Berry, Arthur W.(5,11)............................ 4,648,262 355,064 10,000
Bestin Worldwide Ltd. ............................ 625 625 0
Bin Laden, Yahia M.A.(11,12)...................... 2,439,169 13,333 310,000
Bio Capital Inc. ................................. 275 275 0
Biocell BV........................................ 2,452 2,452 0
Bioreliance Corporation........................... 16,697 16,697 0
Bukhari, Huda Abdulraheem......................... 625 625 0
Carset Overseas Corporation....................... 212,208 176,375 35,833
Chatain, Jacques.................................. 29 29 0
Chestnut Partners................................. 62,500 62,500 0
Chkaiban, Michel.................................. 300 300 0
Clapham Investments Ltd. ......................... 505,563 480,063 25,500
CNA Income Shares, Inc. .......................... 391,649 391,649 0
Coakley, Aran B. ................................. 400 400 0
Coakley, Elizabeth Z. ............................ 400 400 0
Coakley, Gabriel D.F. ............................ 400 400 0
</TABLE>
48
<PAGE> 54
<TABLE>
<CAPTION>
COMMON STOCK COMMON STOCK
BENEFICIALLY COMMON STOCK BENEFICIALLY
OWNED PRIOR TO INCLUDED IN OWNED AFTER
NAME OF SELLING STOCKHOLDER OFFERING(1) OFFERING OFFERING(1)
--------------------------- -------------- ------------ ------------
<S> <C> <C> <C>
Coakley, Richard B. .............................. 400 400 0
Comeca International, SA.......................... 1,400 1,400 0
Compagnie Financiere De Rom....................... 50,000 50,000 0
CPR (USA)......................................... 77,482 77,482 0
Crescent International Holdings................... 12,500 12,500 0
Daly, Robert W. .................................. 731 731 0
Darier Hentsch & Cie(11).......................... 1,361,215 1,361,215 0
Datamonitor....................................... 62,500 62,500 0
Daugeras, Bernard................................. 29 29 0
DeFreige, Jean.................................... 600 600 0
Delaware State Employees Retirement Fund(5,11).... 2,667,952 2,667,952 0
DeVoe III, Stephen J. ............................ 177,532 177,532 0
Didier, Arbant.................................... 252 252 0
Duer, Thomas Fr. ................................. 13,125 13,125 0
Duer, Torben...................................... 125,268 125,268 0
Dumanoir, Le Pelley............................... 22,149 22,149 0
Dunn, Bruce E. ................................... 625 625 0
Eagle Constellation Fund.......................... 138 138 0
El-Bahey, Wael.................................... 505,539 376,464 129,075
El-Khazen, Walid.................................. 17,953 17,753 200
El-Khereiji, Mohammed(8).......................... 827,713 507,173 9,000
El-Zein Youssef(2)................................ 621,815 592,352 29,463
Equi Select Growth & Income Fund.................. 175,594 175,594 0
Faisal Finance (Switzerland) S.A. ................ 78,136 78,136 0
Finn Trunk Black.................................. 4,500 3,750 750
Finova Technology Finance, Inc. .................. 896,875 896,875 0
Forest Alternative Strategies Fund II, L.P.
Series A5I(4)................................... 28,087 28,087 0
Forest Alternative Strategies Fund II, L.P.
Series A5M(4)................................... 14,067 14,067 0
Forest Alternative Strategies Fund II, L.P.
Series B-3(4)................................... 744 744 0
Forest Convertible Fund........................... 18,245 18,245 0
Forest Fulcrum Ltd.(4)............................ 68,539 68,539 0
Forest Global Convertible Fund Series A5(4)....... 214,993 214,993 0
Forest Greyhound(4)............................... 6,199 6,199 0
Forest Performance Fund(1)........................ 7,355 7,355 0
Foundation Account No. 1.......................... 73,753 73,753 0
Founders Financial Group, L.P.(4,11).............. 6,365,463 6,187,931 0
Founders Financial Group, L.P. Defined Benefit
Plan(4)......................................... 177,532 177,532 0
Friedland IRA, Beth R. ........................... 44,383 44,383 0
Gaffney, Christopher.............................. 443,830 443,830 0
General Motors Employees Domestic Group
Trust(11)....................................... 4,015,488 4,015,488 0
Germain, Mark..................................... 105,472 105,472 0
Ghani, Mohamad Hassan Abdul....................... 67,717 67,717 0
Ghani, Khaled M.R. Abdul.......................... 563,849 563,849 0
Global Investments................................ 55,872 55,872 0
GPS Fund Limited.................................. 105,324 105,324 0
Grant, Eric E. ................................... 177,532 177,532 0
Grinstead III, E. Andrews(7,11,12)................ 3,791,502 2,777,569 1,013,933
</TABLE>
49
<PAGE> 55
<TABLE>
<CAPTION>
COMMON STOCK COMMON STOCK
BENEFICIALLY COMMON STOCK BENEFICIALLY
OWNED PRIOR TO INCLUDED IN OWNED AFTER
NAME OF SELLING STOCKHOLDER OFFERING(1) OFFERING OFFERING(1)
--------------------------- -------------- ------------ ------------
<S> <C> <C> <C>
Guardian Life Insurance Co. of America(1)......... 3,535,469 3,430,143 0
Gutrafin, SA...................................... 6,400 6,400 0
Hadar, Raji Abou.................................. 367,563 367,563 0
Hajaj, Motasim F. ................................ 211,080 211,080 0
Hanninen, Elizabeth Chace......................... 100 100 0
Harris Investment Management...................... 97,498 97,498 0
Hartley, C. Keith(4,11)........................... 6,504,034 138,570 0
HK Properties..................................... 179,749 179,749 0
Hoffman La Roche Ltd. ............................ 163,678 163,678 0
Hyal Pharmaceutical Corporation................... 17,500 17,500 0
Intercity Ltd. ................................... 2,216,666 2,216,666 0
Investerinsselskabet.............................. 106,520 106,520 0
Jacquin, Jean..................................... 129 29 100
Janitronics....................................... 9,145 9,145 0
Jenkins, Nicholas J.T. ........................... 13,656 5,001 8,655
JSP Holdings ApS.................................. 42,405 42,405 0
Kabbani, Isam M. Khairy........................... 75,619 67,119 8,500
Karam, Paula...................................... 200 200 0
Kincroft Ltd. .................................... 309,749 309,749 0
Kinetic Systems, Inc. ............................ 32,648 32,648 0
Hal A Kroeger Revocable Living Trust.............. 746 746 0
Laconic Trust..................................... 266,298 266,298 0
LaCoste, Allain................................... 69 15 54
LGT Bank in Liechtenstein AG...................... 240,032 240,032 0
Libertyview Fund LLC.............................. 15,496 15,496 0
Libertyview Plus Fund............................. 31,236 31,236 0
Lincoln National Convertible Securities Fund...... 523,288 523,288 0
Lincoln National Life Insurance Co.(11)........... 1,871,819 1,348,531 0
LLC Account No. 1................................. 35,109 35,109 0
LLT Ltd.(4)....................................... 28,087 28,087 0
Loxhall Limited................................... 89,167 62,500 26,667
Mallart, Alain.................................... 532,595 532,595 0
Mansour, Imad Mustapha............................ 219,789 219,789 0
Marcusa, Fred H. ................................. 3,000 800 2,200
Martin, R. Russell(10,12)......................... 292,609 56,810 235,799
Massachusetts Eye & Ear Infirmary................. 62,500 12,500 50,000
Mattar, Raja...................................... 219,805 219,805 0
J.W. McConnell Family Foundation.................. 66,596 66,596 0
Medici Partners, L.P. ............................ 28,305 28,305 0
Mendelsohn, Robert V. ............................ 690 690 0
Menhall, Nasser(2)................................ 231,887 198,872 33,015
Merick, Richard L. ............................... 133,148 133,148 0
Michael Angelo, L.P. ............................. 75,653 75,653 0
MicroTech Software a/s............................ 57,880 57,880 0
Mills, Robert H.Y. ............................... 375 375 0
Mirra Jr., Raymond................................ 218,750 218,750 0
MM Pictet & Cie................................... 150,000 150,000 0
Monpurich Inc. ................................... 1,250 1,250 0
Monumental Life Insurance Co. .................... 573,103 573,103 0
Nicris Limited(11,12)............................. 2,425,836 2,115,836 310,000
</TABLE>
50
<PAGE> 56
<TABLE>
<CAPTION>
COMMON STOCK COMMON STOCK
BENEFICIALLY COMMON STOCK BENEFICIALLY
OWNED PRIOR TO INCLUDED IN OWNED AFTER
NAME OF SELLING STOCKHOLDER OFFERING(1) OFFERING OFFERING(1)
--------------------------- -------------- ------------ ------------
<S> <C> <C> <C>
Noonan, Susan and Russo, Anthony.................. 12,500 12,500 0
Norwegian Radium Hospital Research Foundation..... 37,500 37,500 0
Numitor International Corp. ...................... 51,379 51,379 0
Offshore Strategies Ltd. ......................... 138,746 115,217 23,529
Omari, Mohamad Khaled............................. 71,013 71,013 0
Oesterballe, Klaus................................ 100 100 0
Participations Besancon........................... 155,000 125,000 30,000
People's Benefit Life Insurance Co. .............. 390,995 390,995 0
Peters, Laurence.................................. 88,767 88,767 0
Pharmakinetics Laboratories, Inc. ................ 11,161 11,161 0
Pillar Investment Limited(2)...................... 1 1 0
Poulson, Jan...................................... 403,087 196,282 0
Powell, H.F. and Jacqueline W.(9)................. 177,532 177,532 0
Primedica Corporation............................. 51,918 51,918 0
Prudential Securities............................. 6,199 6,199 0
Quintiles Transnational Corp. .................... 379,175 379,175 0
Ramius Fund Ltd. ................................. 66,615 66,615 0
Raphael, L.P. .................................... 333,652 333,652 0
Raymond, Johnathan................................ 17,753 17,753 0
Robbins, Samuel Morrill........................... 179,132 177,532 1,600
J. Romeo & Co. ................................... 420 420 0
Russell, Andrew W. ............................... 2,667 2,667 0
Saada, Daniel..................................... 1,750 1,500 250
Salam, Oussama(11)................................ 1,198,967 1,052,377 146,590
Saudah Corporation................................ 20,000 20,000 0
Sayegh, Antoun.................................... 300 300 0
Schaad, Mme. Daniele.............................. 59,913 59,913 0
SEIF Foundation................................... 450,302 450,302 0
Seaward, William.................................. 8,877 8,877 0
Semon, Francoise.................................. 5,111 5,111 0
Semon, Guy........................................ 5,111 5,111 0
Seranius SA....................................... 750 750 0
Shepherd, John D. ................................ 690 690 0
Sidani, Abdel-Hadi................................ 167,008 167,008 0
Siena Construction Corporation.................... 31,250 31,250 0
Sierra Biomedical, Inc. .......................... 37,841 37,841 0
Sigler & Co. ..................................... 13,653 13,653 0
Smith, Marilynn C. ............................... 750 750 0
Sobbi, Adra....................................... 24,825 23,492 1,333
Solter Corporation(8)............................. 311,540 311,540 0
Southern Research Institute....................... 68,860 68,860 0
SP Pharmaceuticals LLC............................ 23,197 23,197 0
Stiftung, Bodo.................................... 20,322 20,322 0
Stiftung, Milton.................................. 3,000 3,000 0
Stone, Barbara.................................... 6,000 6,000 0
Sweidan, Mohammed Abdo............................ 75,619 67,119 8,500
Tabbah, Amer and/or Souraya....................... 183,098 183,098 0
Tawfig, Fouad M.O. and Zagzoug, Hanan H. ......... 315,786 315,786 0
Telefix........................................... 4,409 4,409 0
The Guardian Pension Trust Fund................... 105,326 105,326 0
</TABLE>
51
<PAGE> 57
<TABLE>
<CAPTION>
COMMON STOCK COMMON STOCK
BENEFICIALLY COMMON STOCK BENEFICIALLY
OWNED PRIOR TO INCLUDED IN OWNED AFTER
NAME OF SELLING STOCKHOLDER OFFERING(1) OFFERING OFFERING(1)
--------------------------- -------------- ------------ ------------
<S> <C> <C> <C>
Perkin Elmer Corporation.......................... 205,377 205,377 0
Thermo Electron Balanced Investment Fund.......... 9,450 9,450 0
Torkildson, et al, Money Purchase Plan............ 533 533 0
Transamerica Business Credit Corporation.......... 93,750 93,750 0
Triumvirate Environmental, Inc. .................. 19,138 19,138 0
Trust for Defined Benefits Plan of ICI America
Holdings, Inc.(5,11)............................ 967,064 967,064 0
University of Kansas.............................. 29,260 29,260 0
University of Massachusetts....................... 84,450 84,450 0
Von Mallosch, Werner.............................. 5,333 5,333 0
Walker Art Center................................. 10,230 10,230 0
Waznah, Abdulhakeem H. ........................... 3,750 3,750 0
Weirton Trust..................................... 152,784 152,784 0
Wilkens, Lois..................................... 6,728 6,728 0
Winchester Convertible Plus Ltd. ................. 136,974 136,974 0
Wyngaarden, James B.(3,12)........................ 300,448 53,958 246,590
Zamecnik, Alexandra............................... 800 400 400
Zamecnik, Paul C. and Mary V.(3).................. 904,753 726,453 178,300
Zazove Convertible Fund, L.P. .................... 168,099 168,099 0
Zazove High Yield Convertible Securities Fund,
L.P. ........................................... 24,579 24,579 0
Zeneca Holdings(5)................................ 648,182 648,182 0
3111440 Canada Inc. .............................. 500 500 0
---------- ---------- ---------
Total............................................. 68,510,951 49,949,865 3,990,680
========== ========== =========
</TABLE>
---------------
NOTES:
(1) Includes common stock issuable upon the exercise of stock options,
warrants, convertible preferred stock and convertible debt.
(2) Mr. Nasser Menhall and Mr. Youssef El-Zein, members of the board of
directors of Hybridon, are principals of Pillar Investment Limited. See the
"Certain Relationships and Related Transactions" section for a description
of services that Pillar has provided to Hybridon.
(3) Dr. Paul C. Zamecnik and Dr. James B. Wyngaarden are members of the board
of directors and consultants to Hybridon.
(4) Mr. C. Keith Hartley, a member of the board of directors of Hybridon, is an
affiliate of Founders Financial Group, L.P. See the "Certain Relationships
and Related Transactions" section for a description of services that
Founders has provided to Hybridon.
(5) Mr. Arthur W. Berry, a member of the board of directors of Hybridon, serves
as investment advisor to this selling stockholder. See the "Certain
Relationships and Related Transactions" section for a description of
transactions with entities advised by Peck's Management Partners Ltd.
(6)Dr. Sudhir Agrawal is President and a member of the board of directors of
Hybridon.
(7)Mr. E. Andrews Grinstead is a former President, Chief Executive Officer and
director of Hybridon.
(8)Mr. Mohammed El-Khereiji is a former member of the board of directors of
Hybridon and is an affiliate of this shareholder.
(9)Mr. H. F. Powell is a former member of the board of directors and consultant
to Hybridon.
(10)Dr. R. Russell Martin is Senior Vice President of Drug Development of
Hybridon.
(11)These selling shareholders beneficially own more that 5% of the outstanding
shares of Hybridon's common stock before the offering. See the "Security
Ownership of Certain Beneficial Owners and Management" section of this Form
S-1.
52
<PAGE> 58
(12) These selling stockholders will beneficially own greater than 1% of
Hybridon's common stock (which for purposes of this calculation includes
common stock issuable upon exercise of options or warrants within 60 days
after October 2, 2000) after the offering, as follows:
<TABLE>
<CAPTION>
PERCENTAGE OF
OUTSTANDING COMMON
STOCK BENEFICIALLY
OWNED AFTER
SELLING STOCKHOLDER THE OFFERING
------------------- ------------------
<S> <C>
Agrawal, Sudhir.......................... 5.81%
Grinstead III, E. Andrews................ 5.35%
Nicris Limited........................... 1.73%
Bin Laden, Yahia M.A..................... 1.73%
Wyngaarden, James B...................... 1.36%
Martin, R. Russell....................... 1.30%
</TABLE>
STOCKHOLDERS SELLING PREFERRED STOCK
<TABLE>
<CAPTION>
CONVERTIBLE CONVERTIBLE CONVERTIBLE
PREFERRED STOCK PREFERRED PREFERRED STOCK
BENEFICIALLY OWNED STOCK INCLUDED BENEFICIALLY OWNED
NAME OF SELLING STOCKHOLDER PRIOR TO OFFERING IN OFFERING AFTER OFFERING
--------------------------- ------------------ -------------- ------------------
<S> <C> <C> <C>
Allstate Insurance Company................... 2,117 2,117 --
Angelo Gordon & Co., L.P. ................... 135 135 --
CNA Income Shares, Inc. ..................... 12,694 12,694 --
Delaware State Employees Retirement Fund(2,
3)......................................... 80,942 80,942 --
Equi Select Growth & Income Fund............. 6,145 6,145 --
Forest Alternative Strategies Fund II, L.P.
Series A5I1................................ 983 983 --
Forest Alternative Strategies Fund II, L.P.
Series A5M1................................ 493 493 --
Forest Convertible Fund(1)................... 775 775 --
Forest Fulcrum Ltd.(1)....................... 2,057 2,057 --
Forest Global Convertible Fund Series
A5(1)...................................... 8,083 8,083 --
Forest Performance Fund(1)................... 147 147 --
Foundation Account No.(1).................... 2,581 2,581 --
Founders Financial Group, L.P.(1,3).......... 79,516 79,516 --
General Motors Employees Domestic Group
Trust(1,3)................................. 125,676 125,676 --
GPS Fund Limited............................. 3,686 3,686 --
Guardian Life Insurance Co. of America(3).... 120,051 120,051 --
Harris Investment Management................. 3,412 3,412 --
J.W. McConnell Family Foundation............. 408 408 --
Libertyview Plus Fund........................ 10 10 --
Lincoln National Convertible Securities
Fund....................................... 18,314 18,314 --
Lincoln National Life Insurance Co.(3)....... 47,197 47,197 --
LLC Account No.(1)........................... 1,229 1,229 --
LLT Ltd.(1).................................. 983 983 --
Medici Partners, L.P. ....................... 116 116 --
Michael Angelo, L.P. ........................ 368 368 --
Monumental Life Insurance Co. ............... 18,052 18,052 --
Offshore Strategies Ltd. .................... 2,262 2,262 --
People's Benefit Life Insurance Co. ......... 10,313 10,313 --
Ramius Fund, Ltd. ........................... 987 987 --
Raphael, L.P. ............................... 11,678 11,678 --
</TABLE>
53
<PAGE> 59
<TABLE>
<CAPTION>
CONVERTIBLE CONVERTIBLE CONVERTIBLE
PREFERRED STOCK PREFERRED PREFERRED STOCK
BENEFICIALLY OWNED STOCK INCLUDED BENEFICIALLY OWNED
NAME OF SELLING STOCKHOLDER PRIOR TO OFFERING IN OFFERING AFTER OFFERING
--------------------------- ------------------ -------------- ------------------
<S> <C> <C> <C>
Sigler & Co. ................................ 580 580 --
Telefix (First Delta)........................ 20 20 --
The Guardian Pension Trust Fund.............. 3,686 3,686 --
Thermo Electron Balanced Investment Fund..... 402 402 --
Trust for Defined Benefits Plan of ICI
America Holdings, Inc(2,3)................. 29,223 29,223 --
Weirton Trust................................ 5,347 5,347 --
Wilkens, Lois................................ 235 235 --
Winchester Convertible Plus Ltd. ............ 4,794 4,794 --
Zazove Convertible Securities Fund, L.P. .... 5,883 5,883 --
Zazove High Yield Convertible Securities
Fund, L.P. ................................ 860 860 --
Zeneca Holdings(2)........................... 19,570 19,570 --
Total........................................ 632,010 632,010 --
</TABLE>
---------------
NOTES:
(1) Mr. C. Keith Hartley, a member of the board of directors of Hybridon, is an
affiliate of Founders Financial Group L.P. See the "Certain Relationships
and Related Transactions" section for a description of services that
Founders has provided to Hybridon.
(2) Mr. Arthur W. Berry, a member of the board of directors of Hybridon, serves
as investment advisor to this selling stockholder. See the "Certain
Relationships and Related Transactions" section for a description of
transactions with entities advised by Peck's Management Partners Ltd.
(3)These selling shareholders beneficially own more that 5% of the outstanding
shares of Hybridon's common stock before the offering. See the "Security
Ownership of Certain Beneficial Owners and Management" section of this Form
S-1.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of Hybridon consists of 100,000,000 shares of
common stock and 5,000,000 shares of preferred stock, par value $.01 per share,
of which 1,500,000 have been designated as convertible preferred stock. On
October 2, 2000, there were issued and outstanding 17,944,949 shares of common
stock and 632,010 shares of convertible preferred stock.
There follows a brief summary of the terms of the common stock and the
convertible preferred stock. For further information please refer to the
restated certificate of incorporation of Hybridon, including the certificate of
designation for the Series A preferred stock, which is filed as an exhibit to
the registration statement.
COMMON STOCK
Holders of common stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders and do not have cumulative voting
rights. Accordingly, holders of a majority of the shares of common stock
entitled to vote in any election of directors may elect all of the directors
standing for election. Holders of common stock are entitled to receive ratably
any such dividends declared by the board of directors out of legally available
funds, subject to any preferential dividend rights of the preferred stock or
other securities. Upon the liquidation, dissolution or winding up of Hybridon,
the holders of common stock are entitled to receive ratably the net assets of
Hybridon available after the payment of all debts and other liabilities and
subject to the prior rights of any outstanding shares of preferred stock and to
the Liquidation Put Right described in the next paragraph. Holders of common
stock have no preemptive, subscription, redemption or conversion rights. The
rights, preferences and privileges of holders of common stock are subject
54
<PAGE> 60
to, and may be adversely affected by, the rights of the holders of shares of any
series of preferred stock that Hybridon may designate and issue in the future,
and the rights of creditors of Hybridon.
Pursuant to the terms of the 1998 Unit Purchase Agreement, the initial
purchasers of certain of the shares of common stock sold in the Regulation S and
the Regulation D offerings (those shares, the "Put Shares" those purchasers, the
"Liquidation Put Holders") have the right to put those shares back to Hybridon
upon the liquidation of Hybridon, but only after all other indebtedness and
obligations of Hybridon and all rights of any holders of any capital stock
ranking prior and senior to the common stock with respect to liquidation have
been satisfied in full (that right, the "Liquidation Put"). The Liquidation Put
is not transferable, and therefore purchasers of common stock pursuant to this
prospectus will not be able to exercise the Liquidation Put with respect to
those shares. Any Liquidation Put Holders that have not sold or otherwise
transferred any Put Shares will, however, be able to exercise the Liquidation
Put with respect to those Put Shares upon a liquidation of Hybridon.
Consequently, in the event of liquidation of Hybridon, holders of shares of
common stock that are not subject to the Liquidation Put right may receive
smaller liquidation distributions per share than they would have had no
Liquidation Put Holders exercised the Liquidation Put. As of October 2, 2000,
there were 6,227,038 outstanding Liquidation Put Shares held in the name of
Liquidation Put Holders.
PREFERRED STOCK
Under the terms of the restated certificate of incorporation, the board of
directors is authorized, subject to any limitations prescribed by law, without
stockholder approval, to issue up to 5,000,000 shares of preferred stock in one
or more series with such rights, preferences, privileges and restrictions,
including voting rights, dividend rights, conversion rights, redemption
privileges and liquidation preferences, as the board of directors determines.
SERIES A PREFERRED STOCK
Dividends. Each share of Series A preferred stock is entitled to receive
cumulative semi-annual dividends payable, at the option of Hybridon, in cash or
additional shares of convertible preferred stock, at the rate of 6.5% per annum
plus accrued but unpaid dividends. Dividends accrue from the date of issuance
and paid semi-annually on April 1 and October 1 of each year or, if any such day
is not a business day, on the next business day. Dividends are paid, at the
election of Hybridon, either in cash or additional shares of convertible
preferred stock. In calculating the number of shares of convertible preferred
stock to be paid with respect to each dividend, the convertible preferred stock
is valued at $100.00 per share, subject to appropriate adjustment to reflect any
stock split, combination, reclassification or reorganization of the convertible
preferred stock.
Liquidation Preference. In the event of one of the following: (1)
liquidation, dissolution or winding up of Hybridon, whether voluntary or
involuntary, (2) a sale or other disposition of all or substantially all of the
assets of Hybridon, or (3) any consolidation, merger, combination,
reorganization or other transaction in which Hybridon is not the surviving
entity or if stock constituting more than 50% of Hybridon's voting power is
exchanged for or changed into stock or securities of another entity, cash, or
any other property (a "Merger Transaction") (items (1), (2) and (3) of this
sentence being collectively referred to as a "Liquidation Event"), after payment
of debts and other liabilities of Hybridon, the holders of shares of convertible
preferred stock will be entitled to be paid out of Hybridon's available assets,
before any payment to holders of shares ranking junior to the convertible
preferred stock, an amount equal to the Dividend Base Amount. In the case of a
Merger Transaction, however, this payment may be made in cash, property or
securities of the entity surviving the Merger Transaction. If upon any
Liquidation Event, whether voluntary or involuntary, the assets to be
distributed to the holders of the convertible preferred stock are insufficient
to permit the payment to such shareholders of the full amount owed, then all of
Hybridon's available assets will be distributed ratably to the holders of the
convertible preferred stock. All shares of convertible preferred stock rank, as
to payment upon the occurrence of any Liquidation Event, senior to the common
stock and senior to all other series of preferred stock, unless the terms of any
Series provides otherwise.
Right of Conversion. Commencing after May 5, 1999, shares of convertible
preferred stock became convertible, at the option of the holder, into shares of
common stock or other securities and property. The
55
<PAGE> 61
initial conversion price per share of common stock (the "Conversion Price") is
$4.25, and is subject to adjustment as described below. The rate at which each
share of convertible preferred stock is convertible at any time into common
stock (the "Conversion Rate") will be determined by dividing the then-existing
Conversion Price into the "Dividend Base Amount" of a share of convertible
preferred stock, which is equal to $100 plus accrued but unpaid dividend,
subject to adjustment to reflect any stock split, combination, reclassification
or reorganization of the convertible preferred stock.
Adjustment of Conversion Rate and Conversion Price. As of June 15, 1999,
each share of convertible preferred stock was convertible into approximately
23.53 shares of common stock. In order to preserve the economic value of shares
of convertible preferred stock, the Conversion Price will be adjusted if
Hybridon does the following;
- pays a dividend or makes a distribution on any class of capital stock in
shares of its common stock;
- subdivides its outstanding common stock into a greater number of shares;
- combines its outstanding common stock into a smaller number of shares;
- issues shares of common stock or preferred stock to any holder of common
stock or preferred stock rights to acquire shares of common stock or
preferred stock at a price per share less than the market price (as
defined);
- pays or distributes to the holders of common stock or preferred stock
assets, properties, or rights to acquire Hybridon Capital Stock at a
price per share less than the market price; or
- makes a distribution consistently solely of cash to the holders of any
class of capital stock where, during a specified 12-month period, the
cash distribution exceeds 10% of the product of the market price of the
common stock multiplied by the total outstanding common stock.
Exceptions to Adjustments. No adjustment will, however, be made to either
the Conversion Rate or the Conversion Price for issuances of common stock or
preferred stock or cash paid to holders of shares of convertible preferred stock
(1) as payment for accrued dividends or (2) as a mandatory conversion or
mandatory redemption payment as described below.
Other Changes in Conversion Rate. Hybridon from time to time may increase
the Conversion Rate by any amount for any period of time if the period is at
least 20 days and if the increase is irrevocable during the period. Whenever the
Conversion Rate is so increased, Hybridon will notify registered holders.
Hybridon may also increase the Conversion Rate in order to avoid or
diminish any income tax to holders of common stock resulting from any dividend
or distribution of stock or issuance of rights or warrants to purchase or
subscribe for stock or from any event treated as such for income tax purposes.
The Conversion Price may not be adjusted to an amount less than $.001 per
share, the current par value of the common stock into which the convertible
preferred stock is convertible.
Mandatory Conversion and Redemption. Upon giving notice to the holders of
the convertible preferred stock, Hybridon may, at its option, cause the
convertible preferred stock to be converted in whole or in part, on a pro rata
basis, into shares of common stock using a Conversion Price equal to $4.00 if
the closing bid price of the common stock equals or exceeds 250% of the
Conversion Price for at least 20 trading days in any period of 30 consecutive
trading days.
At any time after April 1, 2000, Hybridon may, at its option, redeem the
convertible preferred stock for cash equal to the Dividend Base Amount.
Class Voting Rights. Hybridon shall not, without the affirmative vote or
consent of the holders of at least 50% of all outstanding shares of convertible
preferred stock, voting separately as a class, (1) amend, alter or repeal any
provision of the restated certificate of incorporation or bylaws so as adversely
to affect the rights of the convertible preferred stock (except that the
issuance of securities ranking prior to, or pari passu with, the convertible
preferred stock (A) upon a Liquidation Event or (B) with respect to the payment
of dividends or distributions will not be considered to affect adversely the
relative rights of the convertible preferred stock), or (2) authorize or issue,
or increase the authorized amount of, the convertible preferred stock, other
than the convertible preferred stock issuable as dividends on the convertible
preferred stock.
56
<PAGE> 62
Preemptive Rights. The convertible preferred stock is not entitled to any
preemptive or subscription rights in respect of any securities of Hybridon.
Restrictions on Change of Control. So long as any of Hybridon's 9% notes
remain outstanding, no holder of any shares of convertible preferred stock will,
without the prior written consent of Hybridon, be granted voting rights, be
entitled to receive any voting securities of Hybridon, or be entitled to
exercise any conversion rights if that could, in Hybridon's reasonable judgment,
either alone or in conjunction with other issuances or holdings of capital
stock, warrants or convertible securities of Hybridon, result in a Change of
Control (as defined in the Indenture).
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the capital stock is Mellon Investor
Services.
DELAWARE LAW AND CERTAIN PROVISIONS OF HYBRIDON'S RESTATED
CERTIFICATE OF INCORPORATION, BYLAWS AND INDEBTEDNESS
Hybridon is subject to the provisions of Section 203 of the Delaware
General Corporation Law, which prohibits a publicly-held Delaware corporation
from engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless the business combination is approved in
a prescribed manner. A "business combination" includes mergers, asset sales and
other transactions resulting in a financial benefit to the interested
stockholder. Subject to certain exceptions, an "interested stockholder" is a
person who, together with affiliates and associates, owns, or within three years
did own, 15% or more of the corporation's voting stock. The existence of this
provision could deter certain business combinations, including transactions that
might otherwise result in holders of voting stock being paid a premium over the
market price for their shares.
The restated certificate of incorporation provides for the division of the
board of directors into three classes as nearly equal in size as possible, with
the classes having staggered three-year terms. In addition, the restated
certificate of incorporation provides that directors may be removed only for
cause by the affirmative vote of the holders of at least two-thirds of the
shares of capital stock entitled to vote. Under the restated certificate of
incorporation, any vacancy on the board of directors, however occurring,
including a vacancy resulting from an enlargement of the board, may filled only
by vote of a majority of the directors then in office. The classification of the
board of directors and the limitations on the removal of directors and filling
of vacancies could have the effect of making it more difficult for anyone to
acquire, or of discouraging anyone from acquiring, control of Hybridon.
The restated certificate of incorporation also requires that any action
required or permitted to be taken by the stockholders of Hybridon at an annual
meeting or special meeting of stockholders may be taken only if it is properly
brought before that meeting and may not be taken by written action in lieu of a
meeting and will require reasonable advance notice by a stockholder of a
proposal or director nomination which that stockholder desires to present at any
annual or special meeting of stockholders. The restated certificate of
incorporation further provides that special meetings of the stockholders may be
called only by the Chief Executive Officer or, if none, the President of
Hybridon, or by the board of directors. Under Hybridon's bylaws, in order for
any matter to be considered "properly brought" before a meeting, a stockholder
must comply with certain requirements regarding advance notice to Hybridon. The
foregoing provisions could have the effect of delaying until the next
stockholders meeting any given stockholder action, even though it might be
favored by the holders of a majority of the outstanding voting securities of
Hybridon. These provisions may also discourage any person or entity from making
a tender offer for Shares of common stock, because such person or entity, even
if it acquired a majority of the outstanding voting securities of Hybridon,
would be able to take action as a stockholder only at a duly called stockholders
meeting, and not by written consent.
The Delaware General Corporation Law provides generally that the
affirmative vote of a majority of the shares entitled to vote on any matter is
required to amend a corporation's certificate of incorporation or bylaws, unless
a corporation's certificate of incorporation or by-law requires a greater
percentage. The restated certificate of incorporation and the bylaws require the
affirmative vote of the holders of at least 75% of the shares of capital stock
of Hybridon issued and outstanding and entitled to vote to amend or repeal any
of the
57
<PAGE> 63
provisions described in the prior two paragraphs. Moreover, the board of
directors has the authority, without further action by the stockholders, to fix
the rights and preferences of, and to issue shares of, any preferred stock other
than the convertible preferred stock.
In addition to these provisions of Delaware law, the restated certificate
of incorporation and the bylaws, the terms of Hybridon's outstanding 9% notes,
which were issued in the aggregate original principal amount of $50.0 million
and of which approximately $1.3 million in principal amount remains outstanding,
require Hybridon, upon a Change of Control of Hybridon, as defined in the
indenture for the 9% notes, to offer to repurchase the 9% notes at a repurchase
price equal to 150% of the principal amount thereof, plus accrued and unpaid
interest to the date of repurchase. This provision, together with the provisions
of the restated certificate of incorporation described above and other
provisions of the restated certificate of incorporation, may have the effect of
deterring takeovers or delaying or preventing changes in control or management
of Hybridon, including transactions in which stockholders might otherwise
receive a premium for their shares over then current market prices. In addition,
these provisions may limit the ability of stockholders to approve transactions
that they may deem to be in their best interests.
PLAN OF DISTRIBUTION
The securities offered in this prospectus may be sold from time to time by
the selling stockholders or their pledgees, donees, transferees or other
successors in interest. Sales of the securities may be effected on the NASD OTC
Bulletin Board or in negotiated transactions at prices then prevailing or
related to the then-current market price, or at negotiated prices.
The securities may be sold directly or through brokers or dealers by means
of one or more of the following methods:
- block trades in which the broker or dealer attempts to sell shares as
agent but may position and resell a portion of the block as principal to
facilitate the transaction;
- purchases by a broker or dealer as principal and resales by that broker
or dealer for its own account pursuant to this prospectus, including
resale to another broker or dealer;
- ordinary brokerage transactions and transactions in which the broker
solicits purchasers.
In effecting sales, brokers and dealers engaged by selling stockholders may
arrange for other brokers or dealers to participate. Brokers or dealers may
receive commissions or discounts from selling stockholders or, if any such
broker or dealer acts as agent for the purchaser of any securities, from that
purchaser in amounts to be negotiated. A broker-dealer may agree with the
selling stockholders to sell a specified number of securities at a stipulated
price per share, and, to the extent that broker-dealer is unable to do so acting
as agent for the selling stockholders, to purchase as principal any unsold
securities at the price required to fulfill the broker-dealer commitment to the
selling stockholders. Broker-dealers who acquire securities as principal may
thereafter resell those securities.
The selling stockholders and any broker-dealers participating in
distribution of the securities may be deemed "underwriters" within the meaning
of Section 2(11) of the Securities Act, and any profit on the sale of securities
by the selling stockholders and any commissions or discounts given to
broker-dealers may be deemed underwriting commissions or discounts under the
Securities Act. In addition, any of the securities that qualify for sale
pursuant to Rule 144 may be sold under Rule 144 rather than pursuant to this
prospectus.
Hybridon has agreed to indemnify certain of the selling stockholders, each
underwriter of certain of the securities, and each person controlling certain of
the selling stockholders within the meaning of Section 15 of the Securities Act,
against certain liabilities in connection with the offer and sale of the
securities, including liabilities under the Securities Act, and to contribute to
payments those persons may be required to make in respect of such liabilities.
Certain of the selling stockholders have agreed to indemnify, in certain
circumstances, Hybridon against certain liabilities in connection with the offer
and sale of the securities, including liabilities under the Securities Act, and
to contribute to payments Hybridon may be required to make in respect thereof.
58
<PAGE> 64
LEGAL MATTERS
The validity of the securities offered by this prospectus will be passed
upon for Holland & Knight, LLP, Boston, Massachusetts.
EXPERTS
The consolidated financial statements of Hybridon as of December 31, 1997,
1998, and 1999 and for each of the years in the three-year period ended December
31, 1999 included in this prospectus and elsewhere in the registration statement
have been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their report with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
We have filed a registration statement on Form S-1 with the Securities and
Exchange Commission relating to the common stock offered by this prospectus.
This prospectus does not contain all of the information set forth in the
registration statement and the exhibits and schedules to the registration
statement. Statements contained in this prospectus concerning the contents of
any contract or other document referred to are not necessarily complete and in
each instance we refer you to the copy of the contract or other document filed
as an exhibit to the registration statement, each such statement being qualified
in all respects by such reference.
For further information with respect to us and the common stock offered in
this prospectus, please refer to the registration statement. A copy of the
registration statement can be inspected by anyone without charge at the public
reference room of the SEC, Room 1024, 450 Fifth Street, N.W., Washington, D.C.
20549, and at the SEC's Regional Offices located at 7 World Trade Center, Suite
1300, New York, New York 10048, and 500 West Madison Street, Chicago, Illinois
60601. Please call the SEC at 1-800-SEC-0330 for further information on the
operation of the public reference room. Copies of these materials can be
obtained by mail from the Public Reference Section of the SEC at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. The SEC maintains a
Web site (http://www.sec.gov) that contains information regarding registrants
that file electronically with the SEC.
59
<PAGE> 65
HYBRIDON, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS.................... F-2
CONSOLIDATED BALANCE SHEETS................................. F-3
CONSOLIDATED STATEMENTS OF OPERATIONS....................... F-4
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)... F-5
CONSOLIDATED STATEMENTS OF CASH FLOWS....................... F-8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.................. F-10
</TABLE>
F-1
<PAGE> 66
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Hybridon, Inc.:
We have audited the accompanying consolidated balance sheets of Hybridon,
Inc. (a Delaware corporation) and subsidiaries as of December 31, 1998 and 1999
and the related consolidated statements of operations, stockholders' equity
(deficit) and cash flows for each of the three years in the period ended
December 31, 1999. These consolidated financial statements are the
responsibility of Hybridon, Inc. and subsidiaries' management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Hybridon, Inc. and
subsidiaries as of December 31, 1998 and 1999 and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999 in conformity with accounting principles generally accepted in
the United States.
/s/ ARTHUR ANDERSEN LLP
Boston, Massachusetts
February 25, 2000
(Except with respect to the matters discussed in Notes 1 and 15, as to which the
date is September 21, 2000)
F-2
<PAGE> 67
HYBRIDON, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------- SEPTEMBER 30,
1998 1999 2000
------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 5,607,882 $ 2,551,671 $ 5,236,326
Receivables............................................... 311,222 196,528 --
Prepaid expenses and other current assets................. 311,257 101,914 44,991
------------- ------------- -------------
Total current assets............................... 6,230,361 2,850,113 5,281,317
------------- ------------- -------------
PROPERTY AND EQUIPMENT, AT COST:
Leasehold improvements.................................... 150,342 150,342 150,342
Laboratory equipment and other............................ 6,693,478 5,249,621 5,200,727
------------- ------------- -------------
6,843,820 5,399,963 5,351,069
Less -- Accumulated depreciation and amortization......... 6,287,291 5,229,514 5,285,197
------------- ------------- -------------
556,529 170,449 65,872
------------- ------------- -------------
OTHER ASSETS:
Deferred financing costs and other assets................. 522,374 1,325,149 1,083,109
Restricted cash........................................... -- -- 5,000,000
Note receivable from officer.............................. 258,650 270,050 --
------------- ------------- -------------
781,024 1,595,199 6,083,109
------------- ------------- -------------
NET ASSETS FROM DISCONTINUED OPERATIONS..................... 7,523,687 6,101,518 --
------------- ------------- -------------
$ 15,091,601 $ 10,717,279 $ 11,430,298
============= ============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Current portion of long-term debt......................... $ 6,000,000 $ 6,000,000 $ 6,000,000
Accounts payable.......................................... 1,927,290 1,263,943 793,290
Accrued expenses.......................................... 3,609,533 2,119,864 1,740,946
------------- ------------- -------------
Total current liabilities.......................... 11,536,823 9,383,807 8,534,236
------------- ------------- -------------
LINE OF CREDIT.............................................. -- -- 231,167
------------- ------------- -------------
9% CONVERTIBLE SUBORDINATED NOTES PAYABLE................... 1,306,000 1,306,000 1,306,000
------------- ------------- -------------
8% CONVERTIBLE SUBORDINATED NOTES PAYABLE................... -- 6,099,775 7,736,943
------------- ------------- -------------
COMMITMENTS AND CONTINGENCIES (Notes 7 and 11)
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred stock, $0.01 par value --
Authorized -- 5,000,000 shares
Series A convertible preferred stock --
Designated -- 1,500,000 shares
Issued and outstanding -- 641,259, 661,856 and 612,115
shares at December 31, 1998 and 1999, and September
30, 2000, respectively (Liquidation preference of
$64,820,459 at September 30, 2000)................. 6,413 6,618 6,121
Common stock, $0.001 par value --
Authorized -- 100,000,000 shares
Issued and outstanding -- 15,304,825, 16,260,722 and
17,924,949 shares at December 31, 1998 and 1999, and
September 30, 2000, respectively...................... 15,305 16,261 17,925
Additional paid-in capital................................ 241,632,024 247,813,331 251,769,929
Accumulated deficit....................................... (238,447,837) (253,183,130) (257,781,132)
Deferred compensation..................................... (957,127) (725,383) (390,891)
------------- ------------- -------------
Total stockholders' equity (deficit)............... 2,248,778 (6,072,303) (6,378,048)
------------- ------------- -------------
$ 15,091,601 $ 10,717,279 $ 11,430,298
============= ============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 68
HYBRIDON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
------------------------------------------ --------------------------
1997 1998 1999 1999 2000
------------ ------------ ------------ ------------ -----------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
REVENUES:
Service revenue..................... $ -- $ 375,000 $ 365,000 $ 295,000 $ 70,000
Research and development............ 945,000 1,099,915 600,000 450,000 --
Royalty and other income............ -- -- 122,544 106,950 76,529
Interest income..................... 1,079,122 148,067 92,202 81,724 66,012
------------ ------------ ------------ ------------ -----------
Total revenues............... 2,024,122 1,622,982 1,179,746 933,674 212,541
------------ ------------ ------------ ------------ -----------
OPERATING EXPENSES:
Research and development............ 35,326,230 14,182,952 5,783,092 4,524,896 2,793,949
General and administrative.......... 11,026,748 6,572,502 3,663,811 2,946,564 2,339,897
Interest............................ 4,277,882 2,819,659 683,134 511,131 1,856,677
Restructuring....................... 10,345,464 -- -- -- --
------------ ------------ ------------ ------------ -----------
Total operating expenses.......... 60,976,324 23,575,113 10,130,037 7,982,591 6,990,523
------------ ------------ ------------ ------------ -----------
Loss from continuing
operations................. (58,952,202) (21,952,131) (8,950,291) (7,048,917) (6,777,982)
------------ ------------ ------------ ------------ -----------
Income (loss) from
discontinued operations.... (10,509,124) (4,028,242) (1,552,751) (1,283,539) 5,292,154
------------ ------------ ------------ ------------ -----------
LOSS BEFORE EXTRAORDINARY GAIN........ (69,461,326) (25,980,373) (10,503,042) (8,332,456) (1,485,828)
------------ ------------ ------------ ------------ -----------
EXTRAORDINARY ITEM:
Gain on conversion of 9% convertible
Subordinated notes payable........ -- 8,876,685 -- -- --
------------ ------------ ------------ ------------ -----------
NET LOSS.............................. (69,461,326) (17,103,688) (10,503,042) (8,332,456) (1,485,828)
ACCRETION OF PREFERRED STOCK
DIVIDEND............................ (2,689,048) (4,232,251) (3,193,851) (3,112,174)
------------ ------------ ------------ ------------ -----------
NET LOSS TO COMMON STOCKHOLDERS....... $(69,461,326) $(19,792,736) $(14,735,293) $(11,526,307) $(4,598,002)
============ ============ ============ ============ ===========
BASIC AND DILUTED NET LOSS PER COMMON
SHARE FROM:
Continuing operations............... $ (11.67) $ (1.85) $ (0.57) $ (0.45) $ (0.40)
Discontinued operations............. (2.08) (0.34) (0.10) (0.08) 0.31
Extraordinary gain.................. -- 0.75 -- -- --
------------ ------------ ------------ ------------ -----------
Net loss per share.................. (13.76) (1.44) (0.66) (0.53) (0.09)
Accretion of preferred stock
dividends......................... -- (0.23) (0.27) (0.20) (0.18)
------------ ------------ ------------ ------------ -----------
Net loss per share applicable to
common Stockholders............... $ (13.76) $ (1.67) $ (0.93) $ (0.74) $ (0.27)
============ ============ ============ ============ ===========
SHARES USED IN COMPUTING BASIC AND
DILUTED NET LOSS PER COMMON SHARE... 5,049,840 11,859,350 15,810,664 15,653,562 17,130,454
============ ============ ============ ============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 69
HYBRIDON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
CONVERTIBLE SERIES A CONVERTIBLE
PREFERRED STOCK PREFERRED STOCK
---------------------- ----------------------
NUMBER OF $0.01 PAR NUMBER OF $0.01 PAR
SHARES VALUE SHARES VALUE
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1996................................ $-- -- -- $ --
Issuance of common stock related to the exercise of
stock options......................................... -- -- -- --
Issuance of common stock related to the exercise of
warrants.............................................. -- -- -- --
Issuance of common stock for services rendered.......... -- -- -- --
Deferred compensation related to grants of stock options
to nonemployees....................................... -- -- -- --
Amortization of deferred compensation................... -- -- -- --
Net loss................................................ -- -- -- --
-- -- ------- ------
BALANCE, DECEMBER 31, 1997................................ -- -- -- --
Issuance of Series A convertible preferred stock and
attached warrants in exchange for conversion of 9%
convertible subordinated notes payable and accrued
interest, net of issuance costs of $1,195,398......... -- -- 510,504 5,105
Issuance of common stock and attached warrants in
exchange for conversion of accounts payable and other
obligations........................................... -- -- -- --
Issuance of Series A convertible preferred stock........ -- -- 114,285 1,143
Issuance of common stock to placement agent............. -- -- -- --
Issuance of common stock and attached warrants in
exchange for conversion of convertible notes payable,
net of issuance cost of $566,167...................... -- -- -- --
Issuance of common stock and attached warrants, net of
issuance costs of $1,069,970.......................... -- -- -- --
Issuance of common stock for services rendered.......... -- -- -- --
Deferred compensation related to grants of stock options
to nonemployees, net of terminations.................. -- -- -- --
Issuance of warrants in connection with notes payable... -- -- -- --
Accretion and issuance of Series A convertible preferred
stock dividends....................................... -- -- 16,470 165
Amortization of deferred compensation................... -- -- -- --
Net loss................................................ -- -- -- --
-- -- ------- ------
BALANCE, DECEMBER 31, 1998................................ -- -- 641,259 6,413
Issuance of common stock to placement agents............ -- -- -- --
Conversion of Series A convertible preferred stock into
common stock.......................................... -- -- (21,076) (211)
Issuance of warrants in connection with notes payable... -- -- -- --
Accretion and issuance of Series A convertible preferred
stock dividends....................................... -- -- 41,673 416
Fair value of stock options to nonemployees............. -- -- -- --
Amortization of deferred compensation................... -- -- -- --
Net loss................................................ -- -- -- --
-- -- ------- ------
BALANCE, DECEMBER 31, 1999................................ -- -- 661,856 6,618
Exercise of common stock options........................ -- -- -- --
Retirement of common stock.............................. -- -- -- --
Accretion and issuance of Series A convertible preferred
stock dividends....................................... -- -- 21,468 215
Issuance of warrants in connection with line of
credit................................................ -- -- -- --
Conversion of Series A convertible preferred stock into
common stock.......................................... -- -- (71,209) (712)
Amortization of deferred compensation................... -- -- -- --
Net loss................................................ -- -- -- --
-- -- ------- ------
BALANCE, SEPTEMBER 30, 2000............................... $-- -- 612,115 $6,121
== == ======= ======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 70
HYBRIDON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
----------------------- ADDITIONAL STOCKHOLDERS
NUMBER OF $0.001 PAR PAID-IN ACCUMULATED DEFERRED EQUITY
SHARES VALUE CAPITAL DEFICIT COMPENSATION (DEFICIT)
---------- ---------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31,
1996...................... 5,029,315 $ 5,029 $173,247,476 $(149,193,775) $(1,203,926) $ 22,854,804
Issuance of common stock
related to the exercise
of stock options........ 25,005 26 86,300 -- -- 86,326
Issuance of common stock
related to the exercise
of warrants............. 330 -- 9,075 -- -- 9,075
Issuance of common stock
for services rendered... 5,000 5 146,869 -- -- 146,874
Deferred compensation
related to grants of
stock options to
nonemployees............ -- -- 205,978 -- (205,978) --
Amortization of deferred
compensation............ -- -- -- -- 316,067 316,067
Net loss.................. -- -- -- (69,461,326) -- (69,461,326)
---------- ------- ------------ ------------- ----------- ------------
BALANCE, DECEMBER 31,
1997...................... 5,059,650 5,060 173,695,698 (218,655,101) (1,093,837) (46,048,180)
Issuance of Series A
convertible preferred
stock and attached
warrants in exchange for
conversion of 9%
convertible subordinated
notes payable and
accrued interest, net of
issuance costs of
$1,195,398.............. -- -- 38,729,489 -- -- 38,734,594
Issuance of common stock
and attached warrants in
exchange for conversion
of accounts payable and
other obligations....... 3,217,154 3,217 5,931,341 -- -- 5,934,558
Issuance of Series A
convertible preferred
stock................... -- -- 7,998,817 -- -- 7,999,960
Issuance of common stock
to placement agent...... 597,699 598 1,194,800 -- -- 1,195,398
Issuance of common stock
and attached warrants in
exchange for conversion
of convertible notes
payable, net of issuance
cost of $566,167........ 3,157,322 3,157 4,230,676 -- -- 4,233,833
Issuance of common stock
and attached warrants,
net of issuance costs of
$1,069,970.............. 3,223,000 3,223 6,873,453 -- -- 6,876,676
Issuance of common stock
for services rendered... 50,000 50 93,700 -- -- 93,750
Deferred compensation
related to grants of
stock options to
nonemployees, net of
terminations............ -- -- 109,734 -- (109,734) --
Issuance of warrants in
connection with notes
payable................. -- -- 85,433 -- -- 85,433
</TABLE>
F-6
<PAGE> 71
HYBRIDON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) -- (CONTINUED)
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
----------------------- ADDITIONAL STOCKHOLDERS
NUMBER OF $0.001 PAR PAID-IN ACCUMULATED DEFERRED EQUITY
SHARES VALUE CAPITAL DEFICIT COMPENSATION (DEFICIT)
---------- ---------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Accretion and issuance of
Series A convertible
preferred stock
dividends............... -- -- 2,688,883 (2,689,048) -- --
Amortization of deferred
compensation............ -- -- -- -- 246,444 246,444
Net loss.................. -- -- -- (17,103,688) -- (17,103,688)
---------- ------- ------------ ------------- ----------- ------------
BALANCE, DECEMBER 31,
1998...................... 15,304,825 15,305 241,632,024 (238,447,837) (957,127) 2,248,778
Issuance of common stock
to placement agents..... 460,000 460 999,540 -- -- 1,000,000
Conversion of Series A
convertible preferred
stock into common
stock................... 495,897 496 (285) -- -- --
Issuance of warrants in
connection with notes
payable................. -- -- 547,328 -- -- 547,328
Accretion and issuance of
Series A convertible
preferred stock
dividends............... -- -- 4,231,835 (4,232,251) -- --
Fair value of stock
options to
nonemployees............ -- -- 402,889 -- -- 402,889
Amortization of deferred
compensation............ -- -- -- -- 231,744 231,744
Net loss.................. -- -- -- (10,503,042) -- (10,503,042)
---------- ------- ------------ ------------- ----------- ------------
BALANCE, DECEMBER 31,
1999...................... 16,260,722 16,261 247,813,331 (253,183,130) (725,383) (6,072,303)
Exercise of common stock
options (unaudited)..... 229,407 230 114,475 -- -- 114,705
Retirement of common stock
(unaudited)............. (250,000) (250) -- -- -- (250)
Accretion and issuance of
Series A convertible
preferred stock
dividends (unaudited)... -- -- 3,111,959 (3,112,174) -- --
Issuance of warrants in
connection with line of
credit (unaudited)...... -- -- 731,136 -- -- 731,136
Conversion of Series A
convertible preferred
stock into common stock
(unaudited)............. 1,684,820 1,684 (972) -- -- --
Amortization of deferred
compensation
(unaudited)............. -- -- -- -- 334,492 334,492
Net loss (unaudited)...... -- -- -- (1,485,828) -- (1,485,828)
---------- ------- ------------ ------------- ----------- ------------
BALANCE, SEPTEMBER 30, 2000
(UNAUDITED)............... 17,924,949 $17,925 $251,769,929 $(257,781,132) $ (390,891) $ (6,378,048)
========== ======= ============ ============= =========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE> 72
HYBRIDON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------ -------------------------
1997 1998 1999 1999 2000
------------ ------------ ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................. $(69,461,326) $(17,103,688) $(10,503,042) $(8,332,456) $(1,485,828)
Income (loss) from discontinued
operations......................... (10,509,124) (4,028,242) (1,552,751) (1,283,539) 5,292,154
------------ ------------ ------------ ----------- -----------
Loss from continuing operations...... (58,952,202) (13,075,446) (8,950,291) (7,048,917) (6,777,982)
Adjustments to reconcile net loss to
net cash used in operating
activities --
Extraordinary gain on exchange of
9% convertible subordinated notes
payable.......................... -- (8,876,685) -- -- --
Depreciation and amortization...... 1,937,793 2,120,212 394,381 353,576 104,636
Amortization of deferred
compensation..................... 316,067 246,444 634,633 576,697 334,492
Amortization of deferred financing
costs............................ 479,737 160,813 123,140 80,951 343,442
Interest expenses related to the
issuance of common stock
warrants......................... -- -- -- -- 731,136
Non cash interest expense.......... -- -- 65,485 -- 151,077
Issuance of common stock for
services rendered................ 146,874 93,750 -- -- --
Write down of assets related to
restructuring charge............. 1,255,000 -- -- -- --
Changes in operating assets and
liabilities -
Accounts receivable.............. -- (511,652) 114,694 122,028 196,528
Prepaid expenses and other
current assets................ 539,499 894,998 209,341 209,073 56,923
Note receivable from officer..... 70,728 (11,400) (11,400) (8,550) --
Accounts payable and accrued
expenses...................... 9,800,635 (276,463) (1,153,013) (824,600) (579,832)
Deferred revenue................. (86,250) -- -- -- --
------------ ------------ ------------ ----------- -----------
Net cash used in continuing
operating activities........ (44,492,119) (19,235,429) (8,573,030) (6,539,742) (5,439,580)
------------ ------------ ------------ ----------- -----------
Net cash provided by (used in)
discontinued operations..... (9,129,580) (4,090,858) (130,581) 440,341 (156,326)
------------ ------------ ------------ ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in other assets............. 3,785,146 -- -- -- (101,401)
Proceeds from sale of discontinued
operations......................... -- -- -- -- 11,550,000
Purchases of property and
equipment.......................... (4,944,425) 114,576 (8,303) (8,302) --
Proceeds from sale of property and
equipment.......................... -- 714,400 -- -- --
Proceeds from sale of real estate
partnership........................ -- 5,450,000 -- -- --
------------ ------------ ------------ ----------- -----------
Net cash (used in) provided by
investing activities........ (1,159,279) 6,278,976 (8,303) (8,302) 11,448,599
------------ ------------ ------------ ----------- -----------
</TABLE>
F-8
<PAGE> 73
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------ -------------------------
1997 1998 1999 1999 2000
------------ ------------ ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of Series
A convertible preferred stock...... -- 7,999,960 -- -- --
Net proceeds from issuance of common
stock.............................. 86,326 6,876,676 -- -- 114,705
Net borrowings under line of
credit............................. -- -- -- -- 231,167
Proceeds from notes payable.......... -- 6,000,000 -- -- --
Proceeds from issuance of convertible
promissory notes payable........... -- -- -- -- 1,486,090
Proceeds from issuance of convertible
notes payable and warrants......... 50,000,000 4,233,833 4,534,290 -- --
Proceeds from related party notes
payable............................ -- -- 1,500,000 1,000,000 --
Proceeds from issuance of common
stock related to stock warrants.... 9,075 -- -- -- --
Proceeds from sale/leaseback of fixed
assets............................. 632,426 -- -- -- --
Payments on long-term debt........... (1,082,651) (7,234,300) -- -- --
Increase in deferred financing
costs.............................. (2,820,790) (400,000) (378,587) -- --
(Increase) decrease in restricted
cash and other assets.............. (2,474,948) 2,976,822 -- -- (5,000,000)
------------ ------------ ------------ ----------- -----------
Net cash provided by (used in)
financing activities........ 44,349,438 20,452,991 5,655,703 1,000,000 (3,168,038)
------------ ------------ ------------ ----------- -----------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS..................... (10,431,540) 3,405,680 (3,056,211) (5,107,703) 2,684,655
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD............................... 12,633,742 2,202,202 5,607,882 5,607,882 2,551,671
------------ ------------ ------------ ----------- -----------
CASH AND CASH EQUIVALENTS, END OF
PERIOD............................... $ 2,202,202 $ 5,607,882 $ 2,551,671 $ 500,179 $ 5,236,326
============ ============ ============ =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-9
<PAGE> 74
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) ORGANIZATION
Hybridon, Inc. (the Company) was incorporated in the State of Delaware on
May 25, 1989. The Company is engaged in the discovery and development of novel
genetic medicines based primarily on antisense technology.
Since inception, the Company has been engaged primarily in research and
development efforts, development of its manufacturing capabilities and
organizational efforts, including recruiting of scientific and management
personnel and raising capital. To date, the Company has not received revenue
from the sale of biopharmaceutical products developed by it based on antisense
technology. In order to commercialize its own products, the Company will need to
address a number of technological challenges and comply with comprehensive
regulatory requirements. Accordingly, it is not possible to predict the amount
of funds that will be required or the length of time that will pass before the
Company receives revenues from sales of any of these products. All revenues
received by the Company to date have been derived from collaboration and
licensing agreements, interest on investment funds and revenues from the custom
contract manufacturing of synthetic DNA and reagent products by the Company's
Hybridon Specialty Products business prior to the disposal thereof.
On September 21, 2000, the Company completed the sale (see Note 15) of its
Hybridon Specialty Products business to a subsidiary of Avecia, Inc. of
Manchester, United Kingdom, for up to $15.0 million (the Asset Sale).
On May 30, 2000, the Company entered into a Line of Credit (LOC) Agreement
(see Note 16(g)) pursuant to which certain lenders (the LOC Lenders) agreed to
provide the Company with an 8%, $2.0 million credit facility (the line of credit
or LOC), which provided the Company with working capital pending the closing of
the Asset Sale. On July 10, 2000 and August 10, 2000, the Company drew down
approximately $0.5 million each under the LOC, representing a total draw down of
$1.0 million. On September 28, 2000, the Company repaid approximately $0.8
million in cash and converted the remaining amount, approximately $0.2 million,
to common stock in October 2000.
The Company's existing cash resources are expected to be sufficient to
operate into the third quarter of 2001, at which time it expects to collect the
second installment of the proceeds from the Asset Sale in the amount of $3.0
million, which should enable it to sustain its operations through the year 2001.
The Company will be required to raise substantial additional funds from external
sources to support its operations in 2002 and beyond.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Unaudited Interim Financial Statements
The unaudited interim financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission and include, in the opinion of
management, all adjustments, consisting of normal, recurring adjustments,
necessary for a fair presentation of interim period results. The results for the
interim periods presented are not necessarily indicative of results to be
expected for the full fiscal year.
(b) Management Estimates and Uncertainties
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-10
<PAGE> 75
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company is subject to a number of risks and uncertainties similar to
those of other companies of the same size within the biotechnology industry,
such as uncertainty with clinical trials, uncertainty of additional funding and
history of operating losses.
(c) Principles of Consolidation
The accompanying consolidated financial statements include the results of
the Company and its subsidiaries: Hybridon S.A. (Europe), a French corporation
and Hybridon Canada, Inc., an inactive majority-owned subsidiary. The
consolidated financial statements also reflect the Company's approximately 22%
interest in MethylGene, Inc. (MethylGene) and the Company's approximately 28%
interest in OriGenix Technologies Inc. (OriGenix), both Canadian corporations
that are accounted for under the equity method (see Notes 8 and 9,
respectively). All material intercompany balances and transactions have been
eliminated in consolidation.
(d) Cash Equivalents
The Company considers all highly liquid investments with maturities of 90
days or less when purchased to be cash equivalents. Cash and cash equivalents at
December 31, 1998 and 1999 and September 30, 2000 consist of the following (at
amortized cost, which approximates fair market value):
<TABLE>
<CAPTION>
DECEMBER 31
------------------------ SEPTEMBER 30
1998 1999 2000
---------- ---------- ------------
<S> <C> <C> <C>
Cash and cash equivalents --
Cash and money market funds................. $3,865,365 $ 505,794 $ 4,723,160
Corporate bond*............................. 1,742,517 2,045,877 5,513,166
---------- ---------- -----------
Total cash and cash equivalents..... $5,607,882 $2,551,671 $10,236,326
========== ========== ===========
</TABLE>
---------------
*Includes restricted cash of $5,000,000 at September 30, 2000 (See Note 5(f))
(e) Depreciation and Amortization
Depreciation and amortization are computed using the straight-line method
based on the estimated useful lives of the related assets as follows:
<TABLE>
<CAPTION>
ESTIMATED
ASSET CLASSIFICATION USEFUL LIFE
-------------------- -------------
<S> <C>
Leasehold improvements...................................... Life of lease
Laboratory equipment and other.............................. 3-5 years
</TABLE>
F-11
<PAGE> 76
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(f) Accrued Expenses
At December 31, 1998 and 1999 and September 30, 2000, accrued expenses
consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31
------------------------ SEPTEMBER 30
1998 1999 2000
---------- ---------- ------------
<S> <C> <C> <C>
Restructuring (Note 3)........................ $ 469,485 $ -- $ --
Interest...................................... 29,385 25,496 368,248
Payroll and related costs..................... 725,532 552,710 249,834
Outside research and clinical costs........... 797,593 452,633 54,450
Professional fees............................. 149,957 150,000 125,000
Contingent stock (Notes 5(a) and 10(b))....... 1,000,000 -- --
Other......................................... 437,581 939,025 943,414
---------- ---------- ----------
$3,609,533 $2,119,864 $1,740,946
========== ========== ==========
</TABLE>
(g) Reclassifications
Certain amounts in the prior-period consolidated financial statements have
been reclassified to conform to the current period's presentation.
(h) Revenue Recognition
The Company has recorded revenue under the consulting and research
agreements discussed in Notes 6 and 8. Revenue is recognized as earned on the
straight-line basis over the term of the agreement, which approximates when work
is performed and costs are incurred. Revenues from service sales are recognized
when the services are performed.
(i) Research and Development Expenses
The Company charges research and development expenses to operations as
incurred.
(j) Patent Costs
The Company charges patent expenses to operations as incurred.
(k) Comprehensive Loss
The Company applies Statement of Financial Accounting Standards (SFAS) No.
130, Reporting Comprehensive Income. Comprehensive loss is defined as the change
in equity of a business enterprise during a period from transactions and other
events and circumstances from nonowner sources. The Company's comprehensive loss
is the same as the reported net loss for all periods presented.
(l) Net Loss per Common Share
The Company applies SFAS No 128, Earnings per Share. Under SFAS No. 128,
basic net loss per common share is computed using the weighted average number of
shares of common stock outstanding during the period. Diluted net loss per
common share is the same as basic net loss per common share as the effects of
the Company's potential common stock equivalents are antidilutive. Antidilutive
securities, which consist of stock options, warrants and convertible preferred
stock and convertible debt instruments (on an as-converted basis) that are not
included in diluted net loss per common share were 2,404,561, 27,774,883,
32,854,153 and 49,787,247 for 1997, 1998, 1999, and the nine months ended
September 30, 2000, respectively.
F-12
<PAGE> 77
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(m) Segment Reporting
The Company applies SFAS No. 131, Disclosures About Segments of an
Enterprise and Related Information. SFAS No. 131 establishes standards for
reporting information regarding operating segments in annual financial
statements and requires selected information for those segments to be presented
in interim financial reports issued to stockholders. SFAS No. 131 also
establishes standards for related disclosures about products and services and
geographic areas. To date, the Company has viewed its operations and manages its
business as principally one operating segment. As a result, the financial
information disclosed herein represents all of the material financial
information related to the Company's principal operating segment. All of the
Company's revenues are generated in the United States and substantially all
assets are located in the United States.
(n) New Accounting Pronouncement
In March 1999, the Financial Accounting Standards Board (FASB) issued a
proposed interpretation, Accounting for Certain Transactions Involving Stock
Compensation -- An Interpretation of APB Opinion No. 25 (the Proposed
Interpretation). The Proposed Interpretation would clarify the application of
Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to
Employees, in certain situations, as defined. The Proposed Interpretation would
be effective upon issuance (expected to be in early 2000) but would cover
certain events that occur after December 15, 1998. To the extent that events
covered by this Proposed Interpretation occur during the period after December
15, 1998, but before issuance of the final interpretation, the effects of
applying this Proposed Interpretation would be recognized on a prospective basis
from the effective date. Accordingly, upon initial application of the final
interpretation, (a) no adjustments would be made to financial statements for
periods before the effective date and (b) no expense would be recognized for any
additional compensation cost measured that is attributable to periods before the
effective date. The adoption of the Proposed Interpretation will affect the
accounting for stock options repriced during fiscal year 1999 (see Note 10(f)).
The Securities and Exchange Commission issued Staff Accounting Bulletin
(SAB) No. 101, Revenue Recognition, in December 1999. The Company is required to
adopt this new accounting guidance through a cumulative charge to operations, in
accordance with APB Opinion No. 20, Accounting Changes, no later than the second
quarter of fiscal 2000. The Company believes that the adoption of the guidance
provided in SAB No. 101 will not have a material impact on future operating
results.
(3) RESTRUCTURING
Beginning in July 1997, the Company implemented a restructuring plan to
reduce expenditures on a phased basis in an effort to conserve its cash
resources. As part of this restructuring plan, in addition to terminating the
clinical development of GEM 91, the Company's first generation antisense drug
for the treatment of AIDS and HIV infection, the Company reduced or suspended
selected programs unrelated to its four core advanced chemistry antisense drug
research development programs. In connection with the reduction in programs, the
Company accrued termination fees related to research contracts and wrote off
assets related to programs that were suspended or canceled. As part of the
restructuring, all outside testing, public relations, travel and entertainment
and consulting arrangements were reviewed and where appropriate the terms were
renegotiated, contracts cancelled or the terms were significantly reduced. As a
result of the implementation of these changes, the Company terminated the
employment of 84 employees, of which 50 were related to the Company's continuing
operations, at its Massachusetts facilities since July 1997. The Company also
closed its operations in Paris, France, and terminated 11 employees at that
location.
In connection with the restructuring, the Company entered into different
subleasing arrangements. During 1997, the Company subleased substantial portions
of each of its facilities in Cambridge, Massachusetts (including a portion of
its former headquarters located at 620 Memorial Drive, the Cambridge Lease). The
Company incurred expenses relating to these subleases for broker fees and
renovation expenses incurred in
F-13
<PAGE> 78
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
preparing the Cambridge Lease space for the new tenant. In addition, the Company
accrued the estimated lease loss of subleasing the Cambridge Lease, which were
vacated during 1998. The Company also subleased its office in Paris, France, and
accrued the estimated lease loss.
The following are the significant components of the $10,345,000 charge for
restructuring (in thousands) relating to the Company's continuing operations:
<TABLE>
<CAPTION>
RESTRUCTURING
CHARGE
-------------
<S> <C>
Estimated loss on facility leases........................... $ 6,372
Employee severance, benefits and related costs.............. 2,063
Write-down of assets to net realizable value................ 946
Termination costs of certain development programs........... 964
-------
$10,345
=======
</TABLE>
The total cash impact of the restructuring was approximately $4,490,000,
and was paid as of December 31, 1999.
(4) NOTE RECEIVABLE FROM OFFICER
At December 31, 1998 and 1999, the Company has a note receivable and
accrued interest from an officer, of $258,650 and $270,050, respectively. The
note has an interest rate of 6.0% per annum and matures in April 2001.
(5) LONG-TERM DEBT
(a) Note Payable
During November 1998, the Company entered into a $6,000,000 note payable
with Forum Capital Markets, LLC (currently Founders Financial Group,
L.P.)(Founders) and certain investors associated with Pecks Management Partners
Ltd. (collectively, the Lenders). The terms of the note payable are as follows:
(i) the maturity is November 30, 2003; (ii) the interest rate is 8%; (iii)
interest is payable monthly in arrears, with the principal due in full at
maturity of the loan; (iv) the note payable is convertible, at the Lender's
option, in whole or in part, into shares of common stock at a conversion price
equal to $2.40 per share; (v) the note includes a minimum liquidity, as defined,
covenant of $2,000,000 and (vi) the note payable may not be prepaid, in whole or
in part, at any time prior to December 1, 2000. On December 1, 1999, the Company
received a waiver for noncompliance with the minimum tangible net worth covenant
effective December 31, 1999. In addition, the Lenders also agreed to waive
compliance with all covenants for the period January 1, 2000 through March 31,
2000. The Company has received additional waivers for non-compliance with these
same covenants for the period from September 30, 2000 to December 31, 2000. The
Company has classified the outstanding balance of $6,000,000 at December 31,
1999 and September 30, 2000 as a current liability in the accompanying
consolidated balance sheets as it does not currently have the financing to
remain in compliance with the financial covenants. In connection with the
issuance of the note payable, Forum received $400,000, which was reinvested by
Founders to purchase 160,000 shares of common stock with 40,000 attached
warrants at an exercise price of $3.00 per share. The Company has recorded the
$400,000 as a deferred financing cost, which will be amortized to interest
expense over the term of the note. In addition, Forum received warrants to
purchase 133,333 shares of common stock of the Company at $3.00 per share. The
Company computed the value of the warrants to be $85,433, by using the
Black-Scholes option pricing model. The Company has recorded this $85,433 as a
deferred financing cost, which will be amortized to interest expense over the
term of the note.
F-14
<PAGE> 79
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(b) Capital Lease Obligations
The Company had entered into various capital leases for equipment. During
1998, the Company settled its capital lease obligations in full through the
issuance of common stock and warrants (see Note 10(b)).
(c) 9% Convertible Subordinated Notes Payable
On April 2, 1997, the Company issued $50,000,000 of 9% convertible
subordinated notes Payable (9% Notes). Under the terms of the 9% Notes, the
Company must make semiannual interest payments on the outstanding principal
balance through the maturity date of April 1, 2004. If the 9% Notes are
converted prior to April 1, 2000, the noteholders are entitled to receive
accrued interest from the date of the most recent interest payment through the
conversion date. The 9% Notes are subordinate to substantially all of the
Company's existing indebtedness. The 9% Notes are convertible at any time prior
to the maturity date at a conversion price equal to $35.0625 per share, subject
to adjustment under certain circumstances, as defined.
Beginning April 1, 2000, the Company may redeem the 9% Notes at its option
for a 4.5% premium over the original issuance price provided that from April 1,
2000 to March 31, 2001, the 9% Notes may not be redeemed unless the closing
price of the common stock equals or exceeds 150% of the conversion price for a
period of at least 20 out of 30 consecutive trading days and the 9% Notes are
redeemed within 60 days after such trading period. The premium decreases by 1.5%
each year through March 31, 2003. Upon a change of control of the Company, as
defined, the Company will be required to offer to repurchase the 9% Notes at
150% of the original issuance price.
On May 5, 1998, holders of $48,694,000 of principal and $2,361,850 of
accrued interest tendered such principal and accrued interest on the 9% Notes to
the Company for 510,505 shares of Series A convertible preferred stock and
warrants to purchase 3,002,958 shares of common stock with an exercise price of
$4.25 per share. In accordance with SFAS No. 15, Accounting by Debtors and
Creditors for Troubled Debt Restructurings, the Company recorded an
extraordinary gain of $8,876,685 related to the exchange. The extraordinary gain
represents the difference between the carrying value of the 9% Notes plus
accrued interest, less $2,249,173 of deferred financing costs written off, and
the fair value of the Series A convertible preferred stock, as determined by the
per share sales price of Series A convertible preferred stock sold in the 1998
Unit Financing (see Note 10(b)), and warrants to purchase common stock issued by
the Company.
(d) 8% Convertible Notes Payable
In December 1999, the Company completed an offering of the 8% Convertible
Notes Payable (8% Notes). As of December 31, 1999, the Company had received
approximately $5.7 million in principal with respect to the 8% Notes. Subsequent
to December 31, 1999, the Company received approximately an additional $1.2
million in principal of 8% Notes. In connection with the closing of the 8% Notes
in December, the Company converted the outstanding balance of the promissory
notes payable to the Company's chief executive officer into 8% Notes (see Note
5(e)). Under the terms of the 8% Notes, the Company must make semiannual
interest payments on the outstanding principal balance through the maturity date
of November 30, 2002. The 8% Notes are convertible at any time prior to the
maturity date at a conversion price equal to $0.60 per share of common stock
(the Conversion Ratio), subject to adjustment under certain circumstances, as
defined. If the 8% Notes are prepaid before the maturity date, all noteholders
are entitled to receive a warrant to purchase the number of shares of common
stock equal to the number of shares of common stock that would be issued using
the Conversion Ratio.
In connection with the 8% Notes, the Company must comply with certain
covenants, including making all payments of interest when due and maintaining
consolidated cash balances of at least $1.5 million as of the last day of any
calendar month. At September 30, 2000 the Company is in compliance with the
covenant regarding consolidated cash balances. If an event of default occurs, as
defined, the noteholders may declare the unpaid principal and interest due and
payable immediately. If the Company defaults with respect to payment of
interest, the Company will be required to pay interest at a default rate equal
to 12%. On July 10, 2000, the
F-15
<PAGE> 80
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
holders of the 8% notes entered into an amendment (See Note 5(f)) to the
Subordination and Intercreditor Agreement.
In addition, in connection with the issuance of the 8% Notes, the holders
of the note payable to Lenders (see Note 5(a)) received a warrant to purchase
2,750,000 shares of the Company's common stock at $0.60 per share. The warrant
was granted as consideration to the Lenders for relinquishing their seniority
upon liquidation of the Company to the holders of the 8% Notes. The Company
computed the value of the warrants to be $547,328, by using the Black-Scholes
option pricing model. The Company has recorded the $547,328 as a deferred
financing cost, which will be amortized to interest expense over the term of the
8% Notes.
(e) Related Party Notes Payable
During September 1999, the Company entered into two $500,000 promissory
notes payable to the Company's chief executive officer (the Officer). During
November 1999, the Company entered into an additional $500,000 promissory note
payable to the Officer. In connection with the issuance of the 8% Notes (see
Note 5(d)), the Company converted the principal balance of $1,500,000, and the
accrued but unpaid interest of $46,502 into 8% Notes.
(f) $2.0 Million Line of Credit
On May 30, 2000, the Company entered into a LOC Agreement pursuant to which
the LOC Lenders agreed to provide the Company with the Line of Credit (see Note
1). The LOC was intended to provide the Company with working capital pending the
closing of the Asset Sale. On July 10, 2000 and August 10, 2000, the Company
drew down approximately $0.5 million each of these dates under the LOC,
representing a total draw down of $1.0 million.
On September 28, 2000, following the close of the transaction with a
subsidiary of Avecia, the Company received a Notice of Repayment from the LOC
Lenders and repaid approximately $0.8 million of principal and interest in cash
and $0.2 million of principal and interest in equivalent shares of common stock
at $1.08 per share (214,043 shares) in October 2000, pursuant to the terms of
the original agreement. The Company has no additional borrowing capacity under
this LOC.
The LOC Lenders, the holders of the 8% Convertible Notes (Note 5(d)), and
the Lender (Note 5(a)) on July 10, 2000 entered into an amendment (the
Amendment) to the Subordination and Intercreditor Agreement. In the Amendment
all parties to the Subordination and Intercreditor Agreement agreed to release
their lien on the portion of the collateral that includes assets to be conveyed
in the Asset Sale. In return for this partial release, the Company undertook in
the Amendment that upon consummation of the Asset Sale it would set aside from
the proceeds thereof the sum of $5.0 million with which it will purchase a money
market instrument and pledge the same as collateral to secure its obligation to
the holders of the 8% Convertible Notes and the Lenders. The amount of the
pledge will be reduced as the Company's obligations are converted to equity or
repaid. The Company is entitled to collect and keep interest income generated by
the money market account. The lenders that are party to the Subordination and
Intercreditor Agreement, as amended, will continue to have a lien on
substantially all of the Company's assets remaining after the Asset Sale.
In connection with the LOC, the Company has agreed (a) to issue to the
representatives of the LOC Lenders warrants to purchase up to 500,000 shares of
common stock at an exercise price of $1.08 per share and (b) to issue to the LOC
Lenders, proportionate to their respective interests in the LOC, warrants to
purchase 1,000,000 shares of common stock at an exercise price of $1.08 per
share. The Company computed the value of the warrants to be $731,136, using the
Black-Scholes option pricing model. The Company has amortized this amount to
interest expense over the term of the LOC.
F-16
<PAGE> 81
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(6) G.D. SEARLE & CO. AGREEMENT
In January 1996, the Company and G.D. Searle & Co. (Searle) entered into a
collaboration relating to research and development of therapeutic antisense
compounds. The Company and Searle were investigating antisense inhibitors of
MDM2, a protein involved in programmed cell death, or apoptosis. In March 2000,
the Company announced that Searle had elected not to extend its collaboration
agreement with the Company.
During 1997, 1998 and 1999, the Company earned $600,000 each year, in
research and development revenues from Searle. Under the collaboration, Searle
also purchased 200,000 shares of common stock in the Company at the offering
price of $50.00 per share.
(7) LICENSING AGREEMENT
The Company has entered into a licensing agreement with the Worcester
Foundation for Biomedical Research, Inc., which has merged with the University
of Massachusetts Medical Center, under which the Company has received exclusive
licenses to technology in certain patents and patent applications. The Company
is required to make royalty payments based on future sales of products employing
the technology or falling under claims of a patent, as well as a specified
percentage of sublicense income received related to the licensed technology.
Additionally, the Company is required to pay an annual maintenance fee through
the life of the patents.
(8) INVESTMENT IN METHYLGENE, INC.
In January 1996, the Company and certain institutional investors formed a
Quebec company, MethylGene, Inc. (MethylGene) to develop and market certain
compounds and procedures to be agreed upon by the Company and MethylGene.
The Company has granted to MethylGene exclusive worldwide licenses and
sublicenses in respect of certain technology relating to the MethylGene fields.
These fields are defined as (i) antisense compounds to inhibit DNA
methyltransferase for the treatment of cancers; (ii) other methods of inhibiting
DNA methyltransferase for the treatment of any indications and (iii) antisense
compounds to inhibit a second molecular target other than DNA methyltransferase
for the treatment of cancers, to be agreed upon by the Company and MethylGene.
In addition, the Company and MethylGene have entered into a supply agreement
pursuant to which MethylGene is obligated to purchase from the Company all
required formulated bulk oligonucleotides at specified transfer prices.
The Company acquired a 49% interest in MethylGene for approximately
$734,000 and the Canadian investors acquired a 51% interest in MethylGene for a
total of approximately $5,500,000. The institutional investors have the right to
exchange all (but not less than all) of their shares of stock in MethylGene for
an aggregate of 100,000 shares of Hybridon common stock (subject to adjustment
for stock splits, stock dividends and the like). This option is exercisable only
during a 90-day period commencing on the earlier of the date five years after
the closing of the institutional investors' investment in MethylGene or the date
on which MethylGene ceases operations. During 1998, MethylGene raised additional
proceeds from outside investors that decreased the Company's interest to 30%.
In May 1998, this agreement was amended to grant MethylGene a nonexclusive
right to use any and all antisense chemistries discovered by the Company or any
of its affiliates for a period commencing on May 5, 1998 and ending on the
earlier of (i) the effective date of termination by MethylGene of its contract
for development services to be provided by the Company; (ii) May 5, 1999, unless
MethylGene exercises its option to continue contracting for development services
provided by the Company or (iii) May 5, 2000. As additional consideration for
this nonexclusive right, MethylGene is required to pay the Company certain
milestone amounts, as defined, and transfer 300,000 shares of MethylGene's Class
B shares to the Company. The Company has placed no value on these shares. During
1997, 1998 and 1999, the Company recognized zero, $875,000 and $285,000,
respectively, of revenue related to this agreement.
F-17
<PAGE> 82
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(9) ORIGENIX TECHNOLOGIES, INC.
In January 1999, the Company and certain institutional investors formed a
Montreal company, OriGenix to develop and market drugs for the treatment of
infectious diseases.
The Company received a 49% interest in OriGenix in exchange for certain
research and development efforts previously undertaken by the Company that were
made available to OriGenix. The Company also licensed certain antisense
compounds and other technology to OriGenix. During 1999, OriGenix raised
additional proceeds from institutional investors that reduced the Company's
ownership interest to 40%. The institutional investors acquired a 51% interest
in OriGenix for a total of approximately $4.0 million. The Company accounted for
their investment in OriGenix under the equity method. During 1999, the Company
recognized $80,000 of service revenue from sales to OriGenix.
(10) STOCKHOLDERS' EQUITY (DEFICIT)
(a) Common Stock
The Company has 100,000,000 authorized shares of common stock, $.001 par
value, of which 16,260,722 shares were issued and outstanding at December 31,
1999.
(b) 1998 Unit Financing
On May 5, 1998, the Company completed a private offering of equity
securities raising total gross proceeds of $26,681,164 from the issuance of
9,597,476 shares of common stock, 114,285 shares of Series A convertible
preferred stock and warrants to purchase 3,329,486 shares of common stock at
$2.40 per share. The gross proceeds include the conversion of $5,934,558 of
accounts payable, capital lease obligations and other obligations into common
stock. The Company incurred $1,636,137 of cash expenses related to the private
offering and issued 597,699 shares of common stock and warrants to purchase
1,720,825 shares of common stock at $2.40 per share to the placement agents. The
compensation received by Pillar, a company affiliated with certain directors of
the Company, with respect to the offshore component of the private offering
(Offshore Offering) consisted of (i) 9% of gross proceeds of such Offshore
Offerings and (ii) a nonaccountable expense allowance equal to 4% of gross
proceeds of such Offshore Offering. Pillar received $1,636,137 and warrants to
purchase 1,111,630 shares of common stock at $2.40 per share.
In addition, Pillar is entitled to 300,000 shares of common stock, in
connection with its efforts in assisting the Company in restructuring its
balance sheet. The Company has recorded $600,000 of general and administrative
expense in the accompanying consolidated statement of operations during 1998,
which represents the value of the common stock on May 5, 1998 with an offsetting
amount to accrued expenses for the shares to be issued. These shares were issued
in 1999.
(c) Units Issued to Primedica Corporation
In connection with the unit financing (see Note 10(b)), the Company issued
250,000 shares of common stock and 62,500 warrants to purchase common stock to
Primedica Corporation (Primedica) for future services to be provided. The
services shall commence upon the Company's request after (i) the Company
securities are listed on a nationally recognized exchange, and (ii) the average
closing price of the Company's common stock is at least $2.00 per share for the
twenty-day trading period preceding the contract commencement date. In the event
that the Company does not use these services as a result of the failure to meet
the contract conditions, Primedica shall forfeit to the Company all or part of
the common stock and warrants held by Primedica. The Company recorded these
shares as issued and outstanding during 1998 at par value. The Company will
record the value of these services as the services are rendered.
F-18
<PAGE> 83
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(d) Warrants
The Company has the following warrants outstanding and exercisable for the
purchase of common stock at December 31, 1999:
<TABLE>
<CAPTION>
OUTSTANDING EXERCISE PRICE EXERCISABLE EXERCISABLE
EXPIRATION DATE SHARES PER SHARE SHARES PRICE PER SHARE
--------------- ----------- -------------- ----------- ---------------
<S> <C> <C> <C> <C>
January 23, 2000 - October 25, 2000.... 293,679 $ 50.00 293,679 $50.00
February 28, 2000...................... 20,000 37.50 20,000 37.50
December 31, 2001...................... 13,000 34.49 13,000 34.49
April 2, 2002 - May 4, 2003............ 8,641,510 2.40 - 4.25 8,641,510 2.53
December 31, 2002...................... 2,750,000 0.60 -- --
November 30, 2003...................... 173,333 3.00 173,333 3.00
---------- ---------
11,891,522 9,141,522
========== =========
Weighted average exercise price per
share............................. $ 3.35 $ 4.19
============ ======
</TABLE>
(e) Stock Options
In 1990 and 1995, the Company established the 1990 Stock Option Plan (the
1990 Option Plan) and the 1995 Stock Option Plan (the 1995 Option Plan),
respectively, which provide for the grant of incentive stock options and
nonqualified stock options. Options granted under these plans vest over various
periods and expire no later than 10 years from the date of grant. However, under
the 1990 Option Plan, in the event of a change in control (as defined in the
1990 Plan), the exercise dates of all options then outstanding shall be
accelerated in full and any restrictions on exercising outstanding options
issued pursuant to the 1990 Option Plan shall terminate. In October 1995, the
Company terminated the issuance of additional options under the 1990 Option
Plan. As of December 31, 1999, options to purchase a total of 365,379 shares of
common stock remained outstanding under the 1990 Option Plan.
A total of 700,000 shares of common stock may be issued upon the exercise
of options granted under the 1995 Option Plan. The maximum number of shares with
respect to which options may be granted to any employee under the 1995 Option
Plan shall not exceed 500,000 shares of common stock during any calendar year.
The Compensation Committee of the Board of Directors has the authority to select
the employees to whom options are granted and determine the terms of each
option, including (i) the number of shares of common stock subject to the
option; (ii) when the option becomes exercisable; (iii) the option exercise
price, which in the case of incentive stock options must be at least 100% (110%
in the case of incentive stock options granted to a stockholder owning in excess
of 10% of the Company's common stock) of the fair market value of the common
stock as of the date of grant and (iv) the duration of the options which in the
case of incentive stock options may not exceed 10 years. As of December 31,
1999, options to purchase a total of 497,704 shares of common stock remained
outstanding under the 1995 Option Plan.
In October 1995, the Company adopted the 1995 Director Stock Option Plan
(the Director Plan). A total of 400,000 shares of common stock may be issued
upon the exercise of options granted under the Director Plan. Under the terms of
the Director Plan, options to purchase 1,000 shares of common stock were granted
to eligible directors upon the closing of the Company's initial public offering
at the fair market value of the common stock on the date of the closing.
Thereafter, options to purchase 1,000 shares of common stock will be granted to
each eligible director on May 1 of each year commencing in 1997. All options
will vest on the first anniversary of the date of grant or, in the case of
annual options, on April 30 of each year with respect to options granted in the
previous year. As of December 31, 1999, options to purchase a total of 89,000
shares of common stock remained outstanding under the Director Plan.
In May 1997, the Company adopted the 1997 Stock Option Plan (the 1997
Option Plan) and has reserved and may issue up to 6,500,000 shares for the grant
of incentive and nonqualified stock options. The
F-19
<PAGE> 84
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
maximum number of shares with respect to which options may be granted to any
employee under the 1997 Option Plan shall not exceed 500,000 shares of common
stock during any calendar year. The Compensation Committee of the Board of
Directors has the authority to select the employees to whom options are granted
and determine the terms of each option, including (i) the number of shares of
common stock subject to the option; (ii) when the option becomes exercisable;
(iii) the option exercise price, which in the case of incentive stock options
must be at least 100% (110% in the case of incentive stock) of the fair market
value of the common stock as of the date of grant and (iv) the duration of the
option, which in the case of incentive stock options may not exceed ten years.
As of December 31, 1999, options to purchase a total of 4,437,466 shares of
common stock remained outstanding under the 1997 Option Plan.
As of December 31, 1999, 2,575,830 options remain available for grant under
the 1995 Option Plan, the Director Plan and the 1997 Option Plan.
Stock option activity for the three years ended December 31, 1999 is
summarized as follows:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER EXERCISE PRICE AVERAGE PRICE
OF SHARES PER SHARE PER SHARE
---------- --------------- -------------
<S> <C> <C> <C>
Outstanding, December 31, 1996.................... 1,136,388 $ 1.25 - $65.60 $38.05
Granted......................................... 315,675 27.50 - 32.50 30.75
Exercised....................................... (25,005) 1.25 - 40.00 12.60
Terminated...................................... (236,561) 2.50 - 65.60 40.35
---------- --------------- ------
Outstanding, December 31, 1997.................... 1,190,497 1.25 - 65.60 36.18
Granted......................................... 2,513,000 2.00 - 3.13 2.00
Terminated...................................... (242,765) 2.50 - 57.85 37.79
---------- --------------- ------
Outstanding, December 31, 1998.................... 3,460,732 1.25 - 65.60 11.25
Granted......................................... 7,640,650 0.44 - 2.00 0.85
Terminated...................................... (5,711,832) 0.44 - 65.60 7.53
---------- --------------- ------
Outstanding, December 31, 1999.................... 5,389,550 $ 0.50 - $ 2.00 $ 0.50
========== =============== ======
Exercisable, December 31, 1997.................... 740,780 $ 1.25 - $65.50 $34.40
========== =============== ======
Exercisable, December 31, 1998.................... 1,650,021 $ 1.25 - $65.60 $17.13
========== =============== ======
Exercisable, December 31, 1999.................... 2,772,099 $ 0.50 - $ 2.00 $ 0.50
========== =============== ======
</TABLE>
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------ -----------------------
WEIGHTED WEIGHTED
WEIGHTED AVERAGE AVERAGE
RANGE OF AVERAGE EXERCISE EXERCISE
EXERCISE NUMBER REMAINING PRICE PER NUMBER PRICE PER
PRICES OUTSTANDING CONTRACTUAL LIFE SHARE OUTSTANDING SHARE
-------- ----------- ---------------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$0.50 5,385,550 8.39 $0.50 2,771,974 $0.50
2.00 4,000 9.81 2.00 125 2.00
--------- ----- --------- -----
5,389,550 $0.50 2,772,099 $0.50
========= ===== ========= =====
</TABLE>
In 1997 and 1998, the Company recorded $205,978 and $109,734, respectively,
of deferred compensation related to grants to nonemployees, net of terminations.
In accordance with Emerging Issues Task Force (EITF) No. 96-18, Accounting for
Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling Goods or Services, the Company will measure the value
of options as they vest using the Black-Scholes option pricing model. The
Company has recorded compensation expense of $316,067, $246,444 and $634,633 in
1997, 1998 and 1999, respectively, related to these grants to nonemployees.
F-20
<PAGE> 85
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In October 1995, the FASB issued SFAS No. 123, Accounting for Stock-Based
Compensation. SFAS No. 123 requires the measurement of the fair value of stock
options or warrants granted to employees to be included in the statement of
operations or disclosed in the notes to financial statements. The Company has
determined that it will continue to account for stock-based compensation for
employees under APB Opinion No. 25 and elect the disclosure-only alternative
under SFAS No. 123.
The Company has computed the pro forma disclosures require by SFAS No. 123
for all stock options and warrants granted to employees after January 1, 1995
using the Black-Scholes option pricing model. The assumptions used for the three
years ended December 31, 1999 are as follows:
<TABLE>
<CAPTION>
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Risk free interest rate................................. 6.22% 5.15% 6.12%
Expected dividend yield................................. -- -- --
Expected lives.......................................... 6 years 6 years 6 years
Expected volatility..................................... 60% 60% 60%
</TABLE>
The Black-Scholes option pricing model was developed for use in estimating
the fair value of traded options, which have no vesting restrictions and are
fully transferable. In addition, option pricing models require the input of
highly subjective assumptions including expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
The effect of applying SFAS No. 123 for the three years ended December 31,
1999 would be as follows:
<TABLE>
<CAPTION>
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
Net loss to applicable common
stockholders, as reported.............. $(69,461,326) $(19,792,736) $(14,735,293)
============ ============ ============
Pro forma net loss applicable to common
stockholders........................... $(73,402,170) $(23,131,304) $(18,647,864)
============ ============ ============
Basic and Diluted net loss per common
shares --
As reported............................ $ (13.76) $ (1.67) $ (0.93)
============ ============ ============
Pro forma.............................. $ (14.54) $ (1.95) $ (1.18)
============ ============ ============
</TABLE>
(f) Repricing
In September 1999, the Company's Board of Directors authorized the
repricing of options to purchase 5,251,827 shares of common stock to $0.50 per
share, which represented the market value on the date of the repricing. As
discussed in Note 2(m), these options will be subject to variable plan
accounting, as defined in the Proposed Interpretation, if the Proposed
Interpretation is adopted in its current form. The repriced options have been
reflected as grants and cancellations in the stock option activity for the year
ended December 31, 1999. The Proposed Interpretation was adopted in the form of
FASB Interpretation No. 44 Accounting for Certain Transactions involving Stock
Compensation (FIN 44) and became effective on July 1, 2000. The Company is
following the provisions of FIN 44 and will mark to market the repriced options
at each reporting date. As of September 30, 2000, the Company has not recognized
any compensation expense related to the repriced options as the fair market
value to the Company's common stock at September 30, 2000 was below the fair
market value on the effective date of FIN 44.
F-21
<PAGE> 86
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(g) Employee Stock Purchase Plan
In October 1995, the Company adopted the 1995 Employee Stock Purchase Plan
(the Purchase Plan), under which up to 100,000 shares of common stock may be
issued to participating employees of the Company, as defined, or its
subsidiaries.
On the first day of a designated payroll deduction period (the Offering
Period), the Company will grant to each eligible employee who has elected to
participate in the Purchase Plan an option to purchase shares of common stock as
follows: the employee may authorize an amount (a whole percentage from 1% to 10%
of such employee's regular pay) to be deducted by the Company from such pay
during the Offering Period. On the last day of the Offering Period, the employee
is deemed to have exercised the option, at the option exercise price, to the
extent of accumulated payroll deductions. Under the terms of the Purchase Plan,
the option price is an amount equal to 85% of the fair market value per share of
the common stock on either the first day or the last day of the Offering Period,
whichever is lower. In no event may an employee purchase in any one Offering
Period a number of shares that is more than 15% of the employee's annualized
base pay divided by 85% of the market value of a share of common stock on the
commencement date of the Offering Period. The Compensation Committee may, in its
discretion, choose an Offering Period of 12 months or less for each of the
Offerings and choose a different Offering Period for each Offering. No shares
have been issued under the Plan.
(h) Preferred Stock
The restated Certificate of Incorporation of the Company permits its Board
of Directors to issue up to 5,000,000 shares of preferred stock, par value $0.01
per share (the Preferred Stock), in one or more series, to designate the number
of shares constituting such series, and fix by resolution, the powers,
privileges, preferences and relative, optional or special rights thereof,
including liquidation preferences and dividends, and conversion and redemption
rights of each such series. During 1998, the Company designated 1,500,000 shares
as Series A convertible preferred stock.
(i) Series A Convertible Preferred Stock
The rights and preferences of the Series A convertible preferred stock are
as follows:
DIVIDENDS
The holders of the Series A convertible preferred stock, as of March
15 or September 15, are entitled to receive dividends payable at the rate
of 6.5% per annum, payable semi-annually in arrears. Such dividends shall
accrue from the date of issuance of such share and shall be paid
semi-annually on April 1 and October 1 of each year. Such dividends shall
be paid, at the election of the Company, either in cash or additional duly
authorized, fully paid and non assessable shares of Series A convertible
preferred stock. In calculating the number of shares of Series A
convertible preferred stock to be paid with respect to each dividend, the
Series A convertible preferred stock shall be valued at $100.00 per share.
During 1999, the Company recorded a total accretion of $4,232,251 for the
dividend on Series A preferred stock and issued 41,673 shares of Series A
convertible preferred stock as a dividend.
LIQUIDATION
In the event of a liquidation, dissolution or winding up of the
Company, whether voluntary or involuntary, after payment or provision for
payment of debts and other liabilities of the Company, the holder of the
Series A convertible preferred stock then outstanding shall be entitled to
be paid out of the assets of the Company available for distribution to its
stockholders, an amount equal to $100.00 per share plus all accrued but
unpaid dividends. If the assets to be distributed to the holders of the
Series A convertible preferred stock shall be insufficient to permit the
payment of the full preferential amounts, then the assets of the Company
shall be distributed ratably to the holders of the Series A convertible
F-22
<PAGE> 87
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
preferred stock on the basis of the number of shares of Series A
convertible preferred stock held. All shares of Series A convertible
preferred stock shall rank as to payment upon the occurrence of any
liquidation event senior to the common stock.
CONVERSION
Shares of Series A convertible preferred stock are convertible, in
whole or in part, at the option of the holder into fully paid and
nonassessable shares of common stock at $4.25 per share, subject to
adjustment as defined.
During 1999, holders of 21,076 shares of Series A convertible
preferred stock elected to convert their shares into 495,897 shares of the
Company's common stock.
MANDATORY CONVERSION
The Company at its option, may cause the Series A convertible
preferred stock to be converted in whole or in part, on a pro rata basis,
into fully paid and nonassessable shares of common stock using a conversion
price equal to $4.00 if the closing bid price, as defined, of the common
stock shall have equaled or exceeded 250% of the conversion price, $4.25,
subject to adjustment as defined, for at least 20 trading days in any 30
consecutive trading day period ending three days prior to the date of
notice of conversion (such event, the Market Trigger).
At any time after April 1, 2000, the Company, at its option, may
redeem the Series A convertible preferred stock for cash equal to $100.00
per share plus all accrued and unpaid dividends at such time, if the Market
Trigger has occurred in the period ending three days prior to the date of
notice of redemption.
(11) COMMITMENTS AND CONTINGENCIES
(a) Facilities
The Company leases its facility in Cambridge (Vassar Street),
Massachusetts, under a lease that has a 10-year term, which commenced on May 1,
1997.
On February 4, 1994, the Company entered into the Cambridge (Memorial
Drive) Lease, which is with a partnership that is affiliated with certain
directors of the Company. On July 1, 1994, the Company entered into the Milford,
Massachusetts Lease. The Company vacated the Cambridge (Memorial Drive),
Massachusetts, facility in June 1998 and moved its corporate facilities to
Milford, Massachusetts (see Note 3). The Company vacated the Milford,
Massachusetts facility in September 2000 and moved its corporate facilities to
Cambridge (Vasser Street), Massachusetts (see Note 15).
Future approximate minimum rent payments as of December 31, 1999, under
existing lease agreements through 2007, are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, AMOUNT
------------ ----------
<S> <C>
2000........................................................ $ 624,000
2001........................................................ 637,000
2002........................................................ 620,000
2003........................................................ 611,000
2004........................................................ 611,000
Thereafter.................................................. 1,426,000
----------
$4,529,000
==========
</TABLE>
During 1997, 1998 and 1999, facility rent expense for continuing operations
net of sublease revenue was approximately $4,037,000, $1,363,000 and $67,000,
respectively.
F-23
<PAGE> 88
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(b) Related-Party Agreements with Affiliates of Stockholders and Directors
The Company has entered into consulting agreements, stock placement
agreements and an advisory agreement with several companies that are controlled
by two shareholders and directors of the Company including Forum, S.A. Pillar
Investment N.V. (Pillar Investment), Pillar S.A. (formerly Commerce Consult
S.A.) and Pillar Investment Limited (formerly Ash Properties Limited) (Pillar
Limited). During 1997, 1998 and 1999, the Company had expensed $998,000,
$1,300,000 and $336,000, respectively, under these agreements with related
parties.
(c) Other Research and Development Agreements
The Company has entered into consulting and research agreements with
universities, research and testing organizations and individuals, under which
consulting and research support is provided to the Company. These agreements are
for varying terms and provide for certain minimum annual or per diem fees plus
reimbursable expenses to be paid during the contract periods. Future minimum
fees payable under these contracts as of December 31, 1999 are approximately as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, AMOUNT
------------ --------
<S> <C>
2000........................................................ $218,000
2001........................................................ 78,000
--------
$296,000
========
</TABLE>
Total fees and expenses under these contracts were approximately
$9,372,000, $2,011,000 and $477,000 during 1997, 1998 and 1999, respectively.
(d) Employment Agreements
The Company has entered into employment agreements with certain of its
executive officers that provide for, among other things, each officer's annual
salary, cash bonus, fringe benefits and vacation and severance arrangements.
Under the agreements, the officers are generally entitled to receive severance
payments of two to three year's base salary.
(e) Contingencies
From time to time, the Company may be exposed to various types of
litigation. The Company is not engaged in any legal proceedings that are
expected, individually or in the aggregate, to have a material adverse effect on
the Company's financial condition or results of operations.
(12) INCOME TAXES
The Company applies SFAS No. 109, Accounting for Income Taxes. At December
31, 1999, the Company had net operating loss and tax credit carryforwards for
federal income tax purposes of approximately $228,744,000 and $4,186,000,
respectively, available to reduce federal taxable income and federal income
taxes, respectively. The Tax Reform Act of 1986 (the Act), enacted in October
1986, limits the amount of net operating loss and credit carryforwards that
companies may utilize in any one year in the event of cumulative changes in
ownership over a three-year period in excess of 50%. The Company has completed
several financings since the effective date of the Act, which as of December 31,
1999, have resulted in ownership changes in excess of 50%, as defined under the
Act and which will limit the Company's ability to utilize its net operating loss
carryforwards. Ownership changes in future periods may place additional limits
on the Company's ability to utilize net operating loss and tax credit
carryforwards.
F-24
<PAGE> 89
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The federal net operating loss carryforwards and tax credit carryforwards
expire approximately as follows:
<TABLE>
<CAPTION>
NET
OPERATING
LOSS TAX CREDIT
EXPIRATION DATE CARRYFORWARDS CARRYFORWARDS
--------------- ------------- -------------
<S> <C> <C>
December 31,
2005................................................... $ 666,000 $ 15,000
2006................................................... 3,040,000 88,000
2007................................................... 7,897,000 278,000
2008................................................... 18,300,000 627,000
2009................................................... 25,670,000 689,000
2010................................................... 36,134,000 496,000
2011................................................... 44,947,000 493,000
2012................................................... 60,087,000 750,000
2018................................................... 21,366,000 500,000
2019................................................... 10,637,000 250,000
------------ ----------
$228,744,000 $4,186,000
============ ==========
</TABLE>
As of December 31, 1998 and 1999, the components of the deferred tax assets
are approximately as follows:
<TABLE>
<CAPTION>
1998 1999
------------ ------------
<S> <C> <C>
Operating loss carryforwards............................ $ 87,243,000 $ 91,498,000
Temporary differences................................... 3,461,000 3,378,000
Tax credit carryforwards................................ 3,936,000 4,186,000
------------ ------------
94,640,000 99,062,000
Valuation allowance..................................... (94,640,000) (99,062,000)
------------ ------------
$ -- $ --
============ ============
</TABLE>
A valuation allowance has been provided, as it is more likely than not the
Company will not realize the deferred tax asset. The net change in the total
valuation allowance during 1999 was an increase of approximately $4,422,000.
(13) EMPLOYEE BENEFIT PLAN
On October 10, 1991, the Company adopted an employee benefit plan under
Section 401(k) of the Internal Revenue Code. The plan allows employees to make
contributions up to a specified percentage of their compensation. Under the
plan, the Company may, but is not obligated to, match a portion of the
employees' contributions up to a defined maximum. The Company is currently
matching 50% of employee contributions to the plan, up to 6% of the employee's
annual base salary and charged to continuing operations approximately $195,000,
$166,000 and $54,000 during 1997, 1998 and 1999, respectively.
F-25
<PAGE> 90
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(14) SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Supplemental disclosure of cash flow information for the following periods
presented are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
------------------------------------- -----------------------
1997 1998 1999 1999 2000
---------- ----------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash paid during the period for
interest.......................... $3,264,596 $ 1,666,127 $ 753,620 $ 532,564 $ 592,898
========== =========== ========== ========== ==========
Purchase of property and equipment
under capital leases.............. $2,374,502 $ -- $ -- $ -- $ --
========== =========== ========== ========== ==========
Conversion of preferred stock into
common stock...................... $ -- $ -- $ 496 $ -- $ --
========== =========== ========== ========== ==========
Deferred compensation related to
grants of stock options to
nonemployees, net of
terminations...................... $ 205,978 $ 109,734 $ -- $ -- $ --
========== =========== ========== ========== ==========
Issuance of Series A convertible
preferred stock and attached
warrants in exchange for
conversion of 9% convertible
subordinated notes payable and
accrued interest.................. $ -- $51,055,850 $ -- $ -- $ --
========== =========== ========== ========== ==========
Accretion of Series A convertible
preferred stock dividends......... $ -- $ 2,689,048 $4,232,251 $3,193,851 $3,112,174
========== =========== ========== ========== ==========
Issuance of common stock and
attached warrants in exchange for
conversion of convertible
promissory notes payable.......... $ -- $ 4,800,000 $ -- $ -- $ --
========== =========== ========== ========== ==========
Issuance of common stock and
attached warrants in exchange for
conversion of accounts payable and
other obligations................. $ -- $ 5,934,558 $ -- $ -- $ --
========== =========== ========== ========== ==========
Issuance of common stock in lieu of
services.......................... $ -- $ -- $1,000,000 $1,000,000 $ --
========== =========== ========== ========== ==========
</TABLE>
(15) ASSET SALE
On September 21, 2000, the Company completed the sale of its Hybridon
Specialty Products business, which manufactures, markets and sells
oligonucleotides to a subsidiary of Avecia, Inc. of Manchester, United Kingdom,
for up to $15.0 million. The Company recorded a gain of approximately $6.1
million on the Asset Sale at the time of closing, comprised of net proceeds of
approximately $11.5 million, plus an approximately $0.5 million reserve for
certain indemnity purposes, less estimated transaction and other costs of
approximately $1.1 million and the book value of the net assets sold. The
remaining $3.0 million is subject to certain performance contingencies and will
be recorded as a gain when earned and received. The transaction costs consist
principally of legal and accounting fees, severance arrangements with certain
employees, and other estimated costs associated with consummating the sale. As a
condition of the Asset Sale requested by Avecia, the Company held a special
meeting of shareholders on September 12, 2000, and obtained the approval of the
Asset Sale by the common and preferred stock and the debt holders.
At the closing, the Company received $12.0 million of the proceeds, less a
$450,000 reserve, that was to be held for 30 days as security for the value of
the purchased inventory and against prepayments for uncompleted work received by
the Company in advance of the sale. In October the Company received $176,144 of
that amount; the remaining $273,856 is currently subject to negotiation.
Consequently, the
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<PAGE> 91
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
remaining amount is not included in the calculation of the gain on the Asset
Sale, which is computed as follows:
<TABLE>
<S> <C> <C>
Proceeds................................................... $12,000,000
Property and equipment sold, net........................... $4,894,887
Security deposit........................................... 90,000
----------
Net book value of assets sold.............................. 4,984,887
Current liabilities assumed by the buyer................... (88,969)
Long term liabilities assumed by the buyer................. (324,555)
----------
Net assets sold............................................ (4,571,363)
Inventory reserve holdback................................. (273,856)
Transaction and other costs................................ (1,053,722)
-----------
Gain on sale.......................................... $ 6,101,059
===========
</TABLE>
The consolidated financial statements of the Company have been restated to
reflect the financial results of the Hybridon Specialty Products business as a
discontinued operation for the years ended December 31, 1997, 1998, and 1999,
the nine months ended September 30, 1999 and 2000 and as of December 31, 1999
and 1998 and September 30, 2000. Reported revenues, expenses and cash flows
exclude the operating results of the discontinued operations. Revenues from
discontinued operations for the years ended December 31, 1997, 1998, 1999 and
for the nine months ended September 30, 1999 and 2000 are approximately
$2,024,000, $1,623,000, $5,821,000, $4,349,000 and $2,950,000, respectively. The
net income from discontinued operations, as presented on the consolidated
statement of operations for the nine months ended September 30, 2000, includes
the gain on sale as calculated above of $6.1 million as well as the operating
loss from discontinued operations for the nine months ended September 30, 2000,
totaling $0.8 million. For all other periods presented, the net loss relates
solely to the operating results of the Hybridon Specialty Products business.
The Company plans to use the proceeds of the Asset Sale for current
operating expenses, including payment of certain current liabilities.
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<PAGE> 92
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Estimated expenses (other than underwriting discounts and commissions)
payable in connection with the sale of the shares of Series A convertible
preferred stock, $.01 par value per share (the "Convertible Preferred Stock")
and shares of common stock, $.001 par value per share (the "Common Stock" and,
together with the Convertible Preferred Stock, the "Securities") offered hereby
are as follows:
<TABLE>
<S> <C>
SEC Registration fee........................................ $ 38,000
Printing and engraving expenses............................. 45,000
Legal fees and expenses..................................... 75,000
Accounting fees and expenses................................ 25,000
Blue Sky fees and expenses (including legal fees)........... 500
Transfer agent and registrar fees and expenses.............. 10,000
Miscellaneous............................................... 10,000
Total.............................................
</TABLE>
The Registrant will bear all expenses shown above.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article EIGHTH of the Registrant's Restated Certificate of Incorporation
provides that no director of the Registrant shall be personally liable for any
monetary damages for any breach of fiduciary duty as a director, except to the
extent that the Delaware General Corporation Law prohibits the elimination or
limitation of liability of directors for breach of fiduciary duty.
Article NINTH of the Registrant's Restated Certificate of Incorporation
provides that a director or officer of the Registrant (a) shall be indemnified
by the Registrant against all expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement incurred in connection with any litigation
or other legal proceeding (other than an action by or in the right of the
Registrant) brought against him by virtue of his position as a director or
officer of the Registrant 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
Registrant, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful and (b) shall be
indemnified by the Registrant against all expenses (including attorneys' fees)
and amounts paid in settlement incurred in connection with any action by or in
the right of the Registrant brought against him by virtue of his position as a
director or officer of the Registrant 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
Registrant, except that no indemnification shall be made with respect to any
matter as to which such person shall have been adjudged to be liable to the
Registrant, unless a court determines that, despite such adjudication but in
view of all of the circumstances, he is entitled to indemnification of such
expenses. Notwithstanding the foregoing, to the extent that a director or
officer has been successful, on the merits or otherwise, including, without
limitation, the dismissal of an action without prejudice, he is required to be
indemnified by the Registrant against all expenses (including attorneys' fees)
incurred in connection therewith. Expenses shall be advanced to a director or
officer at his request, provided that he undertakes to repay the amount advanced
if it is ultimately determined that he is not entitled to indemnification for
such expenses.
Indemnification is required to be made unless the Registrant determines
that the applicable standard of conduct required for indemnification has not
been met. In the event of a determination by the Registrant that the director or
officer did not meet the applicable standard of conduct required for
indemnification, or if the Registrant fails to make an indemnification payment
within 60 days after such payment is claimed by such person, such person is
permitted to petition the court to make an independent determination as to
whether such person is entitled to indemnification. As a condition precedent to
the right of indemnification, the
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<PAGE> 93
director or officer must give the Registrant notice of the action for which
indemnity is sought and the Registrant has the right to participate in such
action or assume the defense thereof.
Article NINTH of the Registrant's Restated Certificate of Incorporation
further provides that the indemnification provided therein is not exclusive, and
provides that in the event that the Delaware General Corporation Law is amended
to expand the indemnification permitted to directors or officers the Registrant
must indemnify those persons to the full extent permitted by such law as so
amended.
Section 145 of the Delaware General Corporation Law provides that a
corporation has the power to indemnify a director, officer, employee or agent of
the corporation and certain other persons serving at the request of the
corporation in related capacities against amounts paid and expenses incurred in
connection with an action or proceeding to which he is or is threatened to be
made a party by reason of such position, if such person shall have 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, in any criminal proceeding, if such person
had no reasonable cause to believe his conduct was unlawful; provided that, in
the case of actions brought by or in the right of the corporation, no
indemnification shall be made with respect to any matter as to which such person
shall have been adjudged to be liable to the corporation unless and only to the
extent that the adjudicating court determines that such indemnification is
proper under the circumstances.
Hybridon is a party to an indemnification agreement with Mr. Grinstead.
Such agreement provides that Mr. Grinstead shall be indemnified by the
Registrant (a) against all expenses (as defined in the agreement), judgments,
fines, penalties and amounts paid in settlement actually and reasonably incurred
in connection with any legal proceeding (other than one brought by or on behalf
of the Registrant) if Mr. Grinstead acted in good faith and in a manner which he
reasonably believed to be in, or not opposed to, the best interests of the
Registrant, and, with respect to any criminal proceeding, had no reasonable
cause to believe that his conduct was unlawful and (b) against all expenses and
amounts paid in settlement actually and reasonably incurred in connection with a
legal proceeding brought by or on behalf of the Registrant if he acted in good
faith and in a manner which he reasonably believed to be in, or not opposed to,
the best interests of the Registrant, except that no indemnification shall be
made in respect of any claim, issue or matter as to which Mr. Grinstead has been
adjudged to be liable. If, with respect to such proceedings, Mr. Grinstead is
successful on the merits or otherwise, he shall be reimbursed for all expenses.
Mr. Grinstead is required to provide notice to the Registrant of any threatened
or pending litigation, and the Registrant has the right to participate in such
action or assume the defense thereof.
Hybridon has obtained directors and officers insurance for the benefit of
its directors and its officers.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In the three years preceding the filing of this registration statement,
Hybridon has issued and sold its Common Stock, warrants to purchase its Common
Stock, Convertible Subordinated Notes and Series A Convertible Preferred Stock,
to certain investors in transactions that were not registered under the
Securities Act of 1933, as amended (the "Securities Act"):
UNREGISTERED OFFERINGS PURSUANT TO SECTION 4(2) UNDER THE 1933 ACT
The securities issued in each of the following transactions (items (1)
through (10)) were offered and sold in reliance upon the exemption from
registration under Section 4(2) of the Securities Act, relating to sales by an
issuer not involving a public offering. The securities issued in each of the
following transactions were offered and sold solely to persons who were
"accredited investors" as that term is defined in Regulation D promulgated under
the Securities Act.
(1) On January 20, 1997, Hybridon issued 25,000 shares of Common Stock to
an investment bank as compensation under a financial advisory services agreement
dated that date. These shares were offered and sold to an "accredited investor"
(as that term is defined in Regulation D promulgated under the Securities Act)
in reliance upon the exemption from registration under Section 4(2) of the
Securities Act relating to sales by an issuer not involving any public offering.
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<PAGE> 94
(2) On January 25, 1997, Hybridon sold 1,650 shares of Common Stock to one
investor upon exercise by such investor of warrants to purchase Common Stock for
an aggregate purchase price of $9,075. These shares were offered and sold to an
"accredited investor" (as that term is defined in Regulation D promulgated under
the Securities Act) in reliance upon the exemption from registration under
Section 4(2) of the Securities Act relating to sales by an issuer not involving
any public offering.
(3) On April 2, 1997, Hybridon issued to an investment bank $50,000,000 of
its 9% Notes. These 9% Notes were offered and sold to an "accredited investor"
(as that term is defined in Regulation D promulgated under the Securities Act)
in reliance upon the exemption from registration under Section 4(2) of the
Securities Act relating to sales by an issuer not involving any public offering.
(4) On April 2, 1997, Hybridon issued to an investment bank warrants to
purchase 71,301 shares of Common Stock at an exercise price of $35.0625 per
share. These warrants were offered and sold to an "accredited investor" (as that
term is defined in Regulation D promulgated under the Securities Act) in
reliance upon the exemption from registration under Section 4(2) of the
Securities Act relating to sales by an issuer not involving any public offering.
(5) On December 10, 1997, Hybridon issued to Dr. Paul Zamecnik, a Director
of Hybridon, 50,000 shares of Common Stock of Hybridon.
(6) On May 5, 1998, Hybridon accepted $48,694,000 principal amount of its
9% Notes tendered to Hybridon in exchange for 510,505 shares of Series A
preferred stock (the "Series A Preferred Stock") and warrants (the "Class A
Warrants") to purchase 3,002,958 shares of common stock, par value $.001 per
share (the "Common Stock"), of Hybridon (the "Exchange Offer"). As a result of
the Exchange Offer, there is approximately $1.3 million principal amount of the
9% Notes outstanding.
Pursuant to the Exchange Offer, which commenced on February 6, 1998, all
tendering Noteholders received per $1,000 principal amount of the 9% Notes
(including accrued but unpaid interest on the 9% Notes) (i) 10 shares of Series
A Preferred Stock and (ii) Class A Warrants to purchase such number of shares of
Common Stock equal to 25% of the number of shares of Hybridon's Common Stock
into which the Series A Preferred Stock issued to such Noteholder pursuant to
the Exchange Offer would be convertible.
The Convertible Preferred Stock ranks, as to dividends and liquidation
preference, senior to Hybridon's Common Stock. The Convertible Preferred Stock
issued in the Exchange Offer and in the Regulation D Offering, as defined below,
as well as the Convertible Preferred Stock that was issued as a dividend on
September 30, 1998, will be convertible into an aggregate of 15,088,200 shares
of Common Stock, subject to adjustment, beginning May 5, 1999.
The Class A Warrants will be exercisable commencing on May 5, 1999 for a
period of four years thereafter at $4.25 per share of Common Stock, subject to
adjustment. The Class A Warrants are not subject to redemption at the option of
Hybridon under any circumstances.
The Exchange Offer was undertaken by Hybridon as part of Hybridon's new
business plan contemplating a restructuring of its capital structure to reduce
debt service obligations, a significant reduction in its burn rate and an
infusion of additional equity capital.
(7) On May 5, 1998, Hybridon closed a private placement (the "Regulation D
Offering") of (i) 114,285 shares of Series A Preferred Stock, which sold at $70
per share, and (ii) Class D warrants (the "Class D Warrants") to purchase
672,273 shares of Hybridon's Common Stock, subject to adjustment, for an
aggregate amount of approximately $8 million.
The Class D Warrants will be exercisable commencing on May 5, 1999 until
May 4, 2003 at $2.40 per share of Common Stock, subject to adjustment.
The net proceeds to Hybridon from the Regulation D Offering are presently
used for general corporate purposes, primarily research and product development
activities, including costs of preparing investigational new drug applications
and conducting preclinical studies and clinical trials, the payment of payroll
and other accounts payable and for debt service required under Hybridon's debt
obligations. The amounts actually
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<PAGE> 95
expended by Hybridon and the purposes of such expenditures may vary
significantly depending upon numerous factors, including the progress of
Hybridon's research, drug discovery and development programs, the results of
preclinical studies and clinical trials, the timing of regulatory approvals,
sales of DNA products and reagents to third parties manufactured on a custom
contract basis by the HSP Division and margins on such sales, technological
advances, determinations as to the commercial potential of Hybridon's compounds
and the status of competitive products. In addition, expenditures will also
depend upon the establishment of collaborative research arrangements with other
companies, the availability of other financing and other factors. Under certain
circumstances, Hybridon may be required to use net proceeds to repay
indebtedness under its bank credit facility.
(8) On May 5, 1998, Hybridon closed a private placement of units (the "Unit
Offering") consisting of (i) 2,754,654 shares of Common Stock, and (ii) Class C
warrants (the "Class C Warrants") to purchase 788,649 shares of Common Stock,
subject to adjustment, which securities were issued in consideration of the
cancellation (or reduction) of accounts payable, capital lease and other
obligations aggregating $5,509,308.
The Class C Warrants are exercisable at $2.40 per share, subject to
adjustment from time to time, until May 4, 2003.
(9) On May 5, 1998, Hybridon sold to Dr. Paul Zamecnik 100,000 shares of
Common Stock and Class C Warrants to purchase 25,000 shares of Common Stock,
subject to adjustment, for a purchase price of $200,000.
The net proceeds of this offering were used to reduce accounts payable,
capital lease and other obligations.
(10) On May 5, 1998, Hybridon issued to certain suppliers a total of
362,500 shares of Common Stock and Class C Warrants to purchase a total of
90,625 shares of Common Stock. These issuances were in consideration of (i)
payment to Hybridon of a total of $362.50, the par value of all such issued
Common Stock, and (ii) the subsequent furnishing of specified services to
Hybridon by each supplier. The extent to which the suppliers have completed
performing the specified services varies.
(11) On December 12, 1998, Hybridon issued to Dr. Paul Zamecnik 50,000
shares of Common Stock in recognition of Dr. Zamecnik's extraordinary
contribution to Hybridon.
(12) On April 16, 1999, Hybridon issued to Pillar Investments Limited
300,000 shares of Common Stock in connection with Pillar's efforts in assisting
Hybridon with restructuring its balance sheet.
(13) On May 1, 1999, Hybridon issued to Founders Financial Group LP
(Formerly Forum Capital Markets LLC) ("Founders") 160,000 shares of Common Stock
and warrants to purchase 173,333 shares of Common Stock, as a reinvestment by
Forum of a $400,000 fee paid to Founders in connection with the purchase of a
bank loan to Hybridon.
The Common Stock issued to Dr. Paul Zamecnik and to the certain suppliers
and the Common Stock underlying the Class C Warrants issued to such persons are
subject to a "lock-up" period ending on May 5, 1999, except to the extent such
securities are sold or transferred pursuant to a Registration Statement. After
Hybridon files a Registration Statement under the Securities Act, 75% of each
holder's Units and the underlying securities will be subject to an additional
"lock-up" for the first three months following the Effective Date; thereafter,
50% of such securities will be subject to an additional "lock-up" until six
months following the Effective Date; and the remaining 25% of such securities
will be "locked-up" until nine months following the Effective Date.
(14) In October 1999, Hybridon sold approximately $455,000 principal amount
of promissory notes at face value to certain "accredited investors," in reliance
upon the exemption from registration under Section 4(2) of the Securities Act
relating to sales by an issuer not involving any public offering.
(15) In September and November 1999, Hybridon sold an aggregate of $1.5
million principal amount of promissory notes at face value to E. Andrews
Grinstead, III, Hybridon's Chief Executive Officer, in reliance
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<PAGE> 96
upon the exemption from registration under Section 4(2) of the Securities Act
relating to sales by an issuer not involving any public offering.
(16) On December 13, 1999, Hybridon sold an aggregate of $5.1 million
principal amount of 8% Notes to purchasers in a private placement transaction.
These 8% Notes were offered and sold to "accredited investors" in reliance upon
the exemption from registration under Section 4(2) of the Securities Act
relating to sales by an issuer not involving any public offering.
(17) As of December 31, 1999, the $455,000 indebtedness under the October
1999 loan agreement were converted into 8% Notes, in reliance upon the exemption
from registration under Section 4(2) of the Securities Act relating to sales by
an issuer not involving any public offering.
(18) As of December 31, 1999, the $1.5 million principal amount of
promissory notes held by Mr. Grinstead, automatically converted into 8% Notes,
in reliance upon the exemption from registration under Section 4(2) of the
Securities Act relating to sales by an issuer not involving any public offering.
(19) As of December 7, 1999, in connection with the Subordination and
Intercreditor Agreement by and among Hybridon, the representative of the
purchasers of the 8% Notes, Founders and the entities advised by Pecks, whereby,
among other things, the $6,000,000 Forum loan was subordinated to the 8% Notes,
Hybridon issued warrants to purchase an aggregate of 2.75 million shares of
Hybridon common stock to designees of Pecks and Founders. These warrants were
offered and sold to "accredited investors" in reliance upon the exemption from
registration under Section 4(2) of the Securities Act relating to sales by an
issuer not involving any public offering.
(20) In connection with the December 13, 1999 private placement of 8%
Notes, Hybridon agreed, subject to certain conditions, to issue to Pillar
Investment Limited or its designees, 8% Notes in an aggregate principal amount
equal to 9% of the aggregate principal amount of 8% Notes sold to investors
introduced to Hybridon by Pillar and warrants to purchase an aggregate principal
amount of 8% Notes equal to 10% of the 8% Notes sold to investors introduced to
Hybridon by Pillar. These notes and warrants were offered and sold to
"accredited investors" in reliance upon the exemption from registration under
Section 4(2) of the Securities Act relating to sales by an issuer not involving
any public offering.
(21) In November, 1998, Founders and certain investors associated with
Pecks Management Partners Ltd. (Pecks) (collectively, the Lenders) purchased
Hybridon's note payable to a bank and loaned an additional $3,200,000, to
Hybridon for general corporate purposes, increasing the outstanding principal
amount to $6,000,000. These 8% notes are convertible, at the Lender's option,
into up to 2,500,000 shares of Common Stock at a conversion price of $2.40 per
share. These notes were offered and sold to "accredited investors" in reliance
upon the exemption from registration under Section 4(2) of the Securities Act
relating to sales by an issuer not involving any public offering.
(22) On May 30, 2000, the Board of Directors of Hybridon approved a Line of
Credit Agreement with certain lenders who provided Hybridon with a $2,000,000
credit facility in a private placement transaction. This 8% convertible loan was
used to provide working capital pending the closing of the sale of Hybridon's
Hybridon Specialty Products (HSP) manufacturing operation. On September 30,
2000, two of the lenders, Dr. Paul Zamecnik and Dr. James Wyngaarden, elected to
convert their shares of the loan, including accrued interest, into shares of
Common Stock. Dr. Zamecnik converted $202,956 into 187,922 shares of Common
Stock. Dr. Wyngaarden converted $28,211 into 26,121 shares of Common Stock. The
portion of the loan owned by other lenders was repaid with interest.
(23) Hybridon agreed to issue to the $2,000,000 credit facility lenders
warrants to purchase 1,000,000 shares of Common Stock at a price of $1.08 per
share. Hybridon also agreed to issue warrants to purchase up to 500,000 shares
of Common Stock at a price of $1.08 per share to the representatives of the
lenders. The convertible loans made under the $2,000,000 credit facility and the
related warrants were offered and sold to "accredited investors" in reliance
upon the exemption from registration under Section 4(2) of the Securities Act
relating to sales by an issuer not involving any public offering.
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<PAGE> 97
UNREGISTERED OFFERINGS PURSUANT TO REGULATION S UNDER THE SECURITIES ACT
The securities issued by Hybridon in each of the following transactions
were offered and sold in reliance upon an exemption from registration under
Regulation S promulgated under the Securities Act, relating to sales by an
issuer in offshore transactions (the "Regulation S Offerings"). The securities
issued in each of the following Regulation S Offerings were offered and sold
solely to persons who were "accredited investors" as that term is defined in
Regulation D promulgated under the Securities Act.
(21) On January 15, 1998, Hybridon commenced a private placement of units
(the "Units"), each Unit consisting of 14% Convertible Subordinated Notes Due
2007 (the "14% Notes") and warrants (the "Equity Warrants") to purchase shares
of Hybridon's Common Stock (the "14% Note Offering"). The 14% Notes were subject
to both mandatory and optional conversion into shares of Series B preferred
stock, under certain circumstances which, in turn, were convertible into Common
Stock (the "Series B Preferred Stock").
On January 23, 1998, as part of the 14% Note Offering, Hybridon sold
$2,230,000 in principal amount of 14% Notes and Equity Warrants.
On February 9, 1998, as part of the 14% Note Offering, Hybridon sold
$2,384,000 in principal amount of 14% Notes and Equity Warrants.
On March 27, 1998, as part of the 14% Note Offering, Hybridon sold $200,000
in principal amount of 14% Notes and Equity Warrants.
On April 21, 1998, as part of the 14% Note Offering, Hybridon sold $300,000
in principal amount of 14% Notes and Equity Warrants.
On April 24, 1998, as part of the 14% Note Offering, Hybridon sold
$1,020,000 in principal amount of 14% Notes and Equity Warrants.
In each of the above closings, the 14% Notes were issued at face value.
(22) On May 5, 1998, Hybridon closed a private placement of 3,223,000
shares of Common Stock and Class B warrants to purchase 805,750 shares of
Hybridon's Common Stock, subject to adjustment, for aggregate gross proceeds of
$6,446,000.
The Class B warrants are exercisable for a period of five years at $2.40
per share of Common Stock, subject to adjustment from time to time.
(23) Hybridon has exchanged all of the 14% Notes issued, including any
right to interest thereon, and all Equity Warrants issued together with the 14%
Notes, for 3,157,322 shares of Common Stock and Class B Warrants to purchase
947,195 shares of Common Stock.
The net proceeds to Hybridon from these offerings were used and continue to
be used for general corporate purposes, primarily research and product
development activities, including costs of preparing investigational new drug
applications and conducting preclinical studies and clinical trials, the payment
of payroll and other accounts payable and for debt service required under
Hybridon's debt obligations. The amounts actually expended by Hybridon and the
purposes of such expenditures may vary significantly depending upon numerous
factors, including the progress of Hybridon's research, drug discovery and
development programs, the results of preclinical studies and clinical trials,
the timing of regulatory approvals, sales of DNA products and reagents to third
parties manufactured on a custom contract basis by the HSP Division and margins
on such sales, technological advances, determinations as to the commercial
potential of Hybridon's compounds and the status of competitive products. In
addition, expenditures will also depend upon the establishment of collaborative
research arrangements with other companies, the availability of other financing
and other factors. Under certain circumstances, Hybridon may be required to use
net proceeds to repay indebtedness under its bank credit facility.
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<PAGE> 98
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits:
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
3.1(1) Restated Certificate of Incorporation of the Registrant, as
amended.
3.2(2) Amended and Restated Bylaws of the Registrant.
3.3(3) Form of Certificate of Designation of Series A Preferred
Stock.
3.4(3) Form of Certificate of Designation of Series B Preferred
Stock.
4.1(2) Specimen Certificate for shares of Common Stock, $.001 par
value, of the Registrant.
4.2(4) Indenture dated as of March 26, 1997 between Forum Capital
Markets LLC and the Registrant.
4.3(7) Certificate of Designation of Series A Preferred Stock, par
value $.01 per share, dated May 5, 1998.
4.4(7) Class A Warrant Agreement dated May 5, 1998.
4.5(7) Class B Warrant Agreement dated May 5, 1998.
4.6(7) Class C Warrant Agreement dated May 5, 1998.
4.7(7) Class D Warrant Agreement dated May 5, 1998.
5.1 Opinion of Holland & Knight LLP with respect to validity of
the Securities being offered.
+10.1(2) License Agreement dated February 21, 1990 and restated as of
September 8, 1993 between the Registrant and the Worcester
Foundation for Biomedical Research, Inc., as amended.
+10.2(2) Patent License Agreement dated September 21, 1995 between
the Registrant and National Institutes of Health.
+10.3(2) Patent License Agreement effective as of October 13, 1994
between the Registrant and McGill University.
+10.4(2) License Agreement effective as of October 25, 1995 between
the Registrant and the General Hospital Corporation.
+10.5(2) License Agreement dated as of October 30, 1995 between the
Registrant and Yoon S. Cho-Chung.
+10.6(2) Collaborative Study Agreement effective as of December 30,
1992 between the Registrant and Medtronic, Inc.
+10.7(2) System Design and Procurement Agreement dated as of December
16, 1994 between the Registrant and Pharmacia Biotech, Inc.
10.8(2) Lease dated March 10, 1994 between the Registrant and
Laborer's Pension/Milford Investment Corporation for space
located at 155 Fortune Boulevard, Milford, Massachusetts,
including Note in the original principal amount of $750,000.
10.9(2) Registration Rights Agreement dated as of February 21, 1990
between the Registrant, the Worcester Foundation for
Biomedical Research, Inc. and Paul C. Zamecnik.
10.10(2) Registration Rights Agreement dated as of June 25, 1990
between the Registrant and Nigel L. Webb.
10.11(2) Registration Rights Agreement dated as of February 6, 1992
between the Registrant and E. Andrews Grinstead, III.
10.12(2) Registration Rights Agreement dated as of February 6, 1992
between the Registrant and Anthony J. Payne.
++10.13(2) 1990 Stock Option Plan, as amended.
++10.14(2) 1995 Stock Option Plan.
</TABLE>
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<PAGE> 99
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
++10.15(2) 1995 Director Stock Plan.
++10.16(2) 1995 Employee Stock Purchase Plan.
10.17(2) Form of Warrant originally issued to Pillar Investment
Limited to purchase shares of Common Stock issued as
placement commissions in connection with the sale of shares
of Series F Convertible Preferred Stock and in consideration
of financial advisory service, as amended.
10.18(2) Warrant issued to Pillar S.A. to purchase 100,000 shares of
Common Stock dated as of March 1, 1994, as amended.
10.19(2) Warrant issued to Pillar S.A. to purchase 100,000 shares of
Common Stock dated as of March 1, 1995.
10.20(2) Form of Warrant issued to Pillar Investment Limited to
purchase shares of Common Stock issued as placement
commissions in connection with the sale of Units pursuant to
the Series G Agreement.
++10.21(5) Employment Agreement dated as of March 1, 1997 between the
Registrant and E. Andrews Grinstead, III.
10.22(2) Indemnification Agreement dated as of February 6, 1992
between the Registrant and E. Andrews Grinstead, III.
++10.23(6) Employment Agreement dated March 1, 1997 between the
Registrant and Dr. Sudhir Agrawal.
++10.24(2) Consulting Agreement dated as of February 21, 1990 between
the Registrant and Dr. Paul C. Zamecnik.
10.25(2) Master Lease Agreement dated as of March 1, 1994 between the
Registrant and General Electric Capital Corporation.
+10.26(6) Research, Development and License Agreement dated as of
January 24, 1996 between the Registrant and G.D. Searle &
Co.
+10.27(6) Manufacturing and Supply Agreement dated as of January 24,
1996 between the Registrant and G.D. Searle & Co.
10.28(6) Registration Rights Agreement dated as of January 24, 1996
between the Registrant and G.D. Searle & Co.
10.29(5) Loan and Security Agreement dated as of December 31, 1996
between the Registrant and Silicon Valley Bank.
10.30(7) First Amendment to Loan and Security Agreement dated March
30, 1998 between Hybridon, Inc. and Silicon Valley Bank.
10.31(8) Second Amendment to Loan and Security Agreement dated May
19, 1998, effective as of April 30, 1998, between Hybridon,
Inc. and Silicon Valley Bank.
10.32(9) Third Amendment to Loan and Security Agreement dated
September 18, 1998 between Hybridon, Inc. and Silicon Valley
Bank.
10.33(9) Fourth Amendment to Loan and Security Agreement dated
October 30, 1998, effective as of September 29, 1998 between
Hybridon, Inc. and Silicon Valley Bank.
10.34(12) Fifth Amendment to Loan and Security Agreement dated
December 4, 1998 between Hybridon, Inc. and Silicon Valley
Bank.
10.35(5) Warrant issued to Silicon Valley Bank to purchase 65,000
shares of Common Stock dated as of December 31, 1996.
10.36(5) Registration Rights Agreement dated as of December 31, 1996
between the Registrant and Silicon Valley Bank.
</TABLE>
II-8
<PAGE> 100
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
+10.37(5) Supply and Sales Agreement dated as of September 1, 1996
between the Registrant and P.E. Applied Biosystems.
10.38(2) Registration Rights Agreement dated as of March 26, 1997
between Forum Capital Markets LLC and the Registrant.
10.39(2) Warrant Agreement dated as of March 26, 1997 between Forum
Capital Markets LLC and the Registrant.
+10.40(6) Amendment No. 1 to License Agreement, dated as of February
21, 1990 and restated as of September 8, 1993, by and
between the Worcester Foundation for Biomedical Research,
Inc. and the Registrant, dated as of November 26, 1996.
10.41(10) Letter Agreement dated May 12, 1997 between the Registrant
and Pillar S.A. amending the Consulting Agreement dated as
of March 1, 1994 between the Registrant and Pillar S.A.
10.42(10) Amendment dated July 15, 1997 to the Series G Convertible
Preferred Stock and Warrant Purchase Agreement dated as of
September 9, 1994 among the Registrant and certain
purchasers, as amended.
10.43(1) Consent Agreement dated January 15, 1998 between Silicon
Valley Bank and the Registrant relating to the Silicon
Agreement.
10.44(11) Letter Agreement between the Registrant and Forum Capital
Markets LLC and Pecks Management Partners Ltd. for the
purchase of the Loan and Security Agreement with Silicon
Valley Bank.
10.45(7) Financial Advisory Agreement between Registrant and Pillar
Investments Ltd. dated May 5, 1998.
10.46(7) Placement Agency Agreement between Registrant and Pillar
Investments Ltd. dated as of January 15, 1998.
+++10.47(12) Licensing Agreement dated March 12, 1999 by and between
Hybridon, Inc. and Integrated DNA Technologies, Inc.
+++10.48(13) Licensing Agreement dated September 7, 1999 by and between
Hybridon, Inc. and Genzyme Corporation.
10.49(13) Form of loan agreement relating to a loan in the amount of
$454,901 made to Hybridon, Inc. in October 1999 by various
parties.
10.50(13) Form of promissory note relating to a loan in the amount of
$454,901 made to Hybridon, Inc. in October 1999 by various
parties.
10.51(13) Loan Agreement dated as of September 1, 1999, between
Hybridon, Inc. and E. Andrews Grinstead, III.
10.52(13) Term promissory note in the amount of $500,000 dated
September 1, 1999, by Hybridon, Inc. in favor of E. Andrews
Grinstead, III.
10.53(13) Term promissory note in the amount of $500,000 dated
September 27, 1999, by Hybridon, Inc. in favor of E. Andrews
Grinstead, III.
10.54(11) Subordination and Intercreditor Agreement by and among
Hybridon, the holders of Notes due 2002, Forum and entities
advised by Pecks, dated as of December 7, 1999.
10.55(11) Letter Agreement between Hybridon and Pillar Investments
dated December 10, 1999.
10.56(11) Form of Subscription Agreements dated as of December 13,
1999, by and among Hybridon and the purchasers of Notes due
2002.
10.57 First Amended and Restated Subordination and Intercreditor
Agreement by and among Hybridon, the holders of Notes due
2002, Forum and entities advised by Pecks.
</TABLE>
II-9
<PAGE> 101
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
10.58 License Agreement dated September 20, 2000 by and between
Hybridon and Boston Biosystems, Inc.
10.59 Assignment of Coexclusive License dated September 20, 2000
by and between Hybridon and the Public Health Service.
10.60 Oligonucleotide Purification Patent License Agreement dated
September 20, 2000 by and between Hybridon and Boston
Biosystems, Inc.
10.61(14) Asset Purchase Agreement dated June 29, 2000 by and between
Hybridon and Boston Biosystems, Inc.
+++10.62 Assignment of Patent Rights dated September 20, 2000 by and
between Hybridon and Boston Biosystems, Inc.
+++10.63 PNT Monomer Patent License and Option Agreement dated
September 20, 2000 by and between Hybridon and Boston
Biosystems, Inc.
+++10.64 Agreement Relating to Patents Forming Part of Acquired
Assets but to be Licensed Back to Hybridon for the Purposes
of OriGenix Agreements dated September 20, 2000 by and
between Hybridon and Boston Biosystems, Inc.
21.1(2) Subsidiaries of the Registrant.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Holland & Knight LLP (included in Exhibit 5).
23.2(11) Consent of McDonnell Boehnen Hulbert & Berghoff.
27.1 Financial Data Schedule [EDGAR] -- Nine Months Ended
September 30, 2000.
27.2 Financial Data Schedule [EDGAR] -- Restated.
</TABLE>
---------------
(1) Incorporated by reference to Exhibits to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1997.
(2) Incorporated by reference to Exhibits to the Registrant's Registration
Statement on Form S-1 (File No. 33-99024).
(3) Incorporated by reference to Exhibit 9(a)(1) to the Registrant's Schedule
13E-4 dated February 6, 1998.
(4) Incorporated by reference to Exhibits to the Registrant's Current Report on
Form 8-K dated April 2, 1997.
(5) Incorporated by reference to Exhibits to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1996.
(6) Incorporated by reference to Exhibits to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1995.
(7) Incorporated by reference to Exhibits to the Registrant's Quarterly Report
on Form 10-Q for the period ended March 31, 1998.
(8) Incorporated by reference to Exhibits to the Registrant's Quarterly Report
on Form 10-Q for the period ended June 30, 1998.
(9) Incorporated by reference to Exhibits to the Registrant's Quarterly Report
on Form 10-Q for the period ended September 30, 1998.
(10) Incorporated by reference to Exhibits to the Registrant's Quarterly Report
on Form 10-Q for the period ended June 30, 1997.
(11) Incorporated by reference to Exhibits to the Registrant's Registration
Statement on Form S-1 (File No. 333-69649).
II-10
<PAGE> 102
(12) Incorporated by reference to Exhibits to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1998.
(13) Incorporated by reference to Exhibits to the Registrant's Quarterly Report
on Form 10-Q for the period ended September 30, 1999.
(14)Incorporated by reference to the Registrant's Proxy Statement dated August
8, 2000.
+ Confidential treatment granted as to certain portions, which portions are
omitted and filed separately with the Commission.
++ Management contract or compensatory plan or arrangement required to be
filed as an Exhibit to the Annual Report on Form 10-K for the year ended
December 31, 1997.
+++ Confidential treatment requested as to certain portions, which portions are
omitted and filed separately with the Commission.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to provisions described in Item 14 above, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement;
(2) To include any Prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(3) To reflect in the Prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement. Notwithstanding the foregoing, any increase or
decrease in volume of Securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective registration statement;
(4) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement;
(5) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new Registration Statement relating to the Securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof;
(6) To remove from registration by means of a post-effective amendment
any of the Securities being registered which remain unsold at the
termination of the offering.
II-11
<PAGE> 103
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, on December 29, 2000.
HYBRIDON, INC.
By: /s/ SUDHIR AGRAWAL
------------------------------------
Sudhir Agrawal
President and Acting Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE(S) DATE
---------- -------- ----
<S> <C> <C>
/s/ SUDHIR AGRAWAL President, Acting Chief December 29, 2000
--------------------------------------------------- Executive Officer and
Dr. Sudhir Agrawal Director
* Chairman and Director December 29, 2000
---------------------------------------------------
Dr. James B. Wyngaarden
/s/ ROBERT G. ANDERSEN Chief Financial Officer and December 29, 2000
--------------------------------------------------- Vice President of Operations
Mr. Robert G. Andersen and Planning
* Director December 29, 2000
---------------------------------------------------
Mr. Nasser Menhall
* Director December 29, 2000
---------------------------------------------------
Dr. Paul C. Zamecnik
* Director December 29, 2000
---------------------------------------------------
Mr. Youssef El-Zein
Director December , 2000
---------------------------------------------------
Mr. Arthur W. Berry
Director December , 2000
---------------------------------------------------
Mr. C. Keith Hartley
Director December , 2000
---------------------------------------------------
Camille Chebeir
*By: /s/ ROBERT G. ANDERSEN
--------------------------------------------------
Robert G. Andersen
Attorney-in-fact
</TABLE>
II-12
<PAGE> 104
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
3.1(1) Restated Certificate of Incorporation of the Registrant, as
amended.
3.2(2) Amended and Restated Bylaws of the Registrant.
3.3(3) Form of Certificate of Designation of Series A Preferred
Stock.
3.4(3) Form of Certificate of Designation of Series B Preferred
Stock.
4.1(2) Specimen Certificate for shares of Common Stock, $.001 par
value, of the Registrant.
4.2(4) Indenture dated as of March 26, 1997 between Forum Capital
Markets LLC and the Registrant.
4.3(7) Certificate of Designation of Series A Preferred Stock, par
value $.01 per share, dated May 5, 1998.
4.4(7) Class A Warrant Agreement dated May 5, 1998.
4.5(7) Class B Warrant Agreement dated May 5, 1998.
4.6(7) Class C Warrant Agreement dated May 5, 1998.
4.7(7) Class D Warrant Agreement dated May 5, 1998.
5.1 Opinion of Holland & Knight LLP with respect to validity of
the Securities being offered.
+10.1(2) License Agreement dated February 21, 1990 and restated as of
September 8, 1993 between the Registrant and the Worcester
Foundation for Biomedical Research, Inc., as amended.
+10.2(2) Patent License Agreement dated September 21, 1995 between
the Registrant and National Institutes of Health.
+10.3(2) Patent License Agreement effective as of October 13, 1994
between the Registrant and McGill University.
+10.4(2) License Agreement effective as of October 25, 1995 between
the Registrant and the General Hospital Corporation.
+10.5(2) License Agreement dated as of October 30, 1995 between the
Registrant and Yoon S. Cho-Chung.
+10.6(2) Collaborative Study Agreement effective as of December 30,
1992 between the Registrant and Medtronic, Inc.
+10.7(2) System Design and Procurement Agreement dated as of December
16, 1994 between the Registrant and Pharmacia Biotech, Inc.
10.8(2) Lease dated March 10, 1994 between the Registrant and
Laborer's Pension/Milford Investment Corporation for space
located at 155 Fortune Boulevard, Milford, Massachusetts,
including Note in the original principal amount of $750,000.
10.9(2) Registration Rights Agreement dated as of February 21, 1990
between the Registrant, the Worcester Foundation for
Biomedical Research, Inc. and Paul C. Zamecnik.
10.10(2) Registration Rights Agreement dated as of June 25, 1990
between the Registrant and Nigel L. Webb.
10.11(2) Registration Rights Agreement dated as of February 6, 1992
between the Registrant and E. Andrews Grinstead, III.
10.12(2) Registration Rights Agreement dated as of February 6, 1992
between the Registrant and Anthony J. Payne.
++10.13(2) 1990 Stock Option Plan, as amended.
++10.14(2) 1995 Stock Option Plan.
++10.15(2) 1995 Director Stock Plan.
++10.16(2) 1995 Employee Stock Purchase Plan.
</TABLE>
II-13
<PAGE> 105
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
10.17(2) Form of Warrant originally issued to Pillar Investment
Limited to purchase shares of Common Stock issued as
placement commissions in connection with the sale of shares
of Series F Convertible Preferred Stock and in consideration
of financial advisory service, as amended.
10.18(2) Warrant issued to Pillar S.A. to purchase 100,000 shares of
Common Stock dated as of March 1, 1994, as amended.
10.19(2) Warrant issued to Pillar S.A. to purchase 100,000 shares of
Common Stock dated as of March 1, 1995.
10.20(2) Form of Warrant issued to Pillar Investment Limited to
purchase shares of Common Stock issued as placement
commissions in connection with the sale of Units pursuant to
the Series G Agreement.
++10.21(5) Employment Agreement dated as of March 1, 1997 between the
Registrant and E. Andrews Grinstead, III.
10.22(2) Indemnification Agreement dated as of February 6, 1992
between the Registrant and E. Andrews Grinstead, III.
++10.23(6) Employment Agreement dated March 1, 1997 between the
Registrant and Dr. Sudhir Agrawal.
++10.24(2) Consulting Agreement dated as of February 21, 1990 between
the Registrant and Dr. Paul C. Zamecnik.
10.25(2) Master Lease Agreement dated as of March 1, 1994 between the
Registrant and General Electric Capital Corporation.
+10.26(6) Research, Development and License Agreement dated as of
January 24, 1996 between the Registrant and G.D. Searle &
Co.
+10.27(6) Manufacturing and Supply Agreement dated as of January 24,
1996 between the Registrant and G.D. Searle & Co.
10.28(6) Registration Rights Agreement dated as of January 24, 1996
between the Registrant and G.D. Searle & Co.
10.29(5) Loan and Security Agreement dated as of December 31, 1996
between the Registrant and Silicon Valley Bank.
10.30(7) First Amendment to Loan and Security Agreement dated March
30, 1998 between Hybridon, Inc. and Silicon Valley Bank.
10.31(8) Second Amendment to Loan and Security Agreement dated May
19, 1998, effective as of April 30, 1998, between Hybridon,
Inc. and Silicon Valley Bank.
10.32(9) Third Amendment to Loan and Security Agreement dated
September 18, 1998 between Hybridon, Inc. and Silicon Valley
Bank.
10.33(9) Fourth Amendment to Loan and Security Agreement dated
October 30, 1998, effective as of September 29, 1998 between
Hybridon, Inc. and Silicon Valley Bank.
10.34(12) Fifth Amendment to Loan and Security Agreement dated
December 4, 1998 between Hybridon, Inc. and Silicon Valley
Bank.
10.35(5) Warrant issued to Silicon Valley Bank to purchase 65,000
shares of Common Stock dated as of December 31, 1996.
10.36(5) Registration Rights Agreement dated as of December 31, 1996
between the Registrant and Silicon Valley Bank.
+10.37(5) Supply and Sales Agreement dated as of September 1, 1996
between the Registrant and P.E. Applied Biosystems.
</TABLE>
II-14
<PAGE> 106
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
10.38(2) Registration Rights Agreement dated as of March 26, 1997
between Forum Capital Markets LLC and the Registrant.
10.39(2) Warrant Agreement dated as of March 26, 1997 between Forum
Capital Markets LLC and the Registrant.
+10.40(6) Amendment No. 1 to License Agreement, dated as of February
21, 1990 and restated as of September 8, 1993, by and
between the Worcester Foundation for Biomedical Research,
Inc. and the Registrant, dated as of November 26, 1996.
10.41(10) Letter Agreement dated May 12, 1997 between the Registrant
and Pillar S.A. amending the Consulting Agreement dated as
of March 1, 1994 between the Registrant and Pillar S.A.
10.42(10) Amendment dated July 15, 1997 to the Series G Convertible
Preferred Stock and Warrant Purchase Agreement dated as of
September 9, 1994 among the Registrant and certain
purchasers, as amended.
10.43(1) Consent Agreement dated January 15, 1998 between Silicon
Valley Bank and the Registrant relating to the Silicon
Agreement.
10.44(11) Letter Agreement between the Registrant and Forum Capital
Markets LLC and Pecks Management Partners Ltd. for the
purchase of the Loan and Security Agreement with Silicon
Valley Bank.
10.45(7) Financial Advisory Agreement between Registrant and Pillar
Investments Ltd. dated May 5, 1998.
10.46(7) Placement Agency Agreement between Registrant and Pillar
Investments Ltd. dated as of January 15, 1998.
+++10.47(12) Licensing Agreement dated March 12, 1999 by and between
Hybridon, Inc. and Integrated DNA Technologies, Inc.
+++10.48(13) Licensing Agreement dated September 7, 1999 by and between
Hybridon, Inc. and Genzyme Corporation.
10.49(13) Form of loan agreement relating to a loan in the amount of
$454,901 made to Hybridon, Inc. in October 1999 by various
parties.
10.50(13) Form of promissory note relating to a loan in the amount of
$454,901 made to Hybridon, Inc. in October 1999 by various
parties.
10.51(13) Loan Agreement dated as of September 1, 1999, between
Hybridon, Inc. and E. Andrews Grinstead, III.
10.52(13) Term promissory note in the amount of $500,000 dated
September 1, 1999, by Hybridon, Inc. in favor of E. Andrews
Grinstead, III.
10.53(13) Term promissory note in the amount of $500,000 dated
September 27, 1999, by Hybridon, Inc. in favor of E. Andrews
Grinstead, III.
10.54(11) Subordination and Intercreditor Agreement by and among
Hybridon, the holders of Notes due 2002, Forum and entities
advised by Pecks, dated as of December 7, 1999.
10.55(11) Letter Agreement between Hybridon and Pillar Investments
dated December 10, 1999.
10.56(11) Form of Subscription Agreements dated as of December 13,
1999, by and among Hybridon and the purchasers of Notes due
2002.
10.57 First Amended and Restated Subordination and Intercreditor
Agreement by and among Hybridon, the holders of Notes due
2002, Forum and entities advised by Pecks.
10.58 License Agreement dated September 20, 2000 by and between
Hybridon and Boston Biosystems, Inc.
</TABLE>
II-15
<PAGE> 107
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
10.59 Assignment of Coexclusive License dated September 20, 2000
by and between Hybridon and the Public Health Service.
10.60 Oligonucleotide Purification Patent License Agreement dated
September 20, 2000 by and between Hybridon and Boston
Biosystems, Inc.
10.61(14) Asset Purchase Agreement dated June 29, 2000 by and between
Hybridon and Boston Biosystems, Inc.
+++10.62 Assignment of Patent Rights dated September 20, 2000 by and
between Hybridon and Boston Biosystems, Inc.
+++10.63 PNT Monomer Patent License and Option Agreement dated
September 20, 2000 by and between Hybridon and Boston
Biosystems, Inc.
+++10.64 Agreement Relating to Patents Forming Part of Acquired
Assets but to be Licensed Back to Hybridon for the Purposes
of OriGenix Agreements dated September 20, 2000 by and
between Hybridon and Boston Biosystems, Inc.
21.1(2) Subsidiaries of the Registrant.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Holland & Knight LLP (included in Exhibit 5).
23.2(11) Consent of McDonnell Boehnen Hulbert & Berghoff.
27.1 Financial Data Schedule [EDGAR] -- Nine Months Ended
September 30, 2000.
27.2 Financial Data Schedule [EDGAR] -- Restated.
</TABLE>
---------------
(1) Incorporated by reference to Exhibits to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1997.
(2) Incorporated by reference to Exhibits to the Registrant's Registration
Statement on Form S-1 (File No. 33-99024).
(3) Incorporated by reference to Exhibit 9(a)(1) to the Registrant's Schedule
13E-4 dated February 6, 1998.
(4) Incorporated by reference to Exhibits to the Registrant's Current Report on
Form 8-K dated April 2, 1997.
(5) Incorporated by reference to Exhibits to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1996.
(6) Incorporated by reference to Exhibits to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1995.
(7) Incorporated by reference to Exhibits to the Registrant's Quarterly Report
on Form 10-Q for the period ended March 31, 1998.
(8) Incorporated by reference to Exhibits to the Registrant's Quarterly Report
on Form 10-Q for the period ended June 30, 1998.
(9) Incorporated by reference to Exhibits to the Registrant's Quarterly Report
on Form 10-Q for the period ended September 30, 1998.
(10) Incorporated by reference to Exhibits to the Registrant's Quarterly Report
on Form 10-Q for the period ended June 30, 1997.
(11) Incorporated by reference to Exhibits to the Registrant's Registration
Statement on Form S-1 (File No. 333-69649).
(12) Incorporated by reference to Exhibits to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1998.
II-16
<PAGE> 108
(13) Incorporated by reference to Exhibits to the Registrant's Quarterly Report
on Form 10-Q for the period ended September 30, 1999.
(14) Incorporated by reference to Exhibits to the Registrant's Proxy Statement
dated August 8, 2000.
+ Confidential treatment granted as to certain portions, which portions are
omitted and filed separately with the Commission.
++ Management contract or compensatory plan or arrangement required to be
filed as an Exhibit to the Annual Report on Form 10-K for the year ended
December 31, 1997.
+++ Confidential treatment requested as to certain portions, which portions are
omitted and filed separately with the Commission.
II-17
