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EXHIBIT 10.57
January 15, 1998
Hybridon, Inc.
000 Xxxxxxxx Xxxxx
Xxxxxxxxx, Xxxxxxxxxxxxx
Attention: X. Xxxxxxx Xxxxxxxxx
Re: Consent to Issuance of Notes due 2007 in the principal amount of
up to $68,750,000 and Waiver of Covenants and Defaults under Loan
Agreement
Dear Sir/Madam:
Reference is hereby made to that certain Loan and Security Agreement by
and between HYBRIDON, INC. (the "BORROWER") and SILICON VALLEY BANK (the
"BANK"), originally dated December 31, 1996 (the "LOAN AGREEMENT"). You have
indicated that the Borrower contemplates entering into and performing its
obligations under a UNIT PURCHASE AGREEMENT (as defined below) pursuant to which
the Borrower intends to commence an offering (the "OFFERING") of units (the
"UNITS") consisting of Notes due 2007 (the "NOTES") and warrants to purchase
common stock (the "WARRANTS") as more particularly described in the
Restructuring Proposal Term Sheet attached hereto as EXHIBIT A (the "TERM
SHEET"). The Notes and Warrants shall be issued on substantially the terms and
conditions set forth in the form of Unit Purchase Agreement by and among the
Borrower and each Purchaser of Units party thereto (the "UNIT PURCHASE
AGREEMENT") attached hereto as EXHIBIT B, and the form of Note and of
Certificate of Designation for the Series B Preferred Stock of the Borrower
attached hereto as EXHIBIT C, (collectively, the "NOTE DOCUMENTS"). Upon the
satisfaction of certain conditions more particularly set forth in the Notes, the
Notes and any accrued but unpaid interest thereon will convert into preferred
stock of the Borrower (the "CONVERSION SECURITIES") having substantially the
terms set forth in Certificate of Designation for the Series B Preferred Stock
hereto. The placement agents for the Offering, or their designees, shall also
receive placement and advisory warrants (the "PLACEMENT AND ADVISORY WARRANTS")
to purchase Units equal, in the aggregate up to 25% of the Units issued to
purchasers in the Offering. As contemplated by the Term Sheet, the Borrower may
also issue the Exchange Preferred Stock and Exchange Warrants referenced therein
and may, in certain instances, issue the Conversion Securities directly.
You have also indicated that the Borrower has had discussions with
representatives of certain holders of its 9% Convertible Subordinated Notes due
2004 (the "CONVERTIBLE NOTES") contemplating the exchange (the "EXCHANGE") of
Convertible Notes and accrued interest
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thereonfor shares of Series A Preferred Stock of the Borrower having
substantially the terms set forth on EXHIBIT D annexed hereto (the "EXCHANGE
PREFERRED") and warrants to purchase common stock as set forth on the Term Sheet
and contemplating waivers of certain provisions of the Indenture pursuant to
which the Convertible Notes were issued, as described on EXHIBIT E annexed
hereto (the "INDENTURE WAIVERS"). You have requested that the Bank amend or
waive certain provisions of the Loan Agreement, the Negative Pledge Agreement
entered into in connection with the Loan Agreement (the "Negative Pledge
Agreement") consent to the issuance of, and performance by the Borrower of its
obligations under, the Unit Purchase Agreement, the Notes, the Conversion
Securities and the Exchange Preferred and other related transactions.
1. The Bank hereby consents to the issuance of the Notes, the
Conversion Securities and the Exchange Preferred and to the
performance by the Borrower of its obligations thereunder,
including without limitation the payment of interest and
dividends thereunder, and to the Exchange, and such consent
constitutes the prior written consent required by Sections 7.4
and 7.6 of the Loan Agreement. The Bank further agrees that the
Notes constitute "Subordinated Debt" as that term is defined in
Section 1.1 of the Loan Agreement, and consents to the Indenture
Waivers. This consent and agreement is conditioned upon the
execution among the Bank and the Secured Party referenced in the
Unit Purchase Agreement of an intercreditor agreement limiting
the Bank's contractual right of offset contained in the Loan
Documents in certain instances until the earliest of: i) the date
on which at least $35,000,000 in net proceeds has been received
in the Offering, ii) the Termination Date, as defined in the Unit
Purchase Agreement, or iii) the termination of the Offering by
the Borrower or Pillar Investments, Ltd..
2. The Bank's consent to the issuance of the Notes is expressly
subject to the provisions of Section 7.10 of the Loan Agreement
which prohibits any amendment of the Notes without the Bank's
express written consent.
3. The Bank hereby waives compliance by the Borrower with the
Minimum Liquidity covenant contained in Section 6.9 of the Loan
Agreement for the months ended November 30, 1997, December 31,
1997, January 31, 1998 and February 28, 1998 (ie. the first
possible date on which the Borrower would be required to pledge
amounts pursuant to Section 6.9 would be April 15, 1998). The
Bank will require compliance with all of the financial covenants
contained in the Loan Agreement commencing March 1, 1998, and
first tested as of March 31, 1998 based upon a compliance
certificate to be provided to the Bank on or before April 15,
1998. In addition, the Borrower will provide the Bank with a
projected Compliance Certificate for March 31, 1998, as set forth
in paragraph 9 hereof. The Loan Agreement is hereby modified to
provide that the Compliance Certificate required to be provided
pursuant to Section 6.3 of the Loan Agreement will be provided by
the fifteenth of each month for the period ended on the last
business day of the previous month; provided, however, that the
due date of the
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pledge referred to in Section 6.9 shall be the last business day
of such month with respect to any Minimum Liquidity compliance
level for which Borrower is no more than $250,000 short of
achieving compliance with such Minimum Liquidity level, and on
the next business day in the event that the Borrower is more than
$250,000 short of achieving compliance of such Minimum Liquidity
level. The Bank requires as a condition to the waivers contained
in this paragraph that at least fifty (50%) of the net proceeds
of the Offering will be deposited in the Borrower's demand
deposit or other deposit accounts with the Bank, and that at
least fifty (50%) of the Borrower's present unencumbered cash
will be maintained with the Bank, all such funds to be used in
the Borrower's discretion subject to the covenants in the Loan
Agreement. The Bank will continue to hold all of the cash
presently pledged to it as of the date of this letter as security
for the Borrower's obligations to the Bank under the Loan
Documents.
4. The Bank's consent to the issuance of the Notes and waiver of the
covenant breaches and defaults referenced in this letter is
expressly subject to the Borrower's agreement to execute and
deliver to the Bank i) an Intellectual Property Security
Agreement in form attached hereto and ii) a pledge agreement in
the form attached hereto respecting all stock of all subsidiaries
of the Borrower and all of the Borrower's ownership interests in
any limited partnerships or other business entities. Such
executed agreements shall be provided to the Bank in recordable
form acceptable to the Bank within two business days of delivery
of this letter. The Borrower will provide the Bank with a
quarterly update of all intellectual property owned by the
Borrower and will cooperate with the Bank in amending the
Intellectual Property Security Agreement to include any new
patents, pending applications and amendments thereto owned by the
Borrower. The Borrower will cooperate with the Bank in executing
and delivering such other documents, instruments and agreements
and taking such other actions as may be necessary to perfect the
Bank's security interests granted in the Intellectual Property
Security Agreement and the pledge agreement. The Bank agrees to
release its security interest in the Borrower's interest in
Xxxxxxx River Limited Partnership ("CRLP") to permit a sale of
CRLP in accordance with paragraph 10.
5. The Borrower agrees, in consideration of the Bank's consents
herein that the effective rate of interest on the Borrower's
obligations to the Bank under the Loan Agreement, will increase
effective January 15, 1998 to the Prime Rate plus three (3%)
percent per annum. If the Borrower does not receive net proceeds
from the Offering of at least $5,000,000 on or before February
16, 1998, the effective interest rate on the Borrower's
obligations to the Bank under the Loan Agreement shall be
increased, effective January 15, 1998 to the Prime Rate plus five
(5%) percent per annum.
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6. The Bank's consent to the issuance of the Notes and waiver of the
covenant breaches and defaults referenced in this letter is
expressly subject to, and not effective until, payment by the
Borrower to the Bank of a "Consent and Waiver Fee" in the amount
of Thirty-Five Thousand ($35,000) Dollars. If the Borrower does
not receive net proceeds from the Offering of at least $5,000,000
on or before February 16, 1998, the Borrower shall pay to the
Bank an additional "Consent and Waiver Fee" of Fifteen Thousand
($15,000) Dollars on February 17, 1998. If the Borrower does not
receive net proceeds from the Offering of at least $12,500,000 on
or before March 16, 1998, the Borrower shall pay to the Bank, in
addition to the amounts previously referenced in this paragraph,
the sum of Five Thousand ($5,000) Dollars on March 17, 1998 and a
like sum on the fifteenth day of each month thereafter until the
Borrower has received aggregate net proceeds from the Offering of
at least $35,000,000.
7. The Borrower and the Bank hereby also agree that the Loan
Agreement is hereby modified to delete any references to Xxxxxxx
Xxxxx contained therein, to waive any existing default in respect
of his departure from the Borrower and to incorporate the
understanding of the parties that the term "unencumbered cash on
hand" contained in the definition of Minimum Liquidity in Section
6.9 of the Loan Agreement includes all cash of the Borrower,
including cash which is subject to an unperfected security
interest in favor of the purchasers of the Notes and the Secured
Party, except as provided in paragraphs 9 and 10 hereof.
8. The Bank hereby waives any breach of any covenant set forth in
the Loan Agreement (including, without limitation, Sections 7.4,
7.6, 7.7, 7.9 and 7.10) or the Negative Pledge Agreement which
would otherwise be breached solely on account of any of the
transactions described above, including, without limitation, the
compensation payable to Pillar Investments, Ltd., as placement
agent, in connection with the issuance of the Notes. The Bank
waives any Event of Default under Section 8.3 which may presently
exist as a result of the delisting of the Borrower's stock, and
agrees that the granting of a security interest in favor of the
purchasers of the Notes junior to the security interest in favor
of the Bank on the conditions set forth in the Unit Purchase
Agreement and herein, the Intercreditor Agreement and the
execution and delivery of the Negative Pledge Agreement shall not
constitute a "material impairment of the value or priority of the
Bank's security interest in the Collateral" under Section 8.3 of
the Loan Agreement. The Bank further acknowledges that the Unit
Purchase Agreement and Intercreditor Agreement and attached form
of Note are a "subordination agreement entered into with the
Bank" for purposes of Section 8.8 of the Loan Agreement, and that
the Exchange is not an Event of Default under the Loan Agreement.
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9. Provided that the Borrower would have Minimum Liquidity of at
least $10,000,000, both before and after the payment (or
escrowing) of such interest payment and that the Borrower is
otherwise in compliance with the provisions of this letter, the
Bank also hereby consents to the deferral by the Borrower of
interest payments due April 1, 1998 (the "Deferred Payments") on
the Convertible Notes until October 1, 1998, at which time the
Deferred Payments may be paid in cash on Convertible Notes which
are then outstanding, notwithstanding the provisions of Article
11 of the Indenture governing the Notes. For purposes of
determining compliance with the Minimum Liquidity covenant, the
Borrower shall provide the Bank on or before March 25, 1998 with
a statement and evidence of cash balances as of such date,
together with projected cash disbursements through March 31,
1998, less the scheduled amount of the April 1, 1998 interest
payment on the Convertible Notes; such projected Minimum
Liquidity must be at least $10,000,000 as of March 31, 1998 for
the Borrower to be deemed in compliance with such covenant. The
Bank shall exclude the amount of the Deferred Payments from
unencumbered cash on hand in calculating Minimum Liquidity from
and after April 1, 1998, provided that no exclusion shall be
required with respect to Deferred Payments in respect of
Convertible Notes which are no longer outstanding.
10. The Borrower and the Bank agree that Fifty (50%) percent of the
net cash proceeds (excluding customary and reasonable selling
expenses and estimated taxes accrued or payable on such sales) of
all sales of assets of the Borrower permitted by the Bank (other
than sales of inventory in the ordinary course of business and
licensing of intellectual property in the ordinary course of
business and sales of assets with net cash proceeds less than
$5,000 per asset), shall be paid to the Bank as a prepayment of
the principal of the Borrower's obligations to the Bank under the
Loan Agreement, to be applied against payments due in the inverse
order of maturity of such payments. The Borrower shall not sell
or otherwise alienate any of its properties or assets (other than
sales of inventory and licensing of technology in the ordinary
course of its business) in an aggregate amount of more than
$10,000 in any thirty day period without the written consent of
the Bank. The Bank and the Borrower agree that Fifty (50%) of the
net proceeds of the expected sale by the Borrower of its interest
in CRLP (expected to be in the aggregate $3.4 Million and
expressly excluded from the limitation set forth above) shall be
made available to the Borrower for payment against outstanding
accounts payable of the Borrower and that the balance of such net
sales proceeds (the "CRLP Withold") shall be pledged to the Bank
unless or until net proceeds of at least $10,000,000 have been
received by the Borrower in the Offering (which must be, in all
events prior to the Termination Date). The CRLP Withold shall not
be considered unencumbered cash for purposes of calculating
compliance with the Minimum Liquidity covenant. If the Borrower
has raised net proceeds of at least $10,000,000 by such date, the
CRLP Withold shall be
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promptly released to the Borrower. If the Borrower has not raised
net proceeds of at least $10,000,000 by such date, the CRLP
Withold shall be applied by the Bank against the outstanding
obligations of the Borrower to the Bank under the Loan Agreement,
in the inverse order of maturity. Upon the maturity of the
certificate of deposit pledged to the Bank pursuant to Section
6.9 of the Loan Agreement, the Bank will apply such funds (the
"Applied Funds") against the obligations of the Borrower to the
Bank under the Loan Agreement, in inverse order of maturity. In
computing compliance with the Minimum Liquidity covenant after
the date of application of the Applied Funds, the outstanding
loan balance on which the cash pledge under Section 6.9 is
calculated shall be the outstanding loan balance at the time of
calculation of the required pledge plus the Applied Funds, and in
computing the required pledge amount, the Borrower shall only be
required to pledge the required pledge amount (calculated as
provided in this sentence) minus the Applied Funds.
11. The Borrower shall not sublease, or otherwise alienate, all or
any portion of the Milford property leased by the Borrower
without the written consent of the Bank. The Borrower shall, as a
condition to the consents and waivers contained herein, provide
the Bank with evidence of current payment of amounts due under
the Milford lease and the note related thereto.
12. The Borrower agrees, in consideration of the foregoing, that the
Borrower shall not pay any cash interest payment on the Notes at
any time that there is an Event of Default under the Loan
Agreement.
13. The Borrower shall as a condition to this consent and waiver have
delivered to the Bank complete and up to date agings of its
accounts payable and accounts receivable, in form acceptable to
the Bank, and shall provide the Bank with evidence of the payment
status of the lease and related note with respect to the Milford
property. The Borrower shall also provide the Bank with a
complete listing of all of its leasehold interests in real and
personal property, the outstanding remaining payment obligations
on such leases, the amount and frequency of the periodic payments
under each lease, next payment due date for each lease and
description of the property subject to each lease on or before
January 22, 1998.
14. The Borrower hereby ratifies and affirms all of the
representations and warranties made by it in the Loan Agreement
as of the date of this letter, except as expressly disclosed to
the Bank.
15. The Borrower shall pay to the Bank, in addition to all other
amounts due under the Loan Agreement and hereunder, all of the
Bank's reasonable costs and expenses in connection with the
negotiation, documentation and implementation
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of this letter and the documents, instruments and agreements
contemplated hereby and by the Unit Purchase Agreement, including
without limitation travel and other expenses reasonably incurred
by the Bank.
16. The Borrower acknowledges and confirms that to the extent that
the Borrower may have any claims, offsets, counterclaims, or
defenses, asserted or unasserted, the Borrower, for itself, and
on behalf of its successors, assigns, parents, subsidiaries,
agents, affiliates, predecessors, employees, officers, directors,
executors and heirs, as applicable (collectively, the "Borrower
Affiliates") releases and forever discharges the Bank, its
subsidiaries, affiliates, employees, officers, directors, agents,
successors and assigns, both present and former (collectively,
the "Bank Affiliates") of and from any and all manner of claims,
offsets, counterclaims, defenses, action and actions, cause and
causes of action, suits, debts, controversies, damages,
judgments, executions, and demands whatsoever, asserted or
unasserted, in law or in equity, which against the Bank and/or
the Bank Affiliates, they or the Borrower Affiliates ever had to
and including the date hereof, upon or by reason of any matter,
cause, causes or thing whatsoever, in connection with the Loan
Agreement, the Note, this letter, the Intellectual Property
Security Agreement, Pledge Agreement, Intercreditor Agreement and
any other document, instrument or agreement given in connection
with the Loan Agreement or the transactions related to this
letter except for the obligations of the Bank in such documents,
instruments and agreements to be performed after the date of this
letter. The Borrower shall indemnify, defend and hold the Bank
harmless of and from any claim brought or threatened against the
Bank by the Borrower or any other person (as well as from
attorneys' fees and expenses in connection therewith) on account
of the Loan Agreement, the Note, this letter, the Intellectual
Property Security Agreement, Pledge Agreement, Intercreditor
Agreement and any other document, instrument or agreement given
in connection with the Loan Agreement or the transactions related
to this letter (each of which may be defended, compromised,
settled or pursued by the Bank with counsel of the Bank's
election reasonably acceptable to the Borrower, but at the
expense of the Borrower), except in the case of the Bank's
failure to comply with its obligations hereunder or thereunder,
its gross negligence or willful misconduct.
The foregoing consents and waivers are given by the Bank as of this 15th
day of January, 1998, for the express purpose of facilitating the transactions
described above, and are conditioned upon the undertakings of the Borrower set
forth herein. Except as expressly provided herein, this consent and waiver
letter shall not create a course of dealing or imply or create any course of
conduct or obligation upon the Bank to consent to any future like or unlike
transaction(s). The Bank expressly reserves all of its rights and remedies
except to the limited extent affected hereby, and the Borrower acknowledges and
agrees with the foregoing limited consent and waiver and hereby ratifies and
confirms the terms and provisions of the Loan Agreement and
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ancillary documents, instruments and agreements between the Bank and the
Borrower, except as expressly modified hereby.
This letter, when executed by the Borrower and the Bank shall constitute
a contract under seal within the Commonwealth of Massachusetts, and shall be
construed and enforced in accordance with the laws of the Commonwealth of
Massachusetts.
SILICON VALLEY BANK
By: /s/ Xxxxxxx X. Xxxxx
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Name: Xxxxxxx X. Xxxxx, Vice President
AGREED AND ACKNOWLEDGED:
HYBRIDON, INC.
By: /s/ X. Xxxxxxx Xxxxxxxxx III
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Name: X. Xxxxxxx Xxxxxxxxx III
Chairman, Chief Executive Officer
and President
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