Employment Agreement W/ Anthony Payne

EMPLOYMENT AGREEMENT


THIS EMPLOYMENT AGREEMENT (the "Agreement"), made this 1st day of March, 1997, is entered into by and between Hybridon, Inc., a Delaware corporation with its principal place of business at One Innovation Drive, Worcester, Massachusetts 01605 (the "Company"), and Anthony J. Payne, residing at 219 Dedham Street, Dover, Massachusetts 02030 (the "Employee").


The Company desires to employ the Employee, and the Employee desires to be employed by the Company. In consideration of the mutual covenants and promises contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the parties hereto, the parties agree as follows:


1. Term of Employment. The Company hereby agrees to employ the Employee, and the Employee hereby accepts employment with the Company, upon the terms set forth in this Agreement, for the period commencing on July 1, 1996 (the "Commencement Date") and ending on June 30, 2000, unless sooner terminated in accordance with the provisions of Section 4 (the "Employment Period").


2. Title; Capacity. During the Employment Period, the Employee shall serve as Senior Vice President of Finance and Administration and Chief Financial 2 Officer of the Company. Notwithstanding the foregoing, the Employee acknowledges that the Company is currently contemplating hiring a new Chief Financial Officer and that, in such event, the Employee will serve the Company as President ("Division President") of the Company's Specialty Products Division. The Employee shall be subject to the supervision of, and shall have such authority as is delegated to him by, the Chief Executive Officer of the Company (the "CEO") or the Board of Directors of the Company (the "Board") consistent with his positions as Senior Vice President of Finance and Administration and Chief Financial Officer or as Division President, as the case may be. The Employee hereby accepts such employment and agrees to undertake the duties and responsibilities normally inherent in such position and such other duties and responsibilities as the CEO or the Board shall from time to time reasonably assign to him consistent with his positions as Senior Vice President of Finance and Administration and Chief Financial Officer or as Division President, as the case may be.


During the Employment Period, the Employee shall, subject to the direction and supervision of the CEO and the Board, devote his full business time, best efforts, business judgment, skill and knowledge to the advancement of the Company's business and interests and to the discharge of his duties and responsibilities hereunder and shall not engage in any other business activity, except as may be approved by the Board in advance. The Employee agrees to abide by the rules, regulations, instructions, personnel practices and policies of the Company, and any


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changes therein which may be adopted from time to time by the Company, as such rules, regulations, instructions, personnel practices and policies may reasonably be applied to the Employee as Senior Vice President of Finance and Administration and Chief Financial Officer of the Company or Division President, as the case may be.


3. Compensation and Benefits.


3.1 Salary. The Company shall pay the Employee, in accordance with the Company's standard payroll practices in effect from time to time, an annual base salary of $243,750, which amount shall be subject to increase as provided in the next sentence. The Company agrees to review the Employee's annual base salary on an annual basis no later than April 30 of each calendar year commencing in 1997 to consider a merit increase in such annual base salary for such calendar year based upon the performance of the Employee during the prior calendar year. Any such merit increase shall be effective as of the first day of such calendar year. If the Employee's annual base salary is increased in accordance with the previous sentence, it shall not be subject to decrease thereafter without the consent of the Employee. In the event that the Employee is, or is to be, employed for less than a full calendar month, the semi-monthly installments of the annual base salary shall be appropriately adjusted.


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3.2 Bonus. For each calendar year of the Company, the Employee shall be entitled to receive a cash bonus, depending upon the achievement by the Employee and/or the Company of management objectives to be set by the CEO and the Board ("Management Objectives") with respect to such calendar year prior to the beginning of such calendar year.


All bonuses, if any, for a calendar year shall be payable no later than January 31 of the ensuing calendar year; provided, however, that if financial information necessary for the Board to determine whether a bonus with respect to a particular calendar year has been earned is not available as of January 31 of the ensuing calendar year, the Company may defer payment of the bonus for the prior calendar year until no later than March 31 of such ensuing calendar year.


Notwithstanding anything herein to the contrary, in the event of any termination of the Employee's employment hereunder for any reason whatsoever (whether by the Employee or the Company), any unpaid bonus payable in accordance with this Section 3.2 for the calendar year preceding the calendar year in which such termination occurs shall be paid to the Employee in accordance with this Section 3.2.


3.3 Fringe Benefits; Vacation. The Employee shall be entitled to participate in the benefit and fringe benefit programs afforded by the Company to its executives from time to time; provided, however, that the Company shall be required to pay or contribute to such programs in respect of the Employee for any calendar


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year of the Company an amount equal to 20% of the Employee's annual base salary for such calendar year (the "Benefits Amount"). The Benefits Amount shall not include contributions made by the Company to FICA or FUTA or similar legally required payments, expense reimbursements, vacation or any equity incentives granted to the Employee. If the Company, after providing a reasonably comprehensive benefit and fringe benefit program for the Employee, fails to spend for a calendar year the entire Benefits Amount for such calendar year, the entire unspent Benefits Amount shall be paid to the Employee in cash within 60 days after the end of such calendar year. The Employee shall be entitled to paid vacation in accordance with the Company's standard vacation policies in effect from time to time (such policies as in effect on the date hereof providing that the Employee is entitled to six weeks paid vacation per calendar year based on his years of service to date).


3.4 Reimbursement of Expenses. The Company shall reimburse the Employee for all reasonable travel, entertainment and other expenses incurred or paid by the Employee in connection with, or related to, the performance of his duties, responsibilities or services under this Agreement, upon presentation by the Employee of documentation, expense statements, vouchers and/or such other supporting infor mation as the Company may reasonably request; provided, however, that the amount


- 5 - 6 available for such travel, entertainment and other expenses may be fixed in advance by the Board consistent with the Employee's positions and responsibilities as Senior Vice President of Finance and Administration and Chief Financial Officer of the Company or Division President, as the case may be.


3.5 Other Plans. Nothing herein shall be construed as making the Employee ineligible to participate in and receive awards or grants under any equity incentive plan of the Company in accordance with the terms thereof in which the Employee would otherwise be eligible to participate.


4. Employment Termination. The employment of the Employee by the Company pursuant to this Agreement shall terminate upon the occurrence of any of the following:


4.1 Expiration of the Employment Period in accordance with Section 1.


4.2 At the election of the Company, for cause, immediately upon written notice by the Company to the Employee. For the purposes of this Section 4.2, "cause" for termination shall be deemed to exist solely upon (a) the occurrence of dis honesty or willful misconduct of the Employee which, in either event, is material and related to his duties as an employee of the Company (including, without limitation, any material breach of the provisions of Section 7 or 8) or (b) the conviction of the Employee of, or the entry of a pleading of guilty or nolo contendere by the Employee to, any crime involving moral turpitude or any felony.


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4.3 At the election of the Company, immediately upon written notice to the Employee, upon the occurrence of the material failure of the Employee to perform his reasonably assigned duties for the Company, which failure is not cured within 30 days after the giving of written notice to the Employee by the Company. For purposes of this Section 4.3, "failure of the Employee to perform" shall include, without limitation, refusal by the Employee to perform and inadequate performance by the Employee.


4.4 At the election of the Company, without cause, upon 30 days' prior written notice to the Employee.


4.5 Thirty days after the death or disability of the Employee. As used in this Agreement, the term "disability" shall mean the Employee shall have been unable to perform the material services contemplated under this Agreement for a period of 90 days, whether or not consecutive, during any 360-day period, due to a physical or mental disability. A determination of disability shall be made by a physician satisfactory to both the Employee and the Company, provided that if the Employee and the Company do not agree on a physician, the Employee and the Company shall each select a physician and these two together shall select a third physician, whose determination as to disability shall be binding on all parties.


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4.6 At the election of the Employee, upon not less than 60 days' prior written notice to the Company given promptly after the occurrence of the event giving rise to such termination, in the event of the Company's taking any of the following actions, which actions shall not have been cured within such 60-day period: (a) material and adverse diminution, on a cumulative basis, of the Employee's duties, authority, position, compensation (other than bonus or other discretionary elements of the Employee's compensation) or aggregate benefits, including, without limitation, failure to cause the Employee to retain the positions of Senior Vice President of Finance and Administration and Chief Financial Officer of the Company, subject to the provisions of Section 2 of this Agreement, or to retain the position of Division President, as the case may be; or (b) the relocation (other than upon the Employee's recommendation) of the Company's principal executive offices to a location more than 100 miles outside the city limits of Cambridge, Massachusetts.


5. Effect of Termination.


5.1 Termination by the Company for Cause. In the event the Employee's employment is terminated by the Company pursuant to Section 4.2, the Company shall pay to the Employee the compensation and benefits otherwise payable to him under Section 3 (other than the bonuses provided for in Section 3.2 for the calendar year in which such termination is effective) through the last day of his actual employment by the Company.


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5.2 Termination by the Company Without Cause or for Failure to Perform Duties; Termination by the Employee for Cause.


(a) In the event the Employee's employment is terminated by the Company pursuant to Section 4.3 or 4.4 or is terminated by the Employee pursuant to Section 4.6 (each, a "Qualifying Termination"), the Company shall pay or provide to the Employee the compensation (including, without limitation, in lieu of the bonuses provided for in Section 3.2, a pro rata portion of the Severance Bonus Amount (as defined below) for the calendar year in which such termination is effective determined by multiplying the Severance Bonus Amount by a fraction (the "Pro Rata Fraction"), the numerator of which shall be the number of days between the first day of the calendar year and the date on which the termination is effective and the denominator of which shall be 365, and benefits payable or provided to him under Section 3 through the last day of his actual employment by the Company; provided that the pro rata portion of the Severance Bonus Amount to which the Employee may be entitled pursuant to this Section 5.2(a) shall be paid to the Employee in installments during the six-month period commencing on the effective date of termination in the manner provided in Section 5.2(d).


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(b) Except as otherwise provided in Section 5.4, in the event of a Qualifying Termination, the Company shall make severance payments to the Employee at a monthly rate equal to one-twelfth of the sum of (i) the annual base salary referred to in Section 3.1 to which the Employee was entitled on the effective date of such Qualifying Termination plus (ii) the Severance Bonus Amount for the calendar year in which such Qualifying Termination is effective, for the applicable period of time specified below (the "Severance Period"):


(I) in the event the Employee's employment is terminated by the Company pursuant to Section 4.3, the Company shall make such severance payments to the Employee for the six-month period commencing on the effective date of such termination; and


(II) in the event the Employee's employment is terminated by the Company pursuant to Section 4.4 or by the Employee pursuant to Section 4.6, the Company shall make such severance payments to the Employee for the 24-month period commencing on the effective date of such termination.


(c) For purposes of this Agreement, the Severance Bonus Amount for a calendar year shall equal the average of the bonus paid to the Employee pursuant to Section 3.2 of this Agreement for each of the three calendar years immediately preceding such calendar year.


(d) All severance payments provided for in this Section 5.2 shall be made in semi-monthly installments in arrears on the fifteenth day and the


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last day of each calendar month. Such installments shall be appropriately adjusted in the event a severance payment is due for any partial calendar month.


(e) Following any Qualifying Termination, the Company shall continue to pay for or provide to the Employee the fringe benefits other than health, disability and term life insurance benefits as may have been provided to the Employee in accordance with Section 3.3 immediately prior to such Qualifying Termination for a period ending on the earliest of (i) June 30, 2000, (ii) the date of the Employee's employment by a third party on a substantially full-time basis, (iii) the date six months after the effective date of such Qualifying Termination, or (iv) the death of the Employee. Following any Qualifying Termination, the Company shall continue to pay for or provide to the Employee such health, disability and term life insurance benefits as may have been provided to the Employee in accordance with Section 3.3 immediately prior to such Qualifying Termination (subject to changes in the terms of such coverage by the provider as may be applicable to the Company as a whole) for a period ending on the earliest of (A) the date of the Employee's employment by a third party on a substantially full-time basis, (B) the death of the Employee and (C) the date upon which the applicable Severance Period expires.


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The Employee shall notify the Company promptly following his acceptance of any offer of employment by a third party. The Employee shall be under no obligation to seek other employment following any Qualifying Termination, and any amounts he earns in any other employment shall not reduce or offset the severance payments or other amounts due hereunder except as specifically provided in this Section 5.2(e).


5.3 Termination for Death or Disability. In the event the Employee's employment is terminat ...