As filed with the Securities and Exchange Commission on December 23, 1998
Registration No. 333-
================================================================================

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

---------------

FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

---------------

HYBRIDON, INC.
(Exact name of registrant as specified in its charter)

Delaware                      2836                     04-3072298
(State or other     (Primary Standard Industrial      (I.R.S. Employer
jurisdiction of      Classification Code Number)    Identification Number)
incorporation
or organization)

155 Fortune Blvd., Milford, Massachusetts 01757
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)

---------------

E. ANDREWS GRINSTEAD III
Chairman of the Board, President and Chief Executive Officer
HYBRIDON, INC.
155 Fortune Blvd.
Milford, Massachusetts 01757
(508) 482-7500
(Name, address, including zip code, and telephone number,
including area code, of agent for service)

---------------

Copy to:

MONICA C. LORD, ESQ.
Kramer Levin Naftalis & Frankel LLP
919 Third Avenue
New York, New York 10022

---------------

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 delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|

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CALCULATION OF REGISTRATION FEE
==============================================================================================================
Proposed
Title of Each Class                            Proposed Maximum        Maximum
of Securities to be Registered     Amount to be     Offering Price Per      Aggregate          Amount of
(1)                   Registered            Share          Offering Price    Registration Fee
- --------------------------------------------------------------------------------------------------------------

Series A Convertible Preferred
Stock, $.01 par value                641,259          $    100 (3)       $64,125,900         $19,430.15
- --------------------------------------------------------------------------------------------------------------
Common Stock, $.001 par value       10,195,175         1.15625(4)        11,788,171           3,571.82
- --------------------------------------------------------------------------------------------------------------
Common Stock, $.001 par value,
issuable upon conversion of
Series A Convertible Preferred
Stock                             15,088,200(2)          -- (5)                 --                  --
- --------------------------------------------------------------------------------------------------------------
Common Stock, $.001 par value,
issuable upon exercise of Class A
Warrants                           3,002,958(2)        4.25 (2)(6)       12,762,571           3,867.05
- --------------------------------------------------------------------------------------------------------------
Common Stock, $.001 par value,
issuable upon exercise at Class B
Warrants                           1,752,945(2)        2.40 (2)(6)        4,207,068           1,274.74
- --------------------------------------------------------------------------------------------------------------
Common Stock, $.001 par value,
issuable upon exercise of Class C
Warrants                            904,274(2)         2.40 (2)(6)        2,170,257             657.88
- --------------------------------------------------------------------------------------------------------------
Common Stock, $.001 par value,
issuable upon exercise of Class D
Warrants                            672,267(2)         2.40 (2)(6)        1,613,441             488.87
- --------------------------------------------------------------------------------------------------------------
Common Stock, $.0001 par
value, issuable upon exercise
of Forum Warrants                   1,197,429          2.40 (2)(6)        1,462,065             443.01
- --------------------------------------------------------------------------------------------------------------
Common Stock, $.0001 par
value, issuable upon exercise
of Forum Warrants                     588,235          4.25 (2)(6)        2,499,999             757.50
- --------------------------------------------------------------------------------------------------------------
Common Stock, $.0001 par
value, issuable upon exercise
of Pillar Investments Warrants      1,111,630          2.40 (2)(6)        2,667,912             808.38
==============================================================================================================

(1)  This  Registration  Statement is deemed to cover the registration of (i) up
to  641,259  shares  (the  "Convertible  Preferred  Shares")  of  Series  A
Convertible  Preferred Stock,  $.001 per share par value (the  "Convertible
Preferred  Stock") and 23,729,701 shares (the "Common Shares" and, together
with the Convertible  Preferred Shares,  the "Securities") of Common Stock,
$.01 per share par value (the "Common Stock") of Hybridon, Inc., a Delaware
corporation (the "Company"),  for sale by the holders thereof (the "Selling
Securityholders"),  subject to certain contractual  restrictions applicable
to  certain of the  Selling  Securityholders  that  limit the time  periods
during  which  such  Selling  Securityholders  may  sell  Securities.  Such
restrictions  are described more fully in the Prospectus  that forms a part
of this Registration Statement.

(2)  Pursuant to Rule 416 there are also being registered such additional shares
of Common Stock as may become issuable pursuant to applicable anti-dilution
provisions.

(3)  Estimated solely for purposes of calculating the registration fee using the
proposed  offering  price of the Series A  Convertible  Preferred  Stock as
required by Rule 457(i).

Does not include any shares of Series A Preferred 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.

(4)  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).

(5)  Pursuant to Rule 457(i) no additional registration fee 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).

---------------

2

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.
================================================================================

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Subject to Completion; Dated December 23, 1998

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.

HYBRIDON, INC.
155 Fortune Boulevard
Milford, Massachusetts 01757

Secondary Offering Prospectus

641,259 SHARES OF SERIES A CONVERTIBLE PREFERRED STOCK

AND

33,924,878 SHARES OF COMMON STOCK

Hybridon, Inc. ("Hybridon" or the"Company"),  established in 1989, is engaged in
the discovery and  development  of novel genetic  medicines  based  primarily on
antisense  technology.  This Registration  Statement is being filed on behalf of
certain  securityholders of Hybridon who previously  purchased Hybridon's shares
in private  offerings.  The  selling  price of the shares to the public  will be
determined  independently by the  securityholders who seek to sell their shares.
No underwriter  has been employed to assist in the  distribution.  Hybridon will
not receive any of the offering  proceeds  (other than proceeds upon exercise of
certain Hybridon Warrants).
-----

Common* Stock Trading Symbol:
NASDAQ Over-the-Counter-Bulletin-Board: HYBN
(*Prior to this offering there has been no public
market for the Series A Convertible
Preferred Stock.)

-----

Investment in the securities  being offered  involves a high degree of risk. You
should purchase the securities only if you can afford a complete loss. See "Risk
Factors" beginning on page 10.

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 selling  securityholders  have  contractual  limitations on their ability to
sell their securities.  See "Certain Restrictions on Transfer" beginning on page
96.

The date of this Prospectus is ________ ___, 1998.

SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION

Certain statements in this Prospectus and in the documents  incorporated
herein constitute "forward-looking statements" within the meaning of Section 27A
of the Securities Act of 1933, as amended (the  "Securities  Act"),  and Section
21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). For
this purpose,  any statements  contained herein or incorporated  herein that are
not  statements  of  historical  fact  may  be  deemed  to  be   forward-looking
statements.  Without  limiting the  foregoing,  the words  "believes,"  "plans,"
"expects"  and similar  expressions  are  intended  to identify  forward-looking
statements. There are a number of important factors that could cause the results
of the Company to differ materially from those indicated by such forward-looking
statements.  These factors include those set forth in "Risk Factors" herein.

2

PROSPECTUS SUMMARY

This summary highlights  selected  information from this Prospectus.  It
does not  contain  all of the  information  you need to  consider in making your
investment  decision.  To  understand  all of the terms of the  offering  of the
Series A Convertible  Preferred Stock and the Common Stock, you should read this
entire Prospectus carefully.

Overview of the Company

General

The  Company,  established  in 1989,  is a leader in the  discovery  and
development  of novel  genetic  medicines.  These novel  medicines use antisense
technology to selectively inhibit the production of disease-causing  proteins at
the genetic level. The Company's leadership position is based on its development
and therapeutic  application of proprietary  advanced antisense  chemistries and
the establishment of a manufacturing  business for the large-scale  synthesis of
RNA  and DNA  (oligonucleotides)  under  good  manufacturing  practices  ("GMP")
prescribed by the U.S. Food and Drug Administration. See "The Company".

The    Company    believes    it   is    the    only    company    with
systemically-administered  advanced  chemistry  antisense  compounds in clinical
development.  To date, the Company has initiated  clinical  development of three
compounds  based  on  its  proprietary  advanced  chemistries  and  has  several
additional compounds in preclinical development.

In  addition,  the  Company  believes  it is the  only  large-scale  GMP
manufacturer of oligonucleotides,  with approximately 50 customers  representing
three  distinct  and  diverse  business  areas:  therapeutics,  diagnostics  and
genomics.  Finally,  the  Company  has  significant  scale-up  ability  (with  a
relatively low additional  capital  investment) in its  manufacturing  facility,
thereby providing the capability to respond to the Company's, its collaborators'
and its clients' potential needs for large-scale  production of oligonucleotides
for use in these diverse business areas.

The Company's  efforts in the antisense field are based on an integrated
antisense  technology  platform  combining  patented and  proprietary  medicinal
chemistries,  synthetic DNA manufacturing  technology and analytical  processes.
The Company's  strategy is to leverage this technology  platform by applying its
antisense  oligonucleotides  against a range of genetic targets  associated with
major diseases,  by manufacturing  oligonucleotides for its own internal use and
on a custom  contract  basis  for sale to third  parties  and by  entering  into
collaborations  with large  pharmaceutical  company partners for the development
and commercialization of antisense  oligonucleotide drugs directed against these
genetic targets.

The  Company  is  focusing  its  efforts  on drug  development  programs
involving  advanced  chemistry   antisense  compounds  based  on  the  Company's
proprietary  advanced  mixed  backbone  chemistries.  The Company  believes that
antisense  compounds based on advanced  chemistries  may  demonstrate  favorable
pharmaceutical  attributes  and  may  provide  flexibility  in  addressing  many
biological targets.

An important  part of the Company's  business  strategy is to enter into
research  and  development   collaborations,   licensing  agreements  and  other
strategic   alliances   with  third   parties,   primarily   biotechnology   and
pharmaceutical  corporations,  for the development and  commercialization of its
products,  and to engage in  spin-outs of certain  technology  of the Company to
minority-owned  subsidiaries in order to obtain  alternative  financing for such
technology. The Company is a party to a corporate collaboration with G.D. Searle
& Co.  ("Searle"),  a subsidiary of Monsanto  Company,  in the fields of cancer,
cardiovascular  disease  and  inflammation/immunomodulation.  In  addition,  the
Company has licensed certain advanced  chemistry  compounds based on proprietary
genetic  targets  with  respect to DNA  methyltransferase  to a Quebec  company,
MethylGene,  Inc.  ("MethylGene")  in exchange for a minority equity interest in
MethylGene,  and is  currently  in the  process of  licensing  certain  advanced
chemistry  compounds  based on proprietary  genetic  targets with respect to the
human papilloma virus and hepatitis B virus

3

genomes to another Quebec company,  OriGenix Technologies Inc. ("OriGenix"),  in
exchange  for a minority  equity  interest in OriGenix.  The  licensing of these
programs  will  require the prior  approval of the Lender  under the Bank Credit
Facility.  See "Description of Capital Stock and Indebtedness -- Indebtedness --
Bank Credit Facility."

The Company's plan is to seek corporate  collaborations  with respect to
each of its compounds in  development.  The Company  intends to proceed with its
GEM 231 clinical program through Phase II clinical trials,  at which time it may
seek a  corporate  collaborator.  The  Company  generally  does  not  anticipate
proceeding  with any of its  other  programs  beyond  their  current  stages  of
development without a collaborative  arrangement with a corporate partner. There
can  be no  assurance  that  the  Company  will  enter  into  any  collaborative
arrangements  with third  parties with  respect to these or any ofthe  Company's
future  programs,  nor can there be any  assurance  as to what the terms of such
collaborative  arrangements  will be.  See "Risk  Factors  -- Need to  Establish
Collaborative Commercial Relationships; Dependence on Partners."

Overview of the Securities

This  prospectus  (the  "Prospectus")  relates  to the offer and sale of 641,259
shares (the "Convertible  Preferred  Shares") of Series A convertible  preferred
stock,  $.01 par  value per  share  (the  "Convertible  Preferred  Stock"),  and
33,924,878  shares (the  "Common  Shares"  and,  together  with the  Convertible
Preferred  Shares,  the  "Securities") of the common stock,  $.001 par value per
share (the "Common  Stock"),  of Hybridon,  Inc.,  a Delaware  corporation  (the
"Company"),   by  certain   securityholders   of  the  Company   (the   "Selling
Securityholders").

Of the 641,259 Convertible Preferred Shares offered hereby,

o       an  aggregate  of 510,505  Convertible  Preferred  Shares  were  issued,
together  with the Company's  Class A warrants to purchase  Common Stock
(the "Class A Warrants"), on May 5, 1998, in a registered exchange offer
(the "Exchange Offer") for certain 9% convertible  subordinated notes of
the Company (the "9% Notes");

o       an aggregate  of 114,285  Convertible  Preferred  Shares were issued and
sold,  together with the Company's  Class D warrants to purchase  Common
Stock  (the  "Class D  Warrants")  to  certain  investors  in a  private
placement (the  "Regulation D Preferred  Offering")  under  Regulation D
("Regulation D") promulgated under the Securities Act, the final closing
of which occurred on May 5, 1998; and

o       an aggregate  of 16,472  Convertible  Preferred  Shares were issued as a
dividend to holders of  Convertible  Preferred  Shares on September  30,
1998.

Of the 33,924,878 Common Shares offered hereby,

o       an aggregate of 6,380,322 shares were issued and sold, together with the
Company's  Class B warrants  to  purchase  Common  Stock  (the  "Class B
Warrants"),  in offshore  transactions  (the  "Regulation  S Offerings")
under  Regulation S ("Regulation  S")  promulgated  under the Securities
Act, the final closing of which occurred on May 5, 1998;

o       an  aggregate  of  3,217,154  shares  were  issued,  together  with  the
Company's  Class C warrants  to  purchase  Common  Stock  (the  "Class C
Warrants"), to certain investors in a private placement (the "Regulation
D Offering");

o       an aggregate of 1,111,630  shares are issuable upon exercise of warrants
granted  to  Pillar   Investments   Ltd.   ("Pillar   Investments")   as
compensation  for  advisory and  placement  agent  services  rendered in
connection with the Regulation S Offering;

4

o       an aggregate of 3,002,958 shares are issuable upon exercise of the Class
A Warrants,  1,752,945  shares are issuable upon exercise of the Class B
Warrants,  904,274  shares are  issuable  upon  exercise  of the Class C
Warrants and 672,267  shares are issuable  upon  exercise of the Class D
Warrants;

o       an aggregate of 597,699  shares were issued and an additional  1,197,429
shares are  issuable  upon  exercise  of certain  warrants  (the  "Forum
Warrants") granted to Forum Capital Markets LLC ("Forum"); and

o       15,088,200  shares  are  issuable  upon  conversion  of the  Convertible
Preferred Stock.

In this  Prospectus,  the Class A Warrants,  the Class B  Warrants,  the Class C
Warrants,  the Class D Warrants,  the Forum Warrants and the Pillar Warrants are
collectively referred to as the "Warrants." The shares of Common Stock that will
be issued upon exercise of the Warrants are referred to as the "Warrant Shares."
The  shares  of  Common  Stock  that  will  be  issued  upon  conversion  of the
Convertible  Preferred  Stock are  referred to as the  "Conversion  Shares." The
shares of  Common  Stock  that were  issued in the  Regulation  S  Offering  are
referred to as the  "Regulation  S Shares." The shares of Common Stock that were
issued in the  Regulation  D  Offering  are  referred  to as the  "Regulation  D
Shares." The Preferred Shares, Warrant Shares,  Conversion Shares,  Regulation S
Shares and Regulation D Shares are collectively referred to as the "Securities."

This  Prospectus  is  intended  for use by the  Selling  Securityholders  of the
Securities  in resale  transactions  registered  under the  Securities  Act. The
Company will not receive any  proceeds  from the sale of the  Securities  (other
than proceeds upon exercise of the Warrants). See "Selling  Securityholders" and
"Use of Proceeds."

NO  PERSON  HAS  BEEN  AUTHORIZED  TO  GIVE  ANY  INFORMATION  OR  TO  MAKE  ANY
REPRESENTATIONS  IN CONNECTION  WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS   PROSPECTUS   AND,  IF  GIVEN  OR  MADE,   SUCH  OTHER   INFORMATION   AND
REPRESENTATIONS  MUST  NOT BE  RELIED  UPON AS  HAVING  BEEN  AUTHORIZED  BY THE
COMPANY.  NEITHER THE DELIVERY OF THIS  PROSPECTUS  NOR ANY SALE MADE  HEREUNDER
SHALL,  UNDER ANY  CIRCUMSTANCES,  CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE  IN THE  AFFAIRS  OF THE  COMPANY  SINCE  THE  DATE  HEREOF  OR THAT  THE
INFORMATION  CONTAINED  HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
THIS  PROSPECTUS  DOES NOT CONSTITUTE AN OFFER TO SELL OR A  SOLICITATION  OF AN
OFFER TO BUY ANY  SECURITIES  OTHER THAN THE  REGISTERED  SECURITIES TO WHICH IT
RELATES.  THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY SUCH SECURITIES IN ANY  CIRCUMSTANCES  IN WHICH SUCH OFFER OR
SOLICITATION IS UNLAWFUL.

The Offering

Common Stock........................    33,924,878  shares of Common Stock (plus
an  indeterminate  number of  additional
shares  of  Common  Stock  that  may  be
issued by the Company upon conversion of
the   Convertible    Preferred    Stock,
including  any   Convertible   Preferred
Stock   issued  as   dividends   on  the
Convertible    Preferred    Stock,   and
exercise  of the  Warrants  pursuant  to
antidilution      provisions).       See
"Description of Securities."

Common Stock to be outstanding
after the offering..................    Approximately      33,924,878     shares
(assuming  exercise of all  Warrants and
further  assuming  that the  Convertible
Preferred

5

Stock  and  any  Convertible   Preferred
Stock  issued  as of the date  hereof as
dividends on the  Convertible  Preferred
Stock thereon, are converted into Common
Stock at the maximum  rate  allowable by
the terms of the agreements  relating to
the   issuance   of   the    Convertible
Preferred Stock).

NASD OTC BULLETIN BOARD SYMBOL
For Common Stock....................    HYBN

Convertible Preferred Stock.........    641,259 shares of Convertible  Preferred
Stock (plus an  indeterminate  number of
additional  shares that may be issued as
dividends on the  Convertible  Preferred
Stock).

Terms of Convertible Preferred:

Dividend....................    6.5% per  annum,  payable on April 1 and
October 1. The dividend may be paid with
either  cash  or  additional  shares  of
Convertible   Preferred  Stock,  at  the
option of Hybridon.

Liquidation Preference......    $100.00  per  share  plus   accrued  but
unpaid dividends.

Ranking.....................    The  Convertible  Preferred Stock ranks,
as   to   dividends   and    liquidation
preference,   senior  to  the   Hybridon
Common Stock.

Conversion..................    The   Convertible   Preferred  Stock  is
convertible  into Hybridon  Common Stock
beginning on May 5, 1999.

The  initial  conversion  price  of  the
Convertible    Preferred    Stock   (the
"Conversion Price") is $4.25 (subject to
antidilution  adjustments  set  forth in
the  Certificate of Designation  for the
Convertible Preferred Stock).

Mandatory Conversion or
Redemption..................    At any time  after May 4, 1999 (but only
after  April  1,  2000  in the  case  of
clause (ii)  below),  if the closing bid
price of the Hybridon Common Stock is at
least   250%  of  the  then   applicable
conversion   price  of  the  Convertible
Preferred  Stock for 20 trading  days in
any 30  consecutive  trading  day period
ending  three  days prior to the date of
notice of conversion or  redemption,  as
the

6

case may be,  Hybridon may (i) cause the
Convertible   Preferred   Stock   to  be
converted,  in whole  or in  part,  into
Hybridon Common Stock at $4.00 per share
or (ii) redeem the Convertible Preferred
Stock  for  cash in an  amount  equal to
$100.00    per   share    (subject    to
appropriate  adjustment  to reflect  any
stock   split,    reclassification    or
reorganization    of   the   Convertible
Preferred  Stock)  plus any  accrued but
unpaid dividends  (provided that holders
will  have  the  right to  convert  into
Hybridon Common Stock, at the Conversion
Price,   any   shares  so   called   for
mandatory conversion or redemption).

Class Voting Rights.........    Hybridon   shall   not,    without   the
affirmative   vote  or  consent  of  the
holders   of  at   least   50%   of  all
outstanding Convertible Preferred Stock,
voting separately as a class, (i) amend,
alter or  repeal  any  provision  of the
Certificate  of   Incorporation  or  the
By-Laws of Hybridon so as  adversely  to
affect the relative rights, preferences,
qualifications,      limitations      or
restrictions    of    the    Convertible
Preferred  Stock  (with the  issuance of
securities  ranking  prior  to,  or pari
passu with,  the  Convertible  Preferred
Stock (A) upon a  Liquidation  Event (as
defined    in   the    Certificate    of
Designation   for  Series  A   Preferred
Stock)  or  (B)  with   respect  to  the
payment of dividends  or  distributions,
not  being  considered  to so  adversely
affect),  or (ii) authorize or issue, or
increase the  authorized  amount of, the
Convertible  Preferred Stock, subject to
certain exceptions.

Use of Proceeds.....................    The  Company  will  receive no  proceeds
from the sale of the  Securities  by the
Selling    Shareholders    (other   than
proceeds   upon   exercise   of  certain
Hybridon warrants).

Restrictions on Transfer............    Most of the  Securities  offered  hereby
are subject to certain  restrictions  on
transfer.   These  restrictions   differ
depending  on the type of  security  and
the  transaction  pursuant  to which the
Securities were purchased.  See "Certain
Restrictions on Transfer."

Risk Factors........................    Investment in the Securities  involves a
high degree of risk. See "Risk Factors."

7

SUMMARY FINANCIAL DATA

Years Ended               Nine Months Ended
December 31,                 September 30,
-----------------------------------------------------------
1995     1996     1997           1997       1998
(In thousands, except per share data)(Unaudited)

Statement of Operations Data:
Revenues
Research and development............     $  1,186 $  1,419  $   945       $    980   $    950
Product and service revenue.........           --    1,080    1,877          1,232      2,353
Royalty income......................           --       62       48             33         --
Interest income.....................          219    1,447    1,079            898        106
---    -----    -----            ---    -------
1,405    4,008    3,949          3,143      3,409
Operating Expenses
Research and development............       29,685   39,390   46,828         37,785     17,181
General and administrative..........        6,094   11,347   11,026          9,012      5,218
Interest............................          173      124    4,536          3,223      2,880
Restructuring.......................           --       --   11,020          3,100         --
------   ------   ------         ------     ------

Total operating expenses........       35,952   50,861   73,410         53,120     25,279
------   ------   ------         ------     ------
Loss from operations....................      (34,547) (46,853) (69,461)       (49,977)   (21,870)
Extraordinary item:
Gain on conversion of 9% convertible                                            --
subordinated notes payable..........           --       --       --                     8,877
------   ------   ------         ------     ------
Net Loss................................      (34,547) (46,853) (69,461)       (49,977)   (12,993)

Accretion of preferred stock dividend...           --       --       --             --      1,647
------   ------   ------         ------     ------
Net loss to common stockholders.........     $(34,547)$(46,853)$(69,461)      $(49,977)  $(14,640)
======   ======   ======         ======     ======
Basic and diluted net loss per per
common share from:
Operations..........................     $ (94.70) $(10.24) $(13.76)      $  (9.90)  $  (2.21)
Extraordinary gain..................           --       --       --             --       0.83
------   ------   ------         ------     ------
Net loss........................     $ (94.70) $(10.24) $(13.76)      $  (9.90)  $  (1.37)
=====    =====    =====           ====       ====
Shares Used in Computing Basic and
Diluted Net Loss per Common Share(1)..          365    4,576    5,050          5,047     10,648
===    =====    =====          =====     ======

Other Financial Data:
Ratio of earnings to fixed charges(2)       ---       ---      ---            ---        ---

December 31,              September 30,
------------              -------------
1996     1997                  1998
----     ----                  ----
Balance Sheet Data:                                                                 (Unaudited)
Cash, cash equivalents and short-term
investments(3)......................              $ 16,419 $  2,202             $    883
Working capital (deficit)...............                 8,888  (24,100)              (2,815)
Total assets............................                41,537   35,072               18,399
Long-term debt and capital lease
obligations, net of current portion.                 9,032    3,282                  573
9% Convertible Subordinated
Notes Payable...........................                    --   50,000                1,306

8

December 31,              September 30,
------------              -------------
1996     1997                  1998
----     ----                  ----
(Unaudited)
Deficit accumulated in the                                                           
development stage...................              (149,194) (218,655)             (233,295)
Total stockholders' equity (deficit)....                22,855   (46,048)                6,097
------    ------                 -----

(1) Computed  on the  basis  described  in  Notes  2(b)  and  19(c)  of Notes to
Consolidated Financial Statements appearing elsewhere in this Prospectus.

(2) For the  purpose of  calculating  the ratio of  earnings  to fixed  charges,
earnings  represent the Company's  loss from  continuing  operations  before
income taxes plus fixed charges.  Fixed charges consist of interest  expense
on  all  indebtedness  plus  the  interest  portion  of  rental  expense  on
non-cancelable  leases  and  amortization  of debt  issuance  costs and debt
discount.  The  Company's  earnings  have been  inadequate to meet its fixed
charges in 1995,  1996 and 1997 and for the nine months ended  September 30,
1997 and 1998 by $33.9 million,  $46.4 million, $64.7 million, $46.6 million
and $8.4 million, respectively.

(3) Short-term   investments   consisted  of  U.S.  government  securities  with
maturities  greater  than  three  months  but less  than  one year  from the
purchase date.

9

RISK FACTORS

This Prospectus contains  forward-looking  statements that involve risks
and  uncertainties.  The Company's  actual results could differ  materially from
those  anticipated  in these  forward-looking  statements as a result of certain
factors,  including  those set forth in the following risk factors and elsewhere
in this  Prospectus.  In addition  to the other  information  contained  in this
Prospectus,  the  following  risk  factors  should be  considered  carefully  in
evaluating the Company and its business before purchasing the Securities offered
by this Prospectus.

Early Stage of  Development;  Technological  Uncertainty.  The Company's
potential pharmaceutical products are at various stages of research, preclinical
testing or clinical development.  There are a number of technological challenges
that the Company must  successfully  address to complete any of its  development
efforts.  To date,  most of the  Company's  resources  have  been  dedicated  to
applying  oligonucleotide  chemistry  and  cell  biology  to  the  research  and
development   of  potential   pharmaceutical   products   based  upon  antisense
technology.  As in most drug discovery programs, the results of in vitro, tissue
culture and preclinical  studies by the Company may be inconclusive  and may not
be  indicative  of results that will be obtained in human  clinical  trials.  In
addition, results obtained in early human clinical trials by the Company may not
be indicative  of results that will be obtained in later  clinical  trials.  The
Company has not successfully  completed human clinical trials of a product based
on antisense technology, and there can be no assurance that any of the Company's
products will be successfully developed.

The success of any of the Company's  potential  pharmaceutical  products
depends in part on the molecular  target on the genetic  material  chosen as the
site of  action  of the  oligonucleotide.  There  can be no  assurance  that the
Company's  choice will be appropriate for the treatment of the targeted  disease
indication in humans or that  mutations in the genetic  material will not result
in a reduction in or loss of the efficacy or utility of a Company product.

Uncertainty Associated with Clinical Trials. Before obtaining regulatory
approvals for the commercial  sale of any of its  pharmaceutical  products under
development, the Company must undertake extensive and costly preclinical studies
and clinical trials to demonstrate  that such products are safe and efficacious.
The  results  from  preclinical  studies  and  early  clinical  trials  are  not
necessarily  predictive  of results  that will be  obtained  in later  stages of
testing  or  development,  and  there  can be no  assurance  that the  Company's
clinical trials will  demonstrate the safety and efficacy of any  pharmaceutical
products or will result in pharmaceutical  products capable of being produced in
commercial quantities at reasonable cost or in a marketable form.

In July 1997, the Company  discontinued  the  development of GEM 91, its
first  generation  antisense  drug for the  treatment of AIDS and HIV  infection
based on a review of data from an open label Phase II clinical trial of patients
with advanced HIV infection.  In the Phase II trial,  three of the nine subjects
tested experienced decreases in platelet counts that required dose interruption.
In addition, a review of the data showed inconsistent responses to the treatment
and failed to confirm the  decrease in cellular  viremia  observed in an earlier
clinical trial.

Although the Company is conducting  clinical trials of certain  advanced
chemistry  oligonucleotide  compounds and is developing several  oligonucleotide
compounds on which it plans to file IND applications with the U.S. Food and Drug
Administration  (the "FDA") and equivalent filings outside of the United States,
there can be no assurance that necessary  preclinical studies on these compounds
will be completed  satisfactorily  or that the Company otherwise will be able to
make its intended filings.  Further,  there can be no assurance that the Company
will be permitted to undertake and complete human clinical  trials of any of the
Company's potential products,  either in the United States or elsewhere,  or, if
permitted,  that such products will not have  undesirable  side effects or other
characteristics that may prevent or limit their commercial use.

The rate of  completion  of the  Company's  human  clinical  trials,  if
permitted,  will be dependent  upon,  among other  factors,  the rate of patient
enrollment. Patient enrollment is a function of many factors, including the size
of the patient  population,  the nature of the  protocol,  the  availability  of
alternative  treatments,  the  proximity to clinical  sites and the  eligibility
criteria for the study.  Delays in planned  patient  enrollment  might result in
increased  costs and delays,  which could have a material  adverse effect on the
Company.  The  Company  or the FDA or  other  regulatory  agencies  may  suspend
clinical  trials at any time if the subjects or patients  participating  in such
trials are being exposed to unacceptable health risks.

10

Future  Capital  Needs;  Uncertainty  of  Additional  Funding;  Risk  of
Insolvency.  The Company has extremely  limited cash  resources and  substantial
obligations to lenders,  real estate landlords and trade creditors.  The Company
will be required to raise substantial additional funds through external sources,
including through collaborative  relationships and public or private financings.
See "Management's  Discussion and Analysis of Financial Condition and Results of
Operations."  Except for research and development funding from G.D. Searle & Co.
("Searle"),  a  subsidiary  of  Monsanto  Company  (which  is  subject  to early
termination in certain circumstances),  certain research and development funding
expected to be received from MethylGene,  Inc.  ("MethylGene")  and sales of DNA
and  products  and  reagents  manufactured  on a  custom  contract  basis by the
Hybridon Specialty  Products Division ("HSP Division"),  Hybridon has no current
external sources of capital,  and expects no revenues from therapeutic  products
that it is developing for at least several years. No assurance can be given that
additional  financing  will be  available,  or,  if  available,  that it will be
available on acceptable  terms. If additional funds are raised by issuing equity
securities,   further  dilution  to  then  existing  stockholders  will  result.
Additionally,  the terms of any such additional  financing may adversely  affect
the holdings or rights of then existing stockholders.  If adequate funds are not
available,  the Company may be required to (i) further curtail significantly one
or more of its research,  drug  recovery or  development  programs,  (ii) obtain
funds  through  arrangements  with  collaborative  partners  or others  that may
require the Company to relinquish rights to certain of its technologies, product
candidates or products  which the Company would  otherwise  pursue on its own or
(iii) terminate operations.

The Company's future capital  requirements  will depend on many factors,
including  continued  scientific  progress in its research,  drug  discovery and
development programs, the magnitude of these programs, progress with preclinical
and  clinical  trials,  sales of DNA  products  and  reagents  to third  parties
manufactured  on a custom  contract basis by the HSP Division and the margins on
such sales, the time and costs involved in obtaining regulatory  approvals,  the
costs involved in filing,  prosecuting  and enforcing  patent claims,  competing
technological and market  developments,  the ability of the Company to establish
and maintain  collaborative  academic and commercial  research,  development and
marketing  relationships,  the  ability  of the  Company  to obtain  third-party
financing for leasehold  improvements  and other  capital  expenditures  and the
costs  of   manufacturing   scale-up  and   commercialization   activities   and
arrangements.

The Company has been informed by Arthur  Andersen  LLP, its  independent
public  accountants,  that their  reports on the  Company's  December  31,  1998
financial statements will contain an explanatory fourth paragraph addressing the
significant uncertainty regarding the Company's ability to continue operating as
a going concern unless the Company is able to raise  sufficient  capital to fund
operations for 1999 prior to the release of the audit report.

Bank  Facility.  The Company is a party to a credit  facility (the "Bank
Credit Facility") incurred to finance the leasehold  improvements of its Milford
manufacturing  facility.  The Bank Credit Facility  contains  certain  financial
covenants, including minimum liquidity and net worth requirements, and prohibits
issuance  of  additional   indebtedness  and  the  payment  of  dividends.   The
indebtedness due under the Bank Credit Facility is subject to acceleration  upon
the  occurrence of certain  Events of Default set forth in Section 8 of the Loan
and Security Agreement governing the Bank Credit Facility,  which has been filed
as an exhibit  to the  Registration  Statement.  The  Company  has  secured  its
obligations  under the Bank  Credit  Facility  with a lien on all of its  assets
(including  cash,  deposit  accounts  and other  cash  equivalents,  copyrights,
patents and trademarks).  There can be no assurance that the Company will not be
required to prepay the Bank Credit Facility as a result of the occurrence of any
Events of  Default.  See  "Description  of  Capital  Stock and  Indebtedness  --
Indebtedness -- Bank Credit Facility."

History of Operating  Losses.  The Company has incurred net losses since
its inception. At September 30, 1998, the Company had incurred cumulative losses
of  approximately  $231.6 million.  Such losses have resulted  principally  from
costs  incurred in the  Company's  research  and  development  programs and from
general and administrative costs associated with the Company's  development.  No
revenues have been generated from sales of pharmaceutical  products developed by
the Company and no revenues from the sale of such products are anticipated for a
number of years,  if ever.  The Company  expects to incur  additional  operating
losses over the next several years and expects  cumulative losses to increase as
the Company's research and development and clinical trial efforts continue.  The
Company expects that losses will fluctuate from quarter to quarter and that such
fluctuations  may be substantial.  Although the Company's HSP Division has begun
to generate  revenues  from the sale of  synthetic  DNA  products  and  reagents
manufactured by it on a custom  contract  basis,  there can be no assurance that
demand for and margins on these products will not be lower than anticipated. The
Company's  ability to achieve  profitability  is  dependent in part on obtaining
regulatory   approvals  for  its  pharmaceutical   products  and  entering  into
agreements for drug discovery,  development and commercialization.  There can be
no assurance that the Company will obtain

11

required  regulatory  approvals,  enter into any additional  agreements for drug
discovery,  development  and  commercialization  or ever  achieve  drug sales or
profitability.

Risks of  Low-Priced  Stock;  Possible  Effect of "Penny Stock" Rules on
Liquidity for the Company's Securities.  Since neither the Convertible Preferred
Stock nor the Common Stock is listed on a national  securities  exchange or on a
qualified  automated  quotation system, they are subject to Rule 15g-9 under the
Exchange  Act,  which  imposes   additional   sales  practice   requirements  on
broker-dealers that sell such securities.  Rule 15g-9 defines a "penny stock" to
be any equity security that has a market price (as therein defined) of less than
$5.00 per share or with an exercise price of less than $5.00 per share,  subject
to certain exceptions  including those described below. For transactions covered
by this rule, a broker-dealer must make a special suitability  determination for
the  purchaser  and  have  received  the  purchaser's  written  consent  to  the
transaction prior to sale.

The foregoing  required penny stock  restrictions would not apply to the
Company's  securities  if those  securities  were listed on the Nasdaq  National
Market or SmallCap Market or on another national  securities  exchange or if the
Company met certain minimum net tangible assets or average revenue criteria. The
Company's securities do not currently qualify for exemption from the penny stock
restrictions.  There can be no assurance that either the  Convertible  Preferred
Stock or the Common  Stock will  qualify for listing on the Nasdaq or on another
national securities exchange in the foreseeable future, if at all. In any event,
even if the Company's securities were exempt from such restrictions, the Company
would remain  subject to Section  15(b)(6) of the Exchange Act,  which gives the
Securities and Exchange  Commission (the "Commission") the authority to restrict
any  person  from  participating  in a  distribution  of  penny  stock,  if  the
Commission finds that such a restriction would be in the public interest.

The  market  liquidity  for the  Company's  securities  is  likely to be
materially adversely affected by these requirements. In addition, such rules are
likely to adversely  affect the Company's  ability to raise funds in the future,
the ability of broker-dealers  to sell the Company's  securities and the ability
of purchasers to sell any of the securities in the secondary market.

Patents and  Proprietary  Rights.  The Company's  success will depend in
part on its ability to develop patentable products and obtain and enforce patent
protection  for its products both in the United  States and in other  countries.
The  Company  has filed and  intends to file  applications  as  appropriate  for
patents covering both its products and processes.  However, the patent positions
of pharmaceutical and biotechnology  firms,  including  Hybridon,  are generally
uncertain and involve complex legal and factual  questions.  No assurance can be
given that  patents  will issue from any pending or future  patent  applications
owned by or licensed to Hybridon. Since patent applications in the United States
are  maintained  in  secrecy  until  patents  issue,  and since  publication  of
discoveries  in the  scientific or patent  literature  tend to lag behind actual
discoveries  by several  months,  the Company  cannot be certain that it was the
first creator of inventions  covered by pending patent  applications  or that it
was the first to file patent  applications for such inventions.  Further,  there
can be no assurance  that the claims  allowed  under any issued  patents will be
sufficiently  broad  to  protect  the  Company's  technology.  In  addition,  no
assurance  can be given  that any issued  patents  owned by or  licensed  to the
Company will not be challenged,  invalidated or circumvented, or that the rights
granted thereunder will provide competitive advantages to the Company.

The  commercial  success of the Company  will also depend in part on its
neither  infringing  patents  issued to  competitors or others nor breaching the
technology  licenses  upon  which the  Company's  products  might be based.  The
Company's   licenses  of  patents  and  patent   applications   impose   various
commercialization, sublicensing, insurance and other obligations on the Company.
Failure  of the  Company  to comply  with  these  requirements  could  result in
termination  of the  applicable  license.  The  Company is aware of patents  and
patent  applications  belonging  to  competitors  and others and it is uncertain
whether these patents and patent  applications will require the Company to alter
its products or processes,  pay licensing fees or cease certain  activities.  In
particular,  competitors  of the  Company and other  third  parties  hold issued
patents and pending  patent  applications  relating to antisense  and other gene
expression  modulation  technologies  which may result in claims of infringement
against the Company or other patent  litigation.  There can be no assurance that
the Company will be able successfully to obtain a license to any technology that
it may require or that,  if  obtainable,  such  technology  can be licensed at a
reasonable cost or on an exclusive basis.

The pharmaceutical and biotechnology  industries have been characterized
by  extensive  litigation  regarding  patents  and other  intellectual  property
rights.  Litigation,  which could result in substantial cost to the Company, may
be necessary to enforce any patents  issued or licensed to the Company and/or to
determine the scope and validity of others' proprietary rights. The Company also
may have to participate in interference  proceedings declared by the U.S. Patent
and Trademark Office,  which could result in substantial cost to the Company, to
determine the

12

priority of  inventions.  Furthermore,  the Company may have to  participate  at
substantial  cost  in  International  Trade  Commission   proceedings  to  abate
importation  of  products  which would  compete  unfairly  with  products of the
Company.

Hybridon engages in collaborations,  sponsored  research  agreements and
other  agreements  with academic  researchers  and  institutions  and government
agencies.  Under the terms of such agreements,  third parties may have rights in
certain  inventions  developed  during  the  course of the  performance  of such
collaborations and agreements.

The Company  relies on trade secrets and  proprietary  know-how which it
seeks to protect, in part, by confidentiality agreements with its collaborators,
employees and consultants.  There can be no assurance that these agreements will
not be breached, that the Company would have adequate remedies for any breach or
that  the  Company's  trade  secrets  will  not  otherwise  become  known  or be
independently developed by competitors.

Attraction and Retention of Key Employees and Scientific  Collaborators;
Employment Agreements.  The Company is highly dependent on the principal members
of its management and scientific staff, including E. Andrews Grinstead III, the
Company's  Chairman of the Board,  President and Chief  Executive  Officer,  and
Sudhir  Agrawal,  the  Company's  Senior Vice  President of Discovery  and Chief
Scientific  Officer,  the loss of whose services  could have a material  adverse
effect on the  Company.  The Company has  executed  Employment  Agreements  with
Messrs.  Grinstead  and  Agrawal.  Mr.  Grinstead's  agreement  provides  for an
employment term ending on June 30, 2001 (unless sooner  terminated in accordance
with the provisions of the agreement),  and Mr. Agrawal's agreement provides for
an  employment  term  ending  on June 30,  2000  (unless  sooner  terminated  in
accordance with the agreement).  Among other provisions,  the agreements provide
for severance payments in certain circumstances.  See "Executive  Compensation."
From June 30, 1997 to December 1, 1998,  the number of  employees of the Company
has  decreased  from 213 to 50. As a result,  the Company  has lost  significant
expertise  and will be required to recruit and retain new  personnel in order to
perform its operations. In addition, any growth or expansion of the Company will
require  recruiting  and  retaining  qualified  scientific  personnel to perform
research  and  development  work.  There can be no  assurance  that under either
circumstance  the Company  will be able to attract and retain such  personnel on
acceptable terms given the competition for experienced scientists among numerous
pharmaceutical,  biotechnology  and  health  care  companies,  universities  and
non-profit research institutions.  In addition, the Company's anticipated growth
and expansion into areas and activities requiring additional expertise,  such as
clinical testing, governmental approvals, production and marketing, are expected
to require the  addition of new  management  personnel  and the  development  of
additional  expertise by existing management  personnel.  The failure to acquire
such services or to develop such expertise could have a material  adverse effect
on the Company.

The Company's  success will depend in part on its  continued  ability to
develop and maintain  relationships  with  independent  researchers  and leading
academic and research  institutions.  The competition for such  relationships is
intense,  and there can be no assurance that the Company will be able to develop
and maintain such  relationships  on acceptable  terms.  The Company has entered
into a number of such collaborative  relationships  relating to specific disease
targets and other research  activities in order to augment its internal research
capabilities  and to obtain access to the specialized  knowledge or expertise of
its  collaborative  partners.  The loss of any such  collaborative  relationship
could have an adverse  effect on the Company's  ability to conduct  research and
development in the area targeted by such collaboration.

Risks  Associated with the HSP Division.  Through its HSP Division,  the
Company  manufactures  oligonucleotide  compounds on a custom contract basis for
third  parties.  The results of operations of the HSP Division will be dependent
upon the  demand  for and  margins  on these  products,  which may be lower than
anticipated  by the Company.  The results of operations of the HSP Division also
may be affected by the price and  availability of raw materials.  It is possible
that Hybridon's  manufacturing  capacity may not be sufficient for production of
oligonucleotides  both for the  Company's  internal  needs and for sale to third
parties.  The  Company's  manufacturing  facility  must comply with current good
manufacturing practices ("GMP") and other FDA regulations.
See "Risk Factors -- Limited Manufacturing Capability."

The Company believes that it is currently manufacturing oligonucleotides
in substantial  compliance with FDA requirements for manufacturing in compliance
with GMP, although its facility and procedures have not been formally  inspected
by the FDA and the procedures and documentation followed may have to be enhanced
in the future as the Company expands its oligonucleotide  production activities.
Failure to establish to the FDA's satisfaction compliance with GMP can result in
the FDA  denying  authorization  to initiate or  continue  clinical  trials,  to
receive approval of a product or to begin or to continue commercial marketing.

13

The Company will be competing against a number of third parties, as well
as the  possibility  of  internal  production  by the  Company's  customers,  in
connection with the operations of the HSP Division.  Many of these third parties
are likely to have greater  financial,  technical and human  resources  than the
Company.  Key  competitive  factors  will  include  the price and quality of the
products  as  well  as  manufacturing   capacity  and  ability  to  comply  with
specifications  and to fulfill  orders on a timely  basis.  The  Company  may be
required to reduce the cost of its product  offerings to meet  competition.  See
"Risk Factors -- Competition." Failure to manufacture  oligonucleotide compounds
in accordance  with the purchaser's  specifications  could expose the Company to
breach of contract  and/or  product  liability  claims from the purchaser or the
purchaser's  customers.  The Company has limited experience in sales,  marketing
and  distribution  and is  relying in part upon the  efforts  of a third  party,
Perkin-Elmer,  in connection  with the marketing and sale of products by the HSP
Division. See "Risk Factors -- Absence of Sales and Marketing Experience."

Need to Establish Collaborative Commercial Relationships;  Dependence on
Partners.   Hybridon's   business  strategy  includes  entering  into  strategic
alliances  or  licensing   arrangements  with  corporate   partners,   primarily
pharmaceutical  and  biotechnology  companies,  relating to the  development and
commercialization of certain of its potential products.  Although the Company is
a party to a corporate  collaboration  with  Searle,  a  subsidiary  of Monsanto
Company,    in   the   fields   of   cancer,    cardiovascular    disease    and
inflammation/immunomodulation and Medtronic relating to Alzheimers, there can be
no assurance that these  collaborations  will be  scientifically or commercially
successful,   that   the   Company   will  be  able  to   negotiate   additional
collaborations,  that such  collaborations  will be  available to the Company on
acceptable  terms  or that  any  such  relationships,  if  established,  will be
scientifically  or  commercially  successful.  The  Company  expects  that under
certain  of  these  arrangements,   the  collaborative  partner  will  have  the
responsibility  for  conducting  human  clinical  trials and the  submission for
regulatory  approval of the  product  candidate  with the FDA and certain  other
regulatory  agencies.  Should  the  collaborative  partner  fail  to  develop  a
marketable product, the Company's business may be materially adversely affected.
There can be no assurance that the Company's  collaborative partners will not be
pursuing alternative  technologies or developing alternative compounds either on
their own or in collaboration with others,  including the Company's competitors,
as a  means  for  developing  treatments  for the  diseases  targeted  by  these
collaborative  programs.  The  Company's  business  will also be affected by the
performance of its corporate  partners in marketing any  successfully  developed
products  within  the  geographic  areas  in which  such  partners  are  granted
marketing rights. The Company's plan is to retain  manufacturing rights for many
of the products it may license pursuant to arrangements with corporate partners.
However,  there can be no assurance that the Company will be able to retain such
rights on acceptable terms, if at all, or that the Company will have the ability
to  produce  the  quantities  of  product  required  under  the  terms  of  such
arrangements.

No  Assurance  of  Regulatory  Approval;   Government  Regulation.   The
Company's  preclinical studies and clinical trials, as well as the manufacturing
and marketing of the potential  products being  developed by it and the products
sold by the HSP  Division,  are  subject to  extensive  regulation  by  numerous
federal, state and local governmental  authorities in the United States. Similar
regulatory  requirements  exist in other  countries where the Company intends to
test and market its drug candidates.  Satisfaction of these requirements,  which
include  demonstrating  to the  satisfaction  of the FDA and foreign  regulatory
agencies that the product is both safe and  effective,  typically  takes several
years or more and can vary  substantially  based upon the type,  complexity  and
novelty of the product.  There can be no  assurance  that such testing will show
any  product to be safe or  efficacious.  Preclinical  studies of the  Company's
product development  candidates are subject to Good Laboratory Practices ("GLP")
requirements  and the  manufacture  of any  products by the  Company,  including
products developed by the Company and products manufactured for third parties on
a custom contract basis by the HSP Division, will be subject to GMP requirements
prescribed by the FDA. See "The Company -- Government Regulation."

The regulatory process,  which includes  preclinical  studies,  clinical
trials and  post-clinical  testing of each  compound to establish its safety and
effectiveness,  takes many years and requires  the  expenditure  of  substantial
resources.  Delays may also be  encountered  and  substantial  costs incurred in
foreign  countries.  There can be no assurance  that,  even after the passage of
such time and the  expenditure of such  resources,  regulatory  approval will be
obtained for any drugs developed by the Company.  Data obtained from preclinical
and  clinical  activities  are  subject to varying  interpretations  which could
delay,  limit or  prevent  regulatory  approval  by the FDA or other  regulatory
agencies. The Company, an independent Institutional Review Board (an "IRB"), the
FDA or other regulatory  agencies may suspend clinical trials at any time if the
participants  in such trials are being  exposed to  unacceptable  health  risks.
Moreover,  if regulatory approval of a drug is granted, such approval may entail
limitations  on the  indicated  uses for which it may be  marketed.  Failure  to
comply with applicable  regulatory  requirements can, among other things, result
in fines,  suspension  of  regulatory  approvals,  product  recalls,  seizure of
products,  operating  restrictions  and  criminal  prosecutions.  FDA policy may
change and additional government

14

regulations may be established that could prevent or delay  regulatory  approval
of the Company's  potential products.  Even if initial regulatory  approvals for
the Company's product candidates are obtained, the Company, its products and its
manufacturing  facilities  would be subject  to  continual  review and  periodic
inspection.  Moreover,  additional government regulation from future legislation
or  administrative  action  may be  established  which  could  prevent  or delay
regulatory  approval of the Company's products or further regulate the prices at
which the Company's proposed products may be sold. The regulatory  standards for
manufacturing are applied  stringently by the FDA. In addition,  a marketed drug
and its  manufacturer  are  subject  to  continual  review  and  any  subsequent
discovery of  previously  unknown  problems with a product or  manufacturer  may
result in restrictions on such product or manufacturer,  including withdrawal of
the  product  from the market and  withdrawal  of the right to  manufacture  the
product.  All of the  foregoing  regulatory  matters also will be  applicable to
development, manufacturing and marketing undertaken by any strategic partners or
licensees of the Company.

Competition. There are many companies, both private and publicly traded,
that are conducting  research and  development  activities on  technologies  and
products similar to or competitive with the Company's antisense technologies and
proposed  products.  For example,  many other companies are actively  seeking to
develop products,  including  antisense  oligonucleotides,  with disease targets
similar  to those  being  pursued  by the  Company.  Some of  these  competitive
products are in clinical  trials and one antisense  product for the treatment of
cytomegalovirus  has  received FDA  approval  and is being  commercialized.  The
Company believes that the industry-wide  interest in investigating the potential
of gene expression modulation  technologies will continue and will accelerate as
the  techniques  which permit the design and  development of drugs based on such
technologies  become more widely understood.  There can be no assurance that the
Company's   competitors  will  not  succeed  in  developing  products  based  on
oligonucleotides  or  other  technologies,  existing  or  new,  which  are  more
effective  than any that are being  developed  by the  Company,  or which  would
render Hybridon's antisense technologies obsolete and noncompetitive.  Moreover,
there currently are commercially available products for the treatment of many of
the disease targets being pursued by the Company.

Competitors  of the Company  engaged in all areas of  biotechnology  and
drug  discovery  in the  United  States and other  countries  are  numerous  and
include,  among others,  pharmaceutical  and chemical  companies,  biotechnology
firms,  universities  and other  research  institutions.  Many of the  Company's
competitors have substantially greater financial,  technical and human resources
than the Company.  In addition,  many of these  competitors  have  significantly
greater experience than the Company in undertaking preclinical studies and human
clinical  trials of new  pharmaceutical  products  and  obtaining  FDA and other
regulatory  approvals of products for use in health  care.  Furthermore,  if the
Company is permitted to commence  commercial sales of products,  it will also be
competing with respect to manufacturing  efficiency and marketing  capabilities,
areas in which it has  limited  or no  experience.  Accordingly,  the  Company's
competitors  may succeed in  obtaining  FDA or other  regulatory  approvals  for
products or in commercializing such products more rapidly than the Company.

Limited  Manufacturing  Capability.  While the Company believes that its
existing  production  capacity  will be  sufficient  to enable it to satisfy its
current  research  needs and to support the Company's  preclinical  and clinical
requirements for  oligonucleotide  compounds,  the Company will need to purchase
additional  equipment to expand its  manufacturing  capacity in order to satisfy
its  future  requirements,   subject  to  obtaining  regulatory  approvals,  for
commercial production of its product candidates.  In addition,  the HSP Division
is  using  the  Company's  existing   production  capacity  to  custom  contract
manufacture  synthetic DNA products for commercial sale. As a result,  depending
on the level of sales by the HSP  Division,  and the  success  of the  Company's
product  development  programs,  Hybridon's  manufacturing  capacity  may not be
sufficient  for  production  for  both its  internal  needs  and  sales to third
parties.  In  addition,  in order  successfully  to  commercialize  its  product
candidates or achieve satisfactory margins on sales, the Company may be required
to reduce further the cost of production of its oligonucleotide  compounds,  and
there can be no assurance that the Company will be able to do so.

The manufacture of the Company's products is subject to GMP requirements
prescribed  by  the  FDA  or  other  standards  prescribed  by  the  appropriate
regulatory  agency in the  country of use.  There can be no  assurance  that the
Company  will  be  able to  manufacture  products  in a  timely  fashion  and at
acceptable quality and price levels, that it or its suppliers can manufacture in
compliance with GMP or other regulatory requirements or that it or its suppliers
will be able to  manufacture an adequate  supply of product.  The Company has in
the  past  relied  in  part,  and  may in the  future  rely,  upon  third  party
contractors in connection with the  manufacture of some  compounds.  Reliance on
such third parties  entails a number of risks,  including the  possibility  that
such third  parties may fail to perform on an  effective or timely basis or fail
to abide by regulatory or contractual restrictions applicable to the Company.

15

There  are  extremely  limited  sources  of  supply  for the  nucleotide
building blocks used by the Company in its current oligonucleotide manufacturing
process. This process is covered by issued patents either held by or licensed to
these  suppliers.  Therefore,  these  suppliers are likely the sole suppliers to
Hybridon of these  nucleotide  building  blocks.  There can be no assurance that
nucleotide  building  blocks will be obtainable at acceptable  costs, if at all.
The inability of Hybridon to obtain these nucleotide building blocks from one of
these suppliers,  or to obtain them at an acceptable cost, could have a material
adverse effect on Hybridon.

Absence of Sales and Marketing  Experience.  The Company may  eventually
market and sell certain of its  prospective  therapeutic  products  directly and
certain of its prospective  therapeutic  products through  co-marketing or other
licensing arrangements with third parties. The Company has limited experience in
sales, marketing or distribution,  and would not expect to establish a sales and
marketing  plan or direct  sales  capability  with  respect  to the  therapeutic
products  being  developed by it until such time as one or more of such products
approaches marketing approval, if at all. In addition, although the Company does
have a limited  direct  sales  capability  with  respect  to the sales of custom
contract  manufactured  DNA products to third parties by the HSP  Division,  the
Company has entered into a sales and  marketing  arrangement  with  Perkin-Elmer
Corporation  ("Perkin-Elmer")  with  respect to such  products and is reliant in
part on the  efforts of  Perkin-Elmer  to promote  these  products.  In order to
market the  therapeutic  products  being  developed by it directly,  the Company
would be required to develop a substantial  marketing staff and sales force with
technical expertise and with supporting distribution capability. There can be no
assurance  that the  Company  would be able to build such a  marketing  staff or
sales force, that the cost of establishing such a marketing staff or sales force
would be  justifiable  in light of any product  revenues  or that the  Company's
direct sales and marketing  efforts  would be  successful.  In addition,  if the
Company succeeds in bringing one or more therapeutic  products to market, it may
compete with other  companies  that  currently  have  extensive and  well-funded
marketing  and sales  operations.  There can be no assurance  that the Company's
marketing and sales efforts would enable it to compete successfully against such
other  companies.  To the extent the Company enters into  co-marketing  or other
licensing arrangements, any revenues received by the Company for its therapeutic
products will be dependent in part on the efforts of third parties and there can
be no assurance that such efforts will be successful.

No  Assurance of Market  Acceptance.  Pharmaceutical  products,  if any,
resulting from the Company's research and development  programs are not expected
to be  commercially  available for a number of years.  There can be no assurance
that, if approved for marketing,  such products will achieve market  acceptance.
The degree of market acceptance will depend upon a number of factors,  including
the receipt of regulatory approvals,  the establishment and demonstration in the
medical community of the clinical efficacy and safety of the Company's  products
and their potential advantages over existing treatment methods and reimbursement
policies of  government  and  third-party  payors.  There is no  assurance  that
physicians,  patients, payors or the medical community in general will accept or
utilize any products that may be developed by the Company.

Product  Liability  Exposure  and  Insurance.  The  use  of  any  of the
Company's  potential  products in clinical trials and the commercial sale of any
products,  including the products being developed by it and the DNA products and
reagents  manufactured  and sold on a custom contract basis by the HSP Division,
may expose the Company to liability claims.  These claims might be made directly
by  consumers,  health care  providers or by  pharmaceutical  and  biotechnology
companies  or others  selling  such  products.  Hybridon  has product  liability
insurance coverage,  and such coverage is subject to various  deductibles.  Such
coverage is becoming increasingly expensive,  and no assurance can be given that
the Company will be able to maintain or obtain such insurance at reasonable cost
or in sufficient  amounts to protect the Company against losses due to liability
claims that could have a material adverse effect on the Company.

Hazardous   Materials.   The  Company's  research  and  development  and
manufacturing  activities  involves the controlled  use of hazardous  materials,
chemicals,  viruses  and various  radioactive  compounds.  Although  the Company
believes that its safety procedures for handling and disposing of such materials
comply with the standards  prescribed by federal,  state and local  regulations,
the risk of accidental  contamination  or injury from these materials  cannot be
completely  eliminated.  In the event of such an accident,  the Company could be
held liable for any  damages  that  result and any such  liability  could have a
material adverse effect on the Company.

Uncertainty of Pharmaceutical  Pricing and Adequate  Reimbursement.  The
Company's ability to commercialize its pharmaceutical products successfully will
depend in part on the extent to which appropriate  reimbursement  levels for the
cost of such  products  and  related  treatment  are  obtained  from  government
authorities,  private health  insurers and other  organizations,  such as health
maintenance   organizations   ("HMOs").   Third-party  payors  are  increasingly
challenging the prices charged for medical  products and services.  There can be
no assurance

16

that any of the Company's  potential products will be considered  cost-effective
or that  adequate  third-party  reimbursement  will be  available  to enable the
Company to maintain price levels sufficient to realize an appropriate  return on
its investments. Also the trend towards managed health care in the United States
and the concurrent growth of organizations  such as HMOs, which could control or
significantly  influence the purchase of health care  services and products,  as
well as legislative  proposals to reduce government insurance programs,  may all
result in lower prices for the Company's products. The cost containment measures
that health care providers are instituting could affect the Company's ability to
sell its products and may have a material adverse effect on the Company.

Uncertainty  of Health Care Reform  Measures.  Federal,  state and local
officials  and  legislators  (and  certain  foreign  government   officials  and
legislators) have proposed or are reportedly  considering proposing a variety of
reforms to the health care systems in the United States and abroad.  The Company
cannot predict what health care reform  legislation,  if any, will be enacted in
the United States or elsewhere. Significant changes in the health care system in
the United States or elsewhere are likely to have a substantial impact over time
on the manner in which the Company  conducts its  business.  Such changes  could
have a material  adverse effect on the Company.  The existence of pending health
care reform  proposals  could have a material  adverse  effect on the  Company's
ability to raise capital.  Furthermore,  the Company's  ability to commercialize
its  potential  products  may be  adversely  affected  to the  extent  that such
proposals have a material  adverse effect on the business,  financial  condition
and  profitability  of other companies that are prospective  corporate  partners
with respect to certain of the Company's proposed products.

Possible  Volatility  of Share  Price.  Investors  should be aware  that
market prices for securities of companies such as Hybridon are highly  volatile.
Factors such as the results of  preclinical  studies and clinical  trials by the
Company or its  competitors,  fluctuations in the Company's  operating  results,
announcements  of  technological   innovations  or  new  commercial  therapeutic
products  by  the   Company  or  its   competitors,   governmental   regulation,
developments  in patent  or other  proprietary  rights,  of the  Company  or its
competitors,  including  litigation,  public  concern  as to the safety of drugs
developed by the Company and general  market  conditions  may have a significant
effect on the market price of the Company's Common Stock.

Antitakeover  Provisions.  The Company is subject to the  provisions  of
Section 203 of the Delaware  General  Corporation  Law.  Section 203 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 can be expected to
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 of the Company (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 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 of the
corporation  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 be 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 a third party to
acquire,  or of  discouraging  a third  party  from  acquiring,  control  of the
Company.

The Restated  Certificate of Incorporation also requires that any action
required  or  permitted  to be taken by the  stockholders  of the  Company at an
annual  meeting or special  meeting of  stockholders  may only be taken if it is
properly  brought  before such 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 such 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 the
Company or by the Board of Directors.  Under the Company's  Amended and Restated
By-Laws  (the  "By-Laws"),  in order for any matter to be  considered  "properly
brought" before a meeting,  a stockholder must comply with certain  requirements
regarding advance notice to the Company. The foregoing provisions could have the
effect of delaying until the next stockholders meeting stockholder actions which
are favored by the holders of a majority of the outstanding voting securities of
the Company. These provisions may also discourage another

17

person or entity  from making a tender  offer for the  Company's  Common  Stock,
because such person or entity, even if it acquired a majority of the outstanding
voting securities of the Company,  would be able to take action as a stockholder
(such as electing  new  directors  or  approving a merger) 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 by-laws,
unless a corporation's  certificate of incorporation or by-laws, as the case may
be, requires a greater percentage. The Restated Certificate of Incorporation and
the By-Laws require the  affirmative  vote of the holders of at least 75% of the
shares of capital stock of the Company  issued and  outstanding  and entitled to
vote to amend  or  repeal  any of the  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, Preferred Stock. In addition to these provisions of Delaware law, the
Restated  Certificate of Incorporation and the Company's  By-Laws,  the terms of
the Company'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 the Company,  upon a Change of
Control  of the  Company  (as  defined  in the  indenture  for the 9% Notes (the
"Indenture"), 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. Pursuant to the terms of the Convertible Preferred Stock the
Company may, at its  election,  pay  dividends  either in cash or in  additional
shares of the  Convertible  Preferred  Stock.  The Company  does not  anticipate
paying any  dividends on the  Convertible  Preferred  Stock in the future.  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 hostile takeovers or delaying
or  preventing  changes in  control  or  management  of the  Company,  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.

No  Dividends  On Common  Stock or Cash  Dividends  on  Preferred  Stock
Anticipated  in the  Foreseeable  Future.  The  Company  has not  paid  any cash
dividends on the Common Stock since its inception and does not anticipate paying
any cash  dividends on its Common Stock in the future.  Pursuant to the terms of
the Convertible Preferred Stock the Company may, at its election,  pay dividends
either in cash or in additional  shares of the Convertible  Preferred Stock. The
Company  does not  anticipate  paying  any  cash  dividends  on the  Convertible
Preferred Stock in the future.  Declaration of dividends on the Common Stock, or
payment of cash dividends on this Convertible Preferred Stock, will depend upon,
among other things,  future earnings,  the operating and financial  condition of
the Company, its capital requirements and general business conditions.  However,
the  Indenture  pursuant to which the 9% Notes were issued  limits the Company's
ability to pay dividends or make other  distributions  on its Common Stock or to
pay cash  dividends  on the  Convertible  Preferred  Stock,  and the  Company is
currently prohibited from paying cash dividends under the Bank Credit Facility.

Liquidation  Put Right.  The initial  purchasers (the  "Liquidation  Put
Holders")  of certain of the shares (the "Put  Shares") of Common  Stock sold in
the  Regulation  S and the  Regulation  D  Offerings  have the right to put (the
"Liquidation  Put") those shares back to the Company upon the liquidation of the
Company,  but only after all other  indebtedness  and obligations of the Company
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. The
Liquidation  Put is not  transferrable,  however.  Purchasers  of  Common  Stock
pursuant  to  this  Prospectus  will  therefore  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 the Company. In such circumstances, holders of shares of the Company's 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  December  1, 1998,  there were
9,597,476 Put Shares outstanding.

Certain  Federal  Income Tax  Consequences  to the Company.  For Federal
income tax  purposes,  net  operating  loss and tax credit  carryforwards  as of
December 31, 1997 are approximately  $205,997,000 and $3,436,000,  respectively.
These  carryforwards  will expire beginning on December 31, 2005. The Tax Reform
Act of 1986 provided for a limitation  on the annual use of net  operating  loss
and tax credit  carryforwards  following certain ownership changes.  The Company
believes that the  securities  offerings  conducted by the Company are likely to
restrict  severely the Company's ability to utilize its net operating losses and
tax credits in any  particular  year.  Additionally,  because the U.S.  tax laws
limit the time during which net operating loss and tax credit carryforwards

18

may be applied against future taxable income and tax liabilities,  respectively,
the  Company  may  never be  fully  able to use its net  operating  loss and tax
credits for federal income tax purposes.

Year 2000  Compliance.  As has been  widely  publicized,  many  computer
systems and  microprocessors  are not programmed to accommodate dates beyond the
year 1999.  The Company's  exposure to this year 2000 ("Y2K")  problem comes not
only from its own internal computer systems and  microprocessors,  but also from
the  systems  and  microprocessors  of  its  key  suppliers,  including  utility
companies and payroll services.

The Company is currently evaluating all of its internal computer systems
and  microprocessors  in light of the Y2K  problem.  Testing of all its internal
computer systems and microprocessors should be completed by the end of the first
quarter  of 1999.  The  Company  does not expect  the cost of  bringing  all the
Company's systems and microprocessors into Y2K compliance will be material.  The
Company  currently  believes  that  all  of its  internal  systems  will  be Y2K
compliant by the end of the third quarter of 1999.

The Company is not  currently  able to assess the Y2K  readiness of its
research  partners,  or the potential  impact,  if any, of a research  partner's
failure to be Y2K compliant. With regard to potential supplier Y2K problems, the
Company  has  compiled  a list of its  critical  suppliers,  and has  sent a Y2K
questionnaire  to each of them in order to permit the Company to  ascertain  the
Y2K  compliance  status of each.  The  Company is  awaiting  the return of these
questionnaires.  The Company  does not  currently  know of any key  supplier Y2K
problems that could have a material effect on the Company's business. If through
a Y2K  questionnaire or otherwise the Company becomes aware of any such problems
and is not satisfied that those problems are being adequately addressed, it will
take appropriate steps to find alternative suppliers.

It has been  acknowledged by governmental  authorities that Y2K problems
have the potential to disrupt global economies,  that no business is immune from
the potentially  far-reaching effects of Y2K problems,  and that it is difficult
to  predict  with   certainty   what  will  happen  after   December  31,  1999.
Consequently,  it is possible that Y2K problems  will have a material  effect on
the Company's  business even if the Company  takes all  appropriate  measures to
ensure that it and its key suppliers are Y2K compliant.

It is possible  that the  conclusions  reached by the  Company  from its
analysis to date will change, which could cause the Company's Y2K cost estimates
and target completion dates to change.

Concentration  of Ownership by Directors  and  Executive  Officers.  The
Company's directors and executive officers and their affiliates beneficially own
a  significant   percentage  of  the  Company's  outstanding  Common  Stock  and
Convertible  Preferred  Stock.  See  "Security  Ownership of Certain  Beneficial
Owners and Management." As a result, these stockholders, if acting together, may
have the  ability to  influence  the  outcome  of  corporate  actions  requiring
stockholder  approval.  This  concentration  of ownership may have the effect of
delaying or preventing a change in control of the Company.

19

THE COMPANY

Available  Information About The Company

The Company is subject to the informational requirements of the Exchange
Act, and in accordance  therewith  files  reports,  proxy  statements  and other
information  with the  Commission.  Such  reports,  proxy  statements  and other
information  may be  inspected  and  copied at the public  reference  facilities
maintained by the Commission at 450 Fifth Street,  N.W., Room 1024,  Washington,
D.C. 20549 and at the Commission's regional offices located at Seven World Trade
Center,  Suite 1300, New York, New York 10048, and at Citicorp Center,  500 West
Madison Street,  Suite 1400,  Chicago,  Illinois 60661. Copies of such materials
also may be obtained from the Public Reference  Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. In addition, the
Company is required to file electronic  versions of these documents  through the
Commission's  Electronic Data Gathering,  Analysis and Retrieval system (EDGAR).
The  Commission  maintains  a World  Wide  Web site at  http://www.sec.gov  that
contains  reports,  proxy  and  information  statements  and  other  information
regarding registrants that file electronically with the Commission.

The Company has filed with the  Commission a  Registration  Statement on
Form S-1  (together  with all  amendments,  supplements,  exhibits and schedules
thereto, the "Registration Statement") under the Securities Act, with respect to
the  Securities  offered  hereby.  This  Prospectus  does not contain all of the
information  set  forth in the  Registration  Statement,  as  certain  items are
omitted in accordance  with the rules and  regulations  of the  Commission.  For
further information  pertaining to the Company and the Securities,  reference is
made to such  Registration  Statement.  Statements  contained in this Prospectus
regarding  the contents of any agreement or other  document are not  necessarily
complete,  and in each instance  reference is made to the copy of such agreement
or  document  filed as an  exhibit  to the  Registration  Statement,  each  such
statement being qualified in all respects by such  reference.  The  Registration
Statement may be inspected without charge at the office of the Commission at 450
Fifth  Street,  N.W.,  Washington,  D.C.  20549,  and  copies of all or any part
thereof may be obtained from the Commission at prescribed rates.

General

The  Company,  established  in 1989,  is a leader in the  discovery  and
development  of novel  genetic  medicines.  These novel  medicines use antisense
technology (see "Technology  Overview") to selectively inhibit the production of
disease-causing proteins at the genetic level. The Company's leadership position
is based on its development and therapeutic  application of proprietary advanced
antisense chemistries and the establishment of a manufacturing  business for the
large-scale synthesis of RNA and DNA (oligonucleotides) under GMP.

The    Company    believes    it    is    the    only    company    with
systemically-administered  advanced  chemistry  antisense  compounds in clinical
development.  To date, the Company has initiated  clinical  development of three
compounds  based  on  its proprietary   advanced  chemistries  and  has  several
additional compounds in preclinical development.

The Company  believes it is the only  large-scale  GMP  manufacturer  of
oligonucleotides,  with  approximately 50 customers  representing three distinct
and diverse business areas: therapeutics, diagnostics and genomics. In addition,
the Company has significant  scale-up  ability (with a relatively low additional
capital  investment)  in  its  manufacturing  facility,  thereby  providing  the
capability  to respond to the  Company's,  its  collaborators'  and its clients'
potential needs for large-scale  production of oligonucleotides for use in these
diverse business areas.

The Company's  efforts in the antisense field are based on an integrated
antisense  technology  platform  combining  patented and  proprietary  medicinal
chemistries,  synthetic DNA manufacturing  technology and analytical  processes.
The Company's  strategy is to leverage this technology  platform by applying its
antisense  oligonucleotides  against a range of genetic targets  associated with
major diseases,  by manufacturing  oligonucleotides for its own internal use and
on a custom  contract  basis  for sale to third  parties  and by  entering  into
collaborations  with large  pharmaceutical  company partners for the development
and commercialization of antisense  oligonucleotide drugs directed against these
genetic targets.

In  particular,  the Company  believes that these  advanced  chemistries
provide the potential for reduced side effects and enhanced metabolic stability,
which  may  result  in less  frequent  dosing  and  therefore  lower  costs  per
treatment,  as well as the  potential for oral  administration.  The Company has
three  compounds  in  clinical  development  (one  with two  formulations  using
different  routes of  administration)  and several  other  compounds in advanced
preclinical development. The compounds in the clinical phase of drug development
are:

20

- -       GEM 231 for the  treatment  of a  variety  of  cancers  (gene  target is
protein  kinase A), which is  currently  in Phase II clinical  trials in
patients  with  solid  tumors  who  are no  longer  benefited  by  other
treatments;

- -       GEM 92 for the treatment of HIV infection and AIDS,  which has completed
a pilot Phase I clinical study in Europe.  The Company believes this was
the first oral administration of antisense molecules to humans; and

- -       GEM 132 for the treatment of systemic cytomegalovirus ("CMV") infections
and retinitis,  which is now in Phase I/II clinical trials in the United
States and Canada.  The Company  believes these clinical  trials are the
first clinical trials involving  administration  of a  second-generation
chemistry oligonucleotide into humans.

The Company's  compounds in preclinical  development include a series of
antisense  oligonucleotides  with potential to reduce the production of vascular
endothelial growth factor ("VEGF"), which has been implicated in diseases of the
retina (e.g., diabetic retinopathy; age-related macular degeneration) related to
the  abnormal  formation  of new  blood  vessels  in the  eye.  These  antisense
compounds  targeting  VEGF are also  potential  therapies for solid tumors.  The
Company  has  completed  some  work on the use of VEGF  antisense  compounds  in
psoriasis.  Using  antisense  technology,  the Company has also  developed  lead
compounds  for the  treatment of hepatitis C, and research  compounds  targeting
amyloid proteins for the treatment of Alzheimer's  disease. See "Risk Factors --
Early Stage of  Development;  Technological  Uncertainty"  and "Risk  Factors --
Uncertainty Associated with Clinical Trials."

An important  part of the Company's  business  strategy is to enter into
research  and  development   collaborations,   licensing  agreements  and  other
strategic   alliances   with  third   parties,   primarily   biotechnology   and
pharmaceutical  corporations,  for the development and  commercialization of its
products,  and to engage in  spin-outs of certain  technology  of the Company to
minority-owned  subsidiaries in order to obtain  alternative  financing for such
technology.  The Company is a party to a corporate  collaboration with Searle, a
subsidiary of Monsanto Company, in the fields of cancer,  cardiovascular disease
and  inflammation/immunomodulation.   Research  compounds  targeting  the  MDM-2
protein for the treatment of cancer have been developed by the Company;  further
development  of  these  compounds  falls  under  the  Searle  collaboration.  In
addition,  the Company has  out-licensed  certain advanced  chemistry  compounds
based on proprietary genetic targets with respect to DNA  methyltransferase to a
Quebec  company,  MethylGene,  in  exchange  for a minority  equity  interest in
MethylGene,  and is currently in the process of  out-licensing  certain advanced
chemistry  compounds  based on proprietary  genetic  targets with respect to the
human  papilloma  virus and hepatitis B virus genomes to another Quebec company,
OriGenix  Technologies  Inc.  ("OriGenix"),  in exchange  for a minority  equity
interest in OriGenix.  The  licensing of these  programs  will require the prior
approval  of the Lender  under the Bank Credit  Facility.  See  "Description  of
Capital Stock and Indebtedness -- Indebtedness -- Bank Credit Facility."

The Company's plan is to seek corporate  collaborations  with respect to
each of its compounds in  development.  The Company  intends to proceed with its
GEM 231 clinical program through Phase II clinical trials,  at which time it may
seek a  corporate  collaborator.  The  Company  generally  does  not  anticipate
proceeding  with any of its  other  programs  beyond  their  current  stages  of
development without a collaborative  arrangement with a corporate partner. There
can  be no  assurance  that  the  Company  will  enter  into  any  collaborative
arrangements  with third  parties with respect to these or any of the  Company's
future  programs,  nor can there be any  assurance  as to what the terms of such
collaborative  arrangements  will be.  See "Risk  Factors  -- Need to  Establish
Collaborative Commercial Relationships; Dependence on Partners."

In 1996,  the  Company  formed its HSP  Division to  manufacture  highly
purified oligonucleotide  compounds both for the Company's internal use and on a
custom  contract  basis  for  sale to third  parties,  including  the  Company's
collaborative  partners.  The  Company  is  manufacturing   oligonucleotides  in
compliance  with GMP at its 36,000  square  foot  leased  facility  in  Milford,
Massachusetts.  The HSP  Division  first  began  production  of  oligonucleotide
compounds  for  sale  to  third  parties  in  June  1996  and  had  revenues  of
approximately  $1.1  million  in 1996,  approximately  $1.9  million in 1997 and
approximately  $2.1 million  through the third quarter of 1998. The HSP Division
also has received orders to provide analytical  services and plans to expand its
product offerings to include  proprietary  intermediates used in the manufacture
of  oligonucleotides.  The Company has entered into a sales and supply agreement
with Applied Biosystems Division of Perkin-Elmer under which Perkin-Elmer refers
potential customers to the Company.  See "Risk Factors -- Limited  Manufacturing
Capability,"  "Risk Factors --Risks Associated with the HSP Division," and "Risk
Factors -- Patents and Proprietary Rights."

21

Restructuring and Certain Other Developments

In July 1997,  the Company  terminated  the  development  of GEM 91, its
first  generation  antisense  drug for the treatment of AIDS and HIV  infection,
based on a review  of new data from an open  label  Phase II  clinical  trial of
patients with advanced HIV infection.

During  the second  half of 1997,  following  termination  of the GEM 91
program,  the Company implemented a restructuring plan to reduce expenditures on
a phased  basis over the  balance of 1997 and into 1998 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 reduced or suspended
programs  unrelated to its core advanced  chemistry  antisense drug  development
programs.  In  addition,  the  Company  substantially  reduced the number of its
employees and substantially  reduced operations at its Paris,  France office. As
part of this  restructuring,  the Company reviewed all outside  testing,  public
relations,  travel and entertainment and consulting  arrangements and terminated
or renegotiated various of these arrangements.

In  December  1997,  because of the  Company's  failure  to satisfy  the
minimum  net  tangible  assets  criteria  of the  Nasdaq  National  Market,  the
Company's  Common Stock was delisted from the Nasdaq  National  Market and began
being quoted on the NASD OTC Bulletin Board. In addition,  in December 1997, the
Company effected a one-for-five reverse stock split of its Common Stock. All per
share Common Stock information contained in the Registration  Statement of which
this Prospectus is a part (other than in the Exhibit Index) has been adjusted to
reflect this reverse split.

On February 6, 1998,  the Company  commenced  the Exchange  Offer to the
holders of the 9% Notes to exchange the 9% Notes for Convertible Preferred Stock
and certain warrants of the Company.  On May 5, 1998,  noteholders holding $48.7
million of principal and $2,361,850 of accrued interest  tendered such principal
and accrued interest to the Company for 510,505 shares of Convertible  Preferred
Stock and Class A Warrants to purchase  3,002,956 shares of Common Stock with an
exercise price of $4.25 per share.

On May 5, 1998,  the  Company  completed  a private  offering  of equity
securities raising total gross proceeds of approximately  $27.3 million from the
issuance of 9,597,476  shares of Common  Stock,  114,285  shares of  Convertible
Preferred  Stock and  Warrants to purchase  3,329,486  shares of Common Stock at
$2.40 per share.  The gross proceeds  included the  conversion of  approximately
$6.2  million  of  accounts   payable,   capital  lease  obligations  and  other
obligations into Common Stock. The Company incurred  approximately  $2.6 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,  subject  to  adjustment,  to the  placement  agents,  as more fully
described below. See also "Certain  Relationships and Related  Transactions" for
information concerning compensation paid to the placement agents.

This  restructuring  of the Company,  together with employee  attrition,
resulted in a reduction in (a) the number of the Company's employees from 213 at
June 30,  1997 to 102 at December  31, 1997 and 50 at December 1, 1998,  (b) the
subleasing of an aggregate of approximately 61,000 square feet of space, (c) the
relocation of its  headquarters  from Cambridge,  Massachusetts  (the "Cambridge
Facility")  to its  manufacturing  facility in Milford,  Massachusetts,  (d) the
termination of its lease for the Cambridge Facility, (e) the sale of its limited
partner interest in Charles River Limited  Partnership,  the former owner of the
Cambridge  Facility,  and (f) the  termination  of its  office  lease in  Paris,
France.  As a result,  the Company has  significantly  scaled back the level and
scope  of  its  operations  since  mid-1997.  The  restructuring  has  now  been
completed.  The  Company  is  continuing  to  explore  opportunities  to  reduce
operating expenses in an effort to conserve its cash resources.

TECHNOLOGY OVERVIEW

Introduction

Antisense  technology  involves the use of synthetic  segments of DNA to
interact at the genetic  level with target  messenger  RNA,  which codes for the
production of proteins.  In contrast to traditional drugs, which are designed to
interact with protein molecules  associated with diseases,  antisense drugs work
at the genetic level to interrupt the process by which disease-causing  proteins
are produced.  The Company believes that drugs based on antisense technology may
have  broader  applicability,  greater  efficacy  and fewer  side  effects  than
conventional drugs

22

because  antisense  compounds  are  designed to  intervene  early in the disease
process at the genetic level and in a highly specific fashion.

Proteins  play a  central  role  in  virtually  every  aspect  of  human
metabolism.  Almost all human diseases are the result of  inappropriate  protein
production  or  performance.  Traditional  drugs are  designed to interact  with
protein  molecules that support or create diseases.  Antisense drugs work at the
genetic  level to interrupt  the process by which  disease-causing  proteins are
produced.

The information  necessary to produce a specific protein is encoded in a
specific  gene.  The  information  required  to produce  all human  proteins  is
contained in the human  genome and its  collection  of more than 100,000  genes.
Each gene is made up of DNA, which is a duplex of entwined  strands -- a "double
helix." In each duplex,  the building  blocks of DNA,  called  nucleotides,  are
bound or  "paired"  with  complementary  nucleotides  on the other  strand.  The
precise sequence of a nucleotide chain that is the blueprint for the information
that is used  during  protein  production  is called the "sense"  sequence.  The
sequence of a nucleotide chain that is precisely  complementary to a given sense
sequence is called its "antisense" sequence.

Protein  production,  also called  synthesis  or  expression,  typically
involves a two-phase  process.  First, the information  contained in the gene is
transcribed from the sense strand of DNA into one or more molecules of messenger
RNA. Second, the information encoded in the messenger RNA is translated into the
sequence of amino acids that comprise the protein. The information  contained in
a single gene is often repeatedly  transcribed into multiple copies of messenger
RNA, which in turn are repeatedly translated,  giving rise to multiple copies of
the same protein.

Conventional Drugs

Most drugs are chemicals designed to induce or inhibit the function of a
target  molecule,  typically a protein,  with as few  unwanted  side  effects as
possible.  However,  conventional  drugs are not  available for the treatment of
many  diseases  because  of  their  relatively  low  level of  selectivity.  The
selectivity of conventional drugs is usually determined by only a few, generally
two or three,  points of interaction at the binding site of the target molecule.
Frequently, sites on other non-target molecules resemble the target binding site
sufficiently to permit the conventional  drug to bind to some degree.  This lack
of selectivity may result in decreased efficacy, unwanted side effects or a need
to administer the drug in less than optimal dosages due to toxicity concerns. In
addition,  the development of conventional drugs is generally time consuming and
expensive,  as thousands of compounds  must be  synthesized to find one with the
right efficacy and side effect profile.

Gene Expression Modulation

In  contrast  to  conventional   drugs,   which  usually  interact  with
disease-associated  proteins  after  they have been  produced,  gene  expression
modulation    technology   is   intended   to   regulate   the   production   of
disease-associated  proteins,  thus  targeting an earlier  biochemical  process.
Advances in genomic  science have  identified  many targets for gene  expression
modulation products. Once a gene that codes for a disease-associated  protein is
identified,  an  oligonucleotide  based on the  complementary  sequence  for the
selected site can be synthesized and its pharmaceutical  properties optimized by
chemical  modification.   These  chemically-modified   oligonucleotides  may  be
composed of DNA, RNA or a combination of the two.

Chemically-modified oligonucleotides can be designed to attack a disease
at the genetic level by binding to messenger RNA or DNA to prevent production of
disease-associated  proteins.  Binding to messenger RNA generally is used in the
"antisense" approach to gene expression modulation.

In   the   antisense    approach   to   gene   expression    modulation,
chemically-modified oligonucleotides, which consist of the antisense sequence to
a selected  region on a target  messenger RNA, are used to inhibit the synthesis
of a  particular  protein.  Because  the  sequence  of  nucleic  acid bases of a
chemically-modified  antisense  oligonucleotide  is  complementary to its target
sequence on a messenger RNA, the antisense  oligonucleotide forms a large number
of bonds at the target site, typically between 15 and 30, greatly increasing the
probability  that the  oligonucleotide  will  hybridize  (bind)  tightly  to the
selected type of messenger RNA.  Since a single  messenger RNA may be translated
repeatedly   into   a   protein,   a   single   chemically-modified    antisense
oligonucleotide may inhibit the synthesis of many copies of a protein. Moreover,
in vitro tests have shown that  chemically-modified  antisense  oligonucleotides
form complexes with their target messenger RNAs. These complexes,  which contain
certain  chemically-modified  antisense  oligonucleotides  activate  RNase  H, a
cellular enzyme, in a manner that destroys the

23

messenger RNA to which the  oligonucleotide  is bound,  without  destroying  the
oligonucleotide  itself,  thus freeing the  oligonucleotide to bind with another
identical messenger RNA.

HYBRIDON ANTISENSE TECHNOLOGY

Hybridon has  developed an  integrated  antisense  technology  platform
based  on   proprietary   medicinal   chemistries,   analytical   chemistry  and
manufacturing technology.  The development of Hybridon's antisense chemistry has
been directed by Dr. Sudhir Agrawal, the Company's Chief Scientific Officer, and
builds on the pioneering  work in the antisense  field begun in the 1970s by Dr.
Paul C. Zamecnik,  a founder and director of the Company,  at the  Massachusetts
General  Hospital  ("MGH")  and  continued  by Dr.  Zamecnik  at  the  Worcester
Foundation  for  Biomedical  Research,  Inc.,  which has since  merged  into the
University  of  Massachusetts  (the  "Worcester  Foundation").   Currently,  Dr.
Zamecnik is  affliated  with MGH. He  continues  to serve as a Director  of, and
consultant to, Hybridon.

Medicinal   Chemistries.   Hybridon's   scientists   have  designed  and
synthesized over 20 proprietary families of synthetic antisense  oligonucleotide
chemistries  including DNA/RNA hybrids,  also called mixed backbone chemistries.
The Company  believes that antisense  compounds  based on these  chemistries may
demonstrate a range of favorable pharmaceutical attributes,  including:  reduced
side effects, increased duration of action, increased potency and susceptibility
to lower dosing,  less  frequent  dosing,  controlled  release  formulation  and
alternative routes of administration,  including oral  administration.  Hybridon
designed  its first  generation  phosphorothioate  oligonucleotides  to increase
their resistance to enzymatic  degradation and their biological  activity and to
act    catalytically    by   triggering   RNase   H.   GEM   91   was   such   a
phosphorothioate-modified oligonucleotide. Hybridon has used the insights gained
by it in the human clinical  trials of GEM 91 in the design of its more advanced
oligonucleotide chemistries.

Manufacturing Technology. The Company's expertise in chemically-modified
oligonucleotides  has served as the foundation of its  manufacturing  technology
and know-how.  The Company has developed proprietary  technology to increase the
purity of  oligonucleotide  products,  enhance the  efficiency of the production
process and increase the scale of  production.  In 1996,  the Company  completed
development of two separate commercial scale oligonucleotide  synthesizers,  one
in an internal program and one in a collaboration with Pharmacia  Biotech,  Inc.
The synthesizer developed by Hybridon is capable of producing advanced chemistry
antisense oligonucleotides. In addition, the Company has implemented proprietary
purification   processes,   which  use  water  in  place  of  organic  solvents,
simplifying  environmental  compliance and permitting  purification  of kilogram
batches of oligonucleotides. The Company has also developed proprietary chemical
synthesis processes and novel reagents used in the synthesis process,  which the
Company  believes may further  decrease the cost of  production  of its modified
oligonucleotides.

Proprietary Analytical Tools and Processes.  The Company has established
proprietary   analytical   tools  and  processes   that  enable  it  to  analyze
oligonucleotide  compounds  with  greater  speed and accuracy  when  compared to
traditional  methods.  Hybridon  has  developed  a novel  method of  determining
antisense purity that is sensitive to a single DNA base difference;  this method
is significantly  more accurate than  traditional  chromatography  methods.  The
Company uses the  information  that it obtains with its  proprietary  analytical
tools and  processes  to improve  production  quality  control,  to comply  with
regulatory  requirements  and to monitor  the  pharmacokinetic  behavior  of its
oligonucleotide compounds in preclinical studies and clinical trials.

HYBRIDON DRUG DEVELOPMENT AND DISCOVERY PROGRAMS

The Company is focusing its efforts on drug  development  and  discovery
programs involving antisense compounds based on the Company's  proprietary mixed
backbone advanced chemistries.  These compounds are directed towards diseases in
the three major therapeutic areas of oncology, virology and opthalmology. In the
table set forth below,  the  compounds  are grouped  according to their stage of
development.

The Company's plan is to seek corporate  collaborations  with respect to
each of its compounds in  development.  The Company  intends to proceed with its
GEM 231 clinical program through Phase II clinical trials,  at which time it may
seek a  corporate  collaborator.  The  Company  generally  does  not  anticipate
proceeding  with any of its other programs  described below beyond their current
stages of  development  without a  collaborative  arrangement  with a  corporate
partner.

24

- -----------------------------------------------------------------------------------------------------------------------
Primary Therapeutic
Target                                              Indication(s)                           Status(1)
- -----------------------------------------------------------------------------------------------------------------------

CLINICAL PROGRAMS

Protein Kinase A                              Cancer                             GEM 231 - (Intravenous
Formulation) - Phase II/Seeking
Partner

HIV-1                                         HIV-1 Infection and                GEM 92 - (Intravenous and
AIDS                               Oral Formulations) - Pilot
Phase I/Seeking Partner

Cytomeglavirus                                CMV Retinitis                      GEM 132 for Intravitreal
Injection - Phase I/II/Seeking
Partner

CMV (Systemic)                     GEM 132 for Systemic
Injection - Phase I/II/Seeking
Partner

PRECLINICAL PROGRAMS

MDM-2                                         Cancer                             Research Compounds/Searle
Collaboration

Vascular Endothelial Growth                   Cancer Angiogenesis                Preclinical/Seeking Partner
Factor
Retinopathies (e.g.                GEM 220 - Preclinical/Seeking
macular degeneration and           Partner
diabetic retinopathy)

Psoriasis                          Preclinical/Seeking Partner

Hepatitis C Virus                             Hepatitis; Liver Cancer            Lead Compounds/Seeking
Partner (2)

Amyloid Proteins                              Alzheimer's                        Research Compounds/Seeking
Partner

DRUG DEVELOPMENT PROGRAMS IN HYBRIDON SPINOUTS

DNA Methyltransferase                         Cancer                             Phase I/MethylGene Inc. (4)

Human Papilloma Viruses                       Genital Warts                      Preclinical (2)(3)

Hepatitis B Virus                             Hepatitis; Liver Cancer            Research Compounds (2)(3)

- -----------------------------------------------------------------------------------------------------------------------

(1)  Phase II clinical trials:  The product is administered to a limited patient
population to (i) evaluate the effectiveness  for specific  indications and
(ii) identify possible short-term adverse effects and safety risks.

25

Phase I clinical trials: The product is administered to a limited number of
healthy  human  subjects  or  patients  and  tested  for   pharmacokinetics
(absorption, metabolism, distribution and excretion), pharmacologic action,
dose response, safety and, if possible, early evidence of effectiveness.

Pilot  Phase I Study:  The  product is  administered  to a small  number of
patients to assess safety, pharmacokinetics and other data on a preliminary
basis.

Preclinical:  Compounds are undergoing  additional  testing and alternative
chemistries  are being  evaluated in biological  assays and/or  appropriate
animal models in order to assess efficacy,  toxicology and pharmacokinetics
and  to  select   particular   chemistries   with  optimal   pharmaceutical
attributes.  If these  procedures  are completed  satisfactorily  and other
scientific  and  financial  criteria  are met,  the  Company  may  initiate
IND-enabling   Good   Laboratory   Practices   ("GLP")  studies  and  begin
preparation of an IND application.

Lead  Compounds:   One  or  more  antisense   compounds  have  demonstrated
biological activity for a particular gene target in a specific and relevant
biological assay.

Research  Compounds:  Appropriate  target gene(s) and sequence(s) are being
determined;  antisense  compounds  are being  synthesized  and screened for
biological activity.

(2)  Developed  as part of the  Company's  collaboration  with Roche,  which was
terminated  by Roche as of February  28, 1998.  All rights  relating to the
hepatitis  B program  have  reverted  to the  Company.  Roche has agreed to
assign all rights to the hepatitis C and human  papilloma virus programs to
the Company in connection with such termination.

(3)  The Company is in the process of licensing its hepatitis B and HPV programs
to  OriGenix,  a Quebec  corporation,  in  exchange  for a minority  equity
interest in  OriGenix.  The  licensing of these  programs  will require the
prior  approval  of  the  Lender  under  the  Bank  Credit  Facility.   See
"Description  of Capital Stock and  Indebtedness  --  Indebtedness  -- Bank
Credit Facility."

(4)  Technology  relating to target has been licensed to and is being  developed
by MethylGene,  a Canadian  company  co-founded by the Company and in which
the Company owns a minority  interest.  Two IND applications  were filed in
December  1998 in Canada  (and one is  expected  to be filed in the  United
States in late  December  1998).  Phase I trials are  expected  to commence
after the mandatory waiting periods have expired.

CLINICAL PROGRAMS

Protein Kinase A

An increased  propensity for cell proliferation is a critical feature of
cancer  cells.   This  increased   proliferation  can  result  from  changes  in
signal-transduction  pathways or alterations in components  controlling the cell
cycle.  The  signal  transduction  molecule  Protein  Kinase A ("PKA")  has been
implicated in the formation and proliferation of various solid tumors (including
colon,  breast,  ovarian and lung). In addition,  a number of tissue culture and
animal studies have shown a correlation  between PKA inhibition and  anti-cancer
activity.

Specifically,  expression of the RI[alpha] subunit of PKA has been shown
to play a role in the  transformation  and maintenance of cancerous  cells.  The
RI[alpha] subunit is found in type I PKA.  Variations in the ratio of type I and
type II PKA  isoforms  have been linked  with cell  growth and  differentiation.
Specifically,  increased  expression  of type I has been  associated  with  cell
growth  and  cell  de-differentiation,  or  transformation,  while  type  II  is
associated with cessation of growth and cell differentiation.

The Company has  identified an antisense  inhibitor of the PKA RI[alpha]
subunit, GEM 231, based on its proprietary advanced chemistry. Administration of
GEM 231  orally  or by  injection  has been  shown to  inhibit  tumor  growth in
multiple mouse xenograft models of human solid tumors.  In addition,  in certain
mouse xenograft  models,  the efficacy of GEM 231 has been shown to be effective
alone and in combination with several  chemotherapy  agents commonly used in the
treatment  of  solid   tumors.   Clinical   studies  with  GEM  231  have  shown
significantly improved safety over first generation antisense drugs.

26

GEM  231 is  proposed  for  use in  breast  cancer,  colon  cancer  and
non-small  cell lung  cancer  ("NSCLC"),  among  others.  Of these,  the Company
believes that the highest unmet need is for first-line therapy for Stage III and
IV NSCLC.  Lung  cancer is the  number  one cause of cancer  death in the United
States.  This is due to many factors,  including high incidence,  poor screening
and limited  effectiveness  of current  chemotherapeutic  agents.  Surgery is an
effective treatment for NSCLC at stages I and II, but is much less effective for
Stage III and  beyond.  Unfortunately,  only  10-30% of the 133,000 new cases of
NSCLC in the  United  States in 1996  were  diagnosed  at an early  stage of the
disease.  For the remaining  70-90% of new cases,  surgery in  combination  with
adjuvant  chemotherapy,  or  chemotherapy  alone,  will result in a  statistical
5-year  survival  rate of only  15-25%  in  stage  III and 3% in  stage IV NSCLC
patients.

Current  chemotherapy  agents  have  several  dose-limiting  toxicities,
including effects on bone marrow,  renal, neural and gastrointestinal  function,
and therefore require 3 to 4 week treatment holidays.  Due to the specificity of
the GEM 231 target,  it is anticipated  that GEM 231 will be better tolerated in
human patients than traditional chemotherapeutic agents. In preclinical toxicity
studies as well as the Company's  recently completed Phase I clinical trial, GEM
231 did  not  exhibit  any of the  dose-limiting  toxicities  found  in  current
chemotherapeutic  agents. GEM 231, an advanced chemistry antisense molecule, has
also been shown to have a  significantly  improved  safety  profile  relative to
first generation oligonucleotides.

In January 1998, the Company initiated a Phase I  dose-escalation  trial
of GEM 231 in  patients  with  solid  tumors  which had not been  cured by prior
therapy  ("refractory  solid  tumors").  The  objective  of  this  trial  was to
determine  the  maximum  tolerated  dose  of  GEM  231  when  administered  as a
twice-weekly,  two-hour continuous infusion. Single doses of 360 mg/m2 have been
established as safe; the maximum  tolerated dose for repeated  administration is
240 mg/m2.  After  continuous  dosing on this schedule,  GEM 231  demonstrated a
significantly  improved  safety  compared  to  the  Company's  first  generation
antisense drug, GEM 91. In this trial,  thirteen  patients  received  escalating
doses of 20, 40, 80, 160, 240 and 360 mg/m2.  Tumor  histologies  included NSCLC
(4), renal cell  carcinoma (3),  sarcoma (2) and others (4). Of the 13 patients,
one with colorectal cancer whose serum concentration of carcinoembryonic antigen
(CEA) was rapidly  increasing had a slight decrease in CEA at the end of 8 weeks
of GEM 231  treatment  at 360 mg/m2.  There were no other  examples  of possible
clinical benefit among this group of heavily  pre-treated  patients with diverse
tumor types.

GEM 231 was well tolerated in this study.  In  particular,  there was no
drug-related  decrease  in platelet  counts and  complement  activation  did not
occur,  although  high  plasma  concentrations  of GEM 231 (up to72  ug/mL) were
achieved at the end of the two-hour infusion. Two patients complained of fatigue
and were found to have  low-grade  fever  during and  shortly  after the initial
infusion.  One of these  patients had  bacterial  infection  related to catheter
sepsis, which the Company believes was the probable cause of fever and symptoms.
The  most  common  abnormality  related  to GEM 231  administration  was mild to
moderate  elevation of certain liver enzymes in the blood,  usually after 4 to 7
weeks of continuous  twice-weekly dosing. When GEM 231 was discontinued,  in all
cases,  these findings  rapidly  reverted toward or to normal.  This is the only
example of an expected oligonucleotide-related adverse effect, but it occured at
a higher  dose,  and  after a larger  systemic  exposure  to drug,  than was the
experience with a first-generation molecule, GEM 91.

In  December  1998,  the Company  initiated a Phase II  dose-escalation
trial of GEM 231 in patients with  refractory  solid tumors.  The  objectives of
this  trial  are to  determine  the  safety  of GEM 231 when  administered  as a
once-weekly,  twenty-four hour continuous  infusion.  It is anticipated that the
24-hour infusion will result in lower steady-state GEM 231 plasma concentrations
than those achieved in plasma following  two-hour  infusion  delivering the same
daily dose. Consequently,  concentration-related  safety issues are not expected
with this revised infusion schedule.  The safety focus involves possible effects
associated with  effectively  down regulating the genetic target (PKA RI[alpha])
or  the  effects  of   unanticipated   cumulative   toxicities   from   repeated
administration of the drug.

The Company  also plans to  initiate  Pilot Phase II studies of 15-to-20
patients each in at least two relevant  tumor types and Phase I/II studies using
GEM 231 in combination with other antitumor agents in 1999.

HIV-1 and AIDS

AIDS  is  caused   by   infection   with  HIV  and   leads  to   severe,
life-threatening  impairment of the immune system. HIV causes  immunosuppression
by attacking and destroying  T-cells,  which  coordinate  much of the network of
normal  immune  responses.   HIV  infection  usually  leads  to  AIDS,  although
progression  to  symptomatic  disease  may take many  years.  The process of HIV
replication involves the integration of a DNA copy of the viral RNA

27

into the human  genome,  the  transcription  of the DNA copy into  messenger RNA
("reverse  transcription")  and the  synthesis  of viral  proteins and copies of
viral RNA for packaging into new virus particles that may infect other cells.

By the end of 1998,  according  to new  estimates  from the Joint United
Nations  Programme  on HIV/AIDS  ("UNAIDS")  and the World  Health  Organization
("WHO"),  the number of people  living with HIV will have grown to 33.4 million,
10% more  than just one year ago.  Altogether,  since the start of the  epidemic
about two decades ago, HIV has infected more than 47 million people. Although it
is a  slow-acting  virus that can take a decade or more to cause severe  illness
and  death,  HIV has  already  cost the lives of nearly 14  million  adults  and
children.  An estimated 2.5 million of these deaths  occurred  during 1998, more
than ever before in a single year.

Many drugs for the  treatment of HIV  infection  and AIDS have  received
marketing approval from the FDA and from other regulatory  authorities.  The use
of two to four of these agents in  combination,  Highly  Active  Anti-Retroviral
Therapy  ("HAART  therapy"),  has  demonstrated  prolonged  benefit on surrogate
markers  (viral  RNA and  CD4+  lymphocyte  counts)  and on  sustained  clinical
remission.  The  standard  HAART  therapy  involves  treatment  with a  protease
inhibitor in conjunction with two inhibitors of reverse transcriptase. While use
of these  regimens  has been  associated  with  decreased  mortality  rates  and
important  improvements in the quality of life for patients with AIDS, there are
increasing reports of failure of HAART therapy to sustain the initially-achieved
viral suppression and clinical benefit.  The Company believes that these reports
underscore the need for new antiretroviral therapies,  preferably active against
targets other than protease or reverse transcriptase.

The  Company has  completed a pilot Phase I clinical  study in Europe of
GEM 92, the  Company's  advanced  chemistry  compound for the treatment of HIV-1
infection and AIDS. This study was designed to explore the safety and to provide
information on the pharmacokinetics of GEM 92 after oral and intravenous dosing.
All doses  administered  in the pilot study were well  tolerated  and GEM 92 was
detected  in the blood  after  both oral and  intravenous  dosing.  The  Company
believes  this was the first  oral  administration  of  antisense  molecules  to
humans.

The Company  developed GEM 92 using insights  gained in the  development
and the clinical trials of GEM 91, which was  discontinued  based on preliminary
data from a Phase II clinical trial in which three of the nine subjects  treated
had experienced  decreases in platelet  counts that required dose  interruption.
GEM 92  differs  from GEM 91 in that GEM 92 is based on the  Company's  advanced
chemistries,  which the Company  believes  provide the  potential  for  enhanced
safety and  metabolic  stability  compared to the  first-generation  GEM 91. The
Company believes that this improved safety and stability may make it possible to
achieve clinical efficacy without  dose-limiting  side effects and may make oral
dosing feasible.

Cytomegalovirus

Cytomegalovirus  ("CMV") is a member of the herpes  virus  family  which
exists  latently in  approximately  60% of the general  population in the United
States and in  approximately  90% of the HIV/AIDS  population.  Because of their
immunocompromised  state,  AIDS patients often suffer from active CMV infection.
In this patient population, CMV may be manifested as retinal,  gastrointestinal,
hepatic,  pulmonary and/or neurological disease. The most frequent manifestation
of CMV infection in AIDS patients is CMV retinitis,  in which lesions in the eye
progress rapidly and can result in blindness if left untreated. CMV infection is
also a medical problem in other  immunocompromised  patients,  such as those who
have undergone organ  transplantation The Company does not anticipate proceeding
further with the  development  of GEM 92 until a  collaborative  arrangement  is
established with a corporate partner.

Although the market for CMV drugs is  currently  relatively  small,  the
Company expects the market to grow due to (i) possible failures of HAART therapy
and (ii) CMV breakthrough  during HAART therapy at CD4+ lymphocyte  counts above
100/mm3.  Failures  of HAART  therapy  may occur as a result of  development  of
resistance,  intolerance  and lack of compliance due to complex dosing  regimens
involving multiple products.

GEM 132, the Company's advanced chemistry antisense  oligonucleotide for
the treatment of CMV infection,  has demonstrated  significant inhibition of the
replication of CMV in tissue culture assays.  GEM 132 has demonstrated  activity
in cell culture against both clinical  isolates and laboratory stains which have
become  resistant to current  therapies,  such as  ganciclovir.  In cell culture
studies, GEM 132 has demonstrated  significantly more potent anti-viral activity
than the two existing  therapies  against which it has been tested,  ganciclovir
and foscarnet.

The Company has conducted  Phase I and Phase I/II clinical trials of GEM
132.  In  these   trials,   the  Company   studied  two   different   routes  of
administration. In an escalating dose, Phase I/II multicenter trial in the

28

United States and Canada,  in which GEM 132 was  administered  by injection into
the vitreous of the eye, the Company  studied the safety and activity of GEM 132
in patients  with CMV  retinitis who are no longer able to benefit from marketed
therapies. In Phase I trials in normal volunteers,  the Company has administered
a series of single and multiple dose regimens,  employing  two-hour  intravenous
infusions  of up to 150 mg/dose at weekly  intervals  over four weeks.  In Phase
I/II  studies  involving  patients  infected  both with HIV and CMV, the Company
evaluated  the  effects of multiple  two-hour  intravenous  infusions,  given at
weekly or biweekly  intervals,  on the quantities of CMV cultured from the semen
as a measure of antiviral activity.  All doses studied to date in these clinical
trials were well tolerated. No clinical studies with GEM 132 are on-going and no
additional clinical studies of GEM 132 are currently planned.

A  competitor  of the Company has  recently  received  FDA  approval to
market an antisense  therapeutic  for the treatment of CMV. See "Risk Factors --
Competition."

PRECLINICAL PROGRAMS

Angiogenesis

Under normal conditions,  angiogenesis  (formation of new blood vessels)
is tightly  regulated and occurs only during  physiological  conditions  such as
wound  healing,  embryonic  development  and  the  menstrual  cycle.  There  are
currently no effective treatments for the aberrant angiogenesis  associated with
certain    pathological    conditions,    such   as   tumor    growth,    ocular
neovascularization, psoriasis and rheumatoid arthritis.

Vascular  Endothelial Growth Factor ("VEGF") is a protein which has been
shown to  contribute  to new blood  vessel  growth.  VEGF has been shown to be a
tumor  angiogenesis  factor,  contributing  to new vessel  growth.  The clinical
relevance  of VEGF is  suggested by its  angiogenesis-associated  expression  in
glioblastoma  multiforme,  a form of  malignant  brain tumor,  in vivo.  Several
studies in experimental  animal model systems have shown that inhibition of VEGF
will inhibit tumor vascularization.  In addition, VEGF has been shown to provide
an autocrine growth stimulus for some tumor cell lines, including multiple colon
carcinoma, melanoma and glioblastoma multiforme cell lines.

Hybridon has identified  specific sequences on the VEGF messenger RNA as
targets for antisense  oligonucleotides.  Several advanced  chemistry  compounds
have been  synthesized,  including GEM 220,  that inhibit the  expression of the
VEGF gene in tissue culture assays.

Ophthalmology.  Overexpression  of VEGF has also been implicated in four
major causes of blindness:  late stage, age-related macular degeneration,  which
afflicts  approximately  5,000,000  people in the United  States;  proliferative
diabetic  retinopathy,  the major cause of blindness in diabetics  which affects
approximately  500,000  people  in  the  United  States;  central  retinal  vein
occlusion, which afflicts approximately 200,000 people in the United States; and
retinopathy  of  prematurity,   which  affects  approximately  10,000  premature
newborns  annually  in  the  United  States  Hybridon  has  identified  specific
sequences on the VEGF messenger RNA as targets for chemically-modified antisense
oligonucleotides    and   is    synthesizing    chemically-modified    antisense
oligonucleotides  designed to inhibit the expression of the VEGF gene in retinal
cells. These  oligonucleotides have been shown in an animal model of retinopathy
to inhibit  vascular  proliferation  and prevent  aberrant  angiogenesis  in the
retinas of mice in a model for retinopathy of prematurity.

Oncology.  Angiogenesis is a key prerequisite for solid tumor growth and
may also  constitute  an early event in  tumorigenesis.  In order for tumor cell
masses to grow beyond a few millimeters in size,  additional  vascularization is
needed.  In  fact,  tumor  growth  has  been  shown  to slow  or stop in  direct
proportion  to  blood   supply.   GEM  220  has  been  shown  to  inhibit  tumor
vascularization  in animal tumor models. The Company hopes to identify antisense
inhibitors of VEGF that inhibit tumor growth as well.

A VEGF  inhibitor  would  have  application  in  all  solid  tumors.  In
particular,  the Company  hopes its VEGF product will be an effective  treatment
for advanced and metastatic prostate cancer. 15% of new patients,  or 46,500 new
cases  in 1996,  are  first  diagnosed  with  metastatic  prostate  cancer.  The
prognosis at this stage is poor, with a statistical 5-year survival rate of only
30%.

Dermatology.  VEGF, in association with its role in  angiogenesis,  has
recently  been  implicated  in  psoriasis,  which  currently  afflicts more than
6,000,000 people in the United States with between 150,000 and 260,000 new

29

cases in the United States each year. Hybridon has identified specific sequences
on  the  VEGF  messenger  RNA  as  targets  for  chemically-modified   antisense
oligonucleotides    and   has   synthesized    advanced   chemistry    antisense
oligonucleotides  that have  inhibited the expression of the VEGF gene in tissue
culture assays.  The Company has explored  optimal forms of topical  delivery of
oligonucleotides to the basal layers of the epidermis, where VEGF has been found
to be overexpressed in psoriasis.

Hepatitis C Virus

There are  approximately  3,900,000 people in the United States carrying
the hepatitis C virus, and approximately 28,000 individuals in the United States
become  infected  with  hepatitis  C each year.  Approximately  60% of those who
contract the virus each year  develop  chronic  hepatitis C infections  which is
correlated with liver failure, cirrhosis and liver cancer. Chronic infection due
to  hepatitis  C is a  significant  disease  in  Japan  and  other  Pacific  Rim
countries,  and has been  linked to the  development  of primary  liver  cancer.
Pursuant to its collaboration  with Roche, the Company  identified through joint
research  with Roche  specific  sequences  on the  messenger  RNA as targets for
chemically modified antisense  oligonucleotides  and synthesized a lead compound
that inhibited  hepatitis C viral gene expression in tissue culture  assays.  In
September 1997, the Company received  notification from F. Hoffman-La Roche Ltd.
("Roche")   that  Roche  had  decided  not  to  pursue   further  its  antisense
collaboration  with the Company and was terminating the collaboration  effective
February 28, 1998. As part of this  termination,  Roche has agreed to assign its
patent rights in this program to the Company.

Murine Double Minute-2

MDM-2 is a human  oncogene  which  has been  shown in vitro  studies  to
encode a protein that binds to and inactivates  tumor  suppressor  genes p53 and
Rb. Recent  studies by a number of academic  institutions  have  suggested  that
overexpression  of the MDM-2 gene is present in approximately  70% of all breast
cancers and correlates with increased malignancy as well as drug resistance. The
Company,  in  collaboration  with  two  academic  institutions,  has  identified
specific  sequences  on the  messenger  RNA as targets  for  chemically-modified
antisense  oligonucleotides and have synthesized  chemically-modified  antisense
oligonucleotides  that inhibit MDM-2  production in tissue culture  assays.  The
Company has an exclusive  license to these  sequences.  Preliminary  studies are
being conducted in animal models.  The MDM-2 program is being further  developed
in collaboration with Searle.

Amyloid Proteins

Alzheimer's  disease is a  neurodegenerative  disease  which is the most
common cause of dementia in the elderly. It is estimated to affect approximately
4,000,000  individuals in the United States.  The presence of amyloid  precursor
protein ("APP") in the brain at abnormal sites and in abnormal  amounts has been
reported to be associated with  Alzheimer's  disease.  Hybridon has identified a
specific  sequence  on the  messenger  RNA as a target  for  chemically-modified
antisense  oligonucleotides  and has synthesized  chemically-modified  antisense
oligonucleotides that inhibit APP production in tissue culture assays.

Other Cancer Targets

The Company believes there are significant  addtional  opportunities for
the use of  antisense  for the  treatment  of  cancer.  Antisense  provides  (1)
genetically-directed  therapy  for  contemporary  cancer  treatments;  (2) rapid
development of anti-cancer  agents targetting newly discovered  genetic defects;
and (3) potentially low toxicity,  supporting long term therapy for single agent
or combination  use. For these  reasons,  the Company is exploring new antisense
targets relevant to the treatment of cancer.

DRUG DEVELOPMENT PROGRAMS IN HYBRIDON SPINOUTS

MethylGene, Inc.

DNA  Methyltransferase.  DNA  methyltransferase  is a regulatory protein
that has been implicated in the processes of cell growth and differentiation and
has been  shown to be  overexpressed  in some  tumors,  such as small  cell lung
cancer,  colon cancer and breast  cancer.  The Company has  identified  specific
sequences  on the  messenger  RNA as targets for  chemically-modified  antisense
oligonucleotides    and   has    synthesized    chemically-modified    antisense
oligonucleotides  that alter DNA  methylation  of cultured  human cancer  cells.
These  compounds  inhibit the ability of such cells to grow in cell  culture and
their ability to form tumors in mice. The Company has licensed the

30

technology relating to the development of this compound to MethylGene,  which is
currently developing this technology.

OriGenix Technologies, Inc.

Human Papilloma  Viruses.  Human papilloma viruses are associated with a
variety of warts,  including benign genital warts which, if untreated,  can lead
to cervical cancer. Each year, condyloma acuminata (genital warts) are diagnosed
in  approximately  750,000  patients in the United  States and accounts for more
than  2,000,000  visits to health  care  providers  in the  United  States.  HPV
infections are the most common sexually transmitted diseases in the world today,
with an estimated 11 to 46 percent of sexually  active women having DNA evidence
of  HPV  infection.   Traditional   therapies   include  wart  removal   through
cryotherapy,  laser  therapy  or  excisional  surgery;  topical  application  of
formulations of podophyllotoxin,  trichloroacetic  acid and salicylic acid or 5-
fluorouracil,  or alternatively,  direct injections of interferon into the wart.
While existing  therapies may help eliminate the warts,  none of them eradicates
the virus. Consequently, recurrence of genital warts, as well as transmission of
the virus, remains a significant problem.

Pursuant to its collaboration with Roche, the Company identified through
joint  research  with  Roche  specific  sequences  on the  messenger  RNA of the
papilloma virus as targets for  chemically-modified  antisense  oligonucleotides
and  synthesized  an advanced  chemistry  lead  compound  that  inhibited  human
papilloma  virus  gene  expression  in  an  animal  model  of  wart-like  tissue
proliferation.  In connection with Roche's termination of its collaboration with
the Company,  Roche has agreed to assign all of its rights to the lead  compound
to the  Company.  The  Company is  currently  in the process of  licensing  this
technology to OriGenix in exchange for a minority  equity  interest in OriGenix.
The licensing of this  technology to OriGenix will require the prior approval of
the Lender under the Bank Credit Facility. See "Description of Capital Stock and
Indebtedness -- Indebtedness -- Bank Credit Facility."

Hepatitis B Virus.  Hepatitis B is a major health problem throughout the
world,  with endemic  infection in some less  developed  countries.  Hepatitis B
infections  can  lead to  liver  cirrhosis  and  cancer  of the  liver.  The WHO
estimates  there are more than  1,000,000  new cases of  hepatitis  B  infection
annually in developed  countries and 350 million  chronically  infected carriers
worldwide.  Based on data from the Center for Disease  Control,  an estimated 30
percent of these will progress to symptomatic  acute infections while a total of
10 to 15 percent  will  become  chronic  hepatitis B carriers at risk of chronic
liver disease and progression to cirrhosis or liver cancer.

Approximately  1,200,000  individuals  in the  United  States  carry the
hepatitis B virus.  There are an  estimated  200,000 to 300,000 new  hepatitis B
infections in the United States each year.  Pursuant to its  collaboration  with
Roche,  Hybridon identified through joint research with Roche specific sequences
on   the   messenger   RNA  as   targets   for   chemically-modified   antisense
oligonucleotides and synthesized  chemically-modified antisense oligonucleotides
that  inhibit the  expression  of hepatitis B virus in cell  cultures.  Although
Roche  determined  not to pursue this  program,  the Company is  continuing  its
development  efforts.  All rights relating to the Roche-sponsored  research with
respect to  hepatitis  B reverted to the Company  when Roche  determined  not to
pursue the program.  The Company is  currently in the process of licensing  this
technology to OriGenix in exchange for a minority  equity  interest in OriGenix.
The licensing of this  technology to OriGenix will require the prior approval of
the Lender under the Bank Credit Facility. See "Description of Capital Stock and
Indebtedness -- Indebtedness -- Bank Credit Facility."

CORPORATE COLLABORATIONS

An  important  part of  Hybridon's  business  strategy  is to enter into
research and development collaborations, licensing agreements or other strategic
alliances  with  third  parties,   primarily  biotechnology  and  pharmaceutical
corporations,  for the development and commercialization of certain products. As
of the date  hereof,  the Company is a party to  corporate  collaborations  with
Searle and Medtronic,  all as summarized  below.  The Company  intends to retain
manufacturing  rights for many of the products,  if any, it may license pursuant
to these collaborations.

G.D. Searle & Co.

In January  1996,  the Company and Searle  entered into a  collaboration
relating to research and development of therapeutic antisense compounds directed
at up to eight molecular targets in the fields of cancer, cardiovascular disease
and inflammation/immunomodulation (the "Searle Field").

31

Pursuant to the  collaboration,  the parties  are  currently  conducting
research  and  development  relating to a compound  directed  at MDM-2.  In this
project,  Searle is funding  certain  research  and  development  efforts by the
Company,  and each of Searle and the Company have  committed  certain of its own
personnel to the  collaboration.  The initial phase of research and  development
activities  relating to the initial target will be conducted through the earlier
of (i) the achievement of certain product candidate  milestones and (ii) January
31, 2000,  subject to early  termination  by Searle.  The parties may extend the
initial collaboration by mutual agreement,  including agreement as to additional
research funding by Searle.

In  addition,  under the  collaboration  Searle  has the  right,  at its
option, to designate up to six additional  molecular targets in the Searle Field
(the  "Additional  Targets") for  collaborative  research and  development  with
Hybridon on terms  substantially  consistent with the terms of the collaboration
applicable to the initial molecular target.  This right is exercisable by Searle
with  respect to each of the  Additional  Targets  upon the payment by Searle of
certain  specified cash amounts (beyond the project specific  research  payments
relating to the  particular  Additional  Target) and the purchase of  additional
Common  Stock  from the  Company  by  Searle  (at the then fair  market  value),
totalling $10,000,000 per Additional Target. In the event that Searle designates
all of the Additional Targets, the aggregate amount to be paid by Searle in cash
payments will be  $24,000,000  and the aggregate  amount to be paid by Searle in
equity  investment will be $36,000,000.  If Searle has not designated all of the
Additional Targets by the time it advances the product candidate for the initial
molecular  target to certain stages of preclinical  development,  Searle will be
required to purchase up to an  additional  $10,000,000  of Common  Stock (at the
then fair  market  value)  upon  completion  of certain  milestones  in order to
maintain its right to designate  any of the  Additional  Targets that it has not
yet designated. The payment for any such Common Stock will be creditable against
the equity investment  portion of the payments to be made by Searle with respect
to the  designation  of any of the  Additional  Targets  that Searle has not yet
designated.

Searle has exclusive rights to commercialize any products resulting from
the   collaboration.   If  Searle  determines,   in  its  sole  discretion,   to
commercialize  a product,  Searle  will fund and perform  preclinical  tests and
clinical trials of the product  candidate and will be responsible for regulatory
approvals  for and  marketing  of the  product.  In  certain  instances  and for
specified  periods of time,  the  Company  has agreed to  perform  research  and
development work in the Searle Field relating to inflamation or immunomodulation
exclusively with Searle. In addition, as to each product candidate,  the Company
will be entitled to milestone  payments from Searle totalling up to an aggregate
of $10,000,000  upon the  achievement  of certain  development  benchmarks.  The
Company also will be entitled to royalties from net sales of products  resulting
from the collaboration. Subject to satisfying certain conditions relating to its
manufacturing capacities and capabilities, the Company will retain manufacturing
rights,  and Searle will be required to purchase  its  requirements  of products
from the Company on an exclusive  basis at  specified  transfer  prices.  Upon a
change in control of the Company,  Searle would have the right to terminate  the
Company's  manufacturing rights,  although the royalty payable in respect of net
sales would be increased in such event.

Under the collaboration,  in the event that Searle designates (and makes
the required payments and equity  investments for) all of the Additional Targets
or in certain  other  instances  relating  to the  Company's  failure to satisfy
certain requirements relating to its manufacturing  capacities and capabilities,
Searle will have the right,  exercisable in its sole discretion,  to require the
Company to form a joint venture with Searle for the  development  of products in
the Searle Field (other than  products  relating to molecular  targets that have
already  been  designated  by  Searle)  to  which  each  party  will  contribute
$50,000,000 in cash,  although the Company's cash contribution  would be reduced
by the value of the technology  and other rights  contributed by Hybridon to the
joint  venture.  The Company and Searle would each own 50% of the joint venture,
although Searle's  ownership  interest in the joint venture would increase based
upon a formula to up to a maximum of 75% if the joint venture is  established in
certain  instances   relating  to  the  Company's  failure  to  satisfy  certain
requirements relating to its manufacturing capacities and capabilities.

Under the collaboration,  Searle also purchased 200,000 shares of Common
Stock in the Company's initial public offering.

Medtronic, Inc.

In May 1994,  the Company and  Medtronic  entered  into a  collaboration
involving the testing of a drug delivery device for use in delivering Hybridon's
antisense  oligonucleotides for the treatment of Alzheimer's  disease.  Hybridon
will be  responsible  for the  development  of, and hold all rights to, any drug
developed pursuant to this collaboration,  and Medtronic will be responsible for
the development of, and hold all rights to, any delivery system

32

developed  pursuant  to  this   collaboration.   The  parties  may  extend  this
collaboration  by mutual agreement to other  neurodegenerative  disease targets.
The research and  development  to be conducted is determined and supervised by a
committee  comprised  of an  equal  number  of  designees  of  the  Company  and
Medtronic.

As  part of the  collaboration,  Medtronic  purchased  an  aggregate  of
131,667 shares of the Company's Common Stock.

FINANCIAL COLLABORATIONS

In  order  to  maintain   financial   flexibility,   Hybridon  considers
innovative  arrangements  to finance  certain  applications  of its  proprietary
antisense technology, particularly applications that it would not develop in the
near term  without  external  funding.  The Company  has  entered  into one such
arrangement with MethylGene,  Inc., which is summarized below. The Company is in
the process of completing a transaction  similar in structure to the  MethylGene
arrangement with Origenix for its hepatitis B and HPV programs.

In 1996, the Company and certain Canadian institutional investors formed
MethylGene  to develop  and  market  (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 Hybridon and MethylGene (such
three product areas being  referred to herein as the  "MethylGene  Fields").  In
December 1997, Hybridon and MethylGene expanded the MethylGene Fields to include
(a) antisense compounds to inhibit DNA  methyltransferase for any indication and
(b) antisense  compounds to inhibit a second and third molecular  target for any
indications, as may be selected by MethylGene, so long as such molecular targets
are not bona fide targets under  investigation by the Company on or prior to the
date that  MethylGene  notifies  the  Company of the  identity of such second or
third molecular target.

Hybridon  initially  acquired a 49% minority  interest in MethylGene for
approximately  CDN$1,000,000,  and the  Canadian  investors  acquired a majority
interest in MethylGene for a total of approximately  CDN$7,500,000.  On March 4,
1998, MethylGene raised an additional  CDN$15,800,000 from the private placement
of securities. As a result of such financing, Hybridon now owns an approximately
30% interest in MethylGene.

The Canadian investors who initially invested in the Company continue to
have the right to exchange all (but not less than all) of the shares of stock in
MethylGene that they initially  purchased for shares of Common Stock of Hybridon
on the basis of 37.5  MethylGene  shares (for which they paid  approximately  US
$56.25) for one share 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  Canadian  investors'  investment  in  MethylGene  or the  date on  which
MethylGene  ceases  operations,  and terminates  sooner if MethylGene  satisfies
certain conditions.

Hybridon  has granted to  MethylGene  exclusive  worldwide  licenses and
sublicenses in respect of certain technology  relating to the MethylGene Fields.
In addition,  Hybridon  and  MethylGene  have  entered  into a supply  agreement
pursuant to which MethylGene is obligated to purchase from Hybridon all required
formulated bulk  oligonucleotides  at specified  transfer prices. The Company is
also performing drug development  advisory and other services in connection with
MethylGene's preparation of an IND for its first compound.

THE HYBRIDON SPECIALTY PRODUCTS DIVISION

In 1996, Hybridon formed the HSP Division to manufacture highly purified
oligonucleotide compounds both for Hybridon's internal use and for sale to third
parties.  The Company believes that the industry-wide  interest in investigating
the potential of gene expression modulation  technologies will continue and will
accelerate as the  techniques  which permit the design and  development of drugs
based on such technologies become more widely understood. The Company's strategy
is to position its HSP Division to take advantage of the potential growth in the
demand for large-scale, GMP oligonucliotide synthesis resulting from present and
future applications of these gene expression modulation technologies.  There can
be no assurance  that such strategy  will be successful or that industry  growth
will be as  anticipated.  See "Risk  Factors  -- Risks  Associated  with the HSP
Division" and "Risk Factors -- Competition."  However, the Company is attempting
to minimize this risk by manufacturing oligonucleotides for diverse applications
at different stages of commercialization. The HSP Division currently is

33

manufacturing DNA-probes for diagnostic applications, and the genomics field, as
well as for antisense and non-antisense  oligonucleotide  therapeutics.  The HSP
Division's  customers are supporting the preclinical and clinical development of
over 20 oligonucleotide therapeutic agents.

The Company is manufacturing  oligonucleotides at its 36,000 square foot
leased   facility,   which  the   Company   believes   is  the  first  and  only
commercial-scale  synthetic  DNA  production  facility  with a fully  integrated
manufacturing technology platform, including large-scale synthesis, purification
and  proprietary  analytical  support.  The Company  first began  production  of
oligonucleotide  compounds  for  sale to  third  parties  in June  1996  and had
revenues of approximately  $1.1 million in 1996,  approximately  $1.9 million in
1997 and  approximately  $2.1 million through  September 30, 1998. The Company's
principal customers include Genta/JBL Scientific, La Jolla Pharmaceuticals, Inc.
and MethylGene.

The Company has developed a  manufacturing  technology  platform  which
integrates key elements of the  manufacturing  process to increase the purity of
oligonucleotide  products,  enhance the efficiency of the production process and
increase  the scale of  production.  The  Company  has  developed  two  separate
commercial  scale  oligonucleotide  synthesizers.  One  of  these  machines  was
developed in an internal program and the other in a collaboration with Pharmacia
Biotech.  Both  machines  are designed  with a capacity of up to 100  millimoles
(approximately  300 grams per batch),  although the Company  believes that these
machines may be able to exceed such  capacity.  Pharmacia has retained the right
to sell the machine developed under the collaboration to third parties,  subject
to an  obligation  to pay  Hybridon  royalties  on such third party  sales.  The
Company   believes   that  its   machines   are  the  first   commercial   scale
oligonucleotide   synthesizers  designed  for  more  advanced  chemistries.   In
addition, the Company has implemented proprietary purification processes,  which
use water in place of chemical solvents,  simplifying  environmental  compliance
and permitting purification of kilogram batches of oligonucleotides. The Company
has also developed  proprietary  chemical synthesis processes and novel reagents
used in the synthesis  process,  which the Company believes may further decrease
the cost of production of advanced oligonucleotides.

In order to strengthen the marketing of the HSP Division's products,  in
1996 the Company  entered into a four-year  sales and supply  agreement with the
Applied Biosystems Division of Perkin-Elmer.  Under the agreement,  Perkin-Elmer
agreed to refer  potential  customers  for the custom  contract  manufacture  of
oligonucleotides  to Hybridon,  and Hybridon  agreed to purchase  amidites  from
Perkin-Elmer for the manufacture of oligonucleotides  sold to such customers and
to pay  Perkin-Elmer a percentage of the sales price paid by such customers.  In
addition,  Perkin-Elmer  licensed  to  Hybridon  its  oligonucleotide  synthesis
patents.

The  HSP  Division  is  targeting  three  market  areas:   therapeutics,
diagnostics  and  genomics.  Within  these  areas there is  substantial  product
diversification and the HSP Division is currently manufacturing oligonucleotides
for antisense, toleragens, aptamers, and immunomodulators within the therapeutic
segment.   In  the  diagnostic   market,   the  HSP  Division  is  manufacturing
oligonucleotides for viral and bacterial detection and branched DNA tests.

The  production  of  antisense  compounds  is  similar  to the  chemical
synthesis  used  in  the  production  of  conventional  pharmaceuticals,  but in
contrast with typical  biopharmaceuticals,  it does not involve any fermentation
processes or living cells.  Moreover,  unlike many conventional drugs, antisense
compounds  targeted at  different  diseases  can be  manufactured  with the same
nucleotide  building  blocks  and using  the same  manufacturing  processes  and
equipment with minimal  adjustments.  As a result,  the knowledge and experience
that the Company  obtains in the  manufacture  of one compound is  substantially
applicable  to the  manufacture  of  other  oligonucleotide  compounds  for  the
treatment  of other  diseases and results in other  manufacturing  efficiencies.
This  also  allows  multiple  compounds  to be  manufactured  in  one  facility,
potentially reducing capital expenditures required in the future.

The  Company may need to further  increase  its  manufacturing  capacity
through the purchase or construction of additional  large-scale  oligonucleotide
synthesizers in order to satisfy its  anticipated  future  requirements  for its
product  candidates  and in order to  manufacture  oligonucleotides  on a custom
contract basis for sale to third parties on a large scale. In addition, in order
to successfully  commercialize  its product  candidates or achieve  satisfactory
margins on sales,  the Company  may be  required  to reduce  further the cost of
production of its oligonucleotide  compounds.  See "Management's  Discussion and
Analysis of Financial Condition and Results of Operations."

The Company believes that it is currently manufacturing oligonucleotides
in substantial  compliance with FDA requirements for manufacturing in compliance
with GMP, although its facility and procedures have not been formally  inspected
by the FDA and the procedures and documentation followed may have to be enhanced
in the future as the Company expands its oligonucleotide  production activities.
In 1997, the HSP Division was one of

34

two biotechnology companies chosen to participate in the FDA's Biotechnology PAI
Pilot Initiative.  This is a pilot program that allows  regulatory  officials to
provide  critical  feedback  on GMP  compliance  before  companies  submit  drug
approval filings, facilitating the exchange of information prior to a formal FDA
site inspection.  Failure to establish to the FDA's satisfaction compliance with
GMP can result in the FDA denying authorization to initiate or continue clinical
trials,  to receive approval of a product or to begin or to continue  commercial
marketing.

In  addition,  the  Company's  manufacturing  processes  are  subject to
federal,  state and local laws and regulations  governing the use,  manufacture,
storage, handling and disposal of certain materials and waste products.

MARKETING STRATEGY

Hybridon  plans to market the  pharmaceutical  products it is developing
either  directly  or  through  co-marketing,  licensing,  distribution  or other
arrangements  with  pharmaceutical  and biotechnology  companies.  One potential
strategy  with  respect  to  these   products  in  development  is  to  build  a
hospital-targeted  direct  sales group for products for market areas that can be
accessed  with a small  to  medium  size  sales  force.  Implementation  of this
strategy  would depend on many factors,  including  the market  potential of any
such  products  the  Company  develops  as  well as on the  Company's  financial
resources.  The Company does not expect to  establish a direct sales  capability
with respect to such  products  until such time as one or more of such  products
approach marketing  approval.  To market those products that will serve a large,
geographically  diverse  patient  population,  the Company expects to enter into
licensing,   distribution  or  partnering  agreements  with  pharmaceutical  and
biotechnology companies that have large, established sales organizations. To the
extent the Company enters into marketing  arrangements  with third parties,  any
revenues  received by the Company will be dependent on the efforts of such third
parties,  and there can be no assurance  that such  efforts will be  successful.
While the Company has developed general marketing  strategies,  it has not begun
the  implementation  of any of these  strategies  with  respect  to any of these
potential therapeutic products.

ACADEMIC AND RESEARCH COLLABORATIONS

Hybridon  enters  into  collaborative  research  agreements  relating to
specific  disease targets and other research  activities in order to augment its
internal research capabilities and to obtain access to the specialized knowledge
or  expertise  of its  collaborative  partners.  With  respect to certain of the
Company's drug development  programs,  the Company relies primarily upon outside
collaborators.  Accordingly, termination of the Company's collaborative research
agreements  with any of these  collaborators  could result in the termination of
the related research program.

In general, the Company's  collaborative research agreements require the
payment by  Hybridon  of  various  amounts  in  support  of the  research  to be
conducted.   The  Company  usually  provides  the  collaborator   with  selected
oligonucleotides, which the collaborator then tests in his or her assay systems.
If the  collaborator  creates  any  invention  during  the  course of his or her
efforts, solely or jointly with the Company, Hybridon generally has an option to
negotiate an exclusive, worldwide, royalty-bearing license of the collaborator's
rights  in  the  invention  for  the  purpose  of  commercializing  any  product
incorporating  such  invention.   Inventions   developed  solely  by  Hybridon's
scientists  as part of the  collaboration  generally  are owned  exclusively  by
Hybridon.  Most of these  collaborative  agreements are non-exclusive and can be
cancelled on relatively short notice.

Since July 1997,  the Company has allowed a number of its  collaborative
research  agreements to expire and has terminated  certain  others.  The Company
has,  however,  maintained the research  agreements  which it has determined are
appropriate to support its current drug development  programs.  For example, the
Company is a party to a Cooperative Research and Development  Agreement with the
National Cancer Institute with respect to its PKA program.

DRUG DEVELOPMENT SERVICES

The Drug Development Department of the Company has had experience in the
design and conduct of preclinical  studies and in the preparation and submission
of reports and other  regulatory  documents  for the  Company's  three  advanced
chemistry antisense compounds which have successfully entered Phase I studies in
humans.  This development  expertise is being leveraged  through a contract with
MethylGene  under which the Company's Drug  Development  Department has designed
and monitored the preclinical studies for the MethylGene

35

antisense  compound,  MG98, leading to the submission of an Investigational  New
Drug ("IND")  application in Canada. The Company  anticipates  submitting an IND
application in the United States in late December 1998.  MethylGene  compensated
the Company  for these  services.  The  Company  expects to enter into a similar
contract with OriGenix upon completion of the proposed spin-out transaction.

PATENTS, TRADE SECRETS AND LICENSES

Proprietary  protection for the Company's product candidates,  processes
and know-how is important to  Hybridon's  business.  Thus,  the Company plans to
prosecute and enforce aggressively its patents and proprietary  technology.  The
Company's  policy  is  to  file  patent   applications  to  protect  technology,
inventions and improvements that are considered  important to the development of
its business.  Hybridon seeks to establish a comprehensive  proprietary position
through  a  "layered"  patent  strategy  covering  the  Company's   families  of
oligonucleotide   chemistries,   the   antisense   sequences  of  the  Company's
oligonucleotide  compounds  and  the  overall  chemical  compositions  of  these
oligonucleotide  compounds.  The Company believes that this approach may provide
it with at least three independent levels of protection.  Hybridon also seeks to
protect its proprietary analytical and manufacturing  processes. The patents and
patent  applications  owned or  exclusively  licensed  by the  Company  also are
directed to many aspects of the Company's proprietary oligonucleotide production
and analysis  technology and ribozyme  technology.  The Company also relies upon
trade  secrets,  know-how,  continuing  technological  innovation  and licensing
opportunities to develop and maintain its competitive position.

As of December 1, 1998, Hybridon owned or exclusively licensed 60 issued
U.S. patents,  8 issued foreign patents, 8 allowed U.S. patent  applications,  2
allowed  foreign  applications  and 55 other U.S. and 80 other  non-U.S.  patent
applications.  The patents and applications owned or exclusively licensed by the
Company cover various chemically advanced  oligonucleotides,  proprietary target
sequences,  specific preferred oligonucleotide products,  methods for making and
purifying    oligonucleotides,    analytical    methods    and    methods    for
oligonucleotide-based  therapeutic  treatment  of  various  diseases.  The  U.S.
patents  owned or  exclusively  licensed  by  Hybridon  expire at various  dates
ranging from 2006 to 2015.

Under the terms of a license  agreement  with the  Worcester  Foundation
(the "Foundation License"), Hybridon is the worldwide,  exclusive licensee under
several U.S. issued or allowed patents and various patent  applications owned by
the Worcester  Foundation relating to oligonucleotides  and their production and
use.  Many  of  these  patents  and  patent   applications  have   corresponding
applications  on  file  or  corresponding  patents  in  other  major  industrial
countries.

One of the issued U.S.  patents (the "HIV Patent") and one of the issued
European patents licensed from the Worcester  Foundation broadly claim antisense
oligonucleotides as new compositions of matter for inhibiting the replication of
HIV. The other issued U.S. patents include claims covering  composition and uses
of  oligonucleotides  based on the Company's  advanced  chemistries,  methods of
oligonucleotide   synthesis  that  are  potentially  applicable  to  large-scale
commercial  production,  compositions of certain modified  oligonucleotides that
are useful for diagnostic  tests or assays and methods of purifying  full-length
oligonucleotides  after  synthesis.  The  earliest  expiration  of  the  patents
licensed to the Company by the Worcester Foundation is 2006, when the HIV Patent
expires.

The Company also 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.  The  Company  and MGH  jointly  own one issued  U.S.  patent
directed to compositions of antisense oligonucleotides applicable to Alzheimer's
disease.  The Company holds an exclusive  license to MGH's  interests under such
patent.

The Company is a  non-exclusive  licensee of certain patents held by the
NIH relating to oligonucleotide  phosphorothioates and a non-exclusive  licensee
of an NIH patent covering the phosphorothiolation of oligonucleotides. The field
of each of these  licenses  extends to a wide  variety of  genetic  targets.  If
certain of the claims of the NIH  patents  non-exclusively  licensed to Hybridon
are valid, certain of the Company's products in development would infringe these
patents in the absence of the license.

The U.S.  Patent and  Trademark  Office  (the "U.S.  PTO") has  informed
Hybridon  that  certain  otherwise  allowable  patent  applications  exclusively
licensed by the Company from the Worcester Foundation have been submitted to the
Board of Patent Appeals and  Interferences to determine  whether an interference
should  be  declared  with  issued  U.S.  patents  held by the NIH  relating  to
oligonucleotide phosphorothioates. An interference proceeding

36

is an inter-parties  proceeding in the U.S. PTO to determine who is the first to
invent a claimed invention, and thus who is entitled to a patent for the claimed
invention.  McDonnell  Boehnen  Hulbert & Berghoff,  the Company's  U.S.  patent
counsel, is of the opinion that the Worcester  Foundation patent application has
a prima-facie  case for priority  against the NIH for an invention that includes
phosphorothioate-modified  oligonucleotides.  However, there can be no assurance
an interference can be declared,  or if declared,  as to the outcome thereof. An
adverse outcome in the interference  would not affect the non-exclusive  license
from the NIH to Hybridon of the NIH  phosphorothioate  patents. The U.S. PTO has
also declared a four-way  interference  involving two  additional  U.S.  patents
relating to the Company's chimeric  oligonucleotides  which Hybridon exclusively
licenses  from the  Worcester  Foundation.  There can be no  assurance as to the
outcome of this interference.

Under the  licenses to which it is a party,  the Company is obligated to
pay royalties on net sales by the Company of products or processes  covered by a
valid claim of a patent or patent  application  licensed to it. The Company also
is required in some cases to pay a specified percentage of any sublicense income
that the Company may receive.  These licenses impose various  commercialization,
sublicensing,  insurance and other  obligations  on the Company.  Failure of the
Company to comply with these  requirements  could result in  termination  of the
license. The Foundation License also grants the Company a right of first refusal
to certain technology developed by the Worcester Foundation.

The  patent  positions  of  pharmaceutical   and  biotechnology   firms,
including  Hybridon,  are  generally  uncertain  and involve  complex  legal and
factual  questions.  Consequently,  even though  Hybridon and its  licensors are
currently  prosecuting their respective patent applications with the U.S. Patent
and Trademark  Office and certain foreign patent  authorities,  the Company does
not know whether any of its  applications  or those of third parties under which
the  Company  has or may obtain a license  will  result in the  issuance  of any
patents or, if any patents are issued,  whether  they will  provide  significant
proprietary  protection or will be  circumvented  or  invalidated.  Since patent
applications in the United States are maintained in secrecy until patents issue,
and since publication of discoveries in the scientific or patent literature tend
to lag behind actual  discoveries by several months,  Hybridon cannot be certain
that it, or any  licensor  of  patents  to it, as the case may be, was the first
creator of inventions claimed by pending patent applications or that Hybridon or
any licensor,  as the case may be, was the first to file patent applications for
such inventions. See "Risk Factors -- Patents and Proprietary Rights."

Competitors  of the Company and other third parties hold issued  patents
and pending patent applications  relating to antisense and other gene expression
modulation  technologies,  and it is uncertain  whether these patents and patent
applications  will require the Company to alter its products or  processes,  pay
licensing  fees or cease  certain  activities.  See "Risk Factors -- Patents and
Proprietary  Rights." In particular,  the Company is aware of a European  patent
granted to a third  party  relating  to certain  types of  stabilized  synthetic
oligonucleotides  for use as  therapeutic  agents for  selectively  blocking the
translation of a messenger RNA into a targeted protein by binding with a portion
of the  messenger  RNA to which  the  stabilized  synthetic  oligonucleotide  is
substantially complementary.  This European patent was revoked in entirety in an
opposition  proceeding  before the European Patent Office in September 1995. The
holder of this patent has appealed such decision.

Hybridon's  practice is to require its employees,  consultants,  outside
scientific collaborators and sponsored researchers and other advisors to execute
confidentiality  agreements  upon the  commencement  of employment or consulting
relationships  with the Company.  These agreements provide that all confidential
information  developed or made known to the individual  during the course of the
individual's  relationship  with  Hybridon  is to be kept  confidential  and not
disclosed to third parties, subject to a right to publish certain information in
the scientific literature in certain circumstances and subject to other specific
exceptions. In the case of employees, the agreements provide that all inventions
conceived  by the  individual  shall be the  exclusive  property of the Company.
There  can  be  no  assurance,  however,  that  these  agreements  will  provide
meaningful  protection for the Company's  trade secrets or adequate  remedies in
the event of unauthorized use or disclosure of such information.

Hybridon engages in collaborations and sponsored research agreements and
enters into  preclinical  and  clinical  testing  agreements  with  academic and
research  institutions and U.S.  government  agencies,  such as the NIH, to take
advantage of their technical  expertise and staff and to gain access to clinical
evaluation   models,   patients,   and  related   technology.   Consistent  with
pharmaceutical  industry and academic  standards,  and the rules and regulations
under the Federal Technology  Transfer Act of 1986, these agreements may provide
that  developments  and results will be freely  published,  that  information or
materials  supplied by  Hybridon  will not be treated as  confidential  and that
Hybridon  may be required to  negotiate a license to any such  developments  and
results in order to commercialize  products  incorporating them. There can be no
assurance that the Company will be able successfully to obtain any

37

such license at a reasonable cost or that such developments and results will not
be made available to competitors of the Company on an exclusive or  nonexclusive
basis. See "Business -- Academic and Research Collaborations."

GOVERNMENT REGULATION

The production and marketing of the Company's  products and its research
and development  activities are subject to regulation for safety,  effectiveness
and quality by numerous governmental  authorities in the United States and other
countries.  The  Company  believes  that it is in material  compliance  with all
federal,  state and foreign  legal and  regulatory  requirements  under which it
operates.  However,  there can be no  assurance  that such  legal or  regulatory
requirements  will not be amended or that new legal or  regulatory  requirements
will not be adopted,  any one of which could have a material  adverse  effect on
the Company's business or results of operations.

FDA Approval

In the United States,  pharmaceutical  products intended for therapeutic
or diagnostic use in humans are subject to rigorous FDA regulation.  The process
of  completing  clinical  trials and  obtaining  FDA approvals for a new drug is
likely to take a number of years and requires  the  expenditure  of  substantial
resources. There can be no assurance that any product will receive such approval
on a timely  basis,  if at all. See "Risk  Factors -- No Assurance of Regulatory
Approval; Government Regulation."

The steps  required  before a new  oligonucleotide-based  pharmaceutical
product  for use in humans may be  marketed  in the United  States  include  (i)
preclinical tests, (ii) submission to the FDA of an IND application,  which must
become  effective  before human  clinical  trials  commence,  (iii) adequate and
well-controlled  human clinical trials to establish the safety and effectiveness
of the product,  (iv) submission of a New Drug  Application  ("NDA") to the FDA,
and (v) FDA approval of the NDA prior to any commercial  sale or shipment of the
product.

Preclinical tests include laboratory evaluation of product chemistry and
formulation,  as well as animal  studies,  to assess  the  potential  safety and
effectiveness  of the product.  Compounds must be manufactured  according to GMP
and preclinical  safety tests must be conducted by laboratories that comply with
FDA  regulations  regarding  GLP.  The  results  of the  preclinical  tests  are
submitted  to the FDA as part of an IND and are reviewed by the FDA prior to the
commencement  of human  clinical  trials.  Unless the FDA  objects  to, or makes
comments or raises questions  concerning,  an IND, the IND will become effective
30 days  following  its  receipt  by the FDA.  There  can be no  assurance  that
submission  of an IND will  result in FDA  authorization  to  commence  clinical
trials.

Clinical trials involve the  administration of the  investigational  new
drug to healthy volunteers and to patients, under the supervision of a qualified
principal  investigator.  Clinical  trials are conducted in accordance  with FDA
regulations  regarding Good Clinical  Practices  under protocols that detail the
objectives of the study,  the  parameters  to be used to monitor  safety and the
effectiveness  criteria to be evaluated.  Each protocol must be submitted to the
FDA as part of the IND. Further, each clinical study must be conducted under the
auspices of an independent  Institutional  Review Board (an "IRB"). The IRB will
consider,  among other things, ethical factors, the safety of human subjects and
the possible liability of the institution.

Clinical  trials are  typically  conducted in three  sequential  phases,
although  the  phases  may  overlap.  In Phase I, the  investigational  new drug
usually is  administered  to  healthy  human  subjects  and is tested for safety
(adverse effects), dosage, tolerance,  metabolism,  distribution,  excretion and
pharmacodynamics (clinical pharmacology). Phase II involves studies in a limited
patient population to (i) determine the effectiveness of the investigational new
drug for specific  indications,  (ii)  determine  dosage  tolerance  and optimal
dosage,  and (iii) identify  possible adverse effects and safety risks.  When an
investigational  new  drug is found to be  effective  and to have an  acceptable
safety  profile  in Phase II  evaluation,  Phase III trials  are  undertaken  to
further evaluate clinical effectiveness and to further test for safety within an
expanded patient  population at geographically  dispersed  clinical study sites.
There can be no  assurance  that Phase I, Phase II or Phase III testing  will be
completed successfully within any specified time period, if at all, with respect
to any of the  Company's  products  subject to such  testing.  Furthermore,  the
Company, an IRB or the FDA may suspend clinical trials at any time if it is felt
that the participants are being exposed to an unacceptable health risk.

The results of the pharmaceutical  development,  preclinical studies and
clinical  studies are submitted to the FDA in the form of an NDA for approval of
the  marketing  and  commercial  shipment  of the  product.  The FDA may require
additional  testing or information  before  approving the NDA. In any event, the
FDA may deny an NDA

38

if applicable  regulatory  criteria are not satisfied.  Moreover,  if regulatory
approval  of a product is  granted,  such  approval  may  require  postmarketing
testing  and  surveillance  to monitor  the safety of the  product or may entail
limitations on the indicated uses for which it may be marketed. Finally, product
approvals  may be  withdrawn  if  compliance  with  regulatory  standards is not
maintained or if problems occur following initial marketing.

In addition to product approval, the Company may be required to obtain a
satisfactory   inspection  by  the  FDA  covering  the  Company's  manufacturing
facilities  before a product  manufactured by the Company can be marketed in the
United States.  The FDA will review the Company's  manufacturing  procedures and
inspect  its  facilities  and  equipment  for  compliance  with  GMP  and  other
applicable  rules and  regulations.  Any  material  change by the Company in its
manufacturing  process,  equipment or location would necessitate  additional FDA
review and approval.

Foreign Regulatory Approval

Whether  or  not  FDA  approval  has  been   obtained,   approval  of  a
pharmaceutical  product by comparable  governmental  regulatory  authorities  in
foreign  countries must be obtained prior to the commencement of clinical trials
and  subsequent  marketing  of such  product  in such  countries.  The  approval
procedure varies from country to country, and the time required may be longer or
shorter than that required for FDA approval.

Under European Union ("EU") law,  either of two approval  procedures may
apply to the Company's products:  a centralized  procedure,  administered by the
EMEA (the European Medicines  Evaluation Agency); or a decentralized  procedure,
which  requires  approval by the medicines  agency in each EU Member State where
the Company's products will be marketed.  The centralized procedure is mandatory
for certain  biotechnology  products and available at the applicant's option for
certain other products.  Whichever  procedure is used, the safety,  efficacy and
quality of the Company's  products must be  demonstrated  according to demanding
criteria under EU law and extensive  nonclinical  tests and clinical  trials are
likely to be required. In addition to premarket approval requirements,  national
laws in EU Member States will govern clinical trials of the Company's  products,
adherence to good  manufacturing  practice,  advertising and promotion and other
matters. In certain EU Member States, pricing or reimbursement approval may be a
legal or practical precondition to marketing.

Other Regulation

In addition to  regulations  enforced  by the FDA,  the Company  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 the Company's  research and  development  involves the controlled use of
hazardous materials,  chemicals,  viruses and various radioactive compounds, the
Company's  operations  are  subject to U.S.  Department  of  Transportation  and
Environmental  Protection  Agency  requirements  and  other  federal,  state and
foreign laws and regulations  regarding hazardous waste disposal,  air emissions
and  wastewater  discharge,   including  without  limitation  the  Environmental
Protection Act, the Toxic Substances  Control Act and the Resource  Conservation
and Recovery Act. Although the Company believes that its procedures for handling
and  disposing  of such  materials  comply  with  the  standards  prescribed  by
applicable  regulations,  the risk of  accidental  contamination  or injury from
these  materials  cannot  be  completely  eliminated.  In the  event  of such an
accident,  the Company  could be held liable for any damages that result and any
such liability could have a material adverse effect on the Company.

COMPETITION

The Company's products under development are expected to address several
different  markets defined by the potential  indications for which such products
are developed and ultimately approved by regulatory authorities.  For several of
these  indications,  the  Company's  proposed  products  will be competing  with
products and therapies  either  currently  existing or expected to be developed,
including  antisense  oligonucleotides  developed by third parties.  Competition
among these  products will be based,  among other things,  on product  efficacy,
safety,  reliability,  availability,  price and patent  position.  An  important
factor will be the timing of market introduction of the Company's or competitive
products.  Accordingly,  the  relative  speed with which  Hybridon  can  develop
products,  complete  the  clinical  trials  and  approval  processes  and supply
commercial  quantities  of the  products  to the  market  is  expected  to be an
important  competitive  factor.  The  Company's  competitive  position will also
depend  upon its ability to attract and retain  qualified  personnel,  to obtain
patent protection or otherwise develop proprietary products or processes, and to
secure sufficient  capital  resources for the often  substantial  period between
technological conception and commercial sales.

39

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  modulation of gene  expression.  The Company believes that
the industry-wide  interest in these technologies and products will continue and
will  accelerate  as the  techniques  which  permit  their  application  to drug
development  become more widely  understood.  There can be no assurance that the
Company's   competitors  will  not  succeed  in  developing  products  based  on
oligonucleotides  or other  technologies  that are more effective than any which
are  being  developed  by the  Company  or  which  would  render  the  Company's
technology  and products  obsolete and  noncompetitive  prior to recovery by the
Company of the research,  development and  commercialization  expenses  incurred
with  respect to those  products.  One  competitor  of the Company has  recently
received  FDA  approval  to  market on  antisense  therapeutic  product  for the
treatment of CMV.  Furthermore,  because of the fundamental  differences between
gene expression modulation and other technologies,  there may be indications for
which such other  technologies are superior to gene expression  modulation.  The
development  by others of new  treatment  methods  not based on gene  expression
modulation  technology for those indications for which the Company is developing
compounds could render the Company's compounds noncompetitive or obsolete.

Competitors of the Company engaged in all areas of drug discovery in the
United States and other countries are numerous and include,  among others, major
pharmaceutical and chemical  companies,  biotechnology  firms,  universities and
other  research  institutions.  Many of  these  competitors  have  substantially
greater financial,  technical and human resources than the Company. In addition,
many of these competitors have significantly greater experience than the Company
in  undertaking   preclinical   studies  and  human   clinical   trials  of  new
pharmaceutical  products and  obtaining  FDA and other  regulatory  approvals of
products for use in health care.  Accordingly,  the  Company's  competitors  may
succeed in obtaining FDA or other regulatory approvals for products more rapidly
than the  Company.  One  competitor  of the Company has  recently  received  FDA
approval to market an antisense  therapeutic  product for the  treatment of CMV.
Furthermore,  if the  Company  is  permitted  to  commence  commercial  sales of
products, it will also be competing with respect to manufacturing efficiency and
marketing capabilities, areas in which it has limited or no experience.

In its HSP Division operations, the Company competes against a number of
third  parties,  and there is the  possibility  of  internal  production  by the
Company's  customers.  Many of these third  parties and  customers  have greater
financial,  technical  and human  resources  than the Company.  Key  competitive
factors  will  include  the  price  and  quality  of the  products  as  well  as
manufacturing  capacity and ability to comply with specifications and to fulfill
orders on a timely basis.  The Company may be required to reduce the cost of its
product offerings to meet competition. See "Risk Factors -- Competition."

EMPLOYEES

As of December 1, 1998, Hybridon employed 50 individuals  full-time,  of
whom 21 held  advanced  degrees.  Sixteen  of these  employees  are  engaged  in
research and development activities and nine are employed in finance,  corporate
development  and legal  and  general  administrative  activities.  In  addition,
twenty-four of these  employees are employees of the HSP Division,  of whom five
are  employed  in  quality  control.   Many  of  the  Company's  management  and
professional   employees  have  had  prior   experience   with   pharmaceutical,
biotechnology or medical products companies.  None of the Company's employees is
covered by collective bargaining agreements,  and management considers relations
with its employees to be good.

PROPERTIES

The  Company   leases  its  36,000  square  foot  facility  in  Milford,
Massachusetts  under a lease which expires in 2004. The term of the lease may be
extended at Hybridon's option for two additional five-year terms.

In addition, the Company leases supplemental  laboratory space in
Cambridge,  Massachusetts comprising approximately 26,000 square feet for a term
expiring April 30, 2007 at an annual rent of approximately  $23 per square foot.
The Company is currently  subleasing  approximately  20,000  square feet of this
facility to a third party under a sublease expiring September 30, 2000.

40

LEGAL PROCEEDINGS

The Company is not a party to any litigation that it believes could have
a material adverse effect on the Company or its business.

RECENT DEVELOPMENTS

The Company has been informed by Arthur  Andersen  LLP, its  independent
public  accountants,  that  their  report on the  Company's  December  31,  1998
financial statements will contain an explanatory fourth paragraph addressing the
significant uncertainty regarding the Company's ability to continue operating as
a going concern unless the Company is able to raise  sufficient  capital to fund
operations for 1999 prior to the release of the audit report.

MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

From January 24, 1996 until December 2, 1997, the Company's Common Stock
was traded on the Nasdaq  National  Market  under the  symbol  "HYBN."  Prior to
January  24,  1996,  there was no  established  public  trading  market  for the
Company's Common Stock.

On December 2, 1997,  the  Company's  Common Stock was delisted from the
Nasdaq  National  Market and began being quoted on the NASD OTC Bulletin  Board.
Prices reflected on the NASD OTC Bulletin Board may reflect inter-dealer prices,
without  retail  mark-up,  mark-downs  or  commissions  and may not  necessarily
represent actual transactions.

On December 10, 1997 the Company  effected a one-for-five  reverse stock
split of its Common  Stock.  As a result of the reverse  stock split,  each five
shares of  Common  Stock was  automatically  converted  into one share of Common
Stock, with cash paid in lieu of any fractional shares.

The  following  table sets forth for the periods  indicated the high and
low sales  prices per share of the Common  Stock during each of the quarters set
forth below as reported on the Nasdaq  National Market and the NASD OTC Bulletin
Board since  January 24,  1996 and as  adjusted  to reflect  the  December  1997
reverse stock split.

HIGH             LOW
----             ---

1996
- ----

First Quarter (from January 24, 1996)........      $71.250         $43.750
Second Quarter...............................       59.375          25.625
Third Quarter................................       59.375          33.125
Fourth Quarter...............................       43.125          26.250

1997
- ----

First Quarter................................      $43.125         $28.125
Second Quarter...............................       35.625          25.000
Third Quarter................................       28.125           7.500
Fourth Quarter...............................        4.859           2.609

1998
- ----

First Quarter................................        3.359           1.000
Second Quarter...............................        2.75            1.609
Third Quarter................................        2.516           1.125

The  reported  closing  bid price of the  Common  Stock on the NASD OTC
Bulletin Board on December 17, 1998 was $1.0625 per share.  The number of Common
Stockholders of record on November 13, 1998 was 360.

41

DIVIDEND POLICY

The Convertible Preferred Stock dividend rate is 6.5% per annum, payable
semi-annually  in  arrears.  These  dividends  may be paid  either in cash or in
additional  shares of  Convertible  Preferred  Stock,  at the  discretion of the
Company.

The Company has never  declared  or paid cash  dividends  on its capital
stock,  and the Company does not expect to pay any dividends on its Common Stock
or any cash  dividends on the  Convertible  Preferred  Stock in the  foreseeable
future.  The Indenture  under which the Company  issued the 9% Notes on April 2,
1997 limits the Company's  ability to pay dividends or make other  distributions
on its Common Stock or to pay cash dividends on the Convertible Preferred Stock.
As of September 30, 1998, $1.3 million in aggregate  principal  amount of the 9%
Notes remained outstanding.

In  addition,  the  Company is  currently  prohibited  from  paying cash
dividends under the Bank Credit Facility, which has been purchased by affiliates
of two members of the Company's Board of Directors.

42

USE OF PROCEEDS

The  Company  will  not  receive  any  proceeds  from  the  sale  of the
Securities  by the  Selling  Securityholders  or their  transferees  (other than
proceeds upon exercise of certain Hybridon warrants).

The funds that may be received by the Company  upon the exercise in full
of the  outstanding  Warrants  will be added to the  Company's  general  working
capital.

CAPITALIZATION

The  following  table sets forth as of  September  30,  1998 the actual
capitalization  of  the  Company.  See  the  Company's  unaudited   Consolidated
Financial  Statements  as of  September  30,  1998, included  elsewhere  in this
Registration Statement (in thousands, except share data.)

Current portion of long-term debt and capital lease obligations .........           $    3,031
==========
Long-term debt and capital lease obligations, net of current portion ....           $      573
9% Convertible Subordinated Notes due 2004 ..............................                1,306
Stockholders' Equity:
Preferred Stock, $.01 par value, 5,000,000 shares authorized;
no shares issued and outstanding.................................         ----------

Series A Convertible Preferred Stock, $.01 par value, 5,000,000 shares
authorized; 624,790 shares issued and outstanding.......................                 6

Common Stock, $.001 par value, 100,000,000 shares authorized;
15,254,825 shares issued and outstanding (1)............................                15

Additional Paid-In-Capital .........................................               240,301
Deficit accumulated during the development stage ...................              (233,294)
Deferred Compensation  ..............................................                 (931)
-----------
Total Stockholders' Equity ...............................                 6,097
-----------
Total Capitalization ...............................             $    7,976
==========

- --------------
(1)  Excludes an aggregate of  12,568,143  shares of Common Stock  issuable upon
exercise of options and warrants outstanding as of September 30, 1998, at a
wieghted average exercise price of $5.45 per share.

43

SELECTED FINANCIAL DATA

The selected  consolidated  balance sheet data set forth below, as of
December 31, 1996 and 1997, and the  consolidated  statements of operations data
for each of the three years in the period  December 31,  1997,  are derived from
the  Company'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  consolidated  financial data as of
December 31, 1993,  1994 and 1995 and for the years ended  December 31, 1993 and
1994 are  derived  from the  Company's  Consolidated  Financial  Statements  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, 1998 and for the nine months ended  September  30, 1997 and 1998 and for the
period from  inception (May 25, 1989) to September 30, 1998 are derived from the
Company's  unaudited   Consolidated  Financial  Statements  which  are  included
elsewhere in this  Prospectus and which include,  in the opinion of the Company,
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, 1998 are not  necessarily  indicative  of the results that may be
expected for the fiscal year ending December 31, 1998. The selected consolidated
financial  data  should  be read in  conjunction  with,  and  are  qualified  by
reference to  "Management's  Discussion and Analysis of Financial  Condition and
Results of  Operations,"  the Company's  Consolidated  Financial  Statements and
notes  thereto  and the  Report  of  Independence  Public  Accountants  included
elsewhere in this Prospectus.

May 25, 1989
Years Ended December 31,              Nine Months Ended   (inception) through
September 30,     September 30, 
---------------------------------------------------------------------------------------------
1993      1994       1995     1996      1997     1997       1998       1998
----      ----       ----     ----      ----     ----       ----       ----
(In thousands, except per share data)            (Unaudited)

Statement of Operations Data:
Revenues
Research and development............ $    917  $  1,032  $  1,186  $  1,419  $    945  $    980  $    950      $6,449
Product and service revenue.........       --        --        --     1,080     1,877     1,232     2,353       5,311
Royalty income......................       --        --        --        62        48        33        --         110
Interest income.....................      267       135       219     1,447     1,079       898       106       3,327
---       ---       ---     -----     -----       ---   -------     -------
1,184     1,167     1,405     4,008     3,949     3,143     3,409      15,197
Operating Expenses
Research and development............   16,168    20,024    29,685    39,390    46,828    37,785    17,181     182,641
General and administrative..........    4,372     6,678     6,094    11,347    11,026     9,012     5,218      53,034
Interest............................      380        69       173       124     4,536     3,223     2,880       9,026
Restructuring.......................       --        --        --        --    11,020     3,100        --      11,020
------    ------    ------    ------    ------    ------    ------     -------

Total operating expenses........   20,920    26,771    35,952    50,861    73,410    53,120    25,279     255,721
------    ------    ------    ------    ------    ------    ------     -------
Loss from operations....................  (19,736)  (25,604)  (34,547)  (46,853)  (69,461)  (49,977)  (21,870)   (240,524)
Extraordinary item:
Gain on conversion of 9% convertible
subordinated notes payable..........       --        --        --        --        --        --     8,877       8,877
------    ------    ------    ------    ------    ------    ------     -------
Net Loss................................  (19,736)  (25,604)  (34,547)  (46,853)  (69,461)  (49,977)  (12,993)   (231,647)
Accretion of preferred stock dividend...       --        --        --        --        --        --     1,647       1,647
Net loss to common stockholders......... $(19,736) $(25,604) $(34,547) $(46,853) $(69,461) $(49,977) $(14,640)   $233,294
======    ======    ======    ======    ======    ======    ======     =======
Basic and diluted net loss per per
common share from:
Operations.......................... $ (55.80) $ (70.77) $ (94.70) $ (10.24) $ (13.76) $  (9.90) $  (2.21)
Extraordinary gain..................       --        --        --        --        --        --      0.83
------    ------    ------    ------    ------    ------    ------
Net loss........................ $ (55.80) $ (70.77) $ (94.70) $ (10.24) $ (13.76) $  (9.90) $  (1.37)
Shares Used in Computing Basic and
Diluted Net Loss per Common Share(1)..      354       362       365     4,576     5,050     5,047    10,648
===       ===       ===     =====     =====     =====    ======

44

Other Financial Data:
Ratio of earning to fixed charges(3)          --        --        --        --        --        --        --

December 31,                              September 30,
--------------------------------------------------       -------------
1993      1994       1995     1996      1997           1998
----      ----       ----     ----      ----           ----
(Unaudited)

Balance Sheet Data:
Cash, cash equivalents and short-term
investments(2)......................  $  8,767  $  3,396  $  5,284  $ 16,419 $   2,202       $   883
Working capital (deficit)...............     8,357    (1,713)      210     8,888   (24,100)       (2,815)
Total assets............................    15,243    11,989    19,618    41,537    35,072        18,399
Long-term debt and capital lease
obligations, net of current portion.        79     1,522     1,145     9,032     3,282           573
9% Convertible Subordinated
Notes Payable...........................        --        --        --        --    50,000         1,306
Deficit accumulated in the
development stage                      (42,190)  (67,794)  (102,341)(149,194) (218,655)     (233,295)
Total stockholders' equity (deficit)....    12,178     4,774     12,447   22,855   (46,048)        6,097
------     -----     ------   ------    ------         -----

(1)  Computed  on the  basis  described  in  Notes  2(B)  and  19(C) of Notes to
Consolidated Financial Statements attached as APPENDIX A hereto.

(2)  Short-term   investments  consisted  of  U.S.  government  securities  with
maturities  greater  than  three  months  but less  than one year  from the
purchase date.

(3)  For the purpose of  calculating  the ratio of  earnings  to fixed  charges,
earnings  represent the Company's loss from  continuing  operations  before
income taxes plus fixed charges.  Fixed charges consist of interest expense
on all  indebtedness  plus  the  interest  portion  of  rental  expense  on
non-cancelable  leases and  amortization  of debt  issuance  costs and debt
discount.  The Company's  earnings  have been  inadequate to meet its fixed
changes in 1993,  1994,  1995,  1996 and 1997 and for the nine months ended
September 30, 1997 and 1998 by $19.1 million, $25.2 million, $33.9 million,
$46.4 million, $64.7 million, $46.6 million and $8.4 million, respectively.

45

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

The  following  discussion  should  be read  in  conjunction  with  the
Selected  Consolidated  Financial Data and Consolidated  Financial Statements of
the Company and related notes thereto appearing elsewhere in this Prospectus.

General

The  Company is  engaged in the  discovery  and  development  of genetic
medicines based on antisense  technology.  The Company  commenced  operations in
February  1990 and since that time has been  engaged  primarily  in research and
development   efforts,   development  of  its  manufacturing   capabilities  and
organizational  efforts,  including  recruitment  of scientific  and  management
personnel,  and raising  capital.  To date, the Company has not received revenue
from the sale of therapeutic products developed by it. In order to commercialize
its own  therapeutic  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  collaborative  agreements,  interest on
invested funds and revenues from the custom contract  manufacturing of synthetic
DNA and reagent products by the HSP Division.

In the  Report  of  Independent  Public  Accountants  set  forth  in the
Consolidated  Financial  Statements  of the Company,  Arthur  Andersen  LLP, the
Company's independent public accountants,  state that there is substantial doubt
about the Company's ability to continue as a going concern.

The Company has been informed by Arthur  Andersen  LLP, its  independent
public  accountants,  that their  reports on the  Company's  December  31,  1998
financial statements will contain an explanatory fourth paragraph addressing the
significant uncertainty regarding the Company's ability to continue operating as
a going concern unless the Company is able to raise  sufficient  capital to fund
operations for 1999 prior to the release of the audit report.

The Company  has  incurred  cumulative  losses  from  inception  through
September 30, 1998 of approximately  $231.6 million. In the second half of 1997,
the Company commenced a restructuring program that has significantly reduced the
Company's  operating  expenses and cost  requirements  in 1998 from 1997 levels.
However,  the Company  expects that its research and  development  expenses will
continue to be  significant in the fourth quarter of 1998 and in future years as
it pursues its core drug  development  programs and expects to continue to incur
operating losses and have significant  capital  requirements that it will not be
able to satisfy  with  internally  generated  funds.  The Company  continues  to
explore  opportunities to reduce operating expenses in an effort to conserve its
cash  resources.  The number of  employees  has  continued  to  decline  through
attrition;  as of December 1, 1998, the Company had 50 full-time  employees.  In
connection with the ongoing restructuring,  the Company completed the relocation
of its corporate  headquarters  to Milford,  Massachusetts,  the site of the HSP
Division.

This  Registration  Statement  on  Form  S-1  contains   forward-looking
statements.  For this  purpose,  any  statements  contained  herein that are not
statements of historical  fact may be deemed to be  forward-looking  statements.
Without limiting, the foregoing,  the words "believes,"  "anticipates," "plans,"
"expects"  and similar  expressions  are  intended  to identify  forward-looking
statements.  There  are a number  of  important  factors  that  could  cause the
Company's  actual  results to differ  materially  from those  indicated  by such
forward-looking statements. These factors include, without limitation, those set
forth herein under the caption "Risk Factors."

Restructuring Plan

During the second half of 1997, the Company  implemented a restructuring
plan to reduce  expenditures on a phased basis over the balance of 1997 and into
the  first  half of 1998 in an  effort  to  conserve  its  cash  resources.  The
restructuring plan was completed in 1998. As part of this restructuring plan, in
addition to terminating the clinical  development of GEM 91, the Company reduced
or suspended selected programs unrelated to its core

46

advanced chemistry antisense drug development  programs,  substantially  reduced
the number of its employees in 1997 and substantially  reduced operations at its
Paris,  France office.  As part of the  restructuring,  the Company reviewed all
outside  testing,  public  relations,  travel and  entertainment  and consulting
arrangements and terminated or renegotiated various of these arrangements.

As part of the  restructuring,  the Company  subleased  one facility in
Cambridge, Massachusetts and a substantial portion of its corporate headquarters
located at 620 Memorial Drive,  Cambridge,  Massachusetts.  The Company incurred
expenses  relating to these  subleases for broker fees and  renovation  expenses
incurred in preparing the Memorial Drive space for the new tenant.  In addition,
the Company  accrued the estimated  lease loss of subleasing the remaining space
at its corporate headquarters. The Company has accrued the remaining lease costs
prior to terminating the lease for its offices in Paris,  France effective March
31, 1998.  The Company  subsequently  terminated  its leasehold  interest in the
Cambridge Facility and consolidated its operations in its Milford, Massachusetts
facility during the third quarter of 1998.

Because of the  significant  costs  involved in  terminating  employees,
subleasing  its  facilities,   terminating  research  contracts,  suspending  or
cancelling research programs and substantially reducing operations,  the Company
did not begin to experience a material  decrease in its  expenditure  rate until
the fourth quarter of 1997. The Company recorded a restructuring charge of $11.0
million for the actions that occurred in 1997.

Results of Operations

Nine Months Ended September 30, 1998 and 1997

The Company had total  revenues of $3,410,000 and $3,143,000 in the nine
months ended September 30, 1998 and 1997,  respectively.  Revenues from research
and  development  collaborations  were $950,000 and $980,000 for the nine months
ended September 30, 1998 and 1997, respectively.

Product and service  revenue from the HSP Division  was  $2,353,000  and
$1,231,000 for the nine months ended September 30, 1998 and 1997,  respectively.
Included in the nine months  ended  September  30, 1998 was  $250,000 of revenue
received  under its License  Agreement  with  MethylGene  for  certain  services
provided. The increase in product and service revenue in 1998 was a result of an
expansion in the customer base and  increasing  sales to existing  customers and
revenue earned under the License Agreement with MethylGene.

Interest  income was  $106,000  and  $898,000  for the nine months ended
September 30, 1998 and 1997,  respectively.  The decrease in interest  income is
attributable to the decrease in cash and investments held by the Company in 1998
as compared to 1997.

The Company had research and  development  expenses of $17,181,000  and
$37,785,000 for the nine months ended September 30, 1998 and 1997, respectively.
The  decrease  in  research  and  development  expenses  in  1998  reflects  the
restructuring  program  that was  commenced  during the second  half of 1997 and
completed  in  the  third  quarter  of  1998.  The  restructuring  included  the
discontinuation of operations at the Company's facilities in Europe, termination
of the  clinical  development  of GEM 91 and  the  reduction  or  suspension  of
selected programs unrelated to the Company's core advanced  chemistry  antisense
drug development program, including the termination of its ribozyme program. The
restructuring resulted in significant  reductions in employee-related  expenses,
clinical  and outside  testing,  consulting,  materials  and lab  expenses.  The
Company's  facility costs in 1998 were also reduced by the income  received from
subleasing  its  underutilized  facilities.  The Company has now  relocated  its
headquarters  to its  manufacturing  facility,  which  is  located  in  Milford,
Massachusetts,  and has  terminated the lease to the Cambridge  Facility,  which
should significantly reduce facilities costs in future periods.

The Company had general and administrative expenses of $5,218,000 and
$9,012,000 for the nine months ended September 30, 1998 and 1997,  respectively.
The decrease in general and  administrative  expenses in 1998 resulted primarily
from the Company's  restructuring  program  initiated  during the second half of
1997 and its effect on employee-related expenses,  consulting and net facilities
costs.

47

The Company had interest  expense of $2,880,000  and  $3,223,000 for the
nine months ended  September  30, 1998 and 1997,  respectively.  The decrease in
interest   expense  in  1998  is  mainly   attributable  to  the  conversion  of
approximately  $48.7  million of the 9% Notes,  issued in the second  quarter of
1997, to Series A Convertible Preferred Stock on May 5, 1998.

As a result of the above  factors,  the  Company  incurred  losses  from
operations of $21,869,000  and  $49,977,000  for the nine months ended September
30, 1998 and 1997, respectively.

The Company had  extraordinary  income of $8,877,000 for the nine months
ended September 30, 1998 resulting from the conversion of the 9% Notes to Series
A Convertible  Preferred  Stock in the second  quarter of 1998.  See  "Financial
Statements  -- Notes  to  Consolidated  Condensed  Financial  Statements"  for a
discussion  of  the  Company's   extraordinary  income.  As  a  result  of  this
transaction, the Company reduced its net loss to $12,993,000 for the nine months
ended September 30, 1998.

Years ended December 31, 1997, 1996 and 1995

Revenues
--------

The Company had total revenues of $3.9 million in 1997,  $4.0 million in
1996 and $1.4 million in 1995.  During 1997, 1996 and 1995, the Company received
revenues from research and development  collaborations of $945,000, $1.4 million
and $1.2 million, respectively.  Research and development collaboration revenues
decreased in 1997 from 1996 because the research funding,  which the Company had
been receiving  under the Company's  collaboration  with Roche in 1996 and 1995,
was  terminated  by  Roche  as of  March  31,  1997.  Research  and  development
collaboration  revenues  increased  in  1996  from  1995  because  collaboration
revenues in 1996 included  revenues earned under a collaborative  agreement with
Searle, which the Company entered into in January 1996.

Revenues  from the custom  contract  manufacturing  of synthetic DNA and
reagent  products by the HSP Division were $1.9 million in 1997 and $1.1 million
in 1996.  The HSP Division had no revenues in 1995.  The increase in revenues in
1997  resulted  from a full  year of  operations  for the  HSP  Division,  which
commenced  operations in the third quarter of 1996. This increase in revenues in
1997 was significantly lower than the Company had anticipated.

Revenues from interest income were $1.1 million in 1997, $1.4 million in
1996 and $219,000 in 1995. The decrease in interest income in 1997 from 1996 was
the result of lower cash balances available for investment in 1997 than in 1996.
The  increase  in  interest   income  in  1996  from  1995  was  the  result  of
substantially  higher cash balances  available for investment as a result of the
Company's initial public offering, which was completed on February 2, 1996.

Research and Development Expenses
---------------------------------

During 1997,  1996 and 1995, the Company  expended $46.8 million,  $39.4
million and $29.7 million,  respectively, on research and development activities
The increases in research and  development  expenses in 1997 and 1996  reflected
increasing  expenses  related  primarily  to  ongoing  clinical  trials  of  the
Company's  product  candidates,  including  clinical  trials  of  two  different
formulations of GEM 132, which were first initiated  during the third quarter of
1996 and the  first  quarter  of 1997,  clinical  trials of GEM 92,  which  were
initiated in the third quarter of 1997 and clinical trials of GEM 91, which were
initiated  in France in October  1993 and in the  United  States in May 1994 and
terminated  in  July  1997.  Clinical  expenses  related  to  GEM  91  decreased
significantly  during  the  second  half of 1997  after the  Company  elected to
terminate development of this compound.

Research and development expenses also increased in 1997 and 1996 due to
significant  increases  in  preclinical  expenses  incurred  to meet the  filing
requirements to initiate the domestic  clinical trials of the Company's  product
candidates.

48

The  facilities  expense  related to the research and  development  area
increased  significantly  in 1997 as a result of the relocation of the corporate
offices to Cambridge, Massachusetts.

Research  and  development   salaries  and  related  costs  remained  at
approximately  the same level in 1997 as 1996  because of the costs  involved in
terminating  employees in 1997.  Research and  development  salaries and related
costs  increased  significantly  in 1996  over 1995 as the  number of  employees
engaged in research and  development  increased to 206 at December 31, 1996 from
124 at December 31, 1995.

Patent expenses also remained at approximately the same level in 1997 as
1996 as the  Company  limited the scope of patent  protection  that it sought as
part of its effort to conserve its cash resources.  Patent expenses increased in
1996 as compared to 1995, as the Company continued to develop a patent portfolio
both domestically and internationally.

General and Administrative Expenses
-----------------------------------

The  Company  incurred  general  and  administrative  expenses  of $11.0
million in 1997, $11.3 million in 1996, and $6.1 million in 1995, respectively.

The facilities  expense related to the general and  administrative  area
increased  significantly  in 1997 as a result of the relocation of the corporate
offices to Cambridge, Massachusetts.  However, as a result of the implementation
of the  restructuring  plan in the second half of 1997, such increase was offset
by decreases  in general and  administrative  salaries and related  costs and in
consulting  expenses in the second half of 1997.  As part of the  restructuring,
approximately 11 general and administrative  positions were eliminated.  General
and administrative  expenses related to business  development,  public relations
and legal expenses remained at approximately the same level in 1997 as 1996.

The  increase in general and  administrative  expenses in 1996 from 1995
was primarily  attributable to an increase in expenses for business  development
activity,  public relations and legal expenses incurred primarily as a result of
being a public company and salaries and related costs.

Interest Expense
----------------

Interest expense was $4.5 million in 1997, $124,000 in 1996 and $173,000
in 1995.  The  increase  in  interest  expense  in 1997 from 1996  reflected  an
increase  in the  Company's  debt  outstanding  associated  with  the  Company's
issuance of $50,000,000 of 9% Notes in 1997 and interest  incurred on borrowings
to finance the  purchase of property  and  equipment.  The  decrease in interest
expense in 1996 from 1995  reflected  a decrease in the  outstanding  balance of
borrowings to finance the purchase of property and equipment.

Restructuring Charge
--------------------

In connection with the  implementation of the restructuring  plan in the
second  half of 1997,  the  Company  recorded  a  restructuring  charge of $11.0
million for the actions that occurred in 1997. The Company made cash payments of
approximately  $1.5 million in 1997 and expects to make additional cash payments
of approximately $3.7 million in 1998 in connection with the restructuring.

Net Loss
--------

As a result of the above  factors,  the Company  incurred  net losses of
$69.5 million in 1997, $46.9 million in 1996 and $34.5 million in 1995.

49

LIQUIDITY AND CAPITAL RESOURCES

General

From  inception  through  September 30, 1998,  the Company  financed its
operations, including capital expenditures,  through a public offering of common
stock,  private placements of equity securities and the 9% Notes in 1997 and the
exercise of stock options and warrants with aggregate  gross proceeds  totalling
$230.5 million,  as well as through bank and other  borrowings of $10.1 million,
capital leases of $5.6 million,  research and development and milestone payments
and license fees from corporate  collaborators  totalling $6.4 million and sales
of  synthetic  DNA and  reagent  products  by the HSP  Division  totalling  $5.1
million.  Through September 30, 1998, the Company utilized  approximately $196.4
million to fund  operating  activities  and $29.7  million  to  finance  capital
expenditures, including leasehold improvements at the Company's former Cambridge
Facility at its facility in Milford, Massachusetts.

During the nine months ended  September 30, 1998, the Company's net cash
used in operating  activities  amounted to $17,444,000.  The Company's operating
cash requirements were funded primarily through the utilization of existing cash
and proceeds raised in private equity  offerings  conducted in the first half of
1998, the collection of its accounts receivable from sales and services provided
by the Company,  collaborative  payments received,  the rental payments from its
underutilized facilities, and the sale of equipment. The primary use of cash for
operating  activities  was to fund the Company's cash operating loss (before the
extraordinary gain) of $21.9 million.  The Company expects to purchase a minimal
amount of capital  equipment  in the  remainder of 1998 as part of its effort to
conserve  cash  resources.  

The Company's  existing capital  resources include the following amounts
received  in the fourth  quarter of 1998.  First,  $6,163,000  was  received  in
connection with relocation of the Company's  corporate  headquarters to Milford,
Massachusetts,  and the sale of the  Company's  interest  in the  Charles  River
Building  Limited  Partnership,  which owned the Company's  former  headquarters
facility; this amount includes a portion of the security deposit relating to the
Company's lease to its former headquarters  facility and the release of $660,000
in restricted cash. Second, $254,000 was received in connection with the sale in
October 1998 of certain  equipment  and  furniture.  Third,  approximately  $3.2
million was received in December  1998 as an  additional  advance under the Bank
Credit Facility (as described below).

The Company had cash and cash  equivalents  of $883,000 at September 30,
1998 and  approximately  $6.0 million as of December 15, 1998, which the Company
estimates will last into the first quarter of 1999. The working  capital deficit
at December 15, 1998 was $ .8 million. 

The Company's expected capital resources include committed collaborative
research and development payments from Searle,  research and development funding
expected from MethylGene and the profit margins on anticipated  sales by the HSP
Division.

In June 1998, the Company  relocated its  headquarters  from  Cambridge,
Massachusetts  to its  manufacturing  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,  the Company was relieved
of its substantial  lease obligations for the Cambridge  Facility,  subject to a
contingent  continuing  liability  for any  defaults  which may arise  under the
sublease.

The  Company is  currently  undergoing  a sales and use tax audit by the
Massachusetts  Department of Revenue. The amount of the final assessment,  while
currently unknown, may be material.  

Forum and Pecks  Management  Partners Ltd.  ("Pecks" and,  together with
Forum,  the  "Lender"),  affiliates  of two  members of the  Company's  Board of
Directors,  have purchased the Bank Credit Facility,  the outstanding  principal
amount of which,  as of November 15, 1998, was  approximately  $2.8 million.  In
connection with the purchase of the Bank Credit Facility,  in December 1998, the
Lender lent an  additional  amount to the Company,  increasing  the  outstanding
principal  amount of the Loan to $6.0 million.  See "Description of Common Stock
and Indebtedness -- Indebtedness -- Bank Credit Facility."

The  Company  will be  required to raise  substantial  additional  funds
through external  sources,  including  through  collaborative  relationships and
public or private financings, to support its operations. Except for research and
development  funding  from  Searle  (which is  subject to early  termination  in
certain circumstances), revenue expected to be received from MethylGene and sale
of DNA products and reagents manufactured on a custom

50

contract basis by the HSP Division,  the Company has no current external sources
of capital,  and, as discussed  above,  expects no product revenues for at least
several years from sales of therapeutic products that it is developing.

No assurance can be given that such  additional  funds will be available
to fund the  Company's  operations  or, if  available,  that such  funds will be
available on acceptable  terms. If additional funds are raised by issuing equity
securities,   further  dilution  to  then  existing  stockholders  will  result.
Additionally,  the terms of any such additional  financing may adversely  affect
the holdings or rights of then existing stockholders.

If  adequate  funds are not  available,  the  Company may be required to
further curtail significantly one or more of its core drug development programs,
obtain funds through arrangements with collaborative partners or others that may
require the Company to relinquish rights to certain of its technologies, product
candidates or products  which the Company would  otherwise  pursue on its own or
terminate operations.

The Company's future capital  requirements  will depend on many factors,
including  continued  scientific  progress in its research,  drug  discovery and
development programs, the magnitude of these programs, progress with preclinical
and clinical trials,  sales of DNA products and reagents to third parties by the
HSP  Division  and the  margins on such  sales,  the time and costs  involved in
obtaining regulatory  approvals,  the costs involved in filing,  prosecuting and
enforcing patent claims,  competing  technological and market developments,  the
ability of the Company to  establish  and  maintain  collaborative  academic and
commercial research, development and marketing relationships, the ability of the
Company to obtain  third-party  financing for leasehold  improvements  and other
capital   expenditures   and   the   costs   of   manufacturing   scale-up   and
commercialization activities and arrangements.

9% Notes

On April 2, 1997, the Company issued $50.0 million of the 9% Note with a
maturity  date of April 1, 2004,  Under the terms of the 9% Notes the Company is
required  to make  semiannual  interest  payments on the  outstanding  principal
balance of the9% Notes on April 1 and October 1 of each year during which the 9%
Notes are outstanding.  The outstanding  principal  balance of the 9% Notes will
become due on the maturity date. The Company made the first interest  payment of
$2.3 million at the beginning of October 1997. On February 6, 1998,  the Company
commenced an exchange  offer to the holders of the 9% Notes offering to issue to
such holders shares of Series A Convertible Preferred Stock and Class A Warrants
to purchase  shares of Common Stock in exchange for such 9% Notes,  as described
below under the caption "1998  Financing  Activities." As of September 30, 1998,
approximately  $48.7 million in aggregate  principal amount of 9% Notes had been
tendered to the Company in the Exchange Offer.

Bank Credit Facility

In December  1996,  the Company  entered into a five-year  $7.5 million
credit  facility  to  finance  the  leasehold   improvements  of  the  Company's
manufacturing  facility.  See  "Description of Capital Stock and Indebtedness --
Indebtedness -- Bank Credit Facility."

Facility Leases

The Company  entered  into a lease for its  corporate  headquarters  and
primary research and development  laboratories in Cambridge,  Massachusetts  and
moved  its  operations  to this  facility  in the  first  quarter  of 1997.  The
Company's facilities costs increased  significantly upon occupying the Cambridge
Facility.  As part of the lease  agreement,  the  Company  elected to treat $5.5
million of payments to the landlord  (primarily related to tenant  improvements)
as  contributions  to the capital of the  Cambridge  landlord in exchange  for a
limited  partnership  interest in the  Cambridge  landlord.  All other  expenses
incurred to equip and build-out the facility in excess of $5.5

51

million were included in leasehold  improvements and were not exchangeable for a
partnership  interest under the lease. The Cambridge landlord is an affiliate of
three directors of the Company.  During July 1998, the Company's operations were
relocated to its facility in Milford,  Massachusetts.  In  September  1998,  the
Company  terminated  the lease for its  Cambridge  Facility and the facility was
re-leased to a third party,  subject to a sublease of a portion of the facility.
As a result,  the Company was relieved of its substantial  lease obligations for
the Cambridge  Facility,  subject to a contingent  continuing  liability for any
defaults which may arise under the sublease.

The  Company  is  a  party  to  leases  for  its  facility  in  Milford,
Massachusetts  and the  ancillary  facility in Cambridge,  Massachusetts,  under
which it has  significant  payment  obligations.  Effective  March 31, 1998, the
Company  has  terminated  the  lease  for its  office  space in  Paris,  France.
Effective  September  16, 1998 the Company  terminated  the lease for its office
space in Cambridge,  Massachusetts, as described above. At November 30, 1998 the
Company had facility lease commitments  amounting to approximately $6.3 million,
which last until April 2007.

As of December 31, 1997, the Company had approximately  $206 million and
$3.4 million of net operating loss and tax credit  carryforwards,  respectively.
The Tax Reform Act of 1986 (the "Tax Act") contains certain  provisions that may
limit the  Company'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.  The
Company has completed  several  financings  since the effective  date of the Tax
Act,  which,  as of December 31,  1997,  have  resulted in ownership  changes in
excess of 50%, as defined under the Tax Act.

Year 2000 Compliance

As has been widely publicized, many computer systems and microprocessors
are not  programmed  to  accommodate  dates beyond the year 1999.  The Company's
exposure to Y2K problem  comes not only from its own internal  computer  systems
and  microprocessors,  but also from the systems and  microprocessors of its key
suppliers, including utility companies and payroll services.

The Company currently  believes that all of its internal systems will be
Y2K compliant by the end of the third quarter of 1999.  The Company is currently
evaluating all of its internal computer systems and  microprocessors in light of
the Y2K problem. As part of this process, the Company is conducting an inventory
of its  automated  instruments  and  other  computerized  equipment  and will be
contacting  applicable  vendors for information  regarding Y2K  compliance.  The
Company will then upgrade or otherwise modify its internal  computer systems and
microprocessors,  to the extent necessary.  Testing of all its internal computer
systems and microprocessors  should be completed by the end of the first quarter
of 1999.  The  Company  does not expect the cost of bringing  all the  Company's
systems and microprocessors into Y2K compliance will be material.

The  Company's Y2K  compliance  efforts are in addition to other planned
information technology ("IT") projects.  While these efforts have caused and may
continue to cause delays in other IT projects,  the Company does not expect that
any of these delays will have a significant  effect on the Company's business or
that any of the Company's other IT projects will be canceled or postponed to pay
for the Y2K upgrades.

The  Company is not  currently  able to asses the Y2K  readiness  of its
research  partners,  or the  potential  impact,  if any, of a research  partners
failure to be Y2K compliant. With regard to potential supplier Y2K problems, the
Company  has  compiled  a list of its  critical  suppliers,  and has  sent a Y2K
questionnaire  to each of them in order to permit the Company to  ascertain  the
Y2K  compliance  status of each.  The  Company is  awaiting  the return of these
questionnaires.  The Company does not know of any key supplier Y2K problems that
could  have a  material  effect  on the  Company's  business.  If  through a Y2K
questionnaire or otherwise the Company becomes aware of any such problems and is
not satisfied that those problems are being adequately  addressed,  it will take
appropriate steps to find alternative suppliers.

It has been  acknowledged by governmental  authorities that Y2K problems
have the potential to disrupt global economies,  that no business is immune from
the potentially  far-reaching effects of Y2K problems,  and that it is difficult
to  predict  with   certainty   what  will  happen  after   December  31,  1999.
Consequently,  it is possible that Y2K problems  will have a material  effect on
the Company's  business even if the Company  takes all  appropriate  measures to
ensure that it and its key suppliers are Y2K compliant.

52

It is possible  that the  conclusions  reached by the Company  from its
analysis to date will change, which could cause the Company's Y2K cost estimates
and target completion dates to change.

DIRECTORS, EXECUTIVE OFFICERS
AND CERTAIN SIGNIFICANT EMPLOYEES OF THE COMPANY

Set forth  below is certain  information  regarding  all of the persons
currently serving as members of the Board of Directors or as Executive  Officers
of the Company,  including his principal  occupation and business experience for
the past five  years,  the name of other  publicly  held  companies  of which he
serves as a director  and his age and  length of  service  as a director  of the
Company.  No  director  or  executive  officer is related by blood,  marriage or
adoption to any other director or executive officer.

DIRECTORS OF THE COMPANY

DIRECTOR                 PRINCIPAL OCCUPATION, OTHER
BUSINESS EXPERIENCE DURING PAST
FIVE YEARS AND OTHER DIRECTORSHIPS
NAME                 AGE     SINCE
DIRECTORS WHOSE TERMS EXPIRE IN 1999 (CLASS I DIRECTORS)

Nasser Menhall................    42      1992     Member of the Board of Directors and Chief Executive
Officer of the WorldCare  Group, a teleradiology
company, since 1993; President of Pillar Limited, a
private investment and management consulting firm,
since 1990; President of Biomedical Associates, a private
investment firm, since 1990.

Arthur W. Berry...............    56      1998     Chairman and Managing Partner of Pecks Management
Partners, since 1990; 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, 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.  Member of the Board of Directors
of Intellicorp, Inc.

Harold L. Purkey..............    54      1998     President of Forum Capital  Markets LLC;  Senior
Managing Director of Convertible Securities at Smith
Barney Shearson from 1990 to 1994; Senior Executive
Vice President of Drexel Burnham Lambert from 1982
to 1989.  Member  of the Board of  Directors  of
Richardson Electronics.

DIRECTORS WHOSE TERMS EXPIRE IN 2000 (CLASS II DIRECTORS)

Mohamed A. El-Khereiji........    44      1993     Chairman of the International Centre for Commerce and
Contracting, a contracting and trading company, since
1979; Chairman of Faisal Investment E.C., a leasing
company, since 1989.

53

James B. Wyngaarden, M.D......    73      1990     Vice  Chairman of the Board of  Directors of the
Company since February 1997; Foreign Secretary of the
National Academy of Sciences and the Institute of
Medicine of the National Academy of Sciences from
1990 to 1994; Council member of the Human Genome
Organization from 1990 to 1993 and Director from 1990
to 1991; Director of the National Institutes of Health
from 1982 to 1989; Member of the Board of Directors
of Human  Genome  Sciences,  Inc.  and  Magainin
Pharmaceuticals, Inc.

Paul C. Zamecnik, M.D.........    85      1990     Principal Scientist at the Worcester Foundation for
Biomedical Research, Inc. (the "Worcester Foundation")
from 1979 to 1996; Collis P. Huntington Professor of
Oncologic Medicine Emeritus at the Harvard Medical
School since 1979; Senior Scientist and Honorary
Physician at MGH.

DIRECTORS WHOSE TERMS EXPIRE IN 2001 (CLASS III DIRECTORS)

Sudhir Agrawal, D. Phil.......    45    1993       Senior Vice President of the Company since March
1994; Chief Scientific Officer of the Company since
January 1993; Vice President of Discovery of the
Company  from  December  1991 to  January  1993;
Principal Research Scientist of the Company from
February 1990 to January 1993.

Youssef El-Zein...............    49      1992     Vice  Chairman of the Board of  Directors of the
Company since February 1997; Executive Officer of
Pillar S.A., a private investment and management
consulting firm, since 1991; Chairman of the WorldCare
Group since 1993; Member of the Board of Directors of
Pillar Investment Limited, a private investment and
management consulting firm, since 1991.

E. Andrews Grinstead  III ....    53      1991     Chairman of the Board and Chief Executive Officer of
the   Company   since   1991; President of the Company
since  1993;  Member  of  the Board of Directors  of
EcoScience Corporation, Pharmos Corporation and
Meridian Medical Technologies.

Effective  February 17, 1997, Dr. Andre L. Lamotte,  a Class I Director
of the Company,  resigned from the Board of Directors of the Company.  Effective
July 29, 1997, Jerry A. Weisbach,  a Class II Director of the Company,  resigned
from the Board of Directors of the Company. Effective August 11, 1997, J. Robert
Buchanan,  A Class I  Director  of the  Company,  resigned  from  the  Board  of
Directors of the Company.

EXECUTIVE OFFICERS
NAME                            AGE        POSITION

E. Andrews Grinstead  III.............  53         Chairman of Board of Directors, President and Chief
Executive Officer

Sudhir Agrawal, D. Phil...............  45         Senior Vice President of Discovery, Chief Scientific
Officer and Director

54

Mr.  Grinstead  joined  the  Company  in June  1991  and was  appointed
Chairman of the Board and Chief  Executive  Officer in August 1991 and President
in January 1993. He has served on the Board of Directors since June 1991.  Prior
to joining the Company, Mr. Grinstead served as Managing Director and Group Head
of the life sciences group at PaineWebber,  Incorporated,  an investment banking
firm,  from 1987 to October 1990;  Managing  Director and Group Head of the life
sciences group at Drexel Burnham Lambert, Inc., an investment banking firm, from
1986 to 1987;  and Vice  President  at Kidder,  Peabody & Co.  Incorporated,  an
investment banking firm, from 1984 to 1986, where he developed the life sciences
corporate  finance  specialty  group.  Mr.  Grinstead  served  in a  variety  of
operational and executive positions with Eli Lilly and Company ("Eli Lilly"), an
international  pharmaceutical  company,  from  1976 to 1984,  most  recently  as
General  Manager of Venezuelan  Pharmaceutical,  Animal Health and  Agricultural
Chemical  Operations and at Lilly  Corporate Staff as  Administrator,  Strategic
Planning and Acquisitions. Since 1991, Mr. Grinstead has served as a director of
EcoScience  Corporation,  a development stage company engaged in the development
of biopesticides,  and as a director of Pharmos Corporation, a development stage
company  engaged in the development of novel  pharmaceutical  compounds and drug
delivery  systems.  Mr.  Grinstead also serves as a director of Meridian Medical
Technologies,  Inc., a pharmaceutical and medical device company.  Mr. Grinstead
was appointed to The President's Council of the National Academy of Sciences and
the  Institute  of Medicine in January  1992 and the Board of the  Massachusetts
Biotech Council in 1997. Since 1994, Mr. Grinstead has served as a member of the
Board of  Trustees  of the  Albert B. Sabin  Vaccine  Foundation,  a  charitable
foundation dedicated to disease prevention.  Mr. Grinstead received an A.B. from
Harvard College in 1967, a J.D. from the University of Virginia School of Law in
1974 and an M.B.A.  from the Harvard Graduate School of Business  Administration
in 1976.

Dr. Agrawal joined the Company 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 and Senior Vice  President  of Discovery in
March 1994. He has served on the Board of Directors  since March 1993.  Prior to
joining the Company, 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.

For information relating to shares of Common Stock owned by each of the
directors and  executive  officers of the Company,  see  "Security  Ownership of
Certain Beneficial Owners and Management."

55

EXECUTIVE COMPENSATION

Compensation of Executive Officers

Summary Compensation Table.

The  following  table sets forth the  compensation  for services in all
capacities to the Company for the fiscal years ended  December 31, 1997 ("fiscal
1997"),  December  31,  1996  and  December  31,  1995 for the  Company's  Chief
Executive Officer and up to four of the other most highly compensated  executive
officers who were serving as executive officers at December 31, 1997 whose total
annual  salary  and  bonus  exceeded  $100,000  in  fiscal  1997  and  up to two
additional  individuals  who would have been  among such other four most  highly
compensated executive officers if such individuals had been serving as executive
officers  at  December  31,  1997 (the Chief  Executive  Officer  and such other
executive  officers  are  hereinafter   referred  to  as  the  "Named  Executive
Officers"):

Summary Compensation Table

LONG-TERM
COMPENSATION
ANNUAL COMPENSATION                            AWARDS
-------------------                            ------
SECURITIES
OTHER ANNUAL        UNDERLYING     ALL OTHER
NAME AND PRINCIPAL POSITION                SALARY         BONUS         COMPENSATION          OPTIONS     COMPENSATION
- ---------------------------                ------         -----         ------------          -------     ------------

E. Andrews Grinstead  III .......1997     $375,000               0        $72,486(1)          66,806       $75,048(2)(3)
Chairman of the Board,         1996     $375,000        $225,000        $82,386(6)          50,000       $43,527(7)(8)
President and Chief Executive  1995     $270,000        $235,000        $19,655(9)         119,846      $118,332(10)(11)
Officer
Anthony J. Payne.................1997     $172,656               0        $47,778(1)          31,316      $158,628(2)(3)(4)
Former Senior Vice President   1996     $243,750        $107,000        $45,616(6)          25,000      $ 14,853(7)(8)
of Finance and Administration, 1995     $175,000        $137,500        $30,469(9)          43,162      $ 45,250(10)(11)
Chief Financial Officer,
Treasurer and Secretary(12)
Sudhir Agrawal, D. Phil..........1997     $250,000               0                0           32,263     $  22,757(3)(6)
Senior Vice President of       1996     $250,000        $100,000                0           25,000     $  28,676(5)(8)
Discovery, Chief Scientific    1995     $178,250        $114,125                0           32,263     $  38,523(5)(11)
Officer and Director

(1)  Includes  $51,386 and $33,817 paid by the Company to Messrs.  Grinstead and
Payne, respectively, in lieu of employee benefits in 1998.

(2)  Includes  $37,748  and $972 paid by the  Company to Messrs.  Grinstead  and
Payne,  respectively,  during 1997 with respect to life  insurance  for the
benefit of the Named Executive Officer.

(3)  Includes $37,300, $15,468 and $18,269 paid by the Company to Mr. Grinstead,
Mr. Payne and Dr. Agrawal,  respectively,  in connection with the surrender
of accrued but unused vacation days during 1997.

(4)  Includes  $142,188 paid by the Company to Mr. Payne in connection  with the
termination of his employment during 1997.

(5)  Includes $4,500,  $4,277 and $4,488 contributed by the Company on behalf of
Dr. Agrawal  pursuant to the Company's  401(k) Plan in 1995,  1996 and 1997
respectively.

(6)  Includes  $76,017 and $36,938 paid by the Company to Messrs.  Grinstead and
Payne, respectively, in lieu of employee benefits in 1997.

(7)  Includes  $11,364 and $3,134 paid by the Company to Messrs.  Grinstead  and
Payne,  respectively,  during 1996 with respect to life  insurance  for the
benefit of the Named Executive Officer.

(8)  Includes $32,163, $11,719 and $24,399 paid to Mr. Grinstead, Mr. Payne, and
Dr. Agrawal, respectively, in consideration of the surrender of accrued but
unused vacation days during 1996.

(9)  Includes  $12,510 and $23,594 paid by the Company to Messrs.  Grinstead and
Payne, respectively, in lieu of employee benefits in 1996.

56

(10) Includes  $34,345 and $4,531 paid by the Company to Messrs.  Grinstead  and
Payne,  respectively,  during 1995 with respect to life  insurance  for the
benefit of the Named Executive Officer.

(11) Includes $83,987, $40,719 and $34,023 paid to Mr. Grinstead, Mr. Payne, and
Dr.  Agrawal  in  consideration  of the  surrender  of  accrued  but unused
vacation  days  during  the  period  from the  commencement  of such  Named
Executive Officer's employment with the Company through December 31, 1995.

(12) Mr.  Payne's  employment  with the Company  terminated  as of September 15,
1997.

Option Grants Table

The following table sets forth certain information concerning grants of
stock options made during fiscal 1997 to each of the executive officers named in
the Summary Compensation Table:

Option Grants In Last Fiscal Year

POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF STOCK
OPTION GRANTS IN LAST FISCAL YEAR                         PRICE APPRECIATION FOR
INDIVIDUAL GRANTS                                OPTION TERMS(2)
-----------------                                ---------------
PERCENTAGE
OF TOTAL
NUMBER OF        OPTIONS
SECURITIES    GRANTED TO       EXERCISE
UNDERLYING      EMPLOYEES        PRICE
OPTIONS         IN FISCAL         PER     EXPIRATION
GRANTED           YEAR           SHARE       DATE(1)         5%           10%
-------        -------           -----       -------         --           ---

E. Andrews Grinstead   16,806(3)         5.32%         $31.25      2/19/07       $330,246    $  839,959
38,000(4)        12.04           30.00      4/09/07        716,300     1,818,400
12,000(5)         3.80           31.88      5/21/07        240,300       609,900

Sudhir Agrawal.......   7,323(3)         2.30           31.25      2/19/07        142,722       361,707
19,000(4)         6.02           30.00      4/09/07        358,150       908,200
6,000(5)         1.90           31.88      5/21/07        120.150       304,950

Anthony J. Payne.....   6,316(3)         2.00           31.25      2/19/07        124,113       314,547
19,000(4)         6.02           30.00      4/09/07        358,150       908,200
6,000(5)         1.90           31.88      5/21/07        120,150       304,950

(1)  The  expiration  date of an option is the tenth  anniversary of the date on
which the option was originally granted.

(2)  The amounts shown on this table represent  hypothetical gains that could be
achieved for the  respective  options if exercised at the end of the option
term.  these gains are based on assumed rates of stock  appreciation  of 5%
and 10%,  compounded  annually  from the date the  respective  options were
granted to their  expiration  date.  The gains  shown are net of the option
exercise price,  but do not include  deductions for taxes or other expenses
associated  with the  exercise.  Actual  gains,  if any,  on  stock  option
exercises will depend on the future  performance  of the Common Stock,  the
optionholders' continued employment through the option period, and the date
on which the options are  exercised.  As of December 1, 1998, the last sale
price of the Common Stock of the Company was  significantly  lower that the
exercise price of the options reflected in this table.

(3)  These stock options are immediately  exercisable with respect to 40% of the
shares  covered  thereby and will become  exercisable  with  respect to the
remaining 60% of the shares covered thereby in three equal  installments in
arrears commencing on February 19, 1999.

(4)  These stock options are immediately  exercisable with respect to 40% of the
shares  covered  thereby and will become  exercisable  with  respect to the
remaining  60%  of  the  shares  covered   thereby  in  four  equal  annual
installments in arrears commencing on April 9, 1999.

(5)  These stock options are immediately  exercisable with respect to 20% of the
shares  covered  thereby and will become  exercisable  with  respect to the
remaining  80%  of  the  shares  covered   thereby  in  four  equal  annual
installments in arrears commencing on May 21, 1998.

57

Aggregated Option Exercises and Fiscal Year-End Option Value Table.

The following  table sets forth  certain  information  concerning  each
exercise of a stock  option  during  fiscal 1997 by each of the Named  Executive
Officers  and the number and value of  unexercised  options  held by each of the
Named Executive Officers on December 31, 1997:

AGGREGATED OPTION EXERCISES IN LAST
FISCAL YEAR AND FISCAL YEAR-END OPTION VALUE

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
-------------            -------------
E. Andrews Grinstead III........        191,874/71,445            $ -- / --
Anthony J. Payne(2).............         70,592/40,053              -- / --
Sudhir Agrawal..................         80,453/37,811              17,500

- ----------------------------

(1)  The  closing  price for the  Common  Stock as  reported  by the  Nasdaq OTC
Bulletin  Board on December  31, 1997 (the last day of trading) in 1997 was
$3.00.  Value is  calculated  on the basis of the  difference  between  the
option  exercise  price and  $3.00,  multiplied  by the number of shares of
Common Stock underlying the option.

(2)  Mr.  Payne's  employment  with the Company  terminated  as of September 15,
1997.

Compensation of Directors

Each  non-employee  director is paid $1,500 for personal or  telephonic
attendance at a Boardof 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,  Drs. Wyngaarden and
Zamecnik   received   compensation  in  the  amounts  of  $49,250  and  $58,000,
respectively,  in 1997 in connection  with the  provision of certain  consulting
services  to the  Company and for  serving on the  Company's  Scientific  and/or
Clinical  Advisory  Boards.  The Company also is a party to various  consulting,
advisory and other arrangements with affiliates of Messrs. El-Khereiji,  El-Zein
and Menhall.  For a description of the foregoing  arrangements  with the Company
and certain  other  transactions  between the Company and  affiliates of certain
directors, see "Certain Relationships and Related Transactions."

In October 1995,  the Company  adopted the 1995  Director  Stock Option
Plan (the "Director  Plan").  Under the terms of the Director  Plan,  options to
purchase  1,000  shares of Common  Stock were  granted to each  director  of the
Company other than Mr.  Grinstead  and Dr.  Agrawal as of January 30, 1996 at an
exercise  price of $65.625 per share,  and options to purchase  1,000  shares of
Common  Stock were granted to each  director  other than Mr.  Grinstead  and Dr.
Agrawal as of May 1, 1997 at an exercise price of $27.50 per share. The Director
Plan also provides that options to purchase 1,000 shares of Common Stock will be
granted to each new  director  upon his or her initial  election to the Board of
Directors.  Annual  options to  purchase  1,000  shares of Common  Stock will be
granted to each eligible  director on May 1 of each year.  All options will vest
on the  first  anniversary  of the date of  grant  (or,  in the  case of  annual
options,  on April 30 of each  year  with  respect  to  options  granted  in the
previous  year);  provided,  that the  exercisability  of these  options will be
accelerated  upon the  occurrence  of a change in  control  (as  defined  in the
Director  Plan). A total of 50,000 shares of Common Stock may be issued upon the
exercise of stock options granted under the Director Plan. The exercise price of
options  granted  under the  Director  Plan will equal the closing  price of the
Common Stock on the date of grant. As of November 30, 1998,  options to purchase
an  aggregate  of 21,000  shares  of Common  Stock  were  outstanding  under the
Director Plan.

58

Non-employee  directors also have received  options to purchase  Common
Stock of the  Company  under the  Company's  1997 Stock  Option  Plan (the "1997
Plan")  and  the  Company's  1995  Stock  Option  Plan  (the  "1995  Plan").  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 the  Company to Dr.  Zamecnik in  recognition  of his
outstanding contributions to the Company.

Employment   Contracts,   Termination   of  Employment  and  Change  in  Control
Arrangements

The Company is party to an employment  agreement with Mr. Grinstead for
the  period  commencing  July 1,  1996 and  ending  June 30,  2001.  Under  this
agreement,  Mr. Grinstead is currently entitled to receive an annual base salary
of  $375,000.  Mr.  Grinstead  also is eligible to receive (i) a cash bonus each
year related to the attainment of management  objectives  specified by the Board
of Directors  and (ii)  additional  payments of $16,000 in 1997 and 1998. In the
event Mr. Grinstead's  employment is terminated by the Company without cause (as
defined)  or by him for  good  cause  (as  defined),  the  Company  will pay Mr.
Grinstead  during the 24-month period following his termination a monthly amount
equal to one-twelfth of the sum of Mr.  Grinstead's annual base salary as of the
date of  termination  and the  average  bonus paid to him during the three years
preceding his termination  (the "Average Bonus  Amount").  The Company also will
continue  Mr.  Grinstead's   benefits  for  such  period,   subject  to  earlier
termination under certain circumstances.  If his employment is terminated by the
Company for failure to perform his assigned duties,  he will continue to receive
his annual base salary and benefits during the six-month  period  following such
termination.  Notwithstanding  the foregoing,  in the event that Mr. Grinstead's
employment is terminated for any of the above reasons within 12 months following
a Change in Control (as defined) of the Company,  Mr. Grinstead will be entitled
to receive, in lieu of the payments described above, a lump sum payment equal to
300% of the sum of his annual base salary and his Average Bonus Amount.

In accordance  with the terms of Mr.  Grinstead's  previous  employment
agreement,  the Company  loaned  $190,000  to Mr.  Grinstead  in  December  1992
pursuant to the terms of a promissory  note bearing simple interest at a rate of
6% per year,  which  originally  provided for the payment of  principal  and all
accrued  interest  on the  earlier of December  23,  1995 or the  expiration  or
termination  of Mr.  Grinstead's  employment  by the  Company,  but is currently
payable on demand.  Such loan remained  outstanding as of September 30, 1998, at
which date the total unpaid balance of principal and interest was $255,800.

The Company is party to an employment  agreement  with Dr.  Agrawal for
the  period  commencing  July 1,  1996 and  ending  June 30,  2000.  Under  this
agreement,  Dr.  Agrawal  serves as Senior Vice President of Discovery and Chief
Scientific Officer of the Company and is currently entitled to receive an annual
base salary of  $250,000.  Dr.  Agrawal is eligible to receive a cash bonus each
year related to the attainment of management  objectives  specified by the Chief
Executive  Officer  and the  Board of  Directors.  In the  event  Dr.  Agrawal's
employment is terminated by the Company without cause (as defined) or by him for
good cause (as defined),  the Company will pay Dr.  Agrawal  during the 24-month
period  following his  termination a monthly  amount equal to one-twelfth of the
sum of Dr.  Agrawal's  annual base salary as of the date of termination  and the
average bonus paid to him during the three years preceding his termination  (the
"Average Bonus Amount").  The Company will also continue Dr. Agrawal's  benefits
for such period, subject to earlier termination under certain circumstances.  If
his  employment is terminated by the Company for failure to perform his assigned
duties,  he will continue to receive his annual base salary and benefits  during
the six-month period following such termination.  Notwithstanding the foregoing,
in the event that Dr.  Agrawal's  employment is terminated  for any of the above
reasons  within 12 months  following  a Change in Control  (as  defined)  of the
Company,  Dr.  Agrawal  will be  entitled to  receive,  in lieu of the  payments
described  above, a lump sum payment equal to 300% of the sum of his annual base
salary and his Average Bonus Amount.

The employment  agreements entered into between the Company and each of
Mr. Grinstead and Dr. Agrawal also provide that all stock options held by any of
the Named  Executive  Officers  (including  existing  options  and options to be
granted in the future) shall include terms  providing (i) that in the event that
such Named Executive

59

Officer's  employment is  terminated by the Company  without cause or by him for
good cause the  exercisability  of such stock options will be accelerated by two
years and such stock options will be exercisable for a two-year period following
termination  and (ii) that in the event of  certain  changes  in  control of the
Company,  its liquidation or the sale of all or substantially all of its assets,
all such stock  options not then  exercisable  will vest and become  immediately
exercisable.  The Company is also a party to registration rights agreements with
Mr.  Grinstead  that provide that in the event the Company  proposes to register
any of its  securities  under the  Securities  Act,  at any time,  with  certain
exceptions,  Mr.  Grinstead  shall be  entitled  to include the shares of Common
Stock held by him in such  registration,  subject  to the right of the  managing
underwriter of any underwritten  offering to exclude from such  registration for
marketing  reasons  some or all of such  shares.  The Company also is a party to
indemnification  agreements with Mr. Grinstead pursuant to which the Company has
agreed to indemnify him for certain liabilities,  including  liabilities arising
under the Securities Act.

Mr. Payne's  employment with the Company terminated as of September 15,
1997.  The  Company  is  party to an  agreement  with Mr.  Payne  regarding  the
termination of his employment.  Pursuant to this agreement,  options to purchase
an  aggregate  of 62,493  shares of Common Stock were amended to provide for the
acceleration  by two years of the  exercisability  of such options and to extend
the  period  during  which  such  options  may be  exercised  until  the  second
anniversary of the  termination of Mr. Payne's  employment.  In addition,  under
this  agreement,  the Company agreed to pay Mr. Payne during the 12-month period
following his  termination a monthly amount equal to one-sixth of the sum of Mr.
Payne's annual base salary as of September 15, 1997.  Under this agreement,  Mr.
Payne  agreed  to repay a  personal  loan  form the  Company  in the  amount  of
$221,521.25  upon his  acceptance of employment by a third party,  at which time
the remaining  severance  payments  would be applied to the loan balance.  As of
March 31, 1998,  such loan had been repaid in full and the Company's  obligation
to continue making severance  payments to Mr. Payne had terminated.  The Company
has also agreed to continue Mr. Payne's benefits for a two-year period,  subject
to earlier termination under certain circumstances.

Stock  options to purchase  an  aggregate  of 261,841  shares of Common
Stock granted to the Named Executive  Officers pursuant to the 1990 Plan provide
that,  upon a change in control  (as  defined  in the 1990  Plan),  all  options
granted thereunder will become fully exercisable.  In addition,  pursuant to the
terms of the employment  agreements entered into between the Company and each of
the Named Executive Officers described above (i) in April 1997, stock options to
purchase an  aggregate of 130,386  shares of Common  Stock  granted to the Named
Executive  Officers  under the Company's  1995 Plan were amended to provide that
such  options  will  become  fully  exercisable  upon a change in control of the
Company,  and (ii) all stock  options  granted to the Named  Executive  Officers
after March 1, 1997 will provide that such options will become fully exercisable
upon a change of control of the Company.

Compensation Committee Interlocks and Insider Participation

The Board of Directors did not have a compensation committee during its
fiscal  year  ended  December  31,  1997.  The  Board of  Directors  as a whole,
including  Mr.  Grinstead  and Dr.  Agrawal,  who are  employees of the Company,
performed equivalent  functions.  None of the directors or executive officers of
the Company had any  "interlock"  relationships  to report  during the Company's
fiscal year ended December 31, 1997.

On June 16,  1998 the Board of  Directors  established  a  Compensation
Committee consisting of Mr. El-Zein, Mr. Berry and Dr. Wyngaarden.

Since  January 1, 1997,  the  Company  has  entered  into or engaged in
certain  transactions  with Pillar S.A., Pillar  Investment,  Pillar Limited and
Charles River Building Limited Partnership (the "Cambridge Landlord"),  entities
of which Messrs. El-Zein and Menhall are affiliates and with Pecks, an entity of
which  Mr.  Berry  is an  affiliate.  See  "Certain  Relationships  and  Related
Transactions."

60

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following  table sets forth certain  information as of December 31,
1998 with respect to the beneficial  ownership of shares of Common Stock by each
person known to the Company to own beneficially  more than 5% of the outstanding
shares of Common Stock.

AMOUNT AND NATURE
OF BENEFICIAL OWNERSHIP(1)
--------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER          NUMBER OF            PERCENT OF
- ------------------------------------           SHARES                CLASS
- ------------------------------------           ------                -----
5% STOCKHOLDERS
Intercity Holdings Ltd. ..............        2, 216,666 (2)            13.88%
c/o Cuson Milner House
18 Parliament Street
Hamilton, Bermuda

Abdelah Bin Mahfouz
c/o SEDCO
P.O. Box 4384
Jeddah 21491
Saudi Arabia .........................        2,216,666 (3)            13.88%

Forum Capital Markets LLC.............        1,206,893 (4)             9.38%
53 Forest Ave.
Old Greenwich, CT  06870

Yahia M. Bin Laden....................        1,373,977 (5)             8.87%
2 rue Charles Bonnet
1206 Geneva, Switzerland

Nicris Limited........................        1,360,644 (6)             8.78%
c/o Magnin Dunand & Associes
2 rue Charles Bonnet
1206 Geneva, Switzerland

Youssef El-Zein.......................        1,439,722 (7)             8.71%
28 Avenue de Messine
75008 Paris, France

Nasser Menhall........................        1,417,734 (8)             8.59%
28 Avenue de Messine
75008 Paris, France

Pillar Investment Limited.............        1,317,173 (9)             8.03%
28 Avenue de Messine
75008 Paris, France

Faisal Finance Switzerland SA.........        1,043,113 (10)            6.73%
84 Ave Louis Casi
1216 Geneva, Switzerland

Finova Technology Finance Inc. .......          896,875 (11)            5.79%
10 Waterside Drive
Farmington, CT  06032

- -----------------------------

(1)  The number of shares  beneficially  owned by each  director  and  executive
officer  is  determined  under  rules  promulgated  by the  Securities  and
Exchange Commission,  and the information is not necessarily  indicative of
beneficial  ownership for any other purpose.  Under such rules,  beneficial
ownership includes any shares as to which the individual has sole or shared
voting power or investment  power and also any shares which the  individual
has the right to acquire  within 60 days after March 31,  1998  through the
exercise of any stock option or other right.  The inclusion  herein of such
shares,   however,   does  not  constitute  an  admission  that  the  named
stockholder is a direct or indirect beneficial owner of such shares. Unless
otherwise  indicated,  each  person or  entity  named in the table has sole
voting  power and  investment  power (or shares  such power with his or her
spouse) with respect to all shares of capital stock listed as owned by such
person or entity.

(2)  Includes 375,000 shares issuable upon the exercise of Class B warrants held
by Intercity Holdings Ltd.

(3)  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. Mahfouz,  a controlling  stockholder of Interncity  Holdings
Ltd., may be considered a beneficial owner of the shares beneficially owned
by such entity.

(4)  Includes (a) 328,677 shares  issuable upon exercise of Class B warrants and
(b) 280,517  shares  issuable upon the exercise of Class C warrants held by
Forum Capital Markets LLC. Mr. Harold Purkey, a Director of Hybridon, is an
affiliate of Forum Capital Markets LLC.

(5)  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.  Mr.
Bin Laden,  a  controlling  stockholder  of  Nicris,  may be  considered  a
beneficial owner of the shares beneficially owned by such entity.

(6)  Includes 234,764 shares issuable upon the exercise of Class B warrants held
by Nicris Limited.

61

(7)  Includes (a) 82,183  shares  issuable upon the exercise of warrants held by
Mr. El-Zein,  (b) 366 shares issuable upon the exercise of warrants held by
Pillar Associated, (c) 20,000 shares issuable upon the exercise of warrants
held by Pillar  S.A.,  (d) 20,000  shares  issuable  upon the  exercise  of
warrants  held by Pillar  S.A.R.L.,  (e) 37,500  shares  issuable  upon the
exercise of Class C warrants held by Pillar Investment Limited, (f) 473,598
issuable upon the exercise of advisory  warrants held by Pillar  Investment
Limited,  (g)  638,032  shares  issuable  upon the  exercise  of  placement
warrants held by Pillar Investment Limited,  (h) 5,243 shares issuable upon
the exercise of other warrants held by Pillar Investment  Limited,  and (i)
162,800 shares held by Pillar Investment Limited. Mr. El-Zein, an affiliate
of Pillar Associated,  Pillar S.A., Pillar S.A.R.L.,  and Pillar Investment
Limited,  may be considered a beneficial  owner of the shares  beneficially
owned by such entities.

(8)  Includes (a) 60,195  shares  issuable upon the exercise of warrants held by
Mr. Menhall,  (b) 366 shares issuable upon the exercise of warrants held by
Pillar Associated, (c) 20,000 shares issuable upon the exercise of warrants
held by Pillar  S.A.,  (d) 20,000  shares  issuable  upon the  exercise  of
warrants  held by Pillar  S.A.R.L.,  (e) 37,500  shares  issuable  upon the
exercise of Class C warrants held by Pillar Investment Limited, (f) 473,598
issuable upon the exercise of advisory  warrants held by Pillar  Investment
Limited,  (g)  638,032  shares  issuable  upon the  exercise  of  placement
warrants held by Pillar Investment Limited,  (h) 5,243 shares issuable upon
the exercise of other warrants held by Pillar Investment  Limited,  and (i)
162,800 shares held by Pillar Investment Limited. Mr. Menhall, an affiliate
of Pillar Associated,  Pillar S.A., Pillar S.A.R.L.,  and Pillar Investment
Limited,  may be considered a beneficial  owner of the shares  beneficially
owned by such entities.

(9)  Includes (a) 37,500  shares  issuable upon the exercise of Class C warrants
held by Pillar Investment  Limited,  (c) 473,598 issuable upon the exercise
of advisory warrants held by Pillar Investment Limited,  (c) 638,032 shares
issuable upon the exercise of placement  warrants held by Pillar Investment
Limited,  and (d) 5,243 shares issuable upon the exercise of other warrants
held by Pillar Investment Limited.

(10) Includes 233,026 shares issuable upon the exercise of Class B warrants held
by Faisal Finance Switzerland SA.

(11) Includes 259,375 shares issuable upon the exercise of Class C warrants held
by Finova Technology Finance Inc.

The following  table sets forth certain  information as of December 1, 1998 with
respect  to the  beneficial  ownership  of shares of Common  Stock and  Series A
Preferred Stock by (i) the directors of the Company and (ii) the Chief Executive
Officer  and  other  Named  Executive  Officers,  and (iii)  the  directors  and
executive officers of the Company as a group.

SERIES A
COMMON STOCK                       PREFERRED STOCK
------------                       ---------------
Amount and Nature       Percent of    Amount and Nature of    Percent of
NAME OF BENEFICIAL OWNER          Beneficial Ownership       Class      Beneficial Ownership       Class
Directors
- ---------

Youssef El-Zein..................    1,439,722 (2)            8.71%                0                   0
Nasser Menhall...................    1,417,734 (3)            8.59%                0                   0
E. Andrews Grinstead III ........      558,815 (4)            3.54%                0                   0
Sudhir Agrawal...................      408,663 (5)            2.61%                0                   0
Mohamed A. El-Khereiji...........      362,414 (6)            2.35%                0                   0
Paul Z. Zamecnik.................      284,670 (7)            1.86%                0                   0
James B. Wyngaarden..............       65,100 (8)            *                    0                   0
Arthur W. Berry..................               0                0           184,784 (9)            30.37%
Harold L. Purkey.................    1,206,893(10)            9.38%           82,025(11)            12.79%

Other Executive Officers
- ------------------------

Anthony Payne....................       92,250(12)              *                   0                  0
All directors and executive officer
as a group (10 persons)...........   4,478,712(13)            24.29%            266,809             41.61%

- -----------------------------

(1)  The number of shares  beneficially  owned by each  director  and  executive
officer  is  determined  under  rules  promulgated  by the  Securities  and
Exchange Commission,  and the information is not necessarily  indicative of
beneficial  ownership for any other purpose.  Under such rules,  beneficial
ownership includes any shares as to which the individual has sole or shared
voting power or investment  power and also any shares which the  individual
has the right to acquire  within 60 days after March 31,  1998  through the
exercise of any stock option or other right.  The inclusion  herein of such
shares,   however,   does  not  constitute  an  admission  that  the  named
stockholder is a direct or indirect beneficial owner of such shares. Unless
otherwise  indicated,  each  person or  entity  named in the table has sole
voting power and

62

investment power (or shares such power with his or her spouse) with respect
to all shares of capital stock listed as owned by such person or entity.

(2)  Includes (a) 82,183  shares  issuable upon the exercise of warrants held by
Mr. El-Zein,  (b) 366 shares issuable upon the exercise of warrants held by
Pillar Associated, (c) 20,000 shares issuable upon the exercise of warrants
held by Pillar  S.A.,  (d) 20,000  shares  issuable  upon the  exercise  of
warrants  held by Pillar  S.A.R.L.,  (e) 37,500  shares  issuable  upon the
exercise of Class C warrants held by Pillar Investment Limited, (f) 473,598
issuable upon the exercise of advisory  warrants held by Pillar  Investment
Limited,  (g)  638,032  shares  issuable  upon the  exercise  of  placement
warrants held by Pillar Investment Limited,  (h) 5,243 shares issuable upon
the exercise of other warrants held by Pillar Investment  Limited,  and (i)
162,800 shares held by Pillar Investment Limited. Mr. El-Zein, an affiliate
of Pillar Associated,  Pillar S.A., Pillar S.A.R.L.,  and Pillar Investment
Limited,  may be considered a beneficial  owner of the shares  beneficially
owned by such entities.

(3)  Includes (a) 60,195  shares  issuable upon the exercise of warrants held by
Mr. Menhall,  (b) 366 shares issuable upon the exercise of warrants held by
Pillar Associated, (c) 20,000 shares issuable upon the exercise of warrants
held by Pillar  S.A.,  (d) 20,000  shares  issuable  upon the  exercise  of
warrants  held by Pillar  S.A.R.L.,  (e) 37,500  shares  issuable  upon the
exercise of Class C warrants held by Pillar Investment Limited, (f) 473,598
issuable upon the exercise of advisory  warrants held by Pillar  Investment
Limited,  (g)  638,032  shares  issuable  upon the  exercise  of  placement
warrants held by Pillar Investment Limited,  (h) 5,243 shares issuable upon
the exercise of other warrants held by Pillar Investment  Limited,  and (i)
162,800 shares hold by Pillar Investment Limited. Mr. Menhall, an affiliate
of Pillar Associated,  Pillar S.A., Pillar S.A.R.L.,  and Pillar Investment
Limited,  may be considered a beneficial  owner of the shares  beneficially
owned by such entities.

(4)  Includes  511,235  shares  subject to  outstanding  stock options which are
exercisable within the 60-day period following December 1, 1998.

(5)  Includes  390,903  shares  subject to  outstanding  stock options which are
exercisable within the 60-day period following December 1, 1998.

(6)  Includes (a) 88,414  shares  issuable upon the exercise of warrants held by
Mr.  El-Khereiji,  (b) 228,345  shares held by Solter  Corporation  and (c)
45,242 shares issuable upon the exercise of Class B warrants held by Solter
Corporation.  Mr. El-Khereiji,  an affiliate of Solter Corporation,  may be
considered  a  beneficial  owner of the shares  beneficially  owned by such
entity.

(7)  Includes (a) 26,000 shares subject to  outstanding  stock options which are
exercisable  within the 60-day  period  following  December 1, 1998 and (b)
31,250 shares issuable upon the exercise of Class C warrants.

(8)  Includes (a) 60,000 shares subject to  outstanding  stock options which are
exercisable within the 60-day period following December 1, 1998 and (b) 700
shares held by Mr. Wyngaarden's children.

(9)  Includes  (a) 20,313  shares held by  Declaration  of Trust for the Defined
Benefit Plan of ICI America  Holdings,  Inc., (b) 9,372 shares held by J.W.
McConnell  Family  Foundation,  (c) 71,221  shares held by  Delaware  State
Employees  Retirement Fund, (d) 2,164 held by Hillside Capital Corporation,
(e) 5,732 shares held by Thermo Electron Balanced  Investment Fund, and (f)
85,982 shares held by General Motors  Employees  Domestic Group Trust.  Mr.
Berry,  a principal  of Pecks  Management  Partners  Ltd.,  and  investment
advisor of which the  foregoing  entities are clients,  may be considered a
beneficial owner of the shares beneficially owned by such entities.

(10) Includes (a) 328,677 shares  issuable upon the exercise of Class B warrants
held by Forum (b)  280,517  shares  issuable  upon the  exercise of Class C
warrants held by Forum and (c) 597,699 shares held by Forum. Mr. Purkey, an
affiliate of Forum,  may be  considered  a  beneficial  owner of the shares
beneficially owned by such entity.

(11) Includes (a) 865 shares held by Forest Alternative Strategies Fund II, L.P.
Series A51, (b) 433 shares held by Forest  Alternative  Strategies Fund II,
L.P. Series A5M, (c) 131 shares held by Forest Alternative  Strategies Fund
II, L.P. Series B3, (d) 3,515 shares held by Forest Fulcrum Ltd., (e) 4,326
shares held by Forest Global  Convertible  Fund Series A5, (f) 1,082 shares
held by Forest Global Convertible Fund Series B 1, (g) 1,082 shares held by
Forest Greyhound,  (h) 682 shares held by Forest  Performance Fund, (i) 865
shares held by LLT, Ltd., and (j) 69,044 shares held by Forum.  Mr. Purkey,
an affiliate of such entities,  may be considered a beneficial owner of the
shares beneficially owned by such entities.

(12) Includes  82,355  shares  subject to  outstanding  stock  options which are
exercisable  within the 60-day  period  following  December 31,  1998.  Mr.
Payne's employment with the Company terminated on September 15, 1997.

(13) Includes (a) 1,070,483  shares subject to  outstanding  stock options which
are exercisable within the 60-day period following December 1, 1998 and (b)
2,111,217  shares  issuable upon the exercise of warrants within the 60-day
period following December 1, 1998.

63

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Since  January 1, 1997,  the Company has entered into or engaged in the
following transactions with the following directors, officers,  stockholders who
beneficially  own more than 5% of the  outstanding  Common  Stock of the Company
("5%   Stockholders")  and  affiliates  or  immediate  family  members  of  such
directors, officers and 5% Stockholders.

Transactions with Pillar S.A. and Certain of its Affiliates

Since  January 1, 1997,  the  Company  has  entered  into or engaged in
certain  transactions  with Pillar S.A.,  Pillar  Investments  and the Cambridge
Landlord.  Pillar S.A. and Pillar Investments are affiliates of Messrs.  El-Zein
and  Menhall,  two  directors  of the  Company.  The  Cambridge  Landlord  is an
affiliate of Messrs.  El-Zein and Menhall and Mr. El-Khereiji,  a third director
of the Company. The following is a summary of these transactions.

In 1997,  the Company was a party to a consulting  agreement (the "1994
Pillar  Consulting  Agreement")  with  Pillar  S.A.,  dated as of March 1, 1994,
pursuant to which Pillar S.A.  provided the Company with financial  advisory and
managerial  services  in  connection  with the  Company's  overseas  operations,
including  support  services in connection with contracts and agreements.  Under
the terms of the 1994 Pillar Consulting Agreement,  the Company paid Pillar S.A.
continuing  consulting  fees of  $60,000  per  month and  $23,000  per month for
overhead costs, and reimbursement of certain authorized  out-of-pocket expenses.
The 1994 Pillar Consulting Agreement expired on February 28, 1998.

Pursuant to the 1994 Pillar Consulting Agreement, the Company issued to
Pillar S.A. two five-year  warrants to purchase an aggregate of 40,000 shares of
Common Stock of the Company.

On July 8, 1995, the Company entered into an additional  agreement (the
"Pillar Europe Agreement") with Pillar S.A. pursuant to which Pillar S.A. agreed
to provide to the Company certain consulting,  advisory and related services (in
addition to the services to be provided  pursuant to the 1994 Pillar  Consulting
Agreement)  and  serve  as the  Company's  exclusive  agent in  connection  with
potential  corporate  partnerships  in Europe and as a  non-exclusive  placement
agent of the Company in connection with private  placements of securities of the
Company  for a period of two  years.  On  November  1, 1995,  the Pillar  Europe
Agreement  was amended to provide  that (i) Pillar S.A.  would cease to serve as
the  Company's   executive   agent  in  connection   with  potential   corporate
partnerships in Europe, but would continue to serve as a non-exclusive  agent in
such respect, (ii) Pillar S.A. would receive a retainer of $26,470 per month for
the balance of the term of the Pillar Europe Agreement (April 1, 1997) (iii) the
fees set forth in the Pillar  Europe  Agreement  would only be payable to Pillar
S.A. in connection with potential  collaborations with any French pharmaceutical
company with which the Company engaged in discussions during the 12-month period
ended November 1, 1995 as a result of  introductions by Pillar S.A. and (iv) any
compensation payable to Pillar S.A. in connection with its services with respect
to other  corporate  collaborations  or any  placements of  securities  would be
negotiated on a  case-by-case  basis and would be subject to the approval of the
independent members of the Board of Directors of the Company.  The Pillar Europe
Agreement expired on April 1, 1997.

During the year ended  December 31, 1997,  the Company paid Pillar S.A.
an  aggregate of $998,000  under the 1994 Pillar  Consulting  Agreement  and the
Pillar  Europe  Agreement,   as  amended.  In  1998,  the  Company  paid  Pillar
Investments  an aggregate of $300,000 under such  agreements,  which was paid by
the issuance 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.

The Company has retained  Pillar  Investments,  as a placement agent of
the Company in  connection  with the private  placements  of  securities  of the
Company in offshore transactions in reliance upon an exemption from registration
under  Regulation S  promulgated  under the  Securities  Act (the  "Regulation S
Offerings").  Pillar Investments received fees consisting of (i) 9% of the gross
proceeds of each Regulation S Offering, (ii) a non-accountable expense allowance
equal to 4% of such gross proceeds, (iii) the right to purchase, for nominal

64

consideration,  warrants (the "Pillar  Warrants") to purchase  473,598 shares of
Common Stock,  at an exercise  price of $2.40 per share,  subject to adjustment,
(iv) the right to purchase, for nominal consideration, warrants to purchase such
number  of  shares  of the  Common  Stock  of the  Company  equal  to 10% of the
aggregate  number of shares of Common Stock sold by the Company for which Pillar
Investments 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),  and  (v) a  consulting/restructuring  fee  of
$960,000  payable in Common Stock of the Company  valued at the market price and
payable in three equal installments as net proceeds of $25,000,000,  $30,000,000
and $35,000,000 are received in the aggregate from private  placements  effected
by the Company in 1998 to the extent contemplated by the Consent and Waiver (the
"Consent") dated as of January 12, 1998 given by certain  beneficial  holders of
the 9% Notes of the  Company,  or otherwise  to the extent  contemplated  by the
Placement Agency Agreement between the Company and Pillar  Investments,  subject
to the Company's  receipt of a fairness  opinion with regard thereto,  provided,
however,  that in no event shall  Pillar  Investments  be  permitted  to receive
compensation  in excess of the level which was approved by the holders of the 9%
Notes.  Through the date of this  Prospectus,  Pillar  Investments  has received
$1,635,400  in cash  pursuant  to these  arrangements  and  Pillar  Warrants  to
purchase 1,111,630 shares of Common Stock.

In addition, in connection with the Regulation S Offerings, the Company
and Pillar Investments have entered into an advisory agreement dated May 5, 1998
(the "Financial Advisory  Agreement")  pursuant to which Pillar Investments acts
as the Company's  non-exclusive financial advisor, which agreement provides that
an affiliate of Pillar Investments  receive a monthly retainer of $5,000 (with a
minimum  engagement of 24 months beginning on May 5, 1998), and further provides
that Pillar Investments is entitled to receive (i) out-of-pocket  expenses, (ii)
subject to the  Company's  receipt of a fairness  opinion with respect  thereto,
300,000 shares of Common Stock in connection with Pillar Investments' efforts in
assisting the Company in restructuring its balance sheet, and (iii) certain cash
and equity success fees in the event Pillar  Investments  assists the Company in
connection with certain financial and strategic transactions.

Transactions with the Cambridge Landlord

From February 4, 1997 to September 16, 1998, the Company was a party to
a lease (the "Cambridge Lease") with the Cambridge Landlord. The Cambridge Lease
originally  provided for an annual rent equal to $30 per square foot on a triple
net basis for the first five  years,  $33 per square  foot on a triple net basis
for the next five years and the  greater of $30 per square  foot on a triple net
basis or the then  market  value of leased  property  for each of the  five-year
renewal terms. In connection with the Company's  election to acquire an interest
in the  Cambridge  Landlord  described  below,  the  annual  rent due  under the
Cambridge  Lease was increased for the first five years of the lease term to $38
per square  foot on a triple net basis and for the second  five years to $42 per
square foot on a triple net basis and for the third five years to $47 per square
foot on a triple net basis.

On July 1, 1996, the Company elected to fund approximately $5.5 million
of the costs (primarily relating to tenant  improvements) of the construction of
the leased  premises  through  contributions  to the  capital  of the  Cambridge
Landlord  in  exchange  for a  limited  partnership  interest  in the  Cambridge
Landlord (the  "Partnership  Interest").  The Partnership  Interest entitled the
Company to an approximately 32% interest in the Cambridge Landlord.  The Company
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 (i) the aggregate cash  contribution made by
Hybridon  to the  Cambridge  Landlord  or (ii)  the  fair  market  value  of the
Partnership Interest at the time.

In 1997, the Company had on deposit with Bank Fur  Vermogensanlagen Und
Handel  ("BVH") the amount of  $1,034,618.  In November,  1997,  German  banking
authorities imposed a moratorium on BVH and closed BVH for business. Pursuant to
an agreement  dated November 28, 1997, the Cambridge  Landlord  agreed to assume
the risk for the BVH  deposit  and to pay to the Company the amount of $75,000 a
month after each rent payment under the Cambridge Lease was made until such time
as $1,000,000 had been paid to the Company or the BVH deposit was released.

65

In June 1998, the Company relocated 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, the Company terminated the Cambridge Lease and was
relieved of its substantial lease obligations under the Cambridge Lease, subject
to a contingent  continuing liability for any defaults which may arise under the
sublease.  Further,  in  November  1998 the  Company  completed  the sale of its
Partnership  Interest.  As a result of these transactions,  the Company 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 BVH deposit.

Transactions with Forum Capital Markets LLC and Pecks Management Partners Ltd.

In 1998, the Company entered into certain  transactions  with Forum, an
affiliate of Mr. Purkey, a director of the Company.

The  Company  retained  Forum as a  placement  agent of the  Company in
connection  with the Company's 1998  Regulation D Offering of Series A Preferred
Stock and Class D Warrants (the  "Regulation D Offering") in the United  States.
As of the date of this  prospectus,  Forum has received as compensation  for its
services as  placement  agent with regard to the  Regulation  D Offering and its
assistance with the Exchange Offer,  597,699 shares of Common Stock and warrants
( the "1998  Forum  Warrants")  to purchase an  aggregate  of 609,194  shares of
Common Stock exercisable at $2.40 per share, in each case subject to adjustment,
until May 4, 2003. In addition, in consideration of the agreements made by Forum
consenting to the  Company's  1998  Regulation D Offerings  and waiving  certain
obligations of the Company to Forum, the Company agreed to amend Forum's warrant
(the "1997 Forum Warrant", and together with the 1998 Forum Warrants, the "Forum
Warrants")  dated as of April 2, 1997, to purchase up to 71,301 shares of Common
Stock of the  Company  so that the  exercise  price  will be equal to $4.25  per
share,  subject  to  adjustment,  and the  number  of  shares  of  Common  Stock
purchasable  upon  exercise  thereof will be increased to 588,235,  in each case
subject to adjustment;  provided, however, that the 1997 Forum Warrant will also
be amended to provide that such 1997 Forum  Warrant may not be  exercised  until
May 5, 1999 and the transactions  contemplated by such private placements and by
the  Exchange  Offer  will not  trigger  any  anti-dilution  adjustments  to the
exercise price thereof or the number of shares of Common Stock subject thereto.

In  November  1998,  Forum and Pecks,  an  affiliate  of Mr.  Berry,  a
director of the Company  purchased the loan made by the Bank. In connection with
the purchase of the Bank Credit Facility,  the purchasing  entitites advanced an
additional  amount to the Company so as to increase  the  outstanding  principal
amount of the Loan to $6,000,000. In addition, the purchasing entities agreed to
amend the terms of the Loan. See  "Description of Capital Stock and Indebtedness
- -- Indebtedness -- Bank Credit Facility."

In connection  with the purchase of the Loan,  Forum will receive a fee
of $400,000,  which will be reinvested  by Forum by purchasing  from the Company
either (i) shares of Common  Stock or shares of  Preferred  Stock of the Company
and accompanying warrants on the same terms as they are sold to investors in the
Company's next equity  offering to occur after November 13, 1998 (the "Placement
Price"),  or (ii) if no equity  offering  is  consummated  prior to May 1, 1999,
160,000  shares of Common  Stock at $3.00 per share and  warrants to purchase an
additional 40,000 shares of Common Stock at $3.00 per share. In addition,  Forum
will  receive  warrants  exercisable  until  maturity  of the  Loan to  purchase
$400,000  of shares  of Common  Stock  priced at the  Placement  Price or, if no
equity offering is consummated  prior to May 1, 1999, at $3.00 per share.  These
shares and warrants will be issued as soon as practicable following satisfaction
of Section 4.10 of the  Indenture  dated as of March 26, 1997,  governing the 9%
Notes.

The Company maintains an investment account at Forum.

66

Other Transactions

Certain  persons and  entities  (the  "Rightsholders"),  including  Dr.
Zamecnik,  Pillar S.A., Pillar Limited,  Intercity  Holdings,  Mr. Bin Laden and
Nicris,  are entitled to certain rights with respect to the  registration  under
the  Securities  Act of  certain  shares  of the  Company's  Common  Stock  (the
"Registrable  Shares"),  including  shares of Common  Stock that may be acquired
pursuant to the exercise of options or warrants,  under the terms of  agreements
among the Company and the Rightsholders  (the  "Registration  Agreements").  The
Registration Agreements generally provide that in the event the Company proposes
to register any of its securities  under the  Securities  Act at any time,  with
certain  exceptions,  the Rightsholders,  including Pillar S.A., Pillar Limited,
Intercity Holdings,  Mr. Bin Laden and Nicris, but excluding,  among others, Dr.
Zamecnik,  have the additional  right under certain  Registration  Agreements to
require  the  Company  to prepare  and file  registration  statements  under the
Securities  Act, if such  Rightsholders  holding  specified  percentages  of the
Registrable  Shares so  request,  and the  Company is  required  to use its best
efforts  to  effect  such  registration,   subject  to  certain  conditions  and
limitations.

For a description of certain employment and other arrangements  between
the Company and its executive officers, see "Compensation of Executive Officers"
above.  For a description of stock options  granted to certain  directors of the
Company, see "Director Compensation" above.

The Company believes that the terms of the transactions described above
were no less  favorable  than the Company could have obtained from  unaffiliated
third parties.

67

PRINCIPAL AND SELLING STOCKHOLDERS

The table below sets forth,  to the  knowledge of the Company,  certain
information  as of December 1, 1998 with respect to the Selling  Securityholders
for whom the Company is registering the Securities for resale to the public. The
Company  will not receive any of the  proceeds  from the sale of the  Securities
(other than proceeds upon exercise of the Warrants).

To the  Company's  knowledge,  except as  described  below,  none of the
Selling Securityholders holds any position or office with, has been employed by,
or has  otherwise  had a material  relationship  with the  Company or any of its
subsidiaries within the past three years.

Number of                  Number of
Percentage of   Shares of     Number of    Shares of    Percentage of
Number of    Number of     Number of      Shares of    Series A     Shares of     Series A    Shares of Series
Shares of    Shares of     Shares of       Common     Convertible   Series A     Convertible   A Convertible
Common Stock     Common     Common Stock      Stock      Preferred    Convertible   Preferred      Preferred
Beneficially     Stock      Beneficially   Beneficially Beneficially  Preferred    Beneficially   Beneficially
Name of Selling    Owned Prior to  Offered     Owned After    Owned After  Owned Prior    Offered     Owned After     Owned After
Securityholder      Offering       Hereby       Offering      Offering    to Offering     Hereby       Offering       Offering
--------------      --------       ------       --------      --------    -----------     ------       --------       --------

Fouad M.O. Tawfig        47,543         6,250       41,293         0            0            0             0              0
and  Hanan H.
Zagzoug/1/
Torben Duer/1/           26,750        18,750        8,000         0            0            0             0              0
Thomas Fr. Duer/1/       62,500        62,500            0         0            0            0             0              0
Darier Hentsch & Cie    312,500       312,500            0         0            0            0             0              0
/1/
Finn Trunk Black/1/       3,750         3,750            0         0            0            0             0              0
MM Pictet & Cie/1/      750,000       750,000            0         0            0            0             0              0
Nicris Limited/1//16/ 1,360,644     1,050,644      310,000         0            0            0             0              0
Raji Abou Hadar/1/       62,500        62,500            0         0            0            0             0              0
Intercity Ltd./1/     2,216,000     1,875,000      341,666         0            0            0             0              0
Clapham Investments     125,500       125,000          500         0            0            0             0              0
Ltd./1/
LGT Bank in             312,500       312,500            0         0            0            0             0              0
Liechtenstein AG/1/
Participations          125,000       125,000            0         0            0            0             0              0
Besancon/1/
Loxhall Limited/1/       62,500        62,500            0         0            0            0             0              0
MicroTech Software
a/s/1/                   33,000        31,250       11,750         0            0            0             0              0
JSP Holdings ApS/1/      24,500        12,500       12,000         0            0            0             0              0
Jan Poulson/1/           18,750        18,750            0         0            0            0             0              0
Mr. Mohamad Hassan       67,717        67,717            0         0            0            0             0              0
Abdul Ghani/2/
Dr. Khaled M.R.         135,435       135,435            0         0            0            0             0              0
Abdul Ghani/2/
Mr. Imad Mustapha        67,717        67,717            0         0            0            0             0              0
Mansour/2/
Mr. Malek Salam/2/       88,023        88,023            0         0            0            0             0              0

68

Number of                   Number of
Percentage of   Shares of     Number of     Shares of    Percentage of
Number of    Number of     Number of      Shares of    Series A     Shares of      Series A    Shares of Series
Shares of    Shares of     Shares of       Common     Convertible   Series A     Convertible   A Convertible
Common Stock     Common     Common Stock      Stock      Preferred    Convertible   Preferred      Preferred
Beneficially     Stock      Beneficially   Beneficially Beneficially  Preferred    Beneficially   Beneficially
Name of Selling   Owned Prior to  Offered     Owned After    Owned After  Owned Prior    Offered     Owned After     Owned After
Securityholder     Offering       Hereby       Offering      Offering    to Offering     Hereby       Offering       Offering
--------------     --------       ------       --------      --------    -----------     ------       --------       --------

Faisal Finance     1,043,113        1,009,779       33,334         0            0            0             0              0
(Switzerland) S.A./2/
Darier Hentsch       338,588          338,588            0         0            0            0             0              0
& Cie/2/
Mr. Guy Semon/2/      22,149           22,149            0         0            0            0             0              0
Mrs. Francoise        22,149           22,149            0         0            0            0             0              0
Semon/2/
Mr. Le Pelley         22,149           22,149            0         0            0            0             0              0
Dumanoir/2/
Mr. Moh'd Abdo        67,119           67,119            0         0            0            0             0              0
Sweidan/2/
Mr. Isam Moh'd        67,119           67,119            0         0            0            0             0              0
Khairy Kabbani/2/
Dr. Essam Ahmad      201,357          201,357            0         0            0            0             0              0
Jawadm Alamdar/2/
Arab Islamic Bank    503,394          503,394            0         0            0            0             0              0
(E.C.)/2/
Mr. Sobbi Adra/2/     23,492           23,492            0         0            0            0             0              0
Mr. Mansour S.M.A.    65,972           65,972            0         0            0            0             0              0
Al-Sharif/2/
Mr. Nafez M.M. Al-    65,972           65,972            0         0            0            0             0              0
Jindi/2/
Solter Corporation   217,345          196,047       21,298         0            0            0             0              0
/2/ /17/
Carset Overseas      176,375          176,375            0         0            0            0             0              0
Corporation/2/
Mr. Ali A. Bajrai/2/ 163,310          163,310            0         0            0            0             0              0
Pillar Investment  1,317,173        1,299,130       18,043         0            0                          0              0
Limited/3/
Bioreliance           16,697           16,697            0         0            0            0             0              0
Corporation/4/
Chestnut Partners/4/  62,500           62,500            0         0            0            0             0              0
Datamonitor/4/        62,500           62,500            0         0            0            0             0              0
Finova Technology    896,875          896,875            0         0            0            0             0              0
Finance, Inc./5/
HPC America, Inc./4/ 218,750          218,750            0         0            0            0             0              0
Hyal Pharmaceutical   17,500           17,500            0         0            0            0             0              0
/1/
Corporation/4/
SEIF Foundation2/4/  119,725          119,725            0         0            0            0             0              0
Janitronics/4/        45,724           45,725            0         0            0            0             0              0
Kinetic Systems,Inc. 163,238          163,238            0         0            0            0             0              0
/4/

69

Number of                   Number of
Percentage of  Shares of     Number of     Shares of    Percentage of
Number of    Number of     Number of      Shares of    Series A     Shares of      Series A    Shares of Series
Shares of    Shares of     Shares of       Common     Convertible   Series A     Convertible   A Convertible
Common Stock     Common     Common Stock      Stock      Preferred    Convertible   Preferred      Preferred
Beneficially     Stock      Beneficially   Beneficially Beneficially  Preferred    Beneficially   Beneficially
Name of Selling   Owned Prior to  Offered     Owned After    Owned After  Owned Prior    Offered     Owned After     Owned After
Securityholder     Offering       Hereby       Offering      Offering    to Offering     Hereby       Offering       Offering
--------------     --------       ------       --------      --------    -----------     ------       --------       --------

Massachusetts Eye &     62,500           62,500            0        0            0            0             0              0
Ear Infirmary/4/
Norwegian Radium        37,500           37,500            0        0            0            0             0              0
Hospital Research
Foundation/4/
Susan and Anthony       62,500           62,500            0        0            0            0             0              0
Russo/4/
Pharmakinetics          55,803           55,803            0        0            0            0             0              0
Laboratories, Inc./4/
The Perkin Elmer       205,377          205,377            0        0            0            0             0              0
Corporation/4/
Primedica              364,418          364,418            0        0            0            0             0              0
Corporation/4/
Quintiles              379,175          379,175            0        0            0            0             0              0
Transnational Corp./4/
Siena Construction      31,250           31,250            0        0            0            0             0              0
Corporation/4/
Sierra Biomedical,     189,203          189,203            0        0            0            0             0              0
Inc./4/
SP Pharmaceuticals     115,985          115,985            0        0            0            0             0              0
LLC/4/
Southern Research       68,860           68,860            0        0            0            0             0              0
Institute/4/
Transamerica Business  468,750          468,750            0        0            0            0             0              0
Credit Corporation/4/
Triumvirate             19,138           19,138            0        0            0            0             0              0
Enviornmental, Inc./4/
University of Kansas    29,260           29,260            0        0            0            0             0              0
University of           84,450           84,450            0        0            0            0             0              0
Massachusetts/4/
Paul C. Zamecnik       284,670          156,250      128,420        0            0            0             0              0
and Mary V. Zamecnik,
JTWROS/6/
Allstate Insurance           0           92,977/7/         0        0       16,223       16,223             0              0
Company
Angelo Gordon &              0           21,695/7/         0        0        3,785        3,785             0              0
Co., L.P.
Michael Angelo, L.P.         0           58,886/7/         0        0       10,275       10,275             0              0
Ramius Fund Ltd.             0           43,390/7/         0        0        7,570        7,570             0              0
Raphael, L.P.                0           58,886/7/         0        0       10,257       10,257             0              0
Medici Partners, L.P.        0           18,596/7/         0        0        3,244        3,244             0              0
CNA Income Shares,           0           92,977/7/         0        0       16,223       16,223             0              0
Inc.

70

Number of                   Number of
Percentage of  Shares of     Number of     Shares of    Percentage of
Number of    Number of     Number of      Shares of    Series A     Shares of      Series A    Shares of Series
Shares of    Shares of     Shares of       Common     Convertible   Series A     Convertible   A Convertible
Common Stock     Common     Common Stock      Stock      Preferred    Convertible   Preferred      Preferred
Beneficially     Stock      Beneficially   Beneficially Beneficially  Preferred    Beneficially   Beneficially
Name of Selling   Owned Prior to  Offered     Owned After    Owned After  Owned Prior    Offered     Owned After     Owned After
Securityholder     Offering       Hereby       Offering      Offering    to Offering     Hereby       Offering       Offering
--------------   -------------    ------       --------      --------    -----------     ------       --------       --------

Forest Alternative            0       4,959/8/      0      0          865          865             0              0
Strategies Fund II,
L.P. Series A5I
Forest Alternative            0       2,479/8/      0      0          433          433             0              0
Strategies Fund II,
L.P. Series A5M
Forest Alternative            0         744/8/      0      0          131          131             0              0
Strategies Fund II,
L.P. Series B-3
Forest Fulcrum Ltd.           0      20,145/8/      0      0        3,515        3,515             0              0
Forest Global                 0      24,794/8/      0      0        4,326        4,326             0              0
Convertible Fund2
Series A5
Forest Global2                0      6,199/8/       0      0        1,082       1,082              0              0
Convertible Fund
Series B1
Forest Greyhound              0      6,199/8/       0      0        1,082       1,082              0              0
Forest Performance            0      3,905/8/       0      0          682         682              0              0
Fund
LLT Ltd.                      0      4,959/8/       0      0          865         865              0              0
Forum Capital         2,192,840  2,192,840/9/       0      0       69,044       69,044             0              0
Markets LLC
Providian Life &              0    148,345/7/       0      0       25,884       25,884             0              0
Health
Commonwealth Life             0    148,345/7/       0      0       25,884       25,884             0              0
Insurance Co.
The Guardian Pension          0    18,596/7/        0      0        3,244        3,244             0              0
Trust Fund
Harris Investment             0    17,206/7/        0      0        3,002        3,002             0              0

Management
Offshore Strategies           0    61,989/7/        0      0       10,816       10,816             0              0
Ltd.
Libertyview Plus Fund         0    30,993/7/        0      0        5,408        5,408             0              0
Libertyview Fund              0    15,496/7/        0      0        2,704        2,704             0              0
LLC
CPR (USA)                     0    77,482/7/        0      0       13,519       13,519             0              0
Lincoln National Life         0    238,023/7/       0      0       41,531       41,531             0              0
Insurance Co.
Lincoln National              0    92,359/7/        0      0       16,115       16,115             0              0
Convertible Securities
Fund
Weirton Trust                 0    26,965/7/        0      0        4,705        4,705              0              0
Walker Art Center             0    10,230/7/        0      0        1,785        1,785              0              0

71

Number of                   Number of
Percentage of   Shares of     Number of     Shares of    Percentage of
Number of    Number of     Number of      Shares of    Series A     Shares of      Series A    Shares of Series
Shares of    Shares of     Shares of       Common     Convertible   Series A     Convertible   A Convertible
Common Stock     Common     Common Stock      Stock      Preferred    Convertible   Preferred      Preferred
Beneficially     Stock      Beneficially   Beneficially Beneficially  Preferred    Beneficially   Beneficially
Name of Selling   Owned Prior to  Offered     Owned After    Owned After  Owned Prior    Offered     Owned After     Owned After
Securityholder     Offering       Hereby       Offering      Offering    to Offering     Hereby       Offering       Offering
--------------     --------       ------       --------      --------    -----------     ------       --------       --------

United National          0              4,342/7/    0              0          757          757              0              0
Insurance Co.
Equi Select Growth &     0             30,995/7/    0              0        5,394        5,394              0              0
Income Fund
Zazove Convertible       0             29,761/7/    0              0        5,177        5,177              0              0
Fund, L.P.
Lois Wilkens             0              1,189/7/    0              0          207          207              0              0
Winchester               0             24,176/7/    0              0        4,218        4,218              0              0
Convertible Plus Ltd.
Foundation Account       0             13,018/7/    0              0        2,271        2,271              0              0
No. 1
LLC Account No. 1        0              6,199/7/    0              0        1,082        1,082              0              0
GPS Fund Limited         0             18,594/7/    0              0        3,244        3,244              0              0
Telefix (First Delta)    0              3,100/7/    0              0          541          541              0              0
Guardian Life            0            605,417/10/   0              0      105,634      105,634              0             0
Insurance Co. of
America
Declaration of Trust     0            116,418/11/   0              0       20,313       20,313              0              0
for the Defined
Benefits Plan of ICI
America Holdings,
Inc.
J.W. McConnell           0             53,706/12/   0              0        9,372        9,372              0              0
Family Foundation
Delaware State           0            408,189/13/   0              0       71,221       71,221              0              0
Employees Retirement
Fund
General Motors           0            492,783/14/   0              0       85,982       85,982              0              0
Employees Domestic
Group Trust
Zeneca Holdings          0            78,642/15/    0              0       13,720       13,720              0              0
Hillside Capital         0            12,400/14/    0              0        2,164        2,164              0              0
Incorporated
Thermo Electron          0            32,853/14/    0              0        5,732        5,732              0              0
Balanced Investment
Fund

72

/1/  20% of the Common  Stock  represented  here are issuable  upon  exercise of
Class B Warrants.  To calculate  the exact  number of Warrants,  divide the
given number by 5. The  quotient is equal to the number of Warrants  that a
given security holder owns.

/2/  23% of the Common Stock  represented here are issuable upon the exercise of
Class B Warrants.  To calculate  the exact  number of Warrants,  divide the
given number by 4.33.  The quotient is equal to the number of Warrants that
a given security holder owns.

/3/  Includes 37,500 shares issuable upon exercise of Class B Warrants,  473,598
shares  issuable  upon  exercise of Advisory  Warrants  and 638,032  shares
issuable upon exercise of Placement  Warrants.  Mr. Nasser  Menhall and Mr.
Youssef El-Zein,  Hybridon  Directors,  are principals of Pillar Investment
Limited.

/4/  25% of the Common  represented  here are issuable  upon exercise of Class C
Warrants.  To  calculate  the exact  number of  Warrants,  divide the given
number by 5. The  quotient is equal to the number of Warrants  that a given
security holder owns.

/5/  Includes 259,375 shares issuable upon exercise of Class C Warrants.

/6/  Includes  31,250 shares  issuable  upon  exercise of Class C Warrants.  Dr.
Zamecnik is a Director of and consultant to Hybridon.

/7/  All shares of Common Stock  represented  here are issuable upon exercise of
Class A Warrants, which are not exercisable until May 5, 1999.

/8/  All shares of Common Stock  represented  here are issuable upon exercise of
Class A Warrants,  which are not exercisable until May 5, 1999. Mr. Purkey,
a Hybridon director, is an affiliate of this stockholder.

/9/  Includes 397,712 shares issuable upon exercise of Class A Warrants, 328,677
shares  issuable  upon  exercise  of Class B Warrants  and  280,517  shares
issuable  upon  exercise  of Class C  Warrants.  Class A  Warrants  are not
exercisable  until May 5, 1999. Also includes  588,235 shares issuable upon
the exercise of additional  warrants held by Forum;  those warrants are not
exerciasable  until May 5, 1999. Mr. Purkey,  a Hybridon  director,  is the
President and a 10% owner of Forum Capital Markets.

/10/ Includes  353,316  shares  issuable  upon  exercise of Class A Warrants and
252,101  shares  issuable  upon  exercise of Class D Warrants.  The Class A
Warrants and the Class D Warrants are not exercisable until May 5, 1999.

/11/ Includes  42,153  shares  issuable  upon  exercise of Class A Warrants  and
74,265  shares  issuable  upon  exercise of Class D  Warrants.  The Class A
Warrants  and the Class D Warrants are not  exercisable  until May 5, 1999.
Arthur W. Berry, a Hybridon  director,  serves as investment advisor to ICI
American.

/12/ Includes  27,894  shares  issuable  upon  exercise of Class A Warrants  and
25,812  shares  issuable  upon  exercise of Class D  Warrants.  The Class A
Warrants  and the Class D Warrants are not  exercisable  until May 5, 1999.
Arthur W. Berry, a Hybridon  director,  serves as investment advisor to the
J.W. McConnell Family Foundation.

/13/ Includes  137,918  shares  issuable  upon  exercise of Class A Warrants and
270,271  shares  issuable  upon  exercise of Class D Warrants.  The Class A
Warrants and the Class D Warrants are not exercisable until May 5,

73

1999. Arthur W. Berry, a Hybridon director, serves as investment advisor to
the Delaware State Employees Retirement Fund.

/14/ All shares of Common Stock  represented  here are issuable upon exercise of
Class A Warrants,  which are not exercisable  until May 5, 1999.  Arthur W.
Berry,  a  Hybridon   director,   serves  as  investment  advisor  to  this
stockholder.

/15/ Includes  28,824  shares  issuable  upon  exercise of Class A Warrants  and
49,818  shares  issuable  upon  exercise of Class D  Warrants.  The Class A
Warrants  and the Class D Warrants are not  exercisable  until May 5, 1999.
Arthur W.  Berry,  a Hybridon  director,  serves as  investment  advisor to
Zeneca Holdings.

/16/ Includes 234,764 shares issuable upon exercise of Class B Warrants.

/17/ Mohamed El-Khereiji is a controlling  stockholder of Solter Corporation and
a Hybridon director.

74

DESCRIPTION OF CAPITAL STOCK AND INDEBTEDNESS

CAPITAL STOCK

The  authorized  capital  stock of the Company  consists  of  100,000,000
shares of Common Stock and 5,000,000  shares of preferred  stock, par value $.01
per share (the  "Preferred  Stock"),  of which 1,500,000 have been designated as
Series A Convertible Preferred Stock. As of the date hereof there are 15,256,825
shares of Common Stock and 641,259 shares of Convertible  Preferred Stock issued
and outstanding.

The  following  descriptions  of the  Common  Stock  and the  Convertible
Preferred  Stock  do not  purport  to be  complete  and are  qualified  in their
entirety by  reference  to the  Restated  Certificate  of  Incorporation  of the
Company,  including the  Certificate of Designation for the Series A Convertible
Preferred Stock (the "Certificate of Designation"), 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
such  dividends,  if any, as may be declared  by the Board of  Directors  out of
funds legally available therefor, subject to any preferential dividend rights of
outstanding   Preferred  Stock  or  other  securities.   Upon  the  liquidation,
dissolution  or  winding up of the  Company,  the  holders  of Common  Stock are
entitled to receive  ratably the net assets of the Company  available  after the
payment of all debts and other  liabilities  and subject to the prior  rights of
any  outstanding  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 to, and may be  adversely  affected by, the
rights of the  holders  of shares of any  series of  preferred  stock  which the
Company may designate and issue in the future and the rights of creditors of the
Company.

Pursuant  to the  terms  of the  Unit  Purchase  Agreement,  the  initial
purchasers  (the  "Liquidation  Put Holders") of certain of the shares (the "Put
Shares") of Common Stock sold in the Regulation S and the Regulation D Offerings
have the right to put (the  "Liquidation  Put") those shares back to the Company
upon the liquidation of the Company,  but only after all other  indebtedness and
obligations  of the Company  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.  The  Liquidation  Put is not  transferrable,  however.
Purchasers of Common Stock  pursuant to this  Prospectus  will  therefore 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 the  Company.  In such  circumstances,
holders of shares of the  Company's  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 December 1, 1998, there were 9,597,476 Put Shares outstanding.

Preferred Stock

The Restated  Certificate of Incorporation  authorizes the issuance of up
to  5,000,000  shares  of  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 such
shares of Preferred  Stock in one or more series.  Each such series of preferred
stock  shall  have  such  rights,  preferences,   privileges  and  restrictions,
including  voting  rights,  dividend  rights,   conversion  rights,   redemption
privileges and liquidation  preferences,  as shall be determined by the Board of
Directors.  1,500,000  shares of Preferred Stock have been  designated  Series A
Convertible Preferred Stock.

75

Convertible Preferred Stock

1. Definitions.  As used in this description of the Convertible Preferred
Stock,  except as otherwise  provided in Subsection  4(c),  the following  terms
shall have the following meanings:

(a) The  "Closing  Bid Price" for any  security  for each  trading day
shall be the reported per share closing bid price of such security  regular
way on the  Stock  Market  on  such  trading  day,  or,  if  there  were no
transactions  on such trading day, the average of the reported  closing bid
and asked  prices,  regular  way, of such  security on the  relevant  Stock
Market on such trading day.

(b) "Fair Market Value" of any asset  (including  any security)  means
the fair market value thereof as mutually determined by the Company and the
holders of a majority of the Convertible  Preferred Stock then outstanding.
If the Company and the holders of a majority of the  Convertible  Preferred
Stock then  outstanding  are  unable to reach  agreement  on any  valuation
matter, such valuation shall be submitted to and determined by a nationally
recognized  independent  investment bank selected by the Board of Directors
and the holders of a majority  of the  Convertible  Stock then  outstanding
(or,  if such  selection  cannot be agreed upon  promptly,  or in any event
within  ten  days,  then  such  valuation  shall  be made  by a  nationally
recognized  independent  investment  banking firm  selected by the American
Arbitration Association in New York City in accordance with its rules), the
costs of which valuation shall be paid for by the Company.

(c) "Market Price" shall mean the average Closing Bid Price for twenty
(20)  consecutive  trading  days,  ending with the trading day prior to the
date as of which the Market  Price is being  determined  (with  appropriate
adjustments for subdivisions or combinations of shares effected during such
period),  provided  that if the prices  referred  to in the  definition  of
Closing Bid Price cannot be  determined on any trading day, the Closing Bid
Price for such  trading  day will be deemed to equal Fair  Market  Value of
such security on such trading day.

(d)  "Registered  Holders"  shall  mean,  at any time,  the holders of
record of the Convertible Preferred Stock.

(e) The "Stock Market" shall mean,  with respect to any security,  the
principal national  securities exchange on which such security is listed or
admitted  to trading  or, if such  security  is not listed or  admitted  to
trading on any national securities exchange, shall mean The Nasdaq National
Market System ("NNM") or The Nasdaq  SmallCap  Market ("SCM" and,  together
with NNM,  "Nasdaq")  or, if such  security is not quoted on Nasdaq,  shall
mean the OTC Bulletin  Board or, if such  security is not quoted on the OTC
Bulletin Board, shall mean the over-the-counter  market as furnished by any
NASD  member  firm  selected  from  time to time by the  Company  for  that
purpose.

(f) A  "trading  day"  shall  mean a day on which the  relevant  Stock
Market is open for the transaction of business.

2.  Dividends.  The holders,  as of the Dividend  Record Date (as defined
below),  of the  Convertible  Preferred  Stock  shall  be  entitled  to  receive
semi-annual  dividends on their respective shares of Convertible Preferred Stock
(aggregating,  for this purpose, all shares of Convertible  Preferred Stock held
of record or, to the Company's knowledge, beneficially by such holder), payable,
at the  option of the  Company,  in cash or  additional  shares  of  Convertible
Preferred  Stock,  at the rate of 6.5% per  annum  (computed  on the  basis of a
360-day  year of twelve 30 day months) of the  Dividend  Base Amount (as defined
below),  payable  semi-annually  in arrears;  provided  that,  to the extent the
declaration  or payment of such dividend is  prohibited by applicable  law, such
dividend  need not be paid  but  shall  nevertheless  accrue  and  shall be paid
promptly when applicable law permits.  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 or, if any such day is not a business day, on the next succeeding
business  day.  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 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 shall be valued at $100.00 per share (subject to

76

appropriate adjustment to reflect any stock split, combination, reclassification
or  reorganization  of the Convertible  Preferred  Stock).  Notwithstanding  the
foregoing,  the  Company  shall not be required  to issue  fractional  shares of
Convertible  Preferred  Stock;  the Company may elect,  in its sole  discretion,
independently  for each holder,  whether such number of shares (on an aggregated
basis)  will be rounded to the nearest  whole share (with .5 of a share  rounded
upward)  or whether  such  holder  will be given cash in lieu of any  fractional
shares.  The "Dividend  Base Amount" of a share of Convertible  Preferred  Stock
shall be $100.00 plus all accrued but unpaid  dividends  (subject to appropriate
adjustment  to  reflect  any  stock  split,  combination,   reclassification  or
reorganization of the Convertible  Preferred Stock).  The "Dividend Record Date"
shall mean, for each semi-annual dividend,  the March 15 or September 15, as the
case may be, immediately preceding the dividend payment date.

3.  Liquidation  Preference.  (a)  In  the  event  of a (i)  liquidation,
dissolution or winding up of the Company, whether voluntary or involuntary, (ii)
a sale or other  disposition  of all or  substantially  all of the assets of the
Company or (iii) any consolidation, merger, combination, reorganization or other
transaction in which the Company is not the surviving entity or shares of Common
Stock  constituting  in excess of 50% of the  voting  power of the  Company  are
exchanged for or changed into stock or securities of another entity, cash and/or
any other property (a "Merger  Transaction")  (items (i), (ii) and (iii) of this
sentence being collectively referred to as a "Liquidation Event"), after payment
or provision  for payment of debts and other  liabilities  of the  Company,  the
holders of the Convertible Preferred Stock then outstanding shall be entitled to
be paid out of the  assets of the  Company  available  for  distribution  to its
stockholders,  whether such assets are capital, surplus, or earnings, before any
payment or declaration and setting apart for payment of any amount shall be made
in respect of any Junior Stock of the  Company,  an amount equal to the Dividend
Base  Amount  at  such  time;  provided,  however,  in  the  case  of  a  Merger
Transaction,  such payment may be made in cash,  property (valued as provided in
Subsection  3(b)) and/or  securities  (valued as provided in Subsection 3(b)) of
the entity surviving such Merger Transaction.  In the case of property or in the
event that any such  securities  are  subject to an  investment  letter or other
similar restriction on transferability, the value of such property or securities
shall be  determined  by  agreement  between  the  Company  and the holders of a
majority  of the  Convertible  Preferred  Stock  then  outstanding.  If upon any
Liquidation  Event,   whether  voluntary  or  involuntary,   the  assets  to  be
distributed  to  the  holders  of  the  Convertible  Preferred  Stock  shall  be
insufficient to permit the payment to such shareholders of the full preferential
amounts aforesaid, then all of the assets of the Company to be distributed shall
be so distributed  ratably to the holders of the Convertible  Preferred Stock on
the  basis  of the  number  of  shares  of  Convertible  Preferred  Stock  held.
Notwithstanding  item (iii) of the first sentence of this  Subsection  3(a), any
consolidation, merger, combination, reorganization or other transaction in which
the  Company is not the  surviving  entity but the  stockholders  of the Company
immediately  prior to such  transaction own in excess of 50% of the voting power
of the corporation  surviving such  transaction and own amongst  themselves such
interest in  substantially  the same  proportions as prior to such  transaction,
shall  not be  considered  a  Liquidation  Event  provided  that  the  surviving
corporation  shall make  appropriate  provisions to ensure that the terms of the
Certificate  of  Designation  survive  any  such  transaction.   All  shares  of
Convertible  Preferred Stock shall rank as to payment upon the occurrence of any
Liquidation  Event  senior to the  Common  Stock  and,  unless the terms of such
series shall  provide  otherwise,  senior to all other  series of the  Company's
preferred stock.

(b) Any  securities or other property to be delivered to the holders of
the  Convertible  Preferred Stock pursuant to Subsection 3(a) shall be valued as
follows:

i.  Securities  not  subject  to an  investment  letter  or other
similar restriction on free marketability:

(1) If  actively  traded  on a Stock  Market,  the per share
value shall be deemed to be the Market  Price of such  securities
as of the third day prior to the date of valuation.

(2) If not  actively  traded  on a Stock  Market,  the value
shall be the Fair Market Value of such securities.

77

ii. For securities for which there is an active public market but
which are subject to an  investment  letter or other  restrictions  on
free marketability,  the value shall be the Fair Market Value thereof,
determined  by  discounting  appropriately  the per share Market Price
thereof.

iii. For all other securities, the value shall be the Fair Market
Value thereof.

4.      Conversion

(a) Right of  Conversion.  Commencing  after May 6, 1999, but not
prior thereto,  the shares of Convertible  Preferred Stock shall be convertible,
in whole or in part, at the option of the holder  thereof and upon notice to the
Company as set forth herein, into fully paid and nonassessable  shares of Common
Stock and such other  securities  and  property  as  hereinafter  provided.  The
initial  conversion  price per share of Common Stock (the  "Conversion  Price"),
shall be $4.25, and shall be subject to adjustment as provided herein.  The rate
at which each share of  Convertible  Preferred  Stock is convertible at any time
into Common Stock (the  "Conversion  Rate") shall be  determined by dividing the
then existing Conversion Price (determined in accordance herewith, including the
last paragraph hereof) into the Dividend Base Amount.

(b)  Conversion  Procedures.  Any holder of shares of Convertible
Preferred  Stock  desiring  to convert  such  shares  into  Common  Stock  shall
surrender the certificate or certificates  evidencing such shares of Convertible
Preferred  Stock  at the  office  of the  transfer  agent  for  the  Convertible
Preferred  Stock,  which  certificate or  certificates,  if the Company shall so
require,  shall be duly endorsed to the Company or in blank,  or  accompanied by
proper  instruments  of  transfer  to the  Company or in blank,  accompanied  by
irrevocable  written  notice to the Company that the holder elects so to convert
such shares of  Convertible  Preferred  Stock and  specifying  the name or names
(with  address) in which a  certificate  or  certificates  evidencing  shares of
Common Stock are to be issued.  The Company need not deem a notice of conversion
to be received  unless the holder complies with all the provisions  hereof.  The
Company will  instruct  the transfer  agent (which may be the Company) to make a
notation  of the date that a notice of  conversion  is  received,  which date of
receipt shall be deemed to be the date of receipt for purposes hereof.

The Company shall,  as soon as practicable  after such deposit of
certificates  evidencing  shares of Convertible  Preferred Stock  accompanied by
written  notice  and  compliance  with any other  conditions  herein  contained,
deliver at such office of such  transfer  agent to the person for whose  account
such  shares of  Convertible  Preferred  Stock  were so  surrendered,  or to the
nominee or nominees of such person,  certificates  evidencing the number of full
shares of Common  Stock to which such person  shall be  entitled  as  aforesaid,
subject to Section 4(d). Subject to the following  provisions of this paragraph,
such  conversion  shall  be  deemed  to have  been  made as of the  date of such
surrender of the shares of Convertible Preferred Stock to be converted,  and the
person or  persons  entitled  to  receive  the  Common  Stock  deliverable  upon
conversion of such Convertible Preferred Stock shall be treated for all purposes
as the record  holder or holders of such  Common  Stock on such date;  provided,
however,  that the  Corporation  shall not be  required to convert any shares of
Convertible  Preferred  Stock while the stock transfer books of the  Corporation
are closed for any purpose, but the surrender of Convertible Preferred Stock for
conversion  during  any  period  while  such  books are so closed  shall  become
effective for conversion  immediately upon the reopening of such books as if the
surrender had been made on the date of such reopening,  and the conversion shall
be at the  conversion  rate in effect on such date. No adjustments in respect of
any dividends on shares surrendered for conversion or any dividend on the Common
Stock issued upon conversion  shall be made upon the conversion of any shares of
Convertible Preferred Stock.

The Company shall at all times, reserve and keep available out of
its  authorized but unissued  shares of Common Stock,  solely for the purpose of
effecting the  conversion of the shares of  Convertible  Preferred  Stock,  such
number of shares of Common  Stock as shall  from time to time be  sufficient  to
effect the conversion of all  outstanding  shares of the  Convertible  Preferred
Stock.

All  notices  of  conversion  shall  be  irrevocable;   provided,
however,  that if the Company  has sent  notice of an event  pursuant to Section
4(g), a holder of Convertible  Preferred Stock may, at its election,  provide in
its  notice of  conversion  that the  conversion  of its  shares of  Convertible
Preferred Stock shall be contingent upon

78

the occurrence of the record date or  effectiveness  of such event (as specified
by such  holder),  provided  that such notice of  conversion  is received by the
Company prior to such record date or effective date, as the case may be.

(c) Adjustment of Conversion Rate and Conversion Price.

(i) As used in this paragraph (c), the following terms shall have
the following meanings:

"Capital Stock" of any Person means the Common Stock or Preferred
Stock of such Person.  Unless  otherwise  stated herein or the context
otherwise  requires,  "Capital  Stock"  means  Capital  Stock  of  the
Company;

"Common  Stock" of any Person  other than the  Company  means the
common equity (however  designated),  including,  without  limitation,
common  stock  or   partnership   or   membership   interests  of,  or
participation  or interests in such Person (or  equivalents  thereof).
"Common Stock" of the Company means the Common Stock,  par value $.001
per share,  of the Company,  any successor  class or classes of common
equity  (however  designated)  of the  Company  into or for which such
Common Stock may hereafter be converted, exchanged or reclassified and
any class or  classes of common  equity  (however  designated)  of the
Company which may be distributed or issued with respect to such Common
Stock or  successor  class of classes to  holders  thereof  generally.
Unless  otherwise  stated  herein or the context  requires  otherwise,
"Common Stock" means Common Stock of the Company;

"Current  Market  Price"  means,  when used with  respect  to any
security as of any date, the last sale price, regular way, or, in case
no such sale takes place on such date,  the average of the closing bid
and asked  prices,  regular  way,  of such  security in either case as
reported for consolidated  transactions on the New York Stock Exchange
or, if such  security  is not listed or admitted to trading on the New
York Stock Exchange,  as reported for consolidated  transactions  with
respect to  securities  listed on the  principal  national  securities
exchange  on which such  security is listed or admitted to trading or,
if such  security is not listed or admitted to trading on any national
securities exchange, as reported on the Nasdaq National Market, or, if
such  security  is not  listed or  admitted  to  trading on the Nasdaq
National Market, as reported on the Nasdaq SmallCap Market, or if such
security  is not  listed  or  admitted  to  trading  on  any  national
securities  exchange  or the  Nasdaq  National  Market  or the  Nasdaq
SmallCap  Market,  the average of the high bid and low asked prices of
such  security  in the  over-the-counter  market,  as  reported by the
National Association of Securities Dealers,  Inc. Automated Quotations
System or such other  system  then in use or, if such  security is not
quoted by any such  organization,  the  average of the closing bid and
asked  prices  of  such  security  furnished  by an NASD  member  firm
selected by the  Company.  If such  security is not quoted by any such
organization  and no such NASD  member  firm is able to  provide  such
prices,  the Current  Market Price of such security  shall be the Fair
Market Value thereof;

"Fair Market Value" means, at any date as to any asset,  Property
or right (including without  limitation,  Capital Stock of any Person,
evidence of indebtedness or other securities, but excluding cash), the
fair  market  value of such item as  determined  in good  faith by the
Board of Directors, whose determination shall be conclusive; provided,
however,   that  such  determination  is  described  in  an  Officers'
Certificate  filed  with the  transfer  agent and that,  if there is a
Current  Market Price for such item on such date,  "Fair Market Value"
means such Current  Market Price  (without  giving  effect to the last
sentence of the definition thereof);

"GAAP"  means,  as of any  date,  generally  accepted  accounting
principles   in  the   United   States  and  does  not   include   any
interpretations  or regulations  that have been proposed but that have
not become effective;

79

"Officer" means, with respect to any Person,  the Chairman of the
Board, the Chief Executive Officer, the President, the Chief Operating
Officer,  the Chief Financial  Officer,  the Treasurer,  any Assistant
Treasurer,  the Controller,  the Secretary, any Assistant Secretary or
any Vice President of such Person;

"Officers'  Certificate"  means a certificate signed on behalf of
the  Corporation by two Officers,  one of whom must be the Chairman of
the Board,  the President,  the Treasurer or a  Vice-President  of the
Corporation;

"Person"   means  any   individual,   corporation,   partnership,
association,  trust or any other entity or  organization,  including a
government or political  subdivision or any agency or  instrumentality
thereof;

"Preferred  Stock" of any  Person  means the class or  classes of
equity,  ownership or participation  interests (however designated) in
such Person, including, without limitation,  stock, share, partnership
and  membership  interests,  which are  preferred as to the payment of
dividends or  distributions  by, or as to the  distribution  of assets
upon any voluntary or involuntary  liquidation or dissolution of, such
Person (or  equivalent  thereof) over  interests of any other class of
interests  of such  Person.  Unless  otherwise  stated  herein  or the
context otherwise requires, "Preferred Stock" means Preferred Stock of
the Company;

"Property"  of any  Person  means  any and  all  types  of  real,
personal, tangible,  intangible or mixed property owned by such Person
whether or not included on the most recent consolidated  balance sheet
of such Person in accordance with GAAP;

"Subsidiary"  of a Person on any date  means any other  Person of
whom such Person owns,  directly or indirectly through a Subsidiary or
Subsidiaries of such Person,  Capital Stock with voting power,  acting
independently and under ordinary circumstances,  entitling such person
to elect a majority of the board of directors or other  governing body
of such other Person.  Unless  otherwise  stated herein or the context
otherwise requires, "Subsidiary" means a Subsidiary of the Company.

(ii)  If  the   Company   shall  (i)  pay  a  dividend  or  other
distribution,  in Common  Stock,  on any class of Capital Stock of the
Company,  (ii) subdivide the  outstanding  Common Stock into a greater
number of shares by any means or (iii) combine the outstanding  Common
Stock into a smaller number of shares by any means including,  without
limitation,  a  reverse  stock  split),  then in each  such  case  the
Conversion Price in effect immediately prior thereto shall be adjusted
so that the Registered  Holder of any shares of Convertible  Preferred
Stock  thereafter  surrendered  for  conversion  shall be  entitled to
receive  the  number of shares of Common  Stock  that such  Registered
Holder  would have  owned or have been  entitled  to receive  upon the
happening  of such  event had such  Convertible  Preferred  Stock been
converted  immediately  prior to the relevant record date or, if there
is no  such  record  date,  the  effective  date  of  such  event.  An
adjustment  made  pursuant  to this  paragraph  (c)(ii)  shall  become
effective  immediately  after the record date for the determination of
stockholders  entitled to receive such  dividend or  distribution  and
shall become  effective  immediately  after the effective date of such
subdivision or combination, as the case may be.

(iii) If the Company  shall (i) issue or  distribute  (at a price
per share less than the Current Market Price per share of such Capital
Stock on the date of such  issuance  or  distribution)  Capital  Stock
generally  to  holders  of Common  Stock or to holders of any class or
series of Capital Stock which is convertible  into or  exchangeable or
exercisable for Common Stock (excluding an issuance or distribution of
Common  Stock  described  in  paragraph  (c)(ii))  or  (ii)  issue  or
distribute  generally to such  holders  rights,  warrants,  options or
convertible or exchangeable securities entitling the holder thereof to
subscribe for, purchase, convert into or exchange for Capital Stock at
a price per share less than the Current Market Price per share of such
Capital Stock on the date

80

of issuance or distribution,  then, in each such case, at the earliest
of (A) the date  the  Company  enters  into a firm  contract  for such
issuance or distribution, (B) the record date for the determination of
stockholders  entitled to receive any such  Capital  Stock or any such
rights, warrants, options or convertible or exchangeable securities or
(C) the date of actual  issuance or  distribution  of any such Capital
Stock  or  any  such  rights,  warrants,  options  or  convertible  or
exchangeable  securities,  the  Conversion  Price  shall be reduced by
multiplying the Conversion Price in effect  immediately  prior to such
earliest date by:

(A) if such Capital  Stock is Common  Stock,  a fraction the
numerator  of which is the  number  of  shares  of  Common  Stock
outstanding,  on such  earliest date plus the number of shares of
Common Stock which could be purchased at the Current Market Price
per  share  of  Common  Stock  on the  date of such  issuance  or
distribution with the aggregate  consideration (based on the Fair
Market  Value  thereof)  received  or  receivable  by the Company
either (A) in connection  with such issuance or  distribution  or
(B) upon the  conversion,  exchange,  purchase or subscription of
all such rights, warrants, options or convertible or exchangeable
securities (the "Aggregate  Consideration"),  and the denominator
of which is the number of shares of Common Stock  outstanding  on
such  earliest  date plus the number of shares of Common Stock to
be so issued or distributed or to be issued upon the  conversion,
exchange,  purchase or subscription of all such rights, warrants,
options or convertible or exchangeable securities; or

(B) if such  Capital  Stock is other than  Common  Stock,  a
fraction the  numerator of which is the Current  Market Price per
share of Common Stock on such earliest date minus an amount equal
to (A) the  difference  between (1) the Current  Market Price per
share of such Capital Stock multiplied by the number of shares of
such  Capital  Stock  to be  so  issued  and  (2)  the  Aggregate
Consideration,  divided  by (B) the  number  of  shares of Common
Stock  outstanding on such date, and the  denominator of which is
the  Current  Market  Price  per  share of  Common  Stock on such
earliest date.

Such adjustment shall be made  successively  whenever any such Capital
Stock,  rights,  warrants,  options  or  convertible  or  exchangeable
securities are so issued or  distributed.  In determining  whether any
rights,  warrants,  options or convertible or exchangeable  securities
entitle the holders thereof to subscribe for,  purchase,  convert into
or exchange for shares of such Capital Stock at less than such Current
Market Price,  there shall be taken into account the Fair Market Value
of any  consideration  received or  receivable by the Company for such
rights,  warrants,  options or convertible or exchangeable securities.
If any right,  warrant,option or convertible or exchangeable security,
the  issuance of which  resulted in an  adjustment  in the  Conversion
Price pursuant to this Subsection (4)(c)(iii),  shall expire and shall
not have been exercised,  the Conversion Price shall  immediately upon
such expiration be recomputed to the Conversion Price which would have
been in effect  if such  right,  warrant,  option  or  convertible  or
exchangeable   securities  had  never  been   distributed  or  issued.
Notwithstanding  anything contained in this paragraph to the contrary,
(i) the  issuance of Capital  Stock upon the  exercise of such rights,
warrants or options or the conversion or exchange of such  convertible
or  exchangeable  securities  will  not  cause  an  adjustment  in the
Conversion Price if no such adjustment would have been required at the
time such  right,  warrant,  option  or  convertible  or  exchangeable
security was issued or distributed;  provided,  however,  that, if the
consideration  payable  upon such  exercise,  conversion  or  exchange
and/or the Capital  Stock  receivable  thereupon are changed after the
time of the issuance or distribution of such right, warrant, option or
convertible or exchangeable  security then such change shall be deemed
to be the  expiration  thereof  without  having been exercised and the
issuance  or  distribution  of  new  options,   rights,   warrants  or
convertible  or  exchangeable  securities  and  (ii) the  issuance  of
convertible   preferred   stock  of  the  Company  as  a  dividend  on
convertible  preferred  stock of the  Corporation  will  not  cause an
adjustment in the Conversion  Price if no such  adjustment  would have
been required at the time such underlying  convertible preferred stock
was issued (or as a result of any subsequent modification to the terms
thereof) and the conversion provisions of such

81

convertible  stock so  issued  as a  dividend  are the same as in such
underlying convertible preferred stock.

Notwithstanding  anything  contained in the Certificate of Designation
to the contrary,  options,  rights or warrants issued or distributed by the
Company,  including  options,  rights or warrants  distributed prior to the
date of filing of the  Certificate  of  Designation,  to  holders of Common
Stock generally which,  until the occurrence of a specified event or events
(a "Trigger  Event"),  (i) are deemed to be transferred  with Common Stock,
(ii) are not exercisable and (iii) are also issued on a pro rata basis with
respect to future  issuances of Common  Stock,  shall be deemed not to have
been issued or  distributed  for purposes of this  Subsection  4(c) (and no
adjustment  to the  Conversion  Price  under this  Subsection  4(c) will be
required)  until the  occurrence of the earliest  Trigger  Event.  Upon the
occurrence  of a Trigger  Event,  such  options,  rights or warrants  shall
continue to be deemed not to have been issued or  distributed  for purposes
of this  Subsection  4(c) (and no adjustment to the Conversion  Price under
this  Subsection  4(c)  will  be  required)  if and  for so  long  as  each
Registered  Holder  who  thereafter   converts  such  Registered   Holder's
Convertible  Preferred  Stock  shall  be  entitled  to  receive  upon  such
conversion,  in addition to the shares of Common Stock  issuable  upon such
conversion,  a number of such options,  rights or warrants, as the case may
be, equal to the number of options, rights or warrants to which a holder of
the  number  of shares of  Common  Stock  equal to the  number of shares of
Common  Stock  issuable  upon  conversion  of  such   Registered   Holder's
Convertible  Preferred  Stock is  entitled  to  receive at the time of such
conversion in accordance  with the terms and  provisions of, and applicable
to, such  options,  rights or  warrants.  Upon the  expiration  of any such
options, rights or warrants or at such time, if any, as a Registered Holder
is not entitled to receive such options, rights or warrants upon conversion
of such Registered Holder's Convertible  Preferred Stock, an adjustment (if
any is required) to the Conversion  Price shall be made in accordance  with
this  paragraph  (c)(iii) with respect to the issuance of all such options,
rights and warrants as of the date of issuance thereof,  but subject to the
provisions  of the  preceding  paragraph,  if any  such  option,  right  or
warrant,  including any such options right or warrants distributed prior to
the date of  filing of the  Certificate  of  Designation,  are  subject  to
events,  upon the  occurrence  of which such  options,  rights or  warrants
become   exercisable  to  purchase   different   securities,   evidence  of
indebtedness,  cash,  Properties  or  other  assets  or  different  amounts
thereof,  then, subject to the preceding  provision of this paragraph,  the
date of the occurrence of any and each such event shall be deemed to be the
date of distribution and record date with respect to new options,  right or
warrants with such new purchase  rights (and a termination or expiration of
the existing  options,  rights or warrants  without exercise  thereof).  In
addition,  in the event of any  distribution  (or deemed  distribution)  of
options,  rights or  warrants,  or any Trigger  Event or other event of the
type  described in the  preceding  sentence,  that  required (or would have
required but for the provisions of paragraph  (c)(vi) or this paragraph) an
adjustment  to the  Conversion  Price  under  this  paragraph  (c) and such
options,  rights  or  warrants  shall  thereafter  have  been  redeemed  or
repurchased without having been exercised,  then the Conversion Price shall
be  adjusted  upon such  redemption  or  repurchase  to give effect to such
distribution,  Trigger Event or other event,  as the case may, as though it
had  instead  been a cash  distribution,  equal on a per share basis to the
result of the aggregate  redemption or repurchase price received by holders
of such  options,  rights or  warrants  divided  by the number of shares of
Common Stock  outstanding as of the date of such  repurchase or redemption,
made to holders of Common Stock generally as of the date of such redemption
or repurchase.

(iv)  If  the  Company  shall  pay or  distribute,  as a  dividend  or
otherwise,  generally  to holders of Common Stock or any class or series of
Capital Stock which is convertible  into or exercisable or exchangeable for
Common  Stock  any  assets,   Properties  or  rights  (including,   without
limitation, evidences of indebtedness of the Company, any Subsidiary or any
other Person, cash or Capital Stock or other securities of the Company, any
Subsidiary or any other Person, but excluding payments and distributions as
described in Subsections 4(c)(ii) or 4(c)(iii), dividends and distributions
in connection with a Liquidation Event and distributions  consisting solely
of cash

82

described in  Subsection  4(c)(v)),  then in each such case the  Conversion
Price  shall be  reduced  by  multiplying  the  Conversion  Price in effect
immediately  prior  to the  date  of  such  payment  or  distribution  by a
fraction,  the numerator of which is the Current  Market Price per share of
Common  Stock on the  record  date for the  determination  of  stockholders
entitled to receive such payment or distribution less the Fair Market Value
per share of Common Stock on such record date of the assets,  Properties or
rights so paid or distributed,  and the denominator of which is the Current
Market Price per share of Common Stock on such record date. Such adjustment
shall become effective  immediately after such record date. For purposes of
this Subsection 4(c)(iv),  such Fair Market Value per share shall equal the
aggregate  Fair Market Value on such record date of the assets,  Properties
or rights so paid or distributed  divided by the number of shares of Common
Stock outstanding on such record date. For all purposes, adjustments to any
security's  conversion  or  exercise  price  pursuant  to  such  security's
original  terms shall not be deemed a  distribution  or dividend to holders
thereof.

(v)  If  the  Company  shall,   by  dividend  or  otherwise,   make  a
distribution (other than in connection with the liquidation, dissolution or
winding up of the Company in its entirety),  generally to holders of Common
Stock or any class or series of Capital Stock which is convertible  into or
exercisable or  exchangeable  for Common Stock,  consisting  solely of cash
where (x) the sum of (i) the  aggregate  amount for such cash plus (ii) the
aggregate  amount of all cash so distributed  (by dividend or otherwise) to
such  holders  within the  12-month  period  ending on the record  date for
determining stockholders entitled to receive such distribution with respect
to which no adjustment  has been made to the  Conversion  Price pursuant to
this paragraph  (c)(v) exceeds (y) 10% of the result of the  multiplication
of (1) the Current  Market  Price per share of Common  Stock on such record
date times (2) the  number of shares of Common  Stock  outstanding  on such
record  date,  then  the  Conversion  Price  shall  be  reduced,  effective
immediately  prior to the  opening of business  on the day  following  such
record date, by  multiplying  the  Conversion  Price in effect  immediately
prior to the close of  business  on the day prior to such  record date by a
fraction,  the numerator of which is the Current  Market Price per share of
Common  Stock on such  record  date less the  aggregate  amount of cash per
share so  distributed  and the  denominator of which is such Current Market
Price;  provided,  however, that, if the aggregate amount of cash per share
is equal to or greater than such Current Market Price, then, in lieu of the
foregoing  adjustment,  adequate  provisions  shall  be made  so that  each
Registered  Holder  shall have the right to receive upon  conversion  (with
respect to each share of Common  Stock issued upon such  conversion  and in
addition to the Common Stock issuable upon conversion) the aggregate amount
of cash per share  such  Registered  Holder  would have  received  had such
Registered Holder's Convertible  Preferred Stock been converted immediately
prior to such  record  date\.  In no event  shall the  Conversion  Price be
increased  pursuant to this paragraph (c)(v);  provided,  however,  that if
such distribution is not so made, the Conversion Price shall be adjusted to
be  the  Conversion   Price  which  would  have  been  in  effect  if  such
distribution  had not  been  declared.  For  purposes  of  this  Subsection
4(c)(v),  such  aggregate  amount of cash per share  shall  equal  such sum
divided by the number of shares of Common Stock  outstanding on such record
date.

(vi) The provisions of this  Subsection  4(c) shall similarly apply to
all  successive  events  of the type  described  in this  Subsection  4(c).
Notwithstanding anything contained in the Certificate of Designation to the
contrary,  no adjustment in the Conversion  Price shall be required  unless
such adjustment would require an increase or decrease of at least 1% in the
Conversion Price then in effect;  provided,  however,  that any adjustments
which by reason of this  Subsection  4(c)(vi)  are not  required to be made
shall  be  carried  forward  and  taken  into  account  in  any  subsequent
adjustment.  All  calculations  under  this  section  shall  be made by the
Company  and  shall  be made to the  nearest  cent  or to the  nearest  one
hundredth of a share,  as the case may be, and the transfer  agent shall be
entitled to rely conclusively  thereon.  Except as provided in this Section
4, no adjustment in the  Conversion  Price will be made for the issuance of
Common Stock or any securities  convertible into or exchangeable for Common
Stock or carrying the right to purchase  Common Stock or any  securities so
convertible or exchangeable.

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(vii)  Whenever the Conversion  Price is adjusted as provided  herein,
the  Company  shall  promptly  file with the  transfer  agent an  Officers'
Certificate  setting  forth  the  Conversion  Price in  effect  after  such
adjustment and setting forth a brief  statement of the facts requiring such
adjustment.  Promptly  after delivery of such  Officers'  Certificate,  the
Company shall give or cause to be given to each Registered  Holder a notice
of such  adjustment  of the  Conversion  Price  setting  forth the adjusted
Conversion Price and the date on which such adjustment becomes effective.

(viii)  Notwithstanding  anything  contained  in  the  Certificate  of
Designation  to the  contrary,  in any case in which this  Subsection 4 (c)
provides that an adjustment in the Conversion  Price shall become effective
immediately  after a record date for an event,  the Company may defer until
the  occurrence of such event (i) issuing to the  Registered  Holder of any
Convertible Preferred Stock converted after such record date and before the
occurrence  of such event the  additional  shares of Common Stock  issuable
upon such  conversion  by reason of the  adjustment  required by such event
over and above the  number of  shares of Common  Stock  issuable  upon such
conversion  before giving effect to such adjustment and (ii) paying to such
Registered  Holder  any amount in cash in lieu of any  fractional  share of
Common Stock pursuant to Subsection 4(d).

(ix)  Notwithstanding  any  other  provision  of  the  Certificate  of
Designation,  no adjustment to the Conversion  Price shall be made upon the
issuance or exercise or  conversion of (1) options or warrants to purchase,
in the  aggregate,  up to 25% of the  securities  sold in the  offerings of
securities of the  Corporation  described in the Original Offer to Exchange
or any options or warrants  described  in the  Amendment  in respect of the
Alternative Equity Offering, in each case issued to (or to the designee of)
any placement  agent or financial  advisor  (such options or warrants,  the
"Offering  Warrants"),  (2)  any  equity  securities  or  warrants  of  the
Corporation  (including,  without  limitation,  the  Convertible  Preferred
Stock,  warrants  and  equity  securities  underlying  warrants)  issued in
exchange for 9% Convertible Subordinated Notes due 2004 (the "9% Notes") of
the Corporation or accrued  interest  thereon or pursuant to the conversion
or exercise provisions thereof,  (3) any warrants issued in connection with
the offerings  described in the Original Offer to Exchange or the Amendment
(collectively,  the  "Offering"),  (4) any  warrants  issued  to  Forum  in
exchange for or in addition to, or any  amendment  to, any warrants held by
Forum, in each case,  pursuant to a letter agreement dated January 5, 1998,
between  the  Corporation  and Forum,  and any other  warrants  to purchase
Common Stock or shares of Common Stock issued to Forum or its designee, (5)
any  Convertible  Preferred  Stock issued in the Offering,  (6) any Capital
Stock issued or cash paid as dividends on the  Convertible  Preferred Stock
or (7) any Capital Stock issued or cash paid upon the mandatory  conversion
or redemption of any Convertible Preferred Stock in accordance with Section
5 of the Certificate of Designation.

(d) No Fractional  Shares. No fractional  shares or scrip  representing
fractional shares of Common Stock shall be issued upon conversion of Convertible
Preferred Stock. If more than one certificate  evidencing  shares of Convertible
Preferred  Stock shall be  surrendered  for  conversion  at one time by the same
holder,  the number of full shares  issuable  upon  conversion  thereof shall be
computed on the basis of the aggregate number of shares of Convertible Preferred
Stock so  surrendered.  Instead of any  fractional  share of Common  Stock which
would otherwise be issuable upon  conversion of such aggregate  number of shares
of Convertible  Preferred  Stock, the Company may elect, in its sole discretion,
independently  for each  holder,  whether  such number of shares of Common Stock
will be rounded to the nearest whole share (with a .5 of a share rounded upward)
or whether such holder will be given cash, in lieu of any fractional  share,  in
an amount equal to the same  fraction of the Market Price of the Common Stock as
of the close of business on the day of conversion.

(e) [Reserved]

(f) Reservation of Shares;  Transfer  Taxes,  Etc. The Company shall at
all times reserve and keep available,  out of its authorized and unissued shares
of Common  Stock,  solely for the purpose of  effecting  the  conversion  of the
Convertible  Preferred Stock,  such number of shares of its Common Stock free of
preemptive  rights as shall be sufficient to effect the conversion of all shares
of Convertible Preferred Stock from time to time

84

outstanding.  The  Company  shall use its best  efforts  from  time to time,  in
accordance  with the laws of the State of Delaware to  increase  the  authorized
number  of  shares  of  Common  Stock if at any time the  number  of  shares  of
authorized,  unissued and  unreserved  Common Stock shall not be  sufficient  to
permit  the  conversion  of  all  the  then-outstanding  shares  of  Convertible
Preferred Stock.

The Company shall pay any and all issue or other taxes  (excluding  any
income  taxes) that may be payable in respect of any issue or delivery of shares
of Common Stock on conversion of the Convertible  Preferred  Stock.  The Company
shall not,  however,  be required to pay any tax which may be payable in respect
of any  transfer  involved in the issue or  delivery  of Common  Stock (or other
securities  or  assets)  in a name  other  than  that in  which  the  shares  of
Convertible  Preferred Stock so converted were registered,  and no such issue or
delivery  shall be made  unless and until the person  requesting  such issue has
paid  to  the  Company  the  amount  of  such  tax or  has  established,  to the
satisfaction of the Company, that such tax has been paid or need not be paid.

(g) Prior Notice of Certain Events. In case:

i.  the  Company   shall  declare  any  dividend  (or  any  other
distribution); or

ii. the Company  shall  authorize  the granting to the holders of
Common  Stock of rights or warrants to  subscribe  for or purchase any
shares of stock of any class or of any other rights or warrants; or

iii.  of any  reclassification  of  Common  Stock  (other  than a
subdivision  or  combination  of the  outstanding  Common Stock,  or a
change in par value, or from par value to no par value, or from no par
value to par value); or

iv. of any  consolidation  or merger  to which the  Company  is a
party and for which approval of any  stockholders of the Company shall
be required, or of the sale or transfer of all or substantially all of
the assets of the Company or of any compulsory  share exchange whereby
the Common Stock is  converted  into other  securities,  cash or other
property; or

v. of any Liquidation Event;

then the  Company  shall  cause to be filed  with  the  transfer  agent  for the
Convertible  Preferred  Stock,  and shall  cause to be mailed to the  Registered
Holders,  at their last  addresses as they shall appear upon the stock  transfer
books of the  Company,  at least 20 days  prior to the  applicable  record  date
hereinafter  specified, a notice stating (x) the date on which a record (if any)
is to be taken for the  purpose of such  dividend.  distribution  or granting of
rights or warrants or, if a record is not to be taken,  the date as of which the
holders of Common Stock of record to be entitled to such dividend, distribution,
rights  or  warrants  are  to be  determined  and a  description  of  the  cash,
securities or other  property to be received by such holders upon such dividend,
distribution  or  granting  of rights or  warrants or (y) the date on which such
reclassification,  consolidation,  merger,  sale,  transfer,  share  exchange or
Liquidation  Event is expected to become  effective,  the date as of which it is
expected  that  holders of Common  Stock of record shall be entitled to exchange
their shares of Common Stock for securities or other property  deliverable  upon
such exchange or Liquidation Event and the consideration,  including  securities
or other property, to be received by such holders upon such exchange;  provided,
however,  that no  failure to mail such  notice or any defect  therein or in the
mailing thereof shall affect the validity of the corporate action required to be
specified in such notice.

(h) Other Changes in Conversion Rate. The Company 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,  the Company  shall mail to the
Registered Holders a notice of the increase at least 15 days before the date the
increased  Conversion  Rate  takes  effect,  and such  notice  shall  state  the
increased Conversion Rate and the period it will be in effect.

85

The Company may make such  increases in the  Conversion  Rate, in
addition to those  required or allowed by this Section 4, as shall be determined
by it, as evidenced by a resolution of the Board of  Directors,  to be advisable
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.

Notwithstanding  anything to the contrary in the  Certificate  of
Designation, in no case shall the Conversion Price 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.

(i)  Ambiguities/Errors.  The Board of  Directors  of the Company
shall  have the power to  resolve  any  ambiguity  or  correct  any error in the
provisions  relating to the  convertibility of the Convertible  Preferred Stock,
and its actions in so doing shall be final and conclusive.

5.  Mandatory  Conversion  and  Redemption.  (a) At any time after May 6,
1998, the Company at its option, may cause the 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
(200% of the Stated  Common  Price) if the  Closing  Bid Price (or, if the price
referenced in the definition of Closing Bid Price cannot be determined, the Fair
Market  Value) of the Common Stock shall have  equalled or exceeded  250% of the
Conversion Price 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").  Any shares of Convertible  Preferred Stock so converted
shall be treated as having been surrendered by the holder thereof for conversion
pursuant  to  Section  4 on  the  date  of  such  mandatory  conversion  (unless
previously converted at the option of the holder).

(b) At any time after April 1, 2000, the Company,  at its option,
may redeem the  Convertible  Preferred Stock for cash equal to the Dividend Base
Amount at such time,  if the Market  Trigger has  occurred in the period  ending
three  days  prior  to the  date of  notice  of  redemption  (unless  previously
converted at the option of the holder).

(c) No  greater  than 60 nor fewer than 20 days prior to the date
of any such  mandatory  conversion  or  redemption,  notice by first class mail,
postage  prepaid,  shall be given to the  holders  of record of the  Convertible
Preferred Stock to be converted or redeemed,  addressed to such holders at their
last addresses as shown on the stock  transfer  books of the Company.  Each such
notice shall specify the date fixed for conversion or  redemption,  the place or
places  for  surrender  of shares of  Convertible  Preferred  Stock and the then
effective Conversion Rate pursuant to Section 4.

Any notice  which is mailed as  provided  in the  Certificate  of
Designation  shall be  conclusively  presumed  to have  been  duly  given by the
Company  on the date  deposited  in the mail,  whether  or not the holder of the
Convertible  Preferred Stock receives such notice;  and failure properly to give
such notice by mail, or any defect in such notice,  to the holders of the shares
to be converted or redeemed shall not affect the validity of the proceedings for
the conversion or redemption of any other shares of Convertible Preferred Stock.
On or after the date fixed for conversion or redemption (the "Take-Out Date") as
stated in such notice,  each holder of shares called to be converted or redeemed
shall  surrender the  certificate  evidencing  such shares to the Company at the
place designated in such notice for conversion or redemption.  After the mailing
of such  notice,  but before the  Take-Out  Date as stated  therein,  all rights
whatsoever  with respect to the shares so called for  conversion  or  redemption
(except  the right of the holders to convert  such shares  pursuant to Section 4
and to have  such  shares  converted  or  redeemed,  as the  case  may be,  upon
surrender  of their  certificates  therefor,  pursuant to this  Section 5) shall
terminate. On or after the Take-Out Date,  notwithstanding that the certificates
evidencing any shares  properly  called for  conversion or redemption  shall not
have been surrendered, such shares shall no longer be deemed outstanding and all
rights  whatsoever  with  respect  to the  shares so called  for  conversion  or
redemption  (except the right of the holders to have such  shares  converted  or
redeemed,  as the case may be, upon  surrender of their  certificates  therefor,
pursuant to this Section 5) shall terminate.

86

6.  Outstanding  Shares.  A share of Convertible  Preferred  Stock,  when
issued,  shall be deemed  outstanding  except  (i) from the date,  or the deemed
date, of surrender of certificates  evidencing  shares of Convertible  Preferred
Stock, all shares of Convertible  Preferred Stock converted into Common Stock or
redeemed  pursuant  to  Section  5 and (ii)  from the  date of  registration  of
transfer,  all  shares  of  Convertible  Preferred  Stock  held of record by the
Company or any subsidiary of the Company.

7. Class Voting Rights.  The Company shall not,  without the  affirmative
vote or consent of the  holders of at least 50% of all  outstanding  Convertible
Preferred Stock,  voting  separately as a class, (i) amend,  alter or repeal any
provision of the Certificate of Incorporation or the Bylaws of the Company so as
adversely  to  affect  the   relative   rights,   preferences,   qualifications,
limitations  or  restrictions  of the  Convertible  Preferred  Stock  (it  being
understood 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  shall not be considered  adversely
to affect such relative  rights,  preferences,  qualifications,  limitations  or
restrictions); or (ii) authorize or issue, or increase the authorized amount of,
Convertible  Preferred Stock, other than Convertible Preferred Stock issuable as
dividends on Convertible Preferred Stock.

8. Status of  Acquired  Shares.  Shares of  Convertible  Preferred  Stock
received upon  conversion  or  redemption  pursuant to Section 4 or Section 5 or
otherwise  acquired by the Company will be restored to the status of  authorized
but unissued shares of Preferred Stock, without designation as to class, and may
thereafter be issued, but not as shares of Convertible Preferred Stock.

9. Preemptive Rights. The Convertible  Preferred Stock is not entitled to
any  preemptive  or  subscription  rights in  respect of any  securities  of the
Company.

10.  Restrictions on Change of Control.  Notwithstanding  anything to the
contrary contained in the Certificate of Designation,  without the prior written
consent of the Company,  so long as any 9% Notes remain  outstanding  under that
certain  Indenture dated as of March 26, 1997 (as amended,  the  "Indenture") in
respect of the 9% Notes,  no holder of  Convertible  Preferred  Stock shall have
voting rights granted hereunder, be entitled to receive any voting securities of
the Company  pursuant  hereto or be entitled to exercise  any of the  conversion
rights set forth in the Certificate of Designation (each, a "Restricted Event"),
to the extent that any such Restricted Event could, in the Company's  reasonable
judgment,  either alone or in  conjunction  with other  issuances or holdings of
capital stock,  warrants or convertible  securities of the Company,  result in a
Change of Control (as defined in the Indenture).

WARRANTS AND OPTIONS

Warrants

The Company has the following  exercisable  warrants  outstanding for the
purchase of common stock at September 30, 1998:

Exercise Price
Expiration Date                                   Shares              Per Share
November 2, 1998-October 25, 2000                 503,001                $50.00
February 28, 2000                                  20,000                 37.50
December 31, 2001                                  13,000                 34.49
April 2, 2002-May 4, 2003                       8,641,510             2.40-4.25
----------             ---------

Average per share exercise price                9,227,511                 $3.13
- --------------------------------                =========                 =====

As a  component  of the sale of  Preferred  Stock in 1994 and  1995,  the
Company  issued to the investors in such  offering  warrants for the purchase of
585,425 shares of Common Stock at $40.00 to $50.00 per share.

87

Warrants  to purchase  331,382  shares of Common  Stock at an exercise  price of
$50.00 per share expired on March 31, 1998,  and the remaining  warrants for the
purchase of 254,043  shares of Common  Stock at an exercise  price of $40.00 per
share expired on October 25, 1997.

Five-year  warrants to purchase  368,620 shares of common stock at $50.00
per share were issued in 1994 and 1995 as a component  of the  compensation  for
services of several  placement  agents of the  Company's  convertible  preferred
stock. Of these warrants, 304,335 were issued to a company that is controlled by
two  directors of the Company.  The  remaining  64,285  warrants  were issued to
various other companies that acted as placement agents.

Certain Terms of the Warrants

The  following  descriptions  of  certain  of the  terms  of the  Class A
Warrants,  Class B Warrants,  Class C Warrants, Class D Warrants, Forum Warrants
and Pillar  Warrants do not purport to be complete  and are  qualified  in their
entirety by the terms of the agreements pursuant to which they were issued, each
of which is filed as an exhibit to this Registration Statement.

Class A Warrants

As of December 1, 1998,  there were 3,002,958 Class A Warrants issued and
outstanding.  The Class A Warrants  were  issued,  together  with  shares of the
Convertible  Preferred  Stock,  in the  Exchange  Offer.  Each  Class A  Warrant
initially  entitles  the holder to purchase  one (1) share of Common Stock at an
exercise  price of $4.25 per share.  By their  terms,  the Class A Warrants  are
exercisable  from May 5,  1999  until May 4,  2003,  subject  to any  additional
restrictions  on transfer that the holders  thereof have agreed to. See "Certain
Restrictions on Transfer --Convertible Preferred Stockholders."

The number of shares of Common Stock  issuable upon exercise of the Class
A Warrants,  the purchase price to be paid upon such exercise, and the number of
Class A Warrants  outstanding are subject to anti-dilution  adjustment for stock
splits, stock dividends, and certain other events.

Class B Warrants

As of December 1, 1998,  there were 1,752,945 Class B Warrants issued and
outstanding.  The Class B Warrants  were issued,  together with shares of Common
Stock,  in the 1998  Regulation  S  Offering.  Each  Class B  Warrant  initially
entitles  the holder to  purchase  one (1) share of Common  Stock at an exercise
price of $2.40 per share. By their terms,  the Class B Warrants were immediately
exercisable  from May 5,  1998  until May 4,  2003,  subject  to any  additional
restrictions  on transfer that the holders  thereof have agreed to. See "Certain
Restrictions on Transfer -- Regulation S Offering."

The number of shares of Common Stock  issuable upon exercise of the Class
B Warrants,  the purchase price to be paid upon such exercise, and the number of
Class B Warrants  outstanding are subject to anti-dilution  adjustment for stock
splits, stock dividends, and certain other events.

Class C Warrants

As of December 1, 1998,  there were 904,274  Class C Warrants  issued and
outstanding.  The Class C Warrants  were issued,  together with shares of Common
Stock,  in the 1998  Regulation  D  Offering.  Each  Class C  Warrant  initially
entitled  the holder to  purchase  one (1) share of Common  Stock at an exercise
price of $2.40 per share. By their terms,  the Class C Warrants were immediately
exercisable  from May 5,  1998  until May 4,  2003,  subject  to any  additional
restrictions  on transfer that the holders  thereof have agreed to. See "Certain
Restrictions on Transfer -- Regulation D Offering."

The number of shares of Common Stock  issuable upon exercise of the Class
C Warrants,  the purchase price to be paid upon such exercise, and the number of
Class C Warrants  outstanding are subject to anti-dilution  adjustment for stock
splits, stock dividends, and certain other events.

88

Class D Warrants

As of December 1, 1998,  there were 672,267  Class D Warrants  issued and
outstanding.  The Class D Warrants  were  issued,  together  with  shares of the
Convertible Preferred Stock, in the Regulation D Preferred Offering.  Each Class
D Warrant  initially  entitles  the holder to  purchase  one (1) share of Common
Stock at an exercise  price of $2.40.  By their terms,  the Class D Warrants are
exercisable  from May 5,  1999  until May 4,  2003,  subject  to any  additional
restrictions  on transfer that the holders  thereof have agreed to. See "Certain
Restrictions on Transfer -- Convertible Preferred Stockholders."

The number of shares of Common Stock  issuable upon exercise of the Class
D Warrants,  the purchase price to be paid upon such exercise, and the number of
Class D Warrants  outstanding are subject to anti-dilution  adjustment for stock
splits, stock dividends, and certain other events.

Forum

The  Company  retained  Forum  as a  placement  agent of the  Company  in
connection  with the Regulation D Offering in the United States.  As of the date
hereof,  Forum has received as compensation  for its services as placement agent
with regard to the  Regulation D Offering and its  assistance  with the Exchange
Offer,  597,699  shares of Common Stock and Forum  Warrants to purchase  609,195
shares of Common Stock  exercisable at $2.40 per share,  in each case subject to
adjustment,  until May 4, 2003. In addition,  in consideration of the agreements
made by Forum  consenting to the Company's  1998 private  placements and waiving
certain  obligations  of the Company to Forum,  the Company  agreed to amend the
1997  Forum  Warrant  to  purchase  up to 71,301  shares of Common  Stock of the
Company so that the  exercise  price  will be equal to $4.25 per share,  and the
number of shares of Common  Stock  purchasable  upon  exercise  thereof  will be
increased to 588,235,  in each case subject to  adjustment;  provided,  however,
that such  warrant  will also be amended to provide that such warrant may not be
exercised  until May 5, 1999 and the  transactions  contemplated by such private
placements  and by  the  Exchange  Offer  will  not  trigger  any  anti-dilution
adjustments  to the  exercise  price  thereof  or the number of shares of Common
Stock subject thereto.

Pillar Investments

The Company  retained  Pillar  Investments  as a  placement  agent of the
Company in connection  with the private  placements of securities of the Company
in the  Regulation S Offerings.  Pillar  Investments is entitled to receive fees
consisting of (i) 9% of the gross proceeds of each Regulation S Offering, (ii) a
non-accountable expense allowance equal to 4% of such gross proceeds,  (iii) 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,  (iv) the right
to  purchase,  for nominal  consideration,  warrants to purchase  such number of
shares of Common Stock of the Company  equal to 10% of the  aggregate  number of
shares of Common Stock sold by the Company for which Pillar Investments 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),  and (v) a  consulting/restructuring  fee of $960,000 payable in
Common  Stock of the  Company  valued at the market  price and  payable in three
equal  installments as net proceeds of $25,000,000,  $30,000,000 and $35,000,000
are received in the aggregate from private placements effected by the Company in
1998 to the extent  contemplated  by the  Consent  dated as of January  12, 1998
given by certain 9%  Noteholders  of the  Company,  or  otherwise  to the extent
contemplated by the Placement  Agency  Agreement  between the Company and Pillar
Investments,  subject to the Company's receipt of a fairness opinion with regard
thereto,  provided  however,  that  in no  event  shall  Pillar  Investments  be
permitted to receive  compensation  in excess of the level which was approved by
the holders of the 9% Notes.  Through the date hereof,  Pillar  Investments  has
received  $1,635,400 in cash pursuant to these  arrangements and Pillar Warrants
to purchase 1,111,630 shares of Common Stock.

The  Company  and  Pillar  Investments  have  entered  into  an  advisory
agreement   pursuant  to  which  Pillar   Investments   acts  as  the  Company's
non-exclusive  financial advisor,  which agreement provided that an affiliate of
Pillar  Investments  receive  a  monthly  retainer  of  $5,000  (with a  minimum
engagement  of 24 months  beginning on May 5, 1998),  and further  provides that
Pillar Investments is entitled to receive (i) out-of pocket expenses, (ii)

89

subject to the  Company's  receipt of a fairness  opinion with respect  thereto,
300,000 shares of Common Stock in connection with Pillar Investments' efforts in
assisting the Company in restructuring its balance sheet, and (iii) certain cash
and equity success fees in the event Pillar  Investments  assists the Company in
connection with certain financial and strategic transactions.

Purchasers  of the  Warrants  are  also  bound by  certain  contractual
restrictions  on their  ability to  transfer  those  Warrants  and the shares of
Common Stock  issuable  upon  exercise  thereof.  See "Certain  Restrictions  on
Transfer."

Stock Option Plans

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 September
30, 1998, options to purchase a total of 529,414 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 option
(which, in the case of incentive stock options,  may not exceed 10 years). As of
September  30,  1998,  options to  purchase a total of 573,418  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 50,000 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 September 30, 1998,  options to purchase a total of 21,000
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), which provides for the grant of incentive and non-qualified  stock
options.  A total of  600,000  shares  of common  stock  may be issued  upon the
exercise of options  granted to any  employee  under the 1997 Option  Plan.  The
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  September  30,  1998,  options to purchase a total of  2,216,800
shares of common stock remained outstanding under the 1997 Option Plan.

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INDEBTEDNESS

The following  descriptions  of the 9% Notes and the Bank Facility do not
purport to be complete and are  qualified in their  entirety by reference to the
Indenture  and the Loan  and  Security  Agreement,  each of which is filed as an
exhibit to the Registration Statement.

9% CONVERTIBLE SUBORDINATED NOTES DUE 2004

On April 2, 1997, the Company sold $50.0 million  principal amount of its
9% Notes pursuant to the  Indenture.  The 9% Notes bear interest at a rate of 9%
per annum and have a  maturity  date of April 1, 2004.  Under the 9% Notes,  the
Company is required to make  semi-annual  interest  payments on the  outstanding
principal  balance  through the maturity  date of April 1, 2004.  The  Indenture
contains  various  covenants  on the part of the  Company and Events of Default,
which should be carefully  reviewed by prospective  investors.  The 9% Notes are
unsecured and subordinated to "Senior  Indebtedness"  (as defined in Section 1.1
of the Indenture),  which includes  substantially all of the Company's  existing
indebtedness.  The 9% Notes are convertible at the option of the holder into the
Company's Common Stock at any time prior to maturity, unless previously redeemed
or  repurchased  by the Company  under  certain  specified  circumstances,  at a
conversion price of $35.0625 per share (subject to adjustment). Upon a Change of
Control of the  Company  (as defined in the  Indenture),  the  Company  would be
required to offer to  repurchase  the 9% Notes at 150% of the  principal  amount
thereof plus accrued and unpaid  interest to the date of  repurchase.  Potential
purchasers are urged to review carefully the definition of Change of Control set
forth in Section 1.1 of the Indenture, which includes, inter alia, any person or
entity  (including a "person" or "group"  within the meaning of Section 13(d) or
14(d) of the Exchange Act) becoming the direct or indirect  beneficial  owner of
shares of Capital Stock (as defined therein and which includes  preferred stock)
representing  greater than 50% of the combined  voting power of all  outstanding
shares of Capital  Stock  entitled to vote in the  election of  directors  under
ordinary circumstances.

In the first  quarter of 1998,  the Company  commenced an exchange  offer
(the  "Exchange  Offer") to all of the  holders of 9% Notes  whereby the Company
offered to  exchange  shares of  Convertible  Preferred  Stock and  warrants  to
purchase  Common Stock for the 9% Notes.  On May 5, 1998,  the Company  accepted
approximately  $48.7  million in  principal  amount of 9% Notes  tendered in the
Exchange  Offer in exchange  for  approximately  510,000  shares of  Convertible
Preferred  Stock and  warrants to  purchase  approximately  3,000,000  shares of
Common  Stock at $4.25 per share.  As a result of the Exchange  Offer,  there is
approximately $1.3 million in principal amount of 9% Notes outstanding.

BANK CREDIT FACILITY

In December  1996,  the Company  entered  into a five-year  $7.5  million
credit  facility with Silicon  Valley Bank (the "Bank") to finance the leasehold
improvements of the Company's  manufacturing  facility the outstanding principal
balance of which was  approximately  $2.8 million at November 15, 1998. The Bank
Credit Facility,  as amended,  contains certain financial covenants that require
the Company to maintain  minimum  tangible  net worth (as  defined)  and minimum
liquidity (as defined) and  prohibits the payment of dividends.  The Company has
secured  its  obligations  with a lien on all of its  assets.  If, at  specified
times, the Company's  Minimum  Liquidity (as defined) is less than $4.0 million,
or its tangible  net worth (as defined) is less than $6 million,  the Company is
required to prepay the Bank Credit Facility in full.

In  November  1998,  Forum and Pecks,  affiliates  of two  members of the
Company's Board of Directors, purchased the loan made by the Bank. In connection
with the purchase of the Bank Credit  Facility,  the  purchasers  (the "Lender")
have  advanced  an  additional  amount  to the  Company  so as to  increase  the
outstanding principal amount of the Loan to $6,000,000.  In addition, the Lender
has agreed to amend the terms of the Loan as follows:  (i) the maturity  will be
extended to November 30, 2003;  (ii) the interest  rate will be decreased to 8%;
(iii)  interest  will be payable  monthly in arrears,  with the principal due in
full at maturity of the Loan; (iv) the Loan will be convertible, at the Lender's
option,  in whole or in part,  into shares of common stock,  par value $.001 per
share, of the Company  ("Common  Stock") at a rate equal to $2.40 per share; (v)
the threshold of the Minimum Liquidity

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covenant will be reduced from  $4,000,000 to  $2,000,000;  and (vi) the Loan may
not be prepaid, in whole or in part, at any time prior to December 1, 2000.

In connection  with the purchase of the Loan,  Forum will receive certain
fees.  See "Certain  Relationships  and Related  Transactions."  For  additional
description  of the Bank Credit  Facility  see Notes 6(a) and 19(h) of "Notes to
Consolidated Financial Statements."

TRANSFER AGENT AND REGISTRAR

The transfer  agent and  registrar  for the Common  Stock is  ChaseMellon
Shareholder Services LLC.

DELAWARE LAW AND CERTAIN PROVISIONS OF THE COMPANY'S RESTATED
CERTIFICATE OF INCORPORATION, BY-LAWS AND INDEBTEDNESS

The Company is subject to the  provisions  of Section 203 of the Delaware
General  Corporation  Law.  Section  203  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 can be expected to
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  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 of the  corporation  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 a third party
to acquire,  or of  discouraging  a third party from  acquiring,  control of the
Company.

The Restated  Certificate of Incorporation  also requires that any action
required  or  permitted  to be taken by the  stockholders  of the  Company at an
annual  meeting or special  meeting of  stockholders  may be taken only if it is
properly  brought  before such 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 such 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 the
Company  or by  the  Board  of  Directors.  Under  the  Company's  By-Laws  (the
"By-Laws"), in order for any matter to be considered "properly brought" before a
meeting, a stockholder must comply with certain  requirements  regarding advance
notice  to the  Company.  The  foregoing  provisions  could  have the  effect of
delaying  until the next  stockholders  meeting  stockholder  actions  which are
favored by the holders of a majority of the outstanding voting securities of the
Company.  These  provisions  may also  discourage  another person or entity from
making a tender offer for the  Company's  Common  Stock,  because such person or
entity,  even if it acquired a majority of the outstanding  voting securities of
the Company, would be able to take action as a stockholder (such as electing new
directors or approving a merger) 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 by-laws,

92

unless a corporation's  certificate of incorporation or by-laws, as the case may
be, requires a greater percentage. The Restated Certificate of Incorporation and
the By-Laws require the  affirmative  vote of the holders of at least 75% of the
shares of capital stock of the Company  issued and  outstanding  and entitled to
vote to amend  or  repeal  any of the  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, Preferred Stock.

In addition to these provisions of Delaware law, the Restated Certificate
of  Incorporation  and the By-Laws,  the terms of the Company'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 the  Company,  upon a Change of Control of the Company (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  hostile  takeovers  or delaying or  preventing  changes in
control  or  management  of  the  Company,   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.

CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS

The  following  is a  discussion  of  certain  U.S.  federal  income  tax
consequences to purchasers of Securities from Selling  Securityholders of owning
Securities as capital  assets.  The discussion is based on the provisions of the
Internal  Revenue Code of 1986,  as amended (the "Code"),  final,  temporary and
proposed  Treasury  Regulations  thereunder,  and  administrative  and  judicial
interpretations  thereof,  all as in  effect as of the date  hereof,  and all of
which  are   subject  to  change   (perhaps   retroactively)   by   legislation,
administrative  action or judicial decision.  There can be no assurance that the
Internal  Revenue  Service (the "Service") will not challenge one or more of the
tax consequences  described herein, and no opinion of counsel or ruling from the
Service has been or will be  requested as to any of such tax  consequences.  The
following  discussion  does not include all matters  that may be relevant to any
particular holder in light of such holder's  particular  circumstances.  Certain
holders, including financial institutions,  broker-dealers,  tax-exempt entities
and  insurance  companies,  may be subject to special  treatment  not  described
below.

For purposes of this  discussion,  a "U.S.  Holder"  means a purchaser of
Securities  from Selling  Securityholders  that is, for U.S.  federal income tax
purposes, a citizen or resident of the United States, a corporation, partnership
or other entity  (other than a trust)  created or organized in or under the laws
of the United  States or any  political  subdivision  thereof,  an estate  whose
income is subject to U.S. federal income tax regardless of its source or a trust
if, in general,  a court  within the United  States is able to exercise  primary
supervision over its  administration and one or more U.S. persons have authority
to control all of its substantial decisions. As used in this section, a non-U.S.
Holder is a purchaser of Securities from Selling  Securityholders  that is not a
U.S. Holder.

THE FEDERAL  INCOME TAX  CONSEQUENCES  OF OWNING  SECURITIES  ARE  COMPLEX.  ALL
HOLDERS OF SECURITIES ARE URGED TO CONSULT WITH THEIR OWN TAX ADVISORS AS TO THE
PARTICULAR  TAX  CONSEQUENCES  TO  THEM  OF THE  OWNERSHIP  AND  DISPOSITION  OF
SECURITIES, INCLUDING THE APPLICATION AND EFFECT OF ANY STATE, LOCAL AND FOREIGN
TAX LAWS.

U.S. Holders

Dividends.  Dividends  paid  on  Preferred  Stock  or on  Common  Stock
(whether  in cash or in kind)  should be  taxable to a U.S.  Holder as  ordinary
income, to the extent paid out of the Company's current or accumulated  earnings
and  profits.  Any amounts  distributed  in excess of such  earnings and profits
should be treated first as a

93

nontaxable  return of capital that reduces the U.S.  Holder's basis in the stock
to the extent  thereof  and then as capital  gain from the sale or  exchange  of
property.  Any such gain should be long-term  capital gain if the U.S.  Holder's
holding period for the stock was more than one year.

Subject to certain  restrictions,  dividends received by a corporate U.S.
Holder  generally  should be eligible for the 70%  dividends-received-deduction,
provided the stock is held for more than 45 days (not counting days in which the
U.S. Holder's risk of loss is diminished)  during the 90 day period beginning 45
days before the  applicable  ex-dividend  date and various other  conditions are
met.  Special  holding  period  requirements  apply with respect to dividends on
Preferred Stock  attributable to periods  aggregating in excess of 366 days. The
aggregate   dividends-received-deductions  allowed  may  not  exceed  70%  of  a
corporate U.S. Holder's taxable income (with certain adjustments).  In addition,
the dividends-received-deduction is proportionately reduced to the extent that a
corporate U.S. Holder incurs indebtedness directly attributable to an investment
in the  Preferred  Stock or Common  Stock.  Special rules may apply to corporate
U.S. Holders upon the receipt of any  "extraordinary  dividends" with respect to
the Preferred Stock or Common Stock.

Sale.  A U.S.  Holder of  Preferred  Stock or  Common  Stock who sells or
otherwise  disposes  of such  stock in a taxable  transaction  should  recognize
capital  gain or loss  equal  to the  difference  between  the cash and the fair
market value of any property  received on such sale or disposition  and the U.S.
Holder's tax basis in such stock.  Such gain or loss should be long term gain or
loss if the holding period for such stock was more than one year.

Redemption. A redemption by the Company of some or all of a U.S. Holder's
Preferred Stock or Common Stock should be treated as a dividend to the redeeming
U.S. Holder to the extent of the Company's  current or accumulated  earnings and
profits unless the redemption meets one of the tests under Section 302(b) of the
Code.  If one of the  tests  under  Section  302(b)  of the  Code  is  met,  the
redemption  should be treated as an exchange giving rise to capital gain or loss
as described above, except to the extent of declared but unpaid dividends.  U.S.
Holders  should  consult  their tax  advisors as to the  application  of Section
302(b) of the Code to their particular circumstances.

Conversion  of  Preferred  Stock.  A U.S.  Holder  generally  should  not
recognize gain or loss upon the conversion of Preferred  Stock into Common Stock
(except to the extent that any cash paid in lieu of a fractional  share  exceeds
the U.S.  Holder's tax basis in the Preferred Stock allocable to such fractional
share).  A U.S.  Holder's  tax  basis  in the  Common  Stock  received  upon the
conversion  should be the same as the U.S.  Holder's  adjusted  tax basis in the
Preferred Stock converted (reduced by the portion of such basis allocable to any
fractional  shares for which the U.S.  Holder  receives a cash  payment from the
Company).  The holding period of Common Stock received in the conversion  should
include the holding period of the Preferred Stock converted.

Adjustments  to  Conversion  Price.   Pursuant  to  Treasury  Regulations
promulgated  under Section 305 of the Code, a U.S. Holder of Preferred Stock may
be treated as having received a constructive  distribution from the Company upon
an adjustment in the conversion  price of the Preferred Stock if (i) as a result
of such adjustment, the proportionate interest of such U.S. Holder in the assets
or earnings and profits of the Company is increased  and (ii) the  adjustment is
not  made  pursuant  to a  bona  fide,  reasonable,  anti-dilution  formula.  An
adjustment to compensate for certain taxable  distributions  with respect to the
Common  Stock  is not made  pursuant  to such a  formula.  Thus,  under  certain
circumstances,  a decrease in the conversion price of the Preferred Stock may be
taxable  to a holder  of  Preferred  Stock as a  dividend  to the  extent of the
current or  accumulated  earnings and profits of the Company.  In addition,  the
failure to adjust fully the  conversion  (or  exercise)  price of the  Preferred
Stock (or the Exchange  Warrants) to reflect  distributions  of stock  dividends
with respect to the Common Stock may result in a taxable dividend to the holders
of Common Stock.

Non-U.S. Holders

Dividends.  In general,  dividends paid to a non-U.S. Holder of Preferred
Stock or Common Stock should be subject to U.S.  federal income tax  withholding
at a 30% rate  unless such rate is reduced by an  applicable  income tax treaty.
Dividends  received  that are  effectively  connected  with the  conduct  by the
non-U.S.  Holder of a trade or  business  within the United  States or, if a tax
treaty  applies,  attributable to a permanent  establishment  or a fixed base of
such  non-U.S.  Holder in the United  States  ("United  States trade or business
income") generally should be

94

subject  to U.S.  federal  income  tax at regular  U.S.  income  tax rates,  but
generally  should  not be  subject to the 30%  withholding  tax if the  non-U.S.
Holder  files an  appropriate  form with the payer.  Any U.S.  trade or business
income  received by a non-U.S.  Holder  that is a  corporation  may also,  under
certain  circumstances,  be subject to a "branch  profits tax" at a 30% rate, or
such lower rate as may be applicable under an income tax treaty.

Dividends  paid to an address in a foreign  country are presumed  (absent
actual  knowledge to the  contrary) to be paid to a resident of such country for
purposes  of  the  withholding  tax  discussed  above  and,  under  the  current
interpretation  of  Treasury  Regulations,   for  purposes  of  determining  the
applicability of a tax treaty rate. Under new Treasury Regulations, however, for
payments made after December 31, 1999, a non-U.S. Holder who wishes to claim the
benefit of an applicable tax treaty rate would be required to satisfy applicable
certification  and other  requirements,  which would include  filing a form that
contains the non-U.S. Holder's name and address and an official statement by the
competent  authority in the foreign country (as designated in the applicable tax
treaty)  attesting  to the non-U.S.  Holder's  status as a resident  thereof.  A
non-U.S.  Holder of the  Preferred  Stock or Common Stock that is eligible for a
reduced rate of U.S.  federal  withholding  tax pursuant to an income tax treaty
may  obtain a refund of any excess  amounts  withheld  by filing an  appropriate
claim for refund with the Service.

Sale or Redemption.  A non-U.S. Holder generally should not be subject to
U.S.  federal  withholding  or  income  tax on any gain or  income  realized  in
connection with the sale, exchange,  redemption (other than a redemption that is
treated as a dividend  under  Section 302 of the Code,  as  discussed  above) or
other  disposition  of Preferred  Stock or Common Stock,  unless (i) the gain is
U.S. trade or business income, (ii) the non-U.S.  Holder is an individual who is
present in the United  States  for 183 days or more in the  taxable  year of the
disposition and certain other requirements are met or (iii) the non-U.S.  Holder
is subject to tax  pursuant  to the  provisions  of U.S.tax  law  applicable  to
certain U.S. expatriates.

Information Reporting and Backup Withholding

The Company will,  where  required,  report to holders and to the Service
the amount of any dividends paid (and other reportable payments, if any) and the
amount of taxes withheld, if any, with respect to such payments.

A  holder  of  Preferred   Stock  or  Common  Stock  may,  under  certain
circumstances,  be  subject  to  "backup  withholding"  at the  rate of 31% with
respect to  dividends,  the proceeds of a sale,  exchange or  redemption or cash
payments  received in lieu of fractional  shares of Common Stock upon conversion
of Preferred Stock, unless such holder (i) is a corporation or a non-U.S. Holder
or comes within certain other exempt categories and, when required, demonstrates
this fact or (ii) provides a correct taxpayer  identification number,  certifies
that such holder is not subject to backup  withholding  and  otherwise  complies
with applicable requirements of the backup withholding provisions.  A holder who
does not, when required, provide a correct taxpayer identification number may be
subject to penalties  imposed by the Service.  Any amount  withheld  under these
rules will be creditable against the holder's federal income tax liability.

PLAN OF DISTRIBUTION

The  Securities  offered  hereby  may be  sold  from  time to time by the
Selling Shareholders or their pledgees,  donees, transferees or other successors
in interest. Such sales may be effected on NASD OTC Electronic Bulletin Board or
any national  securities  exchange or automated  quotation system upon which the
Securities are then listed or traded,  in negotiated  transactions or otherwise,
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. The methods by which the sales may be sold include: (i) block trades in
which the broker or dealer so engaged  will  attempt to sell shares as agent but
may position and resell a portion of the block as  principal to  facilitate  the
transaction;  (ii)  purchases by a broker or dealer as principal  and resales by
such broker or dealer for its own account  pursuant  to this  Prospectus;  (iii)
ordinary  brokerage  transactions  and transactions in which the broker solicits
purchasers;  and (iv) privately  negotiated  transactions.  In effecting  sales,
brokers and  dealers  engaged by Selling  Securityholders  may arrange for other
brokers or dealers to participate. Brokers or dealers may receive commissions or
discounts

95

from Selling Securityholders (or, if any such broker or dealer acts as agent for
the  purchaser  of such  Securities,  from  such  purchaser)  in  amounts  to be
negotiated.  Broker-dealers may agree with the Selling Securityholders to sell a
specified number of such Securities at a stipulated price per share, and, to the
extent  such  broker-dealer  is  unable  to do so  acting as agent for a Selling
Securityholder,  to purchase as  principal  any unsold  Securities  at the price
required to fulfill the broker-dealer commitment to such Selling Securityholder.
Broker-dealers  who acquire  Securities as principal may thereafter  resell such
Securities in transactions from time to time in transactions  (which may involve
crosses and block  transactions  and sales to and through other  broker-dealers,
including  transactions of the nature described  above) in the  over-the-counter
market or otherwise at prices and on terms then  prevailing at the time of sale,
at prices related to the then-current market price or in negotiated transactions
and, in connection with such resales,  may pay to or receive from the purchasers
of such Securities Commissions as described above.

The Selling  Securityholders and any broker-dealers  participating in the
distributions  of the Securities may be deemed to be  "underwriters"  within the
meaning of  Section  2(11) of the  Securities  Act and any profit on the sale of
Securities by the Selling Securityholders and any commissions or discounts given
to any such  broker-dealer  may be  deemed  to be  underwriting  commissions  or
discounts under the Securities Act. In addition,  any of the Securities  covered
by this Prospectus which qualify for sale pursuant to Rule 144 may be sold under
Rule 144 rather than pursuant to this Prospectus.

The   Company   has  agreed  to   indemnify   certain   of  the   Selling
Securityholders,  each underwriter of certain of the Securities, and each person
controlling certain of the Selling Securityholders 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  such  persons may be required to make in
respect thereof. Certain of the Selling Securityholders have agreed to indemnify
in certain  circumstances the Company against certain  liabilities in connection
with the  offer  and sale of the  Securities,  including  liabilities  under the
Securities  Act, and to  contribute  to payments such persons may be required to
make in respect thereof.

CERTAIN RESTRICTIONS ON TRANSFER

Sales  of  the  Securities  offered  hereby  are  restricted  by  certain
contractual  obligations  entered into by the purchasers of those  Securities in
the different transactions whereby such Securities were purchased.  (The summary
of such restrictions that is set forth below does not purport to be complete and
is qualified in its  entirety by reference to the  agreements  pursuant to which
such  restrictions  are created,  copies of which have been filed as exhibits to
the Registration Statement.) Such restrictions are as follows:

Regulation S Offering.  Selling  Securityholders who participated
in the Regulation S Offering agreed that for a period of nine (9)
months  after , 1998  (the  effective  date of this  Registration
Statement,  the  "Effective  Date")  they shall not,  without the
prior  written  consent  of the  Placement  Agent,  offer,  sell,
contract to sell,  grant any option for the sale of, or otherwise
dispose of, directly or indirectly,  75% of the Common Stock they
purchased in the Regulation S Offering or 75% of the Common Stock
issuable upon exercise of the Class B Warrants they  purchased in
the Regulation S Offering; provided, however, that following each
three month period after the  Effective  Date,  an amount of such
securities  equal to 25% of the total  amount  purchased  by each
purchaser in the  Regulation S Offering  shall become exempt from
the lock-up provisions  contained in this sentence.  Thus, 25% of
such  securities  are not  subject to any such  restriction,  and
another  25% of  such  securities  may be  sold  free  from  such
restrictions  on each of ________,  1998,  _________,  1998,  and
________,  1999. All such  securities are also subject to certain
restrictions   on  transfer   related  to   Regulation  S,  which
restrictions terminated on the Effective Date.

Furthermore,  each such  Selling  Securityholder  has agreed
that such Selling  Securityholder  shall not, until the last date
upon  which  such  Selling   Securityholder   holds  any  of  the
securities   such   Selling   Securityholder   purchased  in  the
Regulation  S Offering,  including  the Common  Stock and Class B
Warrants  that made up the Units  purchased in such  offering and
the Common Stock

96

issuable  upon  exercise  of  those  Class B  Warrants,  (i) sell
"short" or "short  against the box" (as those terms are generally
understood)  any equity security of the Company or (ii) otherwise
engage in any transaction  which involves hedging of such Selling
Securityholder's position in the securities of the Company.

Regulation  D Offering.  Selling  Securityholders  who  purchased
Common  Stock and Class C Warrants in the  Regulation  D Offering
agreed that the Common Stock they  purchased and the Common Stock
underlying the Class C Warrants they purchased (collectively, the
"Lock-up Securities") will be subject to a "lock-up" for a period
ending on May 5, 1999 (the  one-year  anniversary  of the closing
date of such offering),  except to the extent such securities are
sold or transferred  pursuant to the Registration  Statement.  In
addition,  such  purchasers  agreed that for a period of nine (9)
months  after  , 1998  (the  effective  date of the  Registration
Statement,  the "Effective  Date") they shall not,  offer,  sell,
contract to sell,  grant any option for the sale of, or otherwise
dispose of, directly or indirectly,  75% of the Common Stock they
purchased in the Regulation D Offering or 75% of the Common Stock
issuable upon exercise of the Class C Warrants they  purchased in
the Regulation D Offering;  provided, however that following each
three month period after the  Effective  Date,  an amount of such
Securities  equal to 25% of the total  amount  purchased  by each
purchaser in the  Regulation D Offering  shall become exempt from
the lock-up provisions  contained in this sentence.  Thus, 25% of
such  securities  are not  subject to any such  restriction,  and
another  25% of  such  securities  may be  sold  free  from  such
restrictions  on each of  ________,  1998,  ________,  1998,  and
________, 1999.

Furthermore,  each such Selling  Securityholder has agreed
that such Selling  Securityholder  shall not, until the last date
upon  which  such  Selling   Securityholder   holds  any  of  the
securities such Selling Securityholder  purchased in the Creditor
Offering,  including  the Common Stock and Class C Warrants  that
made up the Units purchased in such offering and the Common Stock
issuable  upon  exercise  of  those  Class C  Warrants,  (i) sell
"short" or "short  against the box" (as those terms are generally
understood)  any equity security of the Company or (ii) otherwise
engage in any transaction  which involves hedging of such Selling
Securityholder's position in the securities of the Company.

Convertible Preferred  Stockholders.  Pursuant to Section 4(a) of
the Certificate of Designations,  the Convertible Preferred Stock
is not  convertible  into Common  Stock until May 5, 1999 (twelve
months  after the  Closing  Date).  The  shares  of Common  Stock
underlying  such  Convertible  Preferred  Stock  that  are  being
registered on the  Registration  Statement  will therefore not be
issued before that date. Moreover,  pursuant to Section 11 of the
Certificate of Designation,  without the prior written consent of
the  Company,  so long as any 9% Notes remain  outstanding  under
that certain  Indenture,  dated as of March 26, 1997 (as amended,
the  "Indenture")  in respect  of the 9% Notes,  no holder of the
Convertible  Preferred Stock shall be entitled to exercise any of
the   conversion   rights  set  forth  in  the   Certificate   of
Designation,  to the extent that such  conversion  could,  in the
Company's  reasonable  judgment,  either alone or in  conjunction
with other  issuances or holdings of capital  stock,  warrants or
convertible  securities  of the  Company,  result  in a Change of
Control (as defined in the Indenture).

Pursuant to the terms of the Class A Warrant Agreement and
the Class D Warrant  Agreement,  the Class A and Class D Warrants
may not be exercised  until May 5, 1999 (twelve  months after the
Closing  Date).  Furthermore,  each Selling  Securityholder  that
received  shares  of  Convertible  Preferred  Stock  and  Class D
Warrants in the Regulation D Preferred Offering,  has agreed that
such Selling  Securityholder  shall not, until the last date upon
which such  Selling  Securityholder  holds any of the  securities
such  Selling  Securityholder   purchased  in  the  Regulation  D
Preferred Offering, including the Convertible Preferred Stock and
Class  D  Warrants  that  made  up the  Units  purchased  in such
offering and the Common Stock  issuable  upon  conversion  of the
Convertible  Preferred  Stock or upon  exercise  of those Class D
Warrants,  (i) sell "short" or "short  against the box" (as those
terms  are  generally  understood)  any  equity  security  of the
Company or

97

(ii) otherwise  engage in any transaction  which involves hedging
of such Selling  Securityholder's  position in the  securities of
the Company; provided, however, that such Selling Shareholder may
have an aggregate short position covering any number of shares of
the  Company's  Common  Stock fewer than the  quotient of (a) the
product  of (x) the  number of shares  of  Convertible  Preferred
Stock held by such Selling  Securityholder  multiplied by (y) the
Dividend   Base  Amount  (as  defined  in  the   Certificate   of
Designation),   divided  by  (b)  the  conversion  price  of  the
Convertible Preferred Stock as in effect from time to time.

Furthermore,  each Selling  Securityholder  that  received
Convertible  Preferred Stock and Class A Warrants in the Exchange
Offer has agreed that such Selling  Securityholder shall not, (i)
sell  "short"  or "short  against  the box" (as  those  terms are
generally  understood)  any  security  of  the  Company  or  (ii)
otherwise  engage in any  transaction  which involves  hedging of
such Selling  Securityholder's  position in the securities of the
Company;  provided,  however,  that such Selling  Shareholder may
have an aggregate short position covering any number of shares of
the  Company's  Common  Stock fewer than the  quotient of (a) the
product  of (x) the  number of shares  of  Convertible  Preferred
Stock held by such Selling  Securityholder  multiplied by (y) the
Dividend   Base  Amount  (as  defined  in  the   Certificate   of
Designation),   divided  by  (b)  the  conversion  price  of  the
Convertible Preferred Stock as in effect from time to time.

Forum  Warrants.  Forum has agreed that it will not  exercise the
1997 Forum Warrant before May 5, 1999 (one year after the Closing
Date).

Furthermore,  Forum has agreed  that it shall not (i) sell
"short" or "short  against the box" (as those terms are generally
understood) any security of the Company or (ii) otherwise  engage
in any  transaction,  except for a  transaction  approved  by the
Company in writing, that involves hedging Forum's position in any
security of the Company; provided, however, that at any time that
the  1997  Forum  Warrant  is  exercisable,  Forum  may  have  an
aggregate short position  covering any number of shares of Common
Stock  fewer than the number of shares of Common  Stock for which
such Warrant is exercisable at such time.

Pillar Warrants.  There are no lock-up provisions or restrictions
on transfer of the Pillar Warrants.

LEGAL MATTERS

The validity of the Securities  offered by this Prospectus will be passed
upon for the Company by Kramer Levin Naftalis & Frankel LLP, New York, New York.

EXPERTS

The consolidated  financial  statements of the Company as of December 31,
1996 and 1997 and for each of the three years ended  December 31, 1997  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 included herein,  which report includes a paragraph stating that there is
substantial  doubt about the Company's  ability to continue as a going  concern,
and are  included  herein in reliance on the  authority  of said firm as experts
giving said reports.

98

HYBRIDON, INC. AND SUBSIDIARIES

INDEX TO FINANCIAL STATEMENTS

Page

Report of Independent Public Accountants ........................................................................................F-2

Consolidated Balance Sheets as of December 31, 1996, December 31,
1997 and September 30, 1998 (Unaudited)..........................................................................................F-3

Consolidated  Statements  of Operations  for the Years Ended  December 31, 1995,
December 31, 1996 and December 31, 1997 and for the Nine Months Ended  September
30, 1997 and 1998 (Unaudited) and for the period from inception
(May 25, 1989) to September 30, 1998 (Unaudited) ................................................................................F-4

Consolidated  Statements of  Stockholders'  Equity (Deficit) for the period from
inception (May 25, 1989) to September 30,
1998 (Unaudited).................................................................................................................F-5

Consolidated  Statements  of Cash Flows for the Years Ended  December  31, 1995,
December 31, 1996 and December 31, 1997 and for the Nine Months Ended  September
30, 1997 and 1998  (Unaudited)  and for the period from inception (May 25, 1989)
to September 30, 1998 (Unaudited) ..............................................................................................F-11

Notes to Financial Statements ..................................................................................................F-12

F - 1

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Hybridon, Inc.:

We have audited the accompanying  consolidated balance sheets of Hybridon,  Inc.
(a  Delaware  corporation  in the  development  stage)  and  subsidiaries  as of
December  31,  1996  and  1997,  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, 1997. These financial  statements are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  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, 1996 and 1997 and the results of their  operations  and their
cash flows for each of the three years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles.

The  accompanying  financial  statements  have been  prepared  assuming that the
Company  will  continue as a going  concern.  Since  inception,  the Company has
incurred  significant  losses which it has funded through the issuance of equity
securities,  debt issuances and through research and development  collaborations
and  licensing  agreements.  As of December 31, 1997,  the Company had a working
capital deficit of $24.1 million and a  stockholders'  deficit of $46.0 million.
Subsequent to December 31, 1997, the Company has raised $4.8 million through the
equity financing discussed in Note 1, as of March 30, 1998. There is substantial
doubt about the Company's ability to continue as a going concern.  The financial
statements do not include any adjustments  that might result from the outcome of
this uncertainty. See Note 1 for management's plans.

Boston, Massachusetts                                        ARTHUR ANDERSEN LLP
March 18, 1998 (except with respect to
the matters discussed in Note 1 and 
Note 6(a) as to which the date is 
March 30, 1998)

F - 2

Consolidated Balance Sheets
HYBRIDON, INC. AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY)

DECEMBER 31,          SEPTEMBER 30,
1996                 1997        1998    
- ------------------------------------------------------------------------------------------------------------------------------------
(UNAUDITED)

ASSETS                                                                                                              
CURRENT ASSETS:
CASH AND CASH EQUIVALENTS                                                    $ 12,633,742       $  2,202,202        $  882,875
SHORT-TERM INVESTMENTS                                                          3,785,146                  -                 -
ACCOUNTS RECEIVABLE                                                               573,896            529,702           825,668
ACCOUNTS RECEIVABLE RELATED TO REAL ESTATE
LIMITED PARTNERSHIP                                                                   -                  -         5,450,000
PREPAID EXPENSES AND OTHER CURRENT ASSETS                                       1,545,324          1,005,825           448,372
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS                                                 18,538,108          3,737,729         7,606,865

PROPERTY AND EQUIPMENT AT COST:
LEASEHOLD IMPROVEMENTS                                                          9,257,516         16,027,734        11,422,505
LABORATORY EQUIPMENT                                                            5,884,861          6,770,402         7,721,239
EQUIPMENT UNDER CAPITAL LEASES                                                  2,904,688          4,879,190         1,460,326
OFFICE EQUIPMENT                                                                1,496,639          1,947,818         1,466,259
FURNITURE AND FIXTURES                                                            499,957            645,264           809,449
CONSTRUCTION IN PROGRESS                                                        2,193,400             45,409            45,409
- ------------------------------------------------------------------------------------------------------------------------------------
22,237,061         30,315,817        22,925,187
LESS - ACCUMULATED DEPRECIATION AND AMORTIZATION                                6,596,293         11,085,013        13,972,070
- ------------------------------------------------------------------------------------------------------------------------------------
15,640,768         19,230,804         8,953,117
OTHER ASSETS:
RESTRICTED CASH                                                                   437,714          3,050,982           659,618
NOTES RECEIVABLE FROM OFFICERS                                                    317,978            247,250           255,800
DEFERRED FINANCING COSTS AND OTHER ASSETS                                       1,152,034          3,354,767           923,162
INVESTMENT IN REAL ESTATE PARTNERSHIP                                           5,450,000          5,450,000                 -
- ------------------------------------------------------------------------------------------------------------------------------------
7,357,726         12,102,999         1,838,580
-------------      -------------      ------------
$ 41,536,602       $ 35,071,532       $18,398,562
- ------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
CURRENT PORTION OF LONG-TERM DEBT AND
CAPITAL LEASE OBLIGATIONS                                                 $  1,308,511       $  7,868,474       $ 3,030,981
ACCOUNTS PAYABLE                                                                4,064,419          8,051,817         4,387,353
ACCRUED EXPENSES                                                                4,190,766         11,917,298         3,003,934
DEFERRED REVENUE                                                                   86,250                  -                 -
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES                                             9,649,946         27,837,589        10,422,268
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS,
NET OF CURRENT PORTION                                                          9,031,852          3,282,123           573,017
9% CONVERTIBLE SUBORDINATED NOTES PAYABLE                                                   -         50,000,000         1,306,000
- ------------------------------------------------------------------------------------------------------------------------------------
COMMITMENTS (NOTES 10 AND 15 and 19(m)) 
(STOCKHOLDERS' EQUITY (DEFICIT):
PREFERRED STOCK, $.01 PAR VALUE -
AUTHORIZED - 5,000,000 SHARES
ISSUED AND OUTSTANDING - NONE                                                        -                  -                 -
SERIES A CONVERTIBLE PREFERRED STOCK, $.01 PAR VALUE -
AUTHORIZED - 5,000,000 SHARES
ISSUED AND OUTSTANDING - 624,790 SHARES AT
SEPTEMBER 30, 1998                                                               -                  -             6,248
COMMON STOCK, $.001 PAR VALUE -
AUTHORIZED - 100,000,000 SHARES
ISSUED AND OUTSTANDING - 5,029,315, 5,059,650
AND 15,254,825 SHARES AT DECEMBER 31, 1996 AND 1997
AND SEPTEMBER 30, 1998, RESPECTIVELY                                         5,029              5,060            15,255
ADDITIONAL PAID-IN CAPITAL                                                    173,247,476        173,695,698       240,301,274
DEFICIT ACCUMULATED DURING THE DEVELOPMENT STAGE                             (149,193,775)      (218,655,101)     (233,294,707)
DEFERRED COMPENSATION                                                          (1,203,926)        (1,093,837)         (930,793)
- ------------------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity (deficit)                                 22,854,804        (46,048,180)        6,097,277
------------      -------------        ----------
$ 41,536,602      $  35,071,532       $18,398,562
- ------------------------------------------------------------------------------------------------------------------------------------

The  accompanying  notes  are an  integral  part of these consolidated financial
statements.

F - 3

Consolidated Statements of Operations
HYBRIDON, INC. AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY)

CUMULATIVE FROM
INCEPTION
(MAY 25, 1989)
NINE MONTHS ENDED           TO
YEARS ENDED DECEMBER 31,                    SEPTEMBER 30,        SEPTEMBER 30,
1995             1996           1997           1997            1998           1998   
- ------------------------------------------------------------------------------------------------------------------------------------
(UNAUDITED)          (UNAUDITED)

Revenues:
Research and development                  $ 1,186,124    $ 1,419,389   $    945,000    $  980,150     $ 949,915      $6,449,178
Product and service revenue                         -      1,080,175      1,876,862     1,231,226     2,353,435       5,310,472
Royalty income                                      -         62,321         48,000        33,218             -         110,321
Interest income                               218,749      1,446,762      1,079,122       898,160       106,457       3,327,196
- ------------------------------------------------------------------------------------------------------------------------------------

Total revenue                               1,404,873      4,008,647      3,948,984     3,142,754     3,409,807      15,197,167
- ------------------------------------------------------------------------------------------------------------------------------------

Operating expenses:
Research and development                   29,684,707     39,390,525     46,827,915    37,784,718    17,180,927     182,640,742
General and administrative                  6,094,085     11,346,670     11,026,748     9,011,879     5,217,864      53,034,480
Interest                                      172,757        124,052      4,535,647     3,223,473     2,880,307       9,026,337
Restructuring                                       -              -     11,020,000     3,100,000             -      11,020,000
- ------------------------------------------------------------------------------------------------------------------------------------

Total operating expenses                   35,951,549     50,861,247     73,410,310    53,120,070    25,279,098     255,721,559
- ------------------------------------------------------------------------------------------------------------------------------------

Loss from operations                   (34,546,676)  (46,852,600)    (69,461,326)  (49,977,316)  (21,869,291)   (240,524,392)
- ------------------------------------------------------------------------------------------------------------------------------------

Extraordinary Item:
Gain on conversion of 9%
convertible subordinated
notes payable                                       -             -               -              -     8,876,685      8,876,685
- ------------------------------------------------------------------------------------------------------------------------------------

Net Loss                                 $(34,546,676) $(46,852,600)   $(69,461,326)  $(49,977,316) $(12,992,606) $(231,647,707)
- ------------------------------------------------------------------------------------------------------------------------------------
Accretion of preferred stock dividends              -             -               -              -    (1,647,000)    (1,647,000)
- ------------------------------------------------------------------------------------------------------------------------------------
Net loss to common stockholders          $(34,546,676) $(46,852,600)   $(69,461,326)  $(49,977,316) $(14,639,606) $(233,294,707)
- ------------------------------------------------------------------------------------------------------------------------------------

Basic and diluted net loss per
common share from:
Net loss from operations including
accretion of preferred stock                $(94.70)      $(10.24)        $(13.76)        $(9.90)       $(2.21)
Extraordinary gain                                  -             -               -              -          0.83
--------------------------------------        ---------------------
NET LOSS                                      $(94.70)      $(10.24)        $(13.76)        $(9.90)       $(1.37)
======================================        =====================

SHARES USED IN COMPUTING BASIC AND
DILUTED NET LOSS PER COMMON SHARE             364,810     4,575,555       5,049,840      5,046,806    10,648,116
======================================     =======================

The  accompanying  notes  are an  integral  part of these consolidated financial
statements.

F - 4

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

HYBRIDON, INC. AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY)

CONVERTIBLE         SERIES A CONVERTIBLE           
PREFERRED STOCK          PREFERRED STOCK          COMMON STOCK
NUMBER OF                   NUMBER OF  $.01 PAR      NUMBER  $.001 PAR
SHARES    $.01 PAR VALUE    SHARES     VALUE       OF SHARES   VALUE

Initial Issuance of Common Stock                                      -         $     -     -        $ -        $ 133,700   $  134
Issuance of Series A convertible preferred stock, net                                                                      
of cash issuance costs of $18,000                          175,000           1,750     -          -                -        -
Issuance of Series B convertible preferred stock, net                                                                       
of cash issuance costs of $11,900                          129,629           1,296     -          -                -        -
Issuance of common stock                                           -               -     -          -          133,460      133
Net loss                                                           -               -     -          -                -        -
- -----------------------------------------------------------------------------------------------------------------------------------

Balance, December 31, 1990                                      304,629           3,046     -          -          267,160      267
Issuance of Series C convertible preferred stock, net                                                                           
of cash issuance costs of $23,197                          104,000           1,040     -          -                -        -
Repurchase of common stock                                         -               -     -          -          (52,500)     (53)
Deferred compensation related to restricted stock awards           -               -     -          -                -        -
Amortization of deferred compensation                              -               -     -          -                -        -
Compensation expense related to stock option grants                -               -     -          -                -        -
Net loss                                                           -               -     -          -                -        -
- -----------------------------------------------------------------------------------------------------------------------------------

Balance, December 31, 1991                                      408,629           4,086     -          -          214,660      214
Issuance of Series C convertible preferred stock, net                                                                       
of cash issuance costs of $20,291                          184,000           1,840     -          -                -        -
Issuance of common stock related to restricted stock                                                                        
awards                                                           -               -     -          -          100,053      100
Issuance of common stock related to the exercise of                                                                         
stock options                                                    -               -     -          -           34,615       35
Issuance of warrants                                               -               -     -          -                -        -
Deferred compensation related to stock options and                                                                          
restricted stock awards                                          -               -     -          -                -        -
Amortization of deferred compensation                              -               -     -          -                -        -
Net loss                                                           -               -     -          -                -        -
- -----------------------------------------------------------------------------------------------------------------------------------

Balance, December 31, 1992                                      592,629           5,926     -          -          349,328      349
Issuance of Series D convertible preferred stock in                                                                            
exchange for convertible promissory notes payable,                                                                           
including accrued interest, net of cash issuance                                                                             
costs of $113,955                                          378,351           3,784     -          -                -        -
Issuance of Series E convertible preferred stock, net                                                                          
of cash issuance costs of $61,251                          275,862           2,759     -          -                -        -
Issuance of Series F convertible preferred stock, net                                                                          
of cash issuance costs of $2,097,604                       407,800           4,078     -          -                -        -
Issuance of common stock related to the exercise of                                                                            
stock options                                                    -               -     -          -            8,725        9
Reduction in deferred compensation due to stock                                                                                
option termination prior to vesting                              -               -     -          -                -        -
Amortization of deferred compensation                              -               -     -          -                -        -
Net loss                                                           -               -     -          -                -        -
- -----------------------------------------------------------------------------------------------------------------------------------

F - 5

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

HYBRIDON, INC. AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY)

DEFICIT                  
ACCUMULATED                          TOTAL
ADDITIONAL     DURING THE                       STOCKHOLDERS'
PAID-IN       DEVELOPMENT      DEFERRED           EQUITY
CAPITAL          STAGE       COMPENSATION        (DEFICIT)

Initial Issuance of Common Stock                                        $    535    $           -   $           -   $           669
Issuance of Series A convertible preferred stock, net                                                                          
of cash issuance costs of $18,000                                 855,250                -               -           857,000
Issuance of Series B convertible preferred stock, net                                                                          
of cash issuance costs of $11,900                               1,736,801                -               -         1,738,097
Issuance of common stock                                                534                -               -               667
Net loss                                                                  -       (1,110,381)              -        (1,110,381)
- ------------------------------------------------------------------------------------------------------------------------------------

Balance, December 31, 1990                                             2,593,120       (1,110,381)              -         1,486,052
Issuance of Series C convertible preferred stock, net                                                                          
of cash issuance costs of $23,197                               2,575,763                -               -         2,576,803
Repurchase of common stock                                             (210)               -               -              (263)
Deferred compensation related to restricted stock awards          2,328,764                -      (2,328,764)                -
Amortization of deferred compensation                                     -                -         727,738           727,738
Compensation expense related to stock option grants                 669,433                -               -           669,433
Net loss                                                                  -       (6,648,899)              -        (6,648,899)
- ------------------------------------------------------------------------------------------------------------------------------------

Balance, December 31, 1991                                             8,166,870       (7,759,280)     (1,601,026)       (1,189,136)
Issuance of Series C convertible preferred stock, net                                                                          
of cash issuance costs of $20,291                               4,577,869                -               -         4,579,709
Issuance of common stock related to restricted stock awards         122,644                -               -           122,744
Issuance of common stock related to the exercise of
stock options                                                       3,303                -               -             3,338
Issuance of warrants                                              2,776,130                -               -         2,776,130
Deferred compensation related to stock options and                                                                             
restricted stock awards                                         2,249,428                -      (2,249,428)                -
Amortization of deferred compensation                                     -                -       1,332,864         1,332,864
Net loss                                                                  -      (14,694,693)              -       (14,694,693)
- ------------------------------------------------------------------------------------------------------------------------------------

Balance, December 31, 1992                                            17,896,244      (22,453,973)     (2,517,590)       (7,069,044)
Issuance of Series D convertible preferred stock in exchange                                                                   
for convertible promissory notes payable,  including accrued                                                                 
interest, net of cash issuance costs of $113,955                9,596,767                -               -         9,600,551
Issuance of Series E convertible preferred stock, net                                                                          
of cash issuance costs of $61,251                               9,935,988                -               -         9,938,747
Issuance of Series F convertible preferred stock, net                                                                          
of cash issuance costs of $2,097,604                           18,288,318                -               -        18,292,396
Issuance of common stock related to the exercise of
stock options                                                      26,679                -               -            26,688
Reduction in deferred compensation due to stock                                                                                
option termination prior to vesting                              (290,287)               -         290,287                 -
Amortization of deferred compensation                                     -                -       1,124,839         1,124,839
Net loss                                                                  -      (19,736,365)              -       (19,736,365)
- ------------------------------------------------------------------------------------------------------------------------------------

The accompanying notes are an integral part of these consolidated financial 
statements.

F - 6

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

HYBRIDON, INC. AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY)

CONVERTIBLE                 SERIES A CONVERTIBLE
PREFERRED STOCK                  PREFERRED STOCK  
NUMBER OF                        NUMBER OF
SHARES     $.01 PAR VALUE       SHARES       $.01 PAR VALUE
------     --------------       ------       --------------

Balance, December 31, 1993                                             1,654,642       $  16,547          --               $ --    
Issuance of Series F convertible preferred stock, net                                                                         
of cash issuance costs of $79,677                                 116,900           1,169          --                 --    
Issuance of Series G convertible preferred stock, net                                                                         
of cash issuance costs of $1,006,841                              318,302           3,183          --                 --    
Issuance of common stock related to the exercise of                                                                           
stock options                                                         --               --          --                 --    
Cancellation of warrants                                                --               --          --                 --    
Reduction in deferred compensation due to stock                                                                               
option termination prior to vesting                                   --               --          --                 --    
Amortization of deferred compensation                                   --               --          --                 --    
Net loss                                                                --               --          --                 --    
- -----------------------------------------------------------------------------------------------------------------------------------

Balance, December 31, 1994                                             2,089,844          20,899          --                 --    
Issuance of Series G convertible preferred stock, net                                                                         
of cash issuance costs of $2,409,926                            1,106,591          11,066          --                 --    
Issuance of common stock related to the exercise of                                                                           
stock options                                                         --               --          --                 --    
Amortization of deferred compensation                                   --               --          --                 --    
Net loss                                                                --               --          --                 --    
- -----------------------------------------------------------------------------------------------------------------------------------

Balance December 31, 1995                                              3,196,435          31,965          --                 --    
Issuance of common stock related to initial public                                                                            
offering, net of issuance costs of $5,268,756                         --               --          --                 --    
Conversion of convertible preferred stock to common                                                                           
stock                                                          (3,196,435)        (31,965)         --                 --    
Issuance of common stock related to the exercise of                                                                           
stock options                                                         --               --          --                 --    
Issuance of common stock related to the exercise of                                                                           
warrants                                                              --               --          --                 --    
Deferred compensation related to grants of common                                                                             
stock options to nonemployees                                         --               --          --                 --    
Amortization of deferred compensation relating to                                                                             
grants of common stock options to nonemployees                        --               --          --                 --    
Net loss                                                                --               --          --                 --    
- -----------------------------------------------------------------------------------------------------------------------------------

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 common                                                                             
stock options to nonemployees                                         --               --          --                 --    
Amortization of deferred compensation relating to                                                                             
grants of common stock options to nonemployees                        --               --          --                 --    
Net loss                                                                --               --          --                 --    
- -----------------------------------------------------------------------------------------------------------------------------------

COMMON STOCK
NUMBER OF      $.001 PAR
SHARES         VALUE

Balance, December 31, 1993                                             358,053     $     358
Issuance of Series F convertible preferred stock, net                                  
of cash issuance costs of $79,677                                    --            --
Issuance of Series G convertible preferred stock, net                                  
of cash issuance costs of $1,006,841                                 --            --
Issuance of common stock related to the exercise of                                    
stock options                                                     4,800             5
Cancellation of warrants                                               --            --
Reduction in deferred compensation due to stock                                        
option termination prior to vesting                                  --            --
Amortization of deferred compensation                                  --            --
Net loss                                                               --            --
- -----------------------------------------------------------------------------------------------

Balance, December 31, 1994                                             362,853           363
Issuance of Series G convertible preferred stock, net                                  
of cash issuance costs of $2,409,926                                 --            --
Issuance of common stock related to the exercise of                                    
stock options                                                     5,880             6
Amortization of deferred compensation                                  --            --
Net loss                                                               --            --
- -----------------------------------------------------------------------------------------------

Balance December 31, 1995                                              368,733           369
Issuance of common stock related to initial public                                     
offering, net of issuance costs of $5,268,756                 1,150,000         1,150
Conversion of convertible preferred stock to common                                    
stock                                                         3,371,330         3,371
Issuance of common stock related to the exercise of                                    
stock options                                                    57,740            58
Issuance of common stock related to the exercise of                                    
warrants                                                         81,512            81
Deferred compensation related to grants of common                                      
stock options to nonemployees                                        --            --
Amortization of deferred compensation relating to                                      
grants of common stock options to nonemployees                       --            --
Net loss                                                               --            --
- -----------------------------------------------------------------------------------------------

Balance, December 31, 1996                                           5,029,315         5,029
Issuance of common stock related to the exercise of                                    
stock options                                                    25,005            26
Issuance of common stock related to the exercise of                                    
warrants                                                            330            --
Issuance of common stock for services rendered                      5,000             5
Deferred compensation related to grants of common                                      
stock options to nonemployees                                        --            --
Amortization of deferred compensation relating to                                      
grants of common stock options to nonemployees                       --            --
Net loss                                                               --            --
- -----------------------------------------------------------------------------------------------

F - 7

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
HYBRIDON, INC. AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY)

DEFICIT            
ACCUMULATED          
ADDITIONAL            DURING THE          
PAID-IN             DEVELOPMENT          
CAPITAL                STAGE             
-------                -----             

Balance, December 31, 1993                                                          55,453,709          (42,190,338)          
Issuance of Series F convertible preferred stock, net                                                                    
of cash issuance costs of $79,677                                             5,764,154                   --           
Issuance of Series G convertible preferred stock, net                                                                    
of cash issuance costs of $1,006,841                                         11,722,072                   --           
Issuance of common stock related to the exercise of stock options                  13,395                   --           
Cancellation of warrants                                                          (68,000)                  --           
Reduction in deferred compensation due to stock                                                                          
option termination prior to vesting                                             (14,062)                  --           
Amortization of deferred compensation                                                  --                   --           
Net loss                                                                               --          (25,604,161)          
- ------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1994                                                          72,871,268          (67,794,499)          
Issuance of Series G convertible preferred stock, net                                                                    
of cash issuance costs of $2,409,926                                         41,842,632                   --           
Issuance of common stock related to the exercise of stock options                  41,944                   --           
Amortization of deferred compensation                                                  --                   --           
Net loss                                                                               --          (34,546,676)          
- ------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995                                                         114,755,394         (102,341,175)          
Issuance of common stock related to initial public                                                                       
offering, net of issuance costs of $5,268,756                                52,230,094                   --           
Conversion of convertible preferred stock to common stock                          28,594                   --           
Issuance of common stock related to the exercise of stock options               1,089,618                   --           
Issuance of common stock related to the exercise of warrants                    3,176,660                   --           
Deferred compensation related to grants of common                                                                        
stock options to nonemployees                                                 1,967,116                   --           

Amortization of deferred compensation relating to                                                                        
grants of common stock options to nonemployees                                       --                   --           
Net loss                                                                               --          (46,852,600)          
- ------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996                                                         173,247,476         (149,193,775)          
Issuance of common stock related to the exercise of stock options                  86,300                   --           
Issuance of common stock related to the exercise of warrants                        9,075                   --           
Issuance of common stock for services rendered                                    146,869                   --           
Deferred compensation related to grants of common                                                                        
stock options to nonemployees                                                   205,978                   --           
Amortization of deferred compensation relating to                                                                        
grants of common stock options to nonemployees                                       --                                
Net loss                                                                               --          (69,461,326)          
- ------------------------------------------------------------------------------------------------------------------------------

TOTAL
STOCKHOLDERS'
DEFERRED               EQUITY
COMPENSATION            (DEFICIT)
------------            ---------

Balance, December 31, 1993                                                      (1,102,464)           12,177,812
Issuance of Series F convertible preferred stock, net                                                         
of cash issuance costs of $79,677                                                --             5,765,323
Issuance of Series G convertible preferred stock, net                                                         
of cash issuance costs of $1,006,841                                             --            11,725,255
Issuance of common stock related to the exercise of stock options                  --                13,400
Cancellation of warrants                                                           --               (68,000)
Reduction in deferred compensation due to stock                                                               
option termination prior to vesting                                          14,062                    --
Amortization of deferred compensation                                         764,228               764,228
Net loss                                                                           --           (25,604,161)
- -------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1994                                                        (324,174)            4,773,857
Issuance of Series G convertible preferred stock, net                                                         
of cash issuance costs of $2,409,926                                             --            41,853,698
Issuance of common stock related to the exercise of stock options                  --                41,500
Amortization of deferred compensation                                         324,174               324,174
Net loss                                                                           --           (34,546,676)
- -------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995                                                              --            12,446,553
Issuance of common stock related to initial public                                                            
offering, net of issuance costs of $5,268,756                                    --            52,231,244
Conversion of convertible preferred stock to common stock                          --                     -
Issuance of common stock related to the exercise of stock options                                 1,089,676
Issuance of common stock related to the exercise of warrants                       --             3,176,741
Deferred compensation related to grants of common                                                             
stock options to nonemployees                                                    --                    --
---------------
Amortization of deferred compensation relating to                                                             
grants of common stock options to nonemployees                              763,190               763,190
Net loss                                                                           --           (46,852,600)
- -------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996                                                      (1,203,926)           22,854,804
Issuance of common stock related to the exercise of stock options                  --                86,326
Issuance of common stock related to the exercise of warrants                       --                 9,075
Issuance of common stock for services rendered                                     --               146,874
Deferred compensation related to grants of common                                                             
stock options to nonemployees                                              (205,978)                   --
Amortization of deferred compensation relating to                                                             
grants of common stock options to nonemployees                              316,067               316,067
Net loss                                                                           --           (69,461,326)
- -------------------------------------------------------------------------------------------------------------------

F - 8

Balance, December 31, 1997                                                                                             5,059,650
Issuance of Series A Convertible Preferred Stock and                                                                       
attached warrants in exchange for conversion of 9%                                                                       
convertible subordinated notes payable                                --                --          510,505         5,105
Issuance of common stock and attached warrants in                                                                          
exchange for conversion of accounts payable and                                                                          
other lease obligations                                               --                --               --            --
Issuance of Series A Convertible Preferred Stock, net of                                                                   
issuance costs of $1,761,656                                          --                --          114,285         1,143
Issuance of common stock, net issuance costs of                                                                            
$1,069,970                                                            --                --               --            --
Issuance of common stock to placement agents                            --                --               --            --
Accretion of Series A convertible preferred stock dividends             --                --               --            --
Amortization of deferred compensation                                   --                --               --            --
Net loss                                                                --                --               --            --
--------          --------      -----------     ---------
Balance, September 30, 1998 (Unaudited)                                                                                         
--          $     --          624,790        $6,248
========          ========          =======        ======
- -----------------------------------------------------------------------------------------------------------------------------------

Balance, December 31, 1997                                                  5,060
Issuance of Series A Convertible Preferred Stock and              
attached warrants in exchange for conversion of 9%              
convertible subordinated notes payable                                  --         --
Issuance of common stock and attached warrants in                 
exchange for conversion of accounts payable and                 
other lease obligations                                          3,217,154      3,217
Issuance of Series A Convertible Preferred Stock, net of          
issuance costs of $1,761,656                                             -         --
Issuance of common stock, net issuance costs of                   
$1,069,970                                                       6,380,322      6,380
Issuance of common stock to placement agents                         597,699        598
Accretion of Series A convertible preferred stock dividends               --
Amortization of deferred compensation                                     --         --
Net loss                                                                  --         --
------------ ----------
Balance, September 30, 1998 (Unaudited)                                                        
15,254,825    $15,255
==========    =======
- -----------------------------------------------------------------------------------------------

F - 9

Balance, December 31, 1997                                               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                             39,924,887              --           --      39,929,992
Issuance of common stock and attached warrants in                                                                           
exchange for conversion of accounts payable and
other lease obligations                                                                                     
Issuance of Series A Convertible Preferred Stock, net of              5,931,341              --           --       5,934,538
issuance costs of $1,761,565                                                                                
6,237,252              --           --       6,238,395
Issuance of common stock, net of issuance of cost of $1,069,970      11,670,296              --           --      11,676,676
Issuance of common stock to placement agents                          1,194,800              --           --       1,195,398
Accretion of Series A convertible preferred stock dividends           1,687,000      (1,647,000)          --               -
Amortization of deferred compensation                                        --              --      163,044         168,044
Net loss                                                                     --      12,992,600)           -     (12,992,606
------------    ------------   ----------    ------------

Balance, September 30, 1998 (Unaudited)                                 $240,301,274    $233,294,707)   ($930,793))  $  6,097,277
============    ============   ===========   ============
- -----------------------------------------------------------------------------------------------------------------------------------

F - 10

CONSOLIDATED STATEMENTS OF CASH FLOWS

HYBRIDON, INC. AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY)

Years Ended December 31,                  

1995              1996               1997         
- -----------------------------------------------------------------------------------------------------------

Cash flows from operating activities:

Net loss                                           $  (34,546,676)   $ (46,852,600)     $ (69,461,326)  
Adjustments to reconcile net loss to net
cash used in operating activities -
Extraordinary gain on conversion of
9% convertible subordinated
notes payable                                             --               --                 --   
Depreciation and amortization                         2,023,553        2,393,751          4,488,719   
Loss on disposal of fixed assets                             --               --                 --   
Issuance of common stock for services                                               
rendered                                                --               --            146,874   
Compensation on grant of stock
options, warrants and restricted stock               324,174          763,190            316,067   
Amortization of discount on convertible                      --               --                 --   
promissory notes payable
Amortization of deferred financing costs                     --               --            479,737   
Write-down of assets related to                                                     
restructuring                                             --               --            600,000   
Noncash interest on convertible
promissory notes payable                                  --               --                 --   
Changes in assets and liabilities -
Accounts receivable                                          --         (573,896)            44,194   
Prepaid expenses and other current assets              (769,562)        (593,797)           539,499   
Notes receivable from officers                            8,446           (9,845)            70,728   
Accounts payable and accrued expenses                   483,585        2,747,122         11,713,930   
Deferred revenue                                             --                --           (86,250)  
Amounts payable to related parties                      (80,351)         (12,500)                --   
------------      ------------       ------------  
Net cash used in operating                                                            
activities                       (32,556,831)     (42,138,575)       (51,147,828)  
- -----------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
(Increase) decrease in short-term investments                --       (3,785,146)          3,785,146  
Purchases of property and equipment                  (4,889,624)      (8,902,989)         (7,509,755) 
Proceeds from sale of fixed assets                           --               --                  --  
Investment in real estate partnership                (1,698,448)      (3,751,552)                 --  
-----------     -------------        -----------  
Net cash (used in) provided
by investing activities           (6,588,072)     (16,439,687)         (3,724,609) 
Cash flows from financing activities:
Proceeds from issuance of convertible                                                                 
preferred stock                                   41,853,698               --                 --   
Proceeds from issuance of common stock                                                                
related to stock options and restricted
stock grants                                          41,500        1,089,676              86,326  
Net proceeds from issuance of common stock                   --       52,231,244                  --  
Repurchase of common stock                                   --               --                  --  
Proceeds from notes payable                                  --        7,500,000                  --  
Proceeds from issuance of convertible                                               
promissory notes payable                                  --               --          50,000,000   
Proceeds from long-term debt                                 --               --                  --   
Proceeds from issuance of common stock                                              
related to stock warrants                                 --        3,176,741               9,075   
Proceeds from sale/leaseback of fixed assets                 --        1,722,333           1,205,502   
Payments on long-term debt and capital Leases          (537,977)        (446,163)         (1,564,268)  
(Increase) decrease in restricted cash and                       
other assets                                         (44,912)         401,990          (2,474,948)  
(Increase) decrease in deferred financing costs        (278,927)         251,921          (2,820,790)  
-------------        ----------        ------------  
Net cash provided by                                                
financing activities              41,033,382        65,927,742         44,440,897   
- ------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash                         
Equivalents                                        1,888,479         7,349,480        (10,431,540)  
Cash and cash equivalents, beginning of Period        3,395,783         5,284,262         12,633,742   
- ------------------------------------------------------------------------------------------------------------

Cash and cash equivalents, end of period          $   5,284,262     $  12,633,742       $  2,202,202   
- ------------------------------------------------------------------------------------------------------------

Cumulative from
Inception (May 25,
Nine Months Ended                  1989)
September 30,                     to
September 30,
1997               1998               1998
- -------------------------------------------------------------------------------------------------------------
(UNAUDITED)                  (UNAUDITED)
Cash flows from operating activities:

Net loss                                            $ (49,977,316)     $ (12,992,606)     $ (231,647,707)
Adjustments to reconcile net loss to net
cash used in operating activities -
Extraordinary gain on conversion of
9% convertible subordinated
notes payable                                             --         (8,876,685)         (8,876,685)
Depreciation and amortization                         4,081,720          2,419,269          13,605,723
Loss on disposal of fixed assets                             --            424,675             424,675
Issuance of common stock for services           
rendered                                           146,875          1,195,398           1,342,273
Compensation on grant of stock
options, warrants and restricted stock               261,519            163,044           8,286,842
Amortization of discount on convertible                      --                 --             690,157
promissory notes payable
Amortization of deferred financing costs                358,904            240,611             937,080
Write-down of assets related to                 
restructuring                                        331,000          6,600,000           7,200,000
Noncash interest on convertible
promissory notes payable                                  --                 --             260,799
Changes in assets and liabilities -
Accounts receivable                                     276,545           (295,966)           (825,668)
Prepaid expenses and other current assets              (541,718)           557,703            (448,122)
Notes receivable from officers                           55,952             (8,550)           (255,800)

Accounts payable and accrued expenses                 3,349,962         (6,871,326)         13,097,789
Deferred revenue                                        (86,250)                --                  --
Amounts payable to related parties                           --                 --            (200,000)
------------       ------------       -------------
Net cash used in operating                                           
activities                       (41,742,807)       (17,444,433)       (196,708,644)
- -------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
(Increase) decrease in short-term investments        (5,113,569)                --                  --
Purchases of property and equipment                  (6,645,439)          (340,507)        (29,652,972)
Proceeds from sale of fixed assets                           --            460,000             460,000
Investment in real estate partnership                        --                 --          (5,450,000)
------------            -------       -------------
Net cash (used in) provided
by investing activities          (11,759,008)           119,493         (34,642,972)
Cash flows from financing activities:
Proceeds from issuance of convertible                                                
preferred stock                                           --          6,804,562         103,388,716
Proceeds from issuance of common stock                                               
related to stock options and restricted
stock grants                                          83,327                 --           1,260,928
Net proceeds from issuance of common stock                   --          6,876,676          59,232,000
Repurchase of common stock                                   --                 --                (263)
Proceeds from notes payable                                  --                 --           9,450,000
Proceeds from issuance of convertible           
promissory notes payable                          50,000,000          4,233,832          63,425,576
Proceeds from long-term debt                                 --                 --             662,107
Proceeds from issuance of common stock          
related to stock warrants                              9,075                 --           3,185,816
Proceeds from sale/leaseback of fixed assets          1,165,236                 --           4,001,018
Payments on long-term debt and capital Leases        (1,169,656)        (4,236,693)         (7,602,573)
(Increase) decrease in restricted cash and      
other assets                                        (626,985)         2,327,186          (1,811,945)
(Increase) decrease in deferred financing costs      (2,699,957)                --          (3,256,939)
-----------         ----------         ------------
Net cash provided by            
financing activities              46,761,040         16,005,563         231,934,441
- -------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash        
Equivalents                                       (6,740,775)        (1,319,377)            882,825
Cash and cash equivalents, beginning of Period        2,633,742          2,202,202                  --
- -------------------------------------------------------------------------------------------------------------

Cash and cash equivalents, end of period           $  5,892,967         $  882,825          $  882,825
- -------------------------------------------------------------------------------------------------------------

The  accompanying  notes are an  integral  part of these consolidated financial statements.

F - 11

HYBRIDON, INC. AND SUBSIDIARIES (A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Including Data Applicable to Unaudited Periods)

(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.

The Company is in the development stage. Since inception, the Company
has  devoted  substantially  all of its  efforts  toward  product  research  and
development and raising capital.  Management  anticipates that substantially all
future  revenues will be derived from the sale of proprietary  biopharmaceutical
products under development or to be developed in the future, and custom contract
manufacturing  of synthetic  DNA products and reagent  products (by the Hybridon
Specialty  Products Division  (HSPD)),  as well as from research and development
revenues  and  fees  and  royalties  derived  from  licensing  of the  Company's
technology.  Accordingly,  although  the Company has begun to generate  revenues
from its custom contract manufacturing business, the Company is dependent on the
proceeds from possible  future sales of equity  securities,  debt financings and
research and development collaborations in order to fund future operations.

On December 3, 1997,  the Company was delisted  from the Nasdaq Stock
Market,  Inc.  (NASDAQ)  because  the  Company  was not in  compliance  with the
continued  listing  requirements of the NASDAQ National  Market.  The Company is
currently trading on the NASDAQ OTC Bulletin Board.

As of December 31, 1997, the Company had a working capital deficit of
$24.1 million and a stockholders' deficit of $46.0 million. Although the Company
has  raised  approximately  $4.8  million in gross  proceeds  from the 1998 Unit
Financing,  subsequent to December 31, 1997, the Company  continues to have very
limited cash resources and  substantial  obligations  to lenders.  The Company's
ability to  continue  operations  in 1998  depends on its success in raising new
funds.  There is substantial  doubt concerning the Company's ability to continue
as a going concern.  The  consolidated  financial  statements do not include any
adjustments  that might  result  from the  outcome of this  uncertainty.  If the
Company is unable to obtain a substantial  amount of additional funding in April
1998,  it will be required to  terminate  its  operations  of seek relief  under
applicable bankruptcy law by the end of April 1998. Management's plans to obtain
additional financing are described below. (See Note 19 for subsequent financings
and status of operations).

On January 22, 1998, the Company  commenced a private  placement (the
1998 Unit  Financing)  of units  consisting  of notes (the 1998 Unit  Notes) and
warrants to issue common stock. The 1998 Unit Financing is being offered through
Pillar  Investments  Ltd., an entity with which two directors of the Company are
affiliated and which is a significant  shareholder of the Company (the placement
agent),  as  the  Company's   placement  agent,  on  a  best  effort  basis.  As
consideration  for these services,  Pillar  Investments  Ltd., will receive fees
consisting  of  9%  of  the  gross  proceeds  of  the  1998  Unit  Financing,  a
non-accountable  expense allowance equal to 4% of the gross proceeds of the 1998
Unit Financing and warrants to purchase  common stock.  The 1998 Unit Notes bear
interest at a rate of 14% per annum; provided that if the 1998 Unit Financing is
terminated  before  the  Mandatory  Conversion  Event  (as  defined  below)  has
occurred,  the  interest  rate shall  increase to 18% per annum.  The Company is
required to make  semi-annual  interest  payments on the  outstanding  principal
balance  of the 1998 Unit  Notes on April 1 and  October  1 of each year  during
which such 1998 Unit Notes are  outstanding,  with the first such payment  being
due on April 1, 1998, which interest payment obligation may be satisfied through
the issuance of additional 1998 Unit Notes valued at their principal amount. The
Company plans to satisfy the interest  payment due April 1, 1998 by issuing 1998
Unit Notes. The outstanding principal balance of the 1998 Unit Notes will become
due on December 31, 2007. The 1998 Unit Notes are secured by  substantially  all
of the Company's assets, subject to the lien on the Company's assets held by the
Bank, are  subordinate to the Company's  existing  indebtedness to the Bank, are
senior to approximately 80% of the 9.0% Convertible  Subordinated  Notes (the 9%
Notes),  see Note  6(d) to the  extent  provided  in a  subordination  agreement
executed by certain holders of the 9% Notes and, except as otherwise provided in
this sentence, rank on a parity with the 9% Notes.

The 1998 Unit Notes are not  convertible at the option of the holder,
but  will  automatically  convert  into a new  issue  of  Series  B  Convertible
Preferred  Stock of the Company if the aggregate net proceeds from the 1998 Unit
Financing exceeds $20.0 million and the holders of at least 80% of the aggregate
principal  amount of the 9% Notes have  exchanged  such Notes  described  in the
following paragraph (such two conditions,  the Mandatory  Conversion 
Event). The Series B Convertible  Preferred Stock underlying the 1998 Unit Notes
would rank as to liquidation junior to the Series A Convertible  Preferred Stock
issuable in the Exchange Offer.

F - 12

Each  Unit  includes   warrants  to  purchase  15%  (or,  in  certain
circumstances,  20%) of the  number of shares of  common  stock  underlying  the
Series B Convertible  Preferred Stock underlying the 1998 Unit Notes included in
such Unit and may include additional warrants in certain circumstances described
below.  The Series B Convertible  Preferred  Stock, if issued,  and warrants are
convertible  into, and exercisable for, common stock at a conversion or exercise
price  equal to the lowest of (i) 80% of the  average  closing  bid price of the
Company's common stock for the 30 consecutive trading days immediately preceding
any closing in the 1998 Unit  Financing  or (ii) 80% of the average  closing bid
price of the  Company's  common  stock for the five  consecutive  trading  dates
immediately preceding any closing in the 1998 Unit Financing; provided, however,
that if on the  termination  date of the 1998 Unit Financing the Company has not
received at least  $20,000,000  in net proceeds from the 1998 Unit  Financing or
the holders of less than  $40,000,000 in principal amount of the 9% Notes accept
the  Exchange  Offer,  holders of Units will be entitled  to receive  additional
warrants  to  purchase,  at an  exercise  price of $.001 per share,  a number of
shares of common  stock  equal to 100% of the common  stock then  issuable  upon
conversion  of the  Series B  Convertible  Preferred  Stock then  issuable  upon
conversion of the 1998 Unit Notes purchased by such investors, in which case the
1998 Unit Notes will not be convertible  into equity  securities.  If the market
price of the  common  stock is less  than  125% of the  conversion  price of the
Series B  Convertible  Preferred  Stock will be further  adjusted  (the Series B
Reset) to the greater of (a) the market  price of the common  stock at such time
divided by 1.25 and (b) 50% of the conversion  price of the Series B Convertible
Preferred Stock at such time, and holders of the Series B Convertible  Preferred
Stock will also be entitled to receive additional  warrants to purchase a number
of shares of common  stock  equal to 50% of the  additional  number of shares of
common stock  issuable upon  conversion  of the Series B  Convertible  Preferred
Stock  following  the Series B Reset.  As of March 30,  1998,  the  Company  has
received $4.8 million of gross proceeds from the 1998 Unit Financing.

On February 6, 1998,  the Company  commenced an Exchange Offer to the
holders  of the 9%  Notes to  exchange  the 9% Notes  for  Series A  Convertible
Preferred Stock and certain warrants of the Company. In the Exchange Offer, each
$1,000 of principal  amount and accrued but unpaid  interest on the 9% Notes may
be  exchanged,  upon the terms and  subject to the  conditions  set forth in the
Exchange Offer documents, for 10 shares of Series A Convertible Preferred Stock,
stated value $100 per share, and warrants to purchase such a number of shares of
common  stock of the Company  equal to 15% of the number  shares of common stock
into which such Series A Convertible  Preferred  Stock would be  convertible  at
212.5% of the initial  conversion  price of the Series B  Convertible  Preferred
Stock (the Stated Price). Such Series A Convertible Preferred Stock would have a
liquidation  preference of $100 per share plus accrued but unpaid  dividends and
would bear a dividend  of 6.5% per  annum,  payable on April 1 and  October 1 of
each year in cash or additional  Series A Preferred Stock , at the option of the
Company.  The  conversion  price would be $35 per share of common stock  through
April 1, 2000 and the Stated Price  thereafter,  which conversion price would be
reset upon the  occurrence of any Series B Reset to 212.5% of the reset Series B
conversion price.  Exchange holders of the 9% Notes will be granted the right to
designate  the nominee to the Board of Directors of the Company (the  Designated
Director).  As  part of the  Exchange  Offer,  approximately  82% of the 9% Note
holders have consented as of March 30, 1998 to defer the interest payment due on
April 1, 1998 to October 1, 1998.  There can be no  assurance  that the Exchange
Offer will be successful.

On March 30, 1998, the Company  amended its Exchange Offer to provide
that the terms of the Series A Convertible Preferred Stock and warrants issuable
in the  Exchange  Offer  would be revised as  described  below if the  following
conditions  (the  Equity  Conditions)  had been  met no later  than the date the
Company  accepts  for  exchange  in the  Exchange  Offer  at least  $40  million
principal amount of the 9% Notes: (i) the Company  consummates an offering,  the
size of which is acceptable to the Designated  Director,  of units consisting of
common stock priced (the Common Stock  Offering  Price ) at the greater of $2.00
and 85% of the Market  Price (as  defined  below) of the common and  warrants to
purchase a number of shares of common  stock equal to 25% of such  Common  Stock
sold at an exercise  price equal to 120% of the Common Stock Offering Price (the
120%  Exercise  Price);  (ii) the Company  consummates  an offering,  with gross
proceeds of at least $10  million,  of Units  consisting  of shares of preferred
stock  having the same terms as the  preferred  stock  issuable  in the  amended
Exchange Offer, and warrants with the same 25% coverage as the warrants issuable
in the amended Exchange Offer, as described in the following  paragraph,  but at
the 120% Exercise  Price (which shares are expected to be sold at a 30% discount
from stated value);  and (iii) all 1998 Note Units  previously  sold and accrued
interest  thereon  are  exchanged  for common  stock and  warrants to purchase a
number of shares of common stock equal to 30% of the common stock issued in such
1998 Note Unit  exchange,  such common stock and  warrants to be valued,  and to
have the terms,  described  in clause (i) above.  Market Price means the average
reported closing bid price of the common stock for the five consecutive  trading
days immediately preceding the closing date.

The amended Exchange Offer provides that if the Equity Conditions are
met, (a) the  conversion  terms of the Series A  Convertible  Preferred  will be
revised as follows:  (i) the conversion price will be 212.5% of the Common Stock
Offering Price described above;  (ii) such Series A Convertible  Preferred Stock
will not be

F - 13

convertible  for one  year  following  the  closing;  and  (iii)  such  Series A
Convertible  Preferred  Stock will have no conversion  price reset mechanism and
(b) the warrant  coverage  will increase from 15% to 25% of the number of shares
of common  stock  underlying  the Series A  Convertible  Preferred  Stock  (such
warrants being  exercisable  at 212.5% of the Common Stock  Offering  Price) and
will not have any conversion price reset provisions.

See Note 19 for subsequent events relevant to the 1998 Unit Financing
and the Exchange Offer.

(2)        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a)       Use of Estimates in the Preparation of Financial Statements

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.

(b)       Net Loss per Common Share

Effective December 31, 1997 the Company adopted 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.  The  Company  has  applied  the  provisions  of SFAS No. 128
retroactively  to all periods  presented.  In accordance  with Staff  Accounting
Bulletin  (SAB) No. 98, the  Company has  determined  that there were no nominal
issuances  of  capital  in the  period  prior to the  Company's  initial  public
offering  (IPO).  Antidilutive  securities  which  consist of stock  options and
warrants  that are not  included  in  diluted  net loss per  common  share  were
2,441,436,  2,595,496,  and 2,404,561 for 1995,  1996,  and 1997,  respectively.
Calculations  of net loss per common share and  potential  common  shares are as
follows:

December 31,                                   1995                 1996                1997      
----------------------------------------------------------

Net loss                                  $ (34,546,676)        $(46,852,600)       $ (69,461,326)
==============        =============         ============

Weighted average
shares outstanding                            364,810            4,575,555            5,049,840
========          ==========           ==========
Basic and diluted
net loss per share                         $   (94.70)       $      (10.24)          $   (13.76)
==========        ============           ==========

(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 49% interest in
MethylGene,  Inc.  (MethylGene),  a Canadian  corporation which is accounted for
under the  equity  method  (see Note 13 and  19(i).  All  material  intercompany
balances and transactions have been eliminated in consolidation.

(d)        Cash Equivalents and ShortTerm Investments

The Company applies SFAS No. 115,  Accounting for Certain Investments
in Debt and Equity  Securities.  Under SFAS No. 115,  debt  securities  that the
Company has the positive  intent and ability to hold to maturity are reported at
amortized  cost  and  are  classified  as  held-to-maturity   securities.  These
securities include cash equivalents, short term investments and restricted cash.
At December 31, 1996 and 1997, the Company has

F - 14

classified all investments as held-to-maturity. The Company considers all highly
liquid  investments with maturities of three months or less when purchased to be
cash equivalents.  Short-term  investments mature within one year of the balance
sheet date.  Cash and cash  equivalents,  short-term  investments and restricted
cash at December 31, 1996 and 1997,  consisted of the  following  (at  amortized
cost, which approximates fair market value):

December 31,                                                                                              1996              1997    
- ------------------------------------------------------------------------------------------------------------------------------------

Cash and cash equivalents -
Cash and money market funds                                                                     $10,144,367        $1,702,272
Corporate bond                                                                                            -           499,930
U.S. government securities                                                                        2,489,375                 -
- ------------------------------------------------------------------------------------------------------------------------------------
Total cash and cash equivalents                                                                        $12,633,742        $2,202,202
==========         =========
Short-term investments -
U.S. government securities                                                                     $  3,785,146    $            -
===========     =============
- ------------------------------------------------------------------------------------------------------------------------------------
Restricted cash (Note 5) -

Certificates of deposit                                                                        $    437,714        $2,016,364
Savings account                                                                                           -         1,034,618
----------        ----------
$    437,714        $3,050,982
===========        ==========
- ------------------------------------------------------------------------------------------------------------------------------------

(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:

Asset Classification                                                                                         Estimated Useful Life
- ------------------------------------------------------------------------------------------------------------------------------------
Leasehold improvements                                                                                            Life of lease
Laboratory equipment                                                                                                 5 years
Equipment under capital lease                                                                                        5 years
Office equipment                                                                                                   3-5 years
Furniture and fixtures                                                                                               5 years

(f)       Accrued Expenses

Accrued  expenses on the  accompanying  consolidated  balance  sheets
consist of the following:

December 31,                                                                                                  1996              1997
- ------------------------------------------------------------------------------------------------------------------------------------
Restructuring                                                                                         $          -       $ 8,316,148
Interest                                                                                                         -         1,125,000
Payroll and related costs                                                                                1,593,451           742,452
Outside research and clinical costs                                                                      1,381,124         1,231,818
Professional fees                                                                                          390,440           150,000
Other                                                                                                      825,751           351,880
-------------     -------------
$4,190,766       $11,917,298

(g)       Revenue Recognition

The Company has recorded  research and development  revenue under the
consulting  and  research  agreements  discussed  in Notes 7 and 8.  Revenue  is
recognized  as earned on a  straightline  basis over the term of the  agreement,
which approximates when work is performed and costs are incurred.  Revenues from
product  sales are  recognized  when the products are shipped.  Product  revenue
during  1996  and 1997  represents  revenues  from the sale of  oligonucleotides
manufactured on a custom contract basis by HSPD.

(h)       Research and Development Expenses

The Company charges  research and development  expenses to operations
as incurred.

(i)       Patent Costs

The Company charges patent expenses to operations as incurred.

F - 15

(j)       Reclassifications

Certain   amounts  in  the  prior  periods   consolidated   financial
statements   have  been   reclassified  to  conform  with  the  current  periods
presentation.

(k)       New Accounting Standards

In June 1997, the Financial  Accounting Standards Board (FASB) issued
SFAS No. 130, Reporting  Comprehensive  Income. SFAS No. 130 requires disclosure
of all components of comprehensive  income on an annual basis and interim basis.
Comprehensive income is defined as the change in equity of a business enterprise
during a period  from  transactions  and other  events  and  circumstances  from
nonowner  sources.  SFAS No. 130 is effective for fiscal years  beginning  after
December 15, 1997. For all periods  presented in the  accompanying  consolidated
statements  of  operations,  comprehensive  income  (loss) did not  differ  from
reported net loss.

In July  1997,  the FASB  issued  SFAS  No.  131,  Disclosures  About
Segments of an Enterprise and Related Information. SFAS No. 131 requires certain
financial and supplementary information to be disclosed on an annual and interim
basis for each  reportable  segment of an enterprise.  SFAS No. 131 is effective
for fiscal  years  beginning  after  December 15,  1997.  Unless  impracticable,
companies would be required to restate prior period  information  upon adoption.
The Company does not expect this accounting  pronouncement to materially  effect
its financial statements.

(3)        RESTRUCTURING

Beginning in July 1997, the Company  implemented a restructuring plan
to reduce  expenditures  on a phased basis over the balance of 1997 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 core advanced
chemistry antisense drug development  programs,  including its ribozyme program.
In  connection  with  the  reduction  in  programs,   the  Company  has  accrued
termination  fees related to research  contracts and has incurred  restructuring
charges  related to programs that have been  suspended or cancelled.  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.  In addition,  the Company terminated the employment of 84 employees at
its  Cambridge  and  Milford,  Massachusetts  facilities  since July of 1997 and
substantially  reduced operations at its Paris,  France office and terminated 10
employees at that location in August 1997.

In connection  with the  restructuring  the Company  entered into two
different  subleasing  arrangements.  The Company has sub-leased one facility in
Cambridge,  Massachusetts  and a  portion  of its  headquarters  located  at 620
Memorial Drive, Cambridge, Massachusetts. The Company incurred expenses relating
to  these  sub-leases  for  broker  fees and  renovation  expenses  incurred  in
preparing the Memorial Drive space for the new tenant. In addition,  the Company
has accrued the  estimated  lease loss of  subleasing  620 Memorial  Drive.  The
Company has accrued the remaining lease costs of its Paris,  France office prior
to terminating the lease effective March 31, 1998.
See Notes 19(e and g) for subsequent events.

F - 16

The  following  are the  significant  components  of the  charge  for
restructuring:

Year Ended December 31, 1997
- ------------------------------------------------------------------------------------------------------------------------------------

Estimated loss on facility leases                                                                                       $  6,930,000
Employee severance, benefits and related costs                                                                             2,579,000
Writedown of assets to net realizable value                                                                                  600,000
Termination costs of certain development programs                                                                            911,000
------------
$11,020,000
============

(4)        NOTES RECEIVABLE FROM OFFICERS

At  December  31, 1996 and 1997,  the  Company had notes  receivable,
including   accrued   interest,   from   officers  of  $317,978  and   $247,250,
respectively.  As of December  31,  1997 one note  remains  outstanding  with an
interest rate of 6.0% per annum and matures in April 2001.

(5)        RESTRICTED CASH

Restricted  cash  on the  accompanying  consolidated  balance  sheets
consist of the following:

December 31,                                                                                              1996              1997    
- ------------------------------------------------------------------------------------------------------------------------------------

Capital lease obligations (Note 6(c))                                                                    $437,714         $  257,822
Note payable to a bank (Note 6(a))                                                                              -          1,758,542
Foreign bank account                                                                                            -          1,034,618
$437,714         $3,050,982
========         ==========

In   November   1997,   the   Company   was   notified  by  Bank  Fur
Vermogensanlagen Und Handel AG (BVH) that the Federal Banking Supervisory Office
(BAKred) in Germany had imposed a moratorium, effective as of August 19, 1997 on
BVH and had closed BVH for business.  Accordingly,  the Company  classified  its
deposit  with BVH as  restricted  cash.  The  Company has  contacted  BVH and is
actively  pursuing  the release of its deposit or sale of the deposit to a third
party,  including  possibly an entity affiliated with a director of the Company.
The Company expects to recover  substantially  all of its deposit in BVH through
such means.  However,  the timing of recovery  may be over a period of up to one
year.  There can be no assurance that the Company will be able to recover all of
its deposit or that the  Company  will not be required to write off a portion of
the  $1,034,618.  Through March 18, 1998, the Company had recovered  $250,000 of
the BVH deposit. See Note 19(d) and (e) for subsequent events.

(6)        LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS

(a)       Note Payable to a Bank

In December  1996,  the Company  entered into a five year  $7,500,000
note payable with a bank.  The note contains  certain  financial  covenants that
require the Company to maintain minimum tangible net worth and minimum liquidity
and prohibits the payment of dividends.  On January 15, 1998 and March 30, 1998,
the Company  received  waivers from the bank which included the following terms:
(i) a waiver of any event of default that would  otherwise  arise as a result of
the 1998 Unit Financing discussed in Note 1 and Note 19; (ii) a requirement that
the  Company  deposit  at least  50% of its  unencumbered  cash  with the  bank,
including  proceeds  raised from the 1998 Unit  Financing  discussed  in Note 1;
(iii) in an event of default,  a  requirement  that all net cash proceeds of any
dispositions of assets of the Company  permitted by the bank, as defined,  shall
be applied as a  prepayment  against the note (if the Company is not in default,
only 50% of the net proceeds will be applied against the note); (iv) a waiver of
covenants of  non-compliance  through  March 31, 1998 and (v) an increase in the
interest  rate to the bank's prime rate plus 5%. Prior to the amendment the note
bore  interest at either the bank's  prime rate plus 1% or LIBOR plus 3.5% (9.5%
at December 31, 1997),  at the Company's  election.  The Company has secured the
obligations  under  the  note  with a lien  on  all  of  its  assets,  including
intellectual  property.  The note is payable in 59 equal installments of $62,500
commencing  on  February  1, 1997 with a balloon  payment of the then  remaining
outstanding  balance,  due on January 1, 2002. Prior to the amendments discussed
above,  if at specified  times,  the  Company's  minimum  liquidity is less than
$15,000,000,  $10,000,000 or $5,000,000,  the Company is required to pledge cash
collateral  to the bank  equal to 25%,  50% or 100%,  respectively,  of the then
outstanding balance under the note, pursuant to a cash pledge agreement.  During
1997,  the  Company's  minimum  liquidity had fallen below  

F - 17

$15,000,000 and the Company  deposited  $1,758,542 as collateral  under the cash
pledge  agreement.  The  Company  has  classified  the  outstanding  balance  of
$6,873,332  at December 31,  1997,  as a current  liability in the  accompanying
balance  sheet  as it does  not  currently  have  the  financing  to  remain  in
compliance with the financial covenants.  Also, in connection with the note, the
Company  issued 5 year warrants to purchase  13,000 shares of common stock at an
exercise  price of $34.49 per share.  These  warrants are fully  exercisable  at
December 31,1997. See Note 19(h) for subsequent events.

(b)       Note Payable to Landlord

In December 1994, the Company  issued a $750,000  promissory  note to
its landlord to fund specific construction costs associated with the development
of its manufacturing plant in Milford, Massachusetts.  The promissory note bears
interest  at 13% per annum and is to be paid in equal  monthly  installments  of
principal and interest over the remainder of the 10-year lease term.

(c)       Capital Lease Obligations

The Company has entered into various capital leases for equipment. In
1994, the Company received $1,073,000 as a part of a sale/leaseback  transaction
with a leasing  company.  These  lease  amounts  are  subject to  interest at an
effective  rate  of  4.29%  and  are  being  paid  in  equal   installments   of
approximately  $24,000 over 48 months through June 1998. In connection with this
lease agreement, the Company is required to maintain a certain amount of cash in
escrow as  collateral.  At December 31, 1997, the Company had $257,822 in escrow
related to the agreement.

In December 1996, the Company sold certain laboratory  equipment to a
leasing  company,  at its original cost of $1,722,333.  In connection  with this
transaction,  the Company  entered into a capital  lease to lease the  equipment
from this  leasing  company  for 48 monthly  payments  ranging  from  $36,000 to
$50,000. The sale of the equipment resulted in a gain of $291,960 which has been
offset against the cost of the asset in the  accompanying  consolidated  balance
sheet and is being  amortized  over the life of the  lease.  In June  1997,  the
Company sold  additional  laboratory  equipment to the leasing  company,  at its
original cost of $1,205,502.  In connection with this  transaction,  the Company
entered into a capital  lease to lease the equipment  from this leasing  company
for 24  monthly  payments  ranging  from  $24,000  to  $34,000.  The sale of the
equipment resulted in a gain of $127,378, which has been offset against the cost
of the  asset  in the  accompanying  consolidated  balance  sheet  and is  being
amortized over the life of the lease.

In January  1997,  the Company  entered  into a five year  $1,169,000
lease with a leasing  company to finance  certain  furniture and fixtures in the
Cambridge  facility.  The lease bears interest at a rate of 13.7% and is payable
in 60 equal monthly installments of approximately $26,000 through February 2002.

Future  minimum  payments due under various notes payable and capital
lease  obligations,  excluding the 9% Notes due April 1, 2004, are as follows at
December 31, 1997:

Years Ended December 31,                                                                                                   Amount   
- ------------------------------------------------------------------------------------------------------------------------------------

1998                                                                                                                   $ 8,206,684
1999                                                                                                                     1,404,777
2000                                                                                                                     1,324,184
2001                                                                                                                       601,038
2002                                                                                                                       136,000
Thereafter                                                                                                                  195,881
- ------------------------------------------------------------------------------------------------------------------------------------
Total long-term debt and capital lease obligations                                                            11,868,564
Less - amount representing interest                                                                                         717,967
- ------------------------------------------------------------------------------------------------------------------------------------
Principal obligations                                                                                         11,150,597
Less - current portion                                                                                                    7,868,474
- ------------------------------------------------------------------------------------------------------------------------------------
$ 3,282,123
===========

F - 18

(d)        9.0% Convertible Subordinated Notes

On April 2, 1997,  the Company  issued  $50,000,000  of the 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
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
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. See Note 19(f) for subsequent events.

(7)        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  directed at up to eight molecular  targets in the field of
inflammation/immunomodulation (the Searle Field).

Pursuant to the  collaboration,  the parties are conducting  research
and  development  relating to a compound  directed at a molecular  target in the
Searle Field  designated by Searle.  In this project,  Searle is funding certain
research  and  development  efforts by the  Company,  and each of Searle and the
Company have committed  certain of its own personnel to the  collaboration.  The
initial  phase of research and  development  activities  relating to the initial
target will be conducted  through the earlier of (i) the  achievement of certain
product  candidate  milestones  or  (ii) 36  months  after  commencement  of the
collaboration,  subject to early  termination  by Searle  (although in any event
Searle is required to pay 18 months of research and  development  funding).  The
parties  may extend the initial  collaboration  by mutual  agreement,  including
agreement as to additional research funding by Searle.

In addition,  Searle has the right, at its option, to designate up to
six additional  molecular  targets in the Searle Field (the Additional  Targets)
for   collaborative   research  and  development   with  the  Company  on  terms
substantially  consistent with the terms of the collaboration  applicable to the
initial  molecular  target.  This right is exercisable by Searle with respect to
each of the  Additional  Targets upon the payment by Searle of certain  research
payments  (beyond  the  projectspecific  payments  relating  to  the  particular
Additional  Target) and the purchase of additional common stock from the Company
by Searle (at the then fair market  value).  The aggregate  amount to be paid by
Searle for such  research  payments and equity  investment in order to designate
each of the Additional  Targets is $10,000,000  per  Additional  Target.  In the
event that Searle designates all of the Additional Targets, the aggregate amount
to be paid  by  Searle  for  research  payments  will  be  $24,000,000,  and the
aggregate amount to be paid by Searle in equity  investment will be $36,000,000.
If  Searle  has not  designated  all of the  Additional  Targets  by the time it
advances  the  product  candidate  for the initial  molecular  target to certain
stages of  preclinical  development,  Searle  will be  required  to  purchase an
additional  $10,000,000  of  common  stock (at the then  fair  market  value) on
specified  dates  in  order  to  maintain  its  right  to  designate  any of the
Additional  Targets  that it has not yet  designated.  The  payment for any such
common stock will be  creditable  against the equity  investment  portion of the
payments  to be made by Searle  with  respect to the  designation  of any of the
Additional Targets that Searle has not yet designated.

Searle has exclusive rights to commercialize  any products  resulting
from  the  collaboration.  If  Searle  determines,  in its sole  discretion,  to
commercialize  a product,  Searle  will fund and perform  preclinical  tests and
clinical trials of the product  candidate and will be responsible for regulatory
approvals  for and  marketing  of the  product.  In  certain  instances  and for
specified  periods of time,  the  Company  has agreed to  perform  research  and
development work in the Searle Field exclusively with Searle. In addition, as to
each product candidate,  the Company will be entitled to milestone payments from
Searle  totaling up to an  aggregate  of  $10,000,000  upon the  achievement  of
certain development  benchmarks.  The Company also will be entitled to royalties
from  net  sales  of  products  resulting  from the  collaboration.  Subject  to
satisfying certain conditions relating to its manufacturing

F - 19

capacities and capabilities,  the Company will retain manufacturing  rights, and
Searle  will be  required  to purchase  its  requirements  of products  from the
Company on an exclusive  basis at specified  transfer  prices.  Upon a change in
control of the Company,  Searle would have the right to terminate  the Company's
manufacturing  rights,  although the royalty  payable would be increased in such
event.

Under the  collaboration,  in the event that Searle  designates  (and
makes the required  payments and equity  investments  for) all of the Additional
Targets or in certain other instances  relating to Hybridon's failure to satisfy
certain requirements relating to its manufacturing  capacities and capabilities,
Searle  will have the  right,  exercisable  in its sole  discretion,  to require
Hybridon to form a joint venture with Searle for the  development of products in
the Searle Field (other than  products  relating to molecular  targets that have
already  been  designated  by  Searle)  to  which  each  party  will  contribute
$50,000,000 in cash,  although the Company's cash contribution  would be reduced
by the value of the  technology  and other rights  contributed by the Company to
the joint  venture.  The  Company  and  Searle  would  each own 50% of the joint
venture,  although  Searle's  ownership  interest  in the  joint  venture  would
increase  based upon a formula to up to a maximum of 75% if the joint venture is
established in certain  instances  relating to the Company's  failure to satisfy
certain requirements relating to its manufacturing capacities and capabilities.

During  1996 and 1997,  the Company  earned  $400,000  and  $600,000,
respectively,  in research  and  development  revenues  from  Searle.  Under the
collaboration,  Searle  also  purchased  200,000  shares of common  stock in the
Company's initial public offering of common stock at the initial public offering
price as discussed in Note 14(b).

(8)        F. HOFFMANN-LA ROCHE LTD. COLLABORATION

In December 1992, the Company and Roche entered into a  collaboration
involving the application of Hybridon's antisense  oligonucleotide  chemistry to
the  development  of compounds for the treatment of hepatitis B, hepatitis C and
human papilloma virus.

Under this  collaboration,  Roche  funded  research  and  development
efforts relating to the collaboration and committed  personnel of its own to the
collaboration.  In 1995,  Roche  notified  the Company  that it had  selected an
antisense oligonucleotide directed at hepatitis C as a lead compound for further
development and made a milestone  payment to the Company in connection with such
designation.  In the third quarter of 1996,  Roche  notified the Company that it
had selected an antisense oligonucleotide directed at human papilloma virus as a
lead compound for further development, and in the fourth quarter of 1996, made a
milestone  payment to the Company in connection with such  designation.  At such
time, Roche also notified the Company that Roche had elected not to continue the
hepatitis  B program  under  the  research  and  development  collaboration.  In
addition,  Roche  notified the Company that Roche was  exercising  its option to
terminate the entire research and development  phase of the  collaboration as of
March 31, 1997.  On September  3, 1997,  Roche  notified the Company that it had
decided not to pursue further collaboration with the Company and was terminating
the collaboration effective February 28, 1998.

The Company  has  recorded  $1,186,124,  $1,019,389  and  $345,000 of
research and development revenue related to this collaboration in 1995, 1996 and
1997, respectively.

In conjunction with the Roche Collaboration,  Roche purchased 163,678
shares of common stock for $6,000,000.  Roche was also issued five year warrants
for the purchase of 110,345 shares of common stock at an initial price of $57.50
per share,  such exercise  price  increases  commencing on August 12, 1995 on an
annual basis at a compound  rate of 25%.  The  warrants  expired on February 12,
1998.

(9)        MEDTRONIC, INC. COLLABORATIVE STUDY AGREEMENT

In May 1994, the Company and Medtronic, Inc. (Medtronic) entered into
a  collaborative  study  agreement  (the  Medtronic   Agreement)  involving  the
development of antisense  compounds for the treatment of Alzheimer's disease and
a drug  delivery  system to deliver  such  compounds  into the  central  nervous
system.  The Company will be responsible  for the  development  of, and hold all
rights to, any drug developed pursuant to this collaboration, and Medtronic will
be  responsible  for the  development  of, and hold all rights to, any  delivery
system  developed  pursuant to this  collaboration.  The parties may extend this
collaboration  by mutual agreement to other  neurodegenerative  disease targets.
The research and  development  to be conducted is determined and supervised by a
committee

F - 20

comprised of an equal number of designees of the Company and Medtronic.  As part
of the Medtronic  Agreement,  Medtronic purchased 131,667 shares of common stock
for $5,000,000.

(10)       LICENSING AGREEMENT

The Company has entered into a licensing agreement with the Worcester
Foundation  for  Biomedical  Research,  Inc.,  which  merged  in 1997  into  the
University of Massachusetts Medical Center (the Foundation License), 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.

(11)       PHARMACIA BIOTECH, INC. AGREEMENT

In December 1994, the Company and Pharmacia Biotech, Inc. (Pharmacia)
entered  into  a  collaboration  involving  the  design  and  development  of  a
largescale  oligonucleotide  synthesis  machine.  Following  completion  of  the
machine, the collaboration  expired in December 1996, and Pharmacia retained the
right to sell the machine to third parties,  subject to an obligation to pay the
Company  royalties on such third party sales.  During 1996 and 1997, the Company
has received  $62,321 and $48,000,  respectively,  of royalty  income related to
such third party sales.

(12)       PERKIN-ELMER CORPORATION SUPPLY AGREEMENT

In September 1996 the Company and the Applied Biosystems  Division of
Perkin-Elmer  signed  a  four  year  sales  and  supply  agreement  under  which
Perkin-Elmer  agreed to refer potential customers to HSPD for the manufacture of
custom oligonucleotides and the Company agreed that amidites for the manufacture
of these  oligonucleotides would be purchased from Perkin-Elmer and a percentage
of the sales  price would be paid to  Perkin-Elmer.  In  addition,  Perkin-Elmer
licensed to the Company its oligonucleotide synthesis patents.

(13)       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 December 1997, the Company and MethylGene  expanded the methylgene  fields to
include  (a)  antisense  compounds  to  inhibit  DNA  methyltransferase  for any
indication and (b) antisense  compounds to inhibit a second and third  molecular
target for any  indications,  as may be selected by MethylGene,  so long as such
molecular  targets are not already  targeted by the Company.  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).   The
Institutional Investors have the right to exchange (the MethylGene 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. This option terminates sooner if MethylGene raises
certain  additional  amounts of equity or debt financing or if MethylGene enters
into a corporate collaboration

F - 21

that meets certain  requirements.  Subsequent  to December 31, 1997,  MethylGene
raised  additional  proceeds from outside investors that decreased the Company's
interest to 30%,  which did not terminate the MethylGene  Exchange  available to
the  Institutional  Investors.  The Company is accounting  for its investment in
MethylGene  under the equity  method and, due to the  existence of the investors
exchange rights, the Company has recorded,  up to its original investment,  100%
of MethylGene's losses in the accompanying consolidated statement of operations.
See Note 19(i) for subsequent events.

(14)       STOCKHOLDERS' EQUITY (DEFICIT)

(a)       Common Stock

The Company has 100,000,000  authorized shares of common stock, $.001
par value, of which 5,059,650 and 15,254,825  shares were issued and outstanding
at December 31, 1997 and September 30, 1998, respectively.

(b)       Initial Public Offering

On  February  2, 1996,  the  Company  completed  its  initial  public
offering of 1,150,000  shares of common  stock at $50.00 per share.  The sale of
common  stock  resulted  in  net  proceeds  to  the  Company  of   approximately
$52,231,000 after deducting expenses related to the offering.

(c)       Reverse Stock Split

On December 10, 1997, the Board of Directors  declared a one-for-five
reverse  split of its common  stock.  Share  quantities  and  related  per share
amounts have been retroactively restated to reflect the stock split.

(d)       Warrants

The Company has the following  exercisable  warrants  outstanding for
the purchase of common stock at December 31, 1997:

Exercise Price
Expiration Date                                                                                        Shares              Per Share
----------            ---------

February 12, 1998                                                                                       110,345              $112.30
March 31, 1998 - October 25, 2000                                                                       953,936                50.00
February 28, 2000                                                                                        20,000                37.50
December 31, 2001                                                                                        13,000                34.49
April 2, 2002                                                                                            71,301                35.06
-----------                -----

Average per share exercise price                                                                      1,168,582               $54.59
=========               ======

As a component of the sale of preferred  stock in 1994 and 1995,  the
Company  issued to the investors in such  offering  warrants for the purchase of
585,425  shares of common  stock at $40.00 to  $50.00  per  share.  Warrants  to
purchase 331,382 shares of common stock at an exercise price of $50.00 per share
expired on March 31,  1998,  and the  remaining  warrants  for the  purchase  of
254,043  shares of common stock at an exercise price of $40.00 per share expired
on October 25, 1997.

Five year  warrants to  purchase  368,620  shares of common  stock at
$50.00 per share were issued in 1994 and 1995 as a component of the compensation
for services of several placement agents of the Company's  convertible preferred
stock. Of these warrants, 304,335 were issued to a company that is controlled by
two  directors of the Company (see Note 15(a)).  The remaining  64,285  warrants
were issued to various other companies that acted as placement agents.

(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

F - 22

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,
1997  options to  purchase a total of 604,863  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 option
(which, in the case of incentive stock options,  may not exceed 10 years). As of
December 31, 1997, options to purchase a total of 534,914 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 50,000 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, 1997,  options to purchase a total of 14,000
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),  which provides for the grant of incentive and nonqualified  stock
options.  A total of  600,000  shares  of common  stock  may be issued  upon the
exercise of options  granted to any  employee  under the 1997 Option  Plan.  The
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, 1997, options to purchase a total of 36,720 shares of
common stock remained outstanding under the 1997 Option Plan.

F - 23

All stock option activity since inception is summarized as follows:

Weighted
Number                Exercise Price            Average
of Shares                 Per Share            Per Share

- -----------------------------------------------------------------------------------------------------------------------------------

Options granted                                                             66,940              $          .01          $   .01
Options exercised                                                          (33,460)                        .01              .01
- -----------------------------------------------------------------------------------------------------------------------------------
Outstanding, December 31, 1990                                                  33,480                         .01              .01
Options granted                                                              1,700                         .01              .01
Options terminated                                                            (540)                        .01              .01
- -----------------------------------------------------------------------------------------------------------------------------------
Outstanding, December 31, 1991                                                  34,640                          .01             .01
Options granted                                                            192,540             1.25   -   25.00            9.90
Options exercised                                                          (34,615)             .01   -    5.00             .10
Options terminated                                                          (4,865)            2.50   -    5.00            2.80
- -----------------------------------------------------------------------------------------------------------------------------------
Outstanding, December 31, 1992                                                 187,700               .01  -   25.00           10.05
Options granted                                                            288,108             17.50  -   62.50           41.90
Options exercised                                                           (8,725)              .01  -    5.00            3.05
Options terminated                                                         (25,275)              .01  -   50.00            3.95
- -----------------------------------------------------------------------------------------------------------------------------------
Outstanding, December 31, 1993                                                 441,808               .01  -   62.50           31.30
Options granted                                                            134,500             25.00  -   35.00           26.65
Options exercised                                                           (4,800)              .01  -    5.00            2.80
Options terminated                                                         (15,000)              .01  -   25.00           19.15
- -----------------------------------------------------------------------------------------------------------------------------------
Outstanding, December 31, 1994                                                 556,508               .01  -   62.50           30.50
Options granted                                                            407,108             37.50  -   50.00           37.75
Options exercised                                                           (5,880)             2.50  -   25.00            7.05
Options terminated                                                        (219,528)             2.50  -   62.50           49.10
- -----------------------------------------------------------------------------------------------------------------------------------
Outstanding, December 31, 1995                                                 738,208               .01  -   50.00           29.15
Options granted                                                            476,020             25.00  -   65.60           49.55
Options exercised                                                          (57,740)              .01  -   37.50           18.85
Options terminated                                                         (20,100)            25.00  -   57.85           40.20
- -----------------------------------------------------------------------------------------------------------------------------------
Outstanding, December 31, 1996                                               1,136,388              1.25  -   65.60           38.05
Options granted                                                            315,675             27.50  -   32.50           30.75
Options exercised                                                          (25,005)             1.25  -   40.00           12.60
Options terminated                                                        (236,561)             2.50  -   65.60           40.35
- -----------------------------------------------------------------------------------------------------------------------------------
Outstanding, December 31, 1997                                               1,190,497             $1.25  -  $65.60          $36.38
- -----------------------------------------------------------------------------------------------------------------------------------
Exercisable, December 31, 1997                                                 740,780             $1.25  -  $65.60          $35.10

The range of  exercise  prices for  options  outstanding  and options
excercisable at December 31, 1997 are as follows:

Outstanding                                                Exercisable
------------------------------------------------------------------------------------------------------------
Weighted                                                                    
Average                Weighted                                  Weighted
Number of               Remaining                Average           Number of              Average
Exercise Prices             Shares             Contractual Life        Exercise Price          Shares            Exercise Price

$1.25 -  2.50                    28,000                  4.18                   $2.05              28,000                $2.05
5.00                     5,600                  4.75                    5.00               5,600                 5.00
17.50 - 27.50                   214,481                  4.80                   23.42             193,581                23.16
28.10 - 40.60                   699,561                  6.72                   35.29             386,110                36.84
43.75 - 65.63                   242,855                  6.77                   55.64             127,489                56.54
---------                                         -----             -------                -----
1,190,497                                        $36.38             740,780               $35.10
=========                                        ======             =======               ======

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 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  Accounting  Principles Board Opinion No. 25 and elect the disclosure only
alternative under SFAS No. 123.

F - 24

In 1996 and 1997,  the Company  recorded  $1,967,116  and $205,978 of
deferred  compensation related to grants to nonemployees which will be amortized
over the vesting  period of the options.  The Company has recorded  compensation
expense of $763,190 and $316,067 in 1996 and 1997, respectively.

The Company has computed the pro forma  disclosures  required by SFAS
No. 123 for all stock  options and warrants  granted after January 1, 1995 using
the Black-Scholes option pricing model. The assumptions used are as follows:

December 31,                                              1995                           1996                         1997
- ------------                                              ----                           ----                         ----

Risk free interest rate                                   6.41%                          6.14%                       6.22%
Expected dividend yield                                     -                              -                           -
Expected lives                                           6 years                        6 years                     6 years
Expected volatility                                        60%                            60%                         60%

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 would be as follows:

December 31,                                                1995                      1996                      1997
- ------------                                                ----                      ----                      ----

Net loss, as reported:                             $(34,546,676)             $(46,852,600)             $(69,461,326)
Pro forma net loss:                                $(41,447,381)             $(52,890,455)             $(73,402,170)
Basic and diluted net loss
As reported                                           $(94.70)                  $(10.24)                  $(13.76)
Pro forma                                            $(113.61)                  $(11.56)                  $(14.54)

(f)       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 or its  subsidiaries.  All
full-time employees of the Company, except those who would immediately after the
grant own 5% or more of the total combined voting power or value of the stock of
the Company or any subsidiary, are eligible to participate.

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 which 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.

F - 25

(g)       Preferred Stock

The Certificate of  Incorporation of the Company permits its Board of
Directors to issue up to 5,000,000  shares of preferred  stock,  par value $ .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.  No  shares  of  Preferred  Stock  are  currently
outstanding.

(15)       COMMITMENTS

The  Company  has  entered  into a lease  for a  production  plant in
Milford, Massachusetts. The lease has a 10-year term, which commenced on July 1,
1994, with certain extension options.

On  February  4,  1994,  the  Company  entered  into a  lease  for an
approximately  91,500  square foot  building in  Cambridge,  Massachusetts  (the
Cambridge  Lease).  The Cambridge Lease is with a partnership that is affiliated
with three directors of the Company. The Cambridge Lease has a term of 15 years,
commencing February 1, 1997, and may be extended for three additional  five-year
terms at the option of the Company. The Cambridge Lease provides for annual rent
of $37.79 per year per square foot for the first five years, $42.73 per year per
square  foot for the second  five years and $47.00 per year per square  foot for
the third five years.  As  compensation  for arranging  this lease,  the Company
issued  Pillar  Limited (see Note 15 (a)) five year warrants for the purchase of
100,000 shares of the Company's  common stock at an exercise price of $50.00 per
share. These warrants are exercisable through February 4, 1999.

Under the terms of the Cambridge  Lease, the Company elected to treat
$5,450,000 of its payments for a portion of the costs of the construction of the
leased premises (primarily relating to tenant  improvements) as contributions to
the capital of the  Cambridge  landlord in  exchange  for a limited  partnership
interest in the Cambridge  landlord (the  Partnership  Interest).  The Company's
Partnership Interest represents a 32.15% interest in the Cambridge Landlord. The
Company's  right to receive  distributions  of cash generated from operations or
from  any sale or  refinancing  of the  property  would  be  subordinate  to the
distribution  to certain other limited  partners of priority  amounts  currently
totaling approximately $6,500,000  (approximately $3,500,000 of which is subject
to annual  increase at a rate of between 12% and 15% as a result of a cumulative
return to one of the limited partners of the Cambridge Landlord). In the case of
a sale or refinancing of the property, after payment of the priorities described
in the  preceding  sentence,  the  Company  would be entitled to a return of its
capital  contribution  and,  thereafter,  to its pro rata share of the remaining
funds available for  distribution.  The Company has the right, at any time prior
to  February  2000 to sell the  Partnership  Interest  back to  certain  limited
partners of the  Cambridge  Landlord for a price equal to the greater of (i) the
total paid for the  Partnership  Interest  ($5,450,000 ) or (ii) the fair market
value of the  Partnership  Interest  at the time.  The  assets of these  limited
partners are limited to their  investment  in the Cambridge  Landlord.  See Note
19(e) for subsequent events.

F - 26

Future  approximate  minimum  rent  payments as of December 31, 1997,
under the  lease  agreements  through  2012  discussed  above,  net of  sublease
agreements are as follows:

Years Ended December 31,                                                                                                  Amount 
- ------------------------------------------------------------------------------------------------------------------------------------

1998                                                                                                                $   2,275,000
1999                                                                                                                    2,831,000
2000                                                                                                                    4,248,000
2001                                                                                                                    4,677,000
2002                                                                                                                    4,991,000
Thereafter                                                                                                              40,586,000
$59,608,000
- ------------------------------------------------------------------------------------------------------------------------------------

During 1995,  1996 and 1997,  facility rent expense,  net of sublease
revenue, was approximately $2,142,000, $2,352,000 and $4,613,000, respectively.

(a)  Consulting   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.  The terms of the agreements
with the affiliated companies,  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), are described below.

In March 1994, the Company  entered into a consulting  agreement with
Pillar  S.A.,  which was  amended  in March  1995 (the  1994  Pillar  Consulting
Agreement).  Under the 1994 Pillar Consulting  Agreement,  the Company agreed to
pay to Pillar S.A.  cash  compensation  for  financial  advisory and  managerial
services in connection with the Company's overseas operations, including support
services in connection  with  contracts,  agreements and  arrangements  with the
Agence  Nationale de Recherches  sur le SIDA (ANRS),  and for overhead costs and
reimbursement of certain authorized out-of-pocket  expenditures.  The Company is
committed to pay Pillar S.A. a monthly fee of approximately $96,000 with respect
to this  agreement.  The  agreement  expired on February 28,  1998,  as amended.
During 1995,  1996 and 1997,  the Company had expensed  $1,226,000,  $1,106,000,
$998,000 under this consulting agreement, respectively.

In connection with the 1994 Pillar Consulting Agreement,  the Company
issued to Pillar S.A. two,  fiveyear warrants to purchase up to 40,000 shares of
the Company's  common stock. The first warrant was issued on March 1, 1994 at an
exercise  price of $50.00 per share and will expire on February  28, 1999 and is
fully  exercisable  as of December  31, 1997.  The second  warrant was issued on
March 1,  1995 at an  exercise  price of $37.50  per  share  and will  expire on
February 28, 2000 and is fully exercisable as of December 31, 1997.

All of the  warrants  issued to  Pillar  S.A.  under the 1994  Pillar
Consulting  Agreements  and certain other warrants  previously  issued to Pillar
S.A.  provide that within 15 days after the date of any exercise,  in full or in
part,  Pillar S.A. will pay to the Company an amount in cash equal to the lesser
of (i) 50% of all amounts paid to Pillar S.A. as compensation  under the various
Pillar S.A.  consulting  agreements  and (ii) the positive  difference,  if any,
between the aggregate fair market value of the shares of common stock  purchased
upon such exercise and the aggregate exercise price for such shares.

On September 9, 1994, the Company entered into  modifications  to its
arrangements with Pillar S.A. and its affiliates,  including: (i) a reduction in
the exercise price of certain  warrants  previously  issued to $50.00 per share;
(ii) an amendment to the terms of each of the warrants issued to Pillar S.A. and
its affiliates  described  above to provide for cashless  exercise in connection
with a sale or change in control  of the  Company;  (iii) a grant of  additional
five-year warrants (the Additional Pillar Warrants) to purchase 22,800 shares of
Common  Stock at an  exercise  price of $50.00 per  share;  and a right of first
negotiation  for Pillar S.A. to provide seed  financing for any spin-offs by the
Company which do not involve or relate to antisense therapeutic compounds.

F - 27

On July 8, 1995,  the Company  entered into an agreement  (the Pillar
Europe  Agreement)  with Pillar S.A.  pursuant  to which  Pillar S.A.  agreed to
provide to the Company  certain  consulting,  advisory and related  services and
serve as the Company's  exclusive agent in connection  with potential  corporate
partnerships  in Europe and as a nonexclusive  placement agent of the Company in
connection  with future  private  placements  of securities of the Company for a
period of two years.  As  discussed  below,  the  Pillar  Europe  Agreement  was
significantly amended on November 1, 1995.

The  Company  and Pillar  S.A.  agreed to modify  the  Pillar  Europe
Agreement  to provide  that (i)  Pillar  would  cease to serve as the  Company's
exclusive  agent in connection with potential  corporate  partnerships in Europe
but would continue to serve as a nonexclusive agent in such respect; (ii) Pillar
would receive a retainer of $26,470 per month for the balance of the term of the
Pillar  Europe  Agreement;  (iii)  certain  fees to be  received  by  Pillar  in
connection  with  European  license or  collaboration  agreements  would only be
payable  to  Pillar  in  connection  with  potential  collaborations  with  five
specified French pharmaceutical  companies; and (iv) any compensation payable to
Pillar S.A. in  connection  with its services  with  respect to other  corporate
collaborations  or  any  placements  of  securities  would  be  negotiated  on a
case-by-case  basis and would be  subject  to the  approval  of the  independent
members of the Board of  Directors  of the  Company.  In  consideration  of such
modification, the Company paid Pillar in 1995 a fee totaling $300,000.

Pillar Limited acted as a placement agent for the Company for certain
sales of convertible preferred stock outside the United States and, in addition,
provided the Company with certain  financial  advisory  services with respect to
the sale of such preferred  stock outside the United States.  In connection with
such  services,  Pillar earned fees of $492,604 and  $2,020,751  during 1994 and
1995, respectively.  Pillar received payment for such fees through $2,435,883 of
cash payments and through the issuance of five-year warrants for the purchase of
438,267  shares of common stock at $50.00 per share,  expiring on various  dates
beginning on July 14, 1998 through October 25, 2000.

Pillar also received  compensation  for its role as a placement agent
for the  Offshore  Offering,  which is  described  in Note 1. See Note 19(b) for
terms and subsequent events.

(b)       Other Research and Development Agreements

The Company has entered into consulting and research  agreements with
the  universities,  research and testing  organizations  and individuals,  under
which  consulting  and  research  support  is  provided  to the  Company.  These
agreements are for varying terms through 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,
1997 are approximately as follows:

Years Ended December 31,                                                                                                 Amount 
- ------------------------------------------------------------------------------------------------------------------------------------

1998                                                                                                                    $253,000
1999                                                                                                                     129,000
- ------------------------------------------------------------------------------------------------------------------------------------
$382,000

Total fees and  expenses  under these  contracts  were  approximately
$5,470,000, $7,171,000 and $9,372,000 during 1995, 1996 and 1997, respectively.

(c)       Employment Agreements

The Company has entered into  employment  agreements  with certain of
its executive  officers  which 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 years' base salary.

F - 28

(16)       INCOME TAXES

The Company  applies SFAS No. 109,  Accounting  for Income Taxes.  At
December  31,  1997,   the  Company  had  net  operating  loss  and  tax  credit
carryforwards  for  income  tax  purposes  of  approximately   $205,997,000  and
$3,436,000, 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, 1997, have resulted in ownership  changes in excess of 50%, as defined under
the Act.  Ownership changes in future periods may limit the Company's ability to
utilize net operating loss and tax credit carryforwards.

The  federal  net  operating  loss   carryforwards   and  tax  credit
carryforwards expire approximately as follows:

Net
Operating Loss              Tax Credit
Expiration Date                                                                                Carryforwards           Carryforwards
- ------------------------------------------------------------------------------------------------------------------------------------

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                                                                                       69,343,000                 750,000
--------------            ------------
$205,997,000              $3,436,000 
- ------------------------------------------------------------------------------------------------------------------------------------

The  components  of the deferred tax amounts,  carryforwards  and the
valuation allowance are approximately as follows:

December 31,                                                                                     1996                     1997     
- ------------------------------------------------------------------------------------------------------------------------------------

Operating loss carryforwards                                                                    $54,661,000             $82,399,000
Temporary differences                                                                             1,325,000               5,243,000
Tax credit carryforwards                                                                          2,686,000               3,436,000
-----------             -----------
58,672,000              91,078,000
Valuation allowance                                                                             (58,672,000)            (91,078,000)
------------            ------------
$          -            $          -
- ------------------------------------------------------------------------------------------------------------------------------------

A valuation  allowance has been  provided,  as it is uncertain if the
Company  will  realize  the  deferred  tax  asset.  The net  change in the total
valuation allowance during 1997 was an increase of approximately $32,406,000.

(17)       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 operations  approximately $125,000,  $224,000
and $253,000 during 1995, 1996 and 1997, respectively.

F - 29

(18)       SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

The accompanying  consolidated  financial statements include
the following cash flow information:

Years Ended December 31,
1995               1996             1997
- -----------------------------------------------------------------------------------------------------------------------------------

Supplemental disclosure of cash flow information:
Cash paid during the period for interest                                              $172,757       $  124,052       $3,264,596
- -----------------------------------------------------------------------------------------------------------------------------------
Supplemental disclosure of noncash investing activities:
Purchase of property and equipment under capital leases                              $  90,562       $1,722,333       $2,374,502
- -----------------------------------------------------------------------------------------------------------------------------------
Supplemental disclosure of noncash financing activities:
Issuance of Series C convertible preferred stock in
exchange for convertible promissory notes                                        $       -       $        -       $        -
Issuance of Series D convertible preferred stock in exchange
for convertible promissory notes and accrued interest                                    -                -                -
Issuance of Series E convertible preferred stock in exchange
for subscriptions receivable                                                             -                -                -
Issuance of Series F convertible preferred stock in exchange
for subscriptions receivable                                                             -                -                -
Issuance of Series G convertible preferred stock in exchange
for subscriptions receivable
Issuance of convertible promissory notes in exchange for
subscriptions receivable                                                                 -                -                -
Issuance of stock warrants in exchange for deferred financing costs                          -                -
Cancellation of warrants and reduction of deferred financing costs                           -                -
Conversion of preferred stock into common stock                                              -          159,822                -
Issuance of common stock for services rendered                                               -                -          146,874
Deferred compensation related to restricted stock awards and grant of
stock options                                                                            -        1,967,116          205,978
Issuance of Series A convertible preferred stock in exchange for
conversion of 9% convertible subordinated notes payable and
accrued interest                                                                         -                -
Issuance of common stock in exchange for conversion of
convertible subordinated notes payable                                                   -                -
Issuance of common stock in exchange for conversion of accounts
payable, capital lease obligations and accrued interest                                  -                -

(19)       INTERIM PERIOD AND SUBSEQUENT EVENTS (Unaudited)

(a)       Unaudited Interim Financial Statements

The accompanying consolidated balance sheet as of September
30, 1998,  and the  consolidated  statements of operations,
stockholders'  equity (deficit) and cash flows for the nine
months  ended  September  30,  1997 and 1998 and the period
from  inception  (May 25, 1989) to  September  30, 1998 are
unaudited,  but,  in the opinion of  management,  have been
prepared on a basis  substantially  consistent with audited
financial   statements   and   include   all   adjustments,
consisting of only normal recurring adjustments,  necessary
for a fair  presentation  of the  results of these  interim
periods.  The results for the period  ended  September  30,
1998 presented are not necessarily indicative of results to
be expected for the full fiscal year.

At  September  30,  1998,  the  Company  had cash and cash
equivalents  of  approximately  $.8  million and a working
capital deficit of approximately $2.8 million.  Subsequent
to  September  30,  1998,  the Company  received  (i) $3.2
million of net proceeds  from the Forum and Peck loan (see
note 19(k)), (ii) approximately $6.2 million from the sale
of the investment in the real estate limited  partnership,
repayment  of  restricted  cash  and  refund  of  security
deposit  (see  note  19e),  and  (iii)  approximately  $.3
million from the sale of certain  furniture and equipment.
As a result,  the Company has cash and cash equivalents of
approximately $6.0 million at December 15, 1998, which the
Company  anticipates  will last into the first  quarter of
1999. The Company  continues to seek additional  financing
to  fund  operations.   The  working  capital  deficit  at
December 15, 1998, was approximately $800,000.

F - 30

(b)       1998 Unit Financing

On May 5, 1998, the Company completed a private offering of
equity   securities   raising   total  gross   proceeds  of
approximately  $27.3 million 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
Company has allocated  the proceeds to each security  based
on their  respective fair market value.  The gross proceeds
include the  conversion  of  approximately  $6.2 million of
accounts  payable,  capital  lease  obligations  and  other
obligations   into  common  stock.   The  Company  incurred
approximately  $2.6 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.   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  Offering  and  (ii)  a  non-accountable   expense
allowance  equal to 4% of gross  proceeds of such  Offshore
Offering.  Pillar received  approximately  $1.6 million and
warrants to purchase  1,111,630  shares of common  stock at
$2.40 per share.

On February  6, 1998,  the  Company  commenced  an exchange
offer to the  holders  of the 9% Notes  (see Notes 6(d) and
19(f)) to  exchange  the 9% Notes for Series A  convertible
preferred stock and certain warrants of the Company. On May
5, 1998, noteholders holding $48.7 million of principal and
$2,361,850 of accrued interest  tendered such principal and
accrued  interest  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  approximately  $8.9 million  related to the conversion.
The  extraordinary  gain represents the difference  between
the  carrying  value of the 9% Notes and the fair  value of
(i) the Series A convertible preferred stock, as determined
by the per  share  sales  price  of  Series  A  convertible
preferred  stock  sold in the  private  offering  described
above, and (ii) warrants to purchase common stock issued by
the  Company,  which were  valued  using the  Black-Scholes
option pricing model.

(c)       Net Loss per Common Share

The Company  applies SFAS No. 128,  Earnings per Share,  in
calculating earnings per share. Basic net loss per share is
computed  by  dividing  net  loss   applicable   to  common
stockholders  (net loss  plus  cumulative  preferred  stock
dividends) by the weighted  average number of common shares
outstanding  during the period.  Diluted net loss per share
for the periods presented is the same as basic net loss per
share  as the  inclusion  of  the  potential  common  stock
equivalents would be antidilutive.  Antidilutive securities
which  consist of stock  options and warrants  that are not
included  in  diluted  net  loss  per  common   share  were
2,686,863 and  12,568,143  for the nine month periods ended
September 30, 1997 and 1998, respectively.

(d)       Cash Equivalents

The Company applies SFAS No. 115,  Accounting for  Certain
Investments  in Debt  and  Equity  Securities.  Under SFAS
No.  115,  debt   securities  that  the   Company  has the
positive  intent  and  ability to  hold to   maturity  are
recorded  at   amortized   cost  and  are   classified  as
held-to-maturity   securities.  These  securities  include
cash  equivalents and  restricted  cash. Cash  equivalents
have original  maturities of less than  three months. Cash
and cash  equivalents  at December 31, 1997  and September
30, 1998 consisted of the following:

F - 31

December 31,                   September 30,
1997                            1998

Cash and cash equivalents-
Cash and money market funds                                         $1,702,272                       $400,949
Corporate bond                                                         499,930                        481,876
----------                       --------
$2,202,202                       $882,825
==========                       ========

Restricted cash - long-term
Certificates of deposit                                             $2,016,364                      $       -
Savings account                                                      1,034,618                        659,618
----------                       --------
$3,050,982                       $659,618
==========                       ========

(e)       Accounts Receivable Related to Real Estate Limited 
Partnership

Under  the  terms  of  the  Cambridge  Lease,  the  Company
accounted  for  $5,450,000 of its payments for a portion of
the  costs  of  construction  of  the  leased  premises  as
contributions  to the capital of the Cambridge  landlord in
exchange  for  a  limited   partnership   interest  in  the
Cambridge  landlord (the Partnership  Interest).  Under the
terms of the  Partnership  Interest,  the  Company  has the
right  at any  time  prior  to  February  2000 to sell  the
Partnership  Interest back to the other limited partners of
the  landlord.  In April 1998,  the Company  exercised  its
right to sell back the Partnership Interest and accordingly
the  contribution  to the real estate  partnership has been
classified  as a  current  asset  at  September  30,  1998.
Subsequent to September 30, 1998,  the sale of the building
was   finalized  and  the  Company   received   payment  of
approximately $6.2 million,  which included the recovery of
a portion of the  security  deposit on the building and the
repayment of restricted cash.

(f)       9.0% Convertible Subordinated Notes

On April 2, 1997, the Company issued  $50,000,000 of the 9%
Notes.   As  discussed  in  Note  19(b),  on  May  5,  1998
noteholders holding $48.7 million of principal value of the
9% Notes  tendered  such  notes in  exchange  for  Series A
convertible preferred stock and warrants to purchase common
stock. In addition,  $2,361,850 of accrued interest thereon
was converted into shares of Series A convertible preferred
stock  and  warrants  to  purchase   common  stock.  As  of
September  30,  1998,  there  is $1.3  million  of 9% Notes
outstanding.  Under the terms of the 9% Notes,  the Company
must make semi-annual  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 at the option of
the holder 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 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.

F - 32

(g)        Restructuring

Beginning  in  July  1997,   the  Company   implemented  a
restructuring  plan to  reduce  expenditures  on a  phased
basis over the  balance  of 1997 in an effort to  conserve
its cash resources.  As a part of this restructuring plan,
the Company recorded an $11,020,000  restructuring  charge
in 1997 to  provide  for (i) the  termination  of  certain
research programs,  (ii) the abandonment of certain leased
facilities (net of sublease income and related disposal of
fixed assets),  (iii) severance  obligations to nearly 100
terminated  employees and (iv) the cancellation of certain
other  contracts.  During the third  quarter of 1998,  the
Company  completed its restructuring  plan,  utilizing the
entire reserve, after moving its corporate headquarters to
Milford, MA. As a result of the Company having vacated the
Cambridge,    Massachusetts    facility,    the    Company
significantly   reduced   its   future   operating   lease
commitments (see Note 15).

(h)        Note Payable to a Bank

In December  1996,  the Company  entered  into a five year
$7,500,000  note payable with a bank (see Note 6(a)).  The
note contains certain financial covenants that require the
Company to maintain minimum tangible net worth and minimum
liquidity and  prohibits  the payment of dividends.  As of
September   30,   1998,   approximately   $2,895,000   was
outstanding  under  the  note,  which is  classified  as a
current  liability in the accompanying  September 30, 1998
consolidated balance sheet. The note, as amended, contains
certain  financial  covenants  that require the Company to
maintain  minimum  tangible  net  worth (as  defined)  and
minimum  liquidity  (as defined) and prohibits the payment
of dividends. The Company has secured its obligations with
a lien on all of its assets.  If, at specified  times, the
Company's Minimum Liquidity (as defined) is less than $4.0
million,  or its  tangible  net worth (as defined) is less
than $6  million,  the  Company is  required to prepay the
note in full.

In November 1998, Forum and Pecks, the Lenders, affiliates
of  two  members  of the  Company's  Board  of  Directors,
purchased the note payble to the Bank. In connection  with
the  purchase of the note,  the Lenders  have  advanced an
additional  amount to the  Company so as to  increase  the
outstanding principal amount of the Loan to $6,000,000. In
addition,  the  Lenders  have agreed to amend the terms of
the Loan as follows:  (i) the maturity will be extended to
November  30,  2003;   (ii)  the  interest  rate  will  be
decreased to 8%; (iii) interest will be payable monthly in
arrears, with the principal due in full at maturity of the
Loan; (iv) the Loan will be  convertible,  at the Lender's
option,  in whole or in part, into shares of common stock,
par value $.001 per share, of the Company ("Common Stock")
at a rate equal to $2.40 per share;  (v) the  threshold of
the  Minimum  Liquidity  covenant  will  be  reduced  from
$4,000,000  to  $2,000,000;  and  (vi) the Loan may not be
prepaid,  in  whole  or in  part,  at any  time  prior  to
December 1, 2000.

In  connection  with the purchase of the note,  Forum will
receive a fee of  $400,000,  which will be  reinvested  by
Forum by purchasing  from the Company  common or preferred
stock and  warrants.  Forum will also receive  warrants to
purchase $400,000 of shares of common stock of the Company
at the per-share valuation of the next financing, or $3.00
per  share if the  financing  is not  completed  by May 1,
1999.

(i)        Methylgene, Inc. Licensing Agreement

In  January  1996,  the  Company  and   MethylGene,   Inc.
(MethylGene) (a Canadian company which is 30% owned by the
Company)  entered  into  a  licensing  agreement  for  the
purpose of researching  and  developing  compounds for the
treatment of cancer and other  indications.  (See Note 13)
In  May  1998,   this   agreement  was  amended  to  grant
MethylGene  a  non-exclusive  right  to use  all  and  any
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

F - 33

provided  by,  or  (iii)  May  5,  2000.   As   additional
consideration for this non-exclusive right,  MethylGene is
required to pay the Company certain milestone amounts,  as
defined,  and transfered  300,000  shares of  MethylGene's
class B shares to the  Company.  The Company has placed no
value on these shares.  During the nine month period ended
September  30, 1998,  the Company  recognized  $500,000 of
service revenue related to this agreement.

(j)        Units Issued to Primedica Corporation (Primedica)

In May 1998,  the  Company  has issued  250,000  shares of
common stock and 62,500  warrants to purchase common stock
to  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 units held by  Primedica.  The
Company   has   recorded   these   shares  as  issued  and
outstanding  at  September  30,  1998  at par  value.  The
Company  will  record the value of these  services  as the
services are rendered.

(k)       Supplemental Disclosure of Cash Flow Information

The accompanying  consolidated financial statements include
the following information:

Cumulative
from May
25, 1989
Nine Months Ended                (Inception) to
September 30,                  September 30,
-------------                  -------------

1997                     1998                 1998

Supplemental Disclosure of Cash Flow Information:

Cash paid during the period for interest                                   $786,005               $1,494,323           $5,124,773

SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING ACTIVITIES:

Purchase of property and equipment under capital leases                  $2,412,276               $        -           $5,604,370

SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITIES:

Issuance of Series C convertible preferred stock in exchange
for convertible promissory notes                                         $        -               $        -           $1,700,000

Issuance of Series D convertible preferred stock in exchange
for convertible promissory notes and accrued interest                    $         -              $        -           $9,382,384

Issuance of Series E convertible preferred stock in exchange
for subscriptions receivable                                             $         -              $        -           $  555,117

Issuance of Series F convertible preferred stock in exchange
for subscriptions receivable                                             $         -              $        -           $2,535,000

F - 34

Issuance of Series G convertible preferred stock in exchange
for subscriptions receivable                                             $         -              $          -        $   906,016

Issuance of convertible promissory notes in exchange for
subscriptions receivable                                                 $         -              $          -        $   937,000

Issuance of stock warrants in exchange for deferred
financing costs                                                          $         -              $          -        $   238,000

Cancellation of warrants and reduction of deferred
financing costs                                                          $         -              $          -        $    68,000

Conversion of preferred stock into common stock                          $         -              $          -        $   159,822

Deferred compensation related to restricted stock awards
and grant of stock options                                               $   205,978              $    163,044        $ 6,751,286

Issuance of Series A convertible  preferred  stock in exchange 
for conversion of 9% convertible subordinated notes payable
and accrued interest                                                     $         -              $ 51,061,850        $51,061,850

Accretion of Series A convertible preferred stock dividends              $         -              $  1,647,000        $ 1,647,000

Issuance of common stock in exchange for conversion of
convertible subordinated notes payable                                   $         -              $  4,800,000        $ 4,800,000

Issuance of common stock in exchange for conversion of
accounts payable,  capital lease obligations and accrued
interest                                                                 $         -              $  6,434,308        $ 6,434,308

Issuance of common stock for services rendered                           $   146,874              $  1,195,398        $ 1,342,272

(l)       Accrued Expenses

Accrued expenses as of September 30, 1998 consist of the following:

September 30, 1998
----------------------------------------------------------------------------

Restructuring                                             $               -
Interest -                                                           52,750
Payroll and related costs                                         1,142,608
Outside research and clinical costs                                 978,565
Professional fees                                                   159,691
Other                                                               670,320
-------------
$ 3,003,934

(m)       Commitments

The Company is currently undergoing a sales and use tax audit by the
Massachusetts Department of Revenue.  The amount of the final 
assesment, while currently unknown, may be material.

F - 35

No  person  has  been  authorized  to  give  any  information  or  to  make  any
representations other than those contained in this Prospectus,  and, if given or
made, such information or representations must not be relied upon as having been
authorized.  This  Prospectus  does  not  constitute  an  offer  to  sell or the
solicitation  of an offer to buy any  securities  other than the  securities  to
which it relates or an offer to sell or the solicitation of an offer to buy such
securities in any circumstances in which such offer or solicitation is unlawful.
Neither the delivery of this Prospectus nor any sale made hereunder shall, under
any  circumstances,  create any implication that there has been no change in the
affairs of the Company since the date hereof or that the  information  contained
herein is correct as of any time subsequent to its date.
---------------

TABLE OF CONTENTS
Page
----

Special Note Regarding Forward-Looking Information...........................................2
Prospectus Summary...........................................................................3
Risk Factors................................................................................10
The Company.................................................................................20
Properties..................................................................................40
Legal Proceedings...........................................................................41
Recent Developments.........................................................................41
Market for Registrant's Common Equity and Related Stockholder Matters...................... 41
Dividend Policy.............................................................................42
Use of Proceeds.............................................................................43
Capitalization..............................................................................43
Selected Financial Data.....................................................................44
Management's Discussion and Analysis of Financial Condition and Results of Operations.......46
Directors, Executive Officers and Certain Significant Employees of the Company..............53
Executive Compensation......................................................................56
Security Ownership and Certain Beneficial Owners and Management ............................61
Certain Relationships and Related Transactions..............................................64
Principal and Selling Stockholders..........................................................68
Description of Capital Stock and Indebtedness...............................................75
Delaware Law and Certain Provisions of the Company's Restated Certificate of Incorporation,
By-Laws and Indebtedness..................................................................92
Certain U.S. Federal Income Tax Considerations..............................................93
Plan of Distribution........................................................................95
Certain Restrictions on Transfer............................................................96
Legal Matters...............................................................................98
Experts.....................................................................................98
Index to Financial Statements...............................................................F-1

HYBRIDON, INC.

641,259 SHARES

SERIES A CONVERTIBLE PREFERRED STOCK
($.01 par value per share)

33,924,878 SHARES

COMMON STOCK
($.001 par value per share)

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:

SEC Registration fee.........................
Printing and engraving expenses..............
Legal fees and expenses......................
Accounting fees and expenses.................
Blue Sky fees and expenses
(including legal fees).....................
Transfer agent and registrar fees
and expenses...............................
Miscellaneous................................
Total..............................

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

II-1

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
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.

The  Company  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.

The  Company 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,
the Company  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.

II-2

(1) On January 20,  1997,  the Company  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.

(2) On January 25,  1997,  the Company 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,  the  Company  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, the Company 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,  the Company  issued to Dr. Paul  Zamecnik,  a
Director of the Company, 50,000 shares of Common Stock of the Company.

(6) On May 5, 1998, the Company accepted $48,694,000 principal amount of
its 9% Notes  tendered to the Company 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 the Company (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 the  Company'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 the Company'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 the Company under any circumstances.

The Exchange  Offer was  undertaken by the Company as part of the
Company'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,  the  Company  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

II-3

Warrants") to purchase 672,273 shares of the Company'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 the Company  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 the  Company's  debt  obligations.  The amounts  actually  expended by the
Company and the purposes of such expenditures may vary  significantly  depending
upon numerous factors,  including the progress of the Company'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  the  Company'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,
the Company may be required to use net proceeds to repay  indebtedness under the
Bank Credit Facility.

(8) On May 5, 1998, the Company 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.

The Common  Stock  issued  pursuant to the Unit  Offering and the
Common Stock  underlying the Class C Warrants 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 the Company  files a
Registration  Statement under the Securities Act, 75% of each holder's Units and
the  underlying  securities  will be subject to an  additional  "lockup" for the
first three months  following the effective date of the  Registration  Statement
(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.

(9) On May 5, 1998, the Company 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, the Company 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 the Company of a total of  $362.50,  the par value of all such issued
Common Stock,  and (ii) the subsequent  furnishing of specified  services to the
Company by each  supplier.  The  extent to which the  suppliers  have  completed
performing the specified services varies.

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 the Company 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;

II-4

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.

Unregistered Offerings Pursuant to Regulation S Under the Securities Act

The securities issued by the Company in the 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.

(11) On January 15, 1998, the Company  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 the Company'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,  the
Company sold $2,230,000 in principal amount of 14% Notes and Equity Warrants.

On  February  9,  1998,  as part of the 14%  Note  Offering,  the
Company sold $2,384,000 in principal amount of 14% Notes and Equity Warrants.

On March 27, 1998, as part of the 14% Note Offering,  the Company
sold $200,000 in principal amount of 14% Notes and Equity Warrants.

On April 21, 1998, as part of the 14% Note Offering,  the Company
sold $300,000 in principal amount of 14% Notes and Equity Warrants.

On April 24, 1998, as part of the 14% Note Offering,  the Company
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.

(12) On May 5, 1998, the Company closed a private placement of 3,223,000
shares of Common Stock and class B warrants (the "Class B Warrants") to purchase
805,750  shares of the  Company'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.

The Common Stock issued in such private  placement and the Common
Stock  underlying  the Class B Warrants  issued in such  private  placement  are
subject to a "lock-up" for a period ending on May 5, 1999,  except to the extent
such  securities  are sold or transferred  pursuant to a Registration  Statement
filed by the  Company  under  the  Securities  Act.  After the  Company  files a
Registration  Statement  under the Securities  Act, 75% of each holder's  Common
Stock,  including  the Common  Stock  underlying  the Class B Warrants,  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.

(13) The Company 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.

II-5

The net proceeds to the Company  from the  Regulation S Offerings
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 the  Company's  debt  obligations.  The amounts  actually  expended by the
Company and the purposes of such expenditures may vary  significantly  depending
upon numerous factors,  including the progress of the Company'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  the  Company'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,
the Company may be required to use net proceeds to repay  indebtedness under the
Bank Credit Facility.

Item 16.  Exhibits and Financial Statement Schedules

(a)     Exhibits:

EXHIBIT INDEX

Exhibit
Number                   Description
- ------                   -----------

3.1(1)                   Restated Certificate of Incorporation of the Registrant, as amended.

3.2(2)                   Amended and Restated By-Laws 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)                   Form of 14% Note Due 2007.

4.5(7)                   Class A Warrant Agreement dated May 5, 1998.

4.6(7)                   Class B Warrant Agreement dated May 5, 1998.

4.7(7)                   Class C Warrant Agreement dated May 5, 1998.

4.8(7)                   Class D Warrant Agreement dated May 5, 1998.

+10.1(2)                 License  Agreement dated February 21, 1990 and restaged 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)                  Lease dated February 4, 1994 between the Registrant and Charles River Building
Limited  Partnership  for space  located at 620 Memorial  Drive,  Cambridge,
Massachusetts.

II-6

10.10(2)                 Series G Convertible Preferred Stock and Warrant Purchase Agreement dated as of
September 9, 1994 among the Registrant and certain Purchasers, as amended (the
"Series G Agreement").

10.11(2)                 Registration Rights Agreement dated as of February 21, 1990 between the Registrant,
the Worcester Foundation for Biomedical Research, Inc. and Paul C. Zamecnik.

10.12(2)                 Registration Rights Agreement dated as of June 25, 1990 between the Registrant and
Nigel L. Webb.

10.13(2)                 Registration Rights Agreement dated as of February 6, 1992 between the Registrant
and E. Andrews Grinstead III.

10.14(2)                 Registration Rights Agreement dated as of February 6, 1992 between the Registrant
and Anthony J. Payne.

++10.15(2)               1990 Stock Option Plan, as amended.

++10.16(2)               1995 Stock Option Plan.

++10.17(2)               1995 Director Stock Plan.

++10.18(2)               1995 Employee Stock Purchase Plan.

10.19(2)                 Form of Warrant to purchase  shares of Series C Convertible  Preferred Stock
originally issued to Pillar Investment Limited (formerly known as Ash Properties
Limited), as amended.

10.20(2)                 Form of Warrant to purchase shares of Common Stock issued in connection with the
issuance of the  Registrant's  series of notes known as its 10%  Convertible
Subordinated Notes due September 16, 1993 and the Registrant's 10% Convertible
Subordinated Note Due March 19, 1993, as amended.

10.21(2)                 Warrant issued to Pillar S.A. to purchase up to 175,000 shares of Common Stock
dated as of December 1, 1992, as amended.

10.22(2)                 Form of Warrant originally issued to Pillar Investment Limited to purchase 427,126
shares of Common Stock dated as of February 15, 1993, as amended.

10.23(2)                 Form of Warrant originally issued to Pillar Investment Limited to purchase 350,000
shares of Common Stock dated as of February 15, 1993, as amended.

10.24(2)                 Warrant issued to Pillar Investment Limited to purchase 500,000 shares of Common
Stock dated as of February 4, 1994, as amended.

10.25(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.

10.26(2)                 Warrant issued to Pillar S.A. to purchase 100,000 shares of Common Stock dated as
of March 1, 1994, as amended.

10.27(2)                 Form of Warrant to purchase shares of Common Stock issued as part of the Units (as
defined in the Series G Agreement) issued and sold to investors pursuant to the Series
G Agreement on or prior to March 31, 1995, as amended.

10.28(2)                 Form of Warrant to purchase shares of Common Stock issued and sold to investors
pursuant to the Series G Agreement after March 31, 1995.

10.29(2)                 Warrant issued to Pillar S.A. to purchase 100,000 shares of Common Stock dated as
of March 1, 1995.

II-7

10.30(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.

++10.31(5)               Employment Agreement dated as of March 1, 1997 between the Registrant and E.
Andrews Grinstead III.

10.32(2)                 Indemnification Agreement dated as of February 6, 1992 between the Registrant and
E. Andrews Grinstead III.

++10.33(6)               Employment Agreement dated March 1, 1997 between the Registrant and Dr. Sudhir
Agrawal.

++10.34(2)               Consulting Agreement dated as of February 21, 1990 between the Registrant and Dr.
Paul C. Zamecnik.

10.35(2)                 Consulting Agreement dated as of March 1, 1994 between the Registrant and Pillar
S.A.

10.36(2)                 Consulting Agreement dated as of July 8, 1995 between the Registrant and Pillar
S.A., as amended.

10.37(2)                 Master Lease  Agreement dated as of March 1, 1994 between the Registrant and
General Electric Capital Corporation.

10.38(2)                 First Amendment to Lease dated as of November 30, 1995 between the Registrant
and Charles River Building Limited Partnership for space located at 620 Memorial
Drive, Cambridge, Massachusetts.

+10.39(6)                Research, Development and License Agreement dated as of January 24, 1996 between
the Registrant and G.D. Searle & Co.

+10.40(6)                Manufacturing  and Supply Agreement dated as of January 24, 1996 between the
Registrant and G.D. Searle & Co.

10.41(6)                 Registration Rights Agreement  dated as of January 24, 1996 between the Registrant
and G.D. Searle & Co.

10.42(6)                 Second Amendment to Lease dated as of February 23, 1996 between the Registrant
and Charles River Building Limited Partnership for space located at 620 Memorial
Drive, Cambridge, Massachusetts.

10.43(6)                 Third Amendment to Lease dated as of February 28, 1996 between the Registrant and
Charles River Building Limited Partnership for space located at 620 Memorial Drive,
Cambridge, Massachusetts.

10.44(5)                 Fourth Amendment to Lease dated as of July 25, 1996 between the Registrant and
Charles River Building Limited Partnership for space located at 620 Memorial Drive,
Cambridge, Massachusetts.

10.45(5)                 Fifth Amendment to Lease dated as of March 14, 1997 between the Registrant and
Charles River Building Limited Partnership for space located at 620 Memorial Drive,
Cambridge, Massachusetts.

10.46(5)                 Loan and Security Agreement dated as of December 31, 1996 between the Registrant
and Silicon Valley Bank.

10.47(7)                 First Amendment to Loan and Security  Agreement dated March 30, 1998 between
Hybridon, Inc. and Silicon Valley Bank.

10.48(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.

II-8

10.49(9)                 Third  Amendment to Loan and Security  Agreement  dated  September  18, 1998
between Hybridon, Inc. and Silicon Valley Bank.

10.50(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.

10.51(5)                 Warrant issued to Silicon Valley Bank to purchase 65,000 shares of Common Stock
dated as of December 31, 1996.

10.52(5)                 Registration Rights Agreement dated as of December 31, 1996 between the Registrant
and Silicon Valley Bank.

10.53(5)                 Master  Equipment  Lease  Agreement dated as of October 25, 1996 between the
Registrant and Finova Technology Finance, Inc.

+++10.54(5)              Supply and Sales Agreement dated as of September 1, 1996 between the Registrant
and P.E. Applied Biosystems.

10.55(2)                 Registration Rights Agreement dated as of March 26, 1997 between Forum Capital
Markets LLC and the Registrant.

10.56(2)                 Warrant  Agreement  dated as of March 26, 1997 between Forum Capital Markets
LLC and the Registrant.

+++10.57(6)              Amendment No. 1 to License Agreement, dated as 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.

10.58(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.

10.59(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.

10.60(10)                Sixth Amendment to Lease dated as April 1997 between the Registrant and Charles
River Building Limited  Partnership for space located at 620 Memorial Drive,
Cambridge, Massachusetts.

10.61(1)                 Consent Agreement dated January 15, 1998 between Silicon Valley Bank and the
Registrant relating to the Silicon Agreement.

10.62(3)                 Form of Unit  Purchase  Agreement  (the "Unit  Purchase
Agreement")  in  connection  with the sale of Notes due
2007  by  and  among   the   Registrant   and   certain
purchasers.

10.63(3)                 Form of Notes due 2007 of the Registrant issued to or issuable pursuant to the Unit
Purchase Agreement.

10.64(3)                 Form of Warrants of the Registrant issued or issuable pursuant to the Unit Purchase
Agreement.

21.1(2)                  Subsidiaries of the Registrant.

23.1                     Consent of Arthur Andersen LLP.

23.2                     Consent of McDonnell Boehnen Hulbert & Berghoff.

27.1(1)                  Financial Data Schedule [EDGAR] - Year Ended December 31, 1997.

27.2(1)                  Financial Data Schedule [EDGAR] - Year Ended December 31, 1996.

II-9

27.3(7)                  Financial Data Schedule [EDGAR] - for period ended March 31, 1998.

27.4(8)                  Financial Data Schedule [EDGAR] - for period ended June 30, 1998.

27.5(9)                  Financial Data Schedule [EDGAR] - for period ended September 30, 1998.

99.1                     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.

99.2(7)                  Financial Advisory Agreement between Registrant and Pillar Investments Ltd. dated
May 5, 1998.

99.3(7)                  Placement Agency Agreement between Registrant and Pillar Investments Ltd. dated
as of January 15, 1998.
- --------------------------------
*  To be filed by Amendment

(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.

+    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-10

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:

(i) To include  any  Prospectus  required  by Section  10(a)(3)  of the
Securities Act of 1933;

(ii) 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.

(iii) 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.

II-11

(2)  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.

(3) 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-12

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 18, 1998

HYBRIDON,  INC.

By:/s/  E. ANDREWS GRINSTEAD III
------------------------------
E. Andrews Grinstead III
Chairman, Chief Executive Officer

POWER OF ATTORNEY AND SIGNATURES

We, the  undersigned  officers  and  directors  of  Hybridon,  Inc.,  hereby
severally  constitute  and  appoint  E.  Andrews  Grinstead  III and  Robert G.
Andersen and each of them singly, our true and lawful attorneys, with full power
to them and each of them singly,  to sign for us in our names in the  capacities
indicated   below,   all   pre-effective   and   post-effective   amendments  to
thisRregistration  Statement and any related subsequent  Registration  Statement
pursuant to Rule 462(b) of the Securities Act of 1933, as amended, and generally
to do all  things in our names and on our  behalf in such  capacities  to enable
Hybridon,  Inc. to comply with the  provisions of the Securities Act of 1933, as
amended, and all requirements of the Securities and Exchange Commission.

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.

Signatures                                  Title(s)                         Date

/s/ E. ANDREWS GRINSTEAD  III               Chairman,   Chief   Executive        December 18, 1998
- -----------------------------               Officer and Director
E. Andrews Grinstead  III

/s/      SUDHIR      AGRAWAL                Senior  Vice   President  and
- -----------------------------               Director
Dr. Sudhir Agrawal                                                               December 18, 1998

/s/   JAMES   B.    WYNGAARDEN
- -----------------------------
Dr. James B. Wyngaarden                     Director                             December 17, 1998

/s/ NASSER MENHALL
- -----------------------------               Director                             December 18, 1998
Mr. Nasser Menhall

/s/    PAUL   C.    ZAMENCNIK               Director                             December 17, 1998
- -----------------------------
Dr. Paul C. Zamecnik

/s/ YOUSSEF EL-ZEIN
- -----------------------------               Director                             December 18, 1998
Mr. Youssef El-Zein

- -----------------------------               Director                             December __, 1998
Mr. Art Berry

- -----------------------------S              Director                             December __, 1998
Sheikh Mohamed El-Khereiji

/s/ HAROLD L. PURKEY                        Director                             December 17, 1998
- --------------------
Mr. Harold L. Purkey

EXHIBIT INDEX

Exhibit
Number                   Description
- ------                   -----------

3.1(1)                   Restated Certificate of Incorporation of the Registrant, as amended.

3.2(2)                   Amended and Restated By-Laws 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)                   Form of 14% Note Due 2007.

4.5(7)                   Class A Warrant Agreement, dated May 5, 1998.

4.6(7)                   Class B Warrant Agreement, dated May 5, 1998.

4.7(7)                   Class C Warrant Agreement, dated May 5, 1998.

4.8(7)                   Class D Warrant Agreement, dated May 5, 1998.

+10.1(2)                 License  Agreement dated February 21, 1990 and restaged 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)                  Lease dated February 4, 1994 between the Registrant and Charles River Building
Limited  Partnership  for space  located at 620 Memorial  Drive,  Cambridge,
Massachusetts.

II-13

10.10(2)                 Series G Convertible Preferred Stock and Warrant Purchase Agreement dated as of
September 9, 1994 among the Registrant and certain Purchasers, as amended (the
"Series G Agreement").

10.11(2)                 Registration Rights Agreement dated as of February 21, 1990 between the Registrant,
the Worcester Foundation for Biomedical Research, Inc. and Paul C. Zamecnik.

10.12(2)                 Registration Rights Agreement dated as of June 25, 1990 between the Registrant and
Nigel L. Webb.

10.13(2)                 Registration Rights Agreement dated as of February 6, 1992 between the Registrant
and E. Andrews Grinstead III.

10.14(2)                 Registration Rights Agreement dated as of February 6, 1992 between the Registrant
and Anthony J. Payne.

++10.15(2)               1990 Stock Option Plan, as amended.

++10.16(2)               1995 Stock Option Plan.

++10.17(2)               1995 Director Stock Plan.

++10.18(2)               1995 Employee Stock Purchase Plan.

10.19(2)                 Form of Warrant to purchase  shares of Series C Convertible  Preferred Stock
originally issued to Pillar Investment Limited (formerly known as Ash Properties
Limited), as amended.

10.20(2)                 Form of Warrant to purchase shares of Common Stock issued in connection with the
issuance of the  Registrant's  series of notes known as its 10%  Convertible
Subordinated Notes due September 16, 1993 and the Registrant's 10% Convertible
Subordinated Note Due March 19, 1993, as amended.

10.21(2)                 Warrant issued to Pillar S.A. to purchase up to 175,000 shares of Common Stock
dated as of December 1, 1992, as amended.

10.22(2)                 Form of Warrant originally issued to Pillar Investment Limited to purchase 427,126
shares of Common Stock dated as of February 15, 1993, as amended.

10.23(2)                 Form of Warrant originally issued to Pillar Investment Limited to purchase 350,000
shares of Common Stock dated as of February 15, 1993, as amended.

10.24(2)                 Warrant issued to Pillar Investment Limited to purchase 500,000 shares of Common
Stock dated as of February 4, 1994, as amended.

10.25(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.

10.26(2)                 Warrant issued to Pillar S.A. to purchase 100,000 shares of Common Stock dated as
of March 1, 1994, as amended.

10.27(2)                 Form of Warrant to purchase shares of Common Stock issued as part of the Units (as
defined in the Series G Agreement) issued and sold to investors pursuant to the Series
G Agreement on or prior to March 31, 1995, as amended.

10.28(2)                 Form of Warrant to purchase shares of Common Stock issued and sold to investors
pursuant to the Series G Agreement after March 31, 1995.

10.29(2)                 Warrant issued to Pillar S.A. to purchase 100,000 shares of Common Stock dated as
of March 1, 1995.

II-14

10.30(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.

++10.31(5)               Employment Agreement dated as of March 1, 1997 between the Registrant and E.
Andrews Grinstead III.

10.32(2)                 Indemnification Agreement dated as of February 6, 1992 between the Registrant and
E. Andrews Grinstead III.

++10.33(6)               Employment Agreement dated March 1, 1997 between the Registrant and Dr. Sudhir
Agrawal.

++10.34(2)               Consulting Agreement dated as of February 21, 1990 between the Registrant and Dr.
Paul C. Zamecnik.

10.35(2)                 Consulting Agreement dated as of March 1, 1994 between the Registrant and Pillar
S.A.

10.36(2)                 Consulting Agreement dated as of July 8, 1995 between the Registrant and Pillar
S.A., as amended.

10.37(2)                 Master Lease  Agreement dated as of March 1, 1994 between the Registrant and
General Electric Capital Corporation.

10.38(2)                 First Amendment to Lease dated as of November 30, 1995 between the Registrant
and Charles River Building Limited Partnership for space located at 620 Memorial
Drive, Cambridge, Massachusetts.

+10.39(6)                Research, Development and License Agreement dated as of January 24, 1996 between
the Registrant and G.D. Searle & Co.

+10.40(6)                Manufacturing  and Supply Agreement dated as of January 24, 1996 between the
Registrant and G.D. Searle & Co.

10.41(6)                 Registration Rights Agreement  dated as of January 24, 1996 between the Registrant
and G.D. Searle & Co.

10.42(6)                 Second Amendment to Lease dated as of February 23, 1996 between the Registrant
and Charles River Building Limited Partnership for space located at 620 Memorial
Drive, Cambridge, Massachusetts.

10.43(6)                 Third Amendment to Lease dated as of February 28, 1996 between the Registrant and
Charles River Building Limited Partnership for space located at 620 Memorial Drive,
Cambridge, Massachusetts.

10.44(5)                 Fourth Amendment to Lease dated as of July 25, 1996 between the Registrant and
Charles River Building Limited Partnership for space located at 620 Memorial Drive,
Cambridge, Massachusetts.

10.45(5)                 Fifth Amendment to Lease dated as of March 14, 1997 between the Registrant and
Charles River Building Limited Partnership for space located at 620 Memorial Drive,
Cambridge, Massachusetts.

10.46(5)                 Loan and Security Agreement dated as of December 31, 1996 between the Registrant
and Silicon Valley Bank.

10.47(7)                 First Amendment to Loan and Security  Agreement dated March 30, 1998 between
Hybridon, Inc. and Silicon Valley Bank.

10.48(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.

II-15

10.49(9)                 Third  Amendment to Loan and Security  Agreement  dated  September  18, 1998
between Hybridon, Inc. and Silicon Valley Bank.

10.50(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.

10.51(5)                 Warrant issued to Silicon Valley Bank to purchase 65,000 shares of Common Stock
dated as of December 31, 1996.

10.52(5)                 Registration Rights Agreement dated as of December 31, 1996 between the Registrant
and Silicon Valley Bank.

10.53(5)                 Master  Equipment  Lease  Agreement dated as of October 25, 1996 between the
Registrant and Finova Technology Finance, Inc.

+++10.54(5)              Supply and Sales Agreement dated as of September 1, 1996 between the Registrant
and P.E. Applied Biosystems.

10.55(2)                 Registration Rights Agreement dated as of March 26, 1997 between Forum Capital
Markets LLC and the Registrant.

10.56(2)                 Warrant  Agreement  dated as of March 26, 1997 between Forum Capital Markets
LLC and the Registrant.

+++10.57(6)              Amendment No. 1 to License Agreement, dated as 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.

10.58(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.

10.59(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.

10.60(10)                Sixth Amendment to Lease dated as April 1997 between the Registrant and Charles
River Building Limited  Partnership for space located at 620 Memorial Drive,
Cambridge, Massachusetts.

10.61(1)                 Consent Agreement dated January 15, 1998 between Silicon Valley Bank and the
Registrant relating to the Silicon Agreement.

10.62(3)                 Form of Unit  Purchase  Agreement  (the "Unit  Purchase
Agreement")  in  connection  with the sale of Notes due
2007  by  and  among   the   Registrant   and   certain
purchasers.

10.63(3)                 Form of Notes due 2007 of the Registrant issued to or issuable pursuant to the Unit
Purchase Agreement.

10.64(3)                 Form of Warrants of the Registrant issued or issuable pursuant to the Unit Purchase
Agreement.

21.1(2)                  Subsidiaries of the Registrant.

23.1                     Consent of Arthur Andersen LLP.

23.2                     Consent of McDonnell Boehnen Hulbert & Berghoff.

27.1(1)                  Financial Data Schedule [EDGAR] - Year Ended December 31, 1997.

27.2(1)                  Financial Data Schedule [EDGAR] - Year Ended December 31, 1996.

II-16

27.3(7)                  Financial Data Schedule [EDGAR] - for period ended March 31, 1998.

27.4(8)                  Financial Data Schedule [EDGAR] - for period ended June 30, 1998.

27.5(9)                  Financial Data Schedule [EDGAR] - for period ended September 30, 1998.

99.1                     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.

99.2(7)                  Financial Advisory Agreement between Registrant and Pillar Investments Ltd. dated
May 5, 1998.

99.3(7)                  Placement Agency Agreement between Registrant and Pillar Investments Ltd. dated
as of January 15, 1998.
- --------------------------------
*  To be filed by Amendment

(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.

+    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

EXHIBIT 23.1

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As  independent  public  accounts,  we hereby consent to the use of our
report (and to all  references  to our Firm)  included in or made a part of this
Registration Statement.

/s/ARTHUR ANDERSEN LLP

Boston, Massachusetts
December 22, 1998

[LETTERHEAD OF MCDONNELL, BOEHNEN, HULBERT & BERGHOFF]

December 21, 1998

Hybridon, Inc.
155 Fortune Blvd.
Milford, MA 01757

RE:  Hybridon, Inc. -- Registration Statement on Form S-1

Dear Sirs:  

McDonnell, Boehnen, Hulbert & Berghoff hereby consents to the reference
to our firm  under  the  section  "The  Company -  Patents,  Trade  Secrets  and
Licenses" included in this Registration Statement on Form S-1 of Hybridon, Inc.

Very truly yours,

/s/ John J. McDonnell
---------------------
John J. McDonnell

November 13, 1998

Forum Capital Markets LLC
53 Forest Avenue
Old Greenwich, CT  06870
Attention:  Mr. C. Keith Hartley

Pecks Management Partners Ltd.
100 Rockefeller Plaza, Suite 900
New York, NY  10020
Attention:  Mr. Arthur Berry

Dear Sirs:

This letter sets forth our agreement in respect of the purchase by Forum
Capital  Markets,  LLC ("Forum") and Pecks  Management  Partners Ltd.  ("Pecks";
Forum and Pecks  collectively,  the "Lender") of the loan made by Silicon Valley
Bank to Hybridon,  Inc. ("Hybridon") pursuant to the Loan and Security Agreement
dated  December 31, 1996, as amended (the "Loan").  The terms of the purchase of
the Loan are as follows:

1.      The Lender will purchase the Loan as soon as practicable.

2.      The  Lender  will  lend an  additional  amount  to  Hybridon  as soon as
practicable  so that the  outstanding  principal  amount  of the Loan is
increased to $6,000,000.

3.      The terms of the Loan will be amended as follows:

(a)    Maturity:  November 30, 2003.

(b)    Interest Rate:  8% for the term of the Loan.

(c)    Amortization:   Interest  is  payable  monthly  in  arrears;  the
principal is due in full at maturity of the Loan.

(d)    Conversion: The Loan will be convertible, at the Lender's option,
in whole or in part, into shares of common stock, par value $.001
per share,  of Hybridon  ("Common  Stock") at a rate equal to the
mid-point between the bid and ask price on the date of closing of
the purchase of the Loan.

(e)    Covenants:  The threshold of the Minimum Liquidity  covenant will
be reduced from $4,000,000 to $2,000,000.

Forum Capital Markets, LLC
Pecks Management Partners, Ltd.
November 13, 1998
Page 2

(f)    Prepayment:  The Loan may not be prepaid, in whole or in part, at
any time prior to December 1, 2000.

4.      The other terms of the Loan will remain unchanged.

5.      Forum will receive a fee of $400,000,  which will be reinvested by Forum
by purchasing  from Hybridon either (a) shares of Hybridon stock (either
Common Stock or Preferred Stock) and  accompanying  warrants on the same
terms as are sold to investors  in  Hybridon's  next equity  offering to
occur after the date of this letter (the "Placement Price") or (b) if no
equity offering is consummated  prior to May 1, 1999,  160,000 shares of
Hybridon  Common  Stock and  warrants to purchase an  additional  40,000
shares of Hybridon  Stock at $3.00 per share.  In  addition,  Forum will
receive  warrants  exercisable  until  maturity  of the Loan to purchase
$400,000 of shares of Common Stock priced at  the Placement Price, or if
no equity  offering is  consummated  prior to May 1, 1999,  at $3.00 per
share.  These shares and warrants will be issued as soon as  practicable
following  satisfaction  of Section  4.10 of the  Indenture  dated as of
March 26, 1997, governing  Hybridon's 9% Convertible  Subordinated Notes
due 2004.

If this letter correctly sets forth our agreement, please so acknowledge
by signing in the space  indicated  below and returning a copy of this letter to
the undersigned by telecopier. Counterparts are, of course, acceptable.

Very truly yours,

HYBRIDON, INC.

By:     /s/ E. A. Grinstead  III
-----------------------------------
Name:  E. Andrews Grinstead  III
Title:  President, CEO and Chairman

AGREED AND ACCEPTED                         AGREED AND ACCEPTED
as of November 16, 1998:                    as of November 16, 1998:

FORUM CAPITAL MARKETS, LLC                  PECKS MANAGEMENT PARTNERS
LTD.

By:     /s/ C. Keith Hartley                 By:   /s/ Arthur W. Berry
------------------------------             ---------------------------
Name: C. Keith Hartley                     Name:  Arthur W. Berry
Title: Senior Managing Partner             Title: Chairman