Case 1:21-cv-00172 Document 1 Filed 01/08/21 Page 1 of 10
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`UNITED STATES DISTRICT COURT
`SOUTHERN DISTRICT OF NEW YORK
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`Plaintiff,
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`HESAM PIRJAMAAT,
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`Case No. ______________
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`JURY TRIAL DEMANDED
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`v.
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`SENECA BIOPHARMA, INC., KENNETH
`C. CARTER, CRISTINA CSIMMA, MARY
`ANN GRAY, DAVID MAZZO, BINXIAN
`WEI, TOWNSGATE ACQUISITION SUB I,
`INC., and LEADING BIOSCIENCES, INC.,
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`Defendants.
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`COMPLAINT FOR VIOLATION OF THE SECURITIES EXCHANGE ACT OF 1934
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`Plaintiff, by his undersigned attorneys, for this complaint against defendants, alleges upon
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`personal knowledge with respect to himself, and upon information and belief based upon, inter
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`alia, the investigation of counsel as to all other allegations herein, as follows:
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`NATURE OF THE ACTION
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`1.
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`On December 16, 2020, Seneca Biopharma, Inc.’s (“Seneca” or the “Company”)
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`Board of Directors (the “Board” or “Individual Defendants”) caused Seneca to enter into an
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`agreement and plan of merger (the “Merger Agreement”) with Townsgate Acquisition Sub 1, Inc.
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`(“Merger Sub”) and Leading BioSciences, Inc. (“Leading BioSciences” or “LBS”).
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`2.
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`Pursuant to the terms of the Merger Agreement, among other things: (i) Merger Sub
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`will merge with and into Leading BioSciences, with Leading BioSciences surviving as a wholly-
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`owned subsidiary of Seneca; and (ii) each share of Leading BioSciences’ common stock will be
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`converted into shares of Seneca common stock (the “Proposed Transaction”).
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`Case 1:21-cv-00172 Document 1 Filed 01/08/21 Page 2 of 10
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`3.
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`On December 23, 2020, defendants filed a Form S-4 Registration Statement (the
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`“Registration Statement”) with the United States Securities and Exchange Commission (“SEC”)
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`in connection with the Proposed Transaction.
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`4.
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`The Registration Statement omits material information with respect to the Proposed
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`Transaction, which renders the Registration Statement false and misleading. Accordingly, plaintiff
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`alleges herein that defendants violated Sections 14(a) and 20(a) of the Securities Exchange Act of
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`1934 (the “1934 Act”) in connection with the Registration Statement.
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`JURISDICTION AND VENUE
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`5.
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`This Court has jurisdiction over the claims asserted herein pursuant to Section 27
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`of the 1934 Act because the claims asserted herein arise under Sections 14(a) and 20(a) of the 1934
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`Act and Rule 14a-9.
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`6.
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`This Court has jurisdiction over defendants because each defendant is either a
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`corporation that conducts business in and maintains operations within this District, or is an
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`individual with sufficient minimum contacts with this District so as to make the exercise of
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`jurisdiction by this Court permissible under traditional notions of fair play and substantial justice.
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`7.
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`Venue is proper under 28 U.S.C. § 1391(b) because a portion of the transactions
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`and wrongs complained of herein occurred in this District.
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`PARTIES
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`8.
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`Plaintiff is, and has been continuously throughout all times relevant hereto, the
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`owner of Seneca common stock.
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`9.
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`Defendant Seneca is a Delaware corporation and a party to the Merger Agreement.
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`Seneca’s common stock is traded on the NASDAQ, which is headquartered in New York, New
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`York, under the ticker symbol “SNCA.”
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`Case 1:21-cv-00172 Document 1 Filed 01/08/21 Page 3 of 10
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`Defendant Kenneth C. Carter is Chairman of the Board of the Company.
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`Defendant Cristina Csimma is a director of the Company.
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`Defendant Mary Ann Gray is a director of the Company.
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`Defendant David Mazzo is a director of the Company.
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`Defendant Binxian Wei is a director of the Company.
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`The defendants identified in paragraphs 10 through 14 are collectively referred to
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`10.
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`11.
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`12.
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`13.
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`14.
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`15.
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`herein as the “Individual Defendants.”
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`16.
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`Defendant Merger Sub is a Delaware corporation, a wholly-owned subsidiary of
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`Seneca, and a party to the Merger Agreement.
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`17.
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`Defendant Leading BioSciences is a Delaware corporation and a party to the
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`Merger Agreement.
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`Background of the Proposed Transaction
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`SUBSTANTIVE ALLEGATIONS
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`18.
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`On December 16, 2020, Seneca’s Board caused the Company to enter into the
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`Merger Agreement with Merger Sub and Leading BioSciences.
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`19.
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`Pursuant to the terms of the Merger Agreement, among other things: (i) Merger Sub
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`will merge with and into Leading BioSciences, with Leading BioSciences surviving as a wholly-
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`owned subsidiary of Seneca; and (ii) each share of Leading BioSciences’ common stock will be
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`converted into shares of Seneca common stock.
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`20.
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`According to the press release announcing the Proposed Transaction:
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`Seneca Biopharma, Inc. (Nasdaq: SNCA) (“Seneca”), and Leading BioSciences,
`Inc. (“LBS”), a privately held company focused on developing novel therapeutics
`to improve human health through therapeutic protection of the gastrointestinal
`(“GI”) mucosal barrier, announced today that they have entered into a definitive
`agreement under which a wholly owned subsidiary of Seneca will merge with LBS
`in an all-stock transaction. The combined company will focus on advancing LBS’s
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`lead pipeline asset, LB1148, in clinical studies to evaluate its potential to improve
`restoration of normal GI function following major surgery and reduce certain
`postoperative complications such as abdominal adhesions. Upon completion of the
`merger, the company is expected to operate under the name Palisade Bio, Inc. and
`trade on the Nasdaq Capital Market under the ticker symbol PALI. . . .
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`About the Proposed Transaction
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`The merger is structured as a stock-for-stock transaction whereby all of LBS’s
`outstanding shares of capital stock and securities exercisable for LBS’s common
`stock will be exchanged for Seneca common stock and securities exercisable
`for Seneca common stock. On a pro forma basis and based upon the number of
`shares of Seneca common stock to be issued or issuable in the merger, it is
`anticipated that Seneca equity holders immediately following the merger will own
`approximately 26.2% of the combined company and LBS equity holders (inclusive
`of investors in the financing) immediately following the merger will own
`approximately 73.8% of the combined company on a fully diluted basis using an
`adjusted treasury stock method.
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`Shareholders of Seneca will also receive one contingent value right (“CVR”) for
`each share of Seneca common stock (including any warrants exercisable for shares
`of Seneca common stock) as a dividend. This will entitle the holder to receive, in
`certain circumstances, a certain percentage the net proceeds, if any, derived from
`the sale or license of the intellectual property of Seneca. Full details of the CVR
`agreement will be contained in Seneca’s S-4 to be filed with the SEC.
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`to adjustment based
`Final share exchange allocations will be subject
`on Seneca’s net cash balance at the time of closing. The transaction has been
`approved by the board of directors of both companies. The merger is expected to
`close in the first half of 2021 subject to the approval of Seneca stockholders at a
`special stockholder meeting, the approval of LBS stockholders, the closing of the
`financing, as well as other customary conditions.
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`Solebury Trout LLC is acting as financial advisor to Seneca for the transaction and
`Silvestre Law Group, P.C. is serving as legal counsel to Seneca. Evolution Venture
`Partners is acting as financial advisor to LBS, and Cooley LLP is serving as legal
`counsel to LBS.
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`The Registration Statement Omits Material Information, Rendering It False and Misleading
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`21.
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`Defendants filed the Registration Statement with the SEC in connection with the
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`Proposed Transaction.
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`22.
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`As set forth below, the Registration Statement omits material information.
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`23.
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`First, the Registration Statement omits the Company’s and LBS’s financial
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`projections.
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`24.
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`The disclosure of projected financial information is material because it provides
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`stockholders with a basis to project the future financial performance of a company, and allows
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`stockholders to better understand the financial analyses performed by the company’s financial
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`advisor in support of its fairness opinion.
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`25.
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`Second, the Registration Statement omits material information regarding the
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`analyses performed by the Company’s financial advisor in connection with the Proposed
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`Transaction, Cassel Salpeter & Co., LLC (“CS”).
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`26. With respect to CS’s Selected Companies Analysis, the Registration Statement fails
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`to disclose: (i) the individual multiples and metrics for the companies observed in the analysis; and
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`(ii) CS’s basis for assigning an implied equity value reference range for LBS of $58,400,000 to
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`$87,600,000 in the aggregate.
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`27. With respect to CS’s Selected Initial Public Offerings Analysis, the Registration
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`Statement fails to disclose: (i) the individual multiples and metrics for the IPOs observed in the
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`analysis; (ii) CS’s basis for applying a multiple range of 0.7x to 1.0x; and (iii) CS’s basis for
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`assigning an implied equity value reference range for LBS of $58,100,000 to $82,900,000 in the
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`aggregate.
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`28. When a banker’s endorsement of the fairness of a transaction is touted to
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`shareholders, the valuation methods used to arrive at that opinion as well as the key inputs and
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`range of ultimate values generated by those analyses must also be fairly disclosed.
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`29.
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`Third, the Registration Statement omits material information regarding the process
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`leading up to the execution of the Merger Agreement.
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`30.
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`The Registration Statement fails to disclose the number and terms of the non-
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`disclosure agreements executed by the Company during the process leading up to the execution of
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`the Merger Agreement, including whether they contained standstill and/or “don’t ask, don’t waive”
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`provisions.
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`31.
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`The Registration Statement fails to disclose the terms and values of the proposals
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`and indications of interest submitted during the process leading up to the execution of the Merger
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`Agreement.
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`32.
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`The Company’s stockholders are entitled to an accurate description of the process
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`leading up to the Proposed Transaction
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`33.
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`Fourth, the Registration Statement omits material information regarding the
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`Company’s additional financial advisors, Hibiscus Bioventures (“Hibiscus”) and Solebury Capital
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`LLC (“Solebury”).
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`34.
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`The Registration Statement fails to disclose the terms of Hibiscus’ and Solebury’s
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`engagements, including: (i) the amount of compensation the financial advisors have received or
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`will receive in connection with their engagements; (ii) the amount of the financial advisors’
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`compensation that is contingent upon the consummation of the Proposed Transaction; (iii) whether
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`the financial advisors have performed past services for any parties to the Merger Agreement or
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`their affiliates; (iv) the timing and nature of such services; and (v) the amount of compensation
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`received by the financial advisors for providing such services.
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`35.
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`The Registration Statement also fails to disclose any financial analyses performed
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`by Hibiscus and Solebury.
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`36.
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`The omission of the above-referenced material information renders the Registration
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`Statement false and misleading.
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`37.
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`The above-referenced omitted information, if disclosed, would significantly alter
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`the total mix of information available to the Company’s stockholders.
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`COUNT I
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`Claim for Violation of Section 14(a) of the 1934 Act and Rule 14a-9 Promulgated
`Thereunder Against the Individual Defendants and Seneca
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`38.
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`39.
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`Plaintiff repeats and realleges the preceding allegations as if fully set forth herein.
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`The Individual Defendants disseminated the false and misleading Registration
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`Statement, which contained statements that, in violation of Section 14(a) of the 1934 Act and Rule
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`14a-9, in light of the circumstances under which they were made, omitted to state material facts
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`necessary to make the statements therein not materially false or misleading. Seneca is liable as
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`the issuer of these statements.
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`40.
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`The Registration Statement was prepared, reviewed, and/or disseminated by the
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`Individual Defendants. By virtue of their positions within the Company, the Individual Defendants
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`were aware of this information and their duty to disclose this information in the Registration
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`Statement.
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`41.
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`The Individual Defendants were at least negligent in filing the Registration
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`Statement with these materially false and misleading statements.
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`42.
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`The omissions and false and misleading statements in the Registration Statement
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`are material in that a reasonable stockholder will consider them important in deciding how to vote
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`on the Proposed Transaction. In addition, a reasonable investor will view a full and accurate
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`disclosure as significantly altering the total mix of information made available in the Registration
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`Statement and in other information reasonably available to stockholders.
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`43.
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`The Registration Statement is an essential link in causing plaintiff to approve the
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`Proposed Transaction.
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`44.
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`By reason of the foregoing, defendants violated Section 14(a) of the 1934 Act and
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`Rule 14a-9 promulgated thereunder.
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`45.
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`Because of the false and misleading statements in the Registration Statement,
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`plaintiff is threatened with irreparable harm.
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`COUNT II
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`Claim for Violation of Section 20(a) of the 1934 Act
`Against the Individual Defendants and Leading BioSciences
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`46.
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`47.
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`Plaintiff repeats and realleges the preceding allegations as if fully set forth herein.
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`The Individual Defendants and Leading BioSciences acted as controlling persons
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`of Seneca within the meaning of Section 20(a) of the 1934 Act as alleged herein. By virtue of their
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`positions as officers and/or Board members of Seneca and participation in and/or awareness of the
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`Company’s operations and/or intimate knowledge of the false statements contained in the
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`Registration Statement, they had the power to influence and control and did influence and control,
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`directly or indirectly, the decision making of the Company, including the content and
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`dissemination of the various statements that plaintiff contends are false and misleading.
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`48.
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`Each of the Individual Defendants and Leading BioSciences was provided with or
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`had unlimited access to copies of the Registration Statement alleged by plaintiff to be misleading
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`prior to and/or shortly after these statements were issued and had the ability to prevent the issuance
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`of the statements or cause them to be corrected.
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`49.
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`In particular, each of the Individual Defendants had direct and supervisory
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`involvement in the day-to-day operations of the Company, and, therefore, is presumed to have had
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`the power to control and influence the particular transactions giving rise to the violations as alleged
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`herein, and exercised the same. The Registration Statement contains the unanimous
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`recommendation of the Individual Defendants to approve the Proposed Transaction. They were
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`thus directly involved in the making of the Registration Statement.
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`50.
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`Leading BioSciences also had supervisory control over the composition of the
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`Registration Statement and the information disclosed therein, as well as the information that was
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`omitted and/or misrepresented in the Registration Statement.
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`51.
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`By virtue of the foregoing, the Individual Defendants and Leading BioSciences
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`violated Section 20(a) of the 1934 Act.
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`52.
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`As set forth above, the Individual Defendants and Leading BioSciences had the
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`ability to exercise control over and did control a person or persons who have each violated Section
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`14(a) of the 1934 Act and Rule 14a-9, by their acts and omissions as alleged herein. By virtue of
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`their positions as controlling persons, these defendants are liable pursuant to Section 20(a) of the
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`1934 Act. As a direct and proximate result of defendants’ conduct, plaintiff is threatened with
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`irreparable harm.
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`PRAYER FOR RELIEF
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`WHEREFORE, plaintiff prays for judgment and relief as follows:
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`A.
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`Preliminarily and permanently enjoining defendants and all persons acting in
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`concert with them from proceeding with, consummating, or closing the Proposed Transaction;
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`B.
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`In the event defendants consummate the Proposed Transaction, rescinding it and
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`setting it aside or awarding rescissory damages;
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`C.
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`Directing the Individual Defendants to disseminate a Registration Statement that
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`does not contain any untrue statements of material fact and that states all material facts required in
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`it or necessary to make the statements contained therein not misleading;
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`D.
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`Declaring that defendants violated Sections 14(a) and/or 20(a) of the 1934 Act, as
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`well as Rule 14a-9 promulgated thereunder;
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`E.
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`Awarding plaintiff the costs of this action, including reasonable allowance for
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`plaintiff’s attorneys’ and experts’ fees; and
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`F.
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`Granting such other and further relief as this Court may deem just and proper.
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`Plaintiff hereby requests a trial by jury on all issues so triable.
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`JURY DEMAND
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`Dated: January 8, 2021
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`By:
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`RIGRODSKY & LONG, P.A.
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`/s/ Timothy J. MacFall
`Seth D. Rigrodsky
`Timothy J. MacFall
`Gina M. Serra
`Vincent A. Licata
`825 East Gate Boulevard, Suite 300
`Garden City, NY 11530
`Telephone: (516) 683-3516
`Email: sdr@rl-legal.com
`Email: tjm@rl-legal.com
`Email: gms@rl-legal.com
`Email: vl@rl-legal.com
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`Attorneys for Plaintiff
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