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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 0-26244
SEQUANA THERAPEUTICS, INC.
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(Exact name of registrant as specified in its charter)
California 33-0550509
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
11099 N. Torrey Pines Road, Suite 160, La Jolla, CA 92037
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(Address of principal executive offices) (Zip code)
(619) 452-6550
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(Registrant's telephone number, including area code)
Not Applicable
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or such shorter period that the registrant was required
to file such reports and (2) has been subject to such filing requirements for
the past 90 days -- Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
Outstanding at
Class October 31, 1996
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<S> <C>
Common Stock, $.001 par value 10,081,367
</TABLE>
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SEQUANA THERAPEUTICS, INC.
FORM 10-Q
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
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<S> <C>
COVER PAGE.................................................................. 1
TABLE OF CONTENTS........................................................... 2
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Balance Sheets at September 30, 1996 and December 31, 1995......... 3
Statements of Operations for the Three Months and Nine Months
ended September 30, 1996 and 1995.................................. 4
Statements of Cash Flows for the Nine Months ended
September 30, 1996 and 1995........................................ 5
Notes to Financial Statements...................................... 6
ITEM 2.
Management's Discussion and Analysis of Financial Condition and
Results of Operations.............................................. 8
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K.......................... 11
SIGNATURE................................................................... 12
</TABLE>
2
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
SEQUANA THERAPEUTICS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------ ------------
ASSETS (Unaudited) (Note)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 8,128,432 $ 13,512,688
Investment securities, available-for-sale, net 51,288,496 27,825,023
Other current assets 2,783,285 1,582,053
------------ ------------
Total current assets 62,200,213 42,919,764
------------ ------------
Furniture and equipment, net 7,326,380 4,438,611
Other assets 1,866,421 179,482
Notes receivable from employees 527,613 463,000
============ ============
$ 71,920,627 $ 48,000,857
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 3,265,059 $ 2,775,380
Deferred revenue 4,676,441 2,311,856
Current portion of loans and capital lease obligations 2,291,935 1,335,720
------------ ------------
Total current liabilities 10,233,435 6,422,956
------------ ------------
Loans and capital lease obligations, less current portion 4,185,786 2,803,612
Shareholders' equity:
Common stock, $.001 par value:
Authorized shares -- 50,000,000
Issued and outstanding shares -- 9,926,483 at
September 30, 1996 and 8,125,632 at December 31, 1995 9,926 8,126
Additional paid-in capital 86,735,705 55,484,707
Notes receivable from shareholders (237,579) (254,144)
Deferred compensation, net (1,032,479) (1,368,802)
Accumulated deficit (27,974,167) (15,095,598)
------------ ------------
Total shareholders' equity 57,501,406 38,774,289
------------ ------------
$ 71,920,627 $ 48,000,857
============ ============
</TABLE>
Note: The balance sheet at December 31, 1995 has been derived from the
audited financial statements at that date but does not include all of
the information and footnotes required by generally accepted
accounting principles for complete financial statements.
See accompanying notes to financial statements.
3
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SEQUANA THERAPEUTICS, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
-------------------------------- ------------------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue under strategic alliances $ 2,348,844 $ 2,069,188 $ 7,121,646 $ 6,709,599
Expenses:
Research and development 7,040,468 3,452,598 18,470,957 9,879,092
General and administrative 1,465,028 718,485 3,684,487 2,100,019
------------ ------------ ------------ ------------
Total operating expenses 8,505,496 4,171,083 22,155,444 11,979,111
Interest income 885,300 533,666 2,460,163 1,045,298
Interest expense (110,935) (74,833) (304,934) (194,357)
------------ ------------ ------------ ------------
Net loss $ (5,382,287) $ (1,643,062) $(12,878,569) $ (4,418,571)
============ ============ ============ ============
Net loss per share $ (0.54) $ (0.22) $ (1.36) $ (0.74)
============ ============ ============ ============
Shares used in computing net
loss per share 9,911,275 7,353,629 9,465,858 6,010,336
============ ============ ============ ============
</TABLE>
See accompanying notes to financial statements.
4
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SEQUANA THERAPEUTICS, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended
September 30,
--------------------------------
1996 1995
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<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $(12,878,569) $ (4,418,571)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization 1,673,863 592,613
Amortization of deferred compensation 336,323 636,512
Change in operating assets and liabilities 1,653,032 3,464,237
------------ ------------
Net cash provided by (used in) operating activities (9,215,351) 274,791
INVESTING ACTIVITIES:
Purchases of investment securities (45,787,980) (15,259,357)
Sales and maturities of investment securities 22,324,507 11,000,000
Purchases of furniture and equipment (809,980) (417,349)
Other investing activities (1,752,158) (71,842)
------------ ------------
Net cash used in investing activities (26,025,611) (4,748,548)
FINANCING ACTIVITIES:
Issuances of common stock 31,252,798 19,781,216
Issuance of convertible preferred stock -- 6,999,995
Repayments of loans and capital lease obligations (1,412,657) (643,143)
Other financing activities 16,565 (1,399)
------------ ------------
Net cash provided by financing activities 29,856,706 26,136,669
Increase (decrease) in cash and cash equivalents (5,384,256) 21,662,912
Cash and cash equivalents at beginning of period 13,512,688 1,589,722
------------ ------------
Cash and cash equivalents at end of period $ 8,128,432 $ 23,252,634
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 304,934 $ 194,357
============ ============
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Equipment acquired under capital leases and loans $ 3,751,046 $ 813,097
============ ============
</TABLE>
See accompanying notes to financial statements.
5
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SEQUANA THERAPEUTICS, INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 1996
(unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. The accompanying
financial statements reflect all adjustments (consisting of normal
recurring accruals) which are, in the opinion of management, considered
necessary for a fair presentation of the results for the interim
periods presented. The Company has experienced significant quarterly
fluctuations in operating results and it expects that these
fluctuations in revenues, expenses and net losses will continue.
The financial statements and related disclosures have been prepared
with the presumption that users of the interim financial information
have read or have access to the audited financial statements for the
preceding fiscal year. Accordingly, these financial statements should
be read in conjunction with the audited financial statements and the
related notes thereto incorporated by reference from the Annual Report
to Shareholders in the Company's Annual Report on Form 10-K for the
year ended December 31, 1995.
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standard (SFAS) No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of." The
adoption of the new standard had no effect on the financial statements.
Effective January 1, 1996, the Company adopted SFAS No. 123 "Accounting
and Disclosure of Stock-Based Compensation." As allowed under the SFAS,
the Company has elected to continue to follow Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB
25) in accounting for its employee stock options. The adoption of the
standard had no effect on the financial statements.
2. NET LOSS PER SHARE
Net loss per share is computed using the weighted average number of
shares outstanding during the interim periods, as adjusted for the
effects of certain rules of the Securities and Exchange Commission for
the periods prior to the Company's initial public offering ("IPO") in
July 1995. Shares issuable upon the exercise of outstanding stock
options and warrants are not reflected for the periods subsequent to
the Company's IPO as their effect is anti-dilutive.
3. SHAREHOLDERS' EQUITY
In March 1996, the Company raised net proceeds of approximately $30
million through a follow-on public offering of 1,700,000 shares of its
common stock. The Company raised an additional $1.3 million in net
proceeds from the sale of common stock during the nine months ended
September 30, 1996 consisting primarily of a private investment from
one of the Company's strategic alliance partners.
6
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SEQUANA THERAPEUTICS, INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 1996
(unaudited)
4. ACQUISITION
In July 1996, the Company entered into a definitive agreement to
acquire all of the outstanding capital stock of NemaPharm, Inc.
("NemaPharm"), a company engaged in gene discovery, determination of
gene function and high throughput, whole-organism compound screening
using the nematode worm, C. elegans. The acquisition of NemaPharm was
completed on October 15, 1996 and was financed through the issuance of
approximately 154,000 shares of the Company's common stock and options
to acquire 43,000 shares of Sequana's common stock. The acquisition was
accounted for under the purchase method, and the purchase price was
allocated primarily to in-process research and development.
Accordingly, the Company will record a non-cash charge to operations
during the fourth quarter of 1996 for the fair value of the common
stock and options issued in the transaction.
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
The Company was incorporated in February 1993 and has devoted substantially all
of its resources since that time to the development of an integrated technology
platform for discovering genes associated with common human diseases. The
Company believes that gene discoveries made by the Company may provide insight
into the fundamental causes of these diseases and may lead to the development of
novel prognostic, diagnostic and therapeutic products. The Company has incurred
substantial operating losses since inception and, as of September 30, 1996, had
incurred a cumulative net loss of $28.0 million. The Company anticipates
incurring additional losses over at least the next several years as it expands
its gene discovery and functional genomics activities. Such expansion will
result in increases in both research and development and general and
administrative expenses.
The Company does not anticipate revenues from product sales in the foreseeable
future. The Company's sources of revenue for the next several years will be
payments under existing strategic alliances, license fees, proceeds from the
sale of rights, payments from future strategic alliances and licensing
arrangements, if any, and interest income. Certain payments under strategic
alliances are contingent upon the Company meeting established milestones.
Payments under strategic alliances and licensing arrangements will be subject to
significant fluctuations in both timing and amount and, therefore, the Company's
results of operations for any period may not be comparable to the results of
operations for any other period.
In July 1994, the Company entered into a strategic alliance with Glaxo Wellcome
Inc. ("Glaxo") to discover disease genes associated with type II diabetes. In
February 1996, this alliance was expanded to include the study of human obesity.
The Company has granted Glaxo exclusive worldwide rights to develop and
commercialize therapeutic products based upon the Company's gene discoveries in
the areas of diabetes and human obesity, and has retained rights to all
diagnostic products. In June 1995, the Company entered into strategic alliances
with Boehringer Ingelheim International GmbH ("Boehringer Ingelheim") in the
area of asthma and with Corange International, Ltd. ("Corange") in the area of
osteoporosis. Under the terms of the agreements with Boehringer Ingelheim and
Corange, the Company will be entitled to payments for research support, payments
upon the achievement of certain research and product development milestones and
payment of royalties on the sale of any products developed by the strategic
alliance partner. The agreement with Boehringer Ingelheim provides Boehringer
Ingelheim with exclusive worldwide rights to develop and commercialize
therapeutic products for asthma based on genes discovered as a result of the
alliance. Sequana retains the right to develop and commercialize diagnostic
products based on such gene discoveries. The agreement with Corange provides
Corange with exclusive worldwide rights to develop and commercialize diagnostic
and therapeutic products based on osteoporosis genes which may be discovered as
a result of the alliance.
RESULTS OF OPERATIONS
Revenue under strategic alliances increased to $2.3 million for the three months
ended September 30, 1996 from $2.1 million during the three months ended
September 30, 1995, and $7.1 million for the nine months ended September 30,
1996 compared to $6.7 million for the comparable period of 1995. Such increases
were primarily attributable to ongoing payments for research support and DNA
sample collection pursuant to the Company's three strategic alliances. Revenue
under strategic alliances for the nine months ended September 30, 1996 also
included a $500,000 milestone payment from Glaxo in connection with the
attainment of a research milestone, while revenue for the comparable period of
8
<PAGE> 9
1995 included up-front payments which were recognized upon the commencement of
the Company's strategic alliances with Boehringer Ingelheim and Corange in
June 1995.
Research and development expenses increased to $7.0 million for the three months
ended September 30, 1996 from $3.5 million during the three months ended
September 30, 1995, and $18.5 million for the nine months ended September 30,
1996 compared to $9.9 million in the comparable period of 1995. The increase in
research and development expenses was primarily attributable to increased costs
associated with expansion of the Company's gene discovery efforts and
establishment of a broad-based functional genomics technology platform. Such
costs consisted primarily of increased personnel expenses, supply costs, and
facility and equipment expenses associated with expansion of the Company's
research organization. The Company expects to continue expanding its gene
discovery and functional genomics activities in future periods, which is
anticipated to result in additional increases in research and development
expenses.
In connection with the Company's acquisition of NemaPharm (see Note 4 of Notes
to Financial Statements), the Company will record a non-cash charge to
operations during the fourth quarter of 1996 for the fair value of common stock
and options issued in the transaction. In addition to the acquisition of
NemaPharm, the Company may pursue the acquisition of additional technologies
which it believes could further complement its gene discovery and functional
genomics capabilities. The Company anticipates that a substantial portion of
these arrangements, if successfully completed, may be financed through the
issuance of the Company's equity securities and would therefore result in
dilution to shareholders of the Company.
General and administrative expenses increased to $1.5 million for the three
months ended September 30, 1996 from $718,000 during the three months ended
September 30, 1995, and $3.7 million for the nine months ended September 30,
1996 compared to $2.1 million in the comparable period of 1995. Increases in
general and administrative expenses largely reflect expansion of the Company's
administrative organization to support increased research efforts and business
development activities. Such increases are comprised primarily of costs
associated with the addition of management and support personnel as well as
expenses related to Sequana's status as a public company (commencing in July
1995). General and administrative expenses are anticipated to increase in future
periods as a result of expansion necessary to support continued increases in
research and development programs and business development activities.
Interest income increased significantly during the three month and nine month
periods ended September 30, 1996, relative to the comparable periods of 1995,
primarily due to higher levels of cash, cash equivalents and investment
securities attributable to public offerings of the Company's equity securities
and, to a lesser degree, funding under the company's strategic alliances.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has financed its operations primarily through
public and private offerings of its equity securities (generating net proceeds
of approximately $80.3 million) and cash received pursuant to the Company's
strategic alliances ($ 24.0 million). At September 30, 1996, the Company had
cash, cash equivalents and investment securities totaling $59.4 million compared
to $41.3 million at December 31, 1995. The increase in cash, cash equivalents
and investment securities during the nine months ended September 30, 1996 is
largely attributable to net proceeds of approximately $30 million raised from
the Company's follow-on public offering in March 1996, which amount was reduced
by cash used to finance the Company's operations and equipment-related
expenditures. In October 1996, the Company secured a credit facility from a bank
which, subject to compliance with certain financial
9
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covenants and conditions, may be used by the Company to finance up to $7 million
of capital expenditures or other working capital requirements through September
1997.
The Company's continued expansion of its gene discovery and functional genomics
activities, and the Company's future capital requirements and the adequacy of
its available funds will depend on many factors, including progress of its gene
discovery programs, the number and breadth of these programs, the continuation
of and achievement of milestones under strategic alliance arrangements, the
progress of the development and commercialization efforts of the Company's
strategic alliance partners, competing technological and market developments,
the costs associated with collecting patient information and DNA samples, the
costs involved in preparing, filing, prosecuting and maintaining and enforcing
patent claims and other intellectual property rights, the regulatory process and
other factors.
In August 1996, the Company and Memorial Sloan-Kettering Cancer Center entered
into a letter of intent to form a joint venture in the area of cancer genetics.
Under the proposed terms of the arrangement, the parties will each contribute $5
million to fund the joint venture's initial operations, which will be focused on
the research and identification of genes and related genetic sequence
information of value in the prognosis, diagnosis and possible treatment of
certain common cancers. The Company anticipates that definitive agreements for
the joint venture may be completed by late-1996 and, if successfully completed,
the Company expects that its $5 million contribution will be funded during
1997 and early 1998. There can be no assurance that the parties will enter into
definitive agreements to establish the joint venture.
The Company believes that its existing cash, cash equivalents and investment
securities and anticipated cash flows from its current strategic alliances will
be sufficient to support the Company's operations through 1999. The Company may
seek to raise additional financing through public or private equity or debt
financings or additional strategic alliance and licensing arrangements. No
assurance can be given that additional financing or strategic alliance and
licensing arrangements will be available when needed or that, if available, such
financing or strategic alliance and licensing arrangements will be obtainable on
terms favorable to the Company or its shareholders. To the extent the Company
raises additional capital by issuing equity securities, ownership dilution to
shareholders will result. In the event that adequate funds are not available,
the Company's business may be adversely affected. The Company's forecast of the
period of time through which its financial resources will be adequate to support
its operations and the statements with regard to continued expansion of its gene
discovery and functional genomics activities and anticipated completion of
definitive agreements for the joint venture with Memorial Sloan-Kettering Cancer
Center are forward-looking statements, and actual results and timing of certain
events could vary. The factors described earlier in this section will impact the
Company's future capital requirements and the adequacy of its available funds
which could cause the period of time through which the Company's financial
resources will be adequate to support its operations to vary from that set forth
above.
10
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
Number Description of Document
10.15 Merger Agreement and Plan of Reorganization between the
Registrant, Sequana Merger Sub, Inc., NemaPharm, Inc. and
the Shareholders of NemaPharm, Inc. dated July 19, 1996.
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None
11
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SEQUANA THERAPEUTICS, INC.
September 30, 1996
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed in its behalf by the
undersigned thereunto duly authorized.
Sequana Therapeutics, Inc.
Date: November 12, 1996 By: /s/ M. Scott Salka
--------------------------
Vice President of Operations,
Chief Financial Officer and
Principal Financial and
Accounting Officer
12
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EXHIBITS
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
10.15 Merger Agreement and Plan of Reorganization between
the Registrant, Sequana Merger Sub, Inc., NemaPharm,
Inc. and the Shareholders of NemaPharm, Inc. dated
July 19, 1996.
27.1 Financial Data Schedule
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13
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EXHIBIT 10.15
MERGER AGREEMENT AND PLAN OF REORGANIZATION
BETWEEN
SEQUANA THERAPEUTICS, INC.
SEQUANA MERGER SUB, INC.
NEMAPHARM, INC.
AND THE SHAREHOLDERS OF
NEMAPHARM, INC.
July 19, 1996
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
ARTICLE I THE MERGER......................................................... -1-
1.1 The Merger.................................................... -1-
1.2 Effective Time................................................ -2-
1.3 Effects of the Merger......................................... -2-
1.4 Conversion of NemaPharm Stock and Merger Sub Stock............ -2-
1.5 Options....................................................... -3-
1.6 Articles of Organization and Bylaws........................... -4-
1.7 Directors and Officers of the Surviving Corporation........... -4-
1.8 Closing....................................................... -4-
1.9 Tax-Free Reorganization....................................... -4-
ARTICLE II EXCHANGE OF STOCK; EXCHANGE OF CERTIFICATES........................ -4-
2.1 Exchange of Certificates...................................... -4-
2.2 Taking of Necessary Action; Further Action.................... -4-
ARTICLE III REPRESENTATIONS AND WARRANTIES..................................... -5-
3.1 Representations and Warranties of NemaPharm................... -5-
3.2 Representations and Warranties of Sequana and Merger Sub...... -9-
ARTICLE IV CONDUCT AND TRANSACTIONS PRIOR TO EFFECTIVE TIME; ADDITIONAL
AGREEMENTS............................................................. -10-
4.1 Conduct of Business........................................... -10-
4.2 Access to Information......................................... -12-
4.3 Tax Matters................................................... -12-
4.4 Fairness Hearing and Permit................................... -12-
4.5 Breach of Representations and Warranties...................... -13-
4.6 Consents...................................................... -13-
4.7 Best Efforts.................................................. -13-
4.8 NemaPharm Employees........................................... -14-
4.9 Scientific Advisory Board..................................... -14-
4.10 Academic Collaborations and Research Programs................. -14-
4.11 Expenses...................................................... -14-
4.12 Public Announcements.......................................... -14-
4.13 Confidentiality............................................... -14-
4.14 "No-Shop" Agreement........................................... -15-
</TABLE>
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TABLE OF CONTENTS
(CONTINUED)
<TABLE>
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PAGE
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ARTICLE V CONDITIONS PRECEDENT............................................... -16-
5.1 Conditions to Each Party's Obligation to Effect the Merger.... -16-
5.2 Conditions of Obligations of NemaPharm and the Shareholders... -17-
5.3 Conditions of Obligation of Sequana........................... -17-
ARTICLE VI TERMINATION........................................................ -18-
6.1 Termination................................................... -18-
ARTICLE VII SURVIVAL OF REPRESENTATIONS AND WARRANTIES AND
INDEMNIFICATION PROVISION.............................................. -19-
7.1 Survival of Representations and Warranties.................... -19-
7.2 Establishment of Escrow....................................... -19-
7.3 General Indemnification....................................... -19-
7.4 Limitations................................................... -20-
7.5 Appointment of Representative................................. -20-
7.6 Control of Actions and Proceedings............................ -21-
ARTICLE VIII GENERAL PROVISIONS................................................. -21-
8.1 Amendment..................................................... -21-
8.2 Extension; Waiver............................................. -21-
8.3 Notices....................................................... -22-
8.4 Interpretation................................................ -22-
8.5 Counterparts.................................................. -23-
8.6 Entire Agreement.............................................. -23-
8.7 No Transfer................................................... -23-
8.8 Severability.................................................. -23-
8.9 Other Remedies................................................ -23-
8.10 Further Assurances............................................ -23-
8.11 Absence of Third Party Beneficiary Rights..................... -23-
8.12 Mutual Drafting............................................... -23-
8.13 Governing Law................................................. -24-
</TABLE>
-ii-
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MERGER AGREEMENT AND PLAN OF REORGANIZATION
BETWEEN
SEQUANA THERAPEUTICS, INC.,
SEQUANA MERGER SUB, INC.,
NEMAPHARM, INC.
AND THE SHAREHOLDERS OF
NEMAPHARM, INC.
THIS MERGER AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is
entered into and made effective as of July 19, 1996, by and between Sequana
Therapeutics, Inc., a California corporation ("Sequana"), Sequana Merger Sub,
Inc., a newly incorporated California corporation and a wholly owned subsidiary
of Sequana ("Merger Sub"), NemaPharm, Inc., a Massachusetts corporation
("NemaPharm"), and the shareholders of NemaPharm listed on the signature page
hereof (the "Shareholders").
WHEREAS, the Board of Directors of Sequana and NemaPharm deem it
advisable and in the best interests of their respective shareholders that
NemaPharm be acquired by Sequana pursuant to the tax-free reorganization
hereafter provided for in which Merger Sub will, subject to the terms and
conditions set forth herein, merge with and into NemaPharm, with NemaPharm as
the surviving corporation (the "Merger");
NOW, THEREFORE, in consideration of the mutual agreements, provisions
and covenants contained in this Agreement, the parties hereby agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. Subject to the terms and conditions of this Agreement,
in accordance with the Massachusetts Business Corporation Law and the California
General Corporation Law (the "MBCL" and the "CGCL" respectively), at the
Effective Time (as defined in Section 1.2 hereof), Merger Sub shall merge with
and into NemaPharm. NemaPharm shall be the surviving corporation (hereinafter
sometimes called the "Surviving Corporation") in the Merger, and shall continue
its corporate existence under the laws of the Commonwealth of Massachusetts.
Upon consummation of the Merger, the separate corporate existence of Merger Sub
shall terminate.
<PAGE> 5
1.2 Effective Time. The Merger shall become effective as set forth in
the articles of merger (the "Articles of Merger") that shall be submitted for
filing with the Secretary of the Commonwealth of Massachusetts and the Secretary
of State of California on the Closing Date (as defined in Section 1.8 hereof).
The term "Effective Time" shall be the date and time when the Merger becomes
effective, as set forth in the Articles of Merger.
1.3 Effects of the Merger. At and after the Effective Time, the Merger
shall have the effects set forth in Section 80 of the MBCL.
1.4 Conversion of NemaPharm Stock and Merger Sub Stock. At the
Effective Time, by virtue of the Merger and without any action on the part of
Sequana, Merger Sub, NemaPharm or the holder of any of the shares of common
stock, $0.01 par value, of NemaPharm ("NemaPharm Common Stock") or preferred
stock, $0.01 par value, of NemaPharm ("NemaPharm Preferred Stock," and, together
with the NemaPharm Common Stock, "NemaPharm Stock"):
(a) Each share of NemaPharm Stock issued and outstanding at the
Effective Time shall be canceled and converted into the right to receive the
Exchange Number of shares of common stock, $0.001 par value, of Sequana (the
"Sequana Common Stock"). Such shares of Sequana Common Stock shall be
unregistered and shall be subject to restrictions on transfer imposed by
applicable federal and state securities laws but, except as provided below,
shall be fully vested. Such shares of Sequana Common Stock issued to each of
Carl D. Johnson, P. Yasemin van Beuzekom, Robert Horvitz, Howard Goodman, and
Anthony Stretton shall be subject to vesting based upon such Shareholder's
continued employment or consulting relationship with Sequana pursuant to the
terms of the Restricted Stock Agreement in the form attached hereto as Exhibit
A.
(b) The aggregate number of shares of Sequana Common Stock
issuable to the holders of NemaPharm Stock and NemaPharm Options (as defined in
Section 1.5) pursuant to Sections 1.4(a) and 1.5 shall be the number obtained by
dividing (i) (A) $4,000,000 minus (B) all liabilities of NemaPharm as of the
Closing Date (excluding principal and interest on the $50,000 Promissory Note
payable by NemaPharm and up to $25,000 in legal and other expenses related to
the Merger to be paid by Sequana as set forth in Section 4.11 hereof (the
"Excluded Liabilities")) by (ii) $20.183 (which is the average of the closing
sale prices of Sequana Common Stock, as reported by the Nasdaq National Market
for the thirty (30) trading days ending April 30, 1996 (the "Exchange Price"))
and rounding up or down to the nearest whole share. Such shares of Sequana
Common Stock shall be allocated among the holders of NemaPharm Stock and
NemaPharm Options as of the Effective Time as follows:
(i) The number of shares of Sequana Common Stock equal to
$286,224.36, divided by $20.183 shall first be allocated to the holders
of NemaPharm Preferred Stock pro rata according to their respective
ownership of NemaPharm Preferred Stock.
(ii) The remaining shares of Sequana Common Stock issuable
hereunder shall be allocated among all holders of NemaPharm Stock and
NemaPharm Options pro rata according to their respective holdings of
NemaPharm Common Stock, for which purpose (A) holders of NemaPharm
Preferred Stock shall be deemed to have converted their shares into
NemaPharm
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<PAGE> 6
Common Stock, (B) holders of NemaPharm Options shall be deemed to hold
the shares of NemaPharm Common Stock issuable upon exercise thereof,
and (C) resulting fractional shares shall be rounded to the nearest
whole share.
(iii) Shares of Sequana Common Stock allocable under clause
(ii) with respect to NemaPharm Options will be issued only upon
exercise of the Sequana Options substituted for such NemaPharm Options
pursuant to Section 1.5.
(c) Shares of Sequana Common Stock and an option certificate for a
pro rata number of New Option Shares (as defined in section 1.5(a)) representing
in the aggregate ten percent of the aggregate number of shares of Sequana Common
Stock to be issued to the Shareholders under Sections 1.4 and 1.5 shall be
delivered by Sequana to Palmer & Dodge LLP as escrow agent pursuant to terms of
the Escrow Agreement attached hereto as Exhibit B to be held in escrow pursuant
thereto to satisfy potential indemnification obligations of NemaPharm and the
Shareholders as set forth in Article VII hereof.
(d) At and after the Effective Time, each share of common stock of
Merger Sub issued and outstanding immediately before the Effective Time shall
become and be converted into one share of common stock of the Surviving
Corporation.
1.5 Options. (a) Each option granted by NemaPharm to purchase shares
of NemaPharm Stock that is outstanding and unexercised immediately before the
Effective Time shall thereupon cease to represent a right to acquire shares of
NemaPharm Stock and shall be converted automatically into an option to purchase
shares of Sequana Common Stock, which will be covered by a Form S-8 Registration
Statement, in an amount and at an exercise price determined as follows:
(i) The number of shares of Sequana Common Stock to be
subject to the new option (the "New Option Shares") shall be the number
of shares allocable pursuant to clause (ii) of Section 1.4(b) to the
respective holder of the NemaPharm Option on account of such NemaPharm
Option; and
(ii) The exercise price per share of Sequana Common Stock
under the new option shall be equal to the exercise price per share of
NemaPharm Common Stock under the respective NemaPharm Option divided by
the number obtained by dividing the New Option Shares by the number of
shares of NemaPharm Stock subject to the NemaPharm Option.
The adjustments provided herein shall be and are intended to be effected in a
manner that is consistent with Section 424(a) of the Internal Revenue Code of
1986, as amended (the "Code") as if the affected NemaPharm Options were
"incentive stock options" (as defined in Section 422 of the Code). The duration
and other terms of each new option shall be the same as the original option,
except that all references to NemaPharm shall be deemed to be references to
Sequana.
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(b) The shares of Sequana Common Stock issuable upon exercise of
any such new option shall be subject to a Restricted Stock Agreement to the same
extent and in the same proportions as the shares of Sequana Common Stock
issuable to the respective optionholder pursuant to Section 1.4.
1.6 Articles of Organization and Bylaws. At the Effective Time, the
Articles of Organization and Bylaws of NemaPharm, as in effect at the Effective
Time, shall be the Articles of Organization and Bylaws of the Surviving
Corporation until thereafter amended in accordance with applicable law.
1.7 Directors and Officers of the Surviving Corporation. The sole
director of the Surviving Corporation from and after the Effective Time shall,
subject to the rights of Sequana as the sole stockholder, be M. Scott Salka to
hold office in accordance with the Articles of Organization and Bylaws of the
Surviving Corporation. The officers of the Surviving Corporation from and after
the Effective Time shall be M. Scott Salka as President and Treasurer and P.
Yasemin van Beuzekom as Clerk, each to hold office in accordance with the
Articles of Organization and Bylaws of the Surviving Corporation.
1.8 Closing. The closing of the Merger (the "Closing") will take place
as soon as practicable on the first business day after satisfaction or waiver of
the latest to occur of the conditions set forth in Article V (the "Closing
Date"), at the offices of Wilson, Sonsini, Goodrich & Rosati, 650 Page Mill
Road, Palo Alto, California 94304-1050, unless a different date or place is
agreed to by the parties hereto.
1.9 Tax-Free Reorganization. The Merger is intended to be a
reorganization within the meaning of Section 368(a) of the Code.
ARTICLE II
EXCHANGE OF STOCK; EXCHANGE OF CERTIFICATES
2.1 Exchange of Certificates.
(a) Sequana to Provide Common Stock. Promptly after the Effective
Time, Sequana shall make available for exchange in accordance with this Article
II, through such reasonable procedures as Sequana may adopt, the shares of
Common Stock of Sequana issuable pursuant to Section 1.4 in exchange for
outstanding shares of capital stock of NemaPharm held by the Shareholders.
(b) Exchange Procedures. Upon surrender of a certificate or
certificates which immediately prior to the Effective Time represented
outstanding shares of NemaPharm Stock or NemaPharm Options (the "Certificates"),
the holder of such Certificate shall be entitled to receive in exchange therefor
a certificate for the number of shares of capital stock of Sequana or options to
purchase stock, as the case may be, to which the holder of such Certificate is
entitled pursuant to Section 1.4 or 1.5 hereof.
2.2 Taking of Necessary Action; Further Action. Sequana and NemaPharm,
respectively, shall take all such action as may be necessary or appropriate in
order to effect the Merger as promptly
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as possible. If, at any time after the Closing Date, any further actions are
necessary or desirable to carry out the purposes of this Agreement and to vest
Sequana with full right, title and possession to all assets, property, rights,
privileges, powers and franchises of NemaPharm, the officers and directors of
such corporation are fully authorized in the name of the corporation or
otherwise to take, and shall take, all such action.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of NemaPharm. Except as disclosed
in the schedule of exceptions attached hereto as Exhibit C (the "NemaPharm
Disclosure Schedule"), NemaPharm and each of the Shareholders (provided,
however, that the representations made in paragraph (w) below are made by each
Shareholder with respect to the shares of NemaPharm owned by it) represents and
warrants to Sequana as set forth below, which representations and warranties are
true and correct as of the date of this Agreement and will be true and correct
as of the Closing Date (except as otherwise specifically permitted under this
Agreement). As used in this Agreement, "Business Condition" with respect to any
corporate entity shall mean the current business, financial condition, results
of operations and assets of such corporate entity.
(a) Organization and Standing; Articles and Bylaws. NemaPharm is
a corporation duly organized and existing under, and by virtue of, the laws of
the Commonwealth of Massachusetts and is in good standing under such laws.
NemaPharm has requisite corporate power and authority to own and operate its
properties and assets, and to carry on its business as presently conducted and
as proposed to be conducted. NemaPharm is qualified to do business as a foreign
corporation in each jurisdiction in which the failure to be so qualified would
have a material adverse effect on NemaPharm's Business Condition. NemaPharm has
furnished Sequana or its counsel with copies of its Articles of Organization and
Bylaws. Said copies are true, correct and complete and contain all amendments
through the date hereof.
(b) Corporate Power. NemaPharm and such Shareholder each has all
requisite legal and corporate power and authority to execute and deliver this
Agreement and, to carry out and perform their respective obligations under the
terms of this Agreement, and to consummate the transactions contemplated hereby.
(c) Subsidiaries. NemaPharm has no subsidiaries or affiliated
companies and does not otherwise own or control, directly or indirectly, any
equity interest in any corporation, association or business entity, other than
investments in marketable securities in the ordinary course of business.
(d) Authorization. All corporate action on the part of NemaPharm,
its officers, directors and shareholders necessary for the authorization,
execution, delivery and performance of all obligations under this Agreement, has
been taken, except for approval hereof by the shareholders pursuant to the MBCL,
which approval will have been obtained by the Closing Date.
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(e) Capitalization. The authorized capital stock of NemaPharm
consists of 167,948 shares of Common Stock, of which 8,406 shares are issued and
outstanding, and options exercisable for 12,314 shares of which are outstanding,
and 32,052 shares of Preferred Stock, of which 32,052 shares are issued and
outstanding. The NemaPharm Disclosure Schedule sets forth a complete and
accurate list of, and the number of shares owned of record or options held by,
the holders of outstanding capital stock and options of NemaPharm as of the date
hereof. There is no other outstanding option, warrant or other right to purchase
any of NemaPharm's authorized and unissued capital stock. All of the outstanding
shares of capital stock of NemaPharm have been duly authorized and validly
issued, and are fully paid and nonassessable and were issued in compliance with
applicable federal and state securities laws.
(f) Execution and Delivery. This Agreement has been duly executed
and delivered by NemaPharm and the Shareholders. This Agreement, when duly
executed and delivered by NemaPharm and the Shareholders, shall constitute valid
and binding obligations of NemaPharm (subject to requisite Shareholder approval)
and the Shareholders, enforceable in accordance with their respective terms,
subject to laws of general application relating to bankruptcy, insolvency and
the relief of debtors and rules of law governing specific performance,
injunctive relief or other equitable remedies.
(g) Financial Statements. NemaPharm has delivered to Sequana its
unaudited financial statements (balance sheet, statement of operations,
shareholders' equity and cash flows) for the year ended December 31, 1995, and
its unaudited financial statements (balance sheet, statement of operations and
cash flows) for the period ended May 31, 1996, (collectively referred to as the
"NemaPharm Financial Statements"). The NemaPharm Financial Statements are
complete and correct in all material respects. The balance sheets included in
the NemaPharm Financial Statements fairly present the financial condition of
NemaPharm as at the dates thereof and reflect all liabilities, contingent or
otherwise, of NemaPharm as at such dates, and the statements of operations
included in the NemaPharm Financial Statements accurately present the operating
results of NemaPharm during the periods indicated therein. Since May 31, 1996,
there has not been any change in the assets, liabilities, financial condition or
operations of NemaPharm from that reflected in the NemaPharm Financial
Statements, except changes in the ordinary course of business which have not
been, either in any case or in the aggregate, materially adverse. Other than
liabilities incurred since May 31, 1996 in the ordinary course of business which
have been disclosed in writing to Sequana prior to the Closing Date, NemaPharm
has no liabilities required by generally accepted accounting principles to be
disclosed in a balance sheet which are not disclosed in the NemaPharm Financial
Statements. The accounting records of NemaPharm which pertain to its business
are in all material respects complete and correct, have been maintained in
accordance with good business practices and accurately reflect the basis for the
financial position and results of operations of NemaPharm's business.
(h) Taxes. NemaPharm has accurately prepared and timely filed all
income tax returns and other tax returns which are required to be filed, except
where the time to file has been extended, and has paid, or made provision for
the payment of, all taxes which have or may have become due pursuant to said
returns or pursuant to any assessment which has been received by it.
(i) No Breach of Statute, Decree, Order or Contract. The
execution, delivery and performance of and compliance with this Agreement, (i)
have not resulted and will not result in any
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violation of, or conflict with, or constitute a default under, (A) NemaPharm's
Articles of Organization or Bylaws, (B) any judgment, decree or order to which
NemaPharm is a party or by which it is bound, (C) any statute, rule or
governmental regulation applicable to it, or (D) any of its agreements, or (ii)
have not resulted and will not result in the creation of any mortgage, pledge,
lien, encumbrance or charge upon any of the properties or assets of NemaPharm.
(j) Litigation, etc. There is no action, suit, proceeding or
investigation pending against NemaPharm or its properties before any court or
governmental agency (nor, to NemaPharm's knowledge, is there any reasonable
basis therefor or threat thereof).
(k) Employees. No employee of NemaPharm is in violation of any
term of any employment contract, patent disclosure agreement or any other
contract or agreement relating to the relationship of such employee with
NemaPharm or any other party because of the nature of the business conducted by
NemaPharm. All employees of NemaPharm whose employment responsibility requires
access to confidential or proprietary information of NemaPharm have executed and
delivered the Confidential Information and Invention Assignment Agreement
substantially in the form previously delivered to Sequana, and all such
agreements are in full force and effect, enforceable in accordance with their
terms. NemaPharm is not a party to any labor agreement with respect to its
employees with any labor organization, union, group or association and there are
no employee unions (nor any other similar labor or employee organizations) under
local statutes, custom or practice. NemaPharm has not experienced any attempt by
organized labor or its representatives to make NemaPharm conform to demands of
organized labor relating to its employees or to enter into a binding agreement
with organized labor that would cover the employees of NemaPharm. There is no
labor strike or labor disturbance pending or threatened against NemaPharm nor is
any grievance currently being asserted, and NemaPharm has not experienced a work
stoppage or other labor difficulty.
(l) Patents and Trademarks. Set forth on the NemaPharm Disclosure
Schedule is a true and complete list of all patents, patent applications,
trademarks, service marks, trademark and service mark applications, trade names,
copyrights and licenses presently owned or held by NemaPharm. NemaPharm owns or
possesses all of the patents, trademarks, service marks, trade names,
copyrights, proprietary rights, trade secrets, and licenses or rights to the
foregoing necessary for the conduct of NemaPharm's business as presently
conducted and as proposed by NemaPharm to be conducted. There is no pending or
threatened claim against NemaPharm alleging that the operation of NemaPharm's
business as presently conducted and as proposed to be conducted infringes or
conflicts with the rights of others under patents, trademarks, service marks,
copyrights or trade secrets. NemaPharm's business as presently conducted and as
proposed to be conducted will not infringe or violate any of the patents,
trademarks, service marks, trade names, copyrights, licenses, trade secrets or
other proprietary rights of any other person or entity. NemaPharm is not aware
that any employee of NemaPharm is obligated under any contract (including any
license, covenant or commitment of any nature), or subject to any judgment,
decree or order of any court or administrative agency, that would interfere with
the use of such employee's best efforts to promote the interests of NemaPharm or
would conflict with NemaPharm's business as presently conducted and as proposed
to be conducted. No prior employer of any employee of NemaPharm has any right to
or interest in any invention, improvement, discovery or other information
assigned to NemaPharm by such employee pursuant to the Confidential Information
and Invention
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Assignment Agreement (in the form previously provided to Sequana) executed by
such employee, or otherwise so assigned.
(m) Governmental Consent, etc. No consent, approval or
authorization of or designation, declaration or filing with any governmental
authority on the part of NemaPharm or the Shareholders is required in connection
with the valid execution and delivery of this Agreement, or the consummation of
the transactions contemplated hereby or thereby, except such consents,
approvals, authorizations, designations, declarations and filings which, if not
obtained or made, would not have a material adverse affect on the Business
Condition of NemaPharm.
(n) Brokers or Finders; Other Offers. Except as set forth herein,
NemaPharm has not incurred, and will not incur, directly or indirectly, as a
result of any action taken by NemaPharm, any liability for brokerage or finders'
fees or agents' commissions or any similar charges in connection with this
Agreement or the transactions contemplated hereby and thereby.
(o) Insurance. NemaPharm maintains the valid policies of workers'
compensation insurance and other insurance with respect to its properties and
business set forth on the NemaPharm Disclosure Schedule.
(p) Material Contracts and Obligations. The NemaPharm Disclosure
Schedule sets forth a list of all material agreements of any nature to which
NemaPharm is a party or by which it is bound, including without limitation (i)
each agreement which requires future expenditures by NemaPharm in excess of
$10,000, (ii) all employment and consulting agreements, employee benefit, bonus,
pension, profit-sharing, stock option, stock purchase and similar plans and
arrangements, (iii) any license or similar agreement granting any third party
the right to utilize any intellectual property right of NemaPharm or granting
NemaPharm the right to utilize any intellectual property right of any third
party, (iv) leases or subleases of real property, and (v) any agreement to which
any shareholder, officer or director of NemaPharm, or any "affiliate" or
"associate" of such persons (as such terms are defined in the rules and
regulations promulgated under the Securities Act of 1933, as amended), is
presently a party, including without limitation, any agreement or other
arrangement providing for the furnishing of services by, rental of real or
personal property from, or otherwise requiring payments to, any such person or
entity. NemaPharm has delivered to Sequana copies of such agreements. All of
such agreements and contracts are valid, binding and in full force and effect.
NemaPharm is not, nor, to NemaPharm's knowledge, is any other party thereto, in
breach of any provision of, or is in default in any respect under the terms of,
any such agreement or contract.
(q) FDA Approval. No consent, approval or authorization of, or
designation, declaration or filing with the FDA or any other governmental
authority on the part of NemaPharm is required in connection with the operation
of NemaPharm's business as presently conducted and as proposed to be conducted.
(r) Title to Properties and Assets. NemaPharm has good and
marketable title to all of its properties and assets, in each case subject to no
mortgage, pledge, lien, lease, security interest, encumbrance or charge, other
than (i) the liens of current taxes not yet due and payable and (ii) possible
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minor liens and encumbrances which do not in any case materially detract from
the value of the property subject thereto or impair the operations of NemaPharm,
and which have not arisen otherwise than in the ordinary course of business.
(s) Regulatory Approvals. NemaPharm has all necessary
authorizations, approvals, orders, licenses, certificates, permits and
clearances from all governmental regulatory officials and bodies to own, lease
or sell its properties and products and to conduct its business as presently
conducted.
(t) Restrictions on the Conduct of the Business. NemaPharm is not
restricted from conducting business in any location by agreement or court decree
where such restriction would have a material adverse effect on the Business
Condition of NemaPharm.
(u) Powers of Attorney. NemaPharm has not granted any power of
attorney (revocable or irrevocable) to any person, firm or corporation for any
purpose whatsoever related to its business.
(v) Employee Benefit Plans. NemaPharm does not maintain,
contribute to or have any liability with respect to any Employee Benefit Plan as
defined in the Employee Retirement Income Security Act of 1974, as amended
("ERISA").
(w) Title of Shares. Each Shareholder has good marketable title to
the shares of capital stock of NemaPharm held by such Shareholder. Such shares
are not subject to any adverse right or restriction, and such shares are held
free and clear of any liens, claims, and encumbrances such that Sequana shall
receive all right, title, and interest to such shares, free and clear of any
liens, claims, or encumbrances of any type whatsoever.
3.2 Representations and Warranties of Sequana and Merger Sub. Each of
Sequana and Merger Sub represents and warrants to NemaPharm and the Shareholders
as set forth below, which representations and warranties are true and correct as
of the date of this Agreement and will be true and correct as of the Closing
Date (except as otherwise specifically permitted under this Agreement):
(a) Organization and Standing. Each of Sequana and Merger Sub is a
corporation duly organized and existing under, and by virtue of, the laws of the
State of California and is in good standing under such laws. Sequana has
requisite corporate power and authority to own and operate its properties and
assets, and to carry on its business as presently conducted. Sequana is
qualified to do business as a foreign corporation in each jurisdiction in which
the failure to be so qualified would have a material adverse affect on Sequana's
Business Condition.
(b) Corporate Power. Each of Sequana and Merger Sub has all
requisite legal and corporate power and authority to execute and deliver this
Agreement, to carry out and perform its obligations under the terms of this
Agreement and to consummate the transactions contemplated hereby and thereby.
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(c) Authorization. All corporate action on the part of each of
Sequana and Merger Sub, and their respective officers, directors and
shareholders necessary for the authorization, execution, delivery and
performance of all obligations under this Agreement, has been taken.
(d) Execution and Delivery. This Agreement has been duly executed
and delivered by each of Sequana and Merger Sub. This Agreement, when duly
executed and delivered by Sequana and Merger Sub, shall constitute valid and
binding obligations of Sequana and Merger Sub, enforceable in accordance with
their respective terms, subject to laws of general application relating to
bankruptcy, insolvency and the relief of debtors and rules of law governing
specific performance, injunctive relief or other equitable remedies.
(e) SEC Reports. Sequana has previously delivered to NemaPharm (i)
Sequana's annual report on Form 10-K for the period ending December 31, 1995,
(ii) Sequana's annual report to shareholders for 1995, (iii) Sequana's quarterly
report on Form 10-Q for the quarter ended March 31, 1996, and (iv) all other
periodic and current reports filed by Sequana with the Securities and Exchange
Commission (the "SEC") under the Securities Exchange Act of 1934 (the "Exchange
Act") since December 31, 1995. As of their respective dates, such reports
complied in all material respects with the requirements of applicable law and
did not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances in which they were made, not misleading.
Sequana has timely filed with the SEC all reports required to be filed under
Sections 13, 14 and 15(d) of the Exchange Act since the registration of the
Sequana Common Stock under Section 12(g) of the Exchange Act.
(f) No Material Adverse Change. Since March 31, 1996, except as
described in the Exchange Act reports referred to in Subsection 3.2(e) or as
otherwise publicly disclosed or disclosed to NemaPharm, there has not been any
material adverse change in Sequana's Business Condition.
ARTICLE IV
CONDUCT AND TRANSACTIONS PRIOR TO EFFECTIVE
TIME; ADDITIONAL AGREEMENTS
4.1 Conduct of Business. During the period from the date of this
Agreement and continuing until the earlier of the termination of this Agreement
or the Closing Date, NemaPharm shall carry on its business in the usual, regular
and ordinary course in substantially the same manner as heretofore conducted
and, to the extent consistent with such business, use all reasonable efforts
consistent with past practice and policies to preserve intact its present
business organizations, keep available the services of its present officers and
employees and preserve its relationship with customers, suppliers, distributors,
licensors, licensees and others having business dealings with NemaPharm, to the
end that its goodwill and ongoing business shall be unimpaired at the Closing
Date. NemaPharm shall promptly notify Sequana of any event or occurrence or
emergency not in the ordinary course of business, and any event which would be
reasonably likely to have a material and adverse effect on the Business
Condition of
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NemaPharm. Except as expressly contemplated by this Agreement or the Disclosure
Schedule, NemaPharm shall not without the prior written consent of Sequana:
(a) Except as may be required by any plans or options currently in
effect, accelerate, amend or change the period of exercisability of options,
restricted stock or warrants, or authorize cash payments in exchange for any
outstanding options;
(b) Enter into any material commitment or transaction other than
transactions in the ordinary course of business consistent with past practices;
(c) Grant any severance or termination pay to any officer,
director or employee except payments made pursuant to standard written
agreements outstanding on the date hereof and disclosed in the NemaPharm
Disclosure Schedule;
(d) Declare or pay any dividends on or make any other
distributions (whether in cash, stock or property) in respect of any of its
capital stock, or split, combine or reclassify any of its capital stock or issue
or authorize the issuance of any other securities in respect of, in lieu of or
in substitution for shares of its capital stock, or repurchase or otherwise
acquire, directly or indirectly, any shares of its capital stock except from
former employees, directors and consultants in accordance with agreements
providing for the repurchase of shares in connection with any termination of
service;
(e) Issue (other than pursuant to the exercise of options
outstanding as of the date hereof), deliver or sell or authorize or propose the
issuance, delivery or sale of, or purchase or propose the purchase of, any
shares of its capital stock or securities convertible into, or subscriptions,
rights, warrants or options to acquire, or other agreements or commitments of
any character obligating it to issue any such shares or other convertible
securities;
(f) Cause or permit any amendments to its Articles or Bylaws;
(g) Acquire or agree to acquire by merging or consolidating with,
or by purchasing a substantial portion of the assets of, or by any other manner,
any business or any corporation, partnership, association or other business
organization or division thereof, or otherwise acquire or agree to acquire any
assets which are material, individually or in the aggregate, to the Business
Condition of NemaPharm;
(h) Sell, lease, license or otherwise dispose of any of its
properties or assets which are material, individually or in the aggregate, to
the Business Condition of NemaPharm;
(i) Incur any indebtedness for borrowed money or guarantee any
such indebtedness or issue or sell any debt securities or guarantee any debt
securities of any other party;
(j) Enter into new employment agreements or modify existing
employment agreements; increase the salaries or wage rates of its employees
other than pursuant to regularly
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scheduled employee reviews, or in connection with the hiring of employees other
than officers in the ordinary course of business, in all cases consistent with
such party's past practices;
(k) Pay, discharge or satisfy in an amount in excess of $10,000
any claim, liability or obligation (absolute, accrued, asserted or unasserted,
contingent or otherwise), other than the payment, discharge or satisfaction in
the ordinary course of business of liabilities reflected or reserved against in
the NemaPharm Financial Statements or incurred since May 31, 1996 in the
ordinary course of business which are set forth in the NemaPharm Disclosure
Schedule; or
(l) Take, or agree in writing or otherwise to take, any of the
actions described in Sections 4.1(a) through 4.1(k) above, or any action which
would make any of the representations or warranties or covenants of such party
contained in this Agreement materially untrue or incorrect.
4.2 Access to Information. NemaPharm shall afford Sequana and its
accountants, counsel and other representatives reasonable access during normal
business hours during the period prior to the Closing Date to (a) all of its
properties, books, contracts, commitments and records, and (b) all other
information concerning its business, properties and personnel as Sequana may
reasonably request. No information or knowledge obtained in any investigation
pursuant to this Section 4.2 shall affect or be deemed to modify any
representation or warranty contained herein or the conditions to the obligations
of the parties to consummate the Merger.
4.3 Tax Matters. NemaPharm and Sequana acknowledge that each intends
the Merger to be a tax-free reorganization under Section 368(a) of the Code and
that each has consulted with and relied upon its own professional tax advisors.
Neither Sequana nor NemaPharm will take any action or fail to take any action or
adopt any position on any tax return, information statement or other disclosure
document that is inconsistent with the treatment of the Merger as a tax-free
reorganization.
4.4 Fairness Hearing and Permit. Sequana, with the assistance and
cooperation of the NemaPharm, will as soon as practicable prepare and file with
the California Commissioner of Corporations (the "Commissioner") a permit
application with respect to the Merger and the issuance of the shares of Sequana
Common Stock in connection therewith (the "Permit Application") and a request
for a hearing (the "Hearing"), including the notice to be sent to shareholders
of NemaPharm concerning the hearing (the "Hearing Notice"), to be held by the
Commissioner to consider the terms, conditions and fairness of the transactions
contemplated by this Agreement pursuant to Sections 25121 and 25142 of the
California Corporate Securities Law of 1968, as amended (the "California
Securities Law"), respectively and shall use reasonable efforts to obtain the
Commissioner's approval thereof. As soon as permitted by the Commissioner,
Sequana shall cause the mailing of the Hearing Notice to all holders of capital
stock of NemaPharm entitled to receive such notice pursuant to the requirements
of the rules of the Commissioner and the California Securities Law. NemaPharm
shall furnish Sequana with such data and information concerning NemaPharm as is
necessary for Sequana's preparation and filing of the Permit Application, the
Hearing Request and the Hearing Notice. All documents relating to the Hearing
and filed with the Commissioner shall contain all of the material required to be
contained therein by the California Securities Law and the rules and regulations
thereunder. If such Permit Application is not approved at or following the
Hearing, following the Closing Date Sequana will, promptly after receiving
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a written request from former NemaPharm stockholders for registration of shares
of Sequana Common Stock having an aggregate market value at the time of such
request of not less than $1,000,000, use its best efforts to register such
shares for resale on Form S-3 (if such Form is then available for use by Sequana
for such purpose) under SEC Rule 415; provided that:
(i) Sequana may defer the filing or effectiveness of the
registration statement for up to 60 days from the date of the stockholders'
request by written notice to the stockholders stating Sequana's good faith
belief that such filing or effectiveness would be detrimental to Sequana;
(ii) the selling stockholder(s) shall refrain from selling
shares pursuant to the registration statement (A) for 60 days after Sequana's
written notice to the selling stockholders that, as the result of any event, the
prospectus includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or to make the statements not
misleading, or (B) during the pendency of any stop order with respect to such
registration statement;
(iii) the selling stockholders will pay all SEC and/or blue sky
registration and filing fees, costs of reproducing the prospectus, broker fees
or discounts, their own counsel fees, and reasonable accountant and counsel fees
of Sequana, but will not be responsible for any other fees or expenses of
Sequana; and
(iv) Sequana shall not be obligated to undertake more than one
such registration.
In such event, at the Closing, the parties will execute a registration
rights agreement containing the foregoing provisions and customary provisions
for indemnification of the selling stockholders and Sequana.
4.5 Breach of Representations and Warranties. Each of Sequana,
NemaPharm, Merger Sub and the Shareholders shall not take any action which would
cause or constitute a breach of any of their respective representations and
warranties set forth in this Agreement or which would cause any of such
representations and warranties to be inaccurate. In the event of, and promptly
after becoming aware of, the occurrence of or the pending or threatened
occurrence of any event which would cause or constitute such a breach or
inaccuracy, each party shall give detailed notice thereof to the other and shall
use its best efforts to prevent or promptly remedy such breach or inaccuracy.
4.6 Consents. Sequana and NemaPharm shall each promptly apply for or
otherwise seek, and use its best efforts to obtain, all consents and approvals
required to be obtained by it for the consummation of the Merger, including, in
NemaPharm's case, approval of its shareholders required by the MBCL.
4.7 Best Efforts. Sequana, NemaPharm, and the Shareholders shall each
use their best efforts to effectuate the transactions contemplated hereby and to
fulfill and cause to be fulfilled the conditions to closing under this
Agreement. It is the intention of Sequana, NemaPharm and the Shareholders to
fulfill all such conditions and to effect the Merger prior to September 30,
1996.
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4.8 NemaPharm Employees. Following the Closing Date, Sequana will
offer to employees of NemaPharm salary compensation, health and life insurance,
and participation in 401(k) Plan, Employee Stock Purchase Plan and Incentive
Stock Option Plan comparable to similar level Sequana employees. Sequana will in
its discretion either (i) merge NemaPharm's profit sharing plan into an
appropriate plan, (ii) maintain NemaPharm's profit sharing plan as a standalone
plan of the Surviving Corporation, or (iii) require NemaPharm to terminate
NemaPharm's profit sharing plan prior to the Closing Date, provided that if such
plan is terminated, Sequana will otherwise offer substantially similar benefits
to NemaPharm employees.
4.9 Scientific Advisory Board. Following the Closing Date, Dr. Robert
Horvitz (and other NemaPharm advisors, as Sequana considers appropriate) will be
invited to join Sequana's Scientific Advisory Board on terms to be negotiated
separately between Dr. Horvitz and Sequana, including incentive stock
compensation. Following the Closing Date, Sequana will establish a separate
functional genetics scientific advisory board and invite Dr. Horvitz, Dr.
Goodman, Dr. Housman and one or two further members expert in the fields of
functional genetics to join such advisory board.
4.10 Academic Collaborations and Research Programs. Sequana expects to
continue NemaPharm's existing academic collaborations subject to a full
scientific evaluation to be conducted by Sequana as soon as practicable after
the Closing Date. Following the Closing Date, Sequana will support the
continuation and development of NemaPharm's nematode genetics research
activities at an appropriate level based on a growth plan to be agreed by the
parties. Sequana intends to increase the staff working in the area of nematode
genetic research and development to a minimum of 10 employees within 12 months
of the Closing Date, and anticipates increasing this level to approximately 15
and 20 employees in second and third year following the Closing Date,
respectively.
4.11 Expenses. Whether or not the Merger is consummated, all costs and
expenses incurred in connection with this Agreement, and the transactions
contemplated hereby shall be paid by the party incurring such expense; provided,
however, that Sequana shall pay the legal fees and other expenses incurred by
NemaPharm in connection with this transaction in the event either that the
Merger is consummated or that the Merger is not consummated as a result of the
breach of this Agreement by Sequana, up to a maximum of $25,000, with any such
expenses in excess of $25,000 to be paid directly by NemaPharm or the
Shareholders prior to the Closing Date.
4.12 Public Announcements. Sequana and NemaPharm shall cooperate with
each other prior to releasing information concerning this Agreement or the
transactions contemplated hereby, shall furnish to the other drafts of all press
releases or other public announcements related to the foregoing prior to
publication and shall obtain the consent of the other prior to the issuance of
press releases or the release of other public announcements.
4.13 Confidentiality. Each party agrees that the Confidentiality
Agreements dated March 20, 1996 and April 15, 1996 by and between Sequana and
NemaPharm shall remain in full force and effect at all times prior to the
Closing and each party agrees to comply with the terms thereof. No party hereto
shall release, publish, reveal or disclose, directly or indirectly, any business
or technical information of any other party hereto, designated orally or in
writing as "confidential" or "proprietary"
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(or in like words), including, but not limited to, systems, processes, formulae,
data, functional specifications, know-how, improvements, discoveries,
developments, designs, inventions, techniques, new products, marketing and
advertising methods, supplier agreements, customer lists, pricing policies,
financial information, projections, forecasts, strategies, budgets or other
information related to its business or its customers (hereinafter referred to as
"Evaluation Material"), except to a party's directors, officers, employees,
financial advisors, legal counsel, independent public accountants or other
agents, advisors or representatives as shall require access thereto on a
need-to-know basis for the purpose of the transactions contemplated by this
Agreement and who shall agree to be bound by the terms of this Section 4.13.
Each party agrees to take all reasonable precautions to safeguard the
confidentiality of the other party's Evaluation Material and to exercise the
same degree of care with respect to such Evaluation Material that such party
exercises with respect to its own confidential information. No party shall make,
or permit to be made, except in furtherance of the transactions contemplated by
this Agreement, any copies, abstracts or summaries of the Evaluation Material.
In addition, all such Evaluation Material shall be used solely for the purpose
of the investigation contemplated by this Section 4.13 and shall not be used for
any other purpose, including any use which would be to the detriment of any
other party, nor shall such information be used in competition with any other
party. The restrictions on disclosure of information contained in this Section
4.13 do not extend to any item of information that (a) is already known to the
receiving party; (b) was or is independently developed by the receiving party;
(c) is now or hereafter becomes available to the public other than as a
consequence of a breach of obligations under this Section 4.13; or (d) is
disclosed to third parties outside of the receiving party in accordance with
terms approved by the disclosing party. Upon written request, the parties shall
return all writings, documents and materials containing Evaluation Material with
a letter confirming that all copies, abstracts and summaries of the Evaluation
Material have been destroyed. In the event that any party hereto becomes legally
required to disclose another party's Evaluation Material, it shall provide such
other party with prompt prior written notice of such requirement prior to such
disclosure. In the event that a protective order or other remedy is not
obtained, or such other party waives compliance with the provisions of this
Section 4.13 with respect to the Evaluation Material subject to such
requirement, such party agrees to furnish only that portion of the Evaluation
Material which it is legally required to furnish and, where appropriate, to use
its best efforts to obtain assurances that such Evaluation Material will be
accorded confidential treatment.
4.14 "No-Shop" Agreement. Until the date which is two months after the
date of this Agreement or the earlier termination of this Agreement, or such
other date as may be agreed to by the parties, (i) NemaPharm agrees to keep
Sequana fully informed as to the status of NemaPharm's negotiations with IDUN
Pharmaceuticals, Inc. ("IDUN"), and Glaxo Wellcome, Inc. ("Glaxo"), and not to
conclude such negotiations without Sequana's prior approval, and (ii) NemaPharm
will not negotiate or discuss with any other party any collaboration (other than
with IDUN or Glaxo as described above or with Genetics Institute as disclosed to
Sequana), Merger of NemaPharm or any of its assets, or any funding or financing
arrangement of NemaPharm.
4.15 NemaPharm Facility. Sequana agrees that, promptly after the
execution of this Agreement, it shall guarantee (on terms acceptable to Sequana)
and indemnify NemaPharm with respect to NemaPharm's lease of the Forest City
facility agreed to by the parties or, if that is not available on terms
reasonably satisfactory to Sequana, an alternate facility appropriate for the
conduct of
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NemaPharm's business (as reasonably determined by Sequana), and shall relocate
NemaPharm's operations to such new facility. Sequana shall bear the cost of such
relocation and of all build-out and licenses necessary to conduct NemaPharm's
operations in the new facility. NemaPharm shall thereafter be entitled to the
exclusive occupation and use of such facility without any obligation therefore
to Sequana or the owner of such facility (except for such research activities as
may be agreed in a separate agreement between NemaPharm and Sequana). In the
event this Agreement is terminated before the Closing, NemaPharm agrees to
vacate such facility (at its own expense) within thirty (30) days after such
termination and shall be responsible to Sequana for any damage to such facility
caused by NemaPharm beyond ordinary wear and tear, but neither NemaPharm nor any
Shareholder shall have any other or further liability or obligation to Sequana
with respect to such facility other than in the event NemaPharm does not vacate
such facility within said thirty day period.
ARTICLE V
CONDITIONS PRECEDENT
5.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligation of each party to effect the Merger shall be subject to the
satisfaction prior to the Closing Date of the following conditions:
(a) Approvals. All authorizations, consents, orders or approvals
of, or declarations or filings with, any governmental entity necessary for the
consummation of the transactions contemplated by this Agreement shall have been
filed, occurred or been obtained.
(b) Legal Action. No temporary restraining order, preliminary
injunction or permanent injunction or other order preventing the consummation of
the Merger shall have been issued by any governmental entity and remain in
effect, and no litigation or proceeding seeking the issuance of such an order or
injunction, or seeking the imposition against Sequana or NemaPharm of
substantial damages if the Merger is consummated, shall be pending. In the event
that any such order or injunction shall have been issued, each party agrees to
use its reasonable efforts to have any such injunction lifted.
(c) Statutes. No action shall have been taken, and no statute,
rule, regulation or order shall have been enacted, promulgated or issued or
deemed applicable to the Merger by any governmental entity which would (i) make
the consummation of the Merger illegal, (ii) prohibit Sequana's ownership or
operation of all or a material portion of the business or assets of NemaPharm,
or compel Sequana to dispose of or hold separate all or a material portion of
the business or assets of NemaPharm, as a result of the Merger or (iii) render
Sequana or NemaPharm unable to consummate the Merger.
(d) Securities Laws. The issuance of Common Stock of Sequana
pursuant to the Merger shall be exempt from registration under the Securities
Act of 1933, as amended (the "Securities Act"), and shall have been qualified or
registered (or shall be exempt from such qualification or registration) with the
appropriate authorities of all states in which qualification or registration is
required under state securities or blue sky laws.
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(e) Escrow Agreement. The Escrow Agreement shall have been
executed by the parties thereto.
5.2 Conditions of Obligations of NemaPharm and the Shareholders. The
obligations of NemaPharm and the Shareholders to effect the Merger are subject
to the satisfaction of the following conditions, unless waived by NemaPharm:
(a) Representations and Warranties. The representations and
warranties of Sequana and Merger Sub set forth in this Agreement shall be true
and correct in all material respects as of the date of this Agreement and as of
the Closing Date, as though made on and as of each such date, except as
otherwise contemplated by this Agreement, and NemaPharm shall have received a
certificate signed by the President of Sequana to such effect on the Closing
Date.
(b) Performance of Obligations of Sequana. Sequana and Merger Sub
shall each have performed in all material respects all obligations and covenants
required to be performed by it under this Agreement prior to the Closing Date,
and NemaPharm shall have received a certificate signed by the President of
Sequana to such effect.
(c) Employment and Consulting Agreements. Sequana and Carl Johnson
shall have executed an employment agreement in the form of Exhibit D hereto, and
Sequana and each of Robert Horvitz, Howard Goodman and Anthony Stretton shall
have executed a consulting agreement reasonably acceptable to Sequana and such
individual and complying with his preexisting academic and consulting
commitments and in the case of Robert Horvitz, subject to subsequent review and
approval by the HHMI.
(d) Opinion of Sequana's Counsel to Buyer. NemaPharm and its
shareholders shall have received an opinion dated the Closing Date of Wilson,
Sonsini, Goodrich & Rosati, P.C., counsel to Sequana and Merger Sub, in the form
attached hereto as Exhibit E.
5.3 Conditions of Obligation of Sequana. The obligation of Sequana to
effect the Merger is subject to the satisfaction of the following conditions
unless waived by Sequana:
(a) Representations and Warranties. The representations and
warranties of NemaPharm and the Shareholders set forth in this Agreement shall
be true and correct in all material respects as of the date of this Agreement
and as of the Closing Date as though made on and as of each such date, except as
otherwise contemplated by this Agreement, and Sequana shall have received a
certificate signed by the President of NemaPharm to such effect.
(b) Performance of Obligations. NemaPharm and the Shareholders
shall have performed in all material respects all obligations and covenants
required to be performed by it or them under this Agreement prior to the Closing
Date, and Sequana shall have received a certificate signed by the President of
NemaPharm to such effect.
(c) Employment and Consulting Agreements. Sequana and Carl Johnson
shall have executed an employment agreement in the form of Exhibit D hereto, and
Sequana and each of Robert
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Horvitz, Howard Goodman and Anthony Stretton shall have executed a consulting
agreement reasonably acceptable to Sequana and such individual and complying
with his preexisting academic and consulting commitments and in the case of of
Robert Horvitz, subject to subsequent review and approval by the HHMI.
(d) Opinion of NemaPharm's Counsel. Sequana shall have received an
opinion dated the Closing Date of Palmer & Dodge LLP, counsel to NemaPharm, in
the form attached hereto as Exhibit F.
(e) Consents. Sequana shall have received duly executed copies of
all material third-party consents and approvals required in connection with the
Merger or otherwise contemplated by this Agreement or the NemaPharm Disclosure
Schedule in form and substance reasonably satisfactory to Sequana.
(f) Shareholder Approval. This Agreement shall have been executed
by the holders of all outstanding shares of capital stock of NemaPharm.
ARTICLE VI
TERMINATION
6.1 Termination. This Agreement may be terminated at any time prior
to the Closing Date of the Merger:
(a) by mutual agreement of Sequana and NemaPharm;
(b) by NemaPharm, if there has been a breach by Sequana of any
representation, warranty, covenant or agreement set forth in this Agreement on
the part of Sequana which is material and which Sequana fails to cure within ten
days after notice thereof is given by NemaPharm (except that no cure period
shall be provided for a breach by Sequana which by its nature cannot be cured);
(c) by Sequana, if there has been a breach by NemaPharm or the
Shareholders of any representation, warranty, covenant or agreement set forth in
this Agreement on the part of NemaPharm or the Shareholders which is material
and which NemaPharm or the Shareholders fails to cure within ten days after
notice thereof is given by Sequana (except that no cure period shall be provided
for a breach by NemaPharm or the Shareholders which by its nature cannot be
cured);
(d) by NemaPharm or Sequana if the Merger shall not have been
consummated on or before October 31, 1996;
(e) by NemaPharm or Sequana if any permanent injunction or other
order of a court or other competent authority preventing the Merger shall have
become final and nonappealable.
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Where action is taken to terminate this Agreement pursuant to this
Section 6.1, it shall be sufficient for such action to be authorized by the
Board of Directors of the party taking such action. In the event of the
termination of this Agreement, all further obligations of the parties under this
Agreement shall forthwith be terminated without further liability of any party
to the other (except as provided in Section 4.11), provided that nothing herein
shall relieve any party from liability for any breach of this Agreement.
ARTICLE VII
SURVIVAL OF REPRESENTATIONS AND
WARRANTIES AND INDEMNIFICATION PROVISIONS
7.1 Survival of Representations and Warranties. The representations
and warranties of each of the parties contained herein shall survive the
Closing, regardless of any investigation by the other parties or their agents,
for the period of the Escrow Term (as defined in the Escrow Agreement);
provided, however, that liability for fraudulent or intentional
misrepresentations shall survive the Escrow Term for an additional two years.
7.2 Establishment of Escrow. In order to provide protection for
Sequana from and after the Closing, an Escrow shall be established on behalf of
the Shareholders, which Escrow shall, subject to and to the extent provided in
the Escrow Agreement, provide a fund from which claims under the indemnification
provisions set forth herein shall be paid. The Escrow shall be funded, as of the
Closing, with ten percent (10%) of the aggregate number of shares of Sequana
Common Stock otherwise issuable to the Shareholders, as provided in Section
1.4(c) above (the "Escrow Shares").
7.3 General Indemnification. (a) NemaPharm (as such corporation shall
exist and be constituted prior to the Closing Date) and the Shareholders hereby
severally and not jointly indemnify and agree to hold harmless Sequana (at and
after the Closing Date) in respect of any claims, costs, demands, liabilities,
losses and expenses (including, without limitation, reasonable legal and other
out-of-pocket fees and expenses for investigating, defending or settling any
actions or threatened actions) (all of which are referred to herein individually
as a "Deficiency" and collectively as "Deficiencies") incurred or suffered by
Sequana in connection with any misrepresentation or breach of any
representation, warranty, covenant or agreement made by NemaPharm or any
Shareholder in this Agreement (including representations made by the other
Shareholders pursuant to paragraph 3.1(w)), or in any certificate, instrument,
schedule or document given by NemaPharm or any Shareholder pursuant to this
Agreement or the Escrow Agreement. (Specifically excluding any representation
relating to the performance of the NemaPharm Technology which may be deemed to
be made pursuant to the Restricted Stock Agreements or the Employment Agreement
with Carl Johnson.)
(b) Sequana hereby indemnifies and agrees to hold harmless each
holder of NemaPharm Stock outstanding immediately before the Effective Time (at
and after the Closing Date) in respect of any Deficiency incurred or suffered by
such holder as a result of any misrepresentation or
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breach of any representation, warranty, covenant or agreement made by Sequana or
Merger Sub in this Agreement, or in any certificate, instrument, schedule or
document given by Sequana or Merger Sub pursuant to this Agreement or the Escrow
Agreement; provided, however, that the maximum aggregate amount of such
indemnification which NemaPharm and the Shareholders shall be entitled to
collect from Sequana shall not exceed $400,000 except in the event of any
fraudulent or intentional misrepresentation or any fraudulent or intentional
breach of any representation, warranty, covenant or agreement by Sequana or
Merger Sub hereunder, the amount recoverable by NemaPharm and the Shareholders
shall not be limited to $400,000.
7.4 Limitations.
(a) Sequana shall be entitled to recover under the foregoing
indemnification only pursuant to the Escrow Agreement; provided, however, that,
in the event of any fraudulent or intentional misrepresentation or any
fraudulent or intentional breach of any representation, warranty, covenant or
agreement by NemaPharm or any Shareholder, the amount recoverable by Sequana
shall not be limited to the amount of the Escrow Shares.
(b) The right to indemnification of each party under this Article
VII shall be subject to the following additional terms: No indemnification shall
be payable pursuant to Section 7.3 after, and all rights to such indemnification
shall terminate at the end of, the Escrow Term or two years later, as provided
in Subsection 7.1 (each, the "Expiration Date"), except with respect to claims
made before the respective Expiration Date but not then resolved.
(c) No person shall have a right to recovery against any other
party (or any shareholder, officer, director, employee or agent of a party)
after the Effective Time for any misrepresentation or breach of any
representation, warranty, covenant or agreement made in this Agreement, or in
any certificate, instrument, schedule or document given by a party pursuant to
this Agreement or the Escrow Agreement other than through the exercise of the
indemnification rights set forth in this Article VII, which shall constitute the
sole and exclusive remedy after the Closing Date for any such claim.
(d) Notwithstanding the foregoing, in the event of any Deficiency
arising under Subsection 7.3(a) above, each Shareholder shall be liable only for
a percentage of such Deficiency determined by the ratio that the total number of
shares of NemaPharm capital stock (on an as converted basis) held by such
Shareholder immediately prior to the Closing Date bears to the aggregate number
of shares of NemaPharm capital stock held by all Shareholders immediately prior
to the Closing Date, and no Shareholder shall be liable for any amount in excess
of the value of the shares of Sequana Common Stock allocable to him hereunder
determined as of the Closing Date.
7.5 Appointment of Representative. The Shareholders shall enter into
an agreement among themselves appointing Carl D. Johnson as the representative
(the "Representative") who shall have authority to act on behalf of such
Shareholders with respect to the indemnity obligations set forth in this
Agreement and the Escrow Agreement. The actions of a majority of the
Shareholders shall be binding upon all of such Shareholders. The Representative
shall in no event be liable to Sequana or any other
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party to the Escrow Agreement for any action taken in good faith by the
Representative in the scope of performing his role hereunder or thereunder.
7.6 Control of Actions and Proceedings. Promptly after receipt of
notice of any claim, liability or expense for which a party seeks
indemnification hereunder, such party shall give written notice thereof to the
indemnifying party, but such notification shall not be a condition to
indemnification hereunder except to the extent of actual prejudice to the
indemnifying party. The notice shall state the information then available
regarding the amount and nature of such claim, liability or expense and shall
specify the provision or provisions of this Agreement under which the liability
or obligation is asserted. If within 30 days after receiving such notice the
indemnifying party gives written notice to the indemnified party stating that it
intends to defend against such claim, liability or expense at its own cost and
expense, then defense of such matter, including selection of counsel (subject to
the consent of the indemnified party, which consent shall not be unreasonably
withheld) and all settlement discussions, shall be by the indemnifying party and
the indemnified party shall not make any payment on such claim, liability or
expense as long as the indemnifying party is conducting a good faith and
diligent defense. Notwithstanding the foregoing, the indemnified party shall at
all times have the right to fully participate in such defense and all settlement
discussions at its own expense directly or through counsel; provided, however,
that if the named parties to the action or proceeding include both the
indemnifying party and the indemnified party and representation of both parties
by the same counsel would be inappropriate under applicable standards of
professional conduct, the expense of separate counsel for the indemnified party
shall be paid by the indemnifying party. If no such notice of intent to dispute
and defend is given by the indemnifying party, or if such diligent good faith
defense is not being or ceases to be conducted, the indemnified party shall, at
the expense of the indemnifying party, undertake the defense of such claim,
liability or expense with counsel selected by the indemnified party, and shall
have the right to compromise or settle the same in the exercise of reasonable
business judgment. The indemnified party shall make available all information
and assistance that the indemnifying party may reasonably request and shall
cooperate with the indemnifying party in such defense.
ARTICLE VIII
GENERAL PROVISIONS
8.1 Amendment. This Agreement may be amended by the parties hereto at
any time before or after approval of the Merger by the shareholders of NemaPharm
provided that following approval of the Merger by the shareholders of NemaPharm,
no amendment shall be made which by law requires the further approval of such
shareholders without obtaining such further approval. This Agreement may not be
amended except by an instrument in writing signed on behalf of each of the
parties hereto.
8.2 Extension; Waiver. At any time prior to the Closing Date of the
Merger, each of NemaPharm and Sequana may, to the extent legally allowed, (i)
extend the time for the performance of any of the obligations or other acts of
the other, (ii) waive any inaccuracies in the representations and warranties
made to it contained herein or in any document delivered pursuant hereto and
(iii) waive compliance with any of the agreements or conditions for the benefit
of it contained herein. Any
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agreement on the part of a party hereto to any such extension or waiver shall be
valid only if set forth in an instrument in writing signed on behalf of such
party.
8.3 Notices. All notices and other communications hereunder shall be
in writing and shall be deemed given if delivered personally or mailed by
registered or certified mail (return receipt requested) or sent by telecopy,
confirmation received, to the parties at the following addresses and telecopy
numbers (or at such other address or number for a party as shall be specified by
like notice):
(a) if to NemaPharm, to:
NEMAPHARM, INC.
100 Inman Street
Cambridge, MA 02139
Attention: Carl D. Johnson
Telecopy No.: (617) 876-6468
Telephone No.: (617) 864-6830
with a copy to:
PALMER & DODGE LLP
One Beacon Street
Boston, MA 02108
Attention: Matthew C. Dallett
Telecopy No.: (617) 227-4420
Telephone No.: (617) 573-0100
(b) if to Sequana, to:
SEQUANA THERAPEUTICS, INC.
11099 N. Torrey Pines Rd., Suite 160
La Jolla, CA 92037
Attention: CFO
Telecopy No.: (619) 452-6653
Telephone No.: (619) 452-6550
with a copy to:
WILSON, SONSINI, GOODRICH & ROSATI, P.C.
650 Page Mill Road
Palo Alto, California 94304-1050
Attention: Michael J. O'Donnell, Esq.
Telecopy No.: (415) 493-6811
Telephone No.: (415) 493-9300
8.4 Interpretation. When a reference is made in this Agreement to
Sections or Exhibits, such reference shall be to a Section or Exhibit to this
Agreement unless otherwise indicated. The words "include," "includes" and
"including" when used herein shall be deemed in each case to be followed by the
words "without limitation." The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
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8.5 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party.
8.6 Entire Agreement. This Agreement and the documents and instruments
and other agreements among the parties delivered pursuant hereto constitute the
entire agreement among the parties with respect to the subject matter hereof and
supersede all prior agreements and understandings, both written and oral, among
the parties with respect to the subject matter hereof and are not intended to
confer upon any other person any rights or remedies hereunder except as
otherwise expressly provided herein.
8.7 No Transfer. This Agreement and the rights and obligations set
forth herein may not be transferred or assigned by operation of law or otherwise
without the consent of each party hereto. This Agreement is binding upon and
will inure to the benefit of the parties hereto and their respective successors
and permitted assigns.
8.8 Severability. If any provision of this Agreement, or the
application thereof, will for any reason and to any extent be invalid or
unenforceable, the remainder of this Agreement and application of such provision
to other persons or circumstances will be interpreted so as reasonably to effect
the intent of the parties hereto. The parties further agree to replace such void
or unenforceable provision of this Agreement with a valid and enforceable
provision that will achieve, to the extent possible, the economic, business and
other purposes of the void or unenforceable provision.
8.9 Other Remedies. Except as otherwise provided herein, any and all
remedies herein expressly conferred upon a party will be deemed cumulative with
and not exclusive of any other remedy conferred hereby or by law or equity on
such party, and the exercise of any one remedy will not preclude the exercise of
any other.
8.10 Further Assurances. Each party agrees to cooperate fully with the
other parties and to execute such further instruments, documents and agreements
and to give such further written assurances as may be reasonably requested by
any other party to evidence and reflect the transactions described herein and
contemplated hereby and to carry into effect the intents and purposes of this
Agreement.
8.11 Absence of Third Party Beneficiary Rights. No provision of this
Agreement or the Exhibits hereto is intended, nor will be interpreted, to
provide or to create any third party beneficiary rights or any other rights of
any kind in any client, customer, affiliate, employee, partner or any party
hereto or any other person or entity unless specifically provided otherwise
herein or in the Exhibits hereto, and, except as so provided, all provisions
hereof will be personal solely between the parties to this Agreement.
8.12 Mutual Drafting. This Agreement is the joint product of Sequana
and NemaPharm, and each provision hereof has been subject to the mutual
consultation, negotiation and agreement of Sequana and NemaPharm, and shall not
be construed for or against any party hereto.
-23-
<PAGE> 27
8.13 Governing Law. This Agreement shall be governed in all respects,
including validity, interpretation and effect, by the laws of the State of
California (without giving effect to its choice of law principles).
-24-
<PAGE> 28
IN WITNESS WHEREOF, Sequana, NemaPharm and the Shareholders of
NemaPharm have caused this Agreement to be signed as an instrument under seal by
their respective officers thereunto duly authorized, all as of the date first
written above.
Sequana: SEQUANA THERAPEUTICS, INC.
By: ________________________________
Title:______________________________
SEQUANA MERGER SUB, INC.
By: ________________________________
Title:______________________________
NemaPharm: NEMAPHARM, INC.
By: ________________________________
Title:______________________________
President
By: ________________________________
Title:______________________________
Treasurer
-25-
<PAGE> 29
[SIGNATURE PAGE TO MERGER AGREEMENT AND PLAN OF REORGANIZATION]
SHAREHOLDERS
___________________________________ ___________________________________
Howard Goodman Carl D. Johnson
___________________________________ ___________________________________
H. Robert Horvitz Keith Johnson
___________________________________ ___________________________________
P. Yasemin vanBeuzekom Robert Lichtman
Bank of Cross Plains
f/b/o M. Noel Pratt
___________________________________ By:________________________________
Antony Stretton Title:_____________________________
Estate of Joseph Gross
___________________________________ By:________________________________
Kurt Gilson
-26-
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