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MEMORANDUM

PRIVILEGED & CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGED ATTORNEY WORK PRODUCT

TO: Marcus Delgado, Responsible Partner, intellectual Property Practice Group, Calderwood & Harkness LLP

FROM: Peter Vassiliev, Lead Associate, intellectual Property Practice Group, Calderwood & Harkness LLP

DATE: September 20, 2023

RE: Analysis of Indemnification Provisions — Exclusive License Agreement between Penterra Pharmaceuticals Corp. and Meridian Bio Therapeutics Limited (PPC-4187 / Penteracitinib)

MATTER: Penterra Pharmaceuticals Corp. — Out-License of PPC-4187 to Meridian Bio Therapeutics Ltd.

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I. Executive Summary

This memorandum constitutes an internal analysis evaluating the indemnification provisions negotiated in the Exclusive License Agreement (the "License Agreement") for the out-license of PPC-4187 (Penteracitinib), a selective Janus kinase 1 (JAK1) inhibitor currently in clinical development for the treatment of moderate-to-severe atopic dermatitis, from Penterra Pharmaceuticals Corp. ("Penterra" or "Licensor") to Meridian Bio Therapeutics Limited ("Meridian" or "Licensee") for the Asia-Pacific Territory (as defined in the License Agreement and further described herein). The purpose of this memorandum is to provide a comprehensive assessment of Penterra's rights, obligations, and risk exposure under the indemnification framework, and to offer practical recommendations in advance of targeted execution.

The transaction contemplates a total deal value of up to $120,000,000, structured as follows: (a) an upfront payment of $18,000,000, payable within fifteen (15) business days of the Effective Date; (b) development milestone payments aggregating $32,000,000, tied to the initiation and completion of Phase III clinical trials and certain bioequivalence studies in the Territory; (c) regulatory milestone payments aggregating $25,000,000, tied to the acceptance and approval of new drug applications (or equivalents) in China (NMPA), Japan (PMDA), South Korea (MFDS), and Australia (TGA); and (d) commercial milestone payments aggregating $45,000,000, tied to annual net sales thresholds in the Territory. In addition, Meridian will pay Penterra tiered royalties on net sales of Licensed Products in the Territory, ranging from the low double digits to the high teens, during the applicable royalty term.

The indemnification provisions of the License Agreement reflect a mutual indemnification structure — each party indemnifies the other against losses arising from its respective breaches, negligence, willful misconduct, and, in the case of Penterra, certain intellectual property infringement claims. The mutual obligations are subject to an aggregate liability cap tied to payments actually received by Penterra, a per-claim de minimis threshold, and an aggregate deductible basket. Importantly, certain categories of liability — specifically fraud, willful misconduct, and intellectual property infringement — are carved out from the financial limitations, representing areas of uncapped exposure for the applicable indemnifying party.

This memorandum addresses the final negotiated position reached between Calderwood & Harkness LLP, counsel for Penterra, and Lam, Cheung & Firth LLP (Jonathan M. Firth, Partner, and Rebecca S. Liang, Senior Associate), counsel for Meridian, as reflected in the revised draft of the License Agreement circulated on September 15, 2023 (the "September 15 Draft"). Final execution of the License Agreement is currently targeted for October 2, 2023, with an anticipated Effective Date of October 20, 2023, following completion of customary closing conditions.

This memorandum has been reviewed by Marcus Delgado in his capacity as Responsible Partner. Wendy Schultz, Senior Counsel in the intellectual Property Practice Group, provided substantive input on the analysis of IP-related indemnification provisions set forth in Sections III.A.3 and VI.C of this memorandum.

II. Overview of the Indemnification Framework

The License Agreement contains a mutual indemnification structure that is standard for pharmaceutical out-license transactions of this scale and complexity. The indemnification provisions are set forth primarily in Article 14 of the License Agreement (Sections 14.1 through 14.9), with related definitions appearing in Article 1 and supplementary provisions appearing in the representations and warranties (Article 10), covenants (Article 11), and limitations of liability (Article 15).

At its core, the framework establishes two reciprocal indemnification obligations: one running from Penterra as Licensor in favor of Meridian and its related parties, and one running from Meridian as Licensee in favor of Penterra and its related parties. Each obligation is triggered by distinct categories of covered events, reflecting the parties' respective roles in the arrangement. Penterra, as the originator and owner of the Licensed IP, bears responsibility for the integrity and non-infringement of that intellectual property as of the Effective Date, as well as for the quality and safety of clinical supply materials manufactured and supplied under the ancillary Supply Agreement. Meridian, as the party assuming operational responsibility for development, regulatory approval, and commercialization in the Territory, bears responsibility for all Territory-side activities, including product liability arising from commercial sales.

The indemnification obligations are subject to three financial limitations that operate in tandem to calibrate the parties' maximum exposure:

(a) An aggregate liability cap, calculated as 200% of total payments actually received by Penterra under the License Agreement as of the date on which a claim for indemnification is first asserted;

(b) A per-claim de minimis threshold of $150,000, below which individual claims do not give rise to any indemnification obligation and are not aggregated toward the deductible basket; and

(c) An aggregate deductible basket of $750,000, structured as a "tipping basket" (i.e., once the aggregate amount of qualifying claims exceeds the basket, the indemnifying party is liable for the full amount of qualifying losses from the first dollar above the basket, rather than only for the incremental amount in excess of the basket).

Certain categories of liability are expressly carved out from the aggregate cap and, in some cases, from the de minimis threshold and deductible basket as well. These carve-outs apply to losses arising from fraud by either party, willful misconduct by either party, and — of particular significance to Penterra — third-party intellectual property infringement claims covered by Penterra's licensor-side IP indemnity. The carve-out structure reflects a heightened risk allocation for the most serious categories of conduct and for the foundational intellectual property representations upon which Meridian's bargain rests.

The License Agreement is governed by the laws of the State of New York, without regard to conflicts of law principles that would result in the application of the laws of any other jurisdiction. Disputes arising under the indemnification provisions, as with all disputes under the License Agreement, are subject to binding arbitration administered by the International Court of Arbitration of the International Chamber of Commerce (ICC), with the seat of arbitration in New York, New York. Arbitration is to be conducted before a panel of three (3) arbitrators, with proceedings in the English language. Notwithstanding the foregoing, either party is permitted to seek preliminary injunctive or other provisional relief in the United States District Court for the Southern District of New York or, in the alternative, the Supreme Court of the State of New York, New York County, to the extent necessary to prevent irreparable harm pending the constitution of the arbitral tribunal or the rendering of a final award.

The sections that follow provide a detailed analysis of each component of the indemnification framework, including the scope of each party's obligations, the financial limitations and carve-outs, procedural requirements, interactions with other provisions of the License Agreement and ancillary agreements, a comparison to market terms, and recommendations for Penterra.

III. Penterra's Indemnification Obligations (Licensor Indemnification)

A. Scope of Coverage

Section 14.1 of the License Agreement provides that Penterra shall indemnify, defend, and hold harmless Meridian and its Affiliates — including Meridian Pharma (Shanghai) Co., Ltd., Meridian Japan K.K., Meridian Korea Inc., and Meridian Bio Australia Pty Ltd — and their respective officers, directors, employees, and agents (collectively, the "Meridian Indemnitees") from and against any and all Losses (as defined in Section 1.72 to include damages, liabilities, costs, expenses, judgments, settlements, fines, penalties, and reasonable attorneys' fees and costs of investigation) arising out of or resulting from the following categories of covered events:

1. Breach of Representations and Warranties Made by Penterra. Penterra has made a series of representations and warranties in Article 10 of the License Agreement, each of which, if breached, would trigger an indemnification obligation in favor of the Meridian Indemnitees. These representations include, without limitation:

(a) Due Organization and Good Standing. Penterra is duly organized, validly existing, and in good standing under the laws of the State of Delaware, with full corporate power and authority to enter into and perform its obligations under the License Agreement and each ancillary agreement.

(b) Authority and Enforceability. The execution, delivery, and performance of the License Agreement by Penterra have been duly authorized by all necessary corporate action, and the License Agreement constitutes a legal, valid, and binding obligation of Penterra enforceable in accordance with its terms, subject to customary bankruptcy and equitable exceptions.

(c) IP Ownership and Right to License. Penterra is the sole and exclusive owner of, or has valid and subsisting rights to, all Licensed IP, and has the unrestricted right to grant the exclusive license contemplated by the License Agreement, free and clear of any liens, encumbrances, or adverse claims, subject only to disclosed prior encumbrances (none disclosed).

(d) Non-Infringement as of the Effective Date. To Penterra's knowledge (defined as the actual knowledge of Penterra's Chief Scientific Officer, Dr. Elaine K. Morse, and Vice President of intellectual Property, Diana R. Talbot, after due inquiry), the Licensed IP as existing on the Effective Date does not infringe, misappropriate, or otherwise violate any intellectual property right of any third party in any jurisdiction within the Territory.

(e) Clinical Data Integrity. All clinical data and results provided or made available to Meridian in connection with the License Agreement, including without limitation the data from the Phase IIb clinical trial designated Study PPC-4187-201 (a randomized, double-blind, placebo-controlled study enrolling 420 patients with moderate-to-severe atopic dermatitis, with a primary endpoint of EASI-75 response at Week 16), are accurate and complete in all material respects and have been generated in accordance with applicable laws, regulations, Good Clinical Practice (GCP), and applicable study protocols.

(f) Regulatory Compliance. Penterra has complied in all material respects with all applicable laws, regulations, and governmental requirements relating to the development of PPC-4187, including without limitation FDA requirements for Investigational New Drug (IND) applications and clinical trial conduct.

The breadth of these representations is significant, as a breach of any one of them could expose Penterra to indemnification liability. The representations relating to IP ownership, non-infringement, and clinical data integrity are of particular importance given the nature of the transaction and the reliance Meridian places on these matters in proceeding with Territory-wide development and commercialization.

2. Penterra's Negligence or Willful Misconduct. Penterra's indemnification obligation extends to Losses arising from the negligence or willful misconduct of Penterra, its officers, employees, and agents in connection with the performance of Penterra's obligations under the License Agreement and the ancillary agreements, including the Supply Agreement, the Technology Transfer Agreement, and the Quality Agreement. This coverage applies to both pre-closing conduct (to the extent it relates to obligations that survive or are relevant to the License Agreement) and post-closing conduct throughout the term.

The inclusion of negligence as a trigger — in addition to willful misconduct — is standard in pharmaceutical licensing transactions and reflects the operational nature of certain Penterra obligations, particularly the supply of clinical materials and the execution of technology transfer. The practical significance of this trigger is that it imposes a duty of care on Penterra in all aspects of its performance, not merely an obligation to refrain from intentional wrongdoing.

3. Third-Party IP Infringement Claims. Section 14.1(c) of the License Agreement provides that Penterra shall indemnify the Meridian Indemnitees against any claim, action, or proceeding brought by any third party alleging that the Licensed IP, as existing on the Effective Date, infringes, misappropriates, or otherwise violates any intellectual property right of such third party. This indemnity is specifically directed at protecting Meridian against the risk that the foundational intellectual property upon which the licensed rights rest may be subject to challenge by third parties.

The Licensed IP covered by this indemnity encompasses the following:

(a) Patent Rights. Seven (7) patent families, including:

(i) U.S. Patent No. 11,234,567 (composition of matter — Penteracitinib base compound and pharmaceutically acceptable salts);

(ii) U.S. Patent No. 11,345,678 (crystalline polymorph Form I and manufacturing processes);

(iii) PCT/US2019/045123 and corresponding national phase entries in Territory jurisdictions;

(iv) CN Patent No. ZL 2020 1 0456789.0 (granted by CNIPA; composition of matter and method of treatment);

(v) JP Patent No. 7,012,345 (granted by JPO; composition of matter);

(vi) KR Patent No. 10-2345678 (granted by KIPO; composition of matter and pharmaceutical formulation); and

(vii) AU Patent No. 2020234567 (granted by IP Australia; composition of matter and method of treatment).

(b) Licensed Know-How. All proprietary know-how, trade secrets, technical information, manufacturing processes, formulation data, analytical methods, stability data, and other confidential information related to PPC-4187 as disclosed or made available to Meridian pursuant to the License Agreement and the Technology Transfer Agreement.

(c) Trademark Rights. The PENTECLAR trademark, including U.S. Registration No. 6,789,012 and all corresponding trademark applications and registrations filed or to be filed in Territory jurisdictions.

This IP infringement indemnity is the single most significant indemnification obligation borne by Penterra, both because of its breadth and because it is carved out from the aggregate liability cap (as discussed in Section VI.C below), resulting in effectively uncapped exposure.

4. Manufacture or Supply of Clinical Supply Material. Penterra's indemnification obligation covers Losses arising from Penterra's supply of active pharmaceutical ingredient (API) and reference standard materials to Meridian under the Supply Agreement. Under the current terms of the Supply Agreement, Penterra will supply API to Meridian at cost plus a 15% margin for the first three (3) years following the Effective Date, with manufacturing performed by Alkerra Manufacturing Inc. at its facility in Research Triangle Park, North Carolina. This indemnity covers defects in the supplied materials, manufacturing errors, contamination, failure to meet agreed-upon specifications, and any other quality-related issues attributable to Penterra or Alkerra Manufacturing during the supply term.

B. Analysis and Key Considerations for Penterra

The scope of Penterra's indemnification obligations warrants careful consideration in several respects, each of which is addressed below.

IP Infringement Indemnity. The IP infringement indemnity set forth in Section 14.1(c) is the broadest and most consequential of Penterra's indemnification obligations. Its scope is appropriately limited to the Licensed IP "as existing on the Effective Date" (anticipated to be October 20, 2023), which means that any modifications, improvements, new formulations, combination products, or additional indications developed by Meridian after the Effective Date are excluded from the scope of Penterra's indemnity. This temporal limitation is critical, as it ensures that Penterra is not responsible for infringement risks introduced by Meridian's own post-closing activities. The License Agreement includes a clear definition of "Licensed IP" that is fixed as of the Effective Date, with any Meridian improvements constituting "Meridian Improvements" under a separate definitional framework. This demarcation should be preserved in the execution version without modification.

As a substantive matter, the infringement risk under this indemnity is assessed as low based on the freedom-to-operate opinion prepared by Whitford & Cascade Insurance Brokers (Dr. Alan J. Whitford, lead opinion counsel), which concluded that the Licensed IP presents a low risk of infringement across all Territory jurisdictions based on the patent landscape as of the date of the opinion. While this opinion provides meaningful comfort, it does not eliminate exposure entirely, particularly given the dynamic nature of third-party patent prosecution activity in jurisdictions such as China and Japan, where the patent landscape for JAK inhibitors remains active and evolving.

Manufacturing/Supply Indemnity. The manufacturing and supply indemnity is appropriately time-limited to the initial three-year supply term under the Supply Agreement and the technology transfer period of twenty-four (24) months from the Effective Date (i.e., through October 20, 2025). Following the completion of technology transfer, Meridian will assume full responsibility for the manufacture of PPC-4187 API and finished dosage forms in the Territory, and the associated risk will shift to Meridian under its own indemnification obligations. During the supply term, Penterra's exposure under this indemnity is a function of Alkerra Manufacturing's performance and quality controls. Penterra should ensure that its contract manufacturing agreement with Alkerra contains back-to-back indemnification provisions that would allow Penterra to seek contribution from Alkerra in the event of a manufacturing-related claim.

Survival of Representations and Warranties. The survival periods for Penterra's representations and warranties directly affect the duration of exposure under the indemnification provisions. The September 15 Draft contemplates a general survival period for most representations and warranties, but the specific periods remain subject to final confirmation in the execution version. In prior discussions with Meridian's counsel, we have proposed an 18-month survival period for general representations and an extended survival period for IP representations, surviving until the expiration of the last-to-expire licensed patent (currently projected to be August 12, 2037 for the base compound patent, or November 3, 2038 for the crystalline form patent, depending on any patent term adjustments). We recommend confirming these periods in the execution version, as the survival period for IP representations directly affects the duration of Penterra's IP-related indemnification exposure.

Uncapped Nature of IP Indemnity. As discussed further in Section VI.C below, the IP infringement indemnity is carved out from the aggregate liability cap, representing Penterra's primary area of uncapped exposure under the License Agreement. This carve-out was a firm requirement of Meridian's counsel throughout the negotiation process and reflects the market-standard expectation that a licensor should stand fully behind its representations as to the non-infringement of the licensed intellectual property. While this exposure is significant in the abstract, it is mitigated by the factors described above (FTO opinion, scope limitation, Joint Patent Committee oversight) and by the overall low probability of a third-party infringement challenge materializing in the Territory jurisdictions.

IV. Meridian's Indemnification Obligations (Licensee Indemnification)

A. Scope of Coverage

Section 14.2 of the License Agreement provides that Meridian shall indemnify, defend, and hold harmless Penterra and its Affiliates and their respective officers, directors, employees, and agents (collectively, the "Penterra Indemnitees") from and against any and all Losses arising out of or resulting from the following categories of covered events:

1. Breach of Representations and Warranties Made by Meridian. Meridian has made a series of representations and warranties in Article 10 of the License Agreement, including:

(a) Due Organization and Good Standing. Meridian is duly organized and validly existing under the laws of the Hong Kong Special Administrative Region of the People's Republic of China (HK Company Reg. No. 2847631), with full corporate power and authority to enter into and perform its obligations under the License Agreement.

(b) Authority and Enforceability. The execution, delivery, and performance of the License Agreement by Meridian have been duly authorized by all requisite corporate action, including approval by Meridian's Board of Directors and, to the extent required, its shareholders.

(c) Financial Capacity. Meridian has, and will maintain throughout the term, sufficient financial resources to perform its obligations under the License Agreement, including the payment of all milestone payments and royalties as they become due and the funding of all development, regulatory, and commercialization activities in the Territory.

(d) Regulatory Capabilities. Meridian possesses, directly or through its Affiliates, the requisite regulatory expertise, infrastructure, and personnel to conduct the clinical development program, prepare and submit regulatory applications, and obtain marketing approvals for Licensed Products in the Territory jurisdictions.

(e) Sublicensing Compliance. Any sublicenses granted by Meridian will comply with the requirements set forth in Section 2.3 of the License Agreement, including the requirement that each sublicense contain terms and conditions no less protective of Penterra's rights than the corresponding provisions of the License Agreement.

(f) Most Favored Nation Pricing Compliance. Meridian will comply at all times with the most favored nation pricing obligations set forth in Schedule F to the License Agreement.

A breach of any of these representations would trigger Meridian's indemnification obligation in favor of the Penterra Indemnitees.

2. Meridian's Development, Manufacture, or Commercialization of Licensed Products in the Territory. This is the broadest of Meridian's indemnification triggers and covers all activities conducted by Meridian, its Affiliates, and its sublicensees in connection with the development, manufacture (following technology transfer), regulatory approval, marketing, distribution, sale, and post-market surveillance of Licensed Products in the Territory. The Territory encompasses the People's Republic of China (including Hong Kong SAR and Macau SAR), Japan, the Republic of Korea, the Commonwealth of Australia, New Zealand, the Republic of Singapore, the Kingdom of Thailand, Malaysia, the Republic of Indonesia, the Republic of the Philippines, the Socialist Republic of Vietnam, and Taiwan. This trigger is intentionally comprehensive, reflecting the principle that Meridian, as the party with operational control over Territory activities, should bear responsibility for losses arising from those activities.

Specifically, this indemnification trigger encompasses, without limitation:

(a) The conduct of Phase III clinical trials in the Territory, including patient enrollment, dosing, monitoring, adverse event reporting, and data management;

(b) The preparation, filing, and prosecution of regulatory submissions with applicable regulatory authorities, including the National Medical Products Administration (NMPA) in China, the Pharmaceuticals and Medical Devices Agency (PMDA) in Japan, the Ministry of Food and Drug Safety (MFDS) in South Korea, and the Therapeutic Goods Administration (TGA) in Australia;

(c) The commercial launch and ongoing marketing, promotion, distribution, and sale of Licensed Products in the Territory; and

(d) Any activities of sublicensees to the extent such activities relate to the Licensed Products in the Territory.

3. Meridian's Negligence or Willful Misconduct. Meridian's indemnification obligation extends to Losses arising from the negligence or willful misconduct of Meridian, its Affiliates (including Meridian Pharma (Shanghai) Co., Ltd., Meridian Japan K.K., Meridian Korea Inc., and Meridian Bio Australia Pty Ltd), its sublicensees, and their respective officers, directors, employees, and agents. This trigger parallels Penterra's corresponding obligation and ensures that both parties are held to a consistent standard of care in the performance of their respective obligations.

4. Product Liability Claims from Commercial Sales in the Territory. Meridian's indemnification obligation expressly covers personal injury, death, property damage, or other product liability claims arising from the sale, distribution, administration, or use of PPC-4187 — whether marketed under the PENTECLAR trade name or any other trade name approved for use in a Territory jurisdiction — in the Territory. This trigger is of critical importance given the breadth of the Territory, which encompasses jurisdictions with widely varying product liability regimes, ranging from the relatively mature and claimant-favorable systems in Japan and Australia to the rapidly developing systems in China, South Korea, and Southeast Asia.

B. Analysis and Key Considerations for Penterra

Breadth of Commercialization Indemnity. Meridian's commercialization indemnity (item 2 above) is appropriately broad and reflects the fundamental allocation of risk in the transaction: Penterra licenses its intellectual property and provides initial clinical supply, while Meridian assumes full operational responsibility for all development, regulatory, and commercial activities in the Territory. From Penterra's perspective, this allocation is essential because Penterra will have limited visibility into and no direct control over Meridian's Territory-side operations. The indemnification obligation ensures that Penterra is protected against losses arising from those activities without requiring Penterra to monitor or supervise Meridian's day-to-day conduct.

Product Liability Coverage. The product liability indemnity (item 4 above) is critical given the breadth of the Territory and the inherent risks associated with the commercialization of a pharmaceutical product across twelve or more jurisdictions with varying legal, regulatory, and litigation environments. We note that Meridian has obtained clinical trial insurance and product liability insurance from Jade Dragon Insurance Limited (Hong Kong), with Christine A. Lo serving as the designated underwriter. The License Agreement requires Meridian to maintain adequate insurance throughout the royalty term, but the specific policy limits and terms should be confirmed to ensure they are commensurate with the scope of Meridian's anticipated commercial activities. Penterra should request copies of Jade Dragon's policies and confirm that coverage extends to all Territory jurisdictions, including those with more developed product liability regimes (Japan, Australia, and South Korea).

Sublicensing and Flow-Down Obligations. Under Section 2.3 of the License Agreement, Meridian may grant sublicenses to third parties with Penterra's prior written consent, which may not be unreasonably withheld, conditioned, or delayed. Each sublicense must contain indemnification terms that are no less protective of Penterra's rights than the corresponding provisions of the License Agreement. Critically, Meridian remains primarily liable for the acts and omissions of its sublicensees, meaning that Penterra may assert indemnification claims directly against Meridian for losses caused by sublicensee conduct without being required to first pursue the sublicensee. This structure provides Penterra with a single, creditworthy counterparty against whom to assert claims, regardless of the number or identity of sublicensees in the Territory. The flow-down of indemnification obligations to sublicensees should be verified in each sublicense agreement before Penterra grants its consent.

Most Favored Nation Pricing. The commercial activities trigger is intentionally broad enough to encompass claims relating to Meridian's marketing, promotional, and pricing practices in the Territory. This is particularly relevant in light of the most favored nation pricing clause set forth in Schedule F to the License Agreement, which requires Meridian to maintain net prices in the Territory at no more than 15% below the lowest net price at which PPC-4187 is sold by Penterra (or its other licensees) in the United States or the EU5 countries (Germany, France, the United Kingdom, Italy, and Spain). A violation of the MFN pricing clause would constitute a breach of Meridian's covenants, triggering Meridian's indemnification obligations for any resulting losses to Penterra, including but not limited to the impact on Penterra's own pricing strategies and negotiations in the Retained Territory.

V. Financial Limitations on Indemnification

A. Aggregate Liability Cap

Section 14.5(a) of the License Agreement establishes an aggregate liability cap on each party's indemnification obligations. The cap is formulated as follows: each party's aggregate indemnification liability under Article 14 shall not exceed an amount equal to two hundred percent (200%) of the total payments actually received by Penterra under the License Agreement as of the date on which a claim for indemnification is first made by the indemnified party.

The significance of tying the cap to "payments actually received" — rather than to a fixed dollar amount or to total potential deal value — is that the cap is dynamic and increases over time as the transaction progresses and additional milestone payments and royalties are received by Penterra. This creates a cap that is proportional to the economic value that has actually been exchanged between the parties at any given point in time.

Floor Cap Calculation. At the closing of the transaction, the only payment that will have been received by Penterra is the $18,000,000 upfront payment. Therefore, the initial indemnification cap at closing equals 200% × $18,000,000 = $36,000,000. This floor represents the minimum level of indemnification exposure for each party at the outset of the arrangement.

Dynamic Nature of the Cap. The cap increases as milestone payments and royalties are received by Penterra. The following table illustrates the cap at various stages of the transaction:

The dynamic nature of the cap has an important practical implication: as the transaction succeeds and generates greater economic value, both parties' potential indemnification exposure increases correspondingly. This is a balanced approach — parties with more at stake in the transaction at any given time bear proportionally greater potential liability, while the cap at the outset is conservatively calibrated to reflect the more limited payments that have been exchanged at closing.

Negotiation History. The 200% multiplier reflects a negotiated compromise between the parties. In the initial term sheet and first draft of the License Agreement, Lam, Cheung & Firth proposed an aggregate liability cap set at 100% of payments received by Penterra — effectively limiting each party's indemnification exposure to dollar-for-dollar recovery against the payments exchanged. Calderwood & Harkness, on behalf of Penterra, countered with a proposed cap of 300% of payments received, reflecting the view that the indemnification cap should provide meaningful protection in excess of the direct economic consideration, particularly in the early stages of the transaction when the payments received are relatively modest. After three rounds of negotiation, the parties agreed on the 200% figure, which represents a market-standard compromise for pharmaceutical licensing transactions of this magnitude and is consistent with the range observed in comparable recent transactions.

B. De Minimis Threshold

Section 14.5(b) of the License Agreement establishes a per-claim de minimis threshold of $150,000. Under this provision, no indemnification obligation arises with respect to any individual Loss unless the amount of that individual Loss exceeds $150,000. Claims that fall below the de minimis threshold are excluded entirely from the indemnification framework — they do not give rise to any indemnification obligation, and they do not count toward or aggregate into the deductible basket described in Section V.C below.

The rationale for the de minimis threshold is straightforward: it filters out nuisance claims and minor losses that do not warrant the administrative burden and expense of the formal indemnification process. In a transaction of this scale, with activities spanning multiple jurisdictions and involving numerous affiliated entities, the potential for minor claims is significant, and a de minimis threshold ensures that the indemnification mechanism is reserved for claims of genuine commercial significance. The $150,000 threshold is reasonable relative to the total deal value of $120,000,000, representing approximately 0.125% of the aggregate potential consideration — well within the range observed in comparable pharmaceutical licensing transactions, where de minimis thresholds typically range from $50,000 to $500,000.

C. Aggregate Deductible Basket

Section 14.5(c) of the License Agreement establishes an aggregate deductible basket of $750,000. Even where individual claims exceed the $150,000 de minimis threshold and thus qualify as indemnifiable losses, the indemnifying party's indemnification obligations do not attach until the aggregate amount of all qualifying losses exceeds $750,000.

Critically, the basket is structured as a "tipping basket" (also referred to as a "first-dollar" basket), rather than a "true deductible." The distinction is significant:

• Tipping Basket (as negotiated): Once the aggregate amount of qualifying losses exceeds the $750,000 basket threshold, the indemnifying party becomes liable for all qualifying losses from the first dollar — that is, the full aggregate amount of qualifying losses, not merely the amount in excess of $750,000. The basket functions as a trigger, not as a permanent retention by the indemnified party.

• True Deductible (rejected): Under a true deductible structure, the indemnified party would permanently absorb the first $750,000 of qualifying losses, and the indemnifying party would be liable only for the incremental amount in excess of $750,000. This structure was initially proposed by Meridian's counsel at Lam, Cheung & Firth but was rejected through negotiation.

The tipping basket structure is more favorable to the indemnified party because it provides full-dollar recovery once the threshold is met, rather than requiring the indemnified party to absorb a permanent first-loss layer. This represents a meaningful negotiation win for both parties (given the mutual nature of the structure), and particularly for Penterra in the event that a significant claim materializes that exceeds the basket threshold.

Relationship to De Minimis Threshold. The de minimis threshold and aggregate deductible basket operate as sequential filters. An individual claim must first exceed the $150,000 de minimis threshold to qualify as an indemnifiable loss. Only qualifying losses — those individually exceeding $150,000 — are then aggregated toward the $750,000 basket. Claims that fall below the de minimis threshold are excluded entirely and have no impact on the basket calculation.

D. Cap, De Minimis, and Basket Interaction — Worked Example

To illustrate the interaction of these three financial limitations, consider the following hypothetical scenario:

Assumed Facts: Penterra has received $50,000,000 in cumulative payments under the License Agreement (consisting of the $18,000,000 upfront payment plus $32,000,000 in development milestone payments). The aggregate liability cap is therefore 200% × $50,000,000 = $100,000,000. Meridian presents three indemnification claims against Penterra:

• Claim A: $80,000 in alleged Losses arising from a data discrepancy in the technology transfer documentation.

• Claim B: $200,000 in alleged Losses arising from a breach of Penterra's representation regarding the validity of a licensed patent in a Territory jurisdiction.

• Claim C: $600,000 in alleged Losses arising from a quality deficiency in a shipment of API supplied by Alkerra Manufacturing under the Supply Agreement.

Analysis:

Step 1 — De Minimis Filter: Claim A ($80,000) falls below the $150,000 de minimis threshold. It is excluded entirely from the indemnification framework and does not count toward the basket. Claims B ($200,000) and C ($600,000) each exceed the de minimis threshold and qualify as indemnifiable losses.

Step 2 — Basket Aggregation: The aggregate amount of qualifying losses is $200,000 + $600,000 = $800,000, which exceeds the $750,000 aggregate deductible basket.

Step 3 — Tipping Basket Application: Because the basket is structured as a tipping basket, once the $750,000 threshold is exceeded, Penterra's indemnification obligation attaches for the full $800,000 in qualifying losses — not merely for the $50,000 increment above the basket.

Step 4 — Cap Application: Penterra's total indemnification liability of $800,000 is well within the $100,000,000 aggregate cap. Penterra would be liable for the full $800,000.

Result: Penterra's indemnification obligation is $800,000, subject to the $100,000,000 cap. Claim A ($80,000) is excluded. The total claim amount of $800,000 is recoverable in full once the basket threshold is exceeded.

VI. Carve-Outs from Financial Limitations

Section 14.6 of the License Agreement identifies three categories of liability that are carved out from the financial limitations described in Section V above. Each carve-out is analyzed below.

A. Fraud. The aggregate liability cap, de minimis threshold, and deductible basket do not apply to any Losses arising from or attributable to fraud committed by either party. This is a market-standard carve-out, universally included in indemnification provisions across pharmaceutical licensing transactions and M&A agreements alike. The carve-out reflects the fundamental public policy principle that a party should not be permitted to benefit from contractual limitations on liability where it has engaged in fraudulent conduct. "Fraud" is defined in the License Agreement by reference to common law fraud under the laws of the State of New York, encompassing knowing misrepresentation of a material fact, intent to induce reliance, justifiable reliance, and resulting damages.

The practical significance of this carve-out is that a finding of fraud by either party would expose the defrauding party to unlimited indemnification liability, unrestrained by the cap, de minimis, or basket provisions. While the probability of a fraud claim arising in the context of this transaction is low, the carve-out provides essential protection for both parties against the most egregious category of misconduct.

B. Willful Misconduct

The aggregate liability cap does not apply to any Losses arising from or attributable to willful misconduct by either party. This carve-out is consistent with the widely accepted principle that intentional wrongdoing should not be shielded by contractual limitations on liability. Unlike the fraud carve-out, which extends to all three financial limitations (cap, de minimis, and basket), the willful misconduct carve-out as currently drafted applies only to the aggregate cap — the de minimis threshold and deductible basket continue to apply to claims based on willful misconduct. This distinction reflects the practical consideration that willful misconduct, while serious, may give rise to individual claims of varying magnitude, and the de minimis threshold and basket serve their filtering function even in the context of intentional conduct.

"Willful misconduct" is defined in the License Agreement as any act or omission taken or omitted to be taken by a party with knowledge that such act or omission is wrongful or in deliberate disregard of such party's obligations under the License Agreement. This definition encompasses intentional breaches, deliberate failures to perform, and knowing violations of applicable law or regulation, but does not extend to mere negligence, inadvertence, or good-faith errors of judgment.

C. IP Infringement Indemnity

Of greatest significance to Penterra, the aggregate liability cap does not apply to Penterra's obligation to indemnify Meridian against third-party intellectual property infringement claims as described in Section III.A.3 above. This means that Penterra's exposure under the IP infringement indemnity is effectively uncapped — there is no maximum limit on the aggregate amount of Losses for which Penterra may be required to indemnify the Meridian Indemnitees in connection with third-party IP infringement claims relating to the Licensed IP.

Significance for Penterra. This carve-out represents Penterra's most significant area of risk under the License Agreement. In a worst-case scenario — for example, if a third party successfully asserted that one or more of the core patent families underlying PPC-4187 infringed that third party's patent rights in a major Territory jurisdiction such as China or Japan — the resulting damages, lost profits, reasonable royalties, injunctive relief costs, and defense costs could be substantial and would not be subject to the aggregate cap. The potential magnitude of such exposure underscores the importance of continued vigilance with respect to the third-party patent landscape in the Territory.

Mitigation Factors. Notwithstanding the uncapped nature of this exposure, several factors significantly mitigate the risk:

(a) FTO Opinion. Whitford & Cascade Insurance Brokers (Dr. Alan J. Whitford, lead opinion counsel) has conducted a comprehensive freedom-to-operate analysis and concluded that the Licensed IP presents a low risk of infringing any third-party intellectual property rights across all Territory jurisdictions. While an FTO opinion is not a guarantee against infringement, it provides a well-reasoned, expert assessment of the current patent landscape and identifies no significant blocking patents or freedom-to-operate concerns.

(b) Scope Limitation. The IP infringement indemnity is expressly limited to the Licensed IP "as existing on the Effective Date." Penterra is not responsible for any modifications, improvements, new formulations, combination products, new indications, or other changes made by Meridian to the Licensed IP after the Effective Date. Any Meridian Improvements — as defined in the License Agreement — fall outside the scope of Penterra's IP indemnity. This scope limitation is critical and should be rigorously enforced to prevent scope creep.

(c) Joint Patent Committee Oversight. Penterra retains meaningful influence over global IP strategy through its representation on the Joint Patent Committee (JPC), which consists of two (2) members appointed by Penterra and two (2) members appointed by Meridian, with Penterra holding a tie-breaking vote on matters relating to global patent prosecution and enforcement strategy. This governance structure enables Penterra to participate actively in decisions that affect the intellectual property portfolio and to influence the management of any IP-related disputes that may arise.

Recommendation. Given the uncapped nature of this exposure, Penterra should maintain detailed and contemporaneous records of the Licensed IP as of the Effective Date, including complete copies of all patent specifications, claims, prosecution files, and related correspondence, as well as a comprehensive inventory of all licensed know-how. Additionally, Penterra should require clear and documented demarcation of any improvements, modifications, or new intellectual property developed by Meridian after the Effective Date, to ensure that the scope limitation of the IP indemnity is preserved and that any attempt by Meridian to expand the scope of Penterra's obligation can be identified and resisted at the earliest possible stage.

VII. Procedural Requirements for Indemnification Claims

The License Agreement sets forth detailed procedural requirements governing the assertion, investigation, and resolution of indemnification claims. These procedural provisions are set forth in Section 14.3 (Notice), Section 14.4 (Defense of Third-Party Claims), and Section 14.7 (Cooperation) of the License Agreement. Compliance with these procedures is a condition to the exercise of indemnification rights, subject to the important qualification that a failure to comply does not relieve the indemnifying party of its obligations except to the extent of actual prejudice.

A. Notice Requirements

Section 14.3 provides that any party seeking indemnification (the "Indemnified Party") must provide prompt written notice to the party from whom indemnification is sought (the "Indemnifying Party") upon becoming aware of any claim, action, suit, proceeding, investigation, demand, or other circumstance that may reasonably be expected to give rise to an indemnification obligation under Article 14. This notice requirement applies to both third-party claims (i.e., claims asserted by persons or entities other than the parties to the License Agreement) and direct claims (i.e., claims asserted by one party against the other for breach of representations, warranties, or covenants).

The notice must be in writing and must include the following information:

(a) A description of the facts and circumstances giving rise to the claim, in reasonable detail;

(b) The specific section(s) of the License Agreement under which indemnification is sought;

(c) The estimated amount of Losses, to the extent reasonably determinable at the time of the notice, or a statement that the amount is not yet determinable; and

(d) Copies of any relevant documents, including but not limited to any complaint, summons, subpoena, demand letter, or government inquiry received by the Indemnified Party.

Failure to provide timely notice does not relieve the Indemnifying Party of its indemnification obligations, except to the extent that the Indemnifying Party demonstrates that it has been actually and materially prejudiced by the delay. This qualification is important because it prevents the Indemnifying Party from using a technical notice deficiency as a basis to avoid a meritorious indemnification claim, while still preserving the Indemnifying Party's right to raise prejudice as a defense where a delayed notice has caused genuine harm to its ability to investigate or defend the claim.

B. Control of Defense

Section 14.4 addresses the allocation of responsibility for the defense of third-party claims. The Indemnifying Party has the right, but not the obligation, to assume control of the investigation and defense of any third-party claim for which indemnification is sought, including the selection of counsel, the development of defense strategy, and the conduct of all proceedings related to the claim. Upon assuming control of the defense, the Indemnifying Party shall diligently prosecute the defense to a final conclusion or settlement.

The Indemnified Party retains the right to participate in the defense of any third-party claim at its own expense, including the right to retain separate counsel of its choosing and to attend all proceedings, depositions, hearings, and other significant events in the defense of the claim. However, the Indemnified Party may not take any action that would conflict with or undermine the defense strategy pursued by the Indemnifying Party without the Indemnifying Party's prior written consent.

Importantly, the Indemnifying Party may not settle any third-party claim without the Indemnified Party's prior written consent — which may not be unreasonably withheld, conditioned, or delayed — if the proposed settlement:

(i) Imposes any non-monetary obligation or restriction on the Indemnified Party, including without limitation any injunction, consent order, licensing requirement, or restriction on the Indemnified Party's business activities;

(ii) Does not include a complete and unconditional release of the Indemnified Party and all other Indemnified Persons from all liability arising out of or related to the claim; or

(iii) Involves or requires any admission of liability, fault, wrongdoing, or violation of law by the Indemnified Party.

These settlement consent requirements are standard in pharmaceutical licensing agreements and are designed to protect the Indemnified Party's autonomy, reputation, and business interests against settlements that might resolve the Indemnifying Party's financial exposure while imposing burdensome or prejudicial terms on the Indemnified Party.

C. Cooperation. Section 14.7 requires both parties to cooperate in good faith in the investigation and defense of any claim for which indemnification is sought. Cooperation obligations include, without limitation:

(a) Providing reasonable access to relevant books, records, documents, files, correspondence, and other materials in the cooperating party's possession, custody, or control;

(b) Making available officers, directors, employees, consultants, and agents as witnesses or for interviews, depositions, or other proceedings as reasonably requested; and

(c) Executing and delivering any documents, instruments, or authorizations reasonably necessary to facilitate the investigation or defense of the claim.

The costs and expenses of cooperation — other than the Indemnified Party's own internal costs (e.g., employee time and overhead) — are borne by the Indemnifying Party. This allocation ensures that the Indemnified Party is not economically penalized for fulfilling its cooperation obligations, while recognizing that the Indemnified Party's internal resources are deployed in the ordinary course of its business and should not give rise to a separate cost-shifting obligation.

VIII. Interaction with Other Agreement Provisions

The indemnification provisions do not operate in isolation but interact with several other provisions of the License Agreement and the ancillary agreements. This section analyzes the most significant interactions.

A. Interaction with Insurance Requirements

Section 12.4 of the License Agreement requires Meridian to obtain and maintain, at its own cost, product liability insurance and clinical trial insurance throughout the term of the License Agreement, with coverage limits and terms reasonably acceptable to Penterra. Meridian has obtained initial coverage from Jade Dragon Insurance Limited, a Hong Kong-based specialty insurer, with Christine A. Lo serving as the designated underwriter for the program.

The License Agreement contains a standard "no double recovery" provision in Section 14.8, which provides that indemnification obligations are not reduced by the availability or existence of insurance coverage — the Indemnified Party is not required to exhaust its insurance remedies before asserting an indemnification claim. However, to the extent the Indemnified Party actually receives insurance proceeds with respect to a loss for which indemnification has been paid, the Indemnified Party must promptly reimburse the Indemnifying Party in the amount of such insurance proceeds (net of any costs of recovery), to prevent double recovery. This structure is standard and ensures that the indemnification framework provides a reliable and immediately accessible remedy, without creating windfall recoveries.

From Penterra's perspective, it is important to confirm that Jade Dragon Insurance Limited's policy limits are adequate relative to the scope of Meridian's commercial activities across twelve or more Territory jurisdictions, particularly in jurisdictions with mature product liability regimes (Japan, Australia, South Korea). Penterra should request copies of all relevant insurance policies and binders, review coverage terms and exclusions, and confirm that Penterra is named as an additional insured or loss payee to the extent commercially available. Additionally, the License Agreement should — and as currently drafted does — require Meridian to provide Penterra with prompt written notice of any material change in, cancellation of, or failure to renew its insurance coverage.

B. Interaction with Most Favored Nation Pricing Clause

The most favored nation (MFN) pricing clause set forth in Schedule F to the License Agreement requires Meridian to maintain the net price of Licensed Products in each Territory jurisdiction at a level no more than fifteen percent (15%) below the lowest net price at which PPC-4187 is sold by Penterra (or its other licensees) in the United States or the EU5 countries (Germany, France, the United Kingdom, Italy, and Spain). Meridian is required to conduct a quarterly reconciliation of Territory net prices against the applicable U.S./EU5 reference prices and to deliver a compliance report to Penterra within forty-five (45) days following the end of each calendar quarter.

A breach of the MFN pricing clause constitutes a breach of Meridian's covenants under the License Agreement, which in turn triggers Meridian's general indemnification obligations under Section 14.2. Additionally, the MFN clause provides a separate, direct contractual remedy: an MFN adjustment payment calculated as the difference between the MFN floor price and the actual net price charged by Meridian, multiplied by the number of units sold in the relevant calendar quarter at below-MFN prices. The MFN adjustment payment is a liquidated damages measure designed to restore Penterra to the economic position it would have occupied had the MFN requirement been satisfied.

The indemnification provisions supplement this direct remedy by covering Losses that go beyond the MFN adjustment payment itself. Such Losses may include, without limitation, consequential damages arising from the MFN breach (e.g., downward pressure on Penterra's own pricing in the Retained Territory), reputational harm, costs of investigation and enforcement, and the impact of below-MFN Territory pricing on Penterra's negotiations with other licensees or distributors. The availability of both the MFN adjustment payment and the broader indemnification remedy ensures comprehensive protection for Penterra against the economic consequences of MFN non-compliance.

C. Interaction with Sublicensing Provisions

As noted in Section IV.B above, the License Agreement permits Meridian to grant sublicenses with Penterra's prior written consent (not to be unreasonably withheld, conditioned, or delayed). The interaction between the sublicensing provisions and the indemnification framework operates on multiple levels:

Flow-Down Requirement. Each sublicense granted by Meridian must contain indemnification terms that are no less protective of Penterra's rights than the corresponding provisions of the License Agreement. This flow-down requirement ensures that sublicensees are contractually bound to indemnify Meridian (and, through Meridian, Penterra) for losses arising from the sublicensee's activities, providing an additional layer of protection and accountability.

Primary Liability. Notwithstanding the flow-down requirement, Meridian remains primarily liable for the acts and omissions of its sublicensees. Penterra may assert indemnification claims directly against Meridian for losses caused by sublicensee conduct, without being required to first exhaust remedies against the sublicensee. This primary liability structure is essential from Penterra's perspective because it ensures that Penterra deals with a single, known, and creditworthy counterparty rather than being forced to pursue claims against potentially unknown or financially weaker sublicensees in foreign jurisdictions.

Cap Implications. Sublicense income received by Penterra constitutes "payments received by Penterra" for purposes of the aggregate liability cap calculation. Under the License Agreement, Meridian is required to remit to Penterra fifty percent (50%) of all sublicense income received, net of documented out-of-pocket development costs incurred by Meridian in connection with the sublicensed activities. As sublicense income flows through to Penterra, the cap increases accordingly, maintaining the proportional relationship between payments exchanged and indemnification exposure.

D. Interaction with Supply Agreement and Technology Transfer

Penterra's manufacturing and supply indemnity under the License Agreement is closely linked to the Supply Agreement (to be executed concurrently with the License Agreement) and the Technology Transfer Agreement (to be executed within thirty (30) days of the Effective Date).

Under the Supply Agreement, Penterra will supply PPC-4187 API and reference standard materials to Meridian for the first three (3) years following the Effective Date, at a transfer price equal to Penterra's manufacturing cost plus a fifteen percent (15%) margin. Manufacturing is performed by Alkerra Manufacturing Inc. at its facility in Research Triangle Park, North Carolina. Penterra's indemnification obligation under Section 14.1(d) of the License Agreement covers Losses arising from defects, quality failures, or other issues attributable to Penterra or Alkerra Manufacturing during this supply period.

Concurrently, the Technology Transfer Agreement governs the transfer of manufacturing know-how, processes, analytical methods, and other technical information from Penterra to Meridian (or Meridian's designated contract manufacturer in the Territory) over a twenty-four (24) month period from the Effective Date, with a target completion date of October 20, 2025. During the technology transfer period, Penterra bears responsibility for the accuracy and completeness of the transferred information and for providing adequate training and support to enable Meridian to establish independent manufacturing capability in the Territory.

Following the completion of technology transfer and the expiration of the three-year supply term, manufacturing responsibility shifts entirely to Meridian. From that point forward, Meridian's indemnification obligations under Section 14.2 of the License Agreement cover all Losses arising from Meridian's own manufacturing activities in the Territory, including quality defects, manufacturing errors, and regulatory non-compliance.

The Quality Agreement — to be executed by December 19, 2023 — will contain its own quality-related indemnification provisions governing responsibility for quality events, deviations, out-of-specification results, and recalls. It is essen

MEMORANDUM
PRIVILEGED & CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGED ATTORNEY WORK PRODUCT
TO: Marcus Delgado, Responsible Partner, intellectual Property Practice Group, Calderwood & Harkness LLP
FROM: Peter Vassiliev, Lead Associate, intellectual Property Practice Group, Calderwood & Harkness LLP
DATE: September 20, 2023
RE: Analysis of Indemnification Provisions — Exclusive License Agreement between Penterra Pharmaceuticals Corp. and Meridian Bio Therapeutics Limited (PPC-4187 / Penteracitinib)
MATTER: Penterra Pharmaceuticals Corp. — Out-License of PPC-4187 to Meridian Bio Therapeutics Ltd.
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I. Executive Summary
This memorandum constitutes an internal analysis evaluating the indemnification provisions negotiated in the Exclusive License Agreement (the "License Agreement") for the out-license of PPC-4187 (Penteracitinib), a selective Janus kinase 1 (JAK1) inhibitor currently in clinical development for the treatment of moderate-to-severe atopic dermatitis, from Penterra Pharmaceuticals Corp. ("Penterra" or "Licensor") to Meridian Bio Therapeutics Limited ("Meridian" or "Licensee") for the Asia-Pacific Territory (as defined in the License Agreement and further described herein). The purpose of this memorandum is to provide a comprehensive assessment of Penterra's rights, obligations, and risk exposure under the indemnification framework, and to offer practical recommendations in advance of targeted execution.
The transaction contemplates a total deal value of up to $120,000,000, structured as follows: (a) an upfront payment of $18,000,000, payable within fifteen (15) business days of the Effective Date; (b) development milestone payments aggregating $32,000,000, tied to the initiation and completion of Phase III clinical trials and certain bioequivalence studies in the Territory; (c) regulatory milestone payments aggregating $25,000,000, tied to the acceptance and approval of new drug applications (or equivalents) in China (NMPA), Japan (PMDA), South Korea (MFDS), and Australia (TGA); and (d) commercial milestone payments aggregating $45,000,000, tied to annual net sales thresholds in the Territory. In addition, Meridian will pay Penterra tiered royalties on net sales of Licensed Products in the Territory, ranging from the low double digits to the high teens, during the applicable royalty term.
The indemnification provisions of the License Agreement reflect a mutual indemnification structure — each party indemnifies the other against losses arising from its respective breaches, negligence, willful misconduct, and, in the case of Penterra, certain intellectual property infringement claims. The mutual obligations are subject to an aggregate liability cap tied to payments actually received by Penterra, a per-claim de minimis threshold, and an aggregate deductible basket. Importantly, certain categories of liability — specifically fraud, willful misconduct, and intellectual property infringement — are carved out from the financial limitations, representing areas of uncapped exposure for the applicable indemnifying party.
This memorandum addresses the final negotiated position reached between Calderwood & Harkness LLP, counsel for Penterra, and Lam, Cheung & Firth LLP (Jonathan M. Firth, Partner, and Rebecca S. Liang, Senior Associate), counsel for Meridian, as reflected in the revised draft of the License Agreement circulated on September 15, 2023 (the "September 15 Draft"). Final execution of the License Agreement is currently targeted for October 2, 2023, with an anticipated Effective Date of October 20, 2023, following completion of customary closing conditions.
This memorandum has been reviewed by Marcus Delgado in his capacity as Responsible Partner. Wendy Schultz, Senior Counsel in the intellectual Property Practice Group, provided substantive input on the analysis of IP-related indemnification provisions set forth in Sections III.A.3 and VI.C of this memorandum.
II. Overview of the Indemnification Framework
The License Agreement contains a mutual indemnification structure that is standard for pharmaceutical out-license transactions of this scale and complexity. The indemnification provisions are set forth primarily in Article 14 of the License Agreement (Sections 14.1 through 14.9), with related definitions appearing in Article 1 and supplementary provisions appearing in the representations and warranties (Article 10), covenants (Article 11), and limitations of liability (Article 15).
At its core, the framework establishes two reciprocal indemnification obligations: one running from Penterra as Licensor in favor of Meridian and its related parties, and one running from Meridian as Licensee in favor of Penterra and its related parties. Each obligation is triggered by distinct categories of covered events, reflecting the parties' respective roles in the arrangement. Penterra, as the originator and owner of the Licensed IP, bears responsibility for the integrity and non-infringement of that intellectual property as of the Effective Date, as well as for the quality and safety of clinical supply materials manufactured and supplied under the ancillary Supply Agreement. Meridian, as the party assuming operational responsibility for development, regulatory approval, and commercialization in the Territory, bears responsibility for all Territory-side activities, including product liability arising from commercial sales.
The indemnification obligations are subject to three financial limitations that operate in tandem to calibrate the parties' maximum exposure:
(a) An aggregate liability cap, calculated as 200% of total payments actually received by Penterra under the License Agreement as of the date on which a claim for indemnification is first asserted;
(b) A per-claim de minimis threshold of $150,000, below which individual claims do not give rise to any indemnification obligation and are not aggregated toward the deductible basket; and
(c) An aggregate deductible basket of $750,000, structured as a "tipping basket" (i.e., once the aggregate amount of qualifying claims exceeds the basket, the indemnifying party is liable for the full amount of qualifying losses from the first dollar above the basket, rather than only for the incremental amount in excess of the basket).
Certain categories of liability are expressly carved out from the aggregate cap and, in some cases, from the de minimis threshold and deductible basket as well. These carve-outs apply to losses arising from fraud by either party, willful misconduct by either party, and — of particular significance to Penterra — third-party intellectual property infringement claims covered by Penterra's licensor-side IP indemnity. The carve-out structure reflects a heightened risk allocation for the most serious categories of conduct and for the foundational intellectual property representations upon which Meridian's bargain rests.
The License Agreement is governed by the laws of the State of New York, without regard to conflicts of law principles that would result in the application of the laws of any other jurisdiction. Disputes arising under the indemnification provisions, as with all disputes under the License Agreement, are subject to binding arbitration administered by the International Court of Arbitration of the International Chamber of Commerce (ICC), with the seat of arbitration in New York, New York. Arbitration is to be conducted before a panel of three (3) arbitrators, with proceedings in the English language. Notwithstanding the foregoing, either party is permitted to seek preliminary injunctive or other provisional relief in the United States District Court for the Southern District of New York or, in the alternative, the Supreme Court of the State of New York, New York County, to the extent necessary to prevent irreparable harm pending the constitution of the arbitral tribunal or the rendering of a final award.
The sections that follow provide a detailed analysis of each component of the indemnification framework, including the scope of each party's obligations, the financial limitations and carve-outs, procedural requirements, interactions with other provisions of the License Agreement and ancillary agreements, a comparison to market terms, and recommendations for Penterra.
III. Penterra's Indemnification Obligations (Licensor Indemnification)
A. Scope of Coverage
Section 14.1 of the License Agreement provides that Penterra shall indemnify, defend, and hold harmless Meridian and its Affiliates — including Meridian Pharma (Shanghai) Co., Ltd., Meridian Japan K.K., Meridian Korea Inc., and Meridian Bio Australia Pty Ltd — and their respective officers, directors, employees, and agents (collectively, the "Meridian Indemnitees") from and against any and all Losses (as defined in Section 1.72 to include damages, liabilities, costs, expenses, judgments, settlements, fines, penalties, and reasonable attorneys' fees and costs of investigation) arising out of or resulting from the following categories of covered events:
1. Breach of Representations and Warranties Made by Penterra. Penterra has made a series of representations and warranties in Article 10 of the License Agreement, each of which, if breached, would trigger an indemnification obligation in favor of the Meridian Indemnitees. These representations include, without limitation:
(a) Due Organization and Good Standing. Penterra is duly organized, validly existing, and in good standing under the laws of the State of Delaware, with full corporate power and authority to enter into and perform its obligations under the License Agreement and each ancillary agreement.
(b) Authority and Enforceability. The execution, delivery, and performance of the License Agreement by Penterra have been duly authorized by all necessary corporate action, and the License Agreement constitutes a legal, valid, and binding obligation of Penterra enforceable in accordance with its terms, subject to customary bankruptcy and equitable exceptions.
(c) IP Ownership and Right to License. Penterra is the sole and exclusive owner of, or has valid and subsisting rights to, all Licensed IP, and has the unrestricted right to grant the exclusive license contemplated by the License Agreement, free and clear of any liens, encumbrances, or adverse claims, subject only to disclosed prior encumbrances (none disclosed).
(d) Non-Infringement as of the Effective Date. To Penterra's knowledge (defined as the actual knowledge of Penterra's Chief Scientific Officer, Dr. Elaine K. Morse, and Vice President of intellectual Property, Diana R. Talbot, after due inquiry), the Licensed IP as existing on the Effective Date does not infringe, misappropriate, or otherwise violate any intellectual property right of any third party in any jurisdiction within the Territory.
(e) Clinical Data Integrity. All clinical data and results provided or made available to Meridian in connection with the License Agreement, including without limitation the data from the Phase IIb clinical trial designated Study PPC-4187-201 (a randomized, double-blind, placebo-controlled study enrolling 420 patients with moderate-to-severe atopic dermatitis, with a primary endpoint of EASI-75 response at Week 16), are accurate and complete in all material respects and have been generated in accordance with applicable laws, regulations, Good Clinical Practice (GCP), and applicable study protocols.
(f) Regulatory Compliance. Penterra has complied in all material respects with all applicable laws, regulations, and governmental requirements relating to the development of PPC-4187, including without limitation FDA requirements for Investigational New Drug (IND) applications and clinical trial conduct.
The breadth of these representations is significant, as a breach of any one of them could expose Penterra to indemnification liability. The representations relating to IP ownership, non-infringement, and clinical data integrity are of particular importance given the nature of the transaction and the reliance Meridian places on these matters in proceeding with Territory-wide development and commercialization.
2. Penterra's Negligence or Willful Misconduct. Penterra's indemnification obligation extends to Losses arising from the negligence or willful misconduct of Penterra, its officers, employees, and agents in connection with the performance of Penterra's obligations under the License Agreement and the ancillary agreements, including the Supply Agreement, the Technology Transfer Agreement, and the Quality Agreement. This coverage applies to both pre-closing conduct (to the extent it relates to obligations that survive or are relevant to the License Agreement) and post-closing conduct throughout the term.
The inclusion of negligence as a trigger — in addition to willful misconduct — is standard in pharmaceutical licensing transactions and reflects the operational nature of certain Penterra obligations, particularly the supply of clinical materials and the execution of technology transfer. The practical significance of this trigger is that it imposes a duty of care on Penterra in all aspects of its performance, not merely an obligation to refrain from intentional wrongdoing.
3. Third-Party IP Infringement Claims. Section 14.1(c) of the License Agreement provides that Penterra shall indemnify the Meridian Indemnitees against any claim, action, or proceeding brought by any third party alleging that the Licensed IP, as existing on the Effective Date, infringes, misappropriates, or otherwise violates any intellectual property right of such third party. This indemnity is specifically directed at protecting Meridian against the risk that the foundational intellectual property upon which the licensed rights rest may be subject to challenge by third parties.
The Licensed IP covered by this indemnity encompasses the following:
(a) Patent Rights. Seven (7) patent families, including:
(i) U.S. Patent No. 11,234,567 (composition of matter — Penteracitinib base compound and pharmaceutically acceptable salts);
(ii) U.S. Patent No. 11,345,678 (crystalline polymorph Form I and manufacturing processes);
(iii) PCT/US2019/045123 and corresponding national phase entries in Territory jurisdictions;
(iv) CN Patent No. ZL 2020 1 0456789.0 (granted by CNIPA; composition of matter and method of treatment);
(v) JP Patent No. 7,012,345 (granted by JPO; composition of matter);
(vi) KR Patent No. 10-2345678 (granted by KIPO; composition of matter and pharmaceutical formulation); and
(vii) AU Patent No. 2020234567 (granted by IP Australia; composition of matter and method of treatment).
(b) Licensed Know-How. All proprietary know-how, trade secrets, technical information, manufacturing processes, formulation data, analytical methods, stability data, and other confidential information related to PPC-4187 as disclosed or made available to Meridian pursuant to the License Agreement and the Technology Transfer Agreement.
(c) Trademark Rights. The PENTECLAR trademark, including U.S. Registration No. 6,789,012 and all corresponding trademark applications and registrations filed or to be filed in Territory jurisdictions.
This IP infringement indemnity is the single most significant indemnification obligation borne by Penterra, both because of its breadth and because it is carved out from the aggregate liability cap (as discussed in Section VI.C below), resulting in effectively uncapped exposure.
4. Manufacture or Supply of Clinical Supply Material. Penterra's indemnification obligation covers Losses arising from Penterra's supply of active pharmaceutical ingredient (API) and reference standard materials to Meridian under the Supply Agreement. Under the current terms of the Supply Agreement, Penterra will supply API to Meridian at cost plus a 15% margin for the first three (3) years following the Effective Date, with manufacturing performed by Alkerra Manufacturing Inc. at its facility in Research Triangle Park, North Carolina. This indemnity covers defects in the supplied materials, manufacturing errors, contamination, failure to meet agreed-upon specifications, and any other quality-related issues attributable to Penterra or Alkerra Manufacturing during the supply term.
B. Analysis and Key Considerations for Penterra
The scope of Penterra's indemnification obligations warrants careful consideration in several respects, each of which is addressed below.
IP Infringement Indemnity. The IP infringement indemnity set forth in Section 14.1(c) is the broadest and most consequential of Penterra's indemnification obligations. Its scope is appropriately limited to the Licensed IP "as existing on the Effective Date" (anticipated to be October 20, 2023), which means that any modifications, improvements, new formulations, combination products, or additional indications developed by Meridian after the Effective Date are excluded from the scope of Penterra's indemnity. This temporal limitation is critical, as it ensures that Penterra is not responsible for infringement risks introduced by Meridian's own post-closing activities. The License Agreement includes a clear definition of "Licensed IP" that is fixed as of the Effective Date, with any Meridian improvements constituting "Meridian Improvements" under a separate definitional framework. This demarcation should be preserved in the execution version without modification.
As a substantive matter, the infringement risk under this indemnity is assessed as low based on the freedom-to-operate opinion prepared by Whitford & Cascade Insurance Brokers (Dr. Alan J. Whitford, lead opinion counsel), which concluded that the Licensed IP presents a low risk of infringement across all Territory jurisdictions based on the patent landscape as of the date of the opinion. While this opinion provides meaningful comfort, it does not eliminate exposure entirely, particularly given the dynamic nature of third-party patent prosecution activity in jurisdictions such as China and Japan, where the patent landscape for JAK inhibitors remains active and evolving.
Manufacturing/Supply Indemnity. The manufacturing and supply indemnity is appropriately time-limited to the initial three-year supply term under the Supply Agreement and the technology transfer period of twenty-four (24) months from the Effective Date (i.e., through October 20, 2025). Following the completion of technology transfer, Meridian will assume full responsibility for the manufacture of PPC-4187 API and finished dosage forms in the Territory, and the associated risk will shift to Meridian under its own indemnification obligations. During the supply term, Penterra's exposure under this indemnity is a function of Alkerra Manufacturing's performance and quality controls. Penterra should ensure that its contract manufacturing agreement with Alkerra contains back-to-back indemnification provisions that would allow Penterra to seek contribution from Alkerra in the event of a manufacturing-related claim.
Survival of Representations and Warranties. The survival periods for Penterra's representations and warranties directly affect the duration of exposure under the indemnification provisions. The September 15 Draft contemplates a general survival period for most representations and warranties, but the specific periods remain subject to final confirmation in the execution version. In prior discussions with Meridian's counsel, we have proposed an 18-month survival period for general representations and an extended survival period for IP representations, surviving until the expiration of the last-to-expire licensed patent (currently projected to be August 12, 2037 for the base compound patent, or November 3, 2038 for the crystalline form patent, depending on any patent term adjustments). We recommend confirming these periods in the execution version, as the survival period for IP representations directly affects the duration of Penterra's IP-related indemnification exposure.
Uncapped Nature of IP Indemnity. As discussed further in Section VI.C below, the IP infringement indemnity is carved out from the aggregate liability cap, representing Penterra's primary area of uncapped exposure under the License Agreement. This carve-out was a firm requirement of Meridian's counsel throughout the negotiation process and reflects the market-standard expectation that a licensor should stand fully behind its representations as to the non-infringement of the licensed intellectual property. While this exposure is significant in the abstract, it is mitigated by the factors described above (FTO opinion, scope limitation, Joint Patent Committee oversight) and by the overall low probability of a third-party infringement challenge materializing in the Territory jurisdictions.
IV. Meridian's Indemnification Obligations (Licensee Indemnification)
A. Scope of Coverage
Section 14.2 of the License Agreement provides that Meridian shall indemnify, defend, and hold harmless Penterra and its Affiliates and their respective officers, directors, employees, and agents (collectively, the "Penterra Indemnitees") from and against any and all Losses arising out of or resulting from the following categories of covered events:
1. Breach of Representations and Warranties Made by Meridian. Meridian has made a series of representations and warranties in Article 10 of the License Agreement, including:
(a) Due Organization and Good Standing. Meridian is duly organized and validly existing under the laws of the Hong Kong Special Administrative Region of the People's Republic of China (HK Company Reg. No. 2847631), with full corporate power and authority to enter into and perform its obligations under the License Agreement.
(b) Authority and Enforceability. The execution, delivery, and performance of the License Agreement by Meridian have been duly authorized by all requisite corporate action, including approval by Meridian's Board of Directors and, to the extent required, its shareholders.
(c) Financial Capacity. Meridian has, and will maintain throughout the term, sufficient financial resources to perform its obligations under the License Agreement, including the payment of all milestone payments and royalties as they become due and the funding of all development, regulatory, and commercialization activities in the Territory.
(d) Regulatory Capabilities. Meridian possesses, directly or through its Affiliates, the requisite regulatory expertise, infrastructure, and personnel to conduct the clinical development program, prepare and submit regulatory applications, and obtain marketing approvals for Licensed Products in the Territory jurisdictions.
(e) Sublicensing Compliance. Any sublicenses granted by Meridian will comply with the requirements set forth in Section 2.3 of the License Agreement, including the requirement that each sublicense contain terms and conditions no less protective of Penterra's rights than the corresponding provisions of the License Agreement.
(f) Most Favored Nation Pricing Compliance. Meridian will comply at all times with the most favored nation pricing obligations set forth in Schedule F to the License Agreement.
A breach of any of these representations would trigger Meridian's indemnification obligation in favor of the Penterra Indemnitees.
2. Meridian's Development, Manufacture, or Commercialization of Licensed Products in the Territory. This is the broadest of Meridian's indemnification triggers and covers all activities conducted by Meridian, its Affiliates, and its sublicensees in connection with the development, manufacture (following technology transfer), regulatory approval, marketing, distribution, sale, and post-market surveillance of Licensed Products in the Territory. The Territory encompasses the People's Republic of China (including Hong Kong SAR and Macau SAR), Japan, the Republic of Korea, the Commonwealth of Australia, New Zealand, the Republic of Singapore, the Kingdom of Thailand, Malaysia, the Republic of Indonesia, the Republic of the Philippines, the Socialist Republic of Vietnam, and Taiwan. This trigger is intentionally comprehensive, reflecting the principle that Meridian, as the party with operational control over Territory activities, should bear responsibility for losses arising from those activities.
Specifically, this indemnification trigger encompasses, without limitation:
(a) The conduct of Phase III clinical trials in the Territory, including patient enrollment, dosing, monitoring, adverse event reporting, and data management;
(b) The preparation, filing, and prosecution of regulatory submissions with applicable regulatory authorities, including the National Medical Products Administration (NMPA) in China, the Pharmaceuticals and Medical Devices Agency (PMDA) in Japan, the Ministry of Food and Drug Safety (MFDS) in South Korea, and the Therapeutic Goods Administration (TGA) in Australia;
(c) The commercial launch and ongoing marketing, promotion, distribution, and sale of Licensed Products in the Territory; and
(d) Any activities of sublicensees to the extent such activities relate to the Licensed Products in the Territory.
3. Meridian's Negligence or Willful Misconduct. Meridian's indemnification obligation extends to Losses arising from the negligence or willful misconduct of Meridian, its Affiliates (including Meridian Pharma (Shanghai) Co., Ltd., Meridian Japan K.K., Meridian Korea Inc., and Meridian Bio Australia Pty Ltd), its sublicensees, and their respective officers, directors, employees, and agents. This trigger parallels Penterra's corresponding obligation and ensures that both parties are held to a consistent standard of care in the performance of their respective obligations.
4. Product Liability Claims from Commercial Sales in the Territory. Meridian's indemnification obligation expressly covers personal injury, death, property damage, or other product liability claims arising from the sale, distribution, administration, or use of PPC-4187 — whether marketed under the PENTECLAR trade name or any other trade name approved for use in a Territory jurisdiction — in the Territory. This trigger is of critical importance given the breadth of the Territory, which encompasses jurisdictions with widely varying product liability regimes, ranging from the relatively mature and claimant-favorable systems in Japan and Australia to the rapidly developing systems in China, South Korea, and Southeast Asia.
B. Analysis and Key Considerations for Penterra
Breadth of Commercialization Indemnity. Meridian's commercialization indemnity (item 2 above) is appropriately broad and reflects the fundamental allocation of risk in the transaction: Penterra licenses its intellectual property and provides initial clinical supply, while Meridian assumes full operational responsibility for all development, regulatory, and commercial activities in the Territory. From Penterra's perspective, this allocation is essential because Penterra will have limited visibility into and no direct control over Meridian's Territory-side operations. The indemnification obligation ensures that Penterra is protected against losses arising from those activities without requiring Penterra to monitor or supervise Meridian's day-to-day conduct.
Product Liability Coverage. The product liability indemnity (item 4 above) is critical given the breadth of the Territory and the inherent risks associated with the commercialization of a pharmaceutical product across twelve or more jurisdictions with varying legal, regulatory, and litigation environments. We note that Meridian has obtained clinical trial insurance and product liability insurance from Jade Dragon Insurance Limited (Hong Kong), with Christine A. Lo serving as the designated underwriter. The License Agreement requires Meridian to maintain adequate insurance throughout the royalty term, but the specific policy limits and terms should be confirmed to ensure they are commensurate with the scope of Meridian's anticipated commercial activities. Penterra should request copies of Jade Dragon's policies and confirm that coverage extends to all Territory jurisdictions, including those with more developed product liability regimes (Japan, Australia, and South Korea).
Sublicensing and Flow-Down Obligations. Under Section 2.3 of the License Agreement, Meridian may grant sublicenses to third parties with Penterra's prior written consent, which may not be unreasonably withheld, conditioned, or delayed. Each sublicense must contain indemnification terms that are no less protective of Penterra's rights than the corresponding provisions of the License Agreement. Critically, Meridian remains primarily liable for the acts and omissions of its sublicensees, meaning that Penterra may assert indemnification claims directly against Meridian for losses caused by sublicensee conduct without being required to first pursue the sublicensee. This structure provides Penterra with a single, creditworthy counterparty against whom to assert claims, regardless of the number or identity of sublicensees in the Territory. The flow-down of indemnification obligations to sublicensees should be verified in each sublicense agreement before Penterra grants its consent.
Most Favored Nation Pricing. The commercial activities trigger is intentionally broad enough to encompass claims relating to Meridian's marketing, promotional, and pricing practices in the Territory. This is particularly relevant in light of the most favored nation pricing clause set forth in Schedule F to the License Agreement, which requires Meridian to maintain net prices in the Territory at no more than 15% below the lowest net price at which PPC-4187 is sold by Penterra (or its other licensees) in the United States or the EU5 countries (Germany, France, the United Kingdom, Italy, and Spain). A violation of the MFN pricing clause would constitute a breach of Meridian's covenants, triggering Meridian's indemnification obligations for any resulting losses to Penterra, including but not limited to the impact on Penterra's own pricing strategies and negotiations in the Retained Territory.
V. Financial Limitations on Indemnification
A. Aggregate Liability Cap
Section 14.5(a) of the License Agreement establishes an aggregate liability cap on each party's indemnification obligations. The cap is formulated as follows: each party's aggregate indemnification liability under Article 14 shall not exceed an amount equal to two hundred percent (200%) of the total payments actually received by Penterra under the License Agreement as of the date on which a claim for indemnification is first made by the indemnified party.
The significance of tying the cap to "payments actually received" — rather than to a fixed dollar amount or to total potential deal value — is that the cap is dynamic and increases over time as the transaction progresses and additional milestone payments and royalties are received by Penterra. This creates a cap that is proportional to the economic value that has actually been exchanged between the parties at any given point in time.
Floor Cap Calculation. At the closing of the transaction, the only payment that will have been received by Penterra is the $18,000,000 upfront payment. Therefore, the initial indemnification cap at closing equals 200% × $18,000,000 = $36,000,000. This floor represents the minimum level of indemnification exposure for each party at the outset of the arrangement.
Dynamic Nature of the Cap. The cap increases as milestone payments and royalties are received by Penterra. The following table illustrates the cap at various stages of the transaction:
The dynamic nature of the cap has an important practical implication: as the transaction succeeds and generates greater economic value, both parties' potential indemnification exposure increases correspondingly. This is a balanced approach — parties with more at stake in the transaction at any given time bear proportionally greater potential liability, while the cap at the outset is conservatively calibrated to reflect the more limited payments that have been exchanged at closing.
Negotiation History. The 200% multiplier reflects a negotiated compromise between the parties. In the initial term sheet and first draft of the License Agreement, Lam, Cheung & Firth proposed an aggregate liability cap set at 100% of payments received by Penterra — effectively limiting each party's indemnification exposure to dollar-for-dollar recovery against the payments exchanged. Calderwood & Harkness, on behalf of Penterra, countered with a proposed cap of 300% of payments received, reflecting the view that the indemnification cap should provide meaningful protection in excess of the direct economic consideration, particularly in the early stages of the transaction when the payments received are relatively modest. After three rounds of negotiation, the parties agreed on the 200% figure, which represents a market-standard compromise for pharmaceutical licensing transactions of this magnitude and is consistent with the range observed in comparable recent transactions.
B. De Minimis Threshold
Section 14.5(b) of the License Agreement establishes a per-claim de minimis threshold of $150,000. Under this provision, no indemnification obligation arises with respect to any individual Loss unless the amount of that individual Loss exceeds $150,000. Claims that fall below the de minimis threshold are excluded entirely from the indemnification framework — they do not give rise to any indemnification obligation, and they do not count toward or aggregate into the deductible basket described in Section V.C below.
The rationale for the de minimis threshold is straightforward: it filters out nuisance claims and minor losses that do not warrant the administrative burden and expense of the formal indemnification process. In a transaction of this scale, with activities spanning multiple jurisdictions and involving numerous affiliated entities, the potential for minor claims is significant, and a de minimis threshold ensures that the indemnification mechanism is reserved for claims of genuine commercial significance. The $150,000 threshold is reasonable relative to the total deal value of $120,000,000, representing approximately 0.125% of the aggregate potential consideration — well within the range observed in comparable pharmaceutical licensing transactions, where de minimis thresholds typically range from $50,000 to $500,000.
C. Aggregate Deductible Basket
Section 14.5(c) of the License Agreement establishes an aggregate deductible basket of $750,000. Even where individual claims exceed the $150,000 de minimis threshold and thus qualify as indemnifiable losses, the indemnifying party's indemnification obligations do not attach until the aggregate amount of all qualifying losses exceeds $750,000.
Critically, the basket is structured as a "tipping basket" (also referred to as a "first-dollar" basket), rather than a "true deductible." The distinction is significant:
• Tipping Basket (as negotiated): Once the aggregate amount of qualifying losses exceeds the $750,000 basket threshold, the indemnifying party becomes liable for all qualifying losses from the first dollar — that is, the full aggregate amount of qualifying losses, not merely the amount in excess of $750,000. The basket functions as a trigger, not as a permanent retention by the indemnified party.
• True Deductible (rejected): Under a true deductible structure, the indemnified party would permanently absorb the first $750,000 of qualifying losses, and the indemnifying party would be liable only for the incremental amount in excess of $750,000. This structure was initially proposed by Meridian's counsel at Lam, Cheung & Firth but was rejected through negotiation.
The tipping basket structure is more favorable to the indemnified party because it provides full-dollar recovery once the threshold is met, rather than requiring the indemnified party to absorb a permanent first-loss layer. This represents a meaningful negotiation win for both parties (given the mutual nature of the structure), and particularly for Penterra in the event that a significant claim materializes that exceeds the basket threshold.
Relationship to De Minimis Threshold. The de minimis threshold and aggregate deductible basket operate as sequential filters. An individual claim must first exceed the $150,000 de minimis threshold to qualify as an indemnifiable loss. Only qualifying losses — those individually exceeding $150,000 — are then aggregated toward the $750,000 basket. Claims that fall below the de minimis threshold are excluded entirely and have no impact on the basket calculation.
D. Cap, De Minimis, and Basket Interaction — Worked Example
To illustrate the interaction of these three financial limitations, consider the following hypothetical scenario:
Assumed Facts: Penterra has received $50,000,000 in cumulative payments under the License Agreement (consisting of the $18,000,000 upfront payment plus $32,000,000 in development milestone payments). The aggregate liability cap is therefore 200% × $50,000,000 = $100,000,000. Meridian presents three indemnification claims against Penterra:
• Claim A: $80,000 in alleged Losses arising from a data discrepancy in the technology transfer documentation.
• Claim B: $200,000 in alleged Losses arising from a breach of Penterra's representation regarding the validity of a licensed patent in a Territory jurisdiction.
• Claim C: $600,000 in alleged Losses arising from a quality deficiency in a shipment of API supplied by Alkerra Manufacturing under the Supply Agreement.
Analysis:
Step 1 — De Minimis Filter: Claim A ($80,000) falls below the $150,000 de minimis threshold. It is excluded entirely from the indemnification framework and does not count toward the basket. Claims B ($200,000) and C ($600,000) each exceed the de minimis threshold and qualify as indemnifiable losses.
Step 2 — Basket Aggregation: The aggregate amount of qualifying losses is $200,000 + $600,000 = $800,000, which exceeds the $750,000 aggregate deductible basket.
Step 3 — Tipping Basket Application: Because the basket is structured as a tipping basket, once the $750,000 threshold is exceeded, Penterra's indemnification obligation attaches for the full $800,000 in qualifying losses — not merely for the $50,000 increment above the basket.
Step 4 — Cap Application: Penterra's total indemnification liability of $800,000 is well within the $100,000,000 aggregate cap. Penterra would be liable for the full $800,000.
Result: Penterra's indemnification obligation is $800,000, subject to the $100,000,000 cap. Claim A ($80,000) is excluded. The total claim amount of $800,000 is recoverable in full once the basket threshold is exceeded.
VI. Carve-Outs from Financial Limitations
Section 14.6 of the License Agreement identifies three categories of liability that are carved out from the financial limitations described in Section V above. Each carve-out is analyzed below.
A. Fraud. The aggregate liability cap, de minimis threshold, and deductible basket do not apply to any Losses arising from or attributable to fraud committed by either party. This is a market-standard carve-out, universally included in indemnification provisions across pharmaceutical licensing transactions and M&A agreements alike. The carve-out reflects the fundamental public policy principle that a party should not be permitted to benefit from contractual limitations on liability where it has engaged in fraudulent conduct. "Fraud" is defined in the License Agreement by reference to common law fraud under the laws of the State of New York, encompassing knowing misrepresentation of a material fact, intent to induce reliance, justifiable reliance, and resulting damages.
The practical significance of this carve-out is that a finding of fraud by either party would expose the defrauding party to unlimited indemnification liability, unrestrained by the cap, de minimis, or basket provisions. While the probability of a fraud claim arising in the context of this transaction is low, the carve-out provides essential protection for both parties against the most egregious category of misconduct.
B. Willful Misconduct
The aggregate liability cap does not apply to any Losses arising from or attributable to willful misconduct by either party. This carve-out is consistent with the widely accepted principle that intentional wrongdoing should not be shielded by contractual limitations on liability. Unlike the fraud carve-out, which extends to all three financial limitations (cap, de minimis, and basket), the willful misconduct carve-out as currently drafted applies only to the aggregate cap — the de minimis threshold and deductible basket continue to apply to claims based on willful misconduct. This distinction reflects the practical consideration that willful misconduct, while serious, may give rise to individual claims of varying magnitude, and the de minimis threshold and basket serve their filtering function even in the context of intentional conduct.
"Willful misconduct" is defined in the License Agreement as any act or omission taken or omitted to be taken by a party with knowledge that such act or omission is wrongful or in deliberate disregard of such party's obligations under the License Agreement. This definition encompasses intentional breaches, deliberate failures to perform, and knowing violations of applicable law or regulation, but does not extend to mere negligence, inadvertence, or good-faith errors of judgment.
C. IP Infringement Indemnity
Of greatest significance to Penterra, the aggregate liability cap does not apply to Penterra's obligation to indemnify Meridian against third-party intellectual property infringement claims as described in Section III.A.3 above. This means that Penterra's exposure under the IP infringement indemnity is effectively uncapped — there is no maximum limit on the aggregate amount of Losses for which Penterra may be required to indemnify the Meridian Indemnitees in connection with third-party IP infringement claims relating to the Licensed IP.
Significance for Penterra. This carve-out represents Penterra's most significant area of risk under the License Agreement. In a worst-case scenario — for example, if a third party successfully asserted that one or more of the core patent families underlying PPC-4187 infringed that third party's patent rights in a major Territory jurisdiction such as China or Japan — the resulting damages, lost profits, reasonable royalties, injunctive relief costs, and defense costs could be substantial and would not be subject to the aggregate cap. The potential magnitude of such exposure underscores the importance of continued vigilance with respect to the third-party patent landscape in the Territory.
Mitigation Factors. Notwithstanding the uncapped nature of this exposure, several factors significantly mitigate the risk:
(a) FTO Opinion. Whitford & Cascade Insurance Brokers (Dr. Alan J. Whitford, lead opinion counsel) has conducted a comprehensive freedom-to-operate analysis and concluded that the Licensed IP presents a low risk of infringing any third-party intellectual property rights across all Territory jurisdictions. While an FTO opinion is not a guarantee against infringement, it provides a well-reasoned, expert assessment of the current patent landscape and identifies no significant blocking patents or freedom-to-operate concerns.
(b) Scope Limitation. The IP infringement indemnity is expressly limited to the Licensed IP "as existing on the Effective Date." Penterra is not responsible for any modifications, improvements, new formulations, combination products, new indications, or other changes made by Meridian to the Licensed IP after the Effective Date. Any Meridian Improvements — as defined in the License Agreement — fall outside the scope of Penterra's IP indemnity. This scope limitation is critical and should be rigorously enforced to prevent scope creep.
(c) Joint Patent Committee Oversight. Penterra retains meaningful influence over global IP strategy through its representation on the Joint Patent Committee (JPC), which consists of two (2) members appointed by Penterra and two (2) members appointed by Meridian, with Penterra holding a tie-breaking vote on matters relating to global patent prosecution and enforcement strategy. This governance structure enables Penterra to participate actively in decisions that affect the intellectual property portfolio and to influence the management of any IP-related disputes that may arise.
Recommendation. Given the uncapped nature of this exposure, Penterra should maintain detailed and contemporaneous records of the Licensed IP as of the Effective Date, including complete copies of all patent specifications, claims, prosecution files, and related correspondence, as well as a comprehensive inventory of all licensed know-how. Additionally, Penterra should require clear and documented demarcation of any improvements, modifications, or new intellectual property developed by Meridian after the Effective Date, to ensure that the scope limitation of the IP indemnity is preserved and that any attempt by Meridian to expand the scope of Penterra's obligation can be identified and resisted at the earliest possible stage.
VII. Procedural Requirements for Indemnification Claims
The License Agreement sets forth detailed procedural requirements governing the assertion, investigation, and resolution of indemnification claims. These procedural provisions are set forth in Section 14.3 (Notice), Section 14.4 (Defense of Third-Party Claims), and Section 14.7 (Cooperation) of the License Agreement. Compliance with these procedures is a condition to the exercise of indemnification rights, subject to the important qualification that a failure to comply does not relieve the indemnifying party of its obligations except to the extent of actual prejudice.
A. Notice Requirements
Section 14.3 provides that any party seeking indemnification (the "Indemnified Party") must provide prompt written notice to the party from whom indemnification is sought (the "Indemnifying Party") upon becoming aware of any claim, action, suit, proceeding, investigation, demand, or other circumstance that may reasonably be expected to give rise to an indemnification obligation under Article 14. This notice requirement applies to both third-party claims (i.e., claims asserted by persons or entities other than the parties to the License Agreement) and direct claims (i.e., claims asserted by one party against the other for breach of representations, warranties, or covenants).
The notice must be in writing and must include the following information:
(a) A description of the facts and circumstances giving rise to the claim, in reasonable detail;
(b) The specific section(s) of the License Agreement under which indemnification is sought;
(c) The estimated amount of Losses, to the extent reasonably determinable at the time of the notice, or a statement that the amount is not yet determinable; and
(d) Copies of any relevant documents, including but not limited to any complaint, summons, subpoena, demand letter, or government inquiry received by the Indemnified Party.
Failure to provide timely notice does not relieve the Indemnifying Party of its indemnification obligations, except to the extent that the Indemnifying Party demonstrates that it has been actually and materially prejudiced by the delay. This qualification is important because it prevents the Indemnifying Party from using a technical notice deficiency as a basis to avoid a meritorious indemnification claim, while still preserving the Indemnifying Party's right to raise prejudice as a defense where a delayed notice has caused genuine harm to its ability to investigate or defend the claim.
B. Control of Defense
Section 14.4 addresses the allocation of responsibility for the defense of third-party claims. The Indemnifying Party has the right, but not the obligation, to assume control of the investigation and defense of any third-party claim for which indemnification is sought, including the selection of counsel, the development of defense strategy, and the conduct of all proceedings related to the claim. Upon assuming control of the defense, the Indemnifying Party shall diligently prosecute the defense to a final conclusion or settlement.
The Indemnified Party retains the right to participate in the defense of any third-party claim at its own expense, including the right to retain separate counsel of its choosing and to attend all proceedings, depositions, hearings, and other significant events in the defense of the claim. However, the Indemnified Party may not take any action that would conflict with or undermine the defense strategy pursued by the Indemnifying Party without the Indemnifying Party's prior written consent.
Importantly, the Indemnifying Party may not settle any third-party claim without the Indemnified Party's prior written consent — which may not be unreasonably withheld, conditioned, or delayed — if the proposed settlement:
(i) Imposes any non-monetary obligation or restriction on the Indemnified Party, including without limitation any injunction, consent order, licensing requirement, or restriction on the Indemnified Party's business activities;
(ii) Does not include a complete and unconditional release of the Indemnified Party and all other Indemnified Persons from all liability arising out of or related to the claim; or
(iii) Involves or requires any admission of liability, fault, wrongdoing, or violation of law by the Indemnified Party.
These settlement consent requirements are standard in pharmaceutical licensing agreements and are designed to protect the Indemnified Party's autonomy, reputation, and business interests against settlements that might resolve the Indemnifying Party's financial exposure while imposing burdensome or prejudicial terms on the Indemnified Party.
C. Cooperation. Section 14.7 requires both parties to cooperate in good faith in the investigation and defense of any claim for which indemnification is sought. Cooperation obligations include, without limitation:
(a) Providing reasonable access to relevant books, records, documents, files, correspondence, and other materials in the cooperating party's possession, custody, or control;
(b) Making available officers, directors, employees, consultants, and agents as witnesses or for interviews, depositions, or other proceedings as reasonably requested; and
(c) Executing and delivering any documents, instruments, or authorizations reasonably necessary to facilitate the investigation or defense of the claim.
The costs and expenses of cooperation — other than the Indemnified Party's own internal costs (e.g., employee time and overhead) — are borne by the Indemnifying Party. This allocation ensures that the Indemnified Party is not economically penalized for fulfilling its cooperation obligations, while recognizing that the Indemnified Party's internal resources are deployed in the ordinary course of its business and should not give rise to a separate cost-shifting obligation.
VIII. Interaction with Other Agreement Provisions
The indemnification provisions do not operate in isolation but interact with several other provisions of the License Agreement and the ancillary agreements. This section analyzes the most significant interactions.
A. Interaction with Insurance Requirements
Section 12.4 of the License Agreement requires Meridian to obtain and maintain, at its own cost, product liability insurance and clinical trial insurance throughout the term of the License Agreement, with coverage limits and terms reasonably acceptable to Penterra. Meridian has obtained initial coverage from Jade Dragon Insurance Limited, a Hong Kong-based specialty insurer, with Christine A. Lo serving as the designated underwriter for the program.
The License Agreement contains a standard "no double recovery" provision in Section 14.8, which provides that indemnification obligations are not reduced by the availability or existence of insurance coverage — the Indemnified Party is not required to exhaust its insurance remedies before asserting an indemnification claim. However, to the extent the Indemnified Party actually receives insurance proceeds with respect to a loss for which indemnification has been paid, the Indemnified Party must promptly reimburse the Indemnifying Party in the amount of such insurance proceeds (net of any costs of recovery), to prevent double recovery. This structure is standard and ensures that the indemnification framework provides a reliable and immediately accessible remedy, without creating windfall recoveries.
From Penterra's perspective, it is important to confirm that Jade Dragon Insurance Limited's policy limits are adequate relative to the scope of Meridian's commercial activities across twelve or more Territory jurisdictions, particularly in jurisdictions with mature product liability regimes (Japan, Australia, South Korea). Penterra should request copies of all relevant insurance policies and binders, review coverage terms and exclusions, and confirm that Penterra is named as an additional insured or loss payee to the extent commercially available. Additionally, the License Agreement should — and as currently drafted does — require Meridian to provide Penterra with prompt written notice of any material change in, cancellation of, or failure to renew its insurance coverage.
B. Interaction with Most Favored Nation Pricing Clause
The most favored nation (MFN) pricing clause set forth in Schedule F to the License Agreement requires Meridian to maintain the net price of Licensed Products in each Territory jurisdiction at a level no more than fifteen percent (15%) below the lowest net price at which PPC-4187 is sold by Penterra (or its other licensees) in the United States or the EU5 countries (Germany, France, the United Kingdom, Italy, and Spain). Meridian is required to conduct a quarterly reconciliation of Territory net prices against the applicable U.S./EU5 reference prices and to deliver a compliance report to Penterra within forty-five (45) days following the end of each calendar quarter.
A breach of the MFN pricing clause constitutes a breach of Meridian's covenants under the License Agreement, which in turn triggers Meridian's general indemnification obligations under Section 14.2. Additionally, the MFN clause provides a separate, direct contractual remedy: an MFN adjustment payment calculated as the difference between the MFN floor price and the actual net price charged by Meridian, multiplied by the number of units sold in the relevant calendar quarter at below-MFN prices. The MFN adjustment payment is a liquidated damages measure designed to restore Penterra to the economic position it would have occupied had the MFN requirement been satisfied.
The indemnification provisions supplement this direct remedy by covering Losses that go beyond the MFN adjustment payment itself. Such Losses may include, without limitation, consequential damages arising from the MFN breach (e.g., downward pressure on Penterra's own pricing in the Retained Territory), reputational harm, costs of investigation and enforcement, and the impact of below-MFN Territory pricing on Penterra's negotiations with other licensees or distributors. The availability of both the MFN adjustment payment and the broader indemnification remedy ensures comprehensive protection for Penterra against the economic consequences of MFN non-compliance.
C. Interaction with Sublicensing Provisions
As noted in Section IV.B above, the License Agreement permits Meridian to grant sublicenses with Penterra's prior written consent (not to be unreasonably withheld, conditioned, or delayed). The interaction between the sublicensing provisions and the indemnification framework operates on multiple levels:
Flow-Down Requirement. Each sublicense granted by Meridian must contain indemnification terms that are no less protective of Penterra's rights than the corresponding provisions of the License Agreement. This flow-down requirement ensures that sublicensees are contractually bound to indemnify Meridian (and, through Meridian, Penterra) for losses arising from the sublicensee's activities, providing an additional layer of protection and accountability.
Primary Liability. Notwithstanding the flow-down requirement, Meridian remains primarily liable for the acts and omissions of its sublicensees. Penterra may assert indemnification claims directly against Meridian for losses caused by sublicensee conduct, without being required to first exhaust remedies against the sublicensee. This primary liability structure is essential from Penterra's perspective because it ensures that Penterra deals with a single, known, and creditworthy counterparty rather than being forced to pursue claims against potentially unknown or financially weaker sublicensees in foreign jurisdictions.
Cap Implications. Sublicense income received by Penterra constitutes "payments received by Penterra" for purposes of the aggregate liability cap calculation. Under the License Agreement, Meridian is required to remit to Penterra fifty percent (50%) of all sublicense income received, net of documented out-of-pocket development costs incurred by Meridian in connection with the sublicensed activities. As sublicense income flows through to Penterra, the cap increases accordingly, maintaining the proportional relationship between payments exchanged and indemnification exposure.
D. Interaction with Supply Agreement and Technology Transfer
Penterra's manufacturing and supply indemnity under the License Agreement is closely linked to the Supply Agreement (to be executed concurrently with the License Agreement) and the Technology Transfer Agreement (to be executed within thirty (30) days of the Effective Date).
Under the Supply Agreement, Penterra will supply PPC-4187 API and reference standard materials to Meridian for the first three (3) years following the Effective Date, at a transfer price equal to Penterra's manufacturing cost plus a fifteen percent (15%) margin. Manufacturing is performed by Alkerra Manufacturing Inc. at its facility in Research Triangle Park, North Carolina. Penterra's indemnification obligation under Section 14.1(d) of the License Agreement covers Losses arising from defects, quality failures, or other issues attributable to Penterra or Alkerra Manufacturing during this supply period.
Concurrently, the Technology Transfer Agreement governs the transfer of manufacturing know-how, processes, analytical methods, and other technical information from Penterra to Meridian (or Meridian's designated contract manufacturer in the Territory) over a twenty-four (24) month period from the Effective Date, with a target completion date of October 20, 2025. During the technology transfer period, Penterra bears responsibility for the accuracy and completeness of the transferred information and for providing adequate training and support to enable Meridian to establish independent manufacturing capability in the Territory.
Following the completion of technology transfer and the expiration of the three-year supply term, manufacturing responsibility shifts entirely to Meridian. From that point forward, Meridian's indemnification obligations under Section 14.2 of the License Agreement cover all Losses arising from Meridian's own manufacturing activities in the Territory, including quality defects, manufacturing errors, and regulatory non-compliance.
The Quality Agreement — to be executed by December 19, 2023 — will contain its own quality-related indemnification provisions governing responsibility for quality events, deviations, out-of-specification results, and recalls. It is essen

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