PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT COMMUNICATION ATTORNEY WORK PRODUCT
MEMORANDUM
FROM: Derek Okonkwo, Associate, Calderwood & Harkness LLP
TO: Oliver Mackenzie, Partner, Calderwood & Harkness LLP Megan Chu, Associate, Calderwood & Harkness LLP
CC: Thomas F. Holbrook, General Counsel & Secretary, Penterra Pharmaceuticals Corp. Natalie Reiner, SVP, Corporate Development, Penterra Pharmaceuticals Corp.
DATE: May 15, 2024
RE: Environmental Due Diligence Review — Veridian Biosciences, Inc.
MATTER NO.: 1018-00008
SUBJECT: Proposed Acquisition of 100% of the Outstanding Capital Stock of Veridian Biosciences, Inc. by Penterra Pharmaceuticals Corp. — $900,000,000 Stock Purchase Agreement
This memorandum constitutes a privileged and confidential attorney-client communication and attorney work product prepared in connection with Calderwood & Harkness LLP's representation of Penterra Pharmaceuticals Corp. in the above-referenced transaction. This memorandum is intended solely for the use of the addressees and persons copied herein and should not be distributed, copied, or disclosed to any other person without the prior written consent of Calderwood & Harkness LLP. Inadvertent disclosure of this memorandum does not constitute a waiver of any applicable privilege.
I. EXECUTIVE SUMMARY
Calderwood & Harkness LLP ("C&H" or the "Firm") has conducted an environmental due diligence review of Veridian Biosciences, Inc. ("Veridian" or the "Company"), a privately held, clinical-stage biotechnology company focused on the development of immuno-oncology therapeutics, in connection with Penterra Pharmaceuticals Corp.'s ("Penterra" or "PPC") proposed acquisition of 100% of the outstanding capital stock of Veridian for an aggregate cash purchase price of $900,000,000 (the "Transaction"). The Transaction is structured as an all-cash stock purchase pursuant to the terms of a Stock Purchase Agreement (the "SPA") being negotiated between the parties.
Our environmental due diligence review focused on Veridian's sole facility located at 550 Gateway Drive, Cambridge, MA 02142 (the "Facility"), which houses the entirety of the Company's laboratory and office operations. The Facility serves as the primary site for research activities related to Veridian's proprietary VeriTCE bispecific T-cell engager platform and its pipeline of clinical and preclinical drug candidates, including the Company's lead candidate, VRD-4187, which is currently in Phase 2 clinical development.
Summary of Key Findings. Based on our review of the documents and information described in Section II below, and subject to the limitations set forth therein, we have determined that Veridian's environmental risk profile is relatively low, consistent with that of a clinical-stage biotechnology company that does not manufacture drug product at commercial scale. The Company leases laboratory and office space in a purpose-built, multi-tenant life sciences building and conducts research activities involving biological and chemical materials that are subject to various federal and state environmental and safety regulations. Veridian maintains an active environmental, health, and safety ("EH&S") program and appears to be in material compliance with applicable environmental laws, regulations, and permit requirements.
No material environmental liabilities were identified during the course of our review. In particular, we found no evidence of (i) pending or threatened environmental enforcement actions, notices of violation, or compliance orders; (ii) known soil or groundwater contamination at or emanating from the Facility attributable to Veridian's operations; (iii) off-site disposal of hazardous waste at any location identified as a federal or state Superfund site; or (iv) any environmental condition that would, in our assessment, constitute a material impediment to the consummation of the Transaction.
Certain discrete items warrant attention in connection with the preparation and finalization of the definitive transaction documentation, including (a) the appropriate allocation of environmental liabilities in the SPA, (b) confirmation of landlord environmental responsibilities under the Facility lease, (c) post-closing transfer or notification requirements with respect to the Company's Massachusetts radioactive materials license and Cambridge Biosafety Committee registration, and (d) the absence of standalone environmental insurance coverage, which is not unusual for a company of Veridian's size and operational profile but merits consideration in the context of Penterra's post-closing integration plans.
As of the date of this memorandum, Veridian has approximately 148 employees, all of whom are based at the Cambridge Facility. The Company does not own or operate any other facilities, and it does not conduct manufacturing operations at the Facility or elsewhere.
This memorandum should be read in conjunction with the following additional due diligence memoranda prepared by C&H in connection with the Transaction, each of which addresses matters that are complementary to the environmental issues discussed herein:
• Regulatory and FDA Compliance Due Diligence Memorandum (dated May 20, 2024);
• Insurance Due Diligence Memorandum (dated May 16, 2024); and
• Material Contracts Review Memorandum (dated May 17, 2024).
II. SCOPE OF REVIEW
A. Documents and Information Reviewed
Our environmental due diligence review was based on documents and information uploaded by Veridian's counsel, Zalcourt Archer & Cole LLP (Rebecca Whitmore, Partner; Jonathan Pratt, Associate), to the virtual data room maintained by Thackeray Solutions in connection with the Transaction (the "Data Room"), in response to C&H's Preliminary Due Diligence Request List dated March 6, 2024. We also reviewed certain additional documents and information provided by Veridian management in response to supplemental follow-up requests made during the course of our review.
The specific categories of documents and information reviewed in connection with this memorandum include the following:
1. The lease agreement for 550 Gateway Drive, Cambridge, MA 02142, between Veridian (as tenant) and Gateway Life Sciences Properties LLC (as landlord), including all amendments, addenda, and side letters, with particular attention to the environmental provisions, tenant obligations with respect to hazardous materials management, laboratory decommissioning requirements, and allocation of environmental liabilities between landlord and tenant (the "Lease").
2. Environmental permits, licenses, and registrations held by Veridian, including the Company's RCRA Small Quantity Generator registration, Massachusetts Radioactive Materials License, Cambridge Biosafety Committee registration, and Institutional Biosafety Committee registration with the NIH Office of Science Policy.
3. Hazardous waste generator registrations and manifests for the period from 2021 through the first quarter of 2024, documenting the types, quantities, and disposition of hazardous waste generated by Veridian at the Facility.
4. Chemical hygiene plans and biological safety plans maintained by Veridian in connection with its laboratory operations, including the Company's written Chemical Hygiene Plan, Biological Safety Plan/Exposure Control Plan, and Radiation Safety Manual.
5. The Company's complete inventory of Material Safety Data Sheets (SDS/MSDS) for chemicals and hazardous materials maintained or used at the Facility, as compiled in Veridian's electronic chemical management system.
6. Environmental, health, and safety policies and procedures manuals, including standard operating procedures for hazardous waste management, spill response, emergency procedures, and laboratory safety protocols.
7. Environmental compliance audit reports, both internal self-assessments and third-party audits, for the period from 2020 through 2024.
8. Correspondence with federal, state, and local environmental and regulatory agencies, including the U.S. Environmental Protection Agency ("EPA"), the Massachusetts Department of Environmental Protection ("MassDEP"), the Cambridge Public Health Department, and the Cambridge Biosafety Committee ("CBC").
9. Records of any environmental incidents, spills, releases, or remediation activities at or associated with the Facility during Veridian's tenancy.
10. Phase I and Phase II Environmental Site Assessments (ESAs) for the building at 550 Gateway Drive, to the extent available in the Data Room. As described further herein, a Phase I ESA was conducted by the landlord in 2017; no Phase II ESA has been performed.
11. Insurance policies covering environmental liabilities, reviewed in coordination with the Insurance Due Diligence Memorandum.
12. Employee training records related to EH&S matters, including records of initial onboarding training and annual refresher training for laboratory personnel.
13. Veridian's Institutional Biosafety Committee (IBC) records and registrations, including IBC meeting minutes, protocol approvals, and annual reports for the period from 2021 through 2024.
B. Interviews Conducted
In addition to our review of Data Room materials, we conducted the following management interviews and discussions in connection with this memorandum:
1. Dr. Priya Chandrasekaran, Chief Scientific Officer & Co-Founder. We conducted a management interview with Dr. Chandrasekaran on April 2, 2024, regarding the nature and scope of Veridian's laboratory operations, the types of biological and chemical materials used in the Company's research programs, biosafety protocols, and the Company's general approach to environmental and laboratory safety compliance. Dr. Chandrasekaran provided context regarding the Company's VeriTCE T-cell engager platform and the research activities associated with VRD-4187 and other pipeline candidates, including the use of human cell lines, recombinant proteins, and viral vectors in preclinical and translational research.
2. Veridian's Director of Facilities. We conducted a discussion on April 8, 2024, with the Company's Director of Facilities (as identified in the Data Room records) regarding day-to-day waste management practices, environmental permit compliance, facility infrastructure (including chemical fume hoods, biological safety cabinets, autoclave systems, and wastewater neutralization systems), and coordination with the building landlord on shared environmental systems and responsibilities.
3. Broadleaf Scientific Consulting LLC. We coordinated with Dr. Raymond Kapoor, Managing Director of Broadleaf Scientific Consulting LLC, which was engaged by Penterra to conduct the clinical and scientific due diligence for the Transaction, regarding matters of overlapping interest, including laboratory safety practices, biological materials handling, and the classification of the Company's research activities under applicable biosafety regulations.
C. Limitations. This memorandum is subject to the following limitations, which should be taken into account when evaluating the conclusions and recommendations set forth herein:
1. No Independent Environmental Site Assessment. No independent Phase I or Phase II Environmental Site Assessment was commissioned by Penterra or C&H for purposes of this Transaction. Our review of environmental site conditions is based on the existing Phase I ESA conducted by the landlord in 2017, as described in Section VIII below, together with the other Data Room materials and management discussions described above. While the 2017 Phase I ESA did not identify any Recognized Environmental Conditions, we note that the ESA is now approximately seven years old and does not meet the current ASTM E1527-21 standard shelf-life for purposes of the CERCLA innocent landowner defense (typically 180 days). The practical implications of this limitation are discussed in Section XII.B.
2. Leased Facility; Landlord Responsibility. Veridian does not own real property. Its sole Facility is leased, and the environmental conditions of the underlying real property are primarily the responsibility of the landlord under the terms of the Lease, subject to Veridian's obligations with respect to tenant-caused contamination. Our review was accordingly focused on Veridian's operations within the leased premises and the allocation of environmental responsibilities under the Lease, rather than on the environmental condition of the underlying real property itself.
3. Scope Limited to Environmental Matters. This memorandum addresses environmental compliance and liability matters. Occupational health and safety matters governed by the Occupational Safety and Health Administration ("OSHA") are addressed herein only to the extent they overlap with environmental compliance (e.g., the Chemical Hygiene Plan required by the OSHA Laboratory Standard, and the Biological Safety Plan required by the OSHA Bloodborne Pathogens Standard). A comprehensive OSHA compliance review is outside the scope of this memorandum.
4. Reliance on Information Provided. Our analysis is based on the documents and information provided to us in the Data Room and through management discussions. We have not independently verified the accuracy or completeness of such information, and our conclusions are necessarily limited by the scope and quality of the materials made available to us.
III. FACILITY OVERVIEW
A. Principal (and Sole) Facility — 550 Gateway Drive, Cambridge, MA 02142
Veridian's sole physical location is its leased laboratory and office space at 550 Gateway Drive, Cambridge, Massachusetts 02142. The key characteristics of the Facility are summarized below.
Nature of Occupancy. Veridian occupies leased laboratory and office space within a multi-tenant life sciences and biotechnology building. The building is a purpose-built facility designed and constructed for laboratory and office use by life sciences companies. Veridian is one of several tenants in the building, and the landlord, Gateway Life Sciences Properties LLC, maintains the common areas and shared building systems.
Approximate square Footage. Veridian's leased premises comprise approximately 45,000 square feet in total, consisting of approximately 30,000 square feet of laboratory space and approximately 15,000 square feet of office and administrative space. The laboratory space includes wet laboratory benches, cell culture rooms, analytical chemistry instrumentation areas, a BSL-2 containment laboratory, and associated laboratory support areas (e.g., cold rooms, autoclave rooms, chemical storage rooms, and media preparation areas). The office space includes individual offices, open workstation areas, conference rooms, and ancillary administrative areas.
Lease Term. The Lease commenced in 2018 with an initial term of ten (10) years. A detailed analysis of the Lease terms, including renewal options, assignment and subletting provisions, and financial obligations, is set forth in the Material Contracts Review Memorandum (dated May 17, 2024) and is not repeated here except to the extent relevant to the environmental provisions discussed in this memorandum.
Building Type and Shared Infrastructure. The building at 550 Gateway Drive is a modern, purpose-built life sciences facility with shared building systems and infrastructure maintained by the landlord, including central heating, ventilation, and air conditioning ("HVAC") systems; fire suppression systems; building-level exhaust systems for laboratory fume hoods and biological safety cabinets; centralized waste management infrastructure (including loading dock areas designated for hazardous and biological waste pickup); and common area maintenance systems. The landlord is responsible for the operation, maintenance, and regulatory compliance of these shared building systems, subject to tenant obligations to use the systems in accordance with their intended purpose and applicable regulations.
No Other Facilities. Veridian does not own or lease any other real property. All of the Company's operations, including its research and development activities, administrative functions, and corporate headquarters, are conducted at the single Cambridge, Massachusetts location. The Company does not maintain any satellite offices, storage facilities, or other physical locations.
No Manufacturing Operations. Veridian is a clinical-stage biotechnology company and does not manufacture VRD-4187 or any other drug candidates at its Facility or elsewhere. All manufacturing of clinical supply and, prospectively, commercial supply of the Company's drug candidates is conducted by third-party contract manufacturing organizations ("CMOs") under separate agreements, as described in the Material Contracts Review Memorandum. Laboratory operations at the Facility are limited to research, preclinical development, and analytical testing, and do not involve the production of drug product for clinical use or commercial distribution.
State Environmental Jurisdiction. The Facility is located in Cambridge, Middlesex County, Massachusetts, and is subject to the environmental jurisdiction of the Massachusetts Department of Environmental Protection ("MassDEP"), the Cambridge Public Health Department, and other applicable local environmental and health authorities, including the Cambridge Biosafety Committee. Federal environmental laws are administered and enforced by the U.S. Environmental Protection Agency ("EPA"), Region 1.
B. Nature of Operations at the Facility
Veridian's operations at the Facility are centered on research and development activities related to the Company's proprietary VeriTCE bispecific T-cell engager platform and its pipeline of clinical and preclinical drug candidates. The principal activities conducted at the Facility include:
• discovery research and preclinical development of novel bispecific T-cell engager molecules, including protein engineering, molecular cloning, and construct optimization;
• Cell-based assays, including T-cell activation assays, cytotoxicity assays, and binding affinity assays using human cell lines and primary human immune cells;
• Immunological studies, including flow cytometry, ELISA, and other immunoassay-based analyses;
• Analytical chemistry and bioanalytical characterization of protein therapeutics, including size-exclusion chromatography, mass spectrometry, and stability testing;
• Preclinical pharmacology studies conducted in vitro and in cell-based models (no animal research is conducted on-site; all in vivo animal studies are outsourced to qualified contract research organizations ("CROs"));
• Receipt, storage, and handling of biological materials, including human cell lines, recombinant proteins, engineered T-cell constructs, and viral vectors used for research purposes;
• Use of chemical reagents, solvents, and laboratory consumables in the ordinary course of laboratory research; and
• Limited use of radioactive isotopes (primarily tritium [³H] and carbon-14 [¹⁴C]) in research assays, as described further in Section V.D below.
A portion of the Company's laboratory space is classified as Biosafety Level 2 ("BSL-2"), in accordance with the CDC/NIH Biosafety in Microbiological and Biomedical Laboratories guidelines and the NIH Guidelines for Research Involving Recombinant or Synthetic Nucleic Acid Molecules. BSL-2 classification is appropriate for work involving agents of moderate potential hazard to personnel and the environment, and is the standard classification for biotech laboratories working with human cell lines, recombinant DNA, and certain viral vectors.
IV. ENVIRONMENTAL REGULATORY FRAMEWORK
A. Applicable Federal Laws and Regulations
The following federal environmental laws and regulations are applicable, or potentially applicable, to Veridian's operations at the Facility:
Resource Conservation and Recovery Act (RCRA). RCRA, as amended, and the regulations promulgated thereunder by the EPA at 40 CFR Parts 260–272, govern the generation, transportation, treatment, storage, and disposal of solid and hazardous waste. Veridian is a generator of hazardous waste in connection with its laboratory operations and is subject to applicable RCRA requirements, including generator registration, waste characterization, container management, recordkeeping, and manifest requirements. Veridian's RCRA generator status is discussed in detail in Section V.A.
Clean Air Act (CAA). The CAA, as amended, and the EPA's implementing regulations at 40 CFR Parts 50–97, regulate emissions of air pollutants from stationary sources. The potential applicability of the CAA to Veridian's operations is limited, as the Company's laboratory activities generate only de minimis air emissions (primarily from chemical fume hood exhaust). Building-level air emission controls and permits, if any, are the responsibility of the landlord. Veridian does not hold any individual air emission permits, and no Title V or New Source Review permitting obligations have been identified. This is discussed further in Section VI.A.
Clean Water Act (CWA). The CWA, as amended, and the EPA's implementing regulations, regulate the discharge of pollutants into waters of the United States. Veridian's wastewater discharges are limited to laboratory wastewater discharged to the municipal sewer system (indirect discharge) through the building's plumbing infrastructure. The building's industrial/commercial sewer discharge permit is held by the landlord. Veridian does not discharge wastewater directly to any surface water body and does not hold a National Pollutant Discharge Elimination System ("NPDES") permit. This is discussed further in Section VI.B.
Toxic Substances Control Act (TSCA). TSCA, as amended by the Frank R. Lautenberg Chemical Safety for the 21st Century Act, and the EPA's implementing regulations at 40 CFR Parts 700–799, regulate the manufacture, import, processing, distribution, use, and disposal of chemical substances and mixtures. While Veridian does not manufacture chemical substances for commercial purposes, TSCA requirements may be applicable to certain chemical substances used in the Company's research activities, including recordkeeping and reporting obligations.
Emergency Planning and Community Right-to-Know Act (EPCRA). EPCRA (Title III of the Superfund Amendments and Reauthorization Act of 1986) requires facilities that store or use hazardous chemicals above specified thresholds to report such information to state and local emergency planning authorities. EPCRA Tier II reporting is required for facilities that maintain Extremely Hazardous Substances ("EHS") at or above Threshold Planning Quantities ("TPQs") or other hazardous chemicals at or above specified thresholds. Based on our review of the Company's chemical inventory, Veridian does not currently maintain any EHS above applicable TPQs and is not currently subject to EPCRA Tier II reporting requirements. This is discussed further in Section V.E.
NIH Guidelines for Research Involving Recombinant or Synthetic Nucleic Acid Molecules. Although not a statute or regulation in the traditional sense, the NIH Guidelines (published by the NIH Office of Science Policy) establish biosafety standards and institutional oversight requirements for research involving recombinant DNA and synthetic nucleic acid molecules. Compliance with the NIH Guidelines is a condition of receiving NIH funding and is broadly adopted as the standard of practice in the biotechnology industry. The NIH Guidelines are applicable to Veridian's work with recombinant proteins, engineered T-cell constructs, and viral vectors, and require the establishment and registration of an Institutional Biosafety Committee ("IBC") to review and approve research protocols. Veridian's IBC compliance is discussed in Section IX.B.
B. Applicable Massachusetts State Laws and Regulations
The following Massachusetts state laws and regulations are applicable, or potentially applicable, to Veridian's operations at the Facility:
Massachusetts Hazardous Waste Regulations (310 CMR 30.000). The Massachusetts hazardous waste regulations, promulgated by MassDEP, implement the federal RCRA program in Massachusetts and include additional state-specific requirements. Massachusetts is an authorized RCRA state, and MassDEP administers and enforces the hazardous waste program within the Commonwealth. Veridian is subject to these regulations as a generator of hazardous waste.
Massachusetts Contingency Plan (MCP) (310 CMR 40.0000). The MCP establishes the framework for the assessment and remediation of contaminated properties in Massachusetts, including notification requirements, response action obligations, and cleanup standards. The MCP is analogous to the federal CERCLA/Superfund program and applies to releases and threats of release of oil and hazardous materials in the Commonwealth. Based on our review, no MCP obligations are currently applicable to Veridian, as no releases requiring notification or remediation have been identified.
Massachusetts Clean Air Act Regulations. MassDEP administers the state clean air program, including regulations applicable to stationary source air emissions. As noted above, Veridian's laboratory operations generate only de minimis air emissions, and no individual state air permits have been identified for the Company.
Massachusetts Water Pollution Control Regulations. MassDEP administers the state water pollution control program, including regulations applicable to wastewater discharges. Veridian's wastewater discharges to the municipal sewer system are governed by the building-level sewer discharge permit held by the landlord, as discussed in Section VI.B.
Cambridge Biosafety Ordinance. The City of Cambridge has adopted a local biosafety ordinance (Cambridge Municipal Code, Chapter 8.20) that requires entities conducting recombinant DNA research within the city to register with the Cambridge Biosafety Committee ("CBC") and comply with applicable biosafety requirements. The Cambridge Biosafety Ordinance is one of the most well-known local biosafety regulations in the United States and reflects the concentration of biotechnology research institutions in the Cambridge area. Veridian is registered with the CBC and is subject to the ordinance with respect to its recombinant DNA research activities, including its BSL-2 laboratory operations. Compliance with the Cambridge Biosafety Ordinance is discussed in Section IX.C.
C. State Tax Nexus Note
We note for completeness that, as described in the Tax Due Diligence Memorandum dated May 28, 2024, prepared by Leonard Cross of C&H's Tax Department, Veridian has operations and employees in Massachusetts, California, and Maryland. However, the Cambridge, Massachusetts Facility is the only physical location with environmental compliance implications. The Company's California and Maryland presences relate solely to remote employees and clinical trial site activities, and do not involve laboratory operations, manufacturing, or other activities that would give rise to environmental compliance obligations at those locations. Accordingly, this memorandum addresses only the Cambridge, Massachusetts Facility.
V. HAZARDOUS MATERIALS AND WASTE MANAGEMENT
A. Hazardous Waste Generator Status
Veridian is registered as a Small Quantity Generator ("SQG") of hazardous waste under RCRA and the Massachusetts Hazardous Waste Regulations (310 CMR 30.000). The Company's EPA Identification Number is on file with the EPA and MassDEP, and its generator registration is current as of the date of this memorandum.
As an SQG, Veridian generates between 100 kilograms and 1,000 kilograms of hazardous waste per calendar month, which is consistent with the scale and nature of its laboratory research operations. The types of hazardous waste generated by the Company include:
• Spent organic solvents, including acetone, methanol, ethanol, and isopropanol, used in laboratory assays, chromatographic separations, and equipment cleaning;
• Expired or unused chemical reagents that meet the definition of hazardous waste under RCRA characteristic or listing criteria;
• Mixed chemical waste streams generated from laboratory assays and analytical chemistry operations; and
• Small quantities of other listed or characteristic hazardous wastes incidental to research activities.
The quantities of hazardous waste generated by Veridian are consistent with the SQG thresholds and are well within the ranges typical for a biotechnology laboratory of this size. We reviewed the Company's most recent Biennial Report (EPA Form 8700-13A/B) submitted to MassDEP and confirmed that the reported quantities are consistent with SQG status.
Hazardous waste generated at the Facility is stored in designated satellite accumulation areas ("SAAs") located at or near the points of generation within the laboratory, as well as in a central accumulation area ("CAA") located in a dedicated chemical storage room within the Facility. Based on our review of the Company's waste management procedures and the information provided during management discussions, the Company appears to comply with applicable time and quantity limits for SAAs (up to 55 gallons of hazardous waste or one quart of acutely hazardous waste per SAA, with prompt removal to the CAA once limits are reached) and for the CAA (storage for no more than 270 days for SQGs, with quantity limits not exceeding 6,000 kilograms).
B. Hazardous Waste Disposal
Veridian contracts with Pinnacle Systems, a licensed hazardous waste transportation and disposal company, for the pickup and off-site disposal or treatment of hazardous waste generated at the Facility. The Company's contract with Clean Harbors is current and is maintained in the ordinary course of business.
We reviewed the uniform hazardous waste manifests (EPA Form 8700-22) for the period from 2021 through the first quarter of 2024. No irregularities, discrepancies, or incomplete manifests were identified. All manifests reviewed were properly completed, signed by the generator (Veridian), the transporter, and the designated receiving facility, and copies were returned to the generator as required. The disposal and treatment facilities identified on the manifests are licensed and permitted facilities in good standing.
Land Disposal Restrictions ("LDR") notifications, required under RCRA for hazardous wastes that are subject to treatment standards prior to land disposal, were properly maintained in the Company's files. We identified no instances of noncompliance with LDR requirements based on the records reviewed.
C. Biological and Medical Waste
Veridian generates biohazardous waste in the ordinary course of its laboratory research activities. Biohazardous waste streams include human cell lines, tissue culture media, contaminated laboratory consumables (e.g., pipette tips, gloves, culture flasks), and other biological materials used in the Company's research programs. These waste streams are managed under the Massachusetts medical and biological waste regulations and applicable federal guidelines.
The Company's procedures for managing biological waste include the following:
• Biohazardous waste is segregated at the point of generation and collected in appropriately labeled, leak-proof biohazard bags and containers within the BSL-2 and other laboratory areas.
• Prior to off-site disposal, biohazardous waste is autoclaved on-site using the Company's laboratory autoclaves to render the waste non-infectious. Autoclave performance is validated using biological indicators (spore tests) on a regular basis, and validation records were reviewed and appear to be current.
• Following autoclaving, the treated waste is disposed of as regulated medical waste through Pemberton Partners LLC, a licensed medical waste hauler, pursuant to a current service agreement.
• Sharps waste (e.g., needles, syringes, scalpel blades, broken glass contaminated with biological materials) is collected in puncture-resistant, labeled sharps containers and disposed of through the same licensed medical waste hauler.
Records of biological waste disposal were reviewed for the period from 2021 through the first quarter of 2024. The disposal records appear to be in compliance with applicable regulations, including proper documentation, labeling, and tracking of biological waste shipments.
D. Radioactive Materials (Limited Use)
Veridian holds a Massachusetts Radioactive Materials License issued by the Massachusetts Radiation Control Program (within MassDEP) for the use of small quantities of radioactive isotopes in research assays. The primary isotopes authorized under the license are tritium (³H) and carbon-14 (¹⁴C), which are low-energy beta emitters commonly used in biotechnology and pharmaceutical research for purposes such as radiolabeled binding assays, metabolic tracing, and receptor occupancy studies.
The license is current and has been renewed in accordance with applicable requirements. The Company's use of radioactive materials is administered through a designated Radiation Safety Officer ("RSO"), who is responsible for ensuring compliance with the license conditions and applicable regulations, maintaining radiation safety records, overseeing the procurement, use, and disposal of radioactive materials, and conducting routine surveys of laboratory areas where radioactive materials are used.
We note that Massachusetts is an Agreement State under Section 274 of the Atomic Energy Act, meaning that the state has entered into an agreement with the Nuclear Regulatory Commission ("NRC") pursuant to which the state assumes regulatory authority over certain categories of radioactive materials, including the types and quantities used by Veridian. Accordingly, Veridian's radioactive materials license is issued and administered by the state rather than by the NRC. The quantities of radioactive material maintained on hand by the Company are minimal and well below the thresholds that would require NRC licensing.
Mixed waste protocols are in place for waste streams that contain both radioactive and hazardous chemical components. Mixed waste is a particularly regulated waste stream because it is subject to the requirements of both RCRA (for the hazardous component) and the Atomic Energy Act and state radiation regulations (for the radioactive component). Veridian's procedures require that mixed waste be segregated, characterized, and stored separately from other waste streams, and disposed of through a licensed radioactive waste broker on an annual or semi-annual basis. We identified no violations of mixed waste disposal requirements based on the records reviewed.
Radioactive waste that does not meet the definition of mixed waste (i.e., radioactive-only waste) is similarly disposed of through a licensed radioactive waste broker. Decay-in-storage may be used for short-lived isotopes where permitted by the license, although the primary isotopes used by Veridian (tritium and carbon-14) have relatively long half-lives and are not typically candidates for decay-in-storage disposal.
E. Chemical Inventory and Safety Data Sheets
Veridian maintains its chemical inventory using an electronic chemical management system that tracks the identity, location, quantity, and status (active, in-use, or awaiting disposal) of all chemicals and hazardous materials at the Facility. The chemical management system is accessible to all laboratory personnel and is updated on a regular basis as chemicals are received, consumed, or disposed of.
A library of Safety Data Sheets ("SDS"), formerly known as Material Safety Data Sheets ("MSDS"), is maintained electronically and is accessible to all laboratory personnel, in compliance with the OSHA Hazard Communication Standard (29 CFR 1910.1200) and state right-to-know requirements. SDS are obtained from chemical suppliers at the time of purchase and are maintained in the electronic system for the duration of the chemical's presence at the Facility and for the required retention period thereafter.
We reviewed the Company's chemical inventory as of the most recent update available in the Data Room. Based on our review, no Extremely Hazardous Substances ("EHS") are maintained at the Facility at or above the Threshold Planning Quantities ("TPQs") established under Section 302 of EPCRA. Accordingly, Veridian is not currently required to submit EPCRA Section 302 emergency planning notifications or EPCRA Section 312 Tier II inventory reports to the applicable State Emergency Response Commission ("SERC") or Local Emergency Planning Committee ("LEPC"). This conclusion is consistent with the Company's representation in the management discussions that it has not been subject to EPCRA Tier II reporting during the relevant period.
VI. AIR EMISSIONS AND WATER DISCHARGES
A. Air Emissions
Veridian operates chemical fume hoods and biological safety cabinets in its laboratory space as part of the standard engineering controls required for safe handling of chemical and biological materials. Chemical fume hoods provide ventilation to protect laboratory personnel from exposure to hazardous chemical vapors, and their exhaust air is ducted through the building's centralized exhaust system, which is designed, maintained, and operated by the landlord. Biological safety cabinets (Class II Type A2 and B2 cabinets, based on the information provided) provide a combination of personnel, product, and environmental protection for work with biological agents, with HEPA-filtered exhaust air either recirculated into the laboratory (Class II Type A2) or ducted to the building exhaust system (Class II Type B2).
No individual air emission permits are required for Veridian's operations at the Facility. The laboratory-scale quantities of volatile organic compounds ("VOCs") and other air pollutants potentially released through fume hood exhaust are de minimis and well below the thresholds that would trigger permitting requirements under either the federal Clean Air Act or Massachusetts clean air regulations. Any building-level air emission permits that may be required (e.g., for the building's centralized exhaust system, emergency generators, or boilers) are the responsibility of the landlord under the Lease.
We confirmed that Veridian is not subject to Title V permitting under the Clean Air Act (applicable to "major sources" of air pollutants), as its potential to emit criteria pollutants and hazardous air pollutants is negligible. Similarly, no New Source Review ("NSR") or Prevention of Significant Deterioration ("PSD") permitting obligations were identified, as Veridian does not operate any equipment or processes that would qualify as a new or modified major stationary source of air emissions.
B. Wastewater Discharges
Laboratory wastewater generated by Veridian's operations is discharged to the municipal sewer system (Cambridge sewer system) through the building's plumbing and wastewater infrastructure. The building's industrial/commercial sewer discharge permit (the "Sewer Permit") is held by the landlord, Gateway Life Sciences Properties LLC, and authorizes the discharge of wastewater from the building's tenants to the municipal sewer system, subject to applicable discharge limitations for parameters such as pH, heavy metals, biological oxygen demand ("BOD"), total suspended solids ("TSS"), and other regulated constituents.
Under the Lease, Veridian is required to comply with the discharge limitations established in the landlord's Sewer Permit and to ensure that wastewater discharged from Veridian's leased premises does not contain constituents at concentrations that would cause a violation of the Sewer Permit or applicable municipal sewer use ordinances. To this end, the Company has installed and maintains an acid/base neutralization system within its laboratory plumbing infrastructure for pH adjustment of laboratory wastewater prior to discharge to the building's common sewer system. The neutralization system is designed to ensure that laboratory wastewater is within the acceptable pH range (typically 5.0–12.5, depending on the applicable sewer use ordinance) before it leaves Veridian's leased premises.
Veridian does not discharge wastewater directly to any surface water body (river, stream, lake, or ocean) and accordingly does not hold a National Pollutant Discharge Elimination System ("NPDES") permit under the Clean Water Act. Based on our review of the Data Room materials and the information provided during management discussions, no evidence of violations or exceedances of applicable sewer discharge limits was identified during Veridian's tenancy.
VII. ENVIRONMENTAL PERMITS, LICENSES, AND REGISTRATIONS — SUMMARY
The following table summarizes the environmental-related permits, licenses, and registrations currently held by Veridian in connection with its operations at the Facility:
Based on our review, all permits, licenses, and registrations identified above appear to be in good standing. No pending enforcement actions, notices of violation, consent orders, administrative orders, or compliance schedules were identified in the Data Room materials or through our management discussions. No correspondence from any federal, state, or local environmental or regulatory agency indicating outstanding compliance deficiencies was identified.
VIII. ENVIRONMENTAL SITE CONDITIONS AND CONTAMINATION
A. Phase I Environmental Site Assessment
A Phase I Environmental Site Assessment ("Phase I ESA") for the building at 550 Gateway Drive, Cambridge, MA 02142, was conducted by TerraVerde Environmental Partners, Inc. in November 2017 at the direction of Gateway Life Sciences Properties LLC (the landlord), in connection with the acquisition and financing of the building prior to the commencement of Veridian's tenancy. A copy of the Phase I ESA report was provided in the Data Room.
The Phase I ESA was conducted in general conformance with the ASTM E1527-13 standard practice for environmental site assessments and included a review of historical land use records, environmental database searches, regulatory agency file reviews, site reconnaissance, and interviews with knowledgeable persons. The Phase I ESA report concluded as follows:
• No Recognized Environmental Conditions ("RECs") were identified in connection with the property;
• No Controlled Recognized Environmental Conditions ("CRECs") were identified;
• No Historical Recognized Environmental Conditions ("HRECs") were identified;
• No evidence of underground storage tanks ("USTs") or aboveground storage tanks ("ASTs") was identified at the property;
• No evidence of prior industrial use at the property that would pose an environmental risk was identified; and
• The property is a modern, purpose-built life sciences building constructed on a site that was previously used for commercial/light industrial purposes, with no history of heavy industrial use or known environmental contamination.
We note that the Phase I ESA was conducted in 2017, approximately seven years prior to the date of this memorandum, and was prepared in accordance with the ASTM E1527-13 standard, which has since been superseded by the ASTM E1527-21 standard. Under ASTM E1527-21, a Phase I ESA is generally considered to have a useful shelf-life of 180 days for purposes of satisfying the "all appropriate inquiries" requirement of the CERCLA innocent landowner defense (42 U.S.C. § 9601(35)(B)). Since the Transaction is structured as a stock purchase (and Penterra is not acquiring fee title to the real property), the CERCLA innocent landowner defense is less directly relevant than it would be in a real property acquisition. However, the age of the ESA is noted as a consideration in Section XII.B below.
Veridian did not commission its own Phase I or Phase II ESA at any time during its tenancy, and no Phase II ESA (subsurface investigation) has been conducted for the property to our knowledge.
B. No Known Contamination or Remediation
Based on our review of the Data Room materials and the information provided during management discussions, there is no known soil or groundwater contamination at or emanating from the Facility that is attributable to Veridian's operations or that otherwise affects the Company's leased premises. Specifically:
• No reportable spills, releases, or discharges of hazardous materials, oil, or other pollutants to the environment have been reported by Veridian during its tenancy at the Facility;
• No environmental cleanup or remediation activities have been conducted by or on behalf of Veridian at the Facility;
• No outstanding obligations under the Massachusetts Contingency Plan ("MCP") (310 CMR 40.0000) have been identified with respect to the property or Veridian's operations;
• We searched the MassDEP Bureau of Waste Site Cleanup database and did not identify any reportable releases or disposal sites associated with the 550 Gateway Drive property or with Veridian;
• No Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA") or state Superfund sites have been associated with Veridian's operations, either at the Facility or at any off-site location to which Veridian has arranged for the disposal of hazardous waste; and
• No environmental liens, institutional controls, or activity and use limitations encumber the property based on the information available to us.
C. Landlord Responsibilities
The allocation of environmental responsibilities between Veridian (as tenant) and Gateway Life Sciences Properties LLC (as landlord) under the Lease is summarized below:
Landlord Responsibilities. Under the Lease, the landlord is responsible for (i) building-wide environmental conditions, including the environmental condition of the building structure, common areas, and underlying real property; (ii) the operation, maintenance, and regulatory compliance of shared building systems, including the centralized HVAC and exhaust systems, fire suppression systems, and building-level wastewater infrastructure; and (iii) the investigation and remediation of pre-existing environmental contamination (i.e., contamination existing at the property prior to Veridian's occupancy or caused by parties other than Veridian).
Tenant Responsibilities. Veridian is responsible under the Lease for (i) environmental contamination caused by Veridian's own operations during the lease term ("tenant-caused contamination"); (ii) compliance with all applicable environmental laws and regulations in connection with its use and occupancy of the leased premises; (iii) the proper handling, storage, use, and disposal of all hazardous materials brought onto the premises by Veridian; and (iv) the decommissioning of its laboratory space upon lease termination or expiration, including the removal of all hazardous and biological materials, decontamination of laboratory surfaces, and restoration of the premises to a condition satisfactory to the landlord.
The laboratory decommissioning obligation is a standard provision in life sciences leases in the Cambridge/Boston market and reflects the landlord's interest in ensuring that the premises can be re-leased to a subsequent tenant without residual contamination or hazardous material concerns. The implications of this obligation in the context of the stock purchase structure are discussed further in Section XII.A.
IX. ENVIRONMENTAL, HEALTH, AND SAFETY (EH&S) PROGRAMS
A. EH&S Management System
Veridian maintains an internal EH&S program managed by a designated Environmental, Health, and Safety Manager who reports to the Company's Director of Facilities. The EH&S program is responsible for overseeing the Company's compliance with applicable environmental, health, and safety laws and regulations, maintaining the Company's environmental permits and registrations, administering waste management programs, conducting internal compliance audits, and coordinating employee training on environmental and safety matters.
Based on our review of the Data Room materials, the Company's EH&S program includes the following principal components:
Chemical Hygiene Plan. Veridian maintains a written Chemical Hygiene Plan ("CHP") in compliance with the OSHA Laboratory Standard (29 CFR 1910.1450). The CHP establishes procedures, equipment, and work practices to protect laboratory personnel from the health hazards associated with exposure to chemicals in the laboratory, including standard operating procedures for handling hazardous chemicals, criteria for the implementation of control measures (e.g., fume hoods, personal protective equipment), provisions for employee information and training, requirements for medical consultations and examinations, the designation of a Chemical Hygiene Officer, and provisions for additional employee protection in connection with particularly hazardous substances (e.g., select carcinogens, reproductive toxins, and substances with a high degree of acute toxicity). We reviewed the CHP and found it to be comprehensive and consistent with the requirements of the OSHA Laboratory Standard.
Biological Safety Plan / Exposure Control Plan. Veridian maintains a written Biological Safety Plan and Exposure Control Plan in compliance with the OSHA Bloodborne Pathogens Standard (29 CFR 1910.1030) and the NIH Guidelines for Research Involving Recombinant or Synthetic Nucleic Acid Molecules. The plan establishes procedures for the safe handling of biological materials, including human cell lines, blood-borne pathogens, recombinant DNA, and other biohazardous agents used in the Company's research programs. The plan addresses exposure determination, methods of compliance (including engineering controls, work practices, and personal protective equipment), hepatitis B vaccination, post-exposure evaluation and follow-up, and communication of hazards to employees.
Radiation Safety Manual. Veridian maintains a Radiation Safety Manual administered by the Company's designated Radiation Safety Officer. The manual addresses the safe use, storage, and disposal of radioactive materials in the Company's research operations, including procedures for ordering and receiving radioactive materials, contamination monitoring and surveys, dosimetry, spill response, waste management, and regulatory compliance.
Emergency Response and Spill Response Procedures. The Company has documented emergency response and spill response procedures that address chemical spills, biological spills, radiological incidents, fire, medical emergencies, and building evacuation. Spill response kits are maintained in the laboratory areas, and personnel are trained on spill response procedures as part of their initial and annual refresher training.
B. Institutional Biosafety Committee (IBC)
Veridian has established an active Institutional Biosafety Committee ("IBC") in compliance with the NIH Guidelines for Research Involving Recombinant or Synthetic Nucleic Acid Molecules. The IBC is registered with the NIH Office of Science Policy, as required for institutions that conduct or sponsor research involving recombinant or synthetic nucleic acid molecules that is subject to the NIH Guidelines.
The IBC is composed of at least five members, including scientific personnel with expertise in recombinant DNA and biosafety, and at least two members who are not affiliated with the institution and who represent the interests of the surrounding community with respect to health and safety. The IBC's responsibilities include:
• Reviewing and approving, requiring modifications to, or disapproving research protocols involving recombinant DNA/RNA, human-derived materials, and biohazardous agents;
• Assessing the containment levels and safety practices required for each approved protocol;
• Conducting periodic reviews of ongoing research activities to ensure continued compliance;
• Reporting any significant research-related incidents, accidents, or violations to the NIH Office of Science Policy and other applicable authorities; and
• Serving as a point of coordination with the Cambridge Biosafety Committee.
We reviewed the IBC meeting minutes for the period from 2021 through 2024. The minutes reflect that the IBC meets on a regular basis (at least quarterly), reviews and approves research protocols in compliance with the NIH Guidelines, and addresses biosafety matters as they arise. No significant biosafety incidents, protocol violations, or enforcement actions were identified in the IBC minutes reviewed.
C. Cambridge Biosafety Ordinance Compliance
As noted in Section IV.B above, the City of Cambridge, Massachusetts, requires entities conducting recombinant DNA research within the city to register with the Cambridge Biosafety Committee ("CBC") and comply with the Cambridge Biosafety Ordinance (Cambridge Municipal Code, Chapter 8.20). The CBC is an independent committee appointed by the Cambridge City Manager and is responsible for overseeing compliance with the ordinance, reviewing and approving research activities involving recombinant DNA, and conducting periodic inspections of registered facilities.
Veridian is registered with the CBC in connection with its recombinant DNA research activities, including its work with engineered T-cell constructs, viral vectors, and other materials subject to the ordinance. The Company's CBC registration is current, and annual reports have been filed with the CBC as required. Based on our review, no outstanding compliance issues, violations, or enforcement actions associated with the CBC registration were identified.
D. Training. All laboratory personnel at Veridian receive initial training upon hire and annual refresher training on the following topics:
• Chemical hygiene, including safe handling of hazardous chemicals, proper use of fume hoods and personal protective equipment, and emergency procedures for chemical exposures and spills;
• Biosafety, including safe handling of biological materials, bloodborne pathogen exposure prevention, BSL-2 laboratory practices, and biological spill response;
• Radiation safety, including safe handling of radioactive materials, contamination monitoring, and radioactive waste management (for personnel authorized to work with radioactive materials);
• Hazardous waste management, including proper waste segregation, container management, labeling, and satellite accumulation area procedures; and
• Emergency procedures, including building evacuation, fire safety, and medical emergency response.
Training records for the period from 2022 through 2024 were reviewed and appear to be current and complete. The Company tracks training completion through an electronic learning management system, and training compliance is monitored by the EH&S Manager.
X. ENVIRONMENTAL INSURANCE COVERAGE
This section summarizes Veridian's environmental insurance coverage at a high level. A detailed analysis of the Company's insurance program, including policy limits, deductibles, exclusions, and adequacy, is set forth in the Insurance Due Diligence Memorandum (dated May 16, 2024), which should be consulted for a comprehensive assessment.
Veridian maintains a commercial general liability ("CGL") insurance policy that includes a pollution liability endorsement. The pollution liability endorsement provides limited coverage for sudden and accidental pollution events, which is the standard coverage available under most CGL policies. Coverage under the pollution endorsement is subject to the general terms, conditions, exclusions, and limitations of the CGL policy, including any pollution-specific sub-limits or deductibles.
Veridian does not carry a standalone environmental impairment liability ("EIL") or pollution legal liability ("PLL") insurance policy. Standalone environmental insurance policies are designed to provide broader and more comprehensive coverage for environmental liabilities, including coverage for gradual pollution, third-party bodily injury and property damage arising from pollution events, cleanup costs, and defense expenses in connection with environmental claims. While the absence of standalone environmental insurance may be noted as a gap, we observe that such coverage is not standard practice among clinical-stage biotechnology companies of similar size and operational profile, particularly those that operate exclusively in leased laboratory space and do not conduct manufacturing activities. The environmental risk profile of such companies is generally considered to be low, and the cost of standalone environmental insurance relative to the perceived risk is often viewed as disproportionate.
In connection with the Transaction, Penterra has arranged for a buyer-side representations and warranties insurance ("R&W Insurance") policy, Policy No. AIC-RWI-2024-07892, issued by Atlas Indemnity Insurance Co., with a policy limit of $180,000,000. The R&W Insurance policy will cover losses arising from breaches of the Sellers' representations and warranties in the SPA, including the environmental representations set forth in Section 3 of the SPA (discussed in Section XI below). Coverage under the R&W Insurance policy is subject to a self-insured retention ("SIR") of $9,000,000, which effectively functions as a deductible borne by Penterra before the policy responds. The R&W Insurance policy is described in greater detail in the Insurance Due Diligence Memorandum.
XI. ENVIRONMENTAL REPRESENTATIONS AND WARRANTIES IN THE SPA
The Stock Purchase Agreement (execution version dated June 10, 2024) includes environmental representations and warranties made by the Sellers (as defined in the SPA) in Section 3 of the SPA. The environmental representations cover the following principal topics:
(a) Compliance with Environmental Laws. The Sellers represent that the Company is, and during the period covered by the representation has been, in compliance in all material respects with all applicable Environmental Laws (as defined in the SPA).
(b) Environmental Permits. The Sellers represent that the Company possesses all material permits, licenses, registrations, and authorizations required under applicable Environmental Laws for the conduct of its business as presently conducted, and that all such permits are in full force and effect.
(c) No Pending or Threatened Environmental Claims. The Sellers represent that there are no pending or, to the Knowledge of the Sellers, threatened claims, actions, suits, proceedings, investigations, or orders by any governmental authority or third party against or affecting the Company arising under or relating to any Environmental Laws.
(d) No Releases Requiring Reporting or Remediation. The Sellers represent that there has been no Release (as defined in the SPA) of any Hazardous Substance (as defined in the SPA) at, on, under, from, or to any property currently or formerly owned, operated, or leased by the Company that would require reporting to or notification of any governmental authority under applicable Environmental Laws or that would give rise to any obligation for investigation, remediation, or cleanup under applicable Environmental Laws.
(e) No Off-Site Disposal at Superfund Sites. The Sellers represent that the Company has not arranged for the transportation or disposal of any Hazardous Substance at any location that has been identified as a federal or state Superfund site or is listed or proposed for listing on the National Priorities List ("NPL") under CERCLA or any analogous state list.
The environmental representations are classified as general (non-fundamental) representations under the SPA. As such, they are subject to the following limitations:
• Survival Period. The environmental representations survive for a period of eighteen (18) months following the closing of the Transaction. After expiration of the survival period, no claims may be brought for breach of the environmental representatio