1018-00008 · Penterra Pharmaceuticals Corp · Financing

commitment-letter-analysis-memo.docx DOCUMENT M&A / Corporate

27 / 75 ← → ✕

PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT COMMUNICATION / ATTORNEY WORK PRODUCT

CALDERWOOD & HARKNESS LLP 200 Park Avenue, 42nd Floor New York, NY 10166

MEMORANDUM

This memorandum is a privileged and confidential attorney-client communication prepared by Calderwood & Harkness LLP for the exclusive use of Penterra Pharmaceuticals Corp. and constitutes attorney work product. This memorandum should not be disclosed to any third party without the prior written consent of Calderwood & Harkness LLP and Penterra Pharmaceuticals Corp. Inadvertent disclosure of this memorandum does not constitute a waiver of any applicable privilege.

I. EXECUTIVE SUMMARY

The purpose of this memorandum is to summarize and analyze the key terms, conditions, and risks of the commitment letter dated June 7, 2024 (Reference: CL-2024-PPCA-0607) (the "Commitment Letter") from Summit Ridge Capital Partners, LP ("Summit Ridge"), in its capacity as lead arranger and sole bookrunner, and Ironclad Trust Company, N.A. ("Ironclad"), in its capacity as administrative agent and initial lender, for a $500,000,000 senior secured term loan facility (the "Term Loan Facility" or the "Facility") to partially fund Penterra Pharmaceuticals Corp.'s ("Penterra" or the "Company") proposed $900,000,000 all-cash acquisition (the "Acquisition") of 100% of the outstanding capital stock of Veridian Biosciences, Inc. ("Veridian").

The total $900,000,000 purchase price for the Acquisition is expected to be funded through a combination of: (i) $500,000,000 in proceeds from the committed Term Loan Facility, and (ii) approximately $400,000,000 from Penterra's cash on hand. This funding structure is well-supported by Penterra's current financial position, as the Company reported a cash position of approximately $2.1 billion as of Q2 2024, providing substantial headroom above the cash contribution required at closing.

The Commitment Letter was executed on June 7, 2024, three days prior to the anticipated signing of the Stock Purchase Agreement (the "SPA") between Penterra and Veridian on June 10, 2024. This sequencing is customary and intended to ensure that Penterra is able to represent in the SPA that it has committed financing sufficient to consummate the Acquisition.

Overall Assessment. Based on our review, the Commitment Letter provides committed financing on terms that are customary for a transaction of this size and type in the current market environment. The conditions to funding are limited and structured around a SunGard-style "certain funds" conditionality framework, which provides Penterra with a high degree of financing certainty. The conditions to closing are largely within Penterra's control. Certain provisions — including the market flex provision in the related fee letter, the ticking fee commencing 90 days after SPA signing, and the interplay between the "certain funds" conditionality and Penterra's obligations under the SPA — warrant particular attention and are discussed in detail in the sections that follow.

This memorandum should be read in conjunction with the forthcoming Fee Letter Review Memorandum (to be circulated June 9, 2024) and the Draft Funds Flow Memorandum (dated June 8, 2024), as well as the execution version of the SPA once finalized.

II. PARTIES TO THE COMMITMENT LETTER

A. Summit Ridge Capital Partners, LP — Lead Arranger and Bookrunner

The lead arranger and sole bookrunner under the Commitment Letter is Summit Ridge Capital Partners, LP, a Delaware limited partnership with its principal office located at 277 Park Avenue, 40th Floor, New York, NY 10172. In its role as lead arranger, Summit Ridge is responsible for structuring the Term Loan Facility, arranging the syndication of all or a portion of the commitments to additional lenders, and managing the overall process of bringing the financing to market. As sole bookrunner, Summit Ridge has the exclusive right and obligation to manage the syndication process, including the preparation of the confidential information memorandum and the solicitation of lender commitments.

The lead contact at Summit Ridge for purposes of the Commitment Letter and the Term Loan Facility is Philip Ostrander, Managing Director. Mr. Ostrander has been the primary point of contact throughout the negotiation of the Commitment Letter and is expected to continue to serve in that capacity during the negotiation of the definitive credit agreement and the syndication process.

B. Ironclad Trust Company, N.A. — Administrative Agent and Initial Lender

Ironclad Trust Company, N.A., a national banking association organized under the laws of the United States with its principal office located at 60 Wall Street, New York, NY 10005, serves in a dual capacity under the Commitment Letter as (i) the administrative agent under the definitive credit agreement to be entered into in connection with the Term Loan Facility, and (ii) the initial lender committing to the full $500,000,000 of the Facility pending completion of the syndication process. In its capacity as administrative agent, Ironclad will be responsible for the day-to-day administration of the credit facility, including the receipt and disbursement of payments, the coordination of lender communications, and the maintenance of the loan register. As the initial lender, Ironclad's commitment to fund the full $500,000,000 ensures that the Facility will be available to Penterra at closing regardless of whether syndication has been completed.

The lead contact at Ironclad for purposes of the Commitment Letter is Samantha Hwang, Vice President. Ms. Hwang has been involved in the due diligence process and the negotiation of the Commitment Letter terms and is expected to serve as the primary administrative contact for the credit facility following execution of the definitive credit agreement.

C. Penterra Pharmaceuticals Corp. — Borrower

Penterra Pharmaceuticals Corp. is a Delaware corporation whose common stock is listed on the Nasdaq Global Select Market under the ticker symbol "PPCA." The Company's principal executive offices are located at 1100 Meridian Boulevard, Suite 400, Princeton, NJ 08540. Penterra will serve as the borrower under the Term Loan Facility and is the sole party on the borrower side of the Commitment Letter.

III. SUMMARY OF KEY TERMS OF THE TERM LOAN FACILITY

This section summarizes the principal economic and structural terms of the Term Loan Facility as set forth in the Commitment Letter and the Summary Term Sheet attached thereto as Annex I.

A. Facility Amount

The Term Loan Facility provides for a senior secured term loan in an aggregate principal amount of $500,000,000. The Facility is structured as a single-draw facility, meaning that the full $500,000,000 must be drawn in a single borrowing on the closing date of the Acquisition. Once drawn, amounts repaid may not be reborrowed. There is no revolving component under this Commitment Letter or the associated term sheet. If Penterra requires a revolving credit facility for working capital or other corporate purposes, a separate facility would need to be arranged.

B. Purpose. The proceeds of the Term Loan Facility are to be used solely to finance a portion of the $900,000,000 purchase price payable under the Stock Purchase Agreement between Penterra and Veridian Biosciences, Inc. in connection with the Acquisition, and to pay related fees, costs, and expenses incurred in connection with the Acquisition and the financing thereof. The use of proceeds is limited to this stated purpose, and the definitive credit agreement is expected to include a customary covenant restricting the application of loan proceeds to the specified purposes.

C. Interest Rate

The Term Loan Facility will bear interest at a rate per annum equal to the Secured Overnight Financing Rate ("SOFR") plus a margin of 225 basis points (2.25%). The applicable SOFR rate will be determined based on the interest period selected by Penterra, with available interest periods of one month, three months, or six months, at Penterra's election.

A SOFR floor is to be specified in the definitive credit agreement. Based on our discussions with Summit Ridge and current market conventions for investment-grade and near-investment-grade pharmaceutical borrowers, we expect the floor to be set at either 0.00% (effectively no floor) or 0.50%. The determination of the SOFR floor is a point we will negotiate in the definitive credit agreement, and we recommend seeking a 0.00% floor if market conditions permit.

In the event of a default or event of default under the credit agreement, interest on overdue amounts will accrue at the default rate, which is the applicable interest rate plus an additional 200 basis points (2.00%). The default rate is a customary provision and applies automatically upon the occurrence of certain payment defaults and, at the election of the administrative agent or the required lenders, upon the occurrence of other events of default.

D. Maturity. The Term Loan Facility will mature five years from the closing date of the Facility, which is expected to coincide with the closing date of the Acquisition. Assuming a closing date of approximately August 1, 2024, the maturity date would be approximately August 1, 2029, though the exact date will depend on the actual closing date of the Acquisition.

The Facility is expected to amortize at a rate of 1.00% per annum of the original principal amount of $500,000,000, payable in equal quarterly installments. This equates to quarterly amortization payments of $1,250,000 (i.e., $5,000,000 per year). The remaining outstanding principal balance will be due and payable in full on the maturity date. This amortization schedule is consistent with current market standards for term loan facilities in the pharmaceutical sector and represents a minimal annual principal repayment burden.

E. Security and Guarantees

The Term Loan Facility will be secured by a first-priority lien on substantially all assets of Penterra and its material domestic subsidiaries, including, following the consummation of the Acquisition, the assets of Veridian and its domestic subsidiaries. The security package is expected to include, without limitation, liens on accounts receivable, inventory, equipment, intellectual property, real property interests, and the equity interests in direct domestic subsidiaries and up to 65% of the equity interests in first-tier foreign subsidiaries.

All material domestic subsidiaries of Penterra (to be defined in the definitive credit agreement based on a customary threshold, typically 5% of consolidated total assets or consolidated revenues) will be required to guarantee Penterra's obligations under the Term Loan Facility. Veridian and its material domestic subsidiaries will be required to become guarantors and grantors under the credit agreement and the related security documents upon consummation of the Acquisition. Customary exclusions from the collateral package and the guarantor requirements — including exclusions for immaterial subsidiaries, unrestricted subsidiaries, and certain regulated entities — are expected to be negotiated in the definitive credit agreement.

The scope of permitted liens and exceptions to the negative pledge will be a key negotiating point in the definitive credit agreement, and we will seek to ensure that the permitted lien baskets are consistent with Penterra's existing corporate structure and operational requirements.

F. Commitment Fee

The Commitment Letter provides for a commitment fee of 0.35% per annum on the unfunded commitment amount of $500,000,000. The commitment fee accrues from the date of the Commitment Letter (June 7, 2024) until the earliest of (i) the date on which the Term Loan Facility is drawn in full, (ii) the date on which the commitments are terminated, and (iii) the commitment expiration date (December 10, 2024). The commitment fee is payable quarterly in arrears.

On an annualized basis, the commitment fee amounts to $1,750,000 per year ($500,000,000 × 0.35%). The actual commitment fee payable by Penterra will depend on the length of time between the Commitment Letter date and the drawdown or termination of the commitments. We provide illustrative calculations in Section VII.E below.

G. Ticking Fee

In addition to the commitment fee, the Commitment Letter provides for a ticking fee of 0.175% per annum on the committed amount of $500,000,000. The ticking fee does not begin to accrue immediately; rather, it commences 90 days after the signing of the Stock Purchase Agreement. Assuming the SPA is signed on June 10, 2024, the ticking fee will commence on September 8, 2024.

The ticking fee is additive to the commitment fee. Accordingly, after September 8, 2024, the total carrying cost of the unfunded commitment will increase from 0.35% per annum to 0.525% per annum (0.35% commitment fee + 0.175% ticking fee). On an annualized basis, the ticking fee amounts to $875,000 per year ($500,000,000 × 0.175%), bringing the total annualized carrying cost to $2,625,000 per year after the ticking fee commencement date.

The purpose of the ticking fee is twofold: it incentivizes the parties to close the Acquisition on a timely basis, and it compensates the lenders for the cost and risk of maintaining an extended commitment period. This is a standard feature of commitment letters for acquisition financing. We note that if the SPA is signed on June 10, 2024 and the Acquisition closes before September 8, 2024, no ticking fee will be payable. Penterra should therefore target a closing date prior to September 8 to avoid the incremental cost, to the extent practicable given regulatory and other closing conditions.

H. Commitment Expiration / Termination

The commitments under the Commitment Letter expire on the earliest of: (i) the closing date of the Acquisition (at which point the Term Loan Facility funds and the commitments are fully utilized), (ii) the termination of the Stock Purchase Agreement in accordance with its terms, or (iii) December 10, 2024, which is designed to be co-terminous with the Outside Date set forth in the SPA.

Upon the expiration or termination of the commitments for any reason, all accrued and unpaid fees — including commitment fees, ticking fees (if applicable), and any other amounts owing under the Commitment Letter or the fee letter — become immediately due and payable. This obligation survives the termination of the Commitment Letter.

I. Syndication. Summit Ridge, in its capacity as lead arranger and sole bookrunner, has the right (but not the obligation) to syndicate portions of the commitment to additional institutional lenders prior to or after the closing of the Term Loan Facility. Syndication is expected to involve the preparation and distribution of a confidential information memorandum to prospective lenders and the negotiation of assignment and assumption agreements.

Critically, the Commitment Letter provides that the syndication of the commitments shall not reduce Summit Ridge's and Ironclad's obligation to fund the full $500,000,000 if syndication has not been completed by the closing date of the Acquisition. In other words, the commitment is a "firm" commitment without a "syndication out" — the lenders bear the syndication risk, not Penterra. This is essential to Penterra's ability to represent in the SPA that it has committed financing sufficient to consummate the Acquisition.

Penterra retains customary consent rights over the identity of syndicate lenders, which consent shall not be unreasonably withheld, conditioned, or delayed. We will seek to ensure that the consent standard is clearly articulated in the definitive credit agreement and that Penterra has the right to exclude certain categories of lenders (e.g., competitors, distressed debt funds, or entities on a "disqualified lender" list) from the syndicate.

IV. CONDITIONS PRECEDENT TO FUNDING

A. Overview of "Certain Funds" / Limited Conditionality Structure

The Commitment Letter employs a SunGard-style "certain funds" framework that limits the conditions precedent to the lenders' obligation to fund the Term Loan Facility on the closing date. Under this framework, the lenders' obligation to fund is not subject to the satisfaction of all conditions that would typically appear in a comprehensive credit agreement; instead, the conditions to funding are narrowly and specifically defined in the Commitment Letter itself, and additional conditions may not be introduced at the credit agreement stage.

The purpose of the "certain funds" structure is to provide Penterra with certainty of financing for the Acquisition and, in turn, to enable Penterra to satisfy any representations it makes to Veridian under the SPA regarding the availability and sufficiency of its financing. This structure is now the market standard for committed acquisition financing in leveraged and investment-grade transactions and reflects the commercial imperative that a buyer must be able to assure the target that committed financing will be available at closing.

B. Specific Conditions to Funding

The Commitment Letter sets forth the following specific conditions precedent to the lenders' obligation to fund the Term Loan Facility:

1. Execution of the Acquisition. The Stock Purchase Agreement shall have been duly executed and delivered by all parties thereto, and all conditions to the closing of the Acquisition under the SPA (other than those conditions that by their nature are to be satisfied at the closing itself, such as the delivery of closing certificates and the payment of the purchase price) shall have been satisfied or validly waived by the applicable party. This condition ensures that the Term Loan Facility is funded only in connection with a bona fide closing of the Acquisition and not in advance thereof.

2. Accuracy of Specified Representations. Certain enumerated representations and warranties of Penterra (the "Specified Representations"), to be set forth in the definitive credit agreement, shall be true and correct in all material respects as of the closing date of the Facility (or, in the case of representations that speak as of a specific date, as of such date). The Specified Representations are limited to the following:

(a) corporate existence and good standing of Penterra;

(b) due authorization, execution, and enforceability of the credit agreement and related loan documents;

(d) compliance with OFAC sanctions, anti-money laundering, and anti-corruption laws (including the Foreign Corrupt Practices Act);

(e) solvency of Penterra and its subsidiaries (on a consolidated basis, after giving pro forma effect to the Acquisition and the incurrence of the term loan and the application of proceeds thereof); and

(f) use of proceeds in accordance with the stated purpose of the Facility.

The limited scope of the Specified Representations is a defining feature of the "certain funds" structure. The lenders may not refuse to fund based on the inaccuracy of any representation not enumerated as a Specified Representation, even if such inaccuracy would constitute a default or event of default under the credit agreement.

3. No Material Adverse Effect on Penterra. No Material Adverse Effect (as such term will be defined in the definitive credit agreement, consistent with the definition in the Commitment Letter) shall have occurred with respect to Penterra (the borrower) since the date of the Commitment Letter. Importantly, this condition is a borrower-MAE only — it tests whether Penterra itself has experienced a material adverse effect. The lenders do not have a separate condition to funding based on the occurrence of a material adverse effect with respect to Veridian (the target). This distinction is critical and is discussed further in Section IV.C below.

4. Delivery of Closing Documents. Penterra shall have delivered customary closing documentation to the administrative agent, including without limitation:

(a) the executed definitive credit agreement;

(b) executed security and guarantee agreements;

(d) legal opinions from Calderwood & Harkness LLP (as Penterra's counsel) covering customary matters including enforceability, no conflicts, and security interest perfection;

(e) secretary's certificates for Penterra and each guarantor, certifying organizational documents, resolutions, and incumbency;

(f) a solvency certificate executed by the Chief Financial Officer of Penterra (or another senior financial officer), certifying the solvency of Penterra and its subsidiaries on a consolidated pro forma basis; and

(g) officer's certificates confirming the satisfaction of conditions to funding.

5. Payment of Fees and Expenses. All fees, expenses, and other amounts payable to the lenders, the administrative agent, the lead arranger, and their respective counsel on or prior to the closing date shall have been paid or shall be paid from the proceeds of the Term Loan Facility on the closing date. This condition encompasses commitment fees, arrangement fees, administrative agent fees, and the reasonable and documented fees and expenses of lender's counsel.

6. Specified Acquisition Agreement Representations. Certain representations and warranties made by Veridian in the SPA that are material to the interests of the lenders (the "Specified Acquisition Agreement Representations") shall be true and correct, but only to the extent that the failure of such representations to be true and correct would give Penterra the right to decline to consummate the closing under the SPA or to terminate the SPA. In other words, the lenders cannot refuse to fund on the basis of a breach of Veridian's representations in the SPA unless that breach would independently and separately give Penterra the legal right not to close under the SPA. This is the core "SunGard" construct that links the lender funding conditions to the borrower's SPA closing conditions.

C. Analysis of Conditions

The "certain funds" structure of the Commitment Letter is highly favorable to Penterra and provides substantial financing certainty. Several points merit specific attention:

Limitation on Lender Conditions. The conditions enumerated above are the exclusive conditions to funding. The lenders may not impose additional conditions at the credit agreement stage that are not set forth in the Commitment Letter. This means that even if the definitive credit agreement contains representations, covenants, or conditions that go beyond the Specified Representations, the failure to satisfy those additional provisions cannot serve as a basis for the lenders to refuse to fund on the closing date. This distinction between "conditions to funding" and "credit agreement conditions" is the hallmark of the "certain funds" approach.

Borrower-MAE vs. Target-MAE. The MAE condition is limited to a Material Adverse Effect on Penterra (the borrower), not on Veridian (the target). This is significant in the context of the Acquisition because it means that adverse developments at Veridian — including, for example, negative results from Veridian's ongoing Phase III clinical trial for VRD-4187 or other pipeline setbacks — should not independently trigger a failure of the financing conditions, provided that such adverse developments at Veridian do not themselves constitute a Material Adverse Effect on Penterra. The relevant test is whether Penterra itself has experienced an MAE since the date of the Commitment Letter. Given Penterra's diversified product portfolio and strong financial position, the risk of a borrower-MAE is assessed as low.

Specified Acquisition Agreement Representations. The "Specified Acquisition Agreement Representations" construct is a customary feature of SunGard-style commitment letters. Its purpose is to ensure that the lenders' funding obligation is conditioned only on the same representations that condition Penterra's own obligation to close under the SPA. This creates a "back-to-back" alignment between the financing conditions and the SPA closing conditions: if Penterra is required to close under the SPA (because the SPA closing conditions, including the bring-down of Veridian's representations, have been satisfied), the lenders are also required to fund. Conversely, if a breach of Veridian's representations would excuse Penterra from closing under the SPA, the lenders would similarly not be required to fund.

Key Risk: Waiver of SPA Conditions. One important risk associated with the "Specified Acquisition Agreement Representations" construct is the potential impact of a waiver by Penterra of closing conditions under the SPA. If Penterra elects to waive a closing condition under the SPA — for example, if Penterra waives the no-MAE condition with respect to Veridian or waives the bring-down of certain of Veridian's representations — Penterra may simultaneously and inadvertently eliminate the corresponding lender condition tied to the Specified Acquisition Agreement Representations. In such a scenario, the lenders would be required to fund even though the representation at issue is no longer true and correct, because the lenders' condition is measured by reference to Penterra's right not to close, and Penterra has waived that right.

Recommendation: Penterra should not waive any closing condition under the SPA without first analyzing the impact of such waiver on the financing conditionality under the Commitment Letter. Calderwood & Harkness should be consulted before any such waiver is granted.

V. MARKET FLEX PROVISIONS

A. Description. The Commitment Letter incorporates by reference certain market flex provisions contained in the related fee letter executed between Penterra and Summit Ridge (the "Fee Letter"). The market flex provisions permit Summit Ridge, in its capacity as lead arranger, to modify certain economic and structural terms of the Term Loan Facility as it deems necessary or advisable to facilitate a successful syndication of the loan.

Based on our review of the Fee Letter, the market flex provisions may include the following adjustments:

(i) Interest Rate Spread. Summit Ridge may increase the interest rate spread by up to 50 basis points, from the initial spread of SOFR + 225 basis points to a maximum of SOFR + 275 basis points;

(ii) Original Issue discount (OID). Summit Ridge may increase the original issue discount by up to 100 basis points;

(iii) Financial Covenants. Summit Ridge may add or modify financial maintenance covenants to the extent necessary to facilitate syndication; and

(iv) Amortization Schedule. Summit Ridge may modify the amortization schedule, including increasing the annual amortization rate.

The exercise of market flex is at Summit Ridge's reasonable discretion and is subject to the general requirement that the flex be exercised in connection with the syndication of the Term Loan Facility. The flex provisions are bilateral — Summit Ridge may also exercise "reverse flex" to reduce pricing or improve terms if market conditions are favorable.

B. Analysis and Implications

The market flex provisions introduce variability into Penterra's ultimate borrowing costs, though the variability is bounded by the caps described above. In a rising rate environment, or in the event of a deterioration in the syndicated loan market between the date of the Commitment Letter and the closing date, Summit Ridge could invoke the flex to increase the interest rate spread and/or the original issue discount.

Maximum Potential Interest Rate. If Summit Ridge exercises the full upward flex on the interest rate spread, the maximum interest rate on the Term Loan Facility would be SOFR + 275 basis points. At current SOFR levels (approximately 5.33% as of June 7, 2024), the maximum all-in rate would be approximately 8.08%, compared to approximately 7.58% at the initial spread. On an annual basis, the 50 basis point increase would result in approximately $2,500,000 in additional interest expense on the full $500,000,000 principal amount.

Maximum OID Impact. If Summit Ridge exercises the full upward flex on OID, the original issue discount could be increased by up to 100 basis points (1.00%). On a $500,000,000 facility, this would reduce the net proceeds to Penterra by up to $5,000,000 — meaning that Penterra would receive only $495,000,000 in cash proceeds but would be obligated to repay the full $500,000,000 principal amount. The $5,000,000 shortfall would need to be funded from Penterra's cash on hand, modestly increasing the Company's cash contribution to the Acquisition from $400,000,000 to $405,000,000.

Materiality Assessment. While the potential cost increases under the market flex are not insignificant in absolute terms, they are unlikely to be material in the context of Penterra's overall financial position. The Company has an approximate market capitalization of $14.2 billion, reported full-year 2023 revenue of $4.87 billion, and holds approximately $2.1 billion in cash and cash equivalents as of Q2 2024. The additional borrowing costs under a full flex scenario — approximately $2,500,000 per year in incremental interest and a one-time $5,000,000 reduction in net proceeds — represent a modest fraction of the Company's financial resources and earnings capacity.

Confidentiality. The market flex provisions are confidential as between Penterra and Summit Ridge. The Fee Letter containing the flex terms is not required to be disclosed to Veridian or to Veridian's counsel, Zalcourt Archer & Cole LLP. However, in connection with Veridian's review of the financing arrangements (and as part of the SPA negotiation process), Veridian's counsel may request redacted copies of the Fee Letter or a representation regarding the sufficiency of the committed financing after giving effect to the maximum exercise of flex. Penterra should be prepared for such a request, and we recommend coordinating with Summit Ridge on the scope of any disclosure before responding.

Recommendation. Penterra should monitor syndication progress closely and maintain regular communication with Summit Ridge (Philip Ostrander) regarding market conditions and the likelihood of flex being exercised. If market conditions deteriorate and flex is exercised, Penterra should evaluate whether the increased cost of the Term Loan Facility warrants a reassessment of the funding mix for the Acquisition, including the possibility of increasing the cash contribution to reduce the amount borrowed under the Facility.

VI. RELATIONSHIP TO THE STOCK PURCHASE AGREEMENT

The Commitment Letter and the Stock Purchase Agreement are separate agreements with distinct parties, but they are closely interrelated. This section analyzes the key points of intersection between the two documents.

A. Financing Condition in the SPA

The Stock Purchase Agreement does not contain a financing condition. That is, Penterra's obligation to consummate the closing of the Acquisition under the SPA is not conditioned on the receipt of the financing proceeds from the Term Loan Facility or from any other source. This is consistent with market practice for acquisitions of this size involving well-capitalized buyers in the pharmaceutical and life sciences sector.

The absence of a financing condition means that Penterra bears the risk that if the committed financing fails for any reason — including the failure of the conditions to funding in the Commitment Letter, the insolvency of a lender, or any other event that prevents the drawdown — Penterra must either fund the Acquisition from alternative sources (including its $2.1 billion cash reserve, the capital markets, or bridge financing) or face potential liability under the SPA. This liability includes, most notably, the reverse termination fee discussed in Section VI.B below.

B. Reverse Termination Fee

The SPA contains a reverse termination fee provision pursuant to which Penterra is obligated to pay a reverse termination fee of $45,000,000 to the sellers if the following conditions are met:

(a) the SPA is terminated due to Penterra's failure to consummate the closing of the Acquisition on or before the Outside Date; and

(b) such failure is attributable, in whole or in part, to the failure to obtain the committed financing contemplated by the Commitment Letter.

The reverse termination fee of $45,000,000 represents 5% of the $900,000,000 purchase price, which is within the customary range for transactions of this size (typically 3%–6%). The reverse termination fee is intended to compensate the sellers for the opportunity cost and disruption associated with a failed transaction and to incentivize Penterra to use its commercially reasonable efforts to consummate the financing and the closing.

The "certain funds" structure of the Commitment Letter is specifically designed to minimize the risk that a financing failure will occur and, correspondingly, to minimize the risk that the reverse termination fee will be triggered. As discussed in Section IV above, the conditions to funding are narrow, specifically enumerated, and largely within Penterra's control. Our assessment is that the risk of the reverse termination fee being triggered is low, absent extraordinary circumstances such as Penterra's own insolvency, a borrower-MAE, or a willful and material failure by Penterra to satisfy the limited conditions to funding.

Notwithstanding the foregoing, the $45,000,000 reverse termination fee represents a meaningful financial exposure, and Penterra should take all necessary steps to ensure that the conditions to funding are satisfied on a timely basis. This includes, in particular, the preparation and delivery of the solvency certificate, the negotiation and execution of the definitive credit agreement, and the coordination of closing mechanics among counsel, the lenders, and the escrow agent.

C. Financing Cooperation Obligations

Under Section 5.1 of the SPA and the related side letter to be dated June 10, 2024 (to be executed contemporaneously with the SPA), Veridian is obligated to cooperate with Penterra's financing efforts in connection with the Acquisition. The financing cooperation obligations include, without limitation:

• providing historical and pro forma financial information regarding Veridian and its subsidiaries in a form customarily required for a confidential information memorandum;

• making Veridian's senior management available for presentations, due diligence sessions, and meetings with prospective lenders;

• delivering estoppel certificates, landlord consents, and other third-party documents reasonably required by the lenders;

• cooperating with the lenders' reasonable due diligence requests; and

• using commercially reasonable efforts to assist Penterra in obtaining any consents or approvals required for the pledging of Veridian's assets post-closing.

Veridian's failure to fulfill its financing cooperation obligations under the SPA could delay or impede the syndication process, but would not relieve the lenders of their commitment to fund the full $500,000,000 under the Commitment Letter. The lenders' commitment is a firm commitment that is not conditioned on the successful completion of syndication. Accordingly, even if Veridian's lack of cooperation results in a delay or failure of syndication, Ironclad and Summit Ridge remain obligated to fund the full Facility amount on the closing date, subject only to the limited conditions precedent set forth in Section IV.B above.

D. SPA Termination and Commitment Expiration

The commitments under the Commitment Letter expire co-terminously with the Outside Date under the SPA, which is December 10, 2024. This co-terminus structure ensures that the financing commitment remains in place for as long as the SPA remains in effect and that Penterra is not left without committed financing while the Acquisition remains pending.

If the SPA is terminated prior to the Outside Date — whether by mutual agreement, by Penterra, or by Veridian — the commitments under the Commitment Letter automatically terminate upon such termination. Similarly, if the Acquisition has not closed by the Outside Date and the SPA terminates by its terms, the commitments expire.

Upon any termination or expiration of the commitments, Penterra remains liable for all accrued and unpaid fees, including commitment fees and ticking fees (if applicable), through the date of termination. This obligation is unconditional and survives the termination of the Commitment Letter. The estimated fee exposure under various termination scenarios is set forth in Section VII.E below.

VII. FEE SUMMARY

A. Commitment Fee

The commitment fee compensates the lenders for maintaining their commitment to fund the Term Loan Facility during the period between the execution of the Commitment Letter and the drawdown (or termination) of the Facility. The fee accrues daily on the unfunded commitment amount and is calculated on an actual/360-day basis, which is the market convention.

B. Ticking Fee

The ticking fee is additive to the commitment fee. After September 8, 2024, the total carrying cost of the unfunded commitment increases from 0.35% per annum to 0.525% per annum ($2,625,000 annualized). The ticking fee is designed to incentivize the parties to close the Acquisition promptly and to compensate the lenders for the extended duration of their commitment. If the Acquisition closes before September 8, 2024, no ticking fee will be payable.

C. Arrangement Fee

An arrangement fee is payable to Summit Ridge Capital Partners, LP in its capacity as lead arranger and sole bookrunner for the Term Loan Facility. The amount of the arrangement fee is set forth in the Fee Letter and is confidential. A detailed analysis of the arrangement fee and its implications for the economics of the Acquisition will be provided in the Fee Letter Review Memorandum, which is being prepared by Derek Okonkwo and is expected to be circulated to the Penterra team on June 9, 2024.

D. Administrative Agent Fee

An annual administrative agent fee is payable to Ironclad Trust Company, N.A. for its services as administrative agent under the credit agreement. The amount of the administrative agent fee is set forth in the Fee Letter and is confidential. This fee is payable annually in advance and is non-refundable. It will also be addressed in the Fee Letter Review Memorandum referenced above.

E. Estimated Fee Exposure (Commitment Fee and Ticking Fee) Through Various Scenarios

The following table sets forth the estimated commitment fee and ticking fee exposure under various illustrative closing and termination scenarios. All calculations assume the Commitment Letter date of June 7, 2024 and the SPA signing date of June 10, 2024 (with ticking fee commencement on September 8, 2024). Fees are calculated on an actual/365-day basis for simplicity; the definitive credit agreement may specify an actual/360-day convention, which would result in modestly higher amounts.

These estimates do not include the arrangement fee, the administrative agent fee, or expenses of lenders' counsel, all of which are addressed in the Fee Letter and the Fee Letter Review Memorandum. In addition, these estimates do not reflect any fees that may become payable in connection with the exercise of market flex by Summit Ridge.

VIII. DEFINITIVE DOCUMENTATION

A. Credit Agreement

The Commitment Letter contemplates the execution of a definitive credit agreement on or prior to the closing date of the Acquisition, to be prepared on the basis of the terms set forth in the Commitment Letter and the Summary Term Sheet attached thereto. The credit agreement will be substantially consistent with the Commitment Letter terms and will incorporate the additional customary provisions that are typical for a senior secured term loan facility of this size and type.

The definitive credit agreement is expected to include, among other things, customary representations and warranties of the borrower and the guarantors, affirmative and negative covenants (including reporting obligations, maintenance of properties, compliance with laws, and restrictions on indebtedness, liens, investments, dispositions, and restricted payments), events of default, and mandatory prepayment provisions (including prepayments from excess cash flow, asset sale proceeds, and upon a change of control).

Calderwood & Harkness will review and mark up the draft credit agreement to be prepared by lender's counsel (expected to be delivered on or about June 14, 2024) to ensure consistency with the SPA and to protect Penterra's interests. A comprehensive set of comments will be circulated to the Penterra team in the Term Loan Credit Agreement — C&H Mark-Up and Comments, which is anticipated to be circulated on or about June 18, 2024.

B. Key Credit Agreement Issues to Negotiate

Based on our review of the Commitment Letter and the Summary Term Sheet, and drawing on our experience with comparable pharmaceutical acquisition financings, we anticipate that the following issues will be significant points of negotiation in the definitive credit agreement:

Definition of "Change of Control." The definition of "Change of Control" in the credit agreement must be carefully reviewed to ensure alignment with Penterra's existing indebtedness (including the Company's existing revolving credit facility and outstanding senior notes) and corporate structure. The change of control definition should be sufficiently broad to capture true changes in control but should include carve-outs for permitted corporate reorganizations, management changes, and secondary market trading of Penterra's publicly held common stock.

Restricted Payments and Debt Incurrence Covenants. The negative covenants restricting restricted payments (including dividends, share repurchases, and payments on subordinated indebtedness) and debt incurrence must provide Penterra with sufficient flexibility to conduct its ongoing business operations, including maintaining its dividend program, funding research and development expenditures, and making strategic investments. We will seek to negotiate baskets, exceptions, and builder capacity that are consistent with Penterra's business plan and financial projections.

Mandatory Prepayment Triggers. The credit agreement is expected to include mandatory prepayment provisions requiring the prepayment of the Term Loan with (i) net cash proceeds from certain asset sales (subject to reinvestment rights), (ii) excess cash flow (subject to step-downs based on leverage ratios), and (iii) net cash proceeds from certain debt issuances. We will negotiate the thresholds, exceptions, and reinvestment periods to ensure that Penterra retains the operational flexibility necessary to manage its portfolio of pharmaceutical assets, including the potential divestiture of non-core Veridian product lines if Penterra determines that such divestitures are appropriate following the Acquisition.

Financial Maintenance Covenants. The Summary Term Sheet indicates that the credit agreement may include one or more financial maintenance covenants, potentially including a maximum total leverage ratio and/or a minimum interest coverage ratio. The specific ratios, testing periods, and cure mechanics (if any) have not yet been finalized and will be a key area of negotiation. We will seek covenant levels that provide Penterra with adequate headroom above projected financial performance and that account for the integration costs and temporary earnings dilution that may result from the Acquisition.

Anti-Layering Provisions. The credit agreement is expected to include anti-layering provisions that restrict Penterra from incurring additional secured or senior indebtedness that would rank pari passu with or senior to the Term Loan, except as specifically permitted under the credit agreement. These provisions must be reviewed carefully to ensure consistency with Penterra's capital structure and any planned future financing activities.

Representations Relating to Veridian and Post-Acquisition Integration. Following the consummation of the Acquisition, Veridian will become a wholly-owned subsidiary of Penterra and will be required to accede to the credit agreement as a guarantor and grantor. The credit agreement will include representations relating to Veridian's business, assets, and operations. We will work with Penterra's corporate development team and with Veridian's management (following the closing) to ensure that these representations are accurate and appropriately qualified, and that any post-closing integration activities are conducted in compliance with the covenants of the credit agreement.

C. Security and Guarantee Documentation

In addition to the credit agreement, the following ancillary security and guarantee documentation will need to be prepared, negotiated, and executed in connection with the closing of the Term Loan Facility:

• Security Agreement. A comprehensive security agreement granting to the administrative agent, for the benefit of the lenders, a first-priority security interest in substantially all personal property of Penterra and each guarantor, including accounts receivable, inventory, equipment, general intangibles, and investment property.

• Pledge Agreement. A pledge agreement pursuant to which Penterra and each guarantor will pledge the equity interests in their respective direct subsidiaries (100% of domestic subsidiaries and 65% of first-tier foreign subsidiaries).

• intellectual Property Security Agreements. Separate intellectual property security agreements for patents, trademarks, and copyrights, to be filed with the United States Patent and Trademark Office and the United States Copyright Office, as applicable.

• Guarantee Agreement. A guarantee agreement pursuant to which each material domestic subsidiary of Penterra (including Veridian and its material domestic subsidiaries, post-closing) will unconditionally guarantee Penterra's obligations under the credit agreement.

• Post-Closing Obligations. The credit agreement is expected to include a post-closing obligations schedule providing for the delivery of certain documents and the completion of certain actions within a specified period following the closing, including the integration of Veridian and its subsidiaries into the guarantor and grantor structure, the delivery of updated perfection certificates, and the recording of security interests in intellectual property acquired as part of the Acquisition.

Calderwood & Harkness will prepare the initial drafts of the security and guarantee documentation and coordinate with lender's counsel on the review and negotiation of the same.

IX. RISK ASSESSMENT AND RECOMMENDATIONS

A. Financing Certainty

The Commitment Letter provides a high degree of financing certainty for the Acquisition. The "certain funds" / limited conditionality structure significantly constrains the lenders' ability to refuse funding on the closing date, and the conditions precedent to funding are narrowly drawn and largely within Penterra's control.

The principal risk to funding is the occurrence of a Material Adverse Effect with respect to Penterra (the borrower). As noted above, the MAE condition relates to Penterra — not to Veridian — and therefore adverse developments at Veridian (including, without limitation, negative clinical trial results for VRD-4187, regulatory setbacks, or deterioration in Veridian's commercial performance) should not independently trigger a failure of the financing conditions. Given Penterra's strong and diversified financial position — with an approximate market capitalization of $14.2 billion, a cash position of approximately $2.1 billion as of Q2 2024, and full-year 2023 revenue of $4.87 billion — the risk of a borrower-MAE is assessed as low. Nonetheless, Penterra should continue to monitor developments that could give rise to an argument by the lenders that a borrower-MAE has occurred, and should promptly notify Calderwood & Harkness of any material adverse developments affecting Penterra's business, financial condition, or operations.

B. Cost Management

The total financing carrying costs under the Commitment Letter are manageable but accrue over time. The commitment fee of 0.35% per annum begins to accrue from the date of the Commitment Letter, and the ticking fee of 0.175% per annum will begin to accrue on September 8, 2024 (90 days after the anticipated SPA signing date). Prompt closing of the Acquisition will minimize fee exposure. As illustrated in Section VII.E above, the total commitment fee and ticking fee exposure ranges from approximately $263,014 (assuming a closing on or about August 1, 2024) to approximately $1,114,726 (if the commitments expire at the Outside Date of December 10, 2024 without closing).

We recommend that Penterra monitor the SPA closing timeline closely and coordinate with its financial advisor, Garrison Zanthor & Co. (lead contact: Kevin Driscoll), and with Summit Ridge (Philip Ostrander) on syndication progress and the anticipated closing timeline. To the extent that the closing can be accelerated — for example, by completing regulatory approvals and satisfying SPA closing conditions ahead of schedule — Penterra will benefit from reduced carrying costs and the avoidance of the ticking fee.

C. Interplay with SPA Termination Provisions

If Penterra terminates the SPA, or if the SPA is terminated by either party for any reason, the commitments under the Commitment Letter automatically terminate upon such termination. In such a scenario, the Term Loan Facility will not fund, and Penterra will have no further obligations under the credit agreement (which would not yet have been executed, or, if executed, would terminate in accordance with its terms).

However, upon termination of the commitments, all accrued and unpaid fees — including commitment fees and ticking fees — become immediately due and payable. To minimize the accrual of fees following a termination of the SPA, Penterra should ensure that any termination notice under the SPA is simultaneously communicated to Ironclad Trust Company, N.A. (as administrative agent) and Summit Ridge Capital Partners, LP (as lead arranger) so that fee accrual is stopped promptly. We recommend that the closing team establish a protocol for the simultaneous delivery of termination notices to all relevant parties.

D. Recommendations. Based on our review and analysis of the Commitment Letter, we recommend the following actions:

1. Proceed with Execution of the Commitment Letter. The Commitment Letter was executed on June 7, 2024. No further action is required with respect to execution, but Penterra should confirm that fully executed counterparts have been received from all parties and are maintained in the Company's records.

2. Deliver Financing Cooperation Side Letter. Ensure that the side letter regarding Veridian's financing cooperation obligations is delivered to Veridian simultaneously with the execution of the SPA, which is planned for June 10, 2024. This side letter is important to ensure that Penterra has access to the financial information and management cooperation necessary to support the syndication process.

3. Engage Promptly on Definitive Credit Agreement. Engage promptly with Summit Ridge and Ironclad on the negotiation of the definitive credit agreement. Calderwood & Harkness will coordinate with lender's counsel and expects to receive the initial draft of the credit agreement on or about June 14, 2024. Our marked-up version, together with a detailed commentary, is anticipated to be circulated by June 18, 2024.

4. Prepare Solvency Certificate and Financial Deliverables. Coordinate with Catherine M. Burgess (CFO) and Penterra's finance team to prepare the solvency certificate and other financial deliverables required as conditions to funding. The solvency certificate must certify that, after giving pro forma effect to the Acquisition and the incurrence of the Term Loan, Penterra and its subsidiaries (on a consolidated basis) are solvent. We will provide a template solvency certificate for Ms. Burgess's review.

5. Monitor Syndication Timeline and Market Flex Risk. Maintain regular contact with Summit Ridge regarding the syndication timeline, lender interest levels, and the likelihood of market flex being exercised. If market conditions deteriorate and flex is exercised, Penterra should evaluate the impact on borrowing costs and consider whether any adjustments to the funding mix are warranted.

6. Maintain Confidentiality of Fee Letter and Market Flex Provisions. The Fee Letter and the market flex provisions contained therein are confidential between Penterra and Summit Ridge. Penterra should ensure that these terms are not disclosed to Veridian, Veridian's counsel (Zalcourt Archer & Cole LLP), or any other third party without the prior consent of Summit Ridge. If Veridian requests information regarding the Fee Letter, Penterra should consult with Calderwood & Harkness before responding.

X. ATTACHMENTS AND CROSS-REFERENCES

For ease of reference, the following documents are attached to this memorandum or are cross-referenced herein:

Attachment A: Commitment Letter (Ref. CL-2024-PPCA-0607) dated June 7, 2024 — Full copy, including all exhibits and schedules (attached hereto).

Attachment B: Summary Term Sheet — Attached to the Commitment Letter as Annex I (attached hereto).

Cross-References:

• Fee Letter Review Memorandum — Summit Ridge / Ironclad. Calderwood & Harkness analysis of the Fee Letter, including arrangement fees, administrative agent fees, and market flex provisions. To be circulated June 9, 2024.

• Funds Flow Memorandum — Draft. Dated June 8, 2024. Reflects the allocation of the $500,000,000 in Term Loan proceeds and the $400,000,000 in Penterra cash to the $900,000,000 aggregate purchase price, broken down as follows: $180,000,000 indemnification escrow; $2,500,000 stockholder representative expense fund; and $717,500,000 net closing payment to the Sellers.

• Financing Conditions Checklist. A comprehensive checklist of all conditions precedent to funding under the Commitment Letter, with responsible parties and target completion dates. To be circulated June 20, 2024.

• Stock Purchase Agreement — Execution Version. Anticipated execution date: June 10, 2024. Particularly relevant cross-references include: SPA § 8.1(d) (termination rights and Outside Date); SPA § 7.2 (Buyer's closing conditions); SPA § 9.3(b) (reverse termination fee provisions); and SPA § 5.1 (financing cooperation obligations of Veridian).

• Term Loan Credit Agreement — C&H Mark-Up and Comments. Calderwood & Harkness's marked-up version of the draft credit agreement, with detailed commentary. Anticipated circulation date: June 18, 2024.

Please do not hesitate to contact Oliver Mackenzie or Megan Chu with any questions regarding this memorandum or the Commitment Letter. We look forward to discussing the matters addressed herein at the team call scheduled for Monday, June 10, 2024 at 10:00 a.m. ET.

Prepared by:

________________________________________

Megan Chu Associate Calderwood & Harkness LLP 200 Park Avenue, 42nd Floor New York, NY 10166 Tel: (212) 555-7400 mchu@calderwoodharkness.com

Reviewed by:

________________________________________

Oliver Mackenzie Partner Calderwood & Harkness LLP 200 Park Avenue, 42nd Floor New York, NY 10166 Tel: (212) 555-7200 omackenzie@calderwoodharkness.com

TO:

Catherine M. Burgess, Chief Financial Officer, Penterra Pharmaceuticals Corp.

Natalie Reiner, SVP Corporate Development, Penterra Pharmaceuticals Corp.

FROM:

Reviewed by: Oliver Mackenzie, Partner, Calderwood & Harkness LLP

CC:

Derek Okonkwo, Associate, Calderwood & Harkness LLP

DATE:	June 8, 2024
RE:	Summary and Analysis of Commitment Letter (Ref. CL-2024-PPCA-0607) dated June 7, 2024 — $500,000,000 Term Loan Facility in Connection with Proposed Acquisition of Veridian Biosciences, Inc.
MATTER NO.:	1018-00008
Item	Detail
Rate	0.35% per annum
Calculated On	Unfunded commitment of $500,000,000
Annualized Amount	$1,750,000
Accrual Period	June 7, 2024 through the earliest of (i) drawdown, (ii) commitment termination, or (iii) December 10, 2024
Payment	Quarterly in arrears
Item	Detail
Rate	0.175% per annum
Calculated On	Committed amount of $500,000,000
Commencement	September 8, 2024 (90 days after anticipated SPA signing on June 10, 2024)
Annualized Amount	$875,000
Payment	Quarterly in arrears
Scenario	Days (from June 7)	Commitment Fee	Ticking Fee	Total
Closing on or about August 1, 2024	~55 days	~$263,014	$0 (pre-Sept. 8)	~$263,014
Closing on October 15, 2024	~130 days	~$624,658	~$88,699 (37 days post-Sept. 8)	~$713,356
SPA terminated on September 30, 2024	~116 days	~$556,164	~$52,740 (22 days post-Sept. 8)	~$608,904
Commitments expire at Outside Date (December 10, 2024)	~186 days	~$891,781	~$222,945 (93 days post-Sept. 8)	~$1,114,726

PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT COMMUNICATION / ATTORNEY WORK PRODUCT
CALDERWOOD & HARKNESS LLP 200 Park Avenue, 42nd Floor New York, NY 10166
MEMORANDUM
This memorandum is a privileged and confidential attorney-client communication prepared by Calderwood & Harkness LLP for the exclusive use of Penterra Pharmaceuticals Corp. and constitutes attorney work product. This memorandum should not be disclosed to any third party without the prior written consent of Calderwood & Harkness LLP and Penterra Pharmaceuticals Corp. Inadvertent disclosure of this memorandum does not constitute a waiver of any applicable privilege.
I. EXECUTIVE SUMMARY
The purpose of this memorandum is to summarize and analyze the key terms, conditions, and risks of the commitment letter dated June 7, 2024 (Reference: CL-2024-PPCA-0607) (the "Commitment Letter") from Summit Ridge Capital Partners, LP ("Summit Ridge"), in its capacity as lead arranger and sole bookrunner, and Ironclad Trust Company, N.A. ("Ironclad"), in its capacity as administrative agent and initial lender, for a $500,000,000 senior secured term loan facility (the "Term Loan Facility" or the "Facility") to partially fund Penterra Pharmaceuticals Corp.'s ("Penterra" or the "Company") proposed $900,000,000 all-cash acquisition (the "Acquisition") of 100% of the outstanding capital stock of Veridian Biosciences, Inc. ("Veridian").
The total $900,000,000 purchase price for the Acquisition is expected to be funded through a combination of: (i) $500,000,000 in proceeds from the committed Term Loan Facility, and (ii) approximately $400,000,000 from Penterra's cash on hand. This funding structure is well-supported by Penterra's current financial position, as the Company reported a cash position of approximately $2.1 billion as of Q2 2024, providing substantial headroom above the cash contribution required at closing.
The Commitment Letter was executed on June 7, 2024, three days prior to the anticipated signing of the Stock Purchase Agreement (the "SPA") between Penterra and Veridian on June 10, 2024. This sequencing is customary and intended to ensure that Penterra is able to represent in the SPA that it has committed financing sufficient to consummate the Acquisition.
Overall Assessment. Based on our review, the Commitment Letter provides committed financing on terms that are customary for a transaction of this size and type in the current market environment. The conditions to funding are limited and structured around a SunGard-style "certain funds" conditionality framework, which provides Penterra with a high degree of financing certainty. The conditions to closing are largely within Penterra's control. Certain provisions — including the market flex provision in the related fee letter, the ticking fee commencing 90 days after SPA signing, and the interplay between the "certain funds" conditionality and Penterra's obligations under the SPA — warrant particular attention and are discussed in detail in the sections that follow.
This memorandum should be read in conjunction with the forthcoming Fee Letter Review Memorandum (to be circulated June 9, 2024) and the Draft Funds Flow Memorandum (dated June 8, 2024), as well as the execution version of the SPA once finalized.
II. PARTIES TO THE COMMITMENT LETTER
A. Summit Ridge Capital Partners, LP — Lead Arranger and Bookrunner
The lead arranger and sole bookrunner under the Commitment Letter is Summit Ridge Capital Partners, LP, a Delaware limited partnership with its principal office located at 277 Park Avenue, 40th Floor, New York, NY 10172. In its role as lead arranger, Summit Ridge is responsible for structuring the Term Loan Facility, arranging the syndication of all or a portion of the commitments to additional lenders, and managing the overall process of bringing the financing to market. As sole bookrunner, Summit Ridge has the exclusive right and obligation to manage the syndication process, including the preparation of the confidential information memorandum and the solicitation of lender commitments.
The lead contact at Summit Ridge for purposes of the Commitment Letter and the Term Loan Facility is Philip Ostrander, Managing Director. Mr. Ostrander has been the primary point of contact throughout the negotiation of the Commitment Letter and is expected to continue to serve in that capacity during the negotiation of the definitive credit agreement and the syndication process.
B. Ironclad Trust Company, N.A. — Administrative Agent and Initial Lender
Ironclad Trust Company, N.A., a national banking association organized under the laws of the United States with its principal office located at 60 Wall Street, New York, NY 10005, serves in a dual capacity under the Commitment Letter as (i) the administrative agent under the definitive credit agreement to be entered into in connection with the Term Loan Facility, and (ii) the initial lender committing to the full $500,000,000 of the Facility pending completion of the syndication process. In its capacity as administrative agent, Ironclad will be responsible for the day-to-day administration of the credit facility, including the receipt and disbursement of payments, the coordination of lender communications, and the maintenance of the loan register. As the initial lender, Ironclad's commitment to fund the full $500,000,000 ensures that the Facility will be available to Penterra at closing regardless of whether syndication has been completed.
The lead contact at Ironclad for purposes of the Commitment Letter is Samantha Hwang, Vice President. Ms. Hwang has been involved in the due diligence process and the negotiation of the Commitment Letter terms and is expected to serve as the primary administrative contact for the credit facility following execution of the definitive credit agreement.
C. Penterra Pharmaceuticals Corp. — Borrower
Penterra Pharmaceuticals Corp. is a Delaware corporation whose common stock is listed on the Nasdaq Global Select Market under the ticker symbol "PPCA." The Company's principal executive offices are located at 1100 Meridian Boulevard, Suite 400, Princeton, NJ 08540. Penterra will serve as the borrower under the Term Loan Facility and is the sole party on the borrower side of the Commitment Letter.
III. SUMMARY OF KEY TERMS OF THE TERM LOAN FACILITY
This section summarizes the principal economic and structural terms of the Term Loan Facility as set forth in the Commitment Letter and the Summary Term Sheet attached thereto as Annex I.
A. Facility Amount
The Term Loan Facility provides for a senior secured term loan in an aggregate principal amount of $500,000,000. The Facility is structured as a single-draw facility, meaning that the full $500,000,000 must be drawn in a single borrowing on the closing date of the Acquisition. Once drawn, amounts repaid may not be reborrowed. There is no revolving component under this Commitment Letter or the associated term sheet. If Penterra requires a revolving credit facility for working capital or other corporate purposes, a separate facility would need to be arranged.
B. Purpose. The proceeds of the Term Loan Facility are to be used solely to finance a portion of the $900,000,000 purchase price payable under the Stock Purchase Agreement between Penterra and Veridian Biosciences, Inc. in connection with the Acquisition, and to pay related fees, costs, and expenses incurred in connection with the Acquisition and the financing thereof. The use of proceeds is limited to this stated purpose, and the definitive credit agreement is expected to include a customary covenant restricting the application of loan proceeds to the specified purposes.
C. Interest Rate
The Term Loan Facility will bear interest at a rate per annum equal to the Secured Overnight Financing Rate ("SOFR") plus a margin of 225 basis points (2.25%). The applicable SOFR rate will be determined based on the interest period selected by Penterra, with available interest periods of one month, three months, or six months, at Penterra's election.
A SOFR floor is to be specified in the definitive credit agreement. Based on our discussions with Summit Ridge and current market conventions for investment-grade and near-investment-grade pharmaceutical borrowers, we expect the floor to be set at either 0.00% (effectively no floor) or 0.50%. The determination of the SOFR floor is a point we will negotiate in the definitive credit agreement, and we recommend seeking a 0.00% floor if market conditions permit.
In the event of a default or event of default under the credit agreement, interest on overdue amounts will accrue at the default rate, which is the applicable interest rate plus an additional 200 basis points (2.00%). The default rate is a customary provision and applies automatically upon the occurrence of certain payment defaults and, at the election of the administrative agent or the required lenders, upon the occurrence of other events of default.
D. Maturity. The Term Loan Facility will mature five years from the closing date of the Facility, which is expected to coincide with the closing date of the Acquisition. Assuming a closing date of approximately August 1, 2024, the maturity date would be approximately August 1, 2029, though the exact date will depend on the actual closing date of the Acquisition.
The Facility is expected to amortize at a rate of 1.00% per annum of the original principal amount of $500,000,000, payable in equal quarterly installments. This equates to quarterly amortization payments of $1,250,000 (i.e., $5,000,000 per year). The remaining outstanding principal balance will be due and payable in full on the maturity date. This amortization schedule is consistent with current market standards for term loan facilities in the pharmaceutical sector and represents a minimal annual principal repayment burden.
E. Security and Guarantees
The Term Loan Facility will be secured by a first-priority lien on substantially all assets of Penterra and its material domestic subsidiaries, including, following the consummation of the Acquisition, the assets of Veridian and its domestic subsidiaries. The security package is expected to include, without limitation, liens on accounts receivable, inventory, equipment, intellectual property, real property interests, and the equity interests in direct domestic subsidiaries and up to 65% of the equity interests in first-tier foreign subsidiaries.
All material domestic subsidiaries of Penterra (to be defined in the definitive credit agreement based on a customary threshold, typically 5% of consolidated total assets or consolidated revenues) will be required to guarantee Penterra's obligations under the Term Loan Facility. Veridian and its material domestic subsidiaries will be required to become guarantors and grantors under the credit agreement and the related security documents upon consummation of the Acquisition. Customary exclusions from the collateral package and the guarantor requirements — including exclusions for immaterial subsidiaries, unrestricted subsidiaries, and certain regulated entities — are expected to be negotiated in the definitive credit agreement.
The scope of permitted liens and exceptions to the negative pledge will be a key negotiating point in the definitive credit agreement, and we will seek to ensure that the permitted lien baskets are consistent with Penterra's existing corporate structure and operational requirements.
F. Commitment Fee
The Commitment Letter provides for a commitment fee of 0.35% per annum on the unfunded commitment amount of $500,000,000. The commitment fee accrues from the date of the Commitment Letter (June 7, 2024) until the earliest of (i) the date on which the Term Loan Facility is drawn in full, (ii) the date on which the commitments are terminated, and (iii) the commitment expiration date (December 10, 2024). The commitment fee is payable quarterly in arrears.
On an annualized basis, the commitment fee amounts to $1,750,000 per year ($500,000,000 × 0.35%). The actual commitment fee payable by Penterra will depend on the length of time between the Commitment Letter date and the drawdown or termination of the commitments. We provide illustrative calculations in Section VII.E below.
G. Ticking Fee
In addition to the commitment fee, the Commitment Letter provides for a ticking fee of 0.175% per annum on the committed amount of $500,000,000. The ticking fee does not begin to accrue immediately; rather, it commences 90 days after the signing of the Stock Purchase Agreement. Assuming the SPA is signed on June 10, 2024, the ticking fee will commence on September 8, 2024.
The ticking fee is additive to the commitment fee. Accordingly, after September 8, 2024, the total carrying cost of the unfunded commitment will increase from 0.35% per annum to 0.525% per annum (0.35% commitment fee + 0.175% ticking fee). On an annualized basis, the ticking fee amounts to $875,000 per year ($500,000,000 × 0.175%), bringing the total annualized carrying cost to $2,625,000 per year after the ticking fee commencement date.
The purpose of the ticking fee is twofold: it incentivizes the parties to close the Acquisition on a timely basis, and it compensates the lenders for the cost and risk of maintaining an extended commitment period. This is a standard feature of commitment letters for acquisition financing. We note that if the SPA is signed on June 10, 2024 and the Acquisition closes before September 8, 2024, no ticking fee will be payable. Penterra should therefore target a closing date prior to September 8 to avoid the incremental cost, to the extent practicable given regulatory and other closing conditions.
H. Commitment Expiration / Termination
The commitments under the Commitment Letter expire on the earliest of: (i) the closing date of the Acquisition (at which point the Term Loan Facility funds and the commitments are fully utilized), (ii) the termination of the Stock Purchase Agreement in accordance with its terms, or (iii) December 10, 2024, which is designed to be co-terminous with the Outside Date set forth in the SPA.
Upon the expiration or termination of the commitments for any reason, all accrued and unpaid fees — including commitment fees, ticking fees (if applicable), and any other amounts owing under the Commitment Letter or the fee letter — become immediately due and payable. This obligation survives the termination of the Commitment Letter.
I. Syndication. Summit Ridge, in its capacity as lead arranger and sole bookrunner, has the right (but not the obligation) to syndicate portions of the commitment to additional institutional lenders prior to or after the closing of the Term Loan Facility. Syndication is expected to involve the preparation and distribution of a confidential information memorandum to prospective lenders and the negotiation of assignment and assumption agreements.
Critically, the Commitment Letter provides that the syndication of the commitments shall not reduce Summit Ridge's and Ironclad's obligation to fund the full $500,000,000 if syndication has not been completed by the closing date of the Acquisition. In other words, the commitment is a "firm" commitment without a "syndication out" — the lenders bear the syndication risk, not Penterra. This is essential to Penterra's ability to represent in the SPA that it has committed financing sufficient to consummate the Acquisition.
Penterra retains customary consent rights over the identity of syndicate lenders, which consent shall not be unreasonably withheld, conditioned, or delayed. We will seek to ensure that the consent standard is clearly articulated in the definitive credit agreement and that Penterra has the right to exclude certain categories of lenders (e.g., competitors, distressed debt funds, or entities on a "disqualified lender" list) from the syndicate.
IV. CONDITIONS PRECEDENT TO FUNDING
A. Overview of "Certain Funds" / Limited Conditionality Structure
The Commitment Letter employs a SunGard-style "certain funds" framework that limits the conditions precedent to the lenders' obligation to fund the Term Loan Facility on the closing date. Under this framework, the lenders' obligation to fund is not subject to the satisfaction of all conditions that would typically appear in a comprehensive credit agreement; instead, the conditions to funding are narrowly and specifically defined in the Commitment Letter itself, and additional conditions may not be introduced at the credit agreement stage.
The purpose of the "certain funds" structure is to provide Penterra with certainty of financing for the Acquisition and, in turn, to enable Penterra to satisfy any representations it makes to Veridian under the SPA regarding the availability and sufficiency of its financing. This structure is now the market standard for committed acquisition financing in leveraged and investment-grade transactions and reflects the commercial imperative that a buyer must be able to assure the target that committed financing will be available at closing.
B. Specific Conditions to Funding
The Commitment Letter sets forth the following specific conditions precedent to the lenders' obligation to fund the Term Loan Facility:
1. Execution of the Acquisition. The Stock Purchase Agreement shall have been duly executed and delivered by all parties thereto, and all conditions to the closing of the Acquisition under the SPA (other than those conditions that by their nature are to be satisfied at the closing itself, such as the delivery of closing certificates and the payment of the purchase price) shall have been satisfied or validly waived by the applicable party. This condition ensures that the Term Loan Facility is funded only in connection with a bona fide closing of the Acquisition and not in advance thereof.
2. Accuracy of Specified Representations. Certain enumerated representations and warranties of Penterra (the "Specified Representations"), to be set forth in the definitive credit agreement, shall be true and correct in all material respects as of the closing date of the Facility (or, in the case of representations that speak as of a specific date, as of such date). The Specified Representations are limited to the following:
(a) corporate existence and good standing of Penterra;
(b) due authorization, execution, and enforceability of the credit agreement and related loan documents;
(c) no conflict with applicable law or material agreements;
(d) compliance with OFAC sanctions, anti-money laundering, and anti-corruption laws (including the Foreign Corrupt Practices Act);
(e) solvency of Penterra and its subsidiaries (on a consolidated basis, after giving pro forma effect to the Acquisition and the incurrence of the term loan and the application of proceeds thereof); and
(f) use of proceeds in accordance with the stated purpose of the Facility.
The limited scope of the Specified Representations is a defining feature of the "certain funds" structure. The lenders may not refuse to fund based on the inaccuracy of any representation not enumerated as a Specified Representation, even if such inaccuracy would constitute a default or event of default under the credit agreement.
3. No Material Adverse Effect on Penterra. No Material Adverse Effect (as such term will be defined in the definitive credit agreement, consistent with the definition in the Commitment Letter) shall have occurred with respect to Penterra (the borrower) since the date of the Commitment Letter. Importantly, this condition is a borrower-MAE only — it tests whether Penterra itself has experienced a material adverse effect. The lenders do not have a separate condition to funding based on the occurrence of a material adverse effect with respect to Veridian (the target). This distinction is critical and is discussed further in Section IV.C below.
4. Delivery of Closing Documents. Penterra shall have delivered customary closing documentation to the administrative agent, including without limitation:
(a) the executed definitive credit agreement;
(b) executed security and guarantee agreements;
(c) evidence of insurance in form and substance reasonably satisfactory to the administrative agent;
(d) legal opinions from Calderwood & Harkness LLP (as Penterra's counsel) covering customary matters including enforceability, no conflicts, and security interest perfection;
(e) secretary's certificates for Penterra and each guarantor, certifying organizational documents, resolutions, and incumbency;
(f) a solvency certificate executed by the Chief Financial Officer of Penterra (or another senior financial officer), certifying the solvency of Penterra and its subsidiaries on a consolidated pro forma basis; and
(g) officer's certificates confirming the satisfaction of conditions to funding.
5. Payment of Fees and Expenses. All fees, expenses, and other amounts payable to the lenders, the administrative agent, the lead arranger, and their respective counsel on or prior to the closing date shall have been paid or shall be paid from the proceeds of the Term Loan Facility on the closing date. This condition encompasses commitment fees, arrangement fees, administrative agent fees, and the reasonable and documented fees and expenses of lender's counsel.
6. Specified Acquisition Agreement Representations. Certain representations and warranties made by Veridian in the SPA that are material to the interests of the lenders (the "Specified Acquisition Agreement Representations") shall be true and correct, but only to the extent that the failure of such representations to be true and correct would give Penterra the right to decline to consummate the closing under the SPA or to terminate the SPA. In other words, the lenders cannot refuse to fund on the basis of a breach of Veridian's representations in the SPA unless that breach would independently and separately give Penterra the legal right not to close under the SPA. This is the core "SunGard" construct that links the lender funding conditions to the borrower's SPA closing conditions.
C. Analysis of Conditions
The "certain funds" structure of the Commitment Letter is highly favorable to Penterra and provides substantial financing certainty. Several points merit specific attention:
Limitation on Lender Conditions. The conditions enumerated above are the exclusive conditions to funding. The lenders may not impose additional conditions at the credit agreement stage that are not set forth in the Commitment Letter. This means that even if the definitive credit agreement contains representations, covenants, or conditions that go beyond the Specified Representations, the failure to satisfy those additional provisions cannot serve as a basis for the lenders to refuse to fund on the closing date. This distinction between "conditions to funding" and "credit agreement conditions" is the hallmark of the "certain funds" approach.
Borrower-MAE vs. Target-MAE. The MAE condition is limited to a Material Adverse Effect on Penterra (the borrower), not on Veridian (the target). This is significant in the context of the Acquisition because it means that adverse developments at Veridian — including, for example, negative results from Veridian's ongoing Phase III clinical trial for VRD-4187 or other pipeline setbacks — should not independently trigger a failure of the financing conditions, provided that such adverse developments at Veridian do not themselves constitute a Material Adverse Effect on Penterra. The relevant test is whether Penterra itself has experienced an MAE since the date of the Commitment Letter. Given Penterra's diversified product portfolio and strong financial position, the risk of a borrower-MAE is assessed as low.
Specified Acquisition Agreement Representations. The "Specified Acquisition Agreement Representations" construct is a customary feature of SunGard-style commitment letters. Its purpose is to ensure that the lenders' funding obligation is conditioned only on the same representations that condition Penterra's own obligation to close under the SPA. This creates a "back-to-back" alignment between the financing conditions and the SPA closing conditions: if Penterra is required to close under the SPA (because the SPA closing conditions, including the bring-down of Veridian's representations, have been satisfied), the lenders are also required to fund. Conversely, if a breach of Veridian's representations would excuse Penterra from closing under the SPA, the lenders would similarly not be required to fund.
Key Risk: Waiver of SPA Conditions. One important risk associated with the "Specified Acquisition Agreement Representations" construct is the potential impact of a waiver by Penterra of closing conditions under the SPA. If Penterra elects to waive a closing condition under the SPA — for example, if Penterra waives the no-MAE condition with respect to Veridian or waives the bring-down of certain of Veridian's representations — Penterra may simultaneously and inadvertently eliminate the corresponding lender condition tied to the Specified Acquisition Agreement Representations. In such a scenario, the lenders would be required to fund even though the representation at issue is no longer true and correct, because the lenders' condition is measured by reference to Penterra's right not to close, and Penterra has waived that right.
Recommendation: Penterra should not waive any closing condition under the SPA without first analyzing the impact of such waiver on the financing conditionality under the Commitment Letter. Calderwood & Harkness should be consulted before any such waiver is granted.
V. MARKET FLEX PROVISIONS
A. Description. The Commitment Letter incorporates by reference certain market flex provisions contained in the related fee letter executed between Penterra and Summit Ridge (the "Fee Letter"). The market flex provisions permit Summit Ridge, in its capacity as lead arranger, to modify certain economic and structural terms of the Term Loan Facility as it deems necessary or advisable to facilitate a successful syndication of the loan.
Based on our review of the Fee Letter, the market flex provisions may include the following adjustments:
(i) Interest Rate Spread. Summit Ridge may increase the interest rate spread by up to 50 basis points, from the initial spread of SOFR + 225 basis points to a maximum of SOFR + 275 basis points;
(ii) Original Issue discount (OID). Summit Ridge may increase the original issue discount by up to 100 basis points;
(iii) Financial Covenants. Summit Ridge may add or modify financial maintenance covenants to the extent necessary to facilitate syndication; and
(iv) Amortization Schedule. Summit Ridge may modify the amortization schedule, including increasing the annual amortization rate.
The exercise of market flex is at Summit Ridge's reasonable discretion and is subject to the general requirement that the flex be exercised in connection with the syndication of the Term Loan Facility. The flex provisions are bilateral — Summit Ridge may also exercise "reverse flex" to reduce pricing or improve terms if market conditions are favorable.
B. Analysis and Implications
The market flex provisions introduce variability into Penterra's ultimate borrowing costs, though the variability is bounded by the caps described above. In a rising rate environment, or in the event of a deterioration in the syndicated loan market between the date of the Commitment Letter and the closing date, Summit Ridge could invoke the flex to increase the interest rate spread and/or the original issue discount.
Maximum Potential Interest Rate. If Summit Ridge exercises the full upward flex on the interest rate spread, the maximum interest rate on the Term Loan Facility would be SOFR + 275 basis points. At current SOFR levels (approximately 5.33% as of June 7, 2024), the maximum all-in rate would be approximately 8.08%, compared to approximately 7.58% at the initial spread. On an annual basis, the 50 basis point increase would result in approximately $2,500,000 in additional interest expense on the full $500,000,000 principal amount.
Maximum OID Impact. If Summit Ridge exercises the full upward flex on OID, the original issue discount could be increased by up to 100 basis points (1.00%). On a $500,000,000 facility, this would reduce the net proceeds to Penterra by up to $5,000,000 — meaning that Penterra would receive only $495,000,000 in cash proceeds but would be obligated to repay the full $500,000,000 principal amount. The $5,000,000 shortfall would need to be funded from Penterra's cash on hand, modestly increasing the Company's cash contribution to the Acquisition from $400,000,000 to $405,000,000.
Materiality Assessment. While the potential cost increases under the market flex are not insignificant in absolute terms, they are unlikely to be material in the context of Penterra's overall financial position. The Company has an approximate market capitalization of $14.2 billion, reported full-year 2023 revenue of $4.87 billion, and holds approximately $2.1 billion in cash and cash equivalents as of Q2 2024. The additional borrowing costs under a full flex scenario — approximately $2,500,000 per year in incremental interest and a one-time $5,000,000 reduction in net proceeds — represent a modest fraction of the Company's financial resources and earnings capacity.
Confidentiality. The market flex provisions are confidential as between Penterra and Summit Ridge. The Fee Letter containing the flex terms is not required to be disclosed to Veridian or to Veridian's counsel, Zalcourt Archer & Cole LLP. However, in connection with Veridian's review of the financing arrangements (and as part of the SPA negotiation process), Veridian's counsel may request redacted copies of the Fee Letter or a representation regarding the sufficiency of the committed financing after giving effect to the maximum exercise of flex. Penterra should be prepared for such a request, and we recommend coordinating with Summit Ridge on the scope of any disclosure before responding.
Recommendation. Penterra should monitor syndication progress closely and maintain regular communication with Summit Ridge (Philip Ostrander) regarding market conditions and the likelihood of flex being exercised. If market conditions deteriorate and flex is exercised, Penterra should evaluate whether the increased cost of the Term Loan Facility warrants a reassessment of the funding mix for the Acquisition, including the possibility of increasing the cash contribution to reduce the amount borrowed under the Facility.
VI. RELATIONSHIP TO THE STOCK PURCHASE AGREEMENT
The Commitment Letter and the Stock Purchase Agreement are separate agreements with distinct parties, but they are closely interrelated. This section analyzes the key points of intersection between the two documents.
A. Financing Condition in the SPA
The Stock Purchase Agreement does not contain a financing condition. That is, Penterra's obligation to consummate the closing of the Acquisition under the SPA is not conditioned on the receipt of the financing proceeds from the Term Loan Facility or from any other source. This is consistent with market practice for acquisitions of this size involving well-capitalized buyers in the pharmaceutical and life sciences sector.
The absence of a financing condition means that Penterra bears the risk that if the committed financing fails for any reason — including the failure of the conditions to funding in the Commitment Letter, the insolvency of a lender, or any other event that prevents the drawdown — Penterra must either fund the Acquisition from alternative sources (including its $2.1 billion cash reserve, the capital markets, or bridge financing) or face potential liability under the SPA. This liability includes, most notably, the reverse termination fee discussed in Section VI.B below.
B. Reverse Termination Fee
The SPA contains a reverse termination fee provision pursuant to which Penterra is obligated to pay a reverse termination fee of $45,000,000 to the sellers if the following conditions are met:
(a) the SPA is terminated due to Penterra's failure to consummate the closing of the Acquisition on or before the Outside Date; and
(b) such failure is attributable, in whole or in part, to the failure to obtain the committed financing contemplated by the Commitment Letter.
The reverse termination fee of $45,000,000 represents 5% of the $900,000,000 purchase price, which is within the customary range for transactions of this size (typically 3%–6%). The reverse termination fee is intended to compensate the sellers for the opportunity cost and disruption associated with a failed transaction and to incentivize Penterra to use its commercially reasonable efforts to consummate the financing and the closing.
The "certain funds" structure of the Commitment Letter is specifically designed to minimize the risk that a financing failure will occur and, correspondingly, to minimize the risk that the reverse termination fee will be triggered. As discussed in Section IV above, the conditions to funding are narrow, specifically enumerated, and largely within Penterra's control. Our assessment is that the risk of the reverse termination fee being triggered is low, absent extraordinary circumstances such as Penterra's own insolvency, a borrower-MAE, or a willful and material failure by Penterra to satisfy the limited conditions to funding.
Notwithstanding the foregoing, the $45,000,000 reverse termination fee represents a meaningful financial exposure, and Penterra should take all necessary steps to ensure that the conditions to funding are satisfied on a timely basis. This includes, in particular, the preparation and delivery of the solvency certificate, the negotiation and execution of the definitive credit agreement, and the coordination of closing mechanics among counsel, the lenders, and the escrow agent.
C. Financing Cooperation Obligations
Under Section 5.1 of the SPA and the related side letter to be dated June 10, 2024 (to be executed contemporaneously with the SPA), Veridian is obligated to cooperate with Penterra's financing efforts in connection with the Acquisition. The financing cooperation obligations include, without limitation:
• providing historical and pro forma financial information regarding Veridian and its subsidiaries in a form customarily required for a confidential information memorandum;
• making Veridian's senior management available for presentations, due diligence sessions, and meetings with prospective lenders;
• delivering estoppel certificates, landlord consents, and other third-party documents reasonably required by the lenders;
• cooperating with the lenders' reasonable due diligence requests; and
• using commercially reasonable efforts to assist Penterra in obtaining any consents or approvals required for the pledging of Veridian's assets post-closing.
Veridian's failure to fulfill its financing cooperation obligations under the SPA could delay or impede the syndication process, but would not relieve the lenders of their commitment to fund the full $500,000,000 under the Commitment Letter. The lenders' commitment is a firm commitment that is not conditioned on the successful completion of syndication. Accordingly, even if Veridian's lack of cooperation results in a delay or failure of syndication, Ironclad and Summit Ridge remain obligated to fund the full Facility amount on the closing date, subject only to the limited conditions precedent set forth in Section IV.B above.
D. SPA Termination and Commitment Expiration
The commitments under the Commitment Letter expire co-terminously with the Outside Date under the SPA, which is December 10, 2024. This co-terminus structure ensures that the financing commitment remains in place for as long as the SPA remains in effect and that Penterra is not left without committed financing while the Acquisition remains pending.
If the SPA is terminated prior to the Outside Date — whether by mutual agreement, by Penterra, or by Veridian — the commitments under the Commitment Letter automatically terminate upon such termination. Similarly, if the Acquisition has not closed by the Outside Date and the SPA terminates by its terms, the commitments expire.
Upon any termination or expiration of the commitments, Penterra remains liable for all accrued and unpaid fees, including commitment fees and ticking fees (if applicable), through the date of termination. This obligation is unconditional and survives the termination of the Commitment Letter. The estimated fee exposure under various termination scenarios is set forth in Section VII.E below.
VII. FEE SUMMARY
A. Commitment Fee
The commitment fee compensates the lenders for maintaining their commitment to fund the Term Loan Facility during the period between the execution of the Commitment Letter and the drawdown (or termination) of the Facility. The fee accrues daily on the unfunded commitment amount and is calculated on an actual/360-day basis, which is the market convention.
B. Ticking Fee
The ticking fee is additive to the commitment fee. After September 8, 2024, the total carrying cost of the unfunded commitment increases from 0.35% per annum to 0.525% per annum ($2,625,000 annualized). The ticking fee is designed to incentivize the parties to close the Acquisition promptly and to compensate the lenders for the extended duration of their commitment. If the Acquisition closes before September 8, 2024, no ticking fee will be payable.
C. Arrangement Fee
An arrangement fee is payable to Summit Ridge Capital Partners, LP in its capacity as lead arranger and sole bookrunner for the Term Loan Facility. The amount of the arrangement fee is set forth in the Fee Letter and is confidential. A detailed analysis of the arrangement fee and its implications for the economics of the Acquisition will be provided in the Fee Letter Review Memorandum, which is being prepared by Derek Okonkwo and is expected to be circulated to the Penterra team on June 9, 2024.
D. Administrative Agent Fee
An annual administrative agent fee is payable to Ironclad Trust Company, N.A. for its services as administrative agent under the credit agreement. The amount of the administrative agent fee is set forth in the Fee Letter and is confidential. This fee is payable annually in advance and is non-refundable. It will also be addressed in the Fee Letter Review Memorandum referenced above.
E. Estimated Fee Exposure (Commitment Fee and Ticking Fee) Through Various Scenarios
The following table sets forth the estimated commitment fee and ticking fee exposure under various illustrative closing and termination scenarios. All calculations assume the Commitment Letter date of June 7, 2024 and the SPA signing date of June 10, 2024 (with ticking fee commencement on September 8, 2024). Fees are calculated on an actual/365-day basis for simplicity; the definitive credit agreement may specify an actual/360-day convention, which would result in modestly higher amounts.
These estimates do not include the arrangement fee, the administrative agent fee, or expenses of lenders' counsel, all of which are addressed in the Fee Letter and the Fee Letter Review Memorandum. In addition, these estimates do not reflect any fees that may become payable in connection with the exercise of market flex by Summit Ridge.
VIII. DEFINITIVE DOCUMENTATION
A. Credit Agreement
The Commitment Letter contemplates the execution of a definitive credit agreement on or prior to the closing date of the Acquisition, to be prepared on the basis of the terms set forth in the Commitment Letter and the Summary Term Sheet attached thereto. The credit agreement will be substantially consistent with the Commitment Letter terms and will incorporate the additional customary provisions that are typical for a senior secured term loan facility of this size and type.
The definitive credit agreement is expected to include, among other things, customary representations and warranties of the borrower and the guarantors, affirmative and negative covenants (including reporting obligations, maintenance of properties, compliance with laws, and restrictions on indebtedness, liens, investments, dispositions, and restricted payments), events of default, and mandatory prepayment provisions (including prepayments from excess cash flow, asset sale proceeds, and upon a change of control).
Calderwood & Harkness will review and mark up the draft credit agreement to be prepared by lender's counsel (expected to be delivered on or about June 14, 2024) to ensure consistency with the SPA and to protect Penterra's interests. A comprehensive set of comments will be circulated to the Penterra team in the Term Loan Credit Agreement — C&H Mark-Up and Comments, which is anticipated to be circulated on or about June 18, 2024.
B. Key Credit Agreement Issues to Negotiate
Based on our review of the Commitment Letter and the Summary Term Sheet, and drawing on our experience with comparable pharmaceutical acquisition financings, we anticipate that the following issues will be significant points of negotiation in the definitive credit agreement:
Definition of "Change of Control." The definition of "Change of Control" in the credit agreement must be carefully reviewed to ensure alignment with Penterra's existing indebtedness (including the Company's existing revolving credit facility and outstanding senior notes) and corporate structure. The change of control definition should be sufficiently broad to capture true changes in control but should include carve-outs for permitted corporate reorganizations, management changes, and secondary market trading of Penterra's publicly held common stock.
Restricted Payments and Debt Incurrence Covenants. The negative covenants restricting restricted payments (including dividends, share repurchases, and payments on subordinated indebtedness) and debt incurrence must provide Penterra with sufficient flexibility to conduct its ongoing business operations, including maintaining its dividend program, funding research and development expenditures, and making strategic investments. We will seek to negotiate baskets, exceptions, and builder capacity that are consistent with Penterra's business plan and financial projections.
Mandatory Prepayment Triggers. The credit agreement is expected to include mandatory prepayment provisions requiring the prepayment of the Term Loan with (i) net cash proceeds from certain asset sales (subject to reinvestment rights), (ii) excess cash flow (subject to step-downs based on leverage ratios), and (iii) net cash proceeds from certain debt issuances. We will negotiate the thresholds, exceptions, and reinvestment periods to ensure that Penterra retains the operational flexibility necessary to manage its portfolio of pharmaceutical assets, including the potential divestiture of non-core Veridian product lines if Penterra determines that such divestitures are appropriate following the Acquisition.
Financial Maintenance Covenants. The Summary Term Sheet indicates that the credit agreement may include one or more financial maintenance covenants, potentially including a maximum total leverage ratio and/or a minimum interest coverage ratio. The specific ratios, testing periods, and cure mechanics (if any) have not yet been finalized and will be a key area of negotiation. We will seek covenant levels that provide Penterra with adequate headroom above projected financial performance and that account for the integration costs and temporary earnings dilution that may result from the Acquisition.
Anti-Layering Provisions. The credit agreement is expected to include anti-layering provisions that restrict Penterra from incurring additional secured or senior indebtedness that would rank pari passu with or senior to the Term Loan, except as specifically permitted under the credit agreement. These provisions must be reviewed carefully to ensure consistency with Penterra's capital structure and any planned future financing activities.
Representations Relating to Veridian and Post-Acquisition Integration. Following the consummation of the Acquisition, Veridian will become a wholly-owned subsidiary of Penterra and will be required to accede to the credit agreement as a guarantor and grantor. The credit agreement will include representations relating to Veridian's business, assets, and operations. We will work with Penterra's corporate development team and with Veridian's management (following the closing) to ensure that these representations are accurate and appropriately qualified, and that any post-closing integration activities are conducted in compliance with the covenants of the credit agreement.
C. Security and Guarantee Documentation
In addition to the credit agreement, the following ancillary security and guarantee documentation will need to be prepared, negotiated, and executed in connection with the closing of the Term Loan Facility:
• Security Agreement. A comprehensive security agreement granting to the administrative agent, for the benefit of the lenders, a first-priority security interest in substantially all personal property of Penterra and each guarantor, including accounts receivable, inventory, equipment, general intangibles, and investment property.
• Pledge Agreement. A pledge agreement pursuant to which Penterra and each guarantor will pledge the equity interests in their respective direct subsidiaries (100% of domestic subsidiaries and 65% of first-tier foreign subsidiaries).
• intellectual Property Security Agreements. Separate intellectual property security agreements for patents, trademarks, and copyrights, to be filed with the United States Patent and Trademark Office and the United States Copyright Office, as applicable.
• Guarantee Agreement. A guarantee agreement pursuant to which each material domestic subsidiary of Penterra (including Veridian and its material domestic subsidiaries, post-closing) will unconditionally guarantee Penterra's obligations under the credit agreement.
• Post-Closing Obligations. The credit agreement is expected to include a post-closing obligations schedule providing for the delivery of certain documents and the completion of certain actions within a specified period following the closing, including the integration of Veridian and its subsidiaries into the guarantor and grantor structure, the delivery of updated perfection certificates, and the recording of security interests in intellectual property acquired as part of the Acquisition.
Calderwood & Harkness will prepare the initial drafts of the security and guarantee documentation and coordinate with lender's counsel on the review and negotiation of the same.
IX. RISK ASSESSMENT AND RECOMMENDATIONS
A. Financing Certainty
The Commitment Letter provides a high degree of financing certainty for the Acquisition. The "certain funds" / limited conditionality structure significantly constrains the lenders' ability to refuse funding on the closing date, and the conditions precedent to funding are narrowly drawn and largely within Penterra's control.
The principal risk to funding is the occurrence of a Material Adverse Effect with respect to Penterra (the borrower). As noted above, the MAE condition relates to Penterra — not to Veridian — and therefore adverse developments at Veridian (including, without limitation, negative clinical trial results for VRD-4187, regulatory setbacks, or deterioration in Veridian's commercial performance) should not independently trigger a failure of the financing conditions. Given Penterra's strong and diversified financial position — with an approximate market capitalization of $14.2 billion, a cash position of approximately $2.1 billion as of Q2 2024, and full-year 2023 revenue of $4.87 billion — the risk of a borrower-MAE is assessed as low. Nonetheless, Penterra should continue to monitor developments that could give rise to an argument by the lenders that a borrower-MAE has occurred, and should promptly notify Calderwood & Harkness of any material adverse developments affecting Penterra's business, financial condition, or operations.
B. Cost Management
The total financing carrying costs under the Commitment Letter are manageable but accrue over time. The commitment fee of 0.35% per annum begins to accrue from the date of the Commitment Letter, and the ticking fee of 0.175% per annum will begin to accrue on September 8, 2024 (90 days after the anticipated SPA signing date). Prompt closing of the Acquisition will minimize fee exposure. As illustrated in Section VII.E above, the total commitment fee and ticking fee exposure ranges from approximately $263,014 (assuming a closing on or about August 1, 2024) to approximately $1,114,726 (if the commitments expire at the Outside Date of December 10, 2024 without closing).
We recommend that Penterra monitor the SPA closing timeline closely and coordinate with its financial advisor, Garrison Zanthor & Co. (lead contact: Kevin Driscoll), and with Summit Ridge (Philip Ostrander) on syndication progress and the anticipated closing timeline. To the extent that the closing can be accelerated — for example, by completing regulatory approvals and satisfying SPA closing conditions ahead of schedule — Penterra will benefit from reduced carrying costs and the avoidance of the ticking fee.
C. Interplay with SPA Termination Provisions
If Penterra terminates the SPA, or if the SPA is terminated by either party for any reason, the commitments under the Commitment Letter automatically terminate upon such termination. In such a scenario, the Term Loan Facility will not fund, and Penterra will have no further obligations under the credit agreement (which would not yet have been executed, or, if executed, would terminate in accordance with its terms).
However, upon termination of the commitments, all accrued and unpaid fees — including commitment fees and ticking fees — become immediately due and payable. To minimize the accrual of fees following a termination of the SPA, Penterra should ensure that any termination notice under the SPA is simultaneously communicated to Ironclad Trust Company, N.A. (as administrative agent) and Summit Ridge Capital Partners, LP (as lead arranger) so that fee accrual is stopped promptly. We recommend that the closing team establish a protocol for the simultaneous delivery of termination notices to all relevant parties.
D. Recommendations. Based on our review and analysis of the Commitment Letter, we recommend the following actions:
1. Proceed with Execution of the Commitment Letter. The Commitment Letter was executed on June 7, 2024. No further action is required with respect to execution, but Penterra should confirm that fully executed counterparts have been received from all parties and are maintained in the Company's records.
2. Deliver Financing Cooperation Side Letter. Ensure that the side letter regarding Veridian's financing cooperation obligations is delivered to Veridian simultaneously with the execution of the SPA, which is planned for June 10, 2024. This side letter is important to ensure that Penterra has access to the financial information and management cooperation necessary to support the syndication process.
3. Engage Promptly on Definitive Credit Agreement. Engage promptly with Summit Ridge and Ironclad on the negotiation of the definitive credit agreement. Calderwood & Harkness will coordinate with lender's counsel and expects to receive the initial draft of the credit agreement on or about June 14, 2024. Our marked-up version, together with a detailed commentary, is anticipated to be circulated by June 18, 2024.
4. Prepare Solvency Certificate and Financial Deliverables. Coordinate with Catherine M. Burgess (CFO) and Penterra's finance team to prepare the solvency certificate and other financial deliverables required as conditions to funding. The solvency certificate must certify that, after giving pro forma effect to the Acquisition and the incurrence of the Term Loan, Penterra and its subsidiaries (on a consolidated basis) are solvent. We will provide a template solvency certificate for Ms. Burgess's review.
5. Monitor Syndication Timeline and Market Flex Risk. Maintain regular contact with Summit Ridge regarding the syndication timeline, lender interest levels, and the likelihood of market flex being exercised. If market conditions deteriorate and flex is exercised, Penterra should evaluate the impact on borrowing costs and consider whether any adjustments to the funding mix are warranted.
6. Maintain Confidentiality of Fee Letter and Market Flex Provisions. The Fee Letter and the market flex provisions contained therein are confidential between Penterra and Summit Ridge. Penterra should ensure that these terms are not disclosed to Veridian, Veridian's counsel (Zalcourt Archer & Cole LLP), or any other third party without the prior consent of Summit Ridge. If Veridian requests information regarding the Fee Letter, Penterra should consult with Calderwood & Harkness before responding.
X. ATTACHMENTS AND CROSS-REFERENCES
For ease of reference, the following documents are attached to this memorandum or are cross-referenced herein:
Attachment A: Commitment Letter (Ref. CL-2024-PPCA-0607) dated June 7, 2024 — Full copy, including all exhibits and schedules (attached hereto).
Attachment B: Summary Term Sheet — Attached to the Commitment Letter as Annex I (attached hereto).
Cross-References:
• Fee Letter Review Memorandum — Summit Ridge / Ironclad. Calderwood & Harkness analysis of the Fee Letter, including arrangement fees, administrative agent fees, and market flex provisions. To be circulated June 9, 2024.
• Funds Flow Memorandum — Draft. Dated June 8, 2024. Reflects the allocation of the $500,000,000 in Term Loan proceeds and the $400,000,000 in Penterra cash to the $900,000,000 aggregate purchase price, broken down as follows: $180,000,000 indemnification escrow; $2,500,000 stockholder representative expense fund; and $717,500,000 net closing payment to the Sellers.
• Financing Conditions Checklist. A comprehensive checklist of all conditions precedent to funding under the Commitment Letter, with responsible parties and target completion dates. To be circulated June 20, 2024.
• Stock Purchase Agreement — Execution Version. Anticipated execution date: June 10, 2024. Particularly relevant cross-references include: SPA § 8.1(d) (termination rights and Outside Date); SPA § 7.2 (Buyer's closing conditions); SPA § 9.3(b) (reverse termination fee provisions); and SPA § 5.1 (financing cooperation obligations of Veridian).
• Term Loan Credit Agreement — C&H Mark-Up and Comments. Calderwood & Harkness's marked-up version of the draft credit agreement, with detailed commentary. Anticipated circulation date: June 18, 2024.
Please do not hesitate to contact Oliver Mackenzie or Megan Chu with any questions regarding this memorandum or the Commitment Letter. We look forward to discussing the matters addressed herein at the team call scheduled for Monday, June 10, 2024 at 10:00 a.m. ET.
Prepared by:
________________________________________
Megan Chu Associate Calderwood & Harkness LLP 200 Park Avenue, 42nd Floor New York, NY 10166 Tel: (212) 555-7400 mchu@calderwoodharkness.com
Reviewed by:
________________________________________
Oliver Mackenzie Partner Calderwood & Harkness LLP 200 Park Avenue, 42nd Floor New York, NY 10166 Tel: (212) 555-7200 omackenzie@calderwoodharkness.com
PRIVILEGED AND CONFIDENTIAL — ATTORNEY-CLIENT COMMUNICATION / ATTORNEY WORK PRODUCT Matter No. 1018-00008 Calderwood & Harkness LLP © 2024. All rights reserved.
TO: | Thomas F. Holbrook, General Counsel & Secretary, Penterra Pharmaceuticals Corp.
Catherine M. Burgess, Chief Financial Officer, Penterra Pharmaceuticals Corp.
Natalie Reiner, SVP Corporate Development, Penterra Pharmaceuticals Corp.
FROM: | Megan Chu, Associate, Calderwood & Harkness LLP
Reviewed by: Oliver Mackenzie, Partner, Calderwood & Harkness LLP
CC: | Harrison Wexford, Partner, Calderwood & Harkness LLP
Derek Okonkwo, Associate, Calderwood & Harkness LLP
DATE: | June 8, 2024
RE: | Summary and Analysis of Commitment Letter (Ref. CL-2024-PPCA-0607) dated June 7, 2024 — $500,000,000 Term Loan Facility in Connection with Proposed Acquisition of Veridian Biosciences, Inc.
MATTER NO.: | 1018-00008
Item | Detail
Rate | 0.35% per annum
Calculated On | Unfunded commitment of $500,000,000
Annualized Amount | $1,750,000
Accrual Period | June 7, 2024 through the earliest of (i) drawdown, (ii) commitment termination, or (iii) December 10, 2024
Payment | Quarterly in arrears
Item | Detail
Rate | 0.175% per annum
Calculated On | Committed amount of $500,000,000
Commencement | September 8, 2024 (90 days after anticipated SPA signing on June 10, 2024)
Annualized Amount | $875,000
Payment | Quarterly in arrears
Scenario | Days (from June 7) | Commitment Fee | Ticking Fee | Total
Closing on or about August 1, 2024 | ~55 days | ~$263,014 | $0 (pre-Sept. 8) | ~$263,014
Closing on October 15, 2024 | ~130 days | ~$624,658 | ~$88,699 (37 days post-Sept. 8) | ~$713,356
SPA terminated on September 30, 2024 | ~116 days | ~$556,164 | ~$52,740 (22 days post-Sept. 8) | ~$608,904
Commitments expire at Outside Date (December 10, 2024) | ~186 days | ~$891,781 | ~$222,945 (93 days post-Sept. 8) | ~$1,114,726