1018-00008 · Penterra Pharmaceuticals Corp · MAE Analysis & Termination

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PRIVILEGED AND CONFIDENTIAL — ATTORNEY-CLIENT COMMUNICATION ATTORNEY WORK PRODUCT — PREPARED IN ANTICIPATION OF LITIGATION

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

MEMORANDUM

I. Executive Summary

The purpose of this memorandum is to evaluate whether Veridian Biosciences, Inc. ("Veridian" or the "Company") can invoke any of the enumerated carveouts to the definition of "Material Adverse Effect" (or "MAE") set forth in Section 1.1 of the Stock Purchase Agreement dated June 10, 2024 (the "SPA") among Penterra Pharmaceuticals Corp. ("Penterra" or the "Buyer"), Veridian, the Sellers named therein, and David Ng, as Stockholder Representative, to exclude from the MAE determination the following triggering events:

(a) the Marlowe Asset Management-2 Phase II interim clinical data reported on August 14, 2024, which revealed a 23.4% incidence of Grade ≥3 cytokine release syndrome ("CRS") in the VRD-4187 treatment arm compared to 4.1% in the control arm (a 19.3 percentage point differential), seven treatment-related deaths in the VRD-4187 arm (3.6% mortality) versus one in the control arm (0.5%), and a non-statistically significant overall response rate ("ORR") of 31.4% versus 28.9% (p = 0.58); and

(b) the FDA partial clinical hold on VRD-4187 (IND 154832) imposed on August 22, 2024, pending investigation of the CRS-related fatalities observed in the Marlowe Asset Management-2 trial.

Bottom-line conclusion: None of the seven enumerated carveouts in the MAE definition applies to these company-specific clinical trial results and the ensuing FDA regulatory action. The Marlowe Asset Management-2 adverse data and the FDA partial clinical hold are, at their core, events arising from the specific pharmacological characteristics and clinical performance of Veridian's lead drug candidate, VRD-4187, in its own clinical trial. They do not arise from any systemic, exogenous, or industry-wide condition that the carveouts were designed to exclude.

Even if Veridian were to argue that one or more carveouts applied — most plausibly the industry conditions carveout in clause (ii) or the pandemic carveout in clause (iv), given historical COVID-related disruptions to clinical trials — the disproportionate impact exception applicable to carveouts (i) through (vi) would reinstate these events into the MAE analysis. The adverse effects are unique to Veridian and VRD-4187 and do not similarly affect comparably situated companies in the biotechnology industry. The clinical hold on IND 154832 applies exclusively to Veridian's molecule, and the severity of the safety signal (23.4% Grade ≥3 CRS, 3.6% mortality) represents an outlier data profile even among clinical-stage bispecific T-cell engager programs.

This memorandum supplements and should be read in conjunction with the comprehensive MAE analysis memorandum dated August 25, 2024 (addressing the substantive question of whether the triggering events constitute an MAE under the durational significance, magnitude, and qualitative frameworks established by Delaware precedent) and the supplemental MAE analysis regarding the FDA clinical hold anticipated to be dated September 2, 2024. This memorandum addresses only the threshold carveout question — i.e., whether any carveout removes the triggering events from the MAE analysis before reaching the substantive MAE determination.

II. Background

A. The Transaction

On June 10, 2024, Penterra entered into the SPA to acquire 100% of the outstanding capital stock of Veridian for an aggregate purchase price of $900,000,000 in cash, subject to customary adjustments for cash, debt, and working capital (the "Transaction"). The Transaction is structured as a stock purchase in which Penterra will acquire all issued and outstanding shares of Veridian's common stock and preferred stock from the Sellers identified on the Seller Schedule to the SPA, with David Ng (Veridian's co-founder and largest individual stockholder, holding approximately 14.7% of Veridian's outstanding capital stock on a fully diluted basis) serving as Stockholder Representative.

Veridian is a privately held, clinical-stage biotechnology company headquartered in Cambridge, Massachusetts, focused on the development of immuno-oncology therapeutics leveraging its proprietary VeriTCE (Veridian T-Cell Engager) bispecific antibody platform. The Company's lead drug candidate is VRD-4187, a bispecific T-cell engager designed to redirect T cells to DLL3-expressing tumor cells, with the primary therapeutic indication being extensive-stage small cell lung cancer ("ES-SCLC"). Veridian's pipeline also includes two earlier-stage candidates: VRD-5201 (a DLL3xCD3 bispecific in IND-enabling studies) and VRD-6003 (a CLDN18.2-targeting bispecific in preclinical development).

Critically, Veridian is a pre-revenue company. For fiscal year 2023, Veridian reported total revenue of $0 and a net loss of $87.3 million, funded primarily through Series A, B, and C preferred equity financings and a convertible note issued in January 2024. The Company's enterprise value — and the basis for the $900 million purchase price — is substantially predicated on the clinical and commercial prospects of VRD-4187. The Company's valuation model, as reviewed by Penterra's financial advisor, Evergreen Partners LLC, attributed approximately 82% to 87% of the Company's risk-adjusted net present value to VRD-4187, with the remainder allocated to the VRD-5201 and VRD-6003 programs and residual platform value.

The SPA was negotiated by Calderwood & Harkness LLP (Oliver Mackenzie, Partner, as lead counsel) on behalf of Penterra and by Zalcourt Archer & Cole LLP (Rebecca Whitmore, Partner, as lead counsel) on behalf of Veridian and the Sellers. The Transaction is subject to customary closing conditions, including the accuracy of representations and warranties (subject to an MAE qualification in certain instances), compliance with covenants, receipt of antitrust clearance under the Hart-Scott-Rodino Act (which was obtained on August 2, 2024), and the absence of a material adverse effect.

B. The Triggering Events

The following events, occurring in rapid succession during August 2024, form the basis of Penterra's evaluation of MAE-related termination rights and the carveout analysis that is the subject of this memorandum:

1. Marlowe Asset Management-2 DMC Interim Analysis (August 14, 2024). The independent Data Monitoring Committee ("DMC") for the Marlowe Asset Management-2 trial (ClinicalTrials.gov identifier NCT05837291) — a randomized, open-label, two-arm Phase II clinical trial evaluating VRD-4187 versus investigator's choice standard-of-care chemotherapy in patients with previously treated ES-SCLC, conducted across 42 clinical sites in the United States and European Union with a total enrollment of 387 patients (194 in the VRD-4187 treatment arm and 193 in the control arm) — completed a pre-specified interim analysis and recommended (i) immediate suspension of new patient enrollment, (ii) dose modification for patients currently receiving VRD-4187, and (iii) enhanced safety monitoring for all enrolled patients.

The DMC's recommendation was based on the following key findings:

• Grade ≥3 Cytokine Release Syndrome (CRS): 23.4% of patients in the VRD-4187 arm experienced Grade 3 or higher CRS, compared to 4.1% in the control arm — a differential of 19.3 percentage points. This CRS incidence rate substantially exceeded the rates observed in the earlier Phase I dose-escalation study (VRD-4187-001), in which Grade ≥3 CRS was reported in approximately 8.2% of evaluable patients, though in a smaller patient population and at varying dose levels.

• Treatment-Related Deaths: Seven patients in the VRD-4187 arm (3.6% of the treatment arm population) experienced treatment-related deaths, compared to one patient in the control arm (0.5%). All seven treatment-related deaths in the VRD-4187 arm were attributed to CRS-mediated complications, including multi-organ failure (four patients), cardiac arrest secondary to cytokine storm (two patients), and disseminated intravascular coagulation (one patient).

• Overall Response Rate (ORR): The ORR in the VRD-4187 arm was 31.4%, compared to 28.9% in the control arm. The difference was not statistically significant (p = 0.58), failing to demonstrate a meaningful efficacy benefit for VRD-4187 over standard-of-care chemotherapy at this interim analysis point. The pre-specified efficacy threshold for continuing enrollment required a p-value of ≤ 0.10 at the interim analysis.

2. Veridian Notification (August 16, 2024). On August 16, 2024, Penterra received written notice from Veridian of the DMC's findings and recommendations pursuant to the Company's reporting obligations under SPA § 5.1(b), which requires Veridian to promptly notify Penterra of any event, development, or condition that would reasonably be expected to have a Material Adverse Effect or that would cause any representation or warranty of the Sellers to become inaccurate in any material respect. The notification was accompanied by a summary of the DMC's interim analysis report but did not include the full underlying dataset, which Penterra subsequently requested and received on August 20, 2024.

3. Broadleaf Scientific Consulting Assessment (August 19, 2024). Dr. Raymond Kapoor, M.D., Ph.D., of Broadleaf Scientific Consulting LLC, Penterra's retained independent clinical expert for the Transaction, delivered a supplemental clinical assessment on August 19, 2024, following his review of the DMC's interim analysis summary and available safety data. Dr. Kapoor's assessment confirmed the severity of the safety signal, concluding that the VRD-4187 CRS rate was "clinically unacceptable at the current dosing regimen," that the treatment-related mortality rate of 3.6% was "significantly above the threshold that would support continued development without fundamental protocol modifications," and that the non-significant ORR raised "serious questions regarding the benefit-risk profile of VRD-4187 in this indication." Dr. Kapoor further noted that the CRS rates observed in Marlowe Asset Management-2 were substantially higher than those reported in published data for other bispecific T-cell engager programs targeting DLL3, including tarlatamab (Greaves Industries/Penrose & Co.), which reported Grade ≥3 CRS in approximately 1% to 3% of treated patients in its DeLLphi-301 study.

4. FDA Partial Clinical Hold (August 22, 2024). On August 22, 2024, the U.S. Food and Drug Administration ("FDA") imposed a partial clinical hold on VRD-4187 under IND 154832, pursuant to 21 C.F.R. § 312.42(b)(2)(i). The partial clinical hold prohibits the initiation of new clinical studies under the IND and the enrollment of new patients in ongoing studies, while permitting continued treatment of patients currently receiving VRD-4187 under enhanced safety monitoring. The FDA's clinical hold letter (a copy of which was provided to Penterra by Veridian on August 23, 2024 under SPA § 5.1(b)) cited the CRS-related deaths observed in the Marlowe Asset Management-2 trial as the basis for the hold and requested that Veridian submit a complete response addressing the safety concerns, including a revised clinical protocol and updated Investigator's Brochure, within 30 days.

5. Veridian Protocol Amendment (August 28, 2024). As of the date of this memorandum, Veridian has implemented Protocol Amendment v4.0 for the Marlowe Asset Management-2 trial, which includes (i) mandatory tocilizumab prophylaxis (8 mg/kg IV) administered within one hour prior to each VRD-4187 infusion for the first three cycles, and (ii) a reduction in the starting dose of VRD-4187 from 1.5 mg/kg to 0.75 mg/kg, with a step-up dosing protocol. Veridian has represented to Penterra that it intends to submit the amended protocol to the FDA as part of its complete response to the clinical hold letter. It is uncertain when or whether the FDA will lift the clinical hold upon review of the amended protocol, and the efficacy implications of a 50% dose reduction are unknown and potentially significant.

C. Penterra's Position

Penterra is actively evaluating whether the Marlowe Asset Management-2 clinical data and the FDA partial clinical hold, individually or in the aggregate with other relevant facts and circumstances, constitute a Material Adverse Effect under the MAE definition in SPA § 1.1. If an MAE has occurred, the closing conditions set forth in Sections 7.2(a) (bring-down of representations and warranties, many of which are qualified by an MAE standard) and 7.2(b) (the standalone no-MAE condition, requiring that no Material Adverse Effect shall have occurred since the date of the SPA and be continuing as of the Closing Date) would not be satisfied. In such event, Penterra may be entitled to decline to close and, if the failure is incapable of cure within the time periods specified in the SPA, to terminate the SPA under Section 8.1(d).

The critical threshold question addressed in this memorandum — which must be resolved before reaching the substantive MAE determination — is whether any of the seven enumerated carveouts to the MAE definition removes the triggering events from the MAE analysis altogether, or whether the disproportionate impact exception preserves them within the scope of the MAE definition. As set forth below, we conclude that no carveout applies and that the disproportionate impact exception would, in any event, reinstate the events into the MAE analysis.

III. The MAE Definition and Carveout Structure

A. Text of the MAE Definition (SPA § 1.1)

Section 1.1 of the SPA defines "Material Adverse Effect" as follows:

"Material Adverse Effect" means any event, change, development, occurrence, condition, or effect that, individually or in the aggregate with all other events, changes, developments, occurrences, conditions, or effects, has had or would reasonably be expected to have a material adverse effect on (a) the business, results of operations, financial condition, or assets of the Company, taken as a whole, or (b) the ability of the Sellers to consummate the Transactions contemplated by this Agreement; provided, however, that none of the following shall be deemed to constitute, nor shall any of the following be taken into account in determining whether there has been or would reasonably be expected to be, a Material Adverse Effect: [carveouts (i) through (vii), as set forth below].

This definition follows the standard two-pronged MAE formulation common in negotiated M&A agreements, encompassing both (a) business-level adverse effects on the Company as a whole and (b) consummation-level impediments to the Sellers' ability to close the Transaction. For purposes of the present analysis, the relevant prong is prong (a), as the triggering events relate to the business, results of operations, financial condition, and asset value of Veridian — specifically, the clinical and regulatory status of VRD-4187, which is the Company's principal asset.

B. Enumerated Carveouts

The MAE definition contains seven enumerated carveouts, each of which, if applicable, would exclude the relevant event or effect from the MAE determination. The carveouts are set forth in the proviso clause of the definition and read as follows:

(i) changes in general economic or political conditions in the United States or any other jurisdiction in which the Company conducts business;

(ii) changes in conditions generally affecting the biotechnology or pharmaceutical industries in the United States or any other jurisdiction in which the Company conducts business;

(iii) changes in applicable Law (as defined herein) or in United States generally accepted accounting principles ("GAAP") or the interpretation or enforcement thereof;

(iv) any epidemic, pandemic, or disease outbreak (including COVID-19 or any mutation or variation thereof) or any similar public health emergency, or any governmental or regulatory actions taken in response thereto;

(v) any natural disaster, hurricane, earthquake, flood, or other force majeure event, or any act of war (whether declared or undeclared), armed hostilities, sabotage, or terrorism;

(vi) any changes in financial, banking, or securities markets generally (including any disruption thereof, or any decline in the price of any security or any market index); or

(vii) the announcement, execution, or pendency of this Agreement or the Transactions contemplated hereby, or the identity of the Buyer, including any loss of, or adverse change in, the relationship of the Company with any of its customers, suppliers, employees, partners, or other third parties resulting therefrom;

As set forth in the SPA, carveouts (i) through (vi) are subject to a critical limitation — the disproportionate impact exception — discussed immediately below. Carveout (vii) stands alone and is not subject to the disproportionate impact qualifier.

C. The Disproportionate Impact Exception

Carveouts (i) through (vi) are subject to the following proviso, which reinstates otherwise-excluded events into the MAE analysis if their impact is disproportionate to the target company:

"provided, further, that with respect to clauses (i) through (vi), any such event, change, development, occurrence, condition, or effect shall be taken into account in determining whether a Material Adverse Effect has occurred or would reasonably be expected to occur to the extent that such event, change, development, occurrence, condition, or effect disproportionately affects the Company relative to other comparably situated companies in the biotechnology industry."

Three structural observations regarding the disproportionate impact exception merit emphasis:

First, the exception applies to carveouts (i) through (vi) but does not apply to carveout (vii) (announcement or pendency of the Transaction). This is a standard drafting convention reflecting the view that the buyer should bear the risk of deal-announcement effects on the target's business without recourse to the MAE, whereas the disproportionate impact exception provides a check on the other carveouts to ensure that company-specific manifestations of systemic events are not inappropriately excluded from the MAE analysis.

Second, under Delaware law and the weight of authority interpreting MAE provisions in negotiated M&A agreements, the burden of establishing the applicability of a carveout lies with the party seeking to invoke it — here, Veridian and the Sellers. Conversely, the burden of establishing that the disproportionate impact exception applies lies with the party asserting it — here, Penterra. This allocation of burdens was confirmed by the Delaware Court of Chancery in Akorn, Inc. v. Fresenius Kabi AG, 2018 WL 4719347 (Del. Ch. Oct. 1, 2018), aff'd, 198 A.3d 724 (Del. 2018), and has been followed in subsequent Delaware decisions addressing MAE carveout provisions. See also Frontier Oil Corp. v. Holly Corp., 2005 WL 1039027 (Del. Ch. Apr. 29, 2005) (placing burden on seller to establish carveout applicability). While the burden allocation creates a two-step framework, we believe Penterra's position is strong on both steps: the carveouts are inapplicable as a threshold matter, and even if deemed applicable, the disproportionate impact exception would clearly be satisfied given the company-specific nature of the adverse events.

Third, the comparator set for the disproportionate impact analysis is defined as "other comparably situated companies in the biotechnology industry." The SPA does not further define the term "comparably situated," which allows for contextual interpretation. As discussed in Part V below, we believe the appropriate comparator set consists of clinical-stage biotechnology companies focused on immuno-oncology, and more specifically, companies with bispecific T-cell engager programs at comparable stages of development — i.e., Veridian's functional peer group.

D. Structural Observations

Before proceeding to the carveout-by-carveout analysis, it is important to situate the triggering events within the broader framework that the MAE carveouts are designed to address.

The enumerated carveouts serve a well-recognized function in MAE definitions: they allocate the risk of systemic, exogenous, and market-wide events to the buyer, while preserving the buyer's protection against company-specific deterioration. The carveouts reflect the principle that a buyer should not be able to invoke an MAE based on macroeconomic downturns, industry-wide headwinds, changes in law, pandemics, natural disasters, financial market disruptions, or the effects of the transaction itself — events that are external to the target company's operations and over which neither party has meaningful control.

The VRD-4187 clinical data and the FDA partial clinical hold, by contrast, are quintessentially company-specific and product-specific events. They arise from the performance of Veridian's lead drug candidate in Veridian's own clinical trial. The 23.4% Grade ≥3 CRS rate and seven treatment-related deaths are consequences of VRD-4187's pharmacological properties — its mechanism of action, molecular design, and dosing regimen — as administered to patients in the Marlowe Asset Management-2 study. The FDA's partial clinical hold is a regulatory response to the specific safety data generated by Veridian's molecule, not a policy action of general applicability to the biotechnology industry. These are precisely the types of events that the MAE definition is designed to capture, and they fall outside the scope of any carveout.

IV. Analysis of Each Carveout

We analyze below the applicability of each of the seven enumerated carveouts to the triggering events, including identification of potential arguments that Veridian and its counsel at Zalcourt Archer & Cole LLP may advance and our analysis of why those arguments fail.

A. Carveout (i): General Economic or Political Conditions

Veridian's potential argument. Veridian might contend that the broader macroeconomic environment — including persistent inflation, elevated interest rates following the Federal Reserve's tightening cycle, and geopolitical uncertainty stemming from ongoing conflicts in Eastern Europe and the Middle East — indirectly affected clinical trial operations, patient enrollment timelines, clinical site capacity, or FDA regulatory review processes, and that these macroeconomic headwinds contributed to or exacerbated the adverse clinical outcomes or the timing and severity of the FDA's regulatory response.

Analysis. This argument fails for several reasons. The Marlowe Asset Management-2 adverse data — elevated CRS rates, treatment-related deaths, and the absence of a statistically significant efficacy benefit — is entirely and directly attributable to the pharmacological properties and dosing of VRD-4187 itself. There is no causal nexus, however attenuated, between general economic conditions (inflation, interest rates, geopolitical tensions) and the specific clinical safety signal observed in the Marlowe Asset Management-2 trial. Macroeconomic conditions did not cause Grade ≥3 cytokine release syndrome in 23.4% of patients receiving VRD-4187. Macroeconomic conditions did not cause seven treatment-related deaths from CRS-mediated multi-organ failure. Macroeconomic conditions did not render VRD-4187's overall response rate statistically indistinguishable from the control arm.

The FDA's decision to impose a partial clinical hold under 21 C.F.R. § 312.42(b)(2)(i) was triggered by the specific CRS mortality data from Marlowe Asset Management-2, not by any general economic or political factor. The clinical hold letter itself identifies the safety concerns arising from VRD-4187 administration as the sole basis for the regulatory action. There is simply no factual predicate for invoking this carveout.

Moreover, even if some tangential connection between economic conditions and clinical trial logistics could be hypothesized — for example, that inflation-driven cost pressures at clinical sites led to some operational strain — such a connection would be so remote and speculative as to be legally insufficient to trigger the carveout, and in any event would be overwhelmed by the disproportionate impact exception, given that the adverse clinical data is specific to VRD-4187 and not experienced by other clinical-stage biotechnology companies.

Conclusion: Carveout (i) does not apply.

B. Carveout (ii): Conditions Affecting the Biotechnology or Pharmaceutical Industries Generally

Veridian's potential argument. This is the carveout most likely to be invoked by Veridian and its counsel. We anticipate that Veridian may argue one or more of the following: (a) that increasing FDA scrutiny of bispecific T-cell engager programs, particularly regarding CRS and neurotoxicity risk management strategies, constitutes a "condition affecting the biotechnology industry generally"; (b) that general trends toward more stringent safety monitoring standards and more conservative dose-escalation requirements in the immuno-oncology space represent an industry-wide headwind that contributed to the Marlowe Asset Management-2 outcomes; or (c) that the historically high attrition rate for clinical-stage oncology therapeutics (with Phase II success rates in oncology estimated at approximately 28% to 35% in recent industry analyses) makes the Marlowe Asset Management-2 results a foreseeable manifestation of industry-wide clinical trial risk rather than a company-specific failure.

Analysis. Each of these arguments fails on close examination.

The FDA clinical hold is product-specific, not industry-wide. The FDA partial clinical hold on IND 154832 was not imposed as part of a broader regulatory crackdown affecting all bispecific T-cell engager programs, all immuno-oncology therapies, or the biotechnology industry generally. It was specifically and exclusively triggered by the CRS-related deaths observed in the Marlowe Asset Management-2 trial for VRD-4187. No other bispecific T-cell engager IND was placed on clinical hold on or around August 22, 2024, and the FDA did not issue any general guidance, safety communication, or class-wide regulatory action affecting T-cell engager programs as a class. The clinical hold on VRD-4187 is a discrete regulatory action directed at a single molecule based on its specific safety data — the archetypal company-specific event.

A specific product's adverse safety profile in a particular trial is an idiosyncratic, company-specific event. While clinical trial failures are, in the abstract, a known risk across the biotechnology industry, the specific adverse safety profile of VRD-4187 in the Marlowe Asset Management-2 trial is not an "industry condition" within the meaning of carveout (ii). The distinction is critical: the risk of clinical trial failure is inherent to the industry, but the occurrence of a specific drug's failure in a specific trial is a company-specific event attributable to the characteristics of that drug and that trial. The carveout addresses conditions that affect the industry as a whole — e.g., widespread changes in reimbursement policies, industry-wide regulatory burden increases, or sector-specific capital market contractions — not the realization of idiosyncratic product risk in a particular company's clinical program.

Delaware courts have consistently drawn this distinction. In Akorn, Inc. v. Fresenius Kabi AG, the Court of Chancery examined whether adverse developments at the target company were attributable to industry-wide conditions or to the target's own operations, emphasizing that the relevant inquiry is whether the effect "flow[s] from" an industry condition or from the target's specific business. 2018 WL 4719347, at *87-88. The court's analysis focused on whether the particular adverse effects experienced by the target were shared by the industry or were unique to the target. Here, the VRD-4187 safety signal is unambiguously unique to Veridian: no other bispecific T-cell engager targeting DLL3 has reported a 23.4% Grade ≥3 CRS rate or a 3.6% treatment-related mortality rate in Phase II testing. The published data for tarlatamab, the most advanced comparator molecule (a DLL3-targeting bispecific T-cell engager developed by Greaves Industries and licensed to Penrose & Co.), reported Grade ≥3 CRS in approximately 1% to 3% of patients in the DeLLphi-301 registrational study — an order of magnitude lower than VRD-4187's rate.

Even an industry-wide regulatory focus on CRS does not transform product-specific data into an industry condition. We acknowledge that the FDA and the broader regulatory community have devoted increasing attention to CRS risk management in T-cell engager and CAR-T cell therapy programs in recent years, including through updated guidance on CRS grading and mitigation strategies. However, this heightened regulatory focus is a background condition that affects the regulatory framework within which all developers of T-cell engaging therapies operate; it is not the cause of VRD-4187's specific safety failure. The fact that the FDA is generally attentive to CRS risk does not mean that every product-specific CRS event is an "industry condition." The actual clinical data — 23.4% Grade ≥3 CRS, seven deaths, and a non-significant ORR — is specific to VRD-4187's molecular design, its binding affinity, its dosing protocol (1.5 mg/kg), and its interaction with the patient population enrolled in Marlowe Asset Management-2. These are characteristics of Veridian's product, not of the biotechnology industry.

Even if applicable — the disproportionate impact exception would apply. Assuming, arguendo, that broadly framed industry scrutiny of CRS in T-cell engager programs were deemed a "condition affecting the biotechnology industry generally" under carveout (ii), the disproportionate impact exception would reinstate the triggering events into the MAE analysis. The severity of VRD-4187's safety signal — a 19.3 percentage point CRS differential over the control arm, a 3.6% treatment-related mortality rate, and a clinical hold on the sole advanced pipeline asset of a pre-revenue company — far exceeds the safety signals experienced by other bispecific T-cell engager programs at comparable development stages. Veridian's lead candidate accounts for approximately 82% to 87% of the Company's risk-adjusted enterprise value; a clinical hold on this asset has a uniquely devastating impact on Veridian relative to diversified biotechnology companies, multi-product companies with other revenue-generating assets, or companies whose T-cell engager programs have not exhibited comparable safety problems.

To illustrate: Greaves Industries, whose tarlatamab program represents the closest clinical comparator to VRD-4187, is a large-capitalization, diversified biopharmaceutical company with dozens of marketed products and revenues exceeding $27 billion annually. A hypothetical increase in regulatory scrutiny of T-cell engager CRS management would affect Greaves Industries as one input into one program within a vast portfolio; for Veridian, such scrutiny — compounded by the actual clinical hold on its only advanced asset — is existential. This is precisely the type of disproportionate impact that the exception is designed to capture.

Conclusion: Carveout (ii) does not apply. Even if it did, the disproportionate impact exception would preserve the triggering events in the MAE analysis.

C. Carveout (iii): Changes in Applicable Law or GAAP

Veridian's potential argument. Veridian might attempt to characterize the FDA partial clinical hold as a regulatory action analogous to, or constituting, a "change in applicable Law" or a "change in the interpretation or enforcement" of applicable Law within the meaning of carveout (iii). The argument would be that the FDA's decision to impose a clinical hold under 21 C.F.R. § 312.42 represents a change in the regulatory enforcement posture as applied to VRD-4187, and that such regulatory actions are the type of "governmental action" that carveout (iii) (and, potentially, carveout (iv), which references "governmental or regulatory actions") was intended to exclude.

Analysis. This argument fundamentally misconstrues the nature of the FDA's action and the scope of carveout (iii).

An FDA partial clinical hold is an enforcement or regulatory action taken under existing statutory and regulatory authority. The FDA's authority to impose clinical holds is established by 21 U.S.C. § 355(i) and its implementing regulations at 21 C.F.R. Part 312, specifically 21 C.F.R. § 312.42 (which sets forth the grounds for imposing clinical holds on INDs). No new statute, regulation, or FDA guidance of general applicability was promulgated in connection with the clinical hold on IND 154832. The hold was triggered by the specific safety data generated in the Marlowe Asset Management-2 trial — i.e., the CRS mortality data for VRD-4187 — not by any change in the legal or regulatory framework governing clinical trials or drug development.

Delaware law distinguishes between changes in law of general applicability and regulatory enforcement actions targeting a specific company. A "change in applicable Law" within the meaning of an MAE carveout refers to the enactment, amendment, or modification of statutes, regulations, or authoritative governmental guidance that alters the legal landscape for all affected parties — not to the application of existing legal authority to a particular company's specific circumstances. See Akorn, 2018 WL 4719347, at 86-87 (distinguishing between changes in regulatory standards and company-specific regulatory enforcement); see also Hexion Specialty Chems., Inc. v. Huntsman Corp.*, 965 A.2d 715, 738-39 (Del. Ch. 2008) (analyzing whether regulatory developments were changes in law or company-specific actions). The clinical hold on IND 154832 is an application of existing law to Veridian's specific IND based on Veridian's specific safety data — it is not a change in the law itself.

No change in GAAP or accounting standards is implicated by the triggering events.

Even if applicable — the disproportionate impact exception would apply. Even if the FDA clinical hold were characterized as a "change in the interpretation or enforcement" of applicable Law (which, for the reasons stated above, it is not), the clinical hold applies specifically and exclusively to VRD-4187 under IND 154832. No comparable biotechnology company received a clinical hold as a result of the same purported change in law. The disproportionate impact is self-evident: only Veridian bears the burden of this regulatory action.

Conclusion: Carveout (iii) does not apply.

D. Carveout (iv): Pandemics (Including COVID-19 and Any Similar Public Health Emergencies)

This is the carveout that has been specifically flagged for detailed analysis, given the express inclusion of pandemic language in the SPA and the potential for creative arguments by Veridian's counsel.

Text of the carveout. Carveout (iv) excludes from the MAE definition "any epidemic, pandemic, or disease outbreak (including COVID-19 or any mutation or variation thereof) or any similar public health emergency, or any governmental or regulatory actions taken in response thereto."

Veridian's potential argument. We anticipate that Veridian may attempt to invoke the pandemic carveout through one or more of the following theories:

(a) Residual pandemic effects on clinical trial infrastructure: Veridian may argue that lingering disruptions to clinical trial infrastructure caused by the COVID-19 pandemic — including staffing challenges at clinical sites, delays in institutional review board processes, supply chain disruptions affecting trial materials, and changes in clinical site operating procedures adopted during the pandemic — contributed to the adverse clinical outcomes in Marlowe Asset Management-2 or to the FDA's heightened regulatory scrutiny.

(b) Post-pandemic patient vulnerability: Veridian may argue that patients enrolled in the Marlowe Asset Management-2 trial were immunocompromised or otherwise physically vulnerable as a result of prior COVID-19 infection or the lingering effects of pandemic-era treatment deferrals, and that this heightened patient vulnerability contributed to the elevated CRS rates and mortality observed in the VRD-4187 arm.

(c) Pandemic-related changes in FDA regulatory posture: Veridian may argue that the FDA's post-pandemic regulatory posture reflects a more conservative approach to clinical trial safety oversight, and that the clinical hold on IND 154832 was at least partially a manifestation of this pandemic-influenced regulatory conservatism.

Analysis. Each of these theories fails, both on the facts and as a matter of legal analysis.

Temporal remoteness. The Marlowe Asset Management-2 data readout occurred on August 14, 2024, more than four years after the onset of the COVID-19 pandemic in the United States (approximately March 2020) and more than fifteen months after the expiration of the federal COVID-19 public health emergency declaration (May 11, 2023). By August 2024, the acute disruptions to clinical trial operations that characterized the early pandemic period — site closures, enrollment suspensions, supply chain breakdowns, and staffing crises — had long since abated. Clinical trial enrollment and conduct across the biotechnology and pharmaceutical industries had substantially normalized by mid-2022. There is no evidence, and Veridian has not suggested in any of its communications to Penterra to date, that pandemic-related disruptions materially affected the conduct of the Marlowe Asset Management-2 trial. The trial itself was initiated in September 2023, well after the end of the public health emergency.

The internal control comparison defeats the patient vulnerability theory. The most telling evidence against any pandemic-based causation argument is the internally controlled design of the Marlowe Asset Management-2 trial. Both the VRD-4187 treatment arm (n=194) and the control arm (n=193) were drawn from the same patient population, enrolled at the same clinical sites, during the same time period, and subject to the same inclusion and exclusion criteria. If post-pandemic patient vulnerability — whether from prior COVID-19 infection, deferred cancer treatment, or any other pandemic-related factor — were a significant contributor to the adverse outcomes, one would expect to see elevated adverse event rates in both arms of the trial. In fact, the control arm experienced only a 4.1% rate of Grade ≥3 CRS and a 0.5% treatment-related mortality rate — rates that are clinically unremarkable and consistent with the known safety profile of the standard-of-care comparator therapies.

The 19.3 percentage point differential in Grade ≥3 CRS between the VRD-4187 arm and the control arm cannot be attributed to pandemic-related patient vulnerability because both arms were exposed to the identical patient population and pandemic-era conditions. The differential is attributable to VRD-4187 — its mechanism of action, its T-cell engaging activity, its cytokine-induction profile, and its dosing regimen. This is a drug-specific effect, not a pandemic effect.

The pandemic carveout was negotiated to address pandemic-related operational disruptions, not product-specific adverse events. The inclusion of an express pandemic carveout in the SPA — with specific reference to "COVID-19 or any mutation or variation thereof" — reflects the contracting environment of the COVID-19 era, in which pandemic carveouts became a standard feature of M&A agreements to allocate the risk of pandemic-caused business disruptions (e.g., site closures, workforce reductions, supply chain interruptions, enrollment delays, and government-mandated restrictions on business operations). The carveout was not intended to, and does not, insulate a target company from the consequences of its own drug's adverse clinical performance merely because a pandemic occurred at some earlier point in time. To read the pandemic carveout so broadly would effectively convert it into a general-purpose shield against any adverse event that occurs in a post-pandemic world — a result that would be inconsistent with the carveout's negotiated scope and purpose and that would fundamentally undermine the MAE protection that Penterra bargained for.

Broadleaf Scientific Consulting's assessment identified no pandemic-related confound. Dr. Kapoor's August 19, 2024 clinical assessment, which included a review of the Marlowe Asset Management-2 safety data and patient demographics, did not identify any pandemic-related confounding factor in the trial results. Specifically, Dr. Kapoor's report noted that the patient population in the VRD-4187 arm was not materially different from the control arm with respect to age, ECOG performance status, prior treatment history, or reported comorbidities (including prior COVID-19 infection), and that the elevated CRS rate was "consistent with an on-target pharmacological effect of VRD-4187's T-cell engaging mechanism and its cytokine-induction profile, rather than an exogenous patient-population factor."

The FDA's clinical hold letter does not reference pandemic conditions. The FDA's partial clinical hold letter dated August 22, 2024, cites the CRS-related deaths in the Marlowe Asset Management-2 trial as the specific basis for the regulatory action. The letter makes no reference to pandemic conditions, post-pandemic patient vulnerability, or any pandemic-related regulatory concern. The hold was imposed because VRD-4187 caused CRS-mediated fatalities, not because of any pandemic-related factor.

Even if applicable — the disproportionate impact exception would apply. In the remote scenario that some pandemic-adjacent factor were deemed to have contributed to the Marlowe Asset Management-2 outcomes and the FDA clinical hold, and that such factor fell within the scope of carveout (iv), the disproportionate impact exception would nevertheless reinstate the events into the MAE analysis. The impact on Veridian — a clinical hold on its sole advanced clinical asset, which represents the overwhelming majority of the Company's enterprise value and underpins the $900 million purchase price — is qualitatively and quantitatively disproportionate to any pandemic-related impact experienced by other comparably situated biotechnology companies. No other clinical-stage biotechnology company in Veridian's peer group has experienced a comparable clinical hold or a comparable safety signal attributable to pandemic conditions. The disproportionate impact is not merely substantial; it is exclusive to Veridian.

Conclusion: Carveout (iv) does not apply. The pandemic carveout has no factual nexus to the VRD-4187 safety data or the FDA partial clinical hold. The Marlowe Asset Management-2 adverse findings are attributable to the pharmacological characteristics of VRD-4187, not to any pandemic or public health emergency.

E. Carveout (v): Natural Disasters, Acts of War, or Terrorism

Analysis. No natural disaster, hurricane, earthquake, flood, force majeure event, act of war, armed hostility, sabotage, or act of terrorism caused or contributed to the VRD-4187 clinical data, the Marlowe Asset Management-2 safety signal, or the FDA partial clinical hold. There is no factual basis whatsoever for invoking this carveout in connection with the triggering events. The adverse clinical outcomes are entirely attributable to the performance of Veridian's drug candidate in a controlled clinical trial setting, and the FDA's regulatory action was specifically triggered by the safety data from that trial.

We note that while geopolitical conflicts (including the ongoing Russia-Ukraine war and instability in the Middle East) have affected global supply chains and, to some extent, the operations of multinational clinical trial networks, the Marlowe Asset Management-2 trial was conducted at 42 clinical sites in the United States and the European Union, with no sites in active conflict zones. Veridian has not suggested, and there is no basis to believe, that any geopolitical event or natural disaster contributed to the trial outcomes.

Conclusion: Carveout (v) does not apply. This carveout is plainly inapplicable.

F. Carveout (vi): Changes in Financial Markets Generally

Analysis. No changes in financial, banking, or securities markets caused or contributed to the Marlowe Asset Management-2 clinical trial outcomes or the FDA's decision to impose a partial clinical hold on IND 154832. This carveout is designed to address the risk of adverse market-wide financial events — declines in equity indices, disruptions in credit markets, changes in interest rates, or banking sector instability — that may affect the target company's valuation or access to capital but are unrelated to the company's operational performance.

The triggering events in this matter are clinical and regulatory in nature: elevated CRS rates, treatment-related deaths, non-significant efficacy data, and an FDA clinical hold. These are outcomes of a drug development program, not consequences of financial market conditions. Changes in interest rates, stock market performance, credit availability, or banking stability have no bearing on the pharmacological safety profile of VRD-4187 or the FDA's assessment of the Marlowe Asset Management-2 safety data.

To the extent Veridian's stock value (if it were publicly traded) or its fundraising capacity were affected by financial market conditions, such effects would be distinct from the clinical and regulatory events at issue. In any event, Veridian is a private company, and the purchase price under the SPA is a fixed cash amount, not indexed to public market valuations.

Conclusion: Carveout (vi) does not apply.

G. Carveout (vii): Announcement or Pendency of the Transactions

Veridian's potential argument. Veridian might argue that the announcement or pendency of Penterra's acquisition of Veridian distracted the Company's management team, diverted resources from clinical trial oversight, or otherwise contributed to operational lapses that exacerbated the adverse outcomes in the Marlowe Asset Management-2 trial. Alternatively, Veridian might argue that the pending acquisition affected the Company's interactions with the FDA, clinical investigators, or clinical trial sites in ways that contributed to the clinical hold.

Analysis. This argument lacks any factual foundation. There is no evidence that the announcement or pendency of the Transaction caused, contributed to, or exacerbated the CRS incidence, treatment-related deaths, or efficacy shortfall observed in VRD-4187's Marlowe Asset Management-2 trial. The adverse clinical data reflects the pharmacological characteristics of VRD-4187 at the 1.5 mg/kg dose as administered in a randomized, multi-center Phase II trial — these are drug-level outcomes determined by the molecule's mechanism of action, binding affinity, cytokine-induction profile, and patient-drug interaction, not by management distraction or operational disruption arising from the pending acquisition.

The SPA's interim operating covenants (SPA § 5.1) require Veridian to conduct its business in the ordinary course and to use commercially reasonable efforts to preserve its business relationships and clinical programs. Nothing in the record suggests that Veridian's compliance (or non-compliance) with these covenants contributed to the adverse Marlowe Asset Management-2 results. The trial was conducted by the independent clinical operations team at Veridian and its contract research organization, and the DMC's interim analysis was a pre-specified event in the trial's statistical analysis plan, not a consequence of deal-related disruption.

This carveout is typically invoked in M&A transactions to address the common phenomenon of customer attrition, employee departures, or supplier uncertainty arising from deal announcement — i.e., the counterparty flight that often accompanies news that a company is being acquired. It is not designed to serve as a catch-all exclusion for product-specific clinical failures that happen to occur during the pendency of a transaction. The connection between "deal pendency" and "23.4% Grade ≥3 CRS in a Phase II oncology trial" is, at best, fanciful.

We note that this carveout is the only one not subject to the disproportionate impact exception, meaning that if it were applicable, Penterra could not rely on the disproportionate impact proviso to reinstate the events into the MAE analysis. However, the factual inapplicability of this carveout makes this structural distinction entirely moot in the present case.

Conclusion: Carveout (vii) does not apply.

V. The Disproportionate Impact Exception — Consolidated Analysis

A. Framework

As set forth in Part III.C above, even if any of carveouts (i) through (vi) were somehow deemed facially applicable to the triggering events, each is subject to the proviso that the carveout "shall not apply" — and the otherwise-excluded event shall be taken into account in the MAE determination — to the extent the event "disproportionately affects the Company relative to other comparably situated companies in the biotechnology industry."

This section provides a consolidated analysis of the disproportionate impact exception as applied to the VRD-4187 clinical data and FDA partial clinical hold, reinforcing the conclusion that even under the most favorable interpretation of the carveouts for Veridian, the events would be reinstated into the MAE analysis.

The threshold question in applying the disproportionate impact exception is the identification of the appropriate comparator set — i.e., "comparably situated companies in the biotechnology industry." The SPA does not define this term, but it should be construed contextually. We submit that the appropriate comparator set consists of clinical-stage biotechnology companies focused on immuno-oncology therapeutics, and more specifically, companies with bispecific T-cell engager programs at comparable stages of clinical development. This peer group represents companies that share Veridian's fundamental business characteristics: pre-revenue, single-platform, clinical-stage companies whose enterprise value is substantially predicated on the success of one or more drug candidates in clinical trials.

B. Application to the VRD-4187 Data and FDA Clinical Hold

The disproportionate impact analysis supports Penterra's position on multiple independent grounds:

1. The safety signal is sui generis to VRD-4187. The 23.4% Grade ≥3 CRS rate, seven treatment-related deaths (3.6% mortality), and non-statistically significant ORR (p = 0.58) are specific to VRD-4187 and the Marlowe Asset Management-2 trial. These data points are not shared by, and do not similarly affect, other biotechnology companies. No comparable bispecific T-cell engager program — including tarlatamab (Greaves Industries/Penrose & Co.), elranatamab (Ashbury Industries), teclistamab (Calderon Corporation), or glofitamab (Roche) — has reported a comparable safety profile in Phase II or Phase III testing. The VRD-4187 CRS rate is an outlier even within the T-cell engager class, and it is entirely a function of VRD-4187's specific molecular characteristics and the Marlowe Asset Management-2 dosing protocol.

2. The FDA clinical hold is company- and product-specific. The partial clinical hold on IND 154832 applies exclusively to VRD-4187. No other IND in the biotechnology industry received a clinical hold on August 22, 2024, or as a result of the same events. The regulatory action is, by definition, disproportionate because it affects only Veridian and no other company.

3. Concentration of enterprise value in VRD-4187. Veridian is a pre-revenue, clinical-stage company with no marketed products, no meaningful revenue (FY2023 revenue: $0), and a pipeline consisting of three candidates, of which VRD-4187 is the only asset with meaningful clinical data (the other two programs, VRD-5201 and VRD-6003, are in IND-enabling studies and preclinical development, respectively). Penterra's financial advisor attributed approximately 82% to 87% of Veridian's risk-adjusted net present value to VRD-4187. The clinical hold on VRD-4187 — the Company's sole advanced asset and the foundation of the $900 million purchase price — has a uniquely devastating impact on Veridian relative to virtually any other biotechnology company.

By contrast, a diversified biotechnology company with multiple marketed products, multiple clinical-stage programs, and meaningful revenue would experience a clinical hold on one pipeline asset as a setback, but not as an existential event. Even relative to other single-product, clinical-stage biotechnology companies (which might be the most restrictive definition of the comparator set), Veridian's 23.4% Grade ≥3 CRS rate and 3.6% treatment-related mortality rate represent an outlier safety profile that positions Veridian at the far adverse end of the distribution.

4. No comparator experienced similar adverse effects from the same purported exogenous cause. For the disproportionate impact exception to be meaningful, the adverse effect must be disproportionate relative to the comparator set. Here, no comparably situated biotechnology company experienced a comparable clinical hold, a comparable safety signal, or comparable adverse clinical data at the same time or attributable to the same purported industry condition, pandemic, or other exogenous cause that Veridian might invoke under carveouts (i) through (vi). The triggering events are not merely disproportionate — they are exclusive to Veridian.

C. Conclusion on Disproportionate Impact

The disproportionate impact exception would be satisfied for any carveout that Veridian attempted to invoke in connection with the VRD-4187 clinical data or the FDA partial clinical hold. The adverse clinical data and regulatory action disproportionately — indeed, exclusively — affect Veridian relative to any reasonable comparator set of companies in the biotechnology industry. Penterra bears the burden of establishing disproportionate impact, and the factual record overwhelmingly supports this showing.

VI. Anticipated Counterarguments by Veridian / Zalcourt Archer & Cole

We anticipate that Veridian and its counsel, Rebecca Whitmore at Zalcourt Archer & Cole LLP, may advance the following counterarguments in response to Penterra's position on carveout inapplicability. We address each below.

A. Argument: Clinical Trial Risk is Inherent and Industry-Wide

The argument. Veridian may argue that clinical trial failure is a well-known, systemic risk inherent in the biotechnology industry, and that the Marlowe Asset Management-2 results are a foreseeable manifestation of this industry-wide risk. Under this theory, the adverse clinical data would constitute a "condition affecting the biotechnology industry generally" under carveout (ii) because every clinical-stage biotechnology company faces the possibility that its drug candidate will fail in clinical trials.

Rebuttal. This argument conflates the abstract risk of clinical trial failure with the specific occurrence of clinical trial failure for a particular drug. The carveout addresses industry conditions — i.e., exogenous factors that affect the biotechnology industry as a whole — not the inherent nature of biotechnology risk in the abstract. Every clinical-stage company faces the possibility of failure, just as every company in every industry faces the possibility of adverse business outcomes. But the specific failure of VRD-4187 in the Marlowe Asset Management-2 trial — the elevated CRS, the treatment-related deaths, the non-significant efficacy — is a company-specific and product-specific event attributable to the characteristics of VRD-4187 and its clinical program, not to any condition affecting the broader industry.

If Veridian's argument were accepted, the industry carveout would effectively immunize every clinical-stage biotechnology company against MAE claims arising from clinical trial failures, because such failures are always a foreseeable industry risk. This result would eviscerate the MAE definition for clinical-stage targets and render the Buyer's closing condition in § 7.2(b) meaningless — a construction that no court would adopt and that is fundamentally inconsistent with the purpose of the MAE provision. See Frontier Oil, 2005 WL 1039027, at *34-35 (declining to interpret MAE carveouts in a manner that would render the MAE provision "a nullity").

B. Argument: FDA Scrutiny of CRS is an Industry Trend

The argument. Veridian may argue that the FDA has increased its scrutiny of CRS risk in T-cell engager and bispecific antibody programs across the biotechnology industry, and that this heightened regulatory posture constitutes a "condition affecting the industry generally" under carveout (ii). Under this theory, the clinical hold on VRD-4187 would be characterized as a product of the FDA's general regulatory trend rather than a company-specific enforcement action.

Rebuttal. While we acknowledge that the FDA has devoted increasing attention to CRS risk management across the T-cell engager and CAR-T therapy landscape, the clinical hold on IND 154832 was not a general policy action. It was not a new guidance document, a rulemaking, or a class-wide regulatory notice. It was a product-specific regulatory action triggered by the Marlowe Asset Management-2 safety data for VRD-4187 — specifically, the seven CRS-related deaths. The FDA imposed the hold on Veridian's IND, not on the IND of any other T-cell engager program. The fact that the FDA is generally attentive to CRS risk does not transform every product-specific CRS-related regulatory action into an industry condition.

Moreover, even if the FDA's general regulatory focus on CRS were deemed an "industry condition," the disproportionate impact exception would apply with full force. The severity of VRD-4187's safety signal — a 23.4% Grade ≥3 CRS rate, 3.6% mortality, and a resulting clinical hold — far exceeds the CRS-related experience of other T-cell engager programs. Tarlatamab, glofitamab, teclistamab, and elranatamab have all been approved or advanced through late-stage trials without comparable CRS-related clinical holds or comparable mortality rates. Veridian is disproportionately affected because its molecule produced a disproportionately severe safety signal.

C. Argument: The Data is Preliminary and the Protocol Amendment Cures the Issue

The argument. Veridian may argue that the Marlowe Asset Management-2 interim data is preliminary, that the Protocol Amendment v4.0 (incorporating mandatory tocilizumab prophylaxis and a 50% dose reduction from 1.5 mg/kg to 0.75 mg/kg) addresses the safety concern, that the clinical hold is temporary and will be lifted upon FDA review of the amended protocol, and that the long-term commercial prospects of VRD-4187 remain intact.

Rebuttal. This argument, to the extent it has any force, goes to the substantive question of whether an MAE has occurred — specifically, to the durational significance and curability analysis that forms part of the traditional MAE framework under Delaware law (see Akorn, 2018 WL 4719347, at 92-93; In re IBP, Inc. S'holders Litig.*, 789 A.2d 14, 68 (Del. Ch. 2001)). It does not address the threshold carveout question, which is the subject of this memorandum.

The carveout analysis asks: what is the nature and source of the adverse event? The answer is that the adverse event is a company-specific clinical trial failure and a company-specific FDA regulatory action. Whether the clinical hold is temporary, whether the protocol amendment will be effective, and whether VRD-4187 can ultimately be developed successfully at a lower dose are all relevant to the magnitude and durat

PRIVILEGED AND CONFIDENTIAL — ATTORNEY-CLIENT COMMUNICATION ATTORNEY WORK PRODUCT — PREPARED IN ANTICIPATION OF LITIGATION
CALDERWOOD & HARKNESS LLP 200 Park Avenue, 42nd Floor New York, New York 10166
MEMORANDUM
I. Executive Summary
The purpose of this memorandum is to evaluate whether Veridian Biosciences, Inc. ("Veridian" or the "Company") can invoke any of the enumerated carveouts to the definition of "Material Adverse Effect" (or "MAE") set forth in Section 1.1 of the Stock Purchase Agreement dated June 10, 2024 (the "SPA") among Penterra Pharmaceuticals Corp. ("Penterra" or the "Buyer"), Veridian, the Sellers named therein, and David Ng, as Stockholder Representative, to exclude from the MAE determination the following triggering events:
(a) the Marlowe Asset Management-2 Phase II interim clinical data reported on August 14, 2024, which revealed a 23.4% incidence of Grade ≥3 cytokine release syndrome ("CRS") in the VRD-4187 treatment arm compared to 4.1% in the control arm (a 19.3 percentage point differential), seven treatment-related deaths in the VRD-4187 arm (3.6% mortality) versus one in the control arm (0.5%), and a non-statistically significant overall response rate ("ORR") of 31.4% versus 28.9% (p = 0.58); and
(b) the FDA partial clinical hold on VRD-4187 (IND 154832) imposed on August 22, 2024, pending investigation of the CRS-related fatalities observed in the Marlowe Asset Management-2 trial.
Bottom-line conclusion: None of the seven enumerated carveouts in the MAE definition applies to these company-specific clinical trial results and the ensuing FDA regulatory action. The Marlowe Asset Management-2 adverse data and the FDA partial clinical hold are, at their core, events arising from the specific pharmacological characteristics and clinical performance of Veridian's lead drug candidate, VRD-4187, in its own clinical trial. They do not arise from any systemic, exogenous, or industry-wide condition that the carveouts were designed to exclude.
Even if Veridian were to argue that one or more carveouts applied — most plausibly the industry conditions carveout in clause (ii) or the pandemic carveout in clause (iv), given historical COVID-related disruptions to clinical trials — the disproportionate impact exception applicable to carveouts (i) through (vi) would reinstate these events into the MAE analysis. The adverse effects are unique to Veridian and VRD-4187 and do not similarly affect comparably situated companies in the biotechnology industry. The clinical hold on IND 154832 applies exclusively to Veridian's molecule, and the severity of the safety signal (23.4% Grade ≥3 CRS, 3.6% mortality) represents an outlier data profile even among clinical-stage bispecific T-cell engager programs.
This memorandum supplements and should be read in conjunction with the comprehensive MAE analysis memorandum dated August 25, 2024 (addressing the substantive question of whether the triggering events constitute an MAE under the durational significance, magnitude, and qualitative frameworks established by Delaware precedent) and the supplemental MAE analysis regarding the FDA clinical hold anticipated to be dated September 2, 2024. This memorandum addresses only the threshold carveout question — i.e., whether any carveout removes the triggering events from the MAE analysis before reaching the substantive MAE determination.
II. Background
A. The Transaction
On June 10, 2024, Penterra entered into the SPA to acquire 100% of the outstanding capital stock of Veridian for an aggregate purchase price of $900,000,000 in cash, subject to customary adjustments for cash, debt, and working capital (the "Transaction"). The Transaction is structured as a stock purchase in which Penterra will acquire all issued and outstanding shares of Veridian's common stock and preferred stock from the Sellers identified on the Seller Schedule to the SPA, with David Ng (Veridian's co-founder and largest individual stockholder, holding approximately 14.7% of Veridian's outstanding capital stock on a fully diluted basis) serving as Stockholder Representative.
Veridian is a privately held, clinical-stage biotechnology company headquartered in Cambridge, Massachusetts, focused on the development of immuno-oncology therapeutics leveraging its proprietary VeriTCE (Veridian T-Cell Engager) bispecific antibody platform. The Company's lead drug candidate is VRD-4187, a bispecific T-cell engager designed to redirect T cells to DLL3-expressing tumor cells, with the primary therapeutic indication being extensive-stage small cell lung cancer ("ES-SCLC"). Veridian's pipeline also includes two earlier-stage candidates: VRD-5201 (a DLL3xCD3 bispecific in IND-enabling studies) and VRD-6003 (a CLDN18.2-targeting bispecific in preclinical development).
Critically, Veridian is a pre-revenue company. For fiscal year 2023, Veridian reported total revenue of $0 and a net loss of $87.3 million, funded primarily through Series A, B, and C preferred equity financings and a convertible note issued in January 2024. The Company's enterprise value — and the basis for the $900 million purchase price — is substantially predicated on the clinical and commercial prospects of VRD-4187. The Company's valuation model, as reviewed by Penterra's financial advisor, Evergreen Partners LLC, attributed approximately 82% to 87% of the Company's risk-adjusted net present value to VRD-4187, with the remainder allocated to the VRD-5201 and VRD-6003 programs and residual platform value.
The SPA was negotiated by Calderwood & Harkness LLP (Oliver Mackenzie, Partner, as lead counsel) on behalf of Penterra and by Zalcourt Archer & Cole LLP (Rebecca Whitmore, Partner, as lead counsel) on behalf of Veridian and the Sellers. The Transaction is subject to customary closing conditions, including the accuracy of representations and warranties (subject to an MAE qualification in certain instances), compliance with covenants, receipt of antitrust clearance under the Hart-Scott-Rodino Act (which was obtained on August 2, 2024), and the absence of a material adverse effect.
B. The Triggering Events
The following events, occurring in rapid succession during August 2024, form the basis of Penterra's evaluation of MAE-related termination rights and the carveout analysis that is the subject of this memorandum:
1. Marlowe Asset Management-2 DMC Interim Analysis (August 14, 2024). The independent Data Monitoring Committee ("DMC") for the Marlowe Asset Management-2 trial (ClinicalTrials.gov identifier NCT05837291) — a randomized, open-label, two-arm Phase II clinical trial evaluating VRD-4187 versus investigator's choice standard-of-care chemotherapy in patients with previously treated ES-SCLC, conducted across 42 clinical sites in the United States and European Union with a total enrollment of 387 patients (194 in the VRD-4187 treatment arm and 193 in the control arm) — completed a pre-specified interim analysis and recommended (i) immediate suspension of new patient enrollment, (ii) dose modification for patients currently receiving VRD-4187, and (iii) enhanced safety monitoring for all enrolled patients.
The DMC's recommendation was based on the following key findings:
• Grade ≥3 Cytokine Release Syndrome (CRS): 23.4% of patients in the VRD-4187 arm experienced Grade 3 or higher CRS, compared to 4.1% in the control arm — a differential of 19.3 percentage points. This CRS incidence rate substantially exceeded the rates observed in the earlier Phase I dose-escalation study (VRD-4187-001), in which Grade ≥3 CRS was reported in approximately 8.2% of evaluable patients, though in a smaller patient population and at varying dose levels.
• Treatment-Related Deaths: Seven patients in the VRD-4187 arm (3.6% of the treatment arm population) experienced treatment-related deaths, compared to one patient in the control arm (0.5%). All seven treatment-related deaths in the VRD-4187 arm were attributed to CRS-mediated complications, including multi-organ failure (four patients), cardiac arrest secondary to cytokine storm (two patients), and disseminated intravascular coagulation (one patient).
• Overall Response Rate (ORR): The ORR in the VRD-4187 arm was 31.4%, compared to 28.9% in the control arm. The difference was not statistically significant (p = 0.58), failing to demonstrate a meaningful efficacy benefit for VRD-4187 over standard-of-care chemotherapy at this interim analysis point. The pre-specified efficacy threshold for continuing enrollment required a p-value of ≤ 0.10 at the interim analysis.
2. Veridian Notification (August 16, 2024). On August 16, 2024, Penterra received written notice from Veridian of the DMC's findings and recommendations pursuant to the Company's reporting obligations under SPA § 5.1(b), which requires Veridian to promptly notify Penterra of any event, development, or condition that would reasonably be expected to have a Material Adverse Effect or that would cause any representation or warranty of the Sellers to become inaccurate in any material respect. The notification was accompanied by a summary of the DMC's interim analysis report but did not include the full underlying dataset, which Penterra subsequently requested and received on August 20, 2024.
3. Broadleaf Scientific Consulting Assessment (August 19, 2024). Dr. Raymond Kapoor, M.D., Ph.D., of Broadleaf Scientific Consulting LLC, Penterra's retained independent clinical expert for the Transaction, delivered a supplemental clinical assessment on August 19, 2024, following his review of the DMC's interim analysis summary and available safety data. Dr. Kapoor's assessment confirmed the severity of the safety signal, concluding that the VRD-4187 CRS rate was "clinically unacceptable at the current dosing regimen," that the treatment-related mortality rate of 3.6% was "significantly above the threshold that would support continued development without fundamental protocol modifications," and that the non-significant ORR raised "serious questions regarding the benefit-risk profile of VRD-4187 in this indication." Dr. Kapoor further noted that the CRS rates observed in Marlowe Asset Management-2 were substantially higher than those reported in published data for other bispecific T-cell engager programs targeting DLL3, including tarlatamab (Greaves Industries/Penrose & Co.), which reported Grade ≥3 CRS in approximately 1% to 3% of treated patients in its DeLLphi-301 study.
4. FDA Partial Clinical Hold (August 22, 2024). On August 22, 2024, the U.S. Food and Drug Administration ("FDA") imposed a partial clinical hold on VRD-4187 under IND 154832, pursuant to 21 C.F.R. § 312.42(b)(2)(i). The partial clinical hold prohibits the initiation of new clinical studies under the IND and the enrollment of new patients in ongoing studies, while permitting continued treatment of patients currently receiving VRD-4187 under enhanced safety monitoring. The FDA's clinical hold letter (a copy of which was provided to Penterra by Veridian on August 23, 2024 under SPA § 5.1(b)) cited the CRS-related deaths observed in the Marlowe Asset Management-2 trial as the basis for the hold and requested that Veridian submit a complete response addressing the safety concerns, including a revised clinical protocol and updated Investigator's Brochure, within 30 days.
5. Veridian Protocol Amendment (August 28, 2024). As of the date of this memorandum, Veridian has implemented Protocol Amendment v4.0 for the Marlowe Asset Management-2 trial, which includes (i) mandatory tocilizumab prophylaxis (8 mg/kg IV) administered within one hour prior to each VRD-4187 infusion for the first three cycles, and (ii) a reduction in the starting dose of VRD-4187 from 1.5 mg/kg to 0.75 mg/kg, with a step-up dosing protocol. Veridian has represented to Penterra that it intends to submit the amended protocol to the FDA as part of its complete response to the clinical hold letter. It is uncertain when or whether the FDA will lift the clinical hold upon review of the amended protocol, and the efficacy implications of a 50% dose reduction are unknown and potentially significant.
C. Penterra's Position
Penterra is actively evaluating whether the Marlowe Asset Management-2 clinical data and the FDA partial clinical hold, individually or in the aggregate with other relevant facts and circumstances, constitute a Material Adverse Effect under the MAE definition in SPA § 1.1. If an MAE has occurred, the closing conditions set forth in Sections 7.2(a) (bring-down of representations and warranties, many of which are qualified by an MAE standard) and 7.2(b) (the standalone no-MAE condition, requiring that no Material Adverse Effect shall have occurred since the date of the SPA and be continuing as of the Closing Date) would not be satisfied. In such event, Penterra may be entitled to decline to close and, if the failure is incapable of cure within the time periods specified in the SPA, to terminate the SPA under Section 8.1(d).
The critical threshold question addressed in this memorandum — which must be resolved before reaching the substantive MAE determination — is whether any of the seven enumerated carveouts to the MAE definition removes the triggering events from the MAE analysis altogether, or whether the disproportionate impact exception preserves them within the scope of the MAE definition. As set forth below, we conclude that no carveout applies and that the disproportionate impact exception would, in any event, reinstate the events into the MAE analysis.
III. The MAE Definition and Carveout Structure
A. Text of the MAE Definition (SPA § 1.1)
Section 1.1 of the SPA defines "Material Adverse Effect" as follows:
"Material Adverse Effect" means any event, change, development, occurrence, condition, or effect that, individually or in the aggregate with all other events, changes, developments, occurrences, conditions, or effects, has had or would reasonably be expected to have a material adverse effect on (a) the business, results of operations, financial condition, or assets of the Company, taken as a whole, or (b) the ability of the Sellers to consummate the Transactions contemplated by this Agreement; provided, however, that none of the following shall be deemed to constitute, nor shall any of the following be taken into account in determining whether there has been or would reasonably be expected to be, a Material Adverse Effect: [carveouts (i) through (vii), as set forth below].
This definition follows the standard two-pronged MAE formulation common in negotiated M&A agreements, encompassing both (a) business-level adverse effects on the Company as a whole and (b) consummation-level impediments to the Sellers' ability to close the Transaction. For purposes of the present analysis, the relevant prong is prong (a), as the triggering events relate to the business, results of operations, financial condition, and asset value of Veridian — specifically, the clinical and regulatory status of VRD-4187, which is the Company's principal asset.
B. Enumerated Carveouts
The MAE definition contains seven enumerated carveouts, each of which, if applicable, would exclude the relevant event or effect from the MAE determination. The carveouts are set forth in the proviso clause of the definition and read as follows:
(i) changes in general economic or political conditions in the United States or any other jurisdiction in which the Company conducts business;
(ii) changes in conditions generally affecting the biotechnology or pharmaceutical industries in the United States or any other jurisdiction in which the Company conducts business;
(iii) changes in applicable Law (as defined herein) or in United States generally accepted accounting principles ("GAAP") or the interpretation or enforcement thereof;
(iv) any epidemic, pandemic, or disease outbreak (including COVID-19 or any mutation or variation thereof) or any similar public health emergency, or any governmental or regulatory actions taken in response thereto;
(v) any natural disaster, hurricane, earthquake, flood, or other force majeure event, or any act of war (whether declared or undeclared), armed hostilities, sabotage, or terrorism;
(vi) any changes in financial, banking, or securities markets generally (including any disruption thereof, or any decline in the price of any security or any market index); or
(vii) the announcement, execution, or pendency of this Agreement or the Transactions contemplated hereby, or the identity of the Buyer, including any loss of, or adverse change in, the relationship of the Company with any of its customers, suppliers, employees, partners, or other third parties resulting therefrom;
As set forth in the SPA, carveouts (i) through (vi) are subject to a critical limitation — the disproportionate impact exception — discussed immediately below. Carveout (vii) stands alone and is not subject to the disproportionate impact qualifier.
C. The Disproportionate Impact Exception
Carveouts (i) through (vi) are subject to the following proviso, which reinstates otherwise-excluded events into the MAE analysis if their impact is disproportionate to the target company:
"provided, further, that with respect to clauses (i) through (vi), any such event, change, development, occurrence, condition, or effect shall be taken into account in determining whether a Material Adverse Effect has occurred or would reasonably be expected to occur to the extent that such event, change, development, occurrence, condition, or effect disproportionately affects the Company relative to other comparably situated companies in the biotechnology industry."
Three structural observations regarding the disproportionate impact exception merit emphasis:
First, the exception applies to carveouts (i) through (vi) but does not apply to carveout (vii) (announcement or pendency of the Transaction). This is a standard drafting convention reflecting the view that the buyer should bear the risk of deal-announcement effects on the target's business without recourse to the MAE, whereas the disproportionate impact exception provides a check on the other carveouts to ensure that company-specific manifestations of systemic events are not inappropriately excluded from the MAE analysis.
Second, under Delaware law and the weight of authority interpreting MAE provisions in negotiated M&A agreements, the burden of establishing the applicability of a carveout lies with the party seeking to invoke it — here, Veridian and the Sellers. Conversely, the burden of establishing that the disproportionate impact exception applies lies with the party asserting it — here, Penterra. This allocation of burdens was confirmed by the Delaware Court of Chancery in Akorn, Inc. v. Fresenius Kabi AG, 2018 WL 4719347 (Del. Ch. Oct. 1, 2018), aff'd, 198 A.3d 724 (Del. 2018), and has been followed in subsequent Delaware decisions addressing MAE carveout provisions. See also Frontier Oil Corp. v. Holly Corp., 2005 WL 1039027 (Del. Ch. Apr. 29, 2005) (placing burden on seller to establish carveout applicability). While the burden allocation creates a two-step framework, we believe Penterra's position is strong on both steps: the carveouts are inapplicable as a threshold matter, and even if deemed applicable, the disproportionate impact exception would clearly be satisfied given the company-specific nature of the adverse events.
Third, the comparator set for the disproportionate impact analysis is defined as "other comparably situated companies in the biotechnology industry." The SPA does not further define the term "comparably situated," which allows for contextual interpretation. As discussed in Part V below, we believe the appropriate comparator set consists of clinical-stage biotechnology companies focused on immuno-oncology, and more specifically, companies with bispecific T-cell engager programs at comparable stages of development — i.e., Veridian's functional peer group.
D. Structural Observations
Before proceeding to the carveout-by-carveout analysis, it is important to situate the triggering events within the broader framework that the MAE carveouts are designed to address.
The enumerated carveouts serve a well-recognized function in MAE definitions: they allocate the risk of systemic, exogenous, and market-wide events to the buyer, while preserving the buyer's protection against company-specific deterioration. The carveouts reflect the principle that a buyer should not be able to invoke an MAE based on macroeconomic downturns, industry-wide headwinds, changes in law, pandemics, natural disasters, financial market disruptions, or the effects of the transaction itself — events that are external to the target company's operations and over which neither party has meaningful control.
The VRD-4187 clinical data and the FDA partial clinical hold, by contrast, are quintessentially company-specific and product-specific events. They arise from the performance of Veridian's lead drug candidate in Veridian's own clinical trial. The 23.4% Grade ≥3 CRS rate and seven treatment-related deaths are consequences of VRD-4187's pharmacological properties — its mechanism of action, molecular design, and dosing regimen — as administered to patients in the Marlowe Asset Management-2 study. The FDA's partial clinical hold is a regulatory response to the specific safety data generated by Veridian's molecule, not a policy action of general applicability to the biotechnology industry. These are precisely the types of events that the MAE definition is designed to capture, and they fall outside the scope of any carveout.
IV. Analysis of Each Carveout
We analyze below the applicability of each of the seven enumerated carveouts to the triggering events, including identification of potential arguments that Veridian and its counsel at Zalcourt Archer & Cole LLP may advance and our analysis of why those arguments fail.
A. Carveout (i): General Economic or Political Conditions
Veridian's potential argument. Veridian might contend that the broader macroeconomic environment — including persistent inflation, elevated interest rates following the Federal Reserve's tightening cycle, and geopolitical uncertainty stemming from ongoing conflicts in Eastern Europe and the Middle East — indirectly affected clinical trial operations, patient enrollment timelines, clinical site capacity, or FDA regulatory review processes, and that these macroeconomic headwinds contributed to or exacerbated the adverse clinical outcomes or the timing and severity of the FDA's regulatory response.
Analysis. This argument fails for several reasons. The Marlowe Asset Management-2 adverse data — elevated CRS rates, treatment-related deaths, and the absence of a statistically significant efficacy benefit — is entirely and directly attributable to the pharmacological properties and dosing of VRD-4187 itself. There is no causal nexus, however attenuated, between general economic conditions (inflation, interest rates, geopolitical tensions) and the specific clinical safety signal observed in the Marlowe Asset Management-2 trial. Macroeconomic conditions did not cause Grade ≥3 cytokine release syndrome in 23.4% of patients receiving VRD-4187. Macroeconomic conditions did not cause seven treatment-related deaths from CRS-mediated multi-organ failure. Macroeconomic conditions did not render VRD-4187's overall response rate statistically indistinguishable from the control arm.
The FDA's decision to impose a partial clinical hold under 21 C.F.R. § 312.42(b)(2)(i) was triggered by the specific CRS mortality data from Marlowe Asset Management-2, not by any general economic or political factor. The clinical hold letter itself identifies the safety concerns arising from VRD-4187 administration as the sole basis for the regulatory action. There is simply no factual predicate for invoking this carveout.
Moreover, even if some tangential connection between economic conditions and clinical trial logistics could be hypothesized — for example, that inflation-driven cost pressures at clinical sites led to some operational strain — such a connection would be so remote and speculative as to be legally insufficient to trigger the carveout, and in any event would be overwhelmed by the disproportionate impact exception, given that the adverse clinical data is specific to VRD-4187 and not experienced by other clinical-stage biotechnology companies.
Conclusion: Carveout (i) does not apply.
B. Carveout (ii): Conditions Affecting the Biotechnology or Pharmaceutical Industries Generally
Veridian's potential argument. This is the carveout most likely to be invoked by Veridian and its counsel. We anticipate that Veridian may argue one or more of the following: (a) that increasing FDA scrutiny of bispecific T-cell engager programs, particularly regarding CRS and neurotoxicity risk management strategies, constitutes a "condition affecting the biotechnology industry generally"; (b) that general trends toward more stringent safety monitoring standards and more conservative dose-escalation requirements in the immuno-oncology space represent an industry-wide headwind that contributed to the Marlowe Asset Management-2 outcomes; or (c) that the historically high attrition rate for clinical-stage oncology therapeutics (with Phase II success rates in oncology estimated at approximately 28% to 35% in recent industry analyses) makes the Marlowe Asset Management-2 results a foreseeable manifestation of industry-wide clinical trial risk rather than a company-specific failure.
Analysis. Each of these arguments fails on close examination.
The FDA clinical hold is product-specific, not industry-wide. The FDA partial clinical hold on IND 154832 was not imposed as part of a broader regulatory crackdown affecting all bispecific T-cell engager programs, all immuno-oncology therapies, or the biotechnology industry generally. It was specifically and exclusively triggered by the CRS-related deaths observed in the Marlowe Asset Management-2 trial for VRD-4187. No other bispecific T-cell engager IND was placed on clinical hold on or around August 22, 2024, and the FDA did not issue any general guidance, safety communication, or class-wide regulatory action affecting T-cell engager programs as a class. The clinical hold on VRD-4187 is a discrete regulatory action directed at a single molecule based on its specific safety data — the archetypal company-specific event.
A specific product's adverse safety profile in a particular trial is an idiosyncratic, company-specific event. While clinical trial failures are, in the abstract, a known risk across the biotechnology industry, the specific adverse safety profile of VRD-4187 in the Marlowe Asset Management-2 trial is not an "industry condition" within the meaning of carveout (ii). The distinction is critical: the risk of clinical trial failure is inherent to the industry, but the occurrence of a specific drug's failure in a specific trial is a company-specific event attributable to the characteristics of that drug and that trial. The carveout addresses conditions that affect the industry as a whole — e.g., widespread changes in reimbursement policies, industry-wide regulatory burden increases, or sector-specific capital market contractions — not the realization of idiosyncratic product risk in a particular company's clinical program.
Delaware courts have consistently drawn this distinction. In Akorn, Inc. v. Fresenius Kabi AG, the Court of Chancery examined whether adverse developments at the target company were attributable to industry-wide conditions or to the target's own operations, emphasizing that the relevant inquiry is whether the effect "flow[s] from" an industry condition or from the target's specific business. 2018 WL 4719347, at *87-88. The court's analysis focused on whether the particular adverse effects experienced by the target were shared by the industry or were unique to the target. Here, the VRD-4187 safety signal is unambiguously unique to Veridian: no other bispecific T-cell engager targeting DLL3 has reported a 23.4% Grade ≥3 CRS rate or a 3.6% treatment-related mortality rate in Phase II testing. The published data for tarlatamab, the most advanced comparator molecule (a DLL3-targeting bispecific T-cell engager developed by Greaves Industries and licensed to Penrose & Co.), reported Grade ≥3 CRS in approximately 1% to 3% of patients in the DeLLphi-301 registrational study — an order of magnitude lower than VRD-4187's rate.
Even an industry-wide regulatory focus on CRS does not transform product-specific data into an industry condition. We acknowledge that the FDA and the broader regulatory community have devoted increasing attention to CRS risk management in T-cell engager and CAR-T cell therapy programs in recent years, including through updated guidance on CRS grading and mitigation strategies. However, this heightened regulatory focus is a background condition that affects the regulatory framework within which all developers of T-cell engaging therapies operate; it is not the cause of VRD-4187's specific safety failure. The fact that the FDA is generally attentive to CRS risk does not mean that every product-specific CRS event is an "industry condition." The actual clinical data — 23.4% Grade ≥3 CRS, seven deaths, and a non-significant ORR — is specific to VRD-4187's molecular design, its binding affinity, its dosing protocol (1.5 mg/kg), and its interaction with the patient population enrolled in Marlowe Asset Management-2. These are characteristics of Veridian's product, not of the biotechnology industry.
Even if applicable — the disproportionate impact exception would apply. Assuming, arguendo, that broadly framed industry scrutiny of CRS in T-cell engager programs were deemed a "condition affecting the biotechnology industry generally" under carveout (ii), the disproportionate impact exception would reinstate the triggering events into the MAE analysis. The severity of VRD-4187's safety signal — a 19.3 percentage point CRS differential over the control arm, a 3.6% treatment-related mortality rate, and a clinical hold on the sole advanced pipeline asset of a pre-revenue company — far exceeds the safety signals experienced by other bispecific T-cell engager programs at comparable development stages. Veridian's lead candidate accounts for approximately 82% to 87% of the Company's risk-adjusted enterprise value; a clinical hold on this asset has a uniquely devastating impact on Veridian relative to diversified biotechnology companies, multi-product companies with other revenue-generating assets, or companies whose T-cell engager programs have not exhibited comparable safety problems.
To illustrate: Greaves Industries, whose tarlatamab program represents the closest clinical comparator to VRD-4187, is a large-capitalization, diversified biopharmaceutical company with dozens of marketed products and revenues exceeding $27 billion annually. A hypothetical increase in regulatory scrutiny of T-cell engager CRS management would affect Greaves Industries as one input into one program within a vast portfolio; for Veridian, such scrutiny — compounded by the actual clinical hold on its only advanced asset — is existential. This is precisely the type of disproportionate impact that the exception is designed to capture.
Conclusion: Carveout (ii) does not apply. Even if it did, the disproportionate impact exception would preserve the triggering events in the MAE analysis.
C. Carveout (iii): Changes in Applicable Law or GAAP
Veridian's potential argument. Veridian might attempt to characterize the FDA partial clinical hold as a regulatory action analogous to, or constituting, a "change in applicable Law" or a "change in the interpretation or enforcement" of applicable Law within the meaning of carveout (iii). The argument would be that the FDA's decision to impose a clinical hold under 21 C.F.R. § 312.42 represents a change in the regulatory enforcement posture as applied to VRD-4187, and that such regulatory actions are the type of "governmental action" that carveout (iii) (and, potentially, carveout (iv), which references "governmental or regulatory actions") was intended to exclude.
Analysis. This argument fundamentally misconstrues the nature of the FDA's action and the scope of carveout (iii).
An FDA partial clinical hold is an enforcement or regulatory action taken under existing statutory and regulatory authority. The FDA's authority to impose clinical holds is established by 21 U.S.C. § 355(i) and its implementing regulations at 21 C.F.R. Part 312, specifically 21 C.F.R. § 312.42 (which sets forth the grounds for imposing clinical holds on INDs). No new statute, regulation, or FDA guidance of general applicability was promulgated in connection with the clinical hold on IND 154832. The hold was triggered by the specific safety data generated in the Marlowe Asset Management-2 trial — i.e., the CRS mortality data for VRD-4187 — not by any change in the legal or regulatory framework governing clinical trials or drug development.
Delaware law distinguishes between changes in law of general applicability and regulatory enforcement actions targeting a specific company. A "change in applicable Law" within the meaning of an MAE carveout refers to the enactment, amendment, or modification of statutes, regulations, or authoritative governmental guidance that alters the legal landscape for all affected parties — not to the application of existing legal authority to a particular company's specific circumstances. See Akorn, 2018 WL 4719347, at 86-87 (distinguishing between changes in regulatory standards and company-specific regulatory enforcement); see also Hexion Specialty Chems., Inc. v. Huntsman Corp.*, 965 A.2d 715, 738-39 (Del. Ch. 2008) (analyzing whether regulatory developments were changes in law or company-specific actions). The clinical hold on IND 154832 is an application of existing law to Veridian's specific IND based on Veridian's specific safety data — it is not a change in the law itself.
No change in GAAP or accounting standards is implicated by the triggering events.
Even if applicable — the disproportionate impact exception would apply. Even if the FDA clinical hold were characterized as a "change in the interpretation or enforcement" of applicable Law (which, for the reasons stated above, it is not), the clinical hold applies specifically and exclusively to VRD-4187 under IND 154832. No comparable biotechnology company received a clinical hold as a result of the same purported change in law. The disproportionate impact is self-evident: only Veridian bears the burden of this regulatory action.
Conclusion: Carveout (iii) does not apply.
D. Carveout (iv): Pandemics (Including COVID-19 and Any Similar Public Health Emergencies)
This is the carveout that has been specifically flagged for detailed analysis, given the express inclusion of pandemic language in the SPA and the potential for creative arguments by Veridian's counsel.
Text of the carveout. Carveout (iv) excludes from the MAE definition "any epidemic, pandemic, or disease outbreak (including COVID-19 or any mutation or variation thereof) or any similar public health emergency, or any governmental or regulatory actions taken in response thereto."
Veridian's potential argument. We anticipate that Veridian may attempt to invoke the pandemic carveout through one or more of the following theories:
(a) Residual pandemic effects on clinical trial infrastructure: Veridian may argue that lingering disruptions to clinical trial infrastructure caused by the COVID-19 pandemic — including staffing challenges at clinical sites, delays in institutional review board processes, supply chain disruptions affecting trial materials, and changes in clinical site operating procedures adopted during the pandemic — contributed to the adverse clinical outcomes in Marlowe Asset Management-2 or to the FDA's heightened regulatory scrutiny.
(b) Post-pandemic patient vulnerability: Veridian may argue that patients enrolled in the Marlowe Asset Management-2 trial were immunocompromised or otherwise physically vulnerable as a result of prior COVID-19 infection or the lingering effects of pandemic-era treatment deferrals, and that this heightened patient vulnerability contributed to the elevated CRS rates and mortality observed in the VRD-4187 arm.
(c) Pandemic-related changes in FDA regulatory posture: Veridian may argue that the FDA's post-pandemic regulatory posture reflects a more conservative approach to clinical trial safety oversight, and that the clinical hold on IND 154832 was at least partially a manifestation of this pandemic-influenced regulatory conservatism.
Analysis. Each of these theories fails, both on the facts and as a matter of legal analysis.
Temporal remoteness. The Marlowe Asset Management-2 data readout occurred on August 14, 2024, more than four years after the onset of the COVID-19 pandemic in the United States (approximately March 2020) and more than fifteen months after the expiration of the federal COVID-19 public health emergency declaration (May 11, 2023). By August 2024, the acute disruptions to clinical trial operations that characterized the early pandemic period — site closures, enrollment suspensions, supply chain breakdowns, and staffing crises — had long since abated. Clinical trial enrollment and conduct across the biotechnology and pharmaceutical industries had substantially normalized by mid-2022. There is no evidence, and Veridian has not suggested in any of its communications to Penterra to date, that pandemic-related disruptions materially affected the conduct of the Marlowe Asset Management-2 trial. The trial itself was initiated in September 2023, well after the end of the public health emergency.
The internal control comparison defeats the patient vulnerability theory. The most telling evidence against any pandemic-based causation argument is the internally controlled design of the Marlowe Asset Management-2 trial. Both the VRD-4187 treatment arm (n=194) and the control arm (n=193) were drawn from the same patient population, enrolled at the same clinical sites, during the same time period, and subject to the same inclusion and exclusion criteria. If post-pandemic patient vulnerability — whether from prior COVID-19 infection, deferred cancer treatment, or any other pandemic-related factor — were a significant contributor to the adverse outcomes, one would expect to see elevated adverse event rates in both arms of the trial. In fact, the control arm experienced only a 4.1% rate of Grade ≥3 CRS and a 0.5% treatment-related mortality rate — rates that are clinically unremarkable and consistent with the known safety profile of the standard-of-care comparator therapies.
The 19.3 percentage point differential in Grade ≥3 CRS between the VRD-4187 arm and the control arm cannot be attributed to pandemic-related patient vulnerability because both arms were exposed to the identical patient population and pandemic-era conditions. The differential is attributable to VRD-4187 — its mechanism of action, its T-cell engaging activity, its cytokine-induction profile, and its dosing regimen. This is a drug-specific effect, not a pandemic effect.
The pandemic carveout was negotiated to address pandemic-related operational disruptions, not product-specific adverse events. The inclusion of an express pandemic carveout in the SPA — with specific reference to "COVID-19 or any mutation or variation thereof" — reflects the contracting environment of the COVID-19 era, in which pandemic carveouts became a standard feature of M&A agreements to allocate the risk of pandemic-caused business disruptions (e.g., site closures, workforce reductions, supply chain interruptions, enrollment delays, and government-mandated restrictions on business operations). The carveout was not intended to, and does not, insulate a target company from the consequences of its own drug's adverse clinical performance merely because a pandemic occurred at some earlier point in time. To read the pandemic carveout so broadly would effectively convert it into a general-purpose shield against any adverse event that occurs in a post-pandemic world — a result that would be inconsistent with the carveout's negotiated scope and purpose and that would fundamentally undermine the MAE protection that Penterra bargained for.
Broadleaf Scientific Consulting's assessment identified no pandemic-related confound. Dr. Kapoor's August 19, 2024 clinical assessment, which included a review of the Marlowe Asset Management-2 safety data and patient demographics, did not identify any pandemic-related confounding factor in the trial results. Specifically, Dr. Kapoor's report noted that the patient population in the VRD-4187 arm was not materially different from the control arm with respect to age, ECOG performance status, prior treatment history, or reported comorbidities (including prior COVID-19 infection), and that the elevated CRS rate was "consistent with an on-target pharmacological effect of VRD-4187's T-cell engaging mechanism and its cytokine-induction profile, rather than an exogenous patient-population factor."
The FDA's clinical hold letter does not reference pandemic conditions. The FDA's partial clinical hold letter dated August 22, 2024, cites the CRS-related deaths in the Marlowe Asset Management-2 trial as the specific basis for the regulatory action. The letter makes no reference to pandemic conditions, post-pandemic patient vulnerability, or any pandemic-related regulatory concern. The hold was imposed because VRD-4187 caused CRS-mediated fatalities, not because of any pandemic-related factor.
Even if applicable — the disproportionate impact exception would apply. In the remote scenario that some pandemic-adjacent factor were deemed to have contributed to the Marlowe Asset Management-2 outcomes and the FDA clinical hold, and that such factor fell within the scope of carveout (iv), the disproportionate impact exception would nevertheless reinstate the events into the MAE analysis. The impact on Veridian — a clinical hold on its sole advanced clinical asset, which represents the overwhelming majority of the Company's enterprise value and underpins the $900 million purchase price — is qualitatively and quantitatively disproportionate to any pandemic-related impact experienced by other comparably situated biotechnology companies. No other clinical-stage biotechnology company in Veridian's peer group has experienced a comparable clinical hold or a comparable safety signal attributable to pandemic conditions. The disproportionate impact is not merely substantial; it is exclusive to Veridian.
Conclusion: Carveout (iv) does not apply. The pandemic carveout has no factual nexus to the VRD-4187 safety data or the FDA partial clinical hold. The Marlowe Asset Management-2 adverse findings are attributable to the pharmacological characteristics of VRD-4187, not to any pandemic or public health emergency.
E. Carveout (v): Natural Disasters, Acts of War, or Terrorism
Analysis. No natural disaster, hurricane, earthquake, flood, force majeure event, act of war, armed hostility, sabotage, or act of terrorism caused or contributed to the VRD-4187 clinical data, the Marlowe Asset Management-2 safety signal, or the FDA partial clinical hold. There is no factual basis whatsoever for invoking this carveout in connection with the triggering events. The adverse clinical outcomes are entirely attributable to the performance of Veridian's drug candidate in a controlled clinical trial setting, and the FDA's regulatory action was specifically triggered by the safety data from that trial.
We note that while geopolitical conflicts (including the ongoing Russia-Ukraine war and instability in the Middle East) have affected global supply chains and, to some extent, the operations of multinational clinical trial networks, the Marlowe Asset Management-2 trial was conducted at 42 clinical sites in the United States and the European Union, with no sites in active conflict zones. Veridian has not suggested, and there is no basis to believe, that any geopolitical event or natural disaster contributed to the trial outcomes.
Conclusion: Carveout (v) does not apply. This carveout is plainly inapplicable.
F. Carveout (vi): Changes in Financial Markets Generally
Analysis. No changes in financial, banking, or securities markets caused or contributed to the Marlowe Asset Management-2 clinical trial outcomes or the FDA's decision to impose a partial clinical hold on IND 154832. This carveout is designed to address the risk of adverse market-wide financial events — declines in equity indices, disruptions in credit markets, changes in interest rates, or banking sector instability — that may affect the target company's valuation or access to capital but are unrelated to the company's operational performance.
The triggering events in this matter are clinical and regulatory in nature: elevated CRS rates, treatment-related deaths, non-significant efficacy data, and an FDA clinical hold. These are outcomes of a drug development program, not consequences of financial market conditions. Changes in interest rates, stock market performance, credit availability, or banking stability have no bearing on the pharmacological safety profile of VRD-4187 or the FDA's assessment of the Marlowe Asset Management-2 safety data.
To the extent Veridian's stock value (if it were publicly traded) or its fundraising capacity were affected by financial market conditions, such effects would be distinct from the clinical and regulatory events at issue. In any event, Veridian is a private company, and the purchase price under the SPA is a fixed cash amount, not indexed to public market valuations.
Conclusion: Carveout (vi) does not apply.
G. Carveout (vii): Announcement or Pendency of the Transactions
Veridian's potential argument. Veridian might argue that the announcement or pendency of Penterra's acquisition of Veridian distracted the Company's management team, diverted resources from clinical trial oversight, or otherwise contributed to operational lapses that exacerbated the adverse outcomes in the Marlowe Asset Management-2 trial. Alternatively, Veridian might argue that the pending acquisition affected the Company's interactions with the FDA, clinical investigators, or clinical trial sites in ways that contributed to the clinical hold.
Analysis. This argument lacks any factual foundation. There is no evidence that the announcement or pendency of the Transaction caused, contributed to, or exacerbated the CRS incidence, treatment-related deaths, or efficacy shortfall observed in VRD-4187's Marlowe Asset Management-2 trial. The adverse clinical data reflects the pharmacological characteristics of VRD-4187 at the 1.5 mg/kg dose as administered in a randomized, multi-center Phase II trial — these are drug-level outcomes determined by the molecule's mechanism of action, binding affinity, cytokine-induction profile, and patient-drug interaction, not by management distraction or operational disruption arising from the pending acquisition.
The SPA's interim operating covenants (SPA § 5.1) require Veridian to conduct its business in the ordinary course and to use commercially reasonable efforts to preserve its business relationships and clinical programs. Nothing in the record suggests that Veridian's compliance (or non-compliance) with these covenants contributed to the adverse Marlowe Asset Management-2 results. The trial was conducted by the independent clinical operations team at Veridian and its contract research organization, and the DMC's interim analysis was a pre-specified event in the trial's statistical analysis plan, not a consequence of deal-related disruption.
This carveout is typically invoked in M&A transactions to address the common phenomenon of customer attrition, employee departures, or supplier uncertainty arising from deal announcement — i.e., the counterparty flight that often accompanies news that a company is being acquired. It is not designed to serve as a catch-all exclusion for product-specific clinical failures that happen to occur during the pendency of a transaction. The connection between "deal pendency" and "23.4% Grade ≥3 CRS in a Phase II oncology trial" is, at best, fanciful.
We note that this carveout is the only one not subject to the disproportionate impact exception, meaning that if it were applicable, Penterra could not rely on the disproportionate impact proviso to reinstate the events into the MAE analysis. However, the factual inapplicability of this carveout makes this structural distinction entirely moot in the present case.
Conclusion: Carveout (vii) does not apply.
V. The Disproportionate Impact Exception — Consolidated Analysis
A. Framework
As set forth in Part III.C above, even if any of carveouts (i) through (vi) were somehow deemed facially applicable to the triggering events, each is subject to the proviso that the carveout "shall not apply" — and the otherwise-excluded event shall be taken into account in the MAE determination — to the extent the event "disproportionately affects the Company relative to other comparably situated companies in the biotechnology industry."
This section provides a consolidated analysis of the disproportionate impact exception as applied to the VRD-4187 clinical data and FDA partial clinical hold, reinforcing the conclusion that even under the most favorable interpretation of the carveouts for Veridian, the events would be reinstated into the MAE analysis.
The threshold question in applying the disproportionate impact exception is the identification of the appropriate comparator set — i.e., "comparably situated companies in the biotechnology industry." The SPA does not define this term, but it should be construed contextually. We submit that the appropriate comparator set consists of clinical-stage biotechnology companies focused on immuno-oncology therapeutics, and more specifically, companies with bispecific T-cell engager programs at comparable stages of clinical development. This peer group represents companies that share Veridian's fundamental business characteristics: pre-revenue, single-platform, clinical-stage companies whose enterprise value is substantially predicated on the success of one or more drug candidates in clinical trials.
B. Application to the VRD-4187 Data and FDA Clinical Hold
The disproportionate impact analysis supports Penterra's position on multiple independent grounds:
1. The safety signal is sui generis to VRD-4187. The 23.4% Grade ≥3 CRS rate, seven treatment-related deaths (3.6% mortality), and non-statistically significant ORR (p = 0.58) are specific to VRD-4187 and the Marlowe Asset Management-2 trial. These data points are not shared by, and do not similarly affect, other biotechnology companies. No comparable bispecific T-cell engager program — including tarlatamab (Greaves Industries/Penrose & Co.), elranatamab (Ashbury Industries), teclistamab (Calderon Corporation), or glofitamab (Roche) — has reported a comparable safety profile in Phase II or Phase III testing. The VRD-4187 CRS rate is an outlier even within the T-cell engager class, and it is entirely a function of VRD-4187's specific molecular characteristics and the Marlowe Asset Management-2 dosing protocol.
2. The FDA clinical hold is company- and product-specific. The partial clinical hold on IND 154832 applies exclusively to VRD-4187. No other IND in the biotechnology industry received a clinical hold on August 22, 2024, or as a result of the same events. The regulatory action is, by definition, disproportionate because it affects only Veridian and no other company.
3. Concentration of enterprise value in VRD-4187. Veridian is a pre-revenue, clinical-stage company with no marketed products, no meaningful revenue (FY2023 revenue: $0), and a pipeline consisting of three candidates, of which VRD-4187 is the only asset with meaningful clinical data (the other two programs, VRD-5201 and VRD-6003, are in IND-enabling studies and preclinical development, respectively). Penterra's financial advisor attributed approximately 82% to 87% of Veridian's risk-adjusted net present value to VRD-4187. The clinical hold on VRD-4187 — the Company's sole advanced asset and the foundation of the $900 million purchase price — has a uniquely devastating impact on Veridian relative to virtually any other biotechnology company.
By contrast, a diversified biotechnology company with multiple marketed products, multiple clinical-stage programs, and meaningful revenue would experience a clinical hold on one pipeline asset as a setback, but not as an existential event. Even relative to other single-product, clinical-stage biotechnology companies (which might be the most restrictive definition of the comparator set), Veridian's 23.4% Grade ≥3 CRS rate and 3.6% treatment-related mortality rate represent an outlier safety profile that positions Veridian at the far adverse end of the distribution.
4. No comparator experienced similar adverse effects from the same purported exogenous cause. For the disproportionate impact exception to be meaningful, the adverse effect must be disproportionate relative to the comparator set. Here, no comparably situated biotechnology company experienced a comparable clinical hold, a comparable safety signal, or comparable adverse clinical data at the same time or attributable to the same purported industry condition, pandemic, or other exogenous cause that Veridian might invoke under carveouts (i) through (vi). The triggering events are not merely disproportionate — they are exclusive to Veridian.
C. Conclusion on Disproportionate Impact
The disproportionate impact exception would be satisfied for any carveout that Veridian attempted to invoke in connection with the VRD-4187 clinical data or the FDA partial clinical hold. The adverse clinical data and regulatory action disproportionately — indeed, exclusively — affect Veridian relative to any reasonable comparator set of companies in the biotechnology industry. Penterra bears the burden of establishing disproportionate impact, and the factual record overwhelmingly supports this showing.
VI. Anticipated Counterarguments by Veridian / Zalcourt Archer & Cole
We anticipate that Veridian and its counsel, Rebecca Whitmore at Zalcourt Archer & Cole LLP, may advance the following counterarguments in response to Penterra's position on carveout inapplicability. We address each below.
A. Argument: Clinical Trial Risk is Inherent and Industry-Wide
The argument. Veridian may argue that clinical trial failure is a well-known, systemic risk inherent in the biotechnology industry, and that the Marlowe Asset Management-2 results are a foreseeable manifestation of this industry-wide risk. Under this theory, the adverse clinical data would constitute a "condition affecting the biotechnology industry generally" under carveout (ii) because every clinical-stage biotechnology company faces the possibility that its drug candidate will fail in clinical trials.
Rebuttal. This argument conflates the abstract risk of clinical trial failure with the specific occurrence of clinical trial failure for a particular drug. The carveout addresses industry conditions — i.e., exogenous factors that affect the biotechnology industry as a whole — not the inherent nature of biotechnology risk in the abstract. Every clinical-stage company faces the possibility of failure, just as every company in every industry faces the possibility of adverse business outcomes. But the specific failure of VRD-4187 in the Marlowe Asset Management-2 trial — the elevated CRS, the treatment-related deaths, the non-significant efficacy — is a company-specific and product-specific event attributable to the characteristics of VRD-4187 and its clinical program, not to any condition affecting the broader industry.
If Veridian's argument were accepted, the industry carveout would effectively immunize every clinical-stage biotechnology company against MAE claims arising from clinical trial failures, because such failures are always a foreseeable industry risk. This result would eviscerate the MAE definition for clinical-stage targets and render the Buyer's closing condition in § 7.2(b) meaningless — a construction that no court would adopt and that is fundamentally inconsistent with the purpose of the MAE provision. See Frontier Oil, 2005 WL 1039027, at *34-35 (declining to interpret MAE carveouts in a manner that would render the MAE provision "a nullity").
B. Argument: FDA Scrutiny of CRS is an Industry Trend
The argument. Veridian may argue that the FDA has increased its scrutiny of CRS risk in T-cell engager and bispecific antibody programs across the biotechnology industry, and that this heightened regulatory posture constitutes a "condition affecting the industry generally" under carveout (ii). Under this theory, the clinical hold on VRD-4187 would be characterized as a product of the FDA's general regulatory trend rather than a company-specific enforcement action.
Rebuttal. While we acknowledge that the FDA has devoted increasing attention to CRS risk management across the T-cell engager and CAR-T therapy landscape, the clinical hold on IND 154832 was not a general policy action. It was not a new guidance document, a rulemaking, or a class-wide regulatory notice. It was a product-specific regulatory action triggered by the Marlowe Asset Management-2 safety data for VRD-4187 — specifically, the seven CRS-related deaths. The FDA imposed the hold on Veridian's IND, not on the IND of any other T-cell engager program. The fact that the FDA is generally attentive to CRS risk does not transform every product-specific CRS-related regulatory action into an industry condition.
Moreover, even if the FDA's general regulatory focus on CRS were deemed an "industry condition," the disproportionate impact exception would apply with full force. The severity of VRD-4187's safety signal — a 23.4% Grade ≥3 CRS rate, 3.6% mortality, and a resulting clinical hold — far exceeds the CRS-related experience of other T-cell engager programs. Tarlatamab, glofitamab, teclistamab, and elranatamab have all been approved or advanced through late-stage trials without comparable CRS-related clinical holds or comparable mortality rates. Veridian is disproportionately affected because its molecule produced a disproportionately severe safety signal.
C. Argument: The Data is Preliminary and the Protocol Amendment Cures the Issue
The argument. Veridian may argue that the Marlowe Asset Management-2 interim data is preliminary, that the Protocol Amendment v4.0 (incorporating mandatory tocilizumab prophylaxis and a 50% dose reduction from 1.5 mg/kg to 0.75 mg/kg) addresses the safety concern, that the clinical hold is temporary and will be lifted upon FDA review of the amended protocol, and that the long-term commercial prospects of VRD-4187 remain intact.
Rebuttal. This argument, to the extent it has any force, goes to the substantive question of whether an MAE has occurred — specifically, to the durational significance and curability analysis that forms part of the traditional MAE framework under Delaware law (see Akorn, 2018 WL 4719347, at 92-93; In re IBP, Inc. S'holders Litig.*, 789 A.2d 14, 68 (Del. Ch. 2001)). It does not address the threshold carveout question, which is the subject of this memorandum.
The carveout analysis asks: what is the nature and source of the adverse event? The answer is that the adverse event is a company-specific clinical trial failure and a company-specific FDA regulatory action. Whether the clinical hold is temporary, whether the protocol amendment will be effective, and whether VRD-4187 can ultimately be developed successfully at a lower dose are all relevant to the magnitude and durat

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