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

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PRIVILEGED AND CONFIDENTIAL — ATTORNEY-CLIENT COMMUNICATION — ATTORNEY WORK PRODUCT

MEMORANDUM

TO: Thomas F. Holbrook, Esq. General Counsel & Secretary Penterra Pharmaceuticals Corp. 1100 Meridian Boulevard, Suite 400 Princeton, NJ 08540

FROM: Oliver Mackenzie, Partner Mergers & Acquisitions Calderwood & Harkness LLP 200 Park Avenue, 42nd Floor New York, NY 10166

DATE: September 15, 2024

RE: Penterra Pharmaceuticals Corp. — Proposed Acquisition of Veridian Biosciences, Inc. — Termination Options and Litigation Risk Assessment

Matter No.: 1018-00008

CC: Harrison Wexford (Calderwood & Harkness LLP); Megan Chu (Calderwood & Harkness LLP)

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I. Executive Summary

The purpose of this memorandum is to analyze the available courses of action for Penterra Pharmaceuticals Corp. ("Penterra" or the "Buyer") following two significant adverse developments affecting Veridian Biosciences, Inc. ("Veridian" or the "Company"): (a) the adverse interim data readout from the Marlowe Asset Management-2 Phase II clinical trial on August 14, 2024, which revealed a severe safety signal and no statistically significant efficacy advantage for VRD-4187 over standard of care; and (b) the U.S. Food and Drug Administration's ("FDA") imposition of a partial clinical hold on VRD-4187 (IND 154832) on August 22, 2024, pending investigation of cytokine release syndrome ("CRS")-related treatment deaths. Together, these developments have fundamentally undermined the clinical and commercial thesis underlying the proposed $900,000,000 acquisition of Veridian.

This memorandum identifies and evaluates three principal options available to Penterra:

• Option A: Proceed to closing on existing terms, paying the full $900,000,000 purchase price notwithstanding the adverse clinical data and regulatory action.

• Option B: Seek to renegotiate a reduced purchase price with Veridian and the Stockholder Representative, David Ng of Crestline Ventures, LP, reflecting the diminished value of VRD-4187 and, consequently, Veridian as an enterprise.

• Option C: Terminate the Stock Purchase Agreement dated June 10, 2024 (the "SPA") pursuant to Section 8.1(d) thereof, based on the failure of Buyer's closing conditions set forth in Sections 7.2(a) (bring-down of representations and warranties) and 7.2(b) (absence of a material adverse effect) due to the occurrence of a material adverse effect ("MAE").

Our recommendation is to pursue Option C — termination of the SPA. While this course of action carries material litigation risk, it is the option most favorable to Penterra on an expected-value basis. The Marlowe Asset Management-2 safety data, the absence of any meaningful efficacy advantage, and the FDA's partial clinical hold collectively constitute a material adverse effect under the SPA and Delaware law, and Penterra has strong contractual and factual grounds to terminate. We recommend that the Board of Directors authorize termination and that Penterra simultaneously prepare a comprehensive defensive litigation strategy in anticipation of claims by Veridian and its stockholders.

This memorandum draws upon and supplements the following prior memoranda prepared by Calderwood & Harkness LLP ("C&H") in connection with this matter:

• MAE Analysis — VRD-4187 Clinical Data (August 25, 2024)

• Delaware MAE Case Law Survey (August 27, 2024)

• MAE Carveouts Analysis (August 28, 2024)

• Supplemental MAE Analysis — Incorporating FDA Clinical Hold (September 2, 2024)

• Disproportionate Impact Exception Analysis (September 3, 2024)

We refer the reader to those memoranda for detailed treatment of the specific legal and factual analyses summarized herein.

II. Background and Current Status

A. Transaction Overview

On June 10, 2024, Penterra Pharmaceuticals Corp. and Veridian Biosciences, Inc. entered into the Stock Purchase Agreement pursuant to which Penterra agreed to acquire 100% of the outstanding capital stock of Veridian, a Delaware corporation with its principal place of business at 550 Gateway Drive, Cambridge, Massachusetts 02142. The aggregate purchase price under the SPA is $900,000,000 in cash, payable at closing.

Penterra (Nasdaq: PPCA) is a publicly traded specialty pharmaceutical company with a market capitalization of approximately $14.2 billion as of the date of this memorandum. Penterra reported full-year 2023 revenue of $4.87 billion and had approximately $2.1 billion in cash and cash equivalents on hand as of the end of the second quarter of 2024 (June 30, 2024). Penterra's existing product portfolio is concentrated in the oncology and immunology therapeutic areas, and the Veridian acquisition was intended to address a critical gap in Penterra's immuno-oncology pipeline created by the Phase III futility analysis of PPC-0921 (Penterra's lead immuno-oncology candidate), which was announced on November 18, 2023.

Veridian is a clinical-stage biotechnology company with no product revenue. Veridian reported a full-year 2023 net loss of ($87.3 million) and employs approximately 148 persons. Since its founding, Veridian has raised approximately $420 million in equity financing through its Series A, B, C, and D preferred stock rounds. Veridian's enterprise value, and the foundation for the $900 million purchase price, was driven almost entirely by VRD-4187, its lead clinical-stage immuno-oncology candidate, which was in Phase II development at the time of the SPA's execution. Veridian also possesses two earlier-stage immuno-oncology candidates and the proprietary VeriTCE bispecific T-cell engager platform technology, though these assets represent a comparatively modest share of the overall enterprise valuation.

The strategic rationale for the acquisition was straightforward: following the failure of PPC-0921, Penterra required a replacement immuno-oncology asset to sustain its growth trajectory and competitive position. VRD-4187, a next-generation bispecific T-cell engager targeting CD19 and CD3, was considered a best-in-class candidate with a compelling preclinical and early clinical data package at the time of signing.

Sellers' counsel in the transaction is Zalcourt Archer & Cole LLP, led by Rebecca Whitmore, a partner in that firm's New York office. The Stockholder Representative designated under the SPA is David Ng, Managing Partner of Crestline Ventures, LP, which holds approximately 28.3% of Veridian's outstanding equity. Other major stockholders include Boreal Health Partners Fund III, LP (approximately 19.7%, represented by Sarah Dalmqvist) and Apex Growth Equity Fund II, LP (approximately 14.1%, represented by Marcus Doyle). These three institutional investors collectively hold over 62% of Veridian's outstanding equity.

B. Key Deal Terms Relevant to This Analysis

The following key terms of the SPA are relevant to this analysis:

Purchase Price and Closing Mechanics. The aggregate purchase price is $900,000,000 in cash. At closing, $180,000,000 (20% of the purchase price) is to be deposited with Fidelis National Escrow Corp. as an indemnification escrow, and $2,500,000 is to be deposited as a stockholder representative expense fund. The resulting net closing payment to the selling stockholders would be $717,500,000 ($900,000,000 less $180,000,000 less $2,500,000).

Indemnification. The indemnification cap under the SPA is $180,000,000 (20% of the purchase price), with a deductible basket of $9,000,000 (1% of the purchase price, tipping). The cap for special and fundamental representations (including representations regarding capitalization, authority, title, taxes, and certain regulatory matters) is 100% of the purchase price ($900,000,000).

Reverse Termination Fee. The SPA provides for a reverse termination fee of $45,000,000 (5% of the purchase price), payable by Penterra to Veridian in the event Penterra fails to close the acquisition due to a financing failure — that is, where the committed debt financing is not available and Penterra fails to close as a result. This fee is discussed in further detail in Section VIII below.

Target Termination Fee. The SPA provides for a target termination fee of $36,000,000 (4% of the purchase price), payable by Veridian to Penterra in the event Veridian breaches its no-shop covenant and the SPA is terminated by Penterra as a result.

Outside Date. The Outside Date under the SPA is December 10, 2024, which is 180 days following the date of signing. Either party may terminate the SPA if closing has not occurred by the Outside Date, provided the terminating party is not then in material breach of the SPA.

Governing Law and Forum. The SPA is governed by Delaware law. Section 10.6 of the SPA provides for the exclusive jurisdiction of the Court of Chancery of the State of Delaware for any dispute arising out of or related to the SPA.

Specific Performance. Section 10.12 of the SPA grants the Sellers the right to seek specific performance to compel Penterra to close the acquisition, provided that all conditions to Buyer's obligation to close under Article VII of the SPA have been satisfied or waived.

C. Financing Structure

Penterra's acquisition of Veridian is to be financed through a combination of committed debt financing and cash on hand. On June 7, 2024, Penterra entered into a committed term loan facility in the aggregate principal amount of $500,000,000 (the "Committed Facility"), provided by a syndicate of lenders led by Ironclad Trust Company, N.A., as administrative agent, with Summit Ridge Capital Partners, LP serving as lead arranger. The commitment letter is referenced as CL-2024-PPCA-0607.

The Committed Facility bears interest at the Secured Overnight Financing Rate ("SOFR") plus 225 basis points per annum. The commitment fee on undrawn amounts is 0.35% per annum (approximately $1,750,000 per year on the full $500,000,000 commitment), and a ticking fee of 0.175% per annum commenced accruing on September 8, 2024, which was the 90th day following the signing of the SPA. The commitment under the Committed Facility is co-terminous with the SPA Outside Date of December 10, 2024, meaning the lenders' obligations to fund expire on that date.

The remaining $400,000,000 of the purchase price is to be funded from Penterra's cash on hand. As noted, Penterra had approximately $2.1 billion in cash and cash equivalents as of June 30, 2024, providing ample liquidity for its share of the funding.

D. VRD-4187 Clinical Developments

The events giving rise to this memorandum concern the Marlowe Asset Management-2 Phase II clinical trial of VRD-4187 (ClinicalTrials.gov Identifier: NCT05837291). Marlowe Asset Management-2 is a randomized, open-label, multi-center trial conducted across 42 clinical sites in the United States and the European Union, enrolling a total of 387 patients (194 in the VRD-4187 treatment arm and 193 in the standard-of-care control arm).

On August 14, 2024, the independent Data Monitoring Committee ("DMC") for the Marlowe Asset Management-2 trial completed its pre-specified interim analysis. The DMC's findings were severely adverse to the VRD-4187 program. The DMC recommended immediate suspension of further enrollment in the trial and mandatory dose modification for patients already enrolled. The key adverse findings were as follows:

• Cytokine Release Syndrome (CRS) — Grade ≥3: The incidence of Grade 3 or higher CRS events in the VRD-4187 treatment arm was 23.4%, compared to 4.1% in the control arm — a differential of 19.3 percentage points. This safety signal is profoundly concerning, as Grade ≥3 CRS events are life-threatening and require intensive care unit-level management, including vasopressor support and mechanical ventilation in severe cases.

• Treatment-Related Deaths: Seven patients in the VRD-4187 treatment arm experienced treatment-related deaths (3.6% mortality rate), compared to one patient in the control arm (0.5% mortality rate). The cause of death in six of the seven VRD-4187 treatment-arm deaths was attributed to refractory CRS with multi-organ failure.

• Overall Response Rate (ORR): The ORR in the VRD-4187 treatment arm was 31.4%, compared to 28.9% in the control arm. The difference was not statistically significant (p = 0.58), meaning VRD-4187 demonstrated no meaningful efficacy advantage over the standard-of-care regimen.

The significance of these findings cannot be overstated. A drug that offers no statistically significant efficacy benefit over standard of care while causing a 23.4% rate of severe CRS and a 3.6% treatment-related mortality rate presents an unjustifiable risk-benefit profile. In our consultations with Broadleaf Scientific Consulting LLC (led by Dr. Raymond Kapoor, a former FDA Division Director with over two decades of oncology drug development experience), Dr. Kapoor concluded in his supplemental clinical assessment dated August 19, 2024 that the Marlowe Asset Management-2 safety data "raises fundamental questions about VRD-4187's risk-benefit profile and commercial viability" and that "no reasonable regulatory authority would be expected to approve VRD-4187 on the basis of these data without a dramatic improvement in both the safety and efficacy profiles."

Penterra received formal notice from Veridian of the DMC's findings on August 16, 2024, pursuant to Veridian's notification obligations under Section 5.1(b) of the SPA. This notice was delivered within two business days of the DMC readout, consistent with the SPA's notification timeline.

On August 22, 2024, the FDA imposed a partial clinical hold on VRD-4187 under IND 154832, pending the agency's investigation of the CRS-related treatment deaths. The partial clinical hold prohibits the enrollment of new patients in the Marlowe Asset Management-2 trial and restricts certain dosing activities for existing enrolled patients, while permitting continued treatment of patients who, in the judgment of the treating investigator, are deriving clinical benefit. The imposition of a partial clinical hold by the FDA is a significant regulatory action that reflects the agency's assessment that the clinical data raises safety concerns sufficient to warrant regulatory intervention.

In response to the DMC findings and the FDA's partial clinical hold, Veridian implemented Protocol Amendment v4.0 on August 28, 2024. The protocol amendment includes two principal changes: (1) mandatory tocilizumab prophylaxis for all patients in the treatment arm prior to VRD-4187 administration, intended to mitigate the severity of CRS events; and (2) a dose reduction from 1.5 mg/kg to 0.75 mg/kg, a 50% reduction in the administered dose. While these measures represent responsible clinical practice, they fundamentally alter the VRD-4187 development program. The dose reduction, in particular, raises serious questions about whether the drug can achieve meaningful efficacy at the lower dose level, given that the full-dose regimen already failed to demonstrate a statistically significant efficacy advantage.

E. Procedural History of Deficiency Notice and Veridian Response

On September 6, 2024, Penterra, through C&H, delivered a formal Deficiency Notice to Veridian and the Stockholder Representative. The Deficiency Notice alleged that a material adverse effect had occurred within the meaning of the SPA, and that as a result, Buyer's closing conditions under Sections 7.2(a) (bring-down of representations and warranties) and 7.2(b) (absence of MAE) could not be satisfied. The Deficiency Notice identified the Marlowe Asset Management-2 interim data readout, the FDA's partial clinical hold, and the cumulative impact of these developments on Veridian's business, operations, prospects, financial condition, and regulatory status as the bases for the MAE determination. The Deficiency Notice expressly reserved all of Penterra's rights under the SPA, including the right to terminate pursuant to Section 8.1(d).

On September 13, 2024, Veridian, through its counsel Zalcourt Archer & Cole LLP (Rebecca Whitmore), delivered a formal response to the Deficiency Notice. Veridian's response disputed the occurrence of a material adverse effect and demanded that Penterra proceed to closing in accordance with the terms of the SPA. Veridian's principal arguments were as follows:

(i) The Marlowe Asset Management-2 clinical data is preliminary and interim in nature; the DMC recommended dose modification, not trial termination, and the final data from the trial has not yet been generated;

(ii) Veridian's Protocol Amendment v4.0 (mandatory tocilizumab prophylaxis and dose reduction) directly addresses the safety concerns identified by the DMC and the FDA, and there is a reasonable scientific basis to believe the amended protocol will yield an improved safety profile;

(iii) The FDA's partial clinical hold is a routine regulatory mechanism commonly employed in clinical-stage drug development; it is not a refuse-to-file letter, a complete response letter, or an outright rejection of the VRD-4187 program, and partial clinical holds are frequently lifted following the submission of adequate safety data and protocol modifications; and

(iv) No material adverse effect has occurred under the exacting standard established by Delaware case law, which requires a showing of a material effect on the long-term earnings potential of the target company, as articulated in Akorn, Inc. v. Fresenius Kabi AG, 2018 WL 4719347 (Del. Ch. Oct. 1, 2018), aff'd, 198 A.3d 724 (Del. 2018), and related precedent.

Veridian's response concluded with a demand that Penterra confirm its intention to close the acquisition and a reservation of Veridian's rights, including its right to seek specific performance under Section 10.12 of the SPA.

We have carefully considered Veridian's arguments and address them in detail in the analysis that follows. As discussed below, while Veridian's counterarguments are not frivolous and will be pressed vigorously in any litigation, we believe Penterra's MAE position is well-supported by the facts, the SPA, and Delaware law.

III. Option A: Proceed to Closing on Existing Terms

A. Description

Under Option A, Penterra would proceed to close the acquisition of Veridian for $900,000,000 in cash as originally contemplated by the SPA, notwithstanding the adverse Marlowe Asset Management-2 clinical data and the FDA's partial clinical hold on VRD-4187. The closing would take place on the terms and subject to the conditions set forth in the SPA, with no modification to the purchase price or any other material term.

B. Advantages

Proceeding to closing on existing terms would offer Penterra certain advantages, which we acknowledge in the interest of a balanced analysis:

Elimination of Litigation Risk. The most significant advantage of Option A is that it would eliminate all risk of litigation from Veridian and its stockholders. As discussed in Section VI below, termination of the SPA will almost certainly result in Veridian commencing legal proceedings in the Court of Chancery seeking specific performance and/or substantial monetary damages. By closing, Penterra would avoid the expense, distraction, uncertainty, and reputational cost of protracted Delaware Chancery litigation.

Preservation of Market Reputation. Invoking an MAE clause is an extraordinary step that is closely watched by the M&A community. Proceeding to closing would preserve Penterra's reputation as a reliable counterparty and a buyer that honors its contractual commitments. This may be relevant in future M&A processes, where targets and their advisors may be influenced by Penterra's track record.

Retention of Optionality on VRD-4187. It is possible, though we consider it unlikely at present, that the protocol amendment and dose reduction could salvage the VRD-4187 program. The tocilizumab prophylaxis may reduce CRS severity at the lower dose level, and Penterra's own development capabilities could be brought to bear on reformulation, combination strategies, or alternative indications. By closing, Penterra would retain the option to explore these pathways.

Acquisition of Other Pipeline Assets. Beyond VRD-4187, Veridian possesses two earlier-stage immuno-oncology candidates and the proprietary VeriTCE bispecific T-cell engager platform technology. While these assets were not the primary drivers of the $900 million valuation, they have genuine scientific and commercial potential that Penterra could develop.

C. Risks and Disadvantages

The disadvantages of Option A are, in our assessment, overwhelming:

Fundamental Impairment of Lead Asset. The Marlowe Asset Management-2 data reveals that VRD-4187, which was the primary basis for the $900 million purchase price, now has a severely impaired safety profile (23.4% Grade ≥3 CRS, 3.6% treatment-related mortality), an FDA partial clinical hold, and no demonstrated efficacy advantage over standard of care. The combination of these factors means that the drug's risk-benefit profile is fundamentally unjustifiable in its current form. Penterra would be acquiring a company whose lead asset — and the primary driver of its enterprise value — is in serious jeopardy.

Zero-Revenue Company; Value Driven by VRD-4187. Veridian is a clinical-stage company with zero product revenue. Its FY2023 net loss was ($87.3 million). The $900 million purchase price was premised on VRD-4187's projected commercial potential, which has been dramatically impaired. The earlier-stage pipeline and VeriTCE platform, while valuable, do not come close to supporting a $900 million valuation.

Risk of Full Clinical Hold or Abandonment. The partial clinical hold could escalate to a full clinical hold if the FDA determines that the safety data warrants more restrictive action. Moreover, there is a meaningful risk that VRD-4187 is ultimately abandoned, either because the safety profile cannot be sufficiently improved at a therapeutically active dose or because the 50% dose reduction renders the drug ineffective. In either scenario, the majority of the $900 million purchase price would be effectively unrecoverable.

Penterra Shareholder Liability. Penterra's Board of Directors has a fiduciary duty to its own stockholders. Proceeding with a $900 million acquisition when the fundamental investment thesis has deteriorated to this degree could expose the Board and Penterra's senior management to shareholder derivative claims or securities class action suits alleging breach of fiduciary duty and/or materially misleading disclosures regarding the rationale for closing.

Public Company Disclosure Obligations. As a Nasdaq-listed company, Penterra would be required to publicly explain the rationale for closing the acquisition in the face of the adverse clinical data and the FDA's partial clinical hold. This disclosure would likely be viewed negatively by the investment community and could depress the trading price of PPCA common stock.

D. Assessment

For the reasons set forth above, Option A is not recommended. The Marlowe Asset Management-2 clinical data and the FDA's partial clinical hold have fundamentally undermined the strategic rationale for the Veridian acquisition and the risk-reward calculus at a $900,000,000 purchase price. Proceeding to closing under these circumstances would constitute value-destructive action that is inconsistent with Penterra's fiduciary obligations to its stockholders.

IV. Option B: Negotiate Purchase Price Reduction

A. Description

Under Option B, Penterra would approach Veridian and the Stockholder Representative, David Ng of Crestline Ventures, LP, to renegotiate a reduced purchase price that reflects the diminished value of VRD-4187 and, by extension, Veridian as an enterprise. The objective would be to reach an amended SPA that permits Penterra to acquire Veridian at a price that is justified by the current clinical and regulatory landscape.

B. Potential Price Range

Our internal analysis, incorporating the Broadleaf Scientific Consulting clinical assessment, the FDA partial clinical hold, the non-significant efficacy data, and comparable transactions involving clinical-stage biotechnology companies with impaired lead assets, suggests that the post-data fair value of Veridian may be in the range of $200 million to $350 million. This range reflects the residual value of the VeriTCE platform technology, the two earlier-stage pipeline candidates, Veridian's assembled workforce, and a modest probability-adjusted value for VRD-4187 contingent on successful dose optimization and lifting of the clinical hold.

Accordingly, Penterra could propose a purchase price reduction of $500 million to $700 million, bringing the total consideration to approximately $200 million to $400 million. Alternative structures could include:

• An earnout mechanism tied to VRD-4187 clinical milestones (e.g., lifting of the FDA clinical hold, initiation of a Phase III trial, FDA approval), which would align a portion of the purchase price with the actual clinical outcomes;

• An increase in the indemnification escrow from $180 million to a higher amount, providing Penterra with additional downside protection; or

• A combination of reduced upfront consideration and milestone-based earnout payments.

C. Advantages

A negotiated price reduction, if achievable, would offer meaningful advantages to Penterra:

Avoidance of Litigation. A mutually agreed-upon price reduction, documented in an amendment to the SPA, would eliminate the risk of litigation from Veridian and its stockholders. Given the cost, duration, and uncertainty of Delaware Chancery litigation (discussed in Section VI below), this is a meaningful benefit.

Acquisition at Fair Value. A reduced price would allow Penterra to acquire Veridian's platform, early-stage pipeline, and scientific talent at a price that reflects the current reality of the VRD-4187 program, rather than the pre-adverse-data valuation.

Preservation of Relationship with Veridian Management. If Penterra intends to retain Veridian's management team and scientific personnel, a negotiated outcome that preserves a constructive working relationship is preferable to the adversarial posture that would result from termination and litigation.

D. Risks and Disadvantages

Despite these advantages, we believe that a renegotiation strategy is subject to significant practical and legal risks:

Sellers Are Highly Unlikely to Agree. The most fundamental obstacle to Option B is that Veridian and its stockholders have a powerful economic incentive to insist on the full $900 million purchase price or, failing that, to pursue litigation for the same amount. Crestline Ventures (28.3%), Boreal Health Partners Fund III (19.7%), and Apex Growth Equity Fund II (14.1%) collectively hold over 62% of Veridian's outstanding equity and have approximately $420 million invested in the company across multiple funding rounds. A reduction of $500 million to $700 million from the purchase price would mean that these investors recover substantially less than their invested capital — an outcome they will resist strenuously. As sophisticated institutional investors with access to top-tier litigation counsel, they are well-positioned to pursue a litigation strategy rather than accept a voluntary haircut.

Risk of Waiver or Weakening of MAE Position. This is a critical legal concern. If Penterra engages in formal renegotiation with Veridian, statements made during those negotiations — particularly any indication that Penterra would be willing to close at a reduced price — could be used by Veridian in subsequent litigation to argue that Penterra did not genuinely believe a material adverse effect had occurred, or that Penterra waived its MAE termination right by signaling a willingness to proceed with the transaction (albeit at a lower price). Discovery in any subsequent litigation would likely encompass all communications exchanged during renegotiation, and Penterra's litigation position could be materially compromised by statements made in those discussions.

No Contractual Obligation to Renegotiate. The SPA does not impose any obligation on either party to renegotiate the purchase price or any other term. There is no "good faith renegotiation" clause or similar mechanism. While the absence of such a clause does not preclude voluntary negotiations, it means that Penterra has no leverage to compel Veridian to come to the table.

Time Consumption. Negotiations would consume valuable time in the period between now and the Outside Date (December 10, 2024). If negotiations fail — as we believe is the most likely outcome — the delay may narrow the window available for Penterra to execute a clean termination and prepare its defensive litigation position.

discovery Material. Even informal negotiations, if documented in emails, text messages, or notes of calls, would create a body of discovery material that Veridian could use in litigation to undermine Penterra's termination position. The risk is particularly acute if any Penterra representative makes statements that could be characterized as inconsistent with a genuine belief that an MAE has occurred.

E. Assessment

We recognize that there may be value in exploring whether a renegotiation is feasible on an informal and preliminary basis, and we would not foreclose the possibility entirely. Informal back-channel discussions through Penterra's financial advisor, Garrison Zanthor & Co. (Kevin Driscoll), and Veridian's financial advisor, Ridgeway Partners (Laura Beckett), could be used to gauge the sellers' willingness to engage in a price discussion without committing Penterra to any formal position. However, formal renegotiation is not recommended as a primary strategy because of the substantial risk that it would compromise Penterra's MAE termination position, and because we assess the probability of reaching a negotiated outcome acceptable to both sides as low.

If the Board elects to authorize informal inquiries through the financial advisor channel, we strongly recommend that (i) any such inquiries be characterized as exploratory and without prejudice to Penterra's rights under the SPA, (ii) no Penterra officer, director, or employee directly participate in the discussions, and (iii) C&H be consulted before any communication is made.

V. Option C: Terminate the SPA Under Section 8.1(d)

A. Legal Basis for Termination

Section 8.1(d) of the SPA provides that the Buyer may terminate the Agreement by written notice to the Sellers and the Stockholder Representative if any condition to the Buyer's obligation to close under Article VII of the Agreement has not been satisfied and is not reasonably capable of being satisfied on or prior to the Outside Date, provided that the Buyer is not then in material breach of the Agreement.

The Buyer's closing conditions at issue are:

Section 7.2(a) — Bring-Down of Representations and Warranties. This condition requires that the representations and warranties of the Sellers set forth in Article III of the SPA shall be true and correct in all respects (subject to any materiality or MAE qualifiers contained therein) as of the date of the Agreement and as of the closing date, as though made at and as of such date (except to the extent any representation or warranty expressly relates to a specified date, in which case as of such specified date). The adverse Marlowe Asset Management-2 clinical data and the FDA partial clinical hold have caused a number of the Sellers' representations regarding Veridian's business, operations, prospects, and regulatory status to be inaccurate. In particular, the representations in Article III regarding the condition and sufficiency of Veridian's assets (including its intellectual property and clinical-stage product candidates), its compliance with applicable laws (including FDA regulations), its regulatory status and the status of its regulatory filings, and the absence of any material adverse change since the date of the most recent financial statements are now materially inaccurate when measured against the MAE-qualified standard.

Section 7.2(b) — No Material Adverse Effect. This condition provides that, since the date of the Agreement, there shall not have occurred any event, change, or development that, individually or in the aggregate, has had or would reasonably be expected to have a material adverse effect on the business, condition (financial or otherwise), results of operations, properties, assets, or prospects of the Company. The Marlowe Asset Management-2 clinical data and the FDA partial clinical hold, individually and in the aggregate, constitute such an event, change, or development.

Penterra's termination right under Section 8.1(d) is conditioned on Penterra not being in material breach of the SPA at the time of termination. We have reviewed Penterra's performance of its covenants and obligations under the SPA and have identified no material breach by Penterra. Penterra has complied with its affirmative and negative covenants, including its covenants regarding cooperation with regulatory filings (the HSR filing was made on June 21, 2024, and early termination of the waiting period was granted on July 29, 2024), confidentiality, and commercially reasonable efforts to consummate the transaction. Penterra's issuance of the Deficiency Notice on September 6, 2024 was an exercise of its contractual rights, not a breach.

B. Strength of Penterra's MAE Claim

We have analyzed the strength of Penterra's MAE claim in detail in our prior memoranda, and we summarize the key considerations here.

Favorable Factors. The following factors strongly support Penterra's position that a material adverse effect has occurred:

Severity of the Safety Signal. The Marlowe Asset Management-2 data reveals a 23.4% incidence of Grade ≥3 CRS in the treatment arm, compared to 4.1% in the control arm — a 19.3 percentage-point differential. This is an extraordinarily severe safety signal by any measure. Grade ≥3 CRS events are life-threatening, require intensive care, and in many cases result in multi-organ failure and death. Seven patients in the treatment arm died of treatment-related causes (3.6%), compared to one in the control arm (0.5%). These are not marginal safety concerns; they are fundamental deficiencies in the drug's safety profile that would be expected to weigh heavily in any regulatory risk-benefit assessment.

Absence of Efficacy Advantage. Critically, the severe safety signal is not counterbalanced by any meaningful efficacy advantage. The ORR in the treatment arm was 31.4%, compared to 28.9% in the control arm, a difference that was not statistically significant (p = 0.58). A drug that kills patients at a materially higher rate than the control arm while offering no statistically significant improvement in efficacy presents an untenable risk-benefit profile. This point is central to the MAE analysis: the combination of severe safety risks and absent efficacy differentiation is far more damaging than either finding alone.

FDA Regulatory Action. The FDA's imposition of a partial clinical hold on IND 154832 is a significant regulatory event. Unlike an informal safety inquiry or a request for additional data, a partial clinical hold is a formal regulatory action that restricts clinical development activity and signals that the FDA has independently concluded that the clinical data raises safety concerns warranting intervention. While Veridian may characterize the partial clinical hold as "routine," the reality is that it represents a material impediment to the continued clinical development of VRD-4187 and introduces substantial uncertainty regarding the drug's regulatory path.

Single-Product Company for Valuation Purposes. Veridian is, for all practical purposes, a single-product company from a valuation perspective. VRD-4187 was the primary value driver underlying the $900 million purchase price. The two earlier-stage pipeline candidates and the VeriTCE platform, while having some residual value, were not the basis for the premium Penterra agreed to pay. When the lead asset of a clinical-stage biotechnology company is severely impaired, the effect on enterprise value is necessarily material — indeed, potentially existential.

Durational Significance. The safety signal revealed by the Marlowe Asset Management-2 interim data is not a transient or easily reversible phenomenon. The clinical data cannot be "undiscovered." The seven treatment-related deaths cannot be erased from the safety database. The FDA partial clinical hold is ongoing, and even if it is ultimately lifted following Veridian's submission of adequate safety data, the clinical development program has been fundamentally altered. The 50% dose reduction from 1.5 mg/kg to 0.75 mg/kg represents a fundamental change to the drug program that may render VRD-4187 ineffective at the lower dose level. These are not temporary disruptions; they represent durable and potentially permanent impairments to VRD-4187's clinical and commercial prospects.

Independent Expert Assessment. Broadleaf Scientific Consulting LLC, led by Dr. Raymond Kapoor (former FDA Division Director and recognized expert in oncology drug development), has concluded that the Marlowe Asset Management-2 safety profile "raises fundamental questions about VRD-4187's risk-benefit profile and commercial viability." Dr. Kapoor's assessment is based on his independent review of the interim clinical data and his extensive experience in oncology drug development and FDA regulatory processes. His opinion provides strong evidentiary support for Penterra's MAE claim.

Challenging Factors (Veridian's Likely Counterarguments)

We recognize that Penterra's MAE claim faces certain headwinds, and we have considered them carefully:

Delaware's Exacting Standard. The Delaware Court of Chancery and the Delaware Supreme Court have consistently held that the standard for establishing a material adverse effect is demanding. A buyer claiming MAE must demonstrate an effect that is "material when viewed from the long-term perspective of a reasonable acquiror." Akorn, Inc. v. Fresenius Kabi AG, 2018 WL 4719347, at 81 (Del. Ch. Oct. 1, 2018), aff'd, 198 A.3d 724 (Del. 2018). The Akorn* decision remains the only Delaware case in which a court has found that a material adverse effect occurred. Veridian will emphasize this point and argue that Delaware law disfavors buyers seeking to escape their contractual commitments.

Interim Nature of the Data. Veridian will argue that the Marlowe Asset Management-2 data is interim in nature — the DMC's analysis was a pre-specified interim look, not the final data readout. Veridian will contend that interim data is inherently preliminary and that the final results of the trial, particularly following the protocol amendment and dose reduction, may paint a different picture. Veridian will further note that the DMC recommended dose modification rather than trial termination, suggesting that the DMC believed the VRD-4187 program could continue with appropriate modifications.

Protocol Amendment as Cure. Veridian will argue that its prompt implementation of Protocol Amendment v4.0 (mandatory tocilizumab prophylaxis and 50% dose reduction) directly addresses the safety concerns and demonstrates that the VRD-4187 program is not irretrievably impaired. Veridian will contend that the protocol amendment represents a standard clinical development response to an adverse safety signal and that it would be premature to conclude that VRD-4187 has no path forward.

Partial Clinical Hold as Routine. Veridian will characterize the FDA's partial clinical hold as a routine regulatory mechanism commonly employed during clinical development. Veridian will point to publicly available data showing that partial clinical holds are imposed with some frequency and are frequently lifted following the submission of adequate safety data and protocol modifications. Veridian will argue that the partial clinical hold is categorically different from a refuse-to-file action, a complete response letter, or a withdrawal of the IND application.

Industry Risk Argument. Veridian may attempt to characterize the adverse clinical data as an industry risk inherent in the acquisition of clinical-stage biotechnology companies, and argue that Penterra, as a sophisticated pharmaceutical acquiror, assumed this risk when it agreed to acquire a company whose lead asset was in Phase II clinical development. While this argument does not directly implicate any of the SPA's MAE carveouts (as discussed in Section V.C below), Veridian may deploy it as a framing argument before the Court.

Outside Date and Potential for Improvement. The Outside Date is December 10, 2024, approximately ten weeks away. Veridian may argue that the partial clinical hold could be lifted during this period, that enrollment could resume under the amended protocol, and that the closing conditions could be satisfied before the Outside Date. Veridian will argue that termination at this stage is premature and that Penterra should be required to wait until the Outside Date before concluding that the conditions are "not reasonably capable of being satisfied."

Overall Assessment. Weighing the favorable and challenging factors, we assess Penterra's MAE position as strong but not without risk. The critical distinguishing features of this case — the severity of the safety signal, the absence of any efficacy differentiation, the FDA's affirmative regulatory intervention, the single-product nature of Veridian's enterprise, and the durable and structural nature of the impairment — set this matter apart from the typical "buyer's remorse" scenario that Delaware courts have historically rejected. The factual parallels to Akorn are imperfect but instructive: in Akorn, the court found an MAE based on a sustained and significant decline in the target's business performance, regulatory problems, and data integrity issues. Here, the impairment is arguably even more concentrated and severe, as it strikes at the core of the only asset that justified the purchase price.

We estimate the probability that a Delaware court would find that a material adverse effect has occurred at approximately 60–70%. This assessment reflects our confidence in the strength of the underlying facts while acknowledging the demanding standard that Delaware law imposes and the inherent uncertainty of litigation.

C. Carveout Analysis

The SPA's definition of "Material Adverse Effect" contains customary carveouts for events, changes, or developments arising from or attributable to: (i) general economic conditions in the United States or globally; (ii) conditions generally affecting the biotechnology or pharmaceutical industries; (iii) changes in applicable law or regulations, or interpretations thereof; (iv) pandemics, epidemics, or public health emergencies; (v) natural disasters, acts of war, terrorism, or armed hostilities; (vi) changes in financial or securities markets generally; and (vii) the announcement or pendency of the transactions contemplated by the SPA.

None of these carveouts applies to the Marlowe Asset Management-2 clinical data or the FDA partial clinical hold. The adverse clinical findings are company-specific events arising from Veridian's own clinical trial of its own drug candidate. They are not the product of general economic conditions, industry-wide trends, changes in law, pandemics, natural disasters, financial market disruptions, or announcement effects. The pandemic carveout is clearly inapplicable — the adverse events are drug-related cytokine release syndrome, not pandemic-related complications.

To the extent Veridian were to argue that the industry conditions carveout applies — perhaps by characterizing adverse clinical trial results as an inherent risk of the biotechnology industry — the SPA's disproportionate impact exception would apply. The disproportionate impact exception provides that any excluded event, change, or development that has a materially disproportionate impact on the Company relative to other companies operating in the biotechnology or pharmaceutical industries shall not be excluded from the definition of Material Adverse Effect. The VRD-4187 safety data is specific to Veridian's product and disproportionately affects Veridian relative to any comparably situated biotechnology company. As detailed in our Disproportionate Impact Exception Analysis dated September 3, 2024, no similarly situated bispecific T-cell engager program has experienced a comparable safety signal during this period, confirming that the effect is company-specific rather than industry-wide.

D. Process for Termination

If the Board authorizes termination, the following process should be followed:

Board Authorization. Penterra's Board of Directors must adopt a resolution authorizing the termination of the SPA and directing that a formal Termination Notice be delivered to Veridian and the Stockholder Representative. The resolution should reference the factual and legal bases for termination (the Marlowe Asset Management-2 clinical data, the FDA partial clinical hold, and the failure of closing conditions under Sections 7.2(a) and 7.2(b) of the SPA), and should confirm the Board's determination, based on the advice of counsel, that a material adverse effect has occurred. C&H will prepare the form of board resolution and an accompanying board memorandum for the Board's consideration.

Delivery of Termination Notice. A formal Termination Notice must be delivered to Veridian (at its principal office at 550 Gateway Drive, Cambridge, MA 02142) and to David Ng, as Stockholder Representative (at the address specified in the SPA's notice provisions), in accordance with the notice requirements of Section 10.4 of the SPA. The Termination Notice should cite Section 8.1(d) as the basis for termination, should specifically identify the failure of Buyer's closing conditions under Sections 7.2(a) and 7.2(b), and should describe the Marlowe Asset Management-2 clinical data and the FDA partial clinical hold as the events constituting the material adverse effect. The notice should be clear and unequivocal.

Recommended Timing. We recommend delivery of the Termination Notice on or about September 30, 2024. This timing provides 24 days between the Deficiency Notice (September 6, 2024) and the Termination Notice, demonstrating that Penterra afforded Veridian a reasonable opportunity to cure the conditions giving rise to the deficiency, while also acknowledging the reality that the conditions are incurable — the clinical data cannot be reversed, and the FDA partial clinical hold remains in effect. Delivering the Termination Notice on September 30 also preserves more than two months before the Outside Date, reducing any argument that Penterra rushed to judgment.

E. Advantages

Preservation of Capital. Termination avoids committing $900,000,000 to an asset whose value has been fundamentally impaired by the adverse clinical data and regulatory action. This is the most significant advantage of Option C.

Balance Sheet and Strategic Flexibility. By preserving its cash on hand (approximately $2.1 billion) and avoiding the $500 million in committed debt financing, Penterra retains maximum balance sheet flexibility to pursue alternative strategic transactions, invest in its existing pipeline, or return capital to stockholders.

Maximization of Shareholder Value. On an expected-value basis, termination is the option most likely to maximize shareholder value, as discussed in the quantitative analysis set forth in Section X below.

Strong Legal Position. As discussed in Section V.B above, Penterra has a strong factual and legal basis for its MAE claim under the SPA and Delaware law. The combination of the safety signal severity, the absence of efficacy differentiation, and the FDA's regulatory action provides a compelling case for termination.

F. Risks and Disadvantages

Litigation Risk. The most significant risk of Option C is that Veridian will commence litigation in the Court of Chancery of the State of Delaware seeking specific performance and/or substantial monetary damages. This risk is discussed in detail in Section VI below. We estimate the overall probability of some form of adverse litigation outcome at approximately 30–40%.

Sunk Transaction Costs. Penterra has incurred approximately $12,991,664 in non-recoverable transaction costs to date. These costs are discussed in detail in Section VII below.

Reputational Considerations. As noted in the discussion of Option A, invoking an MAE clause may be perceived negatively by some participants in the M&A market. However, given the severity of the clinical data and the FDA's regulatory action, we believe that sophisticated market participants will understand and accept Penterra's decision as a legitimate exercise of its contractual rights.

VI. Litigation Risk Assessment (If Option C Is Pursued)

A. Veridian's Likely Claims

If Penterra terminates the SPA, we anticipate that Veridian will commence legal proceedings in the Court of Chancery of the State of Delaware. Based on our analysis of the SPA, the factual record, and Veridian's September 13, 2024 response letter, we anticipate that Veridian will assert the following claims:

1. Breach of Contract

Veridian will allege that Penterra breached the SPA by purporting to terminate the Agreement without a valid basis and by failing and refusing to close the acquisition. Veridian will contend that no material adverse effect occurred, that the Buyer's closing conditions under Sections 7.2(a) and 7.2(b) were satisfied (or would have been satisfied by the closing date or the Outside Date), and that Penterra's termination was therefore a wrongful repudiation of the Agreement.

Veridian will seek expectation damages — that is, the amount necessary to place Veridian and its stockholders in the position they would have occupied had Penterra performed its obligations under the SPA and closed the acquisition. The primary measure of damages would be the difference between the $900,000,000 contractual purchase price and the current fair market value of Veridian. Veridian will argue that its current fair market value has been significantly depressed not only by the adverse clinical data but also by the uncertainty and stigma associated with the failed transaction itself, and will seek to attribute a portion of the decline in value to Penterra's termination. We anticipate that Veridian will claim damages in the range of $500 million to $700 million.

We note that the calculation of expectation damages in a case of this nature is complex and would be the subject of extensive expert testimony at trial, including competing valuation analyses based on discounted cash flow models, comparable company analyses, probability-adjusted pipeline valuations, and other methodologies. Penterra would challenge Veridian's damages calculation and present its own expert analysis showing a lower fair market value differential.

2. Specific Performance

This is Veridian's most potent claim. Section 10.12 of the SPA grants the Sellers the right to seek specific performance to compel Buyer to close the acquisition, provided that all conditions to Buyer's obligation to close under Article VII have been satisfied or waived. In a specific performance action, Veridian would seek an order from the Court of Chancery directing Penterra to consummate the acquisition at the full $900,000,000 purchase price.

The critical advantage of specific performance from Veridian's perspective is that it eliminates the need to prove damages. If the Court orders specific performance, the acquisition is consummated at the agreed price, and the question of the appropriate measure of damages is rendered moot.

The key requirement for specific performance under Section 10.12 is that all closing conditions must be satisfied. This means that the specific performance claim and the MAE defense are effectively two sides of the same coin: if the Court determines that a material adverse effect has occurred (meaning that the Section 7.2(b) closing condition is not satisfied), specific performance is unavailable. If the Court determines that no MAE has occurred, specific performance may be ordered.

We anticipate that Veridian will vigorously pursue specific performance, and may seek expedited proceedings in the Court of Chancery to obtain a ruling before the Outside Date (December 10, 2024), in order to compel closing while the SPA remains in effect. This is a significant procedural risk, as an expedited proceeding would compress the litigation timeline and limit the time available for discovery and trial preparation. However, we note that the Court of Chancery has substantial experience managing expedited proceedings in M&A disputes and would be expected to provide both parties with a fair opportunity to present their cases.

3. Declaratory Judgment

In addition to or in the alternative to its claims for breach of contract and specific performance, Veridian may seek a declaratory judgment that (i) Penterra's purported termination of the SPA is invalid, (ii) the SPA remains in full force and effect, and (iii) Penterra is obligated to close the acquisition. A declaratory judgment action could be filed either before or after Penterra delivers the Termination Notice, and could be used as a vehicle for seeking the expedited proceedings discussed above.

B. Penterra's Defenses

Penterra will assert the following defenses in response to Veridian's claims:

1. Valid Termination Under Section 8.1(d)

Penterra's primary defense is that the termination of the SPA was validly exercised pursuant to Section 8.1(d) because the Buyer's closing conditions under Sections 7.2(a) and 7.2(b) have not been satisfied and are not reasonably capable of being satisfied on or prior to the Outside Date. The factual and legal basis for this defense is the occurrence of a material adverse effect as demonstrated by the Marlowe Asset Management-2 interim data readout and the FDA's partial clinical hold on VRD-4187, as detailed in Section V.B above.

This defense addresses all of Veridian's claims: if the termination was valid, there is no breach of contract, specific performance is not available (because the closing conditions are not satisfied), and the SPA has been validly terminated.

2. Closing Conditions Not Satisfied

In support of the primary defense, Penterra will demonstrate that both of the relevant closing conditions have failed:

Section 7.2(a) — Bring-Down of Representations. The Sellers' representations regarding Veridian's business, operations, regulatory status, and compliance with applicable law, as set forth in Article III of the SPA, are no longer true and correct to the MAE-qualified standard as of the anticipated closing date. Specifically, representations regarding the condition and sufficiency of Veridian's assets, the status of Veridian's regulatory filings, Veridian's compliance with FDA regulations, and the absence of material adverse changes since the date of the most recent financial statements have been rendered inaccurate by the Marlowe Asset Management-2 data and the FDA partial clinical hold.

Section 7.2(b) — No Material Adverse Effect. Since the date of the SPA (June 10, 2024), a material adverse effect has occurred on the business, condition (financial or otherwise), results of operations, properties, assets, and prospects of Veridian, as a result of the Marlowe Asset Management-2 clinical data and the FDA partial clinical hold. As detailed in Section V.B, the safety signal is severe and disqualifying from a risk-benefit perspective, the efficacy data shows no statistically significant advantage, the FDA has taken concrete regulatory action, the effect is durationally significant, and VRD-4187 was the primary driver of Veridian's enterprise value.

3. Specific Performance — Conditions Defense

With respect to Veridian's specific performance claim, Penterra will assert that specific performance under Section 10.12 is conditioned on the satisfaction of all closing conditions under Article VII. Because Sections 7.2(a) and 7.2(b) are not satisfied — a material adverse effect having occurred — the contractual prerequisite for specific performance has not been met, and the Court should decline to order specific performance. Delaware courts have consistently held that they will not order specific performance to compel a transaction where the buyer's closing conditions have legitimately failed. The equitable remedy of specific performance is not available to override a validly exercised contractual termination right.

4. Affirmative Defense: Failure to Mitigate

To the extent Veridian pursues monetary damages rather than or in addition to specific performance, Penterra will assert that Veridian has failed to mitigate its damages. Under Delaware law, a party seeking contract damages has a duty to take reasonable steps to mitigate the harm resulting from the breach. Penterra will argue that Veridian failed to mitigate by not pursuing alternative transactions, strategic partnerships, or other value-maximizing strategies following the termination, and that Veridian cannot recover damages attributable to its failure to pursue such alternatives.

C. Forum and Timing

Forum. All disputes arising under the SPA are subject to the exclusive jurisdiction of the Court of Chancery of the State of Delaware, pursuant to Section 10.6 of the SPA. The Court of Chancery has deep expertise in M&A disputes and has developed a substantial body of precedent regarding MAE claims, specific performance, and related issues. Both parties will benefit from the Court's expertise, but we note that the Court's familiarity with these issues also means that it will apply a rigorous and well-developed analytical framework.

Anticipated Filing. Based on the tenor of Veridian's September 13, 2024 response letter and informal intelligence from market sources, we anticipate that Veridian may file a complaint in the Court of Chancery on or around November 15, 2024 — though an earlier filing, particularly if Veridian seeks expedited relief before the Outside Date, is possible. The anticipated case caption would be:

Veridian Biosciences, Inc. v. Penterra Pharmaceuticals Corp., C.A. No. 2024-___ (Del. Ch.)

Expedited Proceedings. Veridian may seek expedited proceedings under Court of Chancery Rule 210, arguing that the impending Outside Date (December 10, 2024) creates a time-sensitive need for judicial resolution. If Veridian files before the Outside Date and seeks a preliminary injunction, status quo order, or summary proceeding on specific performance, the Court could schedule an expedited trial on the merits before or shortly after the Outside Date. This is a significant tactical consideration: an expedited schedule would limit the time available for discovery and trial preparation, though it would also shorten the period of uncertainty for Penterra.

Post-Outside Date. After December 10, 2024, the SPA terminates by its own terms if closing has not occurred (subject to the limitation that a party in material breach may not invoke the Outside Date termination right). Once the Outside Date passes, Veridian's specific performance claim becomes moot, as the Court cannot order the performance of a contract that has expired. Veridian's claims would then be limited to monetary damages for breach of contract. This is a significant inflection point in the litigation posture: specific performance is Veridian's strongest claim, and its expiration would substantially narrow the litigation risk.

D. Assessment of Litigation Outcome Probabilities

Based on our analysis of the facts, the SPA, Delaware precedent, and the likely arguments of both parties, we assess the litigation outcome probabilities as follows:

Probability that Penterra prevails on the MAE defense: Approximately 60–70%. This reflects the strength of the underlying facts — the severity of the safety signa

PRIVILEGED AND CONFIDENTIAL — ATTORNEY-CLIENT COMMUNICATION — ATTORNEY WORK PRODUCT
MEMORANDUM
TO: Thomas F. Holbrook, Esq. General Counsel & Secretary Penterra Pharmaceuticals Corp. 1100 Meridian Boulevard, Suite 400 Princeton, NJ 08540
FROM: Oliver Mackenzie, Partner Mergers & Acquisitions Calderwood & Harkness LLP 200 Park Avenue, 42nd Floor New York, NY 10166
DATE: September 15, 2024
RE: Penterra Pharmaceuticals Corp. — Proposed Acquisition of Veridian Biosciences, Inc. — Termination Options and Litigation Risk Assessment
Matter No.: 1018-00008
CC: Harrison Wexford (Calderwood & Harkness LLP); Megan Chu (Calderwood & Harkness LLP)
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I. Executive Summary
The purpose of this memorandum is to analyze the available courses of action for Penterra Pharmaceuticals Corp. ("Penterra" or the "Buyer") following two significant adverse developments affecting Veridian Biosciences, Inc. ("Veridian" or the "Company"): (a) the adverse interim data readout from the Marlowe Asset Management-2 Phase II clinical trial on August 14, 2024, which revealed a severe safety signal and no statistically significant efficacy advantage for VRD-4187 over standard of care; and (b) the U.S. Food and Drug Administration's ("FDA") imposition of a partial clinical hold on VRD-4187 (IND 154832) on August 22, 2024, pending investigation of cytokine release syndrome ("CRS")-related treatment deaths. Together, these developments have fundamentally undermined the clinical and commercial thesis underlying the proposed $900,000,000 acquisition of Veridian.
This memorandum identifies and evaluates three principal options available to Penterra:
• Option A: Proceed to closing on existing terms, paying the full $900,000,000 purchase price notwithstanding the adverse clinical data and regulatory action.
• Option B: Seek to renegotiate a reduced purchase price with Veridian and the Stockholder Representative, David Ng of Crestline Ventures, LP, reflecting the diminished value of VRD-4187 and, consequently, Veridian as an enterprise.
• Option C: Terminate the Stock Purchase Agreement dated June 10, 2024 (the "SPA") pursuant to Section 8.1(d) thereof, based on the failure of Buyer's closing conditions set forth in Sections 7.2(a) (bring-down of representations and warranties) and 7.2(b) (absence of a material adverse effect) due to the occurrence of a material adverse effect ("MAE").
Our recommendation is to pursue Option C — termination of the SPA. While this course of action carries material litigation risk, it is the option most favorable to Penterra on an expected-value basis. The Marlowe Asset Management-2 safety data, the absence of any meaningful efficacy advantage, and the FDA's partial clinical hold collectively constitute a material adverse effect under the SPA and Delaware law, and Penterra has strong contractual and factual grounds to terminate. We recommend that the Board of Directors authorize termination and that Penterra simultaneously prepare a comprehensive defensive litigation strategy in anticipation of claims by Veridian and its stockholders.
This memorandum draws upon and supplements the following prior memoranda prepared by Calderwood & Harkness LLP ("C&H") in connection with this matter:
• MAE Analysis — VRD-4187 Clinical Data (August 25, 2024)
• Delaware MAE Case Law Survey (August 27, 2024)
• MAE Carveouts Analysis (August 28, 2024)
• Supplemental MAE Analysis — Incorporating FDA Clinical Hold (September 2, 2024)
• Disproportionate Impact Exception Analysis (September 3, 2024)
We refer the reader to those memoranda for detailed treatment of the specific legal and factual analyses summarized herein.
II. Background and Current Status
A. Transaction Overview
On June 10, 2024, Penterra Pharmaceuticals Corp. and Veridian Biosciences, Inc. entered into the Stock Purchase Agreement pursuant to which Penterra agreed to acquire 100% of the outstanding capital stock of Veridian, a Delaware corporation with its principal place of business at 550 Gateway Drive, Cambridge, Massachusetts 02142. The aggregate purchase price under the SPA is $900,000,000 in cash, payable at closing.
Penterra (Nasdaq: PPCA) is a publicly traded specialty pharmaceutical company with a market capitalization of approximately $14.2 billion as of the date of this memorandum. Penterra reported full-year 2023 revenue of $4.87 billion and had approximately $2.1 billion in cash and cash equivalents on hand as of the end of the second quarter of 2024 (June 30, 2024). Penterra's existing product portfolio is concentrated in the oncology and immunology therapeutic areas, and the Veridian acquisition was intended to address a critical gap in Penterra's immuno-oncology pipeline created by the Phase III futility analysis of PPC-0921 (Penterra's lead immuno-oncology candidate), which was announced on November 18, 2023.
Veridian is a clinical-stage biotechnology company with no product revenue. Veridian reported a full-year 2023 net loss of ($87.3 million) and employs approximately 148 persons. Since its founding, Veridian has raised approximately $420 million in equity financing through its Series A, B, C, and D preferred stock rounds. Veridian's enterprise value, and the foundation for the $900 million purchase price, was driven almost entirely by VRD-4187, its lead clinical-stage immuno-oncology candidate, which was in Phase II development at the time of the SPA's execution. Veridian also possesses two earlier-stage immuno-oncology candidates and the proprietary VeriTCE bispecific T-cell engager platform technology, though these assets represent a comparatively modest share of the overall enterprise valuation.
The strategic rationale for the acquisition was straightforward: following the failure of PPC-0921, Penterra required a replacement immuno-oncology asset to sustain its growth trajectory and competitive position. VRD-4187, a next-generation bispecific T-cell engager targeting CD19 and CD3, was considered a best-in-class candidate with a compelling preclinical and early clinical data package at the time of signing.
Sellers' counsel in the transaction is Zalcourt Archer & Cole LLP, led by Rebecca Whitmore, a partner in that firm's New York office. The Stockholder Representative designated under the SPA is David Ng, Managing Partner of Crestline Ventures, LP, which holds approximately 28.3% of Veridian's outstanding equity. Other major stockholders include Boreal Health Partners Fund III, LP (approximately 19.7%, represented by Sarah Dalmqvist) and Apex Growth Equity Fund II, LP (approximately 14.1%, represented by Marcus Doyle). These three institutional investors collectively hold over 62% of Veridian's outstanding equity.
B. Key Deal Terms Relevant to This Analysis
The following key terms of the SPA are relevant to this analysis:
Purchase Price and Closing Mechanics. The aggregate purchase price is $900,000,000 in cash. At closing, $180,000,000 (20% of the purchase price) is to be deposited with Fidelis National Escrow Corp. as an indemnification escrow, and $2,500,000 is to be deposited as a stockholder representative expense fund. The resulting net closing payment to the selling stockholders would be $717,500,000 ($900,000,000 less $180,000,000 less $2,500,000).
Indemnification. The indemnification cap under the SPA is $180,000,000 (20% of the purchase price), with a deductible basket of $9,000,000 (1% of the purchase price, tipping). The cap for special and fundamental representations (including representations regarding capitalization, authority, title, taxes, and certain regulatory matters) is 100% of the purchase price ($900,000,000).
Reverse Termination Fee. The SPA provides for a reverse termination fee of $45,000,000 (5% of the purchase price), payable by Penterra to Veridian in the event Penterra fails to close the acquisition due to a financing failure — that is, where the committed debt financing is not available and Penterra fails to close as a result. This fee is discussed in further detail in Section VIII below.
Target Termination Fee. The SPA provides for a target termination fee of $36,000,000 (4% of the purchase price), payable by Veridian to Penterra in the event Veridian breaches its no-shop covenant and the SPA is terminated by Penterra as a result.
Outside Date. The Outside Date under the SPA is December 10, 2024, which is 180 days following the date of signing. Either party may terminate the SPA if closing has not occurred by the Outside Date, provided the terminating party is not then in material breach of the SPA.
Governing Law and Forum. The SPA is governed by Delaware law. Section 10.6 of the SPA provides for the exclusive jurisdiction of the Court of Chancery of the State of Delaware for any dispute arising out of or related to the SPA.
Specific Performance. Section 10.12 of the SPA grants the Sellers the right to seek specific performance to compel Penterra to close the acquisition, provided that all conditions to Buyer's obligation to close under Article VII of the SPA have been satisfied or waived.
C. Financing Structure
Penterra's acquisition of Veridian is to be financed through a combination of committed debt financing and cash on hand. On June 7, 2024, Penterra entered into a committed term loan facility in the aggregate principal amount of $500,000,000 (the "Committed Facility"), provided by a syndicate of lenders led by Ironclad Trust Company, N.A., as administrative agent, with Summit Ridge Capital Partners, LP serving as lead arranger. The commitment letter is referenced as CL-2024-PPCA-0607.
The Committed Facility bears interest at the Secured Overnight Financing Rate ("SOFR") plus 225 basis points per annum. The commitment fee on undrawn amounts is 0.35% per annum (approximately $1,750,000 per year on the full $500,000,000 commitment), and a ticking fee of 0.175% per annum commenced accruing on September 8, 2024, which was the 90th day following the signing of the SPA. The commitment under the Committed Facility is co-terminous with the SPA Outside Date of December 10, 2024, meaning the lenders' obligations to fund expire on that date.
The remaining $400,000,000 of the purchase price is to be funded from Penterra's cash on hand. As noted, Penterra had approximately $2.1 billion in cash and cash equivalents as of June 30, 2024, providing ample liquidity for its share of the funding.
D. VRD-4187 Clinical Developments
The events giving rise to this memorandum concern the Marlowe Asset Management-2 Phase II clinical trial of VRD-4187 (ClinicalTrials.gov Identifier: NCT05837291). Marlowe Asset Management-2 is a randomized, open-label, multi-center trial conducted across 42 clinical sites in the United States and the European Union, enrolling a total of 387 patients (194 in the VRD-4187 treatment arm and 193 in the standard-of-care control arm).
On August 14, 2024, the independent Data Monitoring Committee ("DMC") for the Marlowe Asset Management-2 trial completed its pre-specified interim analysis. The DMC's findings were severely adverse to the VRD-4187 program. The DMC recommended immediate suspension of further enrollment in the trial and mandatory dose modification for patients already enrolled. The key adverse findings were as follows:
• Cytokine Release Syndrome (CRS) — Grade ≥3: The incidence of Grade 3 or higher CRS events in the VRD-4187 treatment arm was 23.4%, compared to 4.1% in the control arm — a differential of 19.3 percentage points. This safety signal is profoundly concerning, as Grade ≥3 CRS events are life-threatening and require intensive care unit-level management, including vasopressor support and mechanical ventilation in severe cases.
• Treatment-Related Deaths: Seven patients in the VRD-4187 treatment arm experienced treatment-related deaths (3.6% mortality rate), compared to one patient in the control arm (0.5% mortality rate). The cause of death in six of the seven VRD-4187 treatment-arm deaths was attributed to refractory CRS with multi-organ failure.
• Overall Response Rate (ORR): The ORR in the VRD-4187 treatment arm was 31.4%, compared to 28.9% in the control arm. The difference was not statistically significant (p = 0.58), meaning VRD-4187 demonstrated no meaningful efficacy advantage over the standard-of-care regimen.
The significance of these findings cannot be overstated. A drug that offers no statistically significant efficacy benefit over standard of care while causing a 23.4% rate of severe CRS and a 3.6% treatment-related mortality rate presents an unjustifiable risk-benefit profile. In our consultations with Broadleaf Scientific Consulting LLC (led by Dr. Raymond Kapoor, a former FDA Division Director with over two decades of oncology drug development experience), Dr. Kapoor concluded in his supplemental clinical assessment dated August 19, 2024 that the Marlowe Asset Management-2 safety data "raises fundamental questions about VRD-4187's risk-benefit profile and commercial viability" and that "no reasonable regulatory authority would be expected to approve VRD-4187 on the basis of these data without a dramatic improvement in both the safety and efficacy profiles."
Penterra received formal notice from Veridian of the DMC's findings on August 16, 2024, pursuant to Veridian's notification obligations under Section 5.1(b) of the SPA. This notice was delivered within two business days of the DMC readout, consistent with the SPA's notification timeline.
On August 22, 2024, the FDA imposed a partial clinical hold on VRD-4187 under IND 154832, pending the agency's investigation of the CRS-related treatment deaths. The partial clinical hold prohibits the enrollment of new patients in the Marlowe Asset Management-2 trial and restricts certain dosing activities for existing enrolled patients, while permitting continued treatment of patients who, in the judgment of the treating investigator, are deriving clinical benefit. The imposition of a partial clinical hold by the FDA is a significant regulatory action that reflects the agency's assessment that the clinical data raises safety concerns sufficient to warrant regulatory intervention.
In response to the DMC findings and the FDA's partial clinical hold, Veridian implemented Protocol Amendment v4.0 on August 28, 2024. The protocol amendment includes two principal changes: (1) mandatory tocilizumab prophylaxis for all patients in the treatment arm prior to VRD-4187 administration, intended to mitigate the severity of CRS events; and (2) a dose reduction from 1.5 mg/kg to 0.75 mg/kg, a 50% reduction in the administered dose. While these measures represent responsible clinical practice, they fundamentally alter the VRD-4187 development program. The dose reduction, in particular, raises serious questions about whether the drug can achieve meaningful efficacy at the lower dose level, given that the full-dose regimen already failed to demonstrate a statistically significant efficacy advantage.
E. Procedural History of Deficiency Notice and Veridian Response
On September 6, 2024, Penterra, through C&H, delivered a formal Deficiency Notice to Veridian and the Stockholder Representative. The Deficiency Notice alleged that a material adverse effect had occurred within the meaning of the SPA, and that as a result, Buyer's closing conditions under Sections 7.2(a) (bring-down of representations and warranties) and 7.2(b) (absence of MAE) could not be satisfied. The Deficiency Notice identified the Marlowe Asset Management-2 interim data readout, the FDA's partial clinical hold, and the cumulative impact of these developments on Veridian's business, operations, prospects, financial condition, and regulatory status as the bases for the MAE determination. The Deficiency Notice expressly reserved all of Penterra's rights under the SPA, including the right to terminate pursuant to Section 8.1(d).
On September 13, 2024, Veridian, through its counsel Zalcourt Archer & Cole LLP (Rebecca Whitmore), delivered a formal response to the Deficiency Notice. Veridian's response disputed the occurrence of a material adverse effect and demanded that Penterra proceed to closing in accordance with the terms of the SPA. Veridian's principal arguments were as follows:
(i) The Marlowe Asset Management-2 clinical data is preliminary and interim in nature; the DMC recommended dose modification, not trial termination, and the final data from the trial has not yet been generated;
(ii) Veridian's Protocol Amendment v4.0 (mandatory tocilizumab prophylaxis and dose reduction) directly addresses the safety concerns identified by the DMC and the FDA, and there is a reasonable scientific basis to believe the amended protocol will yield an improved safety profile;
(iii) The FDA's partial clinical hold is a routine regulatory mechanism commonly employed in clinical-stage drug development; it is not a refuse-to-file letter, a complete response letter, or an outright rejection of the VRD-4187 program, and partial clinical holds are frequently lifted following the submission of adequate safety data and protocol modifications; and
(iv) No material adverse effect has occurred under the exacting standard established by Delaware case law, which requires a showing of a material effect on the long-term earnings potential of the target company, as articulated in Akorn, Inc. v. Fresenius Kabi AG, 2018 WL 4719347 (Del. Ch. Oct. 1, 2018), aff'd, 198 A.3d 724 (Del. 2018), and related precedent.
Veridian's response concluded with a demand that Penterra confirm its intention to close the acquisition and a reservation of Veridian's rights, including its right to seek specific performance under Section 10.12 of the SPA.
We have carefully considered Veridian's arguments and address them in detail in the analysis that follows. As discussed below, while Veridian's counterarguments are not frivolous and will be pressed vigorously in any litigation, we believe Penterra's MAE position is well-supported by the facts, the SPA, and Delaware law.
III. Option A: Proceed to Closing on Existing Terms
A. Description
Under Option A, Penterra would proceed to close the acquisition of Veridian for $900,000,000 in cash as originally contemplated by the SPA, notwithstanding the adverse Marlowe Asset Management-2 clinical data and the FDA's partial clinical hold on VRD-4187. The closing would take place on the terms and subject to the conditions set forth in the SPA, with no modification to the purchase price or any other material term.
B. Advantages
Proceeding to closing on existing terms would offer Penterra certain advantages, which we acknowledge in the interest of a balanced analysis:
Elimination of Litigation Risk. The most significant advantage of Option A is that it would eliminate all risk of litigation from Veridian and its stockholders. As discussed in Section VI below, termination of the SPA will almost certainly result in Veridian commencing legal proceedings in the Court of Chancery seeking specific performance and/or substantial monetary damages. By closing, Penterra would avoid the expense, distraction, uncertainty, and reputational cost of protracted Delaware Chancery litigation.
Preservation of Market Reputation. Invoking an MAE clause is an extraordinary step that is closely watched by the M&A community. Proceeding to closing would preserve Penterra's reputation as a reliable counterparty and a buyer that honors its contractual commitments. This may be relevant in future M&A processes, where targets and their advisors may be influenced by Penterra's track record.
Retention of Optionality on VRD-4187. It is possible, though we consider it unlikely at present, that the protocol amendment and dose reduction could salvage the VRD-4187 program. The tocilizumab prophylaxis may reduce CRS severity at the lower dose level, and Penterra's own development capabilities could be brought to bear on reformulation, combination strategies, or alternative indications. By closing, Penterra would retain the option to explore these pathways.
Acquisition of Other Pipeline Assets. Beyond VRD-4187, Veridian possesses two earlier-stage immuno-oncology candidates and the proprietary VeriTCE bispecific T-cell engager platform technology. While these assets were not the primary drivers of the $900 million valuation, they have genuine scientific and commercial potential that Penterra could develop.
C. Risks and Disadvantages
The disadvantages of Option A are, in our assessment, overwhelming:
Fundamental Impairment of Lead Asset. The Marlowe Asset Management-2 data reveals that VRD-4187, which was the primary basis for the $900 million purchase price, now has a severely impaired safety profile (23.4% Grade ≥3 CRS, 3.6% treatment-related mortality), an FDA partial clinical hold, and no demonstrated efficacy advantage over standard of care. The combination of these factors means that the drug's risk-benefit profile is fundamentally unjustifiable in its current form. Penterra would be acquiring a company whose lead asset — and the primary driver of its enterprise value — is in serious jeopardy.
Zero-Revenue Company; Value Driven by VRD-4187. Veridian is a clinical-stage company with zero product revenue. Its FY2023 net loss was ($87.3 million). The $900 million purchase price was premised on VRD-4187's projected commercial potential, which has been dramatically impaired. The earlier-stage pipeline and VeriTCE platform, while valuable, do not come close to supporting a $900 million valuation.
Risk of Full Clinical Hold or Abandonment. The partial clinical hold could escalate to a full clinical hold if the FDA determines that the safety data warrants more restrictive action. Moreover, there is a meaningful risk that VRD-4187 is ultimately abandoned, either because the safety profile cannot be sufficiently improved at a therapeutically active dose or because the 50% dose reduction renders the drug ineffective. In either scenario, the majority of the $900 million purchase price would be effectively unrecoverable.
Penterra Shareholder Liability. Penterra's Board of Directors has a fiduciary duty to its own stockholders. Proceeding with a $900 million acquisition when the fundamental investment thesis has deteriorated to this degree could expose the Board and Penterra's senior management to shareholder derivative claims or securities class action suits alleging breach of fiduciary duty and/or materially misleading disclosures regarding the rationale for closing.
Public Company Disclosure Obligations. As a Nasdaq-listed company, Penterra would be required to publicly explain the rationale for closing the acquisition in the face of the adverse clinical data and the FDA's partial clinical hold. This disclosure would likely be viewed negatively by the investment community and could depress the trading price of PPCA common stock.
D. Assessment
For the reasons set forth above, Option A is not recommended. The Marlowe Asset Management-2 clinical data and the FDA's partial clinical hold have fundamentally undermined the strategic rationale for the Veridian acquisition and the risk-reward calculus at a $900,000,000 purchase price. Proceeding to closing under these circumstances would constitute value-destructive action that is inconsistent with Penterra's fiduciary obligations to its stockholders.
IV. Option B: Negotiate Purchase Price Reduction
A. Description
Under Option B, Penterra would approach Veridian and the Stockholder Representative, David Ng of Crestline Ventures, LP, to renegotiate a reduced purchase price that reflects the diminished value of VRD-4187 and, by extension, Veridian as an enterprise. The objective would be to reach an amended SPA that permits Penterra to acquire Veridian at a price that is justified by the current clinical and regulatory landscape.
B. Potential Price Range
Our internal analysis, incorporating the Broadleaf Scientific Consulting clinical assessment, the FDA partial clinical hold, the non-significant efficacy data, and comparable transactions involving clinical-stage biotechnology companies with impaired lead assets, suggests that the post-data fair value of Veridian may be in the range of $200 million to $350 million. This range reflects the residual value of the VeriTCE platform technology, the two earlier-stage pipeline candidates, Veridian's assembled workforce, and a modest probability-adjusted value for VRD-4187 contingent on successful dose optimization and lifting of the clinical hold.
Accordingly, Penterra could propose a purchase price reduction of $500 million to $700 million, bringing the total consideration to approximately $200 million to $400 million. Alternative structures could include:
• An earnout mechanism tied to VRD-4187 clinical milestones (e.g., lifting of the FDA clinical hold, initiation of a Phase III trial, FDA approval), which would align a portion of the purchase price with the actual clinical outcomes;
• An increase in the indemnification escrow from $180 million to a higher amount, providing Penterra with additional downside protection; or
• A combination of reduced upfront consideration and milestone-based earnout payments.
C. Advantages
A negotiated price reduction, if achievable, would offer meaningful advantages to Penterra:
Avoidance of Litigation. A mutually agreed-upon price reduction, documented in an amendment to the SPA, would eliminate the risk of litigation from Veridian and its stockholders. Given the cost, duration, and uncertainty of Delaware Chancery litigation (discussed in Section VI below), this is a meaningful benefit.
Acquisition at Fair Value. A reduced price would allow Penterra to acquire Veridian's platform, early-stage pipeline, and scientific talent at a price that reflects the current reality of the VRD-4187 program, rather than the pre-adverse-data valuation.
Preservation of Relationship with Veridian Management. If Penterra intends to retain Veridian's management team and scientific personnel, a negotiated outcome that preserves a constructive working relationship is preferable to the adversarial posture that would result from termination and litigation.
D. Risks and Disadvantages
Despite these advantages, we believe that a renegotiation strategy is subject to significant practical and legal risks:
Sellers Are Highly Unlikely to Agree. The most fundamental obstacle to Option B is that Veridian and its stockholders have a powerful economic incentive to insist on the full $900 million purchase price or, failing that, to pursue litigation for the same amount. Crestline Ventures (28.3%), Boreal Health Partners Fund III (19.7%), and Apex Growth Equity Fund II (14.1%) collectively hold over 62% of Veridian's outstanding equity and have approximately $420 million invested in the company across multiple funding rounds. A reduction of $500 million to $700 million from the purchase price would mean that these investors recover substantially less than their invested capital — an outcome they will resist strenuously. As sophisticated institutional investors with access to top-tier litigation counsel, they are well-positioned to pursue a litigation strategy rather than accept a voluntary haircut.
Risk of Waiver or Weakening of MAE Position. This is a critical legal concern. If Penterra engages in formal renegotiation with Veridian, statements made during those negotiations — particularly any indication that Penterra would be willing to close at a reduced price — could be used by Veridian in subsequent litigation to argue that Penterra did not genuinely believe a material adverse effect had occurred, or that Penterra waived its MAE termination right by signaling a willingness to proceed with the transaction (albeit at a lower price). Discovery in any subsequent litigation would likely encompass all communications exchanged during renegotiation, and Penterra's litigation position could be materially compromised by statements made in those discussions.
No Contractual Obligation to Renegotiate. The SPA does not impose any obligation on either party to renegotiate the purchase price or any other term. There is no "good faith renegotiation" clause or similar mechanism. While the absence of such a clause does not preclude voluntary negotiations, it means that Penterra has no leverage to compel Veridian to come to the table.
Time Consumption. Negotiations would consume valuable time in the period between now and the Outside Date (December 10, 2024). If negotiations fail — as we believe is the most likely outcome — the delay may narrow the window available for Penterra to execute a clean termination and prepare its defensive litigation position.
discovery Material. Even informal negotiations, if documented in emails, text messages, or notes of calls, would create a body of discovery material that Veridian could use in litigation to undermine Penterra's termination position. The risk is particularly acute if any Penterra representative makes statements that could be characterized as inconsistent with a genuine belief that an MAE has occurred.
E. Assessment
We recognize that there may be value in exploring whether a renegotiation is feasible on an informal and preliminary basis, and we would not foreclose the possibility entirely. Informal back-channel discussions through Penterra's financial advisor, Garrison Zanthor & Co. (Kevin Driscoll), and Veridian's financial advisor, Ridgeway Partners (Laura Beckett), could be used to gauge the sellers' willingness to engage in a price discussion without committing Penterra to any formal position. However, formal renegotiation is not recommended as a primary strategy because of the substantial risk that it would compromise Penterra's MAE termination position, and because we assess the probability of reaching a negotiated outcome acceptable to both sides as low.
If the Board elects to authorize informal inquiries through the financial advisor channel, we strongly recommend that (i) any such inquiries be characterized as exploratory and without prejudice to Penterra's rights under the SPA, (ii) no Penterra officer, director, or employee directly participate in the discussions, and (iii) C&H be consulted before any communication is made.
V. Option C: Terminate the SPA Under Section 8.1(d)
A. Legal Basis for Termination
Section 8.1(d) of the SPA provides that the Buyer may terminate the Agreement by written notice to the Sellers and the Stockholder Representative if any condition to the Buyer's obligation to close under Article VII of the Agreement has not been satisfied and is not reasonably capable of being satisfied on or prior to the Outside Date, provided that the Buyer is not then in material breach of the Agreement.
The Buyer's closing conditions at issue are:
Section 7.2(a) — Bring-Down of Representations and Warranties. This condition requires that the representations and warranties of the Sellers set forth in Article III of the SPA shall be true and correct in all respects (subject to any materiality or MAE qualifiers contained therein) as of the date of the Agreement and as of the closing date, as though made at and as of such date (except to the extent any representation or warranty expressly relates to a specified date, in which case as of such specified date). The adverse Marlowe Asset Management-2 clinical data and the FDA partial clinical hold have caused a number of the Sellers' representations regarding Veridian's business, operations, prospects, and regulatory status to be inaccurate. In particular, the representations in Article III regarding the condition and sufficiency of Veridian's assets (including its intellectual property and clinical-stage product candidates), its compliance with applicable laws (including FDA regulations), its regulatory status and the status of its regulatory filings, and the absence of any material adverse change since the date of the most recent financial statements are now materially inaccurate when measured against the MAE-qualified standard.
Section 7.2(b) — No Material Adverse Effect. This condition provides that, since the date of the Agreement, there shall not have occurred any event, change, or development that, individually or in the aggregate, has had or would reasonably be expected to have a material adverse effect on the business, condition (financial or otherwise), results of operations, properties, assets, or prospects of the Company. The Marlowe Asset Management-2 clinical data and the FDA partial clinical hold, individually and in the aggregate, constitute such an event, change, or development.
Penterra's termination right under Section 8.1(d) is conditioned on Penterra not being in material breach of the SPA at the time of termination. We have reviewed Penterra's performance of its covenants and obligations under the SPA and have identified no material breach by Penterra. Penterra has complied with its affirmative and negative covenants, including its covenants regarding cooperation with regulatory filings (the HSR filing was made on June 21, 2024, and early termination of the waiting period was granted on July 29, 2024), confidentiality, and commercially reasonable efforts to consummate the transaction. Penterra's issuance of the Deficiency Notice on September 6, 2024 was an exercise of its contractual rights, not a breach.
B. Strength of Penterra's MAE Claim
We have analyzed the strength of Penterra's MAE claim in detail in our prior memoranda, and we summarize the key considerations here.
Favorable Factors. The following factors strongly support Penterra's position that a material adverse effect has occurred:
Severity of the Safety Signal. The Marlowe Asset Management-2 data reveals a 23.4% incidence of Grade ≥3 CRS in the treatment arm, compared to 4.1% in the control arm — a 19.3 percentage-point differential. This is an extraordinarily severe safety signal by any measure. Grade ≥3 CRS events are life-threatening, require intensive care, and in many cases result in multi-organ failure and death. Seven patients in the treatment arm died of treatment-related causes (3.6%), compared to one in the control arm (0.5%). These are not marginal safety concerns; they are fundamental deficiencies in the drug's safety profile that would be expected to weigh heavily in any regulatory risk-benefit assessment.
Absence of Efficacy Advantage. Critically, the severe safety signal is not counterbalanced by any meaningful efficacy advantage. The ORR in the treatment arm was 31.4%, compared to 28.9% in the control arm, a difference that was not statistically significant (p = 0.58). A drug that kills patients at a materially higher rate than the control arm while offering no statistically significant improvement in efficacy presents an untenable risk-benefit profile. This point is central to the MAE analysis: the combination of severe safety risks and absent efficacy differentiation is far more damaging than either finding alone.
FDA Regulatory Action. The FDA's imposition of a partial clinical hold on IND 154832 is a significant regulatory event. Unlike an informal safety inquiry or a request for additional data, a partial clinical hold is a formal regulatory action that restricts clinical development activity and signals that the FDA has independently concluded that the clinical data raises safety concerns warranting intervention. While Veridian may characterize the partial clinical hold as "routine," the reality is that it represents a material impediment to the continued clinical development of VRD-4187 and introduces substantial uncertainty regarding the drug's regulatory path.
Single-Product Company for Valuation Purposes. Veridian is, for all practical purposes, a single-product company from a valuation perspective. VRD-4187 was the primary value driver underlying the $900 million purchase price. The two earlier-stage pipeline candidates and the VeriTCE platform, while having some residual value, were not the basis for the premium Penterra agreed to pay. When the lead asset of a clinical-stage biotechnology company is severely impaired, the effect on enterprise value is necessarily material — indeed, potentially existential.
Durational Significance. The safety signal revealed by the Marlowe Asset Management-2 interim data is not a transient or easily reversible phenomenon. The clinical data cannot be "undiscovered." The seven treatment-related deaths cannot be erased from the safety database. The FDA partial clinical hold is ongoing, and even if it is ultimately lifted following Veridian's submission of adequate safety data, the clinical development program has been fundamentally altered. The 50% dose reduction from 1.5 mg/kg to 0.75 mg/kg represents a fundamental change to the drug program that may render VRD-4187 ineffective at the lower dose level. These are not temporary disruptions; they represent durable and potentially permanent impairments to VRD-4187's clinical and commercial prospects.
Independent Expert Assessment. Broadleaf Scientific Consulting LLC, led by Dr. Raymond Kapoor (former FDA Division Director and recognized expert in oncology drug development), has concluded that the Marlowe Asset Management-2 safety profile "raises fundamental questions about VRD-4187's risk-benefit profile and commercial viability." Dr. Kapoor's assessment is based on his independent review of the interim clinical data and his extensive experience in oncology drug development and FDA regulatory processes. His opinion provides strong evidentiary support for Penterra's MAE claim.
Challenging Factors (Veridian's Likely Counterarguments)
We recognize that Penterra's MAE claim faces certain headwinds, and we have considered them carefully:
Delaware's Exacting Standard. The Delaware Court of Chancery and the Delaware Supreme Court have consistently held that the standard for establishing a material adverse effect is demanding. A buyer claiming MAE must demonstrate an effect that is "material when viewed from the long-term perspective of a reasonable acquiror." Akorn, Inc. v. Fresenius Kabi AG, 2018 WL 4719347, at 81 (Del. Ch. Oct. 1, 2018), aff'd, 198 A.3d 724 (Del. 2018). The Akorn* decision remains the only Delaware case in which a court has found that a material adverse effect occurred. Veridian will emphasize this point and argue that Delaware law disfavors buyers seeking to escape their contractual commitments.
Interim Nature of the Data. Veridian will argue that the Marlowe Asset Management-2 data is interim in nature — the DMC's analysis was a pre-specified interim look, not the final data readout. Veridian will contend that interim data is inherently preliminary and that the final results of the trial, particularly following the protocol amendment and dose reduction, may paint a different picture. Veridian will further note that the DMC recommended dose modification rather than trial termination, suggesting that the DMC believed the VRD-4187 program could continue with appropriate modifications.
Protocol Amendment as Cure. Veridian will argue that its prompt implementation of Protocol Amendment v4.0 (mandatory tocilizumab prophylaxis and 50% dose reduction) directly addresses the safety concerns and demonstrates that the VRD-4187 program is not irretrievably impaired. Veridian will contend that the protocol amendment represents a standard clinical development response to an adverse safety signal and that it would be premature to conclude that VRD-4187 has no path forward.
Partial Clinical Hold as Routine. Veridian will characterize the FDA's partial clinical hold as a routine regulatory mechanism commonly employed during clinical development. Veridian will point to publicly available data showing that partial clinical holds are imposed with some frequency and are frequently lifted following the submission of adequate safety data and protocol modifications. Veridian will argue that the partial clinical hold is categorically different from a refuse-to-file action, a complete response letter, or a withdrawal of the IND application.
Industry Risk Argument. Veridian may attempt to characterize the adverse clinical data as an industry risk inherent in the acquisition of clinical-stage biotechnology companies, and argue that Penterra, as a sophisticated pharmaceutical acquiror, assumed this risk when it agreed to acquire a company whose lead asset was in Phase II clinical development. While this argument does not directly implicate any of the SPA's MAE carveouts (as discussed in Section V.C below), Veridian may deploy it as a framing argument before the Court.
Outside Date and Potential for Improvement. The Outside Date is December 10, 2024, approximately ten weeks away. Veridian may argue that the partial clinical hold could be lifted during this period, that enrollment could resume under the amended protocol, and that the closing conditions could be satisfied before the Outside Date. Veridian will argue that termination at this stage is premature and that Penterra should be required to wait until the Outside Date before concluding that the conditions are "not reasonably capable of being satisfied."
Overall Assessment. Weighing the favorable and challenging factors, we assess Penterra's MAE position as strong but not without risk. The critical distinguishing features of this case — the severity of the safety signal, the absence of any efficacy differentiation, the FDA's affirmative regulatory intervention, the single-product nature of Veridian's enterprise, and the durable and structural nature of the impairment — set this matter apart from the typical "buyer's remorse" scenario that Delaware courts have historically rejected. The factual parallels to Akorn are imperfect but instructive: in Akorn, the court found an MAE based on a sustained and significant decline in the target's business performance, regulatory problems, and data integrity issues. Here, the impairment is arguably even more concentrated and severe, as it strikes at the core of the only asset that justified the purchase price.
We estimate the probability that a Delaware court would find that a material adverse effect has occurred at approximately 60–70%. This assessment reflects our confidence in the strength of the underlying facts while acknowledging the demanding standard that Delaware law imposes and the inherent uncertainty of litigation.
C. Carveout Analysis
The SPA's definition of "Material Adverse Effect" contains customary carveouts for events, changes, or developments arising from or attributable to: (i) general economic conditions in the United States or globally; (ii) conditions generally affecting the biotechnology or pharmaceutical industries; (iii) changes in applicable law or regulations, or interpretations thereof; (iv) pandemics, epidemics, or public health emergencies; (v) natural disasters, acts of war, terrorism, or armed hostilities; (vi) changes in financial or securities markets generally; and (vii) the announcement or pendency of the transactions contemplated by the SPA.
None of these carveouts applies to the Marlowe Asset Management-2 clinical data or the FDA partial clinical hold. The adverse clinical findings are company-specific events arising from Veridian's own clinical trial of its own drug candidate. They are not the product of general economic conditions, industry-wide trends, changes in law, pandemics, natural disasters, financial market disruptions, or announcement effects. The pandemic carveout is clearly inapplicable — the adverse events are drug-related cytokine release syndrome, not pandemic-related complications.
To the extent Veridian were to argue that the industry conditions carveout applies — perhaps by characterizing adverse clinical trial results as an inherent risk of the biotechnology industry — the SPA's disproportionate impact exception would apply. The disproportionate impact exception provides that any excluded event, change, or development that has a materially disproportionate impact on the Company relative to other companies operating in the biotechnology or pharmaceutical industries shall not be excluded from the definition of Material Adverse Effect. The VRD-4187 safety data is specific to Veridian's product and disproportionately affects Veridian relative to any comparably situated biotechnology company. As detailed in our Disproportionate Impact Exception Analysis dated September 3, 2024, no similarly situated bispecific T-cell engager program has experienced a comparable safety signal during this period, confirming that the effect is company-specific rather than industry-wide.
D. Process for Termination
If the Board authorizes termination, the following process should be followed:
Board Authorization. Penterra's Board of Directors must adopt a resolution authorizing the termination of the SPA and directing that a formal Termination Notice be delivered to Veridian and the Stockholder Representative. The resolution should reference the factual and legal bases for termination (the Marlowe Asset Management-2 clinical data, the FDA partial clinical hold, and the failure of closing conditions under Sections 7.2(a) and 7.2(b) of the SPA), and should confirm the Board's determination, based on the advice of counsel, that a material adverse effect has occurred. C&H will prepare the form of board resolution and an accompanying board memorandum for the Board's consideration.
Delivery of Termination Notice. A formal Termination Notice must be delivered to Veridian (at its principal office at 550 Gateway Drive, Cambridge, MA 02142) and to David Ng, as Stockholder Representative (at the address specified in the SPA's notice provisions), in accordance with the notice requirements of Section 10.4 of the SPA. The Termination Notice should cite Section 8.1(d) as the basis for termination, should specifically identify the failure of Buyer's closing conditions under Sections 7.2(a) and 7.2(b), and should describe the Marlowe Asset Management-2 clinical data and the FDA partial clinical hold as the events constituting the material adverse effect. The notice should be clear and unequivocal.
Recommended Timing. We recommend delivery of the Termination Notice on or about September 30, 2024. This timing provides 24 days between the Deficiency Notice (September 6, 2024) and the Termination Notice, demonstrating that Penterra afforded Veridian a reasonable opportunity to cure the conditions giving rise to the deficiency, while also acknowledging the reality that the conditions are incurable — the clinical data cannot be reversed, and the FDA partial clinical hold remains in effect. Delivering the Termination Notice on September 30 also preserves more than two months before the Outside Date, reducing any argument that Penterra rushed to judgment.
E. Advantages
Preservation of Capital. Termination avoids committing $900,000,000 to an asset whose value has been fundamentally impaired by the adverse clinical data and regulatory action. This is the most significant advantage of Option C.
Balance Sheet and Strategic Flexibility. By preserving its cash on hand (approximately $2.1 billion) and avoiding the $500 million in committed debt financing, Penterra retains maximum balance sheet flexibility to pursue alternative strategic transactions, invest in its existing pipeline, or return capital to stockholders.
Maximization of Shareholder Value. On an expected-value basis, termination is the option most likely to maximize shareholder value, as discussed in the quantitative analysis set forth in Section X below.
Strong Legal Position. As discussed in Section V.B above, Penterra has a strong factual and legal basis for its MAE claim under the SPA and Delaware law. The combination of the safety signal severity, the absence of efficacy differentiation, and the FDA's regulatory action provides a compelling case for termination.
F. Risks and Disadvantages
Litigation Risk. The most significant risk of Option C is that Veridian will commence litigation in the Court of Chancery of the State of Delaware seeking specific performance and/or substantial monetary damages. This risk is discussed in detail in Section VI below. We estimate the overall probability of some form of adverse litigation outcome at approximately 30–40%.
Sunk Transaction Costs. Penterra has incurred approximately $12,991,664 in non-recoverable transaction costs to date. These costs are discussed in detail in Section VII below.
Reputational Considerations. As noted in the discussion of Option A, invoking an MAE clause may be perceived negatively by some participants in the M&A market. However, given the severity of the clinical data and the FDA's regulatory action, we believe that sophisticated market participants will understand and accept Penterra's decision as a legitimate exercise of its contractual rights.
VI. Litigation Risk Assessment (If Option C Is Pursued)
A. Veridian's Likely Claims
If Penterra terminates the SPA, we anticipate that Veridian will commence legal proceedings in the Court of Chancery of the State of Delaware. Based on our analysis of the SPA, the factual record, and Veridian's September 13, 2024 response letter, we anticipate that Veridian will assert the following claims:
1. Breach of Contract
Veridian will allege that Penterra breached the SPA by purporting to terminate the Agreement without a valid basis and by failing and refusing to close the acquisition. Veridian will contend that no material adverse effect occurred, that the Buyer's closing conditions under Sections 7.2(a) and 7.2(b) were satisfied (or would have been satisfied by the closing date or the Outside Date), and that Penterra's termination was therefore a wrongful repudiation of the Agreement.
Veridian will seek expectation damages — that is, the amount necessary to place Veridian and its stockholders in the position they would have occupied had Penterra performed its obligations under the SPA and closed the acquisition. The primary measure of damages would be the difference between the $900,000,000 contractual purchase price and the current fair market value of Veridian. Veridian will argue that its current fair market value has been significantly depressed not only by the adverse clinical data but also by the uncertainty and stigma associated with the failed transaction itself, and will seek to attribute a portion of the decline in value to Penterra's termination. We anticipate that Veridian will claim damages in the range of $500 million to $700 million.
We note that the calculation of expectation damages in a case of this nature is complex and would be the subject of extensive expert testimony at trial, including competing valuation analyses based on discounted cash flow models, comparable company analyses, probability-adjusted pipeline valuations, and other methodologies. Penterra would challenge Veridian's damages calculation and present its own expert analysis showing a lower fair market value differential.
2. Specific Performance
This is Veridian's most potent claim. Section 10.12 of the SPA grants the Sellers the right to seek specific performance to compel Buyer to close the acquisition, provided that all conditions to Buyer's obligation to close under Article VII have been satisfied or waived. In a specific performance action, Veridian would seek an order from the Court of Chancery directing Penterra to consummate the acquisition at the full $900,000,000 purchase price.
The critical advantage of specific performance from Veridian's perspective is that it eliminates the need to prove damages. If the Court orders specific performance, the acquisition is consummated at the agreed price, and the question of the appropriate measure of damages is rendered moot.
The key requirement for specific performance under Section 10.12 is that all closing conditions must be satisfied. This means that the specific performance claim and the MAE defense are effectively two sides of the same coin: if the Court determines that a material adverse effect has occurred (meaning that the Section 7.2(b) closing condition is not satisfied), specific performance is unavailable. If the Court determines that no MAE has occurred, specific performance may be ordered.
We anticipate that Veridian will vigorously pursue specific performance, and may seek expedited proceedings in the Court of Chancery to obtain a ruling before the Outside Date (December 10, 2024), in order to compel closing while the SPA remains in effect. This is a significant procedural risk, as an expedited proceeding would compress the litigation timeline and limit the time available for discovery and trial preparation. However, we note that the Court of Chancery has substantial experience managing expedited proceedings in M&A disputes and would be expected to provide both parties with a fair opportunity to present their cases.
3. Declaratory Judgment
In addition to or in the alternative to its claims for breach of contract and specific performance, Veridian may seek a declaratory judgment that (i) Penterra's purported termination of the SPA is invalid, (ii) the SPA remains in full force and effect, and (iii) Penterra is obligated to close the acquisition. A declaratory judgment action could be filed either before or after Penterra delivers the Termination Notice, and could be used as a vehicle for seeking the expedited proceedings discussed above.
B. Penterra's Defenses
Penterra will assert the following defenses in response to Veridian's claims:
1. Valid Termination Under Section 8.1(d)
Penterra's primary defense is that the termination of the SPA was validly exercised pursuant to Section 8.1(d) because the Buyer's closing conditions under Sections 7.2(a) and 7.2(b) have not been satisfied and are not reasonably capable of being satisfied on or prior to the Outside Date. The factual and legal basis for this defense is the occurrence of a material adverse effect as demonstrated by the Marlowe Asset Management-2 interim data readout and the FDA's partial clinical hold on VRD-4187, as detailed in Section V.B above.
This defense addresses all of Veridian's claims: if the termination was valid, there is no breach of contract, specific performance is not available (because the closing conditions are not satisfied), and the SPA has been validly terminated.
2. Closing Conditions Not Satisfied
In support of the primary defense, Penterra will demonstrate that both of the relevant closing conditions have failed:
Section 7.2(a) — Bring-Down of Representations. The Sellers' representations regarding Veridian's business, operations, regulatory status, and compliance with applicable law, as set forth in Article III of the SPA, are no longer true and correct to the MAE-qualified standard as of the anticipated closing date. Specifically, representations regarding the condition and sufficiency of Veridian's assets, the status of Veridian's regulatory filings, Veridian's compliance with FDA regulations, and the absence of material adverse changes since the date of the most recent financial statements have been rendered inaccurate by the Marlowe Asset Management-2 data and the FDA partial clinical hold.
Section 7.2(b) — No Material Adverse Effect. Since the date of the SPA (June 10, 2024), a material adverse effect has occurred on the business, condition (financial or otherwise), results of operations, properties, assets, and prospects of Veridian, as a result of the Marlowe Asset Management-2 clinical data and the FDA partial clinical hold. As detailed in Section V.B, the safety signal is severe and disqualifying from a risk-benefit perspective, the efficacy data shows no statistically significant advantage, the FDA has taken concrete regulatory action, the effect is durationally significant, and VRD-4187 was the primary driver of Veridian's enterprise value.
3. Specific Performance — Conditions Defense
With respect to Veridian's specific performance claim, Penterra will assert that specific performance under Section 10.12 is conditioned on the satisfaction of all closing conditions under Article VII. Because Sections 7.2(a) and 7.2(b) are not satisfied — a material adverse effect having occurred — the contractual prerequisite for specific performance has not been met, and the Court should decline to order specific performance. Delaware courts have consistently held that they will not order specific performance to compel a transaction where the buyer's closing conditions have legitimately failed. The equitable remedy of specific performance is not available to override a validly exercised contractual termination right.
4. Affirmative Defense: Failure to Mitigate
To the extent Veridian pursues monetary damages rather than or in addition to specific performance, Penterra will assert that Veridian has failed to mitigate its damages. Under Delaware law, a party seeking contract damages has a duty to take reasonable steps to mitigate the harm resulting from the breach. Penterra will argue that Veridian failed to mitigate by not pursuing alternative transactions, strategic partnerships, or other value-maximizing strategies following the termination, and that Veridian cannot recover damages attributable to its failure to pursue such alternatives.
C. Forum and Timing
Forum. All disputes arising under the SPA are subject to the exclusive jurisdiction of the Court of Chancery of the State of Delaware, pursuant to Section 10.6 of the SPA. The Court of Chancery has deep expertise in M&A disputes and has developed a substantial body of precedent regarding MAE claims, specific performance, and related issues. Both parties will benefit from the Court's expertise, but we note that the Court's familiarity with these issues also means that it will apply a rigorous and well-developed analytical framework.
Anticipated Filing. Based on the tenor of Veridian's September 13, 2024 response letter and informal intelligence from market sources, we anticipate that Veridian may file a complaint in the Court of Chancery on or around November 15, 2024 — though an earlier filing, particularly if Veridian seeks expedited relief before the Outside Date, is possible. The anticipated case caption would be:
Veridian Biosciences, Inc. v. Penterra Pharmaceuticals Corp., C.A. No. 2024-___ (Del. Ch.)
Expedited Proceedings. Veridian may seek expedited proceedings under Court of Chancery Rule 210, arguing that the impending Outside Date (December 10, 2024) creates a time-sensitive need for judicial resolution. If Veridian files before the Outside Date and seeks a preliminary injunction, status quo order, or summary proceeding on specific performance, the Court could schedule an expedited trial on the merits before or shortly after the Outside Date. This is a significant tactical consideration: an expedited schedule would limit the time available for discovery and trial preparation, though it would also shorten the period of uncertainty for Penterra.
Post-Outside Date. After December 10, 2024, the SPA terminates by its own terms if closing has not occurred (subject to the limitation that a party in material breach may not invoke the Outside Date termination right). Once the Outside Date passes, Veridian's specific performance claim becomes moot, as the Court cannot order the performance of a contract that has expired. Veridian's claims would then be limited to monetary damages for breach of contract. This is a significant inflection point in the litigation posture: specific performance is Veridian's strongest claim, and its expiration would substantially narrow the litigation risk.
D. Assessment of Litigation Outcome Probabilities
Based on our analysis of the facts, the SPA, Delaware precedent, and the likely arguments of both parties, we assess the litigation outcome probabilities as follows:
Probability that Penterra prevails on the MAE defense: Approximately 60–70%. This reflects the strength of the underlying facts — the severity of the safety signa

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