1018-00008 · Penterra Pharmaceuticals Corp · Post-Termination & Litigation Prep

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PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGE ATTORNEY WORK PRODUCT

MEMORANDUM

TO: Thomas F. Holbrook, General Counsel & Secretary, Penterra Pharmaceuticals Corp.

FROM: Oliver Mackenzie, Partner; Megan Chu, Associate; Derek Okonkwo, Associate — Calderwood & Harkness LLP

DATE: October 22, 2024

RE: Analysis of Specific Performance Risk — Veridian Biosciences, Inc.'s Potential Claim to Compel Closing Under SPA § 10.12 and Delaware Law

MATTER NO.: 1018-00008

Calderwood & Harkness LLP 200 Park Avenue, 42nd Floor New York, NY 10166

I. Executive Summary

You have asked us to analyze the risk that Veridian Biosciences, Inc. ("Veridian" or the "Company") obtains specific performance compelling Penterra Pharmaceuticals Corp. ("Penterra" or the "Buyer") to close the $900,000,000 stock purchase transaction contemplated by the Stock Purchase Agreement, dated as of June 10, 2024 (the "SPA"), following Penterra's termination of the SPA on September 30, 2024. This memorandum sets forth our assessment of the likelihood and legal basis for such a claim, identifies the principal defenses available to Penterra, and provides our strategic recommendations for litigation preparation and settlement posture.

By demand letter dated October 15, 2024, sent on behalf of Veridian by its counsel, Zalcourt Archer & Cole LLP (Rebecca Whitmore, lead partner), Veridian formally threatened litigation in the Court of Chancery of the State of Delaware, including a claim for specific performance under SPA § 10.12 compelling Penterra to consummate the acquisition. The demand letter characterized Penterra's termination as wrongful and without contractual basis, asserted that no material adverse effect has occurred, and stated that Veridian intends to pursue all available remedies to protect the interests of its stockholders. Veridian's counsel has indicated that a complaint will be filed on or about November 15, 2024. We anticipate the case would be captioned Veridian Biosciences, Inc. v. Penterra Pharmaceuticals Corp., C.A. No. 2024-_ (Del. Ch.).

Overall Assessment. While SPA § 10.12 expressly grants the Sellers the right to seek specific performance of the terms of the SPA, and while the Delaware Court of Chancery is generally receptive to specific performance claims in the M&A context, Penterra has strong defenses rooted in three independent but interrelated grounds: (a) the valid exercise of termination rights under SPA § 8.1(d); (b) the failure of Buyer's closing conditions under SPA §§ 7.2(a) and 7.2(b); and (c) the occurrence of a material adverse effect as defined in SPA § 1.1, arising from the severe safety signal, non-significant efficacy data, and FDA partial clinical hold associated with Veridian's lead clinical candidate, VRD-4187. If Penterra's termination is sustained, the SPA has been validly terminated, no obligation to close exists, and specific performance is categorically unavailable as a remedy.

The risk that a court would compel closing is assessed as moderate-to-low (estimated at approximately 15–25%), but not negligible, given the Delaware Court of Chancery's well-documented willingness to scrutinize material adverse effect claims with exacting standards and the high evidentiary threshold established by the Akorn line of cases. We believe the factual record — combining a dramatic safety signal, an FDA regulatory intervention, and non-significant efficacy in Veridian's sole revenue-generating prospect — presents a substantially stronger case for a material adverse effect than many historical claims, but acknowledge the inherent uncertainty of any such determination.

This memorandum is organized as follows: Part II provides the factual background; Part III sets forth the legal framework governing specific performance claims under Delaware law; Part IV analyzes each element of Veridian's anticipated specific performance claim; Part V addresses the central defense — the validity of Penterra's termination and the underlying material adverse effect determination; Part VI provides a detailed risk assessment and probability analysis; Part VII discusses the implications of the reverse termination fee; Part VIII sets forth our litigation strategy recommendations; and Part IX states our conclusions.

II. Factual Background

A. The Transaction and Key SPA Provisions

The SPA was executed on June 10, 2024, and provides for Penterra's acquisition of 100% of the outstanding capital stock of Veridian for an aggregate purchase price of $900,000,000 in cash, subject to customary purchase price adjustments. The transaction was structured as a stock purchase in which Penterra would acquire all issued and outstanding shares of Veridian's common stock and preferred stock from the Company's stockholders (the "Sellers"), with David Ng, Managing Partner of Crestline Ventures, LP, serving as the Stockholder Representative.

Penterra. Penterra Pharmaceuticals Corp. is a Delaware corporation, publicly traded on the Nasdaq Global Select Market under the ticker symbol PPCA, with its principal executive offices located at 1100 Meridian Boulevard, Suite 400, Princeton, New Jersey 08540. Penterra is a large-cap biopharmaceutical company with a market capitalization of approximately $14.2 billion as of the date of execution of the SPA, fiscal year 2023 revenue of approximately $4.87 billion, and a diversified portfolio of oncology and immunology therapeutics. The company's Chief Executive Officer is Dr. Anand Rajagopal, who executed the SPA on behalf of Penterra. Penterra has been focused on expanding its immuno-oncology pipeline, a strategic priority that was heightened following the futility analysis of PPC-0921 (Penterra's internally developed PD-L1/TIGIT bispecific antibody) in a Phase III non-small cell lung cancer trial announced in November 2023.

Veridian. Veridian Biosciences, Inc. is a privately held Delaware corporation headquartered at 550 Gateway Drive, Cambridge, Massachusetts 02142. Veridian is a clinical-stage biotechnology company focused on the development of next-generation T-cell engager therapeutics for hematologic malignancies and solid tumors. The company's Chief Executive Officer is Dr. Julian Marek, who executed the SPA on behalf of Veridian. As of the date of signing, Veridian had no product revenue (FY2023 revenue: $0; FY2023 net loss: $87.3 million) and employed approximately 148 full-time employees. Veridian's lead clinical candidate is VRD-4187, a bispecific T-cell engager antibody targeting CD3/GPRC5D currently in Phase II clinical development for relapsed/refractory multiple myeloma. The VRD-4187 program was the primary strategic asset underlying the $900 million purchase price, as reflected in Penterra's board materials and the fairness opinion delivered by Clearwater Advisory Partners LLC.

The SPA was negotiated over a period of approximately four months, with Penterra represented by this firm (Calderwood & Harkness LLP) and Veridian and the Sellers represented by Zalcourt Archer & Cole LLP. The agreement is comprehensive and runs to approximately 114 pages, exclusive of exhibits, schedules, and disclosure schedules. It contains customary representations and warranties, pre-closing covenants, closing conditions, termination provisions, indemnification mechanics, and miscellaneous provisions. The SPA is governed by Delaware law pursuant to § 10.6, and the parties have consented to the exclusive jurisdiction of the Court of Chancery of the State of Delaware (or, if the Court of Chancery lacks subject matter jurisdiction, the Superior Court of the State of Delaware or the United States District Court for the District of Delaware) for the adjudication of any disputes arising under or in connection with the SPA.

The SPA provides for an Outside Date of December 10, 2024 — the date by which the closing must occur, failing which either party may terminate the SPA under § 8.1(b), subject to certain limitations described below.

B. Specific Performance Provision — SPA § 10.12

Section 10.12 of the SPA, titled "Specific Performance," provides in relevant part:

The parties hereto acknowledge and agree that irreparable damage would occur in the event that any provision of this Agreement is not performed in accordance with its specific terms or is otherwise breached. Accordingly, the parties agree that, prior to the valid termination of this Agreement in accordance with Article VIII, each party shall be entitled to seek an injunction or injunctions to prevent breaches of this Agreement and to seek specific performance of the terms and provisions hereof in any court referred to in Section 10.6, in addition to any other remedy to which such party may be entitled at law or in equity. Each of the parties hereto further agrees that (a) it will not oppose the granting of specific performance as provided herein on the basis that the other parties have an adequate remedy at law, and (b) the right to specific performance is an integral part of the transactions contemplated hereby and without such right, the parties hereto would not have entered into this Agreement. For the avoidance of doubt, the Sellers and the Stockholder Representative shall have the right to seek specific performance to cause the Buyer to consummate the Closing in accordance with Article II if all conditions set forth in Sections 7.1 and 7.3 have been satisfied or waived (other than those conditions that by their nature are to be satisfied by actions taken at the Closing, which conditions are capable of being satisfied at the Closing).

Several features of this provision are noteworthy. First, the provision is bilateral — both Penterra and Veridian have the right to seek specific performance of the other party's obligations under the SPA. Second, the provision expressly acknowledges that irreparable damage would result from a breach, and the parties have agreed not to oppose specific performance on adequacy-of-legal-remedies grounds. This effectively concedes the "irreparable harm" element in any future specific performance proceeding, a point of considerable significance under Delaware law. Third, the provision expressly grants the Sellers the right to seek specific performance to cause the Buyer to consummate the Closing — provided that all conditions to Buyer's obligation to close in Sections 7.1 and 7.3 have been satisfied or waived (other than bring-down conditions that by their nature are satisfied at the Closing). Fourth, and critically, the specific performance right is expressly conditioned on the absence of a "valid termination of this Agreement in accordance with Article VIII."

This last point is of central importance. If Penterra's termination of the SPA on September 30, 2024 was valid — that is, if it was effected in accordance with Article VIII — then the specific performance provision, by its own terms, is no longer operative. Specific performance is available only "prior to the valid termination of this Agreement." The threshold question in any specific performance proceeding will therefore be whether the termination was valid.

C. Closing Conditions — SPA §§ 7.1, 7.2, 7.3

The SPA sets forth three categories of conditions precedent to the parties' obligations to consummate the closing.

Section 7.1 — Mutual Conditions. Section 7.1 sets forth conditions to both parties' obligation to close, including: (a) antitrust clearance — the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), shall have expired or been terminated; and (b) no injunction or legal restraint — no order, injunction, decree, or ruling by any governmental authority of competent jurisdiction shall be in effect that enjoins, restrains, or prohibits the consummation of the transactions contemplated by the SPA. The HSR waiting period expired on May 20, 2024, and this condition has been satisfied. No injunctive order is currently in effect that would prevent consummation of the transaction itself.

Section 7.2 — Buyer's Conditions to Closing. Section 7.2 sets forth conditions to the Buyer's (Penterra's) obligation to close:

Section 7.2(a) — Bring-Down of Sellers' Representations and Warranties. The representations and warranties of the Company and the Stockholder Representative set forth in this Agreement shall be true and correct in all material respects (or, with respect to any representation or warranty that is qualified by "materiality" or "Material Adverse Effect," true and correct in all respects) as of the Closing Date with the same force and effect as though such representations and warranties had been made as of the Closing Date (except to the extent any such representation and warranty expressly relates to an earlier date, in which case such representation and warranty shall be true and correct as of such earlier date), except where the failure of such representations and warranties to be true and correct would not, individually or in the aggregate, constitute a Material Adverse Effect.

Section 7.2(b) — No Material Adverse Effect. Since the date of this Agreement, there shall not have occurred any event, change, circumstance, occurrence, effect, development, condition, or state of facts that, individually or in the aggregate, has had or would reasonably be expected to have a Material Adverse Effect on the Company.

Section 7.2(c) — Compliance with Covenants. The Company and the Stockholder Representative shall have complied in all material respects with all covenants and agreements required to be performed or complied with by them under this Agreement at or prior to the Closing.

Section 7.2(d) — Delivery of Seller Closing Deliverables. The Company shall have delivered (or caused to be delivered) to the Buyer each of the items required to be delivered by the Company at the Closing pursuant to Section 2.3, including without limitation: (i) an officer's certificate, signed by the Chief Executive Officer and Chief Financial Officer of the Company, certifying as to the satisfaction of the conditions set forth in Sections 7.2(a), (b), and (c); (ii) evidence of funding of the Indemnification Escrow Amount ($180,000,000) and the Stockholder Representative Expense Fund ($2,500,000) with the Escrow Agent (Fidelis National Escrow Corp.); (iii) good standing certificates from the Secretary of State of Delaware and each jurisdiction in which the Company is qualified to do business; (iv) resignations of directors and officers of the Company as specified by the Buyer; and (v) FIRPTA certificates from each Seller.

Section 7.3 — Sellers' Conditions to Closing. Section 7.3 sets forth conditions to the Sellers' obligation to close, including: (a) the Buyer's representations and warranties shall be true and correct in all material respects as of the Closing Date; (b) the Buyer shall have complied in all material respects with all covenants required to be performed at or prior to the Closing; (c) the Buyer shall have delivered the Buyer closing deliverables; and (d) the Buyer shall have deposited, or caused to be deposited, the Aggregate Closing Payment ($717,500,000 net of amounts deposited into escrow and the expense fund) by wire transfer of immediately available funds to the accounts designated by the Stockholder Representative.

D. Termination Provisions — SPA § 8.1

Article VIII of the SPA sets forth the circumstances under which the SPA may be terminated prior to closing. The termination provisions relevant to the present dispute include:

Section 8.1(a) — Mutual Written Consent. The SPA may be terminated by the mutual written consent of the Buyer and the Stockholder Representative.

Section 8.1(b) — Outside Date Termination. The SPA may be terminated by either the Buyer or the Stockholder Representative if the Closing shall not have occurred on or prior to December 10, 2024 (the "Outside Date"); provided, however, that the right to terminate under this Section 8.1(b) shall not be available to any party whose breach of any representation, warranty, covenant, or agreement set forth in this Agreement has been the primary cause of, or has primarily resulted in, the failure of the Closing to occur by the Outside Date.

Section 8.1(d) — Buyer Termination for Failure of Closing Conditions. The Buyer may terminate this Agreement if any of the conditions set forth in Sections 7.1 or 7.2 shall have become incapable of being satisfied prior to the Outside Date; provided, however, that the right to terminate under this Section 8.1(d) shall not be available to the Buyer if the failure of such condition to be satisfied has been primarily caused by the Buyer's breach of any representation, warranty, covenant, or agreement set forth in this Agreement.

Penterra delivered a written Termination Notice to Veridian and the Stockholder Representative on September 30, 2024, invoking its termination right under Section 8.1(d). The Termination Notice stated that the closing conditions set forth in Sections 7.2(a) and 7.2(b) of the SPA are not satisfied and are incapable of being satisfied prior to the Outside Date of December 10, 2024, due to the occurrence of a Material Adverse Effect within the meaning of SPA § 1.1, arising from the events described in Part II.E below. The Termination Notice further stated that the failure of such conditions was not caused by any breach of the SPA by Penterra.

E. The Material Adverse Effect and Underlying Events

The events giving rise to Penterra's termination of the SPA relate to the clinical development of VRD-4187, Veridian's lead and most advanced clinical-stage asset, and in particular to the adverse results of the Marlowe Asset Management-2 Phase II clinical trial.

Marlowe Asset Management-2 Phase II Clinical Trial (NCT05837291). The Marlowe Asset Management-2 trial is a randomized, open-label, multicenter Phase II study evaluating VRD-4187 in combination with standard-of-care dexamethasone versus dexamethasone alone in patients with relapsed/refractory multiple myeloma who have received at least two prior lines of therapy. VRD-4187 is a bispecific T-cell engager antibody targeting CD3 and GPRC5D that constituted the primary strategic rationale for the proposed acquisition. The trial enrolled approximately 387 patients across 42 clinical sites in the United States, Canada, and the European Union.

On August 14, 2024, the Data Monitoring Committee ("DMC") for the Marlowe Asset Management-2 trial completed a pre-specified interim analysis at approximately 75% enrollment. The DMC's findings were deeply concerning:

• Safety (Grade ≥3 Cytokine Release Syndrome ("CRS")): The VRD-4187 treatment arm exhibited a Grade ≥3 CRS rate of 23.4%, compared to 4.1% in the control arm — a 19.3 percentage-point differential representing approximately a 5.7-fold increase in the rate of severe CRS.

• Treatment-Related Deaths: Seven (7) treatment-related deaths occurred in the VRD-4187 arm (3.6% of patients) compared to one (1) death in the control arm (0.5%), a statistically and clinically significant difference in treatment-related mortality.

• Efficacy (Overall Response Rate ("ORR")): The VRD-4187 arm demonstrated an ORR of 31.4%, compared to 28.9% in the control arm. The difference was not statistically significant (p = 0.58), indicating that VRD-4187 failed to demonstrate a meaningful efficacy benefit at the interim analysis despite the substantial increase in toxicity.

Based on these findings, the DMC issued a recommendation on August 14, 2024, to suspend enrollment in the Marlowe Asset Management-2 trial and implement dose modification protocols. The DMC's recommendation was communicated to Veridian's management and its clinical operations team on the same date. Penterra was informed of the DMC findings on August 16, 2024 — two days after Veridian received the results, a delay that raises questions regarding the timeliness of Veridian's notification obligations under the SPA's interim operating covenants, as discussed in our August 18, 2024 memorandum on notification obligations.

On August 22, 2024, the United States Food and Drug Administration (the "FDA") imposed a partial clinical hold on VRD-4187 under IND 154832 in connection with the safety findings from the Marlowe Asset Management-2 interim analysis. The partial clinical hold prohibits new patient enrollment in VRD-4187 clinical studies at the 1.5 mg/kg dose level and requires Veridian to submit a complete safety assessment, an amended clinical protocol incorporating enhanced risk mitigation measures, and updated informed consent forms before the hold may be modified or lifted. The FDA's letter indicated that the agency had identified a "potential serious risk to the safety of subjects" and that the clinical hold would remain in effect pending its review of Veridian's responsive submissions.

In response, Veridian implemented Protocol v4.0 on August 28, 2024, which included: (i) mandatory tocilizumab prophylaxis for all patients receiving VRD-4187, to be administered prior to each infusion cycle; and (ii) a dose reduction from 1.5 mg/kg to 0.75 mg/kg. The Protocol v4.0 amendment was submitted to the FDA as part of Veridian's response to the partial clinical hold, and Veridian has represented that it expects the FDA to lift the clinical hold following review of the amended protocol, although no timeline for such action has been provided.

Penterra's Deficiency Notice. On September 6, 2024, Penterra delivered a Deficiency Notice to Veridian and the Stockholder Representative pursuant to the SPA, identifying the Marlowe Asset Management-2 safety data, the DMC enrollment suspension, and the FDA partial clinical hold as events constituting a Material Adverse Effect under SPA § 1.1 and giving rise to the non-satisfaction of the closing conditions in SPA §§ 7.2(a) and 7.2(b). Penterra reserved all rights under the SPA, including the right to terminate.

Veridian's Response. On September 13, 2024, Veridian (through Zalcourt Archer & Cole LLP) delivered a written response disputing that a Material Adverse Effect had occurred, asserting that the clinical setback was temporary and curable through protocol amendment, and demanding that Penterra proceed to close the transaction in accordance with the SPA. Veridian characterized the VRD-4187 safety data as a typical clinical development challenge that did not rise to the level of a Material Adverse Effect under Delaware law, pointing to the availability of dose modification and the expectation that the FDA clinical hold would be lifted in due course.

Prior Firm Memoranda. This memorandum builds upon the analysis set forth in a series of prior Calderwood & Harkness memoranda, including: the MAE Analysis — VRD-4187 Clinical Data (August 25, 2024); the Supplemental MAE Analysis — Incorporating FDA Clinical Hold (September 2, 2024); the Delaware MAE Case Law Survey (August 27, 2024); the MAE Carveouts Analysis (August 28, 2024); and the Disproportionate Impact Exception Analysis (September 3, 2024). The conclusions of those memoranda are incorporated by reference herein to the extent relevant.

F. Veridian's Threatened Litigation

As noted, by demand letter dated October 15, 2024, Veridian (through Zalcourt Archer & Cole LLP, Rebecca Whitmore) formally threatened litigation against Penterra in the Court of Chancery of the State of Delaware. The demand letter asserts four principal contentions: (i) no Material Adverse Effect has occurred within the meaning of SPA § 1.1; (ii) all conditions to the Buyer's obligation to close under SPA § 7.2 remain satisfied or are capable of being satisfied prior to the Outside Date; (iii) Penterra's termination of the SPA on September 30, 2024 was invalid and constitutes a breach of the SPA; and (iv) Veridian is entitled to specific performance compelling Penterra to consummate the Closing, and alternatively, to full expectation damages for breach of the SPA.

Veridian's demand letter requests that Penterra withdraw its Termination Notice and proceed to close the transaction within thirty (30) days, failing which Veridian will file suit. Based on the demand letter's timeline, we anticipate that a complaint will be filed on or about November 15, 2024. Our analysis of the demand letter and its legal arguments is set forth in the October 18, 2024 memorandum (Analysis of Veridian's Demand Letter and Litigation Threats), which is incorporated by reference.

III. Legal Framework: Specific Performance Under Delaware Law

A. General Principles of Specific Performance in Delaware

Specific performance is an equitable remedy that lies within the sound discretion of the Court of Chancery, Delaware's dedicated equity court. As an equitable remedy, specific performance is not available as a matter of right; rather, the court exercises its judgment as to whether, under all the circumstances, the remedy of specific performance is appropriate. See, e.g., Osborn ex rel. Osborn v. Kemp, 991 A.2d 1153, 1158 (Del. 2010); SV Inv. Partners, LLC v. ThoughtWorks, Inc., 7 A.3d 973, 989–90 (Del. Ch. 2010), aff'd, 37 A.3d 205 (Del. 2011).

The traditional requirements for an award of specific performance under Delaware law are as follows:

(1) A valid and enforceable contract. The plaintiff must demonstrate the existence of a binding, enforceable agreement whose terms are sufficiently definite to be specifically enforced.

(2) A breach or threatened breach. The plaintiff must show that the defendant has breached, or imminently threatens to breach, its obligations under the contract.

(3) Inadequacy of legal remedies (irreparable harm). The plaintiff must demonstrate that money damages would be inadequate to compensate for the injury caused by the breach — i.e., that the plaintiff would suffer irreparable harm absent equitable relief.

(4) Feasibility of enforcement. The court must be satisfied that the decree of specific performance can be practically and effectively enforced and will not require ongoing judicial supervision of such complexity or duration as to be impracticable.

(5) Equitable considerations. The court considers the totality of equitable factors, including whether the plaintiff has come to court with clean hands, whether the plaintiff has acted with reasonable diligence (no laches), and whether the balance of hardships favors the grant of equitable relief.

In the context of mergers and acquisitions transactions, the Delaware Court of Chancery has long recognized that the unique nature of business acquisitions — involving hard-to-value assets, strategic synergies, employee relationships, competitive dynamics, and opportunities that are not readily replicable in the marketplace — often renders money damages inadequate. As the Court of Chancery observed in Hexion Specialty Chemicals, Inc. v. Huntsman Corp., C.A. No. 3841-VCL, 2008 WL 4457544 (Del. Ch. Sept. 29, 2008), "[i]t is well-settled that in the context of a cash merger or acquisition, money damages are generally not an adequate remedy because of the difficulty of proving the target's standalone value and the loss of the unique combination benefits that the transaction was designed to capture." This principle has been reaffirmed in numerous subsequent decisions. See also AB Stable VIII LLC v. Maps Hotels & Resorts One LLC, 2020 WL 7024929 (Del. Ch. Nov. 30, 2020), aff'd in relevant part, rev'd in part, 268 A.3d 198 (Del. 2021); Genworth Fin., Inc. v. China Oceanwide Holdings Grp. Co., C.A. No. 2021-0127-JTL (Del. Ch. 2021).

B. Contractual Specific Performance Provisions in M&A

In sophisticated M&A transactions, it has become standard practice for the parties to include contractual provisions expressly acknowledging irreparable harm and granting the right to seek specific performance. SPA § 10.12 is such a provision. The Delaware Court of Chancery gives significant weight to these negotiated provisions, treating them as part of the bargained-for allocation of rights and remedies between sophisticated parties represented by counsel.

The importance of a contractual specific performance provision lies principally in its effect on the "inadequacy of legal remedies" element. Where the contract contains an express acknowledgment that irreparable damage would result from a breach and that the parties are entitled to seek specific performance, Delaware courts generally do not require the party seeking specific performance to independently prove irreparable harm. See Hexion, 2008 WL 4457544, at 36 (noting the contractual acknowledgment of irreparable harm); In re IBP, Inc. S'holders Litig.*, 789 A.2d 14, 83–84 (Del. Ch. 2001) (awarding specific performance of a merger agreement and relying in part on the contractual irreparable harm provision). The parties' agreement to waive the defense of adequacy of legal remedies — as provided in SPA § 10.12(a) — further reinforces this effect.

However, a contractual specific performance provision does not operate as an automatic entitlement to specific performance in all circumstances. The Court of Chancery retains discretion to deny specific performance based on equitable considerations, and — critically for the present case — a contractual specific performance provision does not override the requirement that the conditions to the movant's right to compel performance must actually be satisfied. As courts have recognized, "the fact that the parties have agreed to a specific performance remedy does not mean that specific performance is available regardless of whether the conditions to closing have been satisfied." The right to compel closing through specific performance is parasitic on the underlying obligation to close; if the conditions to that obligation have not been met, or if the agreement has been validly terminated, the specific performance remedy is unavailable because there is no remaining obligation to enforce.

SPA § 10.12 itself recognizes this principle by providing that the right to specific performance exists only "prior to the valid termination of this Agreement in accordance with Article VIII" and by conditioning the Sellers' right to compel closing on the satisfaction or waiver of all conditions in Sections 7.1 and 7.3.

C. Specific Performance in the Context of a Buyer's Refusal to Close

Delaware law recognizes that sellers in an M&A transaction may seek specific performance to compel a reluctant buyer to close the acquisition. This remedy is particularly important in the context of private-company acquisitions, where the target's stockholders may lack the resources or ability to pursue complex damages litigation and where the calculation of expectation damages is inherently uncertain.

The Delaware Court of Chancery has ordered buyers to close M&A transactions in a number of notable cases. In In re IBP, Inc. S'holders Litigation, 789 A.2d 14 (Del. Ch. 2001), then-Vice Chancellor Strine ordered Tyson Foods to consummate its merger with IBP after finding that no material adverse effect had occurred and that Tyson's refusal to close was a breach of the merger agreement. In Hexion Specialty Chemicals, Inc. v. Huntsman Corp., the Court found that no material adverse effect had occurred with respect to Huntsman and that Hexion's attempt to avoid closing was wrongful, leading to Hexion ultimately consummating the transaction. These cases illustrate the Court of Chancery's willingness to exercise its equitable power to compel closing where the buyer's obligation has been triggered and its refusal to close is without contractual justification.

The key prerequisite for an award of specific performance compelling closing is that the seller must demonstrate that all conditions to the buyer's obligation to close have been satisfied or waived. This is a strict requirement. If any material condition to closing has not been satisfied — and the failure is not attributable to the buyer's own breach — the buyer's obligation to close has not been triggered, and specific performance cannot lie. This principle is well-established and is expressly reflected in SPA § 10.12's conditioning of the specific performance right on the satisfaction of closing conditions.

If the buyer has validly terminated the agreement prior to the specific performance action, the analysis is even more straightforward. A validly terminated agreement imposes no further obligations on the parties (except for those provisions that by their terms survive termination), and the court will not order specific performance of a contract that is no longer in effect. The seller must first establish that the termination was invalid — i.e., that the buyer lacked a valid contractual basis to terminate — before the court can assess whether specific performance is warranted.

Burden of proof. In this posture, the allocation of the burden of proof is significant. Veridian, as the party seeking specific performance, bears the initial burden of demonstrating that the SPA remains in effect and enforceable — i.e., that Penterra's termination was invalid. This requires Veridian to establish either that no Material Adverse Effect occurred (thus negating the basis for Penterra's invocation of § 8.1(d)) or that the closing conditions were in fact capable of being satisfied prior to the Outside Date. However, under the Akorn line of cases, the buyer bears the burden of proving that a Material Adverse Effect has actually occurred. Akorn, Inc. v. Fresenius Kabi AG, C.A. No. 2018-0300-JTL, 2018 WL 4719347, at 53 (Del. Ch. Oct. 1, 2018), aff'd*, 198 A.3d 724 (Del. 2018). This allocation places the evidentiary burden on Penterra to prove the facts underlying the MAE defense, even though it is Veridian that bears the overall burden of establishing entitlement to the equitable remedy of specific performance.

D. The Interplay Between Termination and Specific Performance

The relationship between the termination provisions and the specific performance provisions of the SPA creates a binary analytical framework that will govern the Court's analysis:

If the Court determines that Penterra's termination was valid — that is, if the Court finds that a Material Adverse Effect did occur, that the closing conditions in SPA §§ 7.2(a) and/or 7.2(b) were not satisfied and were incapable of being satisfied prior to the Outside Date, and that Penterra properly exercised its termination right under § 8.1(d) — then specific performance is unavailable as a matter of law. The SPA has been validly terminated, no obligation to close exists, and the Court will not order performance of a terminated agreement. In this scenario, Veridian's claims for both specific performance and breach of contract fail on the merits.

If the Court determines that the termination was invalid — that is, if the Court finds that no Material Adverse Effect occurred within the meaning of SPA § 1.1, that the closing conditions were satisfied or remained capable of being satisfied, and that Penterra's purported termination was therefore without contractual basis — then the SPA may be deemed to remain in effect, and the Court could order specific performance compelling Penterra to consummate the Closing. In this scenario, Penterra's termination would be treated as a repudiatory breach, and the Court would proceed to assess whether the equitable requirements for specific performance are satisfied.

The threshold question in any specific performance analysis is therefore the validity of the termination, which turns directly and entirely on the MAE analysis. This is the dispositive issue that will determine the outcome of both the specific performance claim and the breach of contract claim.

IV. Analysis of Veridian's Likely Specific Performance Claim

We now turn to a detailed analysis of each element of Veridian's anticipated specific performance claim, assessing the strengths and weaknesses of Veridian's position and Penterra's available defenses.

A. Element 1: Valid and Enforceable Contract

The SPA is a comprehensive, heavily negotiated agreement between sophisticated parties represented by experienced counsel. There are no vitiable defenses as to formation — the SPA was duly authorized by the boards of directors (or equivalent governing bodies) of both Penterra and Veridian, executed by authorized officers of each party (Dr. Anand Rajagopal for Penterra and Dr. Julian Marek for Veridian), and supported by adequate consideration (the exchange of $900 million in cash for 100% of Veridian's outstanding capital stock). There are no grounds to challenge the enforceability of the SPA on the basis of capacity, consideration, duress, undue influence, unconscionability, or any other contractual defense.

The dispositive question under this element is not whether a valid contract was ever formed, but rather whether the SPA remains in effect following Penterra's termination on September 30, 2024. Veridian will argue that the termination was wrongful, that the SPA therefore remains a binding and enforceable agreement, and that Penterra's obligation to close is extant and capable of being specifically enforced. Penterra will respond that the SPA was validly terminated in accordance with Article VIII and is no longer in effect, such that there is no enforceable obligation to close and specific performance cannot lie.

This element is effectively subsumed into the termination validity analysis discussed in Part V below. We do not anticipate that the enforceability of the SPA — as a matter of contract formation and validity — will be a contested issue.

B. Element 2: Breach by Penterra

Veridian will contend that Penterra breached the SPA in two related ways: (i) by refusing to close the transaction when all closing conditions were allegedly satisfied or capable of being satisfied, in violation of Penterra's obligation to use reasonable best efforts to consummate the transactions contemplated by the SPA (§ 5.3); and (ii) by purporting to terminate the SPA without valid grounds under Article VIII, thereby repudiating its contractual obligations.

Penterra's defense is straightforward: Penterra did not breach the SPA. Rather, Penterra exercised a contractual right — the right to terminate the SPA under § 8.1(d) — upon the occurrence of events (the Material Adverse Effect) that rendered the Buyer's closing conditions in SPA §§ 7.2(a) and 7.2(b) incapable of satisfaction prior to the Outside Date. The exercise of a contractual termination right in accordance with its terms cannot constitute a breach of the agreement. If the termination was valid, Penterra committed no breach.

The critical factual and legal dispute underlying this element centers on whether a Material Adverse Effect occurred as defined in SPA § 1.1. If a Material Adverse Effect occurred, Penterra validly terminated and committed no breach. If no Material Adverse Effect occurred, the termination was without contractual basis, and Penterra's refusal to close would constitute a breach. This is, again, the central issue in the case.

C. Element 3: Inadequacy of Legal Remedies / Irreparable Harm

SPA § 10.12 contains an express acknowledgment that "irreparable damage would occur in the event that any provision of this Agreement is not performed in accordance with its specific terms or is otherwise breached." The provision further provides that each party agrees it "will not oppose the granting of specific performance as provided herein on the basis that the other parties have an adequate remedy at law." These provisions substantially ease Veridian's burden on the irreparable harm element and, as a practical matter, largely eliminate the need for Veridian to independently prove inadequacy of legal remedies.

Even absent the contractual provision, Veridian would have a strong argument that money damages are inadequate in this context. Veridian is a clinical-stage biotechnology company with no product revenue, a FY2023 net loss of $87.3 million, and limited remaining cash (approximately $112.4 million as of March 31, 2024, and likely substantially less as of the date of this memorandum given ongoing cash burn). The company's ability to survive as a going concern without the acquisition proceeds is uncertain at best. Veridian's value is uniquely and inextricably tied to the VRD-4187 clinical program and its pipeline of T-cell engager candidates — assets whose value is inherently difficult to quantify with precision, particularly in light of the clinical and regulatory uncertainties following the Marlowe Asset Management-2 interim analysis.

Moreover, calculating expectation damages — the difference between the $900 million purchase price and Veridian's current fair market value — would require complex expert valuation of a pre-revenue biotechnology company with a clinical-stage pipeline, the valuation of which is dependent on speculative assumptions regarding the probability of regulatory approval, the timeline to market, competitive dynamics, and the commercial potential of therapeutics that have not yet demonstrated clinical efficacy. Such calculations are inherently uncertain and potentially speculative, further supporting the argument that money damages are inadequate.

Penterra's counterarguments. Penterra could argue that money damages are in fact calculable and adequate, particularly given the existence of sophisticated venture capital investors — Crestline Ventures, LP (28.3% ownership), Boreal Health Partners Fund III (19.7% ownership), and Apex Growth Equity Fund II (14.1% ownership) — who have invested based on detailed valuations of Veridian and who can provide market-based evidence of value. Penterra could also point to comparable transaction data in the biotechnology sector and to discounted cash flow models as bases for calculating damages with reasonable certainty.

Assessment. Notwithstanding Penterra's counterarguments, the contractual specific performance provision heavily favors Veridian on this element. Given the express irreparable harm acknowledgment and the parties' agreement not to oppose specific performance on adequacy-of-remedy grounds, we believe it is unlikely that the Court would deny specific performance solely on the ground that money damages are adequate. This element is unlikely to provide a winning standalone defense for Penterra.

D. Element 4: Feasibility of Specific Performance

The feasibility inquiry examines whether a decree of specific performance can be practically and effectively enforced. In the M&A context, this involves assessing whether the buyer has the financial capacity to fund the purchase price, whether the closing mechanics can be carried out in practice, and whether the passage of time or changed circumstances has rendered specific performance impractical.

1. Financial Capacity to Close. The SPA requires Penterra to pay $900,000,000 in cash at closing. The financing structure contemplated by the SPA consisted of: (a) a $500,000,000 committed senior secured term loan facility arranged with Summit Ridge Capital Partners, with Ironclad Trust Company, N.A. as administrative agent (Commitment Letter Reference: CL-2024-PPCA-0607), and (b) $400,000,000 from Penterra's cash on hand.

Following the termination of the SPA, Penterra notified Ironclad Trust Company, N.A. on October 1, 2024, that the Commitment Letter had terminated in accordance with its terms upon the termination of the SPA, and that no borrowings would be made thereunder. Accordingly, the $500 million committed financing may no longer be available. The Commitment Letter, by its terms, was subject to a condition precedent requiring that the SPA be in effect and that the transactions contemplated thereby be consummated substantially simultaneously with the funding. If the SPA is deemed to remain in effect, the availability of the committed financing may depend on whether the conditions to funding under the Commitment Letter can be reinstated — a question that may involve Ironclad Trust Company's willingness to re-extend the commitment and the satisfaction of the commitment's own conditions precedent.

However, Penterra's substantial cash resources make a "financial inability" defense difficult to sustain. As of the end of the second quarter of 2024, Penterra reported cash and cash equivalents of approximately $2.1 billion. Even without the $500 million term loan facility, Penterra has ample liquidity to fund the $900 million purchase price from its own resources, or to arrange alternative financing on short notice given its investment-grade credit profile, its size and track record in the capital markets, and its existing revolving credit facility ($1.5 billion undrawn). The Court of Chancery has historically been skeptical of "inability to close" defenses raised by well-capitalized buyers. See, e.g., Hexion, 2008 WL 4457544 (finding that Hexion's claimed inability to close was a manufactured defense where the buyer had access to sufficient capital).

Assessment. Penterra would have significant difficulty arguing financial inability to close. This factor likely favors Veridian in the feasibility analysis.

2. Practicality of Compelling a Post-Termination Closing. If the Court were to order specific performance, it would need to compel a complex series of closing actions, including but not limited to: execution and delivery of updated officer's certificates by Veridian's CEO and CFO certifying satisfaction of closing conditions; funding of the $180,000,000 Indemnification Escrow Amount and the $2,500,000 Stockholder Representative Expense Fund with Fidelis National Escrow Corp.; payment of the $717,500,000 net closing payment to the Sellers via wire transfer; delivery of good standing certificates, FIRPTA certificates, director and officer resignations, and other ancillary closing documents; and receipt of updated representations and warranties bring-down certificates.

There are additional practical complications. The Escrow Agreement with Fidelis National Escrow Corp. remains a signed agreement, but Penterra notified Fidelis on October 1, 2024 that no deposits would be made in connection with the SPA. Re-engagement of Fidelis and confirmation that the Escrow Agreement remains operative may be necessary. Similarly, if financing from Summit Ridge Capital Partners / Ironclad Trust Company is required (as opposed to funding entirely from cash on hand), the recommitment of the financing sources would be necessary. Updated officer's certificates, renewed compliance with conditions precedent, and potentially revised disclosure schedules would also be required.

That said, the Delaware Court of Chancery has historically demonstrated a willingness to order complex closings and has not shied away from the administrative burdens involved in supervising M&A transactions through to completion. In IBP, for example, the Court ordered the consummation of a multi-billion dollar merger transaction, overseeing the closing process to ensure compliance with the decree. The practical complexity of a closing, while relevant to the equitable calculus, is unlikely to be a dispositive defense in and of itself.

Assessment. The practicality of compelling closing increases the equitable burden on Veridian and provides Penterra with arguments at the margins, but is unlikely to be a dispositive defense against specific performance if the Court otherwise finds that the termination was invalid and the closing conditions are satisfied.

3. Passage of Time and Changed Circumstances. A significant practical challenge to specific performance in this case is the passage of time. The Outside Date under the SPA is December 10, 2024. If Veridian files its complaint on or about November 15, 2024, even under an expedited schedule, the Court of Chancery is unlikely to render a final decision on the merits prior to the Outside Date. Delaware Court of Chancery expedited proceedings in M&A cases typically proceed on a compressed schedule of approximately two to four months from complaint to trial, which means a trial would likely occur no earlier than January or February 2025, with a decision following thereafter.

Penterra will argue that specific performance compelling closing after the Outside Date is impractical and inequitable because the SPA's own termination provisions contemplate that the transaction need not close after December 10, 2024. Under SPA § 8.1(b), either party may terminate the SPA if closing has not occurred by the Outside Date, subject to the proviso that the terminating party's breach was not the primary cause of the failure to close. Penterra will contend that, once the Outside Date has passed, either party may terminate without regard to the MAE dispute, rendering specific performance moot.

Veridian's counter. Veridian will argue, with substantial legal support, that if Penterra's wrongful termination is the cause of the failure to close by the Outside Date, Penterra cannot invoke § 8.1(b) to avoid its obligations. The SPA's proviso clause in § 8.1(b) expressly prevents a party from terminating on the basis of the Outside Date if that party's own breach "has been the primary cause of, or has primarily resulted in, the failure of the Closing to occur by the Outside Date." If the Court finds that Penterra wrongfully terminated the SPA and thereby prevented timely closing, Penterra would be barred from invoking the Outside Date as a defense. Moreover, Delaware courts have routinely tolled or disregarded contractual deadlines in M&A specific performance cases where the buyer's breach was the proximate cause of the missed deadline. See IBP, 789 A.2d at 82–83 (ordering closing notwithstanding the passage of the contractual deadline where the buyer's breach caused the delay); Hexion, 2008 WL 4457544, at *37.

Assessment. The passage of time is a relevant factor in the equitable calculus but is unlikely to bar specific performance if the Court finds the termination wrongful and attributes the delay to Penterra's breach. Delaware courts have demonstrated a consistent willingness to order closings well after contractual deadlines in cases where the buyer's wrongful conduct caused the failure to close by the specified date.

E. Element 5: Equitable Considerations

1. Clean Hands. The doctrine of clean hands requires that a party seeking equitable relief must come to court without having engaged in inequitable conduct relating to the subject matter of the litigation. Penterra may raise the clean hands defense against Veridian, focusing on two potential areas of concern.

First, Penterra may argue that Veridian failed to fully and promptly disclose the Marlowe Asset Management-2 clinical trial data. Veridian received the DMC's interim analysis findings on August 14, 2024, but did not notify Penterra until August 16, 2024 — a two-day delay. While the SPA's interim operating covenants require Veridian to provide notice to Penterra of any material development relating to the Company's clinical programs "promptly, and in any event within three (3) Business Days" (SPA § 5.1(h)), the two-day delay may fall within this notice window depending on when the notice period commenced. Our August 18, 2024 memorandum on notification obligations analyzed this issue and concluded that the two-day delay was likely within the contractual notice period but was arguably inconsistent with the spirit of prompt disclosure given the severity of the safety findings.

Second, Penterra may argue that Veridian's unilateral implementation of Protocol v4.0 on August 28, 2024 — including the dose reduction from 1.5 mg/kg to 0.75 mg/kg — was undertaken without obtaining Penterra's prior written consent as required by the SPA's interim operating covenants (SPA § 5.1(b)(iv), which restricts the Company from amending or modifying any clinical trial protocol in a manner that would be material to the clinical program without the Buyer's prior written consent). Penterra sent a consent request letter on August 30, 2024, requesting additional information about the Protocol v4.0 amendment and reserving its right to object to the amendment as a violation of the interim operating covenants. Veridian responded that the protocol amendment was required by the FDA and constituted a reasonable exercise of ordinary course clinical operations.

Assessment. The clean hands defense raises legitimate factual issues, but these arguments are likely to be viewed by the Court as relatively minor procedural deficiencies rather than material instances of bad faith or inequitable conduct warranting denial of equitable relief in the context of a $900 million transaction. Delaware courts have applied the clean hands doctrine narrowly, requiring that the inequitable conduct must be directly related to the subject matter of the litigation and must rise to a level of seriousness that would make it inequitable for the court to grant the requested relief. Unless Penterra can demonstrate significant bad faith by Veridian — such as intentional concealment of material information or deliberate sabotage of the clinical program — the clean hands defense is likely to be a secondary argument rather than a dispositive defense.

2. Balance of Hardships. The balance of hardships weighs the relative burdens that specific performance would impose on the defendant against the harm to the plaintiff if specific performance is denied.

Hardship to Veridian if specific performance is denied. Veridian is a clinical-stage biotechnology company with no product revenue, a FY2023 net loss of $87.3 million, and rapidly depleting cash reserves (approximately $112.4 million as of March 31, 2024). The company's cash runway — i.e., the period during which it can continue to fund operations at current burn rates — is limited. Without the $900 million acquisition proceeds, Veridian faces an existential threat: the company may be unable to continue operations, may be forced to seek emergency financing on dilutive terms, or may be compelled to wind down its clinical programs and terminate employees. The failure to close the transaction also threatens the interests of Veridian's stockholders, who have invested a cumulative $420 million across Series A through Series D financing rounds and who would suffer a total or near-total loss of their investment if the company is unable to continue as a going concern.

Hardship to Penterra if specific performance is granted. Penterra would be compelled to acquire a company whose lead and most valuable asset — VRD-4187 — has experienced a severe clinical setback. The Marlowe Asset Management-2 interim analysis revealed a 23.4% rate of Grade ≥3 CRS (compared to 4.1% in the control), seven treatment-related deaths (3.6%), and non-statistically significant efficacy (ORR 31.4% vs. 28.9%, p = 0.58). The FDA has imposed a partial clinical hold on VRD-4187, the timeline for lifting which is uncertain. Requiring Penterra to pay $900 million for a company whose primary asset is now subject to a clinical hold, has demonstrated no statistically significant efficacy benefit, and carries a significant safety burden would impose a substantial hardship on Penterra and its stockholders.

Strategic context. It bears noting that Penterra's interest in acquiring Veridian was driven in significant part by strategic considerations relating to Penterra's immuno-oncology pipeline, which was weakened by the PPC-0921 Phase III futility analysis announced in November 2023. The VRD-4187 program was intended to fill a critical gap in Penterra's oncology portfolio. However, the Marlowe Asset Management-2 safety data has fundamentally altered the risk profile of VRD-4187 and, by extension, the strategic rationale for the acquisition. Forcing Penterra to acquire a potentially impaired asset at a price negotiated before the clinical setback was known raises serious questions about whether specific performance serves the interests of justice.

Assessment. The balance of hardships is arguable on both sides. Veridian's existential vulnerability weighs in favor of specific performance, while Penterra's exposure to acquiring a fundamentally impaired asset at an unreduced price weighs against it. This factor does not clearly favor either party and is unlikely to be dispositive in either direction.

3. Laches. The doctrine of laches bars equitable relief where the plaintiff has unreasonably delayed in asserting its rights to the prejudice of the defendant. Veridian's demand letter was sent on October 15, 2024, approximately two weeks after Penterra's termination on September 30, 2024, and the complaint is anticipated on or about November 15, 2024, approximately six weeks after termination. Given the complexity of the issues involved and the relatively short time frame between termination and the anticipated filing, laches is unlikely to be a viable defense at this stage.

However, if Veridian delays significantly beyond the anticipated November 15, 2024 filing date — for example, if the complaint is not filed until after the Outside Date of December 10, 2024 — Penterra could more credibly argue prejudice from the delay, particularly if Penterra has taken irreversible steps in reliance on the termination (such as terminating the financing commitment, reallocating corporate resources, or pursuing alternative strategic transactions).

Assessment. Laches is not currently a viable defense given the anticipated timeline. We do not recommend relying on this defense in the near term but should reassess if Veridian's filing is materially delayed.

V. The Central Defense: Validity of the Termination and the MAE

A. Penterra's Strongest Defense — Closing Conditions Were Not Satisfied

As the foregoing analysis makes clear, the most critical defense available to Penterra against Veridian's specific performance claim is the validity of the termination itself. If Penterra can establish that the closing conditions in SPA §§ 7.2(a) and 7.2(b) were not satisfied — specifically, that a Material Adverse Effect occurred — then the SPA was validly terminated under § 8.1(d), no obligation to close existed at the time of termination, and specific performance is categorically unavailable. The Court will not order Penterra to close a transaction that it had the contractual right not to close.

This defense is dispositive. If the MAE defense succeeds, all of Veridian's claims — specific performance, breach of contract, and damages — fail on the merits. Conversely, if the MAE defense fails, Penterra's exposure to a specific performance order or substantial damages award is significant. The MAE analysis is therefore the fulcrum upon which the entire litigation turns.

Our detailed analysis of the MAE question is set forth in the August 25, 2024 memorandum (MAE Analysis — VRD-4187 Clinical Data), the September 2, 2024 supplemental memorandum (incorporating the FDA clinical hold), the August 27, 2024 Delaware MAE Case Law Survey, the August 28, 2024 MAE Carveouts Analysis, and the September 3, 2024 Disproportionate Impact Exception Analysis. The following discussion summarizes the key points of that analysis as they relate to the specific performance risk.

B. The MAE Standard Under Delaware Law

The Delaware Court of Chancery applies a demanding standard for Material Adverse Effect determinations. As the Court held in Akorn, Inc. v. Fresenius Kabi AG, a material adverse effect must be "material when viewed from the standpoint of a reasonable acquiror" and must "substantially threaten the overall earnings potential of the target in a durationally-significant manner." 2018 WL 4719347, at 52–55. The Akorn court emphasized that the MAE standard is designed to protect buyers from "unknown events that substantially threaten the overall earnings potential of the target" while recognizing that "short-term hiccups in earnings . . . ought not to suffice" to establish a material adverse effect. Id. at 53.

The durational significance standard is the key distinguishing criterion. Delaware law requires that the adverse effect must be measured in years, not months — t

PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGE ATTORNEY WORK PRODUCT
MEMORANDUM
TO: Thomas F. Holbrook, General Counsel & Secretary, Penterra Pharmaceuticals Corp.
FROM: Oliver Mackenzie, Partner; Megan Chu, Associate; Derek Okonkwo, Associate — Calderwood & Harkness LLP
DATE: October 22, 2024
RE: Analysis of Specific Performance Risk — Veridian Biosciences, Inc.'s Potential Claim to Compel Closing Under SPA § 10.12 and Delaware Law
MATTER NO.: 1018-00008
Calderwood & Harkness LLP 200 Park Avenue, 42nd Floor New York, NY 10166
I. Executive Summary
You have asked us to analyze the risk that Veridian Biosciences, Inc. ("Veridian" or the "Company") obtains specific performance compelling Penterra Pharmaceuticals Corp. ("Penterra" or the "Buyer") to close the $900,000,000 stock purchase transaction contemplated by the Stock Purchase Agreement, dated as of June 10, 2024 (the "SPA"), following Penterra's termination of the SPA on September 30, 2024. This memorandum sets forth our assessment of the likelihood and legal basis for such a claim, identifies the principal defenses available to Penterra, and provides our strategic recommendations for litigation preparation and settlement posture.
By demand letter dated October 15, 2024, sent on behalf of Veridian by its counsel, Zalcourt Archer & Cole LLP (Rebecca Whitmore, lead partner), Veridian formally threatened litigation in the Court of Chancery of the State of Delaware, including a claim for specific performance under SPA § 10.12 compelling Penterra to consummate the acquisition. The demand letter characterized Penterra's termination as wrongful and without contractual basis, asserted that no material adverse effect has occurred, and stated that Veridian intends to pursue all available remedies to protect the interests of its stockholders. Veridian's counsel has indicated that a complaint will be filed on or about November 15, 2024. We anticipate the case would be captioned Veridian Biosciences, Inc. v. Penterra Pharmaceuticals Corp., C.A. No. 2024-_ (Del. Ch.).
Overall Assessment. While SPA § 10.12 expressly grants the Sellers the right to seek specific performance of the terms of the SPA, and while the Delaware Court of Chancery is generally receptive to specific performance claims in the M&A context, Penterra has strong defenses rooted in three independent but interrelated grounds: (a) the valid exercise of termination rights under SPA § 8.1(d); (b) the failure of Buyer's closing conditions under SPA §§ 7.2(a) and 7.2(b); and (c) the occurrence of a material adverse effect as defined in SPA § 1.1, arising from the severe safety signal, non-significant efficacy data, and FDA partial clinical hold associated with Veridian's lead clinical candidate, VRD-4187. If Penterra's termination is sustained, the SPA has been validly terminated, no obligation to close exists, and specific performance is categorically unavailable as a remedy.
The risk that a court would compel closing is assessed as moderate-to-low (estimated at approximately 15–25%), but not negligible, given the Delaware Court of Chancery's well-documented willingness to scrutinize material adverse effect claims with exacting standards and the high evidentiary threshold established by the Akorn line of cases. We believe the factual record — combining a dramatic safety signal, an FDA regulatory intervention, and non-significant efficacy in Veridian's sole revenue-generating prospect — presents a substantially stronger case for a material adverse effect than many historical claims, but acknowledge the inherent uncertainty of any such determination.
This memorandum is organized as follows: Part II provides the factual background; Part III sets forth the legal framework governing specific performance claims under Delaware law; Part IV analyzes each element of Veridian's anticipated specific performance claim; Part V addresses the central defense — the validity of Penterra's termination and the underlying material adverse effect determination; Part VI provides a detailed risk assessment and probability analysis; Part VII discusses the implications of the reverse termination fee; Part VIII sets forth our litigation strategy recommendations; and Part IX states our conclusions.
II. Factual Background
A. The Transaction and Key SPA Provisions
The SPA was executed on June 10, 2024, and provides for Penterra's acquisition of 100% of the outstanding capital stock of Veridian for an aggregate purchase price of $900,000,000 in cash, subject to customary purchase price adjustments. The transaction was structured as a stock purchase in which Penterra would acquire all issued and outstanding shares of Veridian's common stock and preferred stock from the Company's stockholders (the "Sellers"), with David Ng, Managing Partner of Crestline Ventures, LP, serving as the Stockholder Representative.
Penterra. Penterra Pharmaceuticals Corp. is a Delaware corporation, publicly traded on the Nasdaq Global Select Market under the ticker symbol PPCA, with its principal executive offices located at 1100 Meridian Boulevard, Suite 400, Princeton, New Jersey 08540. Penterra is a large-cap biopharmaceutical company with a market capitalization of approximately $14.2 billion as of the date of execution of the SPA, fiscal year 2023 revenue of approximately $4.87 billion, and a diversified portfolio of oncology and immunology therapeutics. The company's Chief Executive Officer is Dr. Anand Rajagopal, who executed the SPA on behalf of Penterra. Penterra has been focused on expanding its immuno-oncology pipeline, a strategic priority that was heightened following the futility analysis of PPC-0921 (Penterra's internally developed PD-L1/TIGIT bispecific antibody) in a Phase III non-small cell lung cancer trial announced in November 2023.
Veridian. Veridian Biosciences, Inc. is a privately held Delaware corporation headquartered at 550 Gateway Drive, Cambridge, Massachusetts 02142. Veridian is a clinical-stage biotechnology company focused on the development of next-generation T-cell engager therapeutics for hematologic malignancies and solid tumors. The company's Chief Executive Officer is Dr. Julian Marek, who executed the SPA on behalf of Veridian. As of the date of signing, Veridian had no product revenue (FY2023 revenue: $0; FY2023 net loss: $87.3 million) and employed approximately 148 full-time employees. Veridian's lead clinical candidate is VRD-4187, a bispecific T-cell engager antibody targeting CD3/GPRC5D currently in Phase II clinical development for relapsed/refractory multiple myeloma. The VRD-4187 program was the primary strategic asset underlying the $900 million purchase price, as reflected in Penterra's board materials and the fairness opinion delivered by Clearwater Advisory Partners LLC.
The SPA was negotiated over a period of approximately four months, with Penterra represented by this firm (Calderwood & Harkness LLP) and Veridian and the Sellers represented by Zalcourt Archer & Cole LLP. The agreement is comprehensive and runs to approximately 114 pages, exclusive of exhibits, schedules, and disclosure schedules. It contains customary representations and warranties, pre-closing covenants, closing conditions, termination provisions, indemnification mechanics, and miscellaneous provisions. The SPA is governed by Delaware law pursuant to § 10.6, and the parties have consented to the exclusive jurisdiction of the Court of Chancery of the State of Delaware (or, if the Court of Chancery lacks subject matter jurisdiction, the Superior Court of the State of Delaware or the United States District Court for the District of Delaware) for the adjudication of any disputes arising under or in connection with the SPA.
The SPA provides for an Outside Date of December 10, 2024 — the date by which the closing must occur, failing which either party may terminate the SPA under § 8.1(b), subject to certain limitations described below.
B. Specific Performance Provision — SPA § 10.12
Section 10.12 of the SPA, titled "Specific Performance," provides in relevant part:
The parties hereto acknowledge and agree that irreparable damage would occur in the event that any provision of this Agreement is not performed in accordance with its specific terms or is otherwise breached. Accordingly, the parties agree that, prior to the valid termination of this Agreement in accordance with Article VIII, each party shall be entitled to seek an injunction or injunctions to prevent breaches of this Agreement and to seek specific performance of the terms and provisions hereof in any court referred to in Section 10.6, in addition to any other remedy to which such party may be entitled at law or in equity. Each of the parties hereto further agrees that (a) it will not oppose the granting of specific performance as provided herein on the basis that the other parties have an adequate remedy at law, and (b) the right to specific performance is an integral part of the transactions contemplated hereby and without such right, the parties hereto would not have entered into this Agreement. For the avoidance of doubt, the Sellers and the Stockholder Representative shall have the right to seek specific performance to cause the Buyer to consummate the Closing in accordance with Article II if all conditions set forth in Sections 7.1 and 7.3 have been satisfied or waived (other than those conditions that by their nature are to be satisfied by actions taken at the Closing, which conditions are capable of being satisfied at the Closing).
Several features of this provision are noteworthy. First, the provision is bilateral — both Penterra and Veridian have the right to seek specific performance of the other party's obligations under the SPA. Second, the provision expressly acknowledges that irreparable damage would result from a breach, and the parties have agreed not to oppose specific performance on adequacy-of-legal-remedies grounds. This effectively concedes the "irreparable harm" element in any future specific performance proceeding, a point of considerable significance under Delaware law. Third, the provision expressly grants the Sellers the right to seek specific performance to cause the Buyer to consummate the Closing — provided that all conditions to Buyer's obligation to close in Sections 7.1 and 7.3 have been satisfied or waived (other than bring-down conditions that by their nature are satisfied at the Closing). Fourth, and critically, the specific performance right is expressly conditioned on the absence of a "valid termination of this Agreement in accordance with Article VIII."
This last point is of central importance. If Penterra's termination of the SPA on September 30, 2024 was valid — that is, if it was effected in accordance with Article VIII — then the specific performance provision, by its own terms, is no longer operative. Specific performance is available only "prior to the valid termination of this Agreement." The threshold question in any specific performance proceeding will therefore be whether the termination was valid.
C. Closing Conditions — SPA §§ 7.1, 7.2, 7.3
The SPA sets forth three categories of conditions precedent to the parties' obligations to consummate the closing.
Section 7.1 — Mutual Conditions. Section 7.1 sets forth conditions to both parties' obligation to close, including: (a) antitrust clearance — the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), shall have expired or been terminated; and (b) no injunction or legal restraint — no order, injunction, decree, or ruling by any governmental authority of competent jurisdiction shall be in effect that enjoins, restrains, or prohibits the consummation of the transactions contemplated by the SPA. The HSR waiting period expired on May 20, 2024, and this condition has been satisfied. No injunctive order is currently in effect that would prevent consummation of the transaction itself.
Section 7.2 — Buyer's Conditions to Closing. Section 7.2 sets forth conditions to the Buyer's (Penterra's) obligation to close:
Section 7.2(a) — Bring-Down of Sellers' Representations and Warranties. The representations and warranties of the Company and the Stockholder Representative set forth in this Agreement shall be true and correct in all material respects (or, with respect to any representation or warranty that is qualified by "materiality" or "Material Adverse Effect," true and correct in all respects) as of the Closing Date with the same force and effect as though such representations and warranties had been made as of the Closing Date (except to the extent any such representation and warranty expressly relates to an earlier date, in which case such representation and warranty shall be true and correct as of such earlier date), except where the failure of such representations and warranties to be true and correct would not, individually or in the aggregate, constitute a Material Adverse Effect.
Section 7.2(b) — No Material Adverse Effect. Since the date of this Agreement, there shall not have occurred any event, change, circumstance, occurrence, effect, development, condition, or state of facts that, individually or in the aggregate, has had or would reasonably be expected to have a Material Adverse Effect on the Company.
Section 7.2(c) — Compliance with Covenants. The Company and the Stockholder Representative shall have complied in all material respects with all covenants and agreements required to be performed or complied with by them under this Agreement at or prior to the Closing.
Section 7.2(d) — Delivery of Seller Closing Deliverables. The Company shall have delivered (or caused to be delivered) to the Buyer each of the items required to be delivered by the Company at the Closing pursuant to Section 2.3, including without limitation: (i) an officer's certificate, signed by the Chief Executive Officer and Chief Financial Officer of the Company, certifying as to the satisfaction of the conditions set forth in Sections 7.2(a), (b), and (c); (ii) evidence of funding of the Indemnification Escrow Amount ($180,000,000) and the Stockholder Representative Expense Fund ($2,500,000) with the Escrow Agent (Fidelis National Escrow Corp.); (iii) good standing certificates from the Secretary of State of Delaware and each jurisdiction in which the Company is qualified to do business; (iv) resignations of directors and officers of the Company as specified by the Buyer; and (v) FIRPTA certificates from each Seller.
Section 7.3 — Sellers' Conditions to Closing. Section 7.3 sets forth conditions to the Sellers' obligation to close, including: (a) the Buyer's representations and warranties shall be true and correct in all material respects as of the Closing Date; (b) the Buyer shall have complied in all material respects with all covenants required to be performed at or prior to the Closing; (c) the Buyer shall have delivered the Buyer closing deliverables; and (d) the Buyer shall have deposited, or caused to be deposited, the Aggregate Closing Payment ($717,500,000 net of amounts deposited into escrow and the expense fund) by wire transfer of immediately available funds to the accounts designated by the Stockholder Representative.
D. Termination Provisions — SPA § 8.1
Article VIII of the SPA sets forth the circumstances under which the SPA may be terminated prior to closing. The termination provisions relevant to the present dispute include:
Section 8.1(a) — Mutual Written Consent. The SPA may be terminated by the mutual written consent of the Buyer and the Stockholder Representative.
Section 8.1(b) — Outside Date Termination. The SPA may be terminated by either the Buyer or the Stockholder Representative if the Closing shall not have occurred on or prior to December 10, 2024 (the "Outside Date"); provided, however, that the right to terminate under this Section 8.1(b) shall not be available to any party whose breach of any representation, warranty, covenant, or agreement set forth in this Agreement has been the primary cause of, or has primarily resulted in, the failure of the Closing to occur by the Outside Date.
Section 8.1(d) — Buyer Termination for Failure of Closing Conditions. The Buyer may terminate this Agreement if any of the conditions set forth in Sections 7.1 or 7.2 shall have become incapable of being satisfied prior to the Outside Date; provided, however, that the right to terminate under this Section 8.1(d) shall not be available to the Buyer if the failure of such condition to be satisfied has been primarily caused by the Buyer's breach of any representation, warranty, covenant, or agreement set forth in this Agreement.
Penterra delivered a written Termination Notice to Veridian and the Stockholder Representative on September 30, 2024, invoking its termination right under Section 8.1(d). The Termination Notice stated that the closing conditions set forth in Sections 7.2(a) and 7.2(b) of the SPA are not satisfied and are incapable of being satisfied prior to the Outside Date of December 10, 2024, due to the occurrence of a Material Adverse Effect within the meaning of SPA § 1.1, arising from the events described in Part II.E below. The Termination Notice further stated that the failure of such conditions was not caused by any breach of the SPA by Penterra.
E. The Material Adverse Effect and Underlying Events
The events giving rise to Penterra's termination of the SPA relate to the clinical development of VRD-4187, Veridian's lead and most advanced clinical-stage asset, and in particular to the adverse results of the Marlowe Asset Management-2 Phase II clinical trial.
Marlowe Asset Management-2 Phase II Clinical Trial (NCT05837291). The Marlowe Asset Management-2 trial is a randomized, open-label, multicenter Phase II study evaluating VRD-4187 in combination with standard-of-care dexamethasone versus dexamethasone alone in patients with relapsed/refractory multiple myeloma who have received at least two prior lines of therapy. VRD-4187 is a bispecific T-cell engager antibody targeting CD3 and GPRC5D that constituted the primary strategic rationale for the proposed acquisition. The trial enrolled approximately 387 patients across 42 clinical sites in the United States, Canada, and the European Union.
On August 14, 2024, the Data Monitoring Committee ("DMC") for the Marlowe Asset Management-2 trial completed a pre-specified interim analysis at approximately 75% enrollment. The DMC's findings were deeply concerning:
• Safety (Grade ≥3 Cytokine Release Syndrome ("CRS")): The VRD-4187 treatment arm exhibited a Grade ≥3 CRS rate of 23.4%, compared to 4.1% in the control arm — a 19.3 percentage-point differential representing approximately a 5.7-fold increase in the rate of severe CRS.
• Treatment-Related Deaths: Seven (7) treatment-related deaths occurred in the VRD-4187 arm (3.6% of patients) compared to one (1) death in the control arm (0.5%), a statistically and clinically significant difference in treatment-related mortality.
• Efficacy (Overall Response Rate ("ORR")): The VRD-4187 arm demonstrated an ORR of 31.4%, compared to 28.9% in the control arm. The difference was not statistically significant (p = 0.58), indicating that VRD-4187 failed to demonstrate a meaningful efficacy benefit at the interim analysis despite the substantial increase in toxicity.
Based on these findings, the DMC issued a recommendation on August 14, 2024, to suspend enrollment in the Marlowe Asset Management-2 trial and implement dose modification protocols. The DMC's recommendation was communicated to Veridian's management and its clinical operations team on the same date. Penterra was informed of the DMC findings on August 16, 2024 — two days after Veridian received the results, a delay that raises questions regarding the timeliness of Veridian's notification obligations under the SPA's interim operating covenants, as discussed in our August 18, 2024 memorandum on notification obligations.
On August 22, 2024, the United States Food and Drug Administration (the "FDA") imposed a partial clinical hold on VRD-4187 under IND 154832 in connection with the safety findings from the Marlowe Asset Management-2 interim analysis. The partial clinical hold prohibits new patient enrollment in VRD-4187 clinical studies at the 1.5 mg/kg dose level and requires Veridian to submit a complete safety assessment, an amended clinical protocol incorporating enhanced risk mitigation measures, and updated informed consent forms before the hold may be modified or lifted. The FDA's letter indicated that the agency had identified a "potential serious risk to the safety of subjects" and that the clinical hold would remain in effect pending its review of Veridian's responsive submissions.
In response, Veridian implemented Protocol v4.0 on August 28, 2024, which included: (i) mandatory tocilizumab prophylaxis for all patients receiving VRD-4187, to be administered prior to each infusion cycle; and (ii) a dose reduction from 1.5 mg/kg to 0.75 mg/kg. The Protocol v4.0 amendment was submitted to the FDA as part of Veridian's response to the partial clinical hold, and Veridian has represented that it expects the FDA to lift the clinical hold following review of the amended protocol, although no timeline for such action has been provided.
Penterra's Deficiency Notice. On September 6, 2024, Penterra delivered a Deficiency Notice to Veridian and the Stockholder Representative pursuant to the SPA, identifying the Marlowe Asset Management-2 safety data, the DMC enrollment suspension, and the FDA partial clinical hold as events constituting a Material Adverse Effect under SPA § 1.1 and giving rise to the non-satisfaction of the closing conditions in SPA §§ 7.2(a) and 7.2(b). Penterra reserved all rights under the SPA, including the right to terminate.
Veridian's Response. On September 13, 2024, Veridian (through Zalcourt Archer & Cole LLP) delivered a written response disputing that a Material Adverse Effect had occurred, asserting that the clinical setback was temporary and curable through protocol amendment, and demanding that Penterra proceed to close the transaction in accordance with the SPA. Veridian characterized the VRD-4187 safety data as a typical clinical development challenge that did not rise to the level of a Material Adverse Effect under Delaware law, pointing to the availability of dose modification and the expectation that the FDA clinical hold would be lifted in due course.
Prior Firm Memoranda. This memorandum builds upon the analysis set forth in a series of prior Calderwood & Harkness memoranda, including: the MAE Analysis — VRD-4187 Clinical Data (August 25, 2024); the Supplemental MAE Analysis — Incorporating FDA Clinical Hold (September 2, 2024); the Delaware MAE Case Law Survey (August 27, 2024); the MAE Carveouts Analysis (August 28, 2024); and the Disproportionate Impact Exception Analysis (September 3, 2024). The conclusions of those memoranda are incorporated by reference herein to the extent relevant.
F. Veridian's Threatened Litigation
As noted, by demand letter dated October 15, 2024, Veridian (through Zalcourt Archer & Cole LLP, Rebecca Whitmore) formally threatened litigation against Penterra in the Court of Chancery of the State of Delaware. The demand letter asserts four principal contentions: (i) no Material Adverse Effect has occurred within the meaning of SPA § 1.1; (ii) all conditions to the Buyer's obligation to close under SPA § 7.2 remain satisfied or are capable of being satisfied prior to the Outside Date; (iii) Penterra's termination of the SPA on September 30, 2024 was invalid and constitutes a breach of the SPA; and (iv) Veridian is entitled to specific performance compelling Penterra to consummate the Closing, and alternatively, to full expectation damages for breach of the SPA.
Veridian's demand letter requests that Penterra withdraw its Termination Notice and proceed to close the transaction within thirty (30) days, failing which Veridian will file suit. Based on the demand letter's timeline, we anticipate that a complaint will be filed on or about November 15, 2024. Our analysis of the demand letter and its legal arguments is set forth in the October 18, 2024 memorandum (Analysis of Veridian's Demand Letter and Litigation Threats), which is incorporated by reference.
III. Legal Framework: Specific Performance Under Delaware Law
A. General Principles of Specific Performance in Delaware
Specific performance is an equitable remedy that lies within the sound discretion of the Court of Chancery, Delaware's dedicated equity court. As an equitable remedy, specific performance is not available as a matter of right; rather, the court exercises its judgment as to whether, under all the circumstances, the remedy of specific performance is appropriate. See, e.g., Osborn ex rel. Osborn v. Kemp, 991 A.2d 1153, 1158 (Del. 2010); SV Inv. Partners, LLC v. ThoughtWorks, Inc., 7 A.3d 973, 989–90 (Del. Ch. 2010), aff'd, 37 A.3d 205 (Del. 2011).
The traditional requirements for an award of specific performance under Delaware law are as follows:
(1) A valid and enforceable contract. The plaintiff must demonstrate the existence of a binding, enforceable agreement whose terms are sufficiently definite to be specifically enforced.
(2) A breach or threatened breach. The plaintiff must show that the defendant has breached, or imminently threatens to breach, its obligations under the contract.
(3) Inadequacy of legal remedies (irreparable harm). The plaintiff must demonstrate that money damages would be inadequate to compensate for the injury caused by the breach — i.e., that the plaintiff would suffer irreparable harm absent equitable relief.
(4) Feasibility of enforcement. The court must be satisfied that the decree of specific performance can be practically and effectively enforced and will not require ongoing judicial supervision of such complexity or duration as to be impracticable.
(5) Equitable considerations. The court considers the totality of equitable factors, including whether the plaintiff has come to court with clean hands, whether the plaintiff has acted with reasonable diligence (no laches), and whether the balance of hardships favors the grant of equitable relief.
In the context of mergers and acquisitions transactions, the Delaware Court of Chancery has long recognized that the unique nature of business acquisitions — involving hard-to-value assets, strategic synergies, employee relationships, competitive dynamics, and opportunities that are not readily replicable in the marketplace — often renders money damages inadequate. As the Court of Chancery observed in Hexion Specialty Chemicals, Inc. v. Huntsman Corp., C.A. No. 3841-VCL, 2008 WL 4457544 (Del. Ch. Sept. 29, 2008), "[i]t is well-settled that in the context of a cash merger or acquisition, money damages are generally not an adequate remedy because of the difficulty of proving the target's standalone value and the loss of the unique combination benefits that the transaction was designed to capture." This principle has been reaffirmed in numerous subsequent decisions. See also AB Stable VIII LLC v. Maps Hotels & Resorts One LLC, 2020 WL 7024929 (Del. Ch. Nov. 30, 2020), aff'd in relevant part, rev'd in part, 268 A.3d 198 (Del. 2021); Genworth Fin., Inc. v. China Oceanwide Holdings Grp. Co., C.A. No. 2021-0127-JTL (Del. Ch. 2021).
B. Contractual Specific Performance Provisions in M&A
In sophisticated M&A transactions, it has become standard practice for the parties to include contractual provisions expressly acknowledging irreparable harm and granting the right to seek specific performance. SPA § 10.12 is such a provision. The Delaware Court of Chancery gives significant weight to these negotiated provisions, treating them as part of the bargained-for allocation of rights and remedies between sophisticated parties represented by counsel.
The importance of a contractual specific performance provision lies principally in its effect on the "inadequacy of legal remedies" element. Where the contract contains an express acknowledgment that irreparable damage would result from a breach and that the parties are entitled to seek specific performance, Delaware courts generally do not require the party seeking specific performance to independently prove irreparable harm. See Hexion, 2008 WL 4457544, at 36 (noting the contractual acknowledgment of irreparable harm); In re IBP, Inc. S'holders Litig.*, 789 A.2d 14, 83–84 (Del. Ch. 2001) (awarding specific performance of a merger agreement and relying in part on the contractual irreparable harm provision). The parties' agreement to waive the defense of adequacy of legal remedies — as provided in SPA § 10.12(a) — further reinforces this effect.
However, a contractual specific performance provision does not operate as an automatic entitlement to specific performance in all circumstances. The Court of Chancery retains discretion to deny specific performance based on equitable considerations, and — critically for the present case — a contractual specific performance provision does not override the requirement that the conditions to the movant's right to compel performance must actually be satisfied. As courts have recognized, "the fact that the parties have agreed to a specific performance remedy does not mean that specific performance is available regardless of whether the conditions to closing have been satisfied." The right to compel closing through specific performance is parasitic on the underlying obligation to close; if the conditions to that obligation have not been met, or if the agreement has been validly terminated, the specific performance remedy is unavailable because there is no remaining obligation to enforce.
SPA § 10.12 itself recognizes this principle by providing that the right to specific performance exists only "prior to the valid termination of this Agreement in accordance with Article VIII" and by conditioning the Sellers' right to compel closing on the satisfaction or waiver of all conditions in Sections 7.1 and 7.3.
C. Specific Performance in the Context of a Buyer's Refusal to Close
Delaware law recognizes that sellers in an M&A transaction may seek specific performance to compel a reluctant buyer to close the acquisition. This remedy is particularly important in the context of private-company acquisitions, where the target's stockholders may lack the resources or ability to pursue complex damages litigation and where the calculation of expectation damages is inherently uncertain.
The Delaware Court of Chancery has ordered buyers to close M&A transactions in a number of notable cases. In In re IBP, Inc. S'holders Litigation, 789 A.2d 14 (Del. Ch. 2001), then-Vice Chancellor Strine ordered Tyson Foods to consummate its merger with IBP after finding that no material adverse effect had occurred and that Tyson's refusal to close was a breach of the merger agreement. In Hexion Specialty Chemicals, Inc. v. Huntsman Corp., the Court found that no material adverse effect had occurred with respect to Huntsman and that Hexion's attempt to avoid closing was wrongful, leading to Hexion ultimately consummating the transaction. These cases illustrate the Court of Chancery's willingness to exercise its equitable power to compel closing where the buyer's obligation has been triggered and its refusal to close is without contractual justification.
The key prerequisite for an award of specific performance compelling closing is that the seller must demonstrate that all conditions to the buyer's obligation to close have been satisfied or waived. This is a strict requirement. If any material condition to closing has not been satisfied — and the failure is not attributable to the buyer's own breach — the buyer's obligation to close has not been triggered, and specific performance cannot lie. This principle is well-established and is expressly reflected in SPA § 10.12's conditioning of the specific performance right on the satisfaction of closing conditions.
If the buyer has validly terminated the agreement prior to the specific performance action, the analysis is even more straightforward. A validly terminated agreement imposes no further obligations on the parties (except for those provisions that by their terms survive termination), and the court will not order specific performance of a contract that is no longer in effect. The seller must first establish that the termination was invalid — i.e., that the buyer lacked a valid contractual basis to terminate — before the court can assess whether specific performance is warranted.
Burden of proof. In this posture, the allocation of the burden of proof is significant. Veridian, as the party seeking specific performance, bears the initial burden of demonstrating that the SPA remains in effect and enforceable — i.e., that Penterra's termination was invalid. This requires Veridian to establish either that no Material Adverse Effect occurred (thus negating the basis for Penterra's invocation of § 8.1(d)) or that the closing conditions were in fact capable of being satisfied prior to the Outside Date. However, under the Akorn line of cases, the buyer bears the burden of proving that a Material Adverse Effect has actually occurred. Akorn, Inc. v. Fresenius Kabi AG, C.A. No. 2018-0300-JTL, 2018 WL 4719347, at 53 (Del. Ch. Oct. 1, 2018), aff'd*, 198 A.3d 724 (Del. 2018). This allocation places the evidentiary burden on Penterra to prove the facts underlying the MAE defense, even though it is Veridian that bears the overall burden of establishing entitlement to the equitable remedy of specific performance.
D. The Interplay Between Termination and Specific Performance
The relationship between the termination provisions and the specific performance provisions of the SPA creates a binary analytical framework that will govern the Court's analysis:
If the Court determines that Penterra's termination was valid — that is, if the Court finds that a Material Adverse Effect did occur, that the closing conditions in SPA §§ 7.2(a) and/or 7.2(b) were not satisfied and were incapable of being satisfied prior to the Outside Date, and that Penterra properly exercised its termination right under § 8.1(d) — then specific performance is unavailable as a matter of law. The SPA has been validly terminated, no obligation to close exists, and the Court will not order performance of a terminated agreement. In this scenario, Veridian's claims for both specific performance and breach of contract fail on the merits.
If the Court determines that the termination was invalid — that is, if the Court finds that no Material Adverse Effect occurred within the meaning of SPA § 1.1, that the closing conditions were satisfied or remained capable of being satisfied, and that Penterra's purported termination was therefore without contractual basis — then the SPA may be deemed to remain in effect, and the Court could order specific performance compelling Penterra to consummate the Closing. In this scenario, Penterra's termination would be treated as a repudiatory breach, and the Court would proceed to assess whether the equitable requirements for specific performance are satisfied.
The threshold question in any specific performance analysis is therefore the validity of the termination, which turns directly and entirely on the MAE analysis. This is the dispositive issue that will determine the outcome of both the specific performance claim and the breach of contract claim.
IV. Analysis of Veridian's Likely Specific Performance Claim
We now turn to a detailed analysis of each element of Veridian's anticipated specific performance claim, assessing the strengths and weaknesses of Veridian's position and Penterra's available defenses.
A. Element 1: Valid and Enforceable Contract
The SPA is a comprehensive, heavily negotiated agreement between sophisticated parties represented by experienced counsel. There are no vitiable defenses as to formation — the SPA was duly authorized by the boards of directors (or equivalent governing bodies) of both Penterra and Veridian, executed by authorized officers of each party (Dr. Anand Rajagopal for Penterra and Dr. Julian Marek for Veridian), and supported by adequate consideration (the exchange of $900 million in cash for 100% of Veridian's outstanding capital stock). There are no grounds to challenge the enforceability of the SPA on the basis of capacity, consideration, duress, undue influence, unconscionability, or any other contractual defense.
The dispositive question under this element is not whether a valid contract was ever formed, but rather whether the SPA remains in effect following Penterra's termination on September 30, 2024. Veridian will argue that the termination was wrongful, that the SPA therefore remains a binding and enforceable agreement, and that Penterra's obligation to close is extant and capable of being specifically enforced. Penterra will respond that the SPA was validly terminated in accordance with Article VIII and is no longer in effect, such that there is no enforceable obligation to close and specific performance cannot lie.
This element is effectively subsumed into the termination validity analysis discussed in Part V below. We do not anticipate that the enforceability of the SPA — as a matter of contract formation and validity — will be a contested issue.
B. Element 2: Breach by Penterra
Veridian will contend that Penterra breached the SPA in two related ways: (i) by refusing to close the transaction when all closing conditions were allegedly satisfied or capable of being satisfied, in violation of Penterra's obligation to use reasonable best efforts to consummate the transactions contemplated by the SPA (§ 5.3); and (ii) by purporting to terminate the SPA without valid grounds under Article VIII, thereby repudiating its contractual obligations.
Penterra's defense is straightforward: Penterra did not breach the SPA. Rather, Penterra exercised a contractual right — the right to terminate the SPA under § 8.1(d) — upon the occurrence of events (the Material Adverse Effect) that rendered the Buyer's closing conditions in SPA §§ 7.2(a) and 7.2(b) incapable of satisfaction prior to the Outside Date. The exercise of a contractual termination right in accordance with its terms cannot constitute a breach of the agreement. If the termination was valid, Penterra committed no breach.
The critical factual and legal dispute underlying this element centers on whether a Material Adverse Effect occurred as defined in SPA § 1.1. If a Material Adverse Effect occurred, Penterra validly terminated and committed no breach. If no Material Adverse Effect occurred, the termination was without contractual basis, and Penterra's refusal to close would constitute a breach. This is, again, the central issue in the case.
C. Element 3: Inadequacy of Legal Remedies / Irreparable Harm
SPA § 10.12 contains an express acknowledgment that "irreparable damage would occur in the event that any provision of this Agreement is not performed in accordance with its specific terms or is otherwise breached." The provision further provides that each party agrees it "will not oppose the granting of specific performance as provided herein on the basis that the other parties have an adequate remedy at law." These provisions substantially ease Veridian's burden on the irreparable harm element and, as a practical matter, largely eliminate the need for Veridian to independently prove inadequacy of legal remedies.
Even absent the contractual provision, Veridian would have a strong argument that money damages are inadequate in this context. Veridian is a clinical-stage biotechnology company with no product revenue, a FY2023 net loss of $87.3 million, and limited remaining cash (approximately $112.4 million as of March 31, 2024, and likely substantially less as of the date of this memorandum given ongoing cash burn). The company's ability to survive as a going concern without the acquisition proceeds is uncertain at best. Veridian's value is uniquely and inextricably tied to the VRD-4187 clinical program and its pipeline of T-cell engager candidates — assets whose value is inherently difficult to quantify with precision, particularly in light of the clinical and regulatory uncertainties following the Marlowe Asset Management-2 interim analysis.
Moreover, calculating expectation damages — the difference between the $900 million purchase price and Veridian's current fair market value — would require complex expert valuation of a pre-revenue biotechnology company with a clinical-stage pipeline, the valuation of which is dependent on speculative assumptions regarding the probability of regulatory approval, the timeline to market, competitive dynamics, and the commercial potential of therapeutics that have not yet demonstrated clinical efficacy. Such calculations are inherently uncertain and potentially speculative, further supporting the argument that money damages are inadequate.
Penterra's counterarguments. Penterra could argue that money damages are in fact calculable and adequate, particularly given the existence of sophisticated venture capital investors — Crestline Ventures, LP (28.3% ownership), Boreal Health Partners Fund III (19.7% ownership), and Apex Growth Equity Fund II (14.1% ownership) — who have invested based on detailed valuations of Veridian and who can provide market-based evidence of value. Penterra could also point to comparable transaction data in the biotechnology sector and to discounted cash flow models as bases for calculating damages with reasonable certainty.
Assessment. Notwithstanding Penterra's counterarguments, the contractual specific performance provision heavily favors Veridian on this element. Given the express irreparable harm acknowledgment and the parties' agreement not to oppose specific performance on adequacy-of-remedy grounds, we believe it is unlikely that the Court would deny specific performance solely on the ground that money damages are adequate. This element is unlikely to provide a winning standalone defense for Penterra.
D. Element 4: Feasibility of Specific Performance
The feasibility inquiry examines whether a decree of specific performance can be practically and effectively enforced. In the M&A context, this involves assessing whether the buyer has the financial capacity to fund the purchase price, whether the closing mechanics can be carried out in practice, and whether the passage of time or changed circumstances has rendered specific performance impractical.
1. Financial Capacity to Close. The SPA requires Penterra to pay $900,000,000 in cash at closing. The financing structure contemplated by the SPA consisted of: (a) a $500,000,000 committed senior secured term loan facility arranged with Summit Ridge Capital Partners, with Ironclad Trust Company, N.A. as administrative agent (Commitment Letter Reference: CL-2024-PPCA-0607), and (b) $400,000,000 from Penterra's cash on hand.
Following the termination of the SPA, Penterra notified Ironclad Trust Company, N.A. on October 1, 2024, that the Commitment Letter had terminated in accordance with its terms upon the termination of the SPA, and that no borrowings would be made thereunder. Accordingly, the $500 million committed financing may no longer be available. The Commitment Letter, by its terms, was subject to a condition precedent requiring that the SPA be in effect and that the transactions contemplated thereby be consummated substantially simultaneously with the funding. If the SPA is deemed to remain in effect, the availability of the committed financing may depend on whether the conditions to funding under the Commitment Letter can be reinstated — a question that may involve Ironclad Trust Company's willingness to re-extend the commitment and the satisfaction of the commitment's own conditions precedent.
However, Penterra's substantial cash resources make a "financial inability" defense difficult to sustain. As of the end of the second quarter of 2024, Penterra reported cash and cash equivalents of approximately $2.1 billion. Even without the $500 million term loan facility, Penterra has ample liquidity to fund the $900 million purchase price from its own resources, or to arrange alternative financing on short notice given its investment-grade credit profile, its size and track record in the capital markets, and its existing revolving credit facility ($1.5 billion undrawn). The Court of Chancery has historically been skeptical of "inability to close" defenses raised by well-capitalized buyers. See, e.g., Hexion, 2008 WL 4457544 (finding that Hexion's claimed inability to close was a manufactured defense where the buyer had access to sufficient capital).
Assessment. Penterra would have significant difficulty arguing financial inability to close. This factor likely favors Veridian in the feasibility analysis.
2. Practicality of Compelling a Post-Termination Closing. If the Court were to order specific performance, it would need to compel a complex series of closing actions, including but not limited to: execution and delivery of updated officer's certificates by Veridian's CEO and CFO certifying satisfaction of closing conditions; funding of the $180,000,000 Indemnification Escrow Amount and the $2,500,000 Stockholder Representative Expense Fund with Fidelis National Escrow Corp.; payment of the $717,500,000 net closing payment to the Sellers via wire transfer; delivery of good standing certificates, FIRPTA certificates, director and officer resignations, and other ancillary closing documents; and receipt of updated representations and warranties bring-down certificates.
There are additional practical complications. The Escrow Agreement with Fidelis National Escrow Corp. remains a signed agreement, but Penterra notified Fidelis on October 1, 2024 that no deposits would be made in connection with the SPA. Re-engagement of Fidelis and confirmation that the Escrow Agreement remains operative may be necessary. Similarly, if financing from Summit Ridge Capital Partners / Ironclad Trust Company is required (as opposed to funding entirely from cash on hand), the recommitment of the financing sources would be necessary. Updated officer's certificates, renewed compliance with conditions precedent, and potentially revised disclosure schedules would also be required.
That said, the Delaware Court of Chancery has historically demonstrated a willingness to order complex closings and has not shied away from the administrative burdens involved in supervising M&A transactions through to completion. In IBP, for example, the Court ordered the consummation of a multi-billion dollar merger transaction, overseeing the closing process to ensure compliance with the decree. The practical complexity of a closing, while relevant to the equitable calculus, is unlikely to be a dispositive defense in and of itself.
Assessment. The practicality of compelling closing increases the equitable burden on Veridian and provides Penterra with arguments at the margins, but is unlikely to be a dispositive defense against specific performance if the Court otherwise finds that the termination was invalid and the closing conditions are satisfied.
3. Passage of Time and Changed Circumstances. A significant practical challenge to specific performance in this case is the passage of time. The Outside Date under the SPA is December 10, 2024. If Veridian files its complaint on or about November 15, 2024, even under an expedited schedule, the Court of Chancery is unlikely to render a final decision on the merits prior to the Outside Date. Delaware Court of Chancery expedited proceedings in M&A cases typically proceed on a compressed schedule of approximately two to four months from complaint to trial, which means a trial would likely occur no earlier than January or February 2025, with a decision following thereafter.
Penterra will argue that specific performance compelling closing after the Outside Date is impractical and inequitable because the SPA's own termination provisions contemplate that the transaction need not close after December 10, 2024. Under SPA § 8.1(b), either party may terminate the SPA if closing has not occurred by the Outside Date, subject to the proviso that the terminating party's breach was not the primary cause of the failure to close. Penterra will contend that, once the Outside Date has passed, either party may terminate without regard to the MAE dispute, rendering specific performance moot.
Veridian's counter. Veridian will argue, with substantial legal support, that if Penterra's wrongful termination is the cause of the failure to close by the Outside Date, Penterra cannot invoke § 8.1(b) to avoid its obligations. The SPA's proviso clause in § 8.1(b) expressly prevents a party from terminating on the basis of the Outside Date if that party's own breach "has been the primary cause of, or has primarily resulted in, the failure of the Closing to occur by the Outside Date." If the Court finds that Penterra wrongfully terminated the SPA and thereby prevented timely closing, Penterra would be barred from invoking the Outside Date as a defense. Moreover, Delaware courts have routinely tolled or disregarded contractual deadlines in M&A specific performance cases where the buyer's breach was the proximate cause of the missed deadline. See IBP, 789 A.2d at 82–83 (ordering closing notwithstanding the passage of the contractual deadline where the buyer's breach caused the delay); Hexion, 2008 WL 4457544, at *37.
Assessment. The passage of time is a relevant factor in the equitable calculus but is unlikely to bar specific performance if the Court finds the termination wrongful and attributes the delay to Penterra's breach. Delaware courts have demonstrated a consistent willingness to order closings well after contractual deadlines in cases where the buyer's wrongful conduct caused the failure to close by the specified date.
E. Element 5: Equitable Considerations
1. Clean Hands. The doctrine of clean hands requires that a party seeking equitable relief must come to court without having engaged in inequitable conduct relating to the subject matter of the litigation. Penterra may raise the clean hands defense against Veridian, focusing on two potential areas of concern.
First, Penterra may argue that Veridian failed to fully and promptly disclose the Marlowe Asset Management-2 clinical trial data. Veridian received the DMC's interim analysis findings on August 14, 2024, but did not notify Penterra until August 16, 2024 — a two-day delay. While the SPA's interim operating covenants require Veridian to provide notice to Penterra of any material development relating to the Company's clinical programs "promptly, and in any event within three (3) Business Days" (SPA § 5.1(h)), the two-day delay may fall within this notice window depending on when the notice period commenced. Our August 18, 2024 memorandum on notification obligations analyzed this issue and concluded that the two-day delay was likely within the contractual notice period but was arguably inconsistent with the spirit of prompt disclosure given the severity of the safety findings.
Second, Penterra may argue that Veridian's unilateral implementation of Protocol v4.0 on August 28, 2024 — including the dose reduction from 1.5 mg/kg to 0.75 mg/kg — was undertaken without obtaining Penterra's prior written consent as required by the SPA's interim operating covenants (SPA § 5.1(b)(iv), which restricts the Company from amending or modifying any clinical trial protocol in a manner that would be material to the clinical program without the Buyer's prior written consent). Penterra sent a consent request letter on August 30, 2024, requesting additional information about the Protocol v4.0 amendment and reserving its right to object to the amendment as a violation of the interim operating covenants. Veridian responded that the protocol amendment was required by the FDA and constituted a reasonable exercise of ordinary course clinical operations.
Assessment. The clean hands defense raises legitimate factual issues, but these arguments are likely to be viewed by the Court as relatively minor procedural deficiencies rather than material instances of bad faith or inequitable conduct warranting denial of equitable relief in the context of a $900 million transaction. Delaware courts have applied the clean hands doctrine narrowly, requiring that the inequitable conduct must be directly related to the subject matter of the litigation and must rise to a level of seriousness that would make it inequitable for the court to grant the requested relief. Unless Penterra can demonstrate significant bad faith by Veridian — such as intentional concealment of material information or deliberate sabotage of the clinical program — the clean hands defense is likely to be a secondary argument rather than a dispositive defense.
2. Balance of Hardships. The balance of hardships weighs the relative burdens that specific performance would impose on the defendant against the harm to the plaintiff if specific performance is denied.
Hardship to Veridian if specific performance is denied. Veridian is a clinical-stage biotechnology company with no product revenue, a FY2023 net loss of $87.3 million, and rapidly depleting cash reserves (approximately $112.4 million as of March 31, 2024). The company's cash runway — i.e., the period during which it can continue to fund operations at current burn rates — is limited. Without the $900 million acquisition proceeds, Veridian faces an existential threat: the company may be unable to continue operations, may be forced to seek emergency financing on dilutive terms, or may be compelled to wind down its clinical programs and terminate employees. The failure to close the transaction also threatens the interests of Veridian's stockholders, who have invested a cumulative $420 million across Series A through Series D financing rounds and who would suffer a total or near-total loss of their investment if the company is unable to continue as a going concern.
Hardship to Penterra if specific performance is granted. Penterra would be compelled to acquire a company whose lead and most valuable asset — VRD-4187 — has experienced a severe clinical setback. The Marlowe Asset Management-2 interim analysis revealed a 23.4% rate of Grade ≥3 CRS (compared to 4.1% in the control), seven treatment-related deaths (3.6%), and non-statistically significant efficacy (ORR 31.4% vs. 28.9%, p = 0.58). The FDA has imposed a partial clinical hold on VRD-4187, the timeline for lifting which is uncertain. Requiring Penterra to pay $900 million for a company whose primary asset is now subject to a clinical hold, has demonstrated no statistically significant efficacy benefit, and carries a significant safety burden would impose a substantial hardship on Penterra and its stockholders.
Strategic context. It bears noting that Penterra's interest in acquiring Veridian was driven in significant part by strategic considerations relating to Penterra's immuno-oncology pipeline, which was weakened by the PPC-0921 Phase III futility analysis announced in November 2023. The VRD-4187 program was intended to fill a critical gap in Penterra's oncology portfolio. However, the Marlowe Asset Management-2 safety data has fundamentally altered the risk profile of VRD-4187 and, by extension, the strategic rationale for the acquisition. Forcing Penterra to acquire a potentially impaired asset at a price negotiated before the clinical setback was known raises serious questions about whether specific performance serves the interests of justice.
Assessment. The balance of hardships is arguable on both sides. Veridian's existential vulnerability weighs in favor of specific performance, while Penterra's exposure to acquiring a fundamentally impaired asset at an unreduced price weighs against it. This factor does not clearly favor either party and is unlikely to be dispositive in either direction.
3. Laches. The doctrine of laches bars equitable relief where the plaintiff has unreasonably delayed in asserting its rights to the prejudice of the defendant. Veridian's demand letter was sent on October 15, 2024, approximately two weeks after Penterra's termination on September 30, 2024, and the complaint is anticipated on or about November 15, 2024, approximately six weeks after termination. Given the complexity of the issues involved and the relatively short time frame between termination and the anticipated filing, laches is unlikely to be a viable defense at this stage.
However, if Veridian delays significantly beyond the anticipated November 15, 2024 filing date — for example, if the complaint is not filed until after the Outside Date of December 10, 2024 — Penterra could more credibly argue prejudice from the delay, particularly if Penterra has taken irreversible steps in reliance on the termination (such as terminating the financing commitment, reallocating corporate resources, or pursuing alternative strategic transactions).
Assessment. Laches is not currently a viable defense given the anticipated timeline. We do not recommend relying on this defense in the near term but should reassess if Veridian's filing is materially delayed.
V. The Central Defense: Validity of the Termination and the MAE
A. Penterra's Strongest Defense — Closing Conditions Were Not Satisfied
As the foregoing analysis makes clear, the most critical defense available to Penterra against Veridian's specific performance claim is the validity of the termination itself. If Penterra can establish that the closing conditions in SPA §§ 7.2(a) and 7.2(b) were not satisfied — specifically, that a Material Adverse Effect occurred — then the SPA was validly terminated under § 8.1(d), no obligation to close existed at the time of termination, and specific performance is categorically unavailable. The Court will not order Penterra to close a transaction that it had the contractual right not to close.
This defense is dispositive. If the MAE defense succeeds, all of Veridian's claims — specific performance, breach of contract, and damages — fail on the merits. Conversely, if the MAE defense fails, Penterra's exposure to a specific performance order or substantial damages award is significant. The MAE analysis is therefore the fulcrum upon which the entire litigation turns.
Our detailed analysis of the MAE question is set forth in the August 25, 2024 memorandum (MAE Analysis — VRD-4187 Clinical Data), the September 2, 2024 supplemental memorandum (incorporating the FDA clinical hold), the August 27, 2024 Delaware MAE Case Law Survey, the August 28, 2024 MAE Carveouts Analysis, and the September 3, 2024 Disproportionate Impact Exception Analysis. The following discussion summarizes the key points of that analysis as they relate to the specific performance risk.
B. The MAE Standard Under Delaware Law
The Delaware Court of Chancery applies a demanding standard for Material Adverse Effect determinations. As the Court held in Akorn, Inc. v. Fresenius Kabi AG, a material adverse effect must be "material when viewed from the standpoint of a reasonable acquiror" and must "substantially threaten the overall earnings potential of the target in a durationally-significant manner." 2018 WL 4719347, at 52–55. The Akorn court emphasized that the MAE standard is designed to protect buyers from "unknown events that substantially threaten the overall earnings potential of the target" while recognizing that "short-term hiccups in earnings . . . ought not to suffice" to establish a material adverse effect. Id. at 53.
The durational significance standard is the key distinguishing criterion. Delaware law requires that the adverse effect must be measured in years, not months — t

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