Contract analysis

I. INTRODUCTION AND PURPOSE Calderwood & Harkness LLP ("C&H" or "we") has reviewed the initial draft of the Term Loan Credit Agreement (the "Credit Agreement") circulated by White Pine & Associates LLP, counsel to Ironclad Trust Company, N.A. ("Ironclad" or the "Administrative Agent"), on June 14, 2024. This memorandum sets forth our marked-up comments on the draft Credit Agreement, organized by article and section,

II. SUMMARY OF KEY ISSUES AND RECOMMENDATIONS Before turning to the article-by-article analysis, we provide the following executive-level summary of the principal negotiation points for the attention of Penterra's management team. Each of these items is discussed in greater detail in the sections that follow.

1. Conditions Precedent to Funding — Overbroad; Must Be Trimmed. The draft Credit Agreement includes a number of conditions to the initial funding that were not contemplated by the Commitment Letter and that are inconsistent with the "certain funds" / "SPA conditionality" protections that are fundamental to acquisition financing transactions. These additional conditions — including a separate Borrower MAE condition,

2. Representations and Warranties — Exceed Commitment Letter Scope. The draft improperly makes all Article IV representations and warranties conditions to the initial funding. Under the Commitment Letter and market practice for acquisition financings, only "specified representations" (a limited subset of borrower representations) should serve as conditions to funding. The full suite of representations should appear i

3. Operating Covenants — Potential Conflicts with SPA Obligations and Penterra's Business. Several of the negative covenants in the draft contain baskets and thresholds that are inappropriately restrictive for a company of Penterra's size and complexity. Additionally, certain restrictions may conflict with Penterra's obligations under the SPA and the anticipated post-closing integration of Veridian. We have recommend

4. Events of Default — Cross-Default and Other Provisions Too Broadly Drafted. The cross-default threshold of $25,000,000 is far too low for a borrower with Penterra's $14.2 billion market capitalization and $4.87 billion in annual revenue. The judgment default threshold is similarly inadequate. Most critically, the draft includes the termination of the SPA as a standalone event of default, which is wholly inappropri

5. Mandatory Prepayment Provisions — Require Revision. The asset sale prepayment threshold, the excess cash flow sweep percentage, and the absence of reinvestment rights are all inconsistent with market practice for investment-grade acquisition financings. The terms as drafted would unduly constrain Penterra's cash management flexibility in the critical post-acquisition integration period.

6. Termination Provisions — Must Be Coordinated with the SPA Outside Date. The Commitment Termination Date must be a date-certain (December 10, 2024) co-terminous with the SPA Outside Date, and the termination mechanics must ensure that SPA termination results in automatic commitment termination without default, penalty, or breakage cost to Penterra beyond accrued fees and documented expenses.

7. Market Flex and Fee Letter Integration. The draft Credit Agreement contains language that could permit the Administrative Agent to adjust economic terms post-closing under the guise of "market flex." Any market flex adjustments should be confined to the pre-closing syndication period and should be exercised only within the parameters agreed in the fee letter. The Credit Agreement should not serve as a vehicle for

III. ARTICLE-BY-ARTICLE MARK-UP AND COMMENTS A. Article I — Definitions

Article I of the draft Credit Agreement sets forth the defined terms used throughout the agreement. As is typical, the definitions section is among the most important provisions in the Credit Agreement, as it establishes the scope and parameters for numerous substantive provisions. We have identified several definitions that require revision.

1. Definition of "Acquisition" The draft Credit Agreement defines "Acquisition" broadly to encompass "any acquisition by the Borrower or any Subsidiary of all or substantially all of the assets or equity interests of any Person, whether by purchase, merger, consolidation or otherwise." This definition is plainly overbroad for an acquisition financing agreement in which the financing is being provided specifically and

2. Definition of "Material Adverse Effect" (Borrower MAE) The draft Credit Agreement contains its own freestanding definition of "Material Adverse Effect" applicable to the Borrower (Penterra) and its subsidiaries. This definition is patterned after a standard corporate credit facility MAE provision and encompasses any event, circumstance, or condition that has had, or would reasonably be expected to have, a material

3. Definition of "SPA" and Related Defined Terms We recommend that the definition of "Stock Purchase Agreement" or "SPA" track the actual title, parties, and date of the agreement with precision. The definition should read: "Stock Purchase Agreement" means the Stock Purchase Agreement, dated as of June 10, 2024, among Penterra Pharmaceuticals Corp., Veridian Biosciences, Inc., the Sellers party thereto (as defined th

4. Definition of "Commitment Termination Date" The draft Credit Agreement defines "Commitment Termination Date" as "the date that is 180 days after the Closing Date of the Commitment Letter." This formulation is problematic for two reasons. First, the reference to "the Closing Date of the Commitment Letter" is ambiguous. The Commitment Letter does not have a defined "Closing Date" — it has a date of execution (June 7

5. SOFR-Related Definitions The Credit Agreement contains a standard suite of SOFR-related definitions, including "Term SOFR," "SOFR Adjustment," "Benchmark Replacement," "Benchmark Transition Event," and related terms. We have reviewed these definitions for consistency with the Commitment Letter economics and offer the following comments: (a) The Commitment Letter specifies an interest rate of SOFR + 225 basis point

6. Other Definitions We have reviewed the remaining definitions in Article I and flag the following for attention: "Permitted Indebtedness." The definition of Permitted Indebtedness must be broad enough to accommodate all of Penterra's existing credit facilities (including the Company's existing $750,000,000 revolving credit facility with Greaves Bancorp, as administrative agent), outstanding notes and bonds, capital

1. Section 2.1 — Term Loan Commitment

Section 2.1 sets forth the aggregate commitments under the term loan facility. We confirm that the draft reflects an aggregate commitment amount of $500,000,000, which is consistent with the Commitment Letter. We note the following additional points: The facility is structured as a single-draw term loan, to be funded in full on the closing date of the Acquisition. There are no delayed draw, incremental, or multiple d

2. Section 2.2 — Use of Proceeds The draft restricts the use of term loan proceeds to "the funding of the Acquisition and the payment of related fees, costs, and expenses." While this is broadly consistent with the Commitment Letter, we recommend that the use-of-proceeds provision be drafted with sufficient specificity to avoid any ambiguity regarding the components of the purchase price mechanics. C&H Recommendation

3. Section 2.3 — Interest Rate The draft sets the interest rate at Term SOFR plus 225 basis points per annum, which is consistent with the Commitment Letter. We have the following specific comments: Interest Period Options. The draft provides for interest periods of one, three, or six months, at the Borrower's election. This is consistent with market practice. We confirm that the Commitment Letter did not restrict in

4. Section 2.4 — Commitment Fee and Ticking Fee The draft addresses the commitment fee and ticking fee as follows: Commitment Fee. The commitment fee is set at 0.35% per annum on unfunded commitments, which equals $1,750,000 per year on the full $500,000,000 commitment amount. The commitment fee is payable quarterly in arrears from the date of the Commitment Letter (June 7, 2024) until the earliest of (i) the funding

5. Section 2.5 — Repayment and Maturity Maturity. The draft provides for a maturity date of five years from the closing date, which is consistent with the Commitment Letter. We have no objection. Amortization. The Commitment Letter provides for quarterly amortization at a rate of 1% per annum of the original principal amount, with the remaining balance due at maturity. This equates to quarterly amortization payments

Article III is, from Penterra's perspective, the single most important article in the Credit Agreement. The "certain funds" or "SPA conditionality" principle — which is the cornerstone of acquisition financing — requires that the conditions to the Lenders' obligation to fund the term loan on the closing date be limited to those conditions expressly agreed in the Commitment Letter. This principle ensures that if the S

1. Section 3.1 — Conditions to Closing and Initial Funding Under the Commitment Letter, the conditions to the initial funding are limited to the following: (a) Execution and delivery of the Credit Agreement and related loan documents in forms consistent with the Commitment Letter and the term sheet attached thereto; (b) Satisfaction or waiver of all conditions to the closing of the Acquisition under Article VII of th

2. Section 3.2 — Closing Deliverables

Section 3.2 sets forth the specific documents and certificates to be delivered at or prior to the closing as conditions to funding. We have reviewed this list and offer the following comments: The required deliverables include: (a) the executed Credit Agreement; (b) security documents, if any (we note that the facility is expected to be unsecured per the Commitment Letter, and we discuss this further below); (c) an o

2. Specific Representation Comments We turn now to our comments on specific representations in Article IV:

Section 4.1 — Organization and Existence. This representation confirms that the Borrower is duly organized, validly existing, and in good standing under the laws of its jurisdiction of organization. We confirm that Penterra Pharmaceuticals Corp. is a Delaware corporation, publicly traded on the Nasdaq Global Select Market under the ticker symbol "PPCA," with its principal executive office located at 1100 Meridian Bou

Section 4.3 — Financial Statements. This representation confirms the accuracy and completeness of the Borrower's financial statements delivered to the Lenders. The draft references audited financial statements for the three most recently completed fiscal years and unaudited interim statements for the most recently completed fiscal quarter. We confirm that Penterra's audited financial statements are prepared by Tarran

Section 4.4 — No Material Adverse Change. The draft includes a representation that "no Material Adverse Effect has occurred since December 31, 2023." As discussed at length above, this representation — to the extent it relates to the Borrower — should not be a condition to funding. We have ensured that it is excluded from the "specified representations" and that it remains only as a representation in the Credit Agree

Section 4.5 — Litigation. The draft contains a representation that "there is no action, suit, investigation, or proceeding pending or, to the knowledge of the Borrower, threatened, against the Borrower or any of its Subsidiaries before any court, governmental authority, or arbitrator." This representation is overbroad. Penterra, as a large publicly traded pharmaceutical company, is subject to numerous ordinary-course

Section 4.7 — Tax. The tax representation confirms that the Borrower has filed all material tax returns and has paid all material taxes when due (subject to taxes being contested in good faith). We confirm that Penterra's Employer Identification Number (EIN) is 22-3847561. We recommend confirming that this representation relates only to Penterra and its existing subsidiaries, and does not extend to Veridian or its pr

Section 4.10 — Solvency. The solvency representation is a specified representation (it is included in the Commitment Letter closing deliverables in the form of a solvency certificate to be delivered by the CFO). We have the following specific comment: The solvency test must be applied on a pro forma basis giving effect to (i) the consummation of the Acquisition, (ii) the incurrence of the $500,000,000 term loan, (iii

1. Section 5.1 — Financial Reporting The draft requires the Borrower to deliver to the Administrative Agent: (a) annual audited consolidated financial statements within 90 days of fiscal year end; (b) quarterly unaudited consolidated financial statements within 45 days of each fiscal quarter end; and (c) annual operating budgets and projections. C&H Comment. Penterra is a publicly traded company listed on the Nasdaq

2. Section 5.2 — Financial Covenants The draft includes two financial maintenance covenants: (a) a maximum total net leverage ratio covenant, and (b) a minimum interest coverage ratio covenant. The specific covenant levels are set forth in Schedule 5.2 to the draft and are intended to be consistent with the terms outlined in the Commitment Letter. We are in the process of verifying the covenant levels against the Com

3. Section 5.3 — Compliance with Laws The draft requires the Borrower to comply, and to cause its subsidiaries to comply, with all applicable laws, regulations, and orders, except where the failure to comply would not reasonably be expected to have a Material Adverse Effect. This is a standard provision, and we have no material objection. We have confirmed that the materiality qualifier is included.

4. Section 5.4 — Notice of Defaults The draft requires the Borrower to provide prompt written notice to the Administrative Agent upon any officer of the Borrower obtaining knowledge of (a) any Event of Default or Default, (b) any material litigation or proceeding, (c) any ERISA event, or (d) any other event that would reasonably be expected to have a Material Adverse Effect. C&H Comment. While notice-of-default provi

5. Section 5.5 — Insurance The draft requires the Borrower to maintain insurance with financially sound and reputable insurance companies in such amounts and covering such risks as are consistent with prudent business practice for companies in the same or similar lines of business. This is a standard provision, and we have no material objection in principle. C&H Comment. We wish to confirm that this provision does no

6. Section 5.6 — Post-Closing Covenants The draft includes a provision requiring the Borrower to deliver certain post-closing items and to take certain actions within specified time periods following the closing date. These include (a) the delivery of updated organizational documents for any newly formed or acquired subsidiaries (including Veridian), (b) the delivery of updated financial information and projections r

1. Section 6.1 — Limitation on Indebtedness The draft restricts the incurrence of additional indebtedness by the Borrower and its subsidiaries, subject to certain "Permitted Indebtedness" exceptions. We have reviewed the Permitted Indebtedness baskets and have the following comments: The Permitted Indebtedness baskets must be sufficiently broad to accommodate all of Penterra's existing credit facilities and outstandi

2. Section 6.2 — Limitation on Liens The draft restricts the granting of liens on the assets of the Borrower and its subsidiaries, subject to a "Permitted Liens" exception. As noted above, the term loan facility is expected to be unsecured per the Commitment Letter, and we have struck all references to security documents and collateral from the draft. C&H Comment. We have reviewed the Permitted Liens definition and c

3. Section 6.3 — Limitation on Investments The draft restricts investments by the Borrower and its subsidiaries, subject to a "Permitted Investm