Contract analysis

I. Executive Summary The purpose of this memorandum is to analyze whether, assuming arguendo that one or more of the Material Adverse Effect ("MAE") carveouts set forth in Section 1.1 of the Stock Purchase Agreement dated June 10, 2024 (the "SPA") could apply to the VRD-4187 clinical trial events, the disproportionate impact exception contained in the same provision reinstates those events within the MAE definition s

II. Background and Relevant Facts A. The Transaction On June 10, 2024, Penterra Pharmaceuticals Corp. ("Penterra"), Veridian Biosciences, Inc. ("Veridian" or the "Company"), the stockholders of Veridian named as sellers thereunder (the "Sellers"), and David Ng, in his capacity as Stockholder Representative, entered into a Stock Purchase Agreement (the "SPA") pursuant to which Penterra agreed to acquire 100% of the ou

Section 1.1 of the SPA defines "Material Adverse Effect" as follows: "Material Adverse Effect" means any event, change, development, occurrence, condition, or effect that, individually or in the aggregate, has had or would reasonably be expected to have a material adverse effect on (a) the business, results of operations, financial condition, or assets of the Company, taken as a whole, or (b) the ability of the Selle

III. Legal Framework: The Disproportionate Impact Exception Under Delaware Law A. Purpose and Function of the Exception The disproportionate impact exception operates as a "carveout to the carveout" — a contractual mechanism that reinstates otherwise excluded effects into the MAE analysis when the target company has been affected by those events more severely than its peers in the relevant industry. The exception ser

IV. Analysis of Potentially Applicable Carveouts and Disproportionate Impact A. Carveout (ii): Conditions Affecting the Biotechnology or Pharmaceutical Industries Generally

1. Veridian's Likely Argument Of the six carveouts subject to the disproportionate impact exception, Carveout (ii) — conditions affecting the biotechnology or pharmaceutical industries generally — is the one that Veridian is most likely to invoke. We anticipate that Veridian will advance some combination of the following arguments: First, Veridian may argue that clinical trial failures and safety signals are endemic

2. Why the Carveout Does Not Apply (Primary Position) As a threshold matter, and as set forth in our August 28, 2024 carveouts analysis memorandum, we maintain that Carveout (ii) does not apply to the VRD-4187 clinical data and FDA partial clinical hold on their own terms, without reaching the disproportionate impact exception. The Marlowe Asset Management-2 interim data reflects the specific safety and efficacy prof

3. Even If Carveout (ii) Applied: Disproportionate Impact Exception Assuming arguendo that Veridian could establish that the Marlowe Asset Management-2 data and/or the FDA partial clinical hold fall within Carveout (ii) — a characterization we strongly dispute — the disproportionate impact exception would reinstate these events into the MAE analysis. The evidence of disproportionate impact is compelling across multip

1. Veridian's Potential Argument Veridian could argue that the FDA partial clinical hold constitutes an application or enforcement of existing regulatory authority — that is, the exercise of a power conferred by the Federal Food, Drug, and Cosmetic Act ("FDCA") and the FDA's implementing regulations (21 C.F.R. Part 312) — and that this regulatory action therefore falls within Carveout (iii) as a change in, or applica

2. Disproportionate Impact Analysis Even if the FDA partial clinical hold were characterized as an application of existing regulatory authority falling within Carveout (iii), the disproportionate impact exception would clearly apply. The analysis is straightforward: The FDA partial clinical hold was imposed specifically and solely on VRD-4187 under IND 154832. It was not a change in FDA regulations, guidance, or poli

1. Analysis. Carveout (iv) excludes from the MAE definition events arising from or relating to pandemics, epidemics, or disease outbreaks, including COVID-19 and any similar public health emergencies. No pandemic-related event contributed to the VRD-4187 clinical data or the FDA clinical hold, and Veridian is unlikely to invoke this carveout. However, in the interest of completeness, we address the possibility that V

1. Analysis. Carveouts (i) and (vi) exclude from the MAE definition events arising from or relating to general economic or political conditions and changes in financial, banking, or securities markets generally. These carveouts are plainly inapplicable to the VRD-4187 clinical data and the FDA partial clinical hold, and we address them here only for the sake of completeness. The adverse Marlowe Asset Management-2 int

V. Evidentiary Support for Disproportionate Impact A. Broadleaf Scientific Consulting Assessment As noted in Section II.B above, Penterra retained Broadleaf Scientific Consulting LLC to provide an independent clinical assessment of the Marlowe Asset Management-2 interim data. The supplemental clinical assessment, authored by Dr. Raymond Kapoor, M.D., Ph.D., was delivered to Penterra on August 19, 2024. Dr. Kapoor is

VI. Anticipated Counterarguments from Veridian and Rebuttal We anticipate that Veridian and the Stockholder Representative may advance several counterarguments in response to the disproportionate impact analysis. We address the three most likely counterarguments below. A. "The Comparison Set Should Be Broader" Anticipated Argument. Veridian may argue that the comparison set proposed by Penterra is improperly narrow a