Contract analysis

I. Executive Summary This memorandum analyzes whether the $45,000,000 reverse termination fee (the "RTF") provided for under Section 8.2(b) of the Stock Purchase Agreement (the "SPA"), dated June 10, 2024, among Penterra Pharmaceuticals Corp. ("Penterra" or the "Buyer"), Veridian Biosciences, Inc. ("Veridian" or the "Company"), the Sellers listed therein, and David Ng, acting in his capacity as the Stockholder Repres

II. Background and Procedural History A. The Transaction On June 10, 2024, Penterra entered into a definitive Stock Purchase Agreement to acquire 100% of the outstanding capital stock of Veridian Biosciences, Inc. for an aggregate cash purchase price of $900,000,000 (the "Transaction"). The SPA was executed by Penterra, Veridian, the stockholders of Veridian identified on the signature pages thereto (the "Sellers"),

III. Relevant SPA Provisions This Section sets forth the SPA provisions relevant to the RTF analysis, together with our interpretive commentary. We analyze these provisions in light of their plain language, the internal architecture of the SPA, and established principles of Delaware contract interpretation. A. Section 8.1 — Termination Rights

Article VIII of the SPA governs the parties' respective termination rights. Section 8.1 sets forth five distinct termination provisions, each triggered by different factual predicates. The following subsections are relevant to our analysis:

Section 8.1(b) — Outside Date Termination. Section 8.1(b) permits either party to terminate the SPA if the closing has not occurred by the Outside Date, which is defined as December 10, 2024 (i.e., 180 days following the date of the SPA). This right is subject to the limitation that the terminating party may not exercise it if the failure of the closing to occur by the Outside Date was primarily caused by such party'

Section 8.1(c) — Termination for Breach by Sellers. Section 8.1(c) permits the Buyer to terminate the SPA if the Sellers are in material breach of any of their representations, warranties, or covenants contained in the SPA, and such breach would cause the conditions to Buyer's obligation to close set forth in Section 7.2 not to be satisfied, and such breach is not cured within 30 calendar days following delivery of w

Section 8.1(d) — Termination for Failure of Buyer's Closing Conditions. Section 8.1(d) permits the Buyer to terminate the SPA if the conditions to Buyer's obligation to close set forth in Sections 7.2(a) and 7.2(b) have not been satisfied and, in the reasonable judgment of the Buyer, are incapable of being satisfied prior to the Outside Date. This is the provision under which Penterra terminated the SPA. The provisio

Section 8.1(e) — Buyer's Closing Failure. Section 8.1(e) permits the Sellers to terminate the SPA if the Buyer fails to consummate the closing within five business days after all conditions to closing set forth in Sections 7.1 (conditions to the obligation of all parties) and 7.2 (conditions to the Buyer's obligation) have been satisfied or waived. This provision is denominated in the SPA as the "Buyer's Closing Fail

Section 7.2 of the SPA sets forth the conditions precedent to the Buyer's obligation to consummate the closing. The two conditions most relevant to this analysis are:

Section 7.2(a) — Accuracy of Representations and Warranties. Section 7.2(a) provides that the representations and warranties of the Sellers set forth in Article III of the SPA shall be true and correct in all respects (subject to the materiality and material adverse effect qualifiers set forth therein) as of the Closing Date as though made on and as of such date (except to the extent that any such representation or w

Section 7.2(b) — No Material Adverse Effect. Section 7.2(b) provides that no material adverse effect shall have occurred since the date of the SPA (June 10, 2024) and be continuing as of the Closing Date. This condition is the centerpiece of Penterra's termination rationale. The occurrence of the adverse Phase II clinical data and the FDA partial clinical hold, taken together, constitute a material adverse effect wit

Section 8.2(b) of the SPA is the operative provision establishing the RTF. This is the provision that Veridian has asserted entitles the Sellers to a payment of $45,000,000 from Penterra. We set forth below a detailed textual analysis of this provision.

Section 8.2(b) provides, in relevant part: In the event that (i) this Agreement is terminated by the Sellers pursuant to Section 8.1(e) as a result of the Buyer's failure to consummate the Closing due to the unavailability of the Financing, or (ii) this Agreement is terminated by either the Buyer or the Sellers pursuant to Section 8.1(b) and, at the time of such termination, all of the conditions to the Closing set f

Section 8.3 provides that upon a valid termination of the SPA in accordance with Section 8.1, the SPA shall become void and of no further force or effect, and there shall be no liability on the part of any party hereto, except that the following provisions shall survive termination: (i) the confidentiality obligations set forth in Section 5.3; (ii) the termination fee provisions of Section 8.2; (iii) the governing la

Section 1.1 of the SPA defines "Material Adverse Effect" as: 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 Sellers to consummate the Transactions contem

IV. Analysis: The RTF Is Not Triggered Having set forth the relevant background and contractual provisions, we turn to the core analysis. For the reasons discussed below, we conclude that the RTF under SPA Section 8.2(b) is not payable by Penterra. A. Penterra's Termination Was Pursuant to Section 8.1(d), Not Section 8.1(e) or Section 8.1(b) The threshold and most dispositive point is straightforward: Penterra termin

1. Argument: Penterra's Termination Was Pretextual; the True Reason Was Unwillingness to Fund Veridian may argue — and, indeed, has already suggested in its demand letter — that Penterra's assertion of an MAE is pretextual and that the true reason for Penterra's termination was "buyer's remorse." On this theory, Veridian would contend that because Penterra simply did not want to proceed with the Transaction (rather t

2. Argument: The RTF Should Apply Because the Financing Conditions Were Not Satisfied A more sophisticated argument that Veridian may advance is that the conditions precedent to the lenders' funding obligations under the Commitment Letter incorporated or mirrored the SPA's closing conditions, and that by asserting an MAE, Penterra effectively caused the financing conditions to fail — thereby creating a Financing Fail

3. Argument: The RTF Caps Buyer's Liability in Any Termination Scenario Finally, Veridian may argue that Section 8.2(b) was intended to function as a cap on Penterra's total monetary exposure in any scenario where the Transaction does not close — essentially, that the RTF of $45,000,000 represents the maximum amount Penterra could ever owe as a consequence of the deal's failure. Response. This argument is contrary to

Section 8.2(b) is clear that the RTF is the "sole and exclusive remedy" of the Sellers only "in the event of a termination described in this Section 8.2(b)" — i.e., only in the event of a Financing Failure. It is not described as the sole and exclusive remedy in all termination scenarios. The exclusive-remedy language is tied to the Financing Failure context, not to termination generally. In the event of a non-Financ

V. Implications for Anticipated Litigation A. Veridian's Demand Letter (October 15, 2024) As noted in Section II.C above, Veridian's demand letter dated October 15, 2024, sent by Zalcourt Archer & Cole LLP (Rebecca Whitmore), threatens litigation in the Court of Chancery of the State of Delaware, which has exclusive jurisdiction over disputes arising under the SPA pursuant to Section 10.6. Delaware law governs the SP

VI. Penterra's Sunk Transaction Costs (Contextual Reference) For completeness, and to provide context for the Board and management's understanding of Penterra's overall financial exposure in connection with the terminated Transaction, we set forth below a su