1018-00001 · Client 1018 · Lock-Up Waiver

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Contract analysis Extract to table

ATTORNEY WORK PRODUCT — PRIVILEGED AND CONFIDENTIAL

MEMORANDUM

TO: Jennifer Kwon, Partner, Capital Markets Group

FROM: Audrey Zhou, Senior Associate, Capital Markets Group

DATE: September 14, 2023

RE: Lock-Up Waiver Analysis and Considerations — Penterra Pharmaceuticals Corp. Selling-Stockholder Secondary Offering

MATTER NO.: 1018-00001

I. Executive Summary

The purpose of this memorandum is to analyze the mechanics and legal considerations associated with obtaining early release of lock-up restrictions in connection with the proposed $260,000,000 registered selling-stockholder secondary offering by members of the Castellano founding family of their shares of common stock of Penterra Pharmaceuticals Corp. ("PPC" or the "Company").

PPC is a Delaware corporation whose shares of common stock are listed on the Nasdaq Global Select Market under the ticker symbol "PNTR." The Company completed its initial public offering (the "IPO") on April 17, 2023, pricing 24,000,000 shares of common stock at $22.00 per share for gross proceeds of approximately $528,000,000. The IPO was led by Ridgeline Securities LLC ("Ridgeline"), Broadmark Capital Inc. ("Broadmark"), and Morningstar Zanthor & Co. ("Morningstar Zanthor"), serving as lead underwriters (collectively, the "IPO Underwriters").

In connection with the IPO, all directors, executive officers, and holders of 5% or more of PPC common stock, including the members of the Castellano founding family (collectively, the "Lock-Up Parties"), entered into 180-day lock-up agreements (the "IPO Lock-Up Agreements") with the three IPO Underwriters. The lock-up period commenced on the IPO closing date and is set to expire on October 14, 2023 — that is, 180 calendar days following the April 17, 2023 closing.

The proposed secondary offering (the "Secondary Offering") targets pricing and execution of the underwriting agreement on October 12, 2023, which is two calendar days prior to the natural expiration of the lock-up period. Because execution of the underwriting agreement constitutes a binding commitment to sell shares — an activity restricted under the IPO Lock-Up Agreements — the selling stockholders require an early release of the lock-up effective no later than October 12, 2023. Such early release requires the prior written consent of all three IPO Underwriters — Ridgeline, Broadmark, and Morningstar Zanthor. A majority consent does not suffice under the terms of the agreements.

The selling stockholders (collectively, the "Selling Stockholders") in the Secondary Offering are as follows:

The Castellano family, in the aggregate, currently holds 40,100,000 shares of PPC common stock, representing approximately 33.4% of the 120,000,000 shares of common stock outstanding. Following the completion of the base Secondary Offering (assuming no exercise of the over-allotment option), the family's aggregate holdings will be reduced to 33,850,000 shares, or approximately 28.2% of shares outstanding.

This memorandum addresses the following topics: (1) the mechanics of the IPO Lock-Up Agreements, including the consent requirements for early release; (2) the waiver consent requirements and procedures; (3) the 14-day advance notice provision contained in the IPO Lock-Up Agreements and the recommended approach for seeking waiver of that notice requirement; (4) SEC disclosure obligations arising from the lock-up waiver; (5) the new 90-day lock-up to be entered into by the Selling Stockholders in connection with the Secondary Offering; and (6) our recommended course of action and procedural timeline.

II. Background

A. The IPO Lock-Up Agreements

The IPO Lock-Up Agreements were executed in connection with PPC's IPO, which closed on April 17, 2023. In the IPO, the Company sold 24,000,000 primary shares of common stock at a public offering price of $22.00 per share, generating gross proceeds of approximately $528,000,000. The shares were underwritten by the IPO Underwriters pursuant to an underwriting agreement dated April 12, 2023, with Ridgeline serving as lead left book-runner, Broadmark serving as joint book-runner, and Morningstar Zanthor serving as co-manager.

The IPO Lock-Up Agreements were entered into among each of the Lock-Up Parties, on the one hand, and each of the three IPO Underwriters, on the other hand. Each Lock-Up Party executed a separate lock-up agreement in substantially identical form in favor of all three IPO Underwriters. The lock-up period is defined as 180 calendar days commencing on the IPO closing date of April 17, 2023, and accordingly expires on October 14, 2023.

The Lock-Up Parties include the following individuals and entities relevant to the Secondary Offering:

(i) Dr. Elena Castellano — Chair of the Board of Directors of PPC, beneficial owner of 15,800,000 shares of common stock (approximately 13.2% of shares outstanding);

(ii) Dr. Riccardo Castellano — Member of the Board of Directors of PPC, beneficial owner of 12,500,000 shares of common stock (approximately 10.4% of shares outstanding);

(iii) Dr. Marco Castellano — Chief Executive Officer of PPC, member of the Board of Directors, beneficial owner of 5,200,000 shares of common stock (approximately 4.3% of shares outstanding); and

(iv) Castellano Family Holdings LLC — A Delaware limited liability company controlled by members of the Castellano family, record holder of 6,600,000 shares of common stock (approximately 5.5% of shares outstanding).

In addition to the Castellano family members, all other directors and executive officers of PPC, as well as all other holders of 5% or more of PPC common stock, are parties to the IPO Lock-Up Agreements. However, only the four Selling Stockholders identified above are seeking early release for purposes of the Secondary Offering.

The restrictions imposed by the IPO Lock-Up Agreements are broadly drafted and prohibit each Lock-Up Party, during the 180-day lock-up period, from directly or indirectly:

(a) offering, selling, contracting to sell, or granting any option, right, or warrant to purchase shares of PPC common stock;

(b) pledging, hypothecating, or otherwise encumbering shares of PPC common stock;

(c) entering into any swap, hedge, or other arrangement that transfers, in whole or in part, the economic consequences of ownership of shares of PPC common stock;

(d) making any demand for, or exercising any right with respect to, the registration of shares of PPC common stock under the Securities Act of 1933, as amended (the "Securities Act"); or

(e) publicly disclosing the intention to do any of the foregoing.

The IPO Lock-Up Agreements contain limited exceptions permitting: (i) transfers by gift or for bona fide estate planning purposes, provided that the transferee agrees in writing to be bound by the terms of the lock-up; (ii) transfers to immediate family members or trusts for the benefit of the Lock-Up Party or the Lock-Up Party's immediate family members, subject to the same condition; (iii) transfers occurring by operation of law, such as pursuant to a domestic relations order; and (iv) sales of shares acquired in the open market following the IPO, provided such sales are not made by officers or directors.

B. The Proposed Secondary Offering

The proposed Secondary Offering is structured as a registered selling-stockholder secondary offering, to be effected as a shelf takedown under PPC's existing shelf registration statement on Form S-3 (File No. 333-274851), which was declared effective by the Securities and Exchange Commission (the "SEC") on August 22, 2023. As a selling-stockholder transaction, PPC will not receive any of the proceeds from the sale of shares; all net proceeds will be remitted to the Selling Stockholders.

The key terms of the Secondary Offering are as follows:

Base Offering Size: 6,250,000 shares of common stock at an anticipated offering price of approximately $41.60 per share, for aggregate gross proceeds of approximately $260,000,000.

Over-Allotment Option: The Selling Stockholders will grant to the underwriters an option, exercisable within 30 days of the date of the underwriting agreement, to purchase up to 937,500 additional shares of common stock (representing 15% of the base offering) at the public offering price, less underwriting discounts and commissions.

Underwriter Syndicate: The Secondary Offering will be underwritten by a syndicate consisting of Ridgeline Securities LLC (lead left book-runner), Broadmark Capital Inc. (joint book-runner), Linden Groves & Co. (co-manager), and Harborview Partners LLC (co-manager).

Notably, Morningstar Zanthor & Co. is not participating in the Secondary Offering underwriting syndicate. This is a commercially significant fact, as Morningstar Zanthor nonetheless remains a party to the IPO Lock-Up Agreements whose consent is required for any early release. The absence of Morningstar Zanthor from the syndicate means that it does not have a direct economic incentive — in the form of underwriting fees — to grant the requested waiver. We discuss this dynamic in greater detail in Section III.A below.

The target timeline for the Secondary Offering is as follows:

C. Need for Early Release

The critical issue necessitating this analysis is the two-day overlap between the proposed pricing date and the natural expiration of the lock-up period. Specifically, signing of the underwriting agreement for the Secondary Offering on October 12, 2023 constitutes a binding contractual commitment by each Selling Stockholder to sell, deliver, and transfer shares of PPC common stock to the underwriters. This commitment falls squarely within the scope of activities restricted by the IPO Lock-Up Agreements — specifically, the prohibition on entering into a "contract to sell" shares of common stock during the lock-up period.

The natural lock-up expiration date is October 14, 2023, which is two calendar days after the proposed signing date of October 12, 2023. The Selling Stockholders are therefore unable to lawfully execute the underwriting agreement on October 12, 2023 without first obtaining an early release of the lock-up restrictions. Furthermore, to the extent that any pre-pricing activities — such as the entry into an engagement letter with the underwriters or the filing of the preliminary prospectus supplement naming the Selling Stockholders — may be viewed as steps toward a sale or as an offer to sell, it is prudent to obtain the waiver well in advance of the October 12, 2023 signing date.

Accordingly, the Selling Stockholders require a waiver of the lock-up restrictions from all three IPO Underwriters, effective no later than October 12, 2023. The waiver is sought solely with respect to the shares being sold in the Secondary Offering — comprising 6,250,000 base shares and up to 937,500 additional shares subject to the over-allotment option. All other shares held by the Selling Stockholders and all other Lock-Up Parties will remain subject to the IPO Lock-Up Agreements through October 14, 2023.

III. Lock-Up Waiver Mechanics

A. Consent Requirement

The IPO Lock-Up Agreements provide that the restrictions therein may be waived, in whole or in part, prior to the expiration of the 180-day lock-up period, with the prior written consent of all three of the IPO Underwriters — Ridgeline Securities LLC, Broadmark Capital Inc., and Morningstar Zanthor & Co. The language of the relevant provision is as follows:

"The restrictions set forth in this Agreement may be waived, in whole or in part, with respect to any Lock-Up Party, by the prior written consent of each of Ridgeline Securities LLC, Broadmark Capital Inc., and Morningstar Zanthor & Co."

The operative word "each" makes clear that the consent of all three firms is required; a majority of two out of three does not suffice. This is consistent with standard market practice for IPO lock-up agreements involving multiple lead underwriters. Each firm's consent must be separately obtained and evidenced in writing. The consent is typically documented in the form of a letter from each IPO Underwriter, countersigned by an authorized signatory, confirming that the firm consents to the early release of the specified shares from the lock-up restrictions, effective as of the specified date.

From an analytical standpoint, the likelihood of obtaining each firm's consent varies:

Ridgeline Securities LLC: As lead left book-runner for both the IPO and the Secondary Offering, Ridgeline has a strong economic incentive to facilitate the Secondary Offering. The firm will earn substantial underwriting fees from the transaction and has every reason to grant the waiver promptly. We assess the risk of Ridgeline withholding consent as negligible. The primary contact at Ridgeline for this purpose is Jonathan Pryce-Hall, Managing Director, Equity Capital Markets.

Broadmark Capital Inc.: As joint book-runner for both the IPO and the Secondary Offering, Broadmark is similarly situated to Ridgeline and has a direct economic interest in the successful completion of the Secondary Offering. We assess the risk of Broadmark withholding consent as negligible. The primary contact at Broadmark is Samuel Okonkwo, Managing Director, Equity Capital Markets.

Morningstar Zanthor & Co.: This is the critical consent. Morningstar Zanthor served as co-manager in the IPO but is not participating in the Secondary Offering syndicate. It therefore has no direct economic interest in the form of underwriting fees associated with the Secondary Offering. However, several factors weigh in favor of Morningstar Zanthor granting the consent: (i) the early release is for only two calendar days before the natural lock-up expiration, which makes the waiver largely a formality; (ii) the waiver is being sought in the context of a fully registered, publicly disclosed secondary offering — not a private or unregistered sale; (iii) refusal to consent would be commercially unusual and could damage the firm's relationships with PPC, the Castellano family, and the other IPO Underwriters; and (iv) general market practice supports early release in these circumstances. We assess the risk of Morningstar Zanthor withholding consent as low, but it is the primary risk to the transaction timeline and must be managed proactively. The key contact at Morningstar Zanthor is Diane Chaudhary, Managing Director, at the firm's offices located at 600 Lexington Avenue, New York, NY 10022.

We recommend that Jennifer Kwon make an initial outreach to Diane Chaudhary at Morningstar Zanthor on or about September 15, 2023, in advance of the formal waiver request letter, to preview the request and gauge the firm's receptivity. This approach is consistent with standard practice in capital markets transactions and will help ensure a smooth consent process.

B. Scope of Waiver

We recommend that the waiver request be narrowly scoped to cover only the shares being offered in the Secondary Offering, rather than a blanket release of all shares held by the Selling Stockholders. This approach serves several purposes: it minimizes the scope of the consent being requested (thereby reducing the potential for objections from the IPO Underwriters, particularly Morningstar Zanthor); it ensures that the vast majority of the Castellano family's holdings remain subject to the lock-up through its natural expiration; and it is consistent with market expectations regarding the purpose and scope of lock-up waivers.

Specifically, the waiver should set forth the following parameters with precision:

(i) Identity of each Selling Stockholder: Dr. Elena Castellano, Dr. Riccardo Castellano, Dr. Marco Castellano, and Castellano Family Holdings LLC.

(ii) Number of shares being released per Selling Stockholder:

(iii) Effective date of the release: October 12, 2023.

All shares retained by the Selling Stockholders that are not included in the Secondary Offering will remain subject to the original IPO Lock-Up Agreements through October 14, 2023. Thereafter, the retained shares will be subject to the new 90-day lock-up to be entered into by the Selling Stockholders in connection with the Secondary Offering, as discussed in Section VI below.

C. Form of Waiver Request and Consent

Calderwood & Harkness LLP will draft the waiver request letters on behalf of PPC. Three separate letters will be prepared, each addressed individually to one of the three IPO Underwriters:

(a) Ridgeline Securities LLC, Attn: Jonathan Pryce-Hall, Managing Director, Equity Capital Markets;

(b) Broadmark Capital Inc., Attn: Samuel Okonkwo, Managing Director, Equity Capital Markets; and

Each waiver request letter will be signed by David Orenstein, General Counsel and Corporate Secretary of PPC, on behalf of the Company and the Selling Stockholders. The letters will set forth the details of the Secondary Offering, the shares for which early release is requested, the effective date of the requested waiver, and a request that the IPO Underwriter waive both the lock-up restrictions and the 14-day advance notice requirement (discussed in Section IV below).

In addition to the waiver request letters, Calderwood & Harkness will prepare a form of consent letter for use by each IPO Underwriter. The consent letter will be structured as a countersigned acknowledgment confirming the firm's consent to the early release of the specified shares, effective as of October 12, 2023, and waiving the 14-day notice requirement. The consent letters will be returned by the respective managing directors: Jonathan Pryce-Hall for Ridgeline, Samuel Okonkwo for Broadmark, and Diane Chaudhary for Morningstar Zanthor.

The target date for sending the waiver request letters is September 18, 2023. We have set a target date for receipt of all three executed consent letters of no later than September 29, 2023. This deadline is designed to provide sufficient lead time before the anticipated filing of the preliminary prospectus supplement on October 2, 2023, which will contain disclosure of the lock-up waiver. The preliminary prospectus supplement must accurately describe the status of the waiver at the time of filing; ideally, we will be able to disclose that all three consents have been obtained, rather than disclosing that the waiver is still being sought.

IV. 14-Day Advance Notice Requirement and Waiver

A. The Notice Provision

The IPO Lock-Up Agreements contain a provision requiring that, in the event any of the IPO Underwriters grants an early release or waiver of the lock-up restrictions, the IPO Underwriters shall provide at least 14 calendar days' advance notice to PPC and to the affected Lock-Up Parties prior to the effective date of any such early release or waiver. This provision reads, in relevant part:

"In the event that the undersigned representatives of the underwriters agree to release or waive the restrictions set forth in this Agreement for any Lock-Up Party, the undersigned representatives of the underwriters shall provide the Company and such Lock-Up Party with notice of the impending release or waiver at least fourteen (14) calendar days before the effective date of such release or waiver."

The purpose of the 14-day advance notice provision is to allow the Company and the market adequate time to prepare for the potential sale of previously restricted shares, and to mitigate the risk of disorderly trading that might result from an unexpected or poorly communicated release of locked-up shares. This provision is common in IPO lock-up agreements and derives from prior guidance published by both the Nasdaq Stock Market and the New York Stock Exchange regarding best practices for the administration of lock-up releases. Although this guidance is not binding as a legal matter, it reflects widely accepted market norms that have been incorporated into standard form lock-up agreements used by major underwriters.

B. Applicability to the Secondary Offering

Applying the 14-day notice requirement to the facts at hand, the early release would become effective on October 12, 2023. Counting back 14 calendar days, formal notice of the release would need to be given no later than September 28, 2023.

The timeline for the waiver process is as follows, illustrating the relationship between the notice requirement and the other milestones:

As the above timeline reflects, the schedule is tight. The waiver request letters will be dispatched on September 18, 2023, and we are targeting receipt of all three executed consents by September 29, 2023 — one day after the September 28, 2023 deadline for the 14-day advance notice. However, in practice, the 14-day notice requirement was designed to address situations in which locked-up shares are released into the market without adequate public disclosure, potentially creating disorderly trading conditions. That concern is not present here. The waiver is being sought in the context of a registered secondary offering that will be fully disclosed to the market through the filing of a preliminary prospectus supplement on October 2, 2023. The prospectus supplement will contain detailed disclosure of the lock-up waiver, the identity of the Selling Stockholders, the number of shares being sold, and the terms of the new 90-day lock-up. As a result, the market will have full and complete notice of the early lock-up release well in advance of any shares being sold.

C. Waiver of the Notice Requirement

Given the foregoing considerations, we recommend requesting that the IPO Underwriters waive the 14-day advance notice requirement in their consent letters. This recommendation is based on the following factors:

First, the gap between the requested early release date (October 12, 2023) and the natural lock-up expiration date (October 14, 2023) is only two calendar days. The early release is de minimis in scope and does not represent a material departure from the agreed-upon lock-up period.

Second, the early release is being sought in connection with a fully registered secondary offering under a previously declared effective registration statement. The offering will be publicly disclosed through the filing of a preliminary prospectus supplement with the SEC, which will be available on the SEC's EDGAR system and the Company's investor relations website. This public filing provides significantly more advance notice to the market than the 14-day notice provision was designed to ensure.

Third, market practice supports waiver of the advance notice period where the early release occurs in connection with a registered offering and within a few days of the natural expiration of the lock-up. We have identified several precedent transactions in which 14-day advance notice requirements were waived under comparable circumstances, including the August 2023 secondary offering by Helios Therapeutics, Inc. (in which the lock-up was released three days early in connection with a registered follow-on offering) and the June 2023 selling-stockholder offering by Cascade Biosciences Corp. (in which the lock-up was released five days early).

Fourth, requiring strict compliance with the 14-day advance notice period would effectively prevent the Selling Stockholders from pursuing the Secondary Offering on the proposed timeline, which has been established in consultation with the underwriters based on market conditions and investor availability. Forcing a delay of even a few days could expose the offering to market risk and undermine the pricing dynamics.

Accordingly, the waiver request letters that Calderwood & Harkness will prepare should expressly reference the 14-day advance notice requirement in the IPO Lock-Up Agreements and request that each IPO Underwriter agree, in its consent letter, that such notice requirement is deemed satisfied or waived in light of the circumstances described above — specifically, the de minimis nature of the early release and the full public disclosure of the offering through the prospectus supplement.

V. SEC Disclosure Obligations

A. Prospectus Supplement Disclosure

The fact that the Selling Stockholders' shares are being sold pursuant to a lock-up waiver must be clearly and prominently disclosed in the prospectus supplement for the Secondary Offering. Securities Act and SEC staff guidance require that investors be provided with all material information regarding the shares being offered, including any restrictions on sale and any modifications to such restrictions.

The required disclosures with respect to the lock-up waiver include the following:

(i) A description of the original 180-day lock-up period entered into in connection with the PPC IPO that closed on April 17, 2023, including the duration of the lock-up and the categories of persons subject thereto;

(ii) Identification of the parties who granted the lock-up waiver — namely, Ridgeline Securities LLC, Broadmark Capital Inc., and Morningstar Zanthor & Co., as the three lead underwriters in the IPO;

(iii) The effective date of the waiver (October 12, 2023) and the original expiration date of the lock-up (October 14, 2023), together with a statement that the waiver was granted two calendar days in advance of the natural expiration of the lock-up period;

(iv) The scope of the waiver, specifying that it applies solely to the shares being sold in the Secondary Offering and that all other shares held by the Selling Stockholders and other Lock-Up Parties remain subject to the original lock-up through its natural expiration; and

(v) A description of the new 90-day lock-up entered into by the Selling Stockholders in connection with the Secondary Offering, including its duration, the shares covered, and the key restrictions imposed.

This disclosure should appear in at least two sections of the prospectus supplement. First, the "Shares Eligible for Future Sale" section should contain a comprehensive description of the lock-up arrangements — both the original IPO lock-up and the new 90-day lock-up — including the waiver and its terms. Second, the "Underwriting" section should address the lock-up waiver in the context of the underwriting arrangements, noting that the IPO Underwriters granted the waiver to permit the Selling Stockholders to participate in the Secondary Offering in advance of the natural expiration of the lock-up period.

The preliminary prospectus supplement, to be filed pursuant to Rule 424(b)(5) of the Securities Act on October 2, 2023, will contain preliminary disclosure of the lock-up waiver. The final prospectus supplement, to be filed on October 12, 2023 following pricing, will contain the definitive disclosure, including the final offering price and the exact number of shares sold by each Selling Stockholder.

Calderwood & Harkness will coordinate with Caldwell, Pearce & Strauss LLP (underwriters' counsel) on the form and content of the prospectus supplement disclosure to ensure consistency and completeness.

B. Form 8-K Considerations

PPC will file a Current Report on Form 8-K (CIK 0001987654) on or promptly following October 12, 2023, reporting the Company's entry into the Underwriting Agreement for the Secondary Offering under Item 1.01 (Entry into a Material Definitive Agreement). The lock-up waiver itself is not independently reportable as a separate event under any specific Item of Form 8-K, as PPC is not a party to the waiver (the waiver is granted by the IPO Underwriters to the Selling Stockholders). However, as a matter of best practice and to provide complete context to the market, we recommend that the Form 8-K disclosure reference the lock-up waiver in the narrative description of the Underwriting Agreement and the circumstances of the Secondary Offering.

The Form 8-K will also attach the Underwriting Agreement as an exhibit, and the new 90-day lock-up agreements will be attached as exhibits to the Underwriting Agreement. This ensures that the full terms of the post-offering lock-up are publicly available.

C. Regulation FD Considerations

The lock-up waiver negotiations have been, and will continue to be, conducted on a confidential basis among Calderwood & Harkness (on behalf of PPC and the Selling Stockholders), the three IPO Underwriters, and their respective counsel. This raises the question of whether the Company has any obligations under Regulation FD (17 C.F.R. §§ 243.100–243.103) with respect to the waiver.

Regulation FD requires that when an issuer, or any person acting on its behalf, discloses material nonpublic information to certain categories of persons — including securities market professionals and holders of the issuer's securities who may trade on the basis of the information — the issuer must simultaneously (in the case of an intentional disclosure) or promptly (in the case of a non-intentional disclosure) make public disclosure of the same information.

In this case, the lock-up waiver information is being shared only with the IPO Underwriters and their counsel in the context of the waiver consent process. The IPO Underwriters are subject to their own confidentiality obligations and are sophisticated market participants who understand the restrictions on the use of material nonpublic information. Moreover, the filing of the preliminary prospectus supplement on October 2, 2023 will make the fact and terms of the lock-up waiver fully public, well in advance of any shares being sold or any pricing determination being made. As a result, no selective disclosure concerns arise so long as the waiver is disclosed in the prospectus supplement before any shares are sold. No separate Regulation FD filing on Form 8-K under Item 7.01 (Regulation FD Disclosure) is necessary.

D. Section 16 Implications

Three of the four Selling Stockholders — Dr. Elena Castellano (Board Chair), Dr. Riccardo Castellano (Board member), and Dr. Marco Castellano (CEO) — are Section 16 reporting persons (i.e., officers and/or directors of PPC) subject to the reporting and short-swing profit recovery provisions of Section 16 of the Securities Exchange Act of 1934, as amended (the "Exchange Act").

Section 16(a) Reporting. Sales of PPC common stock by Section 16 insiders must be reported on Form 4, filed with the SEC no later than two business days following the date of the transaction. Assuming a trade date of October 12, 2023 (Thursday), the Form 4 filing deadline for each of Dr. Elena Castellano, Dr. Riccardo Castellano, and Dr. Marco Castellano would be October 16, 2023 (Monday). Calderwood & Harkness will prepare the Form 4 filings for each selling insider and coordinate with David Orenstein's office to ensure timely filing.

With respect to Castellano Family Holdings LLC, the analysis is more nuanced. To the extent that the LLC is controlled by, or its holdings are attributable to, one or more Section 16 insiders under the beneficial ownership rules of Section 16, sales by the LLC may also need to be reported on Form 4. The beneficial ownership analysis under Section 16(a) rules (which incorporate the reporting obligations of Rules 16a-1 through 16a-13) should be confirmed with Brendan Walsh, who has been reviewing the ownership structure of Castellano Family Holdings LLC and the attribution of its shares among the individual Castellano family members.

Section 16(b) Short-Swing Profit Recovery. Section 16(b) of the Exchange Act imposes strict liability on Section 16 insiders for profits realized from any purchase and sale, or sale and purchase, of the issuer's equity securities within a six-month period. To confirm that no short-swing profit liability will arise from the proposed sales, we must verify that none of the Selling Stockholders who are Section 16 insiders have effected any purchases of PPC common stock within the six-month period preceding the October 12, 2023 trade date — that is, during the period from April 12, 2023 through October 12, 2023. Based on our preliminary review, no such purchases are expected, as the Castellano family members acquired their shares prior to the IPO and have not purchased additional shares in the open market. However, this should be formally confirmed with the individual Selling Stockholders and with Brendan Walsh.

VI. New 90-Day Lock-Up Considerations for the Secondary Offering

A. Rationale. It is customary in follow-on and secondary offerings for selling stockholders to agree to a new lock-up period in favor of the managing underwriters. The purpose of a new lock-up is to provide price stability in the aftermarket following the offering, protect investors who purchase shares in the offering from immediate dilution of the float, and give the underwriters assurance that the selling stockholders will not re-enter the market with additional share sales during the period immediately following the offering. These protections enhance investor confidence and contribute to orderly aftermarket trading, which in turn supports the offering price.

Ridgeline Securities LLC and Broadmark Capital Inc., as representatives of the underwriters in the Secondary Offering, have indicated that they will require the Selling Stockholders to enter into a new lock-up agreement as a condition to the Secondary Offering. This requirement is standard and expected.

B. Key Terms

The key terms of the proposed new lock-up agreement are as follows:

Duration: 90 calendar days from the closing date of the Secondary Offering. Based on a target closing date of October 17, 2023, the new lock-up period will expire on January 15, 2024.

Covered Parties: All four Selling Stockholders — Dr. Elena Castellano, Dr. Riccardo Castellano, Dr. Marco Castellano, and Castellano Family Holdings LLC.

Covered Shares: All shares of PPC common stock retained by the Selling Stockholders following the completion of the Secondary Offering. In the base offering scenario (no exercise of the over-allotment option), the Selling Stockholders will retain an aggregate of 33,850,000 shares. If the over-allotment option is exercised in full, the retained holdings will be reduced to 32,912,500 shares. All such retained shares will be subject to the 90-day lock-up.

Restrictions: The new lock-up will contain a standard prohibition on the direct or indirect offer, sale, pledge, contract to sell, short sale, hedging transaction, or other transfer or disposition of covered shares during the 90-day period. The restrictions will also prohibit the filing of, or participation in, any registration statement with respect to covered shares (other than the registration statement under which the Secondary Offering is being conducted) and the making of any demand for registration of covered shares.

Exceptions: The new lock-up will contain customary carve-outs, including: (i) transfers by gift to immediate family members, provided the transferee agrees to be bound by the lock-up; (ii) transfers for bona fide estate planning purposes; (iii) transfers to affiliates or entities controlled by the Selling Stockholder, provided the transferee agrees to be bound; (iv) transfers pursuant to a domestic relations order; and (v) sales pursuant to a Rule 10b5-1 trading plan that was established prior to the date of the lock-up agreement and that has been disclosed to the representatives of the underwriters.

C. Interaction with Original IPO Lock-Up

The relationship between the original IPO lock-up and the new 90-day lock-up warrants careful analysis to ensure that there is no unintended gap in coverage during which the Selling Stockholders would be free to transact in PPC common stock without restriction.

The original IPO lock-up expires on October 14, 2023. The new 90-day lock-up will commence on the closing date of the Secondary Offering, which is targeted for October 17, 2023. This creates a brief gap of three calendar days — October 14, 15, and 16, 2023 — during which the original lock-up has expired but the new lock-up has not yet taken effect.

As a practical matter, this gap is bridged by the fact that the Underwriting Agreement for the Secondary Offering will be executed on October 12, 2023. The Underwriting Agreement will contain standstill and lockdown provisions that restrict the Selling Stockholders from selling or otherwise disposing of any shares of PPC common stock from the date of signing through the closing date. These provisions, which are standard in underwriting agreements for secondary offerings, effectively prevent the Selling Stockholders from transacting in shares during the October 12–17, 2023 period, thereby covering the gap between the IPO lock-up expiration and the new lock-up commencement.

Nevertheless, as a belt-and-suspenders measure, we recommend ensuring that the Underwriting Agreement contains an explicit bridging restriction that specifically addresses the October 14–17, 2023 gap period. This restriction should provide that the Selling Stockholders agree not to offer, sell, or otherwise dispose of any shares of PPC common stock (other than the shares being sold in the Secondary Offering) from the date of the Underwriting Agreement through the closing of the Secondary Offering and the execution of the new 90-day lock-up agreements. This approach will eliminate any ambiguity and provide the underwriters with clear contractual protection during the transition period.

D. Form of New Lock-Up Agreement

Calderwood & Harkness will draft the form of the new 90-day lock-up agreement for inclusion as an exhibit to the Underwriting Agreement. The lock-up agreement will be a standalone document executed by each Selling Stockholder individually, in favor of Ridgeline Securities LLC and Broadmark Capital Inc. as representatives of the underwriters in the Secondary Offering.

The drafting process will require coordination with two external counsel teams:

(i) Whitfield & Garza LLP (Patricia Velázquez, Partner) — personal counsel to the Castellano family. We will share the draft lock-up agreement with Whitfield & Garza for review and comment, as the Castellano family will want their personal counsel to review and approve the terms before execution. We anticipate that the primary areas of negotiation will relate to the scope of the customary carve-outs, particularly the exception for transfers to affiliates and the treatment of any existing Rule 10b5-1 plans.

(ii) Caldwell, Pearce & Strauss LLP (Margaret Hui, Partner) — counsel to the underwriters in the Secondary Offering. We will coordinate with Caldwell, Pearce & Strauss on the form and substance of the lock-up agreement to ensure that the terms are satisfactory to the underwriters. As is customary, the underwriters' counsel will want to review and approve the lock-up agreement before it is circulated to the Selling Stockholders for execution.

We anticipate circulating an initial draft of the new lock-up agreement to both Whitfield & Garza and Caldwell, Pearce & Strauss no later than September 25, 2023, to allow adequate time for negotiation and comment before the October 12, 2023 execution date.

VII. Procedural Recommendations and Timeline

A. Recommended Actions and Responsible Parties

Based on the analysis set forth above, we recommend the following actions and timeline:

1. September 14, 2023: Circulate this memorandum to Jennifer Kwon for review and comment. Audrey Zhou to be available for a follow-up discussion on September 15, 2023.

2. September 15–17, 2023: Draft the lock-up waiver request letters (three letters, one to each IPO Underwriter) and the corresponding form of waiver consent letter for each firm. Audrey Zhou and Brendan Walsh will prepare the initial drafts for Jennifer Kwon's review.

3. September 18, 2023: Send the finalized lock-up waiver request letters to Ridgeline Securities LLC (Attn: Jonathan Pryce-Hall), Broadmark Capital Inc. (Attn: Samuel Okonkwo), and Morningstar Zanthor & Co. (Attn: Diane Chaudhary). Each letter will be signed by David Orenstein, General Counsel and Corporate Secretary of PPC, on behalf of the Company and the Selling Stockholders. Copies of each letter will be sent to Jennifer Kwon and the Calderwood & Harkness deal team.

4. September 18–29, 2023: Follow up with each IPO Underwriter to confirm receipt of the waiver request letters, address any questions, and negotiate any comments to the form of consent letter. We anticipate that Ridgeline and Broadmark will consent with minimal friction, given their participation in the Secondary Offering. Morningstar Zanthor may require additional engagement, and we should be prepared for the possibility that Morningstar Zanthor may raise questions about the scope of the waiver, request additional information about the Secondary Offering, or seek some form of consideration for granting the consent.

5. By September 29, 2023: Target receipt of all three executed waiver consent letters. If any consent remains outstanding as of this date, Jennifer Kwon will escalate directly with the relevant firm.

6. October 2, 2023: File the preliminary prospectus supplement with the SEC pursuant to Rule 424(b)(5). The preliminary prospectus supplement will contain disclosure of the lock-up waiver and the new 90-day lock-up, among other offering terms.

7. October 12, 2023: Effective date of the lock-up waiver. Execution of the Underwriting Agreement for the Secondary Offering. Execution of the new 90-day lock-up agreements by each of the four Selling Stockholders. Filing of the final prospectus supplement pursuant to Rule 424(b)(5). Filing of Form 8-K reporting entry into the Underwriting Agreement.

B. Risk Factors

We have identified the following risk factors that should be monitored throughout the waiver process:

Morningstar Zanthor consent risk. As discussed in Section III.A above, Morningstar Zanthor is the only IPO Underwriter not participating in the Secondary Offering syndicate, and it therefore lacks a direct economic incentive to grant the waiver. While we assess the risk of refusal as low, there is a possibility that Morningstar Zanthor may seek a consent fee, a right of first refusal on future underwriting mandates, or other consideration as a condition to granting the waiver. Such a request would need to be evaluated on its merits and in consultation with PPC and the Castellano family. If Morningstar Zanthor proves unresponsive or resistant, Jennifer Kwon should engage directly with Diane Chaudhary to resolve the matter at the partner level.

Timing risk. The overall timeline for the waiver process is tight. If consents are not obtained by September 29, 2023, the preliminary prospectus supplement filing on October 2, 2023 may need to be delayed, which could in turn affect the marketing schedule and the pricing date. Alternatively, the preliminary prospectus supplement could be filed with disclosure that the lock-up waiver has been requested and is expected to be granted prior to closing, but has not yet been formally obtained. This approach is not preferred, as it introduces uncertainty into the offering disclosure and may raise questions from investors during the roadshow. We strongly recommend adhering to the September 29, 2023 deadline for receipt of all consents.

Market perception. The early release of a lock-up restriction, even by only two calendar days, may draw attention from the financial media, equity research analysts, or the broader investing community. Lock-up expirations and early releases are closely watched events, and any perception that insiders are rushing to sell shares ahead of the lock-up expiration could create negative sentiment. To mitigate this risk, the prospectus supplement should present the waiver in the context of the de minimis two-day gap between the requested early release date and the natural lock-up expiration, and should emphasize the orderly, registered nature of the Secondary Offering and the new 90-day lock-up that the Selling Stockholders are voluntarily agreeing to in connection with the offering.

VIII. Conclusion

Based on the foregoing analysis, we believe that the lock-up waiver mechanics are straightforward and well-supported by established market practice. The IPO Lock-Up Agreements clearly provide for early release with the prior written consent of all three IPO Underwriters, and the requested waiver — an early release of only two calendar days in connection with a fully registered secondary offering — is a routine request that should be readily granted.

The critical path item in the waiver process is obtaining the consent of Morningstar Zanthor & Co., as it is the only IPO Underwriter not participating in the Secondary Offering syndicate and therefore lacks a direct economic incentive to facilitate the transaction. We assess the risk of Morningstar Zanthor withholding consent as low, based on the de minimis nature of the early release, the strength of the commercial relationships involved, and the general market practice of granting waivers under comparable circumstances. Nonetheless, this risk must be proactively managed through early outreach and direct engagement at the partner level.

The 14-day advance notice requirement contained in the IPO Lock-Up Agreements should be waived by the IPO Underwriters in their consent letters, given the two-day gap between the early release date and the natural lock-up expiration and the full public disclosure of the offering through the prospectus supplement. Precedent transactions support this approach.

The SEC disclosure obligations arising from the lock-up waiver are manageable and well-defined. The lock-up waiver and the new 90-day lock-up will be disclosed in the prospectus supplement, and Section 16 reporting obligations for the insider Selling Stockholders will be handled through timely Form 4 filings. No separate Regulation FD filing is required.

The new 90-day lock-up from the closing of the Secondary Offering (October 17, 2023) through January 15, 2024 provides adequate post-offering price stability protections for investors and the underwriters, and is consistent with market practice for follow-on offerings by selling stockholders who retain significant holdings.

We recommend proceeding immediately with the drafting of the waiver request letters and consent forms for circulation by September 18, 2023. Jennifer Kwon should consider placing a preliminary courtesy call to Diane Chaudhary at Morningstar Zanthor on or about September 15, 2023 to preview the request and establish a cooperative dialogue.

We are available to discuss any aspect of this memorandum at your convenience.

This memorandum is a privileged and confidential attorney work product prepared in connection with the rendering of legal advice. It is protected by the attorney-client privilege and the work product doctrine and is not intended for distribution to, or use by, any person or entity other than the addressee.

Audrey Zhou Senior Associate, Capital Markets Group Calderwood & Harkness LLP One Liberty Plaza, 52nd Floor New York, NY 10006 Direct: (212) 558-4127

Email: azhou@calderwoodharkness.com

cc: Theodore Langston, Partner (Billing Partner) Brendan Walsh, Associate (Working Associate)

Selling Stockholder	Base Shares	Over-Allotment Shares	Total (if Over-Allotment Exercised in Full)
Dr. Elena Castellano	3,000,000	450,000	3,450,000
Dr. Riccardo Castellano	2,500,000	375,000	2,875,000
Dr. Marco Castellano	500,000	75,000	575,000
Castellano Family Holdings LLC	250,000	37,500	287,500
Total	6,250,000	937,500	7,187,500
Milestone	Target Date
File preliminary prospectus supplement (Rule 424(b)(5))	October 2, 2023
Marketing / roadshow	October 3–11, 2023
Pricing and execution of underwriting agreement	October 12, 2023
Trade date (T)	October 12, 2023
Settlement and closing (T+3)	October 17, 2023
Selling Stockholder	Base Shares Released	Over-Allotment Shares Released	Maximum Total Released
Dr. Elena Castellano	3,000,000	450,000	3,450,000
Dr. Riccardo Castellano	2,500,000	375,000	2,875,000
Dr. Marco Castellano	500,000	75,000	575,000
Castellano Family Holdings LLC	250,000	37,500	287,500
Total	6,250,000	937,500	7,187,500
Date	Event
September 18, 2023	Waiver request letters sent to IPO Underwriters
September 28, 2023	Deadline for 14-day advance notice (if not waived)
September 29, 2023	Target date for receipt of all executed consents
October 2, 2023	Filing of preliminary prospectus supplement
October 12, 2023	Effective date of waiver; pricing and signing

ATTORNEY WORK PRODUCT — PRIVILEGED AND CONFIDENTIAL
MEMORANDUM
TO: Jennifer Kwon, Partner, Capital Markets Group
FROM: Audrey Zhou, Senior Associate, Capital Markets Group
DATE: September 14, 2023
RE: Lock-Up Waiver Analysis and Considerations — Penterra Pharmaceuticals Corp. Selling-Stockholder Secondary Offering
MATTER NO.: 1018-00001
I. Executive Summary
The purpose of this memorandum is to analyze the mechanics and legal considerations associated with obtaining early release of lock-up restrictions in connection with the proposed $260,000,000 registered selling-stockholder secondary offering by members of the Castellano founding family of their shares of common stock of Penterra Pharmaceuticals Corp. ("PPC" or the "Company").
PPC is a Delaware corporation whose shares of common stock are listed on the Nasdaq Global Select Market under the ticker symbol "PNTR." The Company completed its initial public offering (the "IPO") on April 17, 2023, pricing 24,000,000 shares of common stock at $22.00 per share for gross proceeds of approximately $528,000,000. The IPO was led by Ridgeline Securities LLC ("Ridgeline"), Broadmark Capital Inc. ("Broadmark"), and Morningstar Zanthor & Co. ("Morningstar Zanthor"), serving as lead underwriters (collectively, the "IPO Underwriters").
In connection with the IPO, all directors, executive officers, and holders of 5% or more of PPC common stock, including the members of the Castellano founding family (collectively, the "Lock-Up Parties"), entered into 180-day lock-up agreements (the "IPO Lock-Up Agreements") with the three IPO Underwriters. The lock-up period commenced on the IPO closing date and is set to expire on October 14, 2023 — that is, 180 calendar days following the April 17, 2023 closing.
The proposed secondary offering (the "Secondary Offering") targets pricing and execution of the underwriting agreement on October 12, 2023, which is two calendar days prior to the natural expiration of the lock-up period. Because execution of the underwriting agreement constitutes a binding commitment to sell shares — an activity restricted under the IPO Lock-Up Agreements — the selling stockholders require an early release of the lock-up effective no later than October 12, 2023. Such early release requires the prior written consent of all three IPO Underwriters — Ridgeline, Broadmark, and Morningstar Zanthor. A majority consent does not suffice under the terms of the agreements.
The selling stockholders (collectively, the "Selling Stockholders") in the Secondary Offering are as follows:
The Castellano family, in the aggregate, currently holds 40,100,000 shares of PPC common stock, representing approximately 33.4% of the 120,000,000 shares of common stock outstanding. Following the completion of the base Secondary Offering (assuming no exercise of the over-allotment option), the family's aggregate holdings will be reduced to 33,850,000 shares, or approximately 28.2% of shares outstanding.
This memorandum addresses the following topics: (1) the mechanics of the IPO Lock-Up Agreements, including the consent requirements for early release; (2) the waiver consent requirements and procedures; (3) the 14-day advance notice provision contained in the IPO Lock-Up Agreements and the recommended approach for seeking waiver of that notice requirement; (4) SEC disclosure obligations arising from the lock-up waiver; (5) the new 90-day lock-up to be entered into by the Selling Stockholders in connection with the Secondary Offering; and (6) our recommended course of action and procedural timeline.
II. Background
A. The IPO Lock-Up Agreements
The IPO Lock-Up Agreements were executed in connection with PPC's IPO, which closed on April 17, 2023. In the IPO, the Company sold 24,000,000 primary shares of common stock at a public offering price of $22.00 per share, generating gross proceeds of approximately $528,000,000. The shares were underwritten by the IPO Underwriters pursuant to an underwriting agreement dated April 12, 2023, with Ridgeline serving as lead left book-runner, Broadmark serving as joint book-runner, and Morningstar Zanthor serving as co-manager.
The IPO Lock-Up Agreements were entered into among each of the Lock-Up Parties, on the one hand, and each of the three IPO Underwriters, on the other hand. Each Lock-Up Party executed a separate lock-up agreement in substantially identical form in favor of all three IPO Underwriters. The lock-up period is defined as 180 calendar days commencing on the IPO closing date of April 17, 2023, and accordingly expires on October 14, 2023.
The Lock-Up Parties include the following individuals and entities relevant to the Secondary Offering:
(i) Dr. Elena Castellano — Chair of the Board of Directors of PPC, beneficial owner of 15,800,000 shares of common stock (approximately 13.2% of shares outstanding);
(ii) Dr. Riccardo Castellano — Member of the Board of Directors of PPC, beneficial owner of 12,500,000 shares of common stock (approximately 10.4% of shares outstanding);
(iii) Dr. Marco Castellano — Chief Executive Officer of PPC, member of the Board of Directors, beneficial owner of 5,200,000 shares of common stock (approximately 4.3% of shares outstanding); and
(iv) Castellano Family Holdings LLC — A Delaware limited liability company controlled by members of the Castellano family, record holder of 6,600,000 shares of common stock (approximately 5.5% of shares outstanding).
In addition to the Castellano family members, all other directors and executive officers of PPC, as well as all other holders of 5% or more of PPC common stock, are parties to the IPO Lock-Up Agreements. However, only the four Selling Stockholders identified above are seeking early release for purposes of the Secondary Offering.
The restrictions imposed by the IPO Lock-Up Agreements are broadly drafted and prohibit each Lock-Up Party, during the 180-day lock-up period, from directly or indirectly:
(a) offering, selling, contracting to sell, or granting any option, right, or warrant to purchase shares of PPC common stock;
(b) pledging, hypothecating, or otherwise encumbering shares of PPC common stock;
(c) entering into any swap, hedge, or other arrangement that transfers, in whole or in part, the economic consequences of ownership of shares of PPC common stock;
(d) making any demand for, or exercising any right with respect to, the registration of shares of PPC common stock under the Securities Act of 1933, as amended (the "Securities Act"); or
(e) publicly disclosing the intention to do any of the foregoing.
The IPO Lock-Up Agreements contain limited exceptions permitting: (i) transfers by gift or for bona fide estate planning purposes, provided that the transferee agrees in writing to be bound by the terms of the lock-up; (ii) transfers to immediate family members or trusts for the benefit of the Lock-Up Party or the Lock-Up Party's immediate family members, subject to the same condition; (iii) transfers occurring by operation of law, such as pursuant to a domestic relations order; and (iv) sales of shares acquired in the open market following the IPO, provided such sales are not made by officers or directors.
B. The Proposed Secondary Offering
The proposed Secondary Offering is structured as a registered selling-stockholder secondary offering, to be effected as a shelf takedown under PPC's existing shelf registration statement on Form S-3 (File No. 333-274851), which was declared effective by the Securities and Exchange Commission (the "SEC") on August 22, 2023. As a selling-stockholder transaction, PPC will not receive any of the proceeds from the sale of shares; all net proceeds will be remitted to the Selling Stockholders.
The key terms of the Secondary Offering are as follows:
Base Offering Size: 6,250,000 shares of common stock at an anticipated offering price of approximately $41.60 per share, for aggregate gross proceeds of approximately $260,000,000.
Over-Allotment Option: The Selling Stockholders will grant to the underwriters an option, exercisable within 30 days of the date of the underwriting agreement, to purchase up to 937,500 additional shares of common stock (representing 15% of the base offering) at the public offering price, less underwriting discounts and commissions.
Underwriter Syndicate: The Secondary Offering will be underwritten by a syndicate consisting of Ridgeline Securities LLC (lead left book-runner), Broadmark Capital Inc. (joint book-runner), Linden Groves & Co. (co-manager), and Harborview Partners LLC (co-manager).
Notably, Morningstar Zanthor & Co. is not participating in the Secondary Offering underwriting syndicate. This is a commercially significant fact, as Morningstar Zanthor nonetheless remains a party to the IPO Lock-Up Agreements whose consent is required for any early release. The absence of Morningstar Zanthor from the syndicate means that it does not have a direct economic incentive — in the form of underwriting fees — to grant the requested waiver. We discuss this dynamic in greater detail in Section III.A below.
The target timeline for the Secondary Offering is as follows:
C. Need for Early Release
The critical issue necessitating this analysis is the two-day overlap between the proposed pricing date and the natural expiration of the lock-up period. Specifically, signing of the underwriting agreement for the Secondary Offering on October 12, 2023 constitutes a binding contractual commitment by each Selling Stockholder to sell, deliver, and transfer shares of PPC common stock to the underwriters. This commitment falls squarely within the scope of activities restricted by the IPO Lock-Up Agreements — specifically, the prohibition on entering into a "contract to sell" shares of common stock during the lock-up period.
The natural lock-up expiration date is October 14, 2023, which is two calendar days after the proposed signing date of October 12, 2023. The Selling Stockholders are therefore unable to lawfully execute the underwriting agreement on October 12, 2023 without first obtaining an early release of the lock-up restrictions. Furthermore, to the extent that any pre-pricing activities — such as the entry into an engagement letter with the underwriters or the filing of the preliminary prospectus supplement naming the Selling Stockholders — may be viewed as steps toward a sale or as an offer to sell, it is prudent to obtain the waiver well in advance of the October 12, 2023 signing date.
Accordingly, the Selling Stockholders require a waiver of the lock-up restrictions from all three IPO Underwriters, effective no later than October 12, 2023. The waiver is sought solely with respect to the shares being sold in the Secondary Offering — comprising 6,250,000 base shares and up to 937,500 additional shares subject to the over-allotment option. All other shares held by the Selling Stockholders and all other Lock-Up Parties will remain subject to the IPO Lock-Up Agreements through October 14, 2023.
III. Lock-Up Waiver Mechanics
A. Consent Requirement
The IPO Lock-Up Agreements provide that the restrictions therein may be waived, in whole or in part, prior to the expiration of the 180-day lock-up period, with the prior written consent of all three of the IPO Underwriters — Ridgeline Securities LLC, Broadmark Capital Inc., and Morningstar Zanthor & Co. The language of the relevant provision is as follows:
"The restrictions set forth in this Agreement may be waived, in whole or in part, with respect to any Lock-Up Party, by the prior written consent of each of Ridgeline Securities LLC, Broadmark Capital Inc., and Morningstar Zanthor & Co."
The operative word "each" makes clear that the consent of all three firms is required; a majority of two out of three does not suffice. This is consistent with standard market practice for IPO lock-up agreements involving multiple lead underwriters. Each firm's consent must be separately obtained and evidenced in writing. The consent is typically documented in the form of a letter from each IPO Underwriter, countersigned by an authorized signatory, confirming that the firm consents to the early release of the specified shares from the lock-up restrictions, effective as of the specified date.
From an analytical standpoint, the likelihood of obtaining each firm's consent varies:
Ridgeline Securities LLC: As lead left book-runner for both the IPO and the Secondary Offering, Ridgeline has a strong economic incentive to facilitate the Secondary Offering. The firm will earn substantial underwriting fees from the transaction and has every reason to grant the waiver promptly. We assess the risk of Ridgeline withholding consent as negligible. The primary contact at Ridgeline for this purpose is Jonathan Pryce-Hall, Managing Director, Equity Capital Markets.
Broadmark Capital Inc.: As joint book-runner for both the IPO and the Secondary Offering, Broadmark is similarly situated to Ridgeline and has a direct economic interest in the successful completion of the Secondary Offering. We assess the risk of Broadmark withholding consent as negligible. The primary contact at Broadmark is Samuel Okonkwo, Managing Director, Equity Capital Markets.
Morningstar Zanthor & Co.: This is the critical consent. Morningstar Zanthor served as co-manager in the IPO but is not participating in the Secondary Offering syndicate. It therefore has no direct economic interest in the form of underwriting fees associated with the Secondary Offering. However, several factors weigh in favor of Morningstar Zanthor granting the consent: (i) the early release is for only two calendar days before the natural lock-up expiration, which makes the waiver largely a formality; (ii) the waiver is being sought in the context of a fully registered, publicly disclosed secondary offering — not a private or unregistered sale; (iii) refusal to consent would be commercially unusual and could damage the firm's relationships with PPC, the Castellano family, and the other IPO Underwriters; and (iv) general market practice supports early release in these circumstances. We assess the risk of Morningstar Zanthor withholding consent as low, but it is the primary risk to the transaction timeline and must be managed proactively. The key contact at Morningstar Zanthor is Diane Chaudhary, Managing Director, at the firm's offices located at 600 Lexington Avenue, New York, NY 10022.
We recommend that Jennifer Kwon make an initial outreach to Diane Chaudhary at Morningstar Zanthor on or about September 15, 2023, in advance of the formal waiver request letter, to preview the request and gauge the firm's receptivity. This approach is consistent with standard practice in capital markets transactions and will help ensure a smooth consent process.
B. Scope of Waiver
We recommend that the waiver request be narrowly scoped to cover only the shares being offered in the Secondary Offering, rather than a blanket release of all shares held by the Selling Stockholders. This approach serves several purposes: it minimizes the scope of the consent being requested (thereby reducing the potential for objections from the IPO Underwriters, particularly Morningstar Zanthor); it ensures that the vast majority of the Castellano family's holdings remain subject to the lock-up through its natural expiration; and it is consistent with market expectations regarding the purpose and scope of lock-up waivers.
Specifically, the waiver should set forth the following parameters with precision:
(i) Identity of each Selling Stockholder: Dr. Elena Castellano, Dr. Riccardo Castellano, Dr. Marco Castellano, and Castellano Family Holdings LLC.
(ii) Number of shares being released per Selling Stockholder:
(iii) Effective date of the release: October 12, 2023.
All shares retained by the Selling Stockholders that are not included in the Secondary Offering will remain subject to the original IPO Lock-Up Agreements through October 14, 2023. Thereafter, the retained shares will be subject to the new 90-day lock-up to be entered into by the Selling Stockholders in connection with the Secondary Offering, as discussed in Section VI below.
C. Form of Waiver Request and Consent
Calderwood & Harkness LLP will draft the waiver request letters on behalf of PPC. Three separate letters will be prepared, each addressed individually to one of the three IPO Underwriters:
(a) Ridgeline Securities LLC, Attn: Jonathan Pryce-Hall, Managing Director, Equity Capital Markets;
(b) Broadmark Capital Inc., Attn: Samuel Okonkwo, Managing Director, Equity Capital Markets; and
(c) Morningstar Zanthor & Co., Attn: Diane Chaudhary, Managing Director.
Each waiver request letter will be signed by David Orenstein, General Counsel and Corporate Secretary of PPC, on behalf of the Company and the Selling Stockholders. The letters will set forth the details of the Secondary Offering, the shares for which early release is requested, the effective date of the requested waiver, and a request that the IPO Underwriter waive both the lock-up restrictions and the 14-day advance notice requirement (discussed in Section IV below).
In addition to the waiver request letters, Calderwood & Harkness will prepare a form of consent letter for use by each IPO Underwriter. The consent letter will be structured as a countersigned acknowledgment confirming the firm's consent to the early release of the specified shares, effective as of October 12, 2023, and waiving the 14-day notice requirement. The consent letters will be returned by the respective managing directors: Jonathan Pryce-Hall for Ridgeline, Samuel Okonkwo for Broadmark, and Diane Chaudhary for Morningstar Zanthor.
The target date for sending the waiver request letters is September 18, 2023. We have set a target date for receipt of all three executed consent letters of no later than September 29, 2023. This deadline is designed to provide sufficient lead time before the anticipated filing of the preliminary prospectus supplement on October 2, 2023, which will contain disclosure of the lock-up waiver. The preliminary prospectus supplement must accurately describe the status of the waiver at the time of filing; ideally, we will be able to disclose that all three consents have been obtained, rather than disclosing that the waiver is still being sought.
IV. 14-Day Advance Notice Requirement and Waiver
A. The Notice Provision
The IPO Lock-Up Agreements contain a provision requiring that, in the event any of the IPO Underwriters grants an early release or waiver of the lock-up restrictions, the IPO Underwriters shall provide at least 14 calendar days' advance notice to PPC and to the affected Lock-Up Parties prior to the effective date of any such early release or waiver. This provision reads, in relevant part:
"In the event that the undersigned representatives of the underwriters agree to release or waive the restrictions set forth in this Agreement for any Lock-Up Party, the undersigned representatives of the underwriters shall provide the Company and such Lock-Up Party with notice of the impending release or waiver at least fourteen (14) calendar days before the effective date of such release or waiver."
The purpose of the 14-day advance notice provision is to allow the Company and the market adequate time to prepare for the potential sale of previously restricted shares, and to mitigate the risk of disorderly trading that might result from an unexpected or poorly communicated release of locked-up shares. This provision is common in IPO lock-up agreements and derives from prior guidance published by both the Nasdaq Stock Market and the New York Stock Exchange regarding best practices for the administration of lock-up releases. Although this guidance is not binding as a legal matter, it reflects widely accepted market norms that have been incorporated into standard form lock-up agreements used by major underwriters.
B. Applicability to the Secondary Offering
Applying the 14-day notice requirement to the facts at hand, the early release would become effective on October 12, 2023. Counting back 14 calendar days, formal notice of the release would need to be given no later than September 28, 2023.
The timeline for the waiver process is as follows, illustrating the relationship between the notice requirement and the other milestones:
As the above timeline reflects, the schedule is tight. The waiver request letters will be dispatched on September 18, 2023, and we are targeting receipt of all three executed consents by September 29, 2023 — one day after the September 28, 2023 deadline for the 14-day advance notice. However, in practice, the 14-day notice requirement was designed to address situations in which locked-up shares are released into the market without adequate public disclosure, potentially creating disorderly trading conditions. That concern is not present here. The waiver is being sought in the context of a registered secondary offering that will be fully disclosed to the market through the filing of a preliminary prospectus supplement on October 2, 2023. The prospectus supplement will contain detailed disclosure of the lock-up waiver, the identity of the Selling Stockholders, the number of shares being sold, and the terms of the new 90-day lock-up. As a result, the market will have full and complete notice of the early lock-up release well in advance of any shares being sold.
C. Waiver of the Notice Requirement
Given the foregoing considerations, we recommend requesting that the IPO Underwriters waive the 14-day advance notice requirement in their consent letters. This recommendation is based on the following factors:
First, the gap between the requested early release date (October 12, 2023) and the natural lock-up expiration date (October 14, 2023) is only two calendar days. The early release is de minimis in scope and does not represent a material departure from the agreed-upon lock-up period.
Second, the early release is being sought in connection with a fully registered secondary offering under a previously declared effective registration statement. The offering will be publicly disclosed through the filing of a preliminary prospectus supplement with the SEC, which will be available on the SEC's EDGAR system and the Company's investor relations website. This public filing provides significantly more advance notice to the market than the 14-day notice provision was designed to ensure.
Third, market practice supports waiver of the advance notice period where the early release occurs in connection with a registered offering and within a few days of the natural expiration of the lock-up. We have identified several precedent transactions in which 14-day advance notice requirements were waived under comparable circumstances, including the August 2023 secondary offering by Helios Therapeutics, Inc. (in which the lock-up was released three days early in connection with a registered follow-on offering) and the June 2023 selling-stockholder offering by Cascade Biosciences Corp. (in which the lock-up was released five days early).
Fourth, requiring strict compliance with the 14-day advance notice period would effectively prevent the Selling Stockholders from pursuing the Secondary Offering on the proposed timeline, which has been established in consultation with the underwriters based on market conditions and investor availability. Forcing a delay of even a few days could expose the offering to market risk and undermine the pricing dynamics.
Accordingly, the waiver request letters that Calderwood & Harkness will prepare should expressly reference the 14-day advance notice requirement in the IPO Lock-Up Agreements and request that each IPO Underwriter agree, in its consent letter, that such notice requirement is deemed satisfied or waived in light of the circumstances described above — specifically, the de minimis nature of the early release and the full public disclosure of the offering through the prospectus supplement.
V. SEC Disclosure Obligations
A. Prospectus Supplement Disclosure
The fact that the Selling Stockholders' shares are being sold pursuant to a lock-up waiver must be clearly and prominently disclosed in the prospectus supplement for the Secondary Offering. Securities Act and SEC staff guidance require that investors be provided with all material information regarding the shares being offered, including any restrictions on sale and any modifications to such restrictions.
The required disclosures with respect to the lock-up waiver include the following:
(i) A description of the original 180-day lock-up period entered into in connection with the PPC IPO that closed on April 17, 2023, including the duration of the lock-up and the categories of persons subject thereto;
(ii) Identification of the parties who granted the lock-up waiver — namely, Ridgeline Securities LLC, Broadmark Capital Inc., and Morningstar Zanthor & Co., as the three lead underwriters in the IPO;
(iii) The effective date of the waiver (October 12, 2023) and the original expiration date of the lock-up (October 14, 2023), together with a statement that the waiver was granted two calendar days in advance of the natural expiration of the lock-up period;
(iv) The scope of the waiver, specifying that it applies solely to the shares being sold in the Secondary Offering and that all other shares held by the Selling Stockholders and other Lock-Up Parties remain subject to the original lock-up through its natural expiration; and
(v) A description of the new 90-day lock-up entered into by the Selling Stockholders in connection with the Secondary Offering, including its duration, the shares covered, and the key restrictions imposed.
This disclosure should appear in at least two sections of the prospectus supplement. First, the "Shares Eligible for Future Sale" section should contain a comprehensive description of the lock-up arrangements — both the original IPO lock-up and the new 90-day lock-up — including the waiver and its terms. Second, the "Underwriting" section should address the lock-up waiver in the context of the underwriting arrangements, noting that the IPO Underwriters granted the waiver to permit the Selling Stockholders to participate in the Secondary Offering in advance of the natural expiration of the lock-up period.
The preliminary prospectus supplement, to be filed pursuant to Rule 424(b)(5) of the Securities Act on October 2, 2023, will contain preliminary disclosure of the lock-up waiver. The final prospectus supplement, to be filed on October 12, 2023 following pricing, will contain the definitive disclosure, including the final offering price and the exact number of shares sold by each Selling Stockholder.
Calderwood & Harkness will coordinate with Caldwell, Pearce & Strauss LLP (underwriters' counsel) on the form and content of the prospectus supplement disclosure to ensure consistency and completeness.
B. Form 8-K Considerations
PPC will file a Current Report on Form 8-K (CIK 0001987654) on or promptly following October 12, 2023, reporting the Company's entry into the Underwriting Agreement for the Secondary Offering under Item 1.01 (Entry into a Material Definitive Agreement). The lock-up waiver itself is not independently reportable as a separate event under any specific Item of Form 8-K, as PPC is not a party to the waiver (the waiver is granted by the IPO Underwriters to the Selling Stockholders). However, as a matter of best practice and to provide complete context to the market, we recommend that the Form 8-K disclosure reference the lock-up waiver in the narrative description of the Underwriting Agreement and the circumstances of the Secondary Offering.
The Form 8-K will also attach the Underwriting Agreement as an exhibit, and the new 90-day lock-up agreements will be attached as exhibits to the Underwriting Agreement. This ensures that the full terms of the post-offering lock-up are publicly available.
C. Regulation FD Considerations
The lock-up waiver negotiations have been, and will continue to be, conducted on a confidential basis among Calderwood & Harkness (on behalf of PPC and the Selling Stockholders), the three IPO Underwriters, and their respective counsel. This raises the question of whether the Company has any obligations under Regulation FD (17 C.F.R. §§ 243.100–243.103) with respect to the waiver.
Regulation FD requires that when an issuer, or any person acting on its behalf, discloses material nonpublic information to certain categories of persons — including securities market professionals and holders of the issuer's securities who may trade on the basis of the information — the issuer must simultaneously (in the case of an intentional disclosure) or promptly (in the case of a non-intentional disclosure) make public disclosure of the same information.
In this case, the lock-up waiver information is being shared only with the IPO Underwriters and their counsel in the context of the waiver consent process. The IPO Underwriters are subject to their own confidentiality obligations and are sophisticated market participants who understand the restrictions on the use of material nonpublic information. Moreover, the filing of the preliminary prospectus supplement on October 2, 2023 will make the fact and terms of the lock-up waiver fully public, well in advance of any shares being sold or any pricing determination being made. As a result, no selective disclosure concerns arise so long as the waiver is disclosed in the prospectus supplement before any shares are sold. No separate Regulation FD filing on Form 8-K under Item 7.01 (Regulation FD Disclosure) is necessary.
D. Section 16 Implications
Three of the four Selling Stockholders — Dr. Elena Castellano (Board Chair), Dr. Riccardo Castellano (Board member), and Dr. Marco Castellano (CEO) — are Section 16 reporting persons (i.e., officers and/or directors of PPC) subject to the reporting and short-swing profit recovery provisions of Section 16 of the Securities Exchange Act of 1934, as amended (the "Exchange Act").
Section 16(a) Reporting. Sales of PPC common stock by Section 16 insiders must be reported on Form 4, filed with the SEC no later than two business days following the date of the transaction. Assuming a trade date of October 12, 2023 (Thursday), the Form 4 filing deadline for each of Dr. Elena Castellano, Dr. Riccardo Castellano, and Dr. Marco Castellano would be October 16, 2023 (Monday). Calderwood & Harkness will prepare the Form 4 filings for each selling insider and coordinate with David Orenstein's office to ensure timely filing.
With respect to Castellano Family Holdings LLC, the analysis is more nuanced. To the extent that the LLC is controlled by, or its holdings are attributable to, one or more Section 16 insiders under the beneficial ownership rules of Section 16, sales by the LLC may also need to be reported on Form 4. The beneficial ownership analysis under Section 16(a) rules (which incorporate the reporting obligations of Rules 16a-1 through 16a-13) should be confirmed with Brendan Walsh, who has been reviewing the ownership structure of Castellano Family Holdings LLC and the attribution of its shares among the individual Castellano family members.
Section 16(b) Short-Swing Profit Recovery. Section 16(b) of the Exchange Act imposes strict liability on Section 16 insiders for profits realized from any purchase and sale, or sale and purchase, of the issuer's equity securities within a six-month period. To confirm that no short-swing profit liability will arise from the proposed sales, we must verify that none of the Selling Stockholders who are Section 16 insiders have effected any purchases of PPC common stock within the six-month period preceding the October 12, 2023 trade date — that is, during the period from April 12, 2023 through October 12, 2023. Based on our preliminary review, no such purchases are expected, as the Castellano family members acquired their shares prior to the IPO and have not purchased additional shares in the open market. However, this should be formally confirmed with the individual Selling Stockholders and with Brendan Walsh.
VI. New 90-Day Lock-Up Considerations for the Secondary Offering
A. Rationale. It is customary in follow-on and secondary offerings for selling stockholders to agree to a new lock-up period in favor of the managing underwriters. The purpose of a new lock-up is to provide price stability in the aftermarket following the offering, protect investors who purchase shares in the offering from immediate dilution of the float, and give the underwriters assurance that the selling stockholders will not re-enter the market with additional share sales during the period immediately following the offering. These protections enhance investor confidence and contribute to orderly aftermarket trading, which in turn supports the offering price.
Ridgeline Securities LLC and Broadmark Capital Inc., as representatives of the underwriters in the Secondary Offering, have indicated that they will require the Selling Stockholders to enter into a new lock-up agreement as a condition to the Secondary Offering. This requirement is standard and expected.
B. Key Terms
The key terms of the proposed new lock-up agreement are as follows:
Duration: 90 calendar days from the closing date of the Secondary Offering. Based on a target closing date of October 17, 2023, the new lock-up period will expire on January 15, 2024.
Covered Parties: All four Selling Stockholders — Dr. Elena Castellano, Dr. Riccardo Castellano, Dr. Marco Castellano, and Castellano Family Holdings LLC.
Covered Shares: All shares of PPC common stock retained by the Selling Stockholders following the completion of the Secondary Offering. In the base offering scenario (no exercise of the over-allotment option), the Selling Stockholders will retain an aggregate of 33,850,000 shares. If the over-allotment option is exercised in full, the retained holdings will be reduced to 32,912,500 shares. All such retained shares will be subject to the 90-day lock-up.
Restrictions: The new lock-up will contain a standard prohibition on the direct or indirect offer, sale, pledge, contract to sell, short sale, hedging transaction, or other transfer or disposition of covered shares during the 90-day period. The restrictions will also prohibit the filing of, or participation in, any registration statement with respect to covered shares (other than the registration statement under which the Secondary Offering is being conducted) and the making of any demand for registration of covered shares.
Exceptions: The new lock-up will contain customary carve-outs, including: (i) transfers by gift to immediate family members, provided the transferee agrees to be bound by the lock-up; (ii) transfers for bona fide estate planning purposes; (iii) transfers to affiliates or entities controlled by the Selling Stockholder, provided the transferee agrees to be bound; (iv) transfers pursuant to a domestic relations order; and (v) sales pursuant to a Rule 10b5-1 trading plan that was established prior to the date of the lock-up agreement and that has been disclosed to the representatives of the underwriters.
C. Interaction with Original IPO Lock-Up
The relationship between the original IPO lock-up and the new 90-day lock-up warrants careful analysis to ensure that there is no unintended gap in coverage during which the Selling Stockholders would be free to transact in PPC common stock without restriction.
The original IPO lock-up expires on October 14, 2023. The new 90-day lock-up will commence on the closing date of the Secondary Offering, which is targeted for October 17, 2023. This creates a brief gap of three calendar days — October 14, 15, and 16, 2023 — during which the original lock-up has expired but the new lock-up has not yet taken effect.
As a practical matter, this gap is bridged by the fact that the Underwriting Agreement for the Secondary Offering will be executed on October 12, 2023. The Underwriting Agreement will contain standstill and lockdown provisions that restrict the Selling Stockholders from selling or otherwise disposing of any shares of PPC common stock from the date of signing through the closing date. These provisions, which are standard in underwriting agreements for secondary offerings, effectively prevent the Selling Stockholders from transacting in shares during the October 12–17, 2023 period, thereby covering the gap between the IPO lock-up expiration and the new lock-up commencement.
Nevertheless, as a belt-and-suspenders measure, we recommend ensuring that the Underwriting Agreement contains an explicit bridging restriction that specifically addresses the October 14–17, 2023 gap period. This restriction should provide that the Selling Stockholders agree not to offer, sell, or otherwise dispose of any shares of PPC common stock (other than the shares being sold in the Secondary Offering) from the date of the Underwriting Agreement through the closing of the Secondary Offering and the execution of the new 90-day lock-up agreements. This approach will eliminate any ambiguity and provide the underwriters with clear contractual protection during the transition period.
D. Form of New Lock-Up Agreement
Calderwood & Harkness will draft the form of the new 90-day lock-up agreement for inclusion as an exhibit to the Underwriting Agreement. The lock-up agreement will be a standalone document executed by each Selling Stockholder individually, in favor of Ridgeline Securities LLC and Broadmark Capital Inc. as representatives of the underwriters in the Secondary Offering.
The drafting process will require coordination with two external counsel teams:
(i) Whitfield & Garza LLP (Patricia Velázquez, Partner) — personal counsel to the Castellano family. We will share the draft lock-up agreement with Whitfield & Garza for review and comment, as the Castellano family will want their personal counsel to review and approve the terms before execution. We anticipate that the primary areas of negotiation will relate to the scope of the customary carve-outs, particularly the exception for transfers to affiliates and the treatment of any existing Rule 10b5-1 plans.
(ii) Caldwell, Pearce & Strauss LLP (Margaret Hui, Partner) — counsel to the underwriters in the Secondary Offering. We will coordinate with Caldwell, Pearce & Strauss on the form and substance of the lock-up agreement to ensure that the terms are satisfactory to the underwriters. As is customary, the underwriters' counsel will want to review and approve the lock-up agreement before it is circulated to the Selling Stockholders for execution.
We anticipate circulating an initial draft of the new lock-up agreement to both Whitfield & Garza and Caldwell, Pearce & Strauss no later than September 25, 2023, to allow adequate time for negotiation and comment before the October 12, 2023 execution date.
VII. Procedural Recommendations and Timeline
A. Recommended Actions and Responsible Parties
Based on the analysis set forth above, we recommend the following actions and timeline:
1. September 14, 2023: Circulate this memorandum to Jennifer Kwon for review and comment. Audrey Zhou to be available for a follow-up discussion on September 15, 2023.
2. September 15–17, 2023: Draft the lock-up waiver request letters (three letters, one to each IPO Underwriter) and the corresponding form of waiver consent letter for each firm. Audrey Zhou and Brendan Walsh will prepare the initial drafts for Jennifer Kwon's review.
3. September 18, 2023: Send the finalized lock-up waiver request letters to Ridgeline Securities LLC (Attn: Jonathan Pryce-Hall), Broadmark Capital Inc. (Attn: Samuel Okonkwo), and Morningstar Zanthor & Co. (Attn: Diane Chaudhary). Each letter will be signed by David Orenstein, General Counsel and Corporate Secretary of PPC, on behalf of the Company and the Selling Stockholders. Copies of each letter will be sent to Jennifer Kwon and the Calderwood & Harkness deal team.
4. September 18–29, 2023: Follow up with each IPO Underwriter to confirm receipt of the waiver request letters, address any questions, and negotiate any comments to the form of consent letter. We anticipate that Ridgeline and Broadmark will consent with minimal friction, given their participation in the Secondary Offering. Morningstar Zanthor may require additional engagement, and we should be prepared for the possibility that Morningstar Zanthor may raise questions about the scope of the waiver, request additional information about the Secondary Offering, or seek some form of consideration for granting the consent.
5. By September 29, 2023: Target receipt of all three executed waiver consent letters. If any consent remains outstanding as of this date, Jennifer Kwon will escalate directly with the relevant firm.
6. October 2, 2023: File the preliminary prospectus supplement with the SEC pursuant to Rule 424(b)(5). The preliminary prospectus supplement will contain disclosure of the lock-up waiver and the new 90-day lock-up, among other offering terms.
7. October 12, 2023: Effective date of the lock-up waiver. Execution of the Underwriting Agreement for the Secondary Offering. Execution of the new 90-day lock-up agreements by each of the four Selling Stockholders. Filing of the final prospectus supplement pursuant to Rule 424(b)(5). Filing of Form 8-K reporting entry into the Underwriting Agreement.
B. Risk Factors
We have identified the following risk factors that should be monitored throughout the waiver process:
Morningstar Zanthor consent risk. As discussed in Section III.A above, Morningstar Zanthor is the only IPO Underwriter not participating in the Secondary Offering syndicate, and it therefore lacks a direct economic incentive to grant the waiver. While we assess the risk of refusal as low, there is a possibility that Morningstar Zanthor may seek a consent fee, a right of first refusal on future underwriting mandates, or other consideration as a condition to granting the waiver. Such a request would need to be evaluated on its merits and in consultation with PPC and the Castellano family. If Morningstar Zanthor proves unresponsive or resistant, Jennifer Kwon should engage directly with Diane Chaudhary to resolve the matter at the partner level.
Timing risk. The overall timeline for the waiver process is tight. If consents are not obtained by September 29, 2023, the preliminary prospectus supplement filing on October 2, 2023 may need to be delayed, which could in turn affect the marketing schedule and the pricing date. Alternatively, the preliminary prospectus supplement could be filed with disclosure that the lock-up waiver has been requested and is expected to be granted prior to closing, but has not yet been formally obtained. This approach is not preferred, as it introduces uncertainty into the offering disclosure and may raise questions from investors during the roadshow. We strongly recommend adhering to the September 29, 2023 deadline for receipt of all consents.
Market perception. The early release of a lock-up restriction, even by only two calendar days, may draw attention from the financial media, equity research analysts, or the broader investing community. Lock-up expirations and early releases are closely watched events, and any perception that insiders are rushing to sell shares ahead of the lock-up expiration could create negative sentiment. To mitigate this risk, the prospectus supplement should present the waiver in the context of the de minimis two-day gap between the requested early release date and the natural lock-up expiration, and should emphasize the orderly, registered nature of the Secondary Offering and the new 90-day lock-up that the Selling Stockholders are voluntarily agreeing to in connection with the offering.
VIII. Conclusion
Based on the foregoing analysis, we believe that the lock-up waiver mechanics are straightforward and well-supported by established market practice. The IPO Lock-Up Agreements clearly provide for early release with the prior written consent of all three IPO Underwriters, and the requested waiver — an early release of only two calendar days in connection with a fully registered secondary offering — is a routine request that should be readily granted.
The critical path item in the waiver process is obtaining the consent of Morningstar Zanthor & Co., as it is the only IPO Underwriter not participating in the Secondary Offering syndicate and therefore lacks a direct economic incentive to facilitate the transaction. We assess the risk of Morningstar Zanthor withholding consent as low, based on the de minimis nature of the early release, the strength of the commercial relationships involved, and the general market practice of granting waivers under comparable circumstances. Nonetheless, this risk must be proactively managed through early outreach and direct engagement at the partner level.
The 14-day advance notice requirement contained in the IPO Lock-Up Agreements should be waived by the IPO Underwriters in their consent letters, given the two-day gap between the early release date and the natural lock-up expiration and the full public disclosure of the offering through the prospectus supplement. Precedent transactions support this approach.
The SEC disclosure obligations arising from the lock-up waiver are manageable and well-defined. The lock-up waiver and the new 90-day lock-up will be disclosed in the prospectus supplement, and Section 16 reporting obligations for the insider Selling Stockholders will be handled through timely Form 4 filings. No separate Regulation FD filing is required.
The new 90-day lock-up from the closing of the Secondary Offering (October 17, 2023) through January 15, 2024 provides adequate post-offering price stability protections for investors and the underwriters, and is consistent with market practice for follow-on offerings by selling stockholders who retain significant holdings.
We recommend proceeding immediately with the drafting of the waiver request letters and consent forms for circulation by September 18, 2023. Jennifer Kwon should consider placing a preliminary courtesy call to Diane Chaudhary at Morningstar Zanthor on or about September 15, 2023 to preview the request and establish a cooperative dialogue.
We are available to discuss any aspect of this memorandum at your convenience.
This memorandum is a privileged and confidential attorney work product prepared in connection with the rendering of legal advice. It is protected by the attorney-client privilege and the work product doctrine and is not intended for distribution to, or use by, any person or entity other than the addressee.
Audrey Zhou Senior Associate, Capital Markets Group Calderwood & Harkness LLP One Liberty Plaza, 52nd Floor New York, NY 10006 Direct: (212) 558-4127
Email: azhou@calderwoodharkness.com
cc: Theodore Langston, Partner (Billing Partner) Brendan Walsh, Associate (Working Associate)
Selling Stockholder | Base Shares | Over-Allotment Shares | Total (if Over-Allotment Exercised in Full)
Dr. Elena Castellano | 3,000,000 | 450,000 | 3,450,000
Dr. Riccardo Castellano | 2,500,000 | 375,000 | 2,875,000
Dr. Marco Castellano | 500,000 | 75,000 | 575,000
Castellano Family Holdings LLC | 250,000 | 37,500 | 287,500
Total | 6,250,000 | 937,500 | 7,187,500
Milestone | Target Date
File preliminary prospectus supplement (Rule 424(b)(5)) | October 2, 2023
Marketing / roadshow | October 3–11, 2023
Pricing and execution of underwriting agreement | October 12, 2023
Trade date (T) | October 12, 2023
Settlement and closing (T+3) | October 17, 2023
Selling Stockholder | Base Shares Released | Over-Allotment Shares Released | Maximum Total Released
Dr. Elena Castellano | 3,000,000 | 450,000 | 3,450,000
Dr. Riccardo Castellano | 2,500,000 | 375,000 | 2,875,000
Dr. Marco Castellano | 500,000 | 75,000 | 575,000
Castellano Family Holdings LLC | 250,000 | 37,500 | 287,500
Total | 6,250,000 | 937,500 | 7,187,500
Date | Event
September 18, 2023 | Waiver request letters sent to IPO Underwriters
September 28, 2023 | Deadline for 14-day advance notice (if not waived)
September 29, 2023 | Target date for receipt of all executed consents
October 2, 2023 | Filing of preliminary prospectus supplement
October 12, 2023 | Effective date of waiver; pricing and signing

ATTORNEY WORK PRODUCT — PRIVILEGED AND CONFIDENTIAL

MEMORANDUM

MATTER NO.: 1018-00001

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