PENTERRA PHARMACEUTICALS CORP. 400 Meridian Parkway, Suite 1200 Princeton, New Jersey 08540
September 18, 2023
Broadmark Capital Inc.
Attn: Samuel Okonkwo, Managing Director
200 Park Avenue New York, NY 10166
Re: Request for Early Release of Lock-Up Restrictions — Penterra Pharmaceuticals Corp. (Nasdaq: PNTR) Selling Stockholder Secondary Offering
Dear Mr. Okonkwo:
Penterra Pharmaceuticals Corp., a Delaware corporation ("Penterra" or the "Company"), hereby respectfully requests that Broadmark Capital Inc. ("Broadmark"), in its capacity as a lead underwriter of the Company's initial public offering completed on April 17, 2023 (the "IPO"), consent to the early release of certain lock-up restrictions currently applicable to the selling stockholders identified herein. This request is made in connection with a proposed registered selling-stockholder secondary offering of shares of the Company's common stock, par value $0.001 per share (the "Common Stock"), as more fully described below (the "Secondary Offering"). As you are aware, Broadmark is expected to serve as a joint book-running manager for the Secondary Offering alongside Ridgeline Securities LLC and Morningstar Zanthor & Co., and the Company believes that the proposed transaction will be beneficial to the Company's stockholders, the selling stockholders, and the overall market for the Company's Common Stock. The purpose of this letter is to set forth the basis for the requested waiver and to provide Broadmark with all material information necessary to evaluate and act upon this request in a timely fashion.
I. Background — The IPO and the Lock-Up Agreements
On April 17, 2023, the Company completed its IPO of 24,000,000 shares of Common Stock at a public offering price of $22.00 per share, raising aggregate gross proceeds of approximately $528,000,000 (before deducting underwriting discounts and commissions and other offering expenses). The IPO was conducted pursuant to a registration statement on Form S-1 (File No. 333-270643), which was declared effective by the Securities and Exchange Commission (the "SEC") on April 12, 2023. Net proceeds to the Company, after deducting underwriting discounts and commissions of approximately $36,960,000 and other offering expenses of approximately $4,200,000, were approximately $486,840,000.
In connection with the IPO, certain directors, executive officers, and holders of five percent (5%) or more of the Company's outstanding Common Stock (collectively, the "Lock-Up Parties") entered into lock-up agreements (the "Lock-Up Agreements") with each of Ridgeline Securities LLC, Broadmark Capital Inc., and Morningstar Zanthor & Co., as the lead underwriters of the IPO (collectively, the "IPO Underwriters"). The Lock-Up Agreements were executed as of April 12, 2023, and were a material condition to the closing of the IPO.
Pursuant to the terms of the Lock-Up Agreements, each Lock-Up Party agreed, subject to certain limited exceptions, not to directly or indirectly offer, sell, contract to sell, pledge, grant any option to purchase, make any short sale, or otherwise dispose of or transfer any shares of Common Stock, or any options, warrants, or other rights to purchase shares of Common Stock, or any securities convertible into or exchangeable or exercisable for shares of Common Stock (including, without limitation, Common Stock that may be deemed to be beneficially owned by such Lock-Up Party in accordance with the rules and regulations of the SEC), for a period of one hundred eighty (180) days following the closing date of the IPO (i.e., from April 17, 2023 through and including October 14, 2023) (the "Lock-Up Period"). The Lock-Up Period is currently scheduled to expire at the close of business on October 14, 2023, which is exactly 180 days from April 17, 2023.
Importantly, Section 3(a) of the Lock-Up Agreements expressly provides that the lock-up restrictions may be released or 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 IPO Underwriters. It is pursuant to this provision that the Company submits the present request.
II. Description of the Proposed Secondary Offering
The Company's founding family — specifically, Dr. Elena Castellano, Dr. Riccardo Castellano, Dr. Marco Castellano, and Castellano Family Holdings LLC (collectively, the "Castellano Family" or the "Selling Stockholders") — proposes to sell an aggregate of 6,250,000 shares of Common Stock in the Secondary Offering. Based on the current trading price of the Common Stock on Nasdaq and recent market conditions, the anticipated public offering price is expected to be approximately $41.60 per share, resulting in aggregate gross proceeds to the Selling Stockholders of approximately $260,000,000, before deducting underwriting discounts and commissions and estimated offering expenses.
The Secondary Offering will be structured as a registered selling-stockholder follow-on offering conducted under the Company's existing shelf registration statement on Form S-3 (File No. 333-274851), which was initially filed with the SEC on July 28, 2023 and was declared effective by the SEC on August 22, 2023. A prospectus supplement describing the terms of the Secondary Offering will be filed with the SEC pursuant to Rule 424(b)(5) under the Securities Act of 1933, as amended (the "Securities Act"). The Company anticipates filing a preliminary prospectus supplement with the SEC on or about October 2, 2023, with a final prospectus supplement to be filed promptly following pricing.
The Company wishes to emphasize that it will not receive any proceeds from the Secondary Offering. All proceeds from the sale of shares of Common Stock in the Secondary Offering (net of applicable underwriting discounts, commissions, and expenses) will be received directly by the Selling Stockholders. The Company has agreed to bear certain expenses incurred in connection with the registration of the shares for resale, including SEC registration fees, legal fees, accounting fees, and printing costs, in accordance with the terms of the Registration Rights Agreement dated as of April 12, 2023, by and among the Company and the Selling Stockholders.
In connection with the Secondary Offering, the underwriters are expected to be granted a customary 30-day option to purchase up to an additional 937,500 shares of Common Stock from the Selling Stockholders to cover over-allotments, if any (the "Over-Allotment Option"). The Over-Allotment Option, if exercised in full, would bring the total number of shares sold in the Secondary Offering to 7,187,500 shares.
The anticipated timeline for the Secondary Offering is as follows:
• October 2, 2023: Filing of preliminary prospectus supplement with the SEC
• October 2–11, 2023: Marketing period (including management roadshow and book-building)
• October 12, 2023 (anticipated): Pricing of the Secondary Offering; execution of the Underwriting Agreement; commencement of "when-issued" trading
• October 17, 2023 (anticipated): Settlement and closing of the Secondary Offering (T+3)
III. Identification of Selling Stockholders and Shares Subject to Lock-Up Waiver
The Company requests that the lock-up restrictions under the Lock-Up Agreements be released with respect solely to the following Lock-Up Parties and shares, to the extent necessary to permit the consummation of the Secondary Offering:
Table 1: Selling Stockholders and Shares Subject to Requested Lock-Up Waiver
For informational purposes, the combined holdings of the Castellano Family prior to the Secondary Offering are 40,100,000 shares of Common Stock, representing approximately 33.4% of the 120,000,000 shares of Common Stock currently outstanding. Following the completion of the Secondary Offering (assuming no exercise of the Over-Allotment Option), the Castellano Family's combined holdings will be 33,850,000 shares, representing approximately 28.2% of the shares of Common Stock outstanding. In the event the Over-Allotment Option is exercised in full, the Castellano Family's combined post-offering holdings will be 32,912,500 shares, representing approximately 27.4% of the shares of Common Stock outstanding.
The Company notes that, even after giving effect to the Secondary Offering (including the full exercise of the Over-Allotment Option), the Castellano Family will remain the Company's single largest stockholder group and will continue to hold a substantial ownership interest in the Company. The Company believes that this continued significant ownership is a positive signal to the market and is consistent with the Castellano Family's long-standing commitment to the Company.
IV. Scope of the Requested Waiver
The Company requests that the lock-up waiver become effective as of October 12, 2023, solely to permit the Selling Stockholders identified above to sell shares of Common Stock in the Secondary Offering, including any shares subject to the Over-Allotment Option. This requested early release date is two (2) calendar days prior to the natural expiration of the Lock-Up Period on October 14, 2023. The early release is necessary to permit the execution of the Underwriting Agreement on the anticipated pricing date of October 12, 2023 and to enable the commencement of trading in the offered shares on that date. Without the requested waiver, the Selling Stockholders would be unable to enter into the Underwriting Agreement or sell shares in the Secondary Offering on the anticipated pricing date, as they would remain subject to the lock-up restrictions for an additional two calendar days.
The Company wishes to emphasize that the requested waiver is strictly limited in scope. Specifically:
(a) The waiver applies only to the shares of Common Stock being sold by the Selling Stockholders in the Secondary Offering (including shares subject to the Over-Allotment Option), and does not constitute a general release of the lock-up restrictions with respect to any other shares of Common Stock held by the Selling Stockholders or any other Lock-Up Party.
(b) All other terms and conditions of the Lock-Up Agreements shall remain in full force and effect with respect to shares of Common Stock not covered by this waiver, and shall continue to apply to all other Lock-Up Parties who are not Selling Stockholders in the Secondary Offering, through the natural expiration of the Lock-Up Period on October 14, 2023.
(c) The waiver does not authorize the Selling Stockholders to sell, transfer, or otherwise dispose of any shares of Common Stock other than through the Secondary Offering. Any shares not sold in the Secondary Offering (including shares subject to the Over-Allotment Option that are not purchased by the underwriters) shall remain subject to the lock-up restrictions until the natural expiration of the Lock-Up Period.
(d) The requested waiver is a one-time accommodation and shall not be construed as establishing a precedent for future waivers or releases.
V. Advance Notice Provision
The Company acknowledges that Section 3(b) of the Lock-Up Agreements contains a customary provision requiring that any waiver or release of the lock-up restrictions be subject to no fewer than fourteen (14) calendar days' advance written notice to the Company and the affected Lock-Up Parties prior to the effectiveness of such waiver or release (the "Advance Notice Requirement"). The purpose of this provision is to provide the market with adequate notice of a lock-up release and to prevent the disorderly or unexpected liquidation of shares by insiders.
Given the de minimis gap between the requested early release date (October 12, 2023) and the natural expiration date of the Lock-Up Period (October 14, 2023) — a period of only two (2) calendar days — the Company respectfully submits that the policy objectives underlying the Advance Notice Requirement are fully satisfied in this instance. The market will receive ample notice of the Secondary Offering through the filing of the preliminary prospectus supplement with the SEC, which is expected to occur on or about October 2, 2023, approximately ten (10) days prior to the anticipated pricing date. Moreover, the existence of the Lock-Up Period and its scheduled expiration on October 14, 2023 were disclosed in the Company's IPO prospectus and are well known to the market. Accordingly, the Company respectfully requests that Broadmark waive the Advance Notice Requirement by executing the enclosed form of consent letter.
The Company further notes that the consent of all three IPO Underwriters is required for the waiver to become effective. Identical lock-up waiver request letters, each dated September 18, 2023, have been sent concurrently to each of the other IPO Underwriters, as described in Section VII below.
VI. New Lock-Up Agreements in Connection with the Secondary Offering
In connection with the Secondary Offering, and in order to provide the market with continued assurance regarding orderly trading in the Company's Common Stock, each of the Selling Stockholders has agreed to enter into new lock-up agreements (the "Secondary Offering Lock-Up Agreements") with the underwriters of the Secondary Offering. Pursuant to the Secondary Offering Lock-Up Agreements, each Selling Stockholder will agree not to offer, sell, pledge, or otherwise dispose of any shares of Common Stock retained by such Selling Stockholder following the closing of the Secondary Offering for a period of ninety (90) days following the closing of the Secondary Offering (i.e., from October 17, 2023 through and including January 15, 2024), subject to customary exceptions.
The terms of the Secondary Offering Lock-Up Agreements are substantially similar to those of the original Lock-Up Agreements executed in connection with the IPO, and the Company believes that the imposition of this new 90-day lock-up period will provide the market with meaningful additional protection and stability during the post-offering period.
VII. Consent of Other IPO Underwriters
As noted above, the effectiveness of the requested lock-up waiver is conditioned upon the prior written consent of all three IPO Underwriters. Identical lock-up waiver request letters, each dated September 18, 2023, have been sent concurrently to the following:
(a) Ridgeline Securities LLC
Attn: Jonathan Pryce-Hall, Managing Director
383 Madison Avenue New York, NY 10017
(b) Morningstar Zanthor & Co.
Attn: Diane Chaudhary, Managing Director
600 Lexington Avenue New York, NY 10022
The lock-up waiver shall not become effective unless and until written consent is received from all three IPO Underwriters (i.e., Ridgeline Securities LLC, Broadmark Capital Inc., and Morningstar Zanthor & Co.). The Company will promptly notify Broadmark upon receipt of consent from the other IPO Underwriters, and vice versa.
VIII. Form of Consent and Requested Response Date
The Company respectfully requests that Broadmark evidence its consent to the early release of lock-up restrictions as described herein by executing and returning the enclosed Form of Lock-Up Waiver Consent Letter (attached hereto as Enclosure 1). The executed consent may be returned by hand delivery, overnight courier, facsimile, or email (in PDF format) to the Company's outside counsel at the address set forth below.
In order to permit timely filing of the preliminary prospectus supplement with the SEC, which is currently anticipated for on or about October 2, 2023, the Company respectfully requests that Broadmark return the executed consent letter no later than September 29, 2023. The Company appreciates Broadmark's prompt attention to this matter and is available to discuss any questions or concerns that Broadmark may have regarding this request.
IX. Contact Information
Any questions regarding this request may be directed to the Company's outside counsel:
Calderwood & Harkness LLP One Liberty Plaza, 52nd Floor New York, NY 10006
Attn: Jennifer Kwon, Partner (Responsible Partner)
Telephone: (212) 558-4000
Email: kwonj@calderwoodharkness.com
Attn: Audrey Zhou, Senior Associate (Lead Associate)
Telephone: (212) 558-4127
Email: zhoua@calderwoodharkness.com
Alternatively, questions may be directed to the Company's General Counsel:
David Orenstein General Counsel & Corporate Secretary Penterra Pharmaceuticals Corp. 400 Meridian Parkway, Suite 1200 Princeton, NJ 08540 Telephone: (609) 452-6200
Email: dorenstein@penterrapharma.com
We appreciate Broadmark's prompt consideration of this request and the collaborative relationship between the Company and Broadmark. The Company looks forward to continuing to work closely with Broadmark in Broadmark's capacity as joint book-running manager for the Secondary Offering, and we are confident that the Secondary Offering will be well received by the market and beneficial to all parties. Please do not hesitate to contact us if you require any additional information or if you wish to discuss any aspect of this request.
Very truly yours,
PENTERRA PHARMACEUTICALS CORP.
By: ________
Name: David Orenstein
Title: General Counsel & Corporate Secretary
Enclosure: Form of Lock-Up Waiver Consent Letter
cc: Jennifer Kwon, Calderwood & Harkness LLP cc: Audrey Zhou, Calderwood & Harkness LLP cc: Patricia Velázquez, Whitfield & Garza LLP (selling stockholders' personal counsel) cc: Lisa Hargrove, Chief Financial Officer, Penterra Pharmaceuticals Corp.
| Selling Stockholder | Relationship to Company | Shares Subject to Lock-Up Waiver (Base Offering) | Over-Allotment Shares | Total Shares Subject to Waiver |
| Dr. Elena Castellano | Co-Founder; Board Chair | 3,000,000 | 450,000 | 3,450,000 |
| Dr. Riccardo Castellano | Co-Founder; Board Member | 2,500,000 | 375,000 | 2,875,000 |
| Dr. Marco Castellano | Co-Founder; Chief Executive Officer | 500,000 | 75,000 | 575,000 |
| Castellano Family Holdings LLC | Family holding entity | 250,000 | 37,500 | 287,500 |
| Total | 6,250,000 | 937,500 | 7,187,500 |