CONFIDENTIAL

CONFIDENTIAL
CALDERWOOD & HARKNESS LLP Attorneys at Law One Liberty Plaza, 52nd Floor New York, New York 10006
Telephone: (212) 558-4000 Facsimile: (212) 558-3588 www.calderwoodharkness.com
September 18, 2023
Morningstar Zanthor & Co. 600 Lexington Avenue New York, New York 10022
Attention: Diane Chaudhary, Managing Director
Re: Request for Early Release of Lock-Up Restrictions — Penterra Pharmaceuticals Corp. Selling-Stockholder Secondary Offering
Dear Ms. Chaudhary:
We write on behalf of our client, Penterra Pharmaceuticals Corp. ("Penterra" or the "Company"), a corporation organized and existing under the laws of the State of Delaware, with its principal executive offices located at 400 Meridian Parkway, Suite 1200, Princeton, New Jersey 08540. The Company's shares of common stock, par value $0.001 per share (the "Common Stock"), are listed on The Nasdaq Global Select Market under the ticker symbol "PNTR." The purpose of this letter is to formally request that Morningstar Zanthor & Co. ("Morningstar Zanthor") provide its written consent to the early release of certain lock-up restrictions imposed under the Lock-Up Agreements (as defined below), in connection with a proposed registered selling-stockholder secondary offering of shares of Common Stock, on the terms and subject to the conditions described in detail herein. We appreciate your prompt attention to this request and are available to discuss any questions at your convenience.
I. Background — IPO and Lock-Up Agreements
As you are aware, the Company completed its initial public offering (the "IPO") of shares of Common Stock, which closed on April 17, 2023. In the IPO, the Company sold 24,000,000 shares of Common Stock (before any exercise of the underwriters' over-allotment option) at an initial public offering price of $22.00 per share, generating aggregate gross proceeds to the Company of approximately $528,000,000. The net proceeds to the Company, after deducting underwriting discounts, commissions, and estimated offering expenses, were approximately $492,624,000. The IPO was conducted pursuant to a registration statement on Form S-1 (File No. 333-271043) declared effective by the Securities and Exchange Commission (the "SEC") on April 12, 2023.
The IPO underwriting syndicate was led by Ridgeline Securities LLC, which served as lead left book-running manager, together with Broadmark Capital Inc., which served as joint book-running manager. Morningstar Zanthor & Co. served as co-manager in the IPO syndicate (Ridgeline Securities LLC, Broadmark Capital Inc., and Morningstar Zanthor & Co. are referred to collectively herein as the "IPO Underwriters"). The underwriting arrangement for the IPO was governed by an Underwriting Agreement dated April 12, 2023, among the Company and the IPO Underwriters.
In connection with and as a condition to the consummation of the IPO, certain directors, executive officers, and holders of five percent (5%) or more of the Company's outstanding Common Stock (including each of the selling stockholders identified in Section II below) entered into lock-up agreements (collectively, the "Lock-Up Agreements") with each of the IPO Underwriters. Each Lock-Up Agreement imposes customary restrictions on the transfer, sale, pledge, hedging, or other disposition of shares of Common Stock, or securities convertible into or exercisable or exchangeable for Common Stock, for a period of one hundred eighty (180) calendar days commencing on the date of the closing of the IPO — that is, from April 17, 2023 through and including October 14, 2023 (the "Lock-Up Period"). The Lock-Up Period is scheduled to expire by its terms at the close of business on October 14, 2023, which represents the one hundred eightieth (180th) calendar day following the IPO closing date.
Pursuant to Section 4 of each of the Lock-Up Agreements, the lock-up restrictions may be waived or released, in whole or in part, with respect to any lock-up party, prior to the scheduled expiration of the Lock-Up Period, upon the delivery of written consent by all three IPO Underwriters — namely, Ridgeline Securities LLC, Broadmark Capital Inc., and Morningstar Zanthor & Co. No single IPO Underwriter may unilaterally waive or release any lock-up restriction; the written consent of each of the three IPO Underwriters is expressly required. It is against this background that the Company submits this formal waiver request to Morningstar Zanthor.
II. The Proposed Secondary Offering
The Company intends to facilitate a registered selling-stockholder secondary offering (the "Offering") in which certain members of the Castellano founding family and a family-controlled holding vehicle will offer and sell shares of Common Stock to the public. The Company's Board of Directors has been consulted regarding the Offering and has no objection to the proposed transaction. Set forth below is a summary of the material terms of the proposed Offering.
Registration Statement and Prospectus Supplement. The Offering will be effected as a shelf takedown pursuant to the Company's existing shelf registration statement on Form S-3 (File No. 333-274851), which was filed with the SEC on July 28, 2023 and declared effective by the SEC on August 22, 2023. The shelf registration statement registers for resale, from time to time, shares of Common Stock held by certain selling stockholders identified therein. In connection with the Offering, a prospectus supplement will be prepared and filed with the SEC pursuant to Rule 424(b)(5) under the Securities Act of 1933, as amended, setting forth the specific terms of the Offering, including the identity of the selling stockholders, the number of shares being offered, and the public offering price.
Secondary Offering — No Company Proceeds. This is a secondary offering only. The Company will not offer or sell any shares of Common Stock in the Offering and will not receive any proceeds whatsoever from the sale of shares by the selling stockholders. All proceeds from the Offering, net of underwriting discounts and commissions and any applicable transaction expenses, will be received by the selling stockholders. The Company has agreed, however, to bear certain registration-related expenses in connection with the Offering pursuant to the terms of a Registration Rights Agreement dated April 12, 2023 between the Company and the selling stockholders.
Selling Stockholders and Shares Offered. The selling stockholders in the Offering, and the number of shares of Common Stock each proposes to sell, are as follows:
In addition, the selling stockholders may grant to the underwriters in the Offering a thirty (30)-day over-allotment option to purchase up to an additional 937,500 shares of Common Stock (representing fifteen percent (15%) of the base offering amount). If the over-allotment option is exercised in full, the total number of shares sold in the Offering would be 7,187,500 shares of Common Stock.
Anticipated Offering Size. Based on recent trading prices of the Common Stock on the Nasdaq Global Select Market and the expected public offering price, the anticipated aggregate offering size for the base offering is approximately $260,000,000. To the extent the over-allotment option is exercised in full, the aggregate offering size could increase to approximately $299,000,000.
Underwriting Syndicate for the Offering. The Offering will be led by Ridgeline Securities LLC, which will serve as lead left book-running manager, and Broadmark Capital Inc., which will serve as joint book-running manager. Linden Groves & Co. and Harborview Partners LLC will serve as co-managers. We note for the avoidance of doubt that Morningstar Zanthor & Co. is not participating in the underwriting syndicate for the Offering. Notwithstanding its non-participation in the Offering syndicate, Morningstar Zanthor's consent to the early release of the lock-up restrictions is required because Morningstar Zanthor is a party to the Lock-Up Agreements in its capacity as a co-manager of the IPO, and the unanimous written consent of all three IPO Underwriters is a prerequisite to any waiver or early release under Section 4 of the Lock-Up Agreements. The Company respectfully submits that the non-participation of Morningstar Zanthor in the Offering syndicate does not diminish the reasonableness or appropriateness of the requested waiver, given the de minimis nature of the timing gap between the requested early release date and the natural expiration of the Lock-Up Period, as discussed more fully in Section III below.
III. The Waiver Request
The Company hereby formally requests that Morningstar Zanthor & Co. consent to the early release of the lock-up restrictions imposed by the Lock-Up Agreements with respect to each of the selling stockholders identified in Section II above (Dr. Elena Castellano, Dr. Riccardo Castellano, Dr. Marco Castellano, and Castellano Family Holdings LLC), effective as of October 12, 2023, which is the anticipated pricing and signing date for the Offering (the "Requested Release Date").
The Requested Release Date of October 12, 2023 is two (2) calendar days prior to the scheduled natural expiration date of October 14, 2023. The early release is being sought for the purpose of permitting the selling stockholders to execute the Underwriting Agreement in connection with the Offering and to complete the pricing of the Offering on October 12, 2023. Settlement of the Offering is anticipated to occur on October 17, 2023, on a T+3 settlement basis.
The Company notes that the requested waiver is extremely narrow in scope. The early release that is requested relates only to the period of two (2) calendar days between October 12, 2023 and October 14, 2023. But for the fact that the pricing and execution of the Underwriting Agreement must occur prior to the natural expiration date in order to accommodate the anticipated Offering timeline (including preparation and distribution of final offering documents, allocation, and settlement procedures), no waiver would be necessary at all. The Offering cannot practicably be commenced on or after October 14, 2023, because the selling stockholders must execute the Underwriting Agreement prior to the commencement of the settlement process and must have the legal capacity to commit to the sale of shares at the time of pricing.
Scope of the Waiver. The requested waiver and early release is limited solely to the shares of Common Stock being offered and sold by the selling stockholders in the Offering. Specifically, the waiver is requested with respect to:
(a) up to 6,250,000 shares of Common Stock constituting the base offering; and
(b) up to 937,500 additional shares of Common Stock that may be sold upon exercise, in whole or in part, of the over-allotment option granted to the underwriters in the Offering,
for a maximum aggregate total of 7,187,500 shares of Common Stock. The requested waiver does not extend to any other shares of Common Stock held by the selling stockholders, nor does it extend to any shares held by any other person or entity subject to a Lock-Up Agreement. All other lock-up restrictions applicable to the selling stockholders (with respect to their remaining shares) and to all other lock-up parties shall remain in full force and effect in accordance with their terms until the natural expiration of the Lock-Up Period on October 14, 2023.
IV. Waiver of 14-Day Advance Notice Requirement
The Company acknowledges that Section 4(b) of each of the Lock-Up Agreements contains a customary provision requiring that not less than fourteen (14) calendar days' advance written notice be provided to the Company and to the affected lock-up parties prior to the effectiveness of any early release or waiver of lock-up restrictions. This notice requirement is intended to ensure that the Company and the affected parties have adequate time to prepare any necessary public disclosures and to take such other actions as may be appropriate in light of the early release.
Given the de minimis gap of only two (2) calendar days between the Requested Release Date (October 12, 2023) and the natural expiration date of the Lock-Up Period (October 14, 2023), the Company respectfully requests that Morningstar Zanthor & Co. waive the 14-day advance notice requirement with respect to this waiver. The Company submits that strict compliance with the 14-day advance notice requirement is neither necessary nor practicable under the circumstances, because:
(i) the early release pertains only to a two-day acceleration of the natural expiration date of the Lock-Up Period, and there is no meaningful market impact from a two-day acceleration;
(ii) the Company, the selling stockholders, and the selling stockholders' personal counsel (Whitfield & Garza LLP) have each been fully informed of, and have expressly consented to, the waiver of the advance notice period;
(iii) the Offering will be publicly disclosed through the filing of a prospectus supplement with the SEC, which will provide full transparency to the market regarding the lock-up waiver and the terms of the Offering; and
(iv) the Company intends to issue a press release and file a Current Report on Form 8-K in connection with the Offering, which will include disclosure of the lock-up waiver.
Accordingly, the Company, the selling stockholders, and Whitfield & Garza LLP (as personal counsel to the selling stockholders) have each provided their written consent to the waiver of the 14-day advance notice period, copies of which are available upon request.
V. New Lock-Up in Connection with the Secondary Offering
In connection with the Offering, each of the selling stockholders will enter into a new lock-up agreement with Ridgeline Securities LLC and Broadmark Capital Inc., as representatives of the underwriters in the Offering (the "New Lock-Up Agreement"). The New Lock-Up Agreement will impose customary restrictions on the sale, transfer, pledge, hedging, or other disposition of shares of Common Stock by the selling stockholders for a period of ninety (90) calendar days from the closing date of the Offering. Assuming a closing date of October 17, 2023, the new lock-up period would expire on January 15, 2024. The New Lock-Up Agreement will cover all shares of Common Stock retained by the selling stockholders following the completion of the Offering, ensuring that there will be no gap in lock-up coverage and that the market will benefit from continued orderly restraint on selling activity by the Company's largest stockholder group.
For reference, the combined holdings of the Castellano family (including shares held by Castellano Family Holdings LLC) prior to the Offering are as follows:
The Company currently has 120,000,000 shares of Common Stock outstanding. Accordingly, the combined pre-offering Castellano family holdings represent approximately 33.4% of the Company's outstanding shares.
Following the completion of the base offering (assuming no exercise of the over-allotment option), the combined Castellano family holdings would be approximately 33,850,000 shares, representing approximately 28.2% of the Company's outstanding shares.
In the event of full exercise of the over-allotment option, the combined Castellano family holdings would be approximately 32,912,500 shares, representing approximately 27.4% of the Company's outstanding shares.
In either case, the Castellano family will remain the Company's largest stockholder group by a significant margin, and the New Lock-Up Agreement will provide the market with assurance of continued alignment between the founding family's interests and those of public stockholders during the 90-day post-offering period.
VI. Anticipated Timeline
Set forth below is the anticipated timeline for the Offering. All dates are subject to change based on market conditions, SEC review, and other factors.
As indicated, the lock-up waiver is requested to be effective as of October 12, 2023, in order to permit the selling stockholders to execute the Underwriting Agreement and complete the pricing of the Offering on that date. The two-day gap between the Requested Release Date and the natural expiration of the Lock-Up Period is driven entirely by the mechanics of the Offering process and the requirement that the selling stockholders be legally free to commit to the sale of shares at the time of pricing.
VII. Request for Prompt Response
The Company respectfully requests that Morningstar Zanthor & Co. deliver its written consent to this waiver request at its earliest convenience, and in any event no later than September 29, 2023. Prompt receipt of Morningstar Zanthor's consent is necessary to permit the orderly preparation of SEC filings and marketing materials, including the preliminary prospectus supplement and the underwriters' due diligence materials, in advance of the anticipated October 2, 2023 filing date for the preliminary prospectus supplement. Delay in receipt of consent may necessitate postponement of the Offering timeline, which could have adverse consequences for the Company and the selling stockholders given prevailing market conditions.
We wish to inform you that parallel waiver request letters substantially identical to this letter have been delivered concurrently to Ridgeline Securities LLC and Broadmark Capital Inc., the other two IPO Underwriters whose written consent is also required under Section 4 of the Lock-Up Agreements. We are optimistic that all three consents will be obtained in a timely manner and appreciate the cooperation of all parties in this process.
For Morningstar Zanthor's convenience, enclosed with this letter is a form of Lock-Up Waiver Consent Letter, which Morningstar Zanthor may execute and return to evidence its consent to the waiver request described herein. The form of consent letter has been prepared to reflect the specific terms and conditions of the waiver as set forth in this letter. Morningstar Zanthor is, of course, free to deliver its consent in such other form as it may deem appropriate, provided that the consent is in writing and is delivered to the Company and its counsel at the addresses indicated below.
VIII. Contact Information
Any questions regarding this request, or requests for additional information or documentation, should be directed to:
Jennifer Kwon, Partner Audrey Zhou, Senior Associate Calderwood & Harkness LLP One Liberty Plaza, 52nd Floor New York, New York 10006 Telephone: (212) 558-4000
Email: jennifer.kwon@calderwoodharkness.com / audrey.zhou@calderwoodharkness.com
or to:
David Orenstein, General Counsel & Corporate Secretary Penterra Pharmaceuticals Corp. 400 Meridian Parkway, Suite 1200 Princeton, New Jersey 08540 Telephone: (609) 452-7800
Email: dorenstein@penterrapharma.com
We are grateful for your consideration of this request and look forward to your prompt response. Please do not hesitate to contact any of the individuals identified above should you require any further information or wish to discuss this matter in greater detail.
Very truly yours,
PENTERRA PHARMACEUTICALS CORP.
By: ________
Name: David Orenstein
Title: General Counsel & Corporate Secretary
Date: September 18, 2023
Encl.: Form of Lock-Up Waiver Consent Letter
cc:
Jennifer Kwon, Calderwood & Harkness LLP
Audrey Zhou, Calderwood & Harkness LLP
Patricia Velázquez, Whitfield & Garza LLP (personal counsel to the selling stockholders)
Jonathan Pryce-Hall, Ridgeline Securities LLC
Samuel Okonkwo, Broadmark Capital Inc.
Margaret Hui, Caldwell, Pearce & Strauss LLP (counsel to the underwriters in the Offering)
Selling Stockholder | Relationship to the Company | Base Shares to Be Sold
Dr. Elena Castellano | Co-Founder; Chair of the Board of Directors | 3,000,000
Dr. Riccardo Castellano | Co-Founder; Member of the Board of Directors | 2,500,000
Dr. Marco Castellano | Co-Founder; Chief Executive Officer | 500,000
Castellano Family Holdings LLC | Family holding vehicle | 250,000
Total Base Offering | 6,250,000
Holder | Pre-Offering Shares Held
Dr. Elena Castellano | 18,000,000
Dr. Riccardo Castellano | 14,500,000
Dr. Marco Castellano | 4,600,000
Castellano Family Holdings LLC | 3,000,000
Total Pre-Offering Family Holdings | 40,100,000
Event | Anticipated Date
Preliminary Prospectus Supplement filed with the SEC | October 2, 2023
Road show / marketing period | October 9–11, 2023
Pricing and execution of the Underwriting Agreement | October 12, 2023
Date for which the lock-up waiver is requested to be effective | October 12, 2023
Original Lock-Up Period expiration | October 14, 2023
Settlement / Closing of the Offering | October 17, 2023 (T+3)