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
October 15, 2023
VIA EMAIL AND OVERNIGHT COURIER
Graystone & Whitmore LLP 30 Rockefeller Plaza New York, New York 10112
Attention: Thomas Reiter, Engagement Partner
Re: Bring-Down Comfort Letter — Registered Secondary Offering of 6,250,000 Shares of Common Stock of Penterra Pharmaceuticals Corp. (File No. 333-274851)
Dear Mr. Reiter:
I. Introduction
Calderwood & Harkness LLP acts as counsel to Penterra Pharmaceuticals Corp., a Delaware corporation ("PPC" or the "Company"), in connection with the registered selling-stockholder secondary offering (the "Offering") of 6,250,000 shares of common stock, par value $0.001 per share (the "Shares"), of PPC. The Offering is being conducted pursuant to the Prospectus Supplement dated October 12, 2023 (the "Prospectus Supplement") to the base prospectus dated August 22, 2023 (the "Base Prospectus"), forming part of the Company's Registration Statement on Form S-3 (File No. 333-274851) (the "Registration Statement"), which was declared effective by the Securities and Exchange Commission (the "SEC") on August 22, 2023. The Prospectus Supplement was filed with the SEC on October 12, 2023 pursuant to Rule 424(b)(5) under the Securities Act of 1933, as amended (the "Securities Act").
The Offering is being conducted pursuant to the Underwriting Agreement dated October 12, 2023 (the "Underwriting Agreement") among PPC, the selling stockholders named therein, and the several underwriters named therein, for whom Ridgeline Securities LLC ("Ridgeline") and Broadmark Capital Inc. ("Broadmark") are acting as representatives (collectively, the "Representatives"). Linden Groves & Co. ("Linden Groves") and Harborview Partners LLC ("Harborview") are serving as co-managers of the Offering (together with Ridgeline and Broadmark, the "Underwriters"). The selling stockholders in the Offering are Dr. Elena Castellano, Dr. Riccardo Castellano, Dr. Marco Castellano, and Castellano Family Holdings LLC (collectively, the "Selling Stockholders"). The Shares are being offered to the public at a price of $41.60 per share, resulting in an aggregate offering size of $260,000,000, before deducting underwriting discounts and commissions and estimated offering expenses.
We are writing to request, on behalf of the Company and for the benefit of the Underwriters, that Graystone & Whitmore LLP ("Graystone & Whitmore" or "you"), as the Company's independent registered public accounting firm, deliver a bring-down comfort letter in connection with the closing of the Offering, as described in greater detail below.
II. Reference to Initial Comfort Letter
We refer to the initial comfort letter dated October 2, 2023 (the "Initial Comfort Letter") delivered by Graystone & Whitmore to the Underwriters and the Company in connection with the filing of the preliminary prospectus supplement with the SEC on October 2, 2023. We understand that the Initial Comfort Letter was prepared and delivered in accordance with the standards set forth in Statement on Auditing Standards No. 72, "Letters for Underwriters and Certain Other Requesting Parties" (codified at AU Section 634), and the Public Company Accounting Oversight Board's AS 6101, "Letters for Underwriters and Certain Other Requesting Parties" (collectively, the "Comfort Letter Standards").
As we understand it, the Initial Comfort Letter covered certain financial information, financial statements, and other financial data contained in, or incorporated by reference into, the Registration Statement, the Base Prospectus, and the preliminary prospectus supplement, including but not limited to the following:
(a) the Company's audited consolidated financial statements for the fiscal year ended December 31, 2022 ("FY 2022"), as included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2022 and incorporated by reference into the Registration Statement, which reflected, among other items, consolidated revenue of $387.4 million and consolidated net income of $42.1 million;
(b) the Company's unaudited condensed consolidated financial statements for the six-month period ended June 30, 2023 ("H1 2023"), as included in the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2023 and incorporated by reference into the Registration Statement, which reflected, among other items, consolidated revenue of $312.6 million and consolidated net income of $67.8 million;
(c) certain statistical and financial data derived from the Company's accounting records, including financial data set forth under the captions "Summary — Summary Consolidated Financial Data," "Selected Consolidated Financial Data," and "Capitalization" in the preliminary prospectus supplement and the Registration Statement;
(d) selected financial data and capitalization tables, including the Company's capitalization as of June 30, 2023, presented in the preliminary prospectus supplement and the Registration Statement; and
(e) verification of the number of shares of common stock of the Company outstanding, reported as 120,000,000 shares of common stock, par value $0.001 per share, as of September 29, 2023.
III. Request for Bring-Down Comfort Letter
Pursuant to Section 7(d) of the Underwriting Agreement, as a condition precedent to the obligations of the several Underwriters to consummate the purchase of the Shares at the closing of the Offering, we hereby request that Graystone & Whitmore deliver a bring-down comfort letter (the "Bring-Down Comfort Letter") dated as of October 17, 2023, the scheduled closing date of the Offering (the "Closing Date").
The Bring-Down Comfort Letter should be addressed to each of the following:
(a) Ridgeline Securities LLC, 383 Madison Avenue, New York, New York 10017;
(b) Broadmark Capital Inc., 200 Park Avenue, New York, New York 10166;
(c) Linden Groves & Co., 745 Fifth Avenue, New York, New York 10151;
(d) Harborview Partners LLC, 1 Federal Street, Boston, Massachusetts 02110; and
(e) Penterra Pharmaceuticals Corp., 400 Meridian Parkway, Suite 1200, Princeton, New Jersey 08540.
IV. Scope and Content of the Bring-Down Comfort Letter
We respectfully request that the Bring-Down Comfort Letter include the following elements, each of which is discussed in greater detail below.
A. Reaffirmation of Initial Comfort Letter
The Bring-Down Comfort Letter should reaffirm and update all statements, conclusions, and procedures set forth in the Initial Comfort Letter, with the date of the Bring-Down Comfort Letter (October 17, 2023) substituted for the date of the Initial Comfort Letter (October 2, 2023) wherever applicable. To the extent that any of the statements, conclusions, or findings set forth in the Initial Comfort Letter cannot be reaffirmed as of the date of the Bring-Down Comfort Letter, or require modification, we request that the Bring-Down Comfort Letter describe the nature and extent of any such changes in reasonable detail. It is our expectation that the Bring-Down Comfort Letter will confirm that, as of its date, Graystone & Whitmore is able to reaffirm, without material modification, the substance of the Initial Comfort Letter.
B. No Material Changes Confirmation
The Bring-Down Comfort Letter should confirm that, as of a date not more than three business days prior to October 17, 2023 (such date being the "cut-off date," as discussed further in Section IV.D below), nothing has come to the attention of Graystone & Whitmore that caused it to believe that:
(i) there has been any change in the capital stock of the Company (including common stock, par value $0.001 per share, and any series of preferred stock, whether authorized, issued, or outstanding) or long-term debt of the Company (including current maturities thereof), or any decrease in net current assets or stockholders' equity, as compared with the amounts shown in the Company's most recent balance sheet included or incorporated by reference in the Prospectus Supplement (i.e., the unaudited condensed consolidated balance sheet as of June 30, 2023), except in each case for (1) changes, increases, or decreases that the Prospectus Supplement discloses have occurred or may occur, or (2) changes, increases, or decreases that are described in the Bring-Down Comfort Letter; and
(ii) there has been any material adverse change in the Company's financial condition, results of operations, or business since the date of the most recent financial statements included or incorporated by reference in the Prospectus Supplement (i.e., the unaudited condensed consolidated financial statements for the six-month period ended June 30, 2023), except as disclosed in the Prospectus Supplement or described in the Bring-Down Comfort Letter.
We understand that the foregoing "negative assurance" statements will be based on the limited procedures specified in the Comfort Letter Standards, including inquiries of certain officers and other employees of the Company responsible for financial and accounting matters, and a reading of the minutes of meetings of the Board of Directors and its committees, and will not constitute an audit or review conducted in accordance with generally accepted auditing standards or the standards of the PCAOB.
C. Updated Procedures — Financial Data in the Prospectus Supplement
The Bring-Down Comfort Letter should cover and update the specified procedures applied to certain financial data appearing in the final Prospectus Supplement (as filed with the SEC on October 12, 2023 pursuant to Rule 424(b)(5)). In particular, the Bring-Down Comfort Letter should address the following:
(i) Updated Comparison of Financial Statement Data. An updated comparison of the financial statement data set forth in the Prospectus Supplement (including data under the captions "Summary — Summary Consolidated Financial Data" and "Selected Consolidated Financial Data") with the corresponding amounts in the Company's audited consolidated financial statements for FY 2022 and unaudited condensed consolidated financial statements for H1 2023, as well as any subsequently available financial statements or financial data, to confirm that such amounts agree with or are derived from such financial statements.
(ii) Updated Verification of Per Share Data, Share Count Data, and Capitalization Data. An updated verification that (a) per share data (including earnings per share and book value per share) appearing in the Prospectus Supplement has been correctly computed, (b) the number of shares of common stock of the Company reported as outstanding (120,000,000 shares of common stock, par value $0.001 per share) agrees with the Company's records, and (c) the capitalization data set forth in the Prospectus Supplement under the caption "Capitalization" agrees with, or has been correctly derived from, the Company's accounting records and the relevant financial statements.
(iii) Updated Comparison of Selected Financial Data. An updated comparison of the selected financial data presented in the Prospectus Supplement (including, without limitation, revenue, net income, total assets, total liabilities, total stockholders' equity, and any other financial data specifically identified in the Initial Comfort Letter) with the Company's accounting records and relevant financial statements.
(iv) Updated Reading of Subsequently Available Interim Financial Information. To the extent that any interim financial information for a period subsequent to H1 2023 has become available (including, without limitation, any monthly or quarterly financial information for periods ended July 31, 2023, August 31, 2023, or September 30, 2023), the Bring-Down Comfort Letter should describe the results of Graystone & Whitmore's reading of such information and any inquiries of Company officers arising therefrom, in accordance with the Comfort Letter Standards.
D. Cut-Off Date
The cut-off date for the procedures described in the Bring-Down Comfort Letter (including, in particular, the "negative assurance" procedures described in Section IV.B above) should be no earlier than October 13, 2023, which is not more than three business days prior to the Closing Date of October 17, 2023. This cut-off date is consistent with customary market practice and the requirements of the Comfort Letter Standards for bring-down comfort letters.
V. Delivery Instructions
We request that the Bring-Down Comfort Letter be executed and delivered on October 17, 2023, the Closing Date, prior to or simultaneously with the closing of the Offering. The closing is currently expected to take place at the offices of Caldwell, Pearce & Strauss LLP, 1251 Avenue of the Americas, 40th Floor, New York, New York 10020, at 10:00 a.m. Eastern Time on October 17, 2023, or at such other time and place as may be agreed upon by the Representatives and the Company.
Executed copies of the Bring-Down Comfort Letter (in PDF format via email, followed by original counterparts via overnight courier) should be delivered to each of the following persons:
(a) Jonathan Pryce-Hall, Managing Director, Ridgeline Securities LLC, 383 Madison Avenue, New York, New York 10017 (email: jpryce-hall@ridgelinesecurities.com);
(b) Samuel Okonkwo, Managing Director, Broadmark Capital Inc., 200 Park Avenue, New York, New York 10166 (email: sokonkwo@broadmarkcapital.com);
(c) Margaret Hui, Partner, Caldwell, Pearce & Strauss LLP (counsel to the Underwriters), 1251 Avenue of the Americas, 40th Floor, New York, New York 10020 (email: mhui@cps-law.com);
(d) Jennifer Kwon, Partner, Calderwood & Harkness LLP (counsel to the Company), One Liberty Plaza, 52nd Floor, New York, New York 10006 (email: jkwon@calderwoodharkness.com); and
(e) David Orenstein, General Counsel and Corporate Secretary, Penterra Pharmaceuticals Corp., 400 Meridian Parkway, Suite 1200, Princeton, New Jersey 08540 (email: dorenstein@penterrapharma.com).
VI. Over-Allotment Option Provision
We wish to bring to your attention that the Underwriting Agreement grants the Underwriters a 30-day option, exercisable in whole or in part, 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 expires on November 11, 2023. In the event that the Over-Allotment Option is exercised and an additional closing occurs with respect to such over-allotment shares (an "Over-Allotment Closing"), which is currently expected to occur on or about November 16, 2023 if the Over-Allotment Option is fully exercised, an additional bring-down comfort letter may be required as of the date of such Over-Allotment Closing pursuant to Section 7(d) of the Underwriting Agreement. We hereby reserve the right to make a subsequent request for such additional bring-down comfort letter at that time and will endeavor to provide reasonable advance notice to Graystone & Whitmore of any such request.
VII. Cooperation of the Company
The Company has advised us that it will cooperate fully with Graystone & Whitmore in connection with the preparation and delivery of the Bring-Down Comfort Letter and will make available such books, records, financial information, and personnel of the Company as may be reasonably necessary to enable Graystone & Whitmore to complete the procedures described herein and to deliver the Bring-Down Comfort Letter on a timely basis. Lisa Hargrove, Chief Financial Officer of the Company, has been designated as the Company's primary contact for purposes of the bring-down procedures. Ms. Hargrove may be reached at (609) 555-2740 or by email at lhargrove@penterrapharma.com. In addition, the Company's Controller, Robert Nakamura, will be available to assist with any detailed inquiries regarding the Company's accounting records and interim financial information.
VIII. Closing
We appreciate Graystone & Whitmore's prompt attention to this request, particularly in light of the approaching Closing Date of October 17, 2023, and the importance of the timely delivery of the Bring-Down Comfort Letter as a condition to the closing of the Offering. We recognize the time constraints involved and are prepared to work cooperatively with your team to facilitate the completion of the necessary procedures.
We would be grateful if you could confirm receipt of this letter at your earliest convenience. Should you have any questions regarding this request, or should you require any additional information or documentation, please do not hesitate to contact the undersigned at (212) 558-4312 or azhou@calderwoodharkness.com, or Audrey Zhou at the contact information set forth below. We look forward to working with you to bring this matter to a successful closing.
Very truly yours,
CALDERWOOD & HARKNESS LLP
By: ________
Audrey Zhou Senior Associate, Capital Markets
Telephone: (212) 558-4312
Email: azhou@calderwoodharkness.com
cc (via email):
Jennifer Kwon, Partner, Calderwood & Harkness LLP Theodore Langston, Partner, Calderwood & Harkness LLP David Orenstein, General Counsel & Corporate Secretary, Penterra Pharmaceuticals Corp. Lisa Hargrove, Chief Financial Officer, Penterra Pharmaceuticals Corp. Margaret Hui, Partner, Caldwell, Pearce & Strauss LLP Jonathan Pryce-Hall, Managing Director, Ridgeline Securities LLC Samuel Okonkwo, Managing Director, Broadmark Capital Inc.