CHARTER OF THE SPECIAL COMMITTEE OF THE BOARD OF DIRECTORS OF PENTERRA PHARMACEUTICALS CORP.
Adopted Effective June 2, 2023
Prepared by
Calderwood & Harkness LLP 1700 Market Street, Suite 3400 Philadelphia, PA 19103
Reference: Project Coriander
Adopted Pursuant to the Board Resolution Establishing the Special Committee Dated June 2, 2023
CONFIDENTIAL — PRIVILEGED AND CONFIDENTIAL ATTORNEY WORK PRODUCT — FOR USE BY THE SPECIAL COMMITTEE AND ITS AUTHORIZED ADVISORS ONLY — NOT TO BE DISTRIBUTED TO RECUSED DIRECTORS OR THEIR REPRESENTATIVES
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RECITALS
WHEREAS, Penterra Pharmaceuticals Corp. ("Penterra" or the "Company"), a corporation duly organized and existing under the laws of the State of Delaware, with its principal executive offices located at 400 Innovation Drive, Suite 1200, Princeton, New Jersey 08540, and listed on the New York Stock Exchange under ticker symbol "PPHR," is evaluating a proposed acquisition of one hundred percent (100%) of the outstanding equity interests of Caliston BioSciences, Inc. ("Caliston"), a corporation duly organized and existing under the laws of the State of Delaware, with its principal offices located at 88 Harbor Point Road, Cambridge, Massachusetts 02142 (such proposed acquisition, the "Proposed Transaction");
WHEREAS, Dr. Marcus Hale, who serves as Chairman of the Board of Directors and Chief Executive Officer of the Company, holds a twenty-eight and one-half percent (28.5%) equity interest in Caliston, which interest was acquired through a personal investment of approximately Forty-Two Million Dollars ($42,000,000) across Caliston's Seed, Series A, and Series B financing rounds, and Dr. Hale has served as a board observer at Caliston since 2018, during which time he has attended fourteen (14) of sixteen (16) Caliston board meetings;
WHEREAS, Angela Whitmore, a director of the Company and Executive Vice President, Commercial Operations of the Company, is the spouse of Dr. Evan Whitmore, who serves as Head of Clinical Development and as a member of the board of directors of Caliston, thereby creating a familial relationship between a Penterra director and officer and a key executive and board member of Caliston;
WHEREAS, Dr. Hale first disclosed his equity interest in Caliston to the Company's Board of Directors on February 14, 2023, at which time he proposed that the Company pursue the acquisition of Caliston, and the Board acknowledged receipt of such disclosure and directed further consideration of the proposal;
WHEREAS, the Board of Directors discussed the potential conflicts of interest arising from Dr. Hale's equity interest in Caliston and Ms. Whitmore's familial relationship with Dr. Evan Whitmore at a duly convened meeting of the Board held on March 8, 2023, at which meeting the Board determined that the formation of a special committee of independent directors would be advisable to evaluate the Proposed Transaction and to protect the interests of the Company and its disinterested stockholders;
WHEREAS, following the March 8, 2023 Board meeting, the Board, on April 12, 2023, retained Alcott, Barringer & Cole LLP to provide preliminary governance advice regarding the appropriate structure and procedures for addressing the conflicts of interest associated with the Proposed Transaction, including the advisability of forming a special committee and the scope of such committee's authority;
WHEREAS, on May 15, 2023, the Board of Directors, having received and considered the governance advice of Alcott, Barringer & Cole LLP, approved the formation of a Special Committee of the Board of Directors (the "Special Committee"), effective upon the engagement of independent legal counsel by the Special Committee, and authorized the Special Committee to engage its own independent legal counsel and financial advisors;
WHEREAS, on June 2, 2023, the Board of Directors, by the unanimous vote of the six (6) independent directors of the Board (with Dr. Marcus Hale, Angela Whitmore, and Raymond Tusk each recusing themselves from the discussion and vote due to their respective conflicts of interest), adopted resolutions (the "Enabling Resolutions") formally establishing the Special Committee pursuant to Delaware General Corporation Law §§ 141(a) and 144, appointing members thereto, and delegating to the Special Committee sole and exclusive authority with respect to the evaluation, negotiation, and recommendation of the Proposed Transaction; and
WHEREAS, the Board of Directors desires to set forth in this document the charter (this "Charter") governing the authority, responsibilities, composition, procedures, and related matters of the Special Committee, in order to ensure clarity of purpose and to establish a record of the procedural protections adopted in connection with the Proposed Transaction.
NOW, THEREFORE, the Board of Directors of Penterra Pharmaceuticals Corp. hereby adopts this Charter of the Special Committee, effective as of June 2, 2023.
SECTION 1: PURPOSE
The Special Committee is established to evaluate, on behalf of the Board of Directors and the Company's stockholders, the Proposed Transaction, which constitutes a related-party transaction by virtue of (a) Dr. Marcus Hale's twenty-eight and one-half percent (28.5%) equity interest in Caliston BioSciences, Inc. and his role as a board observer of Caliston since 2018, and (b) Angela Whitmore's familial relationship with Dr. Evan Whitmore, who serves as Head of Clinical Development and as a member of the board of directors of Caliston. The Special Committee recognizes that these relationships create the potential for conflicts of interest that must be addressed through rigorous procedural protections, including the delegation of exclusive authority over the Proposed Transaction to a committee composed entirely of directors who are independent of the interested parties.
The Special Committee shall act in the best interests of Penterra and its stockholders (other than any interested stockholders) in connection with the Proposed Transaction. In discharging its duties, the Special Committee shall exercise independent judgment, informed by the advice of its independent legal counsel and independent financial advisor, and shall not be subject to direction or influence from Dr. Hale, Ms. Whitmore, Mr. Tusk, or any other person with a material interest in the Proposed Transaction.
The Special Committee's purpose includes, without limitation, determining whether the Proposed Transaction is advisable and fair to the Company and its disinterested stockholders, and if so, on what terms and conditions. In making this determination, the Special Committee shall consider both procedural fairness (fair dealing) and substantive fairness (fair price), consistent with the Delaware entire fairness doctrine and relevant judicial precedent applicable to transactions involving interested fiduciaries. The Special Committee shall have full authority to recommend approval of the Proposed Transaction, to reject the Proposed Transaction, to propose modifications to the terms of the Proposed Transaction, or to recommend that the Board pursue strategic alternatives to the Proposed Transaction, all as the Special Committee determines to be in the best interests of the Company and its disinterested stockholders.
SECTION 2: COMPOSITION
2.1 Members. The Special Committee shall consist of three (3) members, each of whom has been determined by the Board of Directors to be independent under applicable New York Stock Exchange listing standards (including NYSE Listed Company Manual Sections 303A.01 and 303A.02) and under the laws of the State of Delaware, including the principles of director independence as articulated in relevant Delaware judicial decisions. The members of the Special Committee are:
(a) Diane Prescott (Chair) — Independent Director of Penterra Pharmaceuticals Corp.; former Chief Executive Officer of Windbridge Health Systems, Inc.; member of the Penterra Board of Directors since 2019; member of the Audit Committee of the Board.
(b) James Okafor — Independent Director of Penterra Pharmaceuticals Corp.; retired Managing Director of Fielding Capital Partners, LLC, where he led healthcare-sector mergers and acquisitions for over twenty years; member of the Penterra Board of Directors since 2020; member of the Compensation Committee of the Board.
(c) Dr. Helen Ng — Independent Director of Penterra Pharmaceuticals Corp.; Endowed Professor of Pharmacology at Wexford University; former member of the U.S. Food and Drug Administration Oncologic Drugs Advisory Committee; member of the Penterra Board of Directors since 2021; member of the Nominating and Corporate Governance Committee of the Board.
Each member of the Special Committee brings relevant expertise to the evaluation of the Proposed Transaction, including experience in healthcare industry operations, mergers and acquisitions, financial analysis, pharmacological science, and regulatory affairs.
2.2 Independence Requirements
Each member of the Special Committee must satisfy, and must continue to satisfy throughout the duration of the Special Committee's existence, the following independence requirements:
(a) Each member must be independent of Dr. Marcus Hale, Angela Whitmore, Raymond Tusk, Caliston BioSciences, Inc., and their respective affiliates and associates, as those terms are understood under applicable Delaware law and NYSE listing standards. Independence, for this purpose, requires that no member have any material personal, financial, professional, familial, or other relationship with any of the foregoing persons or entities that could reasonably be expected to impair the member's ability to exercise independent judgment in connection with the Proposed Transaction.
(b) Each member must have no material financial interest in the Proposed Transaction (other than in such member's capacity as a stockholder of Penterra Pharmaceuticals Corp., to the extent that all stockholders of Penterra would share ratably in the benefits or consequences of the Proposed Transaction).
(c) Each member must satisfy the independence requirements of the New York Stock Exchange listing standards, including but not limited to the standards set forth in NYSE Listed Company Manual Sections 303A.01 and 303A.02.
(d) Each member must satisfy the requirements of independence under Delaware law applicable to directors serving on a special committee charged with evaluating a conflicted transaction, including the absence of material ties to any interested party that could compromise the member's ability to act as a genuinely independent negotiator on behalf of the disinterested stockholders.
If at any time any member of the Special Committee ceases to satisfy any of the independence requirements set forth in this Section 2.2, whether due to a change in circumstances, a newly discovered relationship, or otherwise, such member shall promptly disclose such circumstance to the Chair of the Special Committee (or, if the affected member is the Chair, to the other members and to Calderwood & Harkness LLP) and shall immediately resign from the Special Committee. Upon such resignation, the remaining independent directors of the Board of Directors who are not Recused Directors shall, in consultation with Calderwood & Harkness LLP, promptly appoint a replacement member who satisfies all of the independence requirements set forth in this Section 2.2.
2.3 Chair. Diane Prescott shall serve as Chair of the Special Committee. The Chair shall be responsible for presiding over all meetings of the Special Committee, establishing meeting agendas (in consultation with Calderwood & Harkness LLP, independent counsel to the Special Committee), and serving as the primary point of contact between the Special Committee and the full Board of Directors, Company management, and the Special Committee's advisors. The Chair shall coordinate the work of the Special Committee and shall ensure that the Special Committee's process is conducted in a thorough, deliberate, and well-documented manner. In the absence or unavailability of the Chair, the remaining members of the Special Committee shall designate one of their number to serve as acting Chair for the relevant meeting or matter.
2.4 Recused Persons
Dr. Marcus Hale, Angela Whitmore, and Raymond Tusk (collectively, the "Recused Directors") are excluded from membership on the Special Committee and from all Special Committee deliberations, materials, and communications. The exclusion of the Recused Directors from the Special Committee process is intended to preserve the independence and integrity of the Special Committee's evaluation and is consistent with the Independence Protocol and Information Barrier Policy adopted by the Special Committee on June 2, 2023 (the "Information Barrier Policy"). No Recused Director shall have access to any documents, analyses, memoranda, communications, meeting materials, minutes, or other records generated by or for the Special Committee or maintained in the Project Coriander workspace. The Recused Directors shall not communicate with any member of the Special Committee, any advisor to the Special Committee, or any Company employee providing information to the Special Committee regarding any matter relating to the Proposed Transaction, except as expressly permitted under the Information Barrier Policy and approved in advance by the Chair of the Special Committee in consultation with Calderwood & Harkness LLP.
SECTION 3: AUTHORITY AND RESPONSIBILITIES
3.1 Sole and Exclusive Authority
The Board of Directors has delegated to the Special Committee, and the Special Committee is hereby granted, sole and exclusive authority with respect to the Proposed Transaction, to the fullest extent permitted by the Delaware General Corporation Law and the Company's certificate of incorporation and bylaws. Without limiting the generality of the foregoing, the Special Committee shall have the authority to:
(a) Evaluate the Proposed Transaction and any alternative transactions. The Special Committee shall have full authority to review, analyze, and evaluate the Proposed Transaction, including the strategic rationale therefor, the value of Caliston BioSciences, Inc. and its assets and pipeline, the proposed consideration and deal structure, and the risks and benefits associated with the Proposed Transaction. The Special Committee shall also have full authority to evaluate any alternative transaction or strategic alternative to the Proposed Transaction, including but not limited to alternative acquisition targets, licensing arrangements, collaboration agreements, joint ventures, or the alternative of maintaining the Company's current strategic direction without pursuing the Proposed Transaction.
(b) Negotiate the terms and conditions of the Proposed Transaction. The Special Committee shall have sole and exclusive authority to negotiate, directly or through its advisors, all terms and conditions of the Proposed Transaction, including without limitation the purchase price or exchange ratio, deal structure (including whether the Proposed Transaction is structured as a merger, stock purchase, or asset acquisition), consideration mix (including the relative proportions of cash, stock, and contingent value rights), contingent value rights, termination fees and reverse termination fees, representations and warranties, indemnification obligations, escrow arrangements, holdback amounts, closing conditions (including regulatory approval conditions), covenants, non-competition and non-solicitation provisions, employee and management matters, and all other material and ancillary terms.
(c) Retain independent advisors. The Special Committee shall have the authority to retain, at the Company's expense, independent legal counsel, independent financial advisors, independent accountants, valuation consultants, scientific consultants, and any other consultants or advisors as the Special Committee deems necessary or appropriate in the exercise of its duties. The Special Committee shall have sole authority to determine the terms of engagement, scope of work, and compensation of any such advisors, and shall not be required to obtain the approval of the full Board, any committee of the Board, or any member of management for any such retention.
(d) Recommend approval or rejection of the Proposed Transaction. The Special Committee shall have the authority to deliver to the full Board of Directors a formal recommendation that the Board approve or reject the Proposed Transaction, or that the Board pursue an alternative transaction, on such terms as the Special Committee specifies.
(e) Decline to recommend any transaction ("say no" power). The Special Committee shall have the absolute and unconditional authority to decline to recommend the Proposed Transaction or any other transaction to the full Board of Directors. In the event that the Special Committee declines to recommend the Proposed Transaction, the Board of Directors shall not proceed with the Proposed Transaction, or any substantially similar transaction with Caliston BioSciences, Inc. or its affiliates, without the Special Committee's affirmative recommendation. This provision is intended to ensure that the Special Committee functions as a genuine, empowered negotiating body on behalf of the Company's disinterested stockholders, consistent with the requirements of Delaware law for establishing procedural protections in interested-party transactions.
(f) Explore and evaluate strategic alternatives. The Special Committee shall have the authority to direct its independent financial advisor or any other advisor to conduct a market check, solicit indications of interest from third parties, or evaluate any other strategic alternatives to the Proposed Transaction as the Special Committee deems appropriate to inform its analysis of the fairness of the Proposed Transaction.
3.2 Specific Responsibilities
In furtherance of its purpose and authority, the Special Committee shall have the following specific responsibilities:
(a) Review and evaluate Caliston's business, operations, financial condition, and prospects. The Special Committee shall conduct, or cause to be conducted through its advisors, a thorough review and evaluation of Caliston BioSciences, Inc., including its business operations, historical and projected financial performance, management team, intellectual property portfolio, competitive position, and development pipeline. Such review shall include, without limitation, a detailed assessment of Caliston's lead asset, CLT-4019, a Phase 2b selective CDK4/6 inhibitor being developed for the treatment of HR+/HER2– metastatic breast cancer (IND No. 158429 filed with the U.S. Food and Drug Administration), as well as Caliston's preclinical candidates CLT-5227 and CLT-6034. The Special Committee shall critically evaluate the clinical data, regulatory pathway, probability of technical and regulatory success, and commercial potential of each of these assets.
(b) Direct and oversee legal due diligence. The Special Committee shall direct, oversee, and supervise the legal due diligence process conducted by its independent legal counsel, Calderwood & Harkness LLP, with respect to Caliston BioSciences, Inc. and the Proposed Transaction. Such due diligence shall include, without limitation, a review of Caliston's corporate organization and governance, material contracts, intellectual property, regulatory filings and compliance, litigation and contingent liabilities, employment and compensation matters, and any related-party transactions or arrangements.
(c) Direct and oversee the independent financial advisor's valuation and fairness opinion process. The Special Committee shall direct, oversee, and supervise the independent valuation analyses conducted by Thorngate Partners LLC, and shall critically evaluate the assumptions, methodologies, and conclusions underlying such analyses. The Special Committee shall request and receive a fairness opinion from Thorngate Partners LLC as to whether the consideration to be paid by Penterra in the Proposed Transaction is fair, from a financial point of view, to the Company and its disinterested stockholders.
(d) Evaluate fairness. The Special Committee shall evaluate the fairness of the Proposed Transaction from both a procedural (fair dealing) and substantive (fair price) perspective, consistent with the Delaware entire fairness doctrine as articulated by the Delaware Supreme Court and the Court of Chancery. The procedural fairness analysis shall encompass the timing of the proposal, the manner in which the transaction was initiated, the structure of the negotiations, the disclosures made, the independence of the negotiating body, and the procedural protections adopted. The substantive fairness analysis shall encompass the economic and financial considerations of the Proposed Transaction, including the price to be paid for Caliston, the value of the assets being acquired, and the comparison of such price and value to relevant benchmarks and alternatives.
(e) Consider Delaware precedent regarding interested-fiduciary transactions. The Special Committee shall consider the applicability and benefits of structuring the process and the transaction to satisfy the framework established in relevant Delaware precedent regarding transactions involving interested fiduciaries. Such procedural protections may include, without limitation, independent committee approval, the engagement of independent legal counsel and an independent financial advisor, the maintenance of information barriers, the exercise of genuine negotiating authority by the Special Committee, and the submission of the Proposed Transaction to a non-waivable condition of approval by a majority of the disinterested stockholders (majority-of-the-minority stockholder approval).
(f) Review and approve transaction documents. The Special Committee shall review and approve all transaction documents in connection with the Proposed Transaction, including without limitation the Agreement and Plan of Merger, the Contingent Value Rights Agreement, the Escrow Agreement, the Stockholder Support Agreements, the Voting and Recusal Agreement, and all ancillary agreements, schedules, exhibits, disclosure letters, and certificates.
(g) Ensure legal and regulatory compliance. The Special Committee shall ensure compliance with all applicable provisions of the Delaware General Corporation Law, including without limitation §§ 144 and 251, and all applicable rules and regulations of the U.S. Securities and Exchange Commission, including any applicable requirements under Regulation 14A (proxy rules) and Regulation S-K (disclosure requirements).
(h) Review antitrust and regulatory considerations. The Special Committee shall review the antitrust and regulatory considerations associated with the Proposed Transaction, including the requirements for pre-merger notification and waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and any other applicable antitrust or regulatory approval requirements.
(i) Review tax structure and implications. The Special Committee shall review, with the assistance of its advisors, the tax structure and implications of the Proposed Transaction for the Company and its stockholders, including the characterization of the consideration, the availability of any tax elections, and the impact of any deferred tax assets or liabilities.
(j) Evaluate related-party relationships. The Special Committee shall evaluate all related-party relationships between Penterra insiders and Caliston stakeholders, including but not limited to Dr. Hale's equity interest in and board observer role at Caliston, Ms. Whitmore's spousal relationship with Dr. Evan Whitmore, and any other direct or indirect relationships between Penterra directors, officers, or significant stockholders and Caliston or its directors, officers, equity holders, or other stakeholders.
(k) Ensure integrity of the information barrier and independence protocol. The Special Committee shall, throughout the course of its activities, ensure the integrity of the Information Barrier Policy and the independence protocol, including by monitoring compliance with the restrictions on the Recused Directors and their agents, reviewing any reported or suspected breaches of the information barrier, and taking such remedial action as the Special Committee deems appropriate in the event of any such breach.
3.3 Access to Information
The Special Committee shall have full and unrestricted access to the Company's books, records, facilities, and personnel, to the extent relevant to the Special Committee's evaluation of the Proposed Transaction, subject to the information barrier protocols applicable to the Recused Directors. The Company's management and employees shall cooperate fully with the Special Committee and its advisors in providing information, documents, and access as requested.
All information requests from the Special Committee to Penterra management shall be routed through Calderwood & Harkness LLP to maintain the integrity of the process, to preserve applicable legal privileges, and to ensure that the Recused Directors do not obtain advance notice of, or the ability to influence, the Special Committee's information-gathering activities. Calderwood & Harkness LLP shall maintain a log of all information requests made by or on behalf of the Special Committee and all responses received.
All Special Committee materials, including meeting agendas, presentations, memoranda, correspondence, draft transaction documents, due diligence reports, valuation analyses, and minutes, shall be maintained in the segregated document management workspace designated as "Project Coriander," hosted on the Company's secure document management platform. Access to the Project Coriander workspace shall be restricted to Special Committee members and their authorized advisors, and the Company's information technology department shall implement and maintain access controls consistent with the Information Barrier Policy. No person other than an authorized user of the Project Coriander workspace shall have access to any materials contained therein.
3.4 Limitation. The Special Committee's authority is limited to matters relating to the Proposed Transaction, as described in this Charter, and shall not extend to the general business and affairs of the Company, which remain the province of the full Board of Directors. The Special Committee is not authorized to act on behalf of the Company with respect to any matter unrelated to the Proposed Transaction, nor to bind the Company to any agreement, commitment, or obligation except as contemplated by, and within the scope of, this Charter and the Enabling Resolutions. Nothing in this Charter shall be construed to limit or restrict the authority of the full Board of Directors with respect to the general management and oversight of the Company's business and affairs, other than as expressly provided herein with respect to the Proposed Transaction.
SECTION 4: ADVISORS
4.1 Independent Legal Counsel
The Special Committee has engaged Calderwood & Harkness LLP as its independent legal counsel in connection with the Proposed Transaction, pursuant to an engagement letter dated June 2, 2023 (Calderwood & Harkness LLP Matter Number 1025-00006). Calderwood & Harkness LLP was selected by the Special Committee following a review of potential independent counsel candidates, based on the firm's extensive experience in advising special committees of boards of directors in connection with conflicted transactions, its independence from the interested parties, and its lack of any prior or existing relationship with Penterra Pharmaceuticals Corp. or Caliston BioSciences, Inc.
The Calderwood & Harkness LLP engagement team consists of the following attorneys:
• Renata Vasquez, Partner — Responsible Partner for the engagement; lead advisor to the Special Committee on all legal matters
• Bernard Crawford, Partner — Billing Partner for the engagement; co-lead on merger agreement negotiation and drafting
• Sophie Tremblay, Senior Associate — Lead Associate responsible for due diligence coordination and transaction document review
• Daniel Obi, Associate — Working Associate responsible for research, drafting, and document management
The fee arrangement with Calderwood & Harkness LLP is as follows: hourly rates of One Thousand Twenty-Five Dollars ($1,025) per hour for partners and Six Hundred Twenty-Five Dollars ($625) per hour for associates, subject to periodic review; a Seventy-Five Thousand Dollar ($75,000) evergreen retainer, to be replenished as drawn upon; monthly invoicing to the Company; and no fee cap. The Special Committee is authorized to incur fees and expenses as reasonably necessary in connection with Calderwood & Harkness LLP's representation of the Special Committee, without regard to any budgetary constraint imposed by management or the Board, and such fees and expenses shall be borne by the Company as set forth in Section 4.4 below.
Calderwood & Harkness LLP is independent of Penterra's regular outside counsel, Alcott, Barringer & Cole LLP, which firm has been recused from advising the Special Committee in connection with the Proposed Transaction. Alcott, Barringer & Cole LLP may continue to provide legal services to the Company on matters unrelated to the Proposed Transaction, subject to the Information Barrier Policy.
4.2 Independent Financial Advisor
The Special Committee has engaged Thorngate Partners LLC as its independent financial advisor in connection with the Proposed Transaction, pursuant to an engagement letter dated June 16, 2023 (Thorngate Partners LLC reference number 1018-00003). Thorngate Partners LLC was selected by the Special Committee following an evaluation of potential independent financial advisory firms, based on Thorngate's experience in healthcare-sector mergers and acquisitions, its capability to perform rigorous valuation analyses and render a fairness opinion, and its independence from the interested parties.
The lead banker for the engagement is Gregory Ashford, Managing Director, Thorngate Partners LLC, 590 Madison Avenue, 22nd Floor, New York, New York 10022. Mr. Ashford has over twenty-five years of experience advising pharmaceutical and biotechnology companies in strategic transactions and will serve as the primary point of contact between Thorngate Partners LLC and the Special Committee.
The fee arrangement with Thorngate Partners LLC is as follows:
• Advisory fee of Two Million Five Hundred Thousand Dollars ($2,500,000), payable as follows: fifty percent (50%) payable upon delivery of the fairness opinion to the Special Committee, and fifty percent (50%) payable upon the closing or termination of the Proposed Transaction.
• A non-refundable retainer of Five Hundred Thousand Dollars ($500,000), payable upon execution of the engagement letter and credited against the final advisory fee.
• Reimbursement of reasonable out-of-pocket expenses incurred by Thorngate Partners LLC in connection with the engagement, including travel, data services, and third-party research costs.
The scope of Thorngate Partners LLC's engagement includes: (i) conducting independent valuation analyses of Caliston BioSciences, Inc. utilizing methodologies appropriate for the evaluation of a development-stage biopharmaceutical company, including but not limited to discounted cash flow analysis, comparable company analysis, precedent transaction analysis, and risk-adjusted net present value analysis of Caliston's pipeline; (ii) rendering a written fairness opinion to the Special Committee as to whether the consideration to be paid by Penterra in the Proposed Transaction is fair, from a financial point of view, to the Company and its disinterested stockholders; and (iii) assisting the Special Committee in the negotiation of the financial terms of the Proposed Transaction.
4.3 Additional Advisors
The Special Committee may retain additional legal counsel, financial advisors, accountants, consultants, scientific advisors, regulatory consultants, or other advisors at any time during the pendency of the Special Committee's activities, at the Company's expense, as the Special Committee deems necessary or appropriate in the exercise of its duties. The Special Committee shall have sole discretion in selecting any such additional advisors and in determining the terms of their engagement and compensation.
The Special Committee shall not be required to obtain the approval of the full Board of Directors, any other committee of the Board, the Chief Executive Officer, or any other member of management for the engagement of any additional advisor. The Special Committee may, for example, retain a separate scientific or clinical consultant to provide an independent assessment of the Caliston pipeline, or an independent accounting firm to perform quality of earnings or other financial diligence, without limitation.
4.4 Company Expense
All fees, costs, and expenses of the Special Committee's advisors, including without limitation Calderwood & Harkness LLP and Thorngate Partners LLC, and any additional advisors retained pursuant to Section 4.3, shall be borne by Penterra Pharmaceuticals Corp. The Company shall promptly pay all invoices submitted by the Special Committee's advisors upon approval by the Chair of the Special Committee or her designee. The Company's management shall not impose any budgetary limit, expenditure cap, or prior-approval requirement on the Special Committee's engagement of advisors or incurrence of fees and expenses in connection with the Proposed Transaction, and any attempt to do so shall be null and void and without effect.
SECTION 5: MEETINGS AND PROCEDURES
5.1 Meetings. The Special Committee shall meet as often as it deems necessary to fulfill its responsibilities under this Charter. The Special Committee anticipates that it will meet on a regular basis, with additional meetings scheduled as circumstances require, including in connection with key milestones in the evaluation and negotiation process. Meetings of the Special Committee may be held in person at a location designated by the Chair, by telephone conference, by videoconference, or by any other means of communication that permits all participating members to hear each other simultaneously, in accordance with Section 141(i) of the Delaware General Corporation Law.
The Chair shall be responsible for calling and presiding over meetings of the Special Committee. Any member of the Special Committee may request a special meeting upon reasonable notice (which may be by telephone or electronic mail) to the other members and the Chair. The Chair shall endeavor to provide members with meeting agendas and relevant materials in advance of each meeting, to the extent practicable and consistent with the confidential nature of the Special Committee's work.
5.2 Quorum. A quorum for the transaction of business by the Special Committee shall consist of a majority of the members of the Special Committee — that is, two (2) of three (3) members. No business shall be transacted at any meeting of the Special Committee at which a quorum is not present, except that a lesser number of members may adjourn the meeting to a later date. The presence of a quorum shall be determined at the commencement of each meeting and recorded in the minutes.
5.3 Decision-Making. All actions of the Special Committee shall be taken by the affirmative vote of a majority of the members present at a meeting at which a quorum is present. Each member of the Special Committee shall have one vote on all matters submitted to the Special Committee for decision.
The Special Committee may also act by unanimous written consent in lieu of a meeting, in accordance with Section 141(f) of the Delaware General Corporation Law. Any such written consent shall be executed by all members of the Special Committee and shall be filed with the minutes of proceedings of the Special Committee in the Project Coriander workspace.
5.4 Minutes and Records
Minutes of each meeting of the Special Committee shall be prepared by independent counsel, Calderwood & Harkness LLP, and shall be maintained in the Project Coriander document management workspace. Draft minutes shall be circulated to the members of the Special Committee for review and approval at or prior to the next regular meeting of the Special Committee.
The minutes of each meeting shall record, at a minimum, the following: (i) the date, time, and location (or means of communication) of the meeting; (ii) the names of all attendees, including Special Committee members, counsel, financial advisors, and any other persons present; (iii) a summary of all matters discussed, analyses reviewed, and presentations received; (iv) a summary of any actions taken or resolutions adopted, including the vote of each member; and (v) the time of adjournment.
The Special Committee shall maintain a complete and contemporaneous record of its deliberations and process, in order to support the entire fairness record and to provide an evidentiary foundation for the Special Committee's recommendation to the Board. Calderwood & Harkness LLP shall be responsible for overseeing the maintenance of the Special Committee's records and for ensuring that the record is sufficiently detailed and comprehensive to withstand judicial scrutiny.
5.5 Attendance by Advisors
Independent counsel (Calderwood & Harkness LLP) and the independent financial advisor (Thorngate Partners LLC) may attend meetings of the Special Committee at the invitation of the Chair or by resolution of the Special Committee. The Special Committee may also invite Company personnel (such as members of the finance, legal, or scientific affairs departments) to attend portions of Special Committee meetings to provide information or respond to questions, subject to the information barrier protocols and the exclusion of Recused Directors and their agents.
No Recused Director, nor any agent, representative, advisor, or associate of a Recused Director, shall attend or participate in any meeting of the Special Committee, observe any such meeting, or have access to any Special Committee materials, communications, or deliberations, whether directly or indirectly, at any time during the pendency of the Special Committee's activities. Any inadvertent or unauthorized access by a Recused Director or his or her agent to Special Committee materials or deliberations shall be immediately reported to the Chair and to Calderwood & Harkness LLP, and the Special Committee shall take such remedial action as it deems appropriate to preserve the integrity of the process.
5.6 Executive Sessions
The Special Committee may, and is encouraged to, convene in executive session (without management, Company employees, or advisors present) at any meeting or at the conclusion of any meeting. Executive sessions provide the Special Committee with the opportunity to discuss sensitive matters, to deliberate candidly among the members, and to assess the performance and advice of the Special Committee's advisors. The Chair shall preside over all executive sessions, and a summary of any actions taken or conclusions reached during an executive session shall be recorded in the minutes of the meeting by Calderwood & Harkness LLP following the executive session.
SECTION 6: REPORTING TO THE BOARD
6.1 Periodic Reports
The Special Committee, through the Chair, shall provide periodic reports to the full Board of Directors (excluding the Recused Directors from any substantive deliberation regarding the Proposed Transaction) regarding the status of the Special Committee's activities. Such reports shall be provided at such times and in such manner as the Special Committee deems appropriate and consistent with the preservation of applicable legal privileges (including attorney-client privilege and attorney work product protection) and the integrity of the independence protocol.
Periodic reports to the Board shall be limited to general status updates concerning the progress of the Special Committee's evaluation and shall not include privileged communications, attorney work product, negotiation strategy, financial advisor analyses, or other information the disclosure of which could compromise the independence of the Special Committee's process or the Company's negotiating position. The content and timing of such reports shall be determined by the Chair in consultation with Calderwood & Harkness LLP.
6.2 Final Recommendation
Upon completion of its evaluation of the Proposed Transaction, the Special Committee shall deliver a formal written recommendation to the full Board of Directors. The Special Committee's recommendation shall be one of the following:
(a) A recommendation that the Board of Directors approve the Proposed Transaction, on specified terms and conditions as set forth in the transaction documents reviewed and approved by the Special Committee.
(b) A recommendation that the Board of Directors reject the Proposed Transaction, together with a summary of the reasons for such recommendation.
(c) A recommendation that the Board of Directors pursue an alternative transaction or strategic course of action, together with a description of such alternative and the reasons for such recommendation.
The Board of Directors shall not approve the Proposed Transaction, or authorize the execution and delivery of any definitive agreement relating to the Proposed Transaction, without the Special Committee's affirmative recommendation. In the event that the Special Committee recommends rejection of the Proposed Transaction, the Board shall not override such recommendation or proceed with the Proposed Transaction over the objection of the Special Committee, unless and until the Special Committee's Charter and authority are amended in accordance with Section 9 hereof and a new evaluation process is undertaken.
6.3 Supporting Materials
The Special Committee's formal recommendation shall be accompanied by the following supporting materials:
(a) The written fairness opinion of Thorngate Partners LLC, addressed to the Special Committee, as to whether the consideration to be paid by Penterra in the Proposed Transaction is fair, from a financial point of view, to the Company and its disinterested stockholders.
(b) A process memorandum prepared by Calderwood & Harkness LLP summarizing the Special Committee's activities, the procedural protections adopted, the key milestones and decision points in the evaluation process, and the basis for the Special Committee's recommendation.
(c) Such other materials as the Special Committee deems appropriate to inform the Board's consideration of the recommendation, including summaries of due diligence findings, key negotiation points, and risk factors.
SECTION 7: COMPENSATION OF SPECIAL COMMITTEE MEMBERS
7.1 Cash Retainer
Each member of the Special Committee shall receive additional cash compensation for service on the Special Committee, in an amount to be determined by the Board of Directors (upon the recommendation of the Compensation Committee), in recognition of the substantial time commitment required for the evaluation, negotiation, and documentation of the Proposed Transaction and the performance of the Special Committee's duties under this Charter. Such compensation shall be payable in cash, at such times and in such installments as the Board or the Compensation Committee shall determine. The Special Committee members' compensation for service on the Special Committee shall not be contingent on the outcome of the Special Committee's evaluation or recommendation, or on the consummation or non-consummation of the Proposed Transaction.
7.2 No Transaction-Based Compensation
No member of the Special Committee shall receive any compensation that is contingent upon, or that varies based upon, the approval, recommendation, or closing of the Proposed Transaction. No member of the Special Committee shall receive any bonus, incentive payment, success fee, or other form of transaction-based compensation in connection with the Proposed Transaction. This prohibition is intended to ensure that the compensation of the Special Committee members does not create any incentive that could impair their independence or objectivity in evaluating the Proposed Transaction.
7.3 Indemnification and Insurance
Each member of the Special Committee shall be entitled to indemnification and advancement of expenses by the Company to the fullest extent permitted by the Delaware General Corporation Law and the Company's Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws, in connection with any claim, action, suit, investigation, or proceeding arising out of or relating to such member's service on the Special Committee. The Company's obligation to indemnify and advance expenses to the members of the Special Committee shall be in addition to, and not in limitation of, any other rights of indemnification or advancement to which such members may be entitled as directors of the Company.
Service on the Special Committee shall be covered under the Company's directors' and officers' liability insurance policy maintained with Northpoint Specialty Insurance Company (Policy Number NSI-DO-2023-88412), which provides aggregate coverage of Fifty Million Dollars ($50,000,000) under a combined Side A, Side B, and Side C coverage tower. The Company shall maintain such insurance coverage in full force and effect throughout the duration of the Special Committee's existence and for a period of not less than six (6) years following the dissolution or termination of the Special Committee, or shall procure tail coverage providing substantially equivalent protection.
SECTION 8: DURATION AND TERMINATION
8.1 Duration. The Special Committee shall continue in existence until the earliest to occur of:
(a) The delivery of the Special Committee's formal recommendation to the full Board of Directors pursuant to Section 6.2 of this Charter and the acceptance thereof by the Board.
(b) The termination or abandonment of the Proposed Transaction, whether by mutual agreement of the parties, by action of the Board, or otherwise.
(c) A resolution of the Board of Directors dissolving the Special Committee, which resolution shall require the affirmative vote of a majority of the independent directors of the Board (excluding the Recused Directors) and which shall not be adopted over the objection of the Special Committee except in accordance with Section 9 hereof.
8.2 Survival of Authority
Notwithstanding the termination or dissolution of the Special Committee pursuant to Section 8.1, the authority of the Special Committee shall survive with respect to the following matters:
(a) Any post-signing or post-closing matters arising under the transaction documents that were within the scope of the Special Committee's authority during the pendency of the Special Committee's activities, including without limitation any disputes regarding earnout payments, contingent value rights, escrow releases, indemnification claims, or purchase price adjustments, to the extent the Special Committee's involvement is necessary or appropriate to protect the interests of the Company's disinterested stockholders.
(b) Cooperation with the preparation, review, and approval of proxy statement disclosures and other public filings regarding the Special Committee's process, composition, deliberations, and recommendation, to the extent that a stockholder vote is required under applicable NYSE rules for the issuance of Penterra common stock in connection with the Proposed Transaction or to the extent otherwise required by applicable law, regulation, or listing standard.
The Company shall continue to provide the Special Committee and its advisors with access to information and cooperation as reasonably necessary for the exercise of the surviving authority described in this Section 8.2.
SECTION 9: AMENDMENT
This Charter may be amended, modified, or supplemented only by the affirmative vote of a majority of the independent directors of the Board of Directors of Penterra Pharmaceuticals Corp. (excluding the Recused Directors), acting in consultation with Calderwood & Harkness LLP, independent counsel to the Special Committee.
No amendment, modification, or supplement to this Charter that would diminish the authority, independence, or scope of responsibility of the Special Committee, or that would alter the composition of the Special Committee, the independence requirements applicable to its members, or the protections afforded to the Company's disinterested stockholders, shall be effective unless and until the Special Committee has provided its prior written consent to such amendment, modification, or supplement. The requirement of the Special Committee's consent is intended to preserve the integrity and independence of the Special Committee's process and to prevent any interested party from undermining the procedural protections established by this Charter.
Any amendment to this Charter shall be documented in writing, shall specify the effective date of the amendment, and shall be filed with the records of the Special Committee in the Project Coriander workspace.
SECTION 10: GOVERNING LAW
This Charter, and all matters relating to the authority, proceedings, duties, and obligations of the Special Committee, shall be governed by and construed in accordance with the laws of the State of Delaware, including without limitation the Delaware General Corporation Law §§ 141(a) and 144, without regard to any conflict-of-laws principles that might otherwise direct the application of the laws of another jurisdiction.
To the extent any provision of this Charter conflicts with any provision of the Company's Amended and Restated Certificate of Incorporation or Amended and Restated Bylaws, the provision affording the greatest protection to the independence and authority of the Special Committee and the interests of the Company's disinterested stockholders shall control. To the extent any provision of this Charter is inconsistent with mandatory provisions of the Delaware General Corporation Law, such mandatory provisions shall control.
ATTESTATION AND ADOPTION
This Charter of the Special Committee of the Board of Directors of Penterra Pharmaceuticals Corp. was duly adopted by the Board of Directors of Penterra Pharmaceuticals Corp. on June 2, 2023, by the unanimous vote of the six (6) independent directors of the Board (with Dr. Marcus Hale, Angela Whitmore, and Raymond Tusk recusing themselves from the discussion and vote), pursuant to the Enabling Resolutions.
PENTERRA PHARMACEUTICALS CORP.
Attested by:
By: ________
Name: Lawrence Whittaker
Title: General Counsel and Corporate Secretary
Date: June 2, 2023
Prepared by:
CALDERWOOD & HARKNESS LLP Independent Counsel to the Special Committee
By: ________
Name: Renata Vasquez, Partner
1700 Market Street, Suite 3400 Philadelphia, PA 19103
Date: June 2, 2023
C&H Matter No. 1025-00006 — Project Coriander — Privileged & Confidential