1018-00003 · Client 1018 · Financial Advisor Coordination

letter-thorngate-fairness-opinion-scope.docx DOCUMENT M&A / Corporate

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PRIVILEGED AND CONFIDENTIAL

CALDERWOOD & HARKNESS LLP 1700 Market Street, Suite 3400 Philadelphia, PA 19103

June 20, 2023

Gregory Ashford, Managing Director Thorngate Partners LLC 590 Madison Avenue, 22nd Floor New York, NY 10022

Re: Scope of Independent Financial Advisor Engagement — Special Committee of the Board of Directors of Penterra Pharmaceuticals Corp. (NYSE: PPHR); Evaluation of Proposed Acquisition of Caliston BioSciences, Inc.

Thorngate Engagement Reference: 1018-00003 C&H Matter Number: 1025-00006 Project Coriander

Dear Mr. Ashford:

I. Introduction and Purpose

Calderwood & Harkness LLP ("Calderwood & Harkness" or "C&H") writes on behalf of the Special Committee (the "Special Committee") of the Board of Directors (the "Board") of 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 Innovation Drive, Suite 1200, Princeton, New Jersey 08540, whose common stock is listed and traded on the New York Stock Exchange under the ticker symbol "PPHR."

This letter is in reference to the engagement letter (the "Engagement Letter") entered into between Thorngate Partners LLC ("Thorngate" or the "Financial Advisor") and the Special Committee, dated June 16, 2023, pursuant to which the Special Committee retained Thorngate to serve as the Special Committee's independent financial advisor in connection with the proposed acquisition by Penterra of Caliston BioSciences, Inc. ("Caliston"), a privately held corporation organized under the laws of the State of Delaware, with its principal offices located at 88 Harbor Point Road, Cambridge, Massachusetts 02142.

The purpose of this letter (the "Scope Letter") is to set forth the Special Committee's expectations regarding the scope, methodologies, deliverables, independence requirements, and format of the fairness opinion to be rendered by Thorngate in connection with the proposed acquisition of Caliston (the "Proposed Transaction" or the "Transaction"). The Special Committee has asked us to articulate these expectations in detail so that Thorngate has a clear and comprehensive understanding of the work product anticipated and the standards to which the Special Committee will hold its independent financial advisor throughout this engagement.

This Scope Letter supplements, but does not amend, the Engagement Letter. It should be read in conjunction with the Engagement Letter, and in the event of any inconsistency between this Scope Letter and the Engagement Letter, the terms of the Engagement Letter shall control. Nothing contained herein is intended to limit Thorngate's professional judgment or to dictate the conclusions Thorngate may reach in its analyses or in its fairness opinion.

II. Background of the Proposed Transaction and Related-Party Context

To ensure that Thorngate has a complete understanding of the factual context in which its engagement arises, we set forth below a summary of the Proposed Transaction and, importantly, the related-party circumstances that give rise to heightened fiduciary obligations and the need for rigorous procedural safeguards.

The Proposed Transaction. Penterra proposes to acquire one hundred percent (100%) of the outstanding equity interests of Caliston through a one-step merger (the "Merger"), pursuant to which Caliston would merge with and into a wholly owned acquisition subsidiary of Penterra, with Caliston ceasing to exist as a separate entity and all outstanding equity of Caliston being converted into the right to receive merger consideration from Penterra. The specific structure and terms of the Merger remain under negotiation and have not yet been finalized.

Caliston BioSciences, Inc. Caliston is a clinical-stage biopharmaceutical company focused on the discovery and development of novel kinase inhibitors for the treatment of solid tumors. Caliston was founded in 2017 and currently employs approximately ninety-four (94) individuals. The company is pre-commercial and generated no product revenue in its fiscal year ended December 31, 2022 (FY2022 revenue: $0).

Caliston's lead clinical asset is CLT-4019, a selective cyclin-dependent kinase 4/6 (CDK4/6) inhibitor being developed for the treatment of hormone receptor-positive, HER2-negative (HR+/HER2–) metastatic breast cancer. An Investigational New Drug application for CLT-4019 was filed with the United States Food and Drug Administration (IND 158429) in March 2020, and CLT-4019 is currently in a Phase 2b clinical trial, with topline data anticipated in the fourth quarter of 2023. In addition to its lead asset, Caliston maintains a preclinical pipeline that includes CLT-5227, a next-generation kinase inhibitor targeting a distinct molecular pathway, and CLT-6034, an early-stage program with initial in vivo data.

Caliston's most recent private valuation was established in its Series C financing round, which closed in October 2021 and valued the company at $680 million on a post-money basis. Caliston has raised a total of approximately $347 million in equity capital from its inception through and including the Series C round (encompassing Seed, Series A, Series B, and Series C financings). For the fiscal year ended December 31, 2022, Caliston's net cash burn was approximately $78.4 million. As of March 31, 2023, Caliston had approximately $112.6 million of cash and cash equivalents on hand, providing an estimated operating runway through the first quarter of 2025, absent additional financing.

Related-Party Interests and Conflicts. The Proposed Transaction presents significant related-party conflicts of interest that are central to the Special Committee's process and to the scope of Thorngate's engagement:

Dr. Marcus Hale. Dr. Hale serves as Chairman of the Board and Chief Executive Officer of Penterra. Dr. Hale holds a 28.5% equity interest in Caliston, which he acquired through personal investments totaling approximately $42 million across Caliston's Seed, Series A, and Series B financing rounds. Dr. Hale has served as a board observer at Caliston since 2018 and has attended fourteen (14) of sixteen (16) Caliston board meetings during that period. Dr. Hale stands on both sides of the Proposed Transaction — as the leader of the acquiring entity and as a significant stockholder of the target — giving rise to an inherent and material conflict of interest.

Angela Whitmore. Ms. Whitmore is a member of the Penterra Board of Directors and serves as Penterra's Executive Vice President, Commercial Operations. Ms. Whitmore is not considered an independent director. Ms. Whitmore is the spouse of Dr. Evan Whitmore, who serves as Caliston's Head of Clinical Development and as a member of Caliston's Board of Directors. This familial relationship creates an additional conflict of interest with respect to the evaluation of the Proposed Transaction.

Formation and Authority of the Special Committee. Recognizing the foregoing conflicts, on June 2, 2023, by unanimous vote of Penterra's six independent directors, the Board constituted the Special Committee to evaluate the Proposed Transaction and to protect the interests of Penterra and its unaffiliated stockholders. The Special Committee comprises three independent directors: Diane Prescott (Chair), James Okafor, and Dr. Helen Ng. Dr. Hale, Angela Whitmore, and Raymond Tusk have been recused from all Special Committee deliberations and from any role in evaluating, negotiating, or approving the Proposed Transaction.

The Board resolution establishing the Special Committee grants the Special Committee sole and exclusive authority to: (a) evaluate the Proposed Transaction on behalf of the Company; (b) negotiate the terms and conditions of the Proposed Transaction; (c) retain independent legal counsel, financial advisors, and other consultants at the Company's expense; (d) recommend to the full Board approval or rejection of the Proposed Transaction; and (e) explore strategic alternatives to the Proposed Transaction, including the authority to decline to pursue any transaction with Caliston.

Independent Advisors. Calderwood & Harkness LLP was engaged on June 2, 2023 to serve as independent legal counsel to the Special Committee. Alcott, Barringer & Cole LLP, which serves as Penterra's regular outside counsel, has been recused from advising the Special Committee with respect to the Proposed Transaction in order to preserve the independence and integrity of the Special Committee's process. Caliston is represented by Whitfield Graves LLP (Kenneth Pratt, partner) and has been advised on financial matters by Fendowell Sinclair & Co. (Sandra Wu, managing director).

Applicable Legal Standard. Given the related-party nature of the Proposed Transaction, particularly Dr. Hale's dual position as Penterra's Chairman and CEO and as a significant Caliston stockholder, the Special Committee's evaluation of the Proposed Transaction must be conducted with a view toward satisfying Delaware's entire fairness doctrine, which requires both fair dealing (a fair process) and fair price (a financially fair result). The retention of an independent financial advisor to render a fairness opinion is a critical element of the procedural safeguards that will demonstrate the integrity of the Special Committee's process, and the fairness opinion itself will bear directly on whether the Transaction, if consummated, can withstand judicial scrutiny under applicable Delaware law. The Special Committee expects Thorngate to conduct its analyses with the rigor and thoroughness commensurate with these heightened standards.

III. Scope of Engagement and Role of Thorngate

Thorngate is engaged to serve as the independent financial advisor solely to the Special Committee. Thorngate does not serve as an advisor to Penterra's management, to the full Board, to Dr. Hale, or to any other party. The Special Committee expects Thorngate to approach its assignment with objectivity and independence, free from the influence of Penterra's management or any party with a personal interest in the outcome of the Proposed Transaction.

Thorngate's primary deliverables under this engagement are as follows:

(a) Independent Valuation Analyses. Conduct independent valuation analyses of Caliston BioSciences, Inc., utilizing the methodologies set forth in Section IV below, and such additional or supplemental methodologies as Thorngate may deem appropriate in the exercise of its professional judgment.

(b) Fairness Opinion. Render a formal written fairness opinion to the Special Committee as to whether the merger consideration to be paid by Penterra in connection with the Proposed Transaction is fair, from a financial point of view, to Penterra and its stockholders (other than Dr. Hale and his affiliates).

(c) Negotiation Support. Assist the Special Committee in evaluating and negotiating the financial terms of the Proposed Transaction, including the aggregate consideration, the mix of cash and stock, the structure and value of any contingent value rights, exchange ratio mechanics, and other financial terms.

(d) Market Check (If Directed). If directed by the Special Committee, conduct a market check, whether targeted or broader in scope, to identify potential alternative acquisition targets, acquirers of Caliston, or strategic alternatives to the Proposed Transaction, as described further in Section XI below.

Reporting Structure. Thorngate shall report solely to, and take direction solely from, the Special Committee, acting through its Chair, Diane Prescott, and through Calderwood & Harkness LLP. All substantive communications, presentations, and deliverables shall be directed to the Special Committee through these channels.

Communications Protocol. Thorngate will, in the course of its engagement, require access to non-public information from both Penterra management and Caliston management. All communications with Penterra management — including, without limitation, Dr. Marcus Hale (Chairman and CEO), Priya Anand (Chief Financial Officer), and Lawrence Whittaker (Senior Vice President, Corporate Development) — must be coordinated through, or approved in advance by, Calderwood & Harkness LLP, consistent with the information barrier policy that has been established for Project Coriander. This protocol is designed to ensure that the Special Committee maintains control over the information flow and that the integrity of its independent process is not compromised.

Prohibited Communications. Under no circumstances shall Thorngate communicate regarding the Proposed Transaction, or any matter related thereto, with any of the following individuals: (i) Dr. Marcus Hale; (ii) Angela Whitmore; or (iii) Raymond Tusk. Any request for information that would normally be directed to Dr. Hale in his capacity as CEO shall instead be routed through Priya Anand or Lawrence Whittaker, subject to the coordination requirements described above.

IV. Required Valuation Methodologies

The Special Committee expects that Thorngate will employ multiple valuation methodologies in order to develop a comprehensive and well-supported view of the value of Caliston. At a minimum, the following methodologies shall be utilized. Thorngate retains discretion to employ additional or supplemental approaches as it deems appropriate, subject to the provisions of Section IV.D below.

A. Discounted Cash Flow Analysis

Thorngate shall perform a discounted cash flow ("DCF") analysis of Caliston, which is expected to be the primary valuation methodology given Caliston's clinical-stage status and lack of current revenue. The DCF analysis shall include the following elements:

(i) Standalone DCF of CLT-4019. A standalone discounted cash flow analysis of CLT-4019 as Caliston's lead clinical asset, incorporating risk-adjusted, probability-weighted revenue projections that appropriately reflect CLT-4019's current Phase 2b stage of clinical development. The probability of technical and regulatory success ("PTRS") assumptions used in this analysis should be consistent with industry benchmarks for Phase 2b oncology assets, with appropriate adjustments for any CLT-4019-specific data available as of the date of the analysis.

(ii) Full-Pipeline DCF. A full-pipeline discounted cash flow analysis incorporating all three of Caliston's development-stage candidates — CLT-4019, CLT-5227, and CLT-6034 — using a risk-adjusted net present value ("rNPV") methodology. Each pipeline candidate should be assigned probability-of-success adjustments appropriate to its respective stage of development (Phase 2b for CLT-4019; preclinical for CLT-5227 and CLT-6034), drawing upon published industry success-rate data and comparable clinical programs.

(iii) Key Assumptions. The DCF analysis shall clearly state all material assumptions, including, without limitation: the weighted average cost of capital ("WACC") or discount rate applied; the methodology used to derive the discount rate (including, as applicable, the capital asset pricing model, risk premium adjustments for clinical-stage companies, and any company-specific risk adjustments); the terminal growth rate, if applicable; and the results of sensitivity analyses conducted around key variables including, but not limited to, the discount rate, probability of success, peak revenue, market penetration, and time to market.

(iv) Revenue Build-Up. Revenue projections for CLT-4019 shall be developed using a detailed bottom-up approach reflecting: the total addressable market for HR+/HER2– metastatic breast cancer (including estimated patient populations and incidence/prevalence data from peer-reviewed sources); projected market share, taking into account the competitive landscape, including existing CDK4/6 inhibitors (palbociclib, ribociclib, abemaciclib) and expected new entrants; pricing assumptions based on comparable branded oncology therapies; and the anticipated patent life and period of market exclusivity for CLT-4019.

(v) Cash Burn and Capital Requirements. The DCF analysis shall model Caliston's projected cash burn trajectory through anticipated commercialization, including estimated costs for the completion of Phase 2b and Phase 3 clinical trials, regulatory submissions, manufacturing scale-up, commercial launch, and ongoing operating expenses. Required capital expenditures and any dilutive financing events (in the standalone scenario) should be identified and incorporated into the analysis.

B. Comparable Transactions Analysis

Thorngate shall identify and analyze precedent mergers and acquisitions transactions involving clinical-stage oncology and biopharmaceutical companies that are reasonably comparable to the Proposed Transaction. In selecting comparable transactions, Thorngate should apply the following criteria, among others it deems appropriate:

(i) Therapeutic Area. Priority should be given to transactions involving oncology-focused companies, with particular emphasis on solid tumor therapeutics and, where available, kinase inhibitor programs. Broader biopharmaceutical transactions may be included where the oncology universe is insufficient to provide meaningful data.

(ii) Development Stage. Comparable transactions should primarily involve target companies at the Phase 2 or Phase 2b stage of clinical development, though transactions involving Phase 1/2 or Phase 3 companies may be included for reference where they provide relevant valuation benchmarks.

(iii) Transaction Size. Transactions should be of a size reasonably comparable to the anticipated scale of the Proposed Transaction, though Thorngate should exercise judgment in determining the appropriate range.

(iv) Consideration Structure. Thorngate should note and analyze the consideration structure in comparable transactions, including cash, stock, and contingent value right components, and should consider how the presence or absence of contingent consideration affects implied valuations.

(v) Recency. Priority should be given to transactions completed within the last five (5) years, though Thorngate may include older transactions where they are particularly instructive.

(vi) Universe Size. The Special Committee expects that Thorngate will identify a sufficient universe of comparable transactions — an expectation of at least five (5) to ten (10) comparables — to provide meaningful benchmarking data. Thorngate should provide a clear rationale for the inclusion or exclusion of each transaction considered.

Relevant valuation multiples and metrics to be applied in the comparable transactions analysis should include, at a minimum, implied enterprise value relative to projected peak sales, price per development-stage asset, and such other multiples or metrics as Thorngate deems informative.

C. Premiums Paid Analysis

Thorngate shall conduct a premiums paid analysis focused on acquisitions of privately held, venture-backed biopharmaceutical companies, benchmarking the premium implied by the Proposed Transaction against comparable transactions. The most relevant benchmark for Caliston is the premium to the target company's most recent private financing round valuation.

As noted above, Caliston's Series C round, which closed in October 2021, established a post-money valuation of $680 million. The proposed merger consideration should be evaluated in the context of the premium (or discount) implied over this benchmark. In conducting this analysis, Thorngate should consider the following:

(i) The elapsed time between the Series C round (October 2021) and the anticipated signing of the Merger Agreement, which is approximately twenty (20) months, and the extent to which intervening events may affect the relevance of the Series C valuation as a benchmark.

(ii) Whether adjustments to the Series C benchmark are warranted in light of: changes in public and private market conditions for biopharmaceutical companies since October 2021 (including the significant decline in biotech valuations in 2022); clinical progress achieved by Caliston since the Series C round, including advancement of CLT-4019 through Phase 2b; and cash consumed since the Series C round, which has reduced Caliston's cash position from approximately $191 million (estimated post-Series C) to $112.6 million as of March 31, 2023.

(iii) Premiums observed in comparable transactions involving venture-backed biopharmaceutical targets at similar stages of development, and how such premiums compare to the premium implied by the Proposed Transaction.

D. Additional / Supplemental Analyses (at Thorngate's Discretion)

The Special Committee recognizes that the valuation of a clinical-stage biopharmaceutical company presents unique challenges and that no single valuation methodology is sufficient in isolation. Accordingly, the Special Committee welcomes and encourages Thorngate to employ any additional or supplemental valuation methodologies that Thorngate, in its professional judgment, deems appropriate or informative. Such methodologies may include, without limitation:

• A sum-of-the-parts analysis, separately valuing each pipeline asset and the corporate entity;

• A comparable public company analysis, to the extent that publicly traded clinical-stage oncology companies provide meaningful valuation reference points;

• An option-pricing model or real options analysis for contingent pipeline value, particularly for the preclinical assets CLT-5227 and CLT-6034;

• An analysis of the implied value of Caliston's in-process research and development; or

• Any other methodology that Thorngate believes adds rigor or perspective to the analysis.

Any supplemental methodology employed should be clearly identified, explained, and distinguished from the primary methodologies required under Sections IV.A through IV.C above.

V. Assumptions, Data Sources, and Management Projections

In the course of conducting its valuation analyses, Thorngate will necessarily rely on range data sources, including financial projections and other forward-looking information provided by the parties. The Special Committee sets forth the following expectations regarding Thorngate's treatment of such information.

Management Projections. Thorngate may rely upon financial projections, clinical development timelines, probability-of-success estimates, and other forward-looking information provided by Caliston management (including, without limitation, Dr. Nadia Sorensen, Chief Executive Officer of Caliston, and Dr. Raj Malhotra, Chief Scientific Officer of Caliston) and/or by Penterra management. However, in doing so, Thorngate must:

(a) Identify clearly which projections it is relying upon and the source of each set of projections (i.e., whether prepared by Caliston management, Penterra management, or a third party);

(b) Disclose any material assumptions underlying such projections, including assumptions regarding revenue growth, operating margins, clinical trial timelines, probability of regulatory approval, and capital requirements;

(c) Note whether and to what extent Thorngate independently verified, supplemented, or adjusted management projections, and the basis for any such adjustments; and

(d) Where Caliston management projections and Penterra management projections differ materially, identify such differences and explain how Thorngate treated such discrepancies in its analysis.

Third-Party Data. Thorngate may also rely upon publicly available information, industry data, and third-party research reports from sources such as Tidewater Holdings, Adriatic & Co., Granite Harbor Partners LLC, FDA databases, ClinicalTrials.gov, published clinical trial results, and peer-reviewed scientific literature. All such sources should be cited in Thorngate's presentations and in the fairness opinion.

Limitations on Verification. Thorngate is not expected to independently verify the accuracy or completeness of information provided by Caliston or Penterra, but should note in its fairness opinion any limitations on the information available to it or any specific areas where it was unable to obtain requested information.

No Independent Appraisal. Thorngate shall not be expected to independently appraise or value individual assets or liabilities of Caliston, nor shall it be expected to conduct physical inspections of any properties or facilities, or to undertake an independent scientific evaluation of Caliston's clinical data. To the extent that Thorngate believes that consultation with clinical, scientific, or other subject-matter experts would enhance the quality of its analysis, Thorngate may engage such consultants or specialists, provided that the scope and cost of any such engagement is approved in advance by the Special Committee.

Disclosure of Assumptions. All material assumptions underlying Thorngate's analyses, and any limitations on the data or information relied upon, shall be disclosed in the fairness opinion itself, in a manner that is clear, complete, and suitable for inclusion in public filings, as further described in Section IX below.

VI. Contingent Value Rights Analysis

The Special Committee understands that the consideration payable in the Proposed Transaction may include a contingent value rights ("CVR") component, the terms of which are currently under discussion between the parties. Because the inclusion of a CVR introduces additional complexity into the valuation and fairness analysis, the Special Committee requests that Thorngate give particular attention to this element.

Specifically, Thorngate shall:

(a) Assess CVR Value. Conduct a separate analysis of the value attributable to any CVR that is included in the proposed merger consideration. It is anticipated that the CVR milestone will relate to the achievement of FDA approval of CLT-4019 within a specified timeframe (the precise terms to be negotiated). Thorngate's analysis should include a probability-weighted assessment of the likelihood that the CVR milestone will be achieved, drawing upon clinical-stage success-rate data, information regarding the status of the CLT-4019 Phase 2b trial, and such other factors as Thorngate deems relevant.

(b) Present Value Calculation. Calculate the present value of the expected CVR payment, discounted at an appropriate risk-adjusted rate, with clear disclosure of the discount rate and probability assumptions used.

(c) Treatment in Fairness Opinion. The Special Committee requests that the fairness opinion clearly state its treatment of CVRs — specifically, whether the fairness opinion addresses (i) the base equity consideration exclusive of CVRs, (ii) the aggregate consideration inclusive of CVRs, or (iii) both. The Special Committee's preference is that the fairness opinion address fairness both with and without the CVR component, so that the Special Committee and, ultimately, Penterra's stockholders can evaluate the transaction under both scenarios.

(d) CVR Structure Considerations. To the extent that the terms of the CVR raise structural issues that affect its value — including, for example, the length of the CVR term, transferability, the creditworthiness of the obligor, and mechanisms for dispute resolution — Thorngate should address such issues in its analysis and identify any structural features that may warrant adjustment to the assessed value of the CVR.

VII. Consideration Structure Analysis

The proposed consideration for the Merger is expected to comprise a combination of cash and Penterra common stock, with the precise mix and amounts still under negotiation. The Special Committee expects Thorngate to evaluate the consideration structure comprehensively, including the following elements:

(a) Implied Value of Stock Component. An analysis of the implied value of the stock component of the merger consideration, based on Penterra's share price. For purposes of this analysis, the relevant reference price should include the thirty (30)-day volume-weighted average price ("VWAP") of Penterra common stock as of an appropriate reference date. The Special Committee notes that the thirty-day VWAP as of June 1, 2023 was $39.17 per share, and that Penterra's approximate market capitalization as of that date was $4.72 billion, based on approximately 121.4 million shares of common stock outstanding.

(b) Dilutive Impact. An analysis of the dilutive impact on Penterra's existing stockholders resulting from the issuance of new shares of Penterra common stock as merger consideration, including the impact on earnings per share (on both a GAAP and non-GAAP basis), book value per share, and other relevant per-share metrics, to the extent determinable.

(c) Pro Forma Ownership. A pro forma ownership analysis showing the percentage ownership of Penterra's existing stockholders and the former Caliston stockholders in the combined entity following the Merger, including an analysis of the pro forma ownership of Dr. Hale (both in his capacity as a Penterra stockholder and as a recipient of merger consideration for his Caliston equity interest).

(d) Exchange Mechanism. An evaluation of the appropriateness of a fixed-value exchange mechanism (in which the number of shares issued adjusts based on Penterra's share price at or near closing) versus a fixed-ratio exchange mechanism (in which the exchange ratio is set at signing and does not adjust), considering market volatility, the expected timeline between signing and closing, and the allocation of market risk between the parties.

VIII. Independence Confirmations

The independence of the Special Committee's financial advisor is of paramount importance in the context of this related-party transaction. Thorngate's independence is a necessary predicate for the fairness opinion to serve its intended function as a procedural safeguard under Delaware law. Accordingly, Thorngate shall confirm in writing the following, both at the time of this letter and again at the time of delivery of the fairness opinion:

(a) Thorngate has no material relationship with Penterra, Caliston, Dr. Marcus Hale, any stockholder of Caliston (including, without limitation, Ridgeline Ventures, LP and Meridian Life Sciences Fund III, LP), or any of their respective officers, directors, partners, members, or affiliates, that would impair Thorngate's independence or objectivity in connection with this engagement.

(b) Thorngate has not provided financial advisory, investment banking, or other professional services to Caliston, Dr. Marcus Hale, Ridgeline Ventures, LP, Meridian Life Sciences Fund III, LP, or Fendowell Sinclair & Co. at any time during the two (2)-year period preceding the date of this letter.

(c) Thorngate's compensation for this engagement is not contingent upon Thorngate reaching a particular conclusion or recommendation, nor upon the consummation of the Proposed Transaction. Specifically, the advisory fee of Two Million Five Hundred Thousand Dollars ($2,500,000), structured as follows — fifty percent (50%) payable upon delivery of the fairness opinion and fifty percent (50%) payable upon the earlier of the closing of the Transaction or the termination of the Special Committee's engagement of Thorngate — together with the Five Hundred Thousand Dollar ($500,000) non-refundable retainer (to be credited against the final advisory fee) and reimbursement of reasonable out-of-pocket expenses, is structured such that a significant portion of the fee is payable regardless of whether the Transaction is ultimately consummated. The Special Committee acknowledges that the remaining fifty percent (50%) of the advisory fee is payable upon closing or termination; however, this structure does not, in the Special Committee's view, impair Thorngate's independence given the substantial portion payable irrespective of outcome.

(d) Thorngate shall disclose any compensation received from, or business or professional relationships with, any party to the Proposed Transaction (including Penterra, Caliston, Dr. Hale, and any Caliston stockholder or affiliate) during the two (2)-year period preceding the date of this letter, and any such compensation or relationships that arise during the pendency of this engagement.

The independence confirmation shall be addressed to the Special Committee and shall be included in, or appended as an exhibit to, the fairness opinion delivered pursuant to this engagement. Thorngate shall also promptly notify Calderwood & Harkness LLP of any change in circumstances that could affect its independence at any time during the engagement.

IX. Format and Content of the Fairness Opinion

The fairness opinion to be rendered by Thorngate shall conform to the following requirements regarding format, content, and addressees.

Addressee. The fairness opinion shall be a formal written opinion addressed to the Special Committee of the Board of Directors of Penterra Pharmaceuticals Corp. The opinion shall not be addressed to the full Board, to Penterra's management, or to any individual director.

Core Opinion Statement. The opinion shall state whether, in Thorngate's professional opinion, the merger consideration to be paid by Penterra in connection with the Proposed Transaction is fair, from a financial point of view, to Penterra and its stockholders (other than stockholders who have a personal interest in the Proposed Transaction).

Required Content. The fairness opinion shall include the following:

(a) A description of the Proposed Transaction, including the aggregate consideration amount, the structure of the consideration (cash, stock, and CVRs, if applicable), and the key terms and conditions of the Merger Agreement to the extent relevant to the financial analysis.

(b) A summary of each valuation methodology employed by Thorngate, including the key inputs, assumptions, and ranges of implied values derived from each methodology. The level of detail should be sufficient to permit a reader — including sophisticated investors, proxy advisory firms, and, if necessary, the Delaware Court of Chancery — to understand the analytical basis for Thorngate's conclusion.

(c) An identification of the information and data relied upon by Thorngate in conducting its analyses, including management projections, third-party data sources, and any other information material to Thorngate's conclusion.

(d) A statement of all material assumptions, qualifications, and limitations, including, without limitation, any limitations on the scope of Thorngate's analysis, any information requested but not received, and any assumptions regarding future events or conditions.

(e) Disclosure of Thorngate's independence and a description of any relationships with parties to the Proposed Transaction, consistent with the requirements of Section VIII above.

(f) A statement that the opinion is provided solely for the information and benefit of the Special Committee in its evaluation of the Proposed Transaction, and that the opinion does not constitute a recommendation to any stockholder of Penterra as to how to vote or act with respect to the Proposed Transaction or any related matter.

(g) A statement that the opinion does not address the relative merits of the Proposed Transaction as compared to other strategic alternatives that may be available to Penterra, the Company's underlying business decision to pursue the Proposed Transaction, or the fairness of the Proposed Transaction to any particular stockholder (including Dr. Hale) or any other party.

Proxy Statement Inclusion. The fairness opinion shall be drafted so as to be suitable for inclusion in, or attachment to, any proxy statement or Schedule 14A that may be filed by Penterra with the United States Securities and Exchange Commission (the "SEC") in connection with the solicitation of stockholder approval of the share issuance or any other matter requiring stockholder action. Thorngate shall consent to the reproduction of the fairness opinion in full in such proxy materials. In addition, Thorngate shall consent to the inclusion of a summary of the fairness opinion prepared by Penterra (or its counsel) in such proxy materials, subject to Thorngate's review and approval of the summary for accuracy and completeness prior to filing.

X. Preliminary Analyses and Interim Reporting

The Special Committee anticipates that the evaluation of the Proposed Transaction will require multiple meetings and iterative analysis. Accordingly, prior to the delivery of the final fairness opinion, Thorngate shall present preliminary valuation analyses and findings to the Special Committee at one or more meetings, as directed by the Special Committee Chair.

These preliminary presentations shall include, at a minimum:

(a) Preliminary valuation ranges under each of the methodologies described in Section IV above;

(b) Identification of the key assumptions driving value under each methodology and an explanation of the sensitivity of the results to changes in those assumptions;

(c) Any open issues, areas of concern, or requests for additional information that Thorngate has identified in the course of its analysis; and

(d) An assessment of the status and preliminary findings of any market check process, if one has been initiated.

Thorngate shall provide written presentation materials to the Special Committee, through Calderwood & Harkness LLP, at least two (2) business days in advance of each scheduled presentation to allow the Special Committee members and their counsel adequate time for review and preparation.

All preliminary materials, presentations, and analyses are for the Special Committee's deliberative purposes only. Such materials are preliminary, subject to revision, and do not constitute or represent Thorngate's final opinion. All preliminary materials are subject to the information barrier and confidentiality protocols established for Project Coriander and must be treated accordingly.

XI. Market Check Process

In the event that the Special Committee determines, in its sole discretion, that a market check is appropriate as part of its evaluation of the Proposed Transaction, Thorngate shall, upon direction from the Special Committee, conduct a market check process. Such process may take the form of a targeted outreach to a limited number of potentially interested parties, or a broader canvass of the market, as the Special Committee may direct.

In connection with any market check:

(a) Thorngate shall prepare a proposed target list of potential alternative acquirers, strategic partners, or other counterparties for review and approval by the Special Committee prior to any outreach.

(b) Thorngate shall conduct outreach in a manner that preserves the confidentiality of the Proposed Transaction and complies with the information barrier and confidentiality protocols of Project Coriander.

(c) Following the completion of the market check, Thorngate shall prepare a written summary report of its findings, including: the number and identity of parties contacted; the nature and level of interest expressed by each party; the reasons for any declinations; and any indications of value or proposed terms received. This report shall be provided to the Special Committee through Calderwood & Harkness LLP.

(d) The results of the market check shall be considered by Thorngate in connection with its overall evaluation of the Proposed Transaction and, to the extent relevant, reflected in the fairness opinion.

XII. Coordination with Calderwood & Harkness LLP

To ensure that the Special Committee receives fully integrated legal and financial advice, and to facilitate the preparation of disclosure documents that meet the requirements of Delaware law and the federal securities laws, Thorngate and Calderwood & Harkness LLP shall coordinate their work as follows:

(a) All draft fairness opinion materials, preliminary presentations, and substantive correspondence directed to the Special Committee shall be shared with Calderwood & Harkness LLP (specifically, Renata Vasquez, Sophie Tremblay, and Daniel Obi) concurrently with, or prior to, delivery to the Special Committee.

(b) Calderwood & Harkness LLP will review the draft fairness opinion for legal sufficiency under Delaware fiduciary duty standards, including compliance with the principles articulated in Weinberger v. UOP, Inc., Kahn v. M&F Worldwide Corp., and their progeny, as well as for compliance with SEC disclosure requirements under Regulation S-K, Item 1015 of Regulation M-A, and applicable Staff guidance regarding fairness opinions.

(c) Thorngate and Calderwood & Harkness LLP will work together to prepare disclosure language relating to the fairness opinion for inclusion in any proxy statement, Schedule 14A, Form 8-K, or other public filing made by Penterra in connection with the Proposed Transaction.

(d) Calderwood & Harkness LLP may, from time to time, provide Thorngate with legal guidance regarding the procedural and substantive requirements applicable to the Special Committee's process, which Thorngate should take into account in structuring its analyses and drafting its opinion, without compromising its independent judgment.

XIII. Confidentiality

All materials, data, analyses, presentations, and other information provided to or generated by Thorngate in connection with this engagement are strictly confidential and are subject to the confidentiality provisions set forth in Section 8 of the Engagement Letter and the information barrier policy established for Project Coriander.

Thorngate shall not disclose any non-public information regarding the Proposed Transaction, including the existence and terms of the Transaction, the identity of the parties, the status of negotiations, or the content of any analyses or opinions, to any person who is not authorized under the information barrier policy, without the prior written consent of the Special Committee or Calderwood & Harkness LLP. This prohibition extends to Thorngate's employees, agents, and representatives who are not designated as members of the Project Coriander deal team.

Thorngate shall maintain appropriate internal information barriers to prevent the inadvertent disclosure of confidential information within Thorngate's organization to persons not assigned to this engagement.

XIV. Fee Arrangement Confirmation

For the avoidance of doubt, the fee arrangement for this engagement is as set forth in the Engagement Letter dated June 16, 2023, and is summarized below:

(a) Advisory Fee. Two Million Five Hundred Thousand Dollars ($2,500,000), payable as follows: fifty percent (50%), or $1,250,000, payable upon delivery of the fairness opinion to the Special Committee; and fifty percent (50%), or $1,250,000, payable upon the earlier of the closing of the Transaction or the termination of the Special Committee's engagement of Thorngate.

(b) Non-Refundable Retainer. Five Hundred Thousand Dollars ($500,000), which has been paid and is non-refundable, to be credited against the final advisory fee.

(c) Expenses. Reasonable out-of-pocket expenses incurred by Thorngate in connection with this engagement shall be reimbursed by the Company, in accordance with the terms of the Engagement Letter.

No additional fees are contemplated under this Scope Letter. In the event that the scope of Thorngate's engagement is expanded beyond the deliverables described herein — including, without limitation, the provision of additional opinions, valuations, or advisory services not contemplated by this letter — any additional compensation must be approved in advance by the Special Committee in writing.

XV. Miscellaneous

This Scope Letter does not amend, modify, or supersede the terms of the Engagement Letter dated June 16, 2023. In the event of any conflict or inconsistency between this Scope Letter and the Engagement Letter, the Engagement Letter shall govern and control.

The expectations set forth in this letter are intended to guide Thorngate in the performance of its engagement and to ensure that the Special Committee's requirements are clearly understood. Nothing in this letter is intended to constrain Thorngate's exercise of independent professional judgment or to predetermine the outcome of Thorngate's analysis.

Any questions regarding the expectations set forth herein, or any requests for clarification, should be directed to Renata Vasquez (rvasquez@calderwoodharkness.com; (215) 555-4100) or Sophie Tremblay (stremblay@calderwoodharkness.com; (215) 555-4117) at Calderwood & Harkness LLP.

XVI. Closing

We look forward to working with Thorngate in connection with this important engagement. The Special Committee is confident in Thorngate's qualifications and independence, and values the role that Thorngate will play in ensuring the rigor and integrity of the Special Committee's process.

We request that Thorngate acknowledge receipt and acceptance of this Scope Letter by countersigning where indicated below and returning an executed copy to Calderwood & Harkness LLP at your earliest convenience.

Very truly yours,

CALDERWOOD & HARKNESS LLP

By: ________

Name: Renata Vasquez

Title: Partner

On behalf of the Special Committee of the Board of Directors of Penterra Pharmaceuticals Corp.

cc:

Diane Prescott, Chair, Special Committee of the Board of Directors, Penterra Pharmaceuticals Corp. James Okafor, Member, Special Committee of the Board of Directors, Penterra Pharmaceuticals Corp. Dr. Helen Ng, Member, Special Committee of the Board of Directors, Penterra Pharmaceuticals Corp. Bernard Crawford, Calderwood & Harkness LLP Sophie Tremblay, Calderwood & Harkness LLP

XVII. Acknowledgment

ACKNOWLEDGED AND ACCEPTED:

THORNGATE PARTNERS LLC

By: ________

Name: Gregory Ashford

Title: Managing Director

Date: ________

PRIVILEGED AND CONFIDENTIAL
CALDERWOOD & HARKNESS LLP 1700 Market Street, Suite 3400 Philadelphia, PA 19103
June 20, 2023
Gregory Ashford, Managing Director Thorngate Partners LLC 590 Madison Avenue, 22nd Floor New York, NY 10022
Re: Scope of Independent Financial Advisor Engagement — Special Committee of the Board of Directors of Penterra Pharmaceuticals Corp. (NYSE: PPHR); Evaluation of Proposed Acquisition of Caliston BioSciences, Inc.
Thorngate Engagement Reference: 1018-00003 C&H Matter Number: 1025-00006 Project Coriander
Dear Mr. Ashford:
I. Introduction and Purpose
Calderwood & Harkness LLP ("Calderwood & Harkness" or "C&H") writes on behalf of the Special Committee (the "Special Committee") of the Board of Directors (the "Board") of 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 Innovation Drive, Suite 1200, Princeton, New Jersey 08540, whose common stock is listed and traded on the New York Stock Exchange under the ticker symbol "PPHR."
This letter is in reference to the engagement letter (the "Engagement Letter") entered into between Thorngate Partners LLC ("Thorngate" or the "Financial Advisor") and the Special Committee, dated June 16, 2023, pursuant to which the Special Committee retained Thorngate to serve as the Special Committee's independent financial advisor in connection with the proposed acquisition by Penterra of Caliston BioSciences, Inc. ("Caliston"), a privately held corporation organized under the laws of the State of Delaware, with its principal offices located at 88 Harbor Point Road, Cambridge, Massachusetts 02142.
The purpose of this letter (the "Scope Letter") is to set forth the Special Committee's expectations regarding the scope, methodologies, deliverables, independence requirements, and format of the fairness opinion to be rendered by Thorngate in connection with the proposed acquisition of Caliston (the "Proposed Transaction" or the "Transaction"). The Special Committee has asked us to articulate these expectations in detail so that Thorngate has a clear and comprehensive understanding of the work product anticipated and the standards to which the Special Committee will hold its independent financial advisor throughout this engagement.
This Scope Letter supplements, but does not amend, the Engagement Letter. It should be read in conjunction with the Engagement Letter, and in the event of any inconsistency between this Scope Letter and the Engagement Letter, the terms of the Engagement Letter shall control. Nothing contained herein is intended to limit Thorngate's professional judgment or to dictate the conclusions Thorngate may reach in its analyses or in its fairness opinion.
II. Background of the Proposed Transaction and Related-Party Context
To ensure that Thorngate has a complete understanding of the factual context in which its engagement arises, we set forth below a summary of the Proposed Transaction and, importantly, the related-party circumstances that give rise to heightened fiduciary obligations and the need for rigorous procedural safeguards.
The Proposed Transaction. Penterra proposes to acquire one hundred percent (100%) of the outstanding equity interests of Caliston through a one-step merger (the "Merger"), pursuant to which Caliston would merge with and into a wholly owned acquisition subsidiary of Penterra, with Caliston ceasing to exist as a separate entity and all outstanding equity of Caliston being converted into the right to receive merger consideration from Penterra. The specific structure and terms of the Merger remain under negotiation and have not yet been finalized.
Caliston BioSciences, Inc. Caliston is a clinical-stage biopharmaceutical company focused on the discovery and development of novel kinase inhibitors for the treatment of solid tumors. Caliston was founded in 2017 and currently employs approximately ninety-four (94) individuals. The company is pre-commercial and generated no product revenue in its fiscal year ended December 31, 2022 (FY2022 revenue: $0).
Caliston's lead clinical asset is CLT-4019, a selective cyclin-dependent kinase 4/6 (CDK4/6) inhibitor being developed for the treatment of hormone receptor-positive, HER2-negative (HR+/HER2–) metastatic breast cancer. An Investigational New Drug application for CLT-4019 was filed with the United States Food and Drug Administration (IND 158429) in March 2020, and CLT-4019 is currently in a Phase 2b clinical trial, with topline data anticipated in the fourth quarter of 2023. In addition to its lead asset, Caliston maintains a preclinical pipeline that includes CLT-5227, a next-generation kinase inhibitor targeting a distinct molecular pathway, and CLT-6034, an early-stage program with initial in vivo data.
Caliston's most recent private valuation was established in its Series C financing round, which closed in October 2021 and valued the company at $680 million on a post-money basis. Caliston has raised a total of approximately $347 million in equity capital from its inception through and including the Series C round (encompassing Seed, Series A, Series B, and Series C financings). For the fiscal year ended December 31, 2022, Caliston's net cash burn was approximately $78.4 million. As of March 31, 2023, Caliston had approximately $112.6 million of cash and cash equivalents on hand, providing an estimated operating runway through the first quarter of 2025, absent additional financing.
Related-Party Interests and Conflicts. The Proposed Transaction presents significant related-party conflicts of interest that are central to the Special Committee's process and to the scope of Thorngate's engagement:
Dr. Marcus Hale. Dr. Hale serves as Chairman of the Board and Chief Executive Officer of Penterra. Dr. Hale holds a 28.5% equity interest in Caliston, which he acquired through personal investments totaling approximately $42 million across Caliston's Seed, Series A, and Series B financing rounds. Dr. Hale has served as a board observer at Caliston since 2018 and has attended fourteen (14) of sixteen (16) Caliston board meetings during that period. Dr. Hale stands on both sides of the Proposed Transaction — as the leader of the acquiring entity and as a significant stockholder of the target — giving rise to an inherent and material conflict of interest.
Angela Whitmore. Ms. Whitmore is a member of the Penterra Board of Directors and serves as Penterra's Executive Vice President, Commercial Operations. Ms. Whitmore is not considered an independent director. Ms. Whitmore is the spouse of Dr. Evan Whitmore, who serves as Caliston's Head of Clinical Development and as a member of Caliston's Board of Directors. This familial relationship creates an additional conflict of interest with respect to the evaluation of the Proposed Transaction.
Formation and Authority of the Special Committee. Recognizing the foregoing conflicts, on June 2, 2023, by unanimous vote of Penterra's six independent directors, the Board constituted the Special Committee to evaluate the Proposed Transaction and to protect the interests of Penterra and its unaffiliated stockholders. The Special Committee comprises three independent directors: Diane Prescott (Chair), James Okafor, and Dr. Helen Ng. Dr. Hale, Angela Whitmore, and Raymond Tusk have been recused from all Special Committee deliberations and from any role in evaluating, negotiating, or approving the Proposed Transaction.
The Board resolution establishing the Special Committee grants the Special Committee sole and exclusive authority to: (a) evaluate the Proposed Transaction on behalf of the Company; (b) negotiate the terms and conditions of the Proposed Transaction; (c) retain independent legal counsel, financial advisors, and other consultants at the Company's expense; (d) recommend to the full Board approval or rejection of the Proposed Transaction; and (e) explore strategic alternatives to the Proposed Transaction, including the authority to decline to pursue any transaction with Caliston.
Independent Advisors. Calderwood & Harkness LLP was engaged on June 2, 2023 to serve as independent legal counsel to the Special Committee. Alcott, Barringer & Cole LLP, which serves as Penterra's regular outside counsel, has been recused from advising the Special Committee with respect to the Proposed Transaction in order to preserve the independence and integrity of the Special Committee's process. Caliston is represented by Whitfield Graves LLP (Kenneth Pratt, partner) and has been advised on financial matters by Fendowell Sinclair & Co. (Sandra Wu, managing director).
Applicable Legal Standard. Given the related-party nature of the Proposed Transaction, particularly Dr. Hale's dual position as Penterra's Chairman and CEO and as a significant Caliston stockholder, the Special Committee's evaluation of the Proposed Transaction must be conducted with a view toward satisfying Delaware's entire fairness doctrine, which requires both fair dealing (a fair process) and fair price (a financially fair result). The retention of an independent financial advisor to render a fairness opinion is a critical element of the procedural safeguards that will demonstrate the integrity of the Special Committee's process, and the fairness opinion itself will bear directly on whether the Transaction, if consummated, can withstand judicial scrutiny under applicable Delaware law. The Special Committee expects Thorngate to conduct its analyses with the rigor and thoroughness commensurate with these heightened standards.
III. Scope of Engagement and Role of Thorngate
Thorngate is engaged to serve as the independent financial advisor solely to the Special Committee. Thorngate does not serve as an advisor to Penterra's management, to the full Board, to Dr. Hale, or to any other party. The Special Committee expects Thorngate to approach its assignment with objectivity and independence, free from the influence of Penterra's management or any party with a personal interest in the outcome of the Proposed Transaction.
Thorngate's primary deliverables under this engagement are as follows:
(a) Independent Valuation Analyses. Conduct independent valuation analyses of Caliston BioSciences, Inc., utilizing the methodologies set forth in Section IV below, and such additional or supplemental methodologies as Thorngate may deem appropriate in the exercise of its professional judgment.
(b) Fairness Opinion. Render a formal written fairness opinion to the Special Committee as to whether the merger consideration to be paid by Penterra in connection with the Proposed Transaction is fair, from a financial point of view, to Penterra and its stockholders (other than Dr. Hale and his affiliates).
(c) Negotiation Support. Assist the Special Committee in evaluating and negotiating the financial terms of the Proposed Transaction, including the aggregate consideration, the mix of cash and stock, the structure and value of any contingent value rights, exchange ratio mechanics, and other financial terms.
(d) Market Check (If Directed). If directed by the Special Committee, conduct a market check, whether targeted or broader in scope, to identify potential alternative acquisition targets, acquirers of Caliston, or strategic alternatives to the Proposed Transaction, as described further in Section XI below.
Reporting Structure. Thorngate shall report solely to, and take direction solely from, the Special Committee, acting through its Chair, Diane Prescott, and through Calderwood & Harkness LLP. All substantive communications, presentations, and deliverables shall be directed to the Special Committee through these channels.
Communications Protocol. Thorngate will, in the course of its engagement, require access to non-public information from both Penterra management and Caliston management. All communications with Penterra management — including, without limitation, Dr. Marcus Hale (Chairman and CEO), Priya Anand (Chief Financial Officer), and Lawrence Whittaker (Senior Vice President, Corporate Development) — must be coordinated through, or approved in advance by, Calderwood & Harkness LLP, consistent with the information barrier policy that has been established for Project Coriander. This protocol is designed to ensure that the Special Committee maintains control over the information flow and that the integrity of its independent process is not compromised.
Prohibited Communications. Under no circumstances shall Thorngate communicate regarding the Proposed Transaction, or any matter related thereto, with any of the following individuals: (i) Dr. Marcus Hale; (ii) Angela Whitmore; or (iii) Raymond Tusk. Any request for information that would normally be directed to Dr. Hale in his capacity as CEO shall instead be routed through Priya Anand or Lawrence Whittaker, subject to the coordination requirements described above.
IV. Required Valuation Methodologies
The Special Committee expects that Thorngate will employ multiple valuation methodologies in order to develop a comprehensive and well-supported view of the value of Caliston. At a minimum, the following methodologies shall be utilized. Thorngate retains discretion to employ additional or supplemental approaches as it deems appropriate, subject to the provisions of Section IV.D below.
A. Discounted Cash Flow Analysis
Thorngate shall perform a discounted cash flow ("DCF") analysis of Caliston, which is expected to be the primary valuation methodology given Caliston's clinical-stage status and lack of current revenue. The DCF analysis shall include the following elements:
(i) Standalone DCF of CLT-4019. A standalone discounted cash flow analysis of CLT-4019 as Caliston's lead clinical asset, incorporating risk-adjusted, probability-weighted revenue projections that appropriately reflect CLT-4019's current Phase 2b stage of clinical development. The probability of technical and regulatory success ("PTRS") assumptions used in this analysis should be consistent with industry benchmarks for Phase 2b oncology assets, with appropriate adjustments for any CLT-4019-specific data available as of the date of the analysis.
(ii) Full-Pipeline DCF. A full-pipeline discounted cash flow analysis incorporating all three of Caliston's development-stage candidates — CLT-4019, CLT-5227, and CLT-6034 — using a risk-adjusted net present value ("rNPV") methodology. Each pipeline candidate should be assigned probability-of-success adjustments appropriate to its respective stage of development (Phase 2b for CLT-4019; preclinical for CLT-5227 and CLT-6034), drawing upon published industry success-rate data and comparable clinical programs.
(iii) Key Assumptions. The DCF analysis shall clearly state all material assumptions, including, without limitation: the weighted average cost of capital ("WACC") or discount rate applied; the methodology used to derive the discount rate (including, as applicable, the capital asset pricing model, risk premium adjustments for clinical-stage companies, and any company-specific risk adjustments); the terminal growth rate, if applicable; and the results of sensitivity analyses conducted around key variables including, but not limited to, the discount rate, probability of success, peak revenue, market penetration, and time to market.
(iv) Revenue Build-Up. Revenue projections for CLT-4019 shall be developed using a detailed bottom-up approach reflecting: the total addressable market for HR+/HER2– metastatic breast cancer (including estimated patient populations and incidence/prevalence data from peer-reviewed sources); projected market share, taking into account the competitive landscape, including existing CDK4/6 inhibitors (palbociclib, ribociclib, abemaciclib) and expected new entrants; pricing assumptions based on comparable branded oncology therapies; and the anticipated patent life and period of market exclusivity for CLT-4019.
(v) Cash Burn and Capital Requirements. The DCF analysis shall model Caliston's projected cash burn trajectory through anticipated commercialization, including estimated costs for the completion of Phase 2b and Phase 3 clinical trials, regulatory submissions, manufacturing scale-up, commercial launch, and ongoing operating expenses. Required capital expenditures and any dilutive financing events (in the standalone scenario) should be identified and incorporated into the analysis.
B. Comparable Transactions Analysis
Thorngate shall identify and analyze precedent mergers and acquisitions transactions involving clinical-stage oncology and biopharmaceutical companies that are reasonably comparable to the Proposed Transaction. In selecting comparable transactions, Thorngate should apply the following criteria, among others it deems appropriate:
(i) Therapeutic Area. Priority should be given to transactions involving oncology-focused companies, with particular emphasis on solid tumor therapeutics and, where available, kinase inhibitor programs. Broader biopharmaceutical transactions may be included where the oncology universe is insufficient to provide meaningful data.
(ii) Development Stage. Comparable transactions should primarily involve target companies at the Phase 2 or Phase 2b stage of clinical development, though transactions involving Phase 1/2 or Phase 3 companies may be included for reference where they provide relevant valuation benchmarks.
(iii) Transaction Size. Transactions should be of a size reasonably comparable to the anticipated scale of the Proposed Transaction, though Thorngate should exercise judgment in determining the appropriate range.
(iv) Consideration Structure. Thorngate should note and analyze the consideration structure in comparable transactions, including cash, stock, and contingent value right components, and should consider how the presence or absence of contingent consideration affects implied valuations.
(v) Recency. Priority should be given to transactions completed within the last five (5) years, though Thorngate may include older transactions where they are particularly instructive.
(vi) Universe Size. The Special Committee expects that Thorngate will identify a sufficient universe of comparable transactions — an expectation of at least five (5) to ten (10) comparables — to provide meaningful benchmarking data. Thorngate should provide a clear rationale for the inclusion or exclusion of each transaction considered.
Relevant valuation multiples and metrics to be applied in the comparable transactions analysis should include, at a minimum, implied enterprise value relative to projected peak sales, price per development-stage asset, and such other multiples or metrics as Thorngate deems informative.
C. Premiums Paid Analysis
Thorngate shall conduct a premiums paid analysis focused on acquisitions of privately held, venture-backed biopharmaceutical companies, benchmarking the premium implied by the Proposed Transaction against comparable transactions. The most relevant benchmark for Caliston is the premium to the target company's most recent private financing round valuation.
As noted above, Caliston's Series C round, which closed in October 2021, established a post-money valuation of $680 million. The proposed merger consideration should be evaluated in the context of the premium (or discount) implied over this benchmark. In conducting this analysis, Thorngate should consider the following:
(i) The elapsed time between the Series C round (October 2021) and the anticipated signing of the Merger Agreement, which is approximately twenty (20) months, and the extent to which intervening events may affect the relevance of the Series C valuation as a benchmark.
(ii) Whether adjustments to the Series C benchmark are warranted in light of: changes in public and private market conditions for biopharmaceutical companies since October 2021 (including the significant decline in biotech valuations in 2022); clinical progress achieved by Caliston since the Series C round, including advancement of CLT-4019 through Phase 2b; and cash consumed since the Series C round, which has reduced Caliston's cash position from approximately $191 million (estimated post-Series C) to $112.6 million as of March 31, 2023.
(iii) Premiums observed in comparable transactions involving venture-backed biopharmaceutical targets at similar stages of development, and how such premiums compare to the premium implied by the Proposed Transaction.
D. Additional / Supplemental Analyses (at Thorngate's Discretion)
The Special Committee recognizes that the valuation of a clinical-stage biopharmaceutical company presents unique challenges and that no single valuation methodology is sufficient in isolation. Accordingly, the Special Committee welcomes and encourages Thorngate to employ any additional or supplemental valuation methodologies that Thorngate, in its professional judgment, deems appropriate or informative. Such methodologies may include, without limitation:
•  A sum-of-the-parts analysis, separately valuing each pipeline asset and the corporate entity;
•  A comparable public company analysis, to the extent that publicly traded clinical-stage oncology companies provide meaningful valuation reference points;
•  An option-pricing model or real options analysis for contingent pipeline value, particularly for the preclinical assets CLT-5227 and CLT-6034;
•  An analysis of the implied value of Caliston's in-process research and development; or
•  Any other methodology that Thorngate believes adds rigor or perspective to the analysis.
Any supplemental methodology employed should be clearly identified, explained, and distinguished from the primary methodologies required under Sections IV.A through IV.C above.
V. Assumptions, Data Sources, and Management Projections
In the course of conducting its valuation analyses, Thorngate will necessarily rely on range data sources, including financial projections and other forward-looking information provided by the parties. The Special Committee sets forth the following expectations regarding Thorngate's treatment of such information.
Management Projections. Thorngate may rely upon financial projections, clinical development timelines, probability-of-success estimates, and other forward-looking information provided by Caliston management (including, without limitation, Dr. Nadia Sorensen, Chief Executive Officer of Caliston, and Dr. Raj Malhotra, Chief Scientific Officer of Caliston) and/or by Penterra management. However, in doing so, Thorngate must:
(a) Identify clearly which projections it is relying upon and the source of each set of projections (i.e., whether prepared by Caliston management, Penterra management, or a third party);
(b) Disclose any material assumptions underlying such projections, including assumptions regarding revenue growth, operating margins, clinical trial timelines, probability of regulatory approval, and capital requirements;
(c) Note whether and to what extent Thorngate independently verified, supplemented, or adjusted management projections, and the basis for any such adjustments; and
(d) Where Caliston management projections and Penterra management projections differ materially, identify such differences and explain how Thorngate treated such discrepancies in its analysis.
Third-Party Data. Thorngate may also rely upon publicly available information, industry data, and third-party research reports from sources such as Tidewater Holdings, Adriatic & Co., Granite Harbor Partners LLC, FDA databases, ClinicalTrials.gov, published clinical trial results, and peer-reviewed scientific literature. All such sources should be cited in Thorngate's presentations and in the fairness opinion.
Limitations on Verification. Thorngate is not expected to independently verify the accuracy or completeness of information provided by Caliston or Penterra, but should note in its fairness opinion any limitations on the information available to it or any specific areas where it was unable to obtain requested information.
No Independent Appraisal. Thorngate shall not be expected to independently appraise or value individual assets or liabilities of Caliston, nor shall it be expected to conduct physical inspections of any properties or facilities, or to undertake an independent scientific evaluation of Caliston's clinical data. To the extent that Thorngate believes that consultation with clinical, scientific, or other subject-matter experts would enhance the quality of its analysis, Thorngate may engage such consultants or specialists, provided that the scope and cost of any such engagement is approved in advance by the Special Committee.
Disclosure of Assumptions. All material assumptions underlying Thorngate's analyses, and any limitations on the data or information relied upon, shall be disclosed in the fairness opinion itself, in a manner that is clear, complete, and suitable for inclusion in public filings, as further described in Section IX below.
VI. Contingent Value Rights Analysis
The Special Committee understands that the consideration payable in the Proposed Transaction may include a contingent value rights ("CVR") component, the terms of which are currently under discussion between the parties. Because the inclusion of a CVR introduces additional complexity into the valuation and fairness analysis, the Special Committee requests that Thorngate give particular attention to this element.
Specifically, Thorngate shall:
(a) Assess CVR Value. Conduct a separate analysis of the value attributable to any CVR that is included in the proposed merger consideration. It is anticipated that the CVR milestone will relate to the achievement of FDA approval of CLT-4019 within a specified timeframe (the precise terms to be negotiated). Thorngate's analysis should include a probability-weighted assessment of the likelihood that the CVR milestone will be achieved, drawing upon clinical-stage success-rate data, information regarding the status of the CLT-4019 Phase 2b trial, and such other factors as Thorngate deems relevant.
(b) Present Value Calculation. Calculate the present value of the expected CVR payment, discounted at an appropriate risk-adjusted rate, with clear disclosure of the discount rate and probability assumptions used.
(c) Treatment in Fairness Opinion. The Special Committee requests that the fairness opinion clearly state its treatment of CVRs — specifically, whether the fairness opinion addresses (i) the base equity consideration exclusive of CVRs, (ii) the aggregate consideration inclusive of CVRs, or (iii) both. The Special Committee's preference is that the fairness opinion address fairness both with and without the CVR component, so that the Special Committee and, ultimately, Penterra's stockholders can evaluate the transaction under both scenarios.
(d) CVR Structure Considerations. To the extent that the terms of the CVR raise structural issues that affect its value — including, for example, the length of the CVR term, transferability, the creditworthiness of the obligor, and mechanisms for dispute resolution — Thorngate should address such issues in its analysis and identify any structural features that may warrant adjustment to the assessed value of the CVR.
VII. Consideration Structure Analysis
The proposed consideration for the Merger is expected to comprise a combination of cash and Penterra common stock, with the precise mix and amounts still under negotiation. The Special Committee expects Thorngate to evaluate the consideration structure comprehensively, including the following elements:
(a) Implied Value of Stock Component. An analysis of the implied value of the stock component of the merger consideration, based on Penterra's share price. For purposes of this analysis, the relevant reference price should include the thirty (30)-day volume-weighted average price ("VWAP") of Penterra common stock as of an appropriate reference date. The Special Committee notes that the thirty-day VWAP as of June 1, 2023 was $39.17 per share, and that Penterra's approximate market capitalization as of that date was $4.72 billion, based on approximately 121.4 million shares of common stock outstanding.
(b) Dilutive Impact. An analysis of the dilutive impact on Penterra's existing stockholders resulting from the issuance of new shares of Penterra common stock as merger consideration, including the impact on earnings per share (on both a GAAP and non-GAAP basis), book value per share, and other relevant per-share metrics, to the extent determinable.
(c) Pro Forma Ownership. A pro forma ownership analysis showing the percentage ownership of Penterra's existing stockholders and the former Caliston stockholders in the combined entity following the Merger, including an analysis of the pro forma ownership of Dr. Hale (both in his capacity as a Penterra stockholder and as a recipient of merger consideration for his Caliston equity interest).
(d) Exchange Mechanism. An evaluation of the appropriateness of a fixed-value exchange mechanism (in which the number of shares issued adjusts based on Penterra's share price at or near closing) versus a fixed-ratio exchange mechanism (in which the exchange ratio is set at signing and does not adjust), considering market volatility, the expected timeline between signing and closing, and the allocation of market risk between the parties.
VIII. Independence Confirmations
The independence of the Special Committee's financial advisor is of paramount importance in the context of this related-party transaction. Thorngate's independence is a necessary predicate for the fairness opinion to serve its intended function as a procedural safeguard under Delaware law. Accordingly, Thorngate shall confirm in writing the following, both at the time of this letter and again at the time of delivery of the fairness opinion:
(a) Thorngate has no material relationship with Penterra, Caliston, Dr. Marcus Hale, any stockholder of Caliston (including, without limitation, Ridgeline Ventures, LP and Meridian Life Sciences Fund III, LP), or any of their respective officers, directors, partners, members, or affiliates, that would impair Thorngate's independence or objectivity in connection with this engagement.
(b) Thorngate has not provided financial advisory, investment banking, or other professional services to Caliston, Dr. Marcus Hale, Ridgeline Ventures, LP, Meridian Life Sciences Fund III, LP, or Fendowell Sinclair & Co. at any time during the two (2)-year period preceding the date of this letter.
(c) Thorngate's compensation for this engagement is not contingent upon Thorngate reaching a particular conclusion or recommendation, nor upon the consummation of the Proposed Transaction. Specifically, the advisory fee of Two Million Five Hundred Thousand Dollars ($2,500,000), structured as follows — fifty percent (50%) payable upon delivery of the fairness opinion and fifty percent (50%) payable upon the earlier of the closing of the Transaction or the termination of the Special Committee's engagement of Thorngate — together with the Five Hundred Thousand Dollar ($500,000) non-refundable retainer (to be credited against the final advisory fee) and reimbursement of reasonable out-of-pocket expenses, is structured such that a significant portion of the fee is payable regardless of whether the Transaction is ultimately consummated. The Special Committee acknowledges that the remaining fifty percent (50%) of the advisory fee is payable upon closing or termination; however, this structure does not, in the Special Committee's view, impair Thorngate's independence given the substantial portion payable irrespective of outcome.
(d) Thorngate shall disclose any compensation received from, or business or professional relationships with, any party to the Proposed Transaction (including Penterra, Caliston, Dr. Hale, and any Caliston stockholder or affiliate) during the two (2)-year period preceding the date of this letter, and any such compensation or relationships that arise during the pendency of this engagement.
The independence confirmation shall be addressed to the Special Committee and shall be included in, or appended as an exhibit to, the fairness opinion delivered pursuant to this engagement. Thorngate shall also promptly notify Calderwood & Harkness LLP of any change in circumstances that could affect its independence at any time during the engagement.
IX. Format and Content of the Fairness Opinion
The fairness opinion to be rendered by Thorngate shall conform to the following requirements regarding format, content, and addressees.
Addressee. The fairness opinion shall be a formal written opinion addressed to the Special Committee of the Board of Directors of Penterra Pharmaceuticals Corp. The opinion shall not be addressed to the full Board, to Penterra's management, or to any individual director.
Core Opinion Statement. The opinion shall state whether, in Thorngate's professional opinion, the merger consideration to be paid by Penterra in connection with the Proposed Transaction is fair, from a financial point of view, to Penterra and its stockholders (other than stockholders who have a personal interest in the Proposed Transaction).
Required Content. The fairness opinion shall include the following:
(a) A description of the Proposed Transaction, including the aggregate consideration amount, the structure of the consideration (cash, stock, and CVRs, if applicable), and the key terms and conditions of the Merger Agreement to the extent relevant to the financial analysis.
(b) A summary of each valuation methodology employed by Thorngate, including the key inputs, assumptions, and ranges of implied values derived from each methodology. The level of detail should be sufficient to permit a reader — including sophisticated investors, proxy advisory firms, and, if necessary, the Delaware Court of Chancery — to understand the analytical basis for Thorngate's conclusion.
(c) An identification of the information and data relied upon by Thorngate in conducting its analyses, including management projections, third-party data sources, and any other information material to Thorngate's conclusion.
(d) A statement of all material assumptions, qualifications, and limitations, including, without limitation, any limitations on the scope of Thorngate's analysis, any information requested but not received, and any assumptions regarding future events or conditions.
(e) Disclosure of Thorngate's independence and a description of any relationships with parties to the Proposed Transaction, consistent with the requirements of Section VIII above.
(f) A statement that the opinion is provided solely for the information and benefit of the Special Committee in its evaluation of the Proposed Transaction, and that the opinion does not constitute a recommendation to any stockholder of Penterra as to how to vote or act with respect to the Proposed Transaction or any related matter.
(g) A statement that the opinion does not address the relative merits of the Proposed Transaction as compared to other strategic alternatives that may be available to Penterra, the Company's underlying business decision to pursue the Proposed Transaction, or the fairness of the Proposed Transaction to any particular stockholder (including Dr. Hale) or any other party.
Proxy Statement Inclusion. The fairness opinion shall be drafted so as to be suitable for inclusion in, or attachment to, any proxy statement or Schedule 14A that may be filed by Penterra with the United States Securities and Exchange Commission (the "SEC") in connection with the solicitation of stockholder approval of the share issuance or any other matter requiring stockholder action. Thorngate shall consent to the reproduction of the fairness opinion in full in such proxy materials. In addition, Thorngate shall consent to the inclusion of a summary of the fairness opinion prepared by Penterra (or its counsel) in such proxy materials, subject to Thorngate's review and approval of the summary for accuracy and completeness prior to filing.
X. Preliminary Analyses and Interim Reporting
The Special Committee anticipates that the evaluation of the Proposed Transaction will require multiple meetings and iterative analysis. Accordingly, prior to the delivery of the final fairness opinion, Thorngate shall present preliminary valuation analyses and findings to the Special Committee at one or more meetings, as directed by the Special Committee Chair.
These preliminary presentations shall include, at a minimum:
(a) Preliminary valuation ranges under each of the methodologies described in Section IV above;
(b) Identification of the key assumptions driving value under each methodology and an explanation of the sensitivity of the results to changes in those assumptions;
(c) Any open issues, areas of concern, or requests for additional information that Thorngate has identified in the course of its analysis; and
(d) An assessment of the status and preliminary findings of any market check process, if one has been initiated.
Thorngate shall provide written presentation materials to the Special Committee, through Calderwood & Harkness LLP, at least two (2) business days in advance of each scheduled presentation to allow the Special Committee members and their counsel adequate time for review and preparation.
All preliminary materials, presentations, and analyses are for the Special Committee's deliberative purposes only. Such materials are preliminary, subject to revision, and do not constitute or represent Thorngate's final opinion. All preliminary materials are subject to the information barrier and confidentiality protocols established for Project Coriander and must be treated accordingly.
XI. Market Check Process
In the event that the Special Committee determines, in its sole discretion, that a market check is appropriate as part of its evaluation of the Proposed Transaction, Thorngate shall, upon direction from the Special Committee, conduct a market check process. Such process may take the form of a targeted outreach to a limited number of potentially interested parties, or a broader canvass of the market, as the Special Committee may direct.
In connection with any market check:
(a) Thorngate shall prepare a proposed target list of potential alternative acquirers, strategic partners, or other counterparties for review and approval by the Special Committee prior to any outreach.
(b) Thorngate shall conduct outreach in a manner that preserves the confidentiality of the Proposed Transaction and complies with the information barrier and confidentiality protocols of Project Coriander.
(c) Following the completion of the market check, Thorngate shall prepare a written summary report of its findings, including: the number and identity of parties contacted; the nature and level of interest expressed by each party; the reasons for any declinations; and any indications of value or proposed terms received. This report shall be provided to the Special Committee through Calderwood & Harkness LLP.
(d) The results of the market check shall be considered by Thorngate in connection with its overall evaluation of the Proposed Transaction and, to the extent relevant, reflected in the fairness opinion.
XII. Coordination with Calderwood & Harkness LLP
To ensure that the Special Committee receives fully integrated legal and financial advice, and to facilitate the preparation of disclosure documents that meet the requirements of Delaware law and the federal securities laws, Thorngate and Calderwood & Harkness LLP shall coordinate their work as follows:
(a) All draft fairness opinion materials, preliminary presentations, and substantive correspondence directed to the Special Committee shall be shared with Calderwood & Harkness LLP (specifically, Renata Vasquez, Sophie Tremblay, and Daniel Obi) concurrently with, or prior to, delivery to the Special Committee.
(b) Calderwood & Harkness LLP will review the draft fairness opinion for legal sufficiency under Delaware fiduciary duty standards, including compliance with the principles articulated in Weinberger v. UOP, Inc., Kahn v. M&F Worldwide Corp., and their progeny, as well as for compliance with SEC disclosure requirements under Regulation S-K, Item 1015 of Regulation M-A, and applicable Staff guidance regarding fairness opinions.
(c) Thorngate and Calderwood & Harkness LLP will work together to prepare disclosure language relating to the fairness opinion for inclusion in any proxy statement, Schedule 14A, Form 8-K, or other public filing made by Penterra in connection with the Proposed Transaction.
(d) Calderwood & Harkness LLP may, from time to time, provide Thorngate with legal guidance regarding the procedural and substantive requirements applicable to the Special Committee's process, which Thorngate should take into account in structuring its analyses and drafting its opinion, without compromising its independent judgment.
XIII. Confidentiality
All materials, data, analyses, presentations, and other information provided to or generated by Thorngate in connection with this engagement are strictly confidential and are subject to the confidentiality provisions set forth in Section 8 of the Engagement Letter and the information barrier policy established for Project Coriander.
Thorngate shall not disclose any non-public information regarding the Proposed Transaction, including the existence and terms of the Transaction, the identity of the parties, the status of negotiations, or the content of any analyses or opinions, to any person who is not authorized under the information barrier policy, without the prior written consent of the Special Committee or Calderwood & Harkness LLP. This prohibition extends to Thorngate's employees, agents, and representatives who are not designated as members of the Project Coriander deal team.
Thorngate shall maintain appropriate internal information barriers to prevent the inadvertent disclosure of confidential information within Thorngate's organization to persons not assigned to this engagement.
XIV. Fee Arrangement Confirmation
For the avoidance of doubt, the fee arrangement for this engagement is as set forth in the Engagement Letter dated June 16, 2023, and is summarized below:
(a) Advisory Fee. Two Million Five Hundred Thousand Dollars ($2,500,000), payable as follows: fifty percent (50%), or $1,250,000, payable upon delivery of the fairness opinion to the Special Committee; and fifty percent (50%), or $1,250,000, payable upon the earlier of the closing of the Transaction or the termination of the Special Committee's engagement of Thorngate.
(b) Non-Refundable Retainer. Five Hundred Thousand Dollars ($500,000), which has been paid and is non-refundable, to be credited against the final advisory fee.
(c) Expenses. Reasonable out-of-pocket expenses incurred by Thorngate in connection with this engagement shall be reimbursed by the Company, in accordance with the terms of the Engagement Letter.
No additional fees are contemplated under this Scope Letter. In the event that the scope of Thorngate's engagement is expanded beyond the deliverables described herein — including, without limitation, the provision of additional opinions, valuations, or advisory services not contemplated by this letter — any additional compensation must be approved in advance by the Special Committee in writing.
XV. Miscellaneous
This Scope Letter does not amend, modify, or supersede the terms of the Engagement Letter dated June 16, 2023. In the event of any conflict or inconsistency between this Scope Letter and the Engagement Letter, the Engagement Letter shall govern and control.
The expectations set forth in this letter are intended to guide Thorngate in the performance of its engagement and to ensure that the Special Committee's requirements are clearly understood. Nothing in this letter is intended to constrain Thorngate's exercise of independent professional judgment or to predetermine the outcome of Thorngate's analysis.
Any questions regarding the expectations set forth herein, or any requests for clarification, should be directed to Renata Vasquez (rvasquez@calderwoodharkness.com; (215) 555-4100) or Sophie Tremblay (stremblay@calderwoodharkness.com; (215) 555-4117) at Calderwood & Harkness LLP.
XVI. Closing
We look forward to working with Thorngate in connection with this important engagement. The Special Committee is confident in Thorngate's qualifications and independence, and values the role that Thorngate will play in ensuring the rigor and integrity of the Special Committee's process.
We request that Thorngate acknowledge receipt and acceptance of this Scope Letter by countersigning where indicated below and returning an executed copy to Calderwood & Harkness LLP at your earliest convenience.
Very truly yours,
CALDERWOOD & HARKNESS LLP
By: ________
Name: Renata Vasquez
Title: Partner
On behalf of the Special Committee of the Board of Directors of Penterra Pharmaceuticals Corp.
cc:
Diane Prescott, Chair, Special Committee of the Board of Directors, Penterra Pharmaceuticals Corp. James Okafor, Member, Special Committee of the Board of Directors, Penterra Pharmaceuticals Corp. Dr. Helen Ng, Member, Special Committee of the Board of Directors, Penterra Pharmaceuticals Corp. Bernard Crawford, Calderwood & Harkness LLP Sophie Tremblay, Calderwood & Harkness LLP
XVII. Acknowledgment
ACKNOWLEDGED AND ACCEPTED:
THORNGATE PARTNERS LLC
By: ________
Name: Gregory Ashford
Title: Managing Director
Date: ________

PRIVILEGED AND CONFIDENTIAL

CALDERWOOD & HARKNESS LLP

ACKNOWLEDGED AND ACCEPTED:

THORNGATE PARTNERS LLC

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