CONTINGENT VALUE RIGHTS AGREEMENT
Dated as of November 27, 2023
by and between
PENTERRA PHARMACEUTICALS CORP. a Delaware corporation
and
COLUMNAR TRUST SERVICES, INC. as CVR Trustee
for the benefit of the Holders (as defined herein)
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PREAMBLE
This Contingent Value Rights Agreement (this "Agreement"), dated as of November 27, 2023 (the "Effective Date"), is entered into by and between Penterra Pharmaceuticals Corp., a Delaware corporation ("Penterra" or the "Company"), with its principal executive offices at 400 Innovation Drive, Suite 1200, Princeton, NJ 08540, and Columnar Trust Services, Inc., a New York corporation (the "Trustee"), with its principal office at 6201 15th Avenue, Brooklyn, NY 11219.
RECITALS
WHEREAS, Penterra and Caliston BioSciences, Inc., a Delaware corporation ("Caliston"), with its principal office at 88 Harbor Point Road, Cambridge, MA 02142, have entered into that certain Agreement and Plan of Merger, dated as of November 27, 2023 (the "Merger Agreement"), pursuant to which Caliston will merge with and into Penterra, with Penterra as the surviving corporation (the "Merger");
WHEREAS, under the Merger Agreement, the aggregate equity consideration payable to the stockholders of Caliston is Nine Hundred Twenty-Five Million Dollars ($925,000,000) (the "Base Merger Consideration"), consisting of Six Hundred Ninety-Three Million Seven Hundred Fifty Thousand Dollars ($693,750,000) in cash (representing approximately seventy-five percent (75%) of the Base Merger Consideration) and Two Hundred Thirty-One Million Two Hundred Fifty Thousand Dollars ($231,250,000) in newly issued shares of Penterra common stock, par value $0.001 per share (representing approximately twenty-five percent (25%) of the Base Merger Consideration), based on the thirty (30)-day volume-weighted average price of $39.17 per share of Penterra common stock as of June 1, 2023, implying the issuance of approximately 5,903,497 shares of Penterra common stock (NYSE ticker symbol: PPHR);
WHEREAS, the Merger Agreement provides that, as additional consideration for the Merger, Penterra shall cause to be issued to the former stockholders of Caliston contingent value rights representing the right to receive an aggregate cash payment of One Hundred Twenty-Five Million Dollars ($125,000,000) (the "CVR Payment Amount") upon the achievement of the Milestone (as defined herein), bringing the maximum aggregate transaction value to One Billion Fifty Million Dollars ($1,050,000,000);
WHEREAS, the CVR Payment Amount is contingent upon the approval by the United States Food and Drug Administration ("FDA") of CLT-4019, Caliston's selective CDK4/6 inhibitor for the treatment of HR+/HER2– metastatic breast cancer (Investigational New Drug Application No. 158429), on or before December 31, 2026;
WHEREAS, the Merger and the Merger Agreement were approved by the Board of Directors of Penterra on November 22, 2023, upon the unanimous recommendation of the Special Committee of independent directors of Penterra, consisting of Diane Prescott (Chair), James Okafor, and Dr. Helen Ng, following receipt of a fairness opinion from Thorngate Partners LLC, the Special Committee's independent financial advisor, to the effect that, as of such date and subject to the assumptions, qualifications, and limitations set forth therein, the consideration to be paid by Penterra in the Merger was fair, from a financial point of view, to Penterra;
WHEREAS, the stockholders of Caliston approved the Merger and the Merger Agreement by written consent of holders of approximately sixty-nine and one-half percent (69.5%) of the outstanding shares of Caliston common stock, executed December 1, 2023, in accordance with Section 228 of the General Corporation Law of the State of Delaware;
WHEREAS, Ridgeline Ventures, LP has been designated as the stockholder representative for the former stockholders of Caliston pursuant to the Stockholder Representative Agreement dated November 27, 2023 (in such capacity, the "Stockholder Representative"), and the Stockholder Representative has agreed to act in such capacity for the benefit of the Holders in connection with this Agreement;
WHEREAS, Penterra desires to appoint the Trustee, and the Trustee desires to accept such appointment, to act as trustee on behalf of the Holders in accordance with the terms and conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
ARTICLE I — DEFINITIONS
Section 1.1 — Definitions
As used in this Agreement, the following terms shall have the meanings set forth below:
"Affiliate" means, with respect to any Person, any other Person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, such Person. For purposes of this definition, "control" (including the terms "controlling," "controlled by," and "under common control with") means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through ownership of voting securities, by contract, or otherwise. Without limiting the generality of the foregoing, the term "Affiliate" shall have the meaning ascribed to such term under Rule 12b-2 promulgated under the Securities Exchange Act of 1934, as amended, and shall be interpreted consistently with the definition of such term in the Merger Agreement.
"Agreement" has the meaning set forth in the Preamble.
"Business Day" means any day other than a Saturday, a Sunday, or a day on which banking institutions in New York, New York or Wilmington, Delaware are authorized or required by law, regulation, or executive order to close.
"Caliston" means Caliston BioSciences, Inc., a Delaware corporation (Employer Identification Number: 84-4219063), as constituted immediately prior to the Effective Time. Following the Effective Time, references to Caliston refer to Caliston as it existed prior to its merger with and into Penterra pursuant to the Merger.
"CLT-4019" means the selective CDK4/6 inhibitor compound designated as CLT-4019 by Caliston, which is the subject of Investigational New Drug Application No. 158429 filed with the FDA in March 2020, and which, as of the Effective Date, is in a Phase 2b clinical trial for the treatment of HR+/HER2– metastatic breast cancer, with topline data expected in the fourth quarter of 2023 or the first quarter of 2024. CLT-4019 includes all formulations, dosage forms, salt forms, polymorphs, prodrugs, metabolites, and delivery mechanisms of such compound.
"Complete Response Letter" means a complete response letter issued by the FDA in response to an NDA, indicating that the FDA has completed its review of the NDA and has determined that the application is not ready for approval in its present form.
"CVR" means a contingent value right issued pursuant to this Agreement, representing the contractual right to receive a pro rata portion of the CVR Payment Amount upon the achievement of the Milestone, subject to the terms and conditions of this Agreement.
"CVR Payment Amount" means One Hundred Twenty-Five Million Dollars ($125,000,000) in the aggregate.
"CVR Payment Date" has the meaning set forth in Section 3.2(a).
"CVR Register" means the register of Holders maintained by the Trustee pursuant to Section 2.4.
"Diligent Efforts" has the meaning set forth in Section 4.1(b).
"Effective Date" has the meaning set forth in the Preamble.
"Effective Time" means the effective time of the Merger as defined in, and determined pursuant to, the Merger Agreement.
"FDA" means the United States Food and Drug Administration, or any successor agency thereto.
"FDA Approval" means the approval by the FDA of a New Drug Application for CLT-4019 for at least one indication, as evidenced by the issuance of an approval letter by the FDA with respect to such New Drug Application. For the avoidance of doubt, the scope and interpretation of "FDA Approval" is further set forth in Section 3.1(b).
"Holder" or "Holders" means each former stockholder of Caliston who is entitled to receive CVRs pursuant to the terms of the Merger Agreement, as reflected in the CVR Register, together with their respective successors and permitted transferees (as described in Section 2.2).
"IND" means an Investigational New Drug Application filed with the FDA pursuant to 21 C.F.R. Part 312. With respect to CLT-4019, the IND is IND No. 158429.
"Merger" means the merger of Caliston with and into Penterra pursuant to the Merger Agreement, with Penterra as the surviving corporation.
"Merger Agreement" means that certain Agreement and Plan of Merger, dated as of November 27, 2023, by and between Penterra and Caliston, as the same may be amended, modified, or supplemented from time to time in accordance with its terms.
"Milestone" means the achievement of FDA Approval of CLT-4019 on or before the Milestone Deadline, as further described in Section 3.1(a).
"Milestone Achievement Date" means the date on which FDA Approval of CLT-4019 is obtained, as evidenced by the date of the FDA approval letter.
"Milestone Deadline" means December 31, 2026.
"Milestone Failure Notice" has the meaning set forth in Section 3.3(b).
"Milestone Satisfaction Notice" has the meaning set forth in Section 3.1(c).
"NDA" means a New Drug Application filed with the FDA pursuant to Section 505 of the Federal Food, Drug, and Cosmetic Act (21 U.S.C. § 355) and 21 C.F.R. Part 314.
"Penterra" has the meaning set forth in the Preamble. For purposes of this Agreement, "Penterra" includes any successor to Penterra by merger, consolidation, or sale of all or substantially all of its assets, to the extent such successor has assumed the obligations of Penterra under this Agreement in accordance with Section 4.3(b).
"Person" means any individual, corporation, partnership, limited liability company, joint venture, association, trust, unincorporated organization, governmental authority, or any other entity or body.
"Pro Rata Share" means, with respect to each Holder, a fraction (expressed as a percentage), the numerator of which is the number of shares of Caliston common stock held by such Holder immediately prior to the Effective Time and the denominator of which is the total number of shares of Caliston common stock outstanding immediately prior to the Effective Time, in each case as reflected in the CVR Register.
"REMS" means a Risk Evaluation and Mitigation Strategy required by the FDA pursuant to Section 505-1 of the Federal Food, Drug, and Cosmetic Act (21 U.S.C. § 355-1).
"Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
"Stockholder Representative" means Ridgeline Ventures, LP (Ava Lindström, Managing Partner), acting in its capacity as the representative of the Holders under and pursuant to the Stockholder Representative Agreement dated November 27, 2023, and any successor stockholder representative appointed in accordance therewith.
"Stockholder Representative Agreement" means that certain Stockholder Representative Agreement, dated as of November 27, 2023, by and among Ridgeline Ventures, LP and the stockholders of Caliston, as the same may be amended, modified, or supplemented from time to time in accordance with its terms.
"Trustee" means Columnar Trust Services, Inc., a New York corporation, in its capacity as trustee under this Agreement, or any successor trustee appointed in accordance with Section 5.6.
Section 1.2 — Rules of Construction
Unless the context of this Agreement otherwise requires:
(a) words of any gender include each other gender;
(b) words using the singular or plural number also include the plural or singular number, respectively;
(c) the terms "hereof," "herein," "hereby," "hereto," and derivative or similar words refer to this entire Agreement;
(d) the terms "Article," "Section," "Exhibit," and "Schedule" refer to the specified Article, Section, Exhibit, or Schedule of or to this Agreement, unless otherwise specified;
(e) the word "including" and words of similar import when used in this Agreement shall mean "including, without limitation," unless otherwise specified;
(f) the word "or" shall not be exclusive;
(g) references to agreements and other documents shall be deemed to include all subsequent amendments, restatements, supplements, and other modifications thereto, but only to the extent such amendments, restatements, supplements, and other modifications are not prohibited by the terms of this Agreement;
(h) references to statutes shall include all regulations promulgated thereunder and references to statutes or regulations shall be construed as including all statutory and regulatory provisions consolidating, amending, replacing, supplementing, or interpreting the statute or regulation;
(i) the captions and headings of this Agreement are for convenience of reference only and shall not affect the interpretation of this Agreement;
(j) all references to "dollars" or "$" shall mean United States dollars; and
(k) all references to time shall mean Eastern Time, unless otherwise specified.
The parties hereto have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties hereto, and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any of the provisions of this Agreement.
ARTICLE II — CONTINGENT VALUE RIGHTS
Section 2.1 — Issuance of CVRs
(a) At the Effective Time, Penterra shall cause to be issued one (1) CVR for each share of Caliston common stock outstanding immediately prior to the Effective Time. Each CVR shall represent the contractual right of the applicable Holder to receive its Pro Rata Share of the CVR Payment Amount upon the achievement of the Milestone, subject to the terms and conditions of this Agreement.
(b) The CVRs shall be issued in book-entry form only. No physical certificates or other instruments evidencing the CVRs shall be issued, and no Holder shall be entitled to demand or receive a physical certificate representing any CVR. The Trustee's records, including the CVR Register, shall constitute the definitive evidence of the issuance, ownership, and terms of the CVRs.
(c) The aggregate CVR Payment Amount shall be One Hundred Twenty-Five Million Dollars ($125,000,000), to be allocated among the Holders based on their respective Pro Rata Shares as set forth in the CVR Register. In no event shall the aggregate amount payable to all Holders pursuant to this Agreement exceed the CVR Payment Amount.
(d) The issuance of the CVRs to the former stockholders of Caliston is a condition to the closing of the Merger under the Merger Agreement. In the event the Merger does not close for any reason, no CVRs shall be issued and this Agreement shall be of no further force or effect.
Section 2.2 — Non-Transferability of CVRs
(a) The CVRs shall not be sold, assigned, transferred, pledged, encumbered, or otherwise disposed of, whether voluntarily or involuntarily, by any Holder, except as follows:
(i) by operation of law (including by reason of the death of a Holder who is a natural person, or the merger, consolidation, dissolution, or liquidation of a Holder that is an entity);
(ii) by will or the laws of descent and distribution, in the case of a Holder who is a natural person;
(iii) to one or more Affiliates of the Holder, provided that such Affiliate transferee agrees in writing to be bound by the terms and conditions of this Agreement (including this Section 2.2); and
(iv) to any transferee in connection with the enforcement of rights under this Agreement, including in connection with an assignment for the benefit of creditors or a bankruptcy proceeding, but only to the extent permitted by applicable law.
(b) Any purported sale, assignment, transfer, pledge, encumbrance, or other disposition of a CVR in violation of this Section 2.2 shall be null and void and of no force or effect. Neither Penterra nor the Trustee shall give effect to any such purported transfer on the CVR Register or otherwise, and the purported transferee shall not be recognized as a Holder for any purpose under this Agreement.
(c) The CVRs shall not be listed, quoted, or traded on any national securities exchange, automated quotation system, or over-the-counter market. No Person shall create or facilitate a market for the trading of the CVRs.
(d) The CVRs are not securities registered under the Securities Act or the Securities Exchange Act, and nothing in this Agreement shall be construed to confer upon any Holder any rights under such statutes with respect to the CVRs. The CVRs do not constitute and shall not be treated as a security for purposes of any federal or state securities laws.
Section 2.3 — No Voting or Dividend Rights
(a) The CVRs shall not confer upon any Holder any voting rights with respect to any matter submitted to a vote of the stockholders of Penterra, and no Holder shall have any right to attend or participate in any meeting of the stockholders of Penterra by reason of holding CVRs.
(b) The CVRs shall not entitle any Holder to receive any dividends or other distributions from Penterra.
(c) The CVRs shall not represent any equity or ownership interest in Penterra or any of its subsidiaries. The CVRs represent solely a contractual right to receive the applicable portion of the CVR Payment Amount upon the achievement of the Milestone, and are unsecured contractual obligations of Penterra. No Holder shall have any rights of a stockholder of Penterra by virtue of holding CVRs.
(d) The CVRs shall not entitle any Holder to any preemptive rights, subscription rights, redemption rights, conversion rights, or similar rights.
Section 2.4 — CVR Register
(a) The Trustee shall establish and maintain a register (the "CVR Register") setting forth the name, address, number of CVRs, Pro Rata Share (expressed as a percentage), and wire transfer instructions (if provided) of each Holder. The form of the CVR Register is attached hereto as Exhibit A.
(b) The initial CVR Register shall be established based on the register of stockholders of Caliston as of immediately prior to the Effective Time, as provided to the Trustee by Penterra and the Stockholder Representative no later than five (5) Business Days following the Effective Time. The Trustee may conclusively rely on such information for purposes of establishing the initial CVR Register and shall have no obligation to independently verify the accuracy or completeness thereof.
(c) The Trustee may treat the Persons reflected in the CVR Register as the absolute owners of the CVRs for all purposes of this Agreement, including for the purpose of making distributions of the CVR Payment Amount, and neither Penterra nor the Trustee shall be affected by any notice to the contrary. The CVR Register shall be conclusive and binding on all parties absent manifest error.
(d) Any Holder may update its address or wire transfer instructions by delivering a written notice to the Trustee in accordance with Section 10.2. Such update shall be reflected in the CVR Register within ten (10) Business Days following receipt by the Trustee of such notice.
(e) In the event of a permitted transfer of CVRs pursuant to Section 2.2, the transferor or transferee (as applicable) shall provide the Trustee with written evidence of such transfer reasonably satisfactory to the Trustee, and the Trustee shall update the CVR Register accordingly.
Section 2.5 — No Interest
No interest shall accrue or be payable on the CVR Payment Amount, or any portion thereof, at any time, whether before or after the Milestone Achievement Date, and whether or not payment is delayed for any reason. For the avoidance of doubt, no Holder shall be entitled to any form of time value of money, interest, yield, or similar payment in connection with the CVRs.
ARTICLE III — MILESTONE AND PAYMENT MECHANICS
Section 3.1 — Milestone Definition and Achievement
(a) The Milestone. The Milestone shall be deemed to have been achieved if and only if FDA Approval of CLT-4019 is obtained on or before December 31, 2026 (the "Milestone Deadline"). For purposes of determining whether the Milestone has been achieved, the date of FDA Approval shall be the date set forth on the FDA approval letter. If the date of the FDA approval letter is on or before December 31, 2026, the Milestone shall be deemed achieved regardless of whether the approval letter is received by Penterra after such date.
(b) FDA Approval. For purposes of this Agreement, "FDA Approval" means the issuance by the FDA of an approval letter with respect to a New Drug Application filed for CLT-4019 for at least one indication, which may, but need not, be HR+/HER2– metastatic breast cancer. The following rules shall apply to the determination of whether FDA Approval has been obtained:
(i) A Complete Response Letter issued by the FDA with respect to an NDA for CLT-4019 shall not constitute FDA Approval.
(ii) An approval of CLT-4019 that is subject to one or more post-marketing requirements or commitments (including a requirement to conduct post-marketing studies or clinical trials pursuant to Section 505(o)(3) of the Federal Food, Drug, and Cosmetic Act) shall constitute FDA Approval.
(iii) An approval of CLT-4019 that is subject to a Risk Evaluation and Mitigation Strategy (REMS) shall constitute FDA Approval.
(iv) An approval of CLT-4019 under the FDA's accelerated approval pathway (Subpart H of 21 C.F.R. Part 314) shall constitute FDA Approval, provided that the approval letter has been issued on or before the Milestone Deadline.
(v) A tentative approval of CLT-4019 (within the meaning of Section 505(j)(5)(B)(iv) of the Federal Food, Drug, and Cosmetic Act) shall not constitute FDA Approval.
(c) Milestone Satisfaction Notice. Within five (5) Business Days following the Milestone Achievement Date, Penterra shall deliver to the Trustee and the Stockholder Representative a written notice (the "Milestone Satisfaction Notice"), substantially in the form attached hereto as Exhibit B, certifying that the Milestone has been achieved and attaching a copy of the FDA approval letter (or other evidence of FDA Approval reasonably acceptable to the Trustee and the Stockholder Representative). The Milestone Satisfaction Notice shall set forth: (i) the Milestone Achievement Date; (ii) the NDA number and the approved indication(s); (iii) a statement that the CVR Payment Amount of $125,000,000 will be deposited with the Trustee within thirty (30) Business Days following the Milestone Achievement Date; and (iv) any other information reasonably requested by the Trustee or the Stockholder Representative.
Section 3.2 — Payment Upon Milestone Achievement
(a) CVR Payment. Within thirty (30) Business Days following the Milestone Achievement Date (such date of payment, the "CVR Payment Date"), Penterra shall deposit or cause to be deposited with the Trustee the full CVR Payment Amount of One Hundred Twenty-Five Million Dollars ($125,000,000) in immediately available funds by wire transfer to an account designated by the Trustee in writing. Penterra's obligation to deposit the CVR Payment Amount shall be absolute and unconditional upon the achievement of the Milestone and shall not be subject to any setoff, counterclaim, recoupment, deduction, or defense of any kind, except as expressly provided in Section 3.2(c) with respect to tax withholding.
(b) Distribution by Trustee. Within ten (10) Business Days following the Trustee's receipt of the CVR Payment Amount in full, the Trustee shall distribute to each Holder its Pro Rata Share of the CVR Payment Amount as follows:
(i) For any Holder that has provided wire transfer instructions in the CVR Register, by wire transfer of immediately available funds to the account designated by such Holder.
(ii) For any Holder that has not provided wire transfer instructions, by check mailed to the address of such Holder as set forth in the CVR Register by first-class United States mail, postage prepaid.
The Trustee shall have no obligation to make any distribution until the Trustee has received the full CVR Payment Amount from Penterra. The Trustee shall not be required to pay any amount in excess of the CVR Payment Amount actually received by the Trustee from Penterra.
(c) Tax Withholding. Penterra and the Trustee shall be entitled to deduct and withhold from any CVR Payment such amounts as Penterra or the Trustee reasonably determines are required to be deducted and withheld with respect to the making of such payment under the Internal Revenue Code of 1986, as amended (the "Code"), or any applicable provision of federal, state, local, or foreign tax law. To the extent that amounts are so deducted and withheld and remitted to the applicable governmental authority, such amounts shall be treated for all purposes of this Agreement as having been paid to the Holder in respect of which such deduction and withholding was made. Prior to making any deduction or withholding, the Trustee shall use commercially reasonable efforts to provide the affected Holder with notice of the intended withholding and an opportunity to provide any applicable tax forms or certifications that may reduce or eliminate such withholding.
Section 3.3 — Expiration of CVRs
(a) Milestone Failure. If the Milestone is not achieved on or before December 31, 2026, the CVRs shall automatically and without any action by any party expire and shall be of no further force or effect. Upon such expiration, no payment shall be due from Penterra or any other Person to any Holder in respect of the CVRs, and neither Penterra nor the Trustee shall have any further obligation or liability to any Holder in connection with the CVRs or the CVR Payment Amount.
(b) Expiration Notice. If the Milestone has not been achieved by January 15, 2027, Penterra shall deliver to the Trustee and the Stockholder Representative a written notice (the "Milestone Failure Notice"), substantially in the form attached hereto as Exhibit C, confirming that the Milestone was not achieved on or before the Milestone Deadline and that the CVRs have expired in accordance with Section 3.3(a). The delivery of the Milestone Failure Notice is intended for informational purposes; the expiration of the CVRs pursuant to Section 3.3(a) shall occur automatically by their terms and shall not be contingent upon the delivery of the Milestone Failure Notice.
(c) No Further Obligation. Upon expiration of the CVRs in accordance with this Section 3.3, Penterra shall have no further obligation with respect to the CVR Payment Amount or the CVRs, and this Agreement shall terminate in accordance with Section 9.1(b), subject to the survival provisions of Section 9.3.
Section 3.4 — Undeliverable Payments
(a) If any distribution of the CVR Payment Amount to a Holder is returned to the Trustee as undeliverable (whether by reason of an incorrect address, uncashed check, or otherwise), the Trustee shall hold such amount in a non-interest-bearing account (or, if required by applicable law, in an interest-bearing account, with any interest accruing for the benefit of Penterra) until claimed by the applicable Holder.
(b) The Trustee shall use commercially reasonable efforts to locate any Holder whose payment has been returned as undeliverable, including by contacting the Stockholder Representative for updated address or contact information. However, the Trustee shall have no obligation to conduct any independent investigation or search beyond such commercially reasonable efforts.
(c) Any amounts held by the Trustee pursuant to this Section 3.4 that remain unclaimed for twelve (12) months following the date of the initial distribution shall be returned to Penterra, and the applicable Holder's sole recourse thereafter shall be as an unsecured general creditor of Penterra. Neither Penterra nor the Trustee shall be liable to any Holder for any amount returned to Penterra pursuant to this Section 3.4(c), except to the extent that Penterra fails to pay such amount upon a valid claim by the applicable Holder.
(d) Notwithstanding the foregoing, any amounts held by the Trustee or returned to Penterra pursuant to this Section 3.4 shall be subject to applicable unclaimed property, escheat, or similar laws, and Penterra and the Trustee shall comply with all such applicable laws with respect to such amounts.
ARTICLE IV — COVENANTS OF PENTERRA
Section 4.1 — Diligent Efforts to Achieve Milestone
(a) Obligation. Penterra shall use Diligent Efforts, from and after the Effective Time, to achieve the Milestone on or before the Milestone Deadline, including by pursuing the continued development, clinical testing, manufacturing, and regulatory pursuit of CLT-4019 in accordance with this Article IV. Penterra acknowledges that the Holders are relying on Penterra's commitment to use Diligent Efforts to achieve the Milestone and that this commitment was a material inducement to the former stockholders of Caliston to approve the Merger and accept CVRs as a portion of the consideration payable in connection therewith.
(b) Definition of "Diligent Efforts." As used in this Agreement, "Diligent Efforts" means, with respect to the development of CLT-4019 and efforts to obtain FDA Approval, the level of efforts and resources consistent with the efforts and resources that a similarly situated specialty pharmaceutical company of comparable size and capabilities would use for a pharmaceutical product of similar commercial potential and at a similar stage of development. In assessing whether Penterra has exercised Diligent Efforts, the following factors shall be taken into account:
(i) the safety and efficacy data available for CLT-4019, as may be generated from time to time in the course of clinical development;
(ii) the regulatory environment applicable to CLT-4019, including FDA guidance, feedback, and communications;
(iii) the competitive landscape for products targeting the same or similar indications as CLT-4019, including the availability and market position of competing CDK4/6 inhibitors;
(iv) the proprietary position of CLT-4019, including the strength and scope of intellectual property protections and regulatory exclusivity periods;
(v) the probability of obtaining FDA Approval for CLT-4019, as reasonably assessed by Penterra based on available data and regulatory feedback;
(vi) other relevant scientific, technical, commercial, legal, and financial factors that a similarly situated specialty pharmaceutical company would consider in exercising its business judgment; and
(vii) the size and financial resources of Penterra, including Penterra's fiscal year 2022 revenue of approximately $1.836 billion and EBITDA of approximately $412 million, and its established therapeutic focus in oncology and immunology.
For the avoidance of doubt, "Diligent Efforts" does not require Penterra to take any action that would be commercially unreasonable, that would violate any applicable law or regulation, or that would jeopardize the safety of clinical trial participants. Diligent Efforts is not measured solely by reference to the specific efforts or resources devoted by Caliston to CLT-4019 prior to the Effective Time, although Caliston's prior development plan and timeline may be considered as one factor among others in assessing Penterra's compliance with this Section 4.1.
(c) Minimum Obligations. Without limiting the generality of the Diligent Efforts obligation set forth in Section 4.1(a) and Section 4.1(b), Penterra shall:
(i) continue the Phase 2b clinical trial of CLT-4019 (IND 158429) and fund such trial through topline data readout, unless Penterra reasonably determines, based on safety data or other factors, that continuation of such trial would be inconsistent with patient safety or applicable law;
(ii) if the Phase 2b clinical data, taken as a whole, supports advancement of CLT-4019 into a registrational study, initiate a Phase 3 clinical trial or other registrational study of CLT-4019 in a timely manner consistent with Diligent Efforts;
(iii) prepare and file a New Drug Application with the FDA for CLT-4019 if clinical data generated in the development program supports such filing, and use Diligent Efforts to pursue such filing in a timely manner;
(iv) respond to FDA requests, comments, questions, and Complete Response Letters relating to CLT-4019 in a commercially reasonable and timely manner, and engage in good faith interactions with the FDA to advance the regulatory review process;
(v) maintain IND 158429 in active status with the FDA and not voluntarily withdraw IND 158429 without providing at least thirty (30) days' prior written notice to the Trustee and the Stockholder Representative, together with a detailed explanation of the basis for such withdrawal; and
(vi) allocate sufficient financial resources, qualified personnel (including clinical, regulatory, and medical affairs personnel), and manufacturing capacity to the development of CLT-4019 to enable Penterra to satisfy its Diligent Efforts obligations under this Section 4.1.
Section 4.2 — Clinical and Regulatory Updates
(a) Quarterly Reports. Penterra shall provide the Trustee and the Stockholder Representative with written quarterly reports on the status of the development of CLT-4019. Each quarterly report shall include, to the extent reasonably available and to the extent not prohibited by applicable law, confidentiality obligations, or regulatory restrictions:
(i) a summary of clinical trial enrollment, progress, and any material developments in the Phase 2b or any subsequent clinical trial of CLT-4019;
(ii) a summary of material safety and efficacy data generated during the applicable quarter, including any serious adverse events or safety signals that could materially affect the development timeline or probability of FDA Approval;
(iii) a summary of regulatory submissions made to, and material communications received from, the FDA during the applicable quarter, including any pre-NDA meeting minutes, FDA information requests, or FDA advisory committee actions;
(iv) Penterra's then-current anticipated timeline for NDA filing and expected FDA action date (including any Prescription Drug User Fee Act (PDUFA) target action date); and
(v) any other information that Penterra reasonably believes is material to the Holders' understanding of the status and prospects of CLT-4019 development.
Quarterly reports shall be provided within forty-five (45) days following the end of each calendar quarter (i.e., within forty-five days following March 31, June 30, September 30, and December 31 of each year). The first quarterly report shall cover the period from the Effective Time through the end of the first full calendar quarter following the Effective Time.
(b) Material Developments. In addition to the quarterly reports described in Section 4.2(a), Penterra shall promptly, and in any event within ten (10) Business Days, notify the Trustee and the Stockholder Representative in writing of any of the following developments:
(i) any material safety event relating to CLT-4019, including the imposition of a clinical hold by the FDA, a significant change in the safety profile of CLT-4019, or any event that triggers a requirement to file an IND safety report under 21 C.F.R. § 312.32;
(ii) the receipt of a Complete Response Letter from the FDA with respect to any NDA filed for CLT-4019;
(iii) the filing of an NDA for CLT-4019 with the FDA, together with the NDA number and the indication(s) for which approval is sought;
(iv) the issuance of an FDA approval letter for CLT-4019 (which shall also be addressed pursuant to Section 3.1(c));
(v) any voluntary or involuntary withdrawal of IND 158429, or any notice from the FDA that IND 158429 is no longer in active status;
(vi) any material change to the development plan for CLT-4019 that would reasonably be expected to materially delay the achievement of the Milestone, including any decision to discontinue a clinical trial, change the target indication, or modify the clinical development strategy in a manner that could affect the timeline for NDA filing or FDA Approval; and
(vii) any communication from the FDA that, in Penterra's reasonable judgment, would have a material adverse effect on the likelihood or timing of FDA Approval of CLT-4019.
(c) Confidentiality. The Stockholder Representative and the Trustee acknowledge that information provided by Penterra pursuant to this Section 4.2 may include confidential, proprietary, and competitively sensitive information. The Stockholder Representative and the Trustee shall treat all such information as confidential and shall not disclose such information to any Person other than the Holders (in the case of the Stockholder Representative), their respective legal and financial advisors, or as required by applicable law, regulation, or legal process. The Stockholder Representative shall cause each Holder to whom information is disclosed to treat such information as confidential.
Section 4.3 — Restrictions on Penterra
(a) No Disposition. Penterra shall not sell, license, assign, or otherwise dispose of all or substantially all of the rights to CLT-4019 (including intellectual property rights, regulatory filings, and clinical data) to any third party unless, as a condition to such sale, license, assignment, or disposition, such third party (or, in the case of a license, the licensee) assumes in writing all of Penterra's obligations under this Agreement (including the Diligent Efforts obligations set forth in Section 4.1) pursuant to a written instrument of assumption in form and substance reasonably satisfactory to the Stockholder Representative, a copy of which shall be delivered to the Trustee and the Stockholder Representative prior to or simultaneously with the consummation of such transaction. For the avoidance of doubt, this Section 4.3(a) shall not prohibit Penterra from entering into licensing, collaboration, co-development, or co-promotion agreements with third parties with respect to CLT-4019, provided that (x) Penterra retains the ability to direct and control the regulatory strategy for CLT-4019 in the United States and (y) such agreements do not relieve Penterra of its Diligent Efforts obligations under this Agreement.
(b) Assumption by Successor. In the event of a merger, consolidation, or sale of all or substantially all of Penterra's assets (whether in a single transaction or a series of related transactions), the surviving, resulting, or acquiring entity shall, as a condition to the consummation of such transaction, assume in writing all obligations of Penterra under this Agreement pursuant to a written instrument of assumption in form and substance reasonably satisfactory to the Stockholder Representative. Such written instrument of assumption shall be delivered to the Trustee and the Stockholder Representative prior to or simultaneously with the consummation of such transaction. Upon the effectiveness of such assumption, the successor entity shall be substituted for Penterra as a party to this Agreement, and Penterra (or its predecessor, as the case may be) shall be released from its obligations hereunder, except with respect to obligations that accrued prior to the effective date of such assumption.
(c) No Actions to Frustrate Milestone. Penterra shall not take any action, or willfully fail to take any action, with the primary purpose or primary effect of avoiding, delaying, or frustrating the achievement of the Milestone or the obligation to make the CVR Payment. This Section 4.3(c) shall not be construed to prevent Penterra from making good faith business decisions regarding the development of CLT-4019 that are consistent with the Diligent Efforts standard, even if such decisions have the incidental effect of delaying or making more difficult the achievement of the Milestone.
Section 4.4 — Financing of Development
Penterra represents and warrants to the Trustee and the Holders (as of the Effective Date) that it has adequate financial resources to fund the continued development of CLT-4019 through the filing of a New Drug Application and completion of the FDA review process. As of the Effective Date, Penterra has cash and cash equivalents of approximately Eight Hundred Ninety-Two Million Dollars ($892,000,000) and access to approximately One Billion One Hundred Million Dollars ($1,100,000,000) of undrawn availability under its One Billion Five Hundred Million Dollar ($1,500,000,000) senior secured revolving credit facility with Greystone National Bank, N.A., as administrative agent, dated as of March 15, 2022, as amended, maturing March 2026. Penterra shall promptly notify the Trustee and the Stockholder Representative if at any time Penterra reasonably believes that it does not have adequate financial resources to fund the continued development of CLT-4019 in accordance with its Diligent Efforts obligations under this Agreement.
Section 4.5 — Insurance
Penterra shall maintain, from and after the Effective Time through the earlier of (a) the achievement of the Milestone and the distribution of the CVR Payment Amount in full and (b) the expiration of the CVRs, product liability and clinical trial liability insurance with respect to CLT-4019 with coverage limits and terms consistent with the industry practice of similarly situated specialty pharmaceutical companies. Penterra shall provide the Stockholder Representative with evidence of such insurance coverage upon reasonable request.
ARTICLE V — THE TRUSTEE
Section 5.1 — Appointment
Penterra hereby appoints Columnar Trust Services, Inc. as Trustee under this Agreement, and the Trustee hereby accepts such appointment and agrees to perform its duties and obligations as set forth herein. The Trustee shall act as trustee on behalf of, and for the benefit of, the Holders in accordance with the terms and conditions of this Agreement.
Section 5.2 — Duties and Responsibilities
(a) The Trustee shall perform the following duties and responsibilities in connection with this Agreement:
(i) establish and maintain the CVR Register in accordance with Section 2.4;
(ii) receive the CVR Payment Amount from Penterra and distribute the CVR Payment Amount to the Holders in accordance with Article III;
(iii) receive notices, reports, communications, and other documents from Penterra on behalf of the Holders, including the quarterly reports described in Section 4.2(a), the material development notices described in Section 4.2(b), the Milestone Satisfaction Notice described in Section 3.1(c), and the Milestone Failure Notice described in Section 3.3(b);
(iv) forward all material notices, reports, and communications received from Penterra to the Stockholder Representative within five (5) Business Days of the Trustee's receipt thereof;
(v) act in accordance with the written instructions of Penterra or the Stockholder Representative, as applicable, to the extent such instructions are consistent with the terms and conditions of this Agreement; and
(vi) perform such other duties as are expressly set forth in this Agreement.
(b) The Trustee shall act solely in a ministerial capacity in connection with the matters set forth herein and shall not be required to exercise independent judgment or discretion, except as expressly provided in this Agreement. The Trustee shall not be deemed to be a fiduciary of the Holders, Penterra, or any other Person, except to the extent expressly set forth herein. The Trustee shall have no implied obligations, duties, or responsibilities beyond those expressly set forth in this Agreement.
(c) The Trustee shall not be obligated to take any action that it believes in good faith would expose it to personal liability or that would be contrary to applicable law, this Agreement, or any document or instruction provided to the Trustee hereunder.
Section 5.3 — Standard of Care; Limitation of Liability
(a) The Trustee shall exercise, in the performance of its duties hereunder, the standard of care that a reasonably prudent trustee would exercise under the circumstances, taking into account the ministerial nature of the Trustee's role under this Agreement.
(b) The Trustee shall not be liable for any loss, claim, damage, liability, cost, or expense arising out of or in connection with any action taken or omitted to be taken by the Trustee in good faith and in reliance upon: (i) the terms of this Agreement; (ii) any written instructions, notices, or communications received from Penterra or the Stockholder Representative; or (iii) any document, certificate, instrument, registration statement, opinion, report, or other paper or document believed by the Trustee to be genuine and to have been signed, presented, or delivered by the proper Person or Persons.
(c) In no event shall the Trustee be liable for any indirect, incidental, special, consequential, exemplary, or punitive damages (including lost profits or lost revenue) arising out of or in connection with this Agreement, regardless of the theory of liability and regardless of whether the Trustee was advised of the possibility of such damages.
(d) The Trustee shall not be required to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties or the exercise of any of its rights or powers hereunder if it reasonably believes that repayment of such funds or adequate indemnity satisfactory to it against such risk or liability is not reasonably assured to it.
(e) The Trustee shall not be liable for any act or failure to act by Penterra or any other Person, including any failure by Penterra to deposit the CVR Payment Amount or to comply with its obligations under this Agreement.
Section 5.4 — Compensation and Expenses
(a) Penterra shall pay the Trustee a reasonable fee for the Trustee's services hereunder, as agreed in writing between Penterra and the Trustee in a separate fee schedule entered into on or about the date hereof. In the absence of a separate fee schedule, the Trustee shall be entitled to reasonable compensation for its services hereunder consistent with the fees customarily charged by trust companies of similar size and capability for similar services.
(b) Penterra shall reimburse the Trustee for all reasonable and documented out-of-pocket expenses incurred by the Trustee in connection with the performance of its duties hereunder, including reasonable attorneys' fees, postage, courier charges, and other disbursements.
(c) The fees and expenses payable to the Trustee pursuant to this Section 5.4 shall be the sole obligation of Penterra and shall not reduce or offset the CVR Payment Amount or any distribution to the Holders. Under no circumstances shall any Trustee fee or expense be deducted from the CVR Payment Amount.
Section 5.5 — Indemnification of Trustee
(a) Penterra shall indemnify, defend, and hold harmless the Trustee and its officers, directors, employees, agents, and representatives (each, a "Trustee Indemnitee") from and against any and all losses, claims, damages, liabilities, costs, and expenses (including reasonable and documented attorneys' fees and disbursements) arising out of or relating to the Trustee's acceptance of its appointment as Trustee hereunder or the performance by the Trustee of its duties and obligations under this Agreement; provided, however, that Penterra shall not be obligated to indemnify any Trustee Indemnitee to the extent that any such loss, claim, damage, liability, cost, or expense is determined by a final, non-appealable judgment of a court of competent jurisdiction to have resulted from the gross negligence, willful misconduct, or bad faith of such Trustee Indemnitee.
(b) The indemnification obligations of Penterra under this Section 5.5 shall survive the resignation or removal of the Trustee, the termination of this Agreement, and the payment or expiration of the CVRs.
Section 5.6 — Resignation and Removal
(a) Resignation. The Trustee may resign at any time by giving not less than sixty (60) days' prior written notice to Penterra and the Stockholder Representative. Such resignation shall take effect upon the appointment of a successor trustee in accordance with Section 5.6(c) and the acceptance by such successor trustee of the appointment.
(b) Removal. The Trustee may be removed by Penterra at any time, with or without cause, upon not less than sixty (60) days' prior written notice to the Trustee and the Stockholder Representative; provided, however, that any such removal shall be subject to the prior written consent of the Stockholder Representative, which consent shall not be unreasonably withheld, conditioned, or delayed.
(c) Successor Trustee. In the event of the resignation or removal of the Trustee, Penterra shall use commercially reasonable efforts to appoint a successor trustee within thirty (30) days following the effective date of such resignation or removal. The successor trustee shall be a bank or trust company organized under the laws of the United States or any state thereof and having trust powers. The appointment of a successor trustee shall be subject to the prior written consent of the Stockholder Representative, which consent shall not be unreasonably withheld, conditioned, or delayed. Upon the effective date of such appointment, the successor trustee shall be vested with all of the rights, powers, duties, and obligations of the Trustee under this Agreement as if the successor trustee had been originally named as Trustee herein.
(d) Interim Period. If no successor trustee has been appointed and has accepted such appointment within sixty (60) days after the giving of notice of resignation or removal, the resigning or removed Trustee shall continue to serve and perform its duties hereunder until a successor trustee has been appointed and has accepted such appointment. The resigning or removed Trustee shall cooperate fully with any successor trustee in transitioning the administration of the CVR Register and any other records or information in the possession of the resigning or removed Trustee relating to this Agreement.