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PRIVILEGED & CONFIDENTIAL ATTORNEY-CLIENT COMMUNICATION — ATTORNEY WORK PRODUCT

This memorandum is a privileged and confidential attorney-client communication and attorney work product prepared by Calderwood & Harkness LLP in its capacity as independent counsel to the Special Committee of the Board of Directors of Penterra Pharmaceuticals Corp. This memorandum is not to be disclosed to any person other than the members of the Special Committee and their authorized advisors without the prior written consent of Calderwood & Harkness LLP. Disclosure to any unauthorized party may constitute a waiver of applicable privileges. The analyses, conclusions, and recommendations set forth herein are based on facts and circumstances known to Calderwood & Harkness LLP as of the date hereof and are subject to change. Nothing in this memorandum constitutes a guarantee of any particular outcome in connection with the proposed transaction or any related matter.

CALDERWOOD & HARKNESS LLP MEMORANDUM

TO: Special Committee of the Board of Directors of Penterra Pharmaceuticals Corp.

Diane Prescott, Chair James Okafor, Member Dr. Helen Ng, Member

FROM: Renata Vasquez, Responsible Partner

Sophie Tremblay, Lead Associate Calderwood & Harkness LLP 1700 Market Street, Suite 3400 Philadelphia, PA 19103

DATE: September 25, 2023

RE: Project Coriander — Recommended Negotiation Strategy for Proposed Acquisition of Caliston BioSciences, Inc.

C&H Matter No.: 1025-00006

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I. Executive Summary

The purpose of this memorandum is to outline Calderwood & Harkness LLP's recommended negotiating positions for the Special Committee's consideration in advance of the anticipated negotiation sessions with Caliston BioSciences, Inc. ("Caliston") and its professional advisors. Caliston is represented by Whitfield Graves LLP (lead partner: Kenneth Pratt) as legal counsel and Fendowell Sinclair & Co. (lead banker: Sandra Wu, Managing Director) as financial advisor. Based on preliminary scheduling discussions between the parties' advisors, substantive negotiation sessions are expected to commence on or about September 29, 2023.

As the members of the Special Committee are aware, the proposed transaction contemplates a one-step merger of Caliston with and into Penterra Pharmaceuticals Corp. ("Penterra" or the "Company"), with Caliston ceasing to exist as a separate entity and its former stockholders receiving merger consideration from Penterra. The transaction constitutes a related-party transaction by reason of the fact that Dr. Marcus Hale, Penterra's Chairman of the Board and Chief Executive Officer, holds a 28.5% equity interest in Caliston, acquired through a series of personal investments totaling an aggregate of approximately $42 million. At Caliston's opening ask of $1.1 billion in aggregate equity value, Dr. Hale's implied proceeds would be approximately $313.5 million (28.5% × $1.1 billion), representing an implied personal gain of approximately $271.5 million. The magnitude of Dr. Hale's financial interest on the sell side of this transaction underscores the critical importance of the Special Committee's independent oversight role and the need for a rigorous, well-documented negotiation process.

To assist the Special Committee in evaluating the financial dimensions of the proposed transaction, Thorngate Partners LLC ("Thorngate"), the Special Committee's independent financial advisor (engagement led by Gregory Ashford, Managing Director; engagement reference 1018-00003), delivered preliminary valuation analyses on August 3, 2023. Subsequently, at the direction of the Special Committee, Thorngate conducted a market check process that was completed on September 14, 2023. The market check did not identify any superior strategic alternatives to the proposed Caliston acquisition. These valuation analyses and market check results form the financial foundation upon which our negotiation recommendations are based, as discussed in detail in Section II below.

In summary, we recommend that the Special Committee pursue the following key negotiating objectives in the forthcoming sessions:

1. Achieve a Fair Price Substantially Below Caliston's Opening Ask. Caliston's $1.1 billion opening valuation ask sits at the high end of the applicable valuation ranges and is not justified by the current risk profile of Caliston's pipeline. The Special Committee should counter at $850 million and target a final price in the range of $900 million to $950 million, with an internal walk-away ceiling of $975 million (excluding any contingent value right).

2. Structure Consideration to Protect Penterra Stockholders. We recommend a consideration mix of 75% cash and 25% Penterra common stock, which preserves Penterra's balance sheet capacity while aligning former Caliston stockholders with Penterra's post-closing performance.

3. Shift Contingent Pipeline Value into a CVR Mechanism. Given that Phase 2b topline data for CLT-4019 — the primary value driver of the transaction — has not yet been reported, a material portion of the purchase premium should be structured as a contingent value right ("CVR") payable upon FDA approval of CLT-4019, with a recommended CVR amount of $125 million.

4. Secure Robust Protective Provisions Given the Conflict of Interest. The merger agreement and ancillary documents must contain comprehensive safeguards addressing the conflicts arising from Dr. Hale's dual role and the Whitmore/Whitmore spousal relationship, including information barrier covenants, recusal provisions, and equal treatment of Dr. Hale's merger consideration.

5. Build a Strong Entire Fairness Record Under Delaware Law. Every element of the negotiation process, the terms ultimately agreed upon, and the procedural safeguards should be designed to withstand scrutiny under the entire fairness standard of review applicable to interested-party transactions under Delaware law, including DGCL §§ 141(a), 144, and 251. To the extent the Special Committee can demonstrate that the transaction satisfies both prongs of the entire fairness test — fair dealing and fair price — the likelihood of successfully defending any post-closing stockholder challenge will be substantially enhanced.

The sections that follow address each of these objectives in detail, along with our specific recommendations on the full range of terms that will be the subject of negotiation.

II. Overview of Current Positions

A. Caliston's Opening Position

Caliston, acting through its financial advisor Fendowell Sinclair & Co. (Sandra Wu, Managing Director), communicated an opening valuation ask of $1.1 billion in aggregate equity value for all of the outstanding equity interests of Caliston. This opening position was conveyed during a preliminary meeting between the parties' financial advisors on August 28, 2023, and was subsequently confirmed in a written term sheet delivered by Whitfield Graves LLP to our office on September 4, 2023.

Caliston's $1.1 billion ask is anchored on the following principal arguments:

(i) CLT-4019 Phase 2b De-risking Event. Caliston asserts that Phase 2b topline data for CLT-4019, its selective CDK4/6 inhibitor for the treatment of HR+/HER2– metastatic breast cancer, is expected in Q4 2023 and that the anticipated positive results will represent a significant de-risking event for the program. Caliston's position implicitly assumes positive Phase 2b results and values the program accordingly, essentially seeking to capture the post-data value in the upfront purchase price. This is, in our view, the most significant area of disagreement: the Special Committee should insist that value attributable to unproven clinical outcomes be shifted, in whole or in part, to a contingent payment mechanism.

(ii) Full Pipeline Value. Caliston's ask reflects aggregate pipeline value, encompassing not only CLT-4019 (Phase 2b, IND 158429) but also its preclinical candidates CLT-5227 (a next-generation KRAS inhibitor) and CLT-6034 (a bispecific T-cell engager for certain solid tumors). Caliston attributes substantial option value to these earlier-stage programs, notwithstanding their preclinical status and the significant development risk attendant thereto.

(iii) Strategic Premium. Caliston contends that the fit between its pipeline and Penterra's existing oncology and immunology therapeutic areas justifies a meaningful strategic premium above standalone value. Specifically, Caliston's advisors have highlighted potential synergies in commercial infrastructure, regulatory expertise, and manufacturing capabilities that Penterra could bring to bear in accelerating the development and eventual commercialization of CLT-4019.

For context, Caliston's last equity financing was a Series C round that closed in October 2021, at a post-money valuation of $680 million. Caliston's opening ask of $1.1 billion therefore implies a premium of approximately 61.76% to the Series C post-money valuation, which Caliston characterizes as reasonable in light of subsequent clinical progress. To date, Caliston has raised total equity capital of approximately $347 million across its Seed, Series A, Series B, and Series C rounds. It is a private company incorporated in Delaware with its principal place of business in Cambridge, Massachusetts.

Caliston has expressed a strong preference for all-cash consideration, or at a minimum, a consideration package that is predominantly cash. This preference is unsurprising given the desire of Caliston's venture capital investors (Ridgeline Ventures, LP and Meridian Life Sciences Fund III, in particular) to achieve liquidity without taking on exposure to Penterra's stock price.

It bears emphasis that Caliston's financial position creates meaningful negotiating leverage for the Special Committee. Based on the most recently available financial data, Caliston's cash on hand as of March 31, 2023, was approximately $112.6 million. Given a FY2022 net cash burn rate of approximately $78.4 million, Caliston's projected cash runway extends only through approximately Q1 2025. Caliston does not, to our knowledge, have any committed debt financing facility, and the current biotech financing environment is significantly more challenging than it was at the time of the October 2021 Series C. This declining cash position — and the prospect of a potentially dilutive financing round in the absence of a transaction — is a material factor that should inform the Special Committee's negotiating posture. The Special Committee can and should be patient in negotiations, knowing that the passage of time generally favors Penterra.

B. Thorngate Partners Preliminary Valuation Ranges

Thorngate Partners delivered its preliminary valuation analyses to the Special Committee on August 3, 2023. These analyses employed multiple methodologies and yielded the following ranges:

DCF Analysis — CLT-4019 Only (Lead Asset):

Implied equity value range: $780 million – $1,020 million Midpoint: $900 million Weighted average cost of capital (WACC): 12.5% Terminal growth rate: 2.0% Key assumptions: probability of technical and regulatory success ("PTRS") applied to CLT-4019 revenue projections based on management forecasts, adjusted for risk by Thorngate; peak year net sales estimates ranging from $1.2 billion to $1.8 billion; time-to-market estimated at 5–6 years from the present.

DCF Analysis — Full Pipeline (Risk-Adjusted NPV):

Implied equity value range: $870 million – $1,180 million Midpoint: $1,025 million Includes risk-adjusted value for CLT-4019 (Phase 2b), CLT-5227 (preclinical), and CLT-6034 (preclinical). Note: the additional value attributed to the preclinical programs (approximately $90 million – $160 million above the lead-asset-only analysis) reflects the highly speculative and heavily risk-adjusted nature of these early-stage assets.

Comparable Transactions Analysis:

Implied equity value range: $820 million – $1,050 million Based on analysis of 7 precedent transactions in the oncology space involving acquisition of private-company targets with lead assets in Phase 2 or Phase 3 clinical development, including transactions by Calderon Corporation, Roche, Ridgeway Holdings, and Gilead over the period from 2019 to 2023.

Premiums Paid Analysis:

Applying premiums of 30% to 45% to Caliston's October 2021 Series C post-money valuation of $680 million implies a range of $884 million to $986 million.

The following observations are critical to the Special Committee's negotiating posture:

• Caliston's $1.1 billion ask sits at the very high end of the full-pipeline DCF range ($870 million – $1,180 million) and is above the top of the comparable transactions range ($1,050 million). It substantially exceeds the midpoint of every valuation methodology employed by Thorngate.

• The lead-asset-only DCF midpoint of $900 million represents, in our view, the most defensible measure of Caliston's current fair value. This methodology isolates the value of CLT-4019 — the program that provides the primary strategic rationale for the transaction — without attributing speculative value to early-stage preclinical programs whose ultimate commercial viability is highly uncertain.

• The premiums paid analysis, while supportive of a range of $884 million to $986 million, is based on the October 2021 Series C round, which took place in a significantly more favorable biotech financing environment. Adjusting for the deterioration in market conditions since that time would tend to compress the warranted premium.

The Special Committee is well-positioned to use these valuation analyses as the factual basis for its counter-offer and for resisting Caliston's $1.1 billion opening position.

C. Recommended Opening Counter and Target

Based on the foregoing analysis, we recommend the following negotiating framework:

Recommended Initial Counter-Offer: $850 million aggregate equity value.

This counter sits within the lower half of all applicable valuation ranges. It is modestly below the lead-asset-only DCF midpoint of $900 million, which is intentional: an opening counter should leave room for upward movement during negotiations. An $850 million opening position establishes a credible anchor that is supported by Thorngate's analyses while signaling to Caliston that the Special Committee has conducted a rigorous independent valuation process and will not accept a price that is not justified by the current state of the clinical and commercial evidence.

Target Zone: $900 million – $950 million aggregate equity value.

We believe that a final price in this range, coupled with a CVR of $100 million to $150 million for the achievement of defined clinical and regulatory milestones, would represent a fair outcome for Penterra stockholders. A price at the midpoint of this range ($925 million) is consistent with the lead-asset-only DCF midpoint, falls within the comparable transactions range, and is within the premiums paid range. At a $925 million base price, the maximum aggregate transaction value (inclusive of a $125 million CVR) would be $1.05 billion — still below Caliston's $1.1 billion opening ask.

Walk-Away Threshold: $975 million aggregate equity value (excluding CVR).

We recommend that the Special Committee establish a firm internal ceiling of $975 million in base consideration, above which the transaction should not proceed absent extraordinary justification (such as materially positive interim clinical data that fundamentally changes the risk profile). This ceiling is at the upper end of the premiums paid range and above the lead-asset-only DCF midpoint by approximately 8.3%. The Special Committee should communicate this ceiling only to its advisors and should not reveal it to Caliston or its representatives under any circumstances.

The Special Committee should remain mindful that every dollar of price increase flows 28.5% to Dr. Hale, the interested party. By way of illustration:

The difference to Dr. Hale between the Special Committee's recommended opening counter ($850 million) and Caliston's ask ($1.1 billion) is $71.25 million. The Special Committee should be aware that Dr. Hale has a powerful personal financial incentive to see the transaction price maximized, which reinforces the need for the information barrier and the exclusive role of the Special Committee and its advisors in conducting price negotiations.

III. Consideration Structure

A. Cash/Stock Mix

As noted above, Caliston has expressed a preference for all-cash or predominantly cash consideration. While we understand Caliston's desire for immediate liquidity — driven in large part by the liquidity needs of its venture capital investors — an all-cash transaction is not in Penterra's best interest.

We recommend a consideration mix of 75% cash and 25% Penterra common stock (ticker: PPHR).

The rationale for this recommended mix is as follows:

(i) Balance Sheet Preservation. An all-cash transaction at a price in the target range ($900 million – $950 million) would require Penterra to deploy substantially all of its available cash on hand and draw heavily on its revolving credit facility. A 75/25 mix reduces the cash outlay by approximately 25%, preserving financial flexibility for ongoing operations, pipeline investment, and potential future business development opportunities.

(ii) Alignment of Interests. The stock component ensures that former Caliston stockholders — including Dr. Hale — retain an economic interest in Penterra's post-closing performance. This alignment is particularly important given that a principal strategic rationale for the transaction is the development and eventual commercialization of CLT-4019 within Penterra's platform. If the asset performs as Caliston projects, the stock component will participate in the resulting value creation.

(iii) Signal to Penterra Stockholders. A consideration structure that includes a meaningful equity component signals to Penterra's public stockholders that the former Caliston stockholders have conviction in the combined company's prospects, which can be a positive factor in the proxy solicitation process.

At the illustrative target price of $925 million, the cash/stock split would be as follows:

Cash component: 75% × $925,000,000 = $693,750,000 Stock component: 25% × $925,000,000 = $231,250,000

Funding Analysis. Penterra reported cash and cash equivalents of $892 million as of the end of FY2022. Assuming approximately $400 million is deployed from cash on hand (preserving approximately $492 million of cash reserves for ongoing operations and working capital), the remainder of the cash consideration would be funded by a draw on Penterra's existing revolving credit facility. This facility, with Greystone National Bank, N.A. as administrative agent, provides for total commitments of $1.5 billion, bears interest at SOFR plus 150 basis points, and had undrawn availability of approximately $1.1 billion as of June 1, 2023. The facility matures in March 2026. At the illustrative $925 million price, the required revolver draw would be approximately:

$693,750,000 (total cash consideration) – $400,000,000 (from cash on hand) = $293,750,000 (revolver draw)

This draw is well within the facility's available capacity and should not raise concerns under the financial covenants contained in the credit agreement. We recommend that Penterra's treasury team confirm covenant compliance at the time the merger agreement is executed.

Share Issuance. Penterra currently has approximately 121.4 million shares of common stock outstanding. At the illustrative $925 million price and a stock component of $231,250,000, the number of shares to be issued to former Caliston stockholders would be determined by reference to the volume-weighted average price ("VWAP") of Penterra common stock over a specified measurement period. Based on a 30-day VWAP of $39.17 per share as of June 1, 2023 (the most recent available calculation), the illustrative share issuance would be:

$231,250,000 ÷ $39.17 = approximately 5,903,497 shares

This issuance represents approximately 4.86% of Penterra's currently outstanding shares and will trigger the requirement under NYSE Listed Company Manual Section 312.03(c) that Penterra obtain stockholder approval for the issuance. As discussed in Section XII below, a proxy statement will need to be prepared and filed with the SEC in connection with this stockholder vote.

VWAP Measurement Period. We recommend negotiating for a VWAP measurement period that is closer to the signing date of the merger agreement, such as a 10-trading-day or 20-trading-day VWAP ending on the last trading day prior to signing. A shorter and more recent measurement period better reflects the current market value of Penterra shares and reduces the risk that the exchange ratio is distorted by stale pricing data. However, a 30-day VWAP is commonly used in comparable transactions and is acceptable as a fallback position if Caliston resists a shorter measurement period.

Collar / Price Protection. We anticipate that Caliston may request a collar or other price protection mechanism on the stock component to protect against a decline in Penterra's stock price between signing and closing. We recommend resisting any such request. The stock component is being offered as a means of preserving Penterra's balance sheet and aligning interests. Penterra should not bear the market risk associated with its own share price fluctuations for the benefit of Caliston stockholders. If Caliston's stockholders receive Penterra stock, they should bear the same risks and enjoy the same upside as Penterra's existing public stockholders. A collar would effectively shift downside risk from the stock component back to Penterra and, at the limit, could convert the stock component into the functional equivalent of cash — undermining the purpose of the mixed-consideration structure.

If the issue of price protection proves to be a significant impediment to reaching agreement, the Special Committee could consider a narrow asymmetric collar (downside protection only, with upside sharing) as a concession of last resort, but this should not be offered proactively and should be traded against other meaningful concessions by Caliston.

B. Contingent Value Rights (CVRs)

The CVR is, in our view, one of the most important structural elements of the proposed transaction. We recommend that a material portion of the premium over Caliston's standalone value be structured as a contingent value right tied to the clinical and regulatory success of CLT-4019. The strategic logic is straightforward: CLT-4019 is the primary value driver of the transaction, but Phase 2b topline data have not yet been reported. The program remains subject to significant clinical, regulatory, and commercial risk. If the Phase 2b data are positive and CLT-4019 ultimately receives FDA approval, the resulting value to Penterra will justify a premium payment. If, on the other hand, CLT-4019 fails to achieve its clinical endpoints or encounters regulatory difficulties, Penterra should not be locked into paying a price that assumes clinical success that has not materialized.

The CVR mechanism effectively bridges the valuation gap between the parties by shifting risk to the party better positioned to bear it — namely, the former Caliston stockholders who are in possession of the most information about the asset's prospects and who, by their own opening position, profess confidence in its approvability.

Recommended CVR Structure:

Amount: $100 million – $150 million. Our recommended target is $125 million. This amount, when combined with a base price in the target zone ($900 million – $950 million), brings the maximum aggregate transaction value to $1,025 million – $1,075 million inclusive of CVR, with a maximum of $1.1 billion at the ceiling base price of $975 million plus $125 million CVR. This constructive framing allows us to tell Caliston that the maximum potential deal value equals their opening ask, while protecting Penterra if the clinical outcome does not warrant the full premium.

Milestone: FDA approval (New Drug Application, or "NDA") of CLT-4019 for any indication. We recommend a single, binary milestone tied to the ultimate regulatory outcome rather than multiple interim milestones (e.g., Phase 2b success, Phase 3 initiation, NDA filing). A single approval milestone is cleaner, easier to administer, and ensures that Penterra pays the full CVR only when the asset has achieved the level of de-risking that justifies the premium. If Caliston presses for interim milestones, the Special Committee should be prepared to discuss a tiered structure (e.g., $50 million upon Phase 3 initiation, $75 million upon FDA approval), but this introduces administrative complexity and interim cash outflows that are less favorable to Penterra.

Deadline: December 31, 2026. This date, approximately three years post-signing, provides a reasonable period for Penterra to complete Phase 3 clinical trials, file an NDA, and obtain FDA review and approval. Caliston may seek a longer deadline (e.g., December 31, 2027, or December 31, 2028) to account for potential regulatory delays. The Special Committee should be willing to negotiate the deadline within a range of 3 to 4 years (i.e., up to December 31, 2027) but should resist a deadline beyond 4 years, as an overly extended CVR period creates uncertainty for Penterra's financial planning and stockholders.

CVR Trustee: Columnar Trust Services, Inc., located at 6201 15th Avenue, Brooklyn, New York 11219. Columnar currently serves as Penterra's transfer agent and is a familiar counterparty with whom Penterra has an existing relationship. Using the existing transfer agent reduces administrative costs and ensures efficient coordination with the stock issuance and merger consideration payment mechanics.

Payment: Cash, payable within 30 business days following achievement of the milestone (i.e., FDA approval of the CLT-4019 NDA). The CVR consideration would be distributable pro rata to former Caliston stockholders based on their pro rata share of total Caliston equity immediately prior to the effective time of the merger.

Transferability: Non-transferable, except by operation of law (e.g., by will or the laws of descent and distribution). We strongly recommend that the CVRs not be transferable or tradeable. If the CVRs were freely transferable, they could develop a secondary market with speculative trading activity that could create adverse publicity, SEC reporting complexities, and undesirable stockholder dynamics. Non-transferability also simplifies administration and reduces costs.

Penterra Development Obligation: The CVR agreement should require Penterra to use "diligent efforts" (not "best efforts" or "commercially reasonable efforts") to continue the development of CLT-4019 following the closing. Penterra should retain commercially reasonable discretion over development strategy, including the design and conduct of clinical trials, the choice of clinical endpoints, the selection of study sites, and the timing of regulatory submissions. The CVR agreement should expressly provide that Penterra shall not be required to continue development if, in its good faith judgment, the clinical data do not support further investment, or if continuing development would present safety concerns or would not be in the best interests of Penterra's stockholders. Caliston will likely push for "best efforts" or "commercially reasonable efforts" with mandatory development milestones. This is a key negotiation point — the Special Committee should resist any obligation that effectively removes Penterra's post-closing discretion over its own pipeline.

At the illustrative terms of a $925 million base price plus a $125 million CVR, the maximum aggregate transaction value would be $1,050,000,000. Dr. Hale's implied maximum proceeds (inclusive of CVR) would be 28.5% × $1,050,000,000 = $299,250,000, and his implied maximum gain would be $299,250,000 – $42,000,000 = $257,250,000.

From a negotiating posture, the Special Committee should frame the CVR as an alignment mechanism rather than an adversarial tool. The message to Caliston should be clear: if CLT-4019 is as promising as Caliston's management believes, the CVR will be paid in full and the total deal value will approach the level Caliston has asked for. If Caliston resists the CVR concept, it may implicitly signal uncertainty about the asset's approvability, which itself would be informative and useful leverage.

IV. Termination Fee Provisions

Termination fees are a standard feature of negotiated mergers and serve important functions: for Penterra (the buyer), a company termination fee compensates for the opportunity cost and expenses incurred if Caliston abandons the transaction; for Caliston (the target), a reverse termination fee provides assurance that Penterra is committed to completing the deal and compensates Caliston if Penterra fails to perform. The magnitude and triggers for each fee are heavily negotiated and signal the seriousness of the parties' commitment.

A. Reverse Termination Fee (Payable by Penterra)

Caliston will likely request a reverse termination fee in the range of 3.5% to 5% of aggregate equity value, which is consistent with the range observed in comparable transactions in the pharmaceutical sector. At the higher end of this range (5% of $925 million = $46.25 million), the fee would be substantial and could create an undesirable incentive structure for Penterra, particularly given the need to obtain stockholder approval for the share issuance.

We recommend targeting a reverse termination fee of 3.5% of aggregate equity value.

At the illustrative target price of $925 million, a 3.5% reverse termination fee would equal $32,375,000. This is a meaningful amount that provides Caliston with credible assurance of Penterra's commitment, while remaining in the lower portion of the customary range and limiting Penterra's financial exposure.

We recommend that the triggers for the reverse termination fee be strictly limited to the following events:

(i) Failure to Obtain Penterra Stockholder Approval. If the Penterra stockholder vote on the share issuance fails to achieve the requisite approval, Penterra should pay the reverse termination fee. This is a customary trigger that compensates Caliston for the risk that Penterra cannot deliver its stockholders' support.

(ii) Failure to Obtain HSR Clearance Attributable to Penterra. If the transaction cannot close because of antitrust concerns arising from Penterra's existing portfolio and the relevant regulatory authority declines to grant clearance or imposes conditions that are unacceptable, the reverse termination fee should be payable. We note, however, that the August 10, 2023 antitrust analysis memorandum concluded that HSR risk is low given the complementary, non-overlapping nature of the two companies' product portfolios.

(iii) Penterra Board Recommendation Change. If the Penterra board of directors (acting on the recommendation of the Special Committee or otherwise) withdraws, modifies, or qualifies its recommendation that Penterra stockholders approve the share issuance (i.e., exercises a fiduciary out), the reverse termination fee should be payable.

Critically, we recommend resisting any "naked" no-vote trigger — that is, a provision that would require payment of the reverse termination fee solely because Penterra stockholders vote against the share issuance, even if the Penterra board has maintained its recommendation. A naked no-vote trigger shifts stockholder risk disproportionately to Penterra and is not warranted here. The reverse termination fee should require, as a predicate, either a board recommendation change or a failure that is attributable to Penterra's conduct (such as a failure to use reasonable best efforts to solicit proxies or a material misrepresentation in the proxy statement).

B. Company Termination Fee (Payable by Caliston)

We recommend targeting a company termination fee of 3.0% of aggregate equity value.

At the illustrative target price of $925 million, a 3.0% company termination fee would equal $27,750,000. This is slightly below the reverse termination fee, which is a standard convention (the buyer typically secures a slightly lower termination fee from the target than the target secures from the buyer, reflecting the relative bargaining positions and the fact that the target is typically in a more vulnerable position once it enters into a definitive agreement).

The triggers for the company termination fee should include the following:

(i) Caliston Board Recommendation Change. If Caliston's board of directors withdraws, modifies, or qualifies its recommendation that Caliston's stockholders approve the merger by written consent (to the extent such a recommendation is formally made), the company termination fee should be payable.

(ii) Termination to Accept a Superior Proposal. If a fiduciary out is granted to Caliston (which we discuss further below), and Caliston terminates the merger agreement to accept a competing acquisition proposal, the company termination fee should be payable.

(iii) Tail Provision. If the merger agreement is terminated under circumstances in which a competing acquisition proposal has been publicly announced or communicated to Caliston, and within 12 months of such termination Caliston enters into a definitive agreement with respect to, or consummates, an alternative transaction, the company termination fee should be payable. This tail provision protects Penterra from the scenario in which Caliston uses the executed merger agreement as a "stalking horse" to attract a higher bidder.

An important practical consideration is that Caliston is a private company and stockholder approval will be obtained by written consent rather than at a meeting. Caliston's certificate of incorporation permits action by written consent, and the applicable approval threshold is a majority of the outstanding shares. Given the concentration of Caliston's equity ownership among a small number of holders — Dr. Marcus Hale (28.5%), Ridgeline Ventures, LP (22.3%), Meridian Life Sciences Fund III (18.7%), and founders/management (approximately 30.5%) — it is anticipated that the requisite written consent can be obtained very promptly after execution of the merger agreement. A small group of institutional and insider holders collectively controlling well over 50% of the outstanding shares will be in a position to deliver written consent without the need for a broad solicitation.

Given this dynamic, we recommend requiring that Caliston deliver the written consent of its stockholders approving the merger within 5 business days of execution of the merger agreement. This tight timeline is justified by the concentrated ownership structure and minimizes the window during which Caliston could solicit or entertain competing proposals post-signing. The 5-day delivery requirement should be a closing covenant and potentially a condition to Penterra's obligations.

V. Representations and Warranties

The representations and warranties contained in the merger agreement serve a dual function: they are the mechanism by which the parties exchange information and allocate risk with respect to the state of their respective businesses, and they establish the factual predicates for the indemnification provisions and the closing conditions. Given the magnitude of this transaction and the related-party dynamics, we recommend a comprehensive and carefully tailored set of representations.

A. Caliston Representations (Seller-Side)

As Caliston is a private company that has not been subject to public reporting obligations, Penterra's informational disadvantage is significant. Due diligence has been conducted, but the representations in the merger agreement provide an additional layer of protection. We recommend requiring comprehensive representations from Caliston covering the following subject matter areas:

• Organization and Good Standing. Caliston is a corporation duly organized, validly existing, and in good standing under the laws of the State of Delaware, and is qualified to do business in each jurisdiction where the nature of its business or the ownership of its properties requires such qualification, including the Commonwealth of Massachusetts.

• Capitalization. A detailed representation setting forth the authorized and outstanding capital stock of Caliston, including the number and class of shares held by each stockholder, the existence and terms of all options, warrants, convertible securities, and other equity-linked instruments, and a specific representation regarding Dr. Hale's 28.5% equity interest (including the timing and consideration paid for each tranche). This representation is critical to establishing the factual record regarding the interested party's stake.

• Authority and Enforceability. Caliston has full corporate power and authority to enter into the merger agreement and to consummate the merger, subject to the receipt of stockholder approval.

• No Conflicts. The execution and delivery of the merger agreement and the consummation of the merger do not conflict with Caliston's organizational documents, violate any applicable law, or breach, constitute a default under, or require any consent under any material contract to which Caliston is a party.

• Financial Statements. Caliston's historical financial statements (audited and unaudited) are complete and correct, have been prepared in accordance with GAAP, and fairly present in all material respects the financial condition and results of operations of Caliston as of the dates and for the periods indicated.

• Absence of Undisclosed Liabilities. Caliston does not have any liabilities or obligations (whether absolute, contingent, or otherwise) other than those reflected in the financial statements, incurred in the ordinary course of business since the date of the most recent financial statements, or disclosed in the disclosure schedules.

• Compliance with Laws. Caliston is in compliance in all material respects with all applicable laws, rules, regulations, and orders.

• Material Contracts. A representation identifying all material contracts (including clinical research agreements, manufacturing agreements, licensing agreements, collaboration agreements, and real property leases), together with confirmation that each such contract is in full force and effect and that Caliston is not in breach thereof.

• intellectual Property. This representation is of paramount importance in a biopharmaceutical acquisition. It should cover the full scope of Caliston's intellectual property portfolio, including patents, patent applications, trade secrets, know-how, and proprietary data relating to CLT-4019, CLT-5227, and CLT-6034. Specific sub-representations should address: (a) ownership and assignment chain (confirming that all intellectual property created by employees and consultants has been properly assigned to Caliston); (b) freedom-to-operate (confirming that the development, manufacture, and commercialization of CLT-4019 does not infringe any third-party intellectual property rights, to Caliston's knowledge); (c) absence of challenges, oppositions, or interferences; and (d) maintenance and prosecution (confirming that all required maintenance fees have been paid and all prosecution deadlines met).

• Regulatory Compliance. Caliston should represent that it is in compliance with all applicable FDA regulations, including the requirements of 21 C.F.R. Parts 11, 50, 56, 312, and 314, as applicable. Specific representations should address: IND 158429 (covering CLT-4019), all material FDA correspondence, compliance with clinical trial protocols, institutional review board ("IRB") approvals, informed consent procedures, adverse event reporting, and Data Safety Monitoring Board ("DSMB") reports. Caliston should represent that it has not received any FDA warning letters, Form 483 observations, untitled letters, or clinical holds relating to CLT-4019 or any other program.

• Employee Matters. Representation regarding the number of employees (94 as of the most recent date), compliance with labor laws, absence of labor disputes, and the status of key employee agreements (including non-competition and invention assignment agreements).

• Benefit Plans. Representation regarding all employee benefit plans, including 401(k) plans, health plans, and equity incentive plans, and compliance with ERISA and the Internal Revenue Code.

• Tax Matters. Representation that Caliston (EIN: 84-4219063) has filed all required tax returns, paid all taxes due, and is not the subject of any pending or threatened audit, assessment, or proceeding by any taxing authority. Given the magnitude of the transaction and the various forms of consideration (cash, stock, and CVR), tax representations should be particularly detailed.

• Environmental Matters. Standard representations regarding compliance with environmental laws, absence of hazardous materials contamination, and absence of environmental liabilities.

• Real Property. Representation regarding all real property owned or leased by Caliston, including its principal laboratory and office facilities in Cambridge, Massachusetts.

• Insurance. Representation that Caliston maintains insurance coverage that is customary for companies in its industry and stage of development.

• Data Privacy. Representation regarding compliance with applicable data privacy laws, including HIPAA (to the extent applicable to clinical trial data), state data breach notification laws, and GDPR (to the extent Caliston conducts activities in or directed to the European Union).

• Anti-Bribery / FCPA. Representation that Caliston is in compliance with the U.S. Foreign Corrupt Practices Act, the UK Bribery Act, and all other applicable anti-bribery and anti-corruption laws.

Material Adverse Effect Definition. The "material adverse effect" ("MAE") qualifier applied to Caliston's representations will be a heavily negotiated provision. Caliston will seek broad exclusions from the MAE definition, including for general economic conditions, industry-wide conditions, changes in law, effects of the announcement of the transaction, and natural disasters or acts of war. Many of these exclusions are standard and acceptable.

However, we recommend strongly that the MAE definition include a pipeline-specific carve-back — specifically, that adverse clinical trial results for CLT-4019 (including failure to meet primary or key secondary endpoints in the Phase 2b trial, clinical holds, or significant safety signals identified by the DSMB) should not be excluded from the definition of "material adverse effect." Given that CLT-4019 is the primary value driver of the transaction and Phase 2b topline data have not yet been reported, it would be unreasonable for Caliston to insist on an MAE definition that shields the transaction from the consequences of negative clinical outcomes.

We fully anticipate that Caliston will resist the pipeline carve-back. This will be one of the most contentious points in the negotiation of the merger agreement. We flag it as a Tier 2 priority item. The Special Committee should be prepared to use the pipeline carve-back as a strategic lever: if Caliston makes meaningful concessions on price or CVR terms, the Special Committee may consider narrowing the carve-back (e.g., limiting it to a clinical hold imposed by the FDA or a material safety signal, rather than any adverse clinical result). However, the carve-back should not be conceded entirely without a substantial quid pro quo.

Bring-Down Condition. The merger agreement should provide that Caliston's representations and warranties must be true and correct in all material respects as of the closing date (or, where already qualified by materiality or MAE, true and correct in all respects), with the same force and effect as if made on and as of the closing date (subject to representations that by their terms speak as of a specific date, which need only be true and correct as of such date). This bring-down condition is a standard feature of merger agreements and ensures that Penterra is not obligated to close if the factual predicates underlying its investment thesis have materially changed.

B. Penterra Representations (Buyer-Side)

Penterra will be required to make representations and warranties to Caliston and its stockholders regarding its own business and affairs. These representations are standard for a public-company buyer and should include the following:

• Organization and Good Standing. Penterra is a corporation duly organized and validly existing under the laws of the State of Delaware.

• Authority and Enforceability. Penterra has full corporate power and authority to enter into the merger agreement and to consummate the merger, subject to the receipt of stockholder approval for the share issuance.

• No Conflicts. The execution and delivery of the merger agreement and the consummation of the merger do not conflict with Penterra's organizational documents, violate any applicable law, or breach or require consent under any material contract (including the revolving credit facility with Greystone National Bank, N.A.).

• SEC Filings and Financial Statements. Penterra has timely filed all required reports with the SEC, and such filings do not contain any untrue statement of material fact or omit any material fact necessary to make the statements therein not misleading. Penterra's financial statements — FY2022 revenue of $1.836 billion, EBITDA of $412 million, net income of $247 million, total assets of $5.12 billion, and total debt of $1.35 billion — have been audited by Harwick & Tolliver LLP and present fairly in all material respects Penterra's financial condition and results of operations.

• Absence of Certain Changes. Since the date of Penterra's most recently filed annual or quarterly report, there has been no material adverse change in Penterra's business, financial condition, or results of operations.

• Sufficient Funds. Penterra has sufficient cash on hand, together with available borrowing capacity under its revolving credit facility, to fund the cash component of the merger consideration and to pay all related fees and expenses. This is a critical representation and should be made without qualification.

• Valid Issuance. The shares of Penterra common stock (PPHR) to be issued as merger consideration will, when issued, be duly authorized, validly issued, fully paid, and non-assessable.

• NYSE Listing. Penterra common stock is listed on the New York Stock Exchange, and Penterra is in compliance with all applicable listing standards. Penterra has taken, or will take prior to closing, all actions necessary to cause the shares of PPHR common stock to be issued as merger consideration to be approved for listing on the NYSE.

• No Broker's Fees. No broker, finder, or financial advisor is entitled to any fee or commission in connection with the transaction, other than fees payable to Thorngate Partners LLC (as independent financial advisor to the Special Committee) and any fees payable to Alcott, Barringer & Cole LLP (as counsel to Penterra in its corporate capacity, as distinct from Calderwood & Harkness LLP's engagement as counsel to the Special Committee).

• Related-Party Conflicts. Penterra should represent that the Special Committee process has been conducted in accordance with DGCL §144 and the applicable principles of Delaware fiduciary duty law; that the Special Committee was duly constituted, composed entirely of independent and disinterested directors, and vested with full authority to evaluate, negotiate, and approve or disapprove the transaction; that the Special Committee has received a fairness opinion from Thorngate Partners; and that the information barrier established under the Project Coriander protocols has been maintained throughout the process.

VI. Indemnification and Escrow

A. Indemnification Framework

Because Caliston is a private company and its stockholders will receive the merger consideration and disperse, the indemnification provisions and escrow arrangement are critical mechanisms for Penterra to obtain recourse in the event of post-closing discovery of breaches of representations or other losses. We recommend the following indemnification framework:

Survival Periods:

• General Representations and Warranties: 18 months post-closing. This is a standard survival period for private-company acquisitions and provides Penterra with a reasonable period in which to identify and assert claims. We anticipate that Caliston will push for a 12-month survival period; 18 months is our starting position and we should be willing to accept 15 months as a floor.

• Fundamental Representations: 36 months post-closing. Fundamental representations — typically defined to include organization, capitalization, authority, and tax representations — relate to the core attributes of the target and the validity of the transaction, and warrant a longer survival period because breaches may take longer to discover. We believe 36 months is appropriate and is within the range observed in comparable transactions.

• Fraud: Applicable statute of limitations. Claims based on intentional misrepresentation or fraud should not be subject to any contractual time limitation and should survive for the full period permitted under applicable law.

Indemnification Caps:

• General Representations: 10% of aggregate equity value. At the illustrative price of $925 million, the indemnification cap for general representations would be $92,500,000. Caliston will likely propose a lower cap in the range of 5%–7%. We recommend opening at 10% and accepting no less than 8% ($74 million at $925 million).

• Fundamental Representations: 100% of aggregate equity value. Breaches of fundamental representations can call into question the very basis of the transaction (e.g., if the capitalization representation is inaccurate and Penterra did not acquire 100% of the outstanding equity) and should therefore be subject to a cap equal to the full transaction value.

Basket / Deductible:

• Aggregate Deductible: 1% of aggregate equity value, which at $925 million equals $9,250,000. This is a "tipping" basket — meaning that once the aggregate amount of indemnifiable losses exceeds the deductible threshold, the indemnifying party is liable from dollar one (rather than only for losses in excess of the threshold). The tipping basket structure is more favorable to Penterra as the indemnified party and is our preferred approach. Caliston may seek a "true deductible" (recovery only for amounts in excess of the threshold); we should resist this.

• Individual Claim Threshold (Mini-Basket): $250,000. Individual claims below this threshold are excluded from the calculation of whether the aggregate deductible has been exceeded. This prevents nuisance claims from consuming the indemnification basket but sets the threshold at a level that does not exclude genuinely material individual losses.

Exclusive Remedy:

The merger agreement should provide that indemnification (and the escrow arrangement) is the exclusive post-closing remedy for breaches of representations and warranties and for other covered losses, except in the case of fraud. This exclusive remedy provision is standard and provides certainty to both parties regarding the scope of post-closing recourse. It prevents the former Caliston stockholders from being exposed to unlimited liability and provides Penterra with a clearly defined and enforceable remedy framework.

B. Escrow Arrangement

We recommend that 5% of the aggregate equity value be deposited into escrow at closing as security for Caliston's indemnification obligations. At the illustrative target price of $925 million, the escrow amount would be $46,250,000.

The key terms of the proposed escrow arrangement are as follows:

Escrow Agent: Greystone National Bank, N.A., located at 383 Madison Avenue, New York, New York 10179. Greystone is already the administrative agent under Penterra's revolving credit facility and is a well-known and reputable financial institution with extensive experience in escrow administration. Using an existing counterparty streamlines the engagement process and reduces costs.

Escrow Duration: 18 months, aligned with the survival period for general representations and warranties. At the expiration of the 18-month period, any remaining escrow funds (less the amount of any pending and unresolved claims) will be distributed to the former Caliston stockholders through the stockholder representative.

Funding Source: The escrow will be funded from the cash component of the merger consideration — that is, the escrow amount will be withheld from amounts otherwise distributable to the former Caliston stockholders at closing. This approach does not require Penterra to commit additional capital beyond the agreed-upon merger consideration.

Disbursement Mechanics: Disbursements from the escrow account will require joint written instructions from Penterra and the stockholder representative. In the event of a dispute regarding an indemnification claim, the disputed portion of the escrow will remain in the escrow account until the dispute is resolved by mutual agreement, binding arbitration, or final court order.

Stockholder Representative: We recommend designating Ridgeline Ventures, LP (Ava Lindström, Managing Partner) as the stockholder representative to act on behalf of the former Caliston stockholders in connection with all post-closing indemnification matters, including the administration of the escrow, the review and resolution of indemnification claims, and any related dispute resolution proceedings. Ridgeline Ventures is the largest institutional holder of Caliston equity at 22.3% and has a substantial economic interest in the efficient administration of the post-closing process. The stockholder representative appointment should be made in the merger agreement and should be binding on all former Caliston stockholders.

Expense Reserve: We recommend that $1,000,000 be set aside from the merger consideration (in addition to the escrow amount) as an expense reserve for the stockholder representative to cover legal fees, administrative costs, and other expenses incurred in the performance of its duties. This is a customary provision that avoids the need for the stockholder representative to fund expenses out of pocket or to seek contributions from individual former stockholders.

Caliston will likely propose a lower escrow amount, potentially in the range of 2%–3% of aggregate equity value. We believe 5% is well within the customary range for a transaction of this size and complexity, particularly given the clinical-stage nature of Caliston's business and the heightened due diligence uncertainty that attends a private-company acquisition. We should be prepared to accept no less than 4%.

VII. Key Protective Provisions — Related-Party Safeguards

This section addresses the provisions that are necessary to manage the conflicts of interest inherent in this transaction. Given that the proposed acquisition is a related-party transaction subject to heightened judicial scrutiny under the entire fairness standard of Delaware law, the protective provisions discussed below are not merely "nice to have" — they are essential to the legal defensibility of the transaction and to the Special Committee's discharge of its fiduciary duties.

A. Information Barrier and Dr. Hale Recusal

The merger agreement should contain an express acknowledgment by all parties — Penterra, Caliston, and each of the Caliston stockholders who execute the merger agreement or a joinder thereto — that the transaction constitutes a related-party transaction by reason of Dr. Hale's dual role as Penterra's Chairman and CEO and as a 28.5% equity holder of Caliston. The agreement should further recite that the transaction has been evaluated, negotiated, and approved (or disapproved, as the case may be) by the Special Committee in accordance with DGCL §§ 141(a) and 144 and the applicable principles of Delaware fiduciary duty law.

Dr. Hale's Voting and Recusal Agreement, which was executed on June 2, 2023, should be incorporated by reference into the merger agreement. That agreement provides, among other things, that Dr. Hale will recuse himself from all board deliberations and votes relating to the proposed transaction with Caliston, will not attempt to influence the Special Committee's evaluation or negotiation of the transaction, and will not receive any information regarding the Special Committee's deliberations, positions, or strategies. Compliance with this agreement should be made a condition to closing, such that Penterra's obligation to close is contingent upon Dr. Hale's continued compliance throughout the pre-closing period.

Additionally, the merger agreement should contain a representation from Penterra that the information barrier established under the Project Coriander protocols has been maintained throughout the process. The information barrier, as the Special Committee is aware, encompasses the following elements: (a) a dedicated "Project Coriander" workspace within Penterra's document management system, accessible only to Calderwood & Harkness LLP and Thorngate Partners personnel and to authorized Special Committee members and their designees; (b) the exclusion of Dr. Hale, Angela Whitmore (EVP, Commercial Operations), and Raymond Tusk (SVP, Corporate Development) from all Special Committee deliberations, materials, and communications relating to the transaction; and (c) protocols for the handling of any inadvertent disclosures, including an obligation to promptly notify Calderwood & Harkness LLP.

We recommend that the merger agreement include a covenant providing that during the pre-closing period (i.e., from signing through closing), any communications between Penterra management — including, specifically, Dr. Hale — and Caliston or its advisors regarding the transaction must be routed through the Special Committee and its advisors. This covenant is necessary to prevent Dr. Hale from engaging in side negotiations or communications that could undermine the Special Committee's positions or otherwise compromise the integrity of the process. Any violation of this covenant by Dr. Hale should entitle the Special Committee to seek injunctive relief and should be a reportable event under the terms of the merger agreement.

B. Dr. Hale — Stockholder Support and Conflict Management

The conflict management provisions relating to Dr. Hale must address his interests on both sides of the transaction: as a Penterra director and officer who owns Penterra common stock, and as a significant Caliston stockholder who will receive merger consideration.

Penterra Side — Stockholder Support Agreement. Dr. Hale should be required to execute a Stockholder Support Agreement at or prior to the execution of the merger agreement, committing his approximately 2,140,000 shares of Penterra common stock (representing approximately 1.8% of outstanding shares) to vote in favor of the share issuance at the Penterra stockholder meeting. While Dr. Hale's Penterra shareholding alone is not outcome-determinative, the Stockholder Support Agreement is an important signal of alignment and eliminates the risk that Dr. Hale could vote his Penterra shares against the transaction (or abstain) in an effort to pressure the Special Committee to renegotiate more favorable terms for the Caliston side.

Caliston Side — Written Consent Participation. Dr. Hale's 28.5% equity interest in Caliston means that he will participate in the Caliston stockholder written consent process. His consent to the merger on the Caliston side is expected and is important to achieving the requis

PRIVILEGED & CONFIDENTIAL ATTORNEY-CLIENT COMMUNICATION — ATTORNEY WORK PRODUCT
This memorandum is a privileged and confidential attorney-client communication and attorney work product prepared by Calderwood & Harkness LLP in its capacity as independent counsel to the Special Committee of the Board of Directors of Penterra Pharmaceuticals Corp. This memorandum is not to be disclosed to any person other than the members of the Special Committee and their authorized advisors without the prior written consent of Calderwood & Harkness LLP. Disclosure to any unauthorized party may constitute a waiver of applicable privileges. The analyses, conclusions, and recommendations set forth herein are based on facts and circumstances known to Calderwood & Harkness LLP as of the date hereof and are subject to change. Nothing in this memorandum constitutes a guarantee of any particular outcome in connection with the proposed transaction or any related matter.
CALDERWOOD & HARKNESS LLP MEMORANDUM
TO: Special Committee of the Board of Directors of Penterra Pharmaceuticals Corp.
Diane Prescott, Chair James Okafor, Member Dr. Helen Ng, Member
FROM: Renata Vasquez, Responsible Partner
Sophie Tremblay, Lead Associate Calderwood & Harkness LLP 1700 Market Street, Suite 3400 Philadelphia, PA 19103
DATE: September 25, 2023
RE: Project Coriander — Recommended Negotiation Strategy for Proposed Acquisition of Caliston BioSciences, Inc.
C&H Matter No.: 1025-00006
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I. Executive Summary
The purpose of this memorandum is to outline Calderwood & Harkness LLP's recommended negotiating positions for the Special Committee's consideration in advance of the anticipated negotiation sessions with Caliston BioSciences, Inc. ("Caliston") and its professional advisors. Caliston is represented by Whitfield Graves LLP (lead partner: Kenneth Pratt) as legal counsel and Fendowell Sinclair & Co. (lead banker: Sandra Wu, Managing Director) as financial advisor. Based on preliminary scheduling discussions between the parties' advisors, substantive negotiation sessions are expected to commence on or about September 29, 2023.
As the members of the Special Committee are aware, the proposed transaction contemplates a one-step merger of Caliston with and into Penterra Pharmaceuticals Corp. ("Penterra" or the "Company"), with Caliston ceasing to exist as a separate entity and its former stockholders receiving merger consideration from Penterra. The transaction constitutes a related-party transaction by reason of the fact that Dr. Marcus Hale, Penterra's Chairman of the Board and Chief Executive Officer, holds a 28.5% equity interest in Caliston, acquired through a series of personal investments totaling an aggregate of approximately $42 million. At Caliston's opening ask of $1.1 billion in aggregate equity value, Dr. Hale's implied proceeds would be approximately $313.5 million (28.5% × $1.1 billion), representing an implied personal gain of approximately $271.5 million. The magnitude of Dr. Hale's financial interest on the sell side of this transaction underscores the critical importance of the Special Committee's independent oversight role and the need for a rigorous, well-documented negotiation process.
To assist the Special Committee in evaluating the financial dimensions of the proposed transaction, Thorngate Partners LLC ("Thorngate"), the Special Committee's independent financial advisor (engagement led by Gregory Ashford, Managing Director; engagement reference 1018-00003), delivered preliminary valuation analyses on August 3, 2023. Subsequently, at the direction of the Special Committee, Thorngate conducted a market check process that was completed on September 14, 2023. The market check did not identify any superior strategic alternatives to the proposed Caliston acquisition. These valuation analyses and market check results form the financial foundation upon which our negotiation recommendations are based, as discussed in detail in Section II below.
In summary, we recommend that the Special Committee pursue the following key negotiating objectives in the forthcoming sessions:
1. Achieve a Fair Price Substantially Below Caliston's Opening Ask. Caliston's $1.1 billion opening valuation ask sits at the high end of the applicable valuation ranges and is not justified by the current risk profile of Caliston's pipeline. The Special Committee should counter at $850 million and target a final price in the range of $900 million to $950 million, with an internal walk-away ceiling of $975 million (excluding any contingent value right).
2. Structure Consideration to Protect Penterra Stockholders. We recommend a consideration mix of 75% cash and 25% Penterra common stock, which preserves Penterra's balance sheet capacity while aligning former Caliston stockholders with Penterra's post-closing performance.
3. Shift Contingent Pipeline Value into a CVR Mechanism. Given that Phase 2b topline data for CLT-4019 — the primary value driver of the transaction — has not yet been reported, a material portion of the purchase premium should be structured as a contingent value right ("CVR") payable upon FDA approval of CLT-4019, with a recommended CVR amount of $125 million.
4. Secure Robust Protective Provisions Given the Conflict of Interest. The merger agreement and ancillary documents must contain comprehensive safeguards addressing the conflicts arising from Dr. Hale's dual role and the Whitmore/Whitmore spousal relationship, including information barrier covenants, recusal provisions, and equal treatment of Dr. Hale's merger consideration.
5. Build a Strong Entire Fairness Record Under Delaware Law. Every element of the negotiation process, the terms ultimately agreed upon, and the procedural safeguards should be designed to withstand scrutiny under the entire fairness standard of review applicable to interested-party transactions under Delaware law, including DGCL §§ 141(a), 144, and 251. To the extent the Special Committee can demonstrate that the transaction satisfies both prongs of the entire fairness test — fair dealing and fair price — the likelihood of successfully defending any post-closing stockholder challenge will be substantially enhanced.
The sections that follow address each of these objectives in detail, along with our specific recommendations on the full range of terms that will be the subject of negotiation.
II. Overview of Current Positions
A. Caliston's Opening Position
Caliston, acting through its financial advisor Fendowell Sinclair & Co. (Sandra Wu, Managing Director), communicated an opening valuation ask of $1.1 billion in aggregate equity value for all of the outstanding equity interests of Caliston. This opening position was conveyed during a preliminary meeting between the parties' financial advisors on August 28, 2023, and was subsequently confirmed in a written term sheet delivered by Whitfield Graves LLP to our office on September 4, 2023.
Caliston's $1.1 billion ask is anchored on the following principal arguments:
(i) CLT-4019 Phase 2b De-risking Event. Caliston asserts that Phase 2b topline data for CLT-4019, its selective CDK4/6 inhibitor for the treatment of HR+/HER2– metastatic breast cancer, is expected in Q4 2023 and that the anticipated positive results will represent a significant de-risking event for the program. Caliston's position implicitly assumes positive Phase 2b results and values the program accordingly, essentially seeking to capture the post-data value in the upfront purchase price. This is, in our view, the most significant area of disagreement: the Special Committee should insist that value attributable to unproven clinical outcomes be shifted, in whole or in part, to a contingent payment mechanism.
(ii) Full Pipeline Value. Caliston's ask reflects aggregate pipeline value, encompassing not only CLT-4019 (Phase 2b, IND 158429) but also its preclinical candidates CLT-5227 (a next-generation KRAS inhibitor) and CLT-6034 (a bispecific T-cell engager for certain solid tumors). Caliston attributes substantial option value to these earlier-stage programs, notwithstanding their preclinical status and the significant development risk attendant thereto.
(iii) Strategic Premium. Caliston contends that the fit between its pipeline and Penterra's existing oncology and immunology therapeutic areas justifies a meaningful strategic premium above standalone value. Specifically, Caliston's advisors have highlighted potential synergies in commercial infrastructure, regulatory expertise, and manufacturing capabilities that Penterra could bring to bear in accelerating the development and eventual commercialization of CLT-4019.
For context, Caliston's last equity financing was a Series C round that closed in October 2021, at a post-money valuation of $680 million. Caliston's opening ask of $1.1 billion therefore implies a premium of approximately 61.76% to the Series C post-money valuation, which Caliston characterizes as reasonable in light of subsequent clinical progress. To date, Caliston has raised total equity capital of approximately $347 million across its Seed, Series A, Series B, and Series C rounds. It is a private company incorporated in Delaware with its principal place of business in Cambridge, Massachusetts.
Caliston has expressed a strong preference for all-cash consideration, or at a minimum, a consideration package that is predominantly cash. This preference is unsurprising given the desire of Caliston's venture capital investors (Ridgeline Ventures, LP and Meridian Life Sciences Fund III, in particular) to achieve liquidity without taking on exposure to Penterra's stock price.
It bears emphasis that Caliston's financial position creates meaningful negotiating leverage for the Special Committee. Based on the most recently available financial data, Caliston's cash on hand as of March 31, 2023, was approximately $112.6 million. Given a FY2022 net cash burn rate of approximately $78.4 million, Caliston's projected cash runway extends only through approximately Q1 2025. Caliston does not, to our knowledge, have any committed debt financing facility, and the current biotech financing environment is significantly more challenging than it was at the time of the October 2021 Series C. This declining cash position — and the prospect of a potentially dilutive financing round in the absence of a transaction — is a material factor that should inform the Special Committee's negotiating posture. The Special Committee can and should be patient in negotiations, knowing that the passage of time generally favors Penterra.
B. Thorngate Partners Preliminary Valuation Ranges
Thorngate Partners delivered its preliminary valuation analyses to the Special Committee on August 3, 2023. These analyses employed multiple methodologies and yielded the following ranges:
DCF Analysis — CLT-4019 Only (Lead Asset):
Implied equity value range: $780 million – $1,020 million Midpoint: $900 million Weighted average cost of capital (WACC): 12.5% Terminal growth rate: 2.0% Key assumptions: probability of technical and regulatory success ("PTRS") applied to CLT-4019 revenue projections based on management forecasts, adjusted for risk by Thorngate; peak year net sales estimates ranging from $1.2 billion to $1.8 billion; time-to-market estimated at 5–6 years from the present.
DCF Analysis — Full Pipeline (Risk-Adjusted NPV):
Implied equity value range: $870 million – $1,180 million Midpoint: $1,025 million Includes risk-adjusted value for CLT-4019 (Phase 2b), CLT-5227 (preclinical), and CLT-6034 (preclinical). Note: the additional value attributed to the preclinical programs (approximately $90 million – $160 million above the lead-asset-only analysis) reflects the highly speculative and heavily risk-adjusted nature of these early-stage assets.
Comparable Transactions Analysis:
Implied equity value range: $820 million – $1,050 million Based on analysis of 7 precedent transactions in the oncology space involving acquisition of private-company targets with lead assets in Phase 2 or Phase 3 clinical development, including transactions by Calderon Corporation, Roche, Ridgeway Holdings, and Gilead over the period from 2019 to 2023.
Premiums Paid Analysis:
Applying premiums of 30% to 45% to Caliston's October 2021 Series C post-money valuation of $680 million implies a range of $884 million to $986 million.
The following observations are critical to the Special Committee's negotiating posture:
• Caliston's $1.1 billion ask sits at the very high end of the full-pipeline DCF range ($870 million – $1,180 million) and is above the top of the comparable transactions range ($1,050 million). It substantially exceeds the midpoint of every valuation methodology employed by Thorngate.
• The lead-asset-only DCF midpoint of $900 million represents, in our view, the most defensible measure of Caliston's current fair value. This methodology isolates the value of CLT-4019 — the program that provides the primary strategic rationale for the transaction — without attributing speculative value to early-stage preclinical programs whose ultimate commercial viability is highly uncertain.
• The premiums paid analysis, while supportive of a range of $884 million to $986 million, is based on the October 2021 Series C round, which took place in a significantly more favorable biotech financing environment. Adjusting for the deterioration in market conditions since that time would tend to compress the warranted premium.
The Special Committee is well-positioned to use these valuation analyses as the factual basis for its counter-offer and for resisting Caliston's $1.1 billion opening position.
C. Recommended Opening Counter and Target
Based on the foregoing analysis, we recommend the following negotiating framework:
Recommended Initial Counter-Offer: $850 million aggregate equity value.
This counter sits within the lower half of all applicable valuation ranges. It is modestly below the lead-asset-only DCF midpoint of $900 million, which is intentional: an opening counter should leave room for upward movement during negotiations. An $850 million opening position establishes a credible anchor that is supported by Thorngate's analyses while signaling to Caliston that the Special Committee has conducted a rigorous independent valuation process and will not accept a price that is not justified by the current state of the clinical and commercial evidence.
Target Zone: $900 million – $950 million aggregate equity value.
We believe that a final price in this range, coupled with a CVR of $100 million to $150 million for the achievement of defined clinical and regulatory milestones, would represent a fair outcome for Penterra stockholders. A price at the midpoint of this range ($925 million) is consistent with the lead-asset-only DCF midpoint, falls within the comparable transactions range, and is within the premiums paid range. At a $925 million base price, the maximum aggregate transaction value (inclusive of a $125 million CVR) would be $1.05 billion — still below Caliston's $1.1 billion opening ask.
Walk-Away Threshold: $975 million aggregate equity value (excluding CVR).
We recommend that the Special Committee establish a firm internal ceiling of $975 million in base consideration, above which the transaction should not proceed absent extraordinary justification (such as materially positive interim clinical data that fundamentally changes the risk profile). This ceiling is at the upper end of the premiums paid range and above the lead-asset-only DCF midpoint by approximately 8.3%. The Special Committee should communicate this ceiling only to its advisors and should not reveal it to Caliston or its representatives under any circumstances.
The Special Committee should remain mindful that every dollar of price increase flows 28.5% to Dr. Hale, the interested party. By way of illustration:
The difference to Dr. Hale between the Special Committee's recommended opening counter ($850 million) and Caliston's ask ($1.1 billion) is $71.25 million. The Special Committee should be aware that Dr. Hale has a powerful personal financial incentive to see the transaction price maximized, which reinforces the need for the information barrier and the exclusive role of the Special Committee and its advisors in conducting price negotiations.
III. Consideration Structure
A. Cash/Stock Mix
As noted above, Caliston has expressed a preference for all-cash or predominantly cash consideration. While we understand Caliston's desire for immediate liquidity — driven in large part by the liquidity needs of its venture capital investors — an all-cash transaction is not in Penterra's best interest.
We recommend a consideration mix of 75% cash and 25% Penterra common stock (ticker: PPHR).
The rationale for this recommended mix is as follows:
(i) Balance Sheet Preservation. An all-cash transaction at a price in the target range ($900 million – $950 million) would require Penterra to deploy substantially all of its available cash on hand and draw heavily on its revolving credit facility. A 75/25 mix reduces the cash outlay by approximately 25%, preserving financial flexibility for ongoing operations, pipeline investment, and potential future business development opportunities.
(ii) Alignment of Interests. The stock component ensures that former Caliston stockholders — including Dr. Hale — retain an economic interest in Penterra's post-closing performance. This alignment is particularly important given that a principal strategic rationale for the transaction is the development and eventual commercialization of CLT-4019 within Penterra's platform. If the asset performs as Caliston projects, the stock component will participate in the resulting value creation.
(iii) Signal to Penterra Stockholders. A consideration structure that includes a meaningful equity component signals to Penterra's public stockholders that the former Caliston stockholders have conviction in the combined company's prospects, which can be a positive factor in the proxy solicitation process.
At the illustrative target price of $925 million, the cash/stock split would be as follows:
Cash component: 75% × $925,000,000 = $693,750,000 Stock component: 25% × $925,000,000 = $231,250,000
Funding Analysis. Penterra reported cash and cash equivalents of $892 million as of the end of FY2022. Assuming approximately $400 million is deployed from cash on hand (preserving approximately $492 million of cash reserves for ongoing operations and working capital), the remainder of the cash consideration would be funded by a draw on Penterra's existing revolving credit facility. This facility, with Greystone National Bank, N.A. as administrative agent, provides for total commitments of $1.5 billion, bears interest at SOFR plus 150 basis points, and had undrawn availability of approximately $1.1 billion as of June 1, 2023. The facility matures in March 2026. At the illustrative $925 million price, the required revolver draw would be approximately:
$693,750,000 (total cash consideration) – $400,000,000 (from cash on hand) = $293,750,000 (revolver draw)
This draw is well within the facility's available capacity and should not raise concerns under the financial covenants contained in the credit agreement. We recommend that Penterra's treasury team confirm covenant compliance at the time the merger agreement is executed.
Share Issuance. Penterra currently has approximately 121.4 million shares of common stock outstanding. At the illustrative $925 million price and a stock component of $231,250,000, the number of shares to be issued to former Caliston stockholders would be determined by reference to the volume-weighted average price ("VWAP") of Penterra common stock over a specified measurement period. Based on a 30-day VWAP of $39.17 per share as of June 1, 2023 (the most recent available calculation), the illustrative share issuance would be:
$231,250,000 ÷ $39.17 = approximately 5,903,497 shares
This issuance represents approximately 4.86% of Penterra's currently outstanding shares and will trigger the requirement under NYSE Listed Company Manual Section 312.03(c) that Penterra obtain stockholder approval for the issuance. As discussed in Section XII below, a proxy statement will need to be prepared and filed with the SEC in connection with this stockholder vote.
VWAP Measurement Period. We recommend negotiating for a VWAP measurement period that is closer to the signing date of the merger agreement, such as a 10-trading-day or 20-trading-day VWAP ending on the last trading day prior to signing. A shorter and more recent measurement period better reflects the current market value of Penterra shares and reduces the risk that the exchange ratio is distorted by stale pricing data. However, a 30-day VWAP is commonly used in comparable transactions and is acceptable as a fallback position if Caliston resists a shorter measurement period.
Collar / Price Protection. We anticipate that Caliston may request a collar or other price protection mechanism on the stock component to protect against a decline in Penterra's stock price between signing and closing. We recommend resisting any such request. The stock component is being offered as a means of preserving Penterra's balance sheet and aligning interests. Penterra should not bear the market risk associated with its own share price fluctuations for the benefit of Caliston stockholders. If Caliston's stockholders receive Penterra stock, they should bear the same risks and enjoy the same upside as Penterra's existing public stockholders. A collar would effectively shift downside risk from the stock component back to Penterra and, at the limit, could convert the stock component into the functional equivalent of cash — undermining the purpose of the mixed-consideration structure.
If the issue of price protection proves to be a significant impediment to reaching agreement, the Special Committee could consider a narrow asymmetric collar (downside protection only, with upside sharing) as a concession of last resort, but this should not be offered proactively and should be traded against other meaningful concessions by Caliston.
B. Contingent Value Rights (CVRs)
The CVR is, in our view, one of the most important structural elements of the proposed transaction. We recommend that a material portion of the premium over Caliston's standalone value be structured as a contingent value right tied to the clinical and regulatory success of CLT-4019. The strategic logic is straightforward: CLT-4019 is the primary value driver of the transaction, but Phase 2b topline data have not yet been reported. The program remains subject to significant clinical, regulatory, and commercial risk. If the Phase 2b data are positive and CLT-4019 ultimately receives FDA approval, the resulting value to Penterra will justify a premium payment. If, on the other hand, CLT-4019 fails to achieve its clinical endpoints or encounters regulatory difficulties, Penterra should not be locked into paying a price that assumes clinical success that has not materialized.
The CVR mechanism effectively bridges the valuation gap between the parties by shifting risk to the party better positioned to bear it — namely, the former Caliston stockholders who are in possession of the most information about the asset's prospects and who, by their own opening position, profess confidence in its approvability.
Recommended CVR Structure:
Amount: $100 million – $150 million. Our recommended target is $125 million. This amount, when combined with a base price in the target zone ($900 million – $950 million), brings the maximum aggregate transaction value to $1,025 million – $1,075 million inclusive of CVR, with a maximum of $1.1 billion at the ceiling base price of $975 million plus $125 million CVR. This constructive framing allows us to tell Caliston that the maximum potential deal value equals their opening ask, while protecting Penterra if the clinical outcome does not warrant the full premium.
Milestone: FDA approval (New Drug Application, or "NDA") of CLT-4019 for any indication. We recommend a single, binary milestone tied to the ultimate regulatory outcome rather than multiple interim milestones (e.g., Phase 2b success, Phase 3 initiation, NDA filing). A single approval milestone is cleaner, easier to administer, and ensures that Penterra pays the full CVR only when the asset has achieved the level of de-risking that justifies the premium. If Caliston presses for interim milestones, the Special Committee should be prepared to discuss a tiered structure (e.g., $50 million upon Phase 3 initiation, $75 million upon FDA approval), but this introduces administrative complexity and interim cash outflows that are less favorable to Penterra.
Deadline: December 31, 2026. This date, approximately three years post-signing, provides a reasonable period for Penterra to complete Phase 3 clinical trials, file an NDA, and obtain FDA review and approval. Caliston may seek a longer deadline (e.g., December 31, 2027, or December 31, 2028) to account for potential regulatory delays. The Special Committee should be willing to negotiate the deadline within a range of 3 to 4 years (i.e., up to December 31, 2027) but should resist a deadline beyond 4 years, as an overly extended CVR period creates uncertainty for Penterra's financial planning and stockholders.
CVR Trustee: Columnar Trust Services, Inc., located at 6201 15th Avenue, Brooklyn, New York 11219. Columnar currently serves as Penterra's transfer agent and is a familiar counterparty with whom Penterra has an existing relationship. Using the existing transfer agent reduces administrative costs and ensures efficient coordination with the stock issuance and merger consideration payment mechanics.
Payment: Cash, payable within 30 business days following achievement of the milestone (i.e., FDA approval of the CLT-4019 NDA). The CVR consideration would be distributable pro rata to former Caliston stockholders based on their pro rata share of total Caliston equity immediately prior to the effective time of the merger.
Transferability: Non-transferable, except by operation of law (e.g., by will or the laws of descent and distribution). We strongly recommend that the CVRs not be transferable or tradeable. If the CVRs were freely transferable, they could develop a secondary market with speculative trading activity that could create adverse publicity, SEC reporting complexities, and undesirable stockholder dynamics. Non-transferability also simplifies administration and reduces costs.
Penterra Development Obligation: The CVR agreement should require Penterra to use "diligent efforts" (not "best efforts" or "commercially reasonable efforts") to continue the development of CLT-4019 following the closing. Penterra should retain commercially reasonable discretion over development strategy, including the design and conduct of clinical trials, the choice of clinical endpoints, the selection of study sites, and the timing of regulatory submissions. The CVR agreement should expressly provide that Penterra shall not be required to continue development if, in its good faith judgment, the clinical data do not support further investment, or if continuing development would present safety concerns or would not be in the best interests of Penterra's stockholders. Caliston will likely push for "best efforts" or "commercially reasonable efforts" with mandatory development milestones. This is a key negotiation point — the Special Committee should resist any obligation that effectively removes Penterra's post-closing discretion over its own pipeline.
At the illustrative terms of a $925 million base price plus a $125 million CVR, the maximum aggregate transaction value would be $1,050,000,000. Dr. Hale's implied maximum proceeds (inclusive of CVR) would be 28.5% × $1,050,000,000 = $299,250,000, and his implied maximum gain would be $299,250,000 – $42,000,000 = $257,250,000.
From a negotiating posture, the Special Committee should frame the CVR as an alignment mechanism rather than an adversarial tool. The message to Caliston should be clear: if CLT-4019 is as promising as Caliston's management believes, the CVR will be paid in full and the total deal value will approach the level Caliston has asked for. If Caliston resists the CVR concept, it may implicitly signal uncertainty about the asset's approvability, which itself would be informative and useful leverage.
IV. Termination Fee Provisions
Termination fees are a standard feature of negotiated mergers and serve important functions: for Penterra (the buyer), a company termination fee compensates for the opportunity cost and expenses incurred if Caliston abandons the transaction; for Caliston (the target), a reverse termination fee provides assurance that Penterra is committed to completing the deal and compensates Caliston if Penterra fails to perform. The magnitude and triggers for each fee are heavily negotiated and signal the seriousness of the parties' commitment.
A. Reverse Termination Fee (Payable by Penterra)
Caliston will likely request a reverse termination fee in the range of 3.5% to 5% of aggregate equity value, which is consistent with the range observed in comparable transactions in the pharmaceutical sector. At the higher end of this range (5% of $925 million = $46.25 million), the fee would be substantial and could create an undesirable incentive structure for Penterra, particularly given the need to obtain stockholder approval for the share issuance.
We recommend targeting a reverse termination fee of 3.5% of aggregate equity value.
At the illustrative target price of $925 million, a 3.5% reverse termination fee would equal $32,375,000. This is a meaningful amount that provides Caliston with credible assurance of Penterra's commitment, while remaining in the lower portion of the customary range and limiting Penterra's financial exposure.
We recommend that the triggers for the reverse termination fee be strictly limited to the following events:
(i) Failure to Obtain Penterra Stockholder Approval. If the Penterra stockholder vote on the share issuance fails to achieve the requisite approval, Penterra should pay the reverse termination fee. This is a customary trigger that compensates Caliston for the risk that Penterra cannot deliver its stockholders' support.
(ii) Failure to Obtain HSR Clearance Attributable to Penterra. If the transaction cannot close because of antitrust concerns arising from Penterra's existing portfolio and the relevant regulatory authority declines to grant clearance or imposes conditions that are unacceptable, the reverse termination fee should be payable. We note, however, that the August 10, 2023 antitrust analysis memorandum concluded that HSR risk is low given the complementary, non-overlapping nature of the two companies' product portfolios.
(iii) Penterra Board Recommendation Change. If the Penterra board of directors (acting on the recommendation of the Special Committee or otherwise) withdraws, modifies, or qualifies its recommendation that Penterra stockholders approve the share issuance (i.e., exercises a fiduciary out), the reverse termination fee should be payable.
Critically, we recommend resisting any "naked" no-vote trigger — that is, a provision that would require payment of the reverse termination fee solely because Penterra stockholders vote against the share issuance, even if the Penterra board has maintained its recommendation. A naked no-vote trigger shifts stockholder risk disproportionately to Penterra and is not warranted here. The reverse termination fee should require, as a predicate, either a board recommendation change or a failure that is attributable to Penterra's conduct (such as a failure to use reasonable best efforts to solicit proxies or a material misrepresentation in the proxy statement).
B. Company Termination Fee (Payable by Caliston)
We recommend targeting a company termination fee of 3.0% of aggregate equity value.
At the illustrative target price of $925 million, a 3.0% company termination fee would equal $27,750,000. This is slightly below the reverse termination fee, which is a standard convention (the buyer typically secures a slightly lower termination fee from the target than the target secures from the buyer, reflecting the relative bargaining positions and the fact that the target is typically in a more vulnerable position once it enters into a definitive agreement).
The triggers for the company termination fee should include the following:
(i) Caliston Board Recommendation Change. If Caliston's board of directors withdraws, modifies, or qualifies its recommendation that Caliston's stockholders approve the merger by written consent (to the extent such a recommendation is formally made), the company termination fee should be payable.
(ii) Termination to Accept a Superior Proposal. If a fiduciary out is granted to Caliston (which we discuss further below), and Caliston terminates the merger agreement to accept a competing acquisition proposal, the company termination fee should be payable.
(iii) Tail Provision. If the merger agreement is terminated under circumstances in which a competing acquisition proposal has been publicly announced or communicated to Caliston, and within 12 months of such termination Caliston enters into a definitive agreement with respect to, or consummates, an alternative transaction, the company termination fee should be payable. This tail provision protects Penterra from the scenario in which Caliston uses the executed merger agreement as a "stalking horse" to attract a higher bidder.
An important practical consideration is that Caliston is a private company and stockholder approval will be obtained by written consent rather than at a meeting. Caliston's certificate of incorporation permits action by written consent, and the applicable approval threshold is a majority of the outstanding shares. Given the concentration of Caliston's equity ownership among a small number of holders — Dr. Marcus Hale (28.5%), Ridgeline Ventures, LP (22.3%), Meridian Life Sciences Fund III (18.7%), and founders/management (approximately 30.5%) — it is anticipated that the requisite written consent can be obtained very promptly after execution of the merger agreement. A small group of institutional and insider holders collectively controlling well over 50% of the outstanding shares will be in a position to deliver written consent without the need for a broad solicitation.
Given this dynamic, we recommend requiring that Caliston deliver the written consent of its stockholders approving the merger within 5 business days of execution of the merger agreement. This tight timeline is justified by the concentrated ownership structure and minimizes the window during which Caliston could solicit or entertain competing proposals post-signing. The 5-day delivery requirement should be a closing covenant and potentially a condition to Penterra's obligations.
V. Representations and Warranties
The representations and warranties contained in the merger agreement serve a dual function: they are the mechanism by which the parties exchange information and allocate risk with respect to the state of their respective businesses, and they establish the factual predicates for the indemnification provisions and the closing conditions. Given the magnitude of this transaction and the related-party dynamics, we recommend a comprehensive and carefully tailored set of representations.
A. Caliston Representations (Seller-Side)
As Caliston is a private company that has not been subject to public reporting obligations, Penterra's informational disadvantage is significant. Due diligence has been conducted, but the representations in the merger agreement provide an additional layer of protection. We recommend requiring comprehensive representations from Caliston covering the following subject matter areas:
• Organization and Good Standing. Caliston is a corporation duly organized, validly existing, and in good standing under the laws of the State of Delaware, and is qualified to do business in each jurisdiction where the nature of its business or the ownership of its properties requires such qualification, including the Commonwealth of Massachusetts.
• Capitalization. A detailed representation setting forth the authorized and outstanding capital stock of Caliston, including the number and class of shares held by each stockholder, the existence and terms of all options, warrants, convertible securities, and other equity-linked instruments, and a specific representation regarding Dr. Hale's 28.5% equity interest (including the timing and consideration paid for each tranche). This representation is critical to establishing the factual record regarding the interested party's stake.
• Authority and Enforceability. Caliston has full corporate power and authority to enter into the merger agreement and to consummate the merger, subject to the receipt of stockholder approval.
• No Conflicts. The execution and delivery of the merger agreement and the consummation of the merger do not conflict with Caliston's organizational documents, violate any applicable law, or breach, constitute a default under, or require any consent under any material contract to which Caliston is a party.
• Financial Statements. Caliston's historical financial statements (audited and unaudited) are complete and correct, have been prepared in accordance with GAAP, and fairly present in all material respects the financial condition and results of operations of Caliston as of the dates and for the periods indicated.
• Absence of Undisclosed Liabilities. Caliston does not have any liabilities or obligations (whether absolute, contingent, or otherwise) other than those reflected in the financial statements, incurred in the ordinary course of business since the date of the most recent financial statements, or disclosed in the disclosure schedules.
• Compliance with Laws. Caliston is in compliance in all material respects with all applicable laws, rules, regulations, and orders.
• Material Contracts. A representation identifying all material contracts (including clinical research agreements, manufacturing agreements, licensing agreements, collaboration agreements, and real property leases), together with confirmation that each such contract is in full force and effect and that Caliston is not in breach thereof.
• intellectual Property. This representation is of paramount importance in a biopharmaceutical acquisition. It should cover the full scope of Caliston's intellectual property portfolio, including patents, patent applications, trade secrets, know-how, and proprietary data relating to CLT-4019, CLT-5227, and CLT-6034. Specific sub-representations should address: (a) ownership and assignment chain (confirming that all intellectual property created by employees and consultants has been properly assigned to Caliston); (b) freedom-to-operate (confirming that the development, manufacture, and commercialization of CLT-4019 does not infringe any third-party intellectual property rights, to Caliston's knowledge); (c) absence of challenges, oppositions, or interferences; and (d) maintenance and prosecution (confirming that all required maintenance fees have been paid and all prosecution deadlines met).
• Regulatory Compliance. Caliston should represent that it is in compliance with all applicable FDA regulations, including the requirements of 21 C.F.R. Parts 11, 50, 56, 312, and 314, as applicable. Specific representations should address: IND 158429 (covering CLT-4019), all material FDA correspondence, compliance with clinical trial protocols, institutional review board ("IRB") approvals, informed consent procedures, adverse event reporting, and Data Safety Monitoring Board ("DSMB") reports. Caliston should represent that it has not received any FDA warning letters, Form 483 observations, untitled letters, or clinical holds relating to CLT-4019 or any other program.
• Employee Matters. Representation regarding the number of employees (94 as of the most recent date), compliance with labor laws, absence of labor disputes, and the status of key employee agreements (including non-competition and invention assignment agreements).
• Benefit Plans. Representation regarding all employee benefit plans, including 401(k) plans, health plans, and equity incentive plans, and compliance with ERISA and the Internal Revenue Code.
• Tax Matters. Representation that Caliston (EIN: 84-4219063) has filed all required tax returns, paid all taxes due, and is not the subject of any pending or threatened audit, assessment, or proceeding by any taxing authority. Given the magnitude of the transaction and the various forms of consideration (cash, stock, and CVR), tax representations should be particularly detailed.
• Environmental Matters. Standard representations regarding compliance with environmental laws, absence of hazardous materials contamination, and absence of environmental liabilities.
• Real Property. Representation regarding all real property owned or leased by Caliston, including its principal laboratory and office facilities in Cambridge, Massachusetts.
• Insurance. Representation that Caliston maintains insurance coverage that is customary for companies in its industry and stage of development.
• Data Privacy. Representation regarding compliance with applicable data privacy laws, including HIPAA (to the extent applicable to clinical trial data), state data breach notification laws, and GDPR (to the extent Caliston conducts activities in or directed to the European Union).
• Anti-Bribery / FCPA. Representation that Caliston is in compliance with the U.S. Foreign Corrupt Practices Act, the UK Bribery Act, and all other applicable anti-bribery and anti-corruption laws.
Material Adverse Effect Definition. The "material adverse effect" ("MAE") qualifier applied to Caliston's representations will be a heavily negotiated provision. Caliston will seek broad exclusions from the MAE definition, including for general economic conditions, industry-wide conditions, changes in law, effects of the announcement of the transaction, and natural disasters or acts of war. Many of these exclusions are standard and acceptable.
However, we recommend strongly that the MAE definition include a pipeline-specific carve-back — specifically, that adverse clinical trial results for CLT-4019 (including failure to meet primary or key secondary endpoints in the Phase 2b trial, clinical holds, or significant safety signals identified by the DSMB) should not be excluded from the definition of "material adverse effect." Given that CLT-4019 is the primary value driver of the transaction and Phase 2b topline data have not yet been reported, it would be unreasonable for Caliston to insist on an MAE definition that shields the transaction from the consequences of negative clinical outcomes.
We fully anticipate that Caliston will resist the pipeline carve-back. This will be one of the most contentious points in the negotiation of the merger agreement. We flag it as a Tier 2 priority item. The Special Committee should be prepared to use the pipeline carve-back as a strategic lever: if Caliston makes meaningful concessions on price or CVR terms, the Special Committee may consider narrowing the carve-back (e.g., limiting it to a clinical hold imposed by the FDA or a material safety signal, rather than any adverse clinical result). However, the carve-back should not be conceded entirely without a substantial quid pro quo.
Bring-Down Condition. The merger agreement should provide that Caliston's representations and warranties must be true and correct in all material respects as of the closing date (or, where already qualified by materiality or MAE, true and correct in all respects), with the same force and effect as if made on and as of the closing date (subject to representations that by their terms speak as of a specific date, which need only be true and correct as of such date). This bring-down condition is a standard feature of merger agreements and ensures that Penterra is not obligated to close if the factual predicates underlying its investment thesis have materially changed.
B. Penterra Representations (Buyer-Side)
Penterra will be required to make representations and warranties to Caliston and its stockholders regarding its own business and affairs. These representations are standard for a public-company buyer and should include the following:
• Organization and Good Standing. Penterra is a corporation duly organized and validly existing under the laws of the State of Delaware.
• Authority and Enforceability. Penterra has full corporate power and authority to enter into the merger agreement and to consummate the merger, subject to the receipt of stockholder approval for the share issuance.
• No Conflicts. The execution and delivery of the merger agreement and the consummation of the merger do not conflict with Penterra's organizational documents, violate any applicable law, or breach or require consent under any material contract (including the revolving credit facility with Greystone National Bank, N.A.).
• SEC Filings and Financial Statements. Penterra has timely filed all required reports with the SEC, and such filings do not contain any untrue statement of material fact or omit any material fact necessary to make the statements therein not misleading. Penterra's financial statements — FY2022 revenue of $1.836 billion, EBITDA of $412 million, net income of $247 million, total assets of $5.12 billion, and total debt of $1.35 billion — have been audited by Harwick & Tolliver LLP and present fairly in all material respects Penterra's financial condition and results of operations.
• Absence of Certain Changes. Since the date of Penterra's most recently filed annual or quarterly report, there has been no material adverse change in Penterra's business, financial condition, or results of operations.
• Sufficient Funds. Penterra has sufficient cash on hand, together with available borrowing capacity under its revolving credit facility, to fund the cash component of the merger consideration and to pay all related fees and expenses. This is a critical representation and should be made without qualification.
• Valid Issuance. The shares of Penterra common stock (PPHR) to be issued as merger consideration will, when issued, be duly authorized, validly issued, fully paid, and non-assessable.
• NYSE Listing. Penterra common stock is listed on the New York Stock Exchange, and Penterra is in compliance with all applicable listing standards. Penterra has taken, or will take prior to closing, all actions necessary to cause the shares of PPHR common stock to be issued as merger consideration to be approved for listing on the NYSE.
• No Broker's Fees. No broker, finder, or financial advisor is entitled to any fee or commission in connection with the transaction, other than fees payable to Thorngate Partners LLC (as independent financial advisor to the Special Committee) and any fees payable to Alcott, Barringer & Cole LLP (as counsel to Penterra in its corporate capacity, as distinct from Calderwood & Harkness LLP's engagement as counsel to the Special Committee).
• Related-Party Conflicts. Penterra should represent that the Special Committee process has been conducted in accordance with DGCL §144 and the applicable principles of Delaware fiduciary duty law; that the Special Committee was duly constituted, composed entirely of independent and disinterested directors, and vested with full authority to evaluate, negotiate, and approve or disapprove the transaction; that the Special Committee has received a fairness opinion from Thorngate Partners; and that the information barrier established under the Project Coriander protocols has been maintained throughout the process.
VI. Indemnification and Escrow
A. Indemnification Framework
Because Caliston is a private company and its stockholders will receive the merger consideration and disperse, the indemnification provisions and escrow arrangement are critical mechanisms for Penterra to obtain recourse in the event of post-closing discovery of breaches of representations or other losses. We recommend the following indemnification framework:
Survival Periods:
• General Representations and Warranties: 18 months post-closing. This is a standard survival period for private-company acquisitions and provides Penterra with a reasonable period in which to identify and assert claims. We anticipate that Caliston will push for a 12-month survival period; 18 months is our starting position and we should be willing to accept 15 months as a floor.
• Fundamental Representations: 36 months post-closing. Fundamental representations — typically defined to include organization, capitalization, authority, and tax representations — relate to the core attributes of the target and the validity of the transaction, and warrant a longer survival period because breaches may take longer to discover. We believe 36 months is appropriate and is within the range observed in comparable transactions.
• Fraud: Applicable statute of limitations. Claims based on intentional misrepresentation or fraud should not be subject to any contractual time limitation and should survive for the full period permitted under applicable law.
Indemnification Caps:
• General Representations: 10% of aggregate equity value. At the illustrative price of $925 million, the indemnification cap for general representations would be $92,500,000. Caliston will likely propose a lower cap in the range of 5%–7%. We recommend opening at 10% and accepting no less than 8% ($74 million at $925 million).
• Fundamental Representations: 100% of aggregate equity value. Breaches of fundamental representations can call into question the very basis of the transaction (e.g., if the capitalization representation is inaccurate and Penterra did not acquire 100% of the outstanding equity) and should therefore be subject to a cap equal to the full transaction value.
Basket / Deductible:
• Aggregate Deductible: 1% of aggregate equity value, which at $925 million equals $9,250,000. This is a "tipping" basket — meaning that once the aggregate amount of indemnifiable losses exceeds the deductible threshold, the indemnifying party is liable from dollar one (rather than only for losses in excess of the threshold). The tipping basket structure is more favorable to Penterra as the indemnified party and is our preferred approach. Caliston may seek a "true deductible" (recovery only for amounts in excess of the threshold); we should resist this.
• Individual Claim Threshold (Mini-Basket): $250,000. Individual claims below this threshold are excluded from the calculation of whether the aggregate deductible has been exceeded. This prevents nuisance claims from consuming the indemnification basket but sets the threshold at a level that does not exclude genuinely material individual losses.
Exclusive Remedy:
The merger agreement should provide that indemnification (and the escrow arrangement) is the exclusive post-closing remedy for breaches of representations and warranties and for other covered losses, except in the case of fraud. This exclusive remedy provision is standard and provides certainty to both parties regarding the scope of post-closing recourse. It prevents the former Caliston stockholders from being exposed to unlimited liability and provides Penterra with a clearly defined and enforceable remedy framework.
B. Escrow Arrangement
We recommend that 5% of the aggregate equity value be deposited into escrow at closing as security for Caliston's indemnification obligations. At the illustrative target price of $925 million, the escrow amount would be $46,250,000.
The key terms of the proposed escrow arrangement are as follows:
Escrow Agent: Greystone National Bank, N.A., located at 383 Madison Avenue, New York, New York 10179. Greystone is already the administrative agent under Penterra's revolving credit facility and is a well-known and reputable financial institution with extensive experience in escrow administration. Using an existing counterparty streamlines the engagement process and reduces costs.
Escrow Duration: 18 months, aligned with the survival period for general representations and warranties. At the expiration of the 18-month period, any remaining escrow funds (less the amount of any pending and unresolved claims) will be distributed to the former Caliston stockholders through the stockholder representative.
Funding Source: The escrow will be funded from the cash component of the merger consideration — that is, the escrow amount will be withheld from amounts otherwise distributable to the former Caliston stockholders at closing. This approach does not require Penterra to commit additional capital beyond the agreed-upon merger consideration.
Disbursement Mechanics: Disbursements from the escrow account will require joint written instructions from Penterra and the stockholder representative. In the event of a dispute regarding an indemnification claim, the disputed portion of the escrow will remain in the escrow account until the dispute is resolved by mutual agreement, binding arbitration, or final court order.
Stockholder Representative: We recommend designating Ridgeline Ventures, LP (Ava Lindström, Managing Partner) as the stockholder representative to act on behalf of the former Caliston stockholders in connection with all post-closing indemnification matters, including the administration of the escrow, the review and resolution of indemnification claims, and any related dispute resolution proceedings. Ridgeline Ventures is the largest institutional holder of Caliston equity at 22.3% and has a substantial economic interest in the efficient administration of the post-closing process. The stockholder representative appointment should be made in the merger agreement and should be binding on all former Caliston stockholders.
Expense Reserve: We recommend that $1,000,000 be set aside from the merger consideration (in addition to the escrow amount) as an expense reserve for the stockholder representative to cover legal fees, administrative costs, and other expenses incurred in the performance of its duties. This is a customary provision that avoids the need for the stockholder representative to fund expenses out of pocket or to seek contributions from individual former stockholders.
Caliston will likely propose a lower escrow amount, potentially in the range of 2%–3% of aggregate equity value. We believe 5% is well within the customary range for a transaction of this size and complexity, particularly given the clinical-stage nature of Caliston's business and the heightened due diligence uncertainty that attends a private-company acquisition. We should be prepared to accept no less than 4%.
VII. Key Protective Provisions — Related-Party Safeguards
This section addresses the provisions that are necessary to manage the conflicts of interest inherent in this transaction. Given that the proposed acquisition is a related-party transaction subject to heightened judicial scrutiny under the entire fairness standard of Delaware law, the protective provisions discussed below are not merely "nice to have" — they are essential to the legal defensibility of the transaction and to the Special Committee's discharge of its fiduciary duties.
A. Information Barrier and Dr. Hale Recusal
The merger agreement should contain an express acknowledgment by all parties — Penterra, Caliston, and each of the Caliston stockholders who execute the merger agreement or a joinder thereto — that the transaction constitutes a related-party transaction by reason of Dr. Hale's dual role as Penterra's Chairman and CEO and as a 28.5% equity holder of Caliston. The agreement should further recite that the transaction has been evaluated, negotiated, and approved (or disapproved, as the case may be) by the Special Committee in accordance with DGCL §§ 141(a) and 144 and the applicable principles of Delaware fiduciary duty law.
Dr. Hale's Voting and Recusal Agreement, which was executed on June 2, 2023, should be incorporated by reference into the merger agreement. That agreement provides, among other things, that Dr. Hale will recuse himself from all board deliberations and votes relating to the proposed transaction with Caliston, will not attempt to influence the Special Committee's evaluation or negotiation of the transaction, and will not receive any information regarding the Special Committee's deliberations, positions, or strategies. Compliance with this agreement should be made a condition to closing, such that Penterra's obligation to close is contingent upon Dr. Hale's continued compliance throughout the pre-closing period.
Additionally, the merger agreement should contain a representation from Penterra that the information barrier established under the Project Coriander protocols has been maintained throughout the process. The information barrier, as the Special Committee is aware, encompasses the following elements: (a) a dedicated "Project Coriander" workspace within Penterra's document management system, accessible only to Calderwood & Harkness LLP and Thorngate Partners personnel and to authorized Special Committee members and their designees; (b) the exclusion of Dr. Hale, Angela Whitmore (EVP, Commercial Operations), and Raymond Tusk (SVP, Corporate Development) from all Special Committee deliberations, materials, and communications relating to the transaction; and (c) protocols for the handling of any inadvertent disclosures, including an obligation to promptly notify Calderwood & Harkness LLP.
We recommend that the merger agreement include a covenant providing that during the pre-closing period (i.e., from signing through closing), any communications between Penterra management — including, specifically, Dr. Hale — and Caliston or its advisors regarding the transaction must be routed through the Special Committee and its advisors. This covenant is necessary to prevent Dr. Hale from engaging in side negotiations or communications that could undermine the Special Committee's positions or otherwise compromise the integrity of the process. Any violation of this covenant by Dr. Hale should entitle the Special Committee to seek injunctive relief and should be a reportable event under the terms of the merger agreement.
B. Dr. Hale — Stockholder Support and Conflict Management
The conflict management provisions relating to Dr. Hale must address his interests on both sides of the transaction: as a Penterra director and officer who owns Penterra common stock, and as a significant Caliston stockholder who will receive merger consideration.
Penterra Side — Stockholder Support Agreement. Dr. Hale should be required to execute a Stockholder Support Agreement at or prior to the execution of the merger agreement, committing his approximately 2,140,000 shares of Penterra common stock (representing approximately 1.8% of outstanding shares) to vote in favor of the share issuance at the Penterra stockholder meeting. While Dr. Hale's Penterra shareholding alone is not outcome-determinative, the Stockholder Support Agreement is an important signal of alignment and eliminates the risk that Dr. Hale could vote his Penterra shares against the transaction (or abstain) in an effort to pressure the Special Committee to renegotiate more favorable terms for the Caliston side.
Caliston Side — Written Consent Participation. Dr. Hale's 28.5% equity interest in Caliston means that he will participate in the Caliston stockholder written consent process. His consent to the merger on the Caliston side is expected and is important to achieving the requis

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