TERM SHEET

TERM SHEET
PROPOSED MERGER OF CALISTON BIOSCIENCES, INC. INTO PENTERRA PHARMACEUTICALS CORP.
"Project Coriander"
October 18, 2023
NON-BINDING — FOR DISCUSSION PURPOSES ONLY
Except for Sections 15, 16, 17, and 18, which are binding obligations of the parties.
Prepared by: Calderwood & Harkness LLP, 1700 Market Street, Suite 3400, Philadelphia, PA 19103, as independent counsel to the Special Committee of the Board of Directors of Penterra Pharmaceuticals Corp.
Circulated to: Whitfield Graves LLP (Attn: Kenneth Pratt, Esq.), One Federal Street, Suite 2600, Boston, MA 02110, as counsel to Caliston BioSciences, Inc.
C&H Matter Number: 1025-00006
Introductory Note. This term sheet (this "Term Sheet") reflects the agreement in principle reached between the Special Committee of the Board of Directors of Penterra Pharmaceuticals Corp. (the "Special Committee") and Caliston BioSciences, Inc. ("Caliston") and its stockholders on October 18, 2023, with respect to a proposed merger transaction as described herein. This Term Sheet is non-binding in all respects except for the provisions expressly stated to be binding, specifically: confidentiality (Section 17), exclusivity (Section 16), governing law and dispute resolution (Section 15), and expenses (Section 18). Nothing in this Term Sheet shall be construed as creating any obligation on the part of any party to consummate the proposed transaction or to negotiate or enter into any definitive agreement, except with respect to the foregoing binding provisions. The proposed transaction remains subject in all respects to the negotiation, execution, and delivery of a definitive Agreement and Plan of Merger and related ancillary documents, and to the satisfaction or waiver of all conditions to closing set forth therein.
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SECTION 1: PARTIES
1.1 Acquiror.  The acquiror in the proposed transaction shall be Penterra Pharmaceuticals Corp., a corporation organized and existing under the laws of the State of Delaware ("Penterra" or "PPC"). Penterra's common stock is listed on the New York Stock Exchange under the ticker symbol PPHR. Penterra's principal executive office is located at 400 Innovation Drive, Suite 1200, Princeton, New Jersey 08540. Penterra's registered agent in the State of Delaware is National Registered Agents of Delaware, Inc., 160 Greentree Drive, Suite 101, Dover, Delaware 19904. Penterra's employer identification number is 22-3847195.
Penterra is a fully integrated, commercial-stage pharmaceutical company focused on the development and commercialization of specialty therapeutics across oncology, immunology, and rare disease indications. As of the date of this Term Sheet, Penterra has approximately 121,400,000 shares of common stock outstanding and an approximate market capitalization of $4,720,000,000 based on the closing price of Penterra common stock as of June 1, 2023.
1.2 Target.  The target in the proposed transaction shall be Caliston BioSciences, Inc., a corporation organized and existing under the laws of the State of Delaware ("Caliston" or the "Company"). Caliston is a privately held company; its equity securities are not listed or traded on any securities exchange or quotation system. Caliston's principal executive office is located at 88 Harbor Point Road, Cambridge, Massachusetts 02142. Caliston's registered agent in the State of Delaware is Pemberton Industries, 251 Little Falls Drive, Wilmington, Delaware 19808. Caliston's employer identification number is 84-4219063.
Caliston is a clinical-stage biopharmaceutical company focused on the discovery and development of novel kinase inhibitors for the treatment of solid tumors. The Company was founded in 2017 and currently has approximately 94 full-time employees. Caliston's lead clinical candidate, CLT-4019, is a selective CDK4/6 inhibitor currently in clinical development for HR+/HER2– metastatic breast cancer under IND 158429 filed with the United States Food and Drug Administration. Caliston's earlier-stage pipeline includes CLT-5227 and CLT-6034. Caliston has raised aggregate equity financing of approximately $347,000,000 through Seed, Series A, Series B, and Series C rounds.
1.3 Interested Party Disclosure
The parties acknowledge and disclose that Dr. Marcus Hale, who serves as Chairman of the Board and Chief Executive Officer of Penterra, holds a personal equity interest of approximately 28.5% in Caliston, representing an aggregate personal investment of approximately $42,000,000 made across Caliston's Seed, Series A, and Series B financing rounds. Dr. Hale has served as a board observer at Caliston since 2018. Dr. Hale's equity interest in Caliston gives rise to a material conflict of interest with respect to the proposed transaction.
In light of the foregoing conflict of interest, the Board of Directors of Penterra established the Special Committee to evaluate, negotiate, and, if appropriate, recommend the proposed transaction. The Special Committee comprises three independent, non-management directors of Penterra:
(a) Diane Prescott (Chair of the Special Committee);
(b) James Okafor; and
(c) Dr. Helen Ng.
Each member of the Special Committee is independent of Caliston and has no financial interest in Caliston or any relationship with Caliston, its stockholders, or its management that would impair such member's independence with respect to the proposed transaction. This Term Sheet has been negotiated under the exclusive direction and supervision of the Special Committee and its independent advisors. Dr. Hale has been fully recused from all Special Committee deliberations and has not participated in the negotiation of the terms set forth herein.
Additionally, as further described in Section 7.4 below, Angela Whitmore, Executive Vice President of Commercial Operations of Penterra, is the spouse of Dr. Evan Whitmore, Head of Clinical Development and a member of the board of directors of Caliston. Ms. Whitmore has been excluded from all merger-related deliberations pursuant to the Independence Protocol & Information Barrier Policy.
SECTION 2: TRANSACTION STRUCTURE
2.1 Form of Transaction
The proposed transaction shall be structured as a one-step forward merger of Caliston with and into Penterra pursuant to Section 251 of the Delaware General Corporation Law (the "DGCL"). Upon effectiveness of the merger, Caliston shall cease to exist as a separate legal entity, and Penterra shall be the surviving corporation in the merger. All of the assets and liabilities of Caliston shall, by operation of law, become assets and liabilities of Penterra as the surviving corporation.
The parties acknowledge that the one-step forward merger structure has been selected, among other considerations, in order to (a) simplify the post-closing corporate structure, (b) avoid the need for a separate merger subsidiary, and (c) facilitate the assumption by Penterra of Caliston's contractual and regulatory obligations, including obligations arising under IND 158429 and related clinical trial agreements. The definitive merger agreement will contain customary provisions implementing the foregoing structure, including provisions relating to the certificate of incorporation and bylaws of the surviving corporation, and the directors and officers of the surviving corporation following the effective time of the merger.
2.2 Effective Time
The merger shall become effective upon the filing of a Certificate of Merger with the Secretary of State of the State of Delaware in accordance with Section 251 of the DGCL, or at such later date and time as may be specified in the Certificate of Merger as agreed by the parties (the "Effective Time"). The parties anticipate that the Certificate of Merger will be filed promptly following the satisfaction or waiver of all conditions to closing as described in Section 8 hereof.
SECTION 3: MERGER CONSIDERATION
3.1 Aggregate Equity Value
The aggregate equity value to be attributed to 100% of the outstanding equity of Caliston, calculated on a fully diluted basis (giving effect to the conversion or exercise of all outstanding preferred stock, options, warrants, and other convertible securities), shall be $925,000,000 (nine hundred twenty-five million dollars) (the "Aggregate Equity Value"), subject to the contingent value rights described in Section 4 below.
3.2 Consideration Mix
The merger consideration payable to the holders of Caliston equity securities at the Effective Time shall consist of a combination of cash and newly issued shares of Penterra common stock, allocated as follows:
(a) Cash Component (75%). An aggregate amount of $693,750,000 in cash, without interest, payable at the Effective Time by wire transfer of immediately available funds to the paying agent designated in the definitive merger agreement for distribution to former Caliston stockholders.
(b) Stock Component (25%). An aggregate of $231,250,000 in value of newly issued shares of Penterra common stock (NYSE: PPHR), with such shares to be valued based on the 30-day volume-weighted average price ("VWAP") of Penterra common stock for the 30 consecutive trading days ending on (and including) June 1, 2023, which VWAP the parties have calculated to be $39.17 per share.
Based on the foregoing VWAP, the stock component implies the issuance of approximately 5,903,497 shares of Penterra common stock ($231,250,000 ÷ $39.17 per share). The precise VWAP measurement date and calculation methodology, including the treatment of ex-dividend dates, stock splits, and other adjustments, shall be confirmed in the definitive merger agreement. The parties anticipate that adjustment mechanics — including any collar or pricing protection mechanism — will be subject to further negotiation.
The shares of Penterra common stock to be issued as merger consideration shall be duly authorized, validly issued, fully paid, and nonassessable, and shall be free and clear of all liens, encumbrances, and restrictions (other than restrictions arising under applicable securities laws). Such shares shall be approved for listing on the New York Stock Exchange prior to closing.
3.3 Premium.  The Aggregate Equity Value of $925,000,000 represents a premium of approximately 36.03% to Caliston's most recent private valuation of $680,000,000, which was the post-money valuation established in connection with Caliston's Series C preferred stock financing round, completed in October 2021. The premium is calculated as follows:
($925,000,000 − $680,000,000) ÷ $680,000,000 = 36.03%
The Special Committee has considered this premium, together with the analysis and advice of its independent financial advisor, Thorngate Partners LLC, in arriving at the proposed Aggregate Equity Value. The Special Committee expects to receive a fairness opinion from Thorngate Partners LLC prior to making its recommendation to the full Penterra board regarding the definitive merger agreement.
3.4 Allocation Among Caliston Stockholders
The merger consideration (both cash and stock components) shall be distributed pro rata to all holders of Caliston common stock and preferred stock (on an as-converted-to-common-stock basis) based on their respective ownership percentages of the fully diluted equity of Caliston as of immediately prior to the Effective Time.
The treatment of outstanding Caliston stock options, restricted stock units, and other equity awards shall be addressed in the definitive merger agreement. The parties currently expect that all outstanding and unvested Caliston stock options and equity awards will be subject to accelerated vesting as of the Effective Time and will be cancelled in exchange for the right to receive a portion of the merger consideration equal to the per-share merger consideration less the applicable exercise price (if any), net of applicable tax withholdings. Options with an exercise price equal to or exceeding the per-share merger consideration will be cancelled for no consideration. The specific mechanics and documentation for the treatment of equity awards will be set forth in the definitive merger agreement.
3.5 Dr. Hale's Implied Proceeds
Based on Dr. Hale's 28.5% equity interest in Caliston and the Aggregate Equity Value of $925,000,000, Dr. Hale's implied aggregate proceeds from the merger would be approximately $263,625,000 (28.5% × $925,000,000), representing an implied gain of approximately $221,625,000 over his aggregate investment of $42,000,000. Dr. Hale's proceeds will be subject to the same pro rata treatment as all other Caliston stockholders, including the escrow holdback described in Section 11 and the CVR entitlements described in Section 4. The Special Committee has taken this conflict of interest into account in its evaluation of the proposed transaction and has implemented the governance protections described in Sections 1.3 and 7.4 hereof.
SECTION 4: CONTINGENT VALUE RIGHTS (CVRs)
4.1 CVR Payment
In addition to the merger consideration described in Section 3, Penterra shall provide for an additional contingent payment of up to $125,000,000 (one hundred twenty-five million dollars) in the aggregate (the "CVR Payment"), payable in cash to former Caliston stockholders on a pro rata basis (based on their respective ownership percentages of the fully diluted equity of Caliston as of immediately prior to the Effective Time), upon achievement of the milestone described in Section 4.2 below.
4.2 CVR Milestone
The CVR Payment shall become payable upon the achievement of the following milestone (the "CVR Milestone"):
FDA Approval of CLT-4019. Approval by the United States Food and Drug Administration (the "FDA") of a New Drug Application ("NDA") for CLT-4019 (IND 158429), a selective CDK4/6 inhibitor for the treatment of hormone receptor-positive, human epidermal growth factor receptor 2-negative (HR+/HER2–) metastatic breast cancer, on or before December 31, 2026.
For purposes of the CVR Milestone, "approval" shall mean the issuance by the FDA of an approval letter (or equivalent communication) authorizing the commercial marketing and sale of CLT-4019 in the United States for the indicated use. If the CVR Milestone is not achieved on or before December 31, 2026, the CVR Payment shall not be payable and the contingent value rights shall expire without any payment to the holders thereof.
4.3 Maximum Aggregate Transaction Value
The maximum aggregate transaction value, inclusive of the merger consideration and the CVR Payment, is:
$925,000,000 (Aggregate Equity Value) + $125,000,000 (CVR Payment) = $1,050,000,000
4.4 CVR Agreement
The contingent value rights shall be evidenced by a separate Contingent Value Rights Agreement (the "CVR Agreement"), to be entered into at or prior to the Effective Time between Penterra and Columnar Trust Services, Inc., acting as CVR trustee (the "CVR Trustee"), for the benefit of the former Caliston stockholders who are entitled to receive CVR payments. Columnar Trust Services, Inc. is located at 6201 15th Avenue, Brooklyn, New York 11219.
The CVR Agreement shall include, among other customary terms and conditions:
(a) Diligent Efforts Obligations. Penterra's obligations to use diligent efforts (to be defined in the CVR Agreement) to continue the clinical development, regulatory strategy, and commercialization efforts for CLT-4019 during the CVR period, including obligations regarding funding levels, staffing, regulatory interactions, and strategic decision-making with respect to the CLT-4019 program;
(b) Milestone Definitions. Detailed definitions of the CVR Milestone, including the specific regulatory actions that constitute "FDA approval" and the procedures for determining whether the CVR Milestone has been achieved;
(c) Payment Mechanics. Procedures for the calculation, verification, and distribution of the CVR Payment following achievement of the CVR Milestone, including the timing of payment (expected within 30 business days of milestone achievement), the method of distribution to former Caliston stockholders, and the role of the paying agent;
(d) Dispute Resolution. Procedures for resolving disputes between Penterra and the CVR Trustee or the stockholder representative regarding the achievement of the CVR Milestone, including provisions for independent expert determination if necessary;
(e) Anti-Assignment Restrictions. Restrictions on the assignment or transfer of the CVRs, except in limited circumstances such as transfers by operation of law, to immediate family members, or to affiliates of the holder; and
(f) Non-Transferability and Non-Listing. The CVRs will not be transferable (except in the limited circumstances described above) and will not be listed on any securities exchange or quotation system.
The form and substance of the CVR Agreement shall be negotiated as part of the definitive merger documentation and shall be subject to the approval of the Special Committee and the stockholder representative.
SECTION 5: FINANCING
5.1 Cash Consideration Sources
The cash component of the merger consideration ($693,750,000) is expected to be funded from the following sources:
(a) Cash on Hand. Approximately $400,000,000 from Penterra's existing cash and cash equivalents. As of June 1, 2023, Penterra had approximately $892,000,000 in cash and cash equivalents on its consolidated balance sheet.
(b) Revolving Credit Facility. Approximately $293,750,000 from borrowings under Penterra's existing $1,500,000,000 senior unsecured revolving credit facility (the "Revolver"). The Revolver was entered into on March 15, 2021, with a maturity date of March 15, 2026. The administrative agent under the Revolver is Greystone National Bank, N.A., 383 Madison Avenue, New York, New York 10179. The Revolver bears interest at a rate equal to SOFR plus 150 basis points per annum. As of June 1, 2023, the undrawn availability under the Revolver was approximately $1,100,000,000, which is sufficient to fund the anticipated draw.
Penterra does not anticipate the need to raise any additional debt or equity financing in connection with the proposed transaction. The sufficiency of the foregoing sources of funds shall be confirmed in the definitive merger agreement through appropriate representations and warranties.
5.2 Financing Condition
The proposed transaction shall include no financing condition. Penterra's obligation to consummate the merger and to pay the merger consideration at the Effective Time shall not be conditioned upon Penterra's ability to obtain financing from any source or upon the availability of any credit facility, capital markets transaction, or other financing arrangement. In the definitive merger agreement, Penterra shall represent and warrant that, as of the date of signing, it has sufficient committed funds and availability under existing facilities to consummate the transaction and to pay all amounts payable at the Effective Time, including the cash component of the merger consideration, all transaction expenses, and all other amounts required to be paid by Penterra at or in connection with the closing.
SECTION 6: REPRESENTATIONS AND WARRANTIES
6.1 Caliston Representations
The definitive merger agreement shall contain customary representations and warranties of Caliston, consistent with those typically provided by a private target company in a negotiated acquisition transaction of comparable size and complexity, including without limitation representations and warranties regarding:
(a) organization, good standing, and qualification to do business in all jurisdictions where required;
(b) corporate power and authority; due authorization of the merger agreement and the transactions contemplated thereby;
(c) capitalization, including the number and type of outstanding equity securities, options, warrants, and other convertible securities, and the absence of any anti-dilution protections, preemptive rights, or other equity-related rights not previously disclosed;
(d) absence of conflicts with organizational documents, material contracts, and applicable laws;
(e) financial statements, including audited financial statements for the fiscal years ended December 31, 2021 and December 31, 2022, prepared in accordance with GAAP and audited by Brentmoor Advisors LLP, 125 Summer Street, Suite 800, Boston, Massachusetts 02110;
(f) absence of undisclosed liabilities;
(g) material contracts, including clinical trial agreements, license agreements, collaboration agreements, and material vendor and supplier agreements;
(h) intellectual property, including the CLT-4019 patent portfolio, as well as intellectual property relating to CLT-5227 and CLT-6034, and the absence of any infringement, misappropriation, or other violation of third-party intellectual property rights;
(i) regulatory compliance, including compliance with all applicable FDA requirements, the status of IND 158429, and the status of all clinical trials and regulatory submissions;
(j) absence of pending or threatened litigation, arbitration, or governmental proceedings;
(k) employment matters, including compliance with labor laws, employee benefit plans, and the absence of any material employment disputes;
(l) tax matters, including the filing of all required tax returns and the payment of all taxes due;
(m) environmental compliance;
(n) insurance coverage;
(o) data privacy and cybersecurity compliance; and
(p) anti-corruption and anti-bribery compliance, including compliance with the Foreign Corrupt Practices Act and similar laws.
The representations and warranties of Caliston shall be subject to customary knowledge qualifiers, materiality qualifiers, and disclosure schedule exceptions, in each case to be negotiated in connection with the preparation of the definitive merger agreement and the Caliston disclosure schedules. The scope and specificity of the disclosure schedules will be subject to further diligence and negotiation.
6.2 Penterra Representations
The definitive merger agreement shall contain customary representations and warranties of Penterra, consistent with those typically provided by a public company acquiror in a negotiated acquisition transaction of comparable size and complexity, including without limitation representations and warranties regarding:
(a) organization, good standing, and qualification to do business in all jurisdictions where required;
(b) corporate power and authority; due authorization of the merger agreement and the transactions contemplated thereby, including the issuance of shares of Penterra common stock as merger consideration;
(c) SEC filings and financial statements, including confirmation that all reports and filings required to be filed with the Securities and Exchange Commission (SEC) have been timely filed and that such filings, as of their respective filing dates, complied in all material respects with applicable SEC rules and regulations, and that the financial statements contained therein have been prepared in accordance with GAAP and audited by Harwick & Tolliver LLP, 30 Rockefeller Plaza, New York, New York 10112;
(d) absence of conflicts with organizational documents, material contracts, and applicable laws;
(e) valid issuance of Penterra shares to be issued as merger consideration and approval for listing of such shares on the New York Stock Exchange;
(f) capitalization, including the number of outstanding shares of Penterra common stock and the absence of any undisclosed dilutive securities;
(g) financing availability, including representation that Penterra has, and will have at the Effective Time, sufficient funds available to pay the cash component of the merger consideration and all other amounts payable by Penterra in connection with the closing; and
(h) absence of undisclosed liabilities.
Penterra's SEC filings (SEC CIK No. 0001587342) shall be incorporated by reference into the definitive merger agreement to the extent agreed upon by the parties, and may serve as a supplement or qualifier to certain of Penterra's representations and warranties.
6.3 Survival.  The representations and warranties of each of Caliston and Penterra shall survive the Effective Time for a period of 18 months following the closing date, which period is coterminous with the escrow survival period described in Section 11.2 below. Notwithstanding the foregoing, the following categories of representations and warranties (the "Fundamental Representations") shall survive for 36 months following the closing date:
(a) organization and good standing;
(b) authorization and enforceability;
(c) capitalization; and
(d) tax matters.
Claims for fraud shall not be subject to any survival limitation.
SECTION 7: COVENANTS
7.1 Pre-Closing Covenants of Caliston
From the date of execution of the definitive merger agreement until the earlier of the Effective Time or the termination of the merger agreement, Caliston shall comply with the following pre-closing covenants (subject to exceptions and materiality thresholds to be specified in the definitive merger agreement):
(a) Ordinary Course of Business. Conduct its business in the ordinary course, consistent with past practice, and use commercially reasonable efforts to preserve intact its business organization, relationships with employees, clinical investigators, regulatory authorities, and business partners.
(b) Restrictions on Material Transactions. Refrain from entering into any material acquisitions, dispositions of assets, or capital expenditures outside of agreed thresholds (to be specified in the definitive merger agreement), without the prior written consent of Penterra (acting through the Special Committee).
(c) Charter and Equity Restrictions. Refrain from amending its certificate of incorporation or bylaws, or issuing, selling, or granting any equity securities or equity-linked securities, except pursuant to the exercise of stock options or the settlement of equity awards outstanding under Caliston's existing equity incentive plans as of the date of the merger agreement.
(d) Insurance. Maintain in full force and effect all insurance policies currently maintained by Caliston, or obtain replacement policies providing substantially equivalent coverage.
(e) Clinical Development. Continue the clinical development of CLT-4019 in accordance with existing clinical protocols, development timelines, and regulatory strategies, and refrain from making any material changes to the CLT-4019 development program without the prior written consent of Penterra (acting through the Special Committee).
(f) Access and Information. Provide Penterra and the Special Committee (and their respective advisors) with reasonable access, during normal business hours and upon reasonable advance notice, to Caliston's books, records, facilities, and personnel, in each case subject to the information barrier obligations described in Section 7.4 and applicable confidentiality restrictions.
(g) No-Shop. Refrain from, and cause its stockholders, officers, directors, employees, and advisors to refrain from, directly or indirectly soliciting, initiating, encouraging, or facilitating any competing acquisition proposal. The no-shop restriction shall be subject to a customary fiduciary out permitting Caliston's board of directors to respond to, negotiate, and ultimately accept an unsolicited bona fide written proposal that constitutes (or could reasonably be expected to lead to) a "Superior Proposal" (to be defined in the definitive merger agreement), provided that Caliston shall (i) promptly notify Penterra of the receipt of any such proposal, (ii) provide Penterra with a matching right of not less than five (5) business days (and three (3) business days for any subsequent revised proposal), and (iii) comply with all other procedural requirements set forth in the definitive merger agreement before entering into any agreement with respect to such Superior Proposal.
7.2 Pre-Closing Covenants of Penterra
From the date of execution of the definitive merger agreement until the earlier of the Effective Time or the termination of the merger agreement, Penterra shall comply with the following pre-closing covenants:
(a) Stockholder Approval. Use commercially reasonable efforts to obtain Penterra stockholder approval for the issuance of the shares of Penterra common stock to be issued as merger consideration, as required under Section 312.03 of the NYSE Listed Company Manual (which requires stockholder approval for the issuance of shares representing more than 1% of the outstanding shares of the issuer in connection with an acquisition).
(b) NYSE Listing. Maintain the listing of Penterra common stock on the New York Stock Exchange in good standing and take all actions necessary to cause the shares of Penterra common stock to be issued as merger consideration to be approved for listing on the NYSE prior to the Effective Time.
(c) Regulatory Cooperation. Cooperate with Caliston in connection with the preparation and filing of all notifications, applications, and filings required under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), and any other applicable antitrust, competition, or regulatory laws, and use commercially reasonable efforts to obtain all governmental approvals necessary to consummate the merger.
7.3 Mutual Covenants
Each of Penterra and Caliston shall:
(a) Use reasonable best efforts to take, or cause to be taken, all actions, and to do, or cause to be done, all things necessary, proper, or advisable to satisfy all conditions to closing and to consummate the merger as promptly as practicable.
(b) File the required notifications under the HSR Act within 10 business days of the date of execution of the definitive merger agreement, and cooperate in connection with any requests for additional information or documentary material from the Federal Trade Commission or the Antitrust Division of the Department of Justice.
(c) Cooperate in the preparation, filing, and distribution of the proxy statement or information statement (as applicable) to be provided to Penterra stockholders in connection with the stockholder meeting or written consent process for Penterra stockholder approval, and in the preparation and filing of any registration statement required for the issuance of the shares of Penterra common stock as merger consideration.
(d) Provide timely notice to the other party of any material developments, events, or changes that would or would reasonably be expected to (i) cause any representation or warranty to become inaccurate or incomplete in any material respect, (ii) result in the failure of any condition to closing, or (iii) otherwise have a material adverse effect on the ability of such party to consummate the merger.
7.4 Information Barrier
The information barrier established by the Independence Protocol & Information Barrier Policy dated June 2, 2023 (the "Information Barrier Policy"), adopted by the Special Committee in connection with the evaluation and negotiation of the proposed transaction, shall remain in full force and effect from the date of this Term Sheet through the closing of the merger. The Information Barrier Policy provides for the physical, electronic, and informational separation of certain conflicted individuals from all merger-related deliberations, materials, and communications.
The following individuals are excluded from all merger-related deliberations, communications, and decision-making pursuant to the Information Barrier Policy:
(a) Dr. Marcus Hale, Chairman and Chief Executive Officer of Penterra, due to his 28.5% equity interest in Caliston and his role as board observer at Caliston since 2018;
(b) Angela Whitmore, Executive Vice President, Commercial Operations of Penterra, due to her spousal relationship with Dr. Evan Whitmore, who serves as Head of Clinical Development and a member of the board of directors of Caliston; and
(c) Raymond Tusk, whose role and relationship to the parties shall be further documented in the Information Barrier Policy, and who has been identified as a conflicted person for purposes of the merger-related deliberations.
Any breach of the Information Barrier Policy shall be promptly reported to the Special Committee and to Calderwood & Harkness LLP. The definitive merger agreement is expected to contain representations regarding compliance with the Information Barrier Policy and covenants requiring its continued observance through closing.
SECTION 8: CONDITIONS TO CLOSING
8.1 Mutual Conditions
The obligations of each of Penterra and Caliston to consummate the merger shall be subject to the satisfaction (or, where permissible, waiver) of the following conditions at or prior to the Effective Time:
(a) HSR Act. The applicable waiting period (and any extension thereof) under the HSR Act shall have expired or been terminated.
(b) No Legal Restraint. No temporary, preliminary, or permanent injunction, order, decree, or other legal restraint or prohibition issued by any court of competent jurisdiction, and no statute, rule, regulation, or executive order enacted, promulgated, or enforced by any governmental authority, shall be in effect that prohibits, enjoins, or makes illegal the consummation of the merger.
(c) Penterra Stockholder Approval. The stockholders of Penterra shall have approved the issuance of the shares of Penterra common stock as merger consideration, as required under NYSE listing rules, at a duly called and held stockholder meeting (or by written consent in lieu thereof, if permitted under Penterra's organizational documents and applicable law).
(d) Caliston Stockholder Approval. The stockholders of Caliston shall have approved the merger agreement and the transactions contemplated thereby by written consent of the holders of a majority of the outstanding shares of Caliston capital stock entitled to vote thereon, in accordance with Caliston's certificate of incorporation, bylaws, and applicable provisions of the DGCL.
8.2 Conditions to Penterra's Obligations
The obligation of Penterra to consummate the merger shall be subject to the satisfaction (or waiver by Penterra) of the following additional conditions:
(a) Accuracy of Representations. The representations and warranties of Caliston set forth in the merger agreement shall be true and correct in all respects (without giving effect to any materiality or "Material Adverse Effect" qualifiers) as of the date of the merger agreement and as of the closing date as though made on and as of such date (except for representations that by their terms speak as of a specific date, which need only be true and correct as of such date), except where the failure of such representations and warranties to be so true and correct would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Caliston.
(b) Compliance with Covenants. Caliston shall have performed and complied in all material respects with all covenants and agreements required to be performed or complied with by Caliston under the merger agreement on or prior to the closing date.
(c) No Material Adverse Effect. Since the date of the merger agreement, there shall not have occurred any event, change, effect, development, condition, or occurrence that, individually or in the aggregate, has had or would reasonably be expected to have a Material Adverse Effect on Caliston. The definition of "Material Adverse Effect" as it relates to Caliston shall be negotiated and set forth in the definitive merger agreement, and is expected to include customary carve-outs for changes in general economic conditions, industry-wide conditions, changes in applicable law or GAAP, and other customary exceptions.
(d) Officer's Certificate. Penterra shall have received a certificate executed by an authorized officer of Caliston, dated as of the closing date, certifying as to the satisfaction of the conditions set forth in clauses (a), (b), and (c) of this Section 8.2.
8.3 Conditions to Caliston's Obligations
The obligation of Caliston to consummate the merger shall be subject to the satisfaction (or waiver by Caliston) of the following additional conditions:
(a) Accuracy of Representations. The representations and warranties of Penterra set forth in the merger agreement shall be true and correct in all respects (without giving effect to any materiality or "Material Adverse Effect" qualifiers) as of the date of the merger agreement and as of the closing date as though made on and as of such date (except for representations that by their terms speak as of a specific date, which need only be true and correct as of such date), except where the failure of such representations and warranties to be so true and correct would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Penterra.
(b) Compliance with Covenants. Penterra shall have performed and complied in all material respects with all covenants and agreements required to be performed or complied with by Penterra under the merger agreement on or prior to the closing date.
(c) No Material Adverse Effect. Since the date of the merger agreement, there shall not have occurred any event, change, effect, development, condition, or occurrence that, individually or in the aggregate, has had or would reasonably be expected to have a Material Adverse Effect on Penterra.
(d) Officer's Certificate. Caliston shall have received a certificate executed by an authorized officer of Penterra, dated as of the closing date, certifying as to the satisfaction of the conditions set forth in clauses (a), (b), and (c) of this Section 8.3.
(e) NYSE Listing. The shares of Penterra common stock to be issued as merger consideration shall have been approved for listing on the New York Stock Exchange, subject only to official notice of issuance.
SECTION 9: TERMINATION
9.1 Mutual Termination Rights
The definitive merger agreement may be terminated at any time prior to the Effective Time:
(a) By the mutual written consent of Penterra (acting through the Special Committee) and Caliston.
(b) By either party if the closing has not occurred on or before the date that is six (6) months following the date of execution of the definitive merger agreement (the "Outside Date"); provided, that the Outside Date shall be subject to automatic extension for an additional period of up to three (3) months if, as of the initial Outside Date, all conditions to closing have been satisfied or waived other than regulatory approvals (including expiration of the HSR Act waiting period); provided further, that the right to terminate pursuant to this clause (b) shall not be available to any party whose material breach of the merger agreement has been the primary cause of the failure to consummate the merger by the Outside Date.
(c) By either party if any governmental authority of competent jurisdiction shall have issued a final, non-appealable order, injunction, decree, or other legal restraint permanently prohibiting or enjoining the consummation of the merger.
(d) By either party if the required Penterra stockholder approval or the required Caliston stockholder approval, as applicable, has not been obtained following the satisfaction of all applicable procedural requirements (including the holding of a duly called stockholder meeting or the solicitation of written consents, as applicable).
9.2 Termination by Penterra
The definitive merger agreement may be terminated by Penterra (acting through the Special Committee) at any time prior to the Effective Time:
(a) If Caliston has materially breached any of its representations, warranties, or covenants under the merger agreement, and such breach (i) would, if occurring or continuing at the closing date, result in the failure of the closing conditions set forth in Section 8.2(a) or Section 8.2(b), and (ii) has not been cured within 30 days following delivery of written notice of such breach by Penterra to Caliston (or is incapable of being cured by the Outside Date).
(b) If Caliston's board of directors (or any committee thereof) shall have effected an Adverse Recommendation Change — that is, shall have (i) changed, withdrawn, withheld, qualified, or modified, or publicly proposed to change, withdraw, withhold, qualify, or modify, in a manner adverse to Penterra, its recommendation that the Caliston stockholders approve the merger agreement and the transactions contemplated thereby, or (ii) publicly recommended, adopted, or approved, or publicly proposed to recommend, adopt, or approve, an alternative acquisition proposal.
9.3 Termination by Caliston
The definitive merger agreement may be terminated by Caliston at any time prior to the Effective Time:
(a) If Penterra has materially breached any of its representations, warranties, or covenants under the merger agreement, and such breach (i) would, if occurring or continuing at the closing date, result in the failure of the closing conditions set forth in Section 8.3(a) or Section 8.3(b), and (ii) has not been cured within 30 days following delivery of written notice of such breach by Caliston to Penterra (or is incapable of being cured by the Outside Date).
(b) If Penterra's board of directors (or the Special Committee) shall have effected an Adverse Recommendation Change — that is, shall have changed, withdrawn, withheld, qualified, or modified, or publicly proposed to change, withdraw, withhold, qualify, or modify, in a manner adverse to Caliston, its recommendation that the Penterra stockholders approve the issuance of shares of Penterra common stock as merger consideration.
(c) Superior Proposal Termination. In order for Caliston to accept a Superior Proposal, provided that Caliston shall have (i) complied in all material respects with the no-shop provisions and matching right procedures set forth in Section 7.1(g) and as further detailed in the definitive merger agreement, (ii) provided Penterra with the full matching right period, and (iii) paid (or caused to be paid) the Company Termination Fee described in Section 10.2 simultaneously with such termination.
SECTION 10: TERMINATION FEES
10.1 Reverse Termination Fee (Penterra)
In the event the definitive merger agreement is terminated under the following circumstances, Penterra shall pay to Caliston a reverse termination fee in the amount of $32,375,000 (which represents 3.5% of the Aggregate Equity Value of $925,000,000) (the "Reverse Termination Fee"):
(a) Termination by Caliston due to Penterra's material breach of its representations, warranties, or covenants under the merger agreement that is not timely cured (Section 9.3(a));
(b) Termination by either party due to the failure to obtain Penterra stockholder approval for the share issuance (Section 9.1(d), as applied to Penterra stockholder approval); or
(c) Termination by Caliston due to an Adverse Recommendation Change by the Penterra board of directors or the Special Committee (Section 9.3(b)).
The Reverse Termination Fee shall be payable by wire transfer of immediately available funds within five (5) business days of the date of termination. Payment of the Reverse Termination Fee shall be the sole and exclusive remedy of Caliston and its stockholders in the event of a termination giving rise to such fee (other than in the case of fraud or willful and material breach).
10.2 Company Termination Fee (Caliston)
In the event the definitive merger agreement is terminated under the following circumstances, Caliston shall pay to Penterra a termination fee in the amount of $27,750,000 (which represents 3.0% of the Aggregate Equity Value of $925,000,000) (the "Company Termination Fee"):
(a) Termination by Caliston in order to enter into a definitive agreement with respect to a Superior Proposal (Section 9.3(c));
(b) Termination by Penterra due to an Adverse Recommendation Change by Caliston's board of directors (Section 9.2(b)); or
(c) Termination under certain circumstances during a tail period — specifically, if (i) the merger agreement is terminated by either party under Section 9.1(b) (Outside Date) or Section 9.1(d) (failure to obtain Caliston stockholder approval), (ii) prior to such termination, an alternative acquisition proposal has been publicly announced or communicated to Caliston's board of directors and not withdrawn, and (iii) within 12 months following such termination, Caliston enters into a definitive agreement with respect to, or consummates, an alternative acquisition transaction (whether or not the same as the previously communicated proposal).
The Company Termination Fee shall be payable by wire transfer of immediately available funds within five (5) business days of the date of termination (or, in the case of a tail period termination fee, within five (5) business days of the earlier of the date of execution of the alternative definitive agreement or the consummation of the alternative transaction). Payment of the Company Termination Fee shall be the sole and exclusive remedy of Penterra in the event of a termination giving rise to such fee (other than in the case of fraud or willful and material breach).
SECTION 11: INDEMNIFICATION AND ESCROW
11.1 Indemnification.  The definitive merger agreement shall provide for post-closing indemnification by the former stockholders of Caliston (acting through the stockholder representative, as described in Section 12) in favor of Penterra and its affiliates, officers, directors, employees, and representatives (the "Penterra Indemnified Parties") for losses arising from or relating to:
(a) any breach or inaccuracy of any representation or warranty of Caliston contained in the merger agreement or in any certificate delivered by Caliston at closing;
(b) any breach of any covenant or agreement of Caliston contained in the merger agreement that is required to be performed or complied with prior to or at the closing;
(c) any breach of any post-closing covenant or agreement of the stockholder representative; and
(d) certain specified indemnification matters to be identified and agreed upon in the definitive merger agreement and disclosure schedules (the "Specified Indemnification Matters").
The following limitations shall apply to indemnification claims by the Penterra Indemnified Parties:
General Cap. The aggregate liability of the former Caliston stockholders for all general indemnification claims (other than claims relating to Fundamental Representations, Specified Indemnification Matters, or fraud) shall not exceed $46,250,000, which represents 5% of the Aggregate Equity Value of $925,000,000. The general cap shall be limited to the escrow fund described in Section 11.2.
Basket / Deductible. The definitive merger agreement shall include a customary basket or deductible mechanism, the structure and amount of which (whether a "true deductible" or a "tipping basket") shall be negotiated in connection with the definitive documentation.
Fundamental Representations. Indemnification claims relating to breaches of the Fundamental Representations (organization, authorization, capitalization, and tax) shall be subject to a higher cap, the amount of which shall be negotiated (expected to be up to the full Aggregate Equity Value).
Other Limitations. Additional customary limitations on indemnification (including limitations relating to double recovery, insurance proceeds, tax benefits, mitigation, and materiality scrapes) shall be negotiated in connection with the definitive merger agreement.
Penterra shall not be required to provide indemnification to the former Caliston stockholders except with respect to Penterra's own breaches of representations, warranties, or covenants under the merger agreement, as may be further specified in the definitive merger agreement.
11.2 Escrow.  At the Effective Time, an amount equal to $46,250,000 (5% of the Aggregate Equity Value of $925,000,000) shall be deposited into an escrow account (the "Escrow Fund") to secure the indemnification obligations of the former Caliston stockholders. The Escrow Fund shall be funded from the merger consideration otherwise payable to the former Caliston stockholders, with each stockholder's share of the merger consideration being reduced pro rata by the amount of such stockholder's contribution to the Escrow Fund.
The Escrow Fund shall be held by Greystone National Bank, N.A., acting as escrow agent (the "Escrow Agent"), pursuant to the terms of a separate Escrow Agreement to be entered into at the closing among Penterra, the stockholder representative, and the Escrow Agent.
The survival period for the Escrow Fund shall be 18 months from the closing date. Upon expiration of the survival period, the balance of the Escrow Fund (less any amounts subject to then-pending and unresolved indemnification claims) shall be released to the former Caliston stockholders (through the stockholder representative) on a pro rata basis.
The Escrow Fund shall be the sole and exclusive remedy for indemnification claims by the Penterra Indemnified Parties under the merger agreement, except with respect to (a) claims for fraud, and (b) claims relating to breaches of Fundamental Representations, for which the Penterra Indemnified Parties may seek recovery beyond the Escrow Fund, subject to the applicable cap.
SECTION 12: STOCKHOLDER REPRESENTATIVE
Ridgeline Ventures, LP (Ava Lindström, Managing Partner), which holds an approximately 22.3% equity interest in Caliston, shall serve as the stockholder representative (the "Stockholder Representative") for and on behalf of the former Caliston stockholders following the closing of the merger.
The Stockholder Representative shall have the power and authority to act on behalf of the former Caliston stockholders with respect to all post-closing matters arising under the merger agreement and ancillary agreements, including without limitation:
(a) the negotiation, defense, and settlement of indemnification claims asserted by the Penterra Indemnified Parties;
(b) the administration of the Escrow Fund, including the delivery of instructions to the Escrow Agent with respect to the release or retention of escrowed amounts;
(c) the administration and enforcement of the CVR Agreement, including the monitoring of Penterra's diligent efforts obligations with respect to CLT-4019 and the assertion of claims on behalf of CVR holders;
(d) the administration of any post-closing purchase price adjustments (if applicable); and
(e) such other matters as may be specified in the merger agreement and the Stockholder Representative Agreement.
An expense reserve shall be established at the closing from a portion of the merger consideration otherwise payable to the former Caliston stockholders (pro rata), to fund the fees, costs, and expenses incurred by the Stockholder Representative in the performance of its duties. The amount of the expense reserve shall be negotiated in connection with the definitive documentation.
A Stockholder Representative Agreement shall be entered into at the closing among the Stockholder Representative, Penterra, and the former Caliston stockholders, setting forth in detail the rights, duties, indemnities, and limitations of liability of the Stockholder Representative.
SECTION 13: STOCKHOLDER APPROVALS AND SUPPORT AGREEMENTS
13.1 Penterra Stockholder Approval
The issuance of approximately 5,903,497 shares of Penterra common stock as merger consideration represents approximately 4.9% of the currently outstanding shares of Penterra common stock (based on approximately 121,400,000 shares outstanding). Because this issuance exceeds the 1% threshold under Section 312.03 of the NYSE Listed Company Manual for share issuances in connection with acquisitions, Penterra stockholder approval of the share issuance is required.
As a condition to Penterra's execution of the definitive merger agreement, Dr. Marcus Hale shall enter into a Stockholder Support Agreement pursuant to which Dr. Hale shall commit to vote (or cause to be voted) his 2,140,000 shares of Penterra common stock (representing approximately 1.8% of the outstanding shares of Penterra common stock) in favor of the approval of the share issuance at any meeting of Penterra stockholders called for such purpose (or by written consent in lieu thereof, if applicable). The Stockholder Support Agreement shall include customary provisions regarding Dr. Hale's agreement not to transfer or encumber such shares during the pendency of the merger, subject to customary exceptions.
13.2 Caliston Stockholder Approval
The merger agreement and the transactions contemplated thereby must be approved by the written consent of holders of a majority of the outstanding shares of Caliston capital stock entitled to vote thereon, in accordance with Caliston's certificate of incorporation, bylaws, and Section 228 and Section 251 of the DGCL. Because Caliston is a privately held company, the parties expect that stockholder approval will be obtained by written consent in lieu of a stockholder meeting, promptly following the execution of the definitive merger agreement.
To ensure the prompt delivery of the required written consent, the following Caliston stockholders have agreed to enter into Stockholder Support Agreements pursuant to which they shall commit to execute and deliver written consents approving the merger agreement and the transactions contemplated thereby:
(a) Ridgeline Ventures, LP (Ava Lindström, Managing Partner) — holding approximately 22.3% of the outstanding Caliston shares;
(b) Meridian Life Sciences Fund III, LP (Tomás Reyes, Managing Partner) — holding approximately 18.7% of the outstanding Caliston shares; and
(c) Dr. Marcus Hale — holding approximately 28.5% of the outstanding Caliston shares.
The combined equity interests of the foregoing committed stockholders represent approximately 69.5% of the outstanding shares of Caliston capital stock, which is sufficient to deliver the required majority written consent. Each Stockholder Support Agreement shall include customary provisions regarding restrictions on transfer of Caliston shares, voting obligations, and waiver of appraisal rights pending the closing of the merger.
SECTION 14: ANCILLARY AGREEMENTS
14.1 Voting and Recusal Agreement — Dr. Marcus Hale
In connection with the execution of the definitive merger agreement, Dr. Marcus Hale shall execute (or, to the extent already in effect, confirm the continued applicability of) a Voting and Recusal Agreement pursuant to which Dr. Hale shall:
(a) Recuse himself from all deliberations of the Penterra board of directors relating to the evaluation, negotiation, approval, and consummation of the merger, including any deliberations regarding the definitive merger agreement, ancillary agreements, and any amendments or waivers thereof;
(b) Abstain from voting on any resolution of the Penterra board of directors relating to the approval or recommendation of the merger agreement and the transactions contemplated thereby;
(c) Acknowledge and disclose his 28.5% equity interest in Caliston, his aggregate investment of $42,000,000, and his service as a board observer at Caliston since 2018;
(d) Agree to abide by customary confidentiality obligations with respect to non-public information regarding the proposed transaction, including information received in his capacity as Chairman and CEO of Penterra or as a board observer of Caliston; and
(e) Agree to non-interference obligations restricting Dr. Hale from taking any action to influence, impede, or interfere with the Special Committee's independent evaluation and negotiation of the proposed transaction.
14.2 Non-Competition and Non-Solicitation Agreement — Dr. Nadia Sorensen
In connection with the closing of the merger, Dr. Nadia Sorensen, Chief Executive Officer and Co-Founder of Caliston, holding approximately 14.2% of the outstanding equity of Caliston, shall enter into a Non-Competition and Non-Solicitation Agreement containing the following principal terms:
(a) Non-Competition. For a period of two (2) years following the closing date, Dr. Sorensen shall refrain from directly or indirectly engaging in, or owning an interest in, any business that competes with the business of Caliston (as conducted by Penterra following the merger), subject to customary carve-outs for passive investments of less than 2% in publicly traded companies, academic and research activities, service on non-competing boards, and other exceptions to be negotiated.
(b) Non-Solicitation. For a period of two (2) years following the closing date, Dr. Sorensen shall refrain from directly or indirectly soliciting, recruiting, or hiring (or assisting any person or entity in soliciting, recruiting, or hiring) any employee of Caliston (or of Penterra, to the extent such employee was an employee of Caliston immediately prior to the Effective Time), subject to customary exceptions for general solicitations not directed at such employees and for employees who have been terminated by Penterra.
(c) Geographic Scope, Carve-outs, and Consideration. The geographic scope of the non-competition restriction, any additional carve-outs, and the consideration to be provided to Dr. Sorensen in connection with such agreement (which may take the form of separate cash consideration, consulting fees, or other arrangements) shall be addressed in the definitive agreement.
14.3 Other Ancillary Agreements
The following additional ancillary agreements are expected to be negotiated, executed, and delivered in connection with the closing of the merger:
(a) Contingent Value Rights Agreement — as described in Section 4.4 of this Term Sheet;
(b) Escrow Agreement — as described in Section 11.2 of this Term Sheet;
(c) Stockholder Representative Agreement — as described in Section 12 of this Term Sheet;
(d) Stockholder Support Agreements — as described in Section 13 of this Term Sheet; and
(e) Employment or Consulting Arrangements — Penterra and the Special Committee expect to negotiate and enter into employment agreements, consulting agreements, or retention arrangements with certain key employees and scientific personnel of Caliston in connection with the merger. Such arrangements shall be negotiated separately from the merger agreement and shall be subject to the review and approval of the Special Committee.
SECTION 15: GOVERNING LAW AND DISPUTE RESOLUTION
This Section 15 is a binding obligation of the parties.
15.1 Governing Law
The definitive merger agreement, this Term Sheet (to the extent binding), and all ancillary agreements (unless a particular ancillary agreement expressly provides otherwise) shall be governed by, and construed and enforced in accordance with, the laws of the State of Delaware, without giving effect to any choice of law or conflict of laws rules or provisions (whether of the State of Delaware or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Delaware.
15.2 Jurisdiction.  Each of the parties hereby irrevocably and unconditionally submits to the exclusive jurisdiction of the following courts for the purpose of any action, suit, or proceeding arising out of or relating to this Term Sheet, the definitive merger agreement, or any ancillary agreement:
(a) The Court of Chancery of the State of Delaware; or
(b) If the Court of Chancery of the State of Delaware declines to accept jurisdiction over a particular matter, the Superior Court of the State of Delaware or the United States District Court for the District of Delaware.
Each party agrees that service of process in any such action, suit, or proceeding may be made by delivery of the summons and complaint in accordance with the notice provisions of the definitive merger agreement, and each party irrevocably waives any objection to venue in any such court and any claim that any such action, suit, or proceeding has been brought in an inconvenient forum.
EACH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE