MINUTES OF MEETING OF THE SPECIAL COMMITTEE OF THE BOARD OF DIRECTORS OF PENTERRA PHARMACEUTICALS CORP.
November 20, 2023
Project Coriander
CONFIDENTIAL — ATTORNEY-CLIENT PRIVILEGED / ATTORNEY WORK PRODUCT
Date: November 20, 2023
Time: 2:00 p.m. Eastern Time to approximately 4:15 p.m. Eastern Time
Location: Via secure videoconference (Project Coriander secure platform) and in person at the offices of Calderwood & Harkness LLP, 1700 Market Street, Suite 3400, Philadelphia, PA 19103
Project Code Name: Project Coriander
1. Call to Order and Attendance
Diane Prescott, Chair of the Special Committee of the Board of Directors of Penterra Pharmaceuticals Corp. (the "Company" or "Penterra"), called the meeting to order at 2:00 p.m. Eastern Time.
Members of the Special Committee Present:
• Diane Prescott, Independent Director, Special Committee Chair (in person)
• James Okafor, Independent Director, Special Committee Member (via secure videoconference)
• Dr. Helen Ng, Independent Director, Special Committee Member (in person)
Also Present (by Invitation of the Special Committee):
• Renata Vasquez, Responsible Partner, Calderwood & Harkness LLP, independent legal counsel to the Special Committee (in person)
• Sophie Tremblay, Lead Associate, Calderwood & Harkness LLP, independent legal counsel to the Special Committee (in person)
Absent / Recused from Meeting (as Required by the Independence Protocol):
• Dr. Marcus Hale, Chairman of the Board and Chief Executive Officer of Penterra — recused as an interested party by reason of his 28.5% equity interest in Caliston BioSciences, Inc. ("Caliston"), his board observer status at Caliston, and his personal financial interest in the proposed transaction
• Angela Whitmore, Director and Executive Vice President, Commercial Operations of Penterra — recused by reason of her spousal relationship with Dr. Evan Whitmore, who serves as a member of the Caliston board of directors and as Caliston's Head of Clinical Development
• Raymond Tusk, Director — non-independent for purposes of the Special Committee's mandate
Ms. Vasquez confirmed that none of the recused directors had access to the Project Coriander segregated document workspace, the Calderwood & Harkness LLP secure file room, or any communications regarding the Special Committee's deliberations at any time during the pendency of the Special Committee process. This was consistent with the Information Barrier Policy adopted by the Special Committee on June 2, 2023, and the related information technology access restrictions implemented by the Company's Chief Information Security Officer on June 5, 2023.
Ms. Prescott confirmed that a quorum of the Special Committee was present, with all three duly appointed members in attendance, thereby satisfying the quorum requirements set forth in Section 3.2 of the Special Committee Charter adopted by the Board of Directors on June 2, 2023.
Ms. Prescott noted that the minutes of this meeting would be taken by Sophie Tremblay, Lead Associate at Calderwood & Harkness LLP, and prepared in final form by Daniel Obi, working associate at Calderwood & Harkness LLP. This meeting and its minutes are maintained under C&H Matter Number 1025-00006.
2. Approval of Agenda
Ms. Prescott presented the agenda for the meeting, copies of which had been distributed to the members of the Special Committee and to Calderwood & Harkness LLP counsel in advance of the meeting via the Project Coriander secure platform. The agenda comprised the following items:
1. Review of prior meeting actions (November 15, 2023 meeting)
2. Summary of the complete Special Committee process
3. Discussion of fair process and fair price determinations
4. Delaware fiduciary duty compliance analysis
5. Formal vote on recommendation to the full Board of Directors
6. Authorization of communications to the Board of Directors
7. Other business
Ms. Prescott asked whether any member wished to propose additions or modifications to the agenda. No additions or modifications were proposed. Upon motion duly made by Mr. Okafor and seconded by Dr. Ng, the agenda was approved unanimously.
3. Review of Prior Meeting Actions — November 15, 2023 Meeting
Ms. Vasquez summarized the key actions taken at and arising from the Special Committee meeting held on November 15, 2023. She noted the following:
Delivery of Fairness Opinion. Thorngate Partners LLC ("Thorngate"), acting through its Managing Director, Gregory Ashford (engagement reference 1018-00003), delivered its fairness opinion to the Special Committee at the November 15, 2023 meeting. The fairness opinion concluded that, as of the date thereof and based upon and subject to the assumptions, limitations, qualifications, and conditions set forth therein, the aggregate equity value consideration of $925,000,000 (excluding the $125,000,000 in Contingent Value Rights) to be paid by Penterra in the proposed merger is fair, from a financial point of view, to Penterra Pharmaceuticals Corp. A signed copy of the fairness opinion was included in the materials provided to each member of the Special Committee and is maintained in the Project Coriander document repository.
Legal Sufficiency Analysis. Calderwood & Harkness LLP presented its analysis of the legal sufficiency of the Thorngate fairness opinion under Delaware fiduciary duty standards and applicable Securities and Exchange Commission ("SEC") disclosure requirements. This analysis was memorialized in a written memorandum dated November 17, 2023, prepared by Renata Vasquez and reviewed by Bernard Crawford, senior partner at Calderwood & Harkness LLP. The memorandum concluded that the Thorngate fairness opinion satisfied the applicable legal standards and would support the Special Committee's fiduciary duty analysis and the Company's proxy statement disclosure obligations.
Deliberation and Deferral of Vote. The Special Committee deliberated on the fairness opinion at the November 15, 2023 meeting and posed a series of questions to Thorngate regarding its valuation methodologies, discount rates, and sensitivity analyses. Following this discussion, the Committee determined to defer the formal vote on its recommendation to the full Board of Directors to allow additional time for each member to independently consider the fairness opinion, the near-final merger agreement, and the related transaction documents. This deferral was a deliberate exercise of the Committee's judgment and was not the result of any outstanding concern or disagreement among the members.
No Outstanding Questions. Ms. Vasquez confirmed that no objections or open questions remained from the November 15, 2023 meeting. Each member of the Special Committee had communicated to Calderwood & Harkness LLP that their review was complete and that they were prepared to proceed to the formal vote at the present meeting.
Ms. Prescott confirmed on the record that she, Mr. Okafor, and Dr. Ng had each independently reviewed the following materials in preparation for this meeting:
(a) the Thorngate Partners LLC fairness opinion dated November 15, 2023;
(b) the Calderwood & Harkness LLP legal sufficiency memorandum dated November 17, 2023;
(c) the near-final Agreement and Plan of Merger by and between Penterra Pharmaceuticals Corp. and Caliston BioSciences, Inc., designated C&H Draft v.7.3 (the anticipated execution version);
(d) the Process Memorandum summarizing all Special Committee activities from June 2, 2023 through November 20, 2023 (to be finalized and dated as of November 22, 2023); and
(e) each of the ancillary transaction documents in substantially final form.
Mr. Okafor and Dr. Ng each confirmed their review of these materials.
4. Summary of the Complete Special Committee Process
Ms. Vasquez presented a comprehensive summary of the Special Committee's activities from its formation through the current meeting. She noted that this summary was drawn from the Process Memorandum dated November 22, 2023 (to be finalized after this meeting) and the records maintained in the Project Coriander document repository. She walked the Committee through the following key milestones and activities:
4.1 Formation and Independence (June 2, 2023)
The Special Committee was constituted by a resolution of the Board of Directors of Penterra Pharmaceuticals Corp. adopted on June 2, 2023, by the unanimous vote of the six independent directors of the Board. Dr. Marcus Hale, Angela Whitmore, and Raymond Tusk recused themselves from the vote to form the Special Committee and from any participation in its deliberations. Diane Prescott was designated as Chair of the Special Committee, with James Okafor and Dr. Helen Ng as members.
Pursuant to the Board resolution and the Special Committee Charter adopted concurrently, the Special Committee was granted sole and exclusive authority to:
(a) evaluate the proposed acquisition of Caliston BioSciences, Inc. by Penterra;
(b) negotiate the terms and conditions of any such acquisition, including price, structure, and all material provisions;
(c) retain independent legal counsel, financial advisors, and such other advisors as the Committee deemed necessary or appropriate, at the Company's expense;
(d) recommend to the full Board of Directors the approval or rejection of the proposed transaction; and
(e) explore alternatives to the proposed transaction, including the power to decline the transaction entirely (the "say no" power), without any obligation to proceed.
Calderwood & Harkness LLP was engaged as independent legal counsel to the Special Committee pursuant to an engagement letter dated June 2, 2023. The fee arrangement provided for hourly billing at blended rates of $1,025 per hour for partners and $625 per hour for associates, with a $75,000 evergreen retainer, and no fee cap. The engagement of Calderwood & Harkness LLP was approved unanimously by the Special Committee at its initial organizational meeting on June 2, 2023. It was noted that Alcott, Barringer & Cole LLP, the Company's regular outside counsel (Victoria Shen, lead partner), was recused from advising the Special Committee to preserve the independence and integrity of the Special Committee process, although Alcott, Barringer & Cole LLP continued to represent the Company on matters unrelated to the Caliston transaction.
The Information Barrier Policy was adopted on June 2, 2023, establishing protocols to ensure that none of the recused directors — Dr. Hale, Angela Whitmore, or Raymond Tusk — would have access to any information regarding the Special Committee's deliberations, analyses, strategies, or communications. The Company's IT department established the Project Coriander segregated document workspace, with access limited to the three Special Committee members, Calderwood & Harkness LLP counsel, and Thorngate Partners LLC personnel working on the engagement.
Director independence questionnaires were completed by Ms. Prescott, Mr. Okafor, and Dr. Ng. Calderwood & Harkness LLP reviewed the questionnaires and prepared a summary memorandum dated June 5, 2023, confirming that all three members are independent under applicable New York Stock Exchange listing standards and Delaware law, with no material relationships with Caliston, Dr. Hale, Angela Whitmore, Ridgeline Ventures LP, Meridian Life Sciences Fund III LP, or any other interested party.
4.2 Engagement of Financial Advisor (June 16, 2023)
On June 16, 2023, following a review of potential independent financial advisory firms, the Special Committee engaged Thorngate Partners LLC as its independent financial advisor. The terms of the engagement provided for an advisory fee of $2,500,000, of which 50% would be payable upon delivery of the fairness opinion and 50% upon closing or termination of the transaction. A $500,000 non-refundable retainer was paid at the time of engagement and would be credited against the advisory fee.
Prior to engagement, Thorngate confirmed that it had no conflicts of interest with Caliston, its stockholders (including Ridgeline Ventures LP and Meridian Life Sciences Fund III LP), its management, or its advisors. Thorngate further confirmed that it had not provided financial advisory services to Dr. Hale or any entity controlled by Dr. Hale within the prior three years. The Special Committee reviewed and approved the engagement terms unanimously at its meeting on June 16, 2023.
4.3 Due Diligence (June–July 2023)
The Special Committee, through Calderwood & Harkness LLP and Thorngate Partners LLC, conducted a comprehensive due diligence review of Caliston and the proposed transaction.
A due diligence request list was issued to Whitfield Graves LLP (Kenneth Pratt, lead partner), counsel to Caliston, on June 9, 2023. Initial diligence materials were received via the Caliston virtual data room on June 28, 2023. The data room contained approximately 4,200 documents organized across 22 categories, including corporate governance, financial statements, material contracts, intellectual property, clinical trial data, regulatory correspondence, employment matters, and litigation history.
A management presentation was delivered by Caliston's executive leadership team, including Dr. Nadia Sorensen, Chief Executive Officer, and Dr. Raj Malhotra, Chief Scientific Officer, on July 19, 2023. The presentation addressed Caliston's pipeline, with particular emphasis on CLT-4019 (IND 158429), the lead oncology asset, as well as Caliston's pre-clinical programs, organizational structure, and projected financial performance. Members of the Special Committee attended the presentation and posed questions to management, with particular focus on the probability of FDA approval for CLT-4019, the timeline for Phase III clinical data, competitive positioning within the oncology therapeutic area, and key assumptions underlying Caliston's financial projections.
Calderwood & Harkness LLP prepared the following due diligence memoranda, each of which was delivered to the Special Committee and Thorngate Partners LLC:
(a) Comprehensive Legal Due Diligence Report, dated July 14, 2023, summarizing the results of the legal review across all diligence categories;
(b) intellectual Property Due Diligence Memorandum, dated July 21, 2023, addressing the scope and enforceability of Caliston's patent portfolio (including 14 issued patents and 7 pending applications related to CLT-4019), freedom-to-operate analysis, and material license agreements;
(c) Regulatory Due Diligence Memorandum, dated July 25, 2023, analyzing FDA regulatory history, IND status, clinical trial progress, and anticipated regulatory pathway for CLT-4019;
(d) Antitrust/HSR Act Analysis, dated August 10, 2023, evaluating the filing requirements and competition law considerations under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, including market definition and competitive overlap analysis; and
(e) Tax Structure Memorandum, dated August 15, 2023, analyzing the tax implications of the proposed merger structure for Penterra, Caliston, and the respective stockholders.
In addition, Calderwood & Harkness LLP prepared a Related-Party Relationships Summary Memorandum, dated June 20, 2023, which documented the following material relationships and interests:
(a) Dr. Marcus Hale's 28.5% equity interest in Caliston, representing a personal investment of approximately $42,000,000 across the Seed, Series A, and Series B financing rounds;
(b) Dr. Hale's board observer status at Caliston since 2018, during which time he attended 14 of 16 Caliston board meetings;
(c) The implied proceeds to Dr. Hale from the proposed transaction of approximately $263,625,000, representing an implied gain of approximately $221,625,000 over his aggregate personal investment;
(d) Angela Whitmore's spousal relationship with Dr. Evan Whitmore, who serves as a member of the Caliston board of directors and as Caliston's Head of Clinical Development; and
(e) Other relationships between Penterra personnel and Caliston personnel that were reviewed and determined to be immaterial.
The Special Committee discussed the Related-Party Relationships Summary Memorandum at its meeting on June 22, 2023, and concluded that the identified relationships reinforced the necessity of the Special Committee process and the Information Barrier Policy.
4.4 Preliminary Valuation (August 3, 2023)
On August 3, 2023, Thorngate Partners LLC presented preliminary valuation analyses to the Special Committee. These analyses employed multiple methodologies to assess the value of Caliston:
discounted Cash Flow Analysis (CLT-4019 Only). Thorngate's DCF analysis focused exclusively on CLT-4019, Caliston's lead oncology asset, which yielded a valuation range of $780,000,000 to $1,020,000,000, with a midpoint of $900,000,000. The analysis assumed a weighted average cost of capital (WACC) of 12.5% and a terminal growth rate of 2.0%. Key assumptions included probability-adjusted revenue projections based on Caliston management's forecasts, adjusted downward by Thorngate to reflect its independent assessment of approval probability and market penetration rates.
discounted Cash Flow Analysis (Full Pipeline, Risk-Adjusted NPV). Thorngate's DCF analysis of Caliston's full pipeline, including CLT-4019 and three pre-clinical programs, on a risk-adjusted net present value basis, yielded a valuation range of $870,000,000 to $1,180,000,000, with a midpoint of $1,025,000,000. This broader analysis reflected the potential value contribution of Caliston's earlier-stage assets, with significant probability adjustments applied to the pre-clinical programs.
Comparable Transactions Analysis. Thorngate analyzed seven precedent oncology acquisition transactions involving targets with Phase II/III lead assets, yielding a valuation range of $820,000,000 to $1,050,000,000. The comparables included transactions announced between 2019 and 2023, with equity values ranging from $450,000,000 to $2,800,000,000.
Premiums Paid Analysis. Thorngate analyzed premiums paid in precedent private biopharmaceutical acquisitions relative to the most recent pre-transaction valuation. This analysis implied a premium range of 30% to 45% relative to Caliston's October 2021 Series C post-money valuation of $680,000,000, yielding an implied equity value range of $884,000,000 to $986,000,000.
Ms. Vasquez noted that the $925,000,000 agreed consideration falls within or near the midpoint of all valuation ranges presented by Thorngate. The Special Committee discussed the preliminary valuation analyses at its August 3, 2023 meeting and at its subsequent meeting on August 18, 2023, and posed additional questions to Thorngate regarding discount rate sensitivity, revenue projection assumptions, and the selection of comparable transactions.
4.5 Market Check (August 22 – September 14, 2023)
At the direction of the Special Committee, Thorngate Partners LLC conducted a market check to explore whether alternative acquisition targets in the oncology or adjacent therapeutic areas might present superior strategic value to Penterra. The market check was conducted between August 22, 2023 and September 14, 2023. Thorngate evaluated a universe of potential targets based on criteria established by the Special Committee, including stage of development, therapeutic focus, intellectual property position, and estimated valuation range.
The market check was completed on September 14, 2023. Thorngate reported to the Special Committee that no superior alternatives to the proposed Caliston acquisition were identified during the market check process. The Special Committee discussed the results of the market check at its meeting on September 18, 2023, and concluded that proceeding with the Caliston acquisition was appropriate.
4.6 Negotiation (September 29 – October 18, 2023)
Negotiation sessions between the parties commenced on September 29, 2023. Negotiations were conducted on behalf of the Special Committee by Calderwood & Harkness LLP and Thorngate Partners LLC, and on behalf of Caliston by Whitfield Graves LLP and Fendowell Sinclair & Co. (Sandra Wu, Managing Director), Caliston's financial advisor. At no point during the negotiations did Dr. Hale, Angela Whitmore, or Raymond Tusk participate in or receive information regarding the substance of the discussions.
Caliston's initial asking price was $1.1 billion in aggregate equity value. The Special Committee, through its advisors, made an initial counter-proposal of $850,000,000 in aggregate equity value. Over the course of multiple negotiation sessions held between September 29 and October 18, 2023, the parties engaged in substantive discussions regarding price, consideration structure, risk allocation, and other material terms.
An agreement in principle was reached on October 18, 2023, on the following key economic terms:
(a) Aggregate equity value: $925,000,000;
(b) Contingent Value Rights: An additional $125,000,000 contingent on FDA approval of CLT-4019 (IND 158429) by December 31, 2026;
(c) Consideration mix: 75% cash / 25% Penterra common stock, with the cash component equal to $693,750,000 and the stock component equal to $231,250,000, based on a 30-day volume-weighted average price (VWAP) of Penterra common stock (PPHR) of $39.17 per share as of June 1, 2023, implying the issuance of approximately 5,903,497 shares of Penterra common stock;
(d) Reverse termination fee: $32,375,000, representing 3.5% of aggregate equity value, payable by Penterra in the event of termination under specified circumstances;
(e) Company termination fee: $27,750,000, representing 3.0% of aggregate equity value, payable by Caliston in the event of termination under specified circumstances;
(f) Escrow: $46,250,000, representing 5% of aggregate equity value, to be held in escrow for a period of 18 months following the closing of the transaction for indemnification claims; and
(g) Voting and recusal commitment: Dr. Hale's execution of a Voting and Recusal Agreement, pursuant to which Dr. Hale committed to recuse himself from all Board of Directors deliberations regarding the Caliston acquisition and to abstain from the Board vote on the merger.
Ms. Vasquez noted that the $175,000,000 reduction from Caliston's initial asking price of $1.1 billion to the agreed price of $925,000,000 — a reduction of approximately 15.9% — demonstrated meaningful arm's-length negotiation and price discipline by the Special Committee.
4.7 Merger Agreement Drafting and Finalization (November 1–27, 2023)
Calderwood & Harkness LLP circulated the initial draft of the Agreement and Plan of Merger (designated C&H Draft v.5) to Whitfield Graves LLP on November 1, 2023. The negotiation of the definitive agreement terms continued through multiple rounds of drafts and comments, with Calderwood & Harkness LLP and Whitfield Graves LLP exchanging marked drafts and conducting negotiation calls regarding representations and warranties, covenants, closing conditions, indemnification provisions, and termination rights.
The near-final execution version, designated C&H Draft v.7.3, reflects the resolution of all outstanding open issues between the parties and incorporates the economic terms agreed in principle on October 18, 2023, as well as all legal and structural provisions negotiated between the respective counsel.
The Thorngate Partners LLC fairness opinion was delivered to the Special Committee on November 15, 2023, as described in Section 3 above. The Calderwood & Harkness LLP legal sufficiency analysis was delivered on November 17, 2023.
4.8 Total Meeting Count
Ms. Vasquez confirmed that the Special Committee held a total of eleven (11) meetings from its formation on June 2, 2023 through the present meeting on November 20, 2023. Each of the eleven meetings was attended by all three members of the Special Committee and by Calderwood & Harkness LLP counsel. Thorngate Partners LLC attended nine of the eleven meetings, with the remaining two being limited to legal matters discussed exclusively with counsel. Minutes of each meeting were prepared by Calderwood & Harkness LLP and are maintained in the Project Coriander document repository.
Ms. Prescott thanked Ms. Vasquez for the thorough summary and asked whether any member of the Committee wished to raise questions or comments regarding the process summary. No questions or comments were raised.
5. Discussion of Fair Process Determination
Ms. Vasquez led the Special Committee through a detailed discussion of the elements of fair dealing under Delaware law. She referenced the Delaware General Corporation Law § 144, the entire fairness doctrine as articulated by the Delaware Supreme Court, and the Special Committee's June 8, 2023 Delaware Law Memorandum prepared by Calderwood & Harkness LLP, which had been distributed to the Committee members at the outset of the process.
5.1 Independence and Disinterestedness
Ms. Vasquez confirmed that all three members of the Special Committee — Diane Prescott, James Okafor, and Dr. Helen Ng — are independent directors of Penterra Pharmaceuticals Corp. Each member completed a director independence questionnaire at the time of the Special Committee's formation, and Calderwood & Harkness LLP confirmed their independence through a summary memorandum dated June 5, 2023. None of the three members has any material financial, familial, or business relationship with Caliston BioSciences, Inc., Dr. Marcus Hale, Angela Whitmore, Dr. Evan Whitmore, Ridgeline Ventures LP, Meridian Life Sciences Fund III LP, Fendowell Sinclair & Co., or any other interested party. None of the three members has any personal financial interest in the outcome of the proposed transaction, other than their interest as directors and stockholders of Penterra.
Independent counsel (Calderwood & Harkness LLP) and an independent financial advisor (Thorngate Partners LLC) were retained by the Special Committee at the outset of the process. Conflicts clearance was obtained and confirmed for both advisors. Alcott, Barringer & Cole LLP, the Company's regular outside counsel, was recused from advising the Special Committee to avoid any actual or perceived conflict of interest arising from its ongoing representation of the Company and its relationship with Dr. Hale and the Company's management team.
5.2 Scope of Authority
Ms. Vasquez confirmed that the Special Committee possessed full negotiating authority with respect to the proposed transaction. The Board resolution of June 2, 2023, and the Special Committee Charter granted the Committee sole and exclusive authority to evaluate, negotiate, and recommend (or decline to recommend) the proposed acquisition of Caliston. Critically, the Committee was vested with the express power to decline the transaction entirely — the "say no" power — without any obligation to proceed and without requiring the consent or approval of any other director, committee, or officer of the Company.
Throughout the process, the Special Committee's deliberations were fully insulated from Dr. Hale, Angela Whitmore, and Raymond Tusk. None of the recused directors had access to the Project Coriander workspace, received any communications regarding the Committee's negotiations or strategy, or participated in any discussions related to the Caliston transaction. The Information Barrier Policy was strictly maintained at all times.
Dr. Hale executed a Voting and Recusal Agreement on June 2, 2023, pursuant to which he irrevocably committed to recuse himself from all Board of Directors deliberations regarding the Caliston acquisition and to abstain from the Board vote on the merger. This agreement was negotiated and executed at the inception of the Special Committee process, before any substantive negotiations with Caliston commenced, and was designed to ensure that Dr. Hale's personal financial interest in the transaction would not influence the Board's decision-making process.
5.3 Adequacy of Information
Ms. Vasquez confirmed that the Special Committee undertook comprehensive due diligence covering legal, intellectual property, regulatory, antitrust, tax, and related-party matters. Calderwood & Harkness LLP prepared five substantive due diligence memoranda, as well as a Related-Party Relationships Summary Memorandum, each of which was reviewed and discussed by the Committee. The Committee had full access to Caliston's virtual data room, which contained approximately 4,200 documents. The Committee received and reviewed a management presentation from Caliston's CEO and CSO. FDA correspondence and clinical data related to CLT-4019 were analyzed by both Calderwood & Harkness LLP and Thorngate Partners LLC.
Multiple valuation methodologies were presented by Thorngate, including discounted cash flow analyses (both CLT-4019-only and full-pipeline risk-adjusted NPV), comparable transactions analysis, and premiums paid analysis. The Committee reviewed and deliberated on each methodology, posed questions to Thorngate, and received supplemental analyses addressing the Committee's questions.
5.4 Market Check
Ms. Vasquez noted that the Special Committee directed Thorngate Partners LLC to conduct an active market check to explore alternative acquisition targets. The market check was conducted over a period of approximately three and a half weeks, from August 22 to September 14, 2023. No superior alternatives to the proposed Caliston acquisition were identified during the market check. This result supports a conclusion that the Special Committee fulfilled its obligation to consider alternatives and did not simply accept the Caliston transaction without exploring other options.
5.5 Arm's-Length Negotiation
Ms. Vasquez emphasized that meaningful price negotiation took place between the Special Committee (through its independent advisors) and Caliston (through its counsel and financial advisor). Caliston's opening asking price of $1.1 billion was negotiated down to $925,000,000 — a reduction of approximately $175,000,000, or nearly 16% from the opening position. This reduction was achieved through multiple negotiation sessions conducted at arm's length, with no involvement of any interested party.
In addition to price, the Special Committee's advisors negotiated key protective terms for the benefit of Penterra and its stockholders, including the escrow arrangement ($46,250,000 for 18 months), the termination fee structure (reverse termination fee of 3.5% and company termination fee of 3.0%), the CVR structure (which shifts clinical and regulatory risk to Caliston stockholders with respect to the $125,000,000 contingent payment), and the voting and recusal commitments made by Dr. Hale.
5.6 Applicability of the MFW Framework
Ms. Vasquez provided an analysis of the applicability of the MFW framework (Kahn v. M&F Worldwide Corp., 88 A.3d 635 (Del. 2014)). She noted that the MFW framework strictly applies to controlling stockholder squeeze-out mergers, and that Dr. Hale is not a controlling stockholder of Penterra. Dr. Hale holds only approximately 1.8% of Penterra's outstanding shares, representing approximately 2,140,000 shares. Accordingly, the MFW framework does not directly apply to this transaction.
However, Ms. Vasquez noted that Dr. Hale's dual role as Chairman and CEO of Penterra and as the holder of a 28.5% equity interest in Caliston creates an interested-director transaction that would be subject to entire fairness review absent proper procedural protections. The Special Committee's process — including its formation ab initio before substantive negotiations commenced, the retention of independent advisors, the grant of full authority including the "say no" power, and the anticipated approval by the disinterested directors of the full Board — provides strong procedural protections that may shift the standard of judicial review from entire fairness to the business judgment rule under Delaware precedent regarding interested-director transactions. Ms. Vasquez cited DGCL § 144 and relevant case law supporting the proposition that where an interested-director transaction is approved by a fully informed vote of disinterested directors after a fair process, the business judgment standard may apply.
The Special Committee discussed Ms. Vasquez's analysis and concluded that the procedural protections implemented throughout the process were robust and appropriate, and that the record established by the Special Committee would support either standard of review.
6. Discussion of Fair Price Determination
Mr. Okafor led the discussion regarding the financial terms of the proposed transaction and the fair price determination.
6.1 Consideration Structure
Mr. Okafor summarized the consideration structure as follows:
• Aggregate equity value: $925,000,000
• Cash component (75%): $693,750,000
• Stock component (25%): $231,250,000 (approximately 5,903,497 shares of Penterra common stock (PPHR), based on the 30-day VWAP of $39.17 per share as of June 1, 2023)
• Maximum aggregate transaction value (including CVRs): $1,050,000,000
The consideration represents a 36.03% premium to Caliston's October 2021 Series C post-money valuation of $680,000,000. Mr. Okafor noted that this premium is within the range of premiums observed in precedent oncology transactions analyzed by Thorngate Partners LLC. The Committee discussed the premium level and concluded that it reflects the strategic value of CLT-4019 to Penterra's oncology franchise while remaining within an acceptable range given the clinical and regulatory risks associated with the asset.
6.2 Valuation Support
Mr. Okafor noted that the $925,000,000 consideration falls within the valuation ranges produced by each of Thorngate's analytical methodologies:
(a) The consideration is within the DCF range for CLT-4019 alone ($780,000,000 to $1,020,000,000) and below the midpoint of the full-pipeline risk-adjusted NPV DCF analysis ($870,000,000 to $1,180,000,000, with a midpoint of $1,025,000,000);
(b) The consideration is within the comparable transactions range ($820,000,000 to $1,050,000,000);
(c) The consideration is above the upper end of the premiums paid analysis range ($884,000,000 to $986,000,000), although the Committee noted that the October 2021 Series C valuation of $680,000,000, which served as the base for the premiums paid analysis, was nearly two years old at the time of the valuation analysis and did not reflect Caliston's subsequent clinical progress and pipeline development.
The Thorngate Partners LLC fairness opinion, delivered November 15, 2023, affirms that the consideration is fair, from a financial point of view, to Penterra Pharmaceuticals Corp. The Special Committee accepted the fairness opinion as a meaningful data point in its fair price analysis, while recognizing that the Committee's determination of fair price rests on the Committee's own independent judgment informed by the totality of the information available to it.
6.3 CVR Structure
Mr. Okafor described the Contingent Value Rights ("CVR") structure. The $125,000,000 CVR payment is contingent upon the receipt by Penterra (or Caliston, as a post-closing subsidiary of Penterra) of FDA approval of CLT-4019 (IND 158429) on or before December 31, 2026. The CVR structure serves an important risk-allocation function: it shifts a meaningful portion of the clinical and regulatory risk associated with CLT-4019's FDA approval to the former Caliston stockholders, while providing those stockholders with additional upside in the event of regulatory success.
The CVR will be administered by Columnar Trust Services, Inc. as trustee, pursuant to a Contingent Value Rights Agreement to be entered into at the closing of the merger. The terms of the CVR Agreement have been negotiated between Calderwood & Harkness LLP and Whitfield Graves LLP and are reflected in the near-final draft included in the transaction materials reviewed by the Committee.
6.4 Protective Provisions
Mr. Okafor summarized the key protective provisions negotiated for the benefit of Penterra:
(a) Escrow: An escrow fund of $46,250,000, representing 5% of the aggregate equity value, will be established at closing and held for a period of 18 months to fund indemnification claims arising under the Merger Agreement. Greystone National Bank, N.A. will serve as escrow agent.
(b) Reverse Termination Fee: Penterra will be obligated to pay a reverse termination fee of $32,375,000 (3.5% of equity value) to Caliston stockholders in the event of termination of the Merger Agreement under specified circumstances, including failure to obtain Penterra stockholder approval or breach by Penterra of its obligations under the Merger Agreement.
(c) Company Termination Fee: Caliston will be obligated to pay a termination fee of $27,750,000 (3.0% of equity value) to Penterra in the event of termination of the Merger Agreement under specified circumstances, including termination in connection with a superior proposal.
(d) Stockholder Representative: Ridgeline Ventures, LP has been designated as the stockholder representative for post-closing matters, including indemnification claims, escrow release, and CVR administration, pursuant to a Stockholder Representative Agreement to be entered into at closing.
The Committee discussed the adequacy of these protective provisions and concluded that they are consistent with market practice for transactions of this type and size, and that they provide appropriate protection for Penterra's interests.
6.5 Financing Adequacy
Mr. Okafor addressed the financing for the cash component of the merger consideration. The $693,750,000 cash consideration will be funded from two sources:
(a) Cash on hand: Penterra's balance sheet cash of approximately $400,000,000 (as of June 1, 2023, with more recent treasury management reports indicating sufficient available cash); and
(b) Revolving credit facility draw: A draw of $293,750,000 on Penterra's existing $1.5 billion revolving credit facility with Greystone National Bank, N.A. The facility bears interest at SOFR plus 150 basis points, with undrawn availability of approximately $1.1 billion as of June 1, 2023 and a maturity date of March 2026.
Mr. Okafor confirmed that there is no financing condition in the Merger Agreement. The financing is committed and available. The absence of a financing condition is a standard expectation for a transaction of this nature where the acquirer has ample financial resources and committed credit facilities, and it provides deal certainty for both parties.
6.6 Impact on Penterra
Mr. Okafor presented an analysis of the transaction's impact on Penterra's financial profile. He noted the following key financial data points for Penterra as of and for the fiscal year ended December 31, 2022:
• Revenue: $1,836,000,000
• EBITDA: $412,000,000
• Net income: $247,000,000
• Total assets: $5,120,000,000
• Cash and cash equivalents: $892,000,000
• Total debt: $1,350,000,000
• Market capitalization (as of June 1, 2023): approximately $4,720,000,000
• Shares outstanding: approximately 121,400,000
The acquisition of Caliston at an aggregate equity value of $925,000,000 represents approximately 19.6% of Penterra's market capitalization. Mr. Okafor noted that the transaction is expected to be manageable within Penterra's existing capital structure, given the Company's strong balance sheet, substantial cash reserves, and available borrowing capacity under its revolving credit facility. Post-transaction leverage (including the revolving credit facility draw) remains well within the Company's existing debt covenants and financial policy guidelines.
The issuance of approximately 5,903,497 shares of Penterra common stock as the stock component of the merger consideration represents approximately 4.9% dilution to existing Penterra stockholders on a pre-transaction basis. Under applicable NYSE listing rules, the issuance of shares representing more than 1% of the Company's outstanding shares in connection with an acquisition requires stockholder approval. Accordingly, the transaction will require a vote of Penterra's stockholders, and the preparation and filing of a proxy statement with the SEC will be necessary.
6.7 Dr. Hale's Interest
Mr. Okafor addressed the financial interest of Dr. Marcus Hale in the proposed transaction. As the holder of a 28.5% equity interest in Caliston, Dr. Hale stands to receive implied proceeds of approximately $263,625,000 from the merger (based on his pro rata share of the $925,000,000 aggregate equity value, subject to any adjustments, holdbacks, and escrow contributions). This represents an implied gain of approximately $221,625,000 over his aggregate personal investment of $42,000,000 in Caliston across the Seed, Series A, and Series B financing rounds.
The Special Committee noted the significance of Dr. Hale's personal financial interest in the transaction. Mr. Okafor observed that Dr. Hale's implied proceeds represent a substantial personal windfall, which underscored the critical importance of the Special Committee process and the procedural protections implemented to ensure that the transaction was negotiated at arm's length and on terms fair to Penterra.
Following discussion, the Committee determined that the independent negotiation process, the arms-length nature of the price discussions, the multiple valuation methodologies reviewed, and the fairness opinion delivered by Thorngate Partners LLC together ensure that the $925,000,000 consideration reflects fair value for Penterra rather than an accommodation of Dr. Hale's personal financial interest. The Committee was satisfied that Dr. Hale had no influence over the negotiation of the price or any other material term of the transaction.
7. Conclusions of the Special Committee
Following the discussions set forth in Sections 5 and 6 above, Ms. Prescott summarized the conclusions of the Special Committee.
7.1 Fair Process
The Special Committee concluded that the process undertaken by the Special Committee satisfies the "fair dealing" prong of the entire fairness standard under Delaware law. The Committee's conclusion rests on the following factors:
(a) Timing of Formation. The Special Committee was formed on June 2, 2023, before any substantive negotiations with Caliston commenced, ensuring that the Committee's independence was established at the outset and that the Committee controlled the negotiation process from its inception.
(b) Full Independence. All three members of the Special Committee are independent directors, free of any material relationships with Caliston or any interested party. Independent legal counsel and an independent financial advisor were retained and confirmed free of conflicts.
(c) Robust Information Barrier. The Information Barrier Policy strictly segregated the Special Committee's deliberations from the recused directors. The Project Coriander workspace was maintained as a segregated environment throughout the process.
(d) Comprehensive Due Diligence. The Special Committee, through its advisors, conducted thorough due diligence covering all material aspects of Caliston's business, operations, intellectual property, regulatory status, and financial condition.
(e) Active Market Check. The Special Committee directed Thorngate to conduct a market check to explore alternative acquisition targets. No superior alternatives were identified.
(f) Arm's-Length Negotiation. Meaningful price negotiation resulted in a reduction of approximately $175,000,000 (15.9%) from Caliston's initial asking price, as well as the negotiation of significant protective provisions for Penterra.
(g) "Say No" Authority. The Special Committee possessed and maintained the full authority to decline the transaction at any point during the process.
7.2 Fair Price
The Special Committee concluded that the $925,000,000 consideration (together with up to $125,000,000 in Contingent Value Rights) represents a fair price for Caliston BioSciences, Inc. This conclusion is supported by:
(a) The Thorngate Partners LLC fairness opinion, which concludes that the consideration is fair from a financial point of view to Penterra;
(b) The multiple valuation methodologies reviewed by the Committee, each of which supports the conclusion that the agreed consideration falls within or near the midpoint of a reasonable range of values for Caliston;
(c) The CVR contingency, which shifts clinical and regulatory risk to the former Caliston stockholders with respect to the additional $125,000,000 payment; and
(d) The appropriate risk-allocation mechanisms embedded in the transaction structure, including the escrow fund and the termination fee provisions.
7.3 Delaware Law Compliance
The Special Committee concluded that the proposed transaction, as structured with the procedural protections implemented by the Special Committee, complies with Sections 141(a), 144, and 251 of the Delaware General Corporation Law. The Special Committee process provides a strong record supporting entire fairness and, in the Committee's judgment, establishes the procedural predicates that may support the application of the business judgment standard of review to the transaction.
7.4 Recommendation. Based on the foregoing analysis and deliberation, the Special Committee unanimously concluded that the proposed merger of Penterra Pharmaceuticals Corp. and Caliston BioSciences, Inc. is advisable and in the best interests of Penterra and its stockholders (other than Dr. Marcus Hale, to the extent of his interest in Caliston). The Special Committee accordingly determined to recommend to the full Board of Directors that the Board approve the Merger Agreement and the transactions contemplated thereby.
8. Formal Resolutions
Ms. Prescott presented the following resolutions for adoption by the Special Committee. Copies of the resolutions had been distributed to the members of the Special Committee in advance of the meeting.
Resolution 1: Recommendation of the Merger
RESOLVED, that the Special Committee of the Board of Directors of Penterra Pharmaceuticals Corp. hereby unanimously recommends to the full Board of Directors the approval of the Agreement and Plan of Merger by and between Penterra Pharmaceuticals Corp. and Caliston BioSciences, Inc. (the "Merger Agreement"), substantially in the form of C&H Draft v.7.3 (the execution version), providing for aggregate equity consideration of Nine Hundred Twenty-Five Million Dollars ($925,000,000), a Contingent Value Rights Agreement providing for up to One Hundred Twenty-Five Million Dollars ($125,000,000) in additional payments upon the achievement of the specified milestones, and all of the ancillary agreements contemplated thereby, on the terms and conditions set forth in the Merger Agreement.