PRIVILEGED & CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGED / ATTORNEY WORK PRODUCT
November 22, 2023
PROCESS MEMORANDUM
Summary of Special Committee Activities
PROJECT CORIANDER
Prepared by:
Calderwood & Harkness LLP 1700 Market Street, Suite 3400 Philadelphia, PA 19103
Renata Vasquez, Responsible Partner Sophie Tremblay, Lead Associate Daniel Obi, Working Associate
C&H Matter Number: 1025-00006
Prepared for:
The Special Committee of the Board of Directors of Penterra Pharmaceuticals Corp.
Re: Summary of Special Committee Activities in Connection with the Proposed Acquisition of Caliston BioSciences, Inc. (Project Coriander)
This memorandum has been prepared by Calderwood & Harkness LLP at the direction of the Special Committee of the Board of Directors of Penterra Pharmaceuticals Corp. It is protected by the attorney-client privilege and constitutes attorney work product. It is intended solely for the use of the Special Committee and should not be disclosed to any third party without the prior written consent of Calderwood & Harkness LLP and the Special Committee. Any such disclosure may constitute a waiver of applicable privileges.
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I. EXECUTIVE SUMMARY
This memorandum has been prepared by Calderwood & Harkness LLP ("C&H" or "Calderwood & Harkness") as independent legal counsel to the Special Committee of the Board of Directors (the "Special Committee") of Penterra Pharmaceuticals Corp. ("Penterra" or the "Company") (NYSE: PPHR). The purpose of this memorandum is to provide a comprehensive narrative documenting the process undertaken by the Special Committee in evaluating, negotiating, and recommending the proposed acquisition of Caliston BioSciences, Inc. ("Caliston"), a related-party transaction in which Penterra's Chairman and Chief Executive Officer, Dr. Marcus Hale, holds a 28.5% equity interest in Caliston.
This memorandum has been prepared to support the entire fairness record under Delaware law and for potential inclusion in or reference by the proxy statement disclosure to Penterra stockholders in connection with the Penterra stockholder vote required under applicable New York Stock Exchange listing standards. It documents the deliberations, analyses, and process safeguards that the Special Committee undertook from its formation through its formal recommendation to the full Board.
Between June 2, 2023 and November 20, 2023, the Special Committee held eleven formal meetings (including one two-part meeting), at which it received presentations from and was advised by its independent legal counsel (Calderwood & Harkness LLP) and its independent financial advisor (Thorngate Partners LLC). In addition, the Special Committee members received telephonic and email updates from their advisors between meetings and were kept apprised of all material developments in the due diligence process, valuation analyses, market check, and merger agreement negotiations.
On November 20, 2023, the Special Committee unanimously resolved to recommend to the full Board of Directors of Penterra that the Company enter into the Agreement and Plan of Merger (the "Merger Agreement") with Caliston at an aggregate equity value of $925,000,000 (the "Base Consideration"), to be paid in a combination of 75% cash ($693,750,000) and 25% Penterra common stock ($231,250,000), together with contingent value rights ("CVRs") of up to $125,000,000, payable upon FDA approval of Caliston's lead asset, CLT-4019, by December 31, 2026. The maximum aggregate transaction value, inclusive of the CVRs, is $1,050,000,000.
On November 22, 2023, the full Board of Directors of Penterra convened and, with Dr. Marcus Hale, Angela Whitmore, and Raymond Tusk recusing themselves from all deliberations and voting, approved the Merger Agreement and authorized its execution and delivery. The Merger Agreement was executed on November 27, 2023 by all parties, and Penterra filed a Current Report on Form 8-K with the U.S. Securities and Exchange Commission (the "SEC") on the same date, publicly announcing the transaction.
The Special Committee's process was designed and conducted with the express purpose of satisfying the entire fairness standard under Delaware law—encompassing both fair dealing and fair price—and of creating a robust evidentiary record supporting the Board's determination that the proposed transaction is in the best interests of Penterra and its stockholders.
II. BACKGROUND
A. The Company — Penterra Pharmaceuticals Corp.
Penterra Pharmaceuticals Corp. is a Delaware corporation headquartered at 400 Innovation Drive, Suite 1200, Princeton, New Jersey 08540. The Company's shares of common stock are listed and traded on the New York Stock Exchange under the ticker symbol "PPHR." As of June 1, 2023, Penterra's market capitalization was approximately $4.72 billion.
Penterra is a specialty pharmaceutical company focused primarily on the oncology and immunology therapeutic areas. The Company has a diversified portfolio of marketed products and a pipeline of development-stage assets across both therapeutic areas, supported by a commercial infrastructure that includes a U.S. oncology sales force and established relationships with key opinion leaders, academic medical centers, and payer organizations.
For the fiscal year ended December 31, 2022, Penterra reported the following key financial metrics:
Penterra's Board of Directors is composed of nine members, of whom six are independent under applicable NYSE listing standards. The Company's senior executive officers relevant to this memorandum include Dr. Marcus Hale, Chairman and Chief Executive Officer; Priya Anand, Chief Financial Officer; and Lawrence Whittaker, General Counsel and Corporate Secretary.
Penterra's existing revolving credit facility is a $1.5 billion senior unsecured revolving credit facility with Greystone National Bank, N.A. as administrative agent, entered into in March 2021 with a maturity date of March 2026. The facility bears interest at a rate of SOFR plus 150 basis points. As of June 1, 2023, undrawn availability under the facility was approximately $1.1 billion. This facility, together with cash on hand, was expected to provide ample capacity to fund the cash portion of the proposed acquisition consideration.
B. The Target — Caliston BioSciences, Inc.
Caliston BioSciences, Inc. is a Delaware corporation with its principal office located at 88 Harbor Point Road, Cambridge, Massachusetts 02142. Caliston is a privately held, clinical-stage biopharmaceutical company founded in 2017 and focused on the discovery and development of novel kinase inhibitors for the treatment of solid tumors, with a particular emphasis on breast cancer.
Caliston's lead asset is CLT-4019, a selective CDK4/6 inhibitor being developed for the treatment of hormone receptor-positive, HER2-negative (HR+/HER2–) metastatic breast cancer. CLT-4019 is the subject of Investigational New Drug Application ("IND") No. 158429, filed with the U.S. Food and Drug Administration ("FDA") in March 2020. As of the date of this memorandum, CLT-4019 is in a Phase 2b clinical trial, with topline data expected in the fourth quarter of 2023. Caliston's management believes CLT-4019 has the potential to be a best-in-class CDK4/6 inhibitor based on preliminary clinical data showing improved selectivity, reduced hematologic toxicity, and a favorable pharmacokinetic profile relative to currently marketed agents in the class.
In addition to CLT-4019, Caliston's pipeline includes two preclinical-stage assets: CLT-5227, a next-generation pan-CDK inhibitor, and CLT-6034, a dual CDK4/6-PI3K inhibitor combination candidate. Both assets are in the lead optimization stage and have not yet entered formal IND-enabling studies.
Caliston was co-founded by Dr. Nadia Sorensen, who serves as Chief Executive Officer and holds a 14.2% equity interest in the company, and Dr. Raj Malhotra, who serves as Chief Scientific Officer and holds a 9.8% equity interest. The combined management and employee equity pool accounts for approximately 30.5% of Caliston's outstanding equity, with the balance held by Dr. Hale (28.5%), Ridgeline Ventures, LP (22.3%), and Meridian Life Sciences Fund III, LP (18.7%).
Caliston's most recent private financing was its Series C round, completed in October 2021, which valued the company at $680 million on a post-money basis. The Series C round was led by Ridgeline Ventures, LP. Caliston has raised a total of $347 million in equity financing from its Seed round through the Series C round.
As a pre-commercial, clinical-stage company, Caliston reported no revenue for the fiscal year ended December 31, 2022. Net cash burn for the same period was $78.4 million, driven primarily by clinical trial expenses, research and development costs, and general and administrative expenses. As of March 31, 2023, Caliston had approximately $112.6 million in cash on hand, providing an estimated cash runway through the first quarter of 2025. The company employed 94 individuals as of the date of this memorandum.
C. The Related-Party Interest and Conflicts
The proposed acquisition of Caliston constitutes a related-party transaction under Delaware law due to the material financial interest held by Dr. Marcus Hale, Penterra's Chairman and Chief Executive Officer, in Caliston.
Dr. Hale holds a 28.5% equity interest in Caliston, which he acquired through personal investments totaling $42 million across Caliston's Seed, Series A, and Series B financing rounds. Dr. Hale has served as a board observer (in a non-voting capacity) at Caliston since 2018 and has attended 14 of 16 Caliston board meetings held during that period. At the proposed acquisition equity value of $925 million, Dr. Hale's implied proceeds from the transaction would be $263,625,000 (calculated as 28.5% multiplied by $925 million), representing an implied gain of $221,625,000 over his original $42 million personal investment.
It is significant to note that Dr. Hale did not disclose his equity interest in Caliston to the Penterra Board of Directors until February 14, 2023, when he first proposed that Penterra consider acquiring Caliston. Prior to that date, neither the Board nor, to the knowledge of the Board, any other Penterra director or officer was aware of Dr. Hale's personal investment in Caliston. The delayed nature of this disclosure was a factor that the Special Committee considered carefully throughout its process.
An additional conflict of interest arises from the relationship between Angela Whitmore, a Penterra director (classified as non-independent under NYSE listing standards) and Executive Vice President, Commercial Operations of Penterra, and Dr. Evan Whitmore, who serves as Caliston's Head of Clinical Development and is a member of Caliston's board of directors. Angela Whitmore is the spouse of Dr. Evan Whitmore. This spousal relationship creates a further connection between Penterra's Board and Caliston's management and governance that implicates conflict-of-interest considerations.
The Special Committee confirmed, through the director independence questionnaire process and related analyses, that no other Penterra directors or officers hold any equity interest in Caliston, serve on Caliston's board or in any advisory capacity, or have any other material relationship with Caliston or its stockholders, directors, officers, or advisors.
Given the magnitude of Dr. Hale's financial interest (representing the single largest implied gain of any Caliston stockholder in the proposed transaction, at $221,625,000) and his dual role as both Penterra's Chairman and CEO and a significant Caliston stockholder, the formation of a fully empowered Special Committee of independent directors was deemed essential to ensuring the integrity of the evaluation and negotiation process.
D. Other Significant Caliston Stockholders
In addition to Dr. Hale, the following entities hold significant equity interests in Caliston and are material stakeholders in the proposed transaction:
Ridgeline Ventures, LP. Ridgeline Ventures holds a 22.3% equity interest in Caliston. Ridgeline served as the lead investor in Caliston's Series C financing round in October 2021. The fund is managed by Ava Lindström, Managing Partner. As described more fully below, Ridgeline Ventures has been designated as the Stockholder Representative under the Stockholder Representative Agreement negotiated in connection with the Merger Agreement.
Meridian Life Sciences Fund III, LP. Meridian III holds an 18.7% equity interest in Caliston. Meridian III served as the lead investor in Caliston's Series B financing round. The fund is managed by Tomás Reyes, Managing Partner.
Caliston Founders and Management Pool. The combined equity held by Caliston's founders and management team accounts for approximately 30.5% of Caliston's outstanding equity. This includes Dr. Nadia Sorensen's 14.2% stake, Dr. Raj Malhotra's 9.8% stake, and a 6.5% allocation across other Caliston employees and advisors.
The composition of Caliston's stockholder base was relevant to the Special Committee's analysis in several respects, including the negotiation of the Stockholder Support Agreement (which required commitments from major stockholders to deliver their written consent to the merger), the identification of potential conflicts among Caliston's own stockholders and board members, and the determination of the appropriate stockholder representative for post-closing matters.
III. GENESIS OF THE PROPOSED TRANSACTION
A. February 14, 2023 — Dr. Hale's Disclosure and Proposal
At a regularly scheduled meeting of the Penterra Board of Directors held on February 14, 2023, Dr. Marcus Hale disclosed for the first time to the Board that he held a 28.5% equity interest in Caliston BioSciences, Inc., a clinical-stage biopharmaceutical company focused on novel kinase inhibitors for solid tumors. Dr. Hale informed the Board that he had personally invested $42 million in Caliston across its Seed, Series A, and Series B financing rounds and that he had served as a non-voting board observer at Caliston since 2018.
In conjunction with this disclosure, Dr. Hale presented the strategic rationale for Penterra to acquire Caliston. Dr. Hale argued that Caliston's lead asset, CLT-4019, represented a potentially best-in-class CDK4/6 inhibitor for the treatment of HR+/HER2– metastatic breast cancer, a large and growing market. He noted that the acquisition would be complementary to Penterra's existing oncology pipeline and that Penterra's established commercial infrastructure in oncology would enable rapid and efficient commercialization of CLT-4019 upon regulatory approval. Dr. Hale also pointed to potential synergies in clinical development, regulatory affairs, and commercial operations.
The Board acknowledged the significance of Dr. Hale's disclosure and the inherent conflict of interest created by his substantial personal financial interest in Caliston. The Board agreed that the proposed transaction would require careful governance safeguards and determined to convene a subsequent meeting to discuss the appropriate governance process for evaluating the proposed acquisition.
B. March 8, 2023 — Board Discussion of Conflicts
The Board of Directors reconvened on March 8, 2023 for the specific purpose of discussing the related-party nature of Dr. Hale's proposed acquisition of Caliston and the governance safeguards that would be required to evaluate the transaction in a manner consistent with the Board's fiduciary duties.
During this meeting, the Board discussed the legal framework governing interested-director transactions under Delaware law, including the provisions of Section 144 of the Delaware General Corporation Law ("DGCL") and the entire fairness doctrine as developed by the Delaware Court of Chancery and the Delaware Supreme Court. The Board recognized that, given Dr. Hale's 28.5% equity interest in Caliston and his dual role as Penterra's Chairman and CEO and a Caliston board observer, the proposed transaction would be subject to heightened judicial scrutiny unless appropriate procedural safeguards were implemented.
Following discussion, the Board resolved to explore the formation of a special committee of independent directors to evaluate the proposed acquisition. The Board recognized that the formation of a properly empowered and constituted special committee, advised by independent legal counsel and an independent financial advisor, would be a critical element of the governance process necessary to protect the interests of Penterra's stockholders and to support the Board's discharge of its fiduciary duties.
C. April 12, 2023 — Retention of Governance Counsel
On April 12, 2023, the Board retained Alcott, Barringer & Cole LLP ("ABC"), Penterra's regular outside counsel, to advise on the governance process for evaluating the proposed Caliston acquisition. Victoria Shen, a partner in ABC's mergers and acquisitions practice group, served as the lead partner on the engagement.
ABC provided advice to the Board regarding the structuring of a special committee with appropriate authority and independence, including guidance on the selection of committee members, the scope of the committee's mandate, the retention of independent advisors, and the establishment of information barriers and recusal protocols. ABC's advice during this period was instrumental in framing the governance architecture that was subsequently adopted by the Board.
Importantly, as discussed further below, the Board determined that ABC would be recused from advising the Special Committee once independent counsel was retained, in order to preserve the independence of the Special Committee's process and avoid any appearance that the Special Committee's counsel had a pre-existing relationship with Penterra's management or Board that could compromise the integrity of the Special Committee's independent evaluation.
D. May 15, 2023 — Board Approval of Special Committee Formation
At a meeting held on May 15, 2023, the Board of Directors approved the formation of a Special Committee, effective upon the engagement of independent legal counsel by the Special Committee. The Board identified three independent directors to serve on the Special Committee: Diane Prescott, James Okafor, and Dr. Helen Ng. The selection of these three directors was based on their independence from Caliston, Dr. Hale, and all other parties to or stakeholders in the proposed transaction, as well as their relevant expertise and experience.
The Board determined that Alcott, Barringer & Cole LLP would be recused from advising the Special Committee to preserve the Special Committee's independence and authorized the Special Committee to retain its own independent legal counsel and independent financial advisor, at the Company's expense, to assist in the evaluation and negotiation of the proposed transaction. The Special Committee was also authorized to engage such other advisors as it deemed necessary or appropriate in the discharge of its duties.
IV. CONSTITUTION OF THE SPECIAL COMMITTEE AND ENGAGEMENT OF ADVISORS
A. June 2, 2023 — Formal Constitution; Engagement of Independent Counsel
On June 2, 2023, the Board of Directors of Penterra formally constituted the Special Committee by unanimous vote of the six independent directors of the Board. Dr. Marcus Hale, Angela Whitmore, and Raymond Tusk recused themselves from the vote and from all deliberations related to the formation, constitution, and mandate of the Special Committee. The Board Resolution establishing the Special Committee referenced Sections 141(a) and 144 of the DGCL and set forth the committee's composition, scope of authority, and operational parameters.
Composition. The Special Committee is comprised of the following three independent directors:
• Diane Prescott (Chair) — Ms. Prescott is the former Chief Executive Officer of Windbridge Health Systems, Inc., a national health services company, where she served in that capacity for over a decade. She brings extensive experience in strategic transactions, corporate governance, and the healthcare and life sciences industries.
• James Okafor — Mr. Okafor is a retired managing director of Fielding Capital Partners, LLC, a private equity firm with significant experience in healthcare and life sciences investments. He has served on multiple public company boards and brings deep financial and transactional expertise.
• Dr. Helen Ng — Dr. Ng is a professor of pharmacology at Wexford University and a former member of an FDA advisory committee. She brings scientific expertise in drug development, regulatory affairs, and the pharmacology of oncology therapeutics that is directly relevant to the evaluation of Caliston's clinical-stage pipeline.
Scope of Authority. The Board Resolution granted the Special Committee sole and exclusive authority to:
(a) evaluate the proposed acquisition of Caliston, including the strategic rationale, financial terms, and all other aspects of the proposed transaction;
(b) negotiate the terms and conditions of the proposed transaction on behalf of Penterra, including the consideration to be paid, the structure of the transaction, and all related agreements;
(c) retain independent legal counsel, an independent financial advisor, and such other advisors as the Special Committee deems necessary or appropriate, at the expense of the Company;
(d) recommend to the full Board of Directors whether to approve or reject 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 recommend any transaction to the full Board.
The grant of "say no" power was a deliberate and essential element of the Special Committee's mandate, intended to ensure that the Special Committee operated with genuine independence and was not constrained by any expectation or pressure to recommend the proposed transaction.
Engagement of Calderwood & Harkness LLP. On June 2, 2023, the Special Committee executed an engagement letter with Calderwood & Harkness LLP, engaging the firm as the Special Committee's independent legal counsel. The engagement was structured on an hourly fee basis, with blended partner rates of $1,025 per hour and blended associate rates of $625 per hour. A $75,000 evergreen retainer was paid upon engagement, with monthly invoicing thereafter. No fee cap was imposed, consistent with the understanding that the scope and duration of the engagement would depend on the course of the Special Committee's process. The C&H engagement team consists of Renata Vasquez (Responsible Partner), Bernard Crawford (Billing Partner), Sophie Tremblay (Lead Associate), and Daniel Obi (Working Associate).
Calderwood & Harkness was selected as independent counsel following a process in which the Special Committee considered multiple candidate firms. C&H was chosen on the basis of its experience in Delaware corporate law and mergers and acquisitions, its expertise in representing special committees in related-party and conflict transactions, its lack of any prior or existing relationship with Caliston, Dr. Hale, Ridgeline Ventures, LP, Meridian Life Sciences Fund III, LP, or any other party to the proposed transaction, and its reputation for independence and rigor in advising independent directors.
Independence Protocol and Information Barrier. Simultaneously with the constitution of the Special Committee and the engagement of independent counsel, the Special Committee established a comprehensive Independence Protocol and Information Barrier (the "Project Coriander Protocol"). Under this protocol:
• Dr. Marcus Hale, Angela Whitmore, and Raymond Tusk were excluded from all Special Committee deliberations, meetings, materials, and communications, whether oral or written;
• A segregated document management system was created under the code name "Project Coriander," with access restricted exclusively to the Special Committee members and their authorized advisors;
• All communications between the Special Committee and its advisors were conducted through secure channels, with no copies or summaries provided to any recused director or officer;
• The Company's General Counsel, Lawrence Whittaker, was permitted to receive limited updates on the status and timeline of the Special Committee's process for purposes of corporate administration, but was not provided access to the substance of the Special Committee's deliberations, analyses, or negotiating positions; and
• All Penterra personnel were instructed not to communicate with the recused directors regarding the substance of the Special Committee's work.
Voting and Recusal Agreement. On June 2, 2023, Dr. Marcus Hale executed a Voting and Recusal Agreement in which he committed to recuse himself from all Board deliberations regarding the proposed Caliston acquisition and to abstain from voting on the Merger Agreement at the Board level. The Voting and Recusal Agreement was prepared by Calderwood & Harkness LLP and was executed as a condition of the Special Committee's commencement of its evaluation process. Dr. Hale acknowledged in the agreement the existence and nature of his conflict of interest and confirmed his understanding that the Special Committee would operate with sole and exclusive authority over the evaluation and negotiation of the proposed transaction.
Special Committee Charter. The Special Committee adopted a formal charter (the "Charter") on June 2, 2023, defining its scope of authority, decision-making process (requiring an affirmative vote of a majority of the committee's members for all actions), quorum requirements (requiring the presence of at least two of the three members for any meeting), advisor engagement rights, reporting obligations to the full Board, duration (continuing until the earlier of the completion or abandonment of the proposed transaction), and Special Committee member compensation.
Coordination with Regular Outside Counsel. On June 5, 2023, Renata Vasquez sent a letter on behalf of the Special Committee to Victoria Shen at Alcott, Barringer & Cole LLP confirming ABC's recusal from advising the Special Committee and establishing a coordination protocol for non-conflicted corporate matters. The protocol provided that ABC would continue to advise Penterra's management and Board on routine corporate matters unrelated to the proposed Caliston acquisition but would not participate in or receive information regarding the Special Committee's deliberations, negotiating positions, or analyses. The protocol also established a process for identifying and resolving any potential conflicts that might arise between the two counsel teams during the pendency of the Special Committee's process.
B. Director Independence Confirmation
Immediately following the constitution of the Special Committee, Calderwood & Harkness prepared and distributed comprehensive director independence questionnaires to each of the three Special Committee members — Diane Prescott, James Okafor, and Dr. Helen Ng. The questionnaires were designed to elicit detailed information regarding each director's financial interests, employment relationships, family relationships, social relationships, and any other connections to Caliston, Dr. Hale, Angela Whitmore, Raymond Tusk, Ridgeline Ventures, LP, Meridian Life Sciences Fund III, LP, Caliston's management team, Caliston's advisors, and any other party with a material interest in the proposed transaction.
Each director completed and returned the questionnaire to Calderwood & Harkness. A summary memorandum analyzing the completed questionnaires was prepared by Sophie Tremblay and Daniel Obi and is dated June 5, 2023. The analysis evaluated each director's independence under both NYSE listing standards (Section 303A of the NYSE Listed Company Manual) and Delaware law (including the standards articulated by the Delaware Court of Chancery for evaluating the independence of special committee members in conflict transactions).
The analysis confirmed that none of the three Special Committee members has any material relationship with Caliston, Dr. Hale, Angela Whitmore, Ridgeline Ventures, LP, Meridian Life Sciences Fund III, LP, or any other Caliston stakeholder or advisor that could reasonably be expected to impair the director's ability to exercise independent judgment in the evaluation and negotiation of the proposed transaction.
Conclusion: All three directors — Diane Prescott, James Okafor, and Dr. Helen Ng — are independent for purposes of the Special Committee and qualify as disinterested directors under Delaware law.
C. June 8, 2023 — Delaware Law Memorandum
On June 8, 2023, Calderwood & Harkness delivered to the Special Committee a comprehensive memorandum analyzing the legal framework governing interested director transactions under Delaware law. This memorandum served as foundational legal guidance for the Special Committee's process throughout the engagement.
The memorandum addressed the following principal topics:
DGCL Section 144. The memorandum analyzed the provisions of Section 144 of the DGCL, which provides a safe harbor for interested-director transactions that are approved in good faith by a majority of disinterested directors after full disclosure, approved in good faith by a vote of the stockholders after full disclosure, or shown to be fair to the corporation at the time of authorization.
Entire Fairness Doctrine. The memorandum provided an extensive analysis of the entire fairness doctrine as developed by the Delaware courts, explaining that transactions involving interested directors are subject to the entire fairness standard of review unless the procedural protections necessary to invoke a more deferential standard are implemented. The entire fairness standard requires the interested party to demonstrate that the transaction was the product of both fair dealing (process) and fair price.
The MFW Framework. The memorandum analyzed the framework established by the Delaware Supreme Court in Kahn v. M&F Worldwide Corp., 88 A.3d 635 (Del. 2014), and its progeny, which provides that the business judgment rule — rather than entire fairness — may apply to a controlling stockholder transaction if, ab initio, the transaction is conditioned on (i) negotiation and approval by a fully empowered, independent special committee and (ii) approval by a fully informed vote of a majority of the minority stockholders. The memorandum analyzed whether and to what extent the MFW framework might be applicable to the proposed Caliston acquisition, given that Dr. Hale is not a controlling stockholder of Penterra but holds a material conflicted interest.
Application to Dr. Hale's Interest. The memorandum analyzed the specific facts of Dr. Hale's 28.5% equity interest in Caliston, his role as a board observer at Caliston (attending 14 of 16 board meetings), and his position as Penterra's Chairman and CEO, concluding that these facts create a conflict of interest that subjects the proposed transaction to the entire fairness standard in the absence of proper procedural safeguards. The memorandum also addressed the additional conflict arising from Angela Whitmore's spousal relationship with Dr. Evan Whitmore.
Burden of Proof Allocation. The memorandum discussed how the implementation of procedural safeguards — including the formation of a fully empowered special committee and the conditioning of the transaction on stockholder approval — affects the allocation of the burden of proof in any subsequent litigation challenging the transaction.
Procedural Safeguards. The memorandum set forth detailed recommendations regarding the procedural safeguards necessary to support the entire fairness record, including the independence of the Special Committee, the engagement of independent advisors, the maintenance of information barriers, the recusal of interested parties, the conduct of a market check, and the requirement of stockholder approval.
The memorandum was discussed at length during Meeting No. 3 of the Special Committee on June 28, 2023, and served as a reference point for the Special Committee's deliberations and decision-making throughout the engagement.
D. June 16, 2023 — Engagement of Independent Financial Advisor
Following the evaluation of several candidate firms, the Special Committee engaged Thorngate Partners LLC ("Thorngate") as its independent financial advisor on June 16, 2023. The engagement was approved by a unanimous vote of the Special Committee members at Meeting No. 2 of the Special Committee.
Thorngate Partners is a financial advisory firm with its principal office at 590 Madison Avenue, 22nd Floor, New York, New York 10022. Thorngate specializes in providing independent financial advisory services and fairness opinions to boards of directors and special committees in connection with mergers, acquisitions, and other strategic transactions, with particular expertise in the healthcare and life sciences sectors. Gregory Ashford, Managing Director, was designated as the lead banker on the engagement.
The terms of Thorngate's engagement are as follows:
• Engagement Reference: 1018-00003
• Advisory Fee: $2,500,000, payable in two installments: 50% ($1,250,000) upon delivery of a fairness opinion and 50% ($1,250,000) upon the earlier of closing of the proposed transaction or termination of the Merger Agreement.
• Non-Refundable Retainer: $500,000, payable upon engagement, to be credited against the final advisory fee.
• Expenses: Penterra agreed to reimburse Thorngate for reasonable out-of-pocket expenses incurred in connection with the engagement.
• Role: Thorngate was engaged to (i) conduct independent valuation analyses of Caliston, (ii) render a fairness opinion to the Special Committee as to the fairness, from a financial point of view, of the consideration to be paid by Penterra in the proposed transaction, (iii) assist the Special Committee in the negotiation of the financial terms of the proposed transaction, and (iv) conduct a market check at the direction of the Special Committee.
Thorngate was selected on the basis of its expertise, its track record of advising special committees in conflict transactions, its independence from Caliston, Dr. Hale, and all other interested parties, and the qualifications of its engagement team. Thorngate confirmed in writing that it had no prior or existing relationships with Caliston, Dr. Hale, Angela Whitmore, Ridgeline Ventures, LP, Meridian Life Sciences Fund III, LP, or any other party to the proposed transaction that would impair its independence.
On June 20, 2023, Calderwood & Harkness sent a letter on behalf of the Special Committee to Gregory Ashford outlining the Special Committee's expectations for the scope and methodology of the valuation analyses and fairness opinion. The letter specified that Thorngate should employ multiple valuation methodologies, including discounted cash flow analysis, comparable transactions analysis, and premiums paid analysis. The letter also addressed the format and content of the fairness opinion, the assumptions and limitations to be disclosed, the requirement for an independence confirmation, and the process for the Special Committee's review of the opinion prior to its finalization.
V. DUE DILIGENCE PROCESS
A. Issuance of Due Diligence Request List — June 9, 2023
On June 9, 2023, Calderwood & Harkness issued a comprehensive due diligence request list to Whitfield Graves LLP ("Whitfield Graves"), counsel to Caliston, for the attention of Kenneth Pratt, lead partner in Whitfield Graves' corporate and life sciences practice group. The request list was transmitted by Sophie Tremblay via email and was organized into fourteen categories:
1. Corporate Organization and Good Standing
2. Capitalization and Equity
3. Material Contracts
4. Intellectual Property
5. Regulatory and FDA Matters
6. Litigation and Legal Proceedings
7. Employment and Benefits
8. Tax Matters
9. Real Property
10. Environmental
11. Insurance
12. Data Privacy and Security
13. Financial Statements and Projections
14. Miscellaneous / Other
The request list was designed to enable a thorough evaluation of all material aspects of Caliston's business, operations, assets, liabilities, and legal and regulatory posture. The transmittal email proposed a timeline for the production of responsive materials, requested that Caliston provide access to an electronic virtual data room, and identified C&H's working team members who would require data room access credentials.
B. June 28, 2023 — Receipt of Initial Due Diligence Materials
On June 28, 2023, Caliston opened a virtual data room hosted on an industry-standard secure platform and began producing responsive documents. The initial production included Caliston's organizational documents (certificate of incorporation, bylaws, and all amendments), a fully detailed capitalization table (confirming the equity interests of Dr. Hale, Ridgeline Ventures, Meridian III, and the management team), material contracts (including key collaboration agreements, the lease for Caliston's Cambridge, Massachusetts facility, and clinical trial agreements), intellectual property filings and prosecution correspondence, FDA correspondence relating to IND 158429, and employment records including key executive employment agreements.
The Calderwood & Harkness team commenced its review of the data room materials immediately upon receipt. Over the ensuing weeks, additional materials were produced by Caliston on a rolling basis in response to C&H's supplemental requests and follow-up inquiries. C&H maintained a detailed due diligence tracking log to ensure that all items on the original request list were addressed and that any gaps or deficiencies in Caliston's production were promptly identified and remediated.
C. Legal Due Diligence Report — July 14, 2023
On July 14, 2023, Calderwood & Harkness completed and delivered to the Special Committee a comprehensive legal due diligence memorandum summarizing the results of the firm's review of the materials produced by Caliston in the virtual data room. The memorandum addressed each of the fourteen categories of the original due diligence request list and set forth the following key findings:
Corporate Organization and Good Standing. Caliston is validly existing and in good standing as a corporation under the laws of the State of Delaware. Caliston is also qualified to do business and is in good standing in the Commonwealth of Massachusetts, where its principal office is located. No deficiencies were identified in Caliston's organizational documents.
Capitalization. The capitalization table was verified and confirmed the equity interests previously disclosed to the Special Committee: Dr. Hale holds 28.5%, Ridgeline Ventures holds 22.3%, Meridian III holds 18.7%, and the management and employee equity pool accounts for 30.5% (Dr. Sorensen 14.2%, Dr. Malhotra 9.8%, and other employees and advisors 6.5%). No undisclosed equity interests, options, warrants, or other convertible securities were identified.
Material Contracts. The review identified and summarized Caliston's key material contracts, including collaboration agreements, clinical trial agreements with contract research organizations, the lease for Caliston's Cambridge facility, license agreements, and vendor contracts. No contracts were identified that would be terminable solely as a result of a change of control, although certain agreements contain change-of-control notification provisions.
intellectual Property. Caliston's intellectual property portfolio includes patents and patent applications covering CLT-4019, CLT-5227, and CLT-6034. A more detailed analysis of the IP portfolio was prepared separately and is described in Section V.D below.
Regulatory / FDA Matters. IND 158429 is in good standing with the FDA. No FDA warning letters, clinical holds, or other adverse regulatory actions were identified. A more detailed analysis of Caliston's regulatory posture was prepared separately and is described in Section V.E below.
Litigation. No material litigation, arbitration, or governmental proceedings involving Caliston were identified. There are no known threatened claims or demands.
Employment. Caliston employs 94 individuals. Standard benefit plans are in place. Key executive employment agreements for Dr. Sorensen, Dr. Malhotra, and other senior officers contain change-of-control provisions that may trigger acceleration of equity vesting and/or severance payments in connection with the proposed transaction.
Compliance. No material compliance issues were identified, including in the areas of anti-corruption, export controls, and government contracting.
Insurance. Standard directors and officers liability insurance, general liability insurance, and professional liability insurance are in place.
The memorandum also identified certain key risk areas and open items that required follow-up, including the need for a more detailed analysis of the intellectual property portfolio, a focused assessment of the regulatory pathway for CLT-4019, and the quantification of potential change-of-control payments to Caliston employees. These items were addressed in subsequent specialized memoranda.
D. Intellectual Property Diligence Memorandum — July 21, 2023
On July 21, 2023, Calderwood & Harkness delivered to the Special Committee a focused intellectual property diligence memorandum analyzing Caliston's patent portfolio and the broader IP landscape relevant to CLT-4019, CLT-5227, and CLT-6034.
The memorandum reviewed the patent prosecution history for each of Caliston's patent families, including the status of pending applications, the scope of granted claims, and the expected patent expiration dates. The analysis confirmed that the chain of assignment from the founders (Dr. Sorensen and Dr. Malhotra) to Caliston was properly documented and that Caliston holds clear title to its core intellectual property.
C&H also reviewed freedom-to-operate assessments previously prepared by Caliston's IP counsel, evaluated the potential for third-party patent infringement claims, and analyzed the competitive patent landscape in the CDK4/6 inhibitor space. Key license agreements were reviewed to confirm that Caliston holds all necessary rights to develop and commercialize its pipeline assets.
The memorandum also assessed the IP status of CLT-5227 and CLT-6034, noting that while these assets are at an earlier stage of development, the underlying intellectual property is appropriately protected through pending patent applications and trade secret protections.
Conclusion: No material IP deficiencies were identified. Caliston holds clear title to its core intellectual property, and its patent portfolio provides meaningful protection for CLT-4019 and the preclinical pipeline assets.
E. Regulatory Diligence Memorandum — July 25, 2023
On July 25, 2023, Calderwood & Harkness delivered to the Special Committee a regulatory diligence memorandum analyzing Caliston's regulatory posture with respect to CLT-4019 and the broader FDA regulatory framework applicable to the proposed transaction.
The memorandum confirmed that IND 158429, filed in March 2020, is in good standing with the FDA. No clinical holds, warning letters, untitled letters, or other adverse regulatory actions were identified. The review of FDA correspondence indicated that the agency's interactions with Caliston have been routine and constructive, with no outstanding deficiencies.
The memorandum reviewed the design and enrollment status of the Phase 2b clinical trial for CLT-4019 and assessed the anticipated regulatory pathway, including the potential for a New Drug Application ("NDA") submission contingent on favorable Phase 2b results. Data Safety Monitoring Board ("DSMB") reports were reviewed and confirmed no emerging safety signals.
The memorandum also assessed the regulatory risks associated with a change of control under FDA regulations, including the implications for Caliston's IND and clinical trial operations. The analysis concluded that the regulatory risk associated with the change of control is minimal, given Penterra's established track record with the FDA and its existing regulatory infrastructure in oncology. The transfer of the IND to Penterra can be accomplished through standard FDA procedures.
F. Antitrust / HSR Act Analysis — August 10, 2023
On August 10, 2023, Calderwood & Harkness delivered to the Special Committee an analysis of the antitrust implications of the proposed transaction, with a particular focus on the filing requirements under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act").
The analysis confirmed that the proposed transaction triggers an HSR Act filing obligation. The aggregate acquisition price of $925 million exceeds the applicable size-of-transaction threshold then in effect, and the size-of-person threshold is met given that Penterra's total assets exceed the applicable threshold. Accordingly, both Penterra and Caliston will be required to file pre-merger notification forms with the Federal Trade Commission ("FTC") and the Antitrust Division of the U.S. Department of Justice ("DOJ") and observe the applicable statutory waiting period prior to consummation of the merger.
From a substantive antitrust perspective, the memorandum concluded that the risk of an adverse regulatory outcome is low. Penterra's marketed product portfolio and Caliston's clinical-stage pipeline are complementary and do not present any direct competitive overlap. There are no products or product candidates in the same therapeutic category at the same stage of development that would give rise to horizontal concentration concerns. The CDK4/6 inhibitor market is served by several established competitors with marketed products, and the addition of CLT-4019 to Penterra's portfolio would not create or enhance market power in any relevant market.
G. Tax Structure and Considerations — August 15, 2023
On August 15, 2023, Calderwood & Harkness delivered to the Special Committee a memorandum analyzing the tax structure and considerations applicable to the proposed transaction.
The proposed consideration structure — 75% cash and 25% Penterra common stock — results in the transaction being treated as a taxable acquisition for Caliston stockholders. The memorandum evaluated potential alternative structures, including tax-free reorganization structures under Sections 368(a)(1)(A) and 368(a)(2)(E) of the Internal Revenue Code, but concluded that the proposed structure, as negotiated, does not qualify for tax-free treatment given the predominance of cash consideration.
The memorandum also addressed the following specific tax considerations:
Section 280G. The analysis identified potential "parachute payments" within the meaning of Section 280G of the Internal Revenue Code that may be triggered by the change-of-control provisions in certain Caliston executive employment agreements. The memorandum recommended that the Merger Agreement include protective provisions, including a potential stockholder approval mechanism to exempt such payments from the Section 280G excise tax, or alternatively, a "best net" or "cutback" provision to minimize tax exposure.
CVR Tax Treatment. The memorandum analyzed the tax treatment of the CVRs, including the distinction between "open transaction" and "closed transaction" reporting. Given the contingent nature of the CVR payments and the uncertainty as to whether and when the CVR milestone would be achieved, the memorandum recommended open transaction treatment, under which Caliston stockholders would not recognize income on the CVRs until payment is actually received.
State Tax Nexus. The memorandum addressed state income tax nexus considerations arising from the transaction, including the potential impact on Caliston employees and stockholders in Massachusetts, New Jersey, New York, and other states.
H. Related-Party Relationships Summary — June 20, 2023
On June 20, 2023, Daniel Obi prepared a comprehensive mapping memorandum documenting all related-party relationships relevant to the proposed transaction. This memorandum served as a reference document for the Special Committee throughout its evaluation process and was updated periodically as new information became available.
The memorandum detailed the following key relationships:
Dr. Marcus Hale. Dr. Hale holds a 28.5% equity interest in Caliston, acquired through a personal investment of $42 million across Caliston's Seed, Series A, and Series B financing rounds. He has served as a non-voting board observer at Caliston since 2018 and has attended 14 of 16 Caliston board meetings. At the proposed equity value of $925 million, Dr. Hale's implied proceeds from the transaction would be $263,625,000, and his implied gain would be $221,625,000 ($263,625,000 minus his $42 million investment).
Angela Whitmore / Dr. Evan Whitmore. Angela Whitmore, a Penterra director and Executive Vice President, Commercial Operations, is the spouse of Dr. Evan Whitmore, who serves as Caliston's Head of Clinical Development and is a member of Caliston's board of directors.
The memorandum confirmed that no other Penterra directors or officers hold any equity interest in Caliston or have any other material relationship with Caliston or its stakeholders. A copy of this memorandum is attached as Exhibit F.
VI. SUMMARY OF SPECIAL COMMITTEE MEETINGS
A. Meeting No. 1 — June 2, 2023 (Organizational Meeting)
Attendees: Diane Prescott (Chair), James Okafor, Dr. Helen Ng; Renata Vasquez and Sophie Tremblay (Calderwood & Harkness LLP).
Minutes Prepared by: Daniel Obi (Calderwood & Harkness LLP).
The first meeting of the Special Committee was convened on June 2, 2023, immediately following the adoption of the Board Resolution establishing the Special Committee. The meeting served as the organizational meeting of the Special Committee.
Ms. Prescott was appointed Chair of the Special Committee by unanimous consent of the members. Ms. Vasquez then provided a detailed presentation on the role and responsibilities of the Special Committee, including the fiduciary duties of loyalty and care owed by the committee members under Delaware law, the heightened obligations applicable in the context of a related-party transaction, the scope of the committee's authority as set forth in the Board Resolution, and the importance of maintaining the independence and integrity of the Special Committee's process.
Ms. Vasquez also reviewed the Independence Protocol and Information Barrier (the "Project Coriander Protocol"), explaining the restrictions on communication with Dr. Hale, Angela Whitmore, and Raymond Tusk, the establishment of the segregated document management system, and the procedures for ensuring that no confidential committee materials would be accessible to recused directors or officers.
The Special Committee confirmed its engagement of Calderwood & Harkness LLP as independent legal counsel and adopted the Special Committee Charter, which defines the committee's scope of authority, decision-making process, quorum requirements, advisor engagement rights, reporting obligations, duration, and member compensation.
The Special Committee authorized Calderwood & Harkness to commence the process of identifying and evaluating candidate firms for engagement as the committee's independent financial advisor. The Special Committee also discussed initial workstreams, including the preparation and distribution of director independence questionnaires, the preparation of a Delaware law analysis memorandum, the preparation and issuance of a due diligence request list, and the financial advisor selection process. A preliminary schedule for subsequent meetings was established.
B. Meeting No. 2 — June 16, 2023
Attendees: Diane Prescott (Chair), James Okafor, Dr. Helen Ng; Renata Vasquez and Sophie Tremblay (Calderwood & Harkness LLP).
The second meeting of the Special Committee was convened on June 16, 2023. The primary action item for this meeting was the approval of the engagement of Thorngate Partners LLC as the Special Committee's independent financial advisor.
Ms. Vasquez presented the Special Committee with a summary of the financial advisor selection process, including information regarding Thorngate's qualifications, its experience in advising special committees in conflict transactions in the healthcare and life sciences sectors, its independence from all interested parties, and the proposed fee arrangement. Ms. Vasquez noted that Thorngate's fee structure — a $2.5 million advisory fee, split 50/50 between the delivery of a fairness opinion and the closing of the transaction, with a $500,000 non-refundable retainer credited against the final fee — was consistent with market terms for engagements of this type and scope.
Following discussion, the Special Committee unanimously approved the engagement of Thorngate Partners LLC on the terms presented. The Special Committee also reviewed a draft of the letter that C&H proposed to send to Gregory Ashford at Thorngate outlining the scope of the fairness opinion engagement, including the methodologies to be employed, the assumptions to be disclosed, and the format of the opinion.
Ms. Vasquez provided an update on the due diligence process, noting that the comprehensive due diligence request list had been transmitted to Whitfield Graves LLP on June 9, 2023 and that the Special Committee was awaiting access to Caliston's virtual data room. Ms. Vasquez also reported that the director independence questionnaires had been completed and returned by all three committee members and confirmed the independence of each member under applicable NYSE and Delaware law standards, as set forth in the summary memorandum dated June 5, 2023.
C. Meeting No. 3 — June 28, 2023
Attendees: Diane Prescott (Chair), James Okafor, Dr. Helen Ng; Renata Vasquez, Sophie Tremblay, and Daniel Obi (Calderwood & Harkness LLP).
The third meeting of the Special Committee was convened on June 28, 2023. Ms. Tremblay reported that Caliston had opened its virtual data room and that initial materials had been received and were under review by the Calderwood & Harkness due diligence team.
Ms. Vasquez then led a discussion of Calderwood & Harkness's Delaware law memorandum, dated June 8, 2023. The memorandum was distributed to the committee members in advance of the meeting, and Ms. Vasquez walked the committee through each of the key topics addressed in the memorandum, including the provisions of DGCL Section 144, the entire fairness doctrine, the MFW framework, the application of these standards to the specific facts of Dr. Hale's interest in Caliston, the allocation of the burden of proof, and the procedural safeguards necessary to support the entire fairness record. The committee members engaged in an active discussion of the legal framework and its implications for the conduct of their process.
The committee also reviewed the related-party relationships summary memorandum prepared by Daniel Obi and dated June 20, 2023, which documented the full scope of Dr. Hale's interest in Caliston, the Angela Whitmore / Dr. Evan Whitmore spousal relationship, and the confirmed absence of any other material relationships between Penterra directors or officers and Caliston.
The meeting concluded with a discussion of the due diligence plan and timeline, including the expected schedule for completion of the legal, intellectual property, and regulatory due diligence workstreams.
D. Meeting No. 4 — July 19, 2023
Attendees: Diane Prescott (Chair), James Okafor, Dr. Helen Ng; Renata Vasquez and Sophie Tremblay (Calderwood & Harkness LLP); Gregory Ashford (Thorngate Partners LLC).
The fourth meeting of the Special Committee was convened on July 19, 2023 and included a management presentation by Caliston's senior leadership. Dr. Nadia Sorensen, Caliston's Chief Executive Officer, and Dr. Raj Malhotra, Caliston's Chief Scientific Officer, attended by videoconference and presented to the Special Committee and its advisors on the following topics: