Contract analysis

1. Attendees 1.1 IRS Attendees The following individuals participated on the call on behalf of the Internal Revenue Service: • Dr. Alan Washburne, Economist, IRS Transfer Pricing Practice — principal presenter of the IRS's preliminary economic analysis and methodology throughout the call. • Patricia Dunleavy, Lead Revenue Agent, IRS Large Business & International Division (LB&I) — served as the examination team's pri

2. Purpose and Background of the Call The call was requested by Revenue Agent Dunleavy by email to Garrett Simmons on August 8, 2023. Dunleavy's email stated that the purpose of the call was to provide PPC's representatives with an opportunity to discuss Dr. Washburne's preliminary economic analysis and methodology as part of the ongoing transfer pricing examination of PPC's intercompany transactions with Penterra Bi

3. Dr. Washburne's Presentation of Methodology 3.1 Overview of Approach Dr. Washburne began his presentation at approximately 2:12 p.m. by providing an overview of the scope and framework of his economic analysis. He stated that he had been retained by the LB&I examination team to evaluate the arm's-length character of two sets of intercompany transactions between PPC and PBI: (a) The cost-sharing arrangement (CSA) b

4. Economic Substance Discussion Following the conclusion of Dr. Washburne's presentation of his quantitative methodology, Revenue Agent Dunleavy raised the IRS's position regarding PBI's economic substance. She asked Dr. Washburne to summarize the economic indicators he considered in connection with PBI's operational profile. Dr. Washburne stated that while his analysis was "primarily quantitative" — focused on the

5. Discussion of Penalty Considerations Revenue Agent Dunleavy noted, toward the end of the call, that the examination team was also evaluating the potential applicability of the substantial valuation misstatement penalty under IRC § 6662(e). She stated that the penalty, if applicable, would impose an additional twenty percent (20%) penalty on the portion of the tax underpayment attributable to a Section 482 allocati

6. Procedural Discussion and Next Steps At approximately 3:35 p.m., the discussion turned to procedural matters and next steps. Dunleavy stated that the IRS anticipated completing its economic analysis and issuing any proposed adjustment "by late September or October 2023." She noted that the timeline was subject to the completion of Dr. Washburne's final report and the examination team's internal review process. Not

7. C&H Internal Observations and Action Items The following observations and action items are for internal use by the Calderwood & Harkness team and Whitmore Valuation Group (under Kovel privilege) only. These observations reflect preliminary attorney work product assessments and should not be shared with the client or any third party without prior authorization from Leonard Cross. 7.1 Key Observations

1. Discount Rate as the Pivotal Economic Issue. Dr. Washburne's 7.2% WACC is the single most impactful assumption driving the PCT overvaluation. The differential between Dr. Washburne's 7.2% WACC and PPC/Whitmore's 9.8% WACC accounts for the vast majority of the $540 million gap between the IRS's proposed PCT value of $852 million and PPC's actual $312 million PCT payment. Preliminary sensitivity analysis conducted b

2. CUT Selection Methodology — Material Flaw. Dr. Washburne's CUT selection for the royalty rate analysis appears materially flawed. He acknowledged on the call that he had not performed functional comparability adjustments for differences in licensee functions, risk allocation, or geographic scope between his comparable agreements and the PPC-PBI legacy royalty arrangement. This omission is a significant vulnerabili

3. Hindsight Bias in Revenue Projections. The IRS's use of hindsight-informed revenue projections for the PCT valuation is a significant vulnerability in the IRS's position. Treasury Regulations § 1.482-7 requires that the PCT be valued based on the "reasonably anticipated" benefits at the time of the transaction (July 2012), not on the basis of actual revenue results observed during the subsequent eight years. Dr. W

4. Economic Substance Challenge — Secondary. The economic substance challenge appears to be secondary to the quantitative transfer pricing adjustments. Dr. Washburne acknowledged on the call that his analysis was "primarily quantitative," and the substance arguments raised by Dunleavy and Rosario appeared to serve as a supporting narrative rather than an independent basis for adjustment. PPC's functional analysis alr

5. Correlative Offset. The correlative offset discussion confirms that the IRS is aware of the double-counting risk inherent in simultaneously adjusting the CSA cost-sharing ratios and the legacy royalty rate. PPC should ensure that any NOPA includes an explicit, adequately quantified correlative offset, and should be prepared to challenge the sufficiency of any offset proposed by the IRS. The eventual $42.65 million

8. Distribution These meeting notes have been distributed as follows: Calderwood & Harkness LLP: • Leonard Cross, Responsible Partner • Sylvia Hartwell, Partner • Garrett Simmons, Lead Associate • Leila Nazari, Associate Whitmore Valuation Group LLC (under Kovel privilege, C&H Matter Ref. 1018-00009-KV): • Dr. Helena Vasquez, Managing Director • Dr. Rohan Chakrabarti, Director Copy to file: C&H Matter 1018-00009 Not