Contract analysis

I. Purpose and Executive Summary The purpose of this memorandum is to analyze the 30-Day Letter issued by the Internal Revenue Service on November 8, 2023, in connection with the transfer pricing examination of Penterra Pharmaceuticals Corp. ("PPC" or the "Company") for tax years 2017, 2018, 2019, and 2020. This memorandum is intended to provide the engagement team with a comprehensive overview of the procedural post

II. Background A. The IRS Examination The IRS Large Business & International Division ("LB&I") opened an examination of PPC on May 16, 2022, via Letter 2205-A, which served as the formal notification of examination for PPC's federal income tax returns (Forms 1120) for tax years 2017, 2018, 2019, and 2020. The examination was assigned to IRS Exam Team LB&I-NE-TP-2022-00641, operating within the LB&I Northeast Transfer

III. Procedural Options Available to PPC This section describes and evaluates each of the procedural options available to PPC in response to the 30-Day Letter. The options are presented in order of preference, with the recommended option described first. A. Option 1: File a Formal Protest to IRS Appeals Description. Under this option, PPC would file a written Protest within the 30-day window (or extended deadline, if

IV. Deadline Analysis A. Initial Deadline The 30-Day Letter is dated November 8, 2023. Under the standard 30-calendar-day response period, PPC's deadline to file a Protest or otherwise respond to the 30-Day Letter is December 8, 2023. The 30-day period runs from the date of the letter, not the date of receipt. Although PPC may have received the letter one or two business days after November 8, 2023, the IRS measures

V. Strategic Considerations and Recommendation A. Strength of PPC's Positions A critical factor in evaluating the recommended course of action is the strength of PPC's substantive positions on each of the issues raised in the NOPA. Based on the work performed to date, we believe PPC has strong positions on all of the major issues, which significantly enhances the prospect of a favorable resolution at the Appeals leve

1. File a formal Protest to the IRS Independent Office of Appeals contesting all proposed adjustments ($380.4 million net) in their entirety. The Protest should address each of the three categories of proposed adjustments (CSA cost-sharing ratios, legacy IP royalty rate, and PCT valuation) as well as the proposed substantial valuation misstatement penalty under IRC § 6662(e). The Protest should set forth PPC's factua

2. Request an extension of the response deadline to December 22, 2023. A draft extension request letter should be prepared for Leonard Cross's signature and addressed to Supervisory Revenue Agent Gerald Meskill. The extension request should be filed by no later than November 15, 2023, to ensure timely processing.

3. Begin Protest preparation immediately. Drafting responsibilities should be assigned as follows: Garrett Simmons will lead the preparation of the factual statement and economic analysis summary sections of the Protest; Leila Nazari will draft the legal argument sections, including the statutory and regulatory analysis, case law discussion, and penalty defense; Leonard Cross and Sylvia Hartwell will provide strategi

4. Engage Whitmore to prepare a formal rebuttal of Dr. Washburne's economic analysis and to update and finalize all economic reports (CUT, CPM/TNMM, and DCF) for use as Protest exhibits. Whitmore's engagement should proceed under the existing Kovel letter (reference 1018-00009-KV) to preserve privilege protections.

5. Coordinate with PPC management — specifically CEO Harlan Whitfield, General Counsel Deborah Staines, and CFO Priya Iyer — on the decision to protest, FIN 48 reserve implications, SEC disclosure obligations, and Hargrove National Bank credit facility covenant analysis. A strategy call with PPC management should be scheduled promptly.

6. Do not agree to any portion of the proposed adjustments at this stage. Full or partial agreement would undermine PPC's negotiating position and is not supported by the strength of PPC's factual and economic positions.

7. Do not waive the right to petition the United States Tax Court. PPC should preserve all options in the event that Appeals does not produce an acceptable resolution. The filing of a Protest is without prejudice to PPC's right to petition the Tax Court following the issuance of a statutory notice of deficiency.

VI. Immediate Next Steps and Action Items The following action items should be completed in accordance with the specified deadlines: By November 13, 2023: • Circulate this memorandum to Leonard Cross, Sylvia Hartwell, and Garrett Simmons for review and discussion. • Schedule a strategy call with PPC management (Harlan Whitfield, Deborah Staines, and Priya Iyer) to discuss the 30-Day Letter, the recommended course of