Contract analysis

I. EXECUTIVE SUMMARY This memorandum sets forth our actionable recommendations for enhancing the operational substance of Penterra Biopharma International DAC ("PBI"), PPC's Irish-domiciled subsidiary, in the wake of the successful resolution of the IRS Large Business & International Division ("LB&I") examination for Tax Years 2017–2020 (Exam Team LB&I-NE-TP-2022-00641). Following the execution of a Form 906 Closing

1. Headcount and Personnel Enhancements — increasing scientific and technical personnel in Dublin to demonstrate PBI's direct participation in Development and Enhancement functions;

2. Board Governance Enhancements — increasing meeting frequency, improving documentation quality, and strengthening board independence;

3. DEMPE Function Documentation Framework — institutionalizing a formal, annually updated DEMPE allocation policy;

4. Operational Autonomy and Decision-Making — formalizing PBI's independent decision-making processes and risk management functions;

5. Financial Infrastructure and Banking — maintaining and expanding PBI's independent financial operations in Ireland; and

6. Contemporaneous Documentation Processes — establishing a culture of real-time documentation that will reduce the cost and burden of future examinations. Each recommendation is designed to be practical, implementable within a defined timeline, and proportionate in cost to the risk it mitigates. The estimated annual incremental cost of the full set of recommendations is €3–5 million—a modest investment relative to P

II. BACKGROUND: LESSONS FROM THE IRS EXAMINATION A. Summary of the IRS Economic Substance Challenge The IRS LB&I examination of PPC's Tax Years 2017–2020 was initiated in June 2022 and conducted by a dedicated transfer pricing examination team. Revenue Agent Patricia Dunleavy served as the lead case manager, and IRS Economist Dr. Alan Washburne provided the economic analysis supporting the IRS's proposed adjustments.

III. RECOMMENDATION 1: HEADCOUNT AND PERSONNEL ENHANCEMENTS A. Increase Scientific and Technical Headcount We recommend that PBI hire 15 to 25 additional personnel in Dublin with scientific, clinical, and pharmaceutical-development expertise over the next 18 to 24 months, bringing PBI's total Dublin-based headcount to approximately 200 to 210 employees by the end of calendar year 2025. The primary objective of this h

IV. RECOMMENDATION 2: BOARD GOVERNANCE ENHANCEMENTS A. Increase Board Meeting Frequency and Structure During Tax Years 2017–2020, PBI's board of directors held a total of 42 meetings in Dublin, averaging approximately 10.5 meetings per year. This meeting frequency included quarterly regular meetings and ad hoc special sessions convened to address specific business matters. While this frequency was sufficient to suppo

V. RECOMMENDATION 3: DEMPE FUNCTION DOCUMENTATION FRAMEWORK A. Establish a Formal DEMPE Allocation Framework The most significant structural gap identified during the examination was PBI's lack of a formalized, internally maintained DEMPE allocation framework. During the course of the audit defense, Calderwood & Harkness prepared a detailed DEMPE Functions Matrix covering Tax Years 2017–2020, mapping each DEMPE funct

VI. RECOMMENDATION 4: OPERATIONAL AUTONOMY AND DECISION-MAKING A. Formalize Independent Decision-Making Processes The IRS's economic substance challenge was fundamentally an assertion that PBI did not operate autonomously—that PBI's operations were directed by PPC's U.S. headquarters rather than controlled by PBI's Dublin management. To counter this narrative in future examinations, PBI should implement written polic

VII. RECOMMENDATION 5: FINANCIAL INFRASTRUCTURE AND BANKING A. Maintain and Expand Independent Irish Banking Operations PBI's independent banking relationship with Glenmore Bank Ireland plc was an important element of our substance defense during the examination. This relationship should be continued and strengthened. Specifically, PBI should maintain independent treasury management, cash pooling, and investment func

VIII. RECOMMENDATION 6: CONTEMPORANEOUS DOCUMENTATION PROCESSES A. Annual Transfer Pricing Documentation PBI's transfer pricing documentation for the examination years was originally prepared by Crestfield & Associates LLP (Susan Lam, Transfer Pricing Partner). While the documentation was generally adequate, certain elements were not prepared contemporaneously with the filing of PPC's U.S. federal income tax returns—

IX. IMPLEMENTATION TIMELINE The recommendations in this memorandum are designed to be implemented in a phased manner over the next 12 to 18 months, with certain actions commencing immediately and others requiring a longer implementation horizon. A. Immediate Actions (Q2 2024) The following actions should be initiated promptly following PPC's acceptance of these recommendations:

1. Recruitment. Begin the recruitment process for the Senior Director of IP Strategy and the initial cohort of scientific and technical hires identified in Recommendation 1. Engage a pharmaceutical industry recruitment firm, if appropriate, to identify qualified candidates for the Senior Director role.

2. Board Resolution. Adopt a PBI board resolution implementing enhanced meeting frequency (monthly regular meetings) and the DEMPE-focused agenda protocol described in Recommendation 2. The resolution should be adopted at PBI's next scheduled board meeting or at a special meeting convened for this purpose.

3. Corporate Secretary Services. Engage a Dublin-based external corporate secretary firm to support PBI's enhanced board governance, including professional minute-taking for all future board meetings.

4. Documentation Policies. Issue revised document-preservation and contemporaneous-documentation policies to PBI's Dublin management team, including interim guidance on the documentation protocol and decision-log requirements described in Recommendation 6. B. Short-Term Actions (Q3–Q4 2024)

1. Intercompany Service Agreements. Complete the review and formalization of all intercompany service arrangements between PPC and PBI, including the preparation and execution of written service agreements at arm's-length charges for all material service flows.

2. DEMPE Framework. Implement the DEMPE allocation framework described in Recommendation 3, including the preparation and boa