Contract analysis

I. Executive Summary The purpose of this memorandum is to analyze Penterra Pharmaceuticals Corp.'s ("PPC" or the "Company") obligations under the federal securities laws to disclose the ongoing Internal Revenue Service ("IRS") transfer pricing examination and the recently issued proposed adjustments in the Company's upcoming filings with the U.S. Securities and Exchange Commission ("SEC"). In particular, this memoran

II. Background A. The IRS Examination The IRS initiated its examination of PPC on May 16, 2022, when the Company received a Letter 2205-A notifying it that returns for tax years 2017, 2018, 2019, and 2020 had been selected for examination. The examination has been conducted by an LB&I team specializing in transfer pricing matters, designated as Exam Team LB&I-NE-TP-2022-00641. The examination has focused on the trans

III. Applicable Legal and Accounting Framework The Company's disclosure obligations with respect to the IRS examination and proposed adjustments arise under multiple, overlapping legal and accounting standards. This section sets forth the applicable framework. A. SEC Regulation S-K, Item 103 — Legal Proceedings Item 103 of Regulation S-K (17 C.F.R. § 229.103) requires a registrant to "[d]escribe briefly any material

IV. Analysis of Required Disclosures A. Form 10-K (Fiscal Year Ending December 31, 2023) Based on the legal and accounting framework set forth in Section III above, PPC's Annual Report on Form 10-K for the fiscal year ending December 31, 2023 should include disclosures in the following sections:

1. Part I, Item 3 — Legal Proceedings Item 3 of Form 10-K requires a description of material pending legal proceedings. As discussed in Section III.A above, the IRS examination and proposed adjustments meet the threshold for disclosure under Item 103 of Regulation S-K. We recommend that PPC include a disclosure in Part I, Item 3 of the Form 10-K that addresses the following elements: • That the Company has received p

2. Part II, Item 7 — MD&A The MD&A section of PPC's Form 10-K should address the IRS examination as a known uncertainty that could materially affect the Company's financial condition or results of operations. We recommend that the following topics be addressed: • A discussion of the IRS examination and proposed adjustments as a known uncertainty, cross-referencing the disclosure in Item 3 and the income tax footnote

3. Part II, Item 8 — Financial Statements and Notes The financial statements included in Part II, Item 8 of the Form 10-K should include enhanced disclosures in the income tax footnote. We recommend the following: Income Tax Footnote. The income tax footnote should discuss the IRS examination, the proposed adjustments, and PPC's assessment of the related uncertainty. The disclosure should note that the IRS has propos

4. Part IV — Certifications and Disclosure Controls PPC's Chief Executive Officer, Catherine Falk, and Chief Financial Officer, Rajesh Iyer, will be required to execute certifications under Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 ("SOX") in connection with the filing of the Form 10-K. These certifications require the certifying officers to attest, among other things, that the filing does not contain an

V. Specific Drafting Recommendations A. Proposed Disclosure Language — Legal Proceedings (Item 3) Based on our analysis of the applicable legal standards and the current status of the IRS examination, we propose the following disclosure language for Part I, Item 3 (Legal Proceedings) of PPC's Form 10-K for the fiscal year ending December 31, 2023: "The Company has received proposed adjustments from the Internal Reven

VI. Institutional Shareholder Considerations A. Ridgeview Capital Management LP As noted above, Ridgeview Capital Management LP holds approximately 8.3% of PPC's outstanding common shares, making it the Company's largest institutional shareholder. Ridgeview's Managing Partner, Douglas Everett, has a well-documented history of actively monitoring FIN 48 disclosures and effective tax rate trends among portfolio compani

VII. Credit Facility Covenant Considerations This memorandum does not undertake a comprehensive analysis of PPC's obligations under the Hargrove National Bank credit facility, as that analysis is the subject of a separate memorandum prepared by Nazari and dated November 2023. However, a brief summary of the relevant considerations is warranted, given the potential interaction between PPC's SEC disclosure obligations

VIII. Interaction with Auditor (Crestfield & Associates LLP) The coordination between Calderwood & Harkness and Crestfield & Associates LLP is a critical element of PPC's disclosure and financial reporting process with respect to the IRS examination. Crestfield occupies a dual role in connection with this matter: it is both the independent registered public accounting firm responsible for auditing PPC's financial sta

IX. Timeline and Action Items The following timeline summarizes the key action items arising from this memorandum: Immediate (November 2023): • Finalize updated FIN 48 analysis memorandum for internal use, reflecting the NOPA and the current status of the IRS examination. • Prepare and deliver updated letter to Crestfield & Associates LLP (to be dated November 20, 2023) supporting the FIN 48 reserve of $62.4 million