[sheet: Settlement Summary]

Item	Amount / Detail	Notes
Client	Penterra Pharmaceuticals Corp. (EIN: 22-3741856)	Nasdaq: PPCA
Matter Number	1018-00009	Calderwood & Harkness LLP
Tax Years at Issue	2017, 2018, 2019, 2020	Forms 1120
IRS Exam Team ID	LB&I-NE-TP-2022-00641	LB&I Northeast Transfer Pricing Practice
NOPA Date	October 12, 2023	All four tax years
30-Day Letter Date	November 8, 2023
Formal Protest Filed	December 22, 2023
Appeals Conference Date	February 28, 2024	IRS Appeals Office, Manhattan
Appeals Officer	Noreen Castañeda	Assigned January 2024
Settlement Offer Date	March 15, 2024
PPC Acceptance Date	March 22, 2024	Approved by C. Falk (CEO), R. Iyer (CFO)
Closing Agreement (Form 906) Executed	March 29, 2024	Examination closed
Net Proposed Adjustment (IRS)	$380,400,000	CSA $235.01M + Royalty $188.04M − Offset $42.65M
Settlement Adjustment (Agreed)	$47,600,000	12.51% of proposed adjustment
Reduction from Proposed	$332,800,000	$380.4M − $47.6M
Percentage Reduction	87.49%
Federal Tax on Settlement (21%)	$10,000,000	$47.6M × 21% = $9,996,000, rounded
Estimated Underpayment Interest	$2,840,000	At applicable federal underpayment rate
Penalty (IRC § 6662(e))	$0	Fully abated — reasonable cause / contemporaneous documentation
Total Cash Cost (Tax + Interest)	$12,840,000
Proposed Tax on Full Adjustment (21%)	$79,884,000	$380.4M × 21%
Proposed Penalty (20% of tax)	$15,977,000	$79.884M × 20%
Total Proposed Tax + Penalty	$95,861,000
Tax + Interest Savings vs. Proposed	$83,021,000	$95.861M − $12.84M

Savings Percentage	86.6%
C&H Legal Fees	$5,837,420	Calderwood & Harkness LLP — through matter close
WVG Expert Fees	$2,146,800	Whitmore Valuation Group LLC — through matter close
T&K Irish Coordination Fees	$341,200	Thornbury & Keogh — €312,500 at avg. ~$1.092/€
Total Professional Fees	$8,325,420
Total Cost of Examination to PPC	$21,165,420	Professional fees + tax + interest

[sheet: Proposed vs. Settlement by Year]

Tax Year	CSA Proposed Adjustment	Royalty Proposed Adjustment	Total Proposed (Pre-Offset)	Correlative Offset Allocation	Net Proposed Adjustment	Settlement Adjustment	Settlement as % of Net Proposed	Tax Due on Settlement at 21%	Notes
2017	$48,730,000	$52,950,000	$101,680,000	($10,662,500)	$91,017,500	$11,200,000	12.31%	$2,352,000	U.S. rate: 35% pre-TCJA for part of year; settlement tax computed at blended/21% per agreement
2018	$57,610,000	$49,550,000	$107,160,000	($10,662,500)	$96,497,500	$12,400,000	12.85%	$2,604,000	Post-TCJA: 21% rate
2019	$62,850,000	$44,970,000	$107,820,000	($10,662,500)	$97,157,500	$12,800,000	13.18%	$2,688,000	Post-TCJA: 21% rate
2020	$65,820,000	$40,570,000	$106,390,000	($10,662,500)	$95,727,500	$11,200,000	11.70%	$2,352,000	Post-TCJA: 21% rate
Total	$235,010,000	$188,040,000	$423,050,000	($42,650,000)	$380,400,000	$47,600,000	12.51%	$9,996,000	Rounded to $10,000,000

[sheet: CSA Adjustment Detail]

Tax Year	Total Qualified R&D Costs	PBI Cost-Share % — PPC Position	PBI Cost-Share Payment — PPC Position	PBI Cost-Share % — IRS Position	PBI Cost-Share Payment — IRS Position	Increase in pp (IRS vs. PPC)	Additional Payment to PPC — IRS Proposed	Notes
2017	$487,300,000	38.2%	$186,148,600	48.2%	$234,877,860	10.0pp	$48,730,000	IRS asserts PPC underestimated U.S.-source value
2018	$523,800,000	39.6%	$207,424,800	50.6%	$265,042,800	11.0pp	$57,610,000
2019	$561,200,000	41.1%	$230,653,200	52.3%	$293,507,600	11.2pp	$62,850,000
2020	$598,400,000	42.7%	$255,516,800	53.7%	$321,340,800	11.0pp	$65,820,000
Total	$2,170,700,000	$879,743,400	$1,114,769,060	$235,010,000

[sheet: Royalty Adjustment Detail]

Tax Year	Legacy Compound Net Sales — Non-Americas	Royalty Rate — PPC Position	Royalty Paid — PPC Position	Royalty Rate — IRS Position	Royalty — IRS Position	Rate Differential	Additional Royalty — IRS Proposed	Notes
2017	$814,600,000	4.5%	$36,657,000	11.0%	$89,606,000	6.5%	$52,949,000	WVG CUT analysis: IQR 3.1%–6.8%, median 4.4%; PPC 4.5% within range
2018	$762,300,000	4.5%	$34,303,500	11.0%	$83,853,000	6.5%	$49,549,500	Declining legacy product lifecycle
2019	$691,800,000	4.5%	$31,131,000	11.0%	$76,098,000	6.5%	$44,967,000	14 CUT comparables identified by Whitmore
2020	$624,100,000	4.5%	$28,084,500	11.0%	$68,651,000	6.5%	$40,566,500
Total	$2,892,800,000	$130,176,000	$318,208,000	$188,032,000	Rounded to $188,040,000

[sheet: Interest Computation]

Tax Year	Original Return Due Date	Settlement Tax Due	Interest Start Date	Interest End Date	Approximate Quarters of Interest	Applicable Federal Underpayment Rate Range	Estimated Interest	Notes
2017	April 15, 2018	$2,352,000	April 15, 2018	March 29, 2024	24	3%–8% (varies by quarter)	$960,000	Longest interest accrual period; rate compounded daily per IRC § 6621
2018	April 15, 2019	$2,604,000	April 15, 2019	March 29, 2024	20	3%–8% (varies by quarter)	$820,000
2019	July 15, 2020	$2,688,000	July 15, 2020	March 29, 2024	15	3%–5% (varies by quarter)	$590,000	COVID extension may shift start date
2020	May 17, 2021	$2,352,000	May 17, 2021	March 29, 2024	11.5	3%–8% (varies by quarter)	$470,000
Total	$9,996,000	$2,840,000	Rounded; actual computation per IRS Notice

[sheet: Penalty Analysis]

Item	Proposed Scenario	Settlement Scenario	Notes
Net § 482 Allocation	$380,400,000	$47,600,000
Tax Underpayment (at 21%)	$79,884,000	$9,996,000	Rounded to $10,000,000
IRC § 6662(e) Penalty Rate	20%	0%	Penalty fully abated
Computed Penalty	$15,977,000	$0
Penalty Abatement Basis	N/A	Reasonable cause / contemporaneous TP documentation	IRC § 6662(e)(3)(B); Crestfield & Associates prepared documentation for all 4 years
IRC § 6662(h) Gross Valuation Misstatement (40%)	Reserved by IRS — not asserted	N/A	IRS did not assert 40% penalty
Net Penalty Savings	$15,977,000	Full abatement of proposed penalty

[sheet: Settlement Summary]
Item | Amount / Detail | Notes
Client | Penterra Pharmaceuticals Corp. (EIN: 22-3741856) | Nasdaq: PPCA
Matter Number | 1018-00009 | Calderwood & Harkness LLP
Tax Years at Issue | 2017, 2018, 2019, 2020 | Forms 1120
IRS Exam Team ID | LB&I-NE-TP-2022-00641 | LB&I Northeast Transfer Pricing Practice
NOPA Date | October 12, 2023 | All four tax years
30-Day Letter Date | November 8, 2023
Formal Protest Filed | December 22, 2023
Appeals Conference Date | February 28, 2024 | IRS Appeals Office, Manhattan
Appeals Officer | Noreen Castañeda | Assigned January 2024
Settlement Offer Date | March 15, 2024
PPC Acceptance Date | March 22, 2024 | Approved by C. Falk (CEO), R. Iyer (CFO)
Closing Agreement (Form 906) Executed | March 29, 2024 | Examination closed
Net Proposed Adjustment (IRS) | $380,400,000 | CSA $235.01M + Royalty $188.04M − Offset $42.65M
Settlement Adjustment (Agreed) | $47,600,000 | 12.51% of proposed adjustment
Reduction from Proposed | $332,800,000 | $380.4M − $47.6M
Percentage Reduction | 87.49%
Federal Tax on Settlement (21%) | $10,000,000 | $47.6M × 21% = $9,996,000, rounded
Estimated Underpayment Interest | $2,840,000 | At applicable federal underpayment rate
Penalty (IRC § 6662(e)) | $0 | Fully abated — reasonable cause / contemporaneous documentation
Total Cash Cost (Tax + Interest) | $12,840,000
Proposed Tax on Full Adjustment (21%) | $79,884,000 | $380.4M × 21%
Proposed Penalty (20% of tax) | $15,977,000 | $79.884M × 20%
Total Proposed Tax + Penalty | $95,861,000
Tax + Interest Savings vs. Proposed | $83,021,000 | $95.861M − $12.84M
Savings Percentage | 86.6%
C&H Legal Fees | $5,837,420 | Calderwood & Harkness LLP — through matter close
WVG Expert Fees | $2,146,800 | Whitmore Valuation Group LLC — through matter close
T&K Irish Coordination Fees | $341,200 | Thornbury & Keogh — €312,500 at avg. ~$1.092/€
Total Professional Fees | $8,325,420
Total Cost of Examination to PPC | $21,165,420 | Professional fees + tax + interest
[sheet: Proposed vs. Settlement by Year]
Tax Year | CSA Proposed Adjustment | Royalty Proposed Adjustment | Total Proposed (Pre-Offset) | Correlative Offset Allocation | Net Proposed Adjustment | Settlement Adjustment | Settlement as % of Net Proposed | Tax Due on Settlement at 21% | Notes
2017 | $48,730,000 | $52,950,000 | $101,680,000 | ($10,662,500) | $91,017,500 | $11,200,000 | 12.31% | $2,352,000 | U.S. rate: 35% pre-TCJA for part of year; settlement tax computed at blended/21% per agreement
2018 | $57,610,000 | $49,550,000 | $107,160,000 | ($10,662,500) | $96,497,500 | $12,400,000 | 12.85% | $2,604,000 | Post-TCJA: 21% rate
2019 | $62,850,000 | $44,970,000 | $107,820,000 | ($10,662,500) | $97,157,500 | $12,800,000 | 13.18% | $2,688,000 | Post-TCJA: 21% rate
2020 | $65,820,000 | $40,570,000 | $106,390,000 | ($10,662,500) | $95,727,500 | $11,200,000 | 11.70% | $2,352,000 | Post-TCJA: 21% rate
Total | $235,010,000 | $188,040,000 | $423,050,000 | ($42,650,000) | $380,400,000 | $47,600,000 | 12.51% | $9,996,000 | Rounded to $10,000,000
[sheet: CSA Adjustment Detail]
Tax Year | Total Qualified R&D Costs | PBI Cost-Share % — PPC Position | PBI Cost-Share Payment — PPC Position | PBI Cost-Share % — IRS Position | PBI Cost-Share Payment — IRS Position | Increase in pp (IRS vs. PPC) | Additional Payment to PPC — IRS Proposed | Notes
2017 | $487,300,000 | 38.2% | $186,148,600 | 48.2% | $234,877,860 | 10.0pp | $48,730,000 | IRS asserts PPC underestimated U.S.-source value
2018 | $523,800,000 | 39.6% | $207,424,800 | 50.6% | $265,042,800 | 11.0pp | $57,610,000
2019 | $561,200,000 | 41.1% | $230,653,200 | 52.3% | $293,507,600 | 11.2pp | $62,850,000
2020 | $598,400,000 | 42.7% | $255,516,800 | 53.7% | $321,340,800 | 11.0pp | $65,820,000
Total | $2,170,700,000 | $879,743,400 | $1,114,769,060 | $235,010,000
[sheet: Royalty Adjustment Detail]
Tax Year | Legacy Compound Net Sales — Non-Americas | Royalty Rate — PPC Position | Royalty Paid — PPC Position | Royalty Rate — IRS Position | Royalty — IRS Position | Rate Differential | Additional Royalty — IRS Proposed | Notes
2017 | $814,600,000 | 4.5% | $36,657,000 | 11.0% | $89,606,000 | 6.5% | $52,949,000 | WVG CUT analysis: IQR 3.1%–6.8%, median 4.4%; PPC 4.5% within range
2018 | $762,300,000 | 4.5% | $34,303,500 | 11.0% | $83,853,000 | 6.5% | $49,549,500 | Declining legacy product lifecycle
2019 | $691,800,000 | 4.5% | $31,131,000 | 11.0% | $76,098,000 | 6.5% | $44,967,000 | 14 CUT comparables identified by Whitmore
2020 | $624,100,000 | 4.5% | $28,084,500 | 11.0% | $68,651,000 | 6.5% | $40,566,500
Total | $2,892,800,000 | $130,176,000 | $318,208,000 | $188,032,000 | Rounded to $188,040,000
[sheet: Interest Computation]
Tax Year | Original Return Due Date | Settlement Tax Due | Interest Start Date | Interest End Date | Approximate Quarters of Interest | Applicable Federal Underpayment Rate Range | Estimated Interest | Notes
2017 | April 15, 2018 | $2,352,000 | April 15, 2018 | March 29, 2024 | 24 | 3%–8% (varies by quarter) | $960,000 | Longest interest accrual period; rate compounded daily per IRC § 6621
2018 | April 15, 2019 | $2,604,000 | April 15, 2019 | March 29, 2024 | 20 | 3%–8% (varies by quarter) | $820,000
2019 | July 15, 2020 | $2,688,000 | July 15, 2020 | March 29, 2024 | 15 | 3%–5% (varies by quarter) | $590,000 | COVID extension may shift start date
2020 | May 17, 2021 | $2,352,000 | May 17, 2021 | March 29, 2024 | 11.5 | 3%–8% (varies by quarter) | $470,000
Total | $9,996,000 | $2,840,000 | Rounded; actual computation per IRS Notice
[sheet: Penalty Analysis]
Item | Proposed Scenario | Settlement Scenario | Notes
Net § 482 Allocation | $380,400,000 | $47,600,000
Tax Underpayment (at 21%) | $79,884,000 | $9,996,000 | Rounded to $10,000,000
IRC § 6662(e) Penalty Rate | 20% | 0% | Penalty fully abated
Computed Penalty | $15,977,000 | $0
Penalty Abatement Basis | N/A | Reasonable cause / contemporaneous TP documentation | IRC § 6662(e)(3)(B); Crestfield & Associates prepared documentation for all 4 years
IRC § 6662(h) Gross Valuation Misstatement (40%) | Reserved by IRS — not asserted | N/A | IRS did not assert 40% penalty
Net Penalty Savings | $15,977,000 | Full abatement of proposed penalty

[sheet: Settlement Summary]

Record

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