CALDERWOOD & HARKNESS LLP
CONFIDENTIAL — ATTORNEY WORK PRODUCT
This memorandum is confidential and privileged. It has been prepared by the Office of the General Counsel / Conflicts Department of Calderwood & Harkness LLP for internal use only. This memorandum is subject to the protections of the attorney-client privilege and the work product doctrine. Unauthorized disclosure, distribution, or copying of this memorandum is strictly prohibited.
MEMORANDUM
TO: Leonard Cross, Responsible Partner, Tax Department Sylvia Hartwell, Billing Partner, Tax Department
FROM: Office of the General Counsel / Conflicts Department, Calderwood & Harkness LLP
DATE: May 20, 2022
RE: Conflicts Check — Proposed Engagement: Penterra Pharmaceuticals Corp. — IRS Transfer Pricing Examination Defense (Tax Years 2017–2020)
PROPOSED MATTER NUMBER: 1018-00009
REQUESTING ATTORNEY: Leonard Cross, Partner, Tax Department, Philadelphia Office (1735 Market Street, Suite 3100, Philadelphia, PA 19103)
CLASSIFICATION: Confidential — For Internal Use Only; Subject to Attorney-Client Privilege and Work Product Doctrine
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1. PURPOSE AND SUMMARY OF ENGAGEMENT
This memorandum sets forth the results of the conflicts of interest analysis conducted by the Office of the General Counsel / Conflicts Department of Calderwood & Harkness LLP ("C&H" or the "Firm") in connection with the proposed retention of the Firm by Penterra Pharmaceuticals Corp. ("PPC" or the "Company") to serve as outside tax counsel in defense of an examination conducted by the Internal Revenue Service, Large Business & International Division ("IRS LB&I"). The examination challenges PPC's transfer pricing methodology for tax years 2017, 2018, 2019, and 2020.
The IRS opened the examination on May 16, 2022, pursuant to Letter 2205-A (Notification of Examination). The IRS Exam Team has been assigned Identification Number LB&I-NE-TP-2022-00641. The examination focuses on the intercompany royalty rates and cost-sharing payments between PPC's U.S. operations and its Irish subsidiary, Penterra Biopharma International DAC ("PBI"), under Internal Revenue Code ("IRC") Section 482 and the corresponding Treasury Regulations. The IRS has indicated that its challenge encompasses the arm's-length character of the intangible property licensing arrangements, the reasonableness of cost-sharing buy-in payments, and the allocation of residual profits between PPC and PBI under the comparable profits method and profit-split methodologies.
The scope of the proposed representation covers all phases of the examination defense, including but not limited to: (a) preparation of responses to Information Document Requests ("IDRs") issued by the examining team; (b) preparation and review of functional analyses and economic analyses supporting PPC's transfer pricing positions; (c) advocacy before the IRS examination team; (d) preparation of a formal written protest to the IRS, if necessary; (e) representation of PPC before the IRS Independent Office of Appeals; and (f) such further proceedings as may arise out of the examination, subject to any supplemental engagement authorization.
Based on preliminary information provided by PPC's Vice President of Global Tax, Marcus Whitfield, the anticipated total proposed adjustments by the IRS are expected to be approximately $380.4 million across the four examination years. This figure is subject to revision as the examination progresses and additional adjustments are proposed or refined by the IRS examination team. At stake are potential federal income tax deficiencies, accuracy-related penalties under IRC Section 6662(e) (substantial valuation misstatement), and interest.
The primary client contacts for this engagement are Marcus Whitfield, Vice President of Global Tax, and Deborah Staines, General Counsel of PPC. PPC has indicated that its internal tax department, comprising approximately twelve professionals, will serve as the Firm's primary liaison for the collection and production of documents, data, and information responsive to IRS requests.
The proposed engagement team consists of the following C&H attorneys:
• Leonard Cross, Partner, Tax Department — Responsible Partner
• Sylvia Hartwell, Partner, Tax Department — Billing Partner
• Garrett Simmons, Senior Associate, Tax Department — Lead Associate
• Leila Nazari, Associate, Tax Department — Working Associate
This conflicts check memorandum has been prepared to ensure that the Firm's acceptance of the proposed engagement complies with all applicable professional responsibility obligations, including the Rules of Professional Conduct of the jurisdictions in which the engagement team members are licensed (New York, New Jersey, and the District of Columbia), the American Bar Association Model Rules of Professional Conduct, and the Firm's own internal conflicts and ethics policies.
2. PARTIES SEARCHED
The Conflicts Department conducted a comprehensive search of all parties, affiliates, adverse parties, related third parties, and key individuals connected to the proposed engagement. The following is a detailed description of each party and individual included in the search.
2.1 Client and Affiliates
2.1.1 Penterra Pharmaceuticals Corp. (PPC). Penterra Pharmaceuticals Corp. is a corporation organized and existing under the laws of the State of Delaware. PPC is publicly traded on the Nasdaq Global Select Market under the ticker symbol "PPCA." The Company's Employer Identification Number is 22-3741856. PPC maintains its global headquarters at 2200 Independence Boulevard, Princeton Junction, New Jersey 08550.
PPC operates in the specialty pharmaceuticals and biotechnology industry, with a product portfolio concentrated in oncology, immunology, and rare-disease therapeutics. As of its most recently filed annual report on Form 10-K for fiscal year 2020, PPC reported consolidated annual revenue of approximately $6.82 billion and consolidated pre-tax income of approximately $1.47 billion. The Company employs approximately 14,500 individuals on a global basis across its U.S. and international operations.
PPC's current senior leadership includes:
• Catherine Falk, Chief Executive Officer
• Rajesh Iyer, Chief Financial Officer
• Deborah Staines, General Counsel
• Marcus Whitfield, Vice President, Global Tax
PPC is the U.S. taxpayer of record for the federal income tax returns (Forms 1120) at issue in the IRS examination for tax years 2017 through 2020. PPC serves as the parent of a consolidated group of domestic and international subsidiaries.
2.1.2 Penterra Biopharma International DAC (PBI). Penterra Biopharma International DAC is a Designated Activity Company organized under the laws of Ireland. PBI's registered office is located at 4th Floor, Claremont House, Sandyford Business Park, Dublin D18 K7T4, Ireland. PBI's Irish Tax Reference Number is 3218764T.
PBI functions as the principal intellectual property holding company and the principal entity for the commercialization of PPC's pharmaceutical products outside the Americas region. PBI holds licenses to certain intangible property developed by PPC and, under the intercompany arrangements at issue in the IRS examination, pays royalties and cost-sharing contributions to PPC in connection with the development and exploitation of that intellectual property.
PBI's Managing Director is Aidan Naughton. For fiscal year 2020, PBI reported revenue of approximately €2.14 billion and pre-tax income of approximately €1.06 billion. PBI employs approximately 185 individuals, primarily in commercial, regulatory, and administrative functions. PBI's Irish effective tax rate is 12.5% under the standard corporate income tax rate, with certain qualifying income eligible for the reduced rate of 6.25% under Ireland's Knowledge Development box regime, effective for fiscal year 2016 and subsequent years.
PBI is a critical entity in the IRS examination, as the intercompany transactions under scrutiny flow between PPC and PBI.
2.1.3 Penterra Holdings Luxembourg S.à r.l. (PHL). Penterra Holdings Luxembourg S.à r.l. is a société à responsabilité limitée organized under the laws of the Grand Duchy of Luxembourg. PHL's registered office is located at 14, rue Aldringen, L-1118 Luxembourg. PHL is registered with the Luxembourg Registre de Commerce et des Sociétés under Number B 168452.
PHL serves as an intermediate holding entity within the PPC corporate structure. PHL is 100% owned by PPC and, in turn, is the 100% owner of PBI. PHL is treated as a disregarded entity for U.S. federal income tax purposes under Treasury Regulations Section 301.7701-3 (the "check-the-box" regulations). As a disregarded entity, PHL's activities and assets are attributed to PPC for U.S. federal income tax purposes, and PHL does not file a separate U.S. federal income tax return. PHL's role in the corporate structure is relevant to the examination insofar as the chain of ownership between PPC and PBI passes through PHL.
2.1.4 Penterra Manufacturing Ireland Ltd. (PMI). Penterra Manufacturing Ireland Ltd. is an Irish private limited company. PMI's registered office is located at Unit 7, Ringaskiddy Industrial Estate, Co. Cork T12 PX29, Ireland. PMI is registered with the Irish Companies Registration Office under Number 512347.
PMI operates as a contract manufacturer within the PPC corporate family. PMI manufactures active pharmaceutical ingredients and finished dosage forms for PBI under a cost-plus intercompany arrangement. Under the terms of this arrangement, PMI is compensated at cost plus a markup of 8%, which PPC's transfer pricing documentation characterizes as an arm's-length return for PMI's limited-risk contract manufacturing functions. PMI employs approximately 620 individuals at its manufacturing facility in Ringaskiddy, County Cork.
While the IRS examination is primarily focused on the royalty and cost-sharing arrangements between PPC and PBI, the IRS examination team may also review the cost-plus arrangement between PBI and PMI as part of its broader analysis of the PPC group's transfer pricing policies. PMI's compensation is therefore within the scope of the search.
2.2 Adverse / Opposing Parties
2.2.1 Internal Revenue Service — Large Business & International Division. The IRS Large Business & International Division is the examining division responsible for the audit of PPC's transfer pricing positions. The following IRS personnel have been identified as members of the examination team:
• Gerald Meskill, Supervisory Revenue Agent / Team Manager — Mr. Meskill oversees the examination team and serves as the primary supervisory contact for the audit.
• Patricia Dunleavy, Lead Revenue Agent — Agent Dunleavy is the case agent responsible for day-to-day management of the examination, including issuance of IDRs and conduct of taxpayer interviews.
• Dr. Alan Washburne, IRS Economist, IRS Transfer Pricing Practice — Dr. Washburne has been assigned to provide economic analysis in support of the IRS's challenge to PPC's transfer pricing methodology, including evaluation of comparable transactions and application of the best method rule under Treasury Regulations Section 1.482-1(c).
2.2.2 IRS Office of Chief Counsel (Transfer Pricing). The IRS Office of Chief Counsel has assigned the following attorneys to provide legal support to the examination team:
• Franklin Rosario, Attorney-Advisor — Mr. Rosario serves as the principal legal advisor to the examination team on transfer pricing issues under IRC Section 482.
• Donna Hirabayashi, Senior Counsel — Ms. Hirabayashi provides supervisory legal oversight of the Chief Counsel's involvement in the examination.
2.3 Other Related Parties / Third Parties Checked
2.3.1 Crestfield & Associates LLP. Crestfield & Associates LLP is a limited liability partnership registered in the State of Delaware. Crestfield's principal offices are located at 1200 Avenue of the Americas, New York, New York 10036. Crestfield serves as PPC's independent registered public accounting firm and, in that capacity, has audited PPC's consolidated financial statements and issued opinions on PPC's internal controls over financial reporting.
In addition to its audit function, Crestfield's tax services group prepared PPC's consolidated federal income tax returns (Forms 1120) for the tax years at issue (2017 through 2020). Crestfield also prepared PPC's contemporaneous transfer pricing documentation in accordance with IRC Section 6662(e) penalty-protection standards and Treasury Regulations Section 1.6662-6.
The relevant Crestfield personnel are:
• Martin Ogilvy, CPA, Engagement Partner — Mr. Ogilvy leads the overall Crestfield engagement with PPC.
• Susan Lam, CPA, Transfer Pricing Partner — Ms. Lam led the preparation of PPC's transfer pricing documentation and economic analyses for the years at issue.
It is anticipated that C&H will coordinate with Crestfield for purposes of obtaining PPC's tax return data, transfer pricing documentation, workpapers, and related materials. Crestfield will not appear as counsel of record in the IRS examination, and C&H will not assume responsibility for or endorse Crestfield's prior work product. The coordination between C&H and Crestfield is expected to be governed by appropriate information-sharing protocols established in consultation with PPC.
2.3.2 Whitmore Valuation Group LLC (WVG). Whitmore Valuation Group LLC is a limited liability company organized under the laws of the State of Delaware. WVG's principal offices are located at 200 Ashbury Asset Advisors, Suite 700, Boston, Massachusetts 02109. WVG is a nationally recognized economic consulting firm specializing in transfer pricing, valuation, and damages analysis.
WVG has been identified as the proposed expert economic consultants to be retained under a Kovel arrangement at the direction of C&H counsel. The Kovel arrangement will be established pursuant to the principles set forth in United States v. Kovel, 296 F.2d 918 (2d Cir. 1961), under which WVG's work product and communications with C&H will be protected by the attorney-client privilege and the work product doctrine to the extent they are made for the purpose of facilitating the rendition of legal advice by C&H to PPC.
The relevant WVG personnel are:
• Dr. Helena Vasquez, Managing Director — Dr. Vasquez will serve as the lead economist on the engagement and will be responsible for preparing or reviewing economic analyses supporting PPC's transfer pricing positions.
• Dr. Rohan Chakrabarti, Senior Director — Dr. Chakrabarti will provide supporting economic analysis and assist Dr. Vasquez in the preparation of expert reports, if required.
The proposed Kovel letter will be assigned reference number 1018-00009-KV.
2.3.3 Thornbury & Keogh. Thornbury & Keogh is a partnership organized under the laws of Ireland, with offices at 22 Fitzwilliam Square, Dublin 2, D02 YH68, Ireland. Thornbury & Keogh serves as the Irish tax advisors to PBI and PMI and provides advice on Irish corporate tax matters, including compliance with Irish transfer pricing rules (as amended by the Finance Act 2019 and subsequent legislation) and matters relating to PBI's eligibility for the Knowledge Development box regime.
The lead partner at Thornbury & Keogh is Ciarán Thornbury. It is anticipated that C&H will coordinate with Thornbury & Keogh on dual-jurisdiction aspects of the IRS examination, particularly with respect to the characterization and treatment of intercompany transactions under both U.S. and Irish tax law, and any Mutual Agreement Procedure ("MAP") or Advance Pricing Agreement ("APA") considerations that may arise.
2.3.4 Ridgeview Capital Management LP. Ridgeview Capital Management LP is a limited partnership organized under the laws of the State of Delaware, with principal offices at 400 Park Avenue, 18th Floor, New York, New York 10022. Ridgeview is a registered investment adviser that manages institutional equity portfolios. As of PPC's most recent proxy statement (Schedule 14A), Ridgeview holds approximately 8.3% of PPC's outstanding common stock, making it PPC's largest institutional shareholder.
The Managing Partner of Ridgeview is Douglas Everett. Ridgeview has been included in the conflicts search because, as a significant shareholder, Ridgeview closely monitors PPC's uncertain tax position reserves under ASC 740-10 (formerly FIN 48), and the outcome of the IRS examination could materially affect PPC's financial statements, tax reserves, and earnings per share. Notwithstanding this financial interest, Ridgeview is not a party to the IRS examination and does not have a direct legal interest in the subject matter of the proposed engagement.
2.3.5 Hargrove National Bank, N.A. Hargrove National Bank, N.A. is a national banking association organized under the laws of the United States, with principal offices at 100 Federal Street, Boston, Massachusetts 02110. Hargrove serves as the administrative agent under PPC's $1.5 billion senior unsecured revolving credit facility (the "Credit Facility"), which was entered into on or about March 15, 2019, by and among PPC, as borrower, Hargrove, as administrative agent, and a syndicate of participating lenders.
The Relationship Manager at Hargrove responsible for the PPC account is Christine Bellucci, Senior Vice President. Hargrove has been included in the conflicts search because the Credit Facility contains certain financial and reporting covenants that may be implicated by the outcome of the IRS examination. Specifically, the Credit Facility includes a tax-indemnity provision and a material-tax-event covenant that requires PPC to notify the administrative agent and the participating lenders of any tax assessment or proposed tax adjustment in excess of a specified threshold. While the IRS examination could trigger reporting obligations under these covenants, Hargrove is not a party to the examination and has no direct adversarial posture with respect to PPC's defense of its transfer pricing positions.
2.3.6 Glenmore Bank Ireland plc. Glenmore Bank Ireland plc is a public limited company organized under the laws of Ireland. Glenmore serves as PBI's principal Irish banking institution, providing commercial banking services, treasury management, and intercompany cash pooling facilities. Glenmore has been included in the conflicts search as a related party to PBI, although its connection to the IRS examination is attenuated. Glenmore is not a party to the examination and has no direct legal interest in the subject matter of the proposed engagement.
2.4 Key Individuals Searched
In addition to the entities described above, the Conflicts Department searched the following individuals across all C&H databases:
1. Catherine Falk — Chief Executive Officer, PPC
2. Rajesh Iyer — Chief Financial Officer, PPC
3. Deborah Staines — General Counsel, PPC
4. Marcus Whitfield — Vice President, Global Tax, PPC
5. Aidan Naughton — Managing Director, PBI
6. Martin Ogilvy — Engagement Partner, Crestfield & Associates LLP
7. Susan Lam — Transfer Pricing Partner, Crestfield & Associates LLP
8. Dr. Helena Vasquez — Managing Director, Whitmore Valuation Group LLC
9. Dr. Rohan Chakrabarti — Senior Director, Whitmore Valuation Group LLC
10. Ciarán Thornbury — Lead Partner, Thornbury & Keogh
11. Douglas Everett — Managing Partner, Ridgeview Capital Management LP
12. Christine Bellucci — Senior Vice President, Hargrove National Bank, N.A.
13. Gerald Meskill — Supervisory Revenue Agent, IRS LB&I
14. Patricia Dunleavy — Lead Revenue Agent, IRS LB&I
15. Dr. Alan Washburne — IRS Economist, IRS Transfer Pricing Practice
16. Franklin Rosario — Attorney-Advisor, IRS Office of Chief Counsel
17. Donna Hirabayashi — Senior Counsel, IRS Office of Chief Counsel
Each individual was searched by full name, known variations, and, where available, professional affiliations and licensure information.
3. CONFLICTS SEARCH METHODOLOGY
3.1 Database and Systems Searched
The conflicts search was conducted using Calderwood & Harkness's enterprise conflicts management system, which integrates the Firm's new matter intake system, client/matter database, billing system, and personnel records. The system contains records of all client representations, adverse parties, related parties, and key individuals associated with every matter opened by the Firm, including both active matters and closed matters retained in accordance with the Firm's records retention policy.
3.2 Search Period
The search was conducted over the period of May 18 through May 20, 2022. The search was initiated upon receipt of the new matter intake request submitted by Leonard Cross on May 17, 2022, and was completed prior to the issuance of this memorandum.
3.3 Search Parameters
The following search parameters were employed:
• All entity names, both in full and in abbreviated or short-form variations (e.g., "Penterra Pharmaceuticals," "Penterra Pharma," "PPC," "Penterra Biopharma International," "PBI," "Penterra Holdings Luxembourg," "PHL," "Penterra Manufacturing Ireland," "PMI," "Crestfield & Associates," "Whitmore Valuation Group," "WVG," "Thornbury & Keogh," "T&K," "Ridgeview Capital," "Hargrove National Bank," "Glenmore Bank Ireland")
• All individual names listed in Section 2.4 above, including first name, last name, and, where applicable, known variations or aliases
• PPC's Nasdaq ticker symbol: PPCA
• PPC's Employer Identification Number: 22-3741856
• All known addresses for each entity, as set forth in Section 2 above
3.4 Cross-Reference Sources
The search results were cross-referenced against the following additional sources:
(a) All active C&H matters — The Firm's full inventory of currently open client engagements across all offices and practice groups, including matters in which the searched entities or individuals appear as clients, adverse parties, co-parties, witnesses, or other interested persons.
(b) All closed matters within the prior five (5) years — The Firm's archived matter records for matters closed between May 2017 and May 2022, to identify any prior representations that could give rise to a conflict under the "former client" rules (e.g., ABA Model Rule 1.9; N.Y. R. Prof. Conduct 1.9).
(c) Prospective client / adverse party databases — Records of conflict checks conducted in connection with prospective engagements that were ultimately declined or not consummated, to identify any prior conflicts analysis involving the searched parties.
(d) Lateral hire disclosures — Conflicts disclosures submitted by attorneys who joined the Firm through lateral hiring during the preceding five-year period, to identify any representations or client relationships that may have been brought to the Firm as part of a lateral attorney's practice.
(e) C&H partner and counsel personal holdings / outside board disclosures — Annual disclosure filings submitted by all C&H partners and counsel, which include reportable securities positions, corporate board memberships, advisory roles, and other outside activities that could present a conflict of interest or appearance of impropriety.
3.5 IRS Personnel Screening
In addition to the standard conflicts search, the IRS personnel identified in Section 2.2 above were searched against C&H's alumni records and recruiting databases. This additional screening is conducted as a matter of Firm policy to identify any "revolving door" issues, prior C&H employment, or other connections between current IRS examination team members and the Firm or its attorneys that could create an actual or apparent conflict of interest, or that could implicate the post-employment restrictions applicable to former government attorneys under applicable ethics rules and federal statutes (including 18 U.S.C. § 207).
4. SEARCH RESULTS
4.1 Penterra Pharmaceuticals Corp. and Affiliates (PPC, PBI, PHL, PMI)
The conflicts search did not identify any current or prior representation of Penterra Pharmaceuticals Corp., Penterra Biopharma International DAC, Penterra Holdings Luxembourg S.à r.l., or Penterra Manufacturing Ireland Ltd. by Calderwood & Harkness LLP. The Firm has not previously served as counsel to any of these entities in any capacity, whether in tax matters, corporate transactions, litigation, regulatory proceedings, or otherwise.
The conflicts search also did not identify any current or prior representation adverse to PPC, PBI, PHL, or PMI. No C&H matter, whether active or closed within the search period, involves any of these entities as an opposing party, co-defendant, or adverse interest.
Additionally, a review of the Firm's partner and counsel personal holdings disclosures confirmed that no C&H partner or counsel currently holds a board seat, advisory role, or reportable stock position in Penterra Pharmaceuticals Corp. (Nasdaq: PPCA).
Conclusion: No conflict of interest identified. PPC and all affiliates are cleared for acceptance as a new client.
4.2 Internal Revenue Service / Government Personnel
As a matter of professional responsibility, the IRS as an agency of the United States government is not treated as an adverse "client" for purposes of the conflicts analysis. The Firm does not and cannot maintain a client relationship with the IRS. However, the Firm's policy requires screening of individual IRS personnel assigned to an examination in order to identify any prior C&H employment, social relationships, or revolving-door issues that could create an actual or apparent conflict of interest.
The following individuals were searched:
• Gerald Meskill (Supervisory Revenue Agent) — No connection to Calderwood & Harkness identified. Mr. Meskill does not appear in the Firm's alumni records, recruiting databases, or personnel files.
• Patricia Dunleavy (Lead Revenue Agent) — No connection to Calderwood & Harkness identified. Agent Dunleavy does not appear in the Firm's alumni records, recruiting databases, or personnel files.
• Dr. Alan Washburne (IRS Economist) — No connection to Calderwood & Harkness identified. Dr. Washburne does not appear in the Firm's alumni records, recruiting databases, or personnel files.
• Franklin Rosario (Attorney-Advisor, Office of Chief Counsel) — No connection to Calderwood & Harkness identified. Mr. Rosario does not appear in the Firm's alumni records, recruiting databases, or personnel files. A supplementary search of public records (state bar admissions) did not reveal any prior association with the Firm.
• Donna Hirabayashi (Senior Counsel, Office of Chief Counsel) — No connection to Calderwood & Harkness identified. Ms. Hirabayashi does not appear in the Firm's alumni records, recruiting databases, or personnel files.
Conclusion: No conflict of interest or appearance issue identified. All IRS personnel are cleared.
4.3 Crestfield & Associates LLP
The conflicts search did not identify any current C&H engagement adverse to Crestfield & Associates LLP. The Firm is not currently representing any party in any matter in which Crestfield is an opposing party, adverse witness, or target of litigation, investigation, or regulatory proceeding.
The conflicts search also did not identify any current engagement in which Crestfield serves as co-counsel, allied professional, or expert consultant alongside C&H. While C&H attorneys may have interacted with Crestfield professionals in the ordinary course of client representations (as Crestfield is a large, nationally recognized accounting firm), no such interaction gives rise to a conflict in connection with the proposed engagement.
Crestfield's role in the proposed engagement is that of PPC's independent auditor and preparer of the original transfer pricing documentation for the years at issue. C&H will coordinate with Crestfield for purposes of obtaining PPC's tax return data, transfer pricing documentation, and supporting workpapers, but Crestfield will not serve as counsel of record in the IRS examination. C&H will independently evaluate PPC's transfer pricing positions and will not assume responsibility for or endorse Crestfield's prior work product. This coordination arrangement is standard practice in IRS examination defense matters and does not give rise to a conflict of interest.
The individual searches for Martin Ogilvy and Susan Lam did not identify any connection to Calderwood & Harkness that would present a conflict.
Conclusion: No conflict of interest identified. Crestfield & Associates LLP is cleared.
4.4 Whitmore Valuation Group LLC
The conflicts search confirmed that Calderwood & Harkness has previously retained Whitmore Valuation Group LLC as economic experts on matters unrelated to the proposed engagement. These prior retentions involved different clients, different subject matter, and different tax years, and do not present any conflict with the proposed retention of WVG in connection with the PPC engagement.
No adverse representation against Whitmore Valuation Group has been identified. The Firm is not currently representing any party in any matter in which WVG is an opposing party or adverse interest.
The individual searches for Dr. Helena Vasquez and Dr. Rohan Chakrabarti did not identify any connection to Calderwood & Harkness that would present a conflict. Dr. Vasquez has served as an expert consultant on prior C&H matters, and her professional relationship with the Firm is consistent with and supportive of the proposed engagement.
WVG's proposed retention under a Kovel arrangement at the direction of C&H counsel will be governed by a Kovel engagement letter establishing the terms of the retention, the scope of WVG's work, and the applicable privilege protocols. The Kovel letter will be assigned reference number 1018-00009-KV.
Conclusion: No conflict of interest identified. Whitmore Valuation Group LLC is cleared.
4.5 Thornbury & Keogh
The conflicts search did not identify any current or prior C&H engagement involving Thornbury & Keogh in any capacity — whether as opposing counsel, co-counsel, allied professional, or party to any matter.
The individual search for Ciarán Thornbury did not identify any connection to Calderwood & Harkness that would present a conflict.
Thornbury & Keogh serves as Irish tax advisors to PBI and PMI and will coordinate with C&H on dual-jurisdiction aspects of the IRS examination, including Irish transfer pricing considerations and potential MAP or competent authority proceedings. The interests of Thornbury & Keogh and C&H are aligned in this context, as both firms will be working in furtherance of PPC's defense of its transfer pricing positions. No adverse or divergent positions have been identified.
Conclusion: No conflict of interest identified. Thornbury & Keogh is cleared.
4.6 Ridgeview Capital Management LP
The conflicts search did not identify any current C&H representation of Ridgeview Capital Management LP. The Firm does not currently serve as counsel to Ridgeview in any matter.
The conflicts search also did not identify any current C&H representation adverse to Ridgeview. The Firm is not currently representing any party in any matter in which Ridgeview is an opposing party or adverse interest.
The individual search for Douglas Everett did not identify any connection to Calderwood & Harkness that would present a conflict.
Ridgeview's relevance to the conflicts analysis arises from its position as PPC's largest institutional shareholder, holding approximately 8.3% of PPC's outstanding common stock. In that capacity, Ridgeview monitors PPC's financial disclosures, including the Company's uncertain tax position reserves under ASC 740-10 (formerly FIN 48), and the outcome of the IRS examination could materially affect PPC's reported financial results. However, Ridgeview is not a party to the IRS examination and does not have a direct legal interest in the subject matter of the proposed engagement. The proposed engagement does not involve C&H taking any position adverse to Ridgeview's interests, and the defense of PPC's transfer pricing positions is, in fact, aligned with Ridgeview's economic interest as a PPC shareholder.
Conclusion: No conflict of interest identified. Ridgeview Capital Management LP is cleared.
4.7 Hargrove National Bank, N.A.
The conflicts search did not identify any current C&H representation of Hargrove National Bank, N.A. The Firm does not currently serve as counsel to Hargrove in any matter.
The conflicts search also did not identify any current C&H representation adverse to Hargrove. The Firm is not currently representing any party in any matter in which Hargrove is an opposing party or adverse interest.
The individual search for Christine Bellucci did not identify any connection to Calderwood & Harkness that would present a conflict.
Hargrove's relevance to the conflicts analysis arises from its role as administrative agent under PPC's $1.5 billion revolving credit facility. The Credit Facility contains tax-indemnity and material-tax-event covenants that may be implicated by the outcome of the IRS examination. Specifically, a proposed tax adjustment or deficiency assessment in excess of the materiality threshold specified in the Credit Facility may trigger PPC's obligation to notify Hargrove (as administrative agent) and the participating lenders. Notwithstanding this potential reporting obligation, Hargrove is not a party to the IRS examination and has no adversarial posture with respect to PPC's defense of its transfer pricing positions. The proposed engagement does not involve C&H providing advice to PPC regarding its obligations under the Credit Facility; any such advice would be provided by PPC's corporate counsel.
Conclusion: No conflict of interest identified. Hargrove National Bank, N.A. is cleared.
4.8 Glenmore Bank Ireland plc
The conflicts search did not identify any current or prior C&H engagement involving Glenmore Bank Ireland plc in any capacity. The Firm has no active or archived matter in which Glenmore appears as a client, adverse party, or related party.
Glenmore's connection to the proposed engagement is limited to its role as PBI's principal Irish banking institution. Glenmore is not a party to the IRS examination and has no direct legal interest in the subject matter of the proposed engagement.
Conclusion: No conflict of interest identified. Glenmore Bank Ireland plc is cleared.
4.9 Proposed Engagement Team Members
Each member of the proposed engagement team was screened for personal securities holdings in PPC (Nasdaq: PPCA), prior relationships with any party identified in the conflicts search, and any other circumstance that could give rise to a conflict of interest or appearance of impropriety.
• Leonard Cross — Mr. Cross has confirmed that he does not hold any personal securities position in PPC (PPCA) stock, whether directly or through any account over which he exercises investment discretion or control. Mr. Cross has no prior professional, personal, or social relationship with any party or individual identified in this conflicts check that would create a conflict. Mr. Cross has 28 years of experience in transfer pricing controversy and is licensed to practice law in the States of New York and New Jersey and the District of Columbia.
• Sylvia Hartwell — Ms. Hartwell has confirmed that she does not hold any personal securities position in PPC (PPCA) stock. Ms. Hartwell has no prior professional, personal, or social relationship with any party or individual identified in this conflicts check that would create a conflict. Ms. Hartwell has 22 years of experience in tax controversy and is licensed to practice law in the State of New York and the District of Columbia.
• Garrett Simmons — Mr. Simmons has confirmed that he does not hold any personal securities position in PPC (PPCA) stock. Mr. Simmons has no prior professional, personal, or social relationship with any party or individual identified in this conflicts check that would create a conflict. Mr. Simmons has 7 years of experience in tax controversy and transfer pricing matters and is licensed to practice law in the State of New York.
• Leila Nazari — Ms. Nazari has confirmed that she does not hold any personal securities position in PPC (PPCA) stock. Ms. Nazari has no prior professional, personal, or social relationship with any party or individual identified in this conflicts check that would create a conflict. Ms. Nazari has 4 years of experience in tax controversy and is licensed to practice law in the States of New York and New Jersey.
Conclusion: All proposed engagement team members are cleared.
5. ANALYSIS OF POTENTIAL ISSUES
While the comprehensive conflicts search did not reveal any disqualifying conflicts of interest, the Conflicts Department has identified several areas that warrant discussion and the implementation of appropriate protective measures. These issues are addressed below.
5.1 Publicly Traded Client — Personal Securities Holdings
Penterra Pharmaceuticals Corp. is a publicly traded company listed on the Nasdaq Global Select Market under the ticker symbol "PPCA." Representation of a publicly traded company in connection with a significant IRS examination may expose engagement team members and other Firm personnel to material, non-public information ("MNPI") concerning the Company's tax liabilities, uncertain tax position reserves, and potential financial statement adjustments.
In accordance with the Firm's insider trading and personal securities trading policies, all engagement team members and their immediate family members have been reminded of the following obligations:
(a) No engagement team member or immediate family member may purchase, sell, or otherwise trade in PPC securities (including common stock, options, and any derivative instruments) during the pendency of the engagement or at any time while in possession of MNPI concerning PPC.
(b) No engagement team member may disclose MNPI concerning PPC to any person who does not have a legitimate need to know the information in connection with the engagement.
(c) Any engagement team member who becomes aware of a potential violation of these obligations must immediately notify the Office of the General Counsel.
As noted in Section 4.9 above, no current holdings of PPC securities have been identified for any engagement team member or their immediate family members. The engagement team will be added to the Firm's restricted securities list effective upon formal opening of the matter.
5.2 Multi-Entity Representation
The proposed engagement involves the defense of PPC, the U.S. parent corporation and taxpayer of record, in connection with transfer pricing positions that directly implicate the operations, revenues, and intercompany arrangements of PBI (Irish subsidiary and IP-holding entity), PHL (Luxembourg intermediate holding entity, treated as a disregarded entity for U.S. tax purposes), and PMI (Irish contract manufacturer).
All four entities are within the same corporate family. PPC is the ultimate parent and the entity legally responsible for the U.S. federal income tax returns (Forms 1120) at issue for tax years 2017 through 2020. The IRS examination challenges the arm's-length character of intercompany transactions between PPC and its foreign affiliates, and the defense of PPC's transfer pricing positions necessarily requires consideration of the functions, assets, and risks of PBI, PHL, and PMI.
At this time, no divergent interests among these entities have been identified. The defense of PPC's transfer pricing positions — namely, that the intercompany royalty rates and cost-sharing payments between PPC and PBI are consistent with arm's-length principles under IRC Section 482 — is aligned with the interests of PBI, PHL, and PMI. A successful defense benefits all entities within the PPC corporate family by preserving the existing allocation of income and avoiding double taxation.
However, the Conflicts Department notes that in certain transfer pricing disputes, the interests of the U.S. parent and its foreign affiliates may diverge, particularly if a settlement or competent authority proceeding involves a reallocation of income that benefits one jurisdiction at the expense of another. While no such divergence has been identified at this time, the engagement team should remain alert to any developments that could create a conflict between PPC and its affiliates.
Recommendation: C&H should obtain written acknowledgment from PPC's General Counsel, Deborah Staines, and PBI's Managing Director, Aidan Naughton, confirming their awareness that (a) C&H's engagement is with PPC as the primary client; (b) C&H may need to access information from and coordinate with PBI, PHL, and PMI in connection with the defense; and (c) PPC and PBI acknowledge that no divergent interests currently exist and agree to promptly notify C&H if any such divergence arises during the course of the engagement. This acknowledgment should be incorporated into the engagement letter or obtained as a separate written confirmation.
5.3 Coordination with Crestfield & Associates and Thornbury & Keogh
The proposed engagement will require C&H to coordinate with two other professional firms:
Crestfield & Associates LLP prepared PPC's original transfer pricing documentation and serves as PPC's independent registered public accounting firm. C&H will need to obtain from Crestfield copies of PPC's federal income tax returns, transfer pricing study reports, benchmarking analyses, functional analyses, and supporting workpapers for the years at issue. C&H will review and independently evaluate this documentation as part of its examination defense. C&H will not assume responsibility for or endorse Crestfield's prior work product, and C&H will independently assess the sufficiency and accuracy of the transfer pricing positions reflected in the documentation.
Thornbury & Keogh provides Irish tax advice to PBI and PMI. Coordination with Thornbury & Keogh on dual-jurisdiction issues will be necessary, particularly with respect to (a) the characterization and treatment of intercompany transactions under Irish transfer pricing rules; (b) the potential for corresponding adjustments or correlative relief under the U.S.-Ireland Income Tax Convention; and (c) any MAP or competent authority proceedings that may be initiated in connection with the IRS examination.
These coordination arrangements are standard in international transfer pricing disputes and do not present conflicts of interest. The interests of C&H, Crestfield, and Thornbury & Keogh are aligned in the defense of PPC's transfer pricing positions. Information-sharing protocols will be established in consultation with PPC to ensure that all shared information is appropriately protected and that privilege is preserved.
5.4 Kovel Arrangement with Whitmore Valuation Group
Whitmore Valuation Group LLC will be retained under a Kovel arrangement at the direction of C&H counsel, pursuant to the principles established in United States v. Kovel, 296 F.2d 918 (2d Cir. 1961). Under this arrangement, WVG's economic analyses, communications with C&H, and work product will be protected by the attorney-client privilege and the work product doctrine to the extent they are prepared at the direction of counsel for the purpose of facilitating C&H's rendition of legal advice to PPC.
The Kovel engagement letter, to be assigned reference number 1018-00009-KV, will set forth the terms of WVG's retention, including the scope of WVG's engagement, the applicable privilege protocols, billing arrangements, and confidentiality obligations. The Kovel letter will specify that WVG is retained as a consulting expert at the direction of counsel and that WVG's work product is the property of C&H (on behalf of PPC) and is not to be disclosed to third parties without the prior written consent of C&H and PPC.
No conflict of interest has been identified in connection with the proposed retention of WVG. WVG's prior work for C&H on unrelated matters supports the Firm's confidence in WVG's capabilities and does not create any conflict. WVG's engagement is in support of C&H's legal advice to PPC and is fully aligned with the interests of PPC.
6. DETERMINATION AND CLEARANCE
6.1 Conclusion. Based on the comprehensive conflicts search conducted on May 18 through May 20, 2022, covering all parties, affiliates, related entities, key individuals, adverse parties, third parties, and proposed engagement team members as described in this memorandum, no conflicts of interest have been identified that would preclude Calderwood & Harkness LLP from undertaking the proposed representation of Penterra Pharmaceuticals Corp. in connection with the IRS transfer pricing examination defense for tax years 2017, 2018, 2019, and 2020.
The conflicts analysis was conducted in accordance with the applicable Rules of Professional Conduct of the States of New York and New Jersey and the District of Columbia, the ABA Model Rules of Professional Conduct (specifically Rules 1.7, 1.8, 1.9, 1.10, and 1.11), and the Firm's internal conflicts and ethics policies. No current client conflict (Rule 1.7), former client conflict (Rule 1.9), or imputed disqualification issue (Rule 1.10) has been identified. No successive government/private employment issue (Rule 1.11) has been identified with respect to IRS personnel.
6.2 Conditions of Clearance
The engagement is cleared for acceptance, subject to the satisfaction of the following conditions:
1. Execution of the Engagement Letter. A formal engagement letter, setting forth the scope of representation, fee arrangements, staffing, and other terms, shall be executed by PPC and C&H. The target date for execution is June 2, 2022.
2. Filing of IRS Form 2848 (Power of Attorney and Declaration of Representative). IRS Forms 2848 shall be filed with the IRS Centralized Authorization File (CAF) Unit, designating Leonard Cross, Sylvia Hartwell, Garrett Simmons, and Leila Nazari as authorized representatives of PPC for the tax years and tax matters at issue.
3. Engagement Team Compliance with Personal Securities Trading Policy. All engagement team members shall comply with the Firm's insider trading and personal securities trading policies with respect to PPC (Nasdaq: PPCA) for the duration of the engagement. PPC (PPCA) shall be added to the Firm's restricted securities list effective upon formal opening of the matter.