1018-00009 · Client 1018 · Engagement

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CALDERWOOD & HARKNESS LLP 600 Lexington Avenue New York, NY 10022 Tel: (212) 554-7000	Fax: (212) 554-7001
Philadelphia Office: 1735 Market Street, Suite 3100, Philadelphia, PA 19103 Tel: (215) 963-4200	Fax: (215) 963-4201

May 27, 2022

DRAFT — FOR DISCUSSION PURPOSES ONLY

Mr. Marcus Whitfield Vice President, Global Tax Penterra Pharmaceuticals Corp. 2200 Independence Boulevard Princeton Junction, NJ 08550

Ms. Deborah Staines General Counsel Penterra Pharmaceuticals Corp. 2200 Independence Boulevard Princeton Junction, NJ 08550

Re: Proposed Engagement — IRS Transfer Pricing Examination Defense, Tax Years 2017–2020 Matter Number: 1018-00009

Dear Mr. Whitfield and Ms. Staines:

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1. INTRODUCTION AND PURPOSE

Calderwood & Harkness LLP ("C&H" or the "Firm") is pleased to present this draft engagement letter setting forth the proposed terms under which C&H would represent Penterra Pharmaceuticals Corp. ("PPC" or the "Company") in connection with the defense of the Internal Revenue Service ("IRS") Large Business & International Division ("LB&I") examination of PPC's transfer pricing methodology for tax years 2017, 2018, 2019, and 2020 (the "Examination" or the "Matter").

As you are aware, PPC received IRS initial contact letter (Letter 2205-A), dated May 16, 2022, formally opening the Examination under Exam Team ID LB&I-NE-TP-2022-00641 (the "Opening Letter"). The Opening Letter identified PPC's intercompany transfer pricing arrangements as the primary area of inquiry and designated the Examination as a coordinated industry case under LB&I protocols. We understand that the IRS examination team has been assigned and that an initial Information Document Request may be expected within the next several weeks.

PPC is a Delaware corporation, publicly traded on the Nasdaq Global Select Market under the ticker symbol PPCA, with its principal executive offices located at 2200 Independence Boulevard, Princeton Junction, New Jersey 08550. PPC operates in the specialty pharmaceuticals and biotechnology industry, with a primary focus on oncology, immunology, and rare-disease therapeutics. Given the significance of PPC's intellectual property portfolio, the intercompany arrangements at issue in the Examination, and the potential magnitude of any transfer pricing adjustments, we believe it is essential that PPC engage experienced tax controversy counsel at the earliest practicable stage.

This draft engagement letter is circulated for the review and comment of Mr. Whitfield and Ms. Staines prior to finalization and execution. We welcome the opportunity to discuss any aspect of the proposed terms and to incorporate PPC's feedback into a final version of this letter for signature. We respectfully request that PPC provide any comments or proposed revisions by May 31, 2022, so that execution may be completed on or before June 2, 2022, enabling the Firm to promptly file the requisite IRS Form 2848 and commence engagement activities.

2. THE CLIENT

The client for this engagement is Penterra Pharmaceuticals Corp., Employer Identification Number ("EIN") 22-3741856.

C&H will not separately represent any PPC subsidiary, affiliate, or related entity in connection with this Examination, including without limitation:

(a) Penterra Biopharma International DAC ("PBI"), a Designated Activity Company organized under the laws of Ireland, with its registered office at 4th Floor, Claremont House, Sandyford Business Park, Dublin D18 K7T4, Ireland;

(b) Penterra Holdings Luxembourg S.à r.l. ("PHL"), a société à responsabilité limitée organized under the laws of the Grand Duchy of Luxembourg, with its registered office at 14, rue Aldringen, L-1118 Luxembourg (Registre de Commerce et des Sociétés Number B 168452); or

(c) Penterra Manufacturing Ireland Ltd. ("PMI"), an Irish private limited company (Companies Registration Office Number 512347), with its registered office at Unit 7, Ringaskiddy Industrial Estate, Co. Cork T12 PX29, Ireland.

For purposes of the U.S. federal income tax positions at issue, PHL is treated as a disregarded entity for U.S. federal income tax purposes and, accordingly, its assets, liabilities, and transactions are treated as those of its owner for such purposes.

While C&H's representation is limited exclusively to PPC, the parties acknowledge that the scope of work will necessarily involve the review and analysis of intercompany arrangements, agreements, financial data, and documentation among PPC, PBI, PHL, and PMI. Such review is undertaken solely in connection with C&H's representation of PPC and does not create an attorney-client relationship between C&H and any of PPC's subsidiaries or affiliates. To the extent that any subsidiary or affiliate requires independent legal representation in connection with the Examination or any related proceeding, PPC should engage separate counsel for that purpose.

3. SCOPE OF ENGAGEMENT

3.1 Overview of the Matter

The IRS has opened a multi-year examination challenging the transfer pricing methodology employed by PPC in connection with its Irish intellectual-property-holding structure involving PBI. The Examination covers PPC's U.S. federal income tax returns (Forms 1120) for tax years ending December 31, 2017, December 31, 2018, December 31, 2019, and December 31, 2020 (collectively, the "Tax Years at Issue").

Based on the Opening Letter, preliminary communications with the IRS examination team, and our understanding of PPC's intercompany arrangements, the IRS's anticipated areas of inquiry include the following:

(a) Cost-Sharing Arrangement ("CSA"). The qualified cost-sharing arrangement between PPC and PBI, effective as of July 1, 2012 (the "CSA"), under which PBI co-funds research and development costs incurred by PPC in exchange for the right to exploit certain intangible property developed thereunder outside the Americas (i.e., in Europe, the Middle East, Africa, and Asia-Pacific territories). The IRS is expected to scrutinize the allocation methodology for intangible development costs, the division of reasonably anticipated benefits, and the adequacy of PBI's cost-share payments during the Tax Years at Issue under Treasury Regulations § 1.482-7.

(b) Platform Contribution Transaction ("PCT"). The platform contribution transaction payment of Three Hundred Twelve Million Dollars ($312,000,000) made by PBI to PPC on July 1, 2012 (the "PCT Payment"), in connection with the buy-in of pre-existing intangible property contributed to the CSA. The IRS is expected to challenge the valuation methodology underlying the PCT Payment, including the discount rate, revenue projections, useful life assumptions, and the identification and valuation of platform contributions under Treasury Regulations § 1.482-7(g).

(c) Intercompany Royalty Arrangement. The intercompany license arrangement under which PBI licenses legacy compounds from PPC at a royalty rate of four and one-half percent (4.5%) of net sales for non-Americas territories (the "Legacy Royalty"). The IRS is expected to evaluate whether this royalty rate satisfies the arm's-length standard under Internal Revenue Code ("IRC") § 482 and Treasury Regulations § 1.482-4, particularly in light of the commercial success of certain legacy compounds during the Tax Years at Issue.

(d) Economic Substance and Functional Profile of PBI. The IRS is expected to examine the economic substance of PBI, including PBI's employee headcount, functional capabilities, decision-making authority, and risk management, to determine whether PBI possesses the requisite substance to be treated as the owner of intangible property and as a qualified participant in the CSA. The IRS may also assess PBI's characterization under the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations.

PPC was not participating in the IRS Compliance Assurance Process ("CAP") for the Tax Years at Issue, and accordingly, the Examination is being conducted under standard LB&I examination procedures.

3.2 Scope of Legal Services

C&H will provide the following legal services in connection with the Examination, organized by anticipated phase:

Phase 1 — Examination Defense (IDR Responses). C&H will manage and respond to Information Document Requests ("IDRs") issued by the IRS examination team throughout the Examination. This phase will include coordinating document collection from PPC, its subsidiaries, and its advisors; reviewing and organizing responsive materials; preparing formal IDR responses; attending IRS opening, status, and issue-specific conferences; and preparing and presenting factual and legal positions to the IRS examination team. C&H will serve as PPC's primary point of contact with the IRS during the Examination and will manage all substantive communications with the examination team, including the Team Manager, Lead Revenue Agent, and any International Examiner or Transfer Pricing Practice ("TPP") economist assigned to the Examination.

Phase 2 — NOPA Review and Formal Protest. In the event the IRS issues one or more Notices of Proposed Adjustment ("NOPAs"), C&H will analyze the legal, factual, and economic bases for any proposed adjustment. C&H will prepare and file a formal Protest on behalf of PPC contesting any proposed adjustments with which PPC disagrees. The Protest will develop PPC's legal arguments under IRC § 482, Treasury Regulations §§ 1.482-1, 1.482-4, 1.482-7, and related authorities, as well as PPC's factual and economic positions. C&H will coordinate with Whitmore Valuation Group LLC (as described below) to support the economic analysis underpinning PPC's positions.

Phase 3 — IRS Appeals. If the matter proceeds beyond the Examination phase, C&H will represent PPC before the IRS Independent Office of Appeals ("Appeals"). This representation will include preparation of Appeals conference materials (including written submissions and supporting exhibits), attendance at Appeals conferences (whether in person or virtual), and negotiation of a potential settlement with the Appeals Officer and Appeals Team Case Leader assigned to the case. C&H will advise PPC on the relative merits of potential settlement positions and the litigation hazards associated with various adjustment scenarios.

Ancillary Services. In addition to the foregoing, C&H will provide the following ancillary advisory services as needed throughout the engagement:

(i) Advising PPC on the management of statutes of limitations applicable to the Tax Years at Issue, including the review, negotiation, and execution of IRS Forms 872 (Consent to Extend the Time to Assess Tax) and Forms 872-A (Special Consent to Extend the Time to Assess Tax) as appropriate;

(ii) Advising PPC on the protection of attorney-client privilege and work-product doctrine in the context of the Examination, including the development of privilege protocols and the review of document productions for privileged materials;

(iii) Coordinating with PPC's independent auditor, Crestfield & Associates LLP ("Crestfield"), as more fully described in Section 7.1 below, for purposes of obtaining tax return data, workpapers, and contemporaneous transfer pricing documentation;

(iv) Coordinating with PPC's Irish tax advisors, Thornbury & Keogh ("T&K"), as more fully described in Section 7.2 below, on dual-jurisdiction aspects of the Examination;

(v) Advising PPC on the potential impact of the Examination on PPC's uncertain tax position reserves under Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 740-10 (formerly FIN 48), including the assessment of "more likely than not" and measurement thresholds;

(vi) Advising PPC on U.S. Securities and Exchange Commission ("SEC") disclosure considerations arising from the Examination, including potential disclosure obligations under Item 103 of Regulation S-K, Management's Discussion and Analysis requirements, and financial statement footnote disclosures;

(vii) Analyzing the interactions between any proposed transfer pricing adjustments and the global intangible low-taxed income ("GILTI") provisions under IRC § 951A, the base erosion and anti-abuse tax ("BEAT") under IRC § 59A, and the outbound transfer provisions of IRC § 367(d);

(viii) Analyzing competent authority and mutual agreement procedure ("MAP") considerations under Article 25 of the Convention Between the Government of the United States of America and the Government of Ireland for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and Capital Gains (the "U.S.-Ireland Income Tax Treaty"), including advising PPC on the advisability and timing of a competent authority request to mitigate potential double taxation arising from any sustained IRS adjustment.

Scope Exclusions. The scope of this engagement does not include representation of PPC in any proceeding before the United States Tax Court or any other federal court. In the event the Matter is not resolved through IRS Appeals and PPC determines to petition the Tax Court or pursue litigation in the Court of Federal Claims or a United States District Court, such representation would require the negotiation and execution of a separate engagement letter. Similarly, this engagement does not include Irish tax representation, which is handled by Thornbury & Keogh as described in Section 7.2 below.

3.3 Power of Attorney

Promptly upon execution of this engagement letter, C&H will prepare and file IRS Form 2848 (Power of Attorney and Declaration of Representative) with the IRS, authorizing the designated C&H engagement team members to represent PPC (EIN 22-3741856) before the IRS with respect to IRC § 482 transfer pricing matters for the Tax Years at Issue (2017, 2018, 2019, and 2020). The Form 2848 will designate Leonard Cross and Sylvia Hartwell as PPC's authorized representatives, with Garrett Simmons and Leila Nazari listed as additional representatives. We anticipate filing the Form 2848 within one (1) week of the execution of this engagement letter.

PPC will be asked to review and sign the Form 2848 prior to filing. C&H will provide a draft of the completed form for PPC's review concurrently with or shortly after the execution of this letter.

4. ENGAGEMENT TEAM AND STAFFING PLAN

4.1 Team Members

C&H has assembled a team of experienced tax controversy professionals to represent PPC in the Examination. The core engagement team will consist of the following individuals:

Leonard Cross — Responsible Partner, Tax Department

Mr. Cross is a partner in C&H's Tax Department based in the Firm's Philadelphia office at 1735 Market Street, Suite 3100, Philadelphia, PA 19103. He has twenty-eight (28) years of experience in transfer pricing controversy, with a particular focus on the defense of IRS examinations and Appeals proceedings involving cost-sharing arrangements, intangible property valuations, and cross-border intercompany transactions in the pharmaceutical, technology, and financial services sectors. Mr. Cross is licensed to practice law in the States of New York and New Jersey and the District of Columbia. He will serve as the Responsible Partner for this engagement, with primary responsibilities encompassing overall engagement strategy, representation of PPC before IRS Appeals, and management of the client relationship.

Sylvia Hartwell — Billing Partner, Tax Department

Ms. Hartwell is a partner in C&H's Tax Department based in the Firm's New York office at 600 Lexington Avenue, New York, NY 10022. She has twenty-two (22) years of experience in international tax controversy and leads C&H's International Tax Controversy Practice. Ms. Hartwell's experience includes the defense of major transfer pricing examinations, advance pricing agreement negotiations, and competent authority proceedings under bilateral tax treaties. She is licensed to practice law in the State of New York and the District of Columbia. Ms. Hartwell will serve as the Billing Partner for this engagement, with primary responsibilities including client management, billing oversight, and strategic counsel on complex international tax issues, including GILTI, BEAT, and treaty-based competent authority matters.

Garrett Simmons — Lead Associate, Tax Department

Mr. Simmons is a senior associate in C&H's Tax Department based in the Firm's Philadelphia office. He has seven (7) years of experience specializing in transfer pricing economic analysis and IRS controversy. His experience includes managing IDR response processes for multi-year transfer pricing examinations, coordinating with economic expert consultants, and drafting formal Protests before IRS Appeals. Mr. Simmons is licensed to practice law in the State of New York. He will serve as the Lead Associate for this engagement, with primary responsibilities encompassing IDR response management, economic analysis coordination with Whitmore Valuation Group LLC, and Protest drafting.

Leila Nazari — Working Associate, Tax Department

Ms. Nazari is an associate in C&H's Tax Department based in the Firm's Philadelphia office. She has four (4) years of experience focusing on international tax structuring and controversy support, including document production management, legal research, and coordination with foreign counsel in multi-jurisdictional tax disputes. Ms. Nazari is licensed to practice law in the States of New York and New Jersey. She will serve as the Working Associate for this engagement, with primary responsibilities encompassing legal research, document production management, preparation of privilege logs, and coordination with PPC's Irish tax counsel, Thornbury & Keogh.

4.2 Additional Resources

In addition to the core team members identified above, C&H will staff paralegals and legal assistants as needed to support the engagement, including document management, production, and administrative functions. C&H may also retain additional associates with relevant transfer pricing or international tax expertise to assist with discrete aspects of the engagement; PPC will be notified in advance of any such staffing additions, and the applicable billing rates will be communicated at that time.

C&H anticipates retaining an independent economic consulting firm under a Kovel arrangement (i.e., retained at the direction of counsel and under the protection of the attorney-client privilege) to perform transfer pricing economic analyses, benchmarking studies, and expert reports in support of PPC's positions. The proposed economic consulting firm is Whitmore Valuation Group LLC ("WVG"), located at 200 Ashbury Asset Advisors, Suite 700, Boston, MA 02109. WVG's engagement would be led by Dr. Helena Vasquez, Ph.D., Managing Director, who has extensive experience in transfer pricing valuations for pharmaceutical and life sciences companies and has served as an expert witness and consultant in numerous IRS transfer pricing disputes. WVG's proposed blended billing rate for this engagement is Six Hundred Fifty Dollars ($650) per hour. A separate Kovel engagement letter will be executed upon retention of WVG, as more fully described in Section 6 below. PPC's prior approval is required before WVG's retention is finalized.

5. FEE ARRANGEMENTS

5.1 Hourly Billing Rates (2022)

C&H will bill PPC for legal services rendered in connection with this engagement on an hourly basis at the following 2022 standard rates for the core engagement team:

The foregoing rates are subject to annual adjustment, which is typically effective as of January 1 of each calendar year. C&H will notify PPC in advance of any rate increases. Given the anticipated duration of this engagement, PPC should expect that rates in effect after January 1, 2023 (and, if the engagement extends further, January 1, 2024) may differ from the 2022 rates set forth above. C&H endeavors to maintain rate increases within industry norms and will communicate any changes to PPC with reasonable advance notice.

5.2 Estimated Fee Range

Based on C&H's experience with IRS transfer pricing examinations of comparable scope and complexity in the pharmaceutical industry, and taking into account the multi-year span of the Examination, the complexity of PPC's CSA and PCT arrangements, and the anticipated trajectory of the matter through IRS Appeals, C&H estimates total legal fees for the full engagement (Phases 1 through 3, inclusive of ancillary advisory services) in the range of Four Million Five Hundred Thousand Dollars ($4,500,000) to Seven Million Dollars ($7,000,000).

This estimate is based on the following phase-level projections:

The foregoing estimates are non-binding projections provided for PPC's planning purposes only. Actual fees will depend on a number of factors, including the scope and complexity of the IRS's positions, the number and breadth of IDRs issued by the examination team, the nature and extent of any NOPAs, the duration and complexity of the Appeals process, and other developments that cannot be predicted with certainty at this stage. C&H will provide PPC with periodic budget updates, and the Billing Partner (Ms. Hartwell) will be available to discuss budget matters at any time.

The foregoing estimates do not include the fees and expenses of Whitmore Valuation Group LLC or any other third-party consultants retained in connection with the engagement. WVG's fees will be billed separately as described in Section 6 below. A preliminary budget estimate by engagement phase is provided at Appendix C for reference.

5.3 Expenses

PPC will reimburse C&H for reasonable out-of-pocket expenses incurred in connection with this engagement. Such expenses may include, without limitation, travel expenses (airfare, ground transportation, hotel accommodations, and meals incurred in connection with IRS conferences, client meetings, and witness interviews), photocopying and document reproduction costs, courier and delivery charges, electronic legal research (including Westmark Data Systems, Sundial Solutions, Tidewater Technologies, and similar databases), filing fees, long-distance telephone charges, and other necessary expenditures. C&H will exercise reasonable judgment in incurring expenses and will seek PPC's advance approval for any single expense item exceeding Five Thousand Dollars ($5,000).

All expenses will be itemized on monthly invoices and presented with sufficient detail to enable PPC's review and verification.

5.4 Billing and Payment

C&H will issue monthly invoices to PPC describing the legal services performed during the preceding billing period, the hours billed by each timekeeper, a narrative description of the work performed, and an itemization of reimbursable expenses. All invoices will reference Matter Number 1018-00009 and will be directed to Mr. Marcus Whitfield, Vice President, Global Tax, at the address set forth above, or to such other person or address as PPC may designate in writing.

Payment of invoices is due within thirty (30) days of the invoice date. In the event that PPC has any question or concern regarding an invoice, PPC is encouraged to contact Ms. Hartwell promptly so that the matter may be addressed. C&H reserves the right to charge interest on past-due amounts at the rate of one percent (1.0%) per month, or the maximum rate permitted by applicable law, whichever is less, on amounts remaining unpaid more than sixty (60) days after the invoice date.

6. RETENTION OF EXPERT CONSULTANTS

As discussed in Sections 3.2 and 4.2 above, C&H proposes to retain Whitmore Valuation Group LLC ("WVG") under a Kovel arrangement to perform independent economic analyses in support of C&H's legal advice to PPC. The Kovel arrangement is designed to bring WVG's economic analysis within the scope of the attorney-client privilege by having WVG perform its services at the direction of C&H counsel and for the primary purpose of enabling C&H to provide informed legal advice to PPC regarding the transfer pricing issues in the Examination.

Under the proposed arrangement, WVG would operate under the direction and supervision of C&H counsel, and communications between WVG and C&H (and between WVG and PPC, when made in furtherance of C&H's legal representation) would be protected by the attorney-client privilege and the work-product doctrine. The effectiveness of this privilege protection depends on maintaining the structure of the Kovel arrangement, including WVG's subordination to C&H's direction and the primary purpose of the work being to facilitate the provision of legal advice.

WVG's anticipated deliverables in connection with the engagement include the following:

(a) A comprehensive functional analysis of PBI, examining PBI's functions performed, assets used, and risks assumed in connection with the CSA, the Legacy Royalty arrangement, and PBI's overall operations, for purposes of establishing PBI's characterization under IRC § 482 and the OECD Transfer Pricing Guidelines;

(b) Benchmarking studies utilizing the comparable uncontrolled transaction ("CUT") method, the comparable profits method ("CPM"), and the transactional net margin method ("TNMM") to evaluate the arm's-length character of the intercompany royalty rate and other controlled transactions;

(c) A PCT valuation analysis utilizing the income method and discounted cash flow ("DCF") approach under Treasury Regulations § 1.482-7(g)(4), evaluating the adequacy of the $312 million PCT Payment in light of the platform contributions made available by PPC;

(d) Expert rebuttal reports responding to any IRS economist's analysis or transfer pricing adjustments proposed by the examination team or IRS Transfer Pricing Practice economists.

WVG's engagement would be led by Dr. Helena Vasquez, Ph.D., Managing Director, who holds a doctorate in economics from the Massachusetts Institute of Technology and has over twenty years of experience in transfer pricing analysis and valuation, with particular expertise in the pharmaceutical and life sciences industries. Dr. Vasquez has served as a testifying and consulting expert in numerous IRS transfer pricing disputes and has been qualified as an expert in the United States Tax Court. The supporting economist for this engagement would be Dr. Rohan Chakrabarti, Ph.D., Senior Director, who holds a doctorate in economics from the University of Chicago and has extensive experience in cost-sharing arrangement analysis and intangible property valuation.

WVG's proposed blended billing rate for this engagement is Six Hundred Fifty Dollars ($650) per hour, applicable to all professionals staffed on the matter. A separate Kovel engagement letter, referenced as Matter Number 1018-00009-KV, will be executed upon finalization of WVG's retention. WVG's fees and expenses may be billed to PPC through C&H (with WVG's charges appearing as a disbursement on C&H's monthly invoices) or billed directly by WVG to PPC, at PPC's preference. PPC should advise C&H of its preferred billing arrangement.

PPC's express approval is required before WVG's retention is finalized. We are prepared to arrange an introductory meeting between PPC and WVG at PPC's convenience.

7. COORDINATION WITH OTHER ADVISORS

7.1 Crestfield & Associates LLP

PPC's independent auditor and preparer of PPC's consolidated U.S. federal income tax returns (Forms 1120) for the Tax Years at Issue is Crestfield & Associates LLP ("Crestfield"), located at 1200 Avenue of the Americas, New York, NY 10036. The engagement partner for PPC's audit is Martin Ogilvy, CPA, and the transfer pricing partner responsible for PPC's contemporaneous transfer pricing documentation is Susan Lam, CPA.

We understand that Crestfield originally prepared PPC's contemporaneous transfer pricing documentation for the Tax Years at Issue in accordance with the penalty-protection standards set forth in IRC § 6662(e) and Treasury Regulations § 1.6662-6. This documentation, including the functional analysis, selection of the best method, comparability analysis, and economic analysis underlying PPC's reported transfer pricing positions, will be a critical component of the Examination defense.

C&H will coordinate closely with Crestfield to obtain tax return data, supporting workpapers, transfer pricing documentation, and other relevant materials. However, Crestfield will not appear as counsel of record in the Examination, and Crestfield's role will be limited to providing factual support and documentation to C&H. PPC should authorize Crestfield to share all relevant data, workpapers, and documentation with C&H in connection with this engagement. We recommend that PPC execute a written authorization or direction letter to Crestfield for this purpose, and C&H is available to assist in preparing such a letter.

7.2 Thornbury & Keogh (Irish Tax Advisors)

PBI's Irish tax advisors are Thornbury & Keogh, Chartered Tax Advisors, located at 22 Fitzwilliam Square, Dublin 2, D02 YH68, Ireland. The lead partner responsible for PBI's Irish tax matters is Ciarán Thornbury.

C&H will coordinate with T&K on dual-jurisdiction aspects of the Examination, including the review and analysis of PBI's substance documentation, Irish Revenue filings, and PBI's utilization of the Knowledge Development box ("KDB") regime, which provides an effective tax rate of six and one-quarter percent (6.25%) on qualifying intellectual property income from fiscal year 2016 forward. Such coordination will be important for purposes of evaluating the potential for double taxation arising from any sustained IRS adjustment, assessing the feasibility of a competent authority or mutual agreement procedure request under the U.S.-Ireland Income Tax Treaty, and ensuring consistency between PPC's U.S. positions and PBI's Irish positions.

T&K's fees and expenses are entirely separate from C&H's engagement and will be billed directly by T&K to PPC or PBI, as applicable, under T&K's separate engagement arrangements with those entities. C&H is not responsible for and does not have oversight over T&K's fees, billing practices, or scope of work.

8. PRIVILEGE AND CONFIDENTIALITY

8.1 Attorney-Client Privilege

All communications between C&H and PPC in connection with this engagement are intended to be protected by the attorney-client privilege. This includes written and oral communications, memoranda, emails, analyses, and other materials prepared by C&H in the course of providing legal advice to PPC.

To preserve the privilege, PPC should take care to limit the distribution of C&H's advice, work product, and related communications to those individuals within PPC (and its subsidiaries, as applicable) who have a need to know the information in connection with the Examination. Broader dissemination of privileged communications — particularly to third parties outside the attorney-client relationship — may result in a waiver of the privilege. C&H will work with PPC's in-house legal department to establish detailed privilege protocols at the outset of the engagement, including guidelines for marking documents as privileged, protocols for internal distribution of C&H communications, and procedures for the review of document productions for privileged materials prior to submission to the IRS.

8.2 Kovel Arrangement

As described in Section 6 above, communications with and work product of Whitmore Valuation Group LLC, when made at the direction of C&H and for the primary purpose of enabling C&H to provide legal advice to PPC, are intended to be protected under the Kovel doctrine. See United States v. Kovel, 296 F.2d 918 (2d Cir. 1961). This protection requires that WVG operate under C&H's supervision and direction, that WVG's work be performed primarily for the purpose of facilitating the provision of legal advice (rather than for an independent business purpose), and that the confidentiality of the communications be maintained.

C&H will structure the WVG engagement and the associated Kovel engagement letter to maximize the likelihood that the Kovel privilege will be sustained. However, as PPC is aware, the scope and application of the Kovel doctrine may vary depending on the jurisdiction and the specific facts and circumstances, and no assurance can be given that a court or the IRS will recognize the privilege in all instances.

8.3 Document Preservation

Upon the commencement of this engagement, C&H will issue a comprehensive document preservation notice (litigation hold) to PPC and its relevant subsidiaries (PBI, PHL, and PMI), directing the preservation of all documents, electronically stored information, and other materials potentially relevant to the IRS Examination. This preservation obligation extends to emails, memoranda, financial records, intercompany agreements, board minutes, presentations, economic analyses, transfer pricing studies, tax returns and workpapers, and any other materials that may be relevant to the matters under examination.

PPC should ensure that its internal document preservation procedures are activated promptly and that all relevant custodians are notified of their preservation obligations. C&H will work with PPC's information technology and legal departments to develop and implement an appropriate preservation protocol.

9. CONFLICTS OF INTEREST

C&H has conducted a preliminary conflicts check in accordance with the Firm's conflicts policies and the applicable Rules of Professional Conduct, and has not identified any conflict of interest that would preclude the Firm's representation of PPC in connection with this engagement.

Specifically, C&H does not currently represent and has not recently represented any of the following parties in any matter that would create a conflict of interest in connection with this engagement: the Internal Revenue Service or any IRS personnel; Crestfield & Associates LLP; Thornbury & Keogh; Whitmore Valuation Group LLC; or any other party with interests materially adverse to PPC in connection with the Examination.

A formal conflicts memorandum will be completed and reviewed by C&H's General Counsel and Conflicts Committee prior to the execution of this engagement letter. In the event that any conflict or potential conflict of interest is identified — whether during the initial conflicts review or at any point during the course of the engagement — PPC will be notified promptly, and C&H will take all necessary steps to address the conflict in accordance with applicable professional responsibility rules, including, if necessary, seeking PPC's informed written consent to continue the representation or withdrawing from the engagement.

10. LIMITATIONS ON SCOPE

This engagement is limited exclusively to the defense of the IRS transfer pricing examination described herein for Tax Years 2017, 2018, 2019, and 2020. Except as expressly set forth in Section 3 above, this engagement does not extend to the following matters:

(a) U.S. Tax Court Litigation. Representation of PPC in any proceeding before the United States Tax Court, including the filing of a petition or any pre-trial, trial, or appellate proceedings, which would require a separate engagement letter negotiated at the time such representation is contemplated.

(b) Other Federal Court Litigation. Representation of PPC in any proceeding before the United States Court of Federal Claims, any United States District Court, or any appellate court in connection with the matters covered by this engagement.

(c) State or Local Tax Matters. Representation of PPC in any state or local tax proceeding arising from or related to the Examination, except that C&H may provide advisory analysis of the potential state-tax impact of any federal adjustments proposed or sustained in the Examination, to the extent such analysis is reasonably necessary to evaluate PPC's overall tax exposure.

(d) Irish Tax Proceedings. Representation of PPC, PBI, or any other entity before the Irish Revenue Commissioners or any Irish court or tribunal. As noted in Section 7.2, Irish tax representation is handled by Thornbury & Keogh.

(e) SEC, DOJ, or Other Regulatory Proceedings. Representation of PPC before the U.S. Securities and Exchange Commission, the U.S. Department of Justice, or any other regulatory body in connection with any investigation, enforcement action, or proceeding, whether or not arising from the matters addressed in the Examination.

(f) Other Tax Years. Representation of PPC with respect to any tax year not specified in this engagement letter, including but not limited to Tax Year 2012 (the year in which the PCT Payment was made and the CSA was established), Tax Year 2021, or any subsequent tax year. In the event the IRS seeks to expand the scope of the Examination to additional tax years or the IRS opens a separate examination for other tax years, the parties will discuss and, if appropriate, execute an amendment to this engagement letter or a separate engagement letter covering such additional years.

C&H's advice in connection with this engagement is based on existing law, regulations, administrative guidance, and judicial precedent in effect at the time such advice is rendered, including IRC § 482, Treasury Regulations §§ 1.482-1, 1.482-4, 1.482-7, IRC § 6662(e), IRC § 367(d), and relevant provisions of the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations. C&H does not undertake to update its advice for subsequent changes in law or administrative practice unless specifically requested by PPC to do so.

11. TERM AND TERMINATION

This engagement will commence upon execution of this engagement letter by both C&H and PPC and will continue until the earlier of (a) the completion of the Matter, which is anticipated to be through the resolution of the Examination at the IRS Appeals level (whether by settlement, full concession, or issuance of a statutory notice of deficiency), or (b) the termination of the engagement by either party as provided herein.

Either party may terminate this engagement upon thirty (30) days' prior written notice to the other party. In the event of termination by either party, PPC will be responsible for the payment of all fees for legal services rendered and all expenses incurred through the effective date of termination. C&H will issue a final invoice promptly following the effective date of termination.

Upon termination, C&H will cooperate in the orderly transition of the Matter to PPC's successor counsel, including the transfer of files, documents, and work product (subject to the Firm's retention policies and any applicable lien rights), and will take reasonable steps to ensure that PPC's interests are not prejudiced during the transition period. C&H will comply with all applicable professional responsibility obligations in connection with the withdrawal from representation, including any required notices to the IRS.

Any termination of this engagement will not affect PPC's obligation to pay fees and expenses incurred prior to the effective date of termination or C&H's obligations with respect to the confidentiality of client information.

12. GOVERNING LAW AND DISPUTE RESOLUTION

This engagement letter shall be governed by and construed in accordance with the laws of the State of New York, without regard to its conflict-of-laws principles.

In the event of any dispute, claim, or controversy arising out of or relating to this engagement letter or the services provided hereunder, including any dispute regarding the amount or reasonableness of fees or expenses, the parties agree to submit such dispute to final and binding arbitration in New York, New York, administered by the American Arbitration Association under its Commercial Arbitration Rules then in effect. The arbitration shall be conducted by a single arbitrator selected by mutual agreement of the parties or, failing such agreement, appointed by the American Arbitration Association. The decision of the arbitrator shall be final and binding on the parties and may be entered as a judgment in any court of competent jurisdiction. Each party shall bear its own costs and attorneys' fees in connection with the arbitration, unless the arbitrator determines that an alternative allocation is warranted by the circumstances.

Nothing in this Section 12 shall preclude either party from seeking temporary or preliminary injunctive relief from a court of competent jurisdiction to prevent irreparable harm pending the outcome of arbitration.

13. ACCEPTANCE AND EXECUTION

This draft engagement letter is circulated for discussion purposes only and does not constitute a binding agreement between C&H and PPC. Upon agreement on the terms set forth herein, a final version of this engagement letter will be prepared and presented for execution by authorized representatives of both parties.

The final engagement letter will require the following signatures:

(a) On behalf of Calderwood & Harkness LLP: Leonard Cross, Partner, Tax Department (Responsible Partner).

(b) On behalf of Penterra Pharmaceuticals Corp.: Marcus Whitfield, Vice President, Global Tax, and/or Deborah Staines, General Counsel.

We respectfully request that PPC target execution of the final engagement letter on or before June 2, 2022, to enable the prompt filing of IRS Form 2848, the commencement of engagement activities, and timely preparation for the initial IRS conference. Given the pace at which IRS examinations can proceed after the issuance of the Opening Letter, early engagement of counsel is advisable to ensure that PPC's positions are properly developed and its rights are fully preserved from the outset.

We ask that PPC provide any comments, proposed revisions, or questions regarding the terms of this draft engagement letter by May 31, 2022. Please direct comments to Mr. Cross at lcross@calderwoodharkness.com or (215) 963-4215, or to Ms. Hartwell at shartwell@calderwoodharkness.com or (212) 554-7118.

We look forward to the opportunity to represent PPC in this important matter and are confident that C&H's deep experience in transfer pricing controversy, combined with the proposed engagement team's expertise, will serve PPC well throughout the Examination and any subsequent proceedings.

SIGNATURE PAGE (PLACEHOLDER — NOT FOR EXECUTION)

The following signature blocks are provided for reference and will appear on the final version of this engagement letter upon agreement on terms. This draft is not intended for execution.

CALDERWOOD & HARKNESS LLP

By: ________

Name: Leonard Cross

Title: Partner, Tax Department (Responsible Partner)

Date: ________

PENTERRA PHARMACEUTICALS CORP.

By: ________

Name: Marcus Whitfield

Title: Vice President, Global Tax

Date: ________

By: ________

Name: Deborah Staines

Title: General Counsel

Date: ________

ENCLOSURES / ATTACHMENTS

The following appendices are referenced in and form a part of this engagement letter:

Appendix A: 2022 Billing Rate Schedule (Matter 1018-00009) — Setting forth the current hourly billing rates for all timekeepers anticipated to work on this engagement, including partners, associates, paralegals, and legal assistants.

Appendix B: Proposed Engagement Team Biographies — Providing detailed professional biographies for each member of the core engagement team: Leonard Cross, Sylvia Hartwell, Garrett Simmons, and Leila Nazari, including relevant experience in transfer pricing controversy and IRS examination defense.

Appendix C: Preliminary Budget Estimate by Phase — Providing a phase-by-phase breakdown of estimated legal fees and a summary of key assumptions underlying the budget projections.

Appendices A, B, and C will be attached to the final version of this engagement letter upon execution.

•

CALDERWOOD & HARKNESS LLP — Matter 1018-00009 DRAFT — PRIVILEGED AND CONFIDENTIAL — NOT FOR EXECUTION

Timekeeper	Title	2022 Hourly Rate
Leonard Cross	Partner	$1,475
Sylvia Hartwell	Partner	$1,350
Garrett Simmons	Associate	$885
Leila Nazari	Associate	$695
Paralegals / Legal Assistants	—	$350 – $425
Phase	Description	Estimated Fee Range
Phase 1	Examination / IDR Responses	$1,800,000 – $2,800,000
Phase 2	NOPA / Formal Protest	$1,200,000 – $1,800,000
Phase 3	IRS Appeals	$1,000,000 – $1,800,000
Ancillary	Advisory Services	$500,000 – $600,000
Total	All Phases	$4,500,000 – $7,000,000

CALDERWOOD & HARKNESS LLP 600 Lexington Avenue New York, NY 10022 Tel: (212) 554-7000 | Fax: (212) 554-7001
Philadelphia Office: 1735 Market Street, Suite 3100, Philadelphia, PA 19103 Tel: (215) 963-4200 | Fax: (215) 963-4201
May 27, 2022
DRAFT — FOR DISCUSSION PURPOSES ONLY
Mr. Marcus Whitfield Vice President, Global Tax Penterra Pharmaceuticals Corp. 2200 Independence Boulevard Princeton Junction, NJ 08550
Ms. Deborah Staines General Counsel Penterra Pharmaceuticals Corp. 2200 Independence Boulevard Princeton Junction, NJ 08550
Re: Proposed Engagement — IRS Transfer Pricing Examination Defense, Tax Years 2017–2020 Matter Number: 1018-00009
Dear Mr. Whitfield and Ms. Staines:
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1. INTRODUCTION AND PURPOSE
Calderwood & Harkness LLP ("C&H" or the "Firm") is pleased to present this draft engagement letter setting forth the proposed terms under which C&H would represent Penterra Pharmaceuticals Corp. ("PPC" or the "Company") in connection with the defense of the Internal Revenue Service ("IRS") Large Business & International Division ("LB&I") examination of PPC's transfer pricing methodology for tax years 2017, 2018, 2019, and 2020 (the "Examination" or the "Matter").
As you are aware, PPC received IRS initial contact letter (Letter 2205-A), dated May 16, 2022, formally opening the Examination under Exam Team ID LB&I-NE-TP-2022-00641 (the "Opening Letter"). The Opening Letter identified PPC's intercompany transfer pricing arrangements as the primary area of inquiry and designated the Examination as a coordinated industry case under LB&I protocols. We understand that the IRS examination team has been assigned and that an initial Information Document Request may be expected within the next several weeks.
PPC is a Delaware corporation, publicly traded on the Nasdaq Global Select Market under the ticker symbol PPCA, with its principal executive offices located at 2200 Independence Boulevard, Princeton Junction, New Jersey 08550. PPC operates in the specialty pharmaceuticals and biotechnology industry, with a primary focus on oncology, immunology, and rare-disease therapeutics. Given the significance of PPC's intellectual property portfolio, the intercompany arrangements at issue in the Examination, and the potential magnitude of any transfer pricing adjustments, we believe it is essential that PPC engage experienced tax controversy counsel at the earliest practicable stage.
This draft engagement letter is circulated for the review and comment of Mr. Whitfield and Ms. Staines prior to finalization and execution. We welcome the opportunity to discuss any aspect of the proposed terms and to incorporate PPC's feedback into a final version of this letter for signature. We respectfully request that PPC provide any comments or proposed revisions by May 31, 2022, so that execution may be completed on or before June 2, 2022, enabling the Firm to promptly file the requisite IRS Form 2848 and commence engagement activities.
2. THE CLIENT
The client for this engagement is Penterra Pharmaceuticals Corp., Employer Identification Number ("EIN") 22-3741856.
C&H will not separately represent any PPC subsidiary, affiliate, or related entity in connection with this Examination, including without limitation:
(a) Penterra Biopharma International DAC ("PBI"), a Designated Activity Company organized under the laws of Ireland, with its registered office at 4th Floor, Claremont House, Sandyford Business Park, Dublin D18 K7T4, Ireland;
(b) Penterra Holdings Luxembourg S.à r.l. ("PHL"), a société à responsabilité limitée organized under the laws of the Grand Duchy of Luxembourg, with its registered office at 14, rue Aldringen, L-1118 Luxembourg (Registre de Commerce et des Sociétés Number B 168452); or
(c) Penterra Manufacturing Ireland Ltd. ("PMI"), an Irish private limited company (Companies Registration Office Number 512347), with its registered office at Unit 7, Ringaskiddy Industrial Estate, Co. Cork T12 PX29, Ireland.
For purposes of the U.S. federal income tax positions at issue, PHL is treated as a disregarded entity for U.S. federal income tax purposes and, accordingly, its assets, liabilities, and transactions are treated as those of its owner for such purposes.
While C&H's representation is limited exclusively to PPC, the parties acknowledge that the scope of work will necessarily involve the review and analysis of intercompany arrangements, agreements, financial data, and documentation among PPC, PBI, PHL, and PMI. Such review is undertaken solely in connection with C&H's representation of PPC and does not create an attorney-client relationship between C&H and any of PPC's subsidiaries or affiliates. To the extent that any subsidiary or affiliate requires independent legal representation in connection with the Examination or any related proceeding, PPC should engage separate counsel for that purpose.
3. SCOPE OF ENGAGEMENT
3.1 Overview of the Matter
The IRS has opened a multi-year examination challenging the transfer pricing methodology employed by PPC in connection with its Irish intellectual-property-holding structure involving PBI. The Examination covers PPC's U.S. federal income tax returns (Forms 1120) for tax years ending December 31, 2017, December 31, 2018, December 31, 2019, and December 31, 2020 (collectively, the "Tax Years at Issue").
Based on the Opening Letter, preliminary communications with the IRS examination team, and our understanding of PPC's intercompany arrangements, the IRS's anticipated areas of inquiry include the following:
(a) Cost-Sharing Arrangement ("CSA"). The qualified cost-sharing arrangement between PPC and PBI, effective as of July 1, 2012 (the "CSA"), under which PBI co-funds research and development costs incurred by PPC in exchange for the right to exploit certain intangible property developed thereunder outside the Americas (i.e., in Europe, the Middle East, Africa, and Asia-Pacific territories). The IRS is expected to scrutinize the allocation methodology for intangible development costs, the division of reasonably anticipated benefits, and the adequacy of PBI's cost-share payments during the Tax Years at Issue under Treasury Regulations § 1.482-7.
(b) Platform Contribution Transaction ("PCT"). The platform contribution transaction payment of Three Hundred Twelve Million Dollars ($312,000,000) made by PBI to PPC on July 1, 2012 (the "PCT Payment"), in connection with the buy-in of pre-existing intangible property contributed to the CSA. The IRS is expected to challenge the valuation methodology underlying the PCT Payment, including the discount rate, revenue projections, useful life assumptions, and the identification and valuation of platform contributions under Treasury Regulations § 1.482-7(g).
(c) Intercompany Royalty Arrangement. The intercompany license arrangement under which PBI licenses legacy compounds from PPC at a royalty rate of four and one-half percent (4.5%) of net sales for non-Americas territories (the "Legacy Royalty"). The IRS is expected to evaluate whether this royalty rate satisfies the arm's-length standard under Internal Revenue Code ("IRC") § 482 and Treasury Regulations § 1.482-4, particularly in light of the commercial success of certain legacy compounds during the Tax Years at Issue.
(d) Economic Substance and Functional Profile of PBI. The IRS is expected to examine the economic substance of PBI, including PBI's employee headcount, functional capabilities, decision-making authority, and risk management, to determine whether PBI possesses the requisite substance to be treated as the owner of intangible property and as a qualified participant in the CSA. The IRS may also assess PBI's characterization under the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations.
PPC was not participating in the IRS Compliance Assurance Process ("CAP") for the Tax Years at Issue, and accordingly, the Examination is being conducted under standard LB&I examination procedures.
3.2 Scope of Legal Services
C&H will provide the following legal services in connection with the Examination, organized by anticipated phase:
Phase 1 — Examination Defense (IDR Responses). C&H will manage and respond to Information Document Requests ("IDRs") issued by the IRS examination team throughout the Examination. This phase will include coordinating document collection from PPC, its subsidiaries, and its advisors; reviewing and organizing responsive materials; preparing formal IDR responses; attending IRS opening, status, and issue-specific conferences; and preparing and presenting factual and legal positions to the IRS examination team. C&H will serve as PPC's primary point of contact with the IRS during the Examination and will manage all substantive communications with the examination team, including the Team Manager, Lead Revenue Agent, and any International Examiner or Transfer Pricing Practice ("TPP") economist assigned to the Examination.
Phase 2 — NOPA Review and Formal Protest. In the event the IRS issues one or more Notices of Proposed Adjustment ("NOPAs"), C&H will analyze the legal, factual, and economic bases for any proposed adjustment. C&H will prepare and file a formal Protest on behalf of PPC contesting any proposed adjustments with which PPC disagrees. The Protest will develop PPC's legal arguments under IRC § 482, Treasury Regulations §§ 1.482-1, 1.482-4, 1.482-7, and related authorities, as well as PPC's factual and economic positions. C&H will coordinate with Whitmore Valuation Group LLC (as described below) to support the economic analysis underpinning PPC's positions.
Phase 3 — IRS Appeals. If the matter proceeds beyond the Examination phase, C&H will represent PPC before the IRS Independent Office of Appeals ("Appeals"). This representation will include preparation of Appeals conference materials (including written submissions and supporting exhibits), attendance at Appeals conferences (whether in person or virtual), and negotiation of a potential settlement with the Appeals Officer and Appeals Team Case Leader assigned to the case. C&H will advise PPC on the relative merits of potential settlement positions and the litigation hazards associated with various adjustment scenarios.
Ancillary Services. In addition to the foregoing, C&H will provide the following ancillary advisory services as needed throughout the engagement:
(i) Advising PPC on the management of statutes of limitations applicable to the Tax Years at Issue, including the review, negotiation, and execution of IRS Forms 872 (Consent to Extend the Time to Assess Tax) and Forms 872-A (Special Consent to Extend the Time to Assess Tax) as appropriate;
(ii) Advising PPC on the protection of attorney-client privilege and work-product doctrine in the context of the Examination, including the development of privilege protocols and the review of document productions for privileged materials;
(iii) Coordinating with PPC's independent auditor, Crestfield & Associates LLP ("Crestfield"), as more fully described in Section 7.1 below, for purposes of obtaining tax return data, workpapers, and contemporaneous transfer pricing documentation;
(iv) Coordinating with PPC's Irish tax advisors, Thornbury & Keogh ("T&K"), as more fully described in Section 7.2 below, on dual-jurisdiction aspects of the Examination;
(v) Advising PPC on the potential impact of the Examination on PPC's uncertain tax position reserves under Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 740-10 (formerly FIN 48), including the assessment of "more likely than not" and measurement thresholds;
(vi) Advising PPC on U.S. Securities and Exchange Commission ("SEC") disclosure considerations arising from the Examination, including potential disclosure obligations under Item 103 of Regulation S-K, Management's Discussion and Analysis requirements, and financial statement footnote disclosures;
(vii) Analyzing the interactions between any proposed transfer pricing adjustments and the global intangible low-taxed income ("GILTI") provisions under IRC § 951A, the base erosion and anti-abuse tax ("BEAT") under IRC § 59A, and the outbound transfer provisions of IRC § 367(d);
(viii) Analyzing competent authority and mutual agreement procedure ("MAP") considerations under Article 25 of the Convention Between the Government of the United States of America and the Government of Ireland for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and Capital Gains (the "U.S.-Ireland Income Tax Treaty"), including advising PPC on the advisability and timing of a competent authority request to mitigate potential double taxation arising from any sustained IRS adjustment.
Scope Exclusions. The scope of this engagement does not include representation of PPC in any proceeding before the United States Tax Court or any other federal court. In the event the Matter is not resolved through IRS Appeals and PPC determines to petition the Tax Court or pursue litigation in the Court of Federal Claims or a United States District Court, such representation would require the negotiation and execution of a separate engagement letter. Similarly, this engagement does not include Irish tax representation, which is handled by Thornbury & Keogh as described in Section 7.2 below.
3.3 Power of Attorney
Promptly upon execution of this engagement letter, C&H will prepare and file IRS Form 2848 (Power of Attorney and Declaration of Representative) with the IRS, authorizing the designated C&H engagement team members to represent PPC (EIN 22-3741856) before the IRS with respect to IRC § 482 transfer pricing matters for the Tax Years at Issue (2017, 2018, 2019, and 2020). The Form 2848 will designate Leonard Cross and Sylvia Hartwell as PPC's authorized representatives, with Garrett Simmons and Leila Nazari listed as additional representatives. We anticipate filing the Form 2848 within one (1) week of the execution of this engagement letter.
PPC will be asked to review and sign the Form 2848 prior to filing. C&H will provide a draft of the completed form for PPC's review concurrently with or shortly after the execution of this letter.
4. ENGAGEMENT TEAM AND STAFFING PLAN
4.1 Team Members
C&H has assembled a team of experienced tax controversy professionals to represent PPC in the Examination. The core engagement team will consist of the following individuals:
Leonard Cross — Responsible Partner, Tax Department
Mr. Cross is a partner in C&H's Tax Department based in the Firm's Philadelphia office at 1735 Market Street, Suite 3100, Philadelphia, PA 19103. He has twenty-eight (28) years of experience in transfer pricing controversy, with a particular focus on the defense of IRS examinations and Appeals proceedings involving cost-sharing arrangements, intangible property valuations, and cross-border intercompany transactions in the pharmaceutical, technology, and financial services sectors. Mr. Cross is licensed to practice law in the States of New York and New Jersey and the District of Columbia. He will serve as the Responsible Partner for this engagement, with primary responsibilities encompassing overall engagement strategy, representation of PPC before IRS Appeals, and management of the client relationship.
Sylvia Hartwell — Billing Partner, Tax Department
Ms. Hartwell is a partner in C&H's Tax Department based in the Firm's New York office at 600 Lexington Avenue, New York, NY 10022. She has twenty-two (22) years of experience in international tax controversy and leads C&H's International Tax Controversy Practice. Ms. Hartwell's experience includes the defense of major transfer pricing examinations, advance pricing agreement negotiations, and competent authority proceedings under bilateral tax treaties. She is licensed to practice law in the State of New York and the District of Columbia. Ms. Hartwell will serve as the Billing Partner for this engagement, with primary responsibilities including client management, billing oversight, and strategic counsel on complex international tax issues, including GILTI, BEAT, and treaty-based competent authority matters.
Garrett Simmons — Lead Associate, Tax Department
Mr. Simmons is a senior associate in C&H's Tax Department based in the Firm's Philadelphia office. He has seven (7) years of experience specializing in transfer pricing economic analysis and IRS controversy. His experience includes managing IDR response processes for multi-year transfer pricing examinations, coordinating with economic expert consultants, and drafting formal Protests before IRS Appeals. Mr. Simmons is licensed to practice law in the State of New York. He will serve as the Lead Associate for this engagement, with primary responsibilities encompassing IDR response management, economic analysis coordination with Whitmore Valuation Group LLC, and Protest drafting.
Leila Nazari — Working Associate, Tax Department
Ms. Nazari is an associate in C&H's Tax Department based in the Firm's Philadelphia office. She has four (4) years of experience focusing on international tax structuring and controversy support, including document production management, legal research, and coordination with foreign counsel in multi-jurisdictional tax disputes. Ms. Nazari is licensed to practice law in the States of New York and New Jersey. She will serve as the Working Associate for this engagement, with primary responsibilities encompassing legal research, document production management, preparation of privilege logs, and coordination with PPC's Irish tax counsel, Thornbury & Keogh.
4.2 Additional Resources
In addition to the core team members identified above, C&H will staff paralegals and legal assistants as needed to support the engagement, including document management, production, and administrative functions. C&H may also retain additional associates with relevant transfer pricing or international tax expertise to assist with discrete aspects of the engagement; PPC will be notified in advance of any such staffing additions, and the applicable billing rates will be communicated at that time.
C&H anticipates retaining an independent economic consulting firm under a Kovel arrangement (i.e., retained at the direction of counsel and under the protection of the attorney-client privilege) to perform transfer pricing economic analyses, benchmarking studies, and expert reports in support of PPC's positions. The proposed economic consulting firm is Whitmore Valuation Group LLC ("WVG"), located at 200 Ashbury Asset Advisors, Suite 700, Boston, MA 02109. WVG's engagement would be led by Dr. Helena Vasquez, Ph.D., Managing Director, who has extensive experience in transfer pricing valuations for pharmaceutical and life sciences companies and has served as an expert witness and consultant in numerous IRS transfer pricing disputes. WVG's proposed blended billing rate for this engagement is Six Hundred Fifty Dollars ($650) per hour. A separate Kovel engagement letter will be executed upon retention of WVG, as more fully described in Section 6 below. PPC's prior approval is required before WVG's retention is finalized.
5. FEE ARRANGEMENTS
5.1 Hourly Billing Rates (2022)
C&H will bill PPC for legal services rendered in connection with this engagement on an hourly basis at the following 2022 standard rates for the core engagement team:
The foregoing rates are subject to annual adjustment, which is typically effective as of January 1 of each calendar year. C&H will notify PPC in advance of any rate increases. Given the anticipated duration of this engagement, PPC should expect that rates in effect after January 1, 2023 (and, if the engagement extends further, January 1, 2024) may differ from the 2022 rates set forth above. C&H endeavors to maintain rate increases within industry norms and will communicate any changes to PPC with reasonable advance notice.
5.2 Estimated Fee Range
Based on C&H's experience with IRS transfer pricing examinations of comparable scope and complexity in the pharmaceutical industry, and taking into account the multi-year span of the Examination, the complexity of PPC's CSA and PCT arrangements, and the anticipated trajectory of the matter through IRS Appeals, C&H estimates total legal fees for the full engagement (Phases 1 through 3, inclusive of ancillary advisory services) in the range of Four Million Five Hundred Thousand Dollars ($4,500,000) to Seven Million Dollars ($7,000,000).
This estimate is based on the following phase-level projections:
The foregoing estimates are non-binding projections provided for PPC's planning purposes only. Actual fees will depend on a number of factors, including the scope and complexity of the IRS's positions, the number and breadth of IDRs issued by the examination team, the nature and extent of any NOPAs, the duration and complexity of the Appeals process, and other developments that cannot be predicted with certainty at this stage. C&H will provide PPC with periodic budget updates, and the Billing Partner (Ms. Hartwell) will be available to discuss budget matters at any time.
The foregoing estimates do not include the fees and expenses of Whitmore Valuation Group LLC or any other third-party consultants retained in connection with the engagement. WVG's fees will be billed separately as described in Section 6 below. A preliminary budget estimate by engagement phase is provided at Appendix C for reference.
5.3 Expenses
PPC will reimburse C&H for reasonable out-of-pocket expenses incurred in connection with this engagement. Such expenses may include, without limitation, travel expenses (airfare, ground transportation, hotel accommodations, and meals incurred in connection with IRS conferences, client meetings, and witness interviews), photocopying and document reproduction costs, courier and delivery charges, electronic legal research (including Westmark Data Systems, Sundial Solutions, Tidewater Technologies, and similar databases), filing fees, long-distance telephone charges, and other necessary expenditures. C&H will exercise reasonable judgment in incurring expenses and will seek PPC's advance approval for any single expense item exceeding Five Thousand Dollars ($5,000).
All expenses will be itemized on monthly invoices and presented with sufficient detail to enable PPC's review and verification.
5.4 Billing and Payment
C&H will issue monthly invoices to PPC describing the legal services performed during the preceding billing period, the hours billed by each timekeeper, a narrative description of the work performed, and an itemization of reimbursable expenses. All invoices will reference Matter Number 1018-00009 and will be directed to Mr. Marcus Whitfield, Vice President, Global Tax, at the address set forth above, or to such other person or address as PPC may designate in writing.
Payment of invoices is due within thirty (30) days of the invoice date. In the event that PPC has any question or concern regarding an invoice, PPC is encouraged to contact Ms. Hartwell promptly so that the matter may be addressed. C&H reserves the right to charge interest on past-due amounts at the rate of one percent (1.0%) per month, or the maximum rate permitted by applicable law, whichever is less, on amounts remaining unpaid more than sixty (60) days after the invoice date.
6. RETENTION OF EXPERT CONSULTANTS
As discussed in Sections 3.2 and 4.2 above, C&H proposes to retain Whitmore Valuation Group LLC ("WVG") under a Kovel arrangement to perform independent economic analyses in support of C&H's legal advice to PPC. The Kovel arrangement is designed to bring WVG's economic analysis within the scope of the attorney-client privilege by having WVG perform its services at the direction of C&H counsel and for the primary purpose of enabling C&H to provide informed legal advice to PPC regarding the transfer pricing issues in the Examination.
Under the proposed arrangement, WVG would operate under the direction and supervision of C&H counsel, and communications between WVG and C&H (and between WVG and PPC, when made in furtherance of C&H's legal representation) would be protected by the attorney-client privilege and the work-product doctrine. The effectiveness of this privilege protection depends on maintaining the structure of the Kovel arrangement, including WVG's subordination to C&H's direction and the primary purpose of the work being to facilitate the provision of legal advice.
WVG's anticipated deliverables in connection with the engagement include the following:
(a) A comprehensive functional analysis of PBI, examining PBI's functions performed, assets used, and risks assumed in connection with the CSA, the Legacy Royalty arrangement, and PBI's overall operations, for purposes of establishing PBI's characterization under IRC § 482 and the OECD Transfer Pricing Guidelines;
(b) Benchmarking studies utilizing the comparable uncontrolled transaction ("CUT") method, the comparable profits method ("CPM"), and the transactional net margin method ("TNMM") to evaluate the arm's-length character of the intercompany royalty rate and other controlled transactions;
(c) A PCT valuation analysis utilizing the income method and discounted cash flow ("DCF") approach under Treasury Regulations § 1.482-7(g)(4), evaluating the adequacy of the $312 million PCT Payment in light of the platform contributions made available by PPC;
(d) Expert rebuttal reports responding to any IRS economist's analysis or transfer pricing adjustments proposed by the examination team or IRS Transfer Pricing Practice economists.
WVG's engagement would be led by Dr. Helena Vasquez, Ph.D., Managing Director, who holds a doctorate in economics from the Massachusetts Institute of Technology and has over twenty years of experience in transfer pricing analysis and valuation, with particular expertise in the pharmaceutical and life sciences industries. Dr. Vasquez has served as a testifying and consulting expert in numerous IRS transfer pricing disputes and has been qualified as an expert in the United States Tax Court. The supporting economist for this engagement would be Dr. Rohan Chakrabarti, Ph.D., Senior Director, who holds a doctorate in economics from the University of Chicago and has extensive experience in cost-sharing arrangement analysis and intangible property valuation.
WVG's proposed blended billing rate for this engagement is Six Hundred Fifty Dollars ($650) per hour, applicable to all professionals staffed on the matter. A separate Kovel engagement letter, referenced as Matter Number 1018-00009-KV, will be executed upon finalization of WVG's retention. WVG's fees and expenses may be billed to PPC through C&H (with WVG's charges appearing as a disbursement on C&H's monthly invoices) or billed directly by WVG to PPC, at PPC's preference. PPC should advise C&H of its preferred billing arrangement.
PPC's express approval is required before WVG's retention is finalized. We are prepared to arrange an introductory meeting between PPC and WVG at PPC's convenience.
7. COORDINATION WITH OTHER ADVISORS
7.1 Crestfield & Associates LLP
PPC's independent auditor and preparer of PPC's consolidated U.S. federal income tax returns (Forms 1120) for the Tax Years at Issue is Crestfield & Associates LLP ("Crestfield"), located at 1200 Avenue of the Americas, New York, NY 10036. The engagement partner for PPC's audit is Martin Ogilvy, CPA, and the transfer pricing partner responsible for PPC's contemporaneous transfer pricing documentation is Susan Lam, CPA.
We understand that Crestfield originally prepared PPC's contemporaneous transfer pricing documentation for the Tax Years at Issue in accordance with the penalty-protection standards set forth in IRC § 6662(e) and Treasury Regulations § 1.6662-6. This documentation, including the functional analysis, selection of the best method, comparability analysis, and economic analysis underlying PPC's reported transfer pricing positions, will be a critical component of the Examination defense.
C&H will coordinate closely with Crestfield to obtain tax return data, supporting workpapers, transfer pricing documentation, and other relevant materials. However, Crestfield will not appear as counsel of record in the Examination, and Crestfield's role will be limited to providing factual support and documentation to C&H. PPC should authorize Crestfield to share all relevant data, workpapers, and documentation with C&H in connection with this engagement. We recommend that PPC execute a written authorization or direction letter to Crestfield for this purpose, and C&H is available to assist in preparing such a letter.
7.2 Thornbury & Keogh (Irish Tax Advisors)
PBI's Irish tax advisors are Thornbury & Keogh, Chartered Tax Advisors, located at 22 Fitzwilliam Square, Dublin 2, D02 YH68, Ireland. The lead partner responsible for PBI's Irish tax matters is Ciarán Thornbury.
C&H will coordinate with T&K on dual-jurisdiction aspects of the Examination, including the review and analysis of PBI's substance documentation, Irish Revenue filings, and PBI's utilization of the Knowledge Development box ("KDB") regime, which provides an effective tax rate of six and one-quarter percent (6.25%) on qualifying intellectual property income from fiscal year 2016 forward. Such coordination will be important for purposes of evaluating the potential for double taxation arising from any sustained IRS adjustment, assessing the feasibility of a competent authority or mutual agreement procedure request under the U.S.-Ireland Income Tax Treaty, and ensuring consistency between PPC's U.S. positions and PBI's Irish positions.
T&K's fees and expenses are entirely separate from C&H's engagement and will be billed directly by T&K to PPC or PBI, as applicable, under T&K's separate engagement arrangements with those entities. C&H is not responsible for and does not have oversight over T&K's fees, billing practices, or scope of work.
8. PRIVILEGE AND CONFIDENTIALITY
8.1 Attorney-Client Privilege
All communications between C&H and PPC in connection with this engagement are intended to be protected by the attorney-client privilege. This includes written and oral communications, memoranda, emails, analyses, and other materials prepared by C&H in the course of providing legal advice to PPC.
To preserve the privilege, PPC should take care to limit the distribution of C&H's advice, work product, and related communications to those individuals within PPC (and its subsidiaries, as applicable) who have a need to know the information in connection with the Examination. Broader dissemination of privileged communications — particularly to third parties outside the attorney-client relationship — may result in a waiver of the privilege. C&H will work with PPC's in-house legal department to establish detailed privilege protocols at the outset of the engagement, including guidelines for marking documents as privileged, protocols for internal distribution of C&H communications, and procedures for the review of document productions for privileged materials prior to submission to the IRS.
8.2 Kovel Arrangement
As described in Section 6 above, communications with and work product of Whitmore Valuation Group LLC, when made at the direction of C&H and for the primary purpose of enabling C&H to provide legal advice to PPC, are intended to be protected under the Kovel doctrine. See United States v. Kovel, 296 F.2d 918 (2d Cir. 1961). This protection requires that WVG operate under C&H's supervision and direction, that WVG's work be performed primarily for the purpose of facilitating the provision of legal advice (rather than for an independent business purpose), and that the confidentiality of the communications be maintained.
C&H will structure the WVG engagement and the associated Kovel engagement letter to maximize the likelihood that the Kovel privilege will be sustained. However, as PPC is aware, the scope and application of the Kovel doctrine may vary depending on the jurisdiction and the specific facts and circumstances, and no assurance can be given that a court or the IRS will recognize the privilege in all instances.
8.3 Document Preservation
Upon the commencement of this engagement, C&H will issue a comprehensive document preservation notice (litigation hold) to PPC and its relevant subsidiaries (PBI, PHL, and PMI), directing the preservation of all documents, electronically stored information, and other materials potentially relevant to the IRS Examination. This preservation obligation extends to emails, memoranda, financial records, intercompany agreements, board minutes, presentations, economic analyses, transfer pricing studies, tax returns and workpapers, and any other materials that may be relevant to the matters under examination.
PPC should ensure that its internal document preservation procedures are activated promptly and that all relevant custodians are notified of their preservation obligations. C&H will work with PPC's information technology and legal departments to develop and implement an appropriate preservation protocol.
9. CONFLICTS OF INTEREST
C&H has conducted a preliminary conflicts check in accordance with the Firm's conflicts policies and the applicable Rules of Professional Conduct, and has not identified any conflict of interest that would preclude the Firm's representation of PPC in connection with this engagement.
Specifically, C&H does not currently represent and has not recently represented any of the following parties in any matter that would create a conflict of interest in connection with this engagement: the Internal Revenue Service or any IRS personnel; Crestfield & Associates LLP; Thornbury & Keogh; Whitmore Valuation Group LLC; or any other party with interests materially adverse to PPC in connection with the Examination.
A formal conflicts memorandum will be completed and reviewed by C&H's General Counsel and Conflicts Committee prior to the execution of this engagement letter. In the event that any conflict or potential conflict of interest is identified — whether during the initial conflicts review or at any point during the course of the engagement — PPC will be notified promptly, and C&H will take all necessary steps to address the conflict in accordance with applicable professional responsibility rules, including, if necessary, seeking PPC's informed written consent to continue the representation or withdrawing from the engagement.
10. LIMITATIONS ON SCOPE
This engagement is limited exclusively to the defense of the IRS transfer pricing examination described herein for Tax Years 2017, 2018, 2019, and 2020. Except as expressly set forth in Section 3 above, this engagement does not extend to the following matters:
(a) U.S. Tax Court Litigation. Representation of PPC in any proceeding before the United States Tax Court, including the filing of a petition or any pre-trial, trial, or appellate proceedings, which would require a separate engagement letter negotiated at the time such representation is contemplated.
(b) Other Federal Court Litigation. Representation of PPC in any proceeding before the United States Court of Federal Claims, any United States District Court, or any appellate court in connection with the matters covered by this engagement.
(c) State or Local Tax Matters. Representation of PPC in any state or local tax proceeding arising from or related to the Examination, except that C&H may provide advisory analysis of the potential state-tax impact of any federal adjustments proposed or sustained in the Examination, to the extent such analysis is reasonably necessary to evaluate PPC's overall tax exposure.
(d) Irish Tax Proceedings. Representation of PPC, PBI, or any other entity before the Irish Revenue Commissioners or any Irish court or tribunal. As noted in Section 7.2, Irish tax representation is handled by Thornbury & Keogh.
(e) SEC, DOJ, or Other Regulatory Proceedings. Representation of PPC before the U.S. Securities and Exchange Commission, the U.S. Department of Justice, or any other regulatory body in connection with any investigation, enforcement action, or proceeding, whether or not arising from the matters addressed in the Examination.
(f) Other Tax Years. Representation of PPC with respect to any tax year not specified in this engagement letter, including but not limited to Tax Year 2012 (the year in which the PCT Payment was made and the CSA was established), Tax Year 2021, or any subsequent tax year. In the event the IRS seeks to expand the scope of the Examination to additional tax years or the IRS opens a separate examination for other tax years, the parties will discuss and, if appropriate, execute an amendment to this engagement letter or a separate engagement letter covering such additional years.
C&H's advice in connection with this engagement is based on existing law, regulations, administrative guidance, and judicial precedent in effect at the time such advice is rendered, including IRC § 482, Treasury Regulations §§ 1.482-1, 1.482-4, 1.482-7, IRC § 6662(e), IRC § 367(d), and relevant provisions of the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations. C&H does not undertake to update its advice for subsequent changes in law or administrative practice unless specifically requested by PPC to do so.
11. TERM AND TERMINATION
This engagement will commence upon execution of this engagement letter by both C&H and PPC and will continue until the earlier of (a) the completion of the Matter, which is anticipated to be through the resolution of the Examination at the IRS Appeals level (whether by settlement, full concession, or issuance of a statutory notice of deficiency), or (b) the termination of the engagement by either party as provided herein.
Either party may terminate this engagement upon thirty (30) days' prior written notice to the other party. In the event of termination by either party, PPC will be responsible for the payment of all fees for legal services rendered and all expenses incurred through the effective date of termination. C&H will issue a final invoice promptly following the effective date of termination.
Upon termination, C&H will cooperate in the orderly transition of the Matter to PPC's successor counsel, including the transfer of files, documents, and work product (subject to the Firm's retention policies and any applicable lien rights), and will take reasonable steps to ensure that PPC's interests are not prejudiced during the transition period. C&H will comply with all applicable professional responsibility obligations in connection with the withdrawal from representation, including any required notices to the IRS.
Any termination of this engagement will not affect PPC's obligation to pay fees and expenses incurred prior to the effective date of termination or C&H's obligations with respect to the confidentiality of client information.
12. GOVERNING LAW AND DISPUTE RESOLUTION
This engagement letter shall be governed by and construed in accordance with the laws of the State of New York, without regard to its conflict-of-laws principles.
In the event of any dispute, claim, or controversy arising out of or relating to this engagement letter or the services provided hereunder, including any dispute regarding the amount or reasonableness of fees or expenses, the parties agree to submit such dispute to final and binding arbitration in New York, New York, administered by the American Arbitration Association under its Commercial Arbitration Rules then in effect. The arbitration shall be conducted by a single arbitrator selected by mutual agreement of the parties or, failing such agreement, appointed by the American Arbitration Association. The decision of the arbitrator shall be final and binding on the parties and may be entered as a judgment in any court of competent jurisdiction. Each party shall bear its own costs and attorneys' fees in connection with the arbitration, unless the arbitrator determines that an alternative allocation is warranted by the circumstances.
Nothing in this Section 12 shall preclude either party from seeking temporary or preliminary injunctive relief from a court of competent jurisdiction to prevent irreparable harm pending the outcome of arbitration.
13. ACCEPTANCE AND EXECUTION
This draft engagement letter is circulated for discussion purposes only and does not constitute a binding agreement between C&H and PPC. Upon agreement on the terms set forth herein, a final version of this engagement letter will be prepared and presented for execution by authorized representatives of both parties.
The final engagement letter will require the following signatures:
(a) On behalf of Calderwood & Harkness LLP: Leonard Cross, Partner, Tax Department (Responsible Partner).
(b) On behalf of Penterra Pharmaceuticals Corp.: Marcus Whitfield, Vice President, Global Tax, and/or Deborah Staines, General Counsel.
We respectfully request that PPC target execution of the final engagement letter on or before June 2, 2022, to enable the prompt filing of IRS Form 2848, the commencement of engagement activities, and timely preparation for the initial IRS conference. Given the pace at which IRS examinations can proceed after the issuance of the Opening Letter, early engagement of counsel is advisable to ensure that PPC's positions are properly developed and its rights are fully preserved from the outset.
We ask that PPC provide any comments, proposed revisions, or questions regarding the terms of this draft engagement letter by May 31, 2022. Please direct comments to Mr. Cross at lcross@calderwoodharkness.com or (215) 963-4215, or to Ms. Hartwell at shartwell@calderwoodharkness.com or (212) 554-7118.
We look forward to the opportunity to represent PPC in this important matter and are confident that C&H's deep experience in transfer pricing controversy, combined with the proposed engagement team's expertise, will serve PPC well throughout the Examination and any subsequent proceedings.
SIGNATURE PAGE (PLACEHOLDER — NOT FOR EXECUTION)
The following signature blocks are provided for reference and will appear on the final version of this engagement letter upon agreement on terms. This draft is not intended for execution.
CALDERWOOD & HARKNESS LLP
By: ________
Name: Leonard Cross
Title: Partner, Tax Department (Responsible Partner)
Date: ________
PENTERRA PHARMACEUTICALS CORP.
By: ________
Name: Marcus Whitfield
Title: Vice President, Global Tax
Date: ________
By: ________
Name: Deborah Staines
Title: General Counsel
Date: ________
ENCLOSURES / ATTACHMENTS
The following appendices are referenced in and form a part of this engagement letter:
Appendix A: 2022 Billing Rate Schedule (Matter 1018-00009) — Setting forth the current hourly billing rates for all timekeepers anticipated to work on this engagement, including partners, associates, paralegals, and legal assistants.
Appendix B: Proposed Engagement Team Biographies — Providing detailed professional biographies for each member of the core engagement team: Leonard Cross, Sylvia Hartwell, Garrett Simmons, and Leila Nazari, including relevant experience in transfer pricing controversy and IRS examination defense.
Appendix C: Preliminary Budget Estimate by Phase — Providing a phase-by-phase breakdown of estimated legal fees and a summary of key assumptions underlying the budget projections.
Appendices A, B, and C will be attached to the final version of this engagement letter upon execution.
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CALDERWOOD & HARKNESS LLP — Matter 1018-00009 DRAFT — PRIVILEGED AND CONFIDENTIAL — NOT FOR EXECUTION
Timekeeper | Title | 2022 Hourly Rate
Leonard Cross | Partner | $1,475
Sylvia Hartwell | Partner | $1,350
Garrett Simmons | Associate | $885
Leila Nazari | Associate | $695
Paralegals / Legal Assistants | — | $350 – $425
Phase | Description | Estimated Fee Range
Phase 1 | Examination / IDR Responses | $1,800,000 – $2,800,000
Phase 2 | NOPA / Formal Protest | $1,200,000 – $1,800,000
Phase 3 | IRS Appeals | $1,000,000 – $1,800,000
Ancillary | Advisory Services | $500,000 – $600,000
Total | All Phases | $4,500,000 – $7,000,000

May 27, 2022

CALDERWOOD & HARKNESS LLP

PENTERRA PHARMACEUTICALS CORP.

ENCLOSURES / ATTACHMENTS

Record

Parties

Dates

Amounts