Contract analysis

I. EXECUTIVE SUMMARY A. Purpose and Scope of Review This memorandum presents the findings of the tax due diligence review conducted by Calderwood & Harkness LLP in connection with Penterra Pharmaceuticals Corp.'s ("Penterra" or the "Buyer") proposed acquisition of 100% of the outstanding capital stock of Veridian Biosciences, Inc. ("Veridian" or the "Company") for an aggregate cash purchase price of Nine Hundred Mill

Section 338(h)(10) Election. We have analyzed the potential benefits of a Section 338(h)(10) election and concluded that no such election is recommended. The tax cost of the deemed asset sale would exceed the present value of the incremental amortization deductions from the stepped-up basis, particularly given the constraints on NOL utilization imposed by Section 382. State Tax Nexus. Veridian currently files income

Section 280G. The Transaction will constitute a "change in control" under Section 280G of the Internal Revenue Code ("Code"), and certain payments to disqualified individuals may trigger excise tax liability and loss of corporate deductibility. Detailed Section 280G calculations should be completed prior to closing, and the stockholder approval safe harbor should be evaluated. Tax Controversies. No material pending t

II. TRANSACTION STRUCTURE AND TAX CONSIDERATIONS A. Stock Purchase Structure The Transaction is structured as a stock purchase in which Penterra will acquire 100% of the outstanding capital stock of Veridian from the Sellers for an aggregate cash purchase price of $900,000,000. No alternative acquisition structure (such as an asset purchase or a statutory merger treated as an asset acquisition) is under consideration

III. NET OPERATING LOSS CARRYFORWARD ANALYSIS A. Overview of Veridian's NOLs Veridian's most significant tax attribute is its federal NOL carryforward, which we estimate at approximately $312 million as of December 31, 2023. A detailed year-by-year breakdown of NOL generation, utilization, and carryforward is set forth in Appendix A. The NOL carryforward is composed of the following: Pre-2018 NOLs. NOLs generated in

1. Background on Section 382. Section 382 of the Code imposes an annual limitation on the ability of a "loss corporation" to use its pre-change NOLs following an "ownership change." The purpose of Section 382 is to prevent trafficking in loss corporations — that is, to prevent the acquisition of a loss corporation principally for the purpose of utilizing its NOL carryforwards to shelter the acquirer's income. An "own

3. Impact of the Proposed Acquisition on Section 382. The proposed acquisition by Penterra will constitute a new ownership change for Veridian under Section 382. Penterra will acquire 100% of the outstanding stock of Veridian, representing a more-than-50-percentage-point increase in ownership by a single 5-percent shareholder (Penterra). This ownership change is unavoidable in a stock acquisition of this nature. Upon

IV. STATE TAX NEXUS ANALYSIS A. Current Filing Positions Veridian currently files income or franchise tax returns in the following states: Massachusetts. Veridian maintains its principal office and laboratory operations at 550 Gateway Drive, Cambridge, Massachusetts. The majority of Veridian's employees — estimated at approximately 120 of its 148 total employees — are based in Massachusetts. Veridian clearly has inco

V. FEDERAL INCOME TAX RETURN REVIEW A. Filing History and Status Veridian has filed federal income tax returns (Form 1120) for each tax year from 2016 (its first tax year following incorporation) through 2022. All returns were timely filed (including those filed pursuant to valid extensions of time). The FY2023 return (for the tax year ending December 31, 2023) has not yet been filed as of the date of our diligence r

VI. RESEARCH AND DEVELOPMENT TAX CREDITS A. Federal R&D Credits (Section 41) Veridian has claimed federal R&D tax credits under Section 41 of the Code in each tax year from 2017 through 2022. The estimated aggregate federal R&D credits claimed over this period total approximately $18.5 million. A year-by-year summary of credits claimed is set forth in Appendix D. As a clinical-stage company with no revenue and no tax

VII. EMPLOYMENT AND PAYROLL TAX MATTERS A. Employment Tax Compliance As of the date of the SPA, Veridian has 148 employees. Our review of Veridian's employment tax compliance includes the following: Federal Employment Taxes. We reviewed Veridian's Form 941 (Employer's Quarterly Federal Tax Return) filings for all quarters in 2022 and 2023. Our review indicates that Veridian has timely filed all required Form 941 retu

Section 409A Compliance. Section 409A of the Code imposes stringent requirements on nonqualified deferred compensation arrangements, including stock options. A stock option that is granted with an exercise price below the fair market value of the underlying stock on the date of grant is treated as deferred compensation subject to Section 409A, and failure to comply with Section 409A's distribution, timing, and docume

Section 280G "Golden Parachute" Analysis. The acquisition will constitute a "change in control" within the meaning of Section 280G of the Code. Under Section 280G, payments made to or for the benefit of certain "disqualified individuals" (officers, highly compensated employees, and significant stockholders) that are contingent on a change in control and that, in the aggregate, equal or exceed three times the individu

VIII. TRANSFER TAX ANALYSIS A. SPA Provision Pursuant to SPA § 6.8, all transfer, documentary, stamp, registration, and similar taxes arising from or in connection with the transactions contemplated by the SPA are the responsibility of the Sellers. This allocation is standard for a stock purchase transaction and provides Penterra with appropriate protection against unanticipated transfer tax liability. B. Applicable

IX. PRE-CLOSING TAX INDEMNIFICATION A. SPA Indemnification Provisions The SPA provides a comprehensive tax indemnification framework under which the Sellers indemnify Penterra and Veridian for all taxes attributable to pre-closing tax periods (i.e., taxable periods ending on or before the Closing Date) and the pre-closing portion of any Straddle Period. The key provisions of the tax indemnification framework are summ