Contract analysis

I. Executive Summary This memorandum analyzes whether the Series Seed Preferred Stock of Meridian Diagnostics, Inc. ("Meridian" or the "Company") to be acquired by Cobalt Ventures Fund III, LP ("Fund III") in the $12,000,000 Series Seed financing (the "Financing") qualifies as "Qualified Small Business Stock" ("QSBS") under Section 1202 of the Internal Revenue Code of 1986, as amended (the "Code" or "IRC"). The signi

II. Background and Transaction Summary A. The Company — Meridian Diagnostics, Inc. Meridian Diagnostics, Inc. is a corporation organized under the General Corporation Law of the State of Delaware. The Company was incorporated on June 15, 2023, and is headquartered at 225 Binney Street, Suite 400, Cambridge, Massachusetts 02142. Its Employer Identification Number is 93-4127856, and its Delaware corporate file number i

III. Statutory Framework — IRC § 1202 Overview A. General Rule

Section 1202 of the Internal Revenue Code provides a powerful incentive for investment in domestic small businesses by permitting eligible taxpayers to exclude from gross income a portion or all of the gain realized on the sale or exchange of qualified small business stock. The provision was originally enacted as part of the Revenue Reconciliation Act of 1993 and has been amended several times, most significantly by

1. Qualified Small Business / Domestic C-Corporation Requirement. The stock must be issued by a "qualified small business," which is defined in § 1202(d)(1) as a domestic C-corporation. The issuing corporation must be a C-corporation at the time of issuance and must remain a C-corporation during substantially all of the taxpayer's holding period.

2. Original Issuance Requirement. The stock must be acquired by the taxpayer at its original issuance (directly or through an underwriter) in exchange for money, other property (not including stock), or as compensation for services provided to the issuing corporation. This requirement ensures that QSBS treatment is available only to the initial acquirer of the stock from the corporation, not to subsequent purchasers

3. Aggregate Gross Assets Test. At the time of issuance, the corporation's aggregate gross assets must not exceed $50,000,000. This test is applied both immediately before and immediately after the issuance, taking into account the cash or other property received by the corporation in exchange for the stock. If the issuance of stock causes the corporation's aggregate gross assets to exceed $50,000,000, the stock does

4. Active Business Requirement. During substantially all of the taxpayer's holding period, the corporation must use at least 80% of its assets (by value) in the active conduct of one or more "qualified trades or businesses." Certain specified trades or businesses—including personal service businesses in the fields of health, law, engineering, architecture, accounting, actuarial science, performing arts, consulting, a

5. C-Corporation Requirement Throughout Holding Period. The issuing corporation must be a C-corporation at all times during the period during which the stock is held by the taxpayer. A conversion to S-corporation status or a reorganization into a pass-through entity during the holding period would disqualify the stock from QSBS treatment. C. Holding Period Requirement The gain exclusion under § 1202(a)(1) applies onl

IV. Analysis of Each QSBS Requirement We turn now to a detailed analysis of whether the Series Seed Preferred Stock of Meridian Diagnostics, Inc. satisfies each of the five QSBS requirements set forth in § 1202. A. Qualified Small Business / Domestic C-Corporation Requirement (§ 1202(d)(1))

Section 1202(d)(1) defines a "qualified small business" as a domestic corporation that is a C-corporation. This requirement has two components: (i) the issuing entity must be a "domestic corporation" within the meaning of § 7701(a)(4) of the Code, and (ii) the entity must be taxed as a C-corporation (i.e., not an S-corporation or other pass-through entity). Meridian Diagnostics, Inc. is a corporation organized under

Section 1202(c)(1)(B) requires that the stock be "acquired by the taxpayer at its original issuance (directly or through an underwriter) in exchange for money, other property (not including stock), or as compensation for services provided to such corporation (in the case of an employee or independent contractor)." The purpose of this requirement is to ensure that the QSBS exclusion benefits the investors who provide

Section 1202(d)(2) provides that a corporation is a "qualified small business" only if, at all times after August 10, 1993, and before the issuance of the stock in question, and immediately after the issuance, the corporation's "aggregate gross assets" do not exceed $50,000,000. This test is applied at two measurement points: (i) at all times prior to the issuance, and (ii) immediately after the issuance (taking into

1. Pre-Issuance Gross Assets. Prior to the closing of the Financing, Meridian's gross assets consist primarily of the following: • Cash and cash equivalents: Approximately $1,400,000, representing the Company's remaining cash from prior capital contributions and convertible note proceeds, net of operating expenditures since incorporation. • Tangible property: Laboratory and office equipment, office furniture, leaseho

2. Post-Issuance Gross Assets (Including Proceeds). Immediately after the issuance of the Series Seed Preferred Stock, Meridian will receive $12,000,000 in new cash from the investors participating in the Financing. The Company's post-closing cash balance will therefore be approximately $1,400,000 (existing) plus $12,000,000 (new proceeds) = $13,400,000. Adding to this the aggregate adjusted bases of the Company's ot

1. Qualified Trade or Business. Section 1202(e)(3) defines a "qualified trade or business" by exclusion—it provides that certain specified trades or businesses do not constitute qualified trades or businesses for purposes of § 1202. The excluded categories are enumerated in § 1202(e)(3)(A) through (E) and include: (A) Any trade or business involving the performance of services in the fields of health, law, engineerin

Section 1202(c)(2)(A) requires that the issuing corporation be a C-corporation during substantially all of the taxpayer's holding period for the stock. If the corporation converts to S-corporation status, reorganizes into a limited liability company or other pass-through entity, or otherwise ceases to be a C-corporation during the holding period, the stock would no longer qualify as QSBS. Meridian has been a C-corpor

V. Pass-Through Entity Considerations — Cobalt Ventures Fund III, LP A. General Rule for Partnerships The QSBS exclusion under § 1202 is structured as a taxpayer-level benefit available to non-corporate shareholders. When QSBS is held by a pass-through entity, the rules of § 1202(g) govern the allocation of the exclusion benefit to the entity's owners. Under § 1202(g)(1), if QSBS is held by a pass-through entity—defi

1. Partnership Agreement Provisions. Fund III's limited partnership agreement should include provisions for QSBS tracking and reporting. If the current partnership agreement does not contain such provisions, Cobalt should consider adopting an amendment or side letter to address QSBS reporting obligations.

2. Schedule K-1 Reporting. Fund III should include QSBS disclosure on the Schedule K-1s issued to partners for each taxable year during which Fund III holds Meridian shares. The K-1 reporting should identify the Meridian shares as potential QSBS, disclose the date of acquisition, the adjusted basis allocable to each partner, and any other information necessary for partners to claim the § 1202 exclusion on their indiv

3. Partner Records. Fund III should maintain detailed records of each partner's capital account, the dates on which each partner's commitment was funded, and the dates on which any transfers of partnership interests occurred. These records are essential to substantiate QSBS eligibility at the partner level, particularly in light of the requirement that the partner must have held its partnership interest at the time F

4. Communication to Principals. Elaine Cho and David Hargrove should be briefed on the importance of ongoing QSBS compliance at the Meridian level and should use their board representation and information rights to monitor the Company's continued satisfaction of the active business requirement, the gross assets test, and the C-corporation requirement.

VI. Analysis for Other Investors While Calderwood & Harkness LLP represents Cobalt Ventures LP and its affiliates, and does not represent the co-investors in the Financing, we provide the following brief observations regarding the QSBS eligibility of the other participating investors. Each co-investor should be encouraged to seek independent tax advice from its own counsel. A. Pinewood Health Ventures, LLC Pinewood H

VII. Shares Issued on Convertible Note Conversion As described in Section II.D above, approximately 1,098,362 shares of Series Seed Preferred Stock will be issued at the closing on February 9, 2026, upon the conversion of outstanding convertible promissory notes held by Dr. Margaret Liu ($1,200,000 in principal) and Clearwater Bridge Associates, LLC ($900,000 in principal; Employer Identification Number 86-4319752).

VIII. Potential Risks and Ongoing Compliance While we conclude that the Series Seed Preferred Stock should qualify as QSBS at the time of issuance, QSBS qualification involves ongoing requirements that must be monitored throughout the five-year holding period (and beyond, if the stock continues to be held). Set forth below are the principal risks and compliance considerations that Cobalt and Meridian should be aware

Section 1202(c)(3) contains two anti-abuse provisions designed to prevent taxpayers from using stock buybacks or redemptions to manipulate QSBS eligibility. These provisions must be carefully monitored. First, under § 1202(c)(3)(A), stock acquired by a taxpayer is not treated as QSBS if, at any time during the four-year period beginning on the date two years before the issuance of such stock