Contract analysis

I. Executive Summary This memorandum sets forth our preliminary analysis of the federal, state, and local income tax consequences of the proposed acquisition of Tessera Lending, Inc. ("Tessera" or "TLI"), a Delaware corporation (EIN 83-2649107; Delaware file number 6847312), by Belmont Ridge Bank NA ("BRB") (EIN 13-4517820; OCC charter number 24-00781). This memorandum has been prepared at the request of Catherine A.

Section 338(h)(10) Election Opportunity. We recommend that BRB explore a joint election under Section 338(h)(10) of the Code with the Tessera stockholders. If made, this election would cause the transaction to be treated for federal income tax purposes as a deemed sale of all of Tessera's assets at fair market value, followed by a deemed liquidation of Tessera. The principal benefit to BRB would be a stepped-up tax b

II. Transaction Overview and Parties A. Description of Proposed Transaction The proposed transaction is structured as a reverse triangular merger under Section 251 of the DGCL. In this structure, BRB will cause a newly formed, wholly owned Delaware subsidiary — BRB Acquisition Sub, Inc. ("Acquisition Sub") — to merge with and into Tessera. Tessera will be the surviving entity in the merger, and upon consummation of t

III. Federal Income Tax Analysis — Taxable Transaction Characterization A. Inapplicability of Tax-Free Reorganization Under Section 368 A threshold question in any acquisition is whether the transaction may be structured to qualify as a tax-free reorganization under Section 368 of the Code, thereby deferring the recognition of gain by the target's stockholders. We have analyzed each potentially applicable subsection

Section 368(a)(1)(A) — Statutory Merger. Section 368(a)(1)(A) of the Code provides that a statutory merger or consolidation may qualify as a tax-free reorganization if it satisfies certain judicial and regulatory requirements. Among the most significant of these requirements is the "continuity of interest" ("COI") requirement, codified in Treasury Regulations Section 1.368-1(e). The COI requirement mandates that a su

Section 368(a)(2)(E) — Reverse Triangular Merger Reorganization. Section 368(a)(2)(E) of the Code permits a reverse triangular merger — in which a subsidiary of the acquiring corporation merges into the target, with the target surviving — to qualify as a tax-free reorganization, provided that certain conditions are satisfied. Among the most critical of these conditions is the requirement that, in the merger, the form

Section 368(a)(1)(B) — Stock-for-Stock Exchange. Section 368(a)(1)(B) applies to acquisitions in which the acquiring corporation acquires "control" (80% by vote and value) of the target solely in exchange for voting stock of the acquiring corporation. This provision requires that the acquisition be made "solely for voting stock" and does not permit any cash or other non-stock consideration, subject to a narrow except

Section 368(a)(1)(C) — Practical Merger / Asset Acquisition. Section 368(a)(1)(C) applies to acquisitions of "substantially all" of the target's assets in exchange for voting stock of the acquiring corporation. While a limited amount of non-stock consideration ("boot") is permitted, the transaction must still satisfy an 80% stock test. This provision is inapplicable to the proposed all-cash transaction. Additionally,

Section 368(a)(2)(D) — Forward Triangular Merger. Section 368(a)(2)(D) permits a forward triangular merger (target merges into a subsidiary of the acquiring corporation) to qualify as a tax-free reorganization under certain conditions. This provision is inapplicable because the proposed transaction is structured as a reverse triangular merger (Acquisition Sub merges into Tessera, with Tessera surviving), and in any e

IV. Section 338(h)(10) Election Analysis and Recommendation A. Overview of Section 338(h)(10)

Section 338(h)(10) of the Code and Treasury Regulations Section 1.338(h)(10)-1 provide a mechanism by which the buyer and the selling stockholders of a target may jointly elect to treat a qualifying stock purchase as a deemed asset sale for federal income tax purposes. The election is designed to provide the economic and tax benefits of an asset acquisition while preserving the legal and structural benefits of a stoc

V. Treatment of Tessera Employee Stock Options and RSUs A. Overview of Employee Equity Pool As set forth in Section II.C above, 900,000 shares of Tessera common stock on a fully diluted basis (representing 7.5% of the total fully diluted capitalization) are attributable to Tessera's employee and angel investor equity pool. Based on the information available to us, these 900,000 shares consist of a combination of ince

Section 409A of the Code imposes stringent requirements on "nonqualified deferred compensation" arrangements. Stock options may be treated as nonqualified deferred compensation subject to Section 409A if they are granted with an exercise price that is less than the fair market value of the underlying stock on the date of grant. Under Treasury Regulations Section 1.409A-1(b)(5)(i)(A), a stock option is exempt from Sec

Section 83 of the Code governs the taxation of property (including stock) transferred in connection with the performance of services. RSUs are a form of compensatory equity award that are generally subject to Section 83 at the time of settlement (i.e., when the underlying shares are delivered to the holder or when the RSUs are settled in cash). Unvested RSUs at the Time of Merger. The treatment of unvested RSUs at th

Section 280G — Excess Parachute Payments. The acceleration of vesting of stock options and RSUs in connection with the merger may trigger the "golden parachute" provisions of Section 280G of the Code. Under Section 280G, if a "disqualified individual" — generally, an officer, highly compensated employee, or greater-than-1% shareholder of the target — receives "parachute payments" in connection with a "change in owner

Section 162(m) of the Code limits the deductibility of compensation paid by a "publicly held corporation" to its "covered employees" to $1,000,000 per employee per taxable year. For taxable years beginning after December 31, 2026, Section 162(m) applies to the corporation's current and former principal executive officer, principal financial officer, and the three other highest-compensated officers, as well as any ind

VI. State and Local Tax Implications A. Texas Tessera's principal executive offices are located at 2400 Shoal Creek Boulevard, Suite 500, Austin, Texas 78756. The State of Texas does not impose a state income tax on individuals or corporations. Accordingly, neither the Tessera stockholders (to the extent they are Texas residents) nor Tessera itself will be subject to Texas state income tax in connection with the merg