Contract analysis

I. Executive Summary This memorandum sets forth the findings and recommendations of Calderwood & Harkness LLP ("Calderwood & Harkness") arising from our comprehensive compliance review of the Distribution Agreement dated March 15, 2024 (the "ADS Distribution Agreement," Ref. SBD-ADS-2024-0315) between Solstice Biomedical Devices Ltd. ("Solstice" or "SBD") and Ascendant Distribution Solutions LLC ("ADS" or "Ascendant"

II. Background A. The Parties Solstice Biomedical Devices Ltd. Solstice is a private limited company incorporated and organized under the laws of Ireland, with its registered office at Unit 14, Clarion Business Park, Sandyford, Dublin D18 X4F2, Ireland. Solstice is a medical device company specializing in the development and commercialization of cardiac rhythm management systems, including implantable cardiac monitor

Section 12 of the agreement establishes Solstice's audit rights. Solstice may audit ADS's compliance records upon 30 days' written notice, up to two times per calendar year. C. The Product The Pulsar™ CRM System is a subcutaneous implantable cardiac monitor integrated with a proprietary cloud-based remote telemetry platform. The system is designed to provide continuous, long-term monitoring of cardiac rhythm in adult

III. Legal Framework This Section provides an overview of the principal federal and state legal authorities relevant to our compliance review. The analysis that follows in subsequent sections is grounded in this framework. A. Federal Anti-Kickback Statute (42 U.S.C. § 1320a-7b(b)) The Federal Anti-Kickback Statute is the primary federal law governing financial relationships between entities that furnish, order, or re

IV. Analysis of ADS Commission Structure Under the Anti-Kickback Statute A. Commission Rate Assessment The ADS Distribution Agreement provides for a commission payable to ADS at a rate of 18% of net US sales. Based on Solstice's projected Year-1 net US sales of $26 million, the anticipated Year-1 commission is approximately $4.68 million. We have evaluated the 18% commission rate against available industry benchmarks

V. Sub-Distributor Approval and Compliance Certification Protocols A. Current Agreement Provisions

Section 5.3 of the ADS Distribution Agreement permits ADS to engage up to five authorized sub-distributors to assist in the distribution and sale of Pulsar™ products within the US territory. The engagement of each sub-distributor is subject to two conditions: (i) Solstice must provide its prior written approval of the sub-distributor; and (ii) each sub-distributor must execute a "Compliance Certification" in the form

VI. Audit Rights Analysis (Section 12) A. Current Provisions

Section 12 of the ADS Distribution Agreement establishes Solstice's right to audit ADS's "compliance records." The current provisions may be summarized as follows: (i) Solstice may audit ADS's compliance records; (ii) Solstice must provide 30 days' prior written notice of any audit; (iii) Solstice may conduct up to two audits per calendar year; and (iv) audits must be conducted during regular business hours. While th

Section 12.1 — Definition of "Compliance Records." Define "Compliance Records" broadly to include all books, records, documents, communications (including electronic communications), financial records, sales reports and data, customer and healthcare professional interaction logs, sub-distributor agreements and correspondence, training records and certifications, employee and contractor certifications, expense reports

Section 12.2 — "For Cause" Audit Right. Add a "for cause" audit right that permits Solstice to conduct an audit on five business days' notice (or no advance notice in the event of a government investigation, subpoena, or law enforcement inquiry related to Pulsar™ distribution). For-cause audits should not count against the twice-per-calendar-year cap for routine audits.

Section 12.3 — Sub-Distributor Audit Rights. Extend Solstice's audit rights to cover all sub-distributors engaged by ADS. This may be accomplished through a flow-through audit clause requiring ADS to include in each sub-distributor agreement a provision granting Solstice direct audit rights over the sub-distributor on the same terms as those applicable to ADS.

Section 12.4 — Third-Party Auditors. Expressly authorize Solstice to engage independent third-party auditors at Solstice's cost to conduct audits on Solstice's behalf, subject to the third-party auditor's execution of appropriate confidentiality agreements.

Section 12.5 — Record Retention. Require ADS to retain all Compliance Records for a minimum of six years following the calendar year to which they relate. This period is consistent with the FCA's six-year statute of limitations and reflects industry best practices for healthcare compliance record retention.

Section 12.6 — Cooperation and Access. Specify that ADS must make its premises, records, systems, and personnel (including compliance, legal, sales, and finance personnel) available during audits. ADS personnel must be available for interviews and must respond to auditor inquiries within reasonable timeframes.

Section 12.7 — Consequences of Adverse Findings. Establish a graduated consequence framework for adverse audit findings, including: (i) development and implementation of a remediation plan within 30 days of notification of findings; (ii) financial clawback rights for commissions attributable to sales that are determined to have resulted from AKS violations or fraudulent conduct; (iii) escalation to additional audits

VII. Flow-Down Compliance Obligations A. ADS Personnel Compliance

Section 7.1 of the current ADS Distribution Agreement contains a general representation that ADS will "comply with all applicable laws and regulations in connection with its performance of the distribution services contemplated by this Agreement." While this general compliance representation is necessary, it is insufficient standing alone to establish the compliance infrastructure needed for a medical device distribu

VIII. Sunshine Act / Open Payments Data-Collection Obligations A. Gap in Current Agreement As noted in the Executive Summary, the ADS Distribution Agreement contains no provisions whatsoever addressing Sunshine Act compliance. This represents a significant compliance gap that must be remedied before the October 1, 2024 US commercial launch. Solstice Biomedical Inc., as the applicable manufacturer of the Pulsar™ CRM S