Contract analysis

I. Executive Summary and Purpose The purpose of this memorandum is to provide Solstice Biomedical Devices Ltd. ("Solstice") and its wholly owned U.S. acquisition subsidiary, Solstice Biomedical, Inc. ("SBI"), with a comprehensive and practical guide to the post-closing Net Working Capital ("NWC") adjustment process under the Stock Purchase Agreement dated August 20, 2024 (the "SPA") among SBI, as Buyer, Meridian Surg

II. Overview of the NWC Adjustment Mechanism A. Purpose of the NWC Adjustment The NWC adjustment is a standard and widely used mechanism in stock purchase transactions designed to ensure that the Buyer receives, at the closing of the acquisition, a normalized level of working capital in the acquired business. Working capital—generally understood as the excess of current assets over current liabilities—represents the

1. Estimated Adjustment at Closing. Prior to closing, the Sellers prepared and delivered an Estimated Closing Statement setting forth their good-faith estimate of Closing NWC. The difference between the Estimated Closing NWC and the Target NWC was applied as a dollar-for-dollar adjustment to the closing cash consideration. Because the Estimated Closing NWC ($12,175,000) exceeded the Target NWC ($11,500,000), the Sell

2. Post-Closing True-Up. Following closing, the Buyer has 90 days to prepare and deliver a proposed Final Closing Statement reflecting the actual Closing NWC as of the Closing Date. The difference, if any, between the Final Closing NWC and the Estimated Closing NWC is then settled between the parties—either as an additional payment to the Sellers or as a refund to the Buyer—depending on the direction and magnitude of

III. Post-Closing True-Up Timeline and Deadlines The SPA establishes a structured timeline for the post-closing NWC true-up process. Strict adherence to each deadline is essential, as the SPA imposes consequences for failure to act within the prescribed time periods. The following is a detailed description of each phase of the timeline. A. 90-Day True-Up Period The post-closing true-up period commences on the Closing

1. Accept the proposed Final Closing Statement. If the Sellers' Representative accepts Buyer's proposed Final Closing Statement (either expressly in writing or by failing to deliver a Notice of Disagreement within the 30-day period), the proposed Final Closing Statement becomes the Final Closing Statement, and the Closing NWC set forth therein becomes the Final Closing NWC, final and binding on all parties.

2. Deliver a Notice of Disagreement. If the Sellers' Representative disagrees with any aspect of the proposed Final Closing Statement, the Sellers' Representative must deliver to Buyer, within the 30-day period, a written Notice of Disagreement (as defined in Section 2.5(c) of the SPA) that specifies in reasonable detail: (a) each item or amount on the proposed Final Closing Statement with which the Sellers' Represen

IV. Preparation of the Proposed Final Closing Statement A. Buyer's Obligations and Access Rights Under Section 2.5(a) of the SPA, the Buyer (SBI) has both the right and the obligation to prepare and deliver the proposed Final Closing Statement. The proposed Final Closing Statement must set forth Buyer's good-faith calculation of the actual Closing NWC as of the close of business on the Closing Date (October 31, 2024)

1. GAAP as Applied by Meridian. The NWC calculation must be prepared in accordance with U.S. generally accepted accounting principles as applied by Meridian in the preparation of its historical financial statements for fiscal years 2021 through 2023, as audited by Dunfield & Associates, P.C. This means that the accounting policies, practices, and estimation techniques used in the proposed Final Closing Statement must

2. Consistency with the Estimated Closing Statement and the Target NWC. The same accounting policies, practices, methodologies, classification conventions, and estimation procedures used in the preparation of the Estimated Closing Statement and in the derivation of the Target NWC must be applied in the proposed Final Closing Statement. This consistency requirement is paramount: the purpose of the NWC adjustment is to

3. No Changes in Reserves, Accrual Methodologies, or Classification. The Buyer may not change reserves, accrual methodologies, or the classification of items on the Closing Date balance sheet unless such changes are required by GAAP to correct an identifiable error in the historical financial statements. This prohibition is designed to prevent the Buyer from manipulating the NWC calculation by, for example, increasin

1. Commence Work Immediately. The SBI finance team, under the direction of Conor Muldoon and with the assistance of David Hensley, should commence the NWC compilation process no later than November 15, 2024. This will allow approximately ten weeks for preparation, review, and finalization of the proposed Final Closing Statement before the January 29, 2025 deadline, providing an adequate buffer for unforeseen complexi

2. Coordinate with Calderwood & Harkness. Before delivery to the Sellers' Representative, the proposed Final Closing Statement should be reviewed by Calderwood & Harkness for legal compliance with the SPA's requirements, including proper application of the defined terms, inclusion and exclusion of the specified line items, and compliance with the accounting methodology and consistency requirements. We recommend that

3. Retain All Supporting Documentation. All work papers, schedules, analyses, reconciliations, and backup documentation prepared in connection with the NWC calculation should be carefully organized and retained. If a dispute arises, the Buyer will be required to provide supporting documentation to the Sellers' Representative during the review period and, if the matter is escalated, to the Independent Accounting Refer

4. Consider Independent Accounting Review. Given the significance of the NWC determination and the potential for dispute, the Solstice team should consider whether an independent review of the proposed Final Closing Statement by Solstice's own external accounting advisors would be prudent before delivery. Brindoval & Albright LLP, Solstice's tax advisor, may be available for this purpose, subject to conflict review;

5. Maintain Privilege and Confidentiality. All internal analyses, draft calculations, memoranda, and communications relating to the NWC true-up process should be treated as privileged and confidential. Internal drafts and analytical work product should be clearly marked as attorney-client privileged and work product to the extent they are prepared at the direction of counsel.

V. Potential Adjustment Scenarios The following scenarios illustrate the potential financial outcomes of the NWC true-up process, depending on the final determination of Closing NWC. These scenarios are intended to provide the Solstice team with a practical understanding of the adjustment mechanics and their impact on the effective purchase price. A. Scenario 1: Final Closing NWC Equals Estimated Closing NWC If the a

1. Timing. Any true-up payment owed by either party is due and payable within five (5) business days after the date on which the Final Closing NWC determination becomes final and binding on all parties. A determination becomes final and binding upon: (a) the expiration of the Sellers' Representative's 30-day review period without delivery of a Notice of Disagreement; (b) written agreement of the parties resolving all

2. Payments by Sellers. Any payment owed by the Sellers to the Buyer is made by the Sellers' Representative from the Sellers' Representative Payment Account, established at Founders National Bank, N.A., Account No. 6654-1029-8871. The Sellers' Representative has been funded by the Sellers to make payments on their behalf, including NWC true-up payments.

3. Payments by Buyer. Any payment owed by the Buyer to the Sellers is made by SBI from its account at Tidewater Atlantic Bank, N.A., Account No. 8801-4437-2290, and is directed to the Sellers' Representative for distribution to the Sellers pro rata.

4. Interest. Any NWC adjustment payment that is not timely made bears interest from the Closing Date (October 31, 2024) through the date of actual payment at the prime rate as published in The Wall Street Journal on the Closing Date. This interest provision creates an incentive for both parties to make timely payments once the Final Closing NWC determination becomes binding.

5. Independence from the Indemnity Escrow. The NWC adjustment is separate from, and independent of, the Indemnity Escrow of $26,400,000 held by Keystone Escrow Services, Inc. NWC true-up payments are not made from, and do not affect the balance of, the Indemnity Escrow. The Indemnity Escrow is reserved exclusively for the satisfaction of indemnification claims under Article IX of the SPA. Similarly, the NWC true-up i

VI. Dispute Resolution — Hargrove Bennett LLP as Independent Accounting Referee A. Scope of Authority If the parties are unable to resolve all Disputed Items during the 30-day negotiation period following delivery of a Notice of Disagreement, the remaining unresolved Disputed Items are submitted to the Independent Accounting Referee for final determination. As noted above, the SPA designates Hargrove Bennett LLP as t

1. Submission of Written Briefs. Each party submits to the Independent Accounting Referee a written brief—typically ranging from ten to twenty pages, with supporting schedules, work papers, and backup documentation—setting forth its position on each Disputed Item. The brief should articulate the accounting basis for the party's position, explain why the applicable accounting standards, methodologies, and SPA definiti

2. Information Requests. The Independent Accounting Referee may, in its discretion, request additional information, documents, or clarifications from either party. Both parties are required to cooperate fully and in good faith with any such requests.

3. Hearing or Conference Call. The Independent Accounting Referee may, but is not required to, conduct a hearing, conference call, or in-person meeting with the parties and their advisors to discuss the Disputed Items, ask questions, and hear oral presentations. The SPA does not prescribe formal rules of procedure for any such hearing; the process is informal and at the discretion of the referee.

4. Written Determination. The Independent Accounting Referee must render its determination in writing within thirty (30) days of the date the Disputed Items are submitted, subject to extension for complex items up to a maximum of forty-five (45) days as provided in the SPA. The written determination must set forth the Independent Accounting Referee's conclusions on each Disputed Item, including the final value determ

5. Final and Binding. The determination of the Independent Accounting Referee is final and binding on all parties, absent manifest error. The determination is not subject to appeal, judicial review (except for manifest error or fraud), or reconsideration. This finality provision is a critical feature of the dispute resolution mechanism, as it provides certainty and closure to the NWC true-up process. C. Governing Sta

VII. Interaction with Other Post-Closing Provisions A. NWC Adjustment vs. Indemnification The NWC adjustment mechanism is a distinct post-closing mechanism from the indemnification provisions set forth in Article IX of the SPA, and the two should not be conflated. The following key distinctions should be kept in mind: • Indemnity Escrow. The Indemnity Escrow of $26,400,000 is held by Keystone Escrow Services, Inc. an

VIII. Sellers' Representative — Coordination and Communications All communications regarding the NWC true-up process must be directed to and through the Sellers' Representative, Dr. Marcus Ellsworth, who was duly appointed as the Sellers' Representative by the holders of at least sixty-five percent (65%) of the outstanding shares of Meridian pursuant to Section 11.1 of the SPA. The appointment of the Sellers' Represe

IX. Action Items and Recommended Next Steps The following table sets forth the key action items, responsible parties, and target dates for the NWC true-up process. We strongly recommend that the Solstice team adopt this timeline and track progress against these milestones on a regular basis.

X. Key Contacts The following individuals are the key contacts for the NWC true-up process:

XI. Conclusion The post-closing NWC true-up process is a critical component of the Meridian acquisition, and its successful execution requires timely, disciplined, and well-coordinated action by the Solstice team. We wish to restate and emphasize the following key points: The January 29, 2025 deadline for delivery of the proposed Final Closing Statement is absolute and must not be missed. Failure to deliver the propo