Contract analysis

I. INTRODUCTION AND SCOPE OF OPINION Calderwood & Harkness LLP ("we," "us," or "C&H") has been engaged by Solstice Biomedical Devices Ltd. ("SBD" or the "Company"), an Irish private company limited by shares (Companies Registration Office ("CRO") No. 587241), to render a should-level tax opinion regarding the United States federal income tax and Irish tax consequences of the proposed intercompany transfer of SBD's co

II. SUMMARY OF THE TRANSACTION A. The Parties The following is a summary description of each of the principal entities involved in, or relevant to, the Transaction. Additional details regarding the ownership structure, governance arrangements, and capitalization of each entity are set forth in the organizational chart and constitutional documents reviewed in connection with this opinion, as described in Section III b

III. DOCUMENTS AND MATERIALS REVIEWED In rendering this opinion, we have reviewed and relied upon the following documents, materials, and information:

1. Whitmore Valuation Advisors LLC draft IP valuation report dated January 29, 2024, project reference WVA-2023-1187, prepared by Marcus Whitmore, ASA, Managing Director (the "WVA Valuation Report"), including the income approach / DCF valuation of the IP Portfolio at $214.5 million with a 13.5% WACC and 12.8-year remaining weighted-average useful life;

2. WVA transfer pricing benchmarking analysis for the determination of the arm's-length royalty rate of 8.0% of net sales for the North American License-Back Agreement, utilizing the CUT method and CPM/TNMM;

3. WVA intercompany debt pricing analysis supporting the 3.75% fixed interest rate for the €180.0 million intercompany loan from SBD to SIP Holdings;

4. Organizational chart of the SBD Group, including SBD, SMT Inc., SIP Holdings, and other relevant subsidiaries and affiliates;

5. Certificate of incorporation and constitutional documents (memorandum and articles of association) of Solstice IP Holdings Designated Activity Company (CRO No. 714538, incorporated January 18, 2024);

6. Draft IP Assignment Agreement between SMT Inc. (as assignor) and SIP Holdings (as assignee), providing for the transfer of the IP Portfolio at a purchase price of $214.5 million;

7. Draft Exclusive License-Back Agreement between SIP Holdings (as licensor) and SMT Inc. (as licensee) for the exploitation of the IP Portfolio in North America at a royalty rate of 8.0% of net sales;

8. Draft rest-of-world License Agreements between SIP Holdings (as licensor) and SBD and other Group entities (as licensees) for the exploitation of the IP Portfolio outside North America at royalty rates ranging from 4.0% to 6.5% of net sales;

9. Draft Cost-Plus R&D Services Agreement between SMT Inc. (as service provider) and SIP Holdings (as service recipient) providing for contract R&D services at cost plus 8.0%;

10. Intercompany loan agreement term sheet for the €180.0 million loan from SBD to SIP Holdings (3.75% fixed interest rate, 10-year term, interest-only for years 1–3, principal amortization in years 4–10);

11. SMT Inc. United States federal income tax returns (Forms 1120) for fiscal years 2021, 2022, and 2023, together with all supporting schedules and attachments;

12. SMT Inc. US book and tax basis schedules for intellectual property assets, reflecting an adjusted tax basis of $11.3 million as of December 31, 2023;

13. SMT Inc. FY2023 total deductions schedule, reflecting total deductions of $174.8 million;

14. SBD consolidated audited financial statements for the fiscal year ended December 31, 2023, prepared by Pemberton Hale LLP (Aisling Brennan, Audit Partner), reflecting consolidated revenue of €347.6 million and consolidated EBITDA of €78.4 million;

15. Factual Assumptions and Representations Letter dated March 8, 2024, signed by Fiona Gallagher (Chief Financial Officer) and Dr. Cathal Morrissey (Chief Executive Officer) on behalf of SBD and SMT Inc. (the "Representations Letter");

16. United States Patent and Trademark Office records for the 47 granted United States utility patents and 12 pending United States patent applications comprising the IP Portfolio;

17. Correspondence and work product from Harrington & Cahill, Chartered Tax Advisors (Niamh O'Sullivan, Tax Partner) regarding Irish tax compliance matters, including Section 291A TCA 1997 capital allowance analysis and Irish transfer pricing documentation;

18. Correspondence from Dalton Byrne & Partners, Solicitors (Séamus Dalton, Managing Partner) regarding Irish corporate law and intellectual property assignment matters;

19. Correspondence from Lattimore & Stern CPAs LLP (David Lattimore, CPA) regarding SMT Inc. US federal income tax compliance matters, including historical tax return positions and deduction schedules;

20. The Convention between the Government of the United States of America and the Government of Ireland for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and Capital Gains (the US-Ireland Income Tax Treaty), including the Technical Explanation thereof;

21. Relevant provisions of the Internal Revenue Code of 1986, as amended, including without limitation Sections 59A, 367(d), 482, 936(h)(3)(B), 951A, 952, 954, 958, 6662, and 7701, together with the Treasury Regulations promulgated thereunder and relevant IRS guidance (including revenue rulings, revenue procedures, notices, and announcements); and

22. Relevant provisions of the Taxes Consolidation Act 1997 (as amended by the Finance Act 2019 and subsequent legislation), including Section 291A (capital allowances for specified intangible assets) and the transfer pricing provisions, together with relevant Irish Revenue guidance and practice notes. We have not undertaken any independent investigation or verification of the facts, financial data, or projections se

IV. FACTUAL ASSUMPTIONS AND REPRESENTATIONS This opinion relies upon the factual representations set forth in the Representations Letter dated March 8, 2024, signed by Fiona Gallagher (Chief Financial Officer) and Dr. Cathal Morrissey (Chief Executive Officer) on behalf of SBD and SMT Inc. We have assumed, without independent verification, that each of these representations is true, correct, and complete in all mater

V. OPINION STANDARD This opinion is rendered at a "should" level of confidence. As used in this opinion, the term "should" means that, based on our analysis of the relevant legal authorities, factual representations, and assumptions described herein, we believe that the tax positions described in this opinion have a greater than fifty percent (50%) likelihood of being sustained on their merits if properly raised and

VI. ANALYSIS AND OPINIONS A. IRC § 482 — Arm's-Length Standard and Transfer Pricing

1. IP Purchase Price ($214.5 Million)

Section 482 of the Code authorizes the IRS to distribute, apportion, or allocate gross income, deductions, credits, or allowances between or among two or more organizations, trades, or businesses owned or controlled directly or indirectly by the same interests, if it determines that such distribution, apportionment, or allocation is necessary to prevent evasion of taxes or clearly to reflect the income of any such or

2. License-Back Royalty Rate (8.0% of Net Sales) The License-Back Agreement provides for an arm's-length royalty of 8.0% of net sales attributable to products and services incorporating or derived from the licensed IP, payable by SMT Inc. to SIP Holdings. Based on SMT Inc.'s FY2023 revenue of $189.2 million, the projected Year 1 royalty payment is $15.136 million ($189.2 million × 8.0%). WVA determined the 8.0% royal

3. Cost-Plus R&D Services Agreement (Cost + 8.0%) Under the Cost-Plus R&D Services Agreement, SMT Inc. will continue to perform contract research and development services for SIP Holdings at cost plus a mark-up of 8.0%. This arrangement reflects the fact that, following the IP transfer, SIP Holdings will be the owner of the IP and the principal with respect to R&D activities, while SMT Inc. will serve as a contract R

4. Intercompany Loan Pricing (€180.0 Million at 3.75%) The intercompany loan from SBD to SIP Holdings in the principal amount of €180.0 million bears a fixed interest rate of 3.75% per annum. WVA's intercompany debt pricing analysis supports this interest rate as arm's-length, based on a comparison to interest rates observed in comparable arm's-length lending transactions involving borrowers with credit profiles and

5. Opinion — IRC § 482 Based on our review of the WVA Valuation Report, the WVA benchmarking analyses, the terms of the draft transaction agreements, and the applicable provisions of IRC § 482 and the Treasury Regulations thereunder, it is our opinion that: The $214.5 million purchase price for the IP Portfolio and the 8.0% royalty rate under the License-Back Agreement should satisfy the arm's-length standard under I

1. Application of IRC § 367(d)

Section 367(d) of the Code provides a special rule for the treatment of outbound transfers of intangible property from a United States person to a foreign corporation in connection with certain nonrecognition exchanges. Under IRC § 367(d)(1), if a United States person transfers intangible property (as defined in IRC § 936(h)(3)(B)) to a foreign corporation in an exchange described in IRC § 332, 351, 354, 356, or 361,

2. Useful-Life Election Treasury Regulation § 1.367(d)-1T(c)(3) provides that a US transferor may elect to treat the deemed payments as being received over the useful life of the transferred intangible, rather than over an indefinite period. Under this election, the deemed annual inclusions are spread over the remaining useful life of the intangible, as determined at the time of the transfer. If no useful-life electi

3. Interplay Between § 367(d) Deemed Inclusions and License-Back Royalties The interaction between the deemed royalty inclusions under IRC § 367(d) and the actual royalty payments received by SIP Holdings under the License-Back Agreement presents a significant area of complexity. Under Treas. Reg. § 1.367(d)-1T(c)(2), the deemed inclusions are treated as if the US transferor had sold the intangible for a series of pa

4. Opinion — IRC § 367(d) Based on our analysis of IRC § 367(d) and the Treasury Regulations thereunder, it is our opinion that: The deemed royalty inclusions under IRC § 367(d) arising from the transfer of the IP Portfolio from SMT Inc. to SIP Holdings should be properly calculated based on the $203.2 million built-in gain and the 12.8-year remaining weighted-average useful life (assuming the useful-life election un

Section 951A of the Code, enacted by the Tax Cuts and Jobs Act of 2017, requires each "United States shareholder" of a "controlled foreign corporation" ("CFC") to include in gross income its "global intangible low-taxed income" for the taxable year. GILTI is generally calculated as the excess of a US shareholder's "net CFC tested income" over its "net deemed tangible income return" (defined as 10% of the US sharehold

2. QBAI Exception Under the GILTI computation, a US shareholder's GILTI inclusion is reduced by the "net deemed tangible income return," which is calculated as 10% of the US shareholder's pro rata share of the aggregate QBAI of its CFCs. QBAI is defined as the average of the aggregate adjusted bases (determined under the alternative depreciation system of IRC § 168(g)) of the depreciable tangible property used by the

Section 951A(c)(2)(A)(i)(III) and Treas. Reg. § 1.951A-2(c)(7) provide for a "high-tax exclusion" from GILTI tested income. Under this exclusion, a CFC's tested income is excluded from the GILTI computation if the effective rate of foreign income tax imposed on such income exceeds 90% of the maximum US corporate tax rate. For purposes of this analysis, the maximum US corporate tax rate is 21%, and 90% thereof is 18.9

4. Opinion — GILTI Based on our analysis of IRC § 951A and the Treasury Regulations thereunder, it is our opinion that: Royalty income earned by SIP Holdings under the License-Back Agreement and the rest-of-world license agreements should constitute tested income subject to GILTI inclusion under IRC § 951A, to the extent not otherwise excluded under the high-tax exclusion or other applicable provisions. The QBAI exce

1. Foreign Personal Holding Company Income (FPHCI) Under IRC § 952(a), the Subpart F income of a CFC includes, among other items, the CFC's "foreign personal holding company income" as defined in IRC § 954(c). FPHCI includes, inter alia, royalties (including royalties from the licensing of intellectual property), unless an exception applies. IRC § 954(c)(1)(A) broadly defines FPHCI to include "dividends, interest, ro

2. Same-Country Exception and Active Business Exception Several potential exceptions to the FPHCI classification merit consideration. First, the "same-country exception" under IRC § 954(c)(3) excludes from FPHCI certain royalties received from a related person organized in the same country as the CFC. This exception is not applicable to the royalty payments from SMT Inc. (a US corporation) to SIP Holdings (an Irish e

3. Coordination with IRC § 367(d) The interplay between Subpart F and the § 367(d) deemed inclusion mechanism introduces additional complexity. If § 367(d) deemed inclusions already capture the income attributable to the transferred intangibles in SMT Inc.'s US taxable income, there is a risk of double inclusion: once through the § 367(d) deemed royalty mechanism and once through the Subpart F inclusion of the actual

4. Opinion — Subpart F Based on our analysis of IRC §§ 952 and 954 and the Treasury Regulations thereunder, it is our opinion that: Royalty income earned by SIP Holdings from the License-Back Agreement and the rest-of-world license agreements should likely constitute foreign personal holding company income under IRC § 954(c), to the extent not otherwise excluded under the active trade or business exception or other a