1037-00007 · Solstice Biomedical Devices Ltd · Correspondence

factual-assumptions-representations-letter.docx DOCUMENT M&A / Corporate

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Solstice Biomedical Devices Ltd. Unit 14, Corrib Technology Park Headford Road, Galway H91 XR72, Ireland

CRO No. 587241

March 8, 2024

Sylvia Hartwell, Partner Calderwood & Harkness LLP 599 Lexington Avenue, 36th Floor New York, NY 10022 United States

Re: Factual Assumptions and Representations — Matter No. 1037-00007 Migration of intellectual Property Portfolio from Solstice Medical Technologies Inc. to Solstice IP Holdings DAC

Dear Ms. Hartwell:

1. Introduction and Purpose

Reference is made to the engagement letter dated February 9, 2024 (the "Engagement Letter"), by and between Solstice Biomedical Devices Ltd. ("SBD" or the "Company") and Calderwood & Harkness LLP ("C&H"), pursuant to which C&H has been retained to prepare a should-level tax opinion (the "Opinion") in connection with the matters described herein.

This letter (the "Representations Letter") is delivered in connection with C&H's preparation of the Opinion regarding the proposed transfer of the intellectual property portfolio (the "IP Portfolio") currently owned by Solstice Medical Technologies Inc. ("SMT Inc."), a wholly owned subsidiary of SBD, to Solstice IP Holdings Designated Activity Company ("SIP Holdings" or "SIPH"), a newly incorporated Irish designated activity company and wholly owned subsidiary of SBD, together with the related license-back arrangement and ancillary intercompany agreements described more fully below (collectively, the "Transaction").

The undersigned, Fiona Gallagher, Chief Financial Officer of SBD, and Dr. Cathal Morrissey, Chief Executive Officer and Founder of SBD, are each duly authorized to provide the representations, statements, and factual assumptions set forth herein on behalf of SBD, SMT Inc., and SIP Holdings. Each of the undersigned has personal knowledge of the matters represented herein or has made due inquiry of other officers, directors, employees, and professional advisors of the SBD group to confirm the accuracy of such representations.

The representations and factual assumptions set forth in this Representations Letter are true, correct, and complete in all material respects as of the date of this letter and are expected to remain true, correct, and complete through and after the effective date of the Transaction, except as otherwise noted herein or as may be supplemented by further correspondence.

SBD acknowledges that C&H will rely on the representations and factual assumptions contained in this Representations Letter in rendering the Opinion and that C&H has no obligation to independently verify the factual matters stated herein. C&H's Opinion will be based, in part, on the assumption that the representations contained herein are accurate and complete, and C&H shall have no liability to SBD or any other person or entity to the extent that the Opinion is rendered invalid, inaccurate, or misleading as a result of any inaccuracy or incompleteness in the representations and factual assumptions set forth below.

2. Representations Regarding the Entities

2.1 Solstice Biomedical Devices Ltd.

SBD makes the following representations regarding its organization, operations, and ownership:

(a) Full Legal Name. The full legal name of the entity is Solstice Biomedical Devices Ltd.

(b) Entity Type. SBD is an Irish private company limited by shares, duly organized and validly existing under the laws of Ireland.

(c) Jurisdiction of Incorporation and Registration. SBD is incorporated in Ireland and is registered with the Companies Registration Office under CRO No. 587241.

(d) Registered Office. The registered office of SBD is located at Unit 14, Corrib Technology Park, Headford Road, Galway, H91 XR72, Ireland. This address also serves as SBD's principal place of business and operational headquarters.

(e) Principal Business. SBD's principal business activities consist of the design, manufacture, and global distribution of minimally invasive cardiac catheter navigation systems marketed under the brand name "NaviPulse" and intra-operative cardiac imaging devices marketed under the brand name "ClearVue." These product lines represent the core of SBD's commercial operations and are at the center of the IP Portfolio that is the subject of the Transaction.

(f) Consolidated Financial Performance (FY2023). For the fiscal year ended December 31, 2023, SBD reported consolidated revenue of €347.6 million and consolidated EBITDA of €78.4 million, representing an EBITDA margin of approximately 22.5%. These figures are as reported in SBD's consolidated financial statements for FY2023, which were audited by Pemberton Hale LLP, with Aisling Brennan serving as lead audit partner. A copy of such audited financial statements is enclosed herewith.

(g) Employees. As of the date of this letter, SBD employs approximately 1,640 individuals worldwide, including employees of SBD and its subsidiaries across all jurisdictions of operation.

(h) Ownership. SBD is a privately held company. The ownership of SBD's issued and outstanding share capital is as follows:

(i) Pinnacle Growth Equity Partners Fund III, L.P. ("Pinnacle GEP III") holds a majority stake of 62.3% of SBD's outstanding shares. Pinnacle GEP III is a Delaware limited partnership whose general partner is Pinnacle Growth Equity Advisors III LLC, with Jonathan Whitfield serving as managing partner. The principal office of Pinnacle Growth Equity Advisors III LLC is located at 400 Lexington Avenue, 28th Floor, New York, NY 10170, United States. Pinnacle GEP III has a total fund size of approximately $2.1 billion and is of vintage year 2019.

(ii) Dr. Cathal Morrissey holds 18.4% of SBD's outstanding shares through Morrissey Family Holdings Unlimited Company ("MFH UC"), an Irish unlimited company registered with the Companies Registration Office under CRO No. 492103.

(iii) Fiona Gallagher holds 2.1% of SBD's outstanding shares directly.

(iv) The remaining 17.2% of SBD's outstanding shares is held by other members of management and other individual and institutional shareholders.

(i) Board Approval Requirements. Pursuant to the shareholders' agreement among SBD, Pinnacle GEP III, MFH UC, and other shareholders (the "Shareholders' Agreement"), the prior written approval of Pinnacle GEP III is required for any material intercompany transaction with a value exceeding €10 million. SBD represents that such approval has been duly obtained with respect to the proposed IP transfer Transaction, including the intercompany loan described in Section 5 below, by way of a written board resolution dated February 21, 2024.

(j) Tax Residence. SBD is and will continue to be tax-resident in Ireland for the purposes of Irish tax law. SBD is centrally managed and controlled in Ireland, and its place of effective management is in Ireland.

2.2 Solstice Medical Technologies Inc.

SBD makes the following representations regarding SMT Inc.:

(a) Full Legal Name. The full legal name of the entity is Solstice Medical Technologies Inc.

(b) Entity Type. SMT Inc. is a corporation organized under the laws of the State of Delaware (a "C-corporation" for US federal income tax purposes).

(d) Delaware File Number. SMT Inc.'s Delaware Division of Corporations file number is 7482916.

(e) Principal Office. The principal office of SMT Inc. is located at 2200 Biopharma Drive, Suite 300, Waltham, MA 02451, United States. This facility houses SMT Inc.'s research and development laboratories, regulatory affairs offices, and North American commercial operations headquarters.

(f) Role. SMT Inc. is the current legal owner and registered holder of the IP Portfolio. SMT Inc. serves as the US operating subsidiary of SBD and is responsible for research and development activities, US regulatory submissions (including submissions to the US Food and Drug Administration), and commercial operations in the North American market.

(g) Revenue (FY2023). For the fiscal year ended December 31, 2023, SMT Inc. reported revenue of $189.2 million, representing approximately 50.1% of SBD's consolidated revenues when converted at the average FY2023 EUR/USD exchange rate of €1 = $1.09.

(h) Employees. As of the date of this letter, SMT Inc. employs approximately 580 individuals, the substantial majority of whom are based in Waltham, Massachusetts.

(i) Total Deductions (FY2023). SMT Inc.'s total deductions for the fiscal year ended December 31, 2023, as reported in its US federal income tax return, were $174.8 million. SMT Inc.'s US federal and state income tax returns are prepared by Lattimore & Stern CPAs LLP, with David Lattimore serving as lead partner (principal office at 155 Federal Street, Suite 1400, Boston, MA 02110, United States).

(j) Ownership. SMT Inc. is a wholly owned subsidiary of SBD. SBD holds 100% of the issued and outstanding common stock of SMT Inc. No other classes of equity securities have been issued by SMT Inc.

(k) Tax Classification. SMT Inc. is and will continue to be treated as a corporation for US federal income tax purposes. No election under Treasury Regulations § 301.7701-3 has been filed or is contemplated to change SMT Inc.'s classification.

2.3 Solstice IP Holdings DAC

SBD makes the following representations regarding SIP Holdings:

(a) Full Legal Name. The full legal name of the entity is Solstice IP Holdings Designated Activity Company.

(b) Entity Type. SIP Holdings is an Irish designated activity company (DAC), duly organized and validly existing under the laws of Ireland.

(c) Jurisdiction of Incorporation and Registration. SIP Holdings is incorporated in Ireland and is registered with the Companies Registration Office under CRO No. 714538.

(d) Date of Incorporation. SIP Holdings was incorporated on January 18, 2024.

(e) Registered Office. The registered office of SIP Holdings is located at Unit 14, Corrib Technology Park, Headford Road, Galway, H91 XR72, Ireland, which is also the registered office of SBD.

(f) Share Capital. SIP Holdings has an authorized and issued share capital of €1,000 in ordinary shares, 100% of which is held by SBD.

(g) Role. SIP Holdings is a newly incorporated Irish entity that has been formed for the purpose of acquiring the IP Portfolio from SMT Inc. and licensing such IP Portfolio back to SMT Inc. (for exploitation in North America) and to SBD and other group entities (for exploitation in the rest of the world). SIP Holdings will serve as the central IP holding and licensing entity within the SBD group.

(h) Tax Residence. SIP Holdings is and will continue to be tax-resident in Ireland under Irish domestic law. Its central management and control will be exercised in Ireland, as further described in Section 6 of this letter. SIP Holdings will not be treated as tax-resident in any jurisdiction other than Ireland.

(i) Legal Advisors. All Irish corporate and intellectual property law matters relating to the formation of SIP Holdings and the preparation of the IP assignment documentation have been handled by Dalton Byrne & Partners, Solicitors, with Séamus Dalton serving as managing partner (principal office at 7 Earlsfort Terrace, Dublin 2, D02 PY98, Ireland).

3. Representations Regarding the IP Portfolio

3.1 Description of the IP

(a) The IP Portfolio that is the subject of the Transaction consists of the following assets:

(i) Forty-seven (47) granted United States utility patents;

(ii) Twelve (12) pending United States patent applications;

(iii) Associated trade secrets, including but not limited to proprietary manufacturing processes, clinical data analyses, and device performance specifications;

(iv) Technical know-how accumulated through the research and development activities of SMT Inc. and the broader SBD group;

(v) Engineering drawings, manufacturing process documentation, and related technical specifications; and

(vi) Proprietary software algorithms embedded in or used in connection with the NaviPulse and ClearVue product platforms.

(b) The IP Portfolio relates principally to SBD's "NaviPulse" catheter guidance platform, which is a minimally invasive cardiac catheter navigation system, and the "ClearVue" intra-operative cardiac imaging system, both of which are core commercial products of the SBD group.

(c) All intellectual property assets comprising the IP Portfolio are currently legally owned by and registered to SMT Inc. in the United States. SMT Inc. is the sole legal and beneficial owner of the IP Portfolio.

(d) No third party holds any lien, security interest, encumbrance, or competing claim on or with respect to any asset comprising the IP Portfolio, other than customary regulatory filings with the US Patent and Trademark Office and such other governmental authorities as may be required in the ordinary course of business.

3.2 Valuation of the IP

(a) An independent fair market value appraisal of the IP Portfolio was conducted by Whitmore Valuation Advisors LLC ("WVA"), an independent valuation firm with its principal office at 900 Third Avenue, 18th Floor, New York, NY 10022, United States. The engagement was led by Marcus Whitmore, ASA, Managing Director of WVA, under WVA project reference WVA-2023-1187.

(b) The valuation date for the appraisal was December 31, 2023.

(c) The primary valuation methodology employed by WVA was an income approach using a discounted cash flow ("DCF") analysis. The DCF analysis utilized a weighted average cost of capital ("WACC") of 13.5%, which WVA determined to be appropriate based on the risk profile of the IP Portfolio, the cost of equity and debt capital applicable to comparable market participants, and technology-specific risk premiums.

(d) The fair market value of the IP Portfolio, as determined by WVA, is $214.5 million as of the valuation date. This value is set forth in WVA's draft valuation report dated January 29, 2024, a copy of which is enclosed herewith.

(e) The WVA valuation was prepared in accordance with generally accepted valuation standards, including the standards promulgated by the American Society of Appraisers, and reflects arm's-length pricing consistent with the requirements of Section 482 of the Internal Revenue Code and the OECD Transfer Pricing Guidelines.

(f) SBD and SMT Inc. believe the WVA valuation to be reasonable and reliable for purposes of establishing the purchase price for the IP Portfolio in connection with the proposed Transaction.

3.3 Remaining Useful Life

(a) Per the WVA valuation report, the remaining weighted-average useful life of the IP Portfolio is 12.8 years.

(b) This useful life estimate was derived by WVA taking into account the scheduled patent expiration dates of the 47 granted US utility patents, technology obsolescence factors relevant to the minimally invasive cardiac device industry, the projected commercial viability of the NaviPulse and ClearVue platforms, and the expected contribution of the pending patent applications and trade secrets to future revenue generation.

3.4 US Tax Basis

(a) The adjusted tax basis of the IP Portfolio on SMT Inc.'s books and records for US federal income tax purposes is $11.3 million as of the valuation date.

(b) The IP Portfolio is substantially fully amortized and/or expensed for US federal income tax purposes, reflecting prior-year amortization deductions claimed by SMT Inc. under Section 197 of the Internal Revenue Code and research and experimentation expenditures deducted under Section 174 of the Internal Revenue Code (as in effect for the relevant taxable years).

(c) Accordingly, the built-in gain in the IP Portfolio for purposes of IRC § 367(d), and more generally for purposes of computing the gain recognized or deemed recognized upon the transfer, is approximately $203.2 million (i.e., $214.5 million fair market value minus $11.3 million adjusted tax basis).

4. Representations Regarding the Transaction Structure

4.1 IP Purchase and Sale

(a) Pursuant to the Transaction, SIP Holdings will acquire the entire IP Portfolio from SMT Inc. by means of an outright purchase and sale (the "IP Transfer"). The IP Transfer will be documented in a written IP Assignment Agreement between SMT Inc. (as assignor) and SIP Holdings (as assignee), a draft of which has been prepared by Dalton Byrne & Partners and is enclosed herewith.

(b) The purchase price for the IP Portfolio is $214.5 million (the "Purchase Price"), which is equal to the independently determined fair market value of the IP Portfolio as established by WVA in its valuation report dated January 29, 2024.

(c) The targeted effective date of the IP Transfer is March 1, 2024. On or as of such effective date, all legal and beneficial ownership of the IP Portfolio will pass from SMT Inc. to SIP Holdings, and SIP Holdings will assume all rights, title, and interest in and to the IP Portfolio.

4.2 Funding of the Purchase Price

(a) The Purchase Price of $214.5 million will be funded through a combination of intercompany debt and equity, as follows:

(i) Intercompany Loan. SBD will extend an intercompany loan to SIP Holdings in the principal amount of €180.0 million (approximately $196.2 million at the spot exchange rate), the terms of which are described in Section 5 below. The loan proceeds will be used by SIP Holdings to fund the majority of the Purchase Price.

(ii) Equity Contribution. In addition to SIP Holdings' initial share capital of €1,000, SBD will make a shareholder capital contribution to SIP Holdings in the amount of €16.7 million (approximately $18.2 million at the prevailing exchange rate of €1 = $1.09). This capital contribution will be made on or prior to the effective date of the IP Transfer and will be irrevocable.

(b) The aggregate funding available to SIP Holdings from the intercompany loan and the equity contribution (approximately $196.2 million plus $18.2 million, totaling approximately $214.4 million at the exchange rate of €1 = $1.09) equals or exceeds the $214.5 million Purchase Price, ensuring that SIP Holdings will have sufficient resources to consummate the IP Transfer on the effective date.

4.3 License-Back Agreement (North America)

(a) Upon completion of the IP Transfer, SIP Holdings (as licensor) will enter into an exclusive License-Back Agreement with SMT Inc. (as licensee) (the "License-Back Agreement"), pursuant to which SIP Holdings will grant to SMT Inc. an exclusive license to exploit, use, and commercialize the IP Portfolio in the territory of North America (consisting of the United States, Canada, and Mexico).

(b) Under the License-Back Agreement, SMT Inc. will pay SIP Holdings a running royalty at a rate of 8.0% of net sales attributable to the licensed IP in the North American territory.

(c) The 8.0% royalty rate was independently benchmarked and determined by WVA to reflect arm's-length consideration using a comparable uncontrolled transaction ("CUT") analysis and other accepted transfer-pricing methods, including the comparable profits method and transactional net margin method. WVA's benchmarking analysis identified a range of comparable royalty rates for medical device intellectual property licenses, and the 8.0% rate falls within the interquartile range of the comparable set.

(d) Based on SMT Inc.'s FY2023 revenue of $189.2 million, the projected Year 1 annual royalty payment under the License-Back Agreement is approximately $15.136 million ($189.2 million × 8.0%).

(e) A draft of the License-Back Agreement is enclosed herewith.

4.4 Rest-of-World License Agreements

(a) In addition to the License-Back Agreement with SMT Inc. for North America, SIP Holdings will enter into separate license agreements (the "ROW License Agreements") with SBD and other group entities for the exploitation, use, and commercialization of the IP Portfolio in territories outside of North America.

(b) The royalty rates under the ROW License Agreements will range from 4.0% to 6.5% of net sales, with the specific rate applicable to each territory determined based on the territory-specific value-added functions performed locally by the licensee entity, the assets employed, and the risks assumed by such entity in connection with the exploitation of the licensed IP.

(c) The royalty rates for the ROW License Agreements were also independently benchmarked by WVA using accepted transfer-pricing methodologies, and WVA has determined that such rates reflect arm's-length consideration.

4.5 Cost-Plus R&D Services Agreement

(a) Concurrently with or following the IP Transfer, SMT Inc. (as service provider) and SIP Holdings (as service recipient) will enter into a Cost-Plus R&D Services Agreement (the "R&D Services Agreement"), pursuant to which SMT Inc. will continue to perform contract research and development services for the benefit of SIP Holdings.

(b) Under the R&D Services Agreement, SMT Inc. will be compensated on a cost-plus basis at a mark-up of 8.0% above the fully loaded costs of providing such R&D services. This arrangement reflects the ongoing R&D activities and the significant technical capabilities of SMT Inc.'s approximately 580-person workforce in Waltham, Massachusetts, including engineers, scientists, and regulatory affairs professionals.

(c) The 8.0% cost-plus mark-up was benchmarked against comparable arrangements for contract R&D services in the medical device industry by WVA and was determined to fall within the arm's-length range for such services.

(d) A draft of the R&D Services Agreement is enclosed herewith.

5. Representations Regarding the Intercompany Loan

SBD makes the following representations regarding the intercompany loan to be extended by SBD to SIP Holdings in connection with the funding of the Purchase Price:

(a) Lender. The lender under the intercompany loan agreement is Solstice Biomedical Devices Ltd.

(b) Borrower. The borrower under the intercompany loan agreement is Solstice IP Holdings Designated Activity Company.

(d) Term. The term of the intercompany loan is ten (10) years, commencing on March 1, 2024 (the effective date of the IP Transfer) and maturing on March 1, 2034.

(e) Interest Rate. The intercompany loan bears interest at a fixed rate of 3.75% per annum. The interest rate was independently benchmarked by WVA's intercompany debt pricing analysis and has been determined by WVA to reflect arm's-length terms, taking into account the creditworthiness of SIP Holdings (as a newly formed entity with the IP Portfolio as its principal asset), the term and tenor of the loan, the currency of denomination, and prevailing market interest rates for comparable intercompany financing arrangements.

(f) Annual Interest. The annual interest payable under the intercompany loan is €6.75 million (€180.0 million × 3.75%).

(g) Repayment Schedule. The intercompany loan provides for the following repayment schedule:

(i) Years 1 through 3 (March 1, 2024 through February 28, 2027): Interest-only payments. No principal amortization shall occur during this period.

(ii) Years 4 through 10 (March 1, 2027 through March 1, 2034): Equal annual principal installments of approximately €25.71 million (calculated as €180.0 million divided by 7 years), payable together with accrued interest on each annual payment date.

(h) Documentation. The intercompany loan is and will be documented in a written intercompany loan agreement containing commercially reasonable terms and covenants, including representations and warranties, events of default, and financial covenants customary for intra-group financing arrangements of this nature. A copy of the intercompany loan term sheet summarizing the principal terms of the facility is enclosed herewith.

6. Representations Regarding Irish Substance and Management and Control of SIP Holdings

SBD makes the following representations regarding the economic substance and management and control of SIP Holdings in Ireland:

(a) SIP Holdings will have genuine economic substance in Ireland. Specifically:

(i) The board of directors of SIP Holdings will consist of at least two (2) directors who are resident in Ireland for Irish tax purposes. Such directors will exercise management and control of SIP Holdings from Ireland and will have the authority, qualifications, and competence to make strategic decisions regarding the exploitation, licensing, and development of the IP Portfolio.

(ii) Board meetings of SIP Holdings will be held in Galway, Ireland, at SIP Holdings' registered office, Unit 14, Corrib Technology Park, Headford Road, Galway, H91 XR72, Ireland. Minutes of all board meetings will be prepared and maintained in Ireland.

(iii) Strategic decisions regarding the exploitation, licensing, commercial development, protection, maintenance, and further development of the IP Portfolio will be made by the board of directors and management of SIP Holdings in Ireland. Such decisions will include, without limitation, decisions relating to licensing strategy, royalty rate negotiations, enforcement of IP rights, decisions to pursue or abandon patent applications, budgeting for IP maintenance and development, and the engagement of third-party service providers.

(iv) SIP Holdings will employ or have available to it qualified personnel in Ireland with the competence and expertise to manage and control the IP assets held by SIP Holdings. Such personnel will include individuals with relevant technical, commercial, and financial expertise in the medical device industry.

(v) SIP Holdings will maintain its own books and records, bank accounts (denominated in both euro and US dollar), and financial reporting in Ireland, separate and distinct from those of SBD and other group entities. SIP Holdings will prepare and file all required Irish tax returns, financial statements, and regulatory filings in Ireland.

(b) SIP Holdings is and will continue to be tax-resident in Ireland under Irish domestic law. SIP Holdings' central management and control is and will be exercised in Ireland, and its place of effective management is and will be in Ireland.

(c) SIP Holdings will not be treated as tax-resident in any jurisdiction other than Ireland. In particular, SIP Holdings will not be treated as a tax resident of the United States or any other jurisdiction by reason of its place of effective management, place of incorporation, or any other connecting factor.

7. Representations Regarding Section 291A TCA 1997 (Irish Capital Allowances)

SBD makes the following representations regarding the availability and intended claim of Irish capital allowances under Section 291A of the Taxes Consolidation Act 1997 (as amended) (the "TCA 1997"):

(a) The IP Portfolio to be acquired by SIP Holdings from SMT Inc. constitutes "specified intangible assets" within the meaning of Section 291A of the TCA 1997. The IP Portfolio includes patents, know-how, and other intellectual property assets that fall within the categories of specified intangible assets enumerated in Schedule 4 to the TCA 1997.

(b) The cost of the IP Portfolio to SIP Holdings, converted to euro at the average exchange rate of €1 = $1.09, is approximately €196.8 million (i.e., $214.5 million ÷ 1.09).

(c) SIP Holdings intends to claim annual capital allowances under Section 291A of the TCA 1997 in respect of the cost of the IP Portfolio over the statutory amortization period of fifteen (15) years, resulting in estimated annual capital allowances of approximately €13.12 million per annum (calculated as €196.8 million divided by 15 years). Such capital allowances will be claimed against Irish trading income derived by SIP Holdings from the licensing and exploitation of the IP Portfolio.

(d) The IP Portfolio will be used for the purposes of a trade carried on by SIP Holdings in Ireland, namely the trade of holding, managing, licensing, and exploiting intellectual property. SIP Holdings' trade will be conducted from Ireland, and the income derived from the licensing of the IP Portfolio will constitute trading income for Irish tax purposes.

(e) Irish tax compliance matters relating to SIP Holdings, including the preparation and filing of the Section 291A capital allowances claim, the preparation of Irish transfer-pricing documentation, and all other Irish tax filings and advisory matters, are being handled by Harrington & Cahill, Chartered Tax Advisors, with Niamh O'Sullivan serving as the responsible tax partner (principal office at 42 Fitzwilliam Square East, Dublin 2, D02 TK83, Ireland).

(f) SBD believes, based on the advice of Harrington & Cahill and its own review, that SIP Holdings will satisfy all conditions for claiming capital allowances under Section 291A of the TCA 1997, including the requirements relating to the acquisition of specified intangible assets, the carrying on of a qualifying trade, and the maintenance of adequate substance in Ireland.

8. Representations Regarding the US-Ireland Income Tax Treaty

SBD makes the following representations regarding the application of 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 "Treaty") to the Transaction:

(a) SIP Holdings is a "resident of Ireland" within the meaning of Article 4 (Residence) of the Treaty. SIP Holdings is incorporated in Ireland, is tax-resident in Ireland under Irish domestic law, and is subject to tax in Ireland by reason of its place of incorporation, residence, place of management, and other criteria of a similar nature.

(b) SIP Holdings expects to qualify for benefits under the Limitation on Benefits article (Article 23) of the Treaty. SIP Holdings is a wholly owned subsidiary of SBD, which is itself an Irish company tax-resident in Ireland, and the ownership and base erosion tests set forth in Article 23 are expected to be satisfied.

(c) The royalty payments from SMT Inc. to SIP Holdings under the License-Back Agreement should qualify for the 0% withholding rate applicable to royalties under Article 12 (Royalties) of the Treaty, provided that SIP Holdings is the beneficial owner of such royalty income and satisfies the applicable limitation on benefits requirements.

(d) SIP Holdings is and will be the beneficial owner of the royalty income received from SMT Inc. under the License-Back Agreement. SIP Holdings will not act as a nominee, agent, or conduit with respect to such income.

9. Representations Regarding GILTI, Subpart F, and BEAT

SBD makes the following representations and acknowledgments regarding the potential application of the Global Intangible Low-Taxed Income ("GILTI"), Subpart F, and Base Erosion and Anti-Abuse Tax ("BEAT") provisions of the Internal Revenue Code to the Transaction and the ongoing intercompany arrangements:

(a) SBD understands that the royalty income earned by SIP Holdings from SMT Inc. and other group entities may be relevant to the analysis under IRC § 951A (GILTI), IRC § 952 (Subpart F income), and IRC § 59A (BEAT), and that C&H's Opinion will address the application of such provisions to the Transaction.

(b) SBD represents that SMT Inc.'s total deductions for the fiscal year ended December 31, 2023, as reported on its US federal income tax return, were $174.8 million.

(c) The projected annual royalty deduction of SMT Inc. under the License-Back Agreement is approximately $15.136 million (based on Year 1 projected net sales of $189.2 million and an 8.0% royalty rate). As a percentage of SMT Inc.'s total deductions, this royalty deduction yields a base erosion percentage of approximately 8.66% (calculated as $15.136 million divided by $174.8 million), which exceeds the 3.0% statutory threshold under IRC § 59A(e)(1)(C) for determining whether a taxpayer is an "applicable taxpayer" subject to the BEAT.

(d) SBD acknowledges C&H's advice that the Transaction and the ongoing royalty payments may result in BEAT exposure for SMT Inc. and that such exposure warrants ongoing monitoring and analysis. SBD further acknowledges that the BEAT analysis is sensitive to changes in SMT Inc.'s total deductions, the volume of royalty payments, and other factors that may fluctuate from year to year.

(e) SBD confirms that it will provide C&H, Lattimore & Stern CPAs LLP, and Harrington & Cahill with all information necessary to properly calculate and assess the GILTI, Subpart F, and BEAT implications of the Transaction and the ongoing intercompany arrangements on an annual basis, and will cooperate fully with such advisors in connection with the preparation and filing of all applicable US federal income tax returns and related disclosures.

10. Representations Regarding Transfer Pricing Compliance

SBD makes the following representations regarding transfer pricing compliance in connection with the Transaction:

(a) The Purchase Price of $214.5 million for the IP Portfolio and the 8.0% royalty rate under the License-Back Agreement have been independently determined by WVA to satisfy the arm's-length standard under both (i) IRC § 482 and the Treasury Regulations thereunder, including the "commensurate with income" standard set forth in IRC § 482 and Treasury Regulations § 1.482-4(f)(2), and (ii) the Irish transfer pricing rules introduced by Finance Act 2019 (as amended), which adopt the arm's-length principle as set out in the OECD Transfer Pricing Guidelines.

(b) The transfer pricing analysis was performed by WVA using accepted and reliable methodologies, including the comparable uncontrolled transaction method, the comparable profits method, the transactional net margin method, and the income approach / Discounted cash flow analysis, as applicable to the particular intercompany transaction being tested.

(c) SBD and SMT Inc. intend to prepare and maintain contemporaneous transfer-pricing documentation in compliance with both US requirements (as set forth in IRC § 6662(e) and Treasury Regulations § 1.6662-6) and Irish requirements (as set forth in the Irish transfer pricing rules), including the preparation of a local file, master file, and, if applicable, a country-by-country report, in accordance with the OECD's three-tiered documentation framework.

(d) SBD will update the transfer-pricing analysis periodically, and at minimum on an annual basis, to ensure that all intercompany pricing — including the royalty rates under the License-Back Agreement and the ROW License Agreements, the cost-plus mark-up under the R&D Services Agreement, and the interest rate on the intercompany loan — remains arm's-length and commensurate with income. SBD acknowledges its obligation under IRC § 482 to adjust intercompany pricing to the extent that actual results diverge materially from the projections underlying the original transfer pricing determinations.

11. General Representations

SBD makes the following general representations and warranties:

(a) No representation or warranty made by SBD, SMT Inc., or SIP Holdings in this Representations Letter contains any untrue statement of material fact or omits to state a material fact necessary in order to make the representations and statements contained herein not misleading in light of the circumstances under which they were made.

(b) Each of SBD, SMT Inc., and SIP Holdings is validly existing and in good standing (or the equivalent thereof) under the laws of its respective jurisdiction of incorporation, and each has the corporate power and authority to enter into and consummate the Transaction and the related intercompany agreements described herein.

(c) All necessary corporate authorizations, including without limitation the approval of Pinnacle Growth Equity Partners Fund III, L.P. (as required under the Shareholders' Agreement for material intercompany transactions exceeding the €10 million approval threshold), have been or will be duly obtained prior to the effective date of the IP Transfer. SBD represents that the board of directors of each of SBD, SMT Inc., and SIP Holdings has approved or will approve the Transaction and the related intercompany agreements prior to the effective date.

(d) No litigation, arbitration, administrative proceeding, tax audit, or governmental investigation or inquiry is pending or, to the knowledge of the undersigned, threatened with respect to (i) the IP Portfolio or any asset comprising the IP Portfolio, (ii) the proposed Transaction or any element thereof, or (iii) the tax positions that are the subject of C&H's Opinion.

(e) The average EUR/USD exchange rate used throughout this Representations Letter and in connection with the Transaction is €1 = $1.09, which corresponds to the FY2023 average exchange rate as reported by the European Central Bank. SBD acknowledges that actual exchange rates may vary at the time of the IP Transfer and that any material deviation from this assumed rate may require adjustment to the relevant calculations set forth herein.

(f) SBD undertakes to promptly notify C&H in writing if any of the representations, warranties, or factual assumptions set forth in this Representations Letter become inaccurate, incomplete, or misleading, whether prior to or after the delivery of C&H's Opinion, and whether as a result of changed circumstances, newly discovered information, or otherwise.

12. Acknowledgment and Reliance

(a) SBD acknowledges that C&H will rely on the accuracy and completeness of the representations, warranties, and factual assumptions contained in this Representations Letter in rendering its should-level tax opinion regarding the Transaction. The Opinion will be issued on the express assumption that all such representations and factual assumptions are true, correct, and complete as of the date of this letter and as of the effective date of the IP Transfer.

(b) If any representation, warranty, or factual assumption set forth in this Representations Letter proves to be inaccurate, incomplete, or misleading in any material respect, SBD acknowledges that the Opinion may be rendered invalid or may need to be revised, supplemented, or withdrawn by C&H. SBD agrees that C&H shall have no liability to SBD or any other person or entity to the extent that the Opinion is affected by any such inaccuracy, incompleteness, or misstatement.

(c) SBD further acknowledges that C&H's Opinion will be subject to the assumptions, qualifications, limitations, and caveats set forth therein, including assumptions regarding the applicable law, the interpretation of tax treaties, and the positions that may be taken by the Internal Revenue Service, the Irish Revenue Commissioners, or any other taxing authority. The Opinion is not a guarantee of a particular tax result and does not constitute a representation or warranty by C&H as to the ultimate tax treatment of the Transaction.

13. Signatories

The undersigned hereby certify that the representations, warranties, and factual assumptions set forth in this Representations Letter are true, correct, and complete in all material respects as of the date hereof, and hereby authorize Calderwood & Harkness LLP to rely upon the same in connection with the preparation and delivery of its should-level tax opinion regarding the Transaction.

SOLSTICE BIOMEDICAL DEVICES LTD.

By: ________

Name: Fiona Gallagher

Title: Chief Financial Officer

Date: ________

SOLSTICE BIOMEDICAL DEVICES LTD.

By: ________

Name: Dr. Cathal Morrissey

Title: Chief Executive Officer and Founder

Date: ________

Enclosures

The following documents are enclosed with or have been made available to Calderwood & Harkness LLP in connection with the representations set forth in this letter:

1. Draft IP Valuation Report prepared by Whitmore Valuation Advisors LLC, dated January 29, 2024 (project reference WVA-2023-1187)

2. Certificate of Incorporation of Solstice IP Holdings Designated Activity Company (CRO No. 714538, dated January 18, 2024)

3. Draft IP Assignment Agreement (Solstice Medical Technologies Inc. to Solstice IP Holdings DAC)

4. Draft License-Back Agreement (Solstice IP Holdings DAC to Solstice Medical Technologies Inc.)

5. Draft Cost-Plus R&D Services Agreement (Solstice Medical Technologies Inc. to Solstice IP Holdings DAC)

6. Intercompany Loan Term Sheet (€180.0 million, 3.75% fixed, 10-year term)

7. Solstice Medical Technologies Inc. FY2023 US Federal Income Tax Return (prepared by Lattimore & Stern CPAs LLP)

8. Solstice Biomedical Devices Ltd. Consolidated Financial Statements FY2023 (audited by Pemberton Hale LLP)

9. Organizational Chart of the SBD Group (showing Solstice Biomedical Devices Ltd., Solstice Medical Technologies Inc., Solstice IP Holdings DAC, and ownership by Pinnacle Growth Equity Partners Fund III, L.P. and Morrissey Family Holdings Unlimited Company)

10. Schedule of 47 Granted US Utility Patents and 12 Pending US Patent Applications comprising the IP Portfolio

cc:

Leila Nazari, Calderwood & Harkness LLP Leonard Cross, Calderwood & Harkness LLP Niamh O'Sullivan, Harrington & Cahill, Chartered Tax Advisors David Lattimore, Lattimore & Stern CPAs LLP

Solstice Biomedical Devices Ltd. Unit 14, Corrib Technology Park Headford Road, Galway H91 XR72, Ireland
CRO No. 587241
March 8, 2024
Sylvia Hartwell, Partner Calderwood & Harkness LLP 599 Lexington Avenue, 36th Floor New York, NY 10022 United States
Re: Factual Assumptions and Representations — Matter No. 1037-00007 Migration of intellectual Property Portfolio from Solstice Medical Technologies Inc. to Solstice IP Holdings DAC
Dear Ms. Hartwell:
1. Introduction and Purpose
Reference is made to the engagement letter dated February 9, 2024 (the "Engagement Letter"), by and between Solstice Biomedical Devices Ltd. ("SBD" or the "Company") and Calderwood & Harkness LLP ("C&H"), pursuant to which C&H has been retained to prepare a should-level tax opinion (the "Opinion") in connection with the matters described herein.
This letter (the "Representations Letter") is delivered in connection with C&H's preparation of the Opinion regarding the proposed transfer of the intellectual property portfolio (the "IP Portfolio") currently owned by Solstice Medical Technologies Inc. ("SMT Inc."), a wholly owned subsidiary of SBD, to Solstice IP Holdings Designated Activity Company ("SIP Holdings" or "SIPH"), a newly incorporated Irish designated activity company and wholly owned subsidiary of SBD, together with the related license-back arrangement and ancillary intercompany agreements described more fully below (collectively, the "Transaction").
The undersigned, Fiona Gallagher, Chief Financial Officer of SBD, and Dr. Cathal Morrissey, Chief Executive Officer and Founder of SBD, are each duly authorized to provide the representations, statements, and factual assumptions set forth herein on behalf of SBD, SMT Inc., and SIP Holdings. Each of the undersigned has personal knowledge of the matters represented herein or has made due inquiry of other officers, directors, employees, and professional advisors of the SBD group to confirm the accuracy of such representations.
The representations and factual assumptions set forth in this Representations Letter are true, correct, and complete in all material respects as of the date of this letter and are expected to remain true, correct, and complete through and after the effective date of the Transaction, except as otherwise noted herein or as may be supplemented by further correspondence.
SBD acknowledges that C&H will rely on the representations and factual assumptions contained in this Representations Letter in rendering the Opinion and that C&H has no obligation to independently verify the factual matters stated herein. C&H's Opinion will be based, in part, on the assumption that the representations contained herein are accurate and complete, and C&H shall have no liability to SBD or any other person or entity to the extent that the Opinion is rendered invalid, inaccurate, or misleading as a result of any inaccuracy or incompleteness in the representations and factual assumptions set forth below.
2. Representations Regarding the Entities
2.1 Solstice Biomedical Devices Ltd.
SBD makes the following representations regarding its organization, operations, and ownership:
(a) Full Legal Name. The full legal name of the entity is Solstice Biomedical Devices Ltd.
(b) Entity Type. SBD is an Irish private company limited by shares, duly organized and validly existing under the laws of Ireland.
(c) Jurisdiction of Incorporation and Registration. SBD is incorporated in Ireland and is registered with the Companies Registration Office under CRO No. 587241.
(d) Registered Office. The registered office of SBD is located at Unit 14, Corrib Technology Park, Headford Road, Galway, H91 XR72, Ireland. This address also serves as SBD's principal place of business and operational headquarters.
(e) Principal Business. SBD's principal business activities consist of the design, manufacture, and global distribution of minimally invasive cardiac catheter navigation systems marketed under the brand name "NaviPulse" and intra-operative cardiac imaging devices marketed under the brand name "ClearVue." These product lines represent the core of SBD's commercial operations and are at the center of the IP Portfolio that is the subject of the Transaction.
(f) Consolidated Financial Performance (FY2023). For the fiscal year ended December 31, 2023, SBD reported consolidated revenue of €347.6 million and consolidated EBITDA of €78.4 million, representing an EBITDA margin of approximately 22.5%. These figures are as reported in SBD's consolidated financial statements for FY2023, which were audited by Pemberton Hale LLP, with Aisling Brennan serving as lead audit partner. A copy of such audited financial statements is enclosed herewith.
(g) Employees. As of the date of this letter, SBD employs approximately 1,640 individuals worldwide, including employees of SBD and its subsidiaries across all jurisdictions of operation.
(h) Ownership. SBD is a privately held company. The ownership of SBD's issued and outstanding share capital is as follows:
(i) Pinnacle Growth Equity Partners Fund III, L.P. ("Pinnacle GEP III") holds a majority stake of 62.3% of SBD's outstanding shares. Pinnacle GEP III is a Delaware limited partnership whose general partner is Pinnacle Growth Equity Advisors III LLC, with Jonathan Whitfield serving as managing partner. The principal office of Pinnacle Growth Equity Advisors III LLC is located at 400 Lexington Avenue, 28th Floor, New York, NY 10170, United States. Pinnacle GEP III has a total fund size of approximately $2.1 billion and is of vintage year 2019.
(ii) Dr. Cathal Morrissey holds 18.4% of SBD's outstanding shares through Morrissey Family Holdings Unlimited Company ("MFH UC"), an Irish unlimited company registered with the Companies Registration Office under CRO No. 492103.
(iii) Fiona Gallagher holds 2.1% of SBD's outstanding shares directly.
(iv) The remaining 17.2% of SBD's outstanding shares is held by other members of management and other individual and institutional shareholders.
(i) Board Approval Requirements. Pursuant to the shareholders' agreement among SBD, Pinnacle GEP III, MFH UC, and other shareholders (the "Shareholders' Agreement"), the prior written approval of Pinnacle GEP III is required for any material intercompany transaction with a value exceeding €10 million. SBD represents that such approval has been duly obtained with respect to the proposed IP transfer Transaction, including the intercompany loan described in Section 5 below, by way of a written board resolution dated February 21, 2024.
(j) Tax Residence. SBD is and will continue to be tax-resident in Ireland for the purposes of Irish tax law. SBD is centrally managed and controlled in Ireland, and its place of effective management is in Ireland.
2.2 Solstice Medical Technologies Inc.
SBD makes the following representations regarding SMT Inc.:
(a) Full Legal Name. The full legal name of the entity is Solstice Medical Technologies Inc.
(b) Entity Type. SMT Inc. is a corporation organized under the laws of the State of Delaware (a "C-corporation" for US federal income tax purposes).
(c) Employer Identification Number. SMT Inc.'s US federal employer identification number (EIN) is 84-3291507.
(d) Delaware File Number. SMT Inc.'s Delaware Division of Corporations file number is 7482916.
(e) Principal Office. The principal office of SMT Inc. is located at 2200 Biopharma Drive, Suite 300, Waltham, MA 02451, United States. This facility houses SMT Inc.'s research and development laboratories, regulatory affairs offices, and North American commercial operations headquarters.
(f) Role. SMT Inc. is the current legal owner and registered holder of the IP Portfolio. SMT Inc. serves as the US operating subsidiary of SBD and is responsible for research and development activities, US regulatory submissions (including submissions to the US Food and Drug Administration), and commercial operations in the North American market.
(g) Revenue (FY2023). For the fiscal year ended December 31, 2023, SMT Inc. reported revenue of $189.2 million, representing approximately 50.1% of SBD's consolidated revenues when converted at the average FY2023 EUR/USD exchange rate of €1 = $1.09.
(h) Employees. As of the date of this letter, SMT Inc. employs approximately 580 individuals, the substantial majority of whom are based in Waltham, Massachusetts.
(i) Total Deductions (FY2023). SMT Inc.'s total deductions for the fiscal year ended December 31, 2023, as reported in its US federal income tax return, were $174.8 million. SMT Inc.'s US federal and state income tax returns are prepared by Lattimore & Stern CPAs LLP, with David Lattimore serving as lead partner (principal office at 155 Federal Street, Suite 1400, Boston, MA 02110, United States).
(j) Ownership. SMT Inc. is a wholly owned subsidiary of SBD. SBD holds 100% of the issued and outstanding common stock of SMT Inc. No other classes of equity securities have been issued by SMT Inc.
(k) Tax Classification. SMT Inc. is and will continue to be treated as a corporation for US federal income tax purposes. No election under Treasury Regulations § 301.7701-3 has been filed or is contemplated to change SMT Inc.'s classification.
2.3 Solstice IP Holdings DAC
SBD makes the following representations regarding SIP Holdings:
(a) Full Legal Name. The full legal name of the entity is Solstice IP Holdings Designated Activity Company.
(b) Entity Type. SIP Holdings is an Irish designated activity company (DAC), duly organized and validly existing under the laws of Ireland.
(c) Jurisdiction of Incorporation and Registration. SIP Holdings is incorporated in Ireland and is registered with the Companies Registration Office under CRO No. 714538.
(d) Date of Incorporation. SIP Holdings was incorporated on January 18, 2024.
(e) Registered Office. The registered office of SIP Holdings is located at Unit 14, Corrib Technology Park, Headford Road, Galway, H91 XR72, Ireland, which is also the registered office of SBD.
(f) Share Capital. SIP Holdings has an authorized and issued share capital of €1,000 in ordinary shares, 100% of which is held by SBD.
(g) Role. SIP Holdings is a newly incorporated Irish entity that has been formed for the purpose of acquiring the IP Portfolio from SMT Inc. and licensing such IP Portfolio back to SMT Inc. (for exploitation in North America) and to SBD and other group entities (for exploitation in the rest of the world). SIP Holdings will serve as the central IP holding and licensing entity within the SBD group.
(h) Tax Residence. SIP Holdings is and will continue to be tax-resident in Ireland under Irish domestic law. Its central management and control will be exercised in Ireland, as further described in Section 6 of this letter. SIP Holdings will not be treated as tax-resident in any jurisdiction other than Ireland.
(i) Legal Advisors. All Irish corporate and intellectual property law matters relating to the formation of SIP Holdings and the preparation of the IP assignment documentation have been handled by Dalton Byrne & Partners, Solicitors, with Séamus Dalton serving as managing partner (principal office at 7 Earlsfort Terrace, Dublin 2, D02 PY98, Ireland).
3. Representations Regarding the IP Portfolio
3.1 Description of the IP
(a) The IP Portfolio that is the subject of the Transaction consists of the following assets:
(i) Forty-seven (47) granted United States utility patents;
(ii) Twelve (12) pending United States patent applications;
(iii) Associated trade secrets, including but not limited to proprietary manufacturing processes, clinical data analyses, and device performance specifications;
(iv) Technical know-how accumulated through the research and development activities of SMT Inc. and the broader SBD group;
(v) Engineering drawings, manufacturing process documentation, and related technical specifications; and
(vi) Proprietary software algorithms embedded in or used in connection with the NaviPulse and ClearVue product platforms.
(b) The IP Portfolio relates principally to SBD's "NaviPulse" catheter guidance platform, which is a minimally invasive cardiac catheter navigation system, and the "ClearVue" intra-operative cardiac imaging system, both of which are core commercial products of the SBD group.
(c) All intellectual property assets comprising the IP Portfolio are currently legally owned by and registered to SMT Inc. in the United States. SMT Inc. is the sole legal and beneficial owner of the IP Portfolio.
(d) No third party holds any lien, security interest, encumbrance, or competing claim on or with respect to any asset comprising the IP Portfolio, other than customary regulatory filings with the US Patent and Trademark Office and such other governmental authorities as may be required in the ordinary course of business.
3.2 Valuation of the IP
(a) An independent fair market value appraisal of the IP Portfolio was conducted by Whitmore Valuation Advisors LLC ("WVA"), an independent valuation firm with its principal office at 900 Third Avenue, 18th Floor, New York, NY 10022, United States. The engagement was led by Marcus Whitmore, ASA, Managing Director of WVA, under WVA project reference WVA-2023-1187.
(b) The valuation date for the appraisal was December 31, 2023.
(c) The primary valuation methodology employed by WVA was an income approach using a discounted cash flow ("DCF") analysis. The DCF analysis utilized a weighted average cost of capital ("WACC") of 13.5%, which WVA determined to be appropriate based on the risk profile of the IP Portfolio, the cost of equity and debt capital applicable to comparable market participants, and technology-specific risk premiums.
(d) The fair market value of the IP Portfolio, as determined by WVA, is $214.5 million as of the valuation date. This value is set forth in WVA's draft valuation report dated January 29, 2024, a copy of which is enclosed herewith.
(e) The WVA valuation was prepared in accordance with generally accepted valuation standards, including the standards promulgated by the American Society of Appraisers, and reflects arm's-length pricing consistent with the requirements of Section 482 of the Internal Revenue Code and the OECD Transfer Pricing Guidelines.
(f) SBD and SMT Inc. believe the WVA valuation to be reasonable and reliable for purposes of establishing the purchase price for the IP Portfolio in connection with the proposed Transaction.
3.3 Remaining Useful Life
(a) Per the WVA valuation report, the remaining weighted-average useful life of the IP Portfolio is 12.8 years.
(b) This useful life estimate was derived by WVA taking into account the scheduled patent expiration dates of the 47 granted US utility patents, technology obsolescence factors relevant to the minimally invasive cardiac device industry, the projected commercial viability of the NaviPulse and ClearVue platforms, and the expected contribution of the pending patent applications and trade secrets to future revenue generation.
3.4 US Tax Basis
(a) The adjusted tax basis of the IP Portfolio on SMT Inc.'s books and records for US federal income tax purposes is $11.3 million as of the valuation date.
(b) The IP Portfolio is substantially fully amortized and/or expensed for US federal income tax purposes, reflecting prior-year amortization deductions claimed by SMT Inc. under Section 197 of the Internal Revenue Code and research and experimentation expenditures deducted under Section 174 of the Internal Revenue Code (as in effect for the relevant taxable years).
(c) Accordingly, the built-in gain in the IP Portfolio for purposes of IRC § 367(d), and more generally for purposes of computing the gain recognized or deemed recognized upon the transfer, is approximately $203.2 million (i.e., $214.5 million fair market value minus $11.3 million adjusted tax basis).
4. Representations Regarding the Transaction Structure
4.1 IP Purchase and Sale
(a) Pursuant to the Transaction, SIP Holdings will acquire the entire IP Portfolio from SMT Inc. by means of an outright purchase and sale (the "IP Transfer"). The IP Transfer will be documented in a written IP Assignment Agreement between SMT Inc. (as assignor) and SIP Holdings (as assignee), a draft of which has been prepared by Dalton Byrne & Partners and is enclosed herewith.
(b) The purchase price for the IP Portfolio is $214.5 million (the "Purchase Price"), which is equal to the independently determined fair market value of the IP Portfolio as established by WVA in its valuation report dated January 29, 2024.
(c) The targeted effective date of the IP Transfer is March 1, 2024. On or as of such effective date, all legal and beneficial ownership of the IP Portfolio will pass from SMT Inc. to SIP Holdings, and SIP Holdings will assume all rights, title, and interest in and to the IP Portfolio.
4.2 Funding of the Purchase Price
(a) The Purchase Price of $214.5 million will be funded through a combination of intercompany debt and equity, as follows:
(i) Intercompany Loan. SBD will extend an intercompany loan to SIP Holdings in the principal amount of €180.0 million (approximately $196.2 million at the spot exchange rate), the terms of which are described in Section 5 below. The loan proceeds will be used by SIP Holdings to fund the majority of the Purchase Price.
(ii) Equity Contribution. In addition to SIP Holdings' initial share capital of €1,000, SBD will make a shareholder capital contribution to SIP Holdings in the amount of €16.7 million (approximately $18.2 million at the prevailing exchange rate of €1 = $1.09). This capital contribution will be made on or prior to the effective date of the IP Transfer and will be irrevocable.
(b) The aggregate funding available to SIP Holdings from the intercompany loan and the equity contribution (approximately $196.2 million plus $18.2 million, totaling approximately $214.4 million at the exchange rate of €1 = $1.09) equals or exceeds the $214.5 million Purchase Price, ensuring that SIP Holdings will have sufficient resources to consummate the IP Transfer on the effective date.
4.3 License-Back Agreement (North America)
(a) Upon completion of the IP Transfer, SIP Holdings (as licensor) will enter into an exclusive License-Back Agreement with SMT Inc. (as licensee) (the "License-Back Agreement"), pursuant to which SIP Holdings will grant to SMT Inc. an exclusive license to exploit, use, and commercialize the IP Portfolio in the territory of North America (consisting of the United States, Canada, and Mexico).
(b) Under the License-Back Agreement, SMT Inc. will pay SIP Holdings a running royalty at a rate of 8.0% of net sales attributable to the licensed IP in the North American territory.
(c) The 8.0% royalty rate was independently benchmarked and determined by WVA to reflect arm's-length consideration using a comparable uncontrolled transaction ("CUT") analysis and other accepted transfer-pricing methods, including the comparable profits method and transactional net margin method. WVA's benchmarking analysis identified a range of comparable royalty rates for medical device intellectual property licenses, and the 8.0% rate falls within the interquartile range of the comparable set.
(d) Based on SMT Inc.'s FY2023 revenue of $189.2 million, the projected Year 1 annual royalty payment under the License-Back Agreement is approximately $15.136 million ($189.2 million × 8.0%).
(e) A draft of the License-Back Agreement is enclosed herewith.
4.4 Rest-of-World License Agreements
(a) In addition to the License-Back Agreement with SMT Inc. for North America, SIP Holdings will enter into separate license agreements (the "ROW License Agreements") with SBD and other group entities for the exploitation, use, and commercialization of the IP Portfolio in territories outside of North America.
(b) The royalty rates under the ROW License Agreements will range from 4.0% to 6.5% of net sales, with the specific rate applicable to each territory determined based on the territory-specific value-added functions performed locally by the licensee entity, the assets employed, and the risks assumed by such entity in connection with the exploitation of the licensed IP.
(c) The royalty rates for the ROW License Agreements were also independently benchmarked by WVA using accepted transfer-pricing methodologies, and WVA has determined that such rates reflect arm's-length consideration.
4.5 Cost-Plus R&D Services Agreement
(a) Concurrently with or following the IP Transfer, SMT Inc. (as service provider) and SIP Holdings (as service recipient) will enter into a Cost-Plus R&D Services Agreement (the "R&D Services Agreement"), pursuant to which SMT Inc. will continue to perform contract research and development services for the benefit of SIP Holdings.
(b) Under the R&D Services Agreement, SMT Inc. will be compensated on a cost-plus basis at a mark-up of 8.0% above the fully loaded costs of providing such R&D services. This arrangement reflects the ongoing R&D activities and the significant technical capabilities of SMT Inc.'s approximately 580-person workforce in Waltham, Massachusetts, including engineers, scientists, and regulatory affairs professionals.
(c) The 8.0% cost-plus mark-up was benchmarked against comparable arrangements for contract R&D services in the medical device industry by WVA and was determined to fall within the arm's-length range for such services.
(d) A draft of the R&D Services Agreement is enclosed herewith.
5. Representations Regarding the Intercompany Loan
SBD makes the following representations regarding the intercompany loan to be extended by SBD to SIP Holdings in connection with the funding of the Purchase Price:
(a) Lender. The lender under the intercompany loan agreement is Solstice Biomedical Devices Ltd.
(b) Borrower. The borrower under the intercompany loan agreement is Solstice IP Holdings Designated Activity Company.
(c) Facility Amount. The principal amount of the intercompany loan facility is €180.0 million.
(d) Term. The term of the intercompany loan is ten (10) years, commencing on March 1, 2024 (the effective date of the IP Transfer) and maturing on March 1, 2034.
(e) Interest Rate. The intercompany loan bears interest at a fixed rate of 3.75% per annum. The interest rate was independently benchmarked by WVA's intercompany debt pricing analysis and has been determined by WVA to reflect arm's-length terms, taking into account the creditworthiness of SIP Holdings (as a newly formed entity with the IP Portfolio as its principal asset), the term and tenor of the loan, the currency of denomination, and prevailing market interest rates for comparable intercompany financing arrangements.
(f) Annual Interest. The annual interest payable under the intercompany loan is €6.75 million (€180.0 million × 3.75%).
(g) Repayment Schedule. The intercompany loan provides for the following repayment schedule:
(i) Years 1 through 3 (March 1, 2024 through February 28, 2027): Interest-only payments. No principal amortization shall occur during this period.
(ii) Years 4 through 10 (March 1, 2027 through March 1, 2034): Equal annual principal installments of approximately €25.71 million (calculated as €180.0 million divided by 7 years), payable together with accrued interest on each annual payment date.
(h) Documentation. The intercompany loan is and will be documented in a written intercompany loan agreement containing commercially reasonable terms and covenants, including representations and warranties, events of default, and financial covenants customary for intra-group financing arrangements of this nature. A copy of the intercompany loan term sheet summarizing the principal terms of the facility is enclosed herewith.
6. Representations Regarding Irish Substance and Management and Control of SIP Holdings
SBD makes the following representations regarding the economic substance and management and control of SIP Holdings in Ireland:
(a) SIP Holdings will have genuine economic substance in Ireland. Specifically:
(i) The board of directors of SIP Holdings will consist of at least two (2) directors who are resident in Ireland for Irish tax purposes. Such directors will exercise management and control of SIP Holdings from Ireland and will have the authority, qualifications, and competence to make strategic decisions regarding the exploitation, licensing, and development of the IP Portfolio.
(ii) Board meetings of SIP Holdings will be held in Galway, Ireland, at SIP Holdings' registered office, Unit 14, Corrib Technology Park, Headford Road, Galway, H91 XR72, Ireland. Minutes of all board meetings will be prepared and maintained in Ireland.
(iii) Strategic decisions regarding the exploitation, licensing, commercial development, protection, maintenance, and further development of the IP Portfolio will be made by the board of directors and management of SIP Holdings in Ireland. Such decisions will include, without limitation, decisions relating to licensing strategy, royalty rate negotiations, enforcement of IP rights, decisions to pursue or abandon patent applications, budgeting for IP maintenance and development, and the engagement of third-party service providers.
(iv) SIP Holdings will employ or have available to it qualified personnel in Ireland with the competence and expertise to manage and control the IP assets held by SIP Holdings. Such personnel will include individuals with relevant technical, commercial, and financial expertise in the medical device industry.
(v) SIP Holdings will maintain its own books and records, bank accounts (denominated in both euro and US dollar), and financial reporting in Ireland, separate and distinct from those of SBD and other group entities. SIP Holdings will prepare and file all required Irish tax returns, financial statements, and regulatory filings in Ireland.
(b) SIP Holdings is and will continue to be tax-resident in Ireland under Irish domestic law. SIP Holdings' central management and control is and will be exercised in Ireland, and its place of effective management is and will be in Ireland.
(c) SIP Holdings will not be treated as tax-resident in any jurisdiction other than Ireland. In particular, SIP Holdings will not be treated as a tax resident of the United States or any other jurisdiction by reason of its place of effective management, place of incorporation, or any other connecting factor.
7. Representations Regarding Section 291A TCA 1997 (Irish Capital Allowances)
SBD makes the following representations regarding the availability and intended claim of Irish capital allowances under Section 291A of the Taxes Consolidation Act 1997 (as amended) (the "TCA 1997"):
(a) The IP Portfolio to be acquired by SIP Holdings from SMT Inc. constitutes "specified intangible assets" within the meaning of Section 291A of the TCA 1997. The IP Portfolio includes patents, know-how, and other intellectual property assets that fall within the categories of specified intangible assets enumerated in Schedule 4 to the TCA 1997.
(b) The cost of the IP Portfolio to SIP Holdings, converted to euro at the average exchange rate of €1 = $1.09, is approximately €196.8 million (i.e., $214.5 million ÷ 1.09).
(c) SIP Holdings intends to claim annual capital allowances under Section 291A of the TCA 1997 in respect of the cost of the IP Portfolio over the statutory amortization period of fifteen (15) years, resulting in estimated annual capital allowances of approximately €13.12 million per annum (calculated as €196.8 million divided by 15 years). Such capital allowances will be claimed against Irish trading income derived by SIP Holdings from the licensing and exploitation of the IP Portfolio.
(d) The IP Portfolio will be used for the purposes of a trade carried on by SIP Holdings in Ireland, namely the trade of holding, managing, licensing, and exploiting intellectual property. SIP Holdings' trade will be conducted from Ireland, and the income derived from the licensing of the IP Portfolio will constitute trading income for Irish tax purposes.
(e) Irish tax compliance matters relating to SIP Holdings, including the preparation and filing of the Section 291A capital allowances claim, the preparation of Irish transfer-pricing documentation, and all other Irish tax filings and advisory matters, are being handled by Harrington & Cahill, Chartered Tax Advisors, with Niamh O'Sullivan serving as the responsible tax partner (principal office at 42 Fitzwilliam Square East, Dublin 2, D02 TK83, Ireland).
(f) SBD believes, based on the advice of Harrington & Cahill and its own review, that SIP Holdings will satisfy all conditions for claiming capital allowances under Section 291A of the TCA 1997, including the requirements relating to the acquisition of specified intangible assets, the carrying on of a qualifying trade, and the maintenance of adequate substance in Ireland.
8. Representations Regarding the US-Ireland Income Tax Treaty
SBD makes the following representations regarding the application of 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 "Treaty") to the Transaction:
(a) SIP Holdings is a "resident of Ireland" within the meaning of Article 4 (Residence) of the Treaty. SIP Holdings is incorporated in Ireland, is tax-resident in Ireland under Irish domestic law, and is subject to tax in Ireland by reason of its place of incorporation, residence, place of management, and other criteria of a similar nature.
(b) SIP Holdings expects to qualify for benefits under the Limitation on Benefits article (Article 23) of the Treaty. SIP Holdings is a wholly owned subsidiary of SBD, which is itself an Irish company tax-resident in Ireland, and the ownership and base erosion tests set forth in Article 23 are expected to be satisfied.
(c) The royalty payments from SMT Inc. to SIP Holdings under the License-Back Agreement should qualify for the 0% withholding rate applicable to royalties under Article 12 (Royalties) of the Treaty, provided that SIP Holdings is the beneficial owner of such royalty income and satisfies the applicable limitation on benefits requirements.
(d) SIP Holdings is and will be the beneficial owner of the royalty income received from SMT Inc. under the License-Back Agreement. SIP Holdings will not act as a nominee, agent, or conduit with respect to such income.
9. Representations Regarding GILTI, Subpart F, and BEAT
SBD makes the following representations and acknowledgments regarding the potential application of the Global Intangible Low-Taxed Income ("GILTI"), Subpart F, and Base Erosion and Anti-Abuse Tax ("BEAT") provisions of the Internal Revenue Code to the Transaction and the ongoing intercompany arrangements:
(a) SBD understands that the royalty income earned by SIP Holdings from SMT Inc. and other group entities may be relevant to the analysis under IRC § 951A (GILTI), IRC § 952 (Subpart F income), and IRC § 59A (BEAT), and that C&H's Opinion will address the application of such provisions to the Transaction.
(b) SBD represents that SMT Inc.'s total deductions for the fiscal year ended December 31, 2023, as reported on its US federal income tax return, were $174.8 million.
(c) The projected annual royalty deduction of SMT Inc. under the License-Back Agreement is approximately $15.136 million (based on Year 1 projected net sales of $189.2 million and an 8.0% royalty rate). As a percentage of SMT Inc.'s total deductions, this royalty deduction yields a base erosion percentage of approximately 8.66% (calculated as $15.136 million divided by $174.8 million), which exceeds the 3.0% statutory threshold under IRC § 59A(e)(1)(C) for determining whether a taxpayer is an "applicable taxpayer" subject to the BEAT.
(d) SBD acknowledges C&H's advice that the Transaction and the ongoing royalty payments may result in BEAT exposure for SMT Inc. and that such exposure warrants ongoing monitoring and analysis. SBD further acknowledges that the BEAT analysis is sensitive to changes in SMT Inc.'s total deductions, the volume of royalty payments, and other factors that may fluctuate from year to year.
(e) SBD confirms that it will provide C&H, Lattimore & Stern CPAs LLP, and Harrington & Cahill with all information necessary to properly calculate and assess the GILTI, Subpart F, and BEAT implications of the Transaction and the ongoing intercompany arrangements on an annual basis, and will cooperate fully with such advisors in connection with the preparation and filing of all applicable US federal income tax returns and related disclosures.
10. Representations Regarding Transfer Pricing Compliance
SBD makes the following representations regarding transfer pricing compliance in connection with the Transaction:
(a) The Purchase Price of $214.5 million for the IP Portfolio and the 8.0% royalty rate under the License-Back Agreement have been independently determined by WVA to satisfy the arm's-length standard under both (i) IRC § 482 and the Treasury Regulations thereunder, including the "commensurate with income" standard set forth in IRC § 482 and Treasury Regulations § 1.482-4(f)(2), and (ii) the Irish transfer pricing rules introduced by Finance Act 2019 (as amended), which adopt the arm's-length principle as set out in the OECD Transfer Pricing Guidelines.
(b) The transfer pricing analysis was performed by WVA using accepted and reliable methodologies, including the comparable uncontrolled transaction method, the comparable profits method, the transactional net margin method, and the income approach / Discounted cash flow analysis, as applicable to the particular intercompany transaction being tested.
(c) SBD and SMT Inc. intend to prepare and maintain contemporaneous transfer-pricing documentation in compliance with both US requirements (as set forth in IRC § 6662(e) and Treasury Regulations § 1.6662-6) and Irish requirements (as set forth in the Irish transfer pricing rules), including the preparation of a local file, master file, and, if applicable, a country-by-country report, in accordance with the OECD's three-tiered documentation framework.
(d) SBD will update the transfer-pricing analysis periodically, and at minimum on an annual basis, to ensure that all intercompany pricing — including the royalty rates under the License-Back Agreement and the ROW License Agreements, the cost-plus mark-up under the R&D Services Agreement, and the interest rate on the intercompany loan — remains arm's-length and commensurate with income. SBD acknowledges its obligation under IRC § 482 to adjust intercompany pricing to the extent that actual results diverge materially from the projections underlying the original transfer pricing determinations.
11. General Representations
SBD makes the following general representations and warranties:
(a) No representation or warranty made by SBD, SMT Inc., or SIP Holdings in this Representations Letter contains any untrue statement of material fact or omits to state a material fact necessary in order to make the representations and statements contained herein not misleading in light of the circumstances under which they were made.
(b) Each of SBD, SMT Inc., and SIP Holdings is validly existing and in good standing (or the equivalent thereof) under the laws of its respective jurisdiction of incorporation, and each has the corporate power and authority to enter into and consummate the Transaction and the related intercompany agreements described herein.
(c) All necessary corporate authorizations, including without limitation the approval of Pinnacle Growth Equity Partners Fund III, L.P. (as required under the Shareholders' Agreement for material intercompany transactions exceeding the €10 million approval threshold), have been or will be duly obtained prior to the effective date of the IP Transfer. SBD represents that the board of directors of each of SBD, SMT Inc., and SIP Holdings has approved or will approve the Transaction and the related intercompany agreements prior to the effective date.
(d) No litigation, arbitration, administrative proceeding, tax audit, or governmental investigation or inquiry is pending or, to the knowledge of the undersigned, threatened with respect to (i) the IP Portfolio or any asset comprising the IP Portfolio, (ii) the proposed Transaction or any element thereof, or (iii) the tax positions that are the subject of C&H's Opinion.
(e) The average EUR/USD exchange rate used throughout this Representations Letter and in connection with the Transaction is €1 = $1.09, which corresponds to the FY2023 average exchange rate as reported by the European Central Bank. SBD acknowledges that actual exchange rates may vary at the time of the IP Transfer and that any material deviation from this assumed rate may require adjustment to the relevant calculations set forth herein.
(f) SBD undertakes to promptly notify C&H in writing if any of the representations, warranties, or factual assumptions set forth in this Representations Letter become inaccurate, incomplete, or misleading, whether prior to or after the delivery of C&H's Opinion, and whether as a result of changed circumstances, newly discovered information, or otherwise.
12. Acknowledgment and Reliance
(a) SBD acknowledges that C&H will rely on the accuracy and completeness of the representations, warranties, and factual assumptions contained in this Representations Letter in rendering its should-level tax opinion regarding the Transaction. The Opinion will be issued on the express assumption that all such representations and factual assumptions are true, correct, and complete as of the date of this letter and as of the effective date of the IP Transfer.
(b) If any representation, warranty, or factual assumption set forth in this Representations Letter proves to be inaccurate, incomplete, or misleading in any material respect, SBD acknowledges that the Opinion may be rendered invalid or may need to be revised, supplemented, or withdrawn by C&H. SBD agrees that C&H shall have no liability to SBD or any other person or entity to the extent that the Opinion is affected by any such inaccuracy, incompleteness, or misstatement.
(c) SBD further acknowledges that C&H's Opinion will be subject to the assumptions, qualifications, limitations, and caveats set forth therein, including assumptions regarding the applicable law, the interpretation of tax treaties, and the positions that may be taken by the Internal Revenue Service, the Irish Revenue Commissioners, or any other taxing authority. The Opinion is not a guarantee of a particular tax result and does not constitute a representation or warranty by C&H as to the ultimate tax treatment of the Transaction.
13. Signatories
The undersigned hereby certify that the representations, warranties, and factual assumptions set forth in this Representations Letter are true, correct, and complete in all material respects as of the date hereof, and hereby authorize Calderwood & Harkness LLP to rely upon the same in connection with the preparation and delivery of its should-level tax opinion regarding the Transaction.
SOLSTICE BIOMEDICAL DEVICES LTD.
By: ________
Name: Fiona Gallagher
Title: Chief Financial Officer
Date: ________
SOLSTICE BIOMEDICAL DEVICES LTD.
By: ________
Name: Dr. Cathal Morrissey
Title: Chief Executive Officer and Founder
Date: ________
Enclosures
The following documents are enclosed with or have been made available to Calderwood & Harkness LLP in connection with the representations set forth in this letter:
1.  Draft IP Valuation Report prepared by Whitmore Valuation Advisors LLC, dated January 29, 2024 (project reference WVA-2023-1187)
2.  Certificate of Incorporation of Solstice IP Holdings Designated Activity Company (CRO No. 714538, dated January 18, 2024)
3.  Draft IP Assignment Agreement (Solstice Medical Technologies Inc. to Solstice IP Holdings DAC)
4.  Draft License-Back Agreement (Solstice IP Holdings DAC to Solstice Medical Technologies Inc.)
5.  Draft Cost-Plus R&D Services Agreement (Solstice Medical Technologies Inc. to Solstice IP Holdings DAC)
6.  Intercompany Loan Term Sheet (€180.0 million, 3.75% fixed, 10-year term)
7.  Solstice Medical Technologies Inc. FY2023 US Federal Income Tax Return (prepared by Lattimore & Stern CPAs LLP)
8.  Solstice Biomedical Devices Ltd. Consolidated Financial Statements FY2023 (audited by Pemberton Hale LLP)
9.  Organizational Chart of the SBD Group (showing Solstice Biomedical Devices Ltd., Solstice Medical Technologies Inc., Solstice IP Holdings DAC, and ownership by Pinnacle Growth Equity Partners Fund III, L.P. and Morrissey Family Holdings Unlimited Company)
10.  Schedule of 47 Granted US Utility Patents and 12 Pending US Patent Applications comprising the IP Portfolio
cc:
Leila Nazari, Calderwood & Harkness LLP Leonard Cross, Calderwood & Harkness LLP Niamh O'Sullivan, Harrington & Cahill, Chartered Tax Advisors David Lattimore, Lattimore & Stern CPAs LLP

Solstice Biomedical Devices Ltd. Unit 14, Corrib Technology Park Headford Road, Galway H91 XR72, Ireland

SOLSTICE BIOMEDICAL DEVICES LTD.

SOLSTICE BIOMEDICAL DEVICES LTD.

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