Contract analysis

1. Executive Summary This report covers the initial month of our engagement, spanning from November 2, 2022, through November 30, 2022. Calderwood & Harkness LLP was formally engaged on November 2, 2022, to represent Whitmore Aerospace LLC as Respondent in ICC Arbitration Case No. 27914/MHM, which was filed by Kestrel Dynamics GmbH ("Kestrel") on November 7, 2022. The arbitration arises out of an alleged material bre

2. Matter Background 2.1 The Underlying Contract The dispute arises from the Master Supply Agreement for Titanium Alloy Turbine Housings (Contract No. WAL-KDG-MSA-2018-0615) executed on June 15, 2018 (the "MSA"), between Whitmore Aerospace LLC, as Buyer, and Kestrel Dynamics GmbH, as Seller. Under the MSA, Kestrel agreed to manufacture and deliver Ti-6Al-4V ELI titanium alloy turbine housings (the "Products") to WAL

3. Activities Completed During Reporting Period 3.1 Engagement Formalization (November 2, 2022) On November 2, 2022, Calderwood & Harkness LLP was formally engaged by Whitmore Aerospace LLC to serve as defense counsel in the ICC arbitration. The engagement letter was executed by Dana Prescott, Vice President & General Counsel, on behalf of WAL and by Theodore Langston, Partner, on behalf of C&H. The engagement was as

4. Preparation of Answer and Counterclaim 4.1 Status Preparation of WAL's Answer and Counterclaim is actively underway. The initial drafting is being led by Simone Laroche and Jeffrey Park, with review and strategic direction provided by Theodore Langston and Vivienne St. Claire. Under Article 5 of the ICC Rules of Arbitration (2021 edition), the Respondent's Answer to the Request for Arbitration, together with any c

1. The lot rejections were justified. WAL's incoming inspection records, prepared in accordance with WAL-QCP-100, and independent testing data demonstrate that the porosity levels in the 14 rejected lots ranged from 0.19% to 0.38%. Multiple lots therefore exceeded the contractual ≤0.25% porosity limit specified in WAL-SPEC-TH-401, Appendix C, Table 3. WAL's rejections were based on objective, documented quality data

2. Termination was proper under § 14.2(b). WAL's termination for cause was procedurally and substantively proper. Seven of the 14 rejected lots remained uncured beyond the 45-calendar-day amended cure period, far exceeding the three-rejection Persistent Quality Failure threshold set forth in § 8.4 of the MSA. The Notice of Termination for Cause was issued in compliance with the MSA's notice requirements.

3. Kestrel failed to cure. Kestrel failed to cure, replace, or remediate the non-conforming units within the contractually prescribed 45-day cure period for five of the seven uncured lots. For the remaining two uncured lots, Kestrel's attempted cure was itself non-conforming and was properly re-rejected. Kestrel's failure to avail itself of the cure mechanism — which was already extended from 30 to 45 days by Amendme

4. Consequential damages waiver bars the majority of Kestrel's claims. Section 8.7 of the MSA contains a mutual waiver of consequential, incidental, and indirect damages. Kestrel's claims for lost profits (both base-term and renewal-term), reputational damages, and lost business opportunities are consequential in nature and are barred by this provision. Under well-settled New York law, such waivers are enforceable be

5. Kestrel's porosity allegation is contradicted by the express contract terms. Kestrel's central factual contention — that WAL applied an unpublished ≤0.15% porosity standard — is squarely contradicted by the express language of WAL-SPEC-TH-401, Appendix C, Table 3, which clearly states the ≤0.25% porosity limit. There is no "unpublished" or informal standard; the contractual specification is unambiguous and was mut

6. WAL's engagement of Valkyr was a mitigation measure, not a pretext. WAL's engagement of Valkyr Precision Components Inc. as an alternative supplier was undertaken as a commercially reasonable mitigation step in response to Kestrel's documented quality failures and the resulting disruption to WAL's production schedule. The chronology of events confirms that WAL's initial contact with Valkyr post-dated the accumulat

5. Arbitrator Selection Process 5.1 Respondent's Nominee Under Article 12 of the ICC Rules of Arbitration, each party to the arbitration nominates one co-arbitrator, with the presiding (third) arbitrator to be appointed either by agreement of the parties or by the ICC Court. The nomination of co-arbitrators is a critical strategic decision, and we have been conducting a thorough vetting process to identify candidates

6. Preliminary Budget Estimate 6.1 Estimated Fee Range Based on our preliminary case assessment, the complexity of the dispute, and the anticipated procedural steps that are typical of an ICC arbitration of this nature, we estimate total professional fees for the engagement in the range of $2.2 million to $2.8 million. This estimate encompasses all phases of the arbitration, from the current pleadings phase through f

7. Anticipated Next Steps (December 2022 – March 2023) The following table summarizes the key action items and target dates for the upcoming period: We will keep WAL informed of developments on each of these items and will provide more detailed timelines as the procedural calendar takes shape.

8. Key Risk Factors and Early Observations We believe it is important to identify at this early stage the key risk factors and strategic considerations that will shape the development of WAL's defense. While our overall assessment of WAL's position is favorable, the following matters warrant particular attention:

1. Renewal-Period Lost Profits (€27.15 million). The largest single component of Kestrel's damages claim is the €27.15 million in lost profits attributed to the two optional renewal periods (CY6 and CY7). This claim is predicated on the assumption that WAL would have exercised both discretionary renewal options, thereby extending the MSA through June 14, 2025. Under New York law, damages premised on the exercise of d

2. Kestrel's Porosity Argument. Kestrel's allegation that WAL applied an unpublished ≤0.15% porosity standard — rather than the contractual ≤0.25% — is the central factual pillar of their case. Our initial review of WAL-SPEC-TH-401, Appendix C, Table 3 confirms the ≤0.25% specification is clearly and expressly stated. However, we must ensure that WAL's internal inspection records, calibration logs, and communications

3. Kestrel's Claimed Profit Margin. Kestrel's lost-profit calculations appear to be based on a claimed gross margin of 22.4% on the turbine housing product line. This margin will need to be independently verified through forensic accounting analysis. We may engage Canfield & Thorpe LLP (Sandra Gillespie, CPA/ABV, partner) for this purpose. Ms. Gillespie has extensive experience in international commercial disputes an

4. Valkyr Pretext Narrative. We expect Kestrel to vigorously pursue the argument that WAL's engagement of Valkyr Precision Components Inc. was the true motivation for the lot rejections and termination — i.e., that WAL manufactured the quality failures as a pretext for replacing Kestrel with a lower-cost domestic supplier. This narrative, if accepted by the tribunal, could undermine WAL's good-faith defense of the te

5. Covenant Compliance Risk. The €47.3 million exposure (approximately $49.2 million at current exchange rates), if realized, could have material implications for WAL's covenant compliance under its $350 million senior secured revolving credit facility with Veltrano National Bank, N.A. Even the pendency of the claim may trigger reporting obligations or affect representations and warranties made in connection with dra

9. Conclusion and Confirmation The matter is progressing on schedule. During the initial four-week engagement period, the C&H team has completed all critical administrative and foundational tasks, including engagement formalization, conflict clearance, litigation hold issuance and confirmation, insurance notification, and preliminary case assessment. We are well positioned to file the Answer and Counterclaim by the D