Contract analysis

I. PURPOSE AND SCOPE OF ENGAGEMENT This memorandum sets forth the instructions of counsel to Dr. Nadia Ostrovsky in connection with her engagement as Respondent's damages expert in the above-captioned ICC arbitration. This memorandum should be read in conjunction with the Expert Engagement Letter dated March 6, 2023, between Calderwood & Harkness LLP, acting on behalf of Whitmore Aerospace LLC ("WAL" or "Respondent")

1. Rebuttal of Claimant's Damages Claims. Dr. Ostrovsky is to prepare an independent expert report rebutting the damages methodology and quantification that will be presented by Claimant's damages expert, Prof. Dieter Langfeld, Partner at Rheinsberg Advisory AG (Talstrasse 62, 8001 Glenrock Assurance, Switzerland). Prof. Langfeld's expert report is expected to be submitted simultaneously with Dr. Ostrovsky's initial

2. Quantification of Respondent's Counterclaim. Dr. Ostrovsky is to independently analyze and quantify the damages in support of Respondent's counterclaim in the amount of €5.17 million (approximately), representing the replacement-component cost premium incurred by WAL as a result of Kestrel's Persistent Quality Failure (as defined in the MSA). This analysis should be presented as an affirmative damages quantificati

II. BACKGROUND OF THE DISPUTE The following summary is provided to orient Dr. Ostrovsky to the factual and contractual background of the dispute. Dr. Ostrovsky should not rely solely on this summary but should independently review the underlying documents that will be provided under separate cover as described in Section V of this memorandum. A. The Parties

1. Respondent — Whitmore Aerospace LLC Whitmore Aerospace LLC ("WAL") is a Delaware limited liability company with its principal place of business at 4200 Wilson Boulevard, Suite 1100, Arlington, Virginia 22203. WAL is a leading aerospace and defense manufacturer specializing in the design, development, and production of advanced propulsion systems and structural airframe components for both military and commercial a

2. Claimant — Kestrel Dynamics GmbH Kestrel Dynamics GmbH ("Kestrel" or "KDG") is a German limited liability company (Gesellschaft mit beschränkter Haftung) with its registered office at Industriestraße 88, 70565 Stuttgart, Germany (registered with the commercial register of the Stuttgart Local Court (Amtsgericht Stuttgart) under HRB 745621). Kestrel is a precision-machined aerospace components supplier that manufact

1. Section 8.4 — Rejection and Cure

Section 8.4 of the MSA governs the procedures applicable when WAL rejects a lot of delivered products for non-conformance with the applicable engineering specifications. Under this provision, Kestrel has a specified period following receipt of a written rejection notice within which to cure the identified non-conformance. As originally drafted, the cure period was 30 calendar days. Amendment No. 2 (dated September 3,

2. Section 8.7 — Exclusive Remedy and Consequential Damages Waiver

Section 8.7 of the MSA contains two provisions of critical importance to the damages analysis: First, it establishes that WAL's exclusive remedies for quality failures by Kestrel are limited to: (a) replacement of non-conforming units at Kestrel's expense; (b) a credit against future purchase orders in the amount of the non-conforming units; or (c) upon the occurrence of a Persistent Quality Failure, termination of t

3. Section 14.2 — Termination for Cause

Section 14.2 of the MSA provides that either party may terminate the Agreement for cause upon the occurrence of either (a) a material breach that remains uncured for a period of 60 calendar days following written notice thereof, or (b) a Persistent Quality Failure as defined in Section 8.4. WAL's termination of the MSA on October 3, 2022, was predicated on the occurrence of a Persistent Quality Failure.

4. Amendment No. 1 (February 10, 2020) Amendment No. 1 to the MSA was executed on February 10, 2020, and made two principal modifications to the Agreement. First, it added a new engineering specification, WAL-SPEC-TH-410, covering a high-temperature variant of the Ti-6Al-4V ELI turbine housing intended for use in next-generation propulsion systems. Second, it increased the maximum annual volume from 3,600 units to 4,

5. Amendment No. 2 (September 3, 2021) Amendment No. 2 to the MSA was executed on September 3, 2021, and made two modifications. First, it extended the cure period in Section 8.4 from 30 calendar days to 45 calendar days, at Kestrel's request and with WAL's agreement. Second, it added a force majeure carve-out addressing pandemic-related supply chain disruptions, providing that delays directly attributable to COVID-1

III. CLAIMANT'S DAMAGES CLAIMS — OVERVIEW Kestrel's Statement of Claim, filed on April 28, 2023, sets forth a total damages claim of €47.3 million, divided into four categories. Dr. Ostrovsky should familiarize herself with each of these categories in detail, as her expert report will need to address every head of damage claimed by Kestrel. The four categories of claimed damages are summarized as follows:

1. Lost Profits for the Remaining MSA Term (CY5): €12.83 million. Kestrel contends that WAL's termination of the MSA was wrongful and that, but for the termination, Kestrel would have earned profits on deliveries during the remainder of Contract Year 5 (i.e., from October 3, 2022, through June 14, 2023). This claim is set forth at paragraph 87 of the Statement of Claim.

2. Lost Profits for Two Renewal-Term Option Years: €27.15 million. Kestrel further claims that, but for the wrongful termination, WAL would have exercised both one-year renewal options, and Kestrel would have earned profits during those two additional years. This claim is set forth at paragraph 92 of the Statement of Claim.

3. Cost of Unreimbursed Rework on Rejected Lots: €3.42 million. Kestrel claims the costs it incurred in attempting to cure the 14 rejected lots, on the theory that the rejections were wrongful or unreasonable and that Kestrel should not bear the cost of reworking units that complied with the contractual specification (as Kestrel interprets it). This claim is set forth at paragraph 96 of the Statement of Claim.

4. Reputational Damages and Loss of Other Business Opportunities: €3.90 million. Kestrel claims that WAL's termination caused damage to Kestrel's market reputation and resulted in the loss of business opportunities with other aerospace customers. This claim is set forth at paragraph 101 of the Statement of Claim. Kestrel's damages expert is Prof. Dieter Langfeld, a Partner at Rheinsberg Advisory AG, located at Talstr

IV. SPECIFIC INSTRUCTIONS FOR EXPERT REPORT The following sections set forth detailed instructions for each aspect of Dr. Ostrovsky's expert report. These instructions are intended to guide Dr. Ostrovsky's analysis while respecting her independent professional judgment. Dr. Ostrovsky is expected to reach her own conclusions based on her independent analysis of the facts and data; the instructions below identify the i

1. Volume Assumptions Kestrel's lost-profit claim for CY5 appears to assume an annual volume of 3,600 units, which is the pre-Amendment No. 1 maximum volume under the MSA. Dr. Ostrovsky should review WAL's actual historical order volumes for Contract Years 1 through 4 to determine the most likely volume trajectory and whether the assumption of 3,600 units per year is supported by the actual purchasing history. In par

2. Profit Margin Assumptions Kestrel claims a profit margin of 22.4% on the turbine housing products supplied under the MSA. Dr. Ostrovsky should critically evaluate this claimed margin by: (a) Requesting and reviewing supporting documentation from Kestrel's financial records, to the extent available through document production under Procedural Order No. 2 (dated March 17, 2023), to determine whether the claimed marg

3. Consequential Damages Waiver Dr. Ostrovsky should address whether the lost-profit claim for CY5 is properly characterized as a claim for consequential damages that is barred by Section 8.7 of the MSA. While this is ultimately a legal question for the Tribunal, Dr. Ostrovsky should offer her economic perspective on whether lost profits in this context are appropriately categorized as direct or consequential damages

4. Duty to Mitigate Dr. Ostrovsky should evaluate whether Kestrel had a duty to mitigate its lost profits by seeking alternative buyers for the turbine housing products or otherwise redeploying its manufacturing capacity following WAL's termination. In particular, Dr. Ostrovsky should consider: (a) Whether Kestrel had existing relationships with other aerospace customers to whom it could have sold comparable Ti-6Al-4

5. Extrapolation Methodology Dr. Ostrovsky should evaluate whether the extrapolation from approximately €4.31 million to approximately €12.83 million is methodologically sound. In particular, Dr. Ostrovsky should examine how the remaining months of CY5 are calculated, whether the extrapolation accounts for the fact that only approximately eight months of CY5 remained at the time of termination (October 3, 2022, throu

1. Legal and Economic Significance of Discretionary Options The renewal options under the MSA were exercisable solely at WAL's discretion. There was no obligation whatsoever on WAL to exercise either renewal option, and the MSA contained no provisions requiring WAL to provide any reason for declining to renew. Dr. Ostrovsky should address the economic significance of this contractual structure and explain why damages

2. Absence of a Binding Commitment to Renew At the time of termination, WAL had not exercised either renewal option, and the first renewal period would not have commenced until June 15, 2023 — more than eight months after the termination. Dr. Ostrovsky should evaluate whether Kestrel had any reasonable expectation of renewal based on the contractual language, the parties' course of dealing, or other objective evidenc

3. Assumptions Underlying the €27.15 Million Figure Dr. Ostrovsky should deconstruct the €27.15 million figure and evaluate each underlying assumption, including: (a) Volume assumptions: What volume has Kestrel assumed for the renewal years? If the maximum volume of 4,000 units has been assumed, is this supported by the historical order data? (b) Pricing assumptions: Has Kestrel assumed continued application of the 2

4. Industry Practice Regarding Renewal Rates Dr. Ostrovsky should draw upon her knowledge of industry practice and publicly available data to assess the renewal rates for aerospace supply contracts of this type. Specifically, Dr. Ostrovsky should address whether a 100% renewal probability (which appears to be the assumption underlying Prof. Langfeld's quantification) is reasonable in light of typical renewal rates in

5. Alternative Quantification Counsel's view is that renewal-period lost profits are not compensable as a matter of law under the MSA and governing New York law principles, given the purely discretionary nature of the renewal options. However, in the event the Tribunal disagrees with Respondent's legal position, Dr. Ostrovsky should independently quantify the economic unreasonableness of the €27.15 million claim in t

1. Documentation and Support Whether the claimed rework costs of €3.42 million are properly documented and supported by Kestrel's accounting records. Dr. Ostrovsky should request (through counsel) detailed cost breakdowns, including labor costs, material costs, equipment usage, subcontractor fees, and overhead allocations attributable to the rework activities. The analysis should assess whether the claimed costs are

2. Allocation to Rejected Lots Whether the rework costs are appropriately allocated to the 14 rejected lots versus other production activities. In a manufacturing environment, shared resources are often allocated across multiple production activities, and there is a risk that the claimed rework costs include allocations of overhead or other costs that are not properly attributable to the rework of the rejected WAL lo

3. Cured vs. Uncured Lots A critical distinction must be drawn between the rework costs associated with the 7 lots that were ultimately cured and accepted by WAL and the 7 lots that remained uncured. Rework costs associated with successfully cured lots resulted in products that were accepted and paid for by WAL — Kestrel presumably received payment for those cured units. Dr. Ostrovsky should determine whether the €3.

4. Direct vs. Consequential Damages Dr. Ostrovsky should evaluate whether the claimed rework costs constitute direct damages or consequential damages under the MSA's framework. Section 8.7's exclusive remedy provision limits WAL's liability for quality failures to replacement, credit, or termination; rework costs voluntarily incurred by Kestrel in attempting to cure rejected lots may not fit within the MSA's remedial

5. Coordination with Forensic Accountant In analyzing the rework costs, Dr. Ostrovsky should coordinate with Sandra Gillespie, CPA/ABV, of Canfield & Thorpe LLP, located at 1345 Avenue of the Americas, New York, New York 10105. Ms. Gillespie is conducting an independent forensic accounting analysis of Kestrel's claimed rework costs and margin calculations. Dr. Ostrovsky and Ms. Gillespie may share factual data and ac

1. Evidentiary Support Whether Kestrel has provided any objective, verifiable evidence of specific lost business opportunities that are causally linked to WAL's termination. In particular, Dr. Ostrovsky should determine whether Kestrel has identified specific potential contracts, customers, or business opportunities that were lost as a direct and proximate result of WAL's termination, as opposed to other factors (e.g

2. Quantification Methodology Whether any rigorous quantification methodology exists that connects WAL's termination to measurable reputational harm. Reputational damages in commercial disputes are notoriously difficult to quantify with the reasonable certainty required under New York law. Dr. Ostrovsky should evaluate whether Kestrel or Prof. Langfeld has employed a recognized methodology for quantifying reputationa

3. Speculative Nature The inherently speculative nature of reputational damages claims in the context of a bilateral supply contract termination. Dr. Ostrovsky should address whether, as an economic matter, the termination of a single supply contract by one customer would be expected to have a material adverse impact on the reputation and future business prospects of a company with annual revenues of €312 million der

4. Consequential Damages Waiver Whether reputational damages and lost business opportunities are consequential in nature and therefore barred by Section 8.7 of the MSA. From an economic standpoint, reputational harm and the loss of future business opportunities with third-party customers are quintessential consequential damages — they are indirect consequences of the termination, not direct damages flowing from any s

5. Alternative Causes of Revenue Fluctuation Whether Kestrel's other customer relationships and revenue streams — totaling approximately €312 million in annual revenue from a diversified customer base — were actually adversely affected by the WAL termination. If Kestrel's revenues from other customers remained stable or increased following the termination, this would undermine the claim that WAL's termination caused

1. Factual Basis for the Counterclaim Following Kestrel's Persistent Quality Failure and WAL's termination of the MSA, WAL was required to source replacement Ti-6Al-4V ELI titanium alloy turbine housings to maintain its production schedules for downstream aerospace programs. WAL engaged an alternative supplier, Valkyr Precision Components Inc., located at 4401 East Irvington Road, Tucson, Arizona 85714, to manufactur

2. Calculation of the Replacement Cost Premium The counterclaim is calculated as the difference between the unit price charged by Valkyr and the unit price that would have been paid to Kestrel under the MSA, applied to the 1,680 replacement units. The calculation is as follows: (a) Valkyr unit price: €8,432.92 (b) Kestrel CY4 unit price (applicable at the time of the rejected lots): €5,222.92 (c) Per-unit replacement

3. Supporting Documentation Dr. Ostrovsky should review and present supporting documentation for the counterclaim calculation, including: (a) The supply contract between WAL and Valkyr, including the pricing terms, volume commitments, and the introductory discount provision. (b) Invoices from Valkyr for the 1,680 replacement units, confirming the unit price of €8,432.92 and the 4.2% discount. (c) Documentation of WAL

4. Reasonableness of WAL's Sourcing Decision Dr. Ostrovsky should address the reasonableness of WAL's decision to source replacement units from Valkyr, including the Valkyr unit price of €8,432.92 in relation to prevailing market prices for comparable Ti-6Al-4V ELI titanium alloy turbine housings meeting WAL's proprietary specifications. Dr. Ostrovsky should assess: (a) The available market for Ti-6Al-4V ELI titanium

5. Anticipated Mitigation Arguments Kestrel may argue that WAL failed to mitigate its replacement-component costs by not seeking competitive bids from other suppliers sooner or by not pursuing less expensive sourcing alternatives. Dr. Ostrovsky should proactively address these anticipated arguments by: (a) Assessing the timeline of WAL's procurement efforts following the accumulation of rejected lots and the terminat

V. MATERIALS TO BE PROVIDED The following documents and data will be sent to Dr. Ostrovsky under separate cover. Dr. Ostrovsky should review all materials carefully and identify any additional documents or data needed for her analysis promptly upon receipt. Requests for additional materials should be directed to the undersigned.

1. The Master Supply Agreement dated June 15, 2018, bearing reference number WAL-KDG-MSA-2018-0615, including all schedules, appendices, and exhibits, together with Amendment No. 1 (dated February 10, 2020) and Amendment No. 2 (dated September 3, 2021).

2. Kestrel's Statement of Claim, filed April 28, 2023, together with all exhibits referenced therein.

3. WAL's purchase order history for Contract Years 1 through 4, including order dates, lot numbers, quantities, unit prices, and aggregate volumes for each contract year. This data is essential for evaluating the volume assumptions underlying Kestrel's lost-profit claims.

4. WAL's lot rejection records for the 14 rejected lots (Lot KDG-2022-0307 through Lot KDG-2022-0919), including rejection notices, inspection reports, and porosity test results.

5. Correspondence between WAL and Kestrel regarding cure notices and cure failures, including all written notices issued pursuant to Section 8.4 of the MSA and Kestrel's responses thereto.

6. WAL's Notice of Termination for Cause dated October 3, 2022, and any correspondence relating to the termination.

7. The supply contract between WAL and Valkyr Precision Components Inc., including pricing terms, volume commitments, introductory discount provisions, and delivery schedules, together with all invoices issued by Valkyr for the 1,680 replacement units.

8. Kestrel's financial statements for FY2019 through FY2022, to the extent produced in document production under Procedural Order No. 2 dated March 17, 2023. These financial statements are relevant to evaluating Kestrel's claimed profit margins and overall financial performance.

9. Any additional financial and accounting documents produced by Kestrel during the document production phase of the arbitration, including product-level cost data, segment reporting, and management accounts relating to the WAL contract.

10. Prof. Langfeld's expert report, upon receipt. This report is expected to be submitted on October 16, 2023, simultaneously with Dr. Ostrovsky's initial report. Dr. Ostrovsky's rebuttal report, due November 13, 2023, will be the primary vehicle for addressing Prof. Langfeld's specific methodology and conclusions.

11. Preliminary findings from Sandra Gillespie, CPA/ABV, at Canfield & Thorpe LLP, relating to the forensic accounting analysis of Kestrel's claimed rework costs and margin calculations. These findings will be transmitted through counsel. Dr. Ostrovsky should maintain a complete and contemporaneous record of all documents and data reviewed in connection with her engagement, as this list will be required for inclusion

VI. COORDINATION WITH OTHER EXPERTS Respondent has retained two other experts in addition to Dr. Ostrovsky, and coordination among the expert team will be important to ensure consistency and avoid gaps or contradictions in Respondent's expert evidence. Dr. Raymond Chow, Principal Engineer, Arclight Materials Science Inc. Dr. Chow's office is located at 7900 Westpark Drive, Suite 200, McLean, Virginia 22102. Dr. Chow

VII. REPORT FORMAT AND SUBMISSION REQUIREMENTS Dr. Ostrovsky's expert report must comply with the ICC Rules of Arbitration (2021 edition) and the specific requirements set forth in the Tribunal's Procedural Order No. 1 (issued February 14, 2023). Based on the Tribunal's directions, the expert report should include the following components:

1. Statement of Qualifications and Independence. A summary of Dr. Ostrovsky's professional qualifications, experience, and relevant expertise, together with a statement confirming her independence from the parties and the absence of any conflict of interest. Dr. Ostrovsky should disclose any prior engagements for or against either party or their affiliates, as well as any other matters that could bear on her independ