Contract analysis

I. Executive Summary The purpose of this memorandum is to analyze the provisions of the indenture (the "Indenture") governing Veldran Industries Holdings, Inc.'s ("Veldran" or the "Company") 6.250% Senior Unsecured Notes due 2027 (the "Notes") that may be implicated by the proposed pro rata distribution by Veldran of 100% of the common stock of Meridian Flow Technologies, Inc. ("Meridian" or "SpinCo") to Veldran's sh

II. Background A. The Proposed Transaction Veldran Industries Holdings, Inc. is a Delaware corporation (EIN 86-1920347) headquartered at 2400 Commerce Park Drive, Suite 500, Charlotte, NC 28217. Veldran operates through two principal business segments: (i) the Engineered Coatings Division, which generated approximately $1.52 billion in revenue and approximately $285 million in EBITDA for fiscal year 2021, and (ii) th

III. Asset-Sale Covenant Analysis A. Summary of the Asset-Sale Covenant The Indenture restricts Veldran and its Restricted Subsidiaries from consummating an "Asset Sale" unless certain conditions are satisfied. This covenant is designed to prevent the Company from disposing of material assets without providing adequate protection to the noteholders, either by ensuring that the Company receives fair value for its asse

IV. Restricted-Payment Covenant Analysis A. Summary of the Restricted-Payment Covenant The Indenture restricts Veldran from making "Restricted Payments," which are broadly defined to include the following categories of transactions: (a) the declaration or payment of any dividend or distribution on, or in respect of, equity interests of the Company (other than dividends or distributions payable solely in equity intere

V. Successor-Company / Merger Covenant Analysis A. Summary of the Successor-Company Provisions The Indenture contains a successor-company covenant that restricts Veldran from consolidating with or merging into another entity, or selling, transferring, leasing, or otherwise disposing of all or substantially all of its assets, in each case in a single transaction or a series of related transactions, unless certain cond

VI. Tax Opinion as a Condition to Consent or Waiver If a consent solicitation or amendment is required to permit the Distribution under the Indenture, it is likely that noteholders or the Trustee will condition their consent on the receipt of a tax opinion confirming that the Distribution qualifies as a tax-free transaction under Sections 355 and 368(a)(1)(D) of the Code. This is a common requirement in consent solic

Section 355(e) Plan Analysis. Section 355(e) of the Code imposes a tax on the distributing corporation (Veldran) if the Distribution is part of a "plan" (or series of related transactions) pursuant to which one or more persons acquire, directly or indirectly, a 50% or greater interest in the distributing or controlled corporation. Given Harrowgate's 62.4% ownership of Veldran and the potential for post-spin transacti

VII. Comparison to First Lien Credit Agreement Analysis A companion memorandum dated August 2, 2022, prepared by Garrett Simmons and reviewed by Leonard Cross, analyzes the covenant implications of the proposed Spin-Off under the Veldran First Lien Term Loan B credit agreement. The Term Loan B facility has an aggregate principal amount of $1.1 billion, with Ashfield National Bank, N.A. serving as administrative agent

VIII. Open Items and Diligence Requests The analysis in this memorandum is preliminary and is subject to confirmation upon receipt and review of the following materials:

1. Final Executed Indenture. We require a final executed copy of the Indenture, together with all supplements, amendments, and waivers thereto. This document was requested from Philip Crundell, General Counsel of Veldran, and from Priya Chandrasekar of Whitfield & Gage LLP, via the Initial Tax Diligence Information Request List dated April 25, 2022. The receipt status of this document should be confirmed on the dilig

2. Confirmation of Key Definitions. We require confirmation of the exact definitions of "Asset Sale," "Restricted Payment," "Restricted Subsidiary," "Unrestricted Subsidiary," and "all or substantially all" as used in the executed Indenture. The precise wording of these definitions will determine the outcome of several of the interpretive questions discussed in Sections III, IV, and V above, including the interplay b

3. Balance-Sheet Asset Data. We require balance-sheet asset data for the Precision Flow Solutions Division, including the book value and estimated fair market value of the tangible and intangible assets to be transferred to Meridian in the Contribution. This data is necessary to confirm the "all or substantially all" analysis set forth in Section V.B above. This information has been requested from Rita Subramanian, C

4. Outstanding Waivers, Amendments, and Consent Solicitations. We require confirmation from Colton Trust Company (the Trustee) regarding any outstanding waivers, amendments, or consent solicitations under the Indenture that may be relevant to the analysis. It is possible that prior waivers or amendments have modified the applicable covenant definitions or basket calculations.

5. Correspondence with the Trustee. We require copies of any existing correspondence between Veldran and Colton Trust Company regarding the proposed Spin-Off or any other pending transaction, to the extent such correspondence bears on the Trustee's awareness of, or position regarding, the Distribution.

6. Historical Financial Data for Basket Calculations. We require Veldran's historical consolidated financial statements since the issue date of the Notes, for purposes of calculating the available Restricted Payments basket and the fixed charge coverage ratio. This data will be obtained from Veldran's financial reporting team in coordination with the corporate counsel workstream. The foregoing diligence requests shou

IX. Conclusions and Recommendations Based on the preliminary analysis set forth in this memorandum, and subject to confirmation upon receipt of the executed Indenture and resolution of the open diligence items identified in Section VIII, we reach the following conclusions and recommendations:

1. No Explicit Spin-Off blocker or Safe Harbor. The Indenture does not contain an explicit spin-off blocker provision that would categorically prohibit the Distribution. However, the Indenture also does not contain an explicit spin-off safe harbor that would affirmatively permit the Distribution without compliance with the substantive covenants. The absence of both a blocker and a safe harbor creates interpretive amb

2. Asset-Sale and/or Restricted-Payment Covenant Trigger. The Distribution of Meridian common stock (estimated fair market value of $1.4 billion to $1.7 billion) would likely trigger either the asset-sale covenant or the restricted-payment covenant of the Indenture (or potentially both, depending on the precise definitional interplay between the two covenants). Under the asset-sale covenant, the Distribution fails be

3. Successor-Company Covenant Unlikely to Be Triggered. The successor-company covenant is unlikely to be triggered by the Distribution because the Precision Flow Solutions Division does not constitute "all or substantially all" of Veldran's assets. The Precision Flow Solutions Division represents approximately 35% of Veldran's consolidated revenue and approximately 32% of consolidated EBITDA — well below the approxim

4. Consent Solicitation Required. A consent solicitation from holders of a majority in principal amount of the Notes outstanding (i.e., holders of Notes representing more than $225 million in aggregate principal amount), or, if permitted, a supplemental indenture, will likely be required to permit the Distribution to proceed. The consent solicitation process will be governed by the Trust Indenture Act of 1939 and the

5. Tax Opinion Dependency. A tax opinion at the "should" level or higher may be required as a condition to any consent or waiver from the noteholders or the Trustee, creating a dependency between the tax opinion workstream and the Indenture consent workstream. The resolution of outstanding tax opinion issues — specifically, the business purpose articulation (see Business Purpose Memorandum dated July 18, 2022) and th

6. Coordination with Corporate Counsel. Coordination with Whitfield & Gage LLP (corporate counsel to Harrowgate Private Equity Fund IV, L.P.) and Thornapple McCord LLP (corporate counsel to Veldran Industries Holdings, Inc.) is essential to align the Indenture consent process with the broader transaction timeline, including the credit agreement consent negotiations, the preparation of the Separation Agreement and rel

7. Update Required. This memorandum should be updated and finalized once the executed Indenture and all supplements thereto are confirmed in final form, the outstanding diligence items identified in Section VIII have been resolved, and the definitional questions regarding the interplay between the asset-sale and restricted-payment covenants have been confirmed based on the executed instrument. Prepared by: __________