Contract analysis

I. Introduction and Purpose Dear Mr. Crundell: As you are aware, Calderwood & Harkness LLP has been engaged by Harrowgate Private Equity Fund IV, L.P. (EIN 84-3291067) (the "Fund" or "Harrowgate") to render a tax opinion under Sections 355 and 368(a)(1)(D) of the Internal Revenue Code of 1986, as amended (the "Code"), and the Treasury Regulations promulgated thereunder, in connection with the proposed pro rata spin-o

II. Transaction Documents — Kestrel Acquisition We request production of the following categories of documents relating to the Kestrel Acquisition: A. Stock Purchase Agreement and Ancillary Agreements

1. A fully executed copy of the Stock Purchase Agreement (the "SPA") between Veldran Industries Holdings, Inc. (as Buyer) and Rennick Industrial Partners Fund II LP (as Seller), dated on or about June 7, 2019, including all exhibits, schedules, and disclosure schedules attached thereto or delivered in connection therewith. To the extent that the SPA was executed on a date other than the closing date of June 7, 2019 (

2. All amendments, supplements, side letters, waivers, consents, or other modifications to the SPA, whether executed prior to, at, or following the closing.

3. Copies of all ancillary agreements entered into in connection with the Kestrel Acquisition, including without limitation: (a) any transition services agreement between Veldran and Rennick (or any Rennick portfolio company) providing for the provision of services during a post-closing transition period; (b) any non-competition, non-solicitation, or restrictive covenant agreements entered into by Rennick, its affili

4. Copies of all closing certificates, officer's certificates, secretary's certificates, and bring-down certificates delivered by either party at or in connection with the closing of the Kestrel Acquisition. This includes any certificate of the Seller confirming the accuracy of representations and warranties as of the closing date, as well as any certificate of the Buyer delivered pursuant to conditions to closing. B

5. The final purchase price allocation statement, including any allocation of the aggregate $295 million cash purchase price among asset classes under Code § 1060 (and the regulations thereunder), or, if the transaction was treated as a stock purchase without a § 338 election, any agreement between Veldran and Rennick regarding the allocation of the purchase price among the Kestrel shares or other items. To the exten

6. All post-closing purchase price adjustment documentation, including without limitation: (a) the closing date working capital calculation and the final working capital true-up (including any disputes or resolutions thereof); (b) any earnout calculations, milestone payment determinations, or contingent consideration computations, if the purchase price included any contingent or deferred components; (c) any indemnifi

7. Wire transfer confirmations, bank statements, or other evidence of the payment of the $295 million cash purchase price to Rennick Industrial Partners Fund II LP (or to an escrow agent on behalf of Rennick) at or following the closing.

8. Any agreements, side letters, or correspondence between Veldran and Rennick regarding the allocation of the purchase price for federal, state, or local income tax purposes, including any agreement to file consistent allocations on IRS Form 8594 (Asset Acquisition Statement Under Section 1060) or any comparable state forms. C. Organizational Consents and Regulatory Approvals

9. Copies of the resolutions of the Board of Directors (or executive committee or other authorized body) of Veldran Industries Holdings, Inc. authorizing the execution, delivery, and performance of the SPA and the consummation of the Kestrel Acquisition.

10. Copies of the written consent, resolution, or other authorization of Rennick Industrial Partners Fund II LP (acting through its general partner or otherwise in accordance with the terms of its limited partnership agreement) authorizing the sale of the Kestrel shares to Veldran and the consummation of the transactions contemplated by the SPA.

11. Copies of any third-party consents obtained in connection with the Kestrel Acquisition, including consents required under material contracts, leases, permits, or licenses held by Kestrel that contained change-of-control or assignment provisions.

12. Copies of all governmental and regulatory filings and approvals related to the Kestrel Acquisition, including without limitation: (a) any pre-merger notification filings under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act"), including the notification forms filed with the Federal Trade Commission and the Department of Justice, and evidence of the expiration or early termination of the app

13. Good standing certificate(s) for Kestrel Precision Controls, Inc. issued by the Georgia Secretary of State as of or near the closing date of June 7, 2019, reflecting that Kestrel was in good standing and authorized to conduct business in the State of Georgia.

III. § 338 Election Analysis and Tax Basis Information The treatment of the Kestrel Acquisition for federal income tax purposes — and, in particular, whether a § 338 election was made — is of central importance to the § 355(b) analysis. We request the following: A. § 338 Election Documentation

14. Documentation regarding whether a § 338 election (including, without limitation, an election under § 338(g) or § 338(h)(10)) was made or considered in connection with the Kestrel Acquisition. Because the Kestrel Acquisition was a qualified stock purchase (as defined in § 338(d)(3)) of a target by a purchasing corporation, the parties would have been eligible to make such an election.

15. If a § 338 election was made in connection with the Kestrel Acquisition, please provide: (i) a copy of IRS Form 8023 (Elections Under Section 338 for Corporations Making Qualified Stock Purchases), as filed with the Internal Revenue Service, together with any attachments or supplemental statements; (ii) the Allocation Statement prepared under Treasury Regulation §§ 1.338-6 and 1.338-7, reflecting the allocation o

16. If a § 338 election was not made in connection with the Kestrel Acquisition, please provide: (i) written confirmation that no election under § 338(g), § 338(h)(10), or any analogous state or local tax provision was made with respect to the Kestrel Acquisition; (ii) copies of any internal memoranda, analyses, or correspondence prepared by or on behalf of Veldran or its tax advisors discussing whether a § 338 elect

17. Veldran's computation of its adjusted tax basis in the stock of Kestrel Precision Controls, Inc. immediately after the closing of the Kestrel Acquisition — i.e., the cost basis of $295 million (or such adjusted amount reflecting any post-closing purchase price adjustments, capitalized transaction costs, or other items properly included in the stock basis under applicable Treasury Regulations), together with a sch

18. If a § 338 election was made: (a) the computation of the new adjusted tax basis in each of Kestrel's assets as of the deemed acquisition date (or, if a § 338(h)(10) election was made, the deemed asset sale date), including the allocation of basis among asset classes; (b) the amount of goodwill and going-concern value (Class VII assets) resulting from the § 338 election, and the amortization period and method appl

19. If no § 338 election was made: (a) Kestrel's historical (carryover) adjusted tax basis in each of its material assets as of the date of the Kestrel Acquisition (June 7, 2019), including a detailed schedule reflecting the adjusted tax basis of tangible personal property, real property, identifiable intangible assets, goodwill, and any other material asset categories; (b) the depreciation and amortization schedules

20. A schedule of all post-acquisition adjustments to the tax basis of Kestrel's assets (or Veldran's basis in the Kestrel stock), including without limitation depreciation and amortization deductions claimed, capital expenditures, improvements, impairment write-downs, asset dispositions or retirements, and any other items affecting tax basis, for each tax year from the acquisition date through the most recent comple

21. A narrative description of any internal restructuring steps undertaken by Veldran after the closing of the Kestrel Acquisition with respect to Kestrel or its assets, including without limitation: (a) any merger of Kestrel into a direct or indirect subsidiary of Veldran (or merger of a subsidiary into Kestrel); (b) any conversion of Kestrel from a corporation to a disregarded entity (e.g., by election on IRS Form

22. If Kestrel was merged into another entity or converted to a disregarded entity following the acquisition, please provide: (a) copies of the merger agreement, plan of merger, or other governing documents; (b) the certificate of merger or articles of merger as filed with the relevant Secretary of State (Georgia or other applicable jurisdiction); (c) any IRS Form 8832 (Entity Classification Election) filed in connec

23. Confirmation of the current legal status of Kestrel Precision Controls, Inc. as a separate legal entity — specifically, whether Kestrel continues to exist as a Georgia corporation in good standing, has been dissolved, has been merged into or with another entity, or has been converted to a different form of entity. If Kestrel no longer exists as a separate legal entity, please identify the legal entity (or entitie

IV. Kestrel Historical Tax Returns and Tax Attributes A. Federal Income Tax Returns

24. Copies of the federal income tax returns (IRS Form 1120, or if applicable, Form 1120-S) filed by or on behalf of Kestrel Precision Controls, Inc. for the following tax years: (a) Tax year 2017 (or the fiscal year ending in 2017); (b) Tax year 2018 (or the fiscal year ending in 2018); and (c) The short tax year ending on the date of the Kestrel Acquisition (June 7, 2019), or, if the acquisition did not trigger a s

25. To the extent that Kestrel was included in Veldran's consolidated federal income tax return (Form 1120, consolidated) following the Kestrel Acquisition, please provide the pro forma separate-company return information for Kestrel (or the schedules within the consolidated return that reflect Kestrel's operations on a separate-entity basis) for the following periods: (a) Tax year 2019 (post-acquisition period, from

26. Copies of any correspondence from the Internal Revenue Service relating to Kestrel for any open tax year, including without limitation any notices of deficiency, notices of proposed adjustment, Information Document Requests ("IDRs"), examination reports (including Revenue Agent's Reports), closing agreements, settlement agreements, and any pending audit or examination proceedings. B. State Income / Franchise Tax

27. Copies of all state income tax returns and franchise tax returns filed by or on behalf of Kestrel Precision Controls, Inc. in the State of Georgia and any other state in which Kestrel filed income or franchise tax returns, for tax years 2017 through 2021 (inclusive). This includes any composite returns, unitary combined returns, or separate-entity returns filed on Kestrel's behalf.

28. Copies of any state tax audit correspondence, notices of assessment, examination reports, or other communications from state taxing authorities relating to Kestrel for any open tax year. C. Tax Elections and Attributes

29. A schedule of all material federal and state tax elections made by or with respect to Kestrel Precision Controls, Inc., from its inception through the present date, including without limitation: (a) any election under § 338 or § 336(e) of the Code; (b) any election under § 754 of the Code by any partnership in which Kestrel held (or holds) a direct or indirect interest; (c) elections relating to depreciation meth

30. A schedule of any net operating loss carryforwards ("NOLs"), capital loss carryforwards, general business credit carryforwards (including R&D credits under § 41), foreign tax credit carryforwards, or other tax attribute carryforwards of Kestrel as of the following dates: (a) immediately prior to the Kestrel Acquisition (June 7, 2019); and (b) as of the end of the most recently completed tax year (fiscal year 2021

31. Any analysis performed by or on behalf of Veldran (or Kestrel) regarding the application of § 382 or § 383 of the Code to Kestrel's tax attributes, including any determination of whether an "ownership change" (within the meaning of § 382(g)) occurred in connection with the Kestrel Acquisition or at any other time, and, if so, the calculation of the applicable § 382 limitation amount.

V. Kestrel Founding Date and Corporate History — § 355(b)(2)(D) Safe Harbor Documentation As noted in Section I above, qualification under the § 355(b)(2)(D) safe harbor is potentially the most significant pathway for satisfying the active-trade-or-business requirement with respect to the Kestrel business, notwithstanding that the Kestrel Acquisition occurred within the five-year pre-distribution period. The safe har

32. A copy of the original Certificate of Incorporation (or Articles of Incorporation) of Kestrel Precision Controls, Inc., as filed with the Georgia Secretary of State, reflecting the original filing date. Based on information provided to date, we understand that Kestrel was incorporated on or about February 12, 2003; please confirm this date and provide the filed document.

33. Copies of all amendments to the Certificate of Incorporation of Kestrel from its founding through the date of the Kestrel Acquisition (June 7, 2019), including amendments relating to authorized share capital, corporate name changes, changes in registered agent or registered office, or any other substantive or ministerial amendments.

34. A current good standing certificate (or certificate of existence) from the Georgia Secretary of State reflecting the continuous existence of Kestrel Precision Controls, Inc. since its founding, or, if Kestrel has been dissolved or merged, a certificate reflecting its date of dissolution or merger.

35. Documentation of any name changes, reincorporations (changes of domicile), domestications, conversions, or reorganizations of Kestrel from its founding through the date of the Kestrel Acquisition. If Kestrel was originally incorporated under a different name or in a different jurisdiction, please provide the relevant formation documents and evidence of the name change or reincorporation. B. Continuous Operation C

36. Written confirmation — in the form of an officer's certificate, management representation letter, or similar attestation from Veldran management (and/or based on available Kestrel historical records) — that Kestrel Precision Controls, Inc. conducted the precision fluid-control systems business (or a substantially similar business) continuously from its founding (understood to be February 12, 2003) through the dat

37. This confirmation should specifically address the following: (a) whether Kestrel at any time during the period from its founding through the present date ceased to conduct active business operations, became a shell company, or existed solely as a holding company without material operating activities; (b) whether Kestrel's principal line of business changed materially at any point during this period (e.g., from pr

38. The foregoing confirmation is critical to the § 355(b)(2)(D) safe-harbor analysis. Under that provision, the relevant trade or business must have been conducted by the acquired corporation (Kestrel) throughout the full five-year period ending on the date of the distribution. If there is any period during which Kestrel did not conduct the precision fluid-control systems business — or during which that business was

VI. Five-Year Active Trade or Business Operating History The information requested in this Section VI is intended to support our analysis of whether the Kestrel business satisfies the "active trade or business" requirement of § 355(b)(2)(A) throughout the five-year period ending on the anticipated distribution date in Q4 2022. A. Description of Kestrel's Business Activities

39. A detailed written description of Kestrel's trade or business activities as conducted during the five-year period ending on the anticipated distribution date — i.e., from approximately the fourth quarter of 2017 through the anticipated distribution date in the fourth quarter of 2022. This description should include, at a minimum: (a) a summary of Kestrel's principal products and product lines, including the types

40. Identification and description of any material changes in the nature, scope, or focus of Kestrel's business during the five-year period, including without limitation: (a) any new product lines introduced during the period; (b) any product lines or business segments discontinued, divested, or wound down during the period; (c) any material geographic expansion or contraction of Kestrel's operations (e.g., entry int

41. Identification of any periods during the five-year look-back window during which Kestrel's business was substantially inactive, suspended, or materially reduced in scope. This includes any temporary shutdowns, furloughs, or significant reductions in operations (including any effects of the COVID-19 pandemic on Kestrel's operations during 2020 and 2021). B. Financial Operating Data

42. Annual financial operating data for Kestrel for each of the following fiscal years, presented on a stand-alone or allocated basis: (a) Fiscal year 2017; (b) Fiscal year 2018; (c) Fiscal year 2019, with the pre-acquisition period (January 1, 2019 through June 6, 2019) and post-acquisition period (June 7, 2019 through December 31, 2019) shown separately, to the extent such breakout is available; (d) Fiscal year 202

43. If Kestrel's financial results were integrated into the Precision Flow Solutions Division's consolidated reporting following the Kestrel Acquisition (such that separate Kestrel-level financials are no longer maintained), please provide a reasonable breakout or management allocation of Kestrel-attributable revenue and operating income within the Precision Flow Solutions Division for each post-acquisition fiscal ye

44. Employee headcount for Kestrel (or the portion of the Precision Flow Solutions Division attributable to Kestrel's operations) at year-end for each of the fiscal years 2017, 2018, 2019, 2020, and 2021. C. Significant Asset Acquisitions and Dispositions by Kestrel

45. A schedule of any material asset acquisitions, business combinations (whether by merger, stock purchase, or asset purchase), or asset dispositions by Kestrel Precision Controls, Inc. during the five-year period ending on the anticipated distribution date. For purposes of this request, "material" means any individual transaction with a value in excess of $5 million or any series of related transactions with an agg

46. For each such transaction, please provide: (a) the date of the transaction; (b) the identity of the counterparty; (c) a description of the assets, business, or equity interests acquired or disposed of; (d) the purchase price or sale price, as applicable; (e) whether the transaction was taxable (i.e., gain or loss was recognized) or tax-free (i.e., qualified under a non-recognition provision of the Code); (f) if t

47. This information is directly relevant to the analysis under § 355(b)(2)(C), which prohibits reliance on an active trade or business that was acquired, in whole or in part, in a transaction in which gain or loss was recognized during the five-year pre-distribution period. If Kestrel itself acquired a trade or business in a taxable transaction during this period, additional analysis would be required to determine w

48. A summary of the material intellectual property owned or licensed by Kestrel that is integral to the precision fluid-control systems business, including: (a) a list of all material patents (issued and pending), including patent numbers, filing dates, issuance dates, and a brief description of the technology covered; (b) a summary of material trade secrets and proprietary know-how; (c) a list of material trademark

49. A summary of material customer contracts, supply agreements, and distribution arrangements held by Kestrel during the five-year period, including the identity of the counterparty, the general nature and term of the agreement, and the approximate annual revenue associated with each material contract.

50. Information regarding whether any of the foregoing intellectual property or contractual rights were acquired from third parties in taxable transactions during the five-year pre-distribution period. If any material intellectual property or contractual rights were acquired in a taxable transaction, please provide the acquisition date, counterparty, purchase price, and a description of the assets acquired.

VII. Ownership History of Kestrel Prior to the 2019 Acquisition

51. A capitalization table or shareholder register for Kestrel Precision Controls, Inc. as of immediately prior to the closing of the Kestrel Acquisition on June 7, 2019, reflecting the number and class of shares of capital stock outstanding, the identity and ownership percentage of each shareholder, and any outstanding options, warrants, or convertible securities.

52. Identification of all shareholders of Kestrel immediately prior to the Kestrel Acquisition. Based on information available to us, we understand that Rennick Industrial Partners Fund II LP was the controlling or sole shareholder of Kestrel as of such date. Please confirm whether Rennick held 100% of Kestrel's outstanding capital stock, or whether any other persons or entities held equity interests in Kestrel (incl

53. Documentation of the date and circumstances of Rennick Industrial Partners Fund II LP's acquisition of Kestrel (or, if Rennick was involved in the founding of Kestrel, documentation of Rennick's original investment). Specifically, please provide: (a) the date on which Rennick (or a predecessor Rennick fund) acquired its equity interest in Kestrel; (b) whether Rennick acquired its interest from the founders of Kes