Contract analysis

From: Leonard Cross <lcross@calderwoodharkness.com> To: Christine Yeung <cyeung@harrowgatecapital.com> Cc: Philip Crundell <pmattingly@veldranindustries.com> Date: Mon, 11 Jul 2022 04:17:00 -0000 Subject: Veldran / Meridian Spin-Off — Second Draft Representation Letter

Attached as a redline against the May 6, 2022 first draft is the second draft of the Representation Letter (engagement no. 1003-00005 / matter code HRW-SPIN-001) in connection with our engagement to render a "should" level tax opinion under IRC §§ 355 and 368(a)(1)(D) regarding the proposed pro rata spin-off of Meridian Flow Technologies, Inc. from Veldran Industries Holdings, Inc. As you know, the Representation Let

We appreciate the thoughtful comments we received on the first draft from all reviewing parties, and I want to thank Philip, Priya, and David in particular for their detailed input. The second draft incorporates those comments and reflects a number of substantive revisions, which I summarize below. I also identify three principal open items that will need to be resolved before the Representation Letter can be finaliz

**I. Summary of Key Changes from First Draft**

The second draft reflects revisions in the following principal areas:

**(a) Business Purpose Representations.** We have revised these representations to articulate corporate-level business purposes for the spin-off, focusing on (i) enabling each of the Engineered Coatings Division and the Precision Flow Solutions Division to pursue independent capital-allocation strategies and (ii) enhancing management focus and operational efficiency across both businesses. These representations have

**(b) Kestrel Precision Controls — Active Trade or Business History.** The second draft adds detailed representations regarding Kestrel Precision Controls, Inc. (Georgia corporation, EIN 58-2847193), including its founding date of February 12, 2003, its continuous operation of the precision fluid-control systems business since founding, and its acquisition by Veldran on June 7, 2019 from Rennick Industrial Partners F

**(c) § 355(e) Plan Representations.** We have updated the representations regarding the September 20, 2019 acquisition by HPE Fund IV of 62.4% of Veldran common stock (46,488,000 shares at $40.00 per share, for aggregate consideration of approximately $1.86 billion) through the negotiated tender offer and merger squeeze-out of the prior controlling shareholder, Greystone Partners Fund III LP. The representations now

**(d) Device Test Representations.** We have modified the representations regarding Veldran's dividend history and the absence of any agreement, understanding, or plan for the sale or exchange of Meridian or Veldran stock following the distribution. The draft also addresses the pro rata nature of the distribution — a 1:1 distribution ratio (one share of Meridian common stock for each outstanding share of Veldran comm

**(e) Miscellaneous.** We have updated references throughout to the ownership structure: HPE Fund IV's 62.4% stake held through Harrowgate Veldran Holdings LLC (DE LLC, EIN 86-1483920); Prescott Capital Management LP's 14.8% stake (11,026,000 shares); management's 5.3% stake (3,948,500 shares under equity incentive plans); and the remaining public/institutional float of approximately 17.5% (13,037,500 shares). We hav

**II. Open Issues Requiring Further Attention**

We have identified three principal open items that must be resolved before the Representation Letter can be finalized and before Calderwood & Harkness can deliver its tax opinion:

**(i) Business Purpose Representations Need Strengthening.** The two articulated business purposes — enabling independent capital-allocation strategies and enhancing management focus and operational efficiency — remain insufficiently developed at the corporate level. As currently drafted, we are concerned that the representations could be read as reflecting primarily HPE Fund IV's fund-level objectives (e.g., facilit

**(ii) § 355(e) Plan Representations Require Additional Factual Support.** The revised representations state that there were no discussions regarding a spin-off prior to the September 20, 2019 acquisition, but the factual record supporting this assertion is thin. We request that Harrowgate and Veldran provide additional detail — including, to the extent available, contemporaneous documentation such as investment comm

**(iii) Kestrel Five-Year ATB Representations — Substantially Complete.** In contrast to the two items above, the representations regarding Kestrel's active-trade-or-business history are substantially complete and in good shape. The founding date (February 12, 2003), continuous operation, and nature of the business are well-documented, and our separate § 355(b) analysis memorandum (dated June 1, 2022) concludes that

Christine, we would ask that you coordinate with Philip and the Veldran management team to address the business purpose and § 355(e) factual support items identified above. We propose scheduling a working call the week of July 18 to discuss the business purpose articulation in detail — ideally with Jonathan Caldecott and Sandra Waverly participating. Once the Representation Letter is finalized, we will be in a positi

We ask that any comments on the attached second draft redline be provided by **Friday, July 22**.

Please do not hesitate to reach out if you have any questions or would like to discuss any of the foregoing in advance of the working call.

**Leonard Cross** Partner, Tax Department Calderwood & Harkness LLP 1301 Avenue of the Americas, 40th Floor New York, NY 10019 T: (212) 558-4000 E: lcross@calderwoodharkness.com

*Attachment: representation-letter-second-draft-redline.docx*

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