Contract analysis

I. Executive Summary The purpose of this memorandum is to summarize the state and local tax ("SALT") implications of the proposed pro rata distribution by Veldran Industries Holdings, Inc. ("Veldran" or "Distributing"), a Delaware corporation headquartered in Charlotte, North Carolina (principal office: 2400 Commerce Park Drive, Suite 500, Charlotte, NC 28217; registered address: 1209 Orange Street, Wilmington, DE 19

II. Background and Key Transaction Parameters This Section II sets forth the key factual background and transaction parameters upon which the analysis in this memorandum is based. The information summarized below has been derived from due diligence materials provided by Harrowgate Capital Advisors LLC, the management of Veldran, and the preliminary valuation analysis prepared by Brackenridge & Co. Unless otherwise no

III. Delaware Tax Considerations A. Delaware Conformity with Federal Section 355 Treatment Delaware does not impose a corporate income tax in the traditional sense. Unlike most states, Delaware does not have a broadly applicable corporate net income tax that would require an analysis of conformity with the federal treatment of distributions under IRC Section 355. Instead, Delaware's primary tax on corporate entities

IV. North Carolina Tax Considerations A. North Carolina Corporate Income Tax — Conformity with Federal Section 355 North Carolina imposes a corporate income tax on corporations doing business in or deriving income from sources within the state. For taxable years beginning on or after January 1, 2022, the North Carolina corporate income tax rate is 2.5%, a reduction from the prior rate of 2.5% (which was itself the pr

V. Georgia Tax Considerations A. Georgia Corporate Income Tax — Conformity with Federal Section 355 Georgia imposes both a corporate net worth tax and a corporate income tax on corporations doing business in or deriving income from sources within the state. The Georgia corporate income tax rate is currently 5.75%, which is materially higher than the North Carolina rate of 2.5% and underscores the importance of Georgi

VI. Other State Considerations — Summary of Further Analysis Required A. Identification of Additional Jurisdictions Veldran and the Precision Flow Solutions Division (including Kestrel) may have nexus in additional states beyond Delaware, North Carolina, and Georgia through the presence of employees, owned or leased property, sales into the state, customer relationships, or other nexus-creating activities. This memor

VII. Potential State-Level Gain Recognition Risks This Section VII identifies the principal scenarios under which state-level gain recognition could arise in connection with the Spin-Off. These risks are contingent on the federal tax analysis and are summarized here to illustrate the magnitude of state-level exposure if any of the identified federal risk factors materialize. A. Risk if Federal Section 355 Qualificati

Section 355(e) of the IRC provides that, in certain circumstances involving a "plan or series of related transactions" that results in a 50% or greater change in ownership of either the Distributing or Controlled corporation, gain is recognized by the Distributing corporation on the distribution, notwithstanding otherwise qualifying Section 355 treatment. If Section 355(e) gain recognition is triggered at the federal

Section 355(d) of the IRC provides that a distribution of stock in a controlled corporation is treated as a taxable distribution (rather than a tax-free Section 355 distribution) if, immediately after the distribution, any person holds "disqualified stock" constituting a 50% or greater interest in either the Distributing or Controlled corporation, and the stock was acquired by purchase within the five-year period end

VIII. Transfer Tax and Transaction Tax Summary Table The following table summarizes the transfer tax and transaction tax considerations in each of the three principal jurisdictions analyzed in this memorandum:

IX. Recommendations and Next Steps Based on the analysis set forth in this memorandum, we recommend the following steps in connection with the state and local tax aspects of the proposed Spin-Off:

1. Multi-State Nexus Survey. Conduct a comprehensive nexus study for both Veldran and the Precision Flow Solutions Division (future Meridian) to identify all states in which the Spin-Off may have state income, franchise, transfer, or transactional tax implications. The nexus study should encompass all states in which either entity has employees, owned or leased property, sales or customers, or other nexus-creating ac

2. Asset Situs Analysis. Obtain detailed schedules of all real property and material tangible personal property to be transferred in the Contribution, classified by state of situs, in order to quantify potential real estate transfer tax and sales/use tax exposure. This analysis is particularly important for Georgia and North Carolina, where the transfer of real property and tangible personal property may trigger tran

3. Georgia Filing Requirements. Engage Georgia tax counsel or Pemberton Rathbone LLP (Harold Weiss, Partner, Tax) to prepare a detailed Georgia filing checklist covering all filing and disclosure requirements associated with the Spin-Off. The checklist should address, at a minimum, the following items: (a) notice of reorganization or restructuring to the Georgia Department of Revenue; (b) foreign corporation qualific

4. State Conformity Confirmation. Confirm the current IRC conformity dates for Georgia, North Carolina, and any other material nexus states identified through the nexus study, to ensure that each state's IRC conformity encompasses the version of Sections 355 and 368(a)(1)(D) applicable to the anticipated distribution date. This is particularly important for Georgia, which employs a static conformity approach, and for

5. Shareholder-Level Analysis. Coordinate with Dunmore Havens & Associates LLC (Irene Salcedo, Principal) regarding Prescott Capital Management LP's state-level tax consequences, particularly with respect to New York state taxation of the Distribution at the fund and partner level. Separately, advise Harrowgate Capital Advisors LLC (Christine Yeung, General Counsel) on HPE Fund IV's LP-level and partner-level state t

6. Integration with Federal Opinion. Confirm that the state and local tax analysis is consistent with and complementary to the Calderwood & Harkness federal tax opinion under Sections 355 and 368(a)(1)(D). Any state-specific qualifications or risk factors that may be material to the overall transaction should be disclosed in the federal opinion or in a separate state tax supplement, as appropriate. The engagement tea

7. Timing. In light of the current indefinite pause in the Spin-Off timeline (communicated August 22, 2022), further analysis beyond this memorandum should be deferred until the client determines whether to proceed with the transaction. This memorandum provides a sufficient analytical framework for rapid re-engagement if the Spin-Off is reactivated. Upon reactivation, the engagement team should update the analysis to

X. Limitations and Qualifications This memorandum is a preliminary summary prepared for internal Calderwood & Harkness LLP use and for discussion with the engagement team. It is not intended as, and should not be relied upon as, a formal state tax opinion. No formal opinion of state tax counsel is expressed or implied by this memorandum, and no such opinion should be inferred from the analysis set forth herein. The a