Contract analysis

From: Leonard Cross <lcross@calderwoodharkness.com> To: Christine Yeung <cyeung@harrowgatecapital.com> Cc: Sylvia Hartwell <shartwell@calderwoodharkness.com> Date: Fri, 05 Aug 2022 04:47:00 -0000 Subject: Veldran / Meridian Spin-Off — Draft Tax Opinion Letter [PRIVILEGED AND CONFIDENTIAL]

In connection with Calderwood & Harkness's engagement on behalf of Harrowgate Private Equity Fund IV, L.P. and Veldran Industries Holdings, Inc. (Matter No. HRW-SPIN-001) relating to the proposed pro rata spin-off of Meridian Flow Technologies, Inc., please find attached our first draft of the tax opinion letter for your review and comment. The opinion is addressed to the Board of Directors of Veldran Industries Hold

**Draft Status.** I want to emphasize that this is a first draft, marked as such throughout, and should not be relied upon in its current form for any purpose. The opinion remains subject to the finalization of several open items discussed below and to the completion and execution of the Representation Letter. I would ask that distribution of the attached draft be limited to the addressees and parties copied on this

There are three principal open items that must be resolved before we can finalize the opinion:

1. **Business Purpose Articulation.** This remains our primary concern and the principal impediment to delivering the opinion at the "should" level. The current articulation of business purposes for the spin-off is, in our judgment, insufficient to support that standard. The two business purposes identified to date — (i) enabling each business (the Engineered Coatings Division and the Precision Flow Solutions Divisio

We recommend that Veldran management — specifically Jonathan Caldecott and Sandra Waverly — work to develop and articulate additional concrete corporate-level justifications. Examples that may be available on these facts include distinct customer and end-market dynamics between the two divisions, different capital investment profiles, the ability for each standalone entity to use its equity as acquisition currency in

2. **Section 355(e) "Plan" Analysis — Factual Representations.** The § 355(e) analysis addresses whether the proposed spin-off is part of a "plan (or series of related transactions)" that includes HPE Fund IV's September 20, 2019 acquisition of approximately 62.4% of Veldran common stock (46,488,000 shares at $40.00 per share, for approximately $1.86 billion), which constituted a change of control of Veldran. The app

Our preliminary analysis (per the June 28 memo) supports a conclusion that the acquisition and spin-off should not be treated as part of a plan, but the factual record as it currently stands is thin. To finalize this analysis, we need additional factual representations in the Representation Letter — specifically, representations confirming that (a) there were no discussions, negotiations, agreements, or understanding

The tax exposure if § 355(e) were found to apply is significant. Based on Brackenridge & Co.'s preliminary valuation range of approximately $1.4 billion to $1.7 billion for Meridian, and against Veldran's estimated adjusted tax basis of approximately $800 million in the Precision Flow Division assets, the estimated built-in gain is in the range of $600 million to $900 million. At the 21% corporate rate, the resulting

Christine and Priya — I would ask that you coordinate with Diana Fenn, Marcus Adler, and Tobias Rourke to develop the factual record and confirm that these representations can be made.

3. **Representation Letter — Not Yet Finalized.** The draft opinion is premised on the representations set forth in the draft Representation Letter, the second draft of which was circulated on July 11, 2022. That letter has not been finalized or executed. Several representations remain in brackets or are subject to further client input — most critically, the business purpose and § 355(e) plan representations discusse

A few secondary items for your awareness as you review the draft:

- The draft opinion addresses the § 355(b) active trade or business requirement, including the Kestrel Precision Controls issue. As you know, the June 7, 2019 taxable acquisition of Kestrel from Rennick Industrial Partners Fund II LP for $295 million falls within the five-year look-back window. Our analysis concludes that the § 355(b)(2)(D) safe harbor should be satisfied given Kestrel's continuous operation since it

- The draft also addresses § 355(d) (disqualified distribution), the device test, and continuity of interest under § 368(a)(1)(D).

- State and local tax considerations are addressed in the separate memorandum circulated on July 20 and are not covered in this federal opinion.

- I would encourage you to review the draft Tax Matters provisions for the Separation Agreement (circulated July 28) and the outline of the Tax Sharing Agreement (circulated August 4) in conjunction with this opinion. The post-spin restrictive covenants in those documents are specifically designed to protect the § 355 qualification, and the three work streams should be considered together.

I would like to schedule a call early the week of August 8 to discuss the open items — in particular, the business purpose articulation. On our end, Sylvia, Garrett, and I would participate. On your side, I would suggest Christine and relevant Harrowgate principals, Priya from Whitfield & Gage, and Philip from Veldran. If Jonathan Caldecott and Sandra Waverly are available to discuss the business purpose directly, th

In the meantime, I would be grateful if you could circulate any comments on the draft opinion in advance of the call so that we can make productive use of the time. Garrett Simmons will reach out to coordinate scheduling.

Thank you both, and thanks to the broader team, for the continued effort on this matter. Please do not hesitate to reach out over the weekend if any questions arise.

Leonard Cross Partner, Tax Department Calderwood & Harkness LLP 1301 Avenue of the Americas, 40th Floor New York, NY 10019 T: (212) 555-4180 E: lcross@calderwoodharkness.com

CONFIDENTIALITY NOTICE: This email and any attachments are privileged and confidential, and are intended solely for the use of the individual or entity to whom they are addressed. This communication constitutes an attorney-client communication and/or attorney work product. If you are not the intended recipient, please notify the sender immediately and delete this message. Any unauthorized review, use, disclosure, or