Contract analysis

Section 1.01 — Defined Terms For purposes of this Tax Sharing Agreement, the following terms shall have the meanings set forth below. All defined terms used but not defined herein shall have the meanings ascribed to them in the Separation Agreement or, if not defined therein, in the Code or the Treasury Regulations, as applicable. "Active Business" means the active conduct of a trade or business, as that term is defi

Section 1.02 — Rules of Construction The following rules of construction shall apply throughout this TSA: (a) References to any section or provision of the Code or the Treasury Regulations shall be deemed to include any successor or replacement provision and any applicable temporary or proposed regulations. (b) Words in the singular shall include the plural and vice versa, and words of one gender shall include the ot

ARTICLE II — ALLOCATION OF PRE-DISTRIBUTION TAX LIABILITIES

Section 2.01 — General Allocation Principle All federal, state, and local income tax liabilities of the Affiliated Group for Pre-Distribution Tax Periods shall be allocated between the Distributing Group and the Controlled Group in accordance with the Separate Company Tax Liability methodology set forth in Section 2.02 below. This allocation methodology is intended to ensure that each of Veldran and Meridian bears a

Section 2.02 — Separate Company Tax Liability Methodology The Separate Company Tax Liability of Meridian for each Pre-Distribution Tax Period shall be computed as if Meridian (together with the entities comprising the Precision Flow Business, including Kestrel Precision Controls, Inc.) had filed a separate federal income tax return for such period, rather than being included in the Consolidated Return of the Affiliat

Section 2.03 — Treatment of Kestrel Tax Attributes The parties acknowledge that Kestrel Precision Controls, Inc. (EIN 58-2847193) was acquired by Veldran on June 7, 2019 in a taxable stock acquisition from Rennick Industrial Partners Fund II LP (EIN 82-3017564) for an aggregate purchase price of $295,000,000. Kestrel was originally founded on February 12, 2003 and has been continuously operating the precision fluid-c

Section 2.04 — Treatment of Straddle Periods For any Straddle Period (i.e., any taxable period that includes but does not end on the Distribution Date), items of income, deduction, gain, loss, and credit shall be allocated between the Pre-Distribution portion and the Post-Distribution portion using the Closing of the Books Method prescribed by Treasury Regulation § 1.1502-76(b)(2)(i). Under this method, the books of

Section 2.05 — State and Local Income Tax Allocation State and local income tax liabilities of the Affiliated Group for Pre-Distribution Tax Periods shall be allocated between the Distributing Group and the Controlled Group using the same Separate Company Tax Liability methodology described in Section 2.02, applied on a state-by-state and jurisdiction-by-jurisdiction basis. Each state and local jurisdiction may have

ARTICLE III — ALLOCATION OF NET OPERATING LOSSES AND TAX CREDITS

Section 3.01 — Federal NOL Allocation Any consolidated net operating loss carryforwards and carrybacks of the Affiliated Group existing as of the Distribution Date shall be allocated between Veldran and Meridian in accordance with the principles set forth in Treasury Regulation § 1.1502-21 (or any successor regulation). The Treasury Regulations provide a detailed methodology for determining each member's share of a c

Section 3.02 — Tax Credit Allocation Federal and state tax credits of the Affiliated Group existing as of the Distribution Date shall be allocated between Veldran and Meridian based on the entity whose operations generated the underlying credit. The allocation shall be determined in accordance with the following principles: (a) Credits Attributable to the Precision Flow Business. Tax credits arising from the operatio

Section 3.03 — Earnings and Profits Allocation The accumulated earnings and profits of Veldran (including the earnings and profits of all members of the Affiliated Group) as of the Distribution Date shall be allocated between Veldran (the Distributing Group) and Meridian (the Controlled Group) in accordance with the methodology prescribed by Treasury Regulation § 1.312-10. Under this regulation, the earnings and prof

ARTICLE IV — RESPONSIBILITY FOR FILING TAX RETURNS

Section 4.01 — Pre-Distribution Consolidated Returns Veldran shall be responsible for the preparation, execution, and filing of all Consolidated Returns for Pre-Distribution Tax Periods, including the Consolidated Return for any Straddle Period in which Meridian is a member of the Affiliated Group. This responsibility encompasses all federal consolidated income tax returns, and Veldran shall bear the cost of preparin

Section 4.02 — Post-Distribution Separate Returns Following the Distribution Date, each party shall be independently responsible for the preparation, execution, and filing of its own federal, state, and local income tax returns: (a) Meridian. Meridian shall be responsible for preparing and filing all federal, state, and local income tax returns for the Controlled Group for all Post-Distribution Tax Periods. Meridian

Section 4.03 — Straddle Period Returns With respect to any tax return covering a Straddle Period (i.e., a taxable period that begins on or before the Distribution Date and ends after the Distribution Date), Veldran shall be responsible for the preparation and filing of such return, consistent with its responsibilities under Section 4.01. However, because a portion of the Straddle Period falls after the Distribution D

Section 4.04 — Review Rights Each party shall have the right to review and comment on any tax return prepared by the other party to the extent that such return includes items attributable to the reviewing party's business or could reasonably be expected to affect the reviewing party's tax liability, including any Separate Company Tax Liability computation, indemnification obligation, or tax sharing payment under this

ARTICLE V — TAX INDEMNIFICATION

Section 5.01 — General Indemnification by Veldran Veldran shall indemnify, defend, and hold harmless Meridian and each member of the Controlled Group from and against any and all Taxes (including any penalties, interest, additions to tax, and reasonable professional fees, including fees of accountants, attorneys, and other tax advisors) attributable to or arising from: (a) The operations of the Distributing Group (in

Section 5.02 — General Indemnification by Meridian Meridian shall indemnify, defend, and hold harmless Veldran and each member of the Distributing Group from and against any and all Taxes (including any penalties, interest, additions to tax, and reasonable professional fees, including fees of accountants, attorneys, and other tax advisors) attributable to or arising from: (a) The operations of the Controlled Group (i

Section 5.03 — Indemnification for Failure of Spin-Off to Qualify Under § 355 This is a critical provision and is expected to be the subject of significant negotiation among the parties. The following sets forth the proposed framework for allocation of liability in the event that the Spin-Off fails to qualify as a tax-free transaction under Sections 355 and 368(a)(1)(D) of the Code. In the event that the Spin-Off fai

Section 5.04 — Specific Indemnification for § 355(e) Gain Recognition In the event that the Distribution triggers gain recognition by Veldran under Section 355(e) of the Code (the "anti-Morris Trust" provision), the following provisions shall apply. Section 355(e) provides that if the Distribution is part of a "plan (or series of related transactions)" pursuant to which one or more persons acquire, directly or indire

Section 5.05 — Specific Indemnification for § 355(d) Disqualified Distribution In the event that the Distribution is treated as a "disqualified distribution" under Section 355(d) of the Code, the following provisions shall apply. Section 355(d) provides that if, immediately after the Distribution, any person holds disqualified stock in either Veldran or Meridian that constitutes a Fifty-Percent or Greater Interest, a

Section 5.06 — Indemnification Procedures The following procedures shall govern the assertion and payment of indemnification claims under this Article V: (a) Notice. The party seeking indemnification (the "Indemnified Party") shall