1003-00005 · Veldran Industries Holdings · Administrative/Dormancy

letter-cross-to-yeung-engagement-status.docx DOCUMENT Bankruptcy & Restructuring

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PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT COMMUNICATION

CALDERWOOD & HARKNESS LLP Attorneys at Law 1301 Avenue of the Americas, 40th Floor New York, New York 10019

August 29, 2022

Christine Yeung, Esq. General Counsel Harrowgate Capital Advisors LLC 600 Lexington Avenue, 38th Floor New York, New York 10022

Via Email and First-Class Mail

Re: Engagement Status — Proposed Spin-Off of Meridian Flow Technologies, Inc. from Veldran Industries Holdings, Inc. Matter Code: HRW-SPIN-001 Engagement Number: 1003-00005

Dear Ms. Yeung:

1. Purpose

I am writing in connection with your email of August 22, 2022, in which you informed Calderwood & Harkness LLP ("Calderwood & Harkness" or the "Firm") that Harrowgate Private Equity Fund IV, L.P. ("HPE Fund IV") has determined to pause, on an indefinite basis, the proposed spin-off (the "Proposed Spin-Off" or "Transaction") of Meridian Flow Technologies, Inc. ("Meridian" or "SpinCo") from Veldran Industries Holdings, Inc. ("Veldran"). The purpose of this letter is threefold: (i) to confirm the current status of our engagement in light of that instruction, (ii) to address the preservation of all work product generated during the engagement, and (iii) to provide a comprehensive summary of time billed, amounts collected, and outstanding unbilled work in progress.

As we understand it, the decision to pause the Proposed Spin-Off reflects a convergence of several factors, including (i) deteriorating market conditions in the industrial sector generally, and in the precision flow-control subsector in particular, which have introduced uncertainty regarding the post-separation valuation of Meridian; (ii) unresolved business purpose concerns at the Veldran corporate level, which, as discussed in greater detail below, presented challenges to the delivery of a "should" level tax opinion; and (iii) ongoing uncertainty regarding the ability to secure lender consent from Ashfield National Bank, N.A., in its capacity as administrative agent under the First Lien Term Loan B credit agreement, on commercially acceptable terms. We appreciate your candor in communicating these considerations and believe that the decision to pause the Transaction is a prudent exercise of business judgment given the current environment.

2. Engagement Background

For completeness of the record, we recapitulate below the key facts and parameters of the engagement as originally established.

Calderwood & Harkness was engaged by HPE Fund IV pursuant to an engagement letter executed on April 11, 2022 (the "Engagement Letter"). The scope of the engagement, as defined in the Engagement Letter, was to render a "should" level tax opinion (i.e., an opinion concluding that the Transaction "should" qualify for the intended tax-free treatment) under Sections 355 and 368(a)(1)(D) of the Internal Revenue Code of 1986, as amended (the "Code"), in connection with the proposed pro rata distribution by Veldran of one hundred percent (100%) of the issued and outstanding shares of common stock of Meridian to the shareholders of Veldran.

As contemplated by the transaction structure, the distribution was to be effected on a pro rata basis at a ratio of one (1) share of Meridian common stock for each share of Veldran common stock outstanding on the applicable record date. Based on the most recent capitalization data provided to us, there were approximately 74,500,000 shares of Veldran common stock outstanding, which would result in the distribution of an equal number of shares of Meridian common stock to Veldran shareholders.

The Calderwood & Harkness engagement team was comprised of the following individuals:

• Leonard Cross — Responsible Partner

• Sylvia Hartwell — Billing Partner

• Garrett Simmons — Lead Associate

• Leila Nazari — Associate

Throughout the engagement, our work was closely coordinated with Whitfield & Gage LLP ("Whitfield & Gage"), which served as corporate and M&A counsel to Harrowgate Capital Advisors LLC ("Harrowgate") and HPE Fund IV in connection with the Transaction, and with Thornapple McCord LLP ("Thornapple McCord"), which served as corporate counsel to Veldran. We also received historical tax compliance information and data through Pemberton Rathbone LLP, Veldran's outside tax return preparer.

3. Engagement Status — Dormant

Effective as of the date of this letter, August 29, 2022, Calderwood & Harkness has designated the matter (HRW-SPIN-001 / Engagement Number 1003-00005) as "dormant" in the Firm's matter management system. This designation means that the engagement remains open but inactive. No further billable work will be performed by any member of the engagement team, and no additional fees or expenses will be incurred, unless and until Harrowgate provides written instructions to Calderwood & Harkness to reactivate the matter.

We note that, in the event Harrowgate elects to reactivate the engagement at a future date, such reactivation will be subject to (i) confirmation that the existing engagement terms set forth in the Engagement Letter remain applicable and have not been superseded by changed circumstances, and (ii) completion of an updated conflict check by the Firm's conflicts department as of the date of reactivation. We do not anticipate any conflict issues at this time based on our current client roster, but we are obligated to confirm this at the point of reactivation in accordance with our professional obligations under the New York Rules of Professional Conduct.

4. Summary of Work Performed

Set forth below is a high-level summary of the work performed by Calderwood & Harkness during the active phase of the engagement, covering the period from April 11, 2022 through August 29, 2022. This summary is intended to provide a comprehensive record of the scope and progression of the engagement for purposes of Harrowgate's internal files.

Diligence Phase (April – May 2022). Following execution of the Engagement Letter, the engagement team prepared and circulated an initial tax diligence information request list on April 25, 2022. This request list was directed to Veldran management (through Thornapple McCord) and to Harrowgate and covered, among other items, organizational documents, historical tax returns, capital structure documentation, intercompany agreements, and prior restructuring materials. A supplemental diligence information request was issued on May 16, 2022, focused specifically on the acquisition by Veldran of Kestrel Precision Controls, Inc. ("Kestrel") on June 7, 2019. The Kestrel acquisition — a $295 million taxable stock acquisition from Rennick Industrial Partners Fund II LP — was material to the Section 355(b) active trade or business analysis and the Section 355(e) "plan" analysis, as described further below. During the diligence phase, the engagement team reviewed organizational documents for Veldran, Meridian, and their respective subsidiaries; historical federal and state tax returns for the 2017 through 2021 tax years (coordinated with Pemberton Rathbone LLP as tax return preparer); and capital structure documents, including the First Lien Term Loan B credit agreement (original principal amount of $1.1 billion, with Ashfield National Bank, N.A. serving as administrative agent) and the indenture governing the 6.250% Senior Unsecured Notes due 2027 (aggregate principal amount of $450 million, with Colton Trust Company serving as trustee).

Representation Letter (May – July 2022). A first draft of the representation letter — the factual foundation upon which the tax opinion would be based — was circulated to Harrowgate and Whitfield & Gage on May 6, 2022. Following receipt of comments from Veldran management, Whitfield & Gage, and Thornapple McCord, a second draft of the representation letter was circulated on July 11, 2022. The second draft incorporated a substantial number of revisions, including expanded representations regarding the business purposes of the Transaction, the absence of pre-existing plans or arrangements for a post-spin-off acquisition of Meridian, and the historical and projected financial performance of the Meridian business segment. As of the date of this letter, the representation letter remained in second-draft form and was never executed by either Veldran or Harrowgate.

Tax Analysis Memoranda (May – July 2022). The engagement team prepared a series of detailed legal analysis memoranda addressing the principal requirements for tax-free treatment under Section 355 and related provisions:

(a) Comprehensive Section 355 Analysis Memorandum (May 20, 2022) — An overarching memorandum addressing the statutory and regulatory requirements of Section 355, including the control requirement, the distribution requirement, and the not-a-device requirement, among others.

(b) Section 355(b) Active Trade or Business Analysis (June 1, 2022) — A memorandum specifically addressing the active trade or business requirement, with particular focus on the Kestrel Precision Controls acquisition. Because Kestrel was acquired by Veldran on June 7, 2019, in a taxable stock acquisition, the analysis examined whether the Kestrel business could be treated as having been conducted by Veldran throughout the requisite five-year look-back period ending on the anticipated distribution date.

(c) Section 355(e) "Plan" Analysis Memorandum (June 28, 2022) — A memorandum analyzing whether the Proposed Spin-Off could be treated as part of a "plan" (or series of related transactions) that included HPE Fund IV's acquisition of approximately 62.4% of the outstanding Veldran common stock on September 20, 2019, within the meaning of Section 355(e) and Treasury Regulation § 1.355-7. This was among the most complex and risk-intensive issues in the engagement, given the approximately three-year temporal proximity between the acquisition and the anticipated Q4 2022 distribution date.

(d) Business Purpose Memorandum (July 18, 2022) — A memorandum analyzing the corporate business purposes articulated for the Proposed Spin-Off, with an assessment of whether those purposes were sufficiently "real and substantial" to satisfy the judicially developed and regulatory business purpose requirement.

(e) Device Test Analysis Memorandum (July 25, 2022) — A memorandum addressing the "not-a-device" requirement of Section 355(a)(1)(B), including analysis of the pro-device and anti-device factors under Treasury Regulation § 1.355-2(d).

(f) Section 355(d) Disqualified Distribution Analysis — A memorandum analyzing whether the Proposed Spin-Off could constitute a "disqualified distribution" under Section 355(d), given HPE Fund IV's acquisition of a 62.4% interest in Veldran within the five-year period preceding the anticipated distribution date by means of a "purchase" within the meaning of Section 355(d)(5).

(g) Continuity of Interest / Section 368(a)(1)(D) Reorganization Analysis — A memorandum addressing the qualification of the internal restructuring steps preceding the distribution as a tax-free reorganization under Section 368(a)(1)(D), including the continuity of interest requirement.

(h) State and Local Tax Considerations Summary — A summary memorandum addressing state and local income and franchise tax implications of the Proposed Spin-Off in key jurisdictions, based on preliminary information regarding the geographic footprint of the Veldran and Meridian businesses.

Debt Covenant Analysis (August 2022). At the request of Harrowgate and in coordination with Whitfield & Gage, the engagement team reviewed the spin-off-related covenants in the First Lien Term Loan B credit agreement and the indenture governing the 6.250% Senior Unsecured Notes due 2027. This analysis addressed the interaction between the tax-free qualification of the Transaction and the covenant restrictions on distributions, dispositions, and fundamental changes, and identified conditions precedent to consummation of the spin-off that would require the consent or waiver of Ashfield National Bank, N.A. and/or Colton Trust Company.

Transaction Document Drafting (July – August 2022). Calderwood & Harkness prepared draft Tax Matters provisions for inclusion in the Separation Agreement being negotiated between Veldran and Meridian, and prepared a draft outline of key terms for a standalone Tax Sharing Agreement between the two companies. These documents were circulated to Whitfield & Gage and Thornapple McCord for comment.

Draft Tax Opinion (August 5, 2022). On August 5, 2022, the engagement team circulated a first draft of the tax opinion letter to Christine Yeung at Harrowgate and to Priya Chandrasekar at Whitfield & Gage. The draft opinion set forth the Firm's preliminary analysis and conclusions with respect to the tax-free qualification of the Proposed Spin-Off under Sections 355 and 368(a)(1)(D). Internal review comments were compiled by Leonard Cross and Sylvia Hartwell on August 10, 2022, identifying several areas requiring further development, as described in Section 5 below.

Conference Call — August 15, 2022. A conference call was held on August 15, 2022, among Marcus Adler, Diana Fenn, and Tobias Rourke of Harrowgate; Christine Yeung, General Counsel of Harrowgate; Jonathan Caldecott and Philip Crundell of Veldran; Priya Chandrasekar of Whitfield & Gage; and Leonard Cross and Garrett Simmons of Calderwood & Harkness. The call focused on the challenges associated with the articulation of business purpose at the Veldran corporate level, as well as the impact of deteriorating market conditions on the timing and commercial viability of the Transaction. The participants agreed that a pause in the Transaction was likely appropriate, and Harrowgate subsequently confirmed that determination in your email of August 22, 2022.

5. Status of Draft Tax Opinion and Work Product — Non-Reliance Notice

We wish to state clearly, and for the avoidance of any doubt, that the first draft of the tax opinion letter dated August 5, 2022 was a preliminary working draft that had not been finalized, reviewed for final form, or approved for delivery as a final opinion of Calderwood & Harkness LLP. The draft opinion, together with all supporting analysis memoranda, the draft representation letter, the draft Tax Matters provisions, the draft Tax Sharing Agreement outline, and all other work product generated during the engagement, should not be relied upon by Harrowgate, HPE Fund IV, Veldran, Meridian, or any other person or entity in their current form for any purpose, including without limitation in connection with any investment decision, any disclosure to investors or limited partners, any securities filing, or any representation to the Internal Revenue Service.

At the time the engagement was marked dormant, the following key issues remained unresolved:

Business Purpose. The two principal business purposes articulated for the Proposed Spin-Off — (i) enabling independent capital-allocation strategies for each of Veldran's and Meridian's respective business segments, and (ii) enhancing management focus and operational efficiency through the separation of two distinct industrial platforms — were not yet sufficiently developed at the Veldran corporate level to support a "should" level opinion. In particular, we remained concerned that the articulated purposes could be characterized, upon examination, as primarily serving HPE Fund IV's fund-level objectives — for example, returning capital to the fund's limited partners, facilitating monetization of the Meridian business at a premium standalone valuation, or creating optionality for a subsequent sale of Meridian — rather than genuine corporate-level purposes of Veldran and its shareholders as a whole. The August 15, 2022 conference call highlighted the need for additional work with Veldran management to develop a factual record that would credibly support corporate-level business purposes independent of HPE Fund IV's sponsor-level considerations. This work had not been completed at the time of the pause.

Section 355(e) "Plan" Analysis. The factual record necessary to support a conclusion that the Proposed Spin-Off was not part of a "plan" (or series of related transactions) that included HPE Fund IV's September 20, 2019 acquisition of 62.4% of Veldran required additional factual representations that had not yet been provided or confirmed. The approximately three-year gap between the September 20, 2019 acquisition date and the anticipated Q4 2022 distribution date fell within the broader "plan" analysis framework established by Treasury Regulation § 1.355-7, including the safe harbors and "plan" and "non-plan" factors set forth therein. While the passage of time was generally favorable to the analysis, the factual inquiry required additional substantiation, including confirmation that no discussions, negotiations, or understandings regarding a potential spin-off of Meridian existed at or before the time of HPE Fund IV's acquisition of Veldran. We estimated that the aggregate federal income tax exposure in the event that Section 355(e) were determined to apply to the Transaction was in the range of approximately $125.3 million to $189.5 million, reflecting a 21% corporate tax rate applied to an estimated built-in gain in the Meridian stock of approximately $600 million to $900 million, based on preliminary valuations available at the time of the engagement.

Representation Letter. As noted above, the representation letter — a critical component of the opinion and the factual foundation upon which our legal conclusions would rest — remained in second-draft form as of the date of dormancy. The representation letter had not been executed by authorized officers of either Veldran or Harrowgate, and several factual representations remained subject to open comments and unresolved internal discussions.

Section 355(d) Overlap. The analysis of the interaction between Section 355(d) (disqualified distributions) and Section 355(e) (recognition of gain on certain distributions), particularly in light of HPE Fund IV's acquisition of a 62.4% interest in Veldran by "purchase" within the five-year period preceding the anticipated distribution date, was not finalized. This analysis involved complex interpretive questions regarding the statutory overlap between these two provisions and the availability of certain regulatory exceptions.

Should the engagement be reactivated at a future date, all draft memoranda, the draft opinion, and all other analytical work product would need to be comprehensively reviewed and updated to reflect then-current facts, applicable law (including any intervening legislative changes, regulatory guidance, or IRS administrative pronouncements), and the representations ultimately confirmed by Veldran and Harrowgate in a final executed representation letter.

6. Preservation of Work Product

Calderwood & Harkness confirms that all work product generated during the engagement will be preserved in accordance with the Firm's document retention policies and procedures and the terms of the Engagement Letter. For purposes of this confirmation, "work product" includes all memoranda (whether in final or draft form), draft opinion letters, draft representation letters, draft transaction documents (including the Tax Matters provisions and Tax Sharing Agreement outline), correspondence (including email correspondence) with Harrowgate, HPE Fund IV, Veldran, Whitfield & Gage, Thornapple McCord, and Pemberton Rathbone, diligence materials received during the engagement, and internal notes and working papers prepared by the engagement team.

Harrowgate may request copies of any work product at any time by contacting me or Sylvia Hartwell at the contact information provided below. We will endeavor to respond to any such request promptly.

All work product remains subject to the protections of the attorney-client privilege and the work product doctrine. Calderwood & Harkness will not disclose any work product to any third party without the express prior written authorization of Harrowgate. We note that certain work product was shared with Whitfield & Gage and Thornapple McCord during the active phase of the engagement pursuant to the common interest and joint defense arrangements then in effect; however, no further disclosures will be made absent Harrowgate's written instruction.

7. Billing Summary

Set forth below is a comprehensive summary of the fees incurred, amounts billed and collected, and outstanding unbilled work in progress for the engagement through the date of this letter.

Fee Structure. As set forth in the Engagement Letter dated April 11, 2022, the engagement was conducted on an hourly fee basis, with fees calculated based on the applicable hourly rate for each timekeeper multiplied by the time expended on the matter.

Hourly Rates (2022). The hourly rates applicable to the engagement team during the 2022 calendar year were as follows:

• Leonard Cross (Partner): $1,650 per hour

• Sylvia Hartwell (Partner): $1,550 per hour

• Garrett Simmons (Senior Associate): $1,050 per hour

• Leila Nazari (Associate): $850 per hour

Hours and Fees by Timekeeper (April 11, 2022 – August 29, 2022).

*Note: The total fees of $487,350.00 as reflected in the Firm's billing system include a de minimis rounding adjustment of $25.00 from the calculated arithmetic total of $487,325.00. This adjustment arises from standard time-entry rounding conventions applied in the Firm's billing system.

Invoices Rendered.

We confirm that both invoices referenced above were received and paid in full by Harrowgate. We appreciate Harrowgate's prompt attention to these invoices during the active phase of the engagement.

Unbilled Work in Progress.

Total WIP accrued through August 29, 2022: $487,350.00

Less: Amounts previously billed and collected: ($310,000.00)

Unbilled WIP: $177,350.00

Calderwood & Harkness will hold the unbilled work in progress balance of $177,350.00 in abeyance and will not issue an invoice for this amount at this time. The Firm will invoice the unbilled WIP upon further instruction from Harrowgate, upon reactivation of the matter, or as otherwise directed by you. We are prepared to discuss the timing and manner of invoicing this balance at your convenience. No finance charges or interest will accrue on the unbilled WIP during the dormancy period.

For context, we note that the original estimated total fee range for the full engagement, as set forth in the Engagement Letter, was $850,000 to $1,200,000. The total WIP of $487,350.00 represents approximately 41% to 57% of that estimated range, reflecting the substantial volume and complexity of the work performed during the approximately four-and-a-half-month active phase of the engagement prior to dormancy.

8. Reactivation of Engagement

Calderwood & Harkness remains available and prepared to reactivate the engagement at Harrowgate's request at any time. We would welcome the opportunity to bring this matter to completion should market conditions, business purpose considerations, and lender consent circumstances evolve favorably.

Upon reactivation, the Firm would undertake the following steps:

(i) Perform an updated conflict check to confirm that no conflicts of interest have arisen since the date of dormancy that would preclude our continued representation of Harrowgate and HPE Fund IV in connection with the Transaction.

(ii) Confirm that the engagement terms set forth in the Engagement Letter remain applicable and have not been superseded. We note that hourly rates are subject to annual adjustment in the ordinary course, and rates applicable at the time of reactivation may differ from the 2022 rates set forth above.

(iii) Conduct a comprehensive review and update of all prior analysis memoranda and the draft tax opinion letter to reflect any changes in applicable law, Treasury regulations, IRS guidance (including private letter rulings, revenue rulings, and published guidance), and judicial decisions that may have occurred during the dormancy period.

(iv) Update the factual record underlying the engagement, including any changes to Veldran's business operations, capital structure, ownership, or corporate governance, as well as any changes in the financial performance or operational profile of the Meridian business segment.

We observe that, from a technical standpoint, the passage of additional time between HPE Fund IV's September 20, 2019 acquisition of Veldran and any future distribution date could strengthen the Section 355(e) "plan" analysis, as increased temporal distance between the acquisition and the distribution is generally a favorable factor under the "plan" and "non-plan" factor analysis of Treasury Regulation § 1.355-7. Similarly, any changes in the factual circumstances surrounding the articulation of business purpose — including, for example, operational developments, changes in competitive dynamics, or strategic initiatives undertaken independently by the Veldran and Meridian business segments — could materially affect the viability and strength of the tax opinion.

9. Contact Information

Should you have any questions regarding the contents of this letter, the status of the engagement, or any other matter related to the Proposed Spin-Off, please do not hesitate to contact me directly:

Leonard Cross Partner, Tax Department Calderwood & Harkness LLP 1301 Avenue of the Americas, 40th Floor New York, New York 10019 Telephone: (212) 554-7200

Email: lcross@calderwoodharkness.com

For questions specifically relating to billing matters, invoicing, or the unbilled work in progress balance, Sylvia Hartwell is also available:

Sylvia Hartwell Partner, Tax Department Calderwood & Harkness LLP Telephone: (212) 554-7215

Email: shartwell@calderwoodharkness.com

10. Closing

We wish to express our sincere appreciation for Harrowgate's confidence in Calderwood & Harkness throughout this engagement. The Transaction presented a number of challenging and intellectually stimulating tax issues, and we believe that the work product generated to date provides a strong foundation for the completion of the tax opinion should the Transaction move forward. We look forward to the opportunity to resume the engagement when circumstances permit and stand ready to assist Harrowgate and HPE Fund IV in any way that may be helpful in the interim.

Very truly yours,

CALDERWOOD & HARKNESS LLP

By: ________

Leonard Cross Partner, Tax Department

cc: Sylvia Hartwell, Esq. — Calderwood & Harkness LLP Garrett Simmons, Esq. — Calderwood & Harkness LLP Diana Fenn, Managing Partner & CIO — Harrowgate Capital Advisors LLC Tobias Rourke, Partner — Harrowgate Capital Advisors LLC Philip Crundell, Esq., General Counsel — Veldran Industries Holdings, Inc. Priya Chandrasekar, Esq. — Whitfield & Gage LLP

Enclosures: None. No final invoice is enclosed with this letter. The unbilled work in progress balance of $177,350.00 will be invoiced upon instruction from Harrowgate, as described above.

Timekeeper	Role	Hours	Rate	Total Fees
Leonard Cross	Partner	62.0	$1,650	$102,300.00
Sylvia Hartwell	Partner	28.0	$1,550	$43,400.00
Garrett Simmons	Senior Associate	210.0	$1,050	$220,500.00
Leila Nazari	Associate	142.5	$850	$121,125.00
Total	442.5	$487,350.00*
Invoice Number	Invoice Date	Amount
22-7831-001	June 15, 2022	$165,000.00
22-7831-002	August 1, 2022	$145,000.00
Total Billed	$310,000.00

PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT COMMUNICATION
CALDERWOOD & HARKNESS LLP Attorneys at Law 1301 Avenue of the Americas, 40th Floor New York, New York 10019
August 29, 2022
Christine Yeung, Esq. General Counsel Harrowgate Capital Advisors LLC 600 Lexington Avenue, 38th Floor New York, New York 10022
Via Email and First-Class Mail
Re: Engagement Status — Proposed Spin-Off of Meridian Flow Technologies, Inc. from Veldran Industries Holdings, Inc. Matter Code: HRW-SPIN-001 Engagement Number: 1003-00005
Dear Ms. Yeung:
1. Purpose
I am writing in connection with your email of August 22, 2022, in which you informed Calderwood & Harkness LLP ("Calderwood & Harkness" or the "Firm") that Harrowgate Private Equity Fund IV, L.P. ("HPE Fund IV") has determined to pause, on an indefinite basis, the proposed spin-off (the "Proposed Spin-Off" or "Transaction") of Meridian Flow Technologies, Inc. ("Meridian" or "SpinCo") from Veldran Industries Holdings, Inc. ("Veldran"). The purpose of this letter is threefold: (i) to confirm the current status of our engagement in light of that instruction, (ii) to address the preservation of all work product generated during the engagement, and (iii) to provide a comprehensive summary of time billed, amounts collected, and outstanding unbilled work in progress.
As we understand it, the decision to pause the Proposed Spin-Off reflects a convergence of several factors, including (i) deteriorating market conditions in the industrial sector generally, and in the precision flow-control subsector in particular, which have introduced uncertainty regarding the post-separation valuation of Meridian; (ii) unresolved business purpose concerns at the Veldran corporate level, which, as discussed in greater detail below, presented challenges to the delivery of a "should" level tax opinion; and (iii) ongoing uncertainty regarding the ability to secure lender consent from Ashfield National Bank, N.A., in its capacity as administrative agent under the First Lien Term Loan B credit agreement, on commercially acceptable terms. We appreciate your candor in communicating these considerations and believe that the decision to pause the Transaction is a prudent exercise of business judgment given the current environment.
2. Engagement Background
For completeness of the record, we recapitulate below the key facts and parameters of the engagement as originally established.
Calderwood & Harkness was engaged by HPE Fund IV pursuant to an engagement letter executed on April 11, 2022 (the "Engagement Letter"). The scope of the engagement, as defined in the Engagement Letter, was to render a "should" level tax opinion (i.e., an opinion concluding that the Transaction "should" qualify for the intended tax-free treatment) under Sections 355 and 368(a)(1)(D) of the Internal Revenue Code of 1986, as amended (the "Code"), in connection with the proposed pro rata distribution by Veldran of one hundred percent (100%) of the issued and outstanding shares of common stock of Meridian to the shareholders of Veldran.
As contemplated by the transaction structure, the distribution was to be effected on a pro rata basis at a ratio of one (1) share of Meridian common stock for each share of Veldran common stock outstanding on the applicable record date. Based on the most recent capitalization data provided to us, there were approximately 74,500,000 shares of Veldran common stock outstanding, which would result in the distribution of an equal number of shares of Meridian common stock to Veldran shareholders.
The Calderwood & Harkness engagement team was comprised of the following individuals:
•  Leonard Cross — Responsible Partner
•  Sylvia Hartwell — Billing Partner
•  Garrett Simmons — Lead Associate
•  Leila Nazari — Associate
Throughout the engagement, our work was closely coordinated with Whitfield & Gage LLP ("Whitfield & Gage"), which served as corporate and M&A counsel to Harrowgate Capital Advisors LLC ("Harrowgate") and HPE Fund IV in connection with the Transaction, and with Thornapple McCord LLP ("Thornapple McCord"), which served as corporate counsel to Veldran. We also received historical tax compliance information and data through Pemberton Rathbone LLP, Veldran's outside tax return preparer.
3. Engagement Status — Dormant
Effective as of the date of this letter, August 29, 2022, Calderwood & Harkness has designated the matter (HRW-SPIN-001 / Engagement Number 1003-00005) as "dormant" in the Firm's matter management system. This designation means that the engagement remains open but inactive. No further billable work will be performed by any member of the engagement team, and no additional fees or expenses will be incurred, unless and until Harrowgate provides written instructions to Calderwood & Harkness to reactivate the matter.
We note that, in the event Harrowgate elects to reactivate the engagement at a future date, such reactivation will be subject to (i) confirmation that the existing engagement terms set forth in the Engagement Letter remain applicable and have not been superseded by changed circumstances, and (ii) completion of an updated conflict check by the Firm's conflicts department as of the date of reactivation. We do not anticipate any conflict issues at this time based on our current client roster, but we are obligated to confirm this at the point of reactivation in accordance with our professional obligations under the New York Rules of Professional Conduct.
4. Summary of Work Performed
Set forth below is a high-level summary of the work performed by Calderwood & Harkness during the active phase of the engagement, covering the period from April 11, 2022 through August 29, 2022. This summary is intended to provide a comprehensive record of the scope and progression of the engagement for purposes of Harrowgate's internal files.
Diligence Phase (April – May 2022). Following execution of the Engagement Letter, the engagement team prepared and circulated an initial tax diligence information request list on April 25, 2022. This request list was directed to Veldran management (through Thornapple McCord) and to Harrowgate and covered, among other items, organizational documents, historical tax returns, capital structure documentation, intercompany agreements, and prior restructuring materials. A supplemental diligence information request was issued on May 16, 2022, focused specifically on the acquisition by Veldran of Kestrel Precision Controls, Inc. ("Kestrel") on June 7, 2019. The Kestrel acquisition — a $295 million taxable stock acquisition from Rennick Industrial Partners Fund II LP — was material to the Section 355(b) active trade or business analysis and the Section 355(e) "plan" analysis, as described further below. During the diligence phase, the engagement team reviewed organizational documents for Veldran, Meridian, and their respective subsidiaries; historical federal and state tax returns for the 2017 through 2021 tax years (coordinated with Pemberton Rathbone LLP as tax return preparer); and capital structure documents, including the First Lien Term Loan B credit agreement (original principal amount of $1.1 billion, with Ashfield National Bank, N.A. serving as administrative agent) and the indenture governing the 6.250% Senior Unsecured Notes due 2027 (aggregate principal amount of $450 million, with Colton Trust Company serving as trustee).
Representation Letter (May – July 2022). A first draft of the representation letter — the factual foundation upon which the tax opinion would be based — was circulated to Harrowgate and Whitfield & Gage on May 6, 2022. Following receipt of comments from Veldran management, Whitfield & Gage, and Thornapple McCord, a second draft of the representation letter was circulated on July 11, 2022. The second draft incorporated a substantial number of revisions, including expanded representations regarding the business purposes of the Transaction, the absence of pre-existing plans or arrangements for a post-spin-off acquisition of Meridian, and the historical and projected financial performance of the Meridian business segment. As of the date of this letter, the representation letter remained in second-draft form and was never executed by either Veldran or Harrowgate.
Tax Analysis Memoranda (May – July 2022). The engagement team prepared a series of detailed legal analysis memoranda addressing the principal requirements for tax-free treatment under Section 355 and related provisions:
(a) Comprehensive Section 355 Analysis Memorandum (May 20, 2022) — An overarching memorandum addressing the statutory and regulatory requirements of Section 355, including the control requirement, the distribution requirement, and the not-a-device requirement, among others.
(b) Section 355(b) Active Trade or Business Analysis (June 1, 2022) — A memorandum specifically addressing the active trade or business requirement, with particular focus on the Kestrel Precision Controls acquisition. Because Kestrel was acquired by Veldran on June 7, 2019, in a taxable stock acquisition, the analysis examined whether the Kestrel business could be treated as having been conducted by Veldran throughout the requisite five-year look-back period ending on the anticipated distribution date.
(c) Section 355(e) "Plan" Analysis Memorandum (June 28, 2022) — A memorandum analyzing whether the Proposed Spin-Off could be treated as part of a "plan" (or series of related transactions) that included HPE Fund IV's acquisition of approximately 62.4% of the outstanding Veldran common stock on September 20, 2019, within the meaning of Section 355(e) and Treasury Regulation § 1.355-7. This was among the most complex and risk-intensive issues in the engagement, given the approximately three-year temporal proximity between the acquisition and the anticipated Q4 2022 distribution date.
(d) Business Purpose Memorandum (July 18, 2022) — A memorandum analyzing the corporate business purposes articulated for the Proposed Spin-Off, with an assessment of whether those purposes were sufficiently "real and substantial" to satisfy the judicially developed and regulatory business purpose requirement.
(e) Device Test Analysis Memorandum (July 25, 2022) — A memorandum addressing the "not-a-device" requirement of Section 355(a)(1)(B), including analysis of the pro-device and anti-device factors under Treasury Regulation § 1.355-2(d).
(f) Section 355(d) Disqualified Distribution Analysis — A memorandum analyzing whether the Proposed Spin-Off could constitute a "disqualified distribution" under Section 355(d), given HPE Fund IV's acquisition of a 62.4% interest in Veldran within the five-year period preceding the anticipated distribution date by means of a "purchase" within the meaning of Section 355(d)(5).
(g) Continuity of Interest / Section 368(a)(1)(D) Reorganization Analysis — A memorandum addressing the qualification of the internal restructuring steps preceding the distribution as a tax-free reorganization under Section 368(a)(1)(D), including the continuity of interest requirement.
(h) State and Local Tax Considerations Summary — A summary memorandum addressing state and local income and franchise tax implications of the Proposed Spin-Off in key jurisdictions, based on preliminary information regarding the geographic footprint of the Veldran and Meridian businesses.
Debt Covenant Analysis (August 2022). At the request of Harrowgate and in coordination with Whitfield & Gage, the engagement team reviewed the spin-off-related covenants in the First Lien Term Loan B credit agreement and the indenture governing the 6.250% Senior Unsecured Notes due 2027. This analysis addressed the interaction between the tax-free qualification of the Transaction and the covenant restrictions on distributions, dispositions, and fundamental changes, and identified conditions precedent to consummation of the spin-off that would require the consent or waiver of Ashfield National Bank, N.A. and/or Colton Trust Company.
Transaction Document Drafting (July – August 2022). Calderwood & Harkness prepared draft Tax Matters provisions for inclusion in the Separation Agreement being negotiated between Veldran and Meridian, and prepared a draft outline of key terms for a standalone Tax Sharing Agreement between the two companies. These documents were circulated to Whitfield & Gage and Thornapple McCord for comment.
Draft Tax Opinion (August 5, 2022). On August 5, 2022, the engagement team circulated a first draft of the tax opinion letter to Christine Yeung at Harrowgate and to Priya Chandrasekar at Whitfield & Gage. The draft opinion set forth the Firm's preliminary analysis and conclusions with respect to the tax-free qualification of the Proposed Spin-Off under Sections 355 and 368(a)(1)(D). Internal review comments were compiled by Leonard Cross and Sylvia Hartwell on August 10, 2022, identifying several areas requiring further development, as described in Section 5 below.
Conference Call — August 15, 2022. A conference call was held on August 15, 2022, among Marcus Adler, Diana Fenn, and Tobias Rourke of Harrowgate; Christine Yeung, General Counsel of Harrowgate; Jonathan Caldecott and Philip Crundell of Veldran; Priya Chandrasekar of Whitfield & Gage; and Leonard Cross and Garrett Simmons of Calderwood & Harkness. The call focused on the challenges associated with the articulation of business purpose at the Veldran corporate level, as well as the impact of deteriorating market conditions on the timing and commercial viability of the Transaction. The participants agreed that a pause in the Transaction was likely appropriate, and Harrowgate subsequently confirmed that determination in your email of August 22, 2022.
5. Status of Draft Tax Opinion and Work Product — Non-Reliance Notice
We wish to state clearly, and for the avoidance of any doubt, that the first draft of the tax opinion letter dated August 5, 2022 was a preliminary working draft that had not been finalized, reviewed for final form, or approved for delivery as a final opinion of Calderwood & Harkness LLP. The draft opinion, together with all supporting analysis memoranda, the draft representation letter, the draft Tax Matters provisions, the draft Tax Sharing Agreement outline, and all other work product generated during the engagement, should not be relied upon by Harrowgate, HPE Fund IV, Veldran, Meridian, or any other person or entity in their current form for any purpose, including without limitation in connection with any investment decision, any disclosure to investors or limited partners, any securities filing, or any representation to the Internal Revenue Service.
At the time the engagement was marked dormant, the following key issues remained unresolved:
Business Purpose. The two principal business purposes articulated for the Proposed Spin-Off — (i) enabling independent capital-allocation strategies for each of Veldran's and Meridian's respective business segments, and (ii) enhancing management focus and operational efficiency through the separation of two distinct industrial platforms — were not yet sufficiently developed at the Veldran corporate level to support a "should" level opinion. In particular, we remained concerned that the articulated purposes could be characterized, upon examination, as primarily serving HPE Fund IV's fund-level objectives — for example, returning capital to the fund's limited partners, facilitating monetization of the Meridian business at a premium standalone valuation, or creating optionality for a subsequent sale of Meridian — rather than genuine corporate-level purposes of Veldran and its shareholders as a whole. The August 15, 2022 conference call highlighted the need for additional work with Veldran management to develop a factual record that would credibly support corporate-level business purposes independent of HPE Fund IV's sponsor-level considerations. This work had not been completed at the time of the pause.
Section 355(e) "Plan" Analysis. The factual record necessary to support a conclusion that the Proposed Spin-Off was not part of a "plan" (or series of related transactions) that included HPE Fund IV's September 20, 2019 acquisition of 62.4% of Veldran required additional factual representations that had not yet been provided or confirmed. The approximately three-year gap between the September 20, 2019 acquisition date and the anticipated Q4 2022 distribution date fell within the broader "plan" analysis framework established by Treasury Regulation § 1.355-7, including the safe harbors and "plan" and "non-plan" factors set forth therein. While the passage of time was generally favorable to the analysis, the factual inquiry required additional substantiation, including confirmation that no discussions, negotiations, or understandings regarding a potential spin-off of Meridian existed at or before the time of HPE Fund IV's acquisition of Veldran. We estimated that the aggregate federal income tax exposure in the event that Section 355(e) were determined to apply to the Transaction was in the range of approximately $125.3 million to $189.5 million, reflecting a 21% corporate tax rate applied to an estimated built-in gain in the Meridian stock of approximately $600 million to $900 million, based on preliminary valuations available at the time of the engagement.
Representation Letter. As noted above, the representation letter — a critical component of the opinion and the factual foundation upon which our legal conclusions would rest — remained in second-draft form as of the date of dormancy. The representation letter had not been executed by authorized officers of either Veldran or Harrowgate, and several factual representations remained subject to open comments and unresolved internal discussions.
Section 355(d) Overlap. The analysis of the interaction between Section 355(d) (disqualified distributions) and Section 355(e) (recognition of gain on certain distributions), particularly in light of HPE Fund IV's acquisition of a 62.4% interest in Veldran by "purchase" within the five-year period preceding the anticipated distribution date, was not finalized. This analysis involved complex interpretive questions regarding the statutory overlap between these two provisions and the availability of certain regulatory exceptions.
Should the engagement be reactivated at a future date, all draft memoranda, the draft opinion, and all other analytical work product would need to be comprehensively reviewed and updated to reflect then-current facts, applicable law (including any intervening legislative changes, regulatory guidance, or IRS administrative pronouncements), and the representations ultimately confirmed by Veldran and Harrowgate in a final executed representation letter.
6. Preservation of Work Product
Calderwood & Harkness confirms that all work product generated during the engagement will be preserved in accordance with the Firm's document retention policies and procedures and the terms of the Engagement Letter. For purposes of this confirmation, "work product" includes all memoranda (whether in final or draft form), draft opinion letters, draft representation letters, draft transaction documents (including the Tax Matters provisions and Tax Sharing Agreement outline), correspondence (including email correspondence) with Harrowgate, HPE Fund IV, Veldran, Whitfield & Gage, Thornapple McCord, and Pemberton Rathbone, diligence materials received during the engagement, and internal notes and working papers prepared by the engagement team.
Harrowgate may request copies of any work product at any time by contacting me or Sylvia Hartwell at the contact information provided below. We will endeavor to respond to any such request promptly.
All work product remains subject to the protections of the attorney-client privilege and the work product doctrine. Calderwood & Harkness will not disclose any work product to any third party without the express prior written authorization of Harrowgate. We note that certain work product was shared with Whitfield & Gage and Thornapple McCord during the active phase of the engagement pursuant to the common interest and joint defense arrangements then in effect; however, no further disclosures will be made absent Harrowgate's written instruction.
7. Billing Summary
Set forth below is a comprehensive summary of the fees incurred, amounts billed and collected, and outstanding unbilled work in progress for the engagement through the date of this letter.
Fee Structure. As set forth in the Engagement Letter dated April 11, 2022, the engagement was conducted on an hourly fee basis, with fees calculated based on the applicable hourly rate for each timekeeper multiplied by the time expended on the matter.
Hourly Rates (2022). The hourly rates applicable to the engagement team during the 2022 calendar year were as follows:
•  Leonard Cross (Partner): $1,650 per hour
•  Sylvia Hartwell (Partner): $1,550 per hour
•  Garrett Simmons (Senior Associate): $1,050 per hour
•  Leila Nazari (Associate): $850 per hour
Hours and Fees by Timekeeper (April 11, 2022 – August 29, 2022).
*Note: The total fees of $487,350.00 as reflected in the Firm's billing system include a de minimis rounding adjustment of $25.00 from the calculated arithmetic total of $487,325.00. This adjustment arises from standard time-entry rounding conventions applied in the Firm's billing system.
Invoices Rendered.
We confirm that both invoices referenced above were received and paid in full by Harrowgate. We appreciate Harrowgate's prompt attention to these invoices during the active phase of the engagement.
Unbilled Work in Progress.
Total WIP accrued through August 29, 2022: $487,350.00
Less: Amounts previously billed and collected: ($310,000.00)
Unbilled WIP: $177,350.00
Calderwood & Harkness will hold the unbilled work in progress balance of $177,350.00 in abeyance and will not issue an invoice for this amount at this time. The Firm will invoice the unbilled WIP upon further instruction from Harrowgate, upon reactivation of the matter, or as otherwise directed by you. We are prepared to discuss the timing and manner of invoicing this balance at your convenience. No finance charges or interest will accrue on the unbilled WIP during the dormancy period.
For context, we note that the original estimated total fee range for the full engagement, as set forth in the Engagement Letter, was $850,000 to $1,200,000. The total WIP of $487,350.00 represents approximately 41% to 57% of that estimated range, reflecting the substantial volume and complexity of the work performed during the approximately four-and-a-half-month active phase of the engagement prior to dormancy.
8. Reactivation of Engagement
Calderwood & Harkness remains available and prepared to reactivate the engagement at Harrowgate's request at any time. We would welcome the opportunity to bring this matter to completion should market conditions, business purpose considerations, and lender consent circumstances evolve favorably.
Upon reactivation, the Firm would undertake the following steps:
(i) Perform an updated conflict check to confirm that no conflicts of interest have arisen since the date of dormancy that would preclude our continued representation of Harrowgate and HPE Fund IV in connection with the Transaction.
(ii) Confirm that the engagement terms set forth in the Engagement Letter remain applicable and have not been superseded. We note that hourly rates are subject to annual adjustment in the ordinary course, and rates applicable at the time of reactivation may differ from the 2022 rates set forth above.
(iii) Conduct a comprehensive review and update of all prior analysis memoranda and the draft tax opinion letter to reflect any changes in applicable law, Treasury regulations, IRS guidance (including private letter rulings, revenue rulings, and published guidance), and judicial decisions that may have occurred during the dormancy period.
(iv) Update the factual record underlying the engagement, including any changes to Veldran's business operations, capital structure, ownership, or corporate governance, as well as any changes in the financial performance or operational profile of the Meridian business segment.
We observe that, from a technical standpoint, the passage of additional time between HPE Fund IV's September 20, 2019 acquisition of Veldran and any future distribution date could strengthen the Section 355(e) "plan" analysis, as increased temporal distance between the acquisition and the distribution is generally a favorable factor under the "plan" and "non-plan" factor analysis of Treasury Regulation § 1.355-7. Similarly, any changes in the factual circumstances surrounding the articulation of business purpose — including, for example, operational developments, changes in competitive dynamics, or strategic initiatives undertaken independently by the Veldran and Meridian business segments — could materially affect the viability and strength of the tax opinion.
9. Contact Information
Should you have any questions regarding the contents of this letter, the status of the engagement, or any other matter related to the Proposed Spin-Off, please do not hesitate to contact me directly:
Leonard Cross Partner, Tax Department Calderwood & Harkness LLP 1301 Avenue of the Americas, 40th Floor New York, New York 10019 Telephone: (212) 554-7200
Email: lcross@calderwoodharkness.com
For questions specifically relating to billing matters, invoicing, or the unbilled work in progress balance, Sylvia Hartwell is also available:
Sylvia Hartwell Partner, Tax Department Calderwood & Harkness LLP Telephone: (212) 554-7215
Email: shartwell@calderwoodharkness.com
10. Closing
We wish to express our sincere appreciation for Harrowgate's confidence in Calderwood & Harkness throughout this engagement. The Transaction presented a number of challenging and intellectually stimulating tax issues, and we believe that the work product generated to date provides a strong foundation for the completion of the tax opinion should the Transaction move forward. We look forward to the opportunity to resume the engagement when circumstances permit and stand ready to assist Harrowgate and HPE Fund IV in any way that may be helpful in the interim.
Very truly yours,
CALDERWOOD & HARKNESS LLP
By: ________
Leonard Cross Partner, Tax Department
cc: Sylvia Hartwell, Esq. — Calderwood & Harkness LLP Garrett Simmons, Esq. — Calderwood & Harkness LLP Diana Fenn, Managing Partner & CIO — Harrowgate Capital Advisors LLC Tobias Rourke, Partner — Harrowgate Capital Advisors LLC Philip Crundell, Esq., General Counsel — Veldran Industries Holdings, Inc. Priya Chandrasekar, Esq. — Whitfield & Gage LLP
Enclosures: None. No final invoice is enclosed with this letter. The unbilled work in progress balance of $177,350.00 will be invoiced upon instruction from Harrowgate, as described above.
Timekeeper | Role | Hours | Rate | Total Fees
Leonard Cross | Partner | 62.0 | $1,650 | $102,300.00
Sylvia Hartwell | Partner | 28.0 | $1,550 | $43,400.00
Garrett Simmons | Senior Associate | 210.0 | $1,050 | $220,500.00
Leila Nazari | Associate | 142.5 | $850 | $121,125.00
Total | 442.5 | $487,350.00*
Invoice Number | Invoice Date | Amount
22-7831-001 | June 15, 2022 | $165,000.00
22-7831-002 | August 1, 2022 | $145,000.00
Total Billed | $310,000.00

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