KICK-OFF CALL — AGENDA AND ATTENDEE LIST

KICK-OFF CALL — AGENDA AND ATTENDEE LIST
Proposed Tax-Free Spin-Off of Meridian Flow Technologies, Inc. from Veldran Industries Holdings, Inc.
IRC §§ 355 / 368(a)(1)(D) Tax Opinion Engagement
Monday, April 18, 2022 2:00 p.m. – 3:30 p.m. (Eastern) Format: Video Conference
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I. ATTENDEE LIST
The following individuals are expected to participate in the kick-off call scheduled for April 18, 2022. Dial-in and video conference credentials have been distributed separately by Garrett Simmons.
A. Calderwood & Harkness LLP
Role: Tax Counsel to Harrowgate / Veldran — Spin-Off Tax Opinion
Office: 1301 Avenue of the Americas, 40th Floor, New York, NY 10019
Leonard Cross will serve as the engagement lead and will exercise overall supervision of the tax opinion work product. Sylvia Hartwell, as billing partner, will oversee administrative and billing matters related to the engagement. Garrett Simmons will serve as the primary day-to-day contact for information requests, diligence coordination, and drafting of memoranda and the opinion letter. Leila Nazari will assist with research, factual analysis, and the preparation of diligence request lists.
B. Harrowgate Capital Advisors LLC
Role: Investment Advisor / Manager to HPE Fund IV
Office: 600 Lexington Avenue, 38th Floor, New York, NY 10022
Christine Yeung is the primary Harrowgate contact for legal matters relating to the engagement and is the individual to whom the engagement letter is addressed on behalf of Harrowgate Private Equity Fund IV, L.P. Diana Fenn, in her dual capacity as Harrowgate's Managing Partner and Chief Investment Officer and as Board Chair of Veldran Industries Holdings, Inc., will provide strategic direction on the transaction and participate in discussions regarding business purpose and overall transaction rationale. Tobias Rourke, as Head of Portfolio Operations, will serve as the primary liaison for operational and financial data gathering at the portfolio company level.
C. Whitfield & Gage LLP
Role: Corporate / M&A Counsel to Harrowgate — Coordinating Counsel for Spin-Off
Office: 51 West 52nd Street, New York, NY 10019
Priya Chandrasekar is serving as lead transactional counsel on the spin-off and will be responsible for coordinating the overall transaction documentation, including the Separation Agreement, ancillary agreements, and board resolutions. Ross Halverson will assist on corporate documentation and coordination with Thornapple McCord LLP, Veldran's separate corporate counsel. Calderwood & Harkness's tax opinion engagement runs parallel to Whitfield & Gage's corporate engagement, and the two teams will coordinate closely, particularly with respect to the Tax Matters provisions of the Separation Agreement and the Tax Sharing Agreement.
D. Parties Not on Call but Referenced for Coordination Purposes
The following parties are not attending the kick-off call but will be involved in the transaction and are referenced in the agenda items below. Contact information is provided here for the convenience of all attendees.
1. Thornapple McCord LLP — Corporate Counsel to Veldran
Office: 227 West Trade Street, Suite 2000, Charlotte, NC 28202
Thornapple McCord LLP is acting as separate corporate counsel to Veldran Industries Holdings, Inc., independent of Whitfield & Gage, in recognition of the controlled-company governance dynamic arising from HPE Fund IV's 62.4% controlling ownership position. Thornapple McCord's engagement is intended to ensure that the Veldran Board of Directors — and in particular its independent directors — receives independent legal advice regarding the spin-off transaction.
2. Pemberton Rathbone LLP — Independent Auditors and Tax-Return Preparers for Veldran
Office: One PPG Place, Suite 1600, Pittsburgh, PA 15222
Pemberton Rathbone LLP serves as Veldran's independent auditors and prepares the federal and state income tax returns for Veldran Industries Holdings, Inc. and its subsidiaries, including Kestrel Precision Controls, Inc. Coordination with Pemberton Rathbone will be essential for obtaining historical tax data, basis computations, and information regarding prior tax elections.
3. Brackenridge & Co. — Financial Advisor / Investment Bank
Office: 383 Madison Avenue, New York, NY 10179
Brackenridge & Co. is serving as financial advisor to Harrowgate and the Veldran Board in connection with the proposed spin-off. Brackenridge is expected to deliver a fairness opinion and provide advisory services on the capital structure of both Veldran and Meridian post-spin. Calderwood & Harkness will need to coordinate with Brackenridge to obtain preliminary valuation ranges for the Precision Flow Solutions Division (Meridian) in order to support the § 355(e) built-in gain analysis and the § 355(d) analysis.
4. Veldran Industries Holdings, Inc. — Management
Principal Office: 2400 Commerce Park Drive, Suite 500, Charlotte, NC 28217
Veldran management will be required to execute the Representation Letter upon which the Calderwood & Harkness tax opinion will rely. In addition, Veldran management will be key participants in the development and documentation of the corporate business purpose for the spin-off.
5. Dunmore Havens & Associates LLC — Tax Advisor to Prescott Capital Management LP
Office: 590 Madison Avenue, 20th Floor, New York, NY 10022
Dunmore Havens & Associates LLC has been engaged by Prescott Capital Management LP (Andrew Kessler, Managing Partner), a minority shareholder of Veldran, as a separate tax advisor in connection with the spin-off. Prescott holds approximately 14.8% of Veldran's outstanding common stock. Coordination on Prescott-specific fund-level tax consequences is outside the scope of Calderwood & Harkness's engagement.
II. AGENDA
The following agenda items are organized in the anticipated order of discussion during the kick-off call. Time allocations are approximate and may be adjusted as the discussion warrants. Leonard Cross will chair the call and facilitate transitions between agenda items.
Agenda Item 1: Overview of Proposed Transaction Structure
Time Allocation: Approximately 20 minutes
Lead Presenters: Priya Chandrasekar (Whitfield & Gage LLP) and Diana Fenn (Harrowgate Capital Advisors LLC)
This agenda item is intended to provide the Calderwood & Harkness tax team with a comprehensive overview of the proposed transaction structure, the entities involved, the relevant business divisions, and the current capital structure of Veldran. This overview will serve as the foundation for all subsequent tax analysis.
1.1 Transaction Summary
The proposed transaction involves a pro rata distribution by Veldran Industries Holdings, Inc. ("Distributing" or "Veldran") of one hundred percent (100%) of the outstanding common stock of Meridian Flow Technologies, Inc. ("Controlled," "Meridian," or "SpinCo") to all holders of Veldran common stock. The distribution is intended to constitute a tax-free distribution and separation under Section 355(a) of the Internal Revenue Code of 1986, as amended (the "Code"), and is intended to qualify as a "divisive D reorganization" under Section 368(a)(1)(D) of the Code.
It is the current expectation of the parties that no application for a private letter ruling will be filed with the Internal Revenue Service in connection with the proposed transaction. Accordingly, the Calderwood & Harkness tax opinion to be delivered pursuant to this engagement will serve as the sole tax assurance for the distribution. This fact underscores the importance of thorough factual development and rigorous legal analysis in the preparation of the opinion.
1.2 Two-Step Internal Restructuring
The proposed spin-off is structured as a two-step internal restructuring, as follows:
Step 1 — Contribution. Veldran Industries Holdings, Inc. will contribute all assets and liabilities of the Precision Flow Solutions Division (the "Contributed Business") to Meridian Flow Technologies, Inc. in exchange for (i) all outstanding shares of Meridian common stock and (ii) Meridian's assumption of certain allocated liabilities associated with the Contributed Business. The specific assets and liabilities to be contributed, and the terms of the assumption, will be set forth in the Separation Agreement to be drafted by Whitfield & Gage LLP. Calderwood & Harkness will need to review and comment on the tax consequences of the contribution transaction, including the application of Section 351 and Section 357 of the Code.
Step 2 — Distribution. Immediately following the contribution, Veldran will distribute one hundred percent (100%) of the outstanding Meridian common stock pro rata to all holders of Veldran common stock as of the record date.
The distribution ratio will be one-to-one (1:1) — that is, each holder of Veldran common stock on the record date will receive one (1) share of Meridian common stock for each one (1) share of Veldran common stock held on such date.
Post-Spin Ownership. Following the completion of the spin-off, each existing Veldran shareholder will hold one (1) share of Veldran common stock and one (1) share of Meridian common stock for each share of Veldran common stock held immediately prior to the distribution. There will be no change in the identity or relative proportional ownership of shareholders in either entity as a result of the distribution itself.
1.3 Key Entities and Ownership
The following is a summary of the key entities and their ownership relationships relevant to the proposed transaction:
Veldran Industries Holdings, Inc.
•  Type: Delaware corporation
•  Date of Incorporation: March 14, 2019
•  Employer Identification Number (EIN): 86-1920347
•  Principal Office: 2400 Commerce Park Drive, Suite 500, Charlotte, NC 28217
•  Role in Transaction: Distributing corporation
Meridian Flow Technologies, Inc.
•  Type: Delaware corporation (to be incorporated; not yet in existence as of the date of this document)
•  Date of Incorporation: To be determined
•  Planned Principal Office: 7100 Northlake Parkway, Suite 300, Tucker, GA 30084
•  Role in Transaction: Controlled corporation / SpinCo
Harrowgate Private Equity Fund IV, L.P.
•  Type: Delaware limited partnership
•  Vintage Year: 2018
•  Fund Size: $6.8 billion
•  Employer Identification Number (EIN): 84-3291067
•  General Partner: Harrowgate Capital Partners IV GP LLC (EIN: 84-3291104)
•  Investment Advisor: Harrowgate Capital Advisors LLC (EIN: 83-2756891)
•  Role in Transaction: Controlling shareholder of Veldran (indirect, through Harrowgate Veldran Holdings LLC)
Ownership of Veldran Common Stock. The current ownership of Veldran common stock is summarized in the following table:
Authorized Shares. Veldran's certificate of incorporation authorizes 100,000,000 shares of common stock, of which 74,500,000 are currently outstanding.
1.4 Business Overview — Two Divisions
Veldran currently operates through two principal business divisions, each of which will constitute the core operating business of the respective entity post-spin:
Engineered Coatings Division (to remain with Veldran post-spin):
•  FY2021 Revenue: approximately $1.52 billion
•  FY2021 EBITDA: approximately $285 million
•  This division will constitute the continuing business of Veldran Industries Holdings, Inc. following the distribution.
Precision Flow Solutions Division (to be contributed to Meridian and spun off):
•  FY2021 Revenue: approximately $820 million
•  FY2021 EBITDA: approximately $133 million
•  This division will constitute the core business of Meridian Flow Technologies, Inc. following the distribution. The Precision Flow Solutions Division includes the business of Kestrel Precision Controls, Inc., which was acquired by Veldran on June 7, 2019 (discussed in detail under Agenda Item 3.1 below).
Consolidated Financial Summary:
•  FY2021 Aggregate Revenue: $2.34 billion
•  FY2021 Aggregate EBITDA: $418 million
•  Total Employees: approximately 8,200
Planned Meridian Management:
•  Planned Chief Executive Officer: Sandra Waverly (currently President, Precision Flow Solutions Division at Veldran)
•  Planned Chief Financial Officer: Derek Okonkwo (currently Vice President of Finance, Precision Flow Solutions Division at Veldran)
1.5 Capital Structure
The current capital structure of Veldran is summarized below. The allocation of indebtedness between Veldran and Meridian post-spin will need to be determined as part of the overall transaction planning and will have tax implications that Calderwood & Harkness will need to analyze.
Common Stock:
•  Authorized: 100,000,000 shares
•  Outstanding: 74,500,000 shares
First Lien Term Loan B:
•  Principal Amount: $1.1 billion
•  Syndicate Lead / Administrative Agent: Ashfield National Bank, N.A.
•  Contact: Margaret Tsao, Managing Director, Leveraged Finance
•  The credit agreement governing the First Lien Term Loan B will need to be reviewed to determine whether the proposed spin-off constitutes an event requiring lender consent and whether any mandatory prepayment or repricing provisions are triggered.
6.250% Senior Unsecured Notes due 2027:
•  Principal Amount: $450 million
•  Indenture Trustee: Colton Trust Company
•  The indenture governing the Senior Unsecured Notes will need to be reviewed for similar purposes, including any covenant restrictions on asset dispositions, restricted payments, or change-of-control provisions.
1.6 Target Timeline
The anticipated record date and distribution date for the proposed spin-off is the fourth quarter of 2022 (Q4 2022). The precise date will be determined based on the progress of transaction planning, regulatory and contractual approvals, and the readiness of the Calderwood & Harkness tax opinion and other required deliverables. A more detailed discussion of the target timeline is set forth under Agenda Item 6 below.
Agenda Item 2: Scope of Calderwood & Harkness Tax Opinion Engagement
Time Allocation: Approximately 10 minutes
Lead Presenter: Leonard Cross (Calderwood & Harkness LLP)
This agenda item will provide a summary of the scope and parameters of Calderwood & Harkness's engagement as tax opinion counsel, as set forth in the executed engagement letter.
2.1 Engagement Parameters
The engagement letter for Calderwood & Harkness's tax opinion engagement was executed on April 11, 2022 between Calderwood & Harkness LLP and Harrowgate Private Equity Fund IV, L.P., with the engagement letter addressed to the attention of Christine Yeung, General Counsel of Harrowgate Capital Advisors LLC, in her capacity as authorized representative of Harrowgate Private Equity Fund IV, L.P. The engagement has been assigned the following identifiers:
•  Engagement Number: 1003-00005
•  Matter Code: HRW-SPIN-001
The scope of the engagement is to render a "should" level tax opinion — representing the second-highest level of comfort in the hierarchy of tax opinion standards — that the proposed spin-off qualifies as a tax-free distribution under Section 355(a) of the Code and as a divisive "D" reorganization under Section 368(a)(1)(D) of the Code.
The opinion will be addressed to:
•  (i) the Board of Directors of Veldran Industries Holdings, Inc.; and
•  (ii) Harrowgate Private Equity Fund IV, L.P.
The opinion will be based upon, and conditioned upon, representations of fact contained in a Representation Letter to be executed by the officers of Veldran and authorized representatives of Harrowgate. The preparation and execution of this Representation Letter is a critical path item for the delivery of the opinion and is discussed further under Agenda Item 4.4 below.
2.2 Key Code Provisions to Be Addressed
The Calderwood & Harkness tax opinion will address, at a minimum, the following provisions of the Internal Revenue Code and the applicable Treasury Regulations promulgated thereunder:
•  IRC § 355(a) — Tax-free distribution requirements, including the threshold requirements for non-recognition treatment to shareholders and the distributing corporation.
•  IRC § 355(b) — Active trade or business requirement. Both the Distributing corporation (Veldran) and the Controlled corporation (Meridian) must be engaged in the active conduct of a trade or business immediately after the distribution, and such trade or business must have been actively conducted throughout the five-year period ending on the date of the distribution. This requirement is the subject of a significant analytical issue related to the Kestrel Precision Controls acquisition (see Agenda Item 3.1 below).
•  IRC § 355(a)(1)(B) — The "device" test, requiring that the distribution not be used principally as a device for the distribution of the earnings and profits of Distributing or Controlled.
•  IRC § 355(d) — Disqualified distribution analysis, which can trigger gain recognition at the corporate level if, immediately after the distribution, any person holds a 50%-or-greater interest in either Distributing or Controlled that is attributable to stock acquired by "purchase" within the prior five-year period.
•  IRC § 355(e) — The anti-Morris Trust provision, which triggers gain recognition at the corporate level if the distribution is part of a "plan (or series of related transactions)" pursuant to which one or more persons acquire, directly or indirectly, a 50%-or-greater interest in Distributing or Controlled. This provision is the subject of the most significant risk area in this engagement (see Agenda Item 3.2 below).
•  IRC § 355(g) — Disqualified investment corporation analysis, applicable to distributions where either Distributing or Controlled is a "disqualified investment corporation" — generally, a corporation whose investment assets comprise two-thirds or more of the fair market value of its total assets.
•  IRC § 368(a)(1)(D) — Divisive "D" reorganization requirements, providing that the contribution of assets by Distributing to Controlled, followed by the distribution of Controlled stock, qualifies as a tax-free reorganization.
•  IRC § 368(c) — Control requirement, requiring that Distributing own stock possessing at least 80% of the total combined voting power of all classes of stock entitled to vote and at least 80% of the total number of shares of all other classes of stock of Controlled immediately before the distribution.
•  Continuity of Interest — The judicially developed and regulatory requirement that there be continuity of the proprietary interest in the businesses that were part of the original corporation prior to the spin-off.
2.3 Opinion Level and Limitations
As noted above, the opinion will be rendered at the "should" level of comfort. In the context of federal income tax opinions, a "should" level opinion represents a conclusion that the tax treatment described in the opinion is the correct treatment, and that the IRS would not be expected to successfully challenge such treatment, but does not reach the highest level of certainty expressed by a "will" level opinion. A "should" level opinion is generally understood to reflect a confidence level of approximately 70% or higher, although the precise degree of confidence is not formally defined by the IRS or the ABA.
The opinion will be subject to customary qualifications, assumptions, and limitations, including:
•  (i) reliance on the accuracy and completeness of the representations contained in the Representation Letter;
•  (ii) assumptions regarding applicable law as in effect on the date of the opinion;
•  (iii) the absence of any change in relevant facts or circumstances between the date of the Representation Letter and the date of the distribution; and
•  (iv) other customary assumptions and qualifications to be set forth in the opinion letter.
As previously noted, no IRS private letter ruling is being sought in connection with the proposed transaction. The Calderwood & Harkness tax opinion will serve as the sole tax assurance for the distribution. This places a heightened premium on the thoroughness of the factual record and the rigor of the legal analysis underlying the opinion.
A draft of the opinion letter will be circulated to the client before final delivery for review and comment, in accordance with standard practice.
Agenda Item 3: Key Tax Issues and Risk Areas
Time Allocation: Approximately 30 minutes
Lead Presenters: Leonard Cross and Garrett Simmons (Calderwood & Harkness LLP)
This is the substantive core of the kick-off call. Leonard Cross and Garrett Simmons will walk through the key tax issues and risk areas that Calderwood & Harkness has identified in its preliminary review of the proposed transaction structure. For each issue, the team will discuss the applicable legal standard, the factual circumstances giving rise to the issue, the preliminary risk assessment, and the action items required to develop the factual and legal analysis.
3.1 Section 355(b) Active Trade or Business — The Kestrel Precision Controls Issue
Legal Framework. Under Section 355(b) of the Code, both the Distributing corporation (Veldran, directly or through its retained business) and the Controlled corporation (Meridian) must be engaged in the active conduct of a trade or business immediately after the distribution. In addition, each such trade or business must have been actively conducted throughout the five-year period ending on the date of the distribution. This is commonly referred to as the "five-year active trade or business" requirement or the "ATB" requirement.
Section 355(b)(2)(C) provides that a trade or business is not treated as meeting the five-year ATB requirement if it was acquired by the distributing corporation or the controlled corporation in a taxable transaction during the five-year pre-distribution period.
Factual Issue. Veldran acquired Kestrel Precision Controls, Inc. (a Georgia corporation, EIN: 58-2847193) on June 7, 2019 from Rennick Industrial Partners Fund II LP (EIN: 82-3017564) for $295 million in an all-cash taxable stock acquisition. Kestrel was subsequently integrated into the Precision Flow Solutions Division and comprises a significant portion of that division's revenue — approximately 35%, or roughly $287 million of the $820 million FY2021 revenue of the Precision Flow Solutions Division.
The five-year look-back period from an anticipated Q4 2022 distribution date reaches back to approximately Q4 2017. The Kestrel acquisition, having closed on June 7, 2019, falls squarely within this five-year window. Accordingly, Section 355(b)(2)(C) is directly implicated, because the trade or business of Kestrel was acquired in a taxable transaction within the five-year period preceding the distribution.
Potential Relief Under Section 355(b)(2)(D). Potential relief is available under Section 355(b)(2)(D), which provides a safe harbor for certain acquisitions of businesses that were themselves conducted by the acquired entity (or a predecessor) for the full five-year period preceding the distribution. Specifically, if (i) the trade or business acquired from Kestrel was actively conducted by Kestrel throughout the five-year period ending on the date of the distribution, and (ii) certain other conditions are met, the safe harbor under Section 355(b)(2)(D) may preserve the ATB qualification of the Precision Flow Solutions Division notwithstanding the mid-window taxable acquisition.
Preliminary information indicates that Kestrel Precision Controls, Inc. was founded on February 12, 2003, and has continuously operated the precision flow controls business since its founding — well in excess of the five-year ATB period. However, this factual assertion must be thoroughly documented and verified.
Action Items:
•  Obtain detailed Kestrel founding and operating history documentation, including articles of incorporation, organizational minutes, and any historical business records substantiating continuous operation since February 12, 2003.
•  Obtain Kestrel historical federal and state tax returns for tax years 2017 through 2021, inclusive.
•  Confirm that there have been no material changes in Kestrel's business operations, product lines, or business activities during the relevant five-year period that could jeopardize the Section 355(b)(2)(D) safe harbor.
•  Confirm the structure of the Kestrel acquisition (stock versus asset; any Section 338 election analysis), as this may affect the analysis under Section 355(b)(2)(C) and (D).
•  Assign: Supplemental information request focused on the Kestrel acquisition to be prepared by Simmons and Nazari and directed to Veldran General Counsel Philip Crundell.
3.2 Section 355(e) "Plan or Series of Related Transactions" — Anti-Morris Trust Risk
Legal Framework. Section 355(e) of the Code — the so-called "anti-Morris Trust" provision — provides that if a distribution otherwise qualifying under Section 355 is part of a "plan (or series of related transactions)" pursuant to which one or more persons acquire, directly or indirectly, stock representing a 50-percent-or-greater interest (by vote or value) in either the Distributing corporation or the Controlled corporation, then the Distributing corporation must recognize gain on the distribution as though it had sold the Controlled stock at fair market value. Section 355(e) does not disqualify the distribution from tax-free treatment at the shareholder level, but it imposes potentially significant corporate-level gain recognition on the Distributing corporation.
Factual Issue. Harrowgate Private Equity Fund IV, L.P. acquired its 62.4% controlling stake in Veldran Industries Holdings, Inc. on September 20, 2019, by means of a negotiated tender offer followed by a merger squeeze-out of the prior controlling shareholder, Greystone Partners Fund III LP (EIN: 81-2683910). The acquisition details are as follows:
•  Acquisition Date: September 20, 2019
•  Total Shares Acquired: 46,488,000 shares
•  Per-Share Price: $40.00
•  Total Acquisition Price: $1,859,520,000
•  Funding: Combination of HPE Fund IV equity ($1.24 billion) and co-investment from Prescott Capital Management LP ($620 million for 15,500,000 shares at $40.00 per share)
•  Prescott subsequently sold 4,474,000 shares in a secondary offering, reducing its position to 11,026,000 shares (approximately 14.8% of outstanding shares)
The September 2019 acquisition constituted a change of control of Veldran. If the proposed Q4 2022 spin-off is determined to be part of a "plan" (or series of related transactions) that includes the September 2019 change of control, Section 355(e) would apply, and Veldran would be required to recognize gain on the distribution of the Meridian stock.
Temporal Analysis. The temporal gap between the September 20, 2019 acquisition and the anticipated Q4 2022 distribution date is approximately three years. There is no bright-line statutory safe harbor at three years. However, Treasury Regulation Section 1.355-7 provides a detailed framework of presumptions, safe harbors, and facts-and-circumstances factors for determining whether a distribution and a prior change-of-control acquisition are part of a "plan."
Under Treas. Reg. § 1.355-7(b)(2), there is a strong presumption that a distribution and an acquisition are not part of a plan if the acquisition occurs more than two years before the distribution and certain other conditions are satisfied. However, this is a rebuttable presumption, and the IRS may argue that the facts and circumstances indicate the existence of a plan notwithstanding the temporal gap.
Estimated Tax at Risk. If Section 355(e) were determined to apply, the estimated federal income tax liability for Veldran would be significant. Based on preliminary estimates:
•  Estimated fair market value of Meridian stock at time of distribution: $1,396.5 million to $1,702.4 million, based on preliminary Brackenridge & Co. valuation ranges of 10.5× to 12.8× EV/EBITDA applied to Meridian's FY2021 EBITDA of $133 million.
•  Veldran's estimated adjusted tax basis in the assets of the Precision Flow Solutions Division: approximately $800 million.
•  Estimated built-in gain: $596.5 million to $902.4 million.
•  Estimated federal income tax at the 21% corporate rate: $125.3 million to $189.5 million.
This is expected to be the central and most challenging issue in the tax opinion engagement. The ability of Calderwood & Harkness to render a "should" level opinion on the tax-free status of the spin-off will depend in substantial part on the development of a robust factual record demonstrating the absence of any pre-acquisition plan, understanding, or agreement regarding a potential spin-off at the time of the September 2019 acquisition.
Action Items:
•  Develop a detailed factual record demonstrating the absence of pre-acquisition discussions, negotiations, or understandings regarding a possible spin-off of the Precision Flow Solutions Division at or before the time of the September 2019 acquisition by HPE Fund IV.
•  Obtain Section 355(e) representations from both Harrowgate and Veldran management, including representations regarding when the spin-off was first considered, who initiated discussions, what business circumstances led to the decision, and the absence of any pre-acquisition plan.
•  Analyze the safe harbors and facts-and-circumstances factors under Treas. Reg. § 1.355-7, including but not limited to the two-year presumption, the identity and relationship of the parties, the timing of discussions, and the business reasons for the acquisition and the spin-off.
•  Review the HPE Fund IV investment committee memoranda, due diligence materials, and internal communications from the period surrounding the September 2019 acquisition to confirm the absence of any references to a contemplated spin-off.
•  Assign: Comprehensive Section 355(e) analysis memorandum to be prepared by Simmons, Nazari, Cross (supervising).
3.3 Business Purpose
Legal Framework. The tax-free treatment of a distribution under Section 355 is subject to the non-statutory requirement, codified in Treasury Regulation Section 1.355-2(b), that the distribution be motivated, in whole or substantial part, by one or more corporate business purposes. The business purpose requirement is a factual determination and must be supported by real and substantive corporate-level objectives, as distinguished from the personal objectives of shareholders or the fund-level objectives of a controlling private equity sponsor.
Preliminary Candidate Business Purposes. Based on preliminary discussions, the following candidate corporate business purposes have been identified:
•  (i) Independent Capital Allocation: Enabling each business (the Engineered Coatings Division and the Precision Flow Solutions Division) to pursue independent capital-allocation strategies tailored to the distinct investment profiles, growth trajectories, and capital needs of each business, without being constrained by the competing capital demands of the other division.
•  (ii) Management Focus and Operational Efficiency: Enhancing the ability of each business's management team to focus exclusively on the strategic priorities, operational challenges, and market opportunities specific to its division, thereby improving operational efficiency, speed of decision-making, and accountability.
Concern — Fund-Level vs. Corporate-Level Purposes. Calderwood & Harkness must ensure that the business purposes articulated for the spin-off are genuine corporate-level purposes of Veldran Industries Holdings, Inc. — that is, purposes that serve the interests of the corporation and its business operations — and not purposes that are primarily driven by the fund-level objectives of HPE Fund IV as the controlling shareholder. Examples of fund-level objectives that would not independently satisfy the business purpose requirement include returning capital to limited partners, monetizing or rebalancing portfolio investments, accommodating fund lifecycle or wind-down considerations, or facilitating a subsequent sale or IPO of one of the separated entities for the benefit of the fund.
This is not to say that the existence of concurrent shareholder-level or fund-level motivations would necessarily disqualify the distribution, but the corporate-level business purposes must be substantial and independently sufficient to justify the distribution.
Action Items:
•  Schedule a follow-up session with Veldran management (Jonathan Caldecott, CEO, and Sandra Waverly, planned Meridian CEO) to develop and document concrete corporate-level operational justifications for the spin-off. Diana Fenn and Tobias Rourke of Harrowgate should participate in or provide input for this session, but the articulation of business purposes must be anchored in the perspective of Veldran's corporate interests.
•  Assign: Business purpose memorandum to be prepared by Calderwood & Harkness (Simmons, Nazari, supervised by Cross), documenting the factual basis for the corporate business purposes and analyzing compliance with Treas. Reg. § 1.355-2(b).
3.4 Device Test — Section 355(a)(1)(B)
Legal Framework. Section 355(a)(1)(B) of the Code provides that a distribution does not qualify for tax-free treatment if the distribution is used principally as a "device" for the distribution of the earnings and profits of the Distributing corporation or the Controlled corporation (or both). The determination of whether a distribution constitutes a "device" is based on all the facts and circumstances, taking into account both "device factors" (factors tending to indicate the distribution is a device) and "non-device factors" (factors tending to indicate the distribution is not a device), as described in Treasury Regulation Section 1.355-2(d).
Device Factors Present:
•  Pro Rata Distribution. The proposed distribution is a pro rata distribution to all Veldran shareholders. A pro rata distribution is identified in the regulations as a device factor because it does not alter the proportional interests of the shareholders and may be viewed as a means of separating assets into corporate solution in advance of a planned disposition.
•  Controlling Shareholder. HPE Fund IV's 62.4% controlling position in Veldran is a relevant consideration. As a private equity sponsor, HPE Fund IV could potentially effect a subsequent sale, merger, or other disposition of Meridian (or Veldran) following the spin-off. The existence of a controlling shareholder with the ability and potential incentive to effect a post-spin disposition is a factor that the IRS may view as indicative of a device.
Non-Device Factors Present:
•  Absence of a Planned Post-Spin Sale. Provided that there is no agreement, understanding, arrangement, or plan for a post-spin sale or merger of Meridian or Meridian stock, the absence of such a plan is a significant non-device factor.
•  Valid Business Purposes. The existence of one or more valid corporate business purposes for the distribution is a non-device factor and, in many cases, is the single most important factor weighing against device characterization.
•  Actively Conducted Businesses. The fact that both Distributing (Veldran, through the Engineered Coatings Division) and Controlled (Meridian, through the Precision Flow Solutions Division) will be engaged in the active conduct of substantial businesses immediately after the distribution is a non-device factor. The regulations provide that the strength of this factor increases with the relative size of the businesses.
Action Items:
•  Obtain representations from Harrowgate and Veldran management confirming the absence of any agreement, understanding, arrangement, negotiation, or plan for a post-spin sale, merger, or other disposition of Meridian or Meridian stock, or of Veldran or Veldran stock, following the distribution.
•  Assign: Device test analysis memorandum to be prepared by Calderwood & Harkness (Simmons, Nazari, supervised by Cross), analyzing the device and non-device factors under Treas. Reg. § 1.355-2(d) as applied to the facts of the proposed transaction.
3.5 Section 355(d) — Disqualified Distribution
Legal Framework and Application. Section 355(d) of the Code provides that, if immediately after a distribution, any person holds "disqualified stock" representing a 50-percent-or-greater interest (by vote or value) in either the Distributing corporation or the Controlled corporation, the distribution is treated as a taxable exchange with respect to the Distributing corporation (i.e., Distributing must recognize gain as though it had sold the Controlled stock at fair market value). "Disqualified stock" is generally stock acquired by "purchase" (as defined in Section 355(d)(5)) within the five-year period preceding the distribution.
HPE Fund IV acquired its 62.4% stake in Veldran in September 2019, which falls within the five-year period preceding the anticipated Q4 2022 distribution. To the extent that the September 2019 acquisition constitutes a "purchase" within the meaning of Section 355(d)(5), the Section 355(d) analysis must be performed to determine whether the distribution would be a "disqualified distribution."
This analysis will be performed in conjunction with the Section 355(e) analysis, as the two provisions share overlapping factual predicates and operate in a related analytical framework.
Action Items:
•  Include Section 355(d) analysis in the comprehensive Section 355 analysis memorandum.
•  Obtain information regarding the structure of the September 2019 acquisition, including whether any portion of the consideration constituted stock or other property that might take the acquisition outside the definition of "purchase" under Section 355(d)(5).
3.6 Other Tax Issues to Be Analyzed
In addition to the principal risk areas discussed above, the Calderwood & Harkness tax opinion will address the following additional tax issues:
Section 355(g) — Disqualified Investment Corporation Analysis. Calderwood & Harkness will confirm that neither Veldran nor Meridian is a "disqualified investment corporation" within the meaning of Section 355(g). This provision denies Section 355 treatment to a distribution if either Distributing or Controlled is a corporation whose investment assets comprise two-thirds or more of the fair market value of its total assets. Based on the preliminary description of the two divisions as substantial operating businesses with significant revenues and employees, this issue is not expected to present a material risk, but a formal analysis will be included in the opinion.
Section 368(a)(1)(D) Reorganization — Control Requirement. Calderwood & Harkness will confirm that the proposed transaction satisfies the requirements for a divisive "D" reorganization under Section 368(a)(1)(D). A critical element is the "control" requirement under Section 368(c), which requires that Distributing (Veldran) own stock possessing at least 80% of the total combined voting power of all classes of stock entitled to vote, and at least 80% of the total number of shares of all other classes of stock of Controlled (Meridian), immediately before the distribution. Because Veldran will own 100% of Meridian's outstanding common stock immediately before the distribution, and because Meridian is being newly formed with a single class of common stock, the control requirement is expected to be straightforwardly satisfied. This will be confirmed in the opinion.
Continuity of Interest. The continuity of interest doctrine requires that the historic shareholders of the enterprise maintain a continuing equity interest in the businesses that were part of the original corporation. In a pro rata spin-off such as the one proposed, continuity of interest is generally satisfied as a matter of course, because each pre-spin shareholder of Distributing maintains a proportional equity interest in both Distributing and Controlled following the distribution. This issue is not expected to present material risk but will be addressed in the opinion.
State and Local Tax Implications. Calderwood & Harkness will analyze the state and local tax implications of the proposed spin-off in the jurisdictions most relevant to the parties, including:
•  Delaware (state of incorporation for both Veldran and Meridian)
•  North Carolina (principal office of Veldran)
•  Georgia (planned principal office of Meridian; state of incorporation of Kestrel Precision Controls)
The analysis will focus on whether each applicable state conforms to the federal Section 355 treatment or imposes additional requirements or limitations. State conformity analysis will be included as a separate section or appendix to the tax opinion or in a separate state tax memorandum, as determined appropriate.
Debt and Capital Structure Issues. Calderwood & Harkness will analyze the tax implications of any required refinancing of Veldran's existing indebtedness — including the $1.1 billion First Lien Term Loan B and the $450 million 6.250% Senior Unsecured Notes due 2027 — in connection with the spin-off, and the allocation of debt between Veldran and Meridian post-spin. Issues to be analyzed include, without limitation:
•  Whether any assumption of debt by Meridian triggers gain recognition under Section 357(c) or gives rise to "boot" under Section 356;
•  The tax treatment of any prepayment, defeasance, or retirement of existing indebtedness;
•  The deductibility of refinancing costs; and
•  The allocation of interest expense between Veldran and Meridian post-spin under applicable tax rules.
Agenda Item 4: Information-Gathering Workplan and Timeline
Time Allocation: Approximately 10 minutes
Lead Presenter: Garrett Simmons (Calderwood & Harkness LLP)
This agenda item addresses the workplan for gathering the factual information and documentation necessary to support the tax analysis and the preparation of the tax opinion. A disciplined and timely information-gathering process is essential to maintaining the projected Q4 2022 distribution timeline.
4.1 Initial Tax Diligence Information Request List
Calderwood & Harkness will prepare and circulate a comprehensive initial tax diligence information request list by April 25, 2022. The request will be directed to Veldran management (Philip Crundell, General Counsel, and Rita Subramanian, CFO) and to Whitfield & Gage (Priya Chandrasekar). The categories of documents and information to be requested include, without limitation:
•  Organizational documents (certificates of incorporation, bylaws, operating agreements, partnership agreements) for Veldran, Kestrel, Harrowgate Veldran Holdings LLC, and other relevant entities
•  Historical federal and state income tax returns for Veldran Industries Holdings, Inc. and all subsidiaries for tax years 2017 through 2021, inclusive
•  Tax elections, including any Section 338 elections, check-the-box elections, or other material elections
•  Intercompany agreements (transfer pricing arrangements, management services agreements, shared services agreements, intercompany loans)
•  Kestrel Precision Controls, Inc. acquisition documents (stock purchase agreement, ancillary agreements, closing documents, purchase price allocation)
•  Five-year active trade or business history documentation for both the Engineered Coatings Division and the Precision Flow Solutions Division
•  Capital structure documents (credit agreement governing the First Lien Term Loan B, indenture governing the 6.250% Senior Unsecured Notes due 2027, intercreditor agreements, security documents)
•  Equity incentive plan documentation (plan documents, outstanding awards, vesting schedules, option agreements)
•  Shareholder records (capitalization table, stock ledger, records of secondary transactions)
4.2 Supplemental Information Request — Kestrel Acquisition
Following the initial information request, Calderwood & Harkness will prepare and circulate a supplemental information request specifically focused on the Kestrel Precision Controls, Inc. acquisition and operating history. This supplemental request will seek, among other items:
•  The stock purchase agreement between Veldran (or its acquisition subsidiary) and Rennick Industrial Partners Fund II LP for the acquisition of Kestrel, including all schedules, exhibits, and ancillary documents
•  Basis step-up computations and purchase price allocation documentation
•  Analysis of any Section 338 election (or Section 338(h)(10) election) in connection with the Kestrel acquisition, including any related forms filed with the IRS (e.g., Form 8023)
•  Kestrel historical federal and state income tax returns for tax years 2017 through 2021
•  Kestrel founding documentation, including the Georgia articles of incorporation dated February 12, 2003, initial organizational minutes, and evidence of commencement of business operations
•  Documentation of Kestrel's five-year operating history in the precision flow controls business, including revenue data, customer information, employee records, and any material changes in business operations during the relevant period
4.3 Coordination with Pemberton Rathbone LLP (Auditors / Tax Advisors)
Leila Nazari will contact Harold Weiss, Partner, Tax, at Pemberton Rathbone LLP, to request the following materials:
•  Veldran Industries Holdings, Inc. federal and state income tax returns for tax years 2017 through 2021
•  Kestrel Precision Controls, Inc. federal and state income tax returns for tax years 2017 through 2021 (or, if Kestrel files as part of a Veldran consolidated group, the relevant schedules and supporting workpapers)
•  Copies of all material tax elections filed during the relevant period
•  Extension requests filed with the IRS or state taxing authorities
•  Any IRS correspondence, including notices of deficiency, audit notifications, information document requests, or closing agreements
Prior to Pemberton Rathbone sharing any tax-return data or work product directly with Calderwood & Harkness, appropriate engagement authorization or consent may need to be obtained from Veldran. Christine Yeung (Harrowgate) will be asked to confirm that the necessary authorization has been or will be provided (see Action Items below).
4.4 Representation Letter
Calderwood & Harkness will prepare the first draft of the Representation Letter and circulate it to the client team by early May 2022, with a target date of May 6, 2022.
The Representation Letter will be prepared for execution by:
•  Jonathan Caldecott, Chief Executive Officer, Veldran Industries Holdings, Inc.
•  Rita Subramanian, Chief Financial Officer, Veldran Industries Holdings, Inc.
•  Diana Fenn, Managing Partner & CIO, Harrowgate Capital Advisors LLC (on behalf of Harrowgate Private Equity Fund IV, L.P.)
The Representation Letter will contain detailed factual representations covering, at a minimum, the following subject areas:
•  Corporate business purpose for the spin-off
•  Active trade or business history (five-year ATB) for both the Engineered Coatings Division and the Precision Flow Solutions Division, including the Kestrel acquisition history
•  Device test — absence of any agreement, plan, or understanding for a post-spin sale or other disposition
•  Section 355(e) — absence of any plan or series of related transactions linking the September 2019 change of control to the proposed spin-off
•  Section 355(d) — factual representations regarding the nature and timing of HPE Fund IV's acquisition of Veldran stock
•  Continuity of business enterprise — representations regarding the intent to continue the businesses of both Veldran and Meridian following the distribution
•  Kestrel acquisition history — detailed representations regarding the founding, operating history, and continuous conduct of Kestrel's business
The Representation Letter is a critical foundation for the tax opinion, as the opinion will rely on the accuracy and completeness of the representations contained therein. Calderwood & Harkness will work closely with the client team, Whitfield & Gage, and Thornapple McCord to ensure that the representations are comprehensive, accurate, and responsive to the requirements of the tax analysis.
4.5 Projected Deliverable Timeline
The following is the projected timeline for the principal deliverables of the Calderwood & Harkness engagement, subject to adjustment based on the progress of information gathering and the resolution of open issues:
This timeline assumes reasonably prompt responses to information requests and the timely resolution of the key tax issues identified in Agenda Item 3. Any material delay in receiving requested information, or any adverse factual development regarding the key risk areas, could affect the projected delivery date.
Agenda Item 5: Coordination with Thornapple McCord LLP and Pemberton Rathbone LLP
Time Allocation: Approximately 10 minutes
Lead Presenters: Leonard Cross (Calderwood & Harkness LLP) and Priya Chandrasekar (Whitfield & Gage LLP)
Given the number of parties and advisors involved in the proposed spin-off, effective coordination is essential. This agenda item addresses the roles of the other advisor teams and the planned coordination framework.
5.1 Thornapple McCord LLP — Corporate Counsel to Veldran
Thornapple McCord LLP is serving as separate corporate counsel to Veldran Industries Holdings, Inc. This separate representation has been established in recognition of the controlled-company governance dynamic arising from HPE Fund IV's 62.4% controlling shareholder position. By engaging independent corporate counsel, the Veldran Board — and in particular its independent directors — has access to legal advice that is independent of the Harrowgate-engaged counsel (Whitfield & Gage for corporate matters, Calderwood & Harkness for tax matters).
The lead contact at Thornapple McCord is David Ochoa, Partner, Corporate/Securities. Elaine Thornapple, the firm's Founding Partner, may also be involved in significant matters.
Coordination Points:
•  Thornapple McCord will review the Representation Letter prepared by Calderwood & Harkness, in its capacity as independent counsel to the Veldran Board, to ensure that the representations to be made by Veldran's officers are accurate and appropriate.
•  Calderwood & Harkness will coordinate with Thornapple McCord on the Tax Matters provisions of the Separation Agreement. These provisions will address, among other things, the allocation of pre-spin tax liabilities, indemnification obligations with respect to taxes arising from a failure of the spin-off to qualify as tax-free, and the procedures for managing post-spin tax audits and disputes.
•  Calderwood & Harkness will prepare the first draft of the Tax Sharing Agreement, a separate ancillary agreement between Veldran and Meridian governing the allocation of tax liabilities and the sharing of tax attributes (including net operating losses, tax credits, and earnings and profits) following the spin-off. This draft will be shared with Thornapple McCord for review and comment.
5.2 Pemberton Rathbone LLP — Independent Auditors and Tax-Return Preparers
Pemberton Rathbone LLP serves as Veldran's independent auditors (Lisa Engstrom, Partner, Audit & Assurance) and tax-return preparers (Harold Weiss, Partner, Tax). The firm's engagement with Veldran predates HPE Fund IV's acquisition and is expected to continue through the spin-off.
Coordination Points:
•  Calderwood & Harkness will coordinate with Pemberton Rathbone on the retrieval and review of historical tax data, including federal and state income tax returns, basis computations, and records of prior tax elections.
•  Calderwood & Harkness may need to rely on Pemberton Rathbone's work product and analysis in certain areas, including the determination of Veldran's adjusted tax basis in the assets of the Precision Flow Solutions Division and the computation of earnings and profits.
•  A separate engagement letter or authorization letter may be required to permit Pemberton Rathbone to share tax-return data and related work product directly with Calderwood & Harkness. Christine Yeung of Harrowgate will be asked to confirm that the appropriate authorization has been or will be provided by Veldran.
5.3 Brackenridge & Co. — Financial Advisor
Brackenridge & Co. (Samuel Ng, Managing Director, Industrials Group) is serving as financial advisor to Harrowgate and the Veldran Board on the proposed spin-off.
Coordination Points:
•  Brackenridge is expected to deliver a fairness opinion to the Veldran Board in connection with the spin-off.
•  Brackenridge will advise on the post-spin capital structure of both Veldran and Meridian, including the allocation of existing indebtedness and any required new financing.
•  Calderwood & Harkness will request and receive from Brackenridge preliminary valuation ranges for Meridian / the Precision Flow Solutions Division. These valuation ranges are necessary for purposes of (i) the Section 355(e) built-in gain analysis (estimating the corporate-level tax liability that would result if Section 355(e) were determined to apply) and (ii) the Section 355(d) analysis.
•  The preliminary valuation ranges currently available (10.5× to 12.8× EV/EBITDA on $133 million EBITDA, implying an enterprise value range for Meridian of approximately $1.397 billion to $1.702 billion) will be updated as Brackenridge's valuation work progresses.
5.4 Dunmore Havens & Associates LLC — Prescott's Tax Advisor
Dunmore Havens & Associates LLC (Irene Salcedo, Principal) is serving as tax advisor to Prescott Capital Management LP, a minority shareholder of Veldran holding approximately 14.8% of the outstanding common stock.
Coordination Points:
•  The Calderwood & Harkness tax opinion will not be addressed to Prescott Capital Management LP. The opinion addressees are the Veldran Board and Harrowgate Private Equity Fund IV, L.P., as set forth in the engagement letter.
•  However, the Representation Letter and opinion scope should account for Prescott's status as a significant minority shareholder, particularly with respect to the Section 355(e) analysis (given Prescott's co-investment at the time of the September 2019 acquisition and subsequent secondary sale of shares).
•  Coordination on Prescott-specific fund-level tax consequences — including the tax treatment of the spin-off to Prescott and its limited partners — is outside the scope of Calderwood & Harkness's engagement and is the responsibility of Dunmore Havens.
•  Calderwood & Harkness may, with appropriate client consent, share the final tax opinion with Dunmore Havens for informational purposes, but this will be determined at a later date.
Agenda Item 6: Target Timeline for Q4 2022 Distribution
Time Allocation: Approximately 10 minutes
Lead Presenters: Priya Chandrasekar (Whitfield & Gage LLP) and Christine Yeung (Harrowgate Capital Advisors LLC)
6.1 Overall Transaction Timeline
The target distribution date for the proposed spin-off is Q4 2022. The following is a summary of the key workstreams and milestones required to achieve this target:
•  Separation Agreement: Whitfield & Gage LLP is responsible for drafting the Separation Agreement, which is the principal transaction document governing the contribution of the Precision Flow Solutions Division to Meridian and the distribution of Meridian stock to Veldran shareholders. Calderwood & Harkness will provide the Tax Matters provisions of the Separation Agreement and will prepare the initial draft of the Tax Sharing Agreement as a stand-alone ancillary agreement.
•  Meridian Incorporation: Meridian Flow Technologies, Inc. will be incorporated as a Delaware corporation in advance of the distribution. The planned registered address is 1209 Orange Street, Wilmington, DE 19801 (c/o registered agent). The timing of incorporation will be coordinated with the overall transaction timeline.
•  Board Approvals: The proposed spin-off will require approval by the Board of Directors of Veldran Industries Holdings, Inc. The Veldran Board will need to consider and approve, among other things, the Separation Agreement, the Tax Sharing Agreement, the Distribution, and the delivery of the Calderwood & Harkness tax opinion.
•  Lender Consent Process: The spin-off may constitute an event requiring consent under the credit agreement governing the $1.1 billion First Lien Term Loan B (Ashfield National Bank, N.A., as administrative agent; contact: Margaret Tsao, MD, Leveraged Finance) and/or under the indenture governing the $450 million 6.250% Senior Unsecured Notes due 2027 (Colton Trust Company, as indenture trustee). The lender consent process will be managed by Whitfield & Gage and Thornapple McCord, with Calderwood & Harkness analyzing the tax implications of any required refinancing, prepayment, or restructuring of indebtedness in connection with the spin-off.
6.2 Tax Opinion Delivery Target
Calderwood & Harkness's target is to deliver the final "should" level tax opinion letter in advance of the Veldran Board's approval of the Distribution. Based on the currently anticipated Q4 2022 distribution date, the target for final opinion delivery is late Q3 2022 (i.e., September 2022).
Delivery of the final tax opinion is contingent upon the completion of the following conditions precedent:
•  (a) Completion of all tax diligence, including receipt and analysis of all requested information and documentation;
•  (b) Execution of the Representation Letter by the designated signatories (Jonathan Caldecott, Rita Subramanian, and Diana Fenn);
•  (c) Satisfactory resolution of the open issues identified in this agenda, including in particular the business purpose articulation, the Section 355(e) factual analysis, and the Kestrel ATB documentation; and
•  (d) Finalization of the transaction structure and related documentation, to the extent necessary for the opinion analysis.
A draft of the opinion letter will be circulated to the client team prior to finalization, to allow for review and comment. Calderwood & Harkness anticipates that the first draft will be available in late July or early August 2022, allowing approximately six to eight weeks for the review, comment, and finalization process before the late Q3 2022 delivery target.
6.3 Key Dependencies and Risks to Timeline
The following are the principal dependencies and risks that could affect the ability to achieve the Q4 2022 distribution timeline:
•  Business Purpose Articulation. The corporate business purpose for the spin-off must be clearly articulated, documented, and supported by concrete operational and strategic justifications. Failure to develop a persuasive business purpose narrative could delay or impair the ability of Calderwood & Harkness to render the tax opinion.
•  Section 355(e) Factual Record. The factual record supporting the conclusion that the September 2019 HPE Fund IV acquisition and the proposed spin-off are not part of a "plan or series of related transactions" must be thoroughly developed. This requires cooperation from Harrowgate, Veldran management, and potentially the review of contemporaneous internal records. Delays in developing this record could delay the opinion.
•  Kestrel ATB Documentation. The founding, operating history, and tax records of Kestrel Precision Controls, Inc. must be obtained and analyzed to confirm that the Section 355(b)(2)(D) safe harbor is available. Any adverse or incomplete factual record concerning Kestrel's operating history could present a material obstacle.
•  Lender Consent Negotiations. The lender consent process with Ashfield National Bank and Colton Trust Company may affect the timeline and the capital structure of the post-spin entities, with potential tax consequences. If lender consent requires a significant refinancing or restructuring of indebtedness, additional tax analysis may be required.
•  Market Conditions. Market conditions may affect Harrowgate's decision on the timing of the distribution. Changes in market conditions, industry dynamics, or the macroeconomic environment could lead the parties to accelerate, delay, or reconsider the