1003-00005 · Veldran Industries Holdings · Diligence

initial-tax-diligence-request-list.docx DOCUMENT Bankruptcy & Restructuring

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

Telephone: (212) 558-4000 Facsimile: (212) 558-3588

PRIVILEGED AND CONFIDENTIAL ATTORNEY WORK PRODUCT

April 25, 2022

Re: Proposed Tax-Free Spin-Off of Meridian Flow Technologies, Inc. from Veldran Industries Holdings, Inc. — Initial Tax Diligence Information Request List

Engagement No.: 1003-00005 Matter Code: HRW-SPIN-001

Prepared by: Garrett Simmons, Lead Associate, Tax Department; Leila Nazari, Associate, Tax Department

Reviewed by: Leonard Cross, Partner, Tax Department

Circulated to:

Philip Crundell, Esq. General Counsel Veldran Industries Holdings, Inc. 2400 Commerce Park Drive, Suite 500 Charlotte, NC 28217

Rita Subramanian Chief Financial Officer Veldran Industries Holdings, Inc. 2400 Commerce Park Drive, Suite 500 Charlotte, NC 28217

Priya Chandrasekar, Esq. Partner Whitfield & Gage LLP 51 West 52nd Street New York, NY 10019

Ross Halverson, Esq. Counsel Whitfield & Gage LLP 51 West 52nd Street New York, NY 10019

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

cc: Leonard Cross, Partner, Tax Department, Calderwood & Harkness LLP; Sylvia Hartwell, Counsel, Tax Department, Calderwood & Harkness LLP

INTRODUCTORY STATEMENT

Calderwood & Harkness LLP has been engaged by Harrowgate Private Equity Fund IV, L.P. (EIN 84-3291067) ("HPE Fund IV") to render a "should" level tax opinion under Sections 355 and 368(a)(1)(D) of the Internal Revenue Code of 1986, as amended (the "Code" or "IRC"), in connection with the proposed pro rata distribution (the "Distribution") by Veldran Industries Holdings, Inc. (EIN 86-1920347) ("Veldran" or "Distributing") of 100% of the issued and outstanding common stock of Meridian Flow Technologies, Inc. ("Meridian," "SpinCo," or "Controlled") to the shareholders of Veldran. The Distribution is intended to qualify as a tax-free spin-off under IRC § 355 and, to the extent applicable, as a reorganization under IRC § 368(a)(1)(D) (collectively, the "Transaction" or the "Proposed Spin-Off").

This initial information request list (this "Request List") sets forth the documents and information required by Calderwood & Harkness LLP to conduct the tax diligence necessary for the preparation of (a) the "should" level tax opinion letter to be delivered in connection with the Transaction, (b) the supporting analysis memoranda addressing the requirements of IRC §§ 355, 355(b), 355(d), 355(e), 368(a)(1)(D), and related provisions, and (c) the representation letter to be executed by authorized officers of Veldran and, as applicable, Meridian, in support of the opinion.

Unless otherwise specified herein, all references to "Veldran" include Veldran Industries Holdings, Inc. and all of its direct and indirect subsidiaries. References to the "Precision Flow Division," "PFS Division," or "Precision Flow Solutions Division" mean the Precision Flow Solutions Division of Veldran, which is to be contributed to Meridian in connection with the Transaction. References to the "Engineered Coatings Division" or "EC Division" mean the Engineered Coatings Division of Veldran, which will remain with Veldran following the Distribution. All references to sections of the "Code" or "IRC" are to the Internal Revenue Code of 1986, as amended, and all references to Treasury Regulations are to the regulations promulgated thereunder, in each case as in effect on the date hereof unless otherwise noted.

We request that all documents and information responsive to this Request List be provided electronically via the designated secure virtual data room maintained by Thackeray Solutions (Project Meridian — Room ID: VDR-MER-2022). Documents should be uploaded in native format (e.g., Microsoft Word, Excel) where available, or as text-searchable PDF files. Please use the folder structure and numbering convention corresponding to the request numbers set forth below.

Please direct all questions regarding the scope, specificity, or prioritization of any request to Garrett Simmons (gsimmons@calderwoodharkness.com; direct dial: (212) 558-4217) or Leila Nazari (lnazari@calderwoodharkness.com; direct dial: (212) 558-4305) at Calderwood & Harkness LLP.

Target completion dates for responses are as follows:

• Priority Items (marked with an asterisk () below): Responses requested by May 10, 2022*.

• All Remaining Items: Responses requested by May 20, 2022.

We anticipate issuing one or more supplemental information request lists as our review of the materials progresses and as the Transaction structure is further refined. This Request List supersedes any prior informal requests and should be treated as the definitive initial request list for purposes of the engagement.

I. ORGANIZATIONAL AND CORPORATE DOCUMENTS

Request I.1. Certificate of Incorporation (as amended and restated) of Veldran Industries Holdings, Inc., a Delaware corporation incorporated on March 14, 2019. Please include all certificates of amendment, certificates of correction, and any restated certificates of incorporation filed with the Secretary of State of the State of Delaware since the date of original incorporation.

Request I.2. Bylaws (as amended) of Veldran Industries Holdings, Inc., including all amendments and restatements adopted since incorporation on March 14, 2019 through the present date.

Request I.3. Certificate of Formation and Operating Agreement (as amended) of Harrowgate Veldran Holdings LLC, a Delaware limited liability company (EIN 86-1483920). Harrowgate Veldran Holdings LLC is the wholly owned subsidiary of HPE Fund IV through which HPE Fund IV's 62.4% equity stake in Veldran is held. Please include any amendments to the Certificate of Formation filed with the Secretary of State of the State of Delaware and all amendments to the Operating Agreement since formation.

Request I.4. A comprehensive organizational chart showing all direct and indirect subsidiaries of Veldran Industries Holdings, Inc. as of the most recent practicable date. The organizational chart should include, for each entity, the following information:

(a) Legal name of the entity;

(b) Jurisdiction of organization (state and country, as applicable);

(c) Entity type (e.g., C corporation, S corporation, limited liability company, limited partnership, general partnership, disregarded entity for federal income tax purposes, etc.);

(d) Federal entity classification for U.S. federal income tax purposes (e.g., corporation, partnership, disregarded entity);

(e) Ownership percentages (both direct and indirect), including identification of the immediate parent entity;

(f) Employer Identification Number (EIN) where applicable;

(g) Date of formation or incorporation; and

(h) A notation indicating whether the entity is a member of the Veldran consolidated group for federal income tax purposes.

The organizational chart should specifically identify the following entities and their respective positions within the corporate structure:

• Kestrel Precision Controls, Inc. (Georgia corporation, EIN 58-2847193, founded February 12, 2003);

• All entities comprising or operating within the Precision Flow Solutions Division, regardless of materiality;

• All entities comprising or operating within the Engineered Coatings Division, regardless of materiality; and

• Any dormant, inactive, or recently dissolved entities that were direct or indirect subsidiaries of Veldran at any time since March 14, 2019.

Request I.5. Certificates of incorporation, certificates of formation, operating agreements, limited partnership agreements, and other governing documents for each material subsidiary of Veldran, including without limitation Kestrel Precision Controls, Inc. For purposes of this request, "material subsidiary" means any subsidiary that (a) had total assets in excess of $5,000,000 as of the most recent fiscal year-end, (b) had revenue in excess of $10,000,000 for the most recent fiscal year, or (c) holds material intellectual property, real property, or contracts that will be allocated between the Engineered Coatings Division and the Precision Flow Solutions Division in connection with the Transaction. Please include all amendments and restatements to such governing documents.

Request I.6. Copies of any entity classification elections (IRS Form 8832, "Entity Classification Election") filed by or on behalf of any Veldran subsidiary, including Kestrel Precision Controls, Inc., for the five-year period ending on the anticipated Distribution date. If any Veldran subsidiary made an initial classification election at the time of formation, or if any election was made to change an entity's classification during the relevant period, please provide the complete Form 8832 as filed, together with any IRS acknowledgment or correspondence relating thereto. To the extent that any subsidiary is classified other than its default classification under Treasury Regulation § 301.7701-3, please identify such entity and provide a brief explanation of its classification history.

Request I.7. Good standing certificates (or certificates of existence, as applicable) and certificates of qualification to do business (or certificates of authority) for Veldran Industries Holdings, Inc. and each material subsidiary (as defined in Request I.5 above) in each state and jurisdiction in which they are currently qualified to do business. If current certificates are not available, please provide the most recently obtained certificates and confirm whether updated certificates will be procured prior to the Distribution date.

Request I.8. Copies of any amendments to the organizational documents of Veldran or any subsidiary that are (a) contemplated in connection with the Proposed Spin-Off or related transactions, or (b) were adopted at any time since September 20, 2019 (the date of HPE Fund IV's acquisition of control of Veldran). This request includes, without limitation, any charter amendments relating to authorized share capital, any amendments to operating agreements relating to governance or economic rights, and any new organizational documents prepared for Meridian Flow Technologies, Inc. (SpinCo) in connection with the Transaction.

II. FEDERAL AND STATE INCOME TAX RETURNS AND ELECTIONS

Request II.1.* Federal income tax returns (IRS Form 1120, "U.S. Corporation Income Tax Return") for Veldran Industries Holdings, Inc. for tax years 2017, 2018, 2019, 2020, and 2021, including all schedules (e.g., Schedule D, Schedule M-1, Schedule M-3, Schedule UTP, etc.), attachments, elections, and supporting workpapers. To the extent Veldran filed consolidated federal income tax returns (IRS Form 1120) for any of these tax years, please provide the complete consolidated return, including the separate company computations for each member of the consolidated group, intercompany transaction schedules, and the consolidated group's excess loss account and investment adjustment computations under Treasury Regulation §§ 1.1502-32 and 1.1502-19.

Request II.2.* Federal income tax returns for Kestrel Precision Controls, Inc. (EIN 58-2847193) for tax years 2017, 2018, 2019, 2020, and 2021, or for such tax years as Kestrel filed separate federal income tax returns prior to its inclusion in the Veldran consolidated group. If Kestrel was included as a member of the Veldran consolidated group for any of these tax years, please identify the first tax year of inclusion and provide Kestrel's separate company computations for each year of inclusion. If Kestrel was a member of a different consolidated group (e.g., a Rennick Industrial Partners–affiliated group) prior to the June 7, 2019 acquisition, please so indicate and provide the separate company computations for the relevant pre-acquisition tax years.

Request II.3. State and local income tax returns, franchise tax returns, and gross receipts tax returns for Veldran and each material subsidiary for tax years 2017 through 2021 in each jurisdiction in which returns were filed. We understand that Veldran and its subsidiaries file state income tax returns in, at a minimum, Delaware, North Carolina, and Georgia. Please identify all other material filing jurisdictions and provide complete returns, including any combined, consolidated, or unitary group returns, for each such jurisdiction. For purposes of this request, a jurisdiction is "material" if the aggregate state and local income or franchise tax liability in such jurisdiction exceeded $100,000 in any single tax year during the relevant period.

Request II.4. Copies of any IRS Form 1120 consolidated return elections, including the initial election to file as a consolidated group (or the deemed election resulting from filing) and identification of all members of the Veldran consolidated group for each tax year since March 14, 2019 (the date of Veldran's incorporation). Please also provide any Forms 1122 ("Authorization and Consent of Subsidiary Corporation to Be Included in a Consolidated Income Tax Return") executed by subsidiaries joining the consolidated group, and any Forms 851 ("Affiliations Schedule") for each tax year.

Request II.5. All tax elections filed by or on behalf of Veldran or any subsidiary during tax years 2017 through 2021, including but not limited to the following:

(a) Any elections under IRC § 338 (including IRC § 338(g) and IRC § 338(h)(10)) in connection with any acquisition, including, without limitation, the June 7, 2019 acquisition of Kestrel Precision Controls, Inc.;

(b) Any elections under IRC § 336(e) in connection with any disposition of subsidiary stock;

(c) Any applications for changes in accounting method (IRS Form 3115, "Application for Change in Accounting Method"), including the specific method change requested, the Code section and regulation under which the change was made, and any IRC § 481(a) adjustment resulting therefrom;

(d) Any elections under IRC § 168(k) relating to bonus depreciation, including any election out of bonus depreciation for any asset class or tax year, and any elections under IRC § 179 relating to the expensing of depreciable business assets;

(e) Any elections relating to the treatment of intercompany transactions under Treasury Regulation § 1.1502-13 or any other provision of the consolidated return regulations;

(f) Any elections under IRC § 172 relating to net operating loss carryback or carryforward periods;

(g) Any elections under IRC § 59(e) to amortize certain tax preference items; and

(h) Any other elections that materially affected the computation of taxable income, tax liability, or tax attributes for Veldran or any subsidiary during the relevant period.

Request II.6. Extension requests (IRS Form 7004, "Application for Automatic Extension of Time to File Certain Business Income Tax, Information, and Other Returns") filed by or on behalf of Veldran and its subsidiaries for tax years 2017 through 2021. Please also provide copies of any estimated tax payment schedules, IRS Form 1120-W workpapers, and records of estimated tax payments made by Veldran and its subsidiaries for such tax years.

Request II.7. Any private letter rulings (PLRs), technical advice memoranda (TAMs), closing agreements (IRS Form 906), pre-filing agreements, determination letters, or other written communications with the Internal Revenue Service or any state or local taxing authority relating to Veldran or any subsidiary, at any time. This request encompasses any ruling requests submitted but not yet acted upon by the IRS or any state or local authority, as well as any requests that were withdrawn or abandoned.

Request II.8. All IRS audit reports, revenue agent reports (RARs), notices of deficiency (90-day letters), notices of proposed adjustment (30-day letters), information document requests (IDRs), and any other correspondence relating to IRS or state tax audits, examinations, or investigations of Veldran or any subsidiary for any open tax year. Please include copies of any protests or responses filed by Veldran, any IRS Appeals conference memoranda or settlement documents, and any Tax Court petitions or other judicial proceedings.

Request II.9. A current status report regarding any pending or threatened tax audits, examinations, disputes, or claims with any federal, state, or local taxing authority involving Veldran or any subsidiary. The status report should include, for each pending or threatened matter: (a) the taxing authority involved, (b) the tax year(s) at issue, (c) the nature of the issues under examination, (d) the amount of any proposed adjustments or assessed deficiencies, (e) the current procedural status, and (f) any reserves or accruals established with respect to such matter.

Request II.10. Tax provision workpapers prepared under ASC 740 (Accounting for Income Taxes) for Veldran for fiscal years ended FY2019, FY2020, and FY2021. Please include the following components:

(a) Current and deferred federal and state income tax provision calculations;

(b) Effective tax rate reconciliation;

(d) Uncertain tax position (UTP) schedules prepared under ASC 740-10-25 (formerly FIN 48), including a detailed description of each UTP, the tax years to which each UTP relates, the amount of unrecognized tax benefits, and the expected timing and resolution of each position;

(e) Any tax reserve or contingency analyses; and

(f) Any memoranda or analyses prepared by or in conjunction with Pemberton Rathbone LLP (Veldran's independent auditors and tax-return preparers; One PPG Place, Suite 1600, Pittsburgh, PA 15222; contacts: Harold Weiss, Partner, Tax; Lisa Engstrom, Partner, Audit & Assurance) in connection with the foregoing.

III. KESTREL PRECISION CONTROLS ACQUISITION DOCUMENTS

Request III.1.* Stock Purchase Agreement (or Asset Purchase Agreement, as applicable) dated on or about June 7, 2019 between Veldran Industries Holdings, Inc. (or its designated acquisition subsidiary), as acquiror, and Rennick Industrial Partners Fund II LP (EIN 82-3017564) (or its designated sale vehicle), as seller, for the acquisition of 100% of the issued and outstanding stock of Kestrel Precision Controls, Inc. for an aggregate purchase price of $295,000,000 in cash (the "Kestrel Acquisition"). Please include all exhibits, schedules, disclosure letters, and amendments to the purchase agreement.

Request III.2. All ancillary agreements executed in connection with the Kestrel Acquisition, including without limitation:

(a) Tax indemnification or tax matters agreements between Veldran and Rennick Industrial Partners Fund II LP (or any affiliated entity of Rennick);

(b) Escrow agreements (including the identity of the escrow agent, the amount of escrowed funds, and the status of any pending or resolved claims against the escrow);

(d) Non-competition and non-solicitation agreements;

(e) Employment agreements or management retention agreements entered into in connection with the closing of the Kestrel Acquisition;

(f) intellectual property assignment or license agreements;

(g) Any consulting agreements with Rennick Industrial Partners or its principals; and

(h) Any side letters or other agreements not otherwise described above that were executed in connection with the Kestrel Acquisition.

Request III.3.* Documentation regarding any IRC § 338 election (including IRC § 338(g) or IRC § 338(h)(10)) made, or any decision not to make a § 338 election, in connection with the Kestrel Acquisition. This request includes:

(a) Any IRS Forms 8023 ("Elections Under Section 338 for Corporations Making Qualified Stock Purchases") filed in connection with the Kestrel Acquisition;

(b) Any IRS Forms 8883 ("Asset Allocation Statement Under Section 338") filed in connection with the Kestrel Acquisition;

(c) Any internal analysis, memorandum, or correspondence (whether prepared by Pemberton Rathbone LLP, Whitfield & Gage LLP, or other advisors) evaluating the tax consequences of making or not making a § 338 election; and

(d) If a § 338 election was made, the deemed asset sale computation, including the aggregate deemed sale price (ADSP), adjusted grossed-up basis (AGUB), and the allocation of AGUB among asset classes under IRC § 338(b)(5) and Treasury Regulation § 1.338-6.

Request III.4. Purchase price allocation prepared under IRC § 1060 and ASC 805 (Business Combinations) for the Kestrel Acquisition, including the allocation of the $295,000,000 purchase price among the applicable asset classes (Classes I through VII under Treasury Regulation § 1.338-6, as applicable, or the corresponding ASC 805 fair value categories). Please include all supporting valuation reports, appraisals, and workpapers underlying the purchase price allocation, as well as any IRS Forms 8594 ("Asset Acquisition Statement Under Section 1060") filed in connection with the acquisition.

Request III.5. Tax basis step-up computations for the assets of Kestrel Precision Controls, Inc. resulting from the Kestrel Acquisition, if any. If a § 338 election was not made, please confirm whether the acquisition was treated as a stock acquisition for tax purposes and provide the computation of Veldran's outside tax basis in the Kestrel stock. If a § 338 election was made, please provide the computation of the inside tax basis of each material asset of Kestrel following the deemed asset acquisition.

Request III.6. Historical audited and unaudited financial statements and federal and state income tax returns for Kestrel Precision Controls, Inc. for tax years 2017 and 2018 (i.e., the two full tax years immediately preceding the Kestrel Acquisition). These pre-acquisition financial and tax records are required to establish the five-year active trade or business history mandated by IRC § 355(b)(2)(B) and (D). We note that Kestrel was founded on February 12, 2003, and accordingly has been in existence for approximately nineteen years. To the extent that Kestrel's pre-acquisition tax returns were filed as part of a consolidated group with a Rennick-affiliated entity, please provide Kestrel's separate company computations for the relevant periods.

Request III.7. A narrative description of any changes to Kestrel Precision Controls, Inc.'s business operations, product lines, customers, manufacturing facilities, intellectual property, or organizational structure between its founding on February 12, 2003 and the Kestrel Acquisition closing date of June 7, 2019, and from the acquisition date through the present. This narrative should specifically address:

(a) Whether Kestrel at all times conducted the same general line of business (precision flow control and measurement instrumentation, or similar);

(b) Whether Kestrel acquired or disposed of any trade or business (or a substantial portion thereof) during the relevant periods;

(c) Whether Kestrel experienced any ownership changes (other than the June 7, 2019 acquisition by Veldran) during the relevant periods; and

(d) Whether Kestrel's operations were integrated with or subsumed into the existing Precision Flow Solutions Division operations following the acquisition, and if so, the nature and extent of such integration.

Request III.8. Any due diligence reports, quality of earnings analyses, tax due diligence memoranda, environmental due diligence reports, or other diligence materials prepared in connection with the Kestrel Acquisition, whether prepared by Pemberton Rathbone LLP, Whitfield & Gage LLP, or any other advisors retained by Veldran or HPE Fund IV. We are particularly interested in any tax due diligence memorandum identifying material tax exposures, historical tax positions, or structural tax considerations associated with the Kestrel business.

IV. HARROWGATE ACQUISITION OF VELDRAN (SEPTEMBER 2019)

Request IV.1.* Transaction documents relating to HPE Fund IV's acquisition of 62.4% of Veldran common stock (46,488,000 shares at $40.00 per share, for total consideration of $1,859,520,000) on September 20, 2019 (the "HPE Acquisition"), including without limitation:

(a) The tender offer statement on Schedule TO and all related offering documents, amendments, and supplements filed with the Securities and Exchange Commission;

(b) The merger agreement or other definitive agreement pursuant to which HPE Fund IV acquired control of Veldran, including the squeeze-out or back-end merger of the remaining public shares held by Greystone Partners Fund III LP (EIN 81-2683910) and other pre-transaction shareholders;

(c) The co-investment agreement between HPE Fund IV (or Harrowgate Veldran Holdings LLC) and Prescott Capital Management LP (EIN 13-4928371) relating to Prescott's initial acquisition of 15,500,000 shares of Veldran common stock at $40.00 per share (for aggregate consideration of $620,000,000), including any side letters, equity commitment letters, or other ancillary agreements between Harrowgate and Prescott;

(d) Any stockholders' agreement, voting agreement, or governance agreement entered into among HPE Fund IV (or Harrowgate Veldran Holdings LLC), Prescott Capital Management LP, and/or management stockholders in connection with the HPE Acquisition;

(e) Any debt commitment letters or financing agreements obtained in connection with the HPE Acquisition; and

(f) Any management equity rollover or reinvestment agreements executed by Veldran management in connection with the HPE Acquisition.

Request IV.2. Any discussions, presentations, board minutes, committee minutes, or internal memoranda from the period prior to September 20, 2019 relating to a potential spin-off, separation, split-off, IPO, sale, or divestiture of the Precision Flow Solutions Division, the Engineered Coatings Division, or any other business segment of Veldran. This request is critical for the analysis under IRC § 355(e) as to whether the Distribution 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 in either Distributing or Controlled. Any pre-acquisition discussions regarding a potential separation could bear on whether the HPE Acquisition and the Distribution constitute component steps of a single plan within the meaning of Treasury Regulation § 1.355-7.

Request IV.3. Any communications (including emails, letters, memoranda, presentations, and meeting notes) between Harrowgate Capital Advisors LLC (or its principals, including Marcus Adler, Managing Partner; Diana Fenn, Partner; Tobias Rourke, Partner; and Christine Yeung, General Counsel) and Veldran management, the Veldran Board of Directors, Greystone Partners Fund III LP, or any other parties regarding a potential spin-off, separation, IPO, sale, or other restructuring of any Veldran business segment, at any time prior to or contemporaneous with the September 20, 2019 HPE Acquisition. This request extends to all communications from the earliest point of contact between Harrowgate and Veldran through the closing date of the HPE Acquisition.

Request IV.4. Any investment committee memoranda, deal screening memoranda, term sheets, indicative offer letters, or presentations prepared by Harrowgate Capital Advisors LLC (or any of its affiliated entities) in connection with the decision to acquire Veldran, to the extent such documents reference, contemplate, or analyze a potential spin-off, separation, IPO, sale, or other restructuring of the Precision Flow Solutions Division, the Engineered Coatings Division, or any other Veldran business segment. We recognize that such documents may be subject to claims of privilege and confidentiality; please consult with counsel regarding the appropriate treatment of such materials in connection with this request. The relevance of these materials to the § 355(e) analysis cannot be overstated.

Request IV.5. Documentation regarding the Prescott Capital Management LP secondary offering or disposition in which Prescott sold 4,474,000 shares of Veldran common stock (reducing its ownership from 15,500,000 shares to 11,026,000 shares, representing approximately 14.8% of the outstanding common stock), including:

(a) The date of such secondary offering or disposition;

(b) The per-share sale price and aggregate proceeds;

(c) The identity of the purchaser(s) (including whether any shares were acquired by HPE Fund IV, Harrowgate Veldran Holdings LLC, management stockholders, or third parties);

(d) Any registration statement or prospectus supplement filed in connection with the offering;

(e) Any lock-up agreements, standstill agreements, or other contractual restrictions on Prescott's ability to sell Veldran shares that were modified or waived in connection with the offering; and

(f) Any related agreements between Prescott and Harrowgate Capital Advisors LLC or HPE Fund IV.

V. FIVE-YEAR ACTIVE TRADE OR BUSINESS HISTORY

IRC § 355(b) requires that, immediately after the Distribution, both Distributing (Veldran, retaining the Engineered Coatings Division) and Controlled (Meridian, holding the Precision Flow Solutions Division) must be engaged in the active conduct of a trade or business that has been actively conducted throughout the five-year period ending on the date of the Distribution, and that was not acquired in a transaction in which gain or loss was recognized (in whole or in part) during such five-year period. The following requests are designed to enable our analysis of the five-year active trade or business requirement.

Request V.1. For the Engineered Coatings Division* (to remain with Veldran post-Distribution; FY2021 revenue: approximately $1,520,000,000; FY2021 EBITDA: approximately $285,000,000):

(a) A detailed narrative description of the active conduct of the trade or business of the Engineered Coatings Division for each of the five years preceding the anticipated Distribution date (approximately Q4 2017 through Q4 2022), including a description of the products manufactured, services provided, customers served, and markets addressed;

(b) Identification of any acquisitions, dispositions, joint ventures, or other material changes in the business of the Engineered Coatings Division during the five-year period, including the date, counterparty, consideration, and a description of the business or assets acquired or disposed of;

(d) Revenue and EBITDA for the Engineered Coatings Division by year for the five-year period (FY2017, FY2018, FY2019, FY2020, and FY2021), with estimates for FY2022 to the extent available;

(e) Identification of all legal entities through which the Engineered Coatings Division operates or has operated during the five-year period, including the jurisdiction of organization and the federal income tax classification of each such entity; and

(f) Identification of any material intellectual property, real property, or other assets used in the Engineered Coatings Division that are owned by an entity outside the division (including corporate-level entities or PFS Division entities), and any agreements governing the use of such assets.

Request V.2. For the Precision Flow Solutions Division* (to be contributed to Meridian / SpinCo; FY2021 revenue: approximately $820,000,000; FY2021 EBITDA: approximately $133,000,000):

(a) A detailed narrative description of the active conduct of the trade or business of the Precision Flow Solutions Division for each of the five years preceding the anticipated Distribution date, including a description of the products manufactured, services provided, customers served, and markets addressed;

(b) Specific identification of the portion of the PFS Division's business attributable to the Kestrel Precision Controls, Inc. operations (which we understand represent approximately 35% of PFS Division FY2021 revenue, i.e., approximately $287,000,000 of $820,000,000). Please describe how the Kestrel operations have been integrated (or maintained as distinct) within the broader PFS Division since the June 7, 2019 Kestrel Acquisition;

(c) Identification of any acquisitions, dispositions, joint ventures, or other material changes in the business of the Precision Flow Solutions Division during the five-year period, including, without limitation, the June 7, 2019 acquisition of Kestrel Precision Controls, Inc., with the date, counterparty, consideration, and a description of the business or assets acquired or disposed of in each case;

(d) Employee headcount by year for the five-year period, broken out between (i) total PFS Division headcount and (ii) Kestrel Precision Controls, Inc. headcount (separately identified);

(e) Revenue and EBITDA by year for the five-year period (FY2017, FY2018, FY2019, FY2020, and FY2021), with estimates for FY2022 to the extent available, broken down between (i) legacy PFS Division operations (i.e., the PFS Division excluding Kestrel) and (ii) Kestrel Precision Controls operations;

(f) Identification of all legal entities through which the Precision Flow Solutions Division operates or has operated during the five-year period, including the jurisdiction of organization and the federal income tax classification of each such entity; and

(g) Identification of any material intellectual property, real property, or other assets used in the PFS Division that are owned by an entity outside the division (including corporate-level entities or EC Division entities), and any agreements governing the use of such assets.

Request V.3. For each of the Engineered Coatings Division and the Precision Flow Solutions Division, identification of any significant expansion into new lines of business, new geographic markets (domestic or international), or new product categories during the five-year period, including:

(a) A description of each such expansion;

(b) The approximate date of commencement;

(d) If the expansion involved the acquisition of a trade or business (or a substantial portion thereof), whether such acquisition was effected in a transaction in which gain or loss was recognized (in whole or in part) by the seller. This information is directly relevant to the limitation on recently acquired businesses under IRC § 355(b)(2)(C), which generally provides that a trade or business shall not be treated as meeting the five-year active conduct requirement if it was acquired by Distributing or Controlled in a taxable transaction during the five-year period; and

(e) The consideration paid for any such acquisition and the form of consideration (cash, stock, assumption of liabilities, etc.).

Request V.4. For each of the Engineered Coatings Division and the Precision Flow Solutions Division, confirmation of whether the trade or business was at all times during the five-year period conducted directly by Veldran or its direct or indirect subsidiaries (as opposed to through joint ventures, minority-owned entities, licensing arrangements, management contracts, franchise arrangements, or other indirect arrangements). If any portion of either division's operations were conducted through such indirect arrangements at any time during the five-year period, please provide a description of the arrangement, the parties involved, and the period during which the arrangement was in effect.

VI. INTERCOMPANY AGREEMENTS AND SHARED SERVICES

Request VI.1. Copies of all intercompany agreements, contracts, and arrangements between the Engineered Coatings Division (or any entity within the EC Division) and the Precision Flow Solutions Division (or any entity within the PFS Division), including without limitation:

(a) Intercompany services agreements (including shared services, IT support, human resources, finance and accounting, procurement, and similar corporate functions);

(b) Shared facilities agreements, lease agreements, sublease agreements, or co-tenancy arrangements under which facilities are shared between the two divisions;

(c) intellectual property licensing agreements (including licenses to use trademarks, trade names, patents, know-how, and other proprietary technology);

(d) Supply agreements, toll manufacturing agreements, or other product or material supply arrangements;

(e) Management fee agreements, cost-allocation agreements, or overhead allocation arrangements; and

(f) Any other intercompany agreements or arrangements not described above that involve the transfer of value between the two divisions.

Request VI.2. A description of shared corporate overhead, administrative services, and shared personnel between the Engineered Coatings Division and the Precision Flow Solutions Division, including:

(a) A description of each shared function or service (e.g., finance, legal, human resources, IT, treasury, tax, real estate, environmental health and safety, etc.);

(b) The allocation methodology employed to allocate costs among the two divisions (e.g., headcount-based, revenue-based, usage-based, or other methodologies);

(d) Any plans for transitioning shared services in connection with the proposed separation, including anticipated transition services agreements and their expected duration and cost.

Request VI.3. Any transfer pricing documentation or studies relating to intercompany transactions between Veldran entities, including any contemporaneous documentation prepared under IRC § 6662(e) and the regulations thereunder, any transfer pricing analyses prepared by Pemberton Rathbone LLP or other advisors, and any advance pricing agreements (APAs) in effect or under negotiation with the IRS or any foreign tax authority. This request extends to both domestic and cross-border intercompany transactions.

Request VI.4. A description of any intercompany indebtedness, including intercompany loans, promissory notes, revolving credit facilities, cash-management or cash-pooling arrangements, and advances between Veldran entities. For each intercompany obligation, please provide:

(a) The borrower and lender;

(b) The original and outstanding principal amount;

(d) The maturity date;

(e) Whether the obligation is documented by a written instrument;

(f) Whether interest has been accrued and/or paid; and

(g) Any plans for the treatment of such intercompany indebtedness in connection with the proposed separation (e.g., repayment, contribution, distribution, or assumption).

VII. CAPITAL STRUCTURE AND DEBT DOCUMENTS

Request VII.1.* Credit Agreement governing the First Lien Term Loan B (aggregate principal amount: $1,100,000,000) for which Ashfield National Bank, N.A. (100 Federal Street, Boston, MA 02110; contact: Margaret Tsao, Managing Director, Leveraged Finance) serves as administrative agent. Please provide the complete Credit Agreement, including all amendments, restatements, amendments and restatements, supplements, joinder agreements, incremental facility documentation, and any other modifications since the original execution date. Please also provide any related security agreements, pledge agreements, guaranty agreements, and collateral descriptions.

Request VII.2.* Indenture governing the 6.250% Senior Unsecured Notes due 2027 (aggregate principal amount: $450,000,000) for which Colton Trust Company (10 South LaSalle Street, Chicago, IL 60603) serves as trustee. Please provide the base indenture and all supplemental indentures, together with any related registration rights agreements, exchange offer documentation, and offering memoranda or prospectuses.

Request VII.3. Any intercreditor agreements between the first lien lender group (under the Term Loan B facility) and the holders of the 6.250% Senior Unsecured Notes due 2027, including any pari passu intercreditor agreements, junior lien intercreditor agreements, or other agreements governing the relative rights and priorities of the various creditor constituencies.

Request VII.4. A comprehensive schedule of all outstanding indebtedness of Veldran and its subsidiaries as of the most recent practicable date, including for each obligation:

(a) The type of indebtedness (term loan, revolving credit facility, senior unsecured notes, subordinated notes, capital leases, equipment financing, etc.);

(b) The borrower and any co-borrowers;

(d) The applicable interest rate (and whether fixed or floating) and any applicable benchmark (e.g., LIBOR, SOFR);

(e) The maturity date;

(f) The identity of the administrative agent, trustee, or other representative;

(g) A list of all subsidiary guarantors;

(h) A description of the collateral (if any);

(i) A summary of any material restrictive covenants, including financial maintenance covenants and negative covenants restricting dispositions, dividends, and distributions; and

(j) Whether the proposed Transaction would require consent, waiver, or notice under the terms of the applicable debt instrument.

Request VII.5. Any analysis, correspondence, or workpapers relating to original issue discount (OID) positions on any outstanding indebtedness of Veldran or its subsidiaries, including computations of OID accruals under IRC §§ 1271–1275 and any applicable market discount or bond premium computations.

Request VII.6. Copies of any debt incurrence, consent, or waiver requests submitted to Ashfield National Bank, N.A. or Colton Trust Company in connection with any prior transaction (including the Kestrel Acquisition or any subsequent refinancing or amendment), and any precedent consent or waiver documentation obtained from such parties. This information will assist in evaluating the feasibility and timeline for obtaining any consents or waivers required in connection with the proposed Transaction.

VIII. EQUITY CAPITALIZATION AND SHAREHOLDER RECORDS

Request VIII.1.* A complete capitalization table for Veldran Industries Holdings, Inc. as of the most recent practicable date. Based on our current understanding, the capitalization of Veldran is as follows, and we request confirmation or correction:

The capitalization table should also include any authorized but unissued preferred stock, any shares reserved for issuance under equity incentive plans, and any shares held in treasury.

Request VIII.2. All equity incentive plans, stock option plans, restricted stock unit (RSU) plans, profits interest plans, phantom equity plans, stock appreciation rights plans, and other equity compensation arrangements of Veldran, including:

(a) The plan documents (as amended and restated);

(b) Form award agreements for each type of award (stock options, RSUs, restricted stock, profits interests, etc.);

(c) A schedule of all outstanding awards as of the most recent practicable date, specifying for each award: the grantee, the type of award, the grant date, the number of shares subject to the award, the exercise or base price (for options), the vesting schedule, the vested and unvested portions, and the expiration date;

(d) The total number of shares of common stock authorized, reserved, and remaining available for future issuance under each plan; and

(e) Any plan amendments or modifications adopted or contemplated in connection with the proposed Transaction.

Request VIII.3. Any stockholders' agreements, registration rights agreements, voting agreements, investor rights agreements, right of first refusal agreements, co-sale agreements, tag-along/drag-along agreements, or other agreements among stockholders of Veldran (including agreements among Harrowgate Veldran Holdings LLC, Prescott Capital Management LP, management stockholders, and any other parties). Please include any amendments, waivers, or side letters to such agreements.

Request VIII.4. Records of all stock issuances, repurchases, redemptions, transfers, conversions, and cancellations of Veldran common stock (or any other class of Veldran equity) since Veldran's incorporation on March 14, 2019, including:

(a) The date of each transaction;

(b) The parties involved;

(d) The aggregate consideration;

(e) Whether the transaction was exempt from registration under the Securities Act and, if so, the applicable exemption; and

(f) The tax treatment of the transaction (e.g., IRC § 1032, IRC § 302, IRC § 304, IRC § 351, etc.).

Request VIII.5. Any analysis, memorandum, or correspondence regarding the treatment of outstanding equity awards (stock options, RSUs, restricted stock, profits interests, etc.) in connection with the proposed spin-off, including any proposed adjustment mechanisms (e.g., adjustment of exercise prices, conversion ratios, or the number of shares subject to awards) designed to preserve the intrinsic value of outstanding awards following the Distribution. Please also provide any analysis of the tax consequences of such adjustments under IRC §§ 83, 409A, 421–424, and any applicable employment tax provisions.

IX. BUSINESS PURPOSE DOCUMENTATION

Under IRC § 355 and the regulations thereunder, the Distribution must be motivated, in whole or substantial part, by one or more corporate business purposes. The following requests are directed at establishing the business purposes for the Transaction.

Request IX.1. Board of Directors minutes, written consents, and resolutions relating to the strategic rationale for the proposed separation of the Precision Flow Solutions Division from the Engineered Coatings Division, including minutes from any special committee or ad hoc committee established to evaluate the Transaction. Please also provide minutes from any meetings of the Veldran Board at which the proposed spin-off was discussed, even if no formal action was taken.

Request IX.2. Any strategic plans, management presentations, investment committee memoranda, board presentations, or other internal documents articulating the business purposes for the proposed spin-off. We understand that the business purposes for the Transaction may include, among others:

CALDERWOOD & HARKNESS LLP 1301 Avenue of the Americas, 40th Floor New York, NY 10019
Telephone: (212) 558-4000 Facsimile: (212) 558-3588
PRIVILEGED AND CONFIDENTIAL ATTORNEY WORK PRODUCT
April 25, 2022
Re: Proposed Tax-Free Spin-Off of Meridian Flow Technologies, Inc. from Veldran Industries Holdings, Inc. — Initial Tax Diligence Information Request List
Engagement No.: 1003-00005 Matter Code: HRW-SPIN-001
Prepared by: Garrett Simmons, Lead Associate, Tax Department; Leila Nazari, Associate, Tax Department
Reviewed by: Leonard Cross, Partner, Tax Department
Circulated to:
Philip Crundell, Esq. General Counsel Veldran Industries Holdings, Inc. 2400 Commerce Park Drive, Suite 500 Charlotte, NC 28217
Rita Subramanian Chief Financial Officer Veldran Industries Holdings, Inc. 2400 Commerce Park Drive, Suite 500 Charlotte, NC 28217
Priya Chandrasekar, Esq. Partner Whitfield & Gage LLP 51 West 52nd Street New York, NY 10019
Ross Halverson, Esq. Counsel Whitfield & Gage LLP 51 West 52nd Street New York, NY 10019
Christine Yeung, Esq. General Counsel Harrowgate Capital Advisors LLC 600 Lexington Avenue, 38th Floor New York, NY 10022
cc: Leonard Cross, Partner, Tax Department, Calderwood & Harkness LLP; Sylvia Hartwell, Counsel, Tax Department, Calderwood & Harkness LLP
INTRODUCTORY STATEMENT
Calderwood & Harkness LLP has been engaged by Harrowgate Private Equity Fund IV, L.P. (EIN 84-3291067) ("HPE Fund IV") to render a "should" level tax opinion under Sections 355 and 368(a)(1)(D) of the Internal Revenue Code of 1986, as amended (the "Code" or "IRC"), in connection with the proposed pro rata distribution (the "Distribution") by Veldran Industries Holdings, Inc. (EIN 86-1920347) ("Veldran" or "Distributing") of 100% of the issued and outstanding common stock of Meridian Flow Technologies, Inc. ("Meridian," "SpinCo," or "Controlled") to the shareholders of Veldran. The Distribution is intended to qualify as a tax-free spin-off under IRC § 355 and, to the extent applicable, as a reorganization under IRC § 368(a)(1)(D) (collectively, the "Transaction" or the "Proposed Spin-Off").
This initial information request list (this "Request List") sets forth the documents and information required by Calderwood & Harkness LLP to conduct the tax diligence necessary for the preparation of (a) the "should" level tax opinion letter to be delivered in connection with the Transaction, (b) the supporting analysis memoranda addressing the requirements of IRC §§ 355, 355(b), 355(d), 355(e), 368(a)(1)(D), and related provisions, and (c) the representation letter to be executed by authorized officers of Veldran and, as applicable, Meridian, in support of the opinion.
Unless otherwise specified herein, all references to "Veldran" include Veldran Industries Holdings, Inc. and all of its direct and indirect subsidiaries. References to the "Precision Flow Division," "PFS Division," or "Precision Flow Solutions Division" mean the Precision Flow Solutions Division of Veldran, which is to be contributed to Meridian in connection with the Transaction. References to the "Engineered Coatings Division" or "EC Division" mean the Engineered Coatings Division of Veldran, which will remain with Veldran following the Distribution. All references to sections of the "Code" or "IRC" are to the Internal Revenue Code of 1986, as amended, and all references to Treasury Regulations are to the regulations promulgated thereunder, in each case as in effect on the date hereof unless otherwise noted.
We request that all documents and information responsive to this Request List be provided electronically via the designated secure virtual data room maintained by Thackeray Solutions (Project Meridian — Room ID: VDR-MER-2022). Documents should be uploaded in native format (e.g., Microsoft Word, Excel) where available, or as text-searchable PDF files. Please use the folder structure and numbering convention corresponding to the request numbers set forth below.
Please direct all questions regarding the scope, specificity, or prioritization of any request to Garrett Simmons (gsimmons@calderwoodharkness.com; direct dial: (212) 558-4217) or Leila Nazari (lnazari@calderwoodharkness.com; direct dial: (212) 558-4305) at Calderwood & Harkness LLP.
Target completion dates for responses are as follows:
•  Priority Items (marked with an asterisk () below): Responses requested by May 10, 2022*.
•  All Remaining Items: Responses requested by May 20, 2022.
We anticipate issuing one or more supplemental information request lists as our review of the materials progresses and as the Transaction structure is further refined. This Request List supersedes any prior informal requests and should be treated as the definitive initial request list for purposes of the engagement.
I. ORGANIZATIONAL AND CORPORATE DOCUMENTS
Request I.1. Certificate of Incorporation (as amended and restated) of Veldran Industries Holdings, Inc., a Delaware corporation incorporated on March 14, 2019. Please include all certificates of amendment, certificates of correction, and any restated certificates of incorporation filed with the Secretary of State of the State of Delaware since the date of original incorporation.
Request I.2. Bylaws (as amended) of Veldran Industries Holdings, Inc., including all amendments and restatements adopted since incorporation on March 14, 2019 through the present date.
Request I.3. Certificate of Formation and Operating Agreement (as amended) of Harrowgate Veldran Holdings LLC, a Delaware limited liability company (EIN 86-1483920). Harrowgate Veldran Holdings LLC is the wholly owned subsidiary of HPE Fund IV through which HPE Fund IV's 62.4% equity stake in Veldran is held. Please include any amendments to the Certificate of Formation filed with the Secretary of State of the State of Delaware and all amendments to the Operating Agreement since formation.
Request I.4. A comprehensive organizational chart showing all direct and indirect subsidiaries of Veldran Industries Holdings, Inc. as of the most recent practicable date. The organizational chart should include, for each entity, the following information:
(a) Legal name of the entity;
(b) Jurisdiction of organization (state and country, as applicable);
(c) Entity type (e.g., C corporation, S corporation, limited liability company, limited partnership, general partnership, disregarded entity for federal income tax purposes, etc.);
(d) Federal entity classification for U.S. federal income tax purposes (e.g., corporation, partnership, disregarded entity);
(e) Ownership percentages (both direct and indirect), including identification of the immediate parent entity;
(f) Employer Identification Number (EIN) where applicable;
(g) Date of formation or incorporation; and
(h) A notation indicating whether the entity is a member of the Veldran consolidated group for federal income tax purposes.
The organizational chart should specifically identify the following entities and their respective positions within the corporate structure:
•  Kestrel Precision Controls, Inc. (Georgia corporation, EIN 58-2847193, founded February 12, 2003);
•  All entities comprising or operating within the Precision Flow Solutions Division, regardless of materiality;
•  All entities comprising or operating within the Engineered Coatings Division, regardless of materiality; and
•  Any dormant, inactive, or recently dissolved entities that were direct or indirect subsidiaries of Veldran at any time since March 14, 2019.
Request I.5. Certificates of incorporation, certificates of formation, operating agreements, limited partnership agreements, and other governing documents for each material subsidiary of Veldran, including without limitation Kestrel Precision Controls, Inc. For purposes of this request, "material subsidiary" means any subsidiary that (a) had total assets in excess of $5,000,000 as of the most recent fiscal year-end, (b) had revenue in excess of $10,000,000 for the most recent fiscal year, or (c) holds material intellectual property, real property, or contracts that will be allocated between the Engineered Coatings Division and the Precision Flow Solutions Division in connection with the Transaction. Please include all amendments and restatements to such governing documents.
Request I.6. Copies of any entity classification elections (IRS Form 8832, "Entity Classification Election") filed by or on behalf of any Veldran subsidiary, including Kestrel Precision Controls, Inc., for the five-year period ending on the anticipated Distribution date. If any Veldran subsidiary made an initial classification election at the time of formation, or if any election was made to change an entity's classification during the relevant period, please provide the complete Form 8832 as filed, together with any IRS acknowledgment or correspondence relating thereto. To the extent that any subsidiary is classified other than its default classification under Treasury Regulation § 301.7701-3, please identify such entity and provide a brief explanation of its classification history.
Request I.7. Good standing certificates (or certificates of existence, as applicable) and certificates of qualification to do business (or certificates of authority) for Veldran Industries Holdings, Inc. and each material subsidiary (as defined in Request I.5 above) in each state and jurisdiction in which they are currently qualified to do business. If current certificates are not available, please provide the most recently obtained certificates and confirm whether updated certificates will be procured prior to the Distribution date.
Request I.8. Copies of any amendments to the organizational documents of Veldran or any subsidiary that are (a) contemplated in connection with the Proposed Spin-Off or related transactions, or (b) were adopted at any time since September 20, 2019 (the date of HPE Fund IV's acquisition of control of Veldran). This request includes, without limitation, any charter amendments relating to authorized share capital, any amendments to operating agreements relating to governance or economic rights, and any new organizational documents prepared for Meridian Flow Technologies, Inc. (SpinCo) in connection with the Transaction.
II. FEDERAL AND STATE INCOME TAX RETURNS AND ELECTIONS
Request II.1.* Federal income tax returns (IRS Form 1120, "U.S. Corporation Income Tax Return") for Veldran Industries Holdings, Inc. for tax years 2017, 2018, 2019, 2020, and 2021, including all schedules (e.g., Schedule D, Schedule M-1, Schedule M-3, Schedule UTP, etc.), attachments, elections, and supporting workpapers. To the extent Veldran filed consolidated federal income tax returns (IRS Form 1120) for any of these tax years, please provide the complete consolidated return, including the separate company computations for each member of the consolidated group, intercompany transaction schedules, and the consolidated group's excess loss account and investment adjustment computations under Treasury Regulation §§ 1.1502-32 and 1.1502-19.
Request II.2.* Federal income tax returns for Kestrel Precision Controls, Inc. (EIN 58-2847193) for tax years 2017, 2018, 2019, 2020, and 2021, or for such tax years as Kestrel filed separate federal income tax returns prior to its inclusion in the Veldran consolidated group. If Kestrel was included as a member of the Veldran consolidated group for any of these tax years, please identify the first tax year of inclusion and provide Kestrel's separate company computations for each year of inclusion. If Kestrel was a member of a different consolidated group (e.g., a Rennick Industrial Partners–affiliated group) prior to the June 7, 2019 acquisition, please so indicate and provide the separate company computations for the relevant pre-acquisition tax years.
Request II.3. State and local income tax returns, franchise tax returns, and gross receipts tax returns for Veldran and each material subsidiary for tax years 2017 through 2021 in each jurisdiction in which returns were filed. We understand that Veldran and its subsidiaries file state income tax returns in, at a minimum, Delaware, North Carolina, and Georgia. Please identify all other material filing jurisdictions and provide complete returns, including any combined, consolidated, or unitary group returns, for each such jurisdiction. For purposes of this request, a jurisdiction is "material" if the aggregate state and local income or franchise tax liability in such jurisdiction exceeded $100,000 in any single tax year during the relevant period.
Request II.4. Copies of any IRS Form 1120 consolidated return elections, including the initial election to file as a consolidated group (or the deemed election resulting from filing) and identification of all members of the Veldran consolidated group for each tax year since March 14, 2019 (the date of Veldran's incorporation). Please also provide any Forms 1122 ("Authorization and Consent of Subsidiary Corporation to Be Included in a Consolidated Income Tax Return") executed by subsidiaries joining the consolidated group, and any Forms 851 ("Affiliations Schedule") for each tax year.
Request II.5. All tax elections filed by or on behalf of Veldran or any subsidiary during tax years 2017 through 2021, including but not limited to the following:
(a) Any elections under IRC § 338 (including IRC § 338(g) and IRC § 338(h)(10)) in connection with any acquisition, including, without limitation, the June 7, 2019 acquisition of Kestrel Precision Controls, Inc.;
(b) Any elections under IRC § 336(e) in connection with any disposition of subsidiary stock;
(c) Any applications for changes in accounting method (IRS Form 3115, "Application for Change in Accounting Method"), including the specific method change requested, the Code section and regulation under which the change was made, and any IRC § 481(a) adjustment resulting therefrom;
(d) Any elections under IRC § 168(k) relating to bonus depreciation, including any election out of bonus depreciation for any asset class or tax year, and any elections under IRC § 179 relating to the expensing of depreciable business assets;
(e) Any elections relating to the treatment of intercompany transactions under Treasury Regulation § 1.1502-13 or any other provision of the consolidated return regulations;
(f) Any elections under IRC § 172 relating to net operating loss carryback or carryforward periods;
(g) Any elections under IRC § 59(e) to amortize certain tax preference items; and
(h) Any other elections that materially affected the computation of taxable income, tax liability, or tax attributes for Veldran or any subsidiary during the relevant period.
Request II.6. Extension requests (IRS Form 7004, "Application for Automatic Extension of Time to File Certain Business Income Tax, Information, and Other Returns") filed by or on behalf of Veldran and its subsidiaries for tax years 2017 through 2021. Please also provide copies of any estimated tax payment schedules, IRS Form 1120-W workpapers, and records of estimated tax payments made by Veldran and its subsidiaries for such tax years.
Request II.7. Any private letter rulings (PLRs), technical advice memoranda (TAMs), closing agreements (IRS Form 906), pre-filing agreements, determination letters, or other written communications with the Internal Revenue Service or any state or local taxing authority relating to Veldran or any subsidiary, at any time. This request encompasses any ruling requests submitted but not yet acted upon by the IRS or any state or local authority, as well as any requests that were withdrawn or abandoned.
Request II.8. All IRS audit reports, revenue agent reports (RARs), notices of deficiency (90-day letters), notices of proposed adjustment (30-day letters), information document requests (IDRs), and any other correspondence relating to IRS or state tax audits, examinations, or investigations of Veldran or any subsidiary for any open tax year. Please include copies of any protests or responses filed by Veldran, any IRS Appeals conference memoranda or settlement documents, and any Tax Court petitions or other judicial proceedings.
Request II.9. A current status report regarding any pending or threatened tax audits, examinations, disputes, or claims with any federal, state, or local taxing authority involving Veldran or any subsidiary. The status report should include, for each pending or threatened matter: (a) the taxing authority involved, (b) the tax year(s) at issue, (c) the nature of the issues under examination, (d) the amount of any proposed adjustments or assessed deficiencies, (e) the current procedural status, and (f) any reserves or accruals established with respect to such matter.
Request II.10. Tax provision workpapers prepared under ASC 740 (Accounting for Income Taxes) for Veldran for fiscal years ended FY2019, FY2020, and FY2021. Please include the following components:
(a) Current and deferred federal and state income tax provision calculations;
(b) Effective tax rate reconciliation;
(c) Deferred tax asset and liability schedules, including gross and net amounts, and valuation allowance analyses;
(d) Uncertain tax position (UTP) schedules prepared under ASC 740-10-25 (formerly FIN 48), including a detailed description of each UTP, the tax years to which each UTP relates, the amount of unrecognized tax benefits, and the expected timing and resolution of each position;
(e) Any tax reserve or contingency analyses; and
(f) Any memoranda or analyses prepared by or in conjunction with Pemberton Rathbone LLP (Veldran's independent auditors and tax-return preparers; One PPG Place, Suite 1600, Pittsburgh, PA 15222; contacts: Harold Weiss, Partner, Tax; Lisa Engstrom, Partner, Audit & Assurance) in connection with the foregoing.
III. KESTREL PRECISION CONTROLS ACQUISITION DOCUMENTS
Request III.1.* Stock Purchase Agreement (or Asset Purchase Agreement, as applicable) dated on or about June 7, 2019 between Veldran Industries Holdings, Inc. (or its designated acquisition subsidiary), as acquiror, and Rennick Industrial Partners Fund II LP (EIN 82-3017564) (or its designated sale vehicle), as seller, for the acquisition of 100% of the issued and outstanding stock of Kestrel Precision Controls, Inc. for an aggregate purchase price of $295,000,000 in cash (the "Kestrel Acquisition"). Please include all exhibits, schedules, disclosure letters, and amendments to the purchase agreement.
Request III.2. All ancillary agreements executed in connection with the Kestrel Acquisition, including without limitation:
(a) Tax indemnification or tax matters agreements between Veldran and Rennick Industrial Partners Fund II LP (or any affiliated entity of Rennick);
(b) Escrow agreements (including the identity of the escrow agent, the amount of escrowed funds, and the status of any pending or resolved claims against the escrow);
(c) Transition services agreements;
(d) Non-competition and non-solicitation agreements;
(e) Employment agreements or management retention agreements entered into in connection with the closing of the Kestrel Acquisition;
(f) intellectual property assignment or license agreements;
(g) Any consulting agreements with Rennick Industrial Partners or its principals; and
(h) Any side letters or other agreements not otherwise described above that were executed in connection with the Kestrel Acquisition.
Request III.3.* Documentation regarding any IRC § 338 election (including IRC § 338(g) or IRC § 338(h)(10)) made, or any decision not to make a § 338 election, in connection with the Kestrel Acquisition. This request includes:
(a) Any IRS Forms 8023 ("Elections Under Section 338 for Corporations Making Qualified Stock Purchases") filed in connection with the Kestrel Acquisition;
(b) Any IRS Forms 8883 ("Asset Allocation Statement Under Section 338") filed in connection with the Kestrel Acquisition;
(c) Any internal analysis, memorandum, or correspondence (whether prepared by Pemberton Rathbone LLP, Whitfield & Gage LLP, or other advisors) evaluating the tax consequences of making or not making a § 338 election; and
(d) If a § 338 election was made, the deemed asset sale computation, including the aggregate deemed sale price (ADSP), adjusted grossed-up basis (AGUB), and the allocation of AGUB among asset classes under IRC § 338(b)(5) and Treasury Regulation § 1.338-6.
Request III.4. Purchase price allocation prepared under IRC § 1060 and ASC 805 (Business Combinations) for the Kestrel Acquisition, including the allocation of the $295,000,000 purchase price among the applicable asset classes (Classes I through VII under Treasury Regulation § 1.338-6, as applicable, or the corresponding ASC 805 fair value categories). Please include all supporting valuation reports, appraisals, and workpapers underlying the purchase price allocation, as well as any IRS Forms 8594 ("Asset Acquisition Statement Under Section 1060") filed in connection with the acquisition.
Request III.5. Tax basis step-up computations for the assets of Kestrel Precision Controls, Inc. resulting from the Kestrel Acquisition, if any. If a § 338 election was not made, please confirm whether the acquisition was treated as a stock acquisition for tax purposes and provide the computation of Veldran's outside tax basis in the Kestrel stock. If a § 338 election was made, please provide the computation of the inside tax basis of each material asset of Kestrel following the deemed asset acquisition.
Request III.6. Historical audited and unaudited financial statements and federal and state income tax returns for Kestrel Precision Controls, Inc. for tax years 2017 and 2018 (i.e., the two full tax years immediately preceding the Kestrel Acquisition). These pre-acquisition financial and tax records are required to establish the five-year active trade or business history mandated by IRC § 355(b)(2)(B) and (D). We note that Kestrel was founded on February 12, 2003, and accordingly has been in existence for approximately nineteen years. To the extent that Kestrel's pre-acquisition tax returns were filed as part of a consolidated group with a Rennick-affiliated entity, please provide Kestrel's separate company computations for the relevant periods.
Request III.7. A narrative description of any changes to Kestrel Precision Controls, Inc.'s business operations, product lines, customers, manufacturing facilities, intellectual property, or organizational structure between its founding on February 12, 2003 and the Kestrel Acquisition closing date of June 7, 2019, and from the acquisition date through the present. This narrative should specifically address:
(a) Whether Kestrel at all times conducted the same general line of business (precision flow control and measurement instrumentation, or similar);
(b) Whether Kestrel acquired or disposed of any trade or business (or a substantial portion thereof) during the relevant periods;
(c) Whether Kestrel experienced any ownership changes (other than the June 7, 2019 acquisition by Veldran) during the relevant periods; and
(d) Whether Kestrel's operations were integrated with or subsumed into the existing Precision Flow Solutions Division operations following the acquisition, and if so, the nature and extent of such integration.
Request III.8. Any due diligence reports, quality of earnings analyses, tax due diligence memoranda, environmental due diligence reports, or other diligence materials prepared in connection with the Kestrel Acquisition, whether prepared by Pemberton Rathbone LLP, Whitfield & Gage LLP, or any other advisors retained by Veldran or HPE Fund IV. We are particularly interested in any tax due diligence memorandum identifying material tax exposures, historical tax positions, or structural tax considerations associated with the Kestrel business.
IV. HARROWGATE ACQUISITION OF VELDRAN (SEPTEMBER 2019)
Request IV.1.* Transaction documents relating to HPE Fund IV's acquisition of 62.4% of Veldran common stock (46,488,000 shares at $40.00 per share, for total consideration of $1,859,520,000) on September 20, 2019 (the "HPE Acquisition"), including without limitation:
(a) The tender offer statement on Schedule TO and all related offering documents, amendments, and supplements filed with the Securities and Exchange Commission;
(b) The merger agreement or other definitive agreement pursuant to which HPE Fund IV acquired control of Veldran, including the squeeze-out or back-end merger of the remaining public shares held by Greystone Partners Fund III LP (EIN 81-2683910) and other pre-transaction shareholders;
(c) The co-investment agreement between HPE Fund IV (or Harrowgate Veldran Holdings LLC) and Prescott Capital Management LP (EIN 13-4928371) relating to Prescott's initial acquisition of 15,500,000 shares of Veldran common stock at $40.00 per share (for aggregate consideration of $620,000,000), including any side letters, equity commitment letters, or other ancillary agreements between Harrowgate and Prescott;
(d) Any stockholders' agreement, voting agreement, or governance agreement entered into among HPE Fund IV (or Harrowgate Veldran Holdings LLC), Prescott Capital Management LP, and/or management stockholders in connection with the HPE Acquisition;
(e) Any debt commitment letters or financing agreements obtained in connection with the HPE Acquisition; and
(f) Any management equity rollover or reinvestment agreements executed by Veldran management in connection with the HPE Acquisition.
Request IV.2. Any discussions, presentations, board minutes, committee minutes, or internal memoranda from the period prior to September 20, 2019 relating to a potential spin-off, separation, split-off, IPO, sale, or divestiture of the Precision Flow Solutions Division, the Engineered Coatings Division, or any other business segment of Veldran. This request is critical for the analysis under IRC § 355(e) as to whether the Distribution 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 in either Distributing or Controlled. Any pre-acquisition discussions regarding a potential separation could bear on whether the HPE Acquisition and the Distribution constitute component steps of a single plan within the meaning of Treasury Regulation § 1.355-7.
Request IV.3. Any communications (including emails, letters, memoranda, presentations, and meeting notes) between Harrowgate Capital Advisors LLC (or its principals, including Marcus Adler, Managing Partner; Diana Fenn, Partner; Tobias Rourke, Partner; and Christine Yeung, General Counsel) and Veldran management, the Veldran Board of Directors, Greystone Partners Fund III LP, or any other parties regarding a potential spin-off, separation, IPO, sale, or other restructuring of any Veldran business segment, at any time prior to or contemporaneous with the September 20, 2019 HPE Acquisition. This request extends to all communications from the earliest point of contact between Harrowgate and Veldran through the closing date of the HPE Acquisition.
Request IV.4. Any investment committee memoranda, deal screening memoranda, term sheets, indicative offer letters, or presentations prepared by Harrowgate Capital Advisors LLC (or any of its affiliated entities) in connection with the decision to acquire Veldran, to the extent such documents reference, contemplate, or analyze a potential spin-off, separation, IPO, sale, or other restructuring of the Precision Flow Solutions Division, the Engineered Coatings Division, or any other Veldran business segment. We recognize that such documents may be subject to claims of privilege and confidentiality; please consult with counsel regarding the appropriate treatment of such materials in connection with this request. The relevance of these materials to the § 355(e) analysis cannot be overstated.
Request IV.5. Documentation regarding the Prescott Capital Management LP secondary offering or disposition in which Prescott sold 4,474,000 shares of Veldran common stock (reducing its ownership from 15,500,000 shares to 11,026,000 shares, representing approximately 14.8% of the outstanding common stock), including:
(a) The date of such secondary offering or disposition;
(b) The per-share sale price and aggregate proceeds;
(c) The identity of the purchaser(s) (including whether any shares were acquired by HPE Fund IV, Harrowgate Veldran Holdings LLC, management stockholders, or third parties);
(d) Any registration statement or prospectus supplement filed in connection with the offering;
(e) Any lock-up agreements, standstill agreements, or other contractual restrictions on Prescott's ability to sell Veldran shares that were modified or waived in connection with the offering; and
(f) Any related agreements between Prescott and Harrowgate Capital Advisors LLC or HPE Fund IV.
V. FIVE-YEAR ACTIVE TRADE OR BUSINESS HISTORY
IRC § 355(b) requires that, immediately after the Distribution, both Distributing (Veldran, retaining the Engineered Coatings Division) and Controlled (Meridian, holding the Precision Flow Solutions Division) must be engaged in the active conduct of a trade or business that has been actively conducted throughout the five-year period ending on the date of the Distribution, and that was not acquired in a transaction in which gain or loss was recognized (in whole or in part) during such five-year period. The following requests are designed to enable our analysis of the five-year active trade or business requirement.
Request V.1. For the Engineered Coatings Division* (to remain with Veldran post-Distribution; FY2021 revenue: approximately $1,520,000,000; FY2021 EBITDA: approximately $285,000,000):
(a) A detailed narrative description of the active conduct of the trade or business of the Engineered Coatings Division for each of the five years preceding the anticipated Distribution date (approximately Q4 2017 through Q4 2022), including a description of the products manufactured, services provided, customers served, and markets addressed;
(b) Identification of any acquisitions, dispositions, joint ventures, or other material changes in the business of the Engineered Coatings Division during the five-year period, including the date, counterparty, consideration, and a description of the business or assets acquired or disposed of;
(c) Employee headcount for the Engineered Coatings Division by year for the five-year period;
(d) Revenue and EBITDA for the Engineered Coatings Division by year for the five-year period (FY2017, FY2018, FY2019, FY2020, and FY2021), with estimates for FY2022 to the extent available;
(e) Identification of all legal entities through which the Engineered Coatings Division operates or has operated during the five-year period, including the jurisdiction of organization and the federal income tax classification of each such entity; and
(f) Identification of any material intellectual property, real property, or other assets used in the Engineered Coatings Division that are owned by an entity outside the division (including corporate-level entities or PFS Division entities), and any agreements governing the use of such assets.
Request V.2. For the Precision Flow Solutions Division* (to be contributed to Meridian / SpinCo; FY2021 revenue: approximately $820,000,000; FY2021 EBITDA: approximately $133,000,000):
(a) A detailed narrative description of the active conduct of the trade or business of the Precision Flow Solutions Division for each of the five years preceding the anticipated Distribution date, including a description of the products manufactured, services provided, customers served, and markets addressed;
(b) Specific identification of the portion of the PFS Division's business attributable to the Kestrel Precision Controls, Inc. operations (which we understand represent approximately 35% of PFS Division FY2021 revenue, i.e., approximately $287,000,000 of $820,000,000). Please describe how the Kestrel operations have been integrated (or maintained as distinct) within the broader PFS Division since the June 7, 2019 Kestrel Acquisition;
(c) Identification of any acquisitions, dispositions, joint ventures, or other material changes in the business of the Precision Flow Solutions Division during the five-year period, including, without limitation, the June 7, 2019 acquisition of Kestrel Precision Controls, Inc., with the date, counterparty, consideration, and a description of the business or assets acquired or disposed of in each case;
(d) Employee headcount by year for the five-year period, broken out between (i) total PFS Division headcount and (ii) Kestrel Precision Controls, Inc. headcount (separately identified);
(e) Revenue and EBITDA by year for the five-year period (FY2017, FY2018, FY2019, FY2020, and FY2021), with estimates for FY2022 to the extent available, broken down between (i) legacy PFS Division operations (i.e., the PFS Division excluding Kestrel) and (ii) Kestrel Precision Controls operations;
(f) Identification of all legal entities through which the Precision Flow Solutions Division operates or has operated during the five-year period, including the jurisdiction of organization and the federal income tax classification of each such entity; and
(g) Identification of any material intellectual property, real property, or other assets used in the PFS Division that are owned by an entity outside the division (including corporate-level entities or EC Division entities), and any agreements governing the use of such assets.
Request V.3. For each of the Engineered Coatings Division and the Precision Flow Solutions Division, identification of any significant expansion into new lines of business, new geographic markets (domestic or international), or new product categories during the five-year period, including:
(a) A description of each such expansion;
(b) The approximate date of commencement;
(c) Whether the expansion was achieved through organic growth, acquisition of assets, or acquisition of a going concern;
(d) If the expansion involved the acquisition of a trade or business (or a substantial portion thereof), whether such acquisition was effected in a transaction in which gain or loss was recognized (in whole or in part) by the seller. This information is directly relevant to the limitation on recently acquired businesses under IRC § 355(b)(2)(C), which generally provides that a trade or business shall not be treated as meeting the five-year active conduct requirement if it was acquired by Distributing or Controlled in a taxable transaction during the five-year period; and
(e) The consideration paid for any such acquisition and the form of consideration (cash, stock, assumption of liabilities, etc.).
Request V.4. For each of the Engineered Coatings Division and the Precision Flow Solutions Division, confirmation of whether the trade or business was at all times during the five-year period conducted directly by Veldran or its direct or indirect subsidiaries (as opposed to through joint ventures, minority-owned entities, licensing arrangements, management contracts, franchise arrangements, or other indirect arrangements). If any portion of either division's operations were conducted through such indirect arrangements at any time during the five-year period, please provide a description of the arrangement, the parties involved, and the period during which the arrangement was in effect.
VI. INTERCOMPANY AGREEMENTS AND SHARED SERVICES
Request VI.1. Copies of all intercompany agreements, contracts, and arrangements between the Engineered Coatings Division (or any entity within the EC Division) and the Precision Flow Solutions Division (or any entity within the PFS Division), including without limitation:
(a) Intercompany services agreements (including shared services, IT support, human resources, finance and accounting, procurement, and similar corporate functions);
(b) Shared facilities agreements, lease agreements, sublease agreements, or co-tenancy arrangements under which facilities are shared between the two divisions;
(c) intellectual property licensing agreements (including licenses to use trademarks, trade names, patents, know-how, and other proprietary technology);
(d) Supply agreements, toll manufacturing agreements, or other product or material supply arrangements;
(e) Management fee agreements, cost-allocation agreements, or overhead allocation arrangements; and
(f) Any other intercompany agreements or arrangements not described above that involve the transfer of value between the two divisions.
Request VI.2. A description of shared corporate overhead, administrative services, and shared personnel between the Engineered Coatings Division and the Precision Flow Solutions Division, including:
(a) A description of each shared function or service (e.g., finance, legal, human resources, IT, treasury, tax, real estate, environmental health and safety, etc.);
(b) The allocation methodology employed to allocate costs among the two divisions (e.g., headcount-based, revenue-based, usage-based, or other methodologies);
(c) The total dollar amount of shared costs and the amounts allocated to each division for FY2021; and
(d) Any plans for transitioning shared services in connection with the proposed separation, including anticipated transition services agreements and their expected duration and cost.
Request VI.3. Any transfer pricing documentation or studies relating to intercompany transactions between Veldran entities, including any contemporaneous documentation prepared under IRC § 6662(e) and the regulations thereunder, any transfer pricing analyses prepared by Pemberton Rathbone LLP or other advisors, and any advance pricing agreements (APAs) in effect or under negotiation with the IRS or any foreign tax authority. This request extends to both domestic and cross-border intercompany transactions.
Request VI.4. A description of any intercompany indebtedness, including intercompany loans, promissory notes, revolving credit facilities, cash-management or cash-pooling arrangements, and advances between Veldran entities. For each intercompany obligation, please provide:
(a) The borrower and lender;
(b) The original and outstanding principal amount;
(c) The stated interest rate and payment terms;
(d) The maturity date;
(e) Whether the obligation is documented by a written instrument;
(f) Whether interest has been accrued and/or paid; and
(g) Any plans for the treatment of such intercompany indebtedness in connection with the proposed separation (e.g., repayment, contribution, distribution, or assumption).
VII. CAPITAL STRUCTURE AND DEBT DOCUMENTS
Request VII.1.* Credit Agreement governing the First Lien Term Loan B (aggregate principal amount: $1,100,000,000) for which Ashfield National Bank, N.A. (100 Federal Street, Boston, MA 02110; contact: Margaret Tsao, Managing Director, Leveraged Finance) serves as administrative agent. Please provide the complete Credit Agreement, including all amendments, restatements, amendments and restatements, supplements, joinder agreements, incremental facility documentation, and any other modifications since the original execution date. Please also provide any related security agreements, pledge agreements, guaranty agreements, and collateral descriptions.
Request VII.2.* Indenture governing the 6.250% Senior Unsecured Notes due 2027 (aggregate principal amount: $450,000,000) for which Colton Trust Company (10 South LaSalle Street, Chicago, IL 60603) serves as trustee. Please provide the base indenture and all supplemental indentures, together with any related registration rights agreements, exchange offer documentation, and offering memoranda or prospectuses.
Request VII.3. Any intercreditor agreements between the first lien lender group (under the Term Loan B facility) and the holders of the 6.250% Senior Unsecured Notes due 2027, including any pari passu intercreditor agreements, junior lien intercreditor agreements, or other agreements governing the relative rights and priorities of the various creditor constituencies.
Request VII.4. A comprehensive schedule of all outstanding indebtedness of Veldran and its subsidiaries as of the most recent practicable date, including for each obligation:
(a) The type of indebtedness (term loan, revolving credit facility, senior unsecured notes, subordinated notes, capital leases, equipment financing, etc.);
(b) The borrower and any co-borrowers;
(c) The original principal amount and the current outstanding principal amount;
(d) The applicable interest rate (and whether fixed or floating) and any applicable benchmark (e.g., LIBOR, SOFR);
(e) The maturity date;
(f) The identity of the administrative agent, trustee, or other representative;
(g) A list of all subsidiary guarantors;
(h) A description of the collateral (if any);
(i) A summary of any material restrictive covenants, including financial maintenance covenants and negative covenants restricting dispositions, dividends, and distributions; and
(j) Whether the proposed Transaction would require consent, waiver, or notice under the terms of the applicable debt instrument.
Request VII.5. Any analysis, correspondence, or workpapers relating to original issue discount (OID) positions on any outstanding indebtedness of Veldran or its subsidiaries, including computations of OID accruals under IRC §§ 1271–1275 and any applicable market discount or bond premium computations.
Request VII.6. Copies of any debt incurrence, consent, or waiver requests submitted to Ashfield National Bank, N.A. or Colton Trust Company in connection with any prior transaction (including the Kestrel Acquisition or any subsequent refinancing or amendment), and any precedent consent or waiver documentation obtained from such parties. This information will assist in evaluating the feasibility and timeline for obtaining any consents or waivers required in connection with the proposed Transaction.
VIII. EQUITY CAPITALIZATION AND SHAREHOLDER RECORDS
Request VIII.1.* A complete capitalization table for Veldran Industries Holdings, Inc. as of the most recent practicable date. Based on our current understanding, the capitalization of Veldran is as follows, and we request confirmation or correction:
The capitalization table should also include any authorized but unissued preferred stock, any shares reserved for issuance under equity incentive plans, and any shares held in treasury.
Request VIII.2. All equity incentive plans, stock option plans, restricted stock unit (RSU) plans, profits interest plans, phantom equity plans, stock appreciation rights plans, and other equity compensation arrangements of Veldran, including:
(a) The plan documents (as amended and restated);
(b) Form award agreements for each type of award (stock options, RSUs, restricted stock, profits interests, etc.);
(c) A schedule of all outstanding awards as of the most recent practicable date, specifying for each award: the grantee, the type of award, the grant date, the number of shares subject to the award, the exercise or base price (for options), the vesting schedule, the vested and unvested portions, and the expiration date;
(d) The total number of shares of common stock authorized, reserved, and remaining available for future issuance under each plan; and
(e) Any plan amendments or modifications adopted or contemplated in connection with the proposed Transaction.
Request VIII.3. Any stockholders' agreements, registration rights agreements, voting agreements, investor rights agreements, right of first refusal agreements, co-sale agreements, tag-along/drag-along agreements, or other agreements among stockholders of Veldran (including agreements among Harrowgate Veldran Holdings LLC, Prescott Capital Management LP, management stockholders, and any other parties). Please include any amendments, waivers, or side letters to such agreements.
Request VIII.4. Records of all stock issuances, repurchases, redemptions, transfers, conversions, and cancellations of Veldran common stock (or any other class of Veldran equity) since Veldran's incorporation on March 14, 2019, including:
(a) The date of each transaction;
(b) The parties involved;
(c) The number of shares and the per-share consideration;
(d) The aggregate consideration;
(e) Whether the transaction was exempt from registration under the Securities Act and, if so, the applicable exemption; and
(f) The tax treatment of the transaction (e.g., IRC § 1032, IRC § 302, IRC § 304, IRC § 351, etc.).
Request VIII.5. Any analysis, memorandum, or correspondence regarding the treatment of outstanding equity awards (stock options, RSUs, restricted stock, profits interests, etc.) in connection with the proposed spin-off, including any proposed adjustment mechanisms (e.g., adjustment of exercise prices, conversion ratios, or the number of shares subject to awards) designed to preserve the intrinsic value of outstanding awards following the Distribution. Please also provide any analysis of the tax consequences of such adjustments under IRC §§ 83, 409A, 421–424, and any applicable employment tax provisions.
IX. BUSINESS PURPOSE DOCUMENTATION
Under IRC § 355 and the regulations thereunder, the Distribution must be motivated, in whole or substantial part, by one or more corporate business purposes. The following requests are directed at establishing the business purposes for the Transaction.
Request IX.1. Board of Directors minutes, written consents, and resolutions relating to the strategic rationale for the proposed separation of the Precision Flow Solutions Division from the Engineered Coatings Division, including minutes from any special committee or ad hoc committee established to evaluate the Transaction. Please also provide minutes from any meetings of the Veldran Board at which the proposed spin-off was discussed, even if no formal action was taken.
Request IX.2. Any strategic plans, management presentations, investment committee memoranda, board presentations, or other internal documents articulating the business purposes for the proposed spin-off. We understand that the business purposes for the Transaction may include, among others:
(a) Enabling each business to pursue independent capital-allocation strategies tailored to its respective growth profile, capital intensity, and end-market dynamics;
(b) Enhancing management focus and operational efficiency by allowing each management team to concentrate exclusively on the unique operational requirements of its respective business;
(c) Creating distinct investment vehicles that will be more attractive to investors focused on specific end markets, thereby improving access to capital markets and potentially enhancing aggregate equity valuation;
(d) Facilitating the use of equity-based compensation that is more directly tied to the performance of the relevant business, thereby improving retention and alignment of key management personnel; and
(e) Any additional corporate-level (as distinguished from shareholder-level) business purposes identified by Veldran management or the Veldran Board.
We note that shareholder-level purposes (e.g., enabling shareholders to adjust their relative investment in the two businesses) are generally not sufficient, standing alone, to satisfy the business purpose requirement. Any documentation that demonstrates corporate-level purposes is particularly important.
Request IX.3. Any presentations, reports, analyses, or fairness opinions prepared by Brackenridge & Co. (financial advisor; 383 Madison Avenue, New York, NY 10179; contact: Samuel Ng, Managing Director, Industrials Group) relating to the strategic rationale, financial analysis, valuation, capital structure implications, or feasibility of the proposed separation. Please include any engagement letters between Veldran (or HPE Fund IV or Harrowgate Capital Advisors LLC) and Brackenridge & Co. relating to the Transaction.
Request IX.4. Any correspondence, presentations, board minutes, memoranda, or other internal documents reflecting the history of when a spin-off, separation, or other restructuring of any Veldran business segment was first considered by Veldran management and/or the Veldran Board, including a detailed timeline of discussions relative to the September 20, 2019 HPE Fund IV acquisition. This request is critical for both (a) the business purpose analysis (to demonstrate that the Transaction is motivated by real and substantial corporate business purposes that have evolved over time) and (b) the IRC § 355(e) "plan" analysis (to evaluate whether the Distribution is part of a plan or series of related transactions that includes the September 2019 change of control). Any gap or discontinuity in discussions between the HPE Acquisition and the resumption of separation planning is highly relevant.
X. EARNINGS AND PROFITS; TAX ATTRIBUTES
Request X.1. A schedule of accumulated earnings and profits (E&P) for Veldran Industries Holdings, Inc. and each subsidiary as of the most recent tax year-end, including:
(a) Current E&P computations for each of FY2019, FY2020, and FY2021;
(b) Accumulated E&P as of the end of each such fiscal year;
(c) Any adjustments to E&P for tax-exempt income, non-deductible expenses, depreciation differences, and other items that cause E&P to differ from taxable income;
(d) Any E&P inherited from predecessor entities or acquired in connection with acquisitions (including any E&P of Kestrel Precision Controls, Inc. as of the June 7, 2019 acquisition date); and
(e) Any workpapers or memoranda supporting the E&P computations.
Request X.2. A schedule of any net operating losses (NOLs), capital loss carryforwards, tax credit carryforwards (including general business credits, foreign tax credits, and research and experimentation credits), and other tax attributes of Veldran and each subsidiary, including:
(a) The amount, character, and vintage year of each tax attribute;
(b) The remaining carryforward period for each attribute;
(c) Whether any attribute is subject to limitation under IRC § 382 (limitation on use of NOLs after ownership change) or IRC § 383 (limitation on use of credits and other attributes after ownership change) as a result of the September 20, 2019 HPE Acquisition or any other ownership change; and
(d) The computed annual IRC § 382 limitation amount, if applicable, and the amount of any net unrealized built-in gain or loss (NUBIG/NUBIL) as of the change date.
Request X.3. Any IRC § 382 limitation studies or analyses performed in connection with the September 20, 2019 change of control, including:
(a) The determination of whether an "ownership change" occurred within the meaning of IRC § 382(g);
(b) The computation of the "value" of the loss corporation for purposes of determining the annual limitation under IRC § 382(b);
(c) The computation of net unrealized built-in gain or loss under IRC § 382(h);
(d) Any analysis of whether the built-in gain or loss recognition period has expired or is still ongoing; and
(e) Any supplemental analyses addressing subsequent transactions (e.g., the Prescott Capital Management LP secondary offering) and their impact on the § 382 ownership change computation.
Request X.4. Any preliminary analysis or proposed allocation of accumulated earnings and profits between Veldran (Distributing) and Meridian (Controlled) in connection with the spin-off, if any such preliminary allocation has been considered. Under IRC § 312(h) and Treasury Regulation § 1.312-10, the allocation of E&P between Distributing and Controlled is generally made in proportion to the fair market values of the assets retained by Distributing and the assets transferred to Controlled. Please provide any workpapers or analyses relating to the proposed methodology.
XI. MISCELLANEOUS
Request XI.1. Any prior opinions, memoranda, analyses, or presentations (whether prepared by Pemberton Rathbone LLP, Whitfield & Gage LLP, or other advisors, or prepared internally by Veldran personnel) relating to the tax consequences of the proposed spin-off, any alternative restructuring (e.g., a Reverse Morris Trust structure, a split-off, or a taxable disposition), or any other separation or divestiture transaction involving the Precision Flow Solutions Division or the Engineered Coatings Division. This request includes any preliminary or draft analyses, even if not finalized.
Request XI.2. Any material contracts, agreements, or arrangements that would be assigned, assumed, novated, or terminated in connection with the separation of the Precision Flow Solutions Division from Veldran, to the extent they may have tax implications. This request includes, without limitation:
(a) Contracts containing change-of-control provisions that may be triggered by the spin-off;
(b) Supply agreements, customer contracts, or vendor agreements containing tax gross-up clauses, tax indemnification provisions, or tax-related representations and warranties;
(c) Real property leases that may give rise to gain or loss upon assignment or require landlord consent;
(d) intellectual property licenses that may require assignment, sublicensing, or renegotiation;
(e) Government contracts or grants that may impose restrictions on assignment or restructuring; and
(f) Any other contracts whose assignment or termination in connection with the Transaction may give rise to income, gain, loss, deduction, or other tax consequences for Veldran, Meridian, or their respective subsidiaries.
Request XI.3. Insurance policies currently in effect for Veldran and its subsidiaries, including:
(a) Directors' and officers' liability insurance (D&O insurance), including any tail policies;
(b) Any representations and warranties insurance (RWI) obtained in connection with the September 2019 HPE Acquisition or the June 2019 Kestrel Acquisition;
(c) Any tax liability insurance policies; and
(d) Any other insurance policies that may be relevant to the Transaction or that may need to be amended, assigned, or replaced in connection with the separation.
Request XI.4. A description of any pending or threatened litigation, arbitration, administrative proceedings, or governmental investigations involving Veldran or any subsidiary that may have tax implications, including any matters in which the tax treatment of a transaction, deduction, credit, or other item is at issue, and any matters that may give rise to indemnification obligations with tax consequences.
Request XI.5. Any tax-related indemnification agreements currently in effect, including:
(a) Any surviving tax indemnities from the Kestrel Acquisition from Rennick Industrial Partners Fund II LP (or its affiliates), including the current status and any pending claims;
(b) Any surviving tax indemnities from the September 2019 HPE Acquisition from Greystone Partners Fund III LP (or its affiliates), including the current status and any pending claims;
(c) Any tax-sharing agreements among members of the Veldran consolidated group; and
(d) Any other tax indemnification, tax-sharing, or tax allocation agreements to which Veldran or any subsidiary is a party.
Request XI.6. Any information regarding the tax advisor to minority shareholder Prescott Capital Management LP, which we understand to be Dunmore Havens & Associates LLC (590 Madison Avenue, 20th Floor, New York, NY 10022; contact: Irene Salcedo, Principal), and whether Prescott (or its tax advisor) has raised any tax-related issues, concerns, objections, or conditions regarding the proposed spin-off. This information is relevant to the extent that Prescott's consent or cooperation may be required in connection with the Transaction or the representation letter process, and to the extent that any positions taken by Prescott's advisors may differ from our analysis.
CONTACT AND RESPONSE INSTRUCTIONS
All responses to this Request List, and all documents and information responsive hereto, should be uploaded to the designated secure virtual data room (Project Meridian — Thackeray Solutions Room ID: VDR-MER-2022) and directed to:
Garrett Simmons Lead Associate, Tax Department Calderwood & Harkness LLP 1301 Avenue of the Americas, 40th Floor New York, NY 10019 Tel: (212) 558-4217
Email: gsimmons@calderwoodharkness.com
Leila Nazari Associate, Tax Department Calderwood & Harkness LLP 1301 Avenue of the Americas, 40th Floor New York, NY 10019 Tel: (212) 558-4305
Email: lnazari@calderwoodharkness.com
Priority items (marked with an asterisk () in this Request List) are requested by May 10, 2022. All remaining items are requested by May 20, 2022*.
Please contact Garrett Simmons or Leila Nazari with any questions regarding the scope, specificity, or prioritization of any request contained herein. We anticipate issuing one or more supplemental information request lists as our review of the materials progresses, as additional issues are identified, and as the structure of the Transaction is further refined. We reserve the right to request additional documents and information beyond the scope of this initial Request List as our diligence work product develops.
We thank you in advance for your cooperation and prompt attention to this Request List.
Respectfully submitted,
CALDERWOOD & HARKNESS LLP
By: ________
Garrett Simmons Lead Associate, Tax Department
By: ________
Leila Nazari Associate, Tax Department
This document and the information contained herein are privileged and confidential. This document constitutes attorney work product prepared in anticipation of litigation and in connection with the rendering of legal advice. Any disclosure, copying, distribution, or use of this document or the information contained herein without the express written consent of Calderwood & Harkness LLP is strictly prohibited.
Shareholder | Shares Held | Percentage
HPE Fund IV (through Harrowgate Veldran Holdings LLC) | 46,488,000 | 62.4%
Prescott Capital Management LP | 11,026,000 | 14.8%
Management stockholders (equity incentive plans) | 3,948,500 | 5.3%
Remaining public/institutional float | 13,037,500 | 17.5%
Total authorized common stock | 100,000,000
Total outstanding common stock | 74,500,000 | 100.0%