PRIVILEGED AND CONFIDENTIAL — ATTORNEY-CLIENT PRIVILEGE AND ATTORNEY WORK PRODUCT
DRAFT — REPRESENTATION LETTER
May 6, 2022
CALDERWOOD & HARKNESS LLP 1301 Avenue of the Americas, 40th Floor New York, NY 10019
Engagement Number: 1003-00005 Matter Code: HRW-SPIN-001
DRAFT — FOR DISCUSSION PURPOSES ONLY — NOT FOR EXECUTION
Circulated to: Philip Crundell, General Counsel, Veldran Industries Holdings, Inc. Christine Yeung, General Counsel, Harrowgate Capital Advisors LLC Priya Chandrasekar, Partner, Whitfield & Gage LLP Ross Halverson, Partner, Whitfield & Gage LLP
Calderwood & Harkness LLP 1301 Avenue of the Americas, 40th Floor New York, NY 10019
Attention: Leonard Cross, Partner
Ladies and Gentlemen:
This Representation Letter (this "Representation Letter") is being delivered to Calderwood & Harkness LLP ("Tax Counsel") in connection with the engagement of Tax Counsel by Harrowgate Private Equity Fund IV, L.P. ("HPE Fund IV") and Veldran Industries Holdings, Inc. ("Veldran" or the "Distributing Corporation") to render a tax opinion (the "Tax Opinion") regarding the federal income tax consequences of the proposed reorganization and distribution described herein (the "Spin-Off"). The Tax Opinion will address whether the Spin-Off qualifies as a tax-free reorganization under Sections 355 and 368(a)(1)(D) of the Internal Revenue Code of 1986, as amended (the "Code"), and will be rendered at a "should" level of comfort — that is, Tax Counsel will opine that the proposed transactions "should" qualify under Sections 355 and 368(a)(1)(D) of the Code based on, among other things, the representations set forth herein.
Tax Counsel will rely on the factual representations set forth in this Representation Letter in rendering the Tax Opinion. The representations contained herein are material to the conclusions reached in the Tax Opinion, and Tax Counsel is not independently verifying the accuracy or completeness of such representations, except to the extent that Tax Counsel undertakes independent legal analysis of the tax issues presented. The accuracy and completeness of the representations contained in this Representation Letter are essential to Tax Counsel's ability to render the Tax Opinion, and any material inaccuracy or incompleteness could affect the conclusions stated therein.
Each person signing this Representation Letter certifies that the representations made herein are, to the best of such person's knowledge and belief after reasonable inquiry, true, correct, and complete in all material respects as of the date hereof and will be true, correct, and complete in all material respects as of the Distribution Date (as defined below). "Reasonable inquiry" as used herein means such inquiry as a reasonably prudent executive officer of the relevant entity would undertake in connection with the making of factual representations to outside tax counsel in connection with a significant corporate transaction, including consultation with appropriate internal legal, financial, tax, and operational personnel, as well as review of relevant corporate records, agreements, and other documents.
The undersigned hereby agree to promptly notify Tax Counsel if, at any time prior to or on the Distribution Date, any representation contained in this Representation Letter becomes inaccurate or incomplete in any material respect, or if the undersigned become aware of any fact, circumstance, agreement, or arrangement that would cause any representation to be inaccurate or incomplete. In the event that any representation is or becomes inaccurate or incomplete, Tax Counsel reserves the right to withdraw, modify, or supplement the Tax Opinion as Tax Counsel determines to be appropriate in its sole professional judgment.
This Representation Letter is divided into the following sections:
• Section I — Definitions
• Section II — Representations Regarding the Parties
• Section III — Representations Regarding the Capital Structure of Veldran
• Section IV — Representations Regarding the Proposed Transaction
• Section V — Representations Regarding Business Purpose
• Section VI — Representations Regarding Active Trade or Business (§ 355(b))
• Section VII — Representations Regarding the Device Test (§ 355(a)(1)(B))
• Section VIII — Representations Regarding § 355(d) — Disqualified Distribution
• Section IX — Representations Regarding § 355(e) — Plan or Series of Related Transactions
• Section X — Representations Regarding Continuity of Interest and § 368(a)(1)(D)
• Section XI — Representations Regarding Continuity of Business Enterprise
• Section XII — Representations Regarding § 355(g) — Disqualified Investment Corporations
• Section XIII — Representations Regarding Kestrel Precision Controls, Inc.
• Section XIV — Representations Regarding Debt and Capital Structure Matters
• Section XV — Representations Regarding Miscellaneous Tax Matters
• Section XVI — General Representations and Acknowledgments
• Section XVII — Schedules and Exhibits
SECTION I — DEFINITIONS
For purposes of this Representation Letter, the following terms shall have the meanings set forth below. Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to them in the context in which they appear.
"Ashfield Credit Agreement" means the First Lien Term Loan B credit agreement, dated as of September 20, 2019 (as amended, restated, supplemented, or otherwise modified from time to time), in the aggregate principal amount of One Billion One Hundred Million Dollars ($1,100,000,000), among Veldran Industries Holdings, Inc., as borrower, the lenders party thereto from time to time, and Ashfield National Bank, N.A., as administrative agent, with the principal office of the administrative agent located at 100 Federal Street, Boston, Massachusetts 02110.
"ATB Period" means the five-year period ending on the Distribution Date, within the meaning of Section 355(b)(2)(B) of the Code.
"Board" means the Board of Directors of Veldran Industries Holdings, Inc.
"Code" or "IRC" means the Internal Revenue Code of 1986, as amended from time to time, and any successor statute. References to specific sections of the Code shall include any predecessor or successor provisions and any applicable Treasury Regulations promulgated thereunder.
"Contribution" means the transfer by Veldran to Meridian of all assets and liabilities associated with the Precision Flow Solutions Division (including the business, assets, and liabilities of Kestrel Precision Controls, Inc.) in exchange for all outstanding shares of Meridian common stock and Meridian's assumption of certain allocated liabilities, as more fully described in Section IV.A of this Representation Letter.
"Contributed Business" means the business, assets, and liabilities of the Precision Flow Solutions Division of Veldran, including, without limitation, all tangible and intangible assets, real and personal property, contracts, customer relationships, intellectual property, permits, licenses, and goodwill associated therewith, and including the business, assets, and liabilities of Kestrel Precision Controls, Inc., a wholly owned subsidiary of Veldran.
"Controlled Corporation" or "SpinCo" or "Meridian" means Meridian Flow Technologies, Inc., a corporation to be formed under the laws of the State of Delaware prior to the Contribution, which will receive the Contributed Business in the Contribution and whose stock will be distributed to Veldran shareholders in the Distribution.
"Distributing Corporation" or "Veldran" means Veldran Industries Holdings, Inc., a corporation duly organized and existing under the laws of the State of Delaware (Employer Identification Number: 86-1920347), incorporated on March 14, 2019, with a registered address at 1209 Orange Street, Wilmington, Delaware 19801, and a principal office located at 2400 Commerce Park Drive, Suite 500, Charlotte, North Carolina 28217.
"Distribution" means the pro rata distribution by Veldran to holders of Veldran common stock, as of the Record Date, of one hundred percent (100%) of the outstanding common stock of Meridian, as more fully described in Section IV.B of this Representation Letter.
"Distribution Date" means the date on which the Distribution is consummated, which is currently targeted for the fourth quarter of calendar year 2022 (Q4 2022), subject to satisfaction of all conditions precedent and receipt of all required approvals and consents.
"Distribution Ratio" means one (1) share of Meridian common stock for each one (1) share of Veldran common stock held of record on the Record Date, representing a 1:1 distribution ratio, resulting in the aggregate distribution of 74,500,000 shares of Meridian common stock (assuming the number of shares of Veldran common stock outstanding as of the date hereof remains unchanged through the Record Date).
"Engineered Coatings Division" means the Engineered Coatings business segment of Veldran, which involves the design, manufacture, and sale of engineered coatings and surface treatment products for industrial and commercial applications, and which will remain with Veldran and continue to be operated by Veldran following the Distribution.
"Greystone" means Greystone Partners Fund III LP, a Delaware limited partnership (Employer Identification Number: 81-2683910), which was the prior controlling shareholder of Veldran prior to the Veldran Acquisition.
"Harrowgate" or "HPE Fund IV" means Harrowgate Private Equity Fund IV, L.P., a limited partnership duly organized and existing under the laws of the State of Delaware (Employer Identification Number: 84-3291067), with a registered address at 1209 Orange Street, Wilmington, Delaware 19801, and a principal office located at 600 Lexington Avenue, 38th Floor, New York, New York 10022.
"Harrowgate Advisors" means Harrowgate Capital Advisors LLC, a limited liability company organized under the laws of the State of Delaware (Employer Identification Number: 83-2756891), which serves as the investment advisor and manager to HPE Fund IV.
"Harrowgate GP" means Harrowgate Capital Partners IV GP LLC, a limited liability company organized under the laws of the State of Delaware (Employer Identification Number: 84-3291104), which serves as the general partner of HPE Fund IV.
"HVH" means Harrowgate Veldran Holdings LLC, a limited liability company organized under the laws of the State of Delaware (Employer Identification Number: 86-1483920), which is a wholly owned subsidiary of HPE Fund IV and the entity through which HPE Fund IV directly holds its shares of Veldran common stock.
"Kestrel" means Kestrel Precision Controls, Inc., a corporation organized under the laws of the State of Georgia (Employer Identification Number: 58-2847193), founded on February 12, 2003, which is a wholly owned subsidiary of Veldran and whose operations are part of the Precision Flow Solutions Division.
"Kestrel Acquisition" means the acquisition by Veldran of one hundred percent (100%) of the outstanding capital stock of Kestrel from Rennick Industrial Partners Fund II LP on June 7, 2019, for aggregate cash consideration of Two Hundred Ninety-Five Million Dollars ($295,000,000), pursuant to a stock purchase agreement dated as of May 3, 2019 between Veldran and Rennick.
"Precision Flow Solutions Division" or "PFS Division" means the Precision Flow Solutions business segment of Veldran, which involves the design, manufacture, and sale of precision fluid-control systems for industrial, petrochemical, and water-infrastructure end markets, and which will be contributed to and operated by Meridian following the Distribution. The PFS Division includes the business and operations of Kestrel Precision Controls, Inc.
"Prescott" means Prescott Capital Management LP, a limited partnership organized under the laws of the State of New York (Employer Identification Number: 13-4928371), with a principal office located at 277 Park Avenue, 42nd Floor, New York, New York 10172.
"Record Date" means the record date for the Distribution, which will be established by the Board prior to the Distribution Date and announced publicly by Veldran. The Record Date has not yet been determined as of the date of this Representation Letter.
"Regulations" means the Treasury Regulations (including temporary and proposed regulations) promulgated under the Code by the United States Department of the Treasury, as in effect on the date of the Tax Opinion.
"Rennick" means Rennick Industrial Partners Fund II LP, a limited partnership organized under the laws of the State of Delaware (Employer Identification Number: 82-3017564), which was the seller of Kestrel in the Kestrel Acquisition.
"Reorganization" means the Contribution, together with the Distribution, intended to qualify as a reorganization under Section 368(a)(1)(D) of the Code.
"Senior Notes" means Veldran's 6.250% Senior Unsecured Notes due 2027, in the aggregate principal amount of Four Hundred Fifty Million Dollars ($450,000,000), issued pursuant to an indenture dated as of September 20, 2019, between Veldran, as issuer, and Colton Trust Company, as indenture trustee, with the principal office of the trustee located at 10 South LaSalle Street, Chicago, Illinois 60603.
"Separation Agreement" means the Separation and Distribution Agreement to be entered into between Veldran and Meridian prior to or concurrently with the Distribution, which will govern the terms and conditions of the separation of the PFS Division from Veldran and the Distribution of Meridian stock.
"Spin-Off" means the Contribution and the Distribution, collectively, as described in Section IV of this Representation Letter.
"Tax Opinion" means the opinion letter to be rendered by Calderwood & Harkness LLP regarding the federal income tax consequences of the Spin-Off, including Tax Counsel's opinion as to whether the Spin-Off qualifies under Sections 355 and 368(a)(1)(D) of the Code.
"Tax Sharing Agreement" means the Tax Sharing Agreement to be entered into between Veldran and Meridian in connection with the Spin-Off, which will govern the allocation of pre-spin and post-spin tax liabilities and contain customary post-spin restrictions on actions by Meridian that could jeopardize the tax-free status of the Distribution.
"Veldran Acquisition" means the acquisition by HPE Fund IV of approximately 62.4% of the outstanding common stock of Veldran (46,488,000 shares) on September 20, 2019, at a price of Forty Dollars ($40.00) per share (aggregate consideration of One Billion Eight Hundred Fifty-Nine Million Five Hundred Twenty Thousand Dollars ($1,859,520,000)), through a negotiated tender offer for Veldran shares followed by a short-form merger squeeze-out of the remaining shares held by Greystone Partners Fund III LP.
SECTION II — REPRESENTATIONS REGARDING THE PARTIES
The undersigned make the following representations regarding the principal parties to and participants in the Spin-Off:
A. Representations Regarding Veldran Industries Holdings, Inc.
1. Veldran is a corporation duly organized, validly existing, and in good standing under the laws of the State of Delaware. Veldran was incorporated on March 14, 2019, and has at all times since its incorporation maintained its corporate existence and good standing under Delaware law.
2. Veldran's Employer Identification Number is 86-1920347. Veldran's registered address in Delaware is 1209 Orange Street, Wilmington, Delaware 19801. Veldran's principal executive office is located at 2400 Commerce Park Drive, Suite 500, Charlotte, North Carolina 28217.
3. Under Veldran's certificate of incorporation, as amended, Veldran is authorized to issue one hundred million (100,000,000) shares of common stock, par value $0.01 per share. As of the date hereof, seventy-four million five hundred thousand (74,500,000) shares of Veldran common stock are issued and outstanding.
4. Veldran has no other class of stock authorized, issued, or outstanding, including without limitation preferred stock, and there are no warrants, options, convertible instruments, or other securities outstanding that could result in the issuance of additional shares of Veldran capital stock, other than equity incentive plan awards (including stock options and restricted stock units) described in Schedule E hereto and granted to members of Veldran's management and Board.
5. Veldran files its federal income tax returns as a C corporation (within the meaning of Section 1361(a)(2) of the Code). Veldran has never elected to be treated as an S corporation under Section 1362 of the Code. Veldran is not and has never been a regulated investment company within the meaning of Section 851 of the Code, a real estate investment trust within the meaning of Section 856 of the Code, a personal holding company within the meaning of Section 542 of the Code, or a tax-exempt entity within the meaning of Section 501 of the Code.
6. Veldran is not a member of an affiliated group filing a consolidated federal income tax return (within the meaning of Section 1504(a) of the Code) with any entity other than its wholly owned subsidiaries, including Kestrel Precision Controls, Inc. Veldran is the common parent of an affiliated group that includes Kestrel as a member, and such group files a consolidated federal income tax return.
B. Representations Regarding Meridian Flow Technologies, Inc. (Planned)
7. Meridian Flow Technologies, Inc. ("Meridian") will be incorporated as a corporation under the laws of the State of Delaware prior to the Contribution. As of the date of this Representation Letter, Meridian has not yet been formed.
8. Meridian's planned registered address will be 1209 Orange Street, Wilmington, Delaware 19801. Meridian's planned principal executive office will be located at 7100 Northlake Parkway, Suite 300, Tucker, Georgia 30084, which is the current principal operating location of the Precision Flow Solutions Division.
9. Prior to the Contribution, Meridian will have no assets, no liabilities, and no operations of any kind. Meridian will be a newly formed, wholly owned subsidiary of Veldran, formed solely for the purpose of receiving the Contributed Business in the Contribution and serving as the Controlled Corporation in the Distribution.
10. Meridian will elect to be treated as a C corporation for federal income tax purposes from and after its date of formation. Meridian will not elect to be treated as an S corporation or as any other pass-through entity for federal income tax purposes.
11. Sandra Waverly, who currently serves as President of the Precision Flow Solutions Division of Veldran, will serve as the Chief Executive Officer of Meridian upon its formation and following the Distribution. Derek Okonkwo, who currently serves as Vice President of Finance of the Precision Flow Solutions Division of Veldran, will serve as the Chief Financial Officer of Meridian upon its formation and following the Distribution. Additional members of Meridian's management team and Board of Directors will be identified and appointed prior to the Distribution Date.
C. Representations Regarding Harrowgate Private Equity Fund IV, L.P.
12. HPE Fund IV is a limited partnership duly organized, validly existing, and in good standing under the laws of the State of Delaware (Employer Identification Number: 84-3291067). HPE Fund IV was formed pursuant to a limited partnership agreement dated as of May 14, 2018, as amended from time to time.
13. The general partner of HPE Fund IV is Harrowgate Capital Partners IV GP LLC, a Delaware limited liability company (Employer Identification Number: 84-3291104). The investment advisor and manager of HPE Fund IV is Harrowgate Capital Advisors LLC, a Delaware limited liability company (Employer Identification Number: 83-2756891).
14. HPE Fund IV holds approximately 62.4% of the outstanding common stock of Veldran, representing forty-six million four hundred eighty-eight thousand (46,488,000) shares of Veldran common stock, all of which are held through HPE Fund IV's wholly owned subsidiary, Harrowgate Veldran Holdings LLC ("HVH"), a Delaware limited liability company (Employer Identification Number: 86-1483920). HVH is treated as a disregarded entity for federal income tax purposes.
15. HPE Fund IV is a private equity fund with approximately Six Billion Eight Hundred Million Dollars ($6,800,000,000) in committed capital (vintage year 2018). HPE Fund IV's key principals are Marcus Adler (Founding Partner and Chairman), Diana Fenn (Managing Partner and Chief Investment Officer, who also serves as Chair of the Board of Directors of Veldran), Tobias Rourke (Partner, Head of Portfolio Operations), and Christine Yeung (General Counsel of Harrowgate Capital Advisors LLC).
D. Representations Regarding Other Shareholders
16. Prescott Capital Management LP ("Prescott"), a New York limited partnership (Employer Identification Number: 13-4928371), with a principal office at 277 Park Avenue, 42nd Floor, New York, New York 10172, holds approximately 14.8% of the outstanding common stock of Veldran, representing eleven million twenty-six thousand (11,026,000) shares of Veldran common stock. The managing partner of Prescott is Andrew Kessler.
17. Prescott originally acquired fifteen million five hundred thousand (15,500,000) shares of Veldran common stock at Forty Dollars ($40.00) per share (aggregate consideration of Six Hundred Twenty Million Dollars ($620,000,000)) as a co-investor alongside HPE Fund IV in connection with the Veldran Acquisition on September 20, 2019. Following the Veldran Acquisition, Prescott subsequently sold four million four hundred seventy-four thousand (4,474,000) shares in a registered secondary offering, reducing its holdings to eleven million twenty-six thousand (11,026,000) shares.
18. Veldran management stockholders, consisting of officers and directors of Veldran, collectively hold approximately 5.3% of the outstanding common stock of Veldran, representing approximately three million nine hundred forty-eight thousand five hundred (3,948,500) shares, consisting of shares acquired pursuant to equity incentive plans and stock purchase programs. The equity incentive plan awards (including vested and unvested stock options and restricted stock units) outstanding as of the date hereof are described in Schedule E.
19. The remaining shares of Veldran common stock — approximately 17.5% of total outstanding shares, representing approximately thirteen million thirty-seven thousand five hundred (13,037,500) shares — are held by public and institutional investors and constitute the public float.
SECTION III — REPRESENTATIONS REGARDING THE CAPITAL STRUCTURE OF VELDRAN
The undersigned make the following representations regarding the capital structure and outstanding indebtedness of Veldran:
A. Outstanding Indebtedness
20. As of the date hereof, Veldran has the following material indebtedness outstanding:
(a) First Lien Term Loan B: One Billion One Hundred Million Dollars ($1,100,000,000) in aggregate principal amount outstanding under the Ashfield Credit Agreement, with Ashfield National Bank, N.A. serving as administrative agent. The First Lien Term Loan B was originally entered into on September 20, 2019 in connection with the financing of the Veldran Acquisition. The First Lien Term Loan B is secured by substantially all of the assets of Veldran and its domestic subsidiaries (including Kestrel).
(b) 6.250% Senior Unsecured Notes due 2027: Four Hundred Fifty Million Dollars ($450,000,000) in aggregate principal amount outstanding, issued pursuant to an indenture dated September 20, 2019 between Veldran, as issuer, and Colton Trust Company, as indenture trustee. The Senior Notes were issued on September 20, 2019 in connection with the financing of the Veldran Acquisition and are senior unsecured obligations of Veldran.
21. Other than the First Lien Term Loan B and the Senior Notes described above, Veldran and its subsidiaries have no other material indebtedness outstanding as of the date hereof, except as may be disclosed in separate schedules provided to Tax Counsel. For purposes of this representation, "material indebtedness" means any indebtedness with an outstanding principal balance in excess of Ten Million Dollars ($10,000,000).
B. Equity Capitalization
22. As described in Section II.A above, Veldran has one hundred million (100,000,000) shares of common stock authorized and seventy-four million five hundred thousand (74,500,000) shares of common stock issued and outstanding.
23. Veldran has no preferred stock or other class of equity securities authorized or outstanding. There are no outstanding warrants, options, convertible debt instruments, or other securities or instruments that could result in the issuance of additional shares of Veldran capital stock, other than equity incentive plan awards (stock options and restricted stock units) as described in Schedule E hereto. Management stockholders hold approximately three million nine hundred forty-eight thousand five hundred (3,948,500) shares (approximately 5.3%) through such plans.
24. There is no shareholder agreement, voting agreement, registration rights agreement, or other contractual arrangement among or between any shareholders of Veldran that would affect the rights attaching to shares of Veldran common stock in connection with the Distribution, or that would restrict or otherwise affect the Distribution, except as may be disclosed in separate schedules provided to Tax Counsel or described elsewhere in this Representation Letter.
SECTION IV — REPRESENTATIONS REGARDING THE PROPOSED TRANSACTION
The undersigned make the following representations regarding the terms and structure of the proposed Spin-Off:
A. Description of the Contribution
25. In connection with the Spin-Off, Veldran will transfer to Meridian all of the assets and liabilities of the Precision Flow Solutions Division (the "Contributed Business"), including but not limited to: (i) all tangible assets, including machinery, equipment, inventory, and supplies; (ii) all intangible assets, including intellectual property, patents, trademarks, trade names, copyrights, trade secrets, know-how, customer lists, and goodwill; (iii) all real property and leasehold interests; (iv) all contracts, agreements, purchase orders, and other commitments associated with the PFS Division; (v) all permits, licenses, and regulatory approvals; and (vi) all liabilities specifically allocated to the PFS Division, as more fully described in the Separation Agreement. The parties anticipate that a detailed schedule of contributed assets and assumed liabilities will be attached to the Separation Agreement.
26. The Contributed Business includes the business, assets, and liabilities of Kestrel Precision Controls, Inc., a wholly owned subsidiary of Veldran. The Kestrel business constitutes an integral component of the Precision Flow Solutions Division and will be transferred to Meridian as part of the Contribution.
27. In exchange for the transfer of the Contributed Business, Meridian will issue to Veldran all of its authorized and outstanding common stock and will assume the liabilities allocated to the PFS Division as set forth in the Separation Agreement. No other consideration (whether in the form of cash, securities, or other property) will be paid or delivered by Meridian to Veldran in connection with the Contribution.
28. The Contribution is intended to satisfy the requirements of a reorganization under Section 368(a)(1)(D) of the Code, including the "control" requirement as applied through Section 354(b)(1) and Section 368(a)(1)(D) of the Code.
29. Immediately after the Contribution and prior to the Distribution, Veldran will own one hundred percent (100%) of the outstanding stock of Meridian, satisfying the control requirement of Section 368(c) of the Code — namely, ownership of stock possessing at least eighty percent (80%) of the total combined voting power of all classes of stock entitled to vote and at least eighty percent (80%) of the total number of shares of all other classes of stock of Meridian.
B. Description of the Distribution
30. Immediately following the Contribution, Veldran will distribute one hundred percent (100%) of the outstanding common stock of Meridian pro rata to holders of Veldran common stock as of the Record Date. No Meridian stock will be retained by Veldran after the Distribution.
31. The Distribution will be effected at a ratio of one (1) share of Meridian common stock for each one (1) share of Veldran common stock held of record on the Record Date (the 1:1 Distribution Ratio). Based on the 74,500,000 shares of Veldran common stock currently outstanding, the Distribution will result in the distribution of an aggregate of 74,500,000 shares of Meridian common stock (subject to adjustment for any change in the number of shares of Veldran common stock outstanding between the date hereof and the Record Date).
32. No consideration of any kind will be paid by Veldran shareholders in exchange for the Meridian shares received in the Distribution. The Distribution will be effected as a dividend in kind.
33. The Distribution is intended to qualify as a tax-free distribution under Section 355(a) of the Code, such that no gain or loss will be recognized by Veldran shareholders upon the receipt of Meridian common stock in the Distribution (except with respect to any cash received in lieu of fractional shares, if applicable).
34. Immediately following the Distribution, each holder of Veldran common stock as of the Record Date will hold one share of Veldran common stock and one share of Meridian common stock for each share of Veldran common stock held immediately prior to the Distribution. The proportionate interests of all Veldran shareholders in the combined enterprise (Veldran plus Meridian) will remain unchanged as a result of the Distribution, and no shareholder will receive disproportionate value.
C. No IRS Ruling
35. No private letter ruling will be sought from the Internal Revenue Service in connection with the Spin-Off or any component thereof. The parties have determined, in consultation with Tax Counsel, that a private letter ruling is not required and that the Tax Opinion to be rendered by Calderwood & Harkness LLP will serve as the sole tax assurance regarding qualification of the Spin-Off under Sections 355 and 368(a)(1)(D) of the Code. The parties acknowledge that the IRS has significantly curtailed the issuance of private letter rulings with respect to Section 355 transactions in recent years and that reliance on a tax opinion from outside counsel is consistent with customary market practice.
D. Separation Agreement and Tax Sharing Agreement
36. Prior to or concurrently with the Distribution, Veldran and Meridian will enter into a Separation and Distribution Agreement (the "Separation Agreement") governing the terms and conditions of the separation of the PFS Division from Veldran and the Distribution of Meridian stock. The Separation Agreement will address, among other things, the transfer of assets and assumption of liabilities, employee matters, intellectual property matters, transition services, and indemnification provisions. The Separation Agreement is being prepared by Tax Counsel in coordination with outside counsel to Veldran and Harrowgate.
37. In addition, Veldran and Meridian will enter into a Tax Sharing Agreement (the "Tax Sharing Agreement") governing the allocation of pre-spin and post-spin federal, state, and local tax liabilities between Veldran and Meridian. The Tax Sharing Agreement will contain customary provisions regarding (i) the filing of pre-spin and post-spin tax returns, (ii) cooperation in tax matters, (iii) indemnification for tax liabilities, and (iv) post-spin restrictions on actions by Meridian (and, where applicable, Veldran) that could jeopardize the tax-free status of the Distribution under Sections 355 and 368(a)(1)(D) of the Code. Such restrictions are expected to include limitations on asset sales, mergers, stock issuances, and other transactions by Meridian during the two-year period following the Distribution Date that could be inconsistent with the representations contained in this Representation Letter or that could adversely affect the tax-free qualification of the Spin-Off.
SECTION V — REPRESENTATIONS REGARDING BUSINESS PURPOSE
The undersigned make the following representations regarding the corporate business purposes motivating the Spin-Off:
A. Corporate Business Purposes
38. The Spin-Off is motivated by the following bona fide corporate business purposes of Veldran, each of which is a real, substantial, and non-tax purpose germane to the business of Veldran and its shareholders:
(i) Independent Capital-Allocation Strategies. The separation of the Engineered Coatings Division and the Precision Flow Solutions Division into two independent publicly traded companies will enable each entity to pursue independent capital-allocation, investment, and financing strategies specifically tailored to the requirements of their respective industries, growth profiles, and capital needs. As currently structured, the two divisions compete internally for capital, management attention, and strategic resources. The Engineered Coatings Division is a mature, cash-generative business characterized by steady, predictable demand cycles in the industrial coatings market, while the Precision Flow Solutions Division is a higher-growth business with significant capital requirements for research and development, capacity expansion, and bolt-on acquisitions in the precision fluid-control and water-infrastructure sectors. The separation will permit Meridian to access the capital markets independently, establish its own credit profile, and deploy capital in accordance with the strategic priorities of its business, without being constrained by the capital requirements, leverage profile, or investment priorities of the Engineered Coatings Division. Similarly, Veldran (post-spin) will be able to optimize its capital structure, pursue a shareholder return strategy consistent with its mature business profile, and pursue strategic acquisitions in the engineered coatings space without the dilutive effect of funding competing investment opportunities in the PFS Division.
(ii) Management Focus and Operational Efficiency. The separation will allow the management teams of each business to focus exclusively on the operational requirements, competitive dynamics, and strategic opportunities of their respective markets. Currently, the CEO and CFO of Veldran are required to oversee two fundamentally different industrial businesses with distinct customer bases, competitive landscapes, regulatory environments, and end-market dynamics. The separation will enable the leadership of each company to concentrate their efforts on the specific operational challenges and growth opportunities of their respective businesses, improving accountability, decision-making speed, and operational efficiency. In addition, the separation will enhance the ability of each company to attract, motivate, and retain key management personnel through equity compensation plans tied directly to the performance of the relevant business, rather than to the performance of a diversified conglomerate.
39. The corporate business purposes described above are purposes of Veldran at the corporate level, independent of and in addition to any investment objectives or fund-level considerations of HPE Fund IV or any other shareholder. The Board has evaluated the Spin-Off in the context of its fiduciary duties to all Veldran shareholders, including public and institutional shareholders, and has determined that the separation is in the best interests of Veldran and all of its shareholders.
40. [Placeholder for additional business purposes: Tax Counsel has advised that additional corporate-level business purposes independent of HPE Fund IV's fund-level objectives may be needed to further support the non-device and business-purpose analysis. Tax Counsel requests that Veldran management and the Board identify any additional business purposes that motivated or contributed to the Board's determination to pursue the Spin-Off. To be discussed with Veldran management (Jonathan Caldecott, Rita Subramanian, Sandra Waverly) and the Board (Diana Fenn, Chair).]
B. Negative Representations Regarding Purpose
41. The Spin-Off is not motivated, in whole or in part, by a purpose of distributing the earnings and profits of Veldran or Meridian. The business purposes described in Section V.A above are the sole purposes motivating the Spin-Off, and no purpose to distribute earnings and profits is a motivating factor for the transaction.
42. The Spin-Off is not principally motivated by a purpose of facilitating the sale, exchange, or monetization of HPE Fund IV's investment in Veldran or the Precision Flow Solutions Division. While HPE Fund IV, as a private equity fund, may in the ordinary course of its business seek to realize a return on its investment in Veldran at some future date, no such sale, exchange, or monetization transaction has been agreed upon, negotiated, or planned as of the date hereof, and the Spin-Off is not being undertaken for the purpose of facilitating any such transaction.
43. The business purposes described in Section V.A above are purposes of Veldran at the corporate level, not merely purposes of one or more of Veldran's shareholders. Each such business purpose is germane to the business of the Distributing Corporation (Veldran) and the Controlled Corporation (Meridian) and would independently justify the separation of the two divisions without regard to the investment objectives of any particular shareholder.
C. Comparative Analysis
44. The Spin-Off is a more practicable means of accomplishing the corporate business purposes described in Section V.A above than alternative transactions considered by the Board, including but not limited to: (i) a sale of the Precision Flow Solutions Division to a third party; (ii) an initial public offering of a minority interest in the PFS Division; (iii) a tracking stock structure; or (iv) a management buyout or leveraged recapitalization of one of the divisions. The Board has evaluated these and other alternatives and has concluded that a tax-free spin-off is the most effective means of achieving the desired separation of the two businesses while preserving value for all Veldran shareholders. A sale of the PFS Division would result in significant tax leakage at the corporate level and would not provide Veldran shareholders with continuing ownership of the PFS Division business. An IPO of a minority interest would not achieve a full separation and would create ongoing conflicts of interest. A tracking stock structure would not provide operational independence or independent access to the capital markets.
45. [Note: The Board's analysis of alternatives is expected to be documented in board resolutions and minutes. Tax Counsel requests that copies of all relevant board resolutions, minutes of meetings at which the Spin-Off and alternatives were discussed, and any presentations by financial advisors be provided to Tax Counsel for review. To be coordinated with Philip Crundell (Veldran GC) and Whitfield & Gage LLP.]
SECTION VI — REPRESENTATIONS REGARDING ACTIVE TRADE OR BUSINESS (§ 355(b))
The undersigned make the following representations regarding the active trade or business requirements of Section 355(b) of the Code:
A. Engineered Coatings Division (Veldran — Distributing)
46. The Engineered Coatings Division has been engaged in the active conduct of a trade or business, within the meaning of Section 355(b)(2) of the Code, throughout the entire five-year period ending on the Distribution Date (the "ATB Period"). The Engineered Coatings Division has at all times during the ATB Period involved the design, manufacture, and sale of engineered coatings and surface treatment products for industrial and commercial applications. Veldran (or its predecessor entities, to the extent applicable) has directly conducted, or conducted through wholly owned subsidiaries, the Engineered Coatings trade or business continuously throughout the ATB Period.
47. For the fiscal year ended December 31, 2021, the Engineered Coatings Division generated revenue of approximately One Billion Five Hundred Twenty Million Dollars ($1,520,000,000) and EBITDA (earnings before interest, taxes, depreciation, and amortization) of approximately Two Hundred Eighty-Five Million Dollars ($285,000,000), representing an EBITDA margin of approximately 18.75%. The Engineered Coatings Division employs a substantial workforce and operates multiple manufacturing facilities in the United States and internationally.
48. The Engineered Coatings Division was not acquired by Veldran or any predecessor of Veldran in a transaction in which gain or loss was recognized (in whole or in part) during the ATB Period. No exception to this representation is anticipated. The active trade or business of the Engineered Coatings Division has been conducted by Veldran or its wholly owned subsidiaries throughout the ATB Period without interruption.
B. Precision Flow Solutions Division (Meridian — Controlled)
49. The Precision Flow Solutions Division has been engaged in the active conduct of a trade or business, within the meaning of Section 355(b)(2) of the Code, throughout the entire ATB Period. The Precision Flow Solutions Division has at all times during the ATB Period involved the design, manufacture, and sale of precision fluid-control systems for industrial, petrochemical, and water-infrastructure end markets. Veldran has directly conducted, or conducted through wholly owned subsidiaries (including Kestrel), the Precision Flow Solutions trade or business continuously throughout the ATB Period.
50. For the fiscal year ended December 31, 2021, the Precision Flow Solutions Division generated revenue of approximately Eight Hundred Twenty Million Dollars ($820,000,000) and EBITDA of approximately One Hundred Thirty-Three Million Dollars ($133,000,000), representing an EBITDA margin of approximately 16.22%. The Precision Flow Solutions Division employs a substantial portion of Veldran's approximately 8,200 total employees and operates multiple manufacturing and engineering facilities, primarily in the southeastern United States.
C. Kestrel Acquisition — § 355(b)(2)(C) and (D)
51. On June 7, 2019, Veldran acquired one hundred percent (100%) of the outstanding capital stock of Kestrel Precision Controls, Inc. from Rennick Industrial Partners Fund II LP for aggregate cash consideration of Two Hundred Ninety-Five Million Dollars ($295,000,000). The Kestrel Acquisition was structured as a fully taxable stock acquisition — that is, the transaction was a purchase of Kestrel stock in which Rennick recognized gain or loss on the sale.
52. The Kestrel Acquisition closed on June 7, 2019, which is within the five-year ATB Period (the period beginning five years before the anticipated Distribution Date in Q4 2022 — i.e., approximately Q4 2017 through the Distribution Date). Accordingly, the Kestrel Acquisition is a transaction in which gain or loss was recognized that occurred during the ATB Period, and Section 355(b)(2)(C) of the Code is potentially implicated.
53. Kestrel's business constitutes approximately thirty-five percent (35%) of the Precision Flow Solutions Division's fiscal year 2021 revenue, representing approximately Two Hundred Eighty-Seven Million Dollars ($287,000,000) out of the PFS Division's total revenue of Eight Hundred Twenty Million Dollars ($820,000,000). The Kestrel business is therefore a material component of the Precision Flow Solutions Division.
54. Kestrel Precision Controls, Inc. was incorporated in the State of Georgia on February 12, 2003 (Employer Identification Number: 58-2847193). Kestrel has continuously operated the precision flow controls business since its founding — a period of approximately nineteen (19) years as of the anticipated Distribution Date. Specifically, Kestrel has at all times since February 12, 2003 been actively engaged in the design, manufacture, and sale of precision flow control components and systems.
55. Kestrel conducted the precision flow controls business continuously for the full five-year period preceding the anticipated Distribution Date, within the meaning of Section 355(b)(2)(D) of the Code. That is, Kestrel (the acquired corporation) was engaged in the active conduct of the precision flow controls trade or business throughout the five-year period ending on the Distribution Date, and such trade or business was not acquired by Kestrel in a transaction in which gain or loss was recognized during such period.
56. Prior to the Kestrel Acquisition, Kestrel was wholly owned by Rennick Industrial Partners Fund II LP (Employer Identification Number: 82-3017564). Kestrel was not a member of Veldran's affiliated group (within the meaning of Section 1504(a) of the Code) at any time prior to June 7, 2019. There was no prior affiliation, common ownership, or other relationship between Veldran and Kestrel prior to the Kestrel Acquisition.
57. [To be confirmed: No election under Section 338 of the Code (including Section 338(g) or Section 338(h)(10)) was made by Veldran or any other party in connection with the Kestrel Acquisition. Tax Counsel requires confirmation of this fact, as a Section 338 election could affect the basis and holding period of Kestrel's assets and could alter the Section 355(b)(2)(C)/(D) analysis.]
58. Tax Counsel has advised that Section 355(b)(2)(C) of the Code is implicated by the Kestrel Acquisition because the Kestrel stock was acquired in a transaction in which gain or loss was recognized during the ATB Period. However, Tax Counsel has further advised that the safe harbor of Section 355(b)(2)(D) of the Code should be satisfied with respect to the Kestrel business because the trade or business conducted by Kestrel was actively conducted by Kestrel throughout the five-year period ending on the Distribution Date, and such trade or business was not itself acquired by Kestrel in a gain-or-loss recognition transaction during that period. Accordingly, the Kestrel business should qualify as an active trade or business for purposes of Section 355(b) notwithstanding the taxable acquisition of Kestrel stock during the ATB Period.
D. No Acquisition of Either Division in a § 355(b)(2)(C) Transaction (Other Than Kestrel)
59. Other than the Kestrel Acquisition described in Section VI.C above, neither the Engineered Coatings Division nor the Precision Flow Solutions Division (or any component thereof, including any subsidiary, asset, or business line) was acquired by Veldran or any of its affiliates in a transaction in which gain or loss was recognized (in whole or in part) during the ATB Period. The undersigned are not aware of any other acquisition during the ATB Period that would implicate Section 355(b)(2)(C) or Section 355(b)(2)(D) of the Code with respect to either division.
SECTION VII — REPRESENTATIONS REGARDING THE DEVICE TEST (§ 355(a)(1)(B))
The undersigned make the following representations regarding the device limitation of Section 355(a)(1)(B) of the Code:
A. No Agreement, Understanding, or Arrangement Regarding Post-Spin Sale
60. As of the date of this Representation Letter and as of the anticipated Distribution Date, there is no agreement, understanding, arrangement, or substantial negotiations (whether written or oral, binding or non-binding, formal or informal) for the sale, exchange, transfer, or other disposition of stock of Veldran or Meridian by any shareholder of Veldran that would occur after the Distribution. No shareholder of Veldran has been approached by, or has approached, any potential acquiror regarding a transaction involving the stock of Veldran or Meridian that would occur following the Distribution, and no discussions or negotiations of any kind have taken place with respect to any such transaction.
61. No shareholder of Veldran has entered into any hedging transaction, monetization transaction, prepaid variable forward contract, equity collar, or similar financial instrument or arrangement with respect to shares of Veldran common stock that would be affected by the Distribution or that would have the economic effect of a sale or disposition of such shares.
B. Nature of Distribution — Pro Rata
62. The Distribution will be pro rata to all holders of Veldran common stock as of the Record Date. Each holder of Veldran common stock will receive the same number of shares of Meridian common stock per share of Veldran common stock held, and no shareholder will receive disproportionate value as a result of the Distribution.
63. The undersigned acknowledge that the pro rata nature of the Distribution is identified in Regulations Section 1.355-2(d)(2)(iv)(A) as a factor that may be treated by the IRS as evidence that the Distribution is being used principally as a device for the distribution of earnings and profits. However, the undersigned represent that this factor is outweighed by the substantial corporate business purposes described in Section V.A above and by other non-device factors, including the absence of any agreement or arrangement for a post-Distribution sale of Veldran or Meridian stock, the absence of any extraordinary cash payments in connection with the Distribution, and the fact that both Veldran and Meridian will continue to conduct active trades or businesses following the Distribution.
C. Dividend History
64. [Veldran's dividend history for the five-year period preceding the Distribution Date is to be provided by Veldran management and Pemberton Rathbone LLP. Tax Counsel requires a complete history of all dividends (whether regular, special, or extraordinary) declared and paid by Veldran on its common stock from and after its incorporation on March 14, 2019 through the date hereof, including the amount per share, the record date, the payment date, and the aggregate amount paid. This information is relevant to the device analysis under Regulations Section 1.355-2(d)(2)(iv)(B), which identifies the nature, kind, amount, and timing of dividends as a device factor.]
D. Relative Earnings and Profits
65. [Veldran's accumulated earnings and profits and current earnings and profits are to be provided by Veldran management and Pemberton Rathbone LLP, segregated between the Engineered Coatings Division and the Precision Flow Solutions Division to the extent practicable. Tax Counsel requires this information for purposes of the device analysis, including the analysis of whether the Distribution could be used as a device for the distribution of earnings and profits under Section 355(a)(1)(B). The relative earnings and profits of the Distributing Corporation and the Controlled Corporation, and the ratio of such earnings and profits to the fair market value of the respective corporations, are factors considered in the device analysis.]
E. Controlling Shareholder Considerations
66. HPE Fund IV holds 62.4% of Veldran common stock through HVH. HPE Fund IV is a private equity fund with a limited partnership structure and a finite fund life. In the ordinary course of its business, HPE Fund IV may seek to realize a return on its investment in Veldran through range means, which could include, among other things, a sale of shares in the public market, a negotiated private sale, or a secondary offering. However, as of the date of this Representation Letter, there is no plan, intent, agreement, understanding, or arrangement by HPE Fund IV, HVH, Harrowgate GP, Harrowgate Advisors, or any affiliate, principal, or representative of any of the foregoing, to sell, exchange, or otherwise dispose of any shares of Veldran or Meridian common stock following the Distribution.
67. The undersigned acknowledge that the existence of HPE Fund IV's controlling position in Veldran and its status as a private equity fund with a finite fund life may be viewed by the IRS as a factor relevant to the device analysis. However, the undersigned represent that HPE Fund IV's status as a controlling shareholder does not, by itself, make the Distribution a device for the distribution of earnings and profits. The corporate business purposes described in Section V.A above provide substantial non-device justification for the Spin-Off independent of HPE Fund IV's fund-level investment objectives, and the absence of any agreement or arrangement for a post-Distribution sale further supports the conclusion that the Distribution is not being used principally as a device.
SECTION VIII — REPRESENTATIONS REGARDING § 355(d) — DISQUALIFIED DISTRIBUTION
The undersigned make the following representations regarding the application of Section 355(d) of the Code:
A. Purchase Within Five-Year Period
68. HPE Fund IV acquired its 62.4% stake in Veldran (46,488,000 shares) on September 20, 2019. This acquisition was effected through a negotiated tender offer followed by a merger squeeze-out of Greystone Partners Fund III LP, and constituted a "purchase" within the meaning of Section 355(d)(5) of the Code, because HPE Fund IV acquired the Veldran shares from unrelated parties in exchange for cash consideration.
69. As of an anticipated Distribution Date in Q4 2022, the September 20, 2019 acquisition by HPE Fund IV would fall within the five-year look-back period specified in Section 355(d)(3) of the Code — that is, the acquisition would have occurred within the five-year period ending on the date of the Distribution. The five-year period under Section 355(d)(3) is measured from the Distribution Date backward; because the Veldran Acquisition occurred on September 20, 2019, and the Distribution Date is anticipated in Q4 2022 (approximately three years later), the Veldran Acquisition is within the five-year look-back period.
70. Prescott Capital Management LP also acquired its shares of Veldran common stock on September 20, 2019 as a co-investor in the Veldran Acquisition. Prescott's acquisition of its shares similarly constituted a "purchase" within the meaning of Section 355(d)(5) of the Code, and such purchase is also within the five-year look-back period of Section 355(d)(3).
B. Implications.
71. The aggregate "purchased" interest in Veldran held by HPE Fund IV and Prescott is as follows: HPE Fund IV holds 62.4% and Prescott holds 14.8%, for a combined total of approximately 77.2% of the outstanding common stock of Veldran. This aggregate purchased interest exceeds the fifty percent (50%) threshold specified in Section 355(d)(2) for both the Distributing Corporation (Veldran) and the Controlled Corporation (Meridian) immediately after the Distribution. Because the Distribution is pro rata, each shareholder's proportionate interest in Meridian will mirror its proportionate interest in Veldran immediately before the Distribution; accordingly, HPE Fund IV and Prescott will hold approximately 77.2% of the outstanding Meridian common stock immediately after the Distribution.
72. Tax Counsel will analyze whether the Distribution constitutes a "disqualified distribution" within the meaning of Section 355(d)(2) of the Code and, if so, whether any exception or safe harbor applies. The Section 355(d) analysis will be coordinated with the analysis under Section 355(e) set forth in Section IX below, as both provisions address the interaction between acquisitions of stock and subsequent distributions. If Section 355(d) applies, the Distribution would not be a tax-free distribution, and Veldran would recognize gain on the distribution of Meridian stock as if such stock had been sold at fair market value.
SECTION IX — REPRESENTATIONS REGARDING § 355(e) — PLAN OR SERIES OF RELATED TRANSACTIONS
The undersigned make the following representations regarding the application of Section 355(e) of the Code:
A. The Veldran Acquisition
73. On September 20, 2019, HPE Fund IV acquired approximately 62.4% of the outstanding common stock of Veldran, representing forty-six million four hundred eighty-eight thousand (46,488,000) shares at a price of Forty Dollars ($40.00) per share, for aggregate consideration of One Billion Eight Hundred Fifty-Nine Million Five Hundred Twenty Thousand Dollars ($1,859,520,000). The acquisition was effected through a negotiated tender offer for all outstanding Veldran shares, followed by a short-form merger squeeze-out of the remaining shares held by Greystone Partners Fund III LP (Employer Identification Number: 81-2683910), which was the prior controlling shareholder of Veldran.
74. The Veldran Acquisition constituted a change of control of Veldran. Prior to the Veldran Acquisition, Greystone held a controlling interest in Veldran. Following the Veldran Acquisition, HPE Fund IV (through HVH) held 62.4% of the outstanding Veldran common stock and Prescott Capital Management LP held approximately 20.8% (15,500,000 shares, prior to Prescott's subsequent secondary offering).
75. HPE Fund IV's equity contribution to the Veldran Acquisition was approximately One Billion Two Hundred Forty Million Dollars ($1,240,000,000). Prescott Capital Management LP co-invested approximately Six Hundred Twenty Million Dollars ($620,000,000) (15,500,000 shares at $40.00 per share). The balance of the acquisition financing was provided through the First Lien Term Loan B and the Senior Notes described in Section III.A above.
B. No Pre-Acquisition Discussions of a Spin-Off
76. [Prior to the consummation of the Veldran Acquisition on September 20, 2019, neither Harrowgate nor any of its affiliates, principals, partners, officers, employees, representatives, or advisors discussed, explored, proposed, or agreed upon any plan, intention, or course of action to effect a spin-off, split-off, split-up, or other separation of the Precision Flow Solutions Division or any other business segment of Veldran from Veldran. The Spin-Off was not contemplated, discussed, or analyzed as part of the investment thesis, underwriting analysis, or due diligence process for the Veldran Acquisition.]
77. [IMPORTANT NOTE FROM TAX COUNSEL: This representation requires additional factual support and verification. The § 355(e) "plan" analysis under Treasury Regulations Section 1.355-7 is highly fact-intensive and depends on the totality of the circumstances, including whether any discussions of a potential spin-off or separation occurred before, during, or after the Veldran Acquisition. Tax Counsel requests that this representation be reviewed and confirmed by the following Harrowgate principals: Marcus Adler (Founding Partner and Chairman), Diana Fenn (Managing Partner and CIO), and Tobias Rourke (Partner, Head of Portfolio Operations). In addition, Tax Counsel requests the production of any internal memoranda, investment committee presentations, board materials, or communications with advisors from the period preceding the Veldran Acquisition that reference, discuss, or analyze the possibility of a separation, spin-off, or divestiture of any Veldran business segment.]
C. Temporal Gap
78. The period between the Veldran Acquisition (September 20, 2019) and the anticipated Distribution Date (Q4 2022) is approximately three (3) years. This temporal gap is a relevant factor in the Section 355(e) "plan" analysis under Treasury Regulations Section 1.355-7.
79. [Tax Counsel notes the following regarding the temporal gap: Under Treasury Regulations Section 1.355-7(b)(2), a distribution and an acquisition are treated as part of a "plan" if they are part of the same plan or if one is undertaken in furtherance of the other. The regulations provide certain safe harbors and anti-abuse rules. Specifically, Regulations Section 1.355-7(d)(1) provides a safe har