Contract analysis

I. Executive Summary This memorandum analyzes the federal and state income tax implications of the proposed approximately $335,000,000 dividend recapitalization to be funded from a portion of the proceeds of the $1,400,000,000 senior secured Term Loan B facility (the "Facility" or "Term Loan B") to be entered into by Nexford Industrial Holdings Inc. ("Nexford" or "NIH" or the "Borrower" or the "Company"). The purpose

II. Transaction Overview A. Background Granite Peak Capital Partners, LP, through its flagship fund Granite Peak Capital Fund IV, LP, acquired Nexford Industrial Holdings Inc. in January 2019 for an enterprise value of approximately $1,650,000,000. The acquisition was funded with an equity investment of approximately $725,000,000, contributed through the Holdings structure, together with debt financing under the Exis

III. Federal Income Tax Analysis of the Distribution A. Characterization Framework — IRC Section 301 The federal income tax treatment of the proposed distribution is governed by Section 301 of the Code, which prescribes a three-tier characterization framework for distributions of property by a corporation to a shareholder with respect to its stock. The characterization proceeds in the following order: (1) Dividend (S

1. Current E&P Nexford's LTM Adjusted EBITDA as of December 31, 2024 is $385,000,000. This figure comprises $357,000,000 of reported EBITDA (as set forth in Nexford's audited consolidated financial statements for the fiscal year ended December 31, 2024, prepared by Ashworth & Kendrick LLP) plus $28,000,000 in permitted add-backs, which consist of the following items: • Acquisition-related costs: $12,000,000 • Non-rec

2. Accumulated E&P Nexford was founded in 1987 and has operated continuously for more than 37 years as a manufacturer of precision industrial components. Over this period, Nexford has accumulated E&P reflecting the retained earnings of its operations, adjusted for the various E&P-specific modifications described above. The starting point for accumulated E&P is therefore the cumulative E&P generated from 1987 through

3. E&P Sufficiency Assessment Based on the information currently available, our preliminary assessment of E&P sufficiency is as follows: (a) Scenario 1: No Section 338(h)(10) Election (Pre-Acquisition E&P Carries Over). If the 2019 acquisition was a stock purchase without a Section 338(h)(10) election, accumulated E&P is likely to be very substantial, potentially exceeding $600,000,000 when pre-acquisition and post-a

1. If Holdings Is a Disregarded Entity If Holdings is properly classified as a disregarded entity for federal income tax purposes — which would be the case if it were a single-member LLC (i.e., if Fund IV is the sole member and Co-Invest's interest is structured differently, or if a valid check-the-box election to disregard has been filed) — then the distribution from Nexford to Holdings is treated, for federal incom

2. If Holdings Is a Partnership (Two-Member LLC) If Holdings is properly classified as a partnership for federal income tax purposes — which is the default classification for a domestic LLC with two or more members under Treasury Regulation § 301.7701-3(b)(1), absent a check-the-box election — then the analysis proceeds in two steps. First, the distribution from Nexford to Holdings is received at the partnership leve

3. Dividends-Received Deduction Considerations To the extent that any partner of Fund IV or Co-Invest is a C corporation, such corporate partner may be entitled to a dividends-received deduction ("DRD") under Section 243 of the Code for the dividend portion of the distribution that is allocable to it. The amount of the DRD depends on the corporate partner's ownership percentage in the distributing corporation (Nexfor

Section 1059 of the Code imposes a basis-reduction requirement on corporate shareholders that receive an "extraordinary dividend" and claim a DRD with respect to that dividend. Specifically, Section 1059(a) provides that if any corporation receives an extraordinary dividend with respect to any share of stock and the corporation has not held the stock for more than two years before the dividend announcement date, the

IV. Debt vs. Equity Recharacterization Risk A. Overview of Risk In any leveraged recapitalization transaction in which a substantial portion of the debt proceeds is distributed to equity holders, there exists a theoretical risk that the Internal Revenue Service could seek to recharacterize a portion of the new debt as equity for federal income tax purposes. If any portion of the Term Loan B were recharacterized as eq

V. State and Local Tax Considerations A. Illinois — Nexford's State of Tax Residence Nexford is headquartered in Schaumburg, Illinois, and is an Illinois resident taxpayer. Nexford files Illinois corporate income tax returns on a calendar-year basis (fiscal year ending December 31). Illinois imposes a flat-rate corporate income tax currently at 7.0%, plus a personal property replacement tax ("replacement tax") on cor

VI. Tax-Efficient Structuring Considerations A. Timing of Distribution The proposed distribution should be made promptly at or immediately following the closing of the Facility (currently targeted for March 28, 2025) in order to align with the stated use of proceeds under the Credit Agreement. From a tax perspective, the timing of the distribution within the 2025 taxable year is relevant to the characterization analy