Contract analysis

I. EXECUTIVE SUMMARY AND PURPOSE The purpose of this memorandum is to identify and prioritize the key negotiation points arising from the first draft credit agreement circulated by Whitfield & Gage LLP ("W&G") on February 24, 2025, on behalf of Crescent Harbor Bank, N.A. ("Crescent Harbor"), as Administrative Agent, and to recommend the positions to be taken by Nexford Industrial Holdings Inc. ("Nexford" or the "Borr

II. INCREMENTAL FACILITY FLEXIBILITY Incremental facility flexibility is the single most important covenant negotiation point in this credit agreement from the Borrower's perspective. Nexford's growth strategy is fundamentally acquisition-driven, and the Borrower has completed four bolt-on acquisitions since Granite Peak's initial investment in 2021: Clearfield Tool & Die, Inc. (2021), Summit Industrial Fabrication C

III. EBITDA ADD-BACKS AND ADJUSTMENTS A. Permitted Add-Backs The definition of "Consolidated EBITDA" (or "Adjusted EBITDA") in the credit agreement is a critical gating mechanic that affects virtually every financial test and basket in the agreement, including the incurrence ratios for incremental debt, the restricted payment ratio test, the excess cash flow calculation, and the builder basket. The current Adjusted E

IV. RESTRICTED PAYMENTS The restricted payments covenant governs the Borrower's ability to make dividends, distributions, equity repurchases, and other payments to Holdings, the Sponsor, and other equityholders. This is a highly sensitive area for the Sponsor and has been the subject of extensive discussion with Ryan Ostrowski and Patricia Voss. A. General Basket The W&G draft proposes a $20,000,000 annual general ba

V. FINANCIAL COVENANT FRAMEWORK A. Springing Maintenance Covenant The parties have agreed to a springing financial maintenance covenant consisting of a maximum first lien net leverage ratio of 5.00x (5.00 to 1.00), tested quarterly only when aggregate outstanding revolving loans exceed 40% of total revolving commitments at the end of the applicable fiscal quarter. Importantly, no revolving credit facility is being es

VI. NEGATIVE COVENANT FLEXIBILITY — INDEBTEDNESS A. Capital Leases and Purchase Money Debt The W&G draft proposes a cap of $35,000,000 on indebtedness in respect of capital leases (now "finance leases" under ASC 842) and purchase money obligations incurred to finance the acquisition of fixed or capital assets. Borrower's Position. The Borrower should seek to increase this cap to $50,000,000. Nexford's manufacturing o

VII. NEGATIVE COVENANT FLEXIBILITY — LIENS The negative covenant on liens operates in tandem with the indebtedness covenant to govern the security that the Borrower and its subsidiaries may grant to third parties. The following positions should be advanced: Matching Lien Baskets. Liens securing any category of permitted indebtedness should be automatically permitted as a corresponding lien basket. That is, each debt

VIII. NEGATIVE COVENANT FLEXIBILITY — INVESTMENTS A. General Investment Basket The W&G draft proposes a general investment basket of $30,000,000. Borrower's Position. The general investment basket should be increased to $50,000,000. This basket covers a broad range of ordinary-course investments, including joint ventures, minority equity investments, strategic partnerships, and other investments that do not constitut

IX. COLLATERAL PACKAGE — EXCLUDED ASSETS AND LIMITATIONS A. Excluded Assets The credit agreement and the related security agreement should exclude the following categories of assets from the pledged collateral. These exclusions are consistent with market practice for sponsor-backed Term Loan B transactions and reflect a commercially reasonable assessment of the costs and burdens of perfection relative to the incremen

X. ASSET DISPOSITION COVENANT The credit agreement requires mandatory prepayment of the Term Loan B from 100% of net cash proceeds of asset sales, subject to the Borrower's reinvestment rights as described below. Reinvestment Rights. The Borrower should have three hundred and sixty-five (365) days from receipt of net cash proceeds from an asset sale to reinvest such proceeds in assets useful in the Borrower's busines

XI. EXCESS CASH FLOW SWEEP The credit agreement includes a mandatory prepayment from Excess Cash Flow ("ECF"), determined annually based on the following step-down schedule: Borrower's Positions on ECF Calculation. The definition of Excess Cash Flow and the calculation mechanics are critical to determining the actual dollar amount of any mandatory prepayment obligation. The Borrower should confirm that the following

XII. CHANGE OF CONTROL PROVISION The credit agreement includes a change of control prepayment event that permits the Administrative Agent, at the direction of the Required Lenders, to declare all outstanding obligations immediately due and payable upon the oc