Contract analysis

I. EXECUTIVE SUMMARY Calderwood & Harkness LLP ("C&H") was engaged on April 22, 2022 (matter formally opened April 26, 2022) to conduct a comprehensive review of the Directors & Officers ("D&O") liability insurance tower and the product-liability ("PL") insurance tower maintained by Nexford Industrial Holdings Inc. ("Nexford" or the "Company") and its subsidiaries in connection with the upcoming July 1, 2022 renewal

1. Increase the Side-A DIC limit from $15 million to $20 million — to provide enhanced dedicated personal protection for individual directors and officers, with particular importance given Veltrano Capital Partners' 68.5% equity ownership, the five sponsor-appointed directors on a nine-member board, and the potential IPO contemplated in the 2023-2024 timeframe.

2. Increase the product recall sub-limit from $2.5 million per occurrence / $5 million aggregate to $5 million per occurrence / $10 million aggregate — in light of the Company's historical recall and advisory costs totaling $1.44 million across just two events and industry benchmarking data supporting a higher sub-limit for a diversified industrial manufacturer shipping approximately 42,000 SKUs annually. C&H recomme

II. COMPANY OVERVIEW AND INSURANCE CONTEXT A. Corporate Structure Nexford Industrial Holdings Inc. is a Delaware corporation headquartered at 2200 Corporate Center Drive, Suite 800, Schaumburg, Illinois 60173. The Company serves as the parent holding company for three wholly-owned operating subsidiaries, each of which is a named insured under both the D&O and PL insurance programs. The operating subsidiaries and thei

1. Nexford Conveyor Systems, LLC — A Delaware limited liability company with principal operations in Joliet, Illinois. Nexford Conveyor Systems ("NCS") designs, manufactures, and distributes heavy-duty belt and roller conveyor systems for use in range industrial applications, including mining, grain processing, manufacturing, and logistics. NCS is the Company's largest operating subsidiary, contributing approximately

2. Triton Fastener Corp. — An Illinois corporation with principal operations in Rockford, Illinois. Triton Fastener Corp. ("Triton") manufactures and distributes industrial fasteners, bolts, and anchoring systems for use in construction, infrastructure, heavy equipment, and general industrial applications. Triton's products are sold through both direct sales channels and a network of industrial distributors. Triton c

3. Marlowe Asset Management Precision Machining, Inc. — An Ohio corporation with principal operations in Akron, Ohio. Marlowe Asset Management Precision Machining ("Marlowe Asset Management") produces precision-machined components for the automotive and construction equipment sectors, serving original equipment manufacturers and Tier 1 suppliers. Pemberton Investors approximately 16% of consolidated revenue ($227.2 m

III. INCUMBENT TOWER SUMMARY (2021-2022 POLICY YEAR: JULY 1, 2021 – JULY 1, 2022) A. D&O Tower — Incumbent Structure The following table summarizes the incumbent D&O liability insurance tower for the 2021-2022 policy year (July 1, 2021 through July 1, 2022): Total D&O aggregate limit: $55 million (comprised of $40 million across the four ABC layers plus $15 million of dedicated Side-A DIC coverage). Total D&O annual

IV. CLAIMS HISTORY AND PENDING LITIGATION A thorough understanding of the Company's claims history and pending litigation is essential to the assessment of tower adequacy, the evaluation of renewal terms, and the identification of potential coverage issues that may arise in connection with the transition to the renewal policy period. A. Product-Liability Claims — Five-Year History Over the five-year period examined b

1. Triton Fastener Corp. Voluntary Product Recall. Initiated on March 12, 2020, this voluntary recall involved a specific lot of Grade 5 carriage bolts that were identified as having been manufactured with an incorrect heat treatment specification. The recall encompassed approximately 18,000 units distributed through multiple channels. Total cost of the recall, including notification, retrieval, replacement, and asso

2. Nexford Conveyor Systems Advisory Notice. Issued on August 7, 2020, this advisory notice (not a formal recall) related to a recommended inspection and preventive maintenance protocol for a specific model of roller bearing assembly used in NCS conveyor systems manufactured during a particular production period. The advisory notice resulted in costs of $340,000, principally comprised of customer notification, field

V. KEY FINDINGS — D&O TOWER GAP ANALYSIS C&H identified 14 coverage gaps or concerns in the D&O program through its comprehensive tower review. The complete analysis is set forth in the Comprehensive D&O Tower Review Report dated June 17, 2022 (Appendix B). The following is a summary of the principal findings for the Board's consideration. A. Severability of the Application C&H identified inconsistencies across the D

VI. KEY FINDINGS — PRODUCT-LIABILITY TOWER GAP ANALYSIS C&H identified 11 coverage gaps or concerns in the PL program through its comprehensive tower review. The complete analysis is set forth in the Comprehensive Product-Liability Tower Review Report dated June 17, 2022 (Appendix C). The following is a summary of the principal findings for the Board's consideration. A. Product Recall Sub-Limit Inadequacy The incumbe

VII. RECOMMENDED RENEWAL TERMS (JULY 1, 2022 – JULY 1, 2023) A. D&O Tower — Renewal Structure The following table summarizes the recommended D&O liability insurance tower for the 2022-2023 renewal policy year (July 1, 2022 through July 1, 2023): Total D&O aggregate limit: $60 million — comprised of $40 million across the four ABC layers, plus $20 million of dedicated Side-A DIC coverage. The Side-A DIC limit increase

VIII. C&H KEY RECOMMENDATIONS — SUMMARY OF ACTIONS ADOPTED A. Side-A DIC Limit Increase ($15M → $20M) C&H recommended, and management has adopted, an increase in the Side-A DIC limit from $15 million to $20 million. The rationale for this recommendation is rooted in three principal considerations:

1. PE Sponsor Control Dynamics. Veltrano Capital Partners holds 68.5% of the Company's equity and appoints five of nine directors to the Board. This level of sponsor control creates governance dynamics that can give rise to claims between the sponsor (or sponsor-affiliated directors) and the Company's independent directors and officers. In such scenarios, the Side-A DIC layer provides the critical protection for indi

2. Independent Director Protection. The four independent directors on the Board have a particularly acute need for robust personal protection. Unlike sponsor-appointed directors, who benefit from the indemnification and insurance resources of Veltrano Capital Partners, independent directors must rely on the Company's D&O program — and specifically the Side-A DIC — as their primary source of personal protection agains

3. Potential IPO. If the Company proceeds with an IPO in the 2023-2024 timeframe, the pre-IPO Side-A DIC limit will serve as the foundation for the public company D&O program. Establishing a higher Side-A baseline now positions the Company favorably for the transition to a public company tower, which will require substantially enhanced limits across all layers. The premium impact of this enhancement is an increase fr

1. Historical Recall Costs. The Company's combined historical recall and advisory costs of $1.44 million across two events represent over 57% of the incumbent $2.5 million per-occurrence sub-limit. Neither of these events involved a large-scale or high-profile recall. A single significant recall event could easily exhaust or exceed the incumbent sub-limit.

2. Industry Benchmarking. Benchmarking data compiled by C&H indicates that peer manufacturers of similar size and product profile generally maintain product recall sub-limits at or above the $5 million per occurrence level. The incumbent $2.5 million sub-limit placed the Company below the median of its peer group.

3. Product Breadth and Multi-Subsidiary Risk. With approximately 42,000 SKUs shipped annually across three operating subsidiaries, the potential for concurrent or serial recall events affecting different product lines or different subsidiaries is meaningful. The increased aggregate sub-limit of $10 million (up from $5 million) provides additional capacity to address multiple recall events within a single policy year.

1. Advancement of Expenses Clause. The current form indemnification agreement's advancement of expenses clause does not align with the Harrington Side-A DIC trigger mechanism. Specifically, the indemnification agreement requires a determination of entitlement to indemnification prior to advancement, which could create a delay that triggers the DIC's "company refusal" provision. C&H has recommended that the advancemen

2. Definition of "Proceeding." The form indemnification agreement's definition of "Proceeding" is narrower than the D&O policy's definition of "Claim," creating a potential gap where a matter constitutes a covered "Claim" under the policy but does not qualify as a "Proceeding" under the indemnification agreement. C&H has recommended that the definition of "Proceeding" be broadened to encompass all matters that would

IX. RENEWAL MARKETING PROCESS SUMMARY The following is a summary of the key milestones in the 2022-2023 renewal marketing process: The marketing process was conducted by Ashford Breckinridge LLP, the Company's insurance broker of record, with Phillip Garza, Senior Vice President, Executive Risk Practice, serving as the lead broker and Tamara Fisk, Account Executive, providing day-to-day coordination. C&H provided leg

X. PENDING CLAIMS TREATMENT AT RENEWAL The treatment of pending claims at the renewal is a critical consideration to ensure continuity of coverage and avoid gaps in protection for the Company's existing liabilities. Both Higgins v. Nexford Conveyor Systems, LLC et al. and Consolidated Builders Supply Co. v. Triton Fastener Corp. are occurrence-based claims that were properly triggered under the outgoing 2021-2022 pol

XI. ADEQUACY OF LIMITS — KEY CONCLUSIONS A. D&O Tower ($55M / $60M with Enhanced Side-A DIC) C&H concludes that the D&O tower is adequate for the Company's current private-company status. This conclusion is supported by the following analysis: Peer Benchmarking. C&H conducted a peer benchmarking analysis against eight comparable private PE-backed industrial companies, examining tower structure, aggregate limits, prem

XII. OUTSTANDING ITEMS Two post-bind items will require follow-up endorsements after the renewal is bound on or about June 28, 2022:

1. Vandermeer National Primary D&O — Definition of "Claim." The negotiated renewal terms include a broadened definition of "Claim" in the Vandermeer National primary D&O policy (VNI-DO-2022-91205) to encompass informal regulatory inquiries from agencies such as OSHA, CPSC, and state attorneys general. As noted in Section V.F, this broadening is essential for a manufacturing company subject to ongoing product-safety r

2. Midland Casualty Primary PL — Product Recall Sub-Limit Endorsement. The renewal terms include an increase in the product recall sub-limit from $2.5 million per occurrence / $5 million aggregate to $5 million per occurrence / $10 million aggregate, as discussed in Sections VI.A and VIII.B. The formal endorsement reflecting this sub-limit increase must be attached to the Midland Casualty primary PL renewal policy (M

XIII. REQUESTED BOARD ACTION C&H respectfully requests that the Board of Directors approve the following resolution at its June 22, 2022 meeting: RESOLVED, that Sandra Elliston, Chief Executive Officer, and Priya Sundaram, General Counsel & Corporate Secretary, be and hereby are authorized, on behalf of Nexford Industrial Holdings Inc. and its subsidiaries, to bind the Directors & Officers liability insurance tower a