Contract analysis

I. Introduction and Purpose of Letter Calderwood & Harkness LLP ("C&H" or the "Firm") was formally engaged by Nexford Industrial Holdings Inc. ("Nexford" or the "Company") on August 22, 2022 to provide legal representation in connection with the defense of claims asserted by Cardinal Peak Industries ("Cardinal Peak" or "Plaintiff") arising from the Master Supply Agreement dated January 15, 2020, bearing reference num

II. Summary of Cardinal Peak's Demand On June 10, 2022, Blackwood Stein & Associates LLP transmitted the Demand Letter to Nexford on behalf of its client, Cardinal Peak Industries, a limited liability company organized under the laws of the State of Colorado, with its principal place of business at 1580 Ridgeline Boulevard, Pueblo, Colorado 81001. The Demand Letter was signed by Garrett Blackwood and addressed to you

III. Overview of the Complaint Cardinal Peak's Complaint, filed on August 8, 2022 in the Circuit Court of Cook County, Illinois, County Department, Law Division, as Case No. 2022-L-008471, asserts three causes of action: Count I — Breach of Contract. Cardinal Peak alleges that Nexford breached its obligations under the MSA by failing to pay surcharges properly invoiced under Section 7.4 of the MSA. Count II — Unjust

IV. Analysis of the Master Supply Agreement — Key Provisions The MSA is the foundational document governing the parties' commercial relationship and the surcharge obligations at issue. Our analysis of Cardinal Peak's claims necessarily begins with a careful examination of the MSA's relevant provisions. A. Background of the MSA The MSA, bearing reference number MSA-NIH-CPI-2020-001, was executed on January 15, 2020, b

Section 7.4 of the MSA is the central provision at issue in this dispute. It permits the Seller to pass through to the Buyer documented raw-material surcharges for scrap, energy, and alloy components incurred during the applicable invoice period. This surcharge mechanism is a common feature of long-term steel supply agreements and is intended to allocate commodity price risk between buyer and seller during periods of

Section 7.4(c) of the MSA establishes a cap on the aggregate monthly surcharge that may be imposed by the Seller. Specifically, the provision states that the aggregate monthly surcharge may not exceed twelve percent (12%) of the applicable Base Price for the relevant product category without the prior written consent of the Buyer. Applying the 12% cap to the MSA's base prices yields the following maximum permissible

Section 7.4(d) of the MSA establishes a specific procedure for disputing surcharges. The provision requires that the Buyer notify the Seller of any disputed surcharge within thirty (30) calendar days of receipt of the applicable Surcharge Notice. If a dispute cannot be resolved at the operational level, unresolved disputes escalate to the senior officers of the respective parties, and thereafter to mediation under Se

Section 14.3 of the MSA establishes a mandatory mediation requirement as a precondition to litigation. The provision requires that disputes arising under the MSA be submitted to mediation in Chicago, Illinois before either party may initiate litigation. The MSA further specifies that Illinois law governs the interpretation and enforcement of the agreement. We note that Cardinal Peak filed the Complaint without first

V. Nexford's Three Principal Defenses Based on our review of the MSA, the Demand Letter, the Complaint, and the documentary record available to date, Nexford possesses three principal defenses that, individually and collectively, substantially reduce and effectively eliminate the claimed $4.73 million in damages. We summarize each defense below, together with the supporting legal authority and recommended evidentiary

Section 7.4(a) uses mandatory language — the Seller "must" deliver the Surcharge Notice "no later than fifteen (15) business days" after the end of the applicable month. This language unambiguously establishes timely delivery of the Surcharge Notice as a condition precedent to Cardinal Peak's right to collect surcharges. For the seven months in which Cardinal Peak failed to meet this deadline, its right to collect th

VI. Analysis of Cardinal Peak's Specific Claims We turn now to an analysis of each of the three causes of action asserted in Cardinal Peak's Complaint, together with our recommended defensive approach for each count. A. Breach of Contract (Count I) Cardinal Peak's breach of contract claim rests on the straightforward assertion that Nexford was contractually obligated to pay all surcharges as invoiced by Cardinal Peak

VII. Recommended Counterclaim Based on our analysis, we recommend that Nexford file a counterclaim against Cardinal Peak asserting the following claims: Counterclaim Count I — Breach of Contract. Cardinal Peak breached the MSA by: (a) failing to deliver timely Surcharge Notices as required by Section 7.4(a); (b) calculating surcharges using an internal blended cost metric rather than the Exhibit C methodology; and (c

VIII. Recommended Next Steps and Timeline We set forth below the immediate action items and projected timeline for the defense of this matter. A. Immediate Actions Answer and Affirmative Defenses. Nexford's Answer and Affirmative Defenses must be filed by September 19, 2022, which is within the applicable response deadline under the Illinois Code of Civil Procedure. We will prepare and file the Answer asserting the f

1. Waiver / Failure of Condition Precedent — Cardinal Peak's failure to deliver timely Surcharge Notices constitutes a failure of a condition precedent to Nexford's payment obligation, thereby waiving Cardinal Peak's right to collect the associated surcharges.

2. Breach by Cardinal Peak of Exhibit C Methodology — Cardinal Peak's use of an internal blended cost metric, rather than the published indices specified in Exhibit C, constitutes a breach of the MSA that excuses Nexford's obligation to pay the improperly calculated surcharges.

3. Surcharge Cap Defense Under Section 7.4(c) — Cardinal Peak invoiced surcharges in excess of the 12% cap without obtaining the required prior written consent from Nexford, and the excess amounts are therefore not payable.

4. Failure to Mitigate — To the extent Cardinal Peak claims damages based on lost revenue, Cardinal Peak failed to mitigate its damages by, among other things, failing to provide timely and compliant Surcharge Notices and failing to recalculate surcharges using the proper methodology when Nexford raised objections.

5. Failure to Comply with Mandatory Mediation — Cardinal Peak filed the Complaint without first completing the mandatory mediation required by MSA Section 14.3. Litigation Hold. A litigation hold notice was issued to Nexford on August 23, 2022, directing the preservation of all documents and electronically stored information potentially relevant to this dispute. We request that you confirm that all relevant personnel

1. Surcharge Notices — All Surcharge Notices received from Cardinal Peak during the period March 2021 through May 2022, together with date-stamped evidence of receipt (including email timestamps, courier or delivery tracking records, and any internal date stamps or log entries applied by Nexford personnel upon receipt).

2. Internal Surcharge Review Logs — All internal logs, memoranda, worksheets, or spreadsheets maintained by Russell Okonkwo and the procurement team reflecting Nexford's review and analysis of the Surcharge Notices received from Cardinal Peak, including any notations regarding timeliness, calculation methodology, or discrepancies.

3. Correspondence — All correspondence between Nexford and Cardinal Peak (including but not limited to emails, letters, and text messages) relating to surcharge disputes, surcharge calculations, requests for supporting documentation, and any other communications regarding the surcharge provisions of the MSA.

4. Payment Records — All records documenting the $1.68 million in payments made by Nexford on surcharges during the disputed period, including wire transfer confirmations, check copies, remittance advices, and any accompanying communications indicating that payments were made on a disputed or partial basis. We request that these materials be compiled and transmitted to C&H no later than September 9, 2022, to allow ad

IX. Stakeholder Notifications The Cardinal Peak litigation triggers notification obligations to several of Nexford's key stakeholders. We address each below. A. Marlowe Asset Management Bluff Capital Partners, LP Marlowe Asset Management Bluff Capital Partners, LP is Nexford's majority owner and private equity sponsor. The general partner of Marlowe Asset Management Bluff Capital Partners is Marlowe Asset Management

X. Budget and Fee Estimate Pursuant to the engagement letter dated August 22, 2022, we provide the following estimated budget for the defense of this matter: These estimates are based on the scope of the matter as currently understood and are subject to revision as the case develops. Factors that could affect the budget include the volume and complexity of discovery, the number and nature of depositions, the scope of

XI. Preliminary Risk Assessment We provide below a candid preliminary assessment of the strengths and risks of Nexford's position. Overall Assessment: Nexford possesses strong contract-based defenses that are well-grounded in the express language of the MSA and supported by established Illinois law on conditions precedent, contract interpretation, and unjust enrichment. We believe Nexford's position is significantly

XII. Conclusion and Request for Action We are confident that the defenses outlined in this letter provide Nexford with a robust foundation for contesting Cardinal Peak's claims and achieving a resolution that reflects the parties' actual contractual obligations. The strength of Nexford's position — grounded in the express language of the MSA and supported by well-established Illinois law — should enable the Company t

1. Confirm Receipt. Please confirm receipt of this letter and the enclosed documents.

2. Schedule Strategy Meeting. We request that you coordinate an in-person or telephonic meeting to discuss the defense strategy outlined herein, preferably during the week of August 29, 2022. Participants should include yourself, Martin Schaeffer (CEO), Lydia Tran (CFO), Russell Okonkwo (VP, Procurement), and the C&H litigation team.

3. Compile Documentary Evidence. Please direct Russell Okonkwo and Lydia Tran to begin compiling the documentary evidence outlined in Section VIII.C above, including all Surcharge Notices with receipt dates, internal surcharge review logs, correspondence with Cardinal Peak, and payment records. We request that these materials be transmitted to C&H no later than September 9, 2022.

4. Authorize Filing of Answer and Counterclaim. Please provide authorization for C&H to proceed with the preparation and filing of the Answer and Affirmative Defenses (due September 19, 2022) and to initiate preparation of the counterclaim for filing in early October 2022.

5. Authorize Expert Retention. Please provide authorization for C&H to contact Meridian Bridge Consulting LLC (Dr. Anita Rosenthal, CPA, ABV) regarding engagement terms and scope of work for the independent surcharge recalculation. We look forward to discussing this matter with you in greater detail and to working closely with the Nexford team to bring this dispute to a successful resolution. Please do not hesitate t

1. Copy of Demand Letter from Blackwood Stein & Associates LLP on Behalf of Cardinal Peak Industries, dated June 10, 2022

2. Copy of Complaint, Cardinal Peak Industries v. Nexford Industrial Holdings Inc., Circuit Court of Cook County, Illinois, County Department, Law Division, Case No. 2022-L-008471, filed August 8, 2022 This letter and its contents are protected by the attorney-client privilege and constitute confidential attorney work product. This communication is intended solely for the use of the addressee and other authorized rec