Contract analysis

I. INTRODUCTION AND QUALIFICATIONS A. Identity and Professional Background

1. My name is Dr. Anita Rosenthal. I am a Certified Public Accountant licensed in the State of Illinois (License No. 065-032781) and hold the Accredited in Business Valuation ("ABV") credential issued by the American Institute of Certified Public Accountants ("AICPA"). I am the Lead Consultant at Meridian Bridge Consulting LLC ("Meridian Bridge"), a Chicago-based advisory firm specializing in commercial damages quant

2. I have been retained by Calderwood & Harkness LLP on behalf of Defendant Nexford Industrial Holdings Inc. ("Nexford" or "Defendant") pursuant to a retention letter dated December 12, 2022, to provide expert analysis and opinions regarding the damages claimed by Plaintiff Cardinal Peak Industries ("CPI" or "Plaintiff") in this litigation. The purpose of this report is to rebut CPI's claimed surcharge damages of app

3. I have over twenty-two years of professional experience in the fields of commercial damages quantification, contract dispute analysis, and pricing and cost analysis in the industrial and manufacturing sectors. My practice has concentrated heavily on disputes arising from supply agreements, procurement contracts, and pricing mechanisms in the metals, heavy manufacturing, and industrial distribution industries. Over

4. I hold a Ph.D. in Accounting from the University of Illinois at Urbana-Champaign, a Master of Science in Finance from Northwestern University's Kellogg School of Management, and a Bachelor of Science in Economics, magna cum laude, from the University of Michigan. I earned my CPA licensure in 2003 and obtained the ABV credential from the AICPA in 2007.

5. I have been qualified as an expert witness and have provided testimony in deposition or at trial in approximately thirty-one matters in federal and state courts, as well as in domestic and international arbitration proceedings. A detailed summary of my educational background, professional experience, publications, and prior testimony history is set forth in my curriculum vitae, which is attached as Appendix A to t

6. My compensation for this engagement, and that of my firm, is discussed in Section X of this report. My compensation is not contingent upon the outcome of this litigation or the substance of the opinions I express. B. Scope of Engagement

7. I have been retained to analyze and rebut the damages claimed by CPI in the amount of $4.73 million in allegedly unpaid raw-material surcharges under the Master Supply Agreement identified as MSA-NIH-CPI-2020-001, dated January 15, 2020 (the "MSA"). The claimed surcharges relate to the period from March 2021 through May 2022, a span of fifteen calendar months, of which fourteen months are in dispute. The surcharge

8. Specifically, I was tasked with performing the following analyses: (1) Evaluating CPI's surcharge calculations against the contractual methodology prescribed in Exhibit C ("Surcharge Methodology") of the MSA; (2) Determining whether CPI complied with the notice requirements set forth in Section 7.4(a) of the MSA, which requires delivery of Surcharge Notices with supporting documentation no later than fifteen (15)

9. This report constitutes a rebuttal to the damages claimed by CPI. As of the date of this report, CPI's affirmative expert damages report had not yet been submitted. I understand from counsel that CPI has retained Dr. Theodore Voss of Pinnacle Economics Group LLC as its damages expert and that his report is anticipated in approximately April 2023. Because CPI's expert report was not available at the time of this su

10. In preparing this report, I reviewed and relied upon the following materials: (a) Master Supply Agreement MSA-NIH-CPI-2020-001, dated January 15, 2020, executed by Nexford Industrial Holdings Inc. and Cardinal Peak Industries, including all exhibits and schedules (particularly Exhibit C — Surcharge Methodology) (Bates Nos. CPI-000001 through CPI-000089); (b) All fourteen (14) disputed surcharge invoices issued by

11. Based on my review of the materials identified above, my professional training and experience, and the analysis set forth in detail in this report, I have formed the following opinions, each of which is expressed to a reasonable degree of professional certainty: Opinion 1: Cardinal Peak's claimed unpaid surcharges of $4.73 million are substantially overstated. Opinion 2: Three independently sufficient categories

12. The detailed analysis supporting each of these opinions is presented in Sections IV through IX of this report. Supporting tables and data are provided in Appendices B and D.

II. BACKGROUND: THE MASTER SUPPLY AGREEMENT AND SURCHARGE FRAMEWORK A. Overview of the MSA

13. The Master Supply Agreement MSA-NIH-CPI-2020-001 (the "MSA") was executed on January 15, 2020, between Nexford Industrial Holdings Inc., as Buyer, and Cardinal Peak Industries, as Seller. The MSA governs the purchase and sale of flat-rolled steel products, specifically hot-rolled coil ("HRC") and cold-rolled coil ("CRC"), for use in Nexford's manufacturing operations at its facilities in Joliet, Illinois, and Gar

14. The MSA has a three-year initial term, running from January 15, 2020, through January 14, 2023, with automatic one-year renewal periods absent written termination notice delivered by either party at least one hundred eighty (180) days prior to the end of the then-current term. As of the date of this report, the MSA remains in effect.

15. Under the MSA, the base pricing for the covered products was established as follows: • Hot-Rolled Coil (HRC): $620 per ton (2020 base price) • Cold-Rolled Coil (CRC): $740 per ton (2020 base price) These base prices are subject to quarterly adjustment pursuant to Section 7.2 of the MSA, which provides for price modifications tied to specified market benchmarks. The quarterly adjustment mechanism is not at issue i

16. The MSA contemplated estimated annual volumes and associated spend as follows:

17. The surcharge mechanism set forth in Section 7.4 of the MSA was designed to allow CPI, as Seller, to pass through documented increases in certain raw-material input costs — specifically scrap, energy, and alloy costs — that exceeded agreed-upon baseline levels. The surcharge provisions reflect the parties' negotiated allocation of commodity price risk: CPI bears the risk up to the baseline levels embedded in the

18. Section 7.4 of the MSA, titled "Raw-Material Surcharges," is the central provision at issue in this dispute. It provides, in pertinent part: "Seller may pass through documented raw-material surcharges, including scrap, energy, and alloy surcharges, incurred during the applicable invoice period, provided that (a) Seller delivers to Buyer a Surcharge Notice with supporting documentation no later than fifteen (15) b

19. The language of Section 7.4 is carefully structured. The operative word "provided that" introduces two express conditions precedent that must be satisfied before CPI is entitled to collect surcharges from Nexford. First, CPI must deliver a Surcharge Notice with supporting documentation within the specified timeframe — no later than fifteen (15) business days after the end of the applicable month. Second, the surc

20. The fifteen-business-day notice requirement serves an important commercial purpose. It ensures that Nexford receives timely information about surcharge claims, enabling the procurement and finance teams to verify the calculations, accrue the appropriate liabilities in Nexford's financial records, and plan cash flows accordingly. The timeliness requirement is not a mere formality; it is a material term of the agre

21. Exhibit C to the MSA, titled "Surcharge Methodology," prescribes the specific method by which surcharges are to be calculated. The methodology is designed to provide an objective, verifiable, and reproducible basis for surcharge computations by tying the calculations to publicly available market data rather than to either party's proprietary cost figures.

22. Under Exhibit C, surcharges must be calculated using two published indices: (a) The Ferrous Scrap Index, as reported by Bramwell Industries ("Platts/SPI"). This index is widely recognized in the steel industry as the standard benchmark for ferrous scrap pricing in the United States. (b) The Industrial Energy Cost Index, which tracks changes in industrial energy costs relevant to steel production processes. For pu

23. Exhibit C establishes the following baseline cost levels: • Baseline Scrap Cost: $340 per ton • Baseline Energy Cost: $48 per ton

24. The surcharge for any given month is calculated as the incremental cost above these baselines, as measured by the published indices, applied to the actual tonnage of each product category shipped during the applicable month. To illustrate: if the Ferrous Scrap Index for a given month reflects a scrap cost of $390 per ton, the scrap surcharge component would be $50 per ton ($390 − $340 = $50), applied to the tons

25. Critically, Exhibit C does not authorize the use of internal, proprietary, or "blended" cost metrics in place of the specified published indices. The decision to anchor the surcharge calculation to published indices was a deliberate contractual choice, intended to ensure transparency, verifiability, and mutual accountability. As I discuss in Section V below, CPI departed from this methodology during the disputed

26. Section 7.4(c) of the MSA establishes a ceiling on the aggregate monthly surcharge that CPI may impose. The provision states: "In no event shall the aggregate monthly surcharge exceed 12% of the applicable Base Price for the relevant product category without prior written consent of Buyer."

27. The 12% cap operates as a risk-management mechanism, protecting Nexford against the possibility that raw-material cost spikes could produce surcharges so large as to fundamentally alter the economics of the supply arrangement. The cap reflects a negotiated balance: CPI is permitted to pass through documented cost increases, but only up to a defined threshold beyond which Nexford's explicit written consent is requ

28. Applying the 12% cap to the base prices under the MSA yields the following maximum permissible surcharges:

29. Any surcharge exceeding $74.40 per ton for HRC or $88.80 per ton for CRC requires Nexford's prior written consent. The provision uses the phrase "prior written consent," indicating that the consent must be obtained before the surcharge is imposed — not after the fact and not through course of dealing or implied acquiescence. As I detail in Section VI, CPI exceeded the 12% cap in four of the fourteen disputed mont

30. Section 7.4(d) of the MSA establishes the procedure for disputing surcharges. Under this provision, Buyer must notify Seller of disputed surcharges within thirty (30) calendar days of receipt of the applicable Surcharge Notice. Unresolved disputes are escalated first to senior officers of the respective parties, and then, if still unresolved, to mediation under Section 14.3 of the MSA.

31. Nexford timely disputed all fourteen contested surcharge invoices within the thirty-day window prescribed by Section 7.4(d). The dispute notices were transmitted by Russell Okonkwo, Nexford's Vice President of Procurement, to CPI's designated commercial contact. CPI has not contended in this litigation that Nexford failed to comply with the dispute procedure. Accordingly, Nexford's contractual right to challenge

III. CARDINAL PEAK'S CLAIMED DAMAGES A. Summary of CPI's Claim

32. CPI's damage claim in this litigation is straightforward in its assertion, if not in its merits. CPI alleges that it properly invoiced Nexford for raw-material surcharges totaling approximately $6.41 million during the period from March 2021 through May 2022. During this fifteen-month period, Nexford paid $1.68 million in surcharges, representing partial payments on surcharge invoices that Nexford accepted as pro

33. CPI claims that the difference between the total surcharges invoiced ($6.41 million) and the amount paid by Nexford ($1.68 million) represents an unpaid balance of $4.73 million that is owed by Nexford.

34. The following table summarizes the arithmetic of CPI's claim:

35. As I demonstrate in the following sections of this report, CPI's claim assumes — incorrectly — that all of the surcharges it invoiced were properly calculated, timely noticed, and within the contractual cap. Each of these assumptions is contradicted by the documentary evidence and the terms of the MSA itself. B. CPI's Three Causes of Action

36. CPI's Complaint, filed August 8, 2022, asserts three causes of action: Count I: Breach of Contract. CPI alleges that Nexford breached the MSA by failing to pay surcharges that were purportedly properly invoiced under Section 7.4. CPI seeks $4.73 million in damages, plus prejudgment interest. Count II: Unjust Enrichment. As an alternative theory, CPI alleges that Nexford was unjustly enriched by receiving the bene

37. My analysis addresses the damages quantification underlying all three counts. Regardless of the legal theory under which CPI proceeds, the fundamental question is the same: what amount, if any, is properly owed by Nexford under the contractual framework governing surcharges? As I demonstrate below, the answer is that Nexford's maximum additional obligation is approximately $0.21 million — a small fraction of CPI'

IV. ANALYSIS CATEGORY 1: LATE SURCHARGE NOTICES ($2.18 MILLION) A. Contractual Requirement

38. As discussed in Section II.B above, Section 7.4(a) of the MSA requires CPI to deliver a Surcharge Notice with supporting documentation to Nexford no later than fifteen (15) business days after the end of the applicable month. This requirement is an express condition precedent to CPI's right to collect surcharges. If CPI fails to satisfy the notice deadline for a given month, CPI has not triggered the contractual

39. The fifteen-business-day deadline is measured from the last calendar day of the applicable month. For example, for the March 2021 surcharge, the applicable month ends on March 31, 2021, and the fifteenth business day thereafter falls on April 22, 2021 (accounting for weekends and assuming no intervening holidays). CPI was required to deliver the March 2021 Surcharge Notice on or before April 22, 2021.

40. The contractual language admits of no ambiguity. CPI's surcharge right is conditioned upon timely delivery of the Surcharge Notice. This is not a covenant or a mere procedural preference; it is a condition precedent that defines the scope of CPI's entitlement. B. Methodology for Timeliness Analysis

41. For each of the fourteen disputed months, I performed the following analysis to determine whether CPI complied with the fifteen-business-day notice requirement: (a) I identified the last calendar day of the applicable month (e.g., March 31, 2021, for the March 2021 surcharge). (b) I calculated the fifteenth business day following that date, accounting for weekends and federal holidays observed during the relevant

42. The results of this analysis are summarized below and presented in detail in Table 1 of Appendix B. C. Findings — Month-by-Month Analysis

43. My analysis revealed that seven (7) of the fourteen (14) disputed months had Surcharge Notices that were delivered after the fifteen-business-day deadline. The following table identifies the late-notice months, the applicable deadline, the actual delivery date, and the number of business days by which the notice was late:

44. The pattern of late notices is notable. In every instance, CPI's Surcharge Notice was delivered between five and nine business days beyond the contractual deadline. This was not a matter of marginal or borderline compliance; in each case, the notice was delivered well after the deadline had passed.

45. The late-notice pattern is consistent with testimony provided by CPI's own witness. At her deposition on January 18, 2023, Natalie Gunderson, CPI's Vice President of Sales & Commercial, acknowledged that CPI's internal processes for compiling surcharge documentation experienced delays during the March 2021 through May 2022 period. Specifically, Ms. Gunderson testified: "Q: Were you aware that certain Surcharge No

46. Ms. Gunderson further testified that she was personally aware that CPI's notices were late for "at least several" of the disputed months, though she could not recall the specific months at the time of her deposition. (Gunderson Dep. Tr. 88:3–9.)

47. CPI's responses to Nexford's First Set of Interrogatories did not dispute the delivery dates established by the documentary record. Rather, CPI contended that late delivery of Surcharge Notices should be excused under a theory of "substantial compliance," arguing that the notices were delivered within a reasonable time and that Nexford suffered no prejudice from the delay. However, the MSA contains no "substantia

48. The total surcharges invoiced by CPI for the seven late-notice months is approximately $2.18 million. Because CPI failed to satisfy the condition precedent in Section 7.4(a) for these seven months, the surcharges invoiced for these months are not collectible under the MSA.

49. It bears emphasis that Nexford did not waive its right to challenge the timeliness of these notices. To the contrary, Nexford timely disputed each of the late notices within the thirty-day window prescribed by Section 7.4(d). Russell Okonkwo's procurement team identified the late notices, flagged the timeliness issue, and transmitted dispute notices to CPI within the contractual timeframe. CPI has not contended t

50. Accordingly, $2.18 million of CPI's claimed damages is attributable to surcharges for months in which the contractual notice deadline was not met, and these amounts should be disallowed in their entirety.

V. ANALYSIS CATEGORY 2: DEVIATION FROM EXHIBIT C SURCHARGE METHODOLOGY ($1.47 MILLION) A. Contractual Requirement

51. Section 7.4(b) of the MSA requires that surcharge components be "calculated in accordance with the methodology set forth in Exhibit C." As described in Section II.C above, Exhibit C mandates the use of two published indices — the Ferrous Scrap Index (Platts/SPI) and the Industrial Energy Cost Index — applied against agreed baseline costs of $340 per ton for scrap and $48 per ton for energy. The surcharge for any

52. Compliance with the Exhibit C methodology is the second condition precedent established by Section 7.4. Even where a Surcharge Notice is timely delivered, the surcharge amounts invoiced must be calculated in accordance with Exhibit C in order for CPI to have a contractual right to collect them. B. CPI's Actual Methodology

53. Discovery in this case revealed that CPI did not follow the Exhibit C methodology during the disputed period. Instead, CPI used an internal "blended cost" metric that combined the following components into a single composite figure: (a) CPI's proprietary scrap procurement costs, reflecting the actual prices paid by CPI's purchasing department for various grades of ferrous scrap from CPI's network of scrap dealers

54. The blended cost metric is fundamentally different from the methodology prescribed by Exhibit C. Exhibit C requires the use of published market indices applied to contractual baselines. The blended cost metric, by contrast, relies on CPI's proprietary cost data — data that is not available to Nexford for independent verification and that reflects CPI's particular procurement practices, supplier relationships, and

55. The discovery record provides ample documentation of CPI's departure from Exhibit C. CPI's internal surcharge computation worksheets (Bates Nos. CPI-003010 through CPI-003489) reflect the blended cost methodology applied across all fourteen disputed months. These worksheets contain formulas and data inputs that bear no relationship to the published Ferrous Scrap Index or the Industrial Energy Cost Index. Instead,