Contract analysis

1. Counter-Plaintiff Nexford Industrial Holdings Inc. ("Nexford") is a corporation duly organized and existing under the laws of the State of Delaware, holding Delaware Charter Number 7284159. Nexford maintains its principal office and headquarters at 4200 West Lakeshore Industrial Parkway, Suite 300, Waukegan, Illinois 60085.

2. Nexford's registered agent in Illinois is CT Statutory Services Inc., with offices in Springfield, Illinois.

3. Nexford is a precision manufacturer of engineered steel and aluminum components, operating three manufacturing facilities in the Midwest. Its products include stamped and formed metal assemblies, machined components, welded sub-assemblies, and other specialized parts for the automotive, heavy equipment, and infrastructure sectors. For fiscal year 2022, Nexford generated approximately $287 million in annual revenue

4. Nexford is a party to the MSA in the capacity of "Buyer," as that term is defined therein.

5. Nexford's principal officers and executives relevant to this dispute include: Martin Schaeffer, Chief Executive Officer; Lydia Tran, Chief Financial Officer; Russell Okonkwo, Vice President of Procurement; and Deborah Whitfield, General Counsel.

6. Nexford is a portfolio company of Marlowe Asset Management Bluff Capital Partners, LP, a private equity firm with offices in Chicago, Illinois and Greenwich, Connecticut. Counter-Defendant Cardinal Peak Industries

7. Counter-Defendant Cardinal Peak Industries ("Cardinal Peak") is a limited liability company organized and existing under the laws of the State of Colorado, with its principal place of business at 1580 Ridgeline Boulevard, Pueblo, Colorado 81001.

8. Cardinal Peak is a regional steel producer and distributor specializing in flat-rolled steel products, including hot-rolled coil ("HRC") and cold-rolled coil ("CRC"). Cardinal Peak operates steelmaking and rolling facilities in the Pueblo, Colorado metropolitan area and maintains distribution centers in multiple states. For fiscal year 2022, Cardinal Peak generated approximately $415 million in annual revenue.

9. Cardinal Peak is a party to the MSA in the capacity of "Seller," as that term is defined therein.

10. Cardinal Peak's principal officers and executives relevant to this dispute include: Frank Delacroix, President and Chief Executive Officer; Natalie Gunderson, Vice President of Sales and Commercial; Harold Briggs, Controller; and Patricia Morrow, General Counsel. JURISDICTION AND VENUE

11. This Court has jurisdiction over this Counterclaim as it arises from the same transaction and occurrence as the Complaint filed by Cardinal Peak on August 8, 2022 in this action. The Counterclaim is compulsory within the meaning of 735 ILCS 5/2-608, as the claims asserted herein share common questions of fact and law with the claims raised in Cardinal Peak's Complaint, and both arise out of the parties' rights an

12. Venue is proper in Cook County, Illinois pursuant to MSA Section 14.3, which designates the State of Illinois as the governing law jurisdiction and provides that any disputes arising out of or related to the MSA shall be resolved in the courts located in Chicago, Illinois. Cardinal Peak selected this forum by filing its Complaint in this Court, and venue is proper for the Counterclaim on the same basis.

13. The MSA is governed by the laws of the State of Illinois, without regard to conflict-of-law principles, as set forth in the governing-law clause contained in MSA Section 14.3. FACTUAL ALLEGATIONS A. The Master Supply Agreement

14. On or about January 15, 2020, Nexford and Cardinal Peak executed the Master Supply Agreement, identified as MSA Reference No. MSA-NIH-CPI-2020-001 (the "MSA"). The MSA was the product of extended negotiations between the parties, commencing in approximately September 2019, and was designed to establish a stable, long-term commercial relationship for the supply of steel inputs critical to Nexford's manufacturing o

15. The MSA is a three-year agreement with an initial term commencing on January 15, 2020 and expiring on January 14, 2023. The MSA provides for automatic one-year renewal periods unless either party delivers written notice of termination no fewer than 180 days prior to the expiration of the then-current term.

16. Under the MSA, Cardinal Peak agreed to supply HRC and CRC to Nexford at agreed base prices, specifically: HRC at a base price of $620 per ton and CRC at a base price of $740 per ton. These base prices were established as of the effective date of the MSA in 2020 and were subject to quarterly adjustment in accordance with the pricing adjustment mechanism set forth in MSA Section 7.2.

17. The estimated annual volume under the MSA was approximately 18,000 tons of HRC and approximately 6,500 tons of CRC, for a total estimated annual volume of approximately 24,500 tons per year. At the base prices specified in the MSA, the estimated annual spend under the agreement was approximately $15.97 million, comprising approximately $11.16 million for HRC and approximately $4.81 million for CRC.

18. The MSA represents one of Nexford's most significant supply relationships and is essential to the continuity of its manufacturing operations. Nexford entered into the MSA in reliance upon its terms, including the detailed surcharge provisions that are the subject of this Counterclaim. B. MSA Section 7.4 — Surcharge Provisions

19. Section 7.4 of the MSA governs the pass-through of raw-material surcharges from Cardinal Peak to Nexford. The surcharge provisions were a central element of the parties' negotiations and reflect a carefully negotiated allocation of commodity price risk between the parties. The surcharge mechanism permits Cardinal Peak to pass through certain documented increases in the cost of raw materials—including scrap, energ

20. Section 7.4(a) — Notice Requirement. Section 7.4(a) of the MSA provides that Seller may pass through documented raw-material surcharges, provided that Seller delivers to Buyer a written Surcharge Notice, together with supporting documentation sufficient to verify the surcharge amount, no later than fifteen (15) business days after the end of the applicable month. The Surcharge Notice must identify the surcharge c

21. The fifteen-business-day deadline set forth in Section 7.4(a) is a condition precedent to Cardinal Peak's entitlement to collect any surcharge for a given month. This requirement was specifically negotiated by the parties to ensure that Nexford would receive timely, verifiable surcharge information necessary for its own cost accounting, budgeting, and downstream pricing decisions. Cardinal Peak's failure to deliv

22. Section 7.4(b) — Exhibit C Methodology. Section 7.4(b) of the MSA provides that all surcharge components must be calculated in accordance with the methodology set forth in Exhibit C to the MSA (the "Surcharge Methodology"). The Surcharge Methodology was negotiated and agreed upon by the parties to establish an objective, transparent, and verifiable basis for surcharge calculations, relying exclusively on publicly

23. Exhibit C to the MSA prescribes the methodology for calculating raw-material surcharges. Exhibit C expressly provides that surcharges shall be calculated using the published Ferrous Scrap Index, as reported by Sterling Reach Group ("Platts/SPI"), and the Industrial Energy Cost Index, as published by the applicable governmental or industry source identified in Exhibit C.

24. Exhibit C establishes agreed baseline values for the two principal surcharge components: (a) a baseline scrap cost of $340 per ton; and (b) a baseline energy cost of $48 per ton. These baselines were established based on market conditions prevailing at the time the MSA was negotiated and executed and represent the reference points against which surcharge variances are measured.

25. Under the Exhibit C methodology, only variances between the actual published index values for a given month and the agreed baselines may be passed through as surcharges. If, for example, the Ferrous Scrap Index for a given month is $380 per ton, the allowable scrap surcharge for that month would be $40 per ton ($380 minus the $340 baseline). Similarly, if the Industrial Energy Cost Index for a given month is $55

26. Exhibit C does not authorize or permit the use of Cardinal Peak's internal "blended cost" metrics or any other proprietary cost data as a substitute for the contractually specified published indices. The parties deliberately selected published, third-party indices to ensure objectivity, transparency, and verifiability. The exclusion of internal cost data was a material term of the MSA, negotiated at length during

27. Section 7.4(c) of the MSA provides, in relevant part: "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."

28. Application of the 12% cap to the base prices established under the MSA yields the following maximum surcharge amounts per ton, absent prior written consent from Nexford: (a) For HRC, with a base price of $620 per ton, the 12% cap equals $74.40 per ton per month. (b) For CRC, with a base price of $740 per ton, the 12% cap equals $88.80 per ton per month.

29. The 12% cap was negotiated as a critical risk-management provision for Nexford. It ensures that, even in periods of significant commodity price volatility, Nexford's exposure to surcharge increases is limited to a manageable and predictable level absent an affirmative decision by Nexford's management to accept greater exposure.

30. Cardinal Peak was required to obtain Nexford's prior written consent before invoicing any surcharge exceeding the 12% cap for the relevant product category. The MSA is unambiguous on this point: the cap is absolute absent written consent, and the written consent requirement cannot be satisfied by oral communications, course of dealing, or implied acquiescence.

31. At no time during the disputed period did Cardinal Peak seek, and at no time did Nexford provide, written consent to exceed the 12% cap for any product category for any month. E. Section 7.4(d) — Dispute Procedure

32. Section 7.4(d) of the MSA establishes a procedure for the resolution of surcharge disputes. Under Section 7.4(d), Buyer must notify Seller of any disputed surcharge within thirty (30) calendar days of receipt of the Surcharge Notice. If the parties are unable to resolve the dispute within thirty (30) days of Buyer's notice, the dispute is escalated to senior officers of each party, who shall meet and confer in go

33. Nexford timely disputed the surcharges at issue in this Counterclaim in accordance with the procedures set forth in Section 7.4(d). Nexford's Vice President of Procurement, Russell Okonkwo, delivered written dispute notices to Cardinal Peak for each of the months in which Nexford identified discrepancies in the surcharge invoices. Despite Nexford's timely objections and good-faith efforts to resolve the disputes,

34. The parties' senior officers—Russell Okonkwo and Lydia Tran on behalf of Nexford, and Natalie Gunderson and Harold Briggs on behalf of Cardinal Peak—met in person in Chicago, Illinois on June 14, 2022 in an effort to resolve the surcharge disputes. The meeting did not result in resolution. The parties thereafter engaged in mediation before a neutral mediator in Chicago, Illinois on July 19, 2022, which also did n

35. During the period from March 2021 through May 2022 (a total of fifteen months), Cardinal Peak issued surcharge invoices to Nexford totaling approximately $6.41 million (the "Disputed Period").

36. Of the fifteen months in the Disputed Period, surcharges for fourteen months are in dispute. The surcharge for April 2021 was accepted and paid in full by Nexford, as the April 2021 surcharge was timely noticed, properly calculated in accordance with the Exhibit C methodology, and within the 12% cap.

37. During the Disputed Period, Nexford paid $1.68 million in surcharges that it determined were validly invoiced—that is, surcharges (or components thereof) that satisfied the notice, methodology, and cap requirements of Section 7.4 and Exhibit C.

38. Cardinal Peak claims an unpaid balance of $4.73 million ($6.41 million in total invoiced surcharges minus the $1.68 million paid by Nexford). Cardinal Peak's Complaint in this action seeks recovery of that $4.73 million balance. G. Cardinal Peak's Breaches of the MSA Breach Category 1: Failure to Deliver Timely Surcharge Notices (7 of 14 Disputed Months).

39. For seven (7) of the fourteen (14) disputed months during the Disputed Period, Cardinal Peak failed to deliver compliant Surcharge Notices within the fifteen-business-day deadline prescribed by Section 7.4(a) of the MSA. In each of these seven months, Cardinal Peak delivered its Surcharge Notice after the deadline had passed, in some instances by as many as twelve business days beyond the contractual deadline.

40. The seven months for which Cardinal Peak failed to deliver timely Surcharge Notices account for approximately $2.18 million of the total surcharges that Cardinal Peak claims are unpaid.

41. The fifteen-business-day deadline is not a mere procedural formality. It is a condition precedent to Cardinal Peak's right to collect surcharges. Cardinal Peak's failure to comply with the notice requirement for these seven months constitutes a failure of a condition precedent that waives Cardinal Peak's right to collect surcharges for those months. Nexford is entitled to treat the surcharges for those months as

42. Nexford raised Cardinal Peak's failure to deliver timely Surcharge Notices in its dispute correspondence throughout the Disputed Period. Cardinal Peak did not dispute the lateness of its notices but instead argued, without contractual basis, that the deadline was not a condition precedent. That argument is contradicted by the plain language of Section 7.4(a) and the overall structure of the surcharge provisions.

43. Throughout the Disputed Period, Cardinal Peak systematically deviated from the Exhibit C Surcharge Methodology by using an internal "blended cost" metric rather than the contractually specified published indices—the Ferrous Scrap Index as reported by Platts/SPI and the Industrial Energy Cost Index.

44. Cardinal Peak's "blended cost" metric is a proprietary calculation that aggregates Cardinal Peak's internal raw-material procurement costs across multiple supply sources, including costs that are specific to Cardinal Peak's own production operations and bear no relationship to the published indices specified in Exhibit C. The blended cost metric consistently produced surcharge values higher than those that would

45. Cardinal Peak's use of its proprietary blended cost metric inflated surcharge calculations beyond what would have resulted from the faithful application of the Exhibit C methodology. Nexford's analysis of the fourteen disputed months, comparing Cardinal Peak's invoiced surcharges to the surcharges that would have resulted from proper application of the Exhibit C methodology, reveals an overstatement of approximat

46. Cardinal Peak's departure from the contractually mandated methodology constitutes a material breach of MSA Section 7.4(b) and Exhibit C. The parties agreed to use published, third-party indices precisely to prevent one party from unilaterally inflating or manipulating surcharge calculations through the use of internal cost data. Cardinal Peak's substitution of its blended cost metric defeats the objective, transp

47. For four (4) months during the Disputed Period, Cardinal Peak invoiced surcharges that exceeded the 12% cap set forth in Section 7.4(c) of the MSA without obtaining Nexford's prior written consent. In each of these four months, the aggregate monthly surcharge invoiced by Cardinal Peak exceeded $74.40 per ton for HRC and/or $88.80 per ton for CRC.

48. The aggregate amount by which Cardinal Peak's invoiced surcharges exceeded the 12% cap across the four affected months totals approximately $1.08 million.

49. Cardinal Peak never sought, and Nexford never provided, written consent to exceed the 12% cap for any of the four affected months, or for any other month during the Disputed Period. No written authorization—whether in the form of a letter, email, amendment, or any other written instrument—was issued by Nexford consenting to surcharges above the cap.

50. Cardinal Peak's invoicing above the cap without the required prior written consent constitutes a material breach of MSA Section 7.4(c). The 12% cap is an absolute limitation on Cardinal Peak's right to invoice surcharges, enforceable by its plain terms, and Cardinal Peak was not entitled to exceed it unilaterally. H. Nexford's Overpayment

51. When the three categories of breach described above are properly applied to the surcharge invoices for the Disputed Period—acknowledging that certain overlap exists among the categories (e.g., some months involve both untimely notices and methodology deviations)—Nexford's analysis demonstrates that the total valid surcharge obligation for the fourteen disputed months, calculated in accordance with the MSA, is app

52. Nexford has already paid $1.68 million in surcharges during the Disputed Period. Accordingly, and after proper application of the contractual notice requirements, methodology, and cap provisions, Nexford has overpaid Cardinal Peak by at least $210,000.

53. Nexford's maximum additional obligation beyond the $1.68 million already paid is, at most, $0.21 million—not the $4.73 million Cardinal Peak demands. However, when the full extent of Cardinal Peak's breaches is accounted for, Nexford has in fact overpaid, and Cardinal Peak owes Nexford at least $210,000 in restitution of the overpayment.

54. By letters dated June 28, 2022 and July 25, 2022, Nexford demanded that Cardinal Peak refund the overpayment of $210,000. Cardinal Peak refused to make any refund and instead filed the Complaint in this action on August 8, 2022 seeking to collect the full $4.73 million it claims is owed.

55. Cardinal Peak has retained Nexford's overpayment without contractual or legal justification and has refused to return it despite repeated demand. COUNT I: BREACH OF CONTRACT

56. Counter-Plaintiff Nexford incorporates by reference each and every allegation set forth in Paragraphs 1 through 55 above as though fully set forth herein.

57. A valid and enforceable contract exists between Nexford and Cardinal Peak, namely the Master Supply Agreement dated January 15, 2020, MSA Reference No. MSA-NIH-CPI-2020-001. The MSA was executed by authorized representatives of both parties, is supported by adequate consideration, and is binding upon the parties in accordance with its terms.

58. Under the MSA, Cardinal Peak had specific performance obligations with respect to the invoicing and collection of raw-material surcharges, including but not limited to the following: (a) To deliver Surcharge Notices within fifteen (15) business days after the end of the applicable month, as required by Section 7.4(a); (b) To calculate all surcharges in accordance with the Exhibit C Surcharge Methodology using the

59. Cardinal Peak materially breached these obligations by: (a) Delivering late Surcharge Notices for seven (7) of the fourteen (14) disputed months during the Disputed Period, in violation of the condition precedent established in Section 7.4(a); (b) Using an unauthorized internal "blended cost" metric instead of the mandated published indices for the calculation of surcharges throughout the Disputed Period, in viol

60. Nexford performed its obligations under the MSA. Nexford timely paid all amounts that it determined to be validly invoiced during the Disputed Period, totaling $1.68 million in surcharge payments. Nexford timely disputed improperly calculated surcharges in accordance with the dispute procedures set forth in Section 7.4(d), including through written dispute notices, senior officer meetings, and mediation.