1005-00001 · Nexford Industrial Holdings · Diligence

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MEMORANDUM

PRIVILEGED AND CONFIDENTIAL — ATTORNEY-CLIENT PRIVILEGE / ATTORNEY WORK PRODUCT

TO: Claudia Merritt, Responsible Partner, Banking & Finance Ian Blackwood, Billing Partner, Banking & Finance

FROM: Marcus Leung, Lead Associate, Banking & Finance Sophie Tremblay, Working Associate, Banking & Finance

CC: Sylvia Hartwell, Specialist Partner, Tax

DATE: March 1, 2025

RE: Canadian Subsidiary Structure and Cross-Border Issues — Nexford Industrial Holdings Inc. $1,400,000,000 Senior Secured Term Loan B Refinancing and Dividend Recapitalization

MATTER NO.: 1005-00001

CLIENT/MATTER CODE: IBL-NIH-2025-031

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I. Executive Summary

The purpose of this memorandum is to analyze the treatment of Nexford Industrial Holdings Inc.'s ("Nexford" or the "Borrower") Canadian subsidiaries — Nexford Canada Holdings ULC ("NCH ULC") and Nexford Canada Manufacturing, Inc. ("NCM") — under the proposed $1,400,000,000 Senior Secured Term Loan B credit facility (the "Credit Facility") with Crescent Harbor Bank, N.A. acting as Administrative Agent and Collateral Agent (the "Collateral Agent"). This memorandum addresses the corporate structure, collateral and guarantee treatment, intercompany loan considerations, perfection and enforcement issues, and relevant tax and regulatory implications arising from the cross-border nature of the Nexford group's Canadian operations.

Our key conclusions are as follows:

(a) No Canadian Subsidiary Guarantees. Neither NCH ULC nor NCM will be a Guarantor under the Credit Facility. Both entities are Foreign Subsidiaries and Excluded Subsidiaries under the proposed Credit Agreement and are expressly excluded from the definition of "Loan Parties." This exclusion is consistent with market practice for U.S. sponsor-backed Term Loan B transactions and reflects the tax, regulatory, and practical considerations discussed in detail below.

(b) Limited Pledge of Canadian Equity. The pledge of equity in the Canadian tier of the organizational structure is limited to 65% of the outstanding voting equity and 100% of the outstanding non-voting equity of NCH ULC. This pledge is granted by Nexford International Holdings, Inc. ("NIH Intl" or the "CFC Holdco"), the domestic parent of NCH ULC, through a standalone CFC Holdco Limited Pledge Agreement. The 65% / 100% limitation is driven by the potential application of IRC § 956 and reflects the customary approach in the leveraged loan market. There is no pledge of the equity of NCM (a second-tier foreign subsidiary).

(c) Intercompany Loan Treatment. Intercompany loans from Nexford to and through the Canadian subsidiary structure — specifically, loans from Nexford to NIH Intl and from NIH Intl downstream to NCH ULC — require careful treatment to avoid adverse U.S. federal income tax consequences (including potential deemed dividend inclusions under IRC § 956 and transfer pricing adjustments under IRC § 482) and to preserve the collateral value of intercompany notes pledged to the Collateral Agent. Compliance with Canadian thin capitalization rules (ITA § 18(4)) is also essential to protect the deductibility of intercompany interest payments at the Canadian level.

(d) No Canadian Law Security Interests. The transaction does not contemplate any security interest filings or registrations under Canadian provincial personal property security legislation, and no mortgages or charges will be registered against Canadian-situs real property (including NCM's manufacturing facility in Mississauga, Ontario). This simplifies execution and reduces costs but limits the Secured Parties' direct recourse to Canadian-situs assets. In a foreclosure scenario, the Secured Parties' primary remedy with respect to Canadian operations would be enforcement against the pledged 65% NCH ULC shares under the Uniform Commercial Code ("UCC"), subject to practical constraints discussed in Section VII below.

This memorandum should be read in conjunction with the following related memoranda:

• Tax Structure and Dividend Recapitalization Analysis (February 28, 2025), prepared by Sylvia Hartwell, Specialist Partner, Tax, which addresses the broader tax structuring considerations for the dividend recapitalization, including the treatment of the proceeds distributed to Granite Peak Capital Fund IV, LP and its co-investment vehicle.

• Analysis of Existing Lien and Security Package (February 15, 2025), prepared by this team, which provides a comprehensive review of the existing liens, security interests, and collateral package under the Prior Credit Agreement being refinanced.

• Tax Memorandum — Withholding Tax Considerations for Lenders (March 7, 2025), prepared by Sylvia Hartwell, which is referenced at several points herein with respect to cross-border withholding on intercompany interest payments.

II. Overview of Canadian Subsidiary Structure

A. Corporate Organizational Chain

Based on our review of the organizational documents, secretary's certificates, good standing certificates, and related due diligence materials provided by Nexford's in-house counsel and treasury team, the corporate organizational chain relevant to the Canadian subsidiaries is as follows:

Granite Peak Capital Fund IV, LP (a Delaware limited partnership) — 92% equity owner of Granite Peak NIH Holdings, LLC

GP Fund IV Co-Invest, LP (a Delaware limited partnership) — 8% equity owner of Granite Peak NIH Holdings, LLC

Granite Peak NIH Holdings, LLC (a Delaware limited liability company) — 100% direct equity owner of Nexford Industrial Holdings Inc.; Holdings Guarantor under the Credit Agreement

Nexford Industrial Holdings Inc. (a Delaware corporation) — the Borrower under the Credit Agreement; headquarters located at 1400 Industrial Parkway, Schaumburg, Illinois 60173

Nexford International Holdings, Inc. (a Delaware corporation; "NIH Intl") — the CFC Holdco; a direct, wholly-owned subsidiary of Nexford; a Subsidiary Guarantor under the Guarantee Agreement; grantor of a limited pledge of NCH ULC equity under the CFC Holdco Limited Pledge Agreement

Nexford Canada Holdings ULC (a British Columbia unlimited liability company; "NCH ULC") — a Foreign Subsidiary; NOT a Guarantor and NOT a Loan Party; registered office at 1055 West Georgia Street, Suite 1500, Vancouver, British Columbia V6E 4N7, Canada

Nexford Canada Manufacturing, Inc. (an Ontario corporation; "NCM") — a Foreign Subsidiary; NOT a Guarantor and NOT a Loan Party; principal place of business at 400 Industrial Road, Mississauga, Ontario L5T 2R3, Canada

The equity interests at each tier are 100% owned by the immediate parent entity. There are no minority interests at any level of the Canadian subsidiary chain. No joint ventures, preferred equity instruments, or convertible securities are outstanding at any tier. The organizational chart attached as Appendix A provides a simplified visual representation of the Canadian structure and the collateral treatment at each level.

B. Entity Details — Nexford International Holdings, Inc. (CFC Holdco)

Entity type: Corporation

Jurisdiction of organization: Delaware

Date of formation: June 14, 2016

Registered address: c/o Penmark Industries, 1209 Orange Street, Wilmington, Delaware 19801

Principal place of business: 1400 Industrial Parkway, Schaumburg, Illinois 60173 (same as parent Borrower)

Organizational identification number: Delaware File No. 6128473

Role in the transaction: NIH Intl serves two functions in the Credit Facility:

(i) Subsidiary Guarantor. NIH Intl will execute the Guarantee Agreement as a Subsidiary Guarantor, guaranteeing the Obligations of Nexford under the Credit Agreement on a senior secured basis, jointly and severally with the other Subsidiary Guarantors.

(ii) Grantor under the CFC Holdco Limited Pledge Agreement. NIH Intl will execute the CFC Holdco Limited Pledge Agreement, pursuant to which it will pledge to the Collateral Agent 65% of the total outstanding voting equity interests in NCH ULC and 100% of any outstanding non-voting equity interests in NCH ULC.

"CFC Holdco" classification: NIH Intl is a domestic corporation that qualifies as a "CFC Holdco" under the proposed Credit Agreement because substantially all of its assets consist of equity interests in one or more Controlled Foreign Corporations ("CFCs") or other CFC Holdcos. Specifically, NIH Intl's sole material asset is its 100% equity interest in NCH ULC, a British Columbia unlimited liability company that qualifies as a CFC within the meaning of IRC § 957. NIH Intl has no material operating assets, no employees, and no independent revenue-generating activities. It functions as a holding vehicle interposed between Nexford and the Canadian operating structure for tax planning purposes.

Pledge of NIH Intl equity: It is important to distinguish between the pledge of NIH Intl's equity and the pledge by NIH Intl of its subsidiary's equity. NIH Intl is itself a direct wholly-owned subsidiary of Nexford (the Borrower). Under the Borrower Pledge Agreement, Nexford will pledge 100% of the equity interests in NIH Intl to Crescent Harbor Bank, N.A. as Collateral Agent. This is a full, unlimited pledge — the 65% / 100% limitation does not apply to NIH Intl because NIH Intl is a domestic corporation, not a CFC. The 65% / 100% limitation applies only to the equity of the foreign subsidiary (NCH ULC) held by NIH Intl, as discussed in Section IV below.

C. Entity Details — Nexford Canada Holdings ULC

Entity type: Unlimited Liability Company organized under the Business Corporations Act (British Columbia), S.B.C. 2002, c. 57 (the "BCBCA")

Jurisdiction of organization: British Columbia, Canada

Date of formation: September 8, 2016

Registered office address: 1055 West Georgia Street, Suite 1500, Vancouver, British Columbia V6E 4N7, Canada

B.C. Incorporation Number: BC1098842

Status in the transaction: NCH ULC is a Foreign Subsidiary and an Excluded Subsidiary under the Credit Agreement. It is excluded from the definitions of "Guarantors" and "Loan Parties." NCH ULC will not execute the Guarantee Agreement, the Security Agreement, or any other collateral document as a grantor or pledgor.

Sole shareholder: Nexford International Holdings, Inc. (NIH Intl)

Note on ULC structure and tax treatment: British Columbia unlimited liability companies are a widely used structuring vehicle in cross-border transactions involving U.S. parent companies with Canadian operations. The key feature of a British Columbia ULC is that, unlike a standard British Columbia corporation, the shareholders of a ULC have unlimited personal liability for the debts and obligations of the ULC. This unlimited liability feature is the distinguishing legal characteristic of the ULC form under the BCBCA.

The principal reason for employing a ULC as a Canadian holding vehicle is the favorable U.S. federal income tax treatment that the ULC structure facilitates. Because of the unlimited liability feature, a British Columbia ULC may be treated as an entity that is not per se classified as a "corporation" for U.S. federal income tax purposes under Treasury Regulation § 301.7701-2. As an eligible entity under Treasury Regulation § 301.7701-3, the ULC's owner may make a "check-the-box" election to treat the ULC as a disregarded entity (if it has a single owner, as in this case) or as a partnership (if it has multiple owners) for U.S. federal income tax purposes.

In the case of NCH ULC, which is wholly owned by NIH Intl, a check-the-box election to treat NCH ULC as a disregarded entity permits the income, gains, losses, deductions, and credits of NCH ULC to flow through directly to NIH Intl (and, by extension, to Nexford) for U.S. federal income tax purposes. This flow-through treatment can be advantageous in several respects, including enabling the U.S. parent to claim foreign tax credits for Canadian taxes paid by the ULC, and facilitating the integration of the Canadian operations' financial results into the U.S. consolidated tax return without the complexities that would arise from treating the Canadian holding entity as a separate foreign corporation.

Importantly, while the ULC is treated as a disregarded entity for U.S. federal income tax purposes, it remains a separate legal entity for Canadian corporate law and Canadian tax purposes. For Canadian income tax purposes, NCH ULC is a "corporation" resident in Canada and is subject to Canadian federal and provincial income tax on its worldwide income. The ULC structure therefore enables a "hybrid" result: flow-through treatment in the United States and corporate-level taxation in Canada.

We note, however, that the unlimited liability feature of the ULC — while essential to the U.S. tax classification — creates practical complications in the context of enforcement of the pledge of NCH ULC shares, as discussed in Section VII.C below.

D. Entity Details — Nexford Canada Manufacturing, Inc.

Entity type: Corporation organized under the Business Corporations Act (Ontario), R.S.O. 1990, c. B.16 (the "OBCA")

Jurisdiction of organization: Ontario, Canada

Date of incorporation: October 3, 2016

Registered office address: 400 Industrial Road, Mississauga, Ontario L5T 2R3, Canada

Ontario Corporation Number: 2549731

Status in the transaction: NCM is a Foreign Subsidiary and an Excluded Subsidiary under the Credit Agreement. It is excluded from the definitions of "Guarantors" and "Loan Parties."

Sole shareholder: Nexford Canada Holdings ULC

Operational role: NCM is the operating subsidiary within Nexford's Canadian corporate structure. It conducts all of Nexford's Canadian manufacturing operations, which include the production of specialty industrial components and assemblies at its manufacturing facility in Mississauga, Ontario. NCM employs approximately 340 individuals in Canada and generates revenue through both domestic Canadian sales and cross-border sales to Nexford's U.S. operations and third-party customers. Based on the financial information provided by Nexford's management, the Canadian manufacturing operations contributed approximately $127,000,000 in net revenue and approximately $31,000,000 in operating EBITDA for the twelve-month period ended December 31, 2024.

NCM is not directly relevant to the U.S. security package except insofar as it is an asset held indirectly through NCH ULC, 65% of whose voting equity is pledged to the Collateral Agent. The manufacturing facility in Mississauga, Ontario, along with all equipment, inventory, accounts receivable, and other assets of NCM, are located in Canada and are not subject to any lien, pledge, or security interest in favor of the Secured Parties under the Credit Facility.

III. Treatment Under the Credit Agreement — Foreign Subsidiary Exclusions

A. Definition of "Foreign Subsidiary"

Under the proposed Credit Agreement (Section 1.01, "Definitions"), a "Foreign Subsidiary" is defined as any Subsidiary of the Borrower that is organized under the laws of a jurisdiction other than the United States, any state thereof, or the District of Columbia. Both NCH ULC (organized under the laws of British Columbia, Canada) and NCM (organized under the laws of Ontario, Canada) fall squarely within this definition and are classified as Foreign Subsidiaries.

The significance of the Foreign Subsidiary classification is that Foreign Subsidiaries are expressly excluded from the definitions of "Guarantors" and "Loan Parties" in the Credit Agreement. Specifically:

(i) "Guarantors" is defined to include (a) the Holdings Guarantor (Granite Peak NIH Holdings, LLC), (b) the Borrower, and (c) each Subsidiary Guarantor, in each case excluding any Excluded Subsidiary. Foreign Subsidiaries are Excluded Subsidiaries and therefore cannot be Guarantors.

(ii) "Loan Parties" is defined to include the Borrower and each Guarantor. Because Foreign Subsidiaries are not Guarantors, they are not Loan Parties.

As a result, no Foreign Subsidiary will execute the Guarantee Agreement, the Security Agreement, or any Pledge Agreement as a grantor or obligor. No Foreign Subsidiary will be subject to the conditions precedent or closing deliverables applicable to Guarantors (such as delivery of secretary's certificates, organizational documents, or good standing certificates in their capacity as Loan Parties). No legal opinion will be delivered on behalf of any Foreign Subsidiary, and no Foreign Subsidiary will make representations or warranties directly under the Credit Agreement.

B. Definition of "Excluded Subsidiary"

The proposed Credit Agreement defines "Excluded Subsidiary" to include, among others, each Foreign Subsidiary. The Excluded Subsidiary designation has the following practical consequences for NCH ULC and NCM:

(i) No closing deliverables. There is no obligation to deliver secretary's certificates, board resolutions, good standing certificates, incumbency certificates, or certified organizational documents for NCH ULC or NCM as conditions precedent to closing. This eliminates the need to engage Canadian counsel to prepare or certify such documentation.

(ii) Organizational documents collected for diligence. Notwithstanding the absence of a closing deliverable requirement, copies of the organizational documents (articles of incorporation, articles of association, notice of articles, bylaws, and shareholder resolutions) for both NCH ULC and NCM have been collected as part of the due diligence process for purposes of confirming the corporate chain, equity ownership, authorized share capital, transfer restrictions, and related matters. These documents are maintained in the virtual data room (Room 4, Folder 3.02 — Canadian Subsidiaries).

(iii) No legal opinions on Canadian law. No legal opinions are being delivered with respect to Canadian law enforceability, perfection, or priority. No Canadian law firm has been retained as borrower's counsel or lender's counsel for purposes of the transaction. The absence of Canadian law opinions is consistent with market practice where no Canadian law security is being taken and no Canadian entity is a Guarantor.

C. Definition of "CFC" and "CFC Holdco"

The proposed Credit Agreement incorporates two tax-driven definitions that are critical to understanding the treatment of the Canadian subsidiary tier:

"Controlled Foreign Corporation" or "CFC": The Credit Agreement defines "CFC" by reference to IRC § 957 of the Internal Revenue Code of 1986, as amended (the "Code"). Under IRC § 957, a CFC is a foreign corporation in which "United States shareholders" — defined as U.S. persons each owning (directly, indirectly, or constructively) 10% or more of the total combined voting power or 10% or more of the total value of shares — collectively own more than 50% of the total combined voting power or more than 50% of the total value of all classes of stock.

In the case of the Nexford group, both NCH ULC and NCM are 100% owned (directly and indirectly) by U.S. persons. If NCH ULC is treated as a corporation for purposes of this analysis (its check-the-box election as a disregarded entity would cause it to be disregarded for certain Code purposes, but the CFC analysis may nonetheless be relevant for purposes of NCM), then each entity clearly satisfies the CFC definition. NCM, organized as an Ontario corporation and 100% indirectly owned by U.S. persons through NCH ULC (which in turn is 100% owned by NIH Intl, a domestic corporation), qualifies as a CFC.

"CFC Holdco": The Credit Agreement defines a "CFC Holdco" as a Subsidiary that is a domestic corporation or domestic limited liability company substantially all of the assets of which consist of equity interests in one or more CFCs or in one or more other CFC Holdcos. NIH Intl qualifies as a CFC Holdco because its sole material asset is its 100% equity interest in NCH ULC. NIH Intl has no significant operating assets, no trade receivables, no inventory, and no real property. Its balance sheet consists essentially of the investment in NCH ULC and the intercompany receivables discussed in Section VI below.

The CFC Holdco designation is significant because it triggers the limited pledge restriction described in Section IV: the equity of a CFC held by a CFC Holdco is subject to the 65% voting / 100% non-voting pledge limitation, rather than a full 100% pledge.

D. Restricted Subsidiary vs. Unrestricted Subsidiary

Notwithstanding their exclusion from the Guarantor and Loan Party definitions, both NCH ULC and NCM are expected to be classified as "Restricted Subsidiaries" under the Credit Agreement. The distinction between Restricted Subsidiaries and Unrestricted Subsidiaries is fundamental to the covenant structure of the Credit Agreement:

(i) Negative covenants. As Restricted Subsidiaries, NCH ULC and NCM are subject to the negative covenants applicable to the Borrower and its Restricted Subsidiaries, including limitations on indebtedness, liens, restricted payments, asset dispositions, affiliate transactions, and mergers. Any indebtedness incurred by NCH ULC or NCM, any liens granted by NCH ULC or NCM on their assets, and any restricted payments made by NCH ULC or NCM must comply with the applicable covenant baskets and exceptions set forth in the Credit Agreement.

(ii) Financial reporting and covenant calculations. The revenue, EBITDA, and other financial metrics attributable to the Canadian operations (including NCM's operating results) are included in the consolidated financial reporting delivered by the Borrower under the Credit Agreement. Adjusted EBITDA for purposes of the financial covenants (including the Total Net Leverage Ratio and the Interest Coverage Ratio) is calculated on a consolidated basis, inclusive of the Canadian operations. Based on management projections, consolidated Adjusted EBITDA for the twelve-month period ending December 31, 2024 is approximately $385,000,000, of which approximately $31,000,000 is attributable to the Canadian operations.

(iii) No redesignation. There is no current intention to designate either NCH ULC or NCM as an Unrestricted Subsidiary. Such a redesignation would remove the Canadian operations from the covenant calculation base and could affect covenant compliance and the incurrence-based tests under the Credit Agreement.

IV. Security and Pledge Limitations — The 65% / 100% Rule

A. IRC § 956 Background and Rationale

The limitation on the pledge of CFC equity to 65% of voting stock is one of the most well-established conventions in the U.S. leveraged loan market. The rationale is rooted in IRC § 956 of the Code, which addresses the treatment of investments in "United States property" by controlled foreign corporations.

Under IRC § 956, if the stock of a CFC is pledged (or treated as pledged) to secure the obligations of a "related U.S. person," the pledge may be treated as an investment in United States property by the CFC. A U.S. shareholder of the CFC would then be required to include in gross income its pro rata share of the CFC's "applicable earnings" — effectively a deemed dividend — to the extent of the increase in the CFC's investment in United States property. This deemed inclusion applies regardless of whether any actual dividend is paid.

Treasury Regulation § 1.956-2(c)(1) provides a critical safe harbor: a pledge of 66-2/3% or less of the total combined voting power of a CFC's stock to secure obligations of a related U.S. person is not treated as an investment in United States property. Market practice has settled on a 65% pledge threshold (rather than 66-2/3%) to provide a margin of safety and to ensure clear compliance with the safe harbor. Additionally, because the regulation focuses on "voting power," pledging 100% of non-voting equity is permissible without triggering § 956 concerns.

It is important to note the impact of the Tax Cuts and Jobs Act of 2017 ("TCJA"). The TCJA introduced IRC § 245A, which allows U.S. corporate shareholders to claim a 100% dividends-received deduction ("DRD") for the foreign-source portion of dividends received from "specified 10-percent owned foreign corporations." In theory, this deduction eliminates the U.S. tax cost of a § 956 deemed inclusion for a U.S. corporate shareholder, because the deemed dividend under § 956 would be offset by the § 245A DRD.

However, despite the ameliorative effect of § 245A, the 65% pledge limitation remains the prevailing market standard in Term Loan B transactions for several reasons:

(i) The § 245A DRD is not available for all types of income or all components of the deemed inclusion. For example, the DRD does not apply to "hybrid dividends" (as defined in IRC § 245A(e)) or to amounts attributable to certain subpart F income categories. Given the hybrid nature of the ULC structure and the intercompany loan arrangements, there is a risk that some portion of a deemed inclusion could fall outside the scope of the § 245A DRD.

(ii) The § 245A DRD is available only to "domestic corporations." If the ownership structure were to change — for example, if the equity sponsors were to include individual investors, partnerships, or other non-corporate U.S. persons — the § 245A DRD might not be available to all U.S. shareholders, potentially creating adverse tax consequences from a pledge in excess of 65%.

(iii) Subpart F income considerations (IRC §§ 951–964) and the global intangible low-taxed income ("GILTI") regime (IRC § 951A) interact with the § 956 analysis in ways that can produce unexpected results. A full pledge of CFC stock could have collateral effects on subpart F and GILTI calculations that are difficult to predict with certainty.

(iv) Lender's counsel (in this transaction, Whitfield & Gage LLP) consistently insists on preserving the traditional 65% limitation as a risk management measure. This position is supported by the LSTA Model Credit Agreement and related market guidance.

Accordingly, the Credit Agreement and the related collateral documents in this transaction follow the customary approach: the pledge of equity in a first-tier CFC held by a domestic entity or CFC Holdco is limited to 65% of total outstanding voting equity and 100% of total outstanding non-voting equity.

B. Application to Nexford International Holdings, Inc. (CFC Holdco) and NCH ULC

The 65% / 100% pledge limitation applies as follows in the context of the Nexford Canadian subsidiary structure:

NIH Intl as Subsidiary Guarantor and Grantor. NIH Intl is a Subsidiary Guarantor under the Guarantee Agreement and a grantor under the Security Agreement with respect to its personal property assets (including accounts, general intangibles, equipment, and other personal property located in the United States). As a domestic corporation, NIH Intl is subject to a full guarantee obligation and a full grant of security interests in its personal property — the CFC Holdco designation does not limit NIH Intl's own guarantee or security obligations.

Limited Pledge of NCH ULC Equity. However, the pledge by NIH Intl of its equity interest in NCH ULC is subject to the 65% / 100% limitation. Specifically:

(a) NIH Intl will pledge to the Collateral Agent 65% of the total outstanding voting equity interests in NCH ULC.

(b) NIH Intl will pledge to the Collateral Agent 100% of the total outstanding non-voting equity interests in NCH ULC, if any are outstanding from time to time.

This limited pledge will be documented in a standalone CFC Holdco Limited Pledge Agreement, a form of which is currently being negotiated between borrower's counsel (our firm) and lender's counsel (Whitfield & Gage LLP). The CFC Holdco Limited Pledge Agreement is expected to be executed on March 28, 2025, the target closing date for the Credit Facility.

Full Pledge of NIH Intl Equity. By contrast, Nexford (as the Borrower) will pledge 100% of the equity interests in NIH Intl to the Collateral Agent under the Borrower Pledge Agreement. Because NIH Intl is a domestic corporation — not a CFC — the 65% / 100% limitation does not apply to the pledge of NIH Intl's own equity. The Collateral Agent will hold a first-priority security interest in 100% of the outstanding shares of NIH Intl.

Key distinction: It is the equity of the foreign subsidiary (NCH ULC) held by NIH Intl that is subject to the 65% voting / 100% non-voting limitation, not the equity of NIH Intl itself. This is a point that occasionally causes confusion in practice and should be clearly articulated in the collateral documentation and in communications with the Crescent Harbor Bank deal team.

C. Current Equity Structure of NCH ULC

Based on our review of NCH ULC's Notice of Articles (filed with the British Columbia Registrar of Companies) and the Articles of NCH ULC (as amended and restated), NCH ULC has a single class of authorized shares, designated as "Common Shares." All outstanding Common Shares carry full and equal voting rights — one vote per share — on all matters submitted to a vote of shareholders.

As of the date of this memorandum, NCH ULC has 1,000 Common Shares issued and outstanding, all of which are held by NIH Intl. There are no non-voting shares, preferred shares, or any other class or series of equity interests currently authorized, issued, or outstanding. There are no outstanding warrants, options, convertible instruments, or other rights to acquire equity interests in NCH ULC.

Accordingly, only 65% of the outstanding Common Shares of NCH ULC (i.e., 650 shares) will be pledged to the Collateral Agent under the CFC Holdco Limited Pledge Agreement. The remaining 35% (i.e., 350 shares) will remain unpledged.

If NCH ULC were to issue non-voting equity interests in the future, the after-acquired property provisions of the CFC Holdco Limited Pledge Agreement would require NIH Intl to pledge 100% of such non-voting equity to the Collateral Agent promptly upon issuance. The Credit Agreement's negative covenant on the issuance of equity by subsidiaries should also be reviewed to confirm that any such issuance is permitted.

D. No Pledge of NCM Equity

NCM is a second-tier foreign subsidiary — that is, it is held by NCH ULC, which is itself a Foreign Subsidiary. Under the Credit Agreement's collateral requirements, the pledge obligation extends only to equity interests in first-tier CFCs held by a domestic entity (i.e., the Borrower or a domestic Subsidiary Guarantor) or by a CFC Holdco. Because NCM's equity is held by NCH ULC (a Foreign Subsidiary that is not a Loan Party and not a grantor under any collateral document), no pledge of NCM's equity is required or contemplated.

The Collateral Agent's recourse to NCM's equity is therefore entirely indirect. In a foreclosure scenario, the Collateral Agent could enforce its security interest in the pledged 65% of NCH ULC shares. A purchaser of those shares at a foreclosure sale would become a 65% shareholder of NCH ULC, and NCH ULC in turn holds 100% of NCM. The purchaser would thus obtain an indirect 65% economic interest in NCM — but would not hold a direct lien on or security interest in NCM's equity or NCM's assets.

E. Implications for Collateral Coverage

The exclusion of the Canadian subsidiaries from the guarantee and collateral package has implications for the overall collateral coverage available to the Secured Parties. The key considerations are as follows:

U.S. collateral base. The domestic collateral package includes a first-priority security interest in substantially all personal property of the Borrower and the domestic Subsidiary Guarantors, as well as first-priority mortgages on certain real property owned by the Borrower and the domestic Subsidiary Guarantors. The total appraised value of the U.S. mortgaged properties is approximately $193,000,000, based on the appraisals delivered in connection with the transaction.

Excluded Canadian assets. The Canadian subsidiaries' assets — including the manufacturing facility in Mississauga, Ontario (owned by NCM), the working capital (accounts receivable, inventory, and cash) of NCM and NCH ULC, the equipment and machinery used in the Canadian manufacturing operations, and the intellectual property (if any) held by the Canadian subsidiaries — are not subject to any lien, pledge, mortgage, or security interest in favor of the Secured Parties. These assets are entirely outside the collateral perimeter.

Market acceptance. This is a known and accepted limitation of the security package in the Term Loan B market. Institutional lenders in the syndicated loan market for U.S. sponsor-backed transactions routinely accept security packages that exclude foreign subsidiary assets and limit the pledge of foreign subsidiary equity to 65% of voting stock. The Crescent Harbor Bank commitment letter and term sheet expressly contemplate this limitation, and we do not anticipate any pushback from the lender group on this point.

Recovery implications. If Nexford's Canadian operations contribute material value to the consolidated enterprise — as they do here, with approximately $127,000,000 in revenue and $31,000,000 in EBITDA — the Secured Parties' recovery in a distressed or foreclosure scenario would depend on their ability to exercise rights with respect to the pledged 65% NCH ULC shares. Such exercise would require the Collateral Agent to pursue a UCC Article 9 disposition of the pledged shares, and the purchaser at any such sale would need to contend with the practical complexities of acquiring a 65% ownership stake in a British Columbia ULC (including the unlimited liability exposure discussed in Section VII.C below). Moreover, to the extent Canadian insolvency proceedings are commenced with respect to NCH ULC or NCM, Canadian courts would exercise jurisdiction over the administration of Canadian-situs assets, and the interests of the U.S. Secured Parties could be subordinated to those of Canadian creditors with direct claims against the Canadian entities.

V. Guarantee Exclusion Analysis

A. Rationale for Excluding Foreign Subsidiaries from Guarantee

It is customary in U.S. leveraged finance transactions — and virtually universal in the sponsor-backed Term Loan B market — to exclude foreign subsidiaries from the guarantee package. The reasons for this exclusion are both tax-driven and practical:

(i) IRC § 956 deemed dividend issue. A guarantee by a CFC of the obligations of its U.S. parent (or a related U.S. person) is treated under IRC § 956 as a pledge of the CFC's assets to secure those obligations. This treatment can trigger a deemed dividend inclusion for the U.S. shareholder of the CFC, in the same manner as a direct pledge of the CFC's stock in excess of the safe harbor threshold. Accordingly, obtaining a guarantee from NCH ULC or NCM of Nexford's obligations under the Credit Facility could create the very § 956 exposure that the 65% pledge limitation is designed to avoid.

(ii) Practical complications of foreign law enforcement. A guarantee executed by a Canadian entity and governed by Canadian law (or even by New York law) would raise significant practical enforcement issues. Canadian courts may impose requirements for recognition and enforcement of foreign judgments or arbitral awards, and the guaranteeing entity would likely need to submit to Canadian court jurisdiction for enforcement purposes. The process would be more time-consuming and costly than enforcement against domestic guarantors.

(iii) Additional transaction costs. Obtaining a guarantee from a Canadian subsidiary would require the engagement of Canadian counsel (both borrower's Canadian counsel and lender's Canadian counsel) for purposes of reviewing the guarantee, delivering enforceability opinions, and addressing Canadian regulatory requirements. These costs are generally not justified by the incremental credit support provided, particularly where the Canadian subsidiaries are not granting security interests in their assets.

(iv) Withholding tax implications. Payments under a guarantee by a Canadian entity in respect of obligations of a U.S. borrower could be subject to Canadian withholding tax. While the Canada-U.S. Tax Convention may provide relief in certain circumstances, the withholding tax analysis introduces additional complexity and risk.

(v) Financial assistance restrictions under Canadian corporate law. Canadian corporate statutes contain provisions relating to financial assistance that could restrict or condition a Canadian corporation's ability to provide a guarantee of its parent's or an affiliate's obligations, as discussed in Section V.B below.

For all of these reasons, the Credit Agreement defines "Guarantors" to exclude any Foreign Subsidiary, and no Foreign Subsidiary will execute the Guarantee Agreement or any other Loan Document as an obligor.

B. Financial Assistance and Corporate Benefit Considerations Under Canadian Law

Although the question of financial assistance under Canadian corporate law is moot in the current transaction — because no guarantee is being sought from NCH ULC or NCM — we note the applicable legal framework for completeness and for reference in the event that the transaction structure is revised or the issue arises in future transactions involving the Nexford Canadian subsidiaries.

British Columbia (NCH ULC). The Business Corporations Act (British Columbia), S.B.C. 2002, c. 57, largely repealed the traditional financial assistance restrictions that existed under prior British Columbia corporate legislation. Part 8 of the BCBCA does not contain a blanket prohibition on financial assistance of the type found in some other Canadian corporate statutes. However, the directors of a British Columbia company (including a ULC) owe a fiduciary duty to act honestly and in good faith with a view to the best interests of the company (BCBCA, s. 142). A guarantee by NCH ULC of its U.S. parent's obligations — where the proceeds of the guaranteed indebtedness are not used for the benefit of NCH ULC — could raise questions about whether the directors have fulfilled their duty to act in the best interests of NCH ULC. A "corporate benefit" analysis would be required, and Canadian counsel would likely recommend that the directors of NCH ULC document the corporate benefit supporting the guarantee (e.g., the ongoing financial support from the Nexford group, the availability of intercompany funding, and the indirect benefit of the parent's continued access to capital markets).

Ontario (NCM). The Business Corporations Act (Ontario), R.S.O. 1990, c. B.16, section 20, imposes restrictions on financial assistance. Under s. 20(1), a corporation shall not, directly or indirectly, give financial assistance by means of a loan, guarantee, or otherwise to any person for the purpose of, or in connection with, the purchase of shares of the corporation or of an affiliated body corporate, or for the purpose of acquiring or funding the acquisition of shares. There are exceptions to this prohibition (including an exception for financial assistance that is incidental to or in furtherance of the corporation's business and that does not materially prejudice the interests of the corporation's shareholders or creditors), but the analysis requires careful review. In the context of a dividend recapitalization, where the proceeds of the new indebtedness will be used in part to fund a distribution to the equity sponsors, the argument that NCM's guarantee would facilitate the acquisition of shares or benefit only the equity holders (rather than NCM itself) could trigger the s. 20 restrictions.

As noted above, these considerations are moot in the current transaction. No guarantee from NCH ULC or NCM is being sought, and no financial assistance analysis is required.

VI. Intercompany Loan Considerations

A. Existing Intercompany Loans

Based on our review of the intercompany loan documentation and related due diligence materials provided by Priya Mehta, Vice President, Treasury of Nexford, the following intercompany loan arrangements are currently in place within the Canadian subsidiary structure:

(i) Nexford to NIH Intl: Nexford has made intercompany loans to NIH Intl, which in turn has on-lent those funds downstream to NCH ULC. The outstanding principal balance of the intercompany loan from Nexford to NIH Intl, as of the most recent reporting date (January 31, 2025), is approximately $42,000,000. This loan bears interest at a rate determined by reference to the applicable federal rate published by the IRS, adjusted to reflect an arm's-length rate consistent with Nexford's transfer pricing policy.

(ii) NIH Intl to NCH ULC: NIH Intl has an outstanding intercompany loan to NCH ULC in the approximate principal amount of $40,500,000. This loan was funded with the proceeds of the intercompany loan from Nexford to NIH Intl, with the difference representing accrued but unpaid interest and working capital retained by NIH Intl.

(iii) NCH ULC to NCM: NCH ULC has made intercompany loans to NCM to fund the Canadian manufacturing operations and capital expenditures. The outstanding principal balance of the intercompany loan from NCH ULC to NCM is approximately $38,000,000. This loan bears interest at a rate intended to comply with Canadian transfer pricing requirements.

These intercompany notes are material intercompany obligations within the Nexford group. To the extent such notes evidence obligations owed to a domestic Loan Party (i.e., Nexford or NIH Intl), the notes constitute personal property of the domestic Loan Party and are includable in the collateral package. Specifically:

• The intercompany note from NIH Intl to Nexford (evidencing the obligation owed to Nexford) is a general intangible of Nexford and will be pledged to the Collateral Agent under the Security Agreement (Nexford being the Borrower and a grantor under the Security Agreement).

• The intercompany note from NCH ULC to NIH Intl (evidencing the obligation owed to NIH Intl) is a general intangible of NIH Intl and will be pledged to the Collateral Agent under the Security Agreement (NIH Intl being a Subsidiary Guarantor and a grantor under the Security Agreement).

The intercompany promissory notes (to the extent they exist in physical, executed form) should be endorsed in blank and delivered to the Collateral Agent at closing. If the intercompany loans have not previously been evidenced by executed promissory notes, the Borrower and NIH Intl should execute intercompany notes in a form satisfactory to the Collateral Agent prior to closing, dated as of March 28, 2025.

B. Tax Implications of Intercompany Loans

The intercompany loan structure between Nexford, NIH Intl, NCH ULC, and NCM raises a number of tax considerations under both U.S. and Canadian law. These issues are addressed in greater detail in the tax memoranda prepared by Sylvia Hartwell, including the Tax Structure and Dividend Recapitalization Analysis (February 28, 2025) and the forthcoming Section 163(j) Memorandum (March 5, 2025). We summarize the key considerations below for the benefit of the Banking & Finance team.

Transfer pricing (IRC § 482 and ITA § 247). Intercompany loans between related parties must bear interest at arm's-length rates. Under IRC § 482, the IRS has the authority to adjust the terms of intercompany transactions — including the interest rate, principal amount, and other terms of intercompany loans — to reflect the results that would have been obtained if the parties had been unrelated and dealing at arm's length. On the Canadian side, ITA § 247 provides corresponding authority to the Canada Revenue Agency ("CRA") to adjust the terms of transactions between Canadian taxpayers and non-arm's-length non-residents. Nexford should ensure that the intercompany loan interest rates are supported by contemporaneous transfer pricing documentation, including a benchmarking analysis that compares the rates charged on the intercompany loans to rates that would be charged between unrelated parties in comparable circumstances.

Thin capitalization (ITA § 18(4)). Canada's thin capitalization rules limit the deductibility of interest paid or payable by a Canadian-resident corporation (or a partnership of which a Canadian-resident corporation is a member) to specified non-resident shareholders (or persons who do not deal at arm's length with specified non-resident shareholders) where the ratio of relevant debt to equity exceeds 1.5:1. For these purposes, the "specified non-resident shareholder" of NCM would be NIH Intl (as the indirect U.S. parent holding more than 25% of the votes or value). If the aggregate amount of intercompany debt owed by NCM to specified non-resident shareholders (or related persons) exceeds 1.5 times NCM's equity for Canadian tax purposes, the interest on the excess debt will be non-deductible and may be recharacterized as a dividend for Canadian withholding tax purposes. Given the approximate $38,000,000 intercompany loan from NCH ULC to NCM, and depending on NCM's equity base for Canadian tax purposes, there is a risk that the thin capitalization limits could be exceeded. This issue should be analyzed in coordination with Sylvia Hartwell and Nexford's Canadian tax advisors.

Withholding tax on interest (Part XIII, ITA; Canada-U.S. Tax Convention). Interest paid or credited by NCH ULC or NCM to U.S. persons (including NIH Intl and Nexford) may be subject to Canadian withholding tax under Part XIII of the Income Tax Act (Canada). The statutory rate of Canadian withholding tax on interest paid to a non-resident is 25%. However, under Article XI of the Canada-U.S. Tax Convention (1980, as amended by the Protocols thereto), the withholding rate on interest arising in Canada and paid to a U.S. resident is generally reduced to 0% for arm's-length interest. Interest between related parties also qualifies for the 0% rate under Article XI, provided that the interest is paid to a qualifying U.S. resident (i.e., a person entitled to benefits under the Treaty) and the interest is not contingent on or determined by reference to receipts, sales, income, profits, or other cash flow of the debtor. Nexford should confirm that the intercompany interest payments satisfy the conditions for the 0% Treaty rate and should maintain the documentation necessary to support the Treaty benefit claim (including CRA Form NR301 or similar certification).

IRC § 956 considerations for upstream intercompany loans. Intercompany loans from a CFC (such as NCH ULC, if treated as a corporation for § 956 purposes) to a U.S. parent or U.S. affiliate can constitute an investment in "United States property" under IRC § 956(c). If NCH ULC has made, or in the future makes, an upstream intercompany loan to NIH Intl or Nexford, such a loan could trigger a deemed dividend inclusion for the U.S. shareholder (Nexford or NIH Intl) to the extent of NCH ULC's applicable earnings. Based on the due diligence materials reviewed to date, the current intercompany loan flow is downstream (from Nexford to NIH Intl to NCH ULC to NCM), which does not raise the § 956 upstream investment concern. However, any existing upstream obligations — including intercompany payables or other amounts owed by a U.S. entity to NCH ULC — should be reviewed to confirm that they do not constitute investments in United States property. The TCJA § 245A DRD may mitigate the U.S. tax cost of any § 956 inclusion for corporate shareholders, but care is warranted given the complexities noted in Section IV.A above.

Guarantee fee / support fee. If NIH Intl or Nexford provides any form of credit support — whether by way of guarantee, letter of comfort, keepwell agreement, or otherwise — for the third-party obligations of NCH ULC or NCM (if any), an arm's-length fee should be charged for such credit support. The failure to charge an arm's-length fee could result in a transfer pricing adjustment under IRC § 482 or ITA § 247, and could also create Canadian withholding tax exposure.

C. Treatment Under the Credit Agreement — Investments Covenant

Intercompany loans from the Borrower or any Guarantor to a Foreign Subsidiary — including NCH ULC and NCM — are classified as "Investments" under the Credit Agreement's negative covenant on Investments (expected to be set forth in Section 7.02 of the Credit Agreement). The proposed covenant restricts the ability of the Borrower and the Restricted Subsidiaries to make, hold, or permit to exist any Investment, except for Investments permitted under enumerated baskets.

The following Permitted Investment baskets are expected to be available to accommodate existing intercompany loans and ongoing operational funding to the Canadian subsidiaries:

(a) Investments existing on the closing date. The Credit Agreement will include a schedule listing all Investments existing as of the closing date, including the outstanding intercompany loans from Nexford to NIH Intl, from NIH Intl to NCH ULC, and from NCH ULC to NCM. These existing Investments will be grandfathered as permitted Investments so long as the aggregate amount of such Investments does not increase beyond the scheduled amount (except as otherwise permitted under another basket).

(b) General Investment basket. A general basket of $35,000,000 (which is included within the overall general basket available for investments, restricted payments, and prepayments of subordinated indebtedness) is expected to be available for Investments in any person, including Foreign Subsidiaries. The amount and structure of this basket remain subject to ongoing negotiation with Whitfield & Gage.

(c) Foreign Subsidiary Investment sub-basket. A dedicated sub-basket for Investments in Foreign Subsidiaries is expected to be included, in an amount equal to the greater of (x) a fixed dollar amount (currently under negotiation, expected in the range of $25,000,000 to $40,000,000) and (y) a percentage of consolidated Adjusted EBITDA (expected to be approximately 7.5% to 10% of LTM Adjusted EBITDA). This sub-basket is subject to ongoing negotiation, and the final terms will be reflected in the Credit Agreement.

(d) Builder basket capacity. The Credit Agreement is expected to include a "builder basket" (also referred to as a "cumulative credit" or "Available Amount") that is built from 50% of cumulative consolidated net income of the Borrower and its Restricted Subsidiaries from the first fiscal quarter commencing after the closing date, plus a starter amount of $50,000,000. Amounts available under the builder basket may generally be used for Investments (including Investments in Foreign Subsidiaries), restricted payments, and prepayments of subordinated indebtedness, subject to compliance with a pro forma leverage test.

Monitoring. Nexford should ensure that any new intercompany loans to NCH ULC or NCM — whether funded as new advances or as roll-overs of existing loans — are tracked against the applicable Investment basket to maintain ongoing covenant compliance. We recommend that Nexford establish a tracking mechanism (coordinated with Michelle Kaplan, CFO, and Priya Mehta, VP Treasury) to monitor the aggregate outstanding amount of Investments in Foreign Subsidiaries and to flag any potential basket utilization issues before new intercompany funding is advanced.

D. Collateral Implications of Intercompany Notes

The collateral treatment of intercompany notes within the Canadian subsidiary structure depends on the identity of the holder of each note:

(i) Intercompany notes from NIH Intl payable to Nexford. These notes evidence obligations owed to Nexford. As general intangibles of Nexford, they are included in the collateral package and are pledged to the Collateral Agent under the Security Agreement. Nexford is the Borrower and a grantor under the Security Agreement.

(ii) Intercompany notes from NCH ULC payable to NIH Intl. These notes evidence obligations owed to NIH Intl. As general intangibles of NIH Intl, they are included in the collateral package and are pledged to the Collateral Agent under the Security Agreement. NIH Intl is a Subsidiary Guarantor and a grantor under the Security Agreement.

(iii) Intercompany notes from NCM payable to NCH ULC. These notes evidence obligations owed to NCH ULC. As assets of NCH ULC (a Foreign Subsidiary that is not a Loan Party and not a grantor under any collateral document), these notes are not pledged to the Collateral Agent and are not part of the collateral package. The Collateral Agent has no direct security interest in NCH ULC's receivable from NCM.

Closing deliverables. If the intercompany loans from Nexford to NIH Intl and from NIH Intl to NCH ULC are evidenced by physical promissory notes, the original notes should be endorsed in blank and delivered to the Collateral Agent at closing. If the intercompany loans are currently undocumented or are evidenced only by book entries, Nexford and NIH Intl should execute intercompany promissory notes in a form satisfactory to the Collateral Agent in advance of the closing date. We will coordinate with Whitfield & Gage on the form of intercompany note and the endorsement requirements.

VII. Perfection and Enforcement Considerations — Canadian Assets

A. No Canadian Law Security Being Taken

The transaction does not contemplate any security interest filings or registrations under Canadian provincial personal property security legislation. No General Security Agreement, debenture, or other Canadian-law collateral document will be executed by NCH ULC or NCM. Specifically:

(i) No registrations will be made under the Personal Property Security Act (British Columbia) (the "BC PPSA") against NCH ULC.

(ii) No registrations will be made under the Personal Property Security Act (Ontario) (the "Ontario PPSA") against NCM.

(iii) No filings will be made under the Bank Act (Canada) in respect of any security taken under section 427 thereof.

(iv) No mortgages, charges, deeds of trust, or other real property security instruments will be registered against Canadian-situs real property. The manufacturing facility in Mississauga, Ontario, owned by NCM, is not included in the list of mortgaged properties under the Credit Agreement.

(v) No Canadian counsel has been retained for purposes of collateral perfection, priority analysis, or opinion delivery.

This approach is consistent with market practice and with the terms of the Crescent Harbor Bank commitment letter and term sheet, which do not require any Canadian-law security as a condition to closing.

B. Perfection of Pledge of NCH ULC Shares Under U.S. Law

Although NCH ULC is a British Columbia entity, the pledge of NCH ULC shares is granted by NIH Intl, a Delaware corporation, and is documented under and governed by New York law (with Delaware law applicable to certain UCC perfection matters). Perfection of the security interest in the NCH ULC shares is therefore analyzed under the UCC as enacted in the applicable jurisdiction.

Perfection method — certificated securities. If the shares of NCH ULC are certificated (i.e., represented by physical share certificates), perfection is achieved by delivery of the share certificates to the Collateral Agent, together with a signed stock transfer power executed in blank. Under UCC § 8-301, delivery of a certificated security occurs when the purchaser (including a secured party) acquires possession of the security certificate. Under UCC § 9-313(a), a security interest in a certificated security may be perfected by delivery.

Perfection method — uncertificated securities. If the shares of NCH ULC are uncertificated, perfection may be achieved by "control" under UCC § 8-106. A purchaser (including a secured party) has "control" of an uncertificated security if (a) the uncertificated security is delivered to the purchaser, or (b) the issuer has agreed that it will comply with instructions originated by the purchaser without further consent by the registered owner. In practice, this would require NCH ULC (as the issuer) to execute an instruction agreement or control agreement in favor of the Collateral Agent.

UCC-1 Financing Statement. In addition to perfection by delivery or control (as applicable), a UCC-1 Financing Statement will be filed against NIH Intl with the Delaware Secretary of State (NIH Intl being organized in Delaware). The financing statement will cover all personal property of NIH Intl, including the pledged NCH ULC shares. The UCC-1 filing provides "belt and suspenders" protection and ensures that the Collateral Agent's security interest is reflected in the public record, even though perfection of a security interest in securities is ordinarily achieved by delivery or control rather than by filing.

Practical step. We need to confirm whether NCH ULC shares are currently certificated or uncertificated. If certificated, the original share certificates representing 65% of the outstanding shares (i.e., certificates for 650 shares) must be delivered to the Collateral Agent at closing, accompanied by stock transfer powers (or "stock powers") executed in blank by NIH Intl as the registered owner. If uncertificated, we will need to arrange for either (a) the issuance of share certificates for the pledged shares, to be delivered at closing, or (b) the execution of an instruction agreement or control agreement by NCH ULC in favor of the Collateral Agent. We recommend contacting Priya Mehta to determine the current form of NCH ULC shares and to initiate the steps necessary to effect the pledge at closing.

C. Enforcement Considerations

In a distressed scenario — whether following an Event of Default under the Credit Agreement or in connection with insolvency proceedings — the Collateral Agent's ability to realize on the pledged 65% NCH ULC shares would involve the following considerations:

UCC Article 9 remedies. The Collateral Agent would exercise remedies under UCC Article 9 (as adopted in the governing jurisdiction) to dispose of or accept the pledged 65% NCH ULC shares. Under UCC § 9-610, the Collateral Agent may sell, lease, license, or otherwise dispose of the collateral in a commercially reasonable manner after providing notice as required under UCC § 9-611. Alternatively, under UCC § 9-620, the Collateral Agent may propose to accept the collateral in full or partial satisfaction of the secured obligations, subject to the consent requirements set forth therein.

British Columbia corporate law requirements. Because NCH ULC is a British Columbia ULC, any transfer of its shares (whether by way of voluntary sale, foreclosure, or otherwise) may be subject to the share transfer provisions set forth in NCH ULC's Articles. Under the BCBCA, the Articles of a company may contain restrictions on the transfer of shares, including requirements for directors' approval of any transfer. We have reviewed the Articles of NCH ULC and note that they contain a provision requiring the approval of the directors of NCH ULC for any transfer of shares. In a foreclosure context, this transfer restriction could create an impediment to the Collateral Agent's ability to convey the pledged shares to a purchaser at a UCC foreclosure sale. The Collateral Agent may need to seek a court order overriding the transfer restriction, or may need to negotiate with the remaining shareholder (NIH Intl, as the holder of the unpledged 35%) and the directors of NCH ULC to obtain the necessary approvals. We recommend flagging this issue to the Crescent Harbor Bank deal team.

Unlimited liability exposure of transferee. Perhaps the most significant practical impediment to enforcement against the NCH ULC shares is the unlimited liability nature of the ULC structure. Under the BCBCA, the shareholders of an unlimited liability company are jointly and severally liable for all debts, obligations, and liabilities of the company if the company is unable to pay them. This means that any purchaser of the pledged 65% NCH ULC shares — whether at a UCC foreclosure sale or in a negotiated disposition — would assume unlimited personal liability for the debts and obligations of NCH ULC (to the extent that NCH ULC is unable to satisfy t

MEMORANDUM
PRIVILEGED AND CONFIDENTIAL — ATTORNEY-CLIENT PRIVILEGE / ATTORNEY WORK PRODUCT
TO: Claudia Merritt, Responsible Partner, Banking & Finance Ian Blackwood, Billing Partner, Banking & Finance
FROM: Marcus Leung, Lead Associate, Banking & Finance Sophie Tremblay, Working Associate, Banking & Finance
CC: Sylvia Hartwell, Specialist Partner, Tax
DATE: March 1, 2025
RE: Canadian Subsidiary Structure and Cross-Border Issues — Nexford Industrial Holdings Inc. $1,400,000,000 Senior Secured Term Loan B Refinancing and Dividend Recapitalization
MATTER NO.: 1005-00001
CLIENT/MATTER CODE: IBL-NIH-2025-031
Right-click to update Table of Contents
I. Executive Summary
The purpose of this memorandum is to analyze the treatment of Nexford Industrial Holdings Inc.'s ("Nexford" or the "Borrower") Canadian subsidiaries — Nexford Canada Holdings ULC ("NCH ULC") and Nexford Canada Manufacturing, Inc. ("NCM") — under the proposed $1,400,000,000 Senior Secured Term Loan B credit facility (the "Credit Facility") with Crescent Harbor Bank, N.A. acting as Administrative Agent and Collateral Agent (the "Collateral Agent"). This memorandum addresses the corporate structure, collateral and guarantee treatment, intercompany loan considerations, perfection and enforcement issues, and relevant tax and regulatory implications arising from the cross-border nature of the Nexford group's Canadian operations.
Our key conclusions are as follows:
(a) No Canadian Subsidiary Guarantees. Neither NCH ULC nor NCM will be a Guarantor under the Credit Facility. Both entities are Foreign Subsidiaries and Excluded Subsidiaries under the proposed Credit Agreement and are expressly excluded from the definition of "Loan Parties." This exclusion is consistent with market practice for U.S. sponsor-backed Term Loan B transactions and reflects the tax, regulatory, and practical considerations discussed in detail below.
(b) Limited Pledge of Canadian Equity. The pledge of equity in the Canadian tier of the organizational structure is limited to 65% of the outstanding voting equity and 100% of the outstanding non-voting equity of NCH ULC. This pledge is granted by Nexford International Holdings, Inc. ("NIH Intl" or the "CFC Holdco"), the domestic parent of NCH ULC, through a standalone CFC Holdco Limited Pledge Agreement. The 65% / 100% limitation is driven by the potential application of IRC § 956 and reflects the customary approach in the leveraged loan market. There is no pledge of the equity of NCM (a second-tier foreign subsidiary).
(c) Intercompany Loan Treatment. Intercompany loans from Nexford to and through the Canadian subsidiary structure — specifically, loans from Nexford to NIH Intl and from NIH Intl downstream to NCH ULC — require careful treatment to avoid adverse U.S. federal income tax consequences (including potential deemed dividend inclusions under IRC § 956 and transfer pricing adjustments under IRC § 482) and to preserve the collateral value of intercompany notes pledged to the Collateral Agent. Compliance with Canadian thin capitalization rules (ITA § 18(4)) is also essential to protect the deductibility of intercompany interest payments at the Canadian level.
(d) No Canadian Law Security Interests. The transaction does not contemplate any security interest filings or registrations under Canadian provincial personal property security legislation, and no mortgages or charges will be registered against Canadian-situs real property (including NCM's manufacturing facility in Mississauga, Ontario). This simplifies execution and reduces costs but limits the Secured Parties' direct recourse to Canadian-situs assets. In a foreclosure scenario, the Secured Parties' primary remedy with respect to Canadian operations would be enforcement against the pledged 65% NCH ULC shares under the Uniform Commercial Code ("UCC"), subject to practical constraints discussed in Section VII below.
This memorandum should be read in conjunction with the following related memoranda:
• Tax Structure and Dividend Recapitalization Analysis (February 28, 2025), prepared by Sylvia Hartwell, Specialist Partner, Tax, which addresses the broader tax structuring considerations for the dividend recapitalization, including the treatment of the proceeds distributed to Granite Peak Capital Fund IV, LP and its co-investment vehicle.
• Analysis of Existing Lien and Security Package (February 15, 2025), prepared by this team, which provides a comprehensive review of the existing liens, security interests, and collateral package under the Prior Credit Agreement being refinanced.
• Tax Memorandum — Withholding Tax Considerations for Lenders (March 7, 2025), prepared by Sylvia Hartwell, which is referenced at several points herein with respect to cross-border withholding on intercompany interest payments.
II. Overview of Canadian Subsidiary Structure
A. Corporate Organizational Chain
Based on our review of the organizational documents, secretary's certificates, good standing certificates, and related due diligence materials provided by Nexford's in-house counsel and treasury team, the corporate organizational chain relevant to the Canadian subsidiaries is as follows:
Granite Peak Capital Fund IV, LP (a Delaware limited partnership) — 92% equity owner of Granite Peak NIH Holdings, LLC
GP Fund IV Co-Invest, LP (a Delaware limited partnership) — 8% equity owner of Granite Peak NIH Holdings, LLC
Granite Peak NIH Holdings, LLC (a Delaware limited liability company) — 100% direct equity owner of Nexford Industrial Holdings Inc.; Holdings Guarantor under the Credit Agreement
Nexford Industrial Holdings Inc. (a Delaware corporation) — the Borrower under the Credit Agreement; headquarters located at 1400 Industrial Parkway, Schaumburg, Illinois 60173
Nexford International Holdings, Inc. (a Delaware corporation; "NIH Intl") — the CFC Holdco; a direct, wholly-owned subsidiary of Nexford; a Subsidiary Guarantor under the Guarantee Agreement; grantor of a limited pledge of NCH ULC equity under the CFC Holdco Limited Pledge Agreement
Nexford Canada Holdings ULC (a British Columbia unlimited liability company; "NCH ULC") — a Foreign Subsidiary; NOT a Guarantor and NOT a Loan Party; registered office at 1055 West Georgia Street, Suite 1500, Vancouver, British Columbia V6E 4N7, Canada
Nexford Canada Manufacturing, Inc. (an Ontario corporation; "NCM") — a Foreign Subsidiary; NOT a Guarantor and NOT a Loan Party; principal place of business at 400 Industrial Road, Mississauga, Ontario L5T 2R3, Canada
The equity interests at each tier are 100% owned by the immediate parent entity. There are no minority interests at any level of the Canadian subsidiary chain. No joint ventures, preferred equity instruments, or convertible securities are outstanding at any tier. The organizational chart attached as Appendix A provides a simplified visual representation of the Canadian structure and the collateral treatment at each level.
B. Entity Details — Nexford International Holdings, Inc. (CFC Holdco)
Entity type: Corporation
Jurisdiction of organization: Delaware
Date of formation: June 14, 2016
Registered address: c/o Penmark Industries, 1209 Orange Street, Wilmington, Delaware 19801
Principal place of business: 1400 Industrial Parkway, Schaumburg, Illinois 60173 (same as parent Borrower)
Organizational identification number: Delaware File No. 6128473
Role in the transaction: NIH Intl serves two functions in the Credit Facility:
(i) Subsidiary Guarantor. NIH Intl will execute the Guarantee Agreement as a Subsidiary Guarantor, guaranteeing the Obligations of Nexford under the Credit Agreement on a senior secured basis, jointly and severally with the other Subsidiary Guarantors.
(ii) Grantor under the CFC Holdco Limited Pledge Agreement. NIH Intl will execute the CFC Holdco Limited Pledge Agreement, pursuant to which it will pledge to the Collateral Agent 65% of the total outstanding voting equity interests in NCH ULC and 100% of any outstanding non-voting equity interests in NCH ULC.
"CFC Holdco" classification: NIH Intl is a domestic corporation that qualifies as a "CFC Holdco" under the proposed Credit Agreement because substantially all of its assets consist of equity interests in one or more Controlled Foreign Corporations ("CFCs") or other CFC Holdcos. Specifically, NIH Intl's sole material asset is its 100% equity interest in NCH ULC, a British Columbia unlimited liability company that qualifies as a CFC within the meaning of IRC § 957. NIH Intl has no material operating assets, no employees, and no independent revenue-generating activities. It functions as a holding vehicle interposed between Nexford and the Canadian operating structure for tax planning purposes.
Pledge of NIH Intl equity: It is important to distinguish between the pledge of NIH Intl's equity and the pledge by NIH Intl of its subsidiary's equity. NIH Intl is itself a direct wholly-owned subsidiary of Nexford (the Borrower). Under the Borrower Pledge Agreement, Nexford will pledge 100% of the equity interests in NIH Intl to Crescent Harbor Bank, N.A. as Collateral Agent. This is a full, unlimited pledge — the 65% / 100% limitation does not apply to NIH Intl because NIH Intl is a domestic corporation, not a CFC. The 65% / 100% limitation applies only to the equity of the foreign subsidiary (NCH ULC) held by NIH Intl, as discussed in Section IV below.
C. Entity Details — Nexford Canada Holdings ULC
Entity type: Unlimited Liability Company organized under the Business Corporations Act (British Columbia), S.B.C. 2002, c. 57 (the "BCBCA")
Jurisdiction of organization: British Columbia, Canada
Date of formation: September 8, 2016
Registered office address: 1055 West Georgia Street, Suite 1500, Vancouver, British Columbia V6E 4N7, Canada
B.C. Incorporation Number: BC1098842
Status in the transaction: NCH ULC is a Foreign Subsidiary and an Excluded Subsidiary under the Credit Agreement. It is excluded from the definitions of "Guarantors" and "Loan Parties." NCH ULC will not execute the Guarantee Agreement, the Security Agreement, or any other collateral document as a grantor or pledgor.
Sole shareholder: Nexford International Holdings, Inc. (NIH Intl)
Note on ULC structure and tax treatment: British Columbia unlimited liability companies are a widely used structuring vehicle in cross-border transactions involving U.S. parent companies with Canadian operations. The key feature of a British Columbia ULC is that, unlike a standard British Columbia corporation, the shareholders of a ULC have unlimited personal liability for the debts and obligations of the ULC. This unlimited liability feature is the distinguishing legal characteristic of the ULC form under the BCBCA.
The principal reason for employing a ULC as a Canadian holding vehicle is the favorable U.S. federal income tax treatment that the ULC structure facilitates. Because of the unlimited liability feature, a British Columbia ULC may be treated as an entity that is not per se classified as a "corporation" for U.S. federal income tax purposes under Treasury Regulation § 301.7701-2. As an eligible entity under Treasury Regulation § 301.7701-3, the ULC's owner may make a "check-the-box" election to treat the ULC as a disregarded entity (if it has a single owner, as in this case) or as a partnership (if it has multiple owners) for U.S. federal income tax purposes.
In the case of NCH ULC, which is wholly owned by NIH Intl, a check-the-box election to treat NCH ULC as a disregarded entity permits the income, gains, losses, deductions, and credits of NCH ULC to flow through directly to NIH Intl (and, by extension, to Nexford) for U.S. federal income tax purposes. This flow-through treatment can be advantageous in several respects, including enabling the U.S. parent to claim foreign tax credits for Canadian taxes paid by the ULC, and facilitating the integration of the Canadian operations' financial results into the U.S. consolidated tax return without the complexities that would arise from treating the Canadian holding entity as a separate foreign corporation.
Importantly, while the ULC is treated as a disregarded entity for U.S. federal income tax purposes, it remains a separate legal entity for Canadian corporate law and Canadian tax purposes. For Canadian income tax purposes, NCH ULC is a "corporation" resident in Canada and is subject to Canadian federal and provincial income tax on its worldwide income. The ULC structure therefore enables a "hybrid" result: flow-through treatment in the United States and corporate-level taxation in Canada.
We note, however, that the unlimited liability feature of the ULC — while essential to the U.S. tax classification — creates practical complications in the context of enforcement of the pledge of NCH ULC shares, as discussed in Section VII.C below.
D. Entity Details — Nexford Canada Manufacturing, Inc.
Entity type: Corporation organized under the Business Corporations Act (Ontario), R.S.O. 1990, c. B.16 (the "OBCA")
Jurisdiction of organization: Ontario, Canada
Date of incorporation: October 3, 2016
Registered office address: 400 Industrial Road, Mississauga, Ontario L5T 2R3, Canada
Ontario Corporation Number: 2549731
Status in the transaction: NCM is a Foreign Subsidiary and an Excluded Subsidiary under the Credit Agreement. It is excluded from the definitions of "Guarantors" and "Loan Parties."
Sole shareholder: Nexford Canada Holdings ULC
Operational role: NCM is the operating subsidiary within Nexford's Canadian corporate structure. It conducts all of Nexford's Canadian manufacturing operations, which include the production of specialty industrial components and assemblies at its manufacturing facility in Mississauga, Ontario. NCM employs approximately 340 individuals in Canada and generates revenue through both domestic Canadian sales and cross-border sales to Nexford's U.S. operations and third-party customers. Based on the financial information provided by Nexford's management, the Canadian manufacturing operations contributed approximately $127,000,000 in net revenue and approximately $31,000,000 in operating EBITDA for the twelve-month period ended December 31, 2024.
NCM is not directly relevant to the U.S. security package except insofar as it is an asset held indirectly through NCH ULC, 65% of whose voting equity is pledged to the Collateral Agent. The manufacturing facility in Mississauga, Ontario, along with all equipment, inventory, accounts receivable, and other assets of NCM, are located in Canada and are not subject to any lien, pledge, or security interest in favor of the Secured Parties under the Credit Facility.
III. Treatment Under the Credit Agreement — Foreign Subsidiary Exclusions
A. Definition of "Foreign Subsidiary"
Under the proposed Credit Agreement (Section 1.01, "Definitions"), a "Foreign Subsidiary" is defined as any Subsidiary of the Borrower that is organized under the laws of a jurisdiction other than the United States, any state thereof, or the District of Columbia. Both NCH ULC (organized under the laws of British Columbia, Canada) and NCM (organized under the laws of Ontario, Canada) fall squarely within this definition and are classified as Foreign Subsidiaries.
The significance of the Foreign Subsidiary classification is that Foreign Subsidiaries are expressly excluded from the definitions of "Guarantors" and "Loan Parties" in the Credit Agreement. Specifically:
(i) "Guarantors" is defined to include (a) the Holdings Guarantor (Granite Peak NIH Holdings, LLC), (b) the Borrower, and (c) each Subsidiary Guarantor, in each case excluding any Excluded Subsidiary. Foreign Subsidiaries are Excluded Subsidiaries and therefore cannot be Guarantors.
(ii) "Loan Parties" is defined to include the Borrower and each Guarantor. Because Foreign Subsidiaries are not Guarantors, they are not Loan Parties.
As a result, no Foreign Subsidiary will execute the Guarantee Agreement, the Security Agreement, or any Pledge Agreement as a grantor or obligor. No Foreign Subsidiary will be subject to the conditions precedent or closing deliverables applicable to Guarantors (such as delivery of secretary's certificates, organizational documents, or good standing certificates in their capacity as Loan Parties). No legal opinion will be delivered on behalf of any Foreign Subsidiary, and no Foreign Subsidiary will make representations or warranties directly under the Credit Agreement.
B. Definition of "Excluded Subsidiary"
The proposed Credit Agreement defines "Excluded Subsidiary" to include, among others, each Foreign Subsidiary. The Excluded Subsidiary designation has the following practical consequences for NCH ULC and NCM:
(i) No closing deliverables. There is no obligation to deliver secretary's certificates, board resolutions, good standing certificates, incumbency certificates, or certified organizational documents for NCH ULC or NCM as conditions precedent to closing. This eliminates the need to engage Canadian counsel to prepare or certify such documentation.
(ii) Organizational documents collected for diligence. Notwithstanding the absence of a closing deliverable requirement, copies of the organizational documents (articles of incorporation, articles of association, notice of articles, bylaws, and shareholder resolutions) for both NCH ULC and NCM have been collected as part of the due diligence process for purposes of confirming the corporate chain, equity ownership, authorized share capital, transfer restrictions, and related matters. These documents are maintained in the virtual data room (Room 4, Folder 3.02 — Canadian Subsidiaries).
(iii) No legal opinions on Canadian law. No legal opinions are being delivered with respect to Canadian law enforceability, perfection, or priority. No Canadian law firm has been retained as borrower's counsel or lender's counsel for purposes of the transaction. The absence of Canadian law opinions is consistent with market practice where no Canadian law security is being taken and no Canadian entity is a Guarantor.
C. Definition of "CFC" and "CFC Holdco"
The proposed Credit Agreement incorporates two tax-driven definitions that are critical to understanding the treatment of the Canadian subsidiary tier:
"Controlled Foreign Corporation" or "CFC": The Credit Agreement defines "CFC" by reference to IRC § 957 of the Internal Revenue Code of 1986, as amended (the "Code"). Under IRC § 957, a CFC is a foreign corporation in which "United States shareholders" — defined as U.S. persons each owning (directly, indirectly, or constructively) 10% or more of the total combined voting power or 10% or more of the total value of shares — collectively own more than 50% of the total combined voting power or more than 50% of the total value of all classes of stock.
In the case of the Nexford group, both NCH ULC and NCM are 100% owned (directly and indirectly) by U.S. persons. If NCH ULC is treated as a corporation for purposes of this analysis (its check-the-box election as a disregarded entity would cause it to be disregarded for certain Code purposes, but the CFC analysis may nonetheless be relevant for purposes of NCM), then each entity clearly satisfies the CFC definition. NCM, organized as an Ontario corporation and 100% indirectly owned by U.S. persons through NCH ULC (which in turn is 100% owned by NIH Intl, a domestic corporation), qualifies as a CFC.
"CFC Holdco": The Credit Agreement defines a "CFC Holdco" as a Subsidiary that is a domestic corporation or domestic limited liability company substantially all of the assets of which consist of equity interests in one or more CFCs or in one or more other CFC Holdcos. NIH Intl qualifies as a CFC Holdco because its sole material asset is its 100% equity interest in NCH ULC. NIH Intl has no significant operating assets, no trade receivables, no inventory, and no real property. Its balance sheet consists essentially of the investment in NCH ULC and the intercompany receivables discussed in Section VI below.
The CFC Holdco designation is significant because it triggers the limited pledge restriction described in Section IV: the equity of a CFC held by a CFC Holdco is subject to the 65% voting / 100% non-voting pledge limitation, rather than a full 100% pledge.
D. Restricted Subsidiary vs. Unrestricted Subsidiary
Notwithstanding their exclusion from the Guarantor and Loan Party definitions, both NCH ULC and NCM are expected to be classified as "Restricted Subsidiaries" under the Credit Agreement. The distinction between Restricted Subsidiaries and Unrestricted Subsidiaries is fundamental to the covenant structure of the Credit Agreement:
(i) Negative covenants. As Restricted Subsidiaries, NCH ULC and NCM are subject to the negative covenants applicable to the Borrower and its Restricted Subsidiaries, including limitations on indebtedness, liens, restricted payments, asset dispositions, affiliate transactions, and mergers. Any indebtedness incurred by NCH ULC or NCM, any liens granted by NCH ULC or NCM on their assets, and any restricted payments made by NCH ULC or NCM must comply with the applicable covenant baskets and exceptions set forth in the Credit Agreement.
(ii) Financial reporting and covenant calculations. The revenue, EBITDA, and other financial metrics attributable to the Canadian operations (including NCM's operating results) are included in the consolidated financial reporting delivered by the Borrower under the Credit Agreement. Adjusted EBITDA for purposes of the financial covenants (including the Total Net Leverage Ratio and the Interest Coverage Ratio) is calculated on a consolidated basis, inclusive of the Canadian operations. Based on management projections, consolidated Adjusted EBITDA for the twelve-month period ending December 31, 2024 is approximately $385,000,000, of which approximately $31,000,000 is attributable to the Canadian operations.
(iii) No redesignation. There is no current intention to designate either NCH ULC or NCM as an Unrestricted Subsidiary. Such a redesignation would remove the Canadian operations from the covenant calculation base and could affect covenant compliance and the incurrence-based tests under the Credit Agreement.
IV. Security and Pledge Limitations — The 65% / 100% Rule
A. IRC § 956 Background and Rationale
The limitation on the pledge of CFC equity to 65% of voting stock is one of the most well-established conventions in the U.S. leveraged loan market. The rationale is rooted in IRC § 956 of the Code, which addresses the treatment of investments in "United States property" by controlled foreign corporations.
Under IRC § 956, if the stock of a CFC is pledged (or treated as pledged) to secure the obligations of a "related U.S. person," the pledge may be treated as an investment in United States property by the CFC. A U.S. shareholder of the CFC would then be required to include in gross income its pro rata share of the CFC's "applicable earnings" — effectively a deemed dividend — to the extent of the increase in the CFC's investment in United States property. This deemed inclusion applies regardless of whether any actual dividend is paid.
Treasury Regulation § 1.956-2(c)(1) provides a critical safe harbor: a pledge of 66-2/3% or less of the total combined voting power of a CFC's stock to secure obligations of a related U.S. person is not treated as an investment in United States property. Market practice has settled on a 65% pledge threshold (rather than 66-2/3%) to provide a margin of safety and to ensure clear compliance with the safe harbor. Additionally, because the regulation focuses on "voting power," pledging 100% of non-voting equity is permissible without triggering § 956 concerns.
It is important to note the impact of the Tax Cuts and Jobs Act of 2017 ("TCJA"). The TCJA introduced IRC § 245A, which allows U.S. corporate shareholders to claim a 100% dividends-received deduction ("DRD") for the foreign-source portion of dividends received from "specified 10-percent owned foreign corporations." In theory, this deduction eliminates the U.S. tax cost of a § 956 deemed inclusion for a U.S. corporate shareholder, because the deemed dividend under § 956 would be offset by the § 245A DRD.
However, despite the ameliorative effect of § 245A, the 65% pledge limitation remains the prevailing market standard in Term Loan B transactions for several reasons:
(i) The § 245A DRD is not available for all types of income or all components of the deemed inclusion. For example, the DRD does not apply to "hybrid dividends" (as defined in IRC § 245A(e)) or to amounts attributable to certain subpart F income categories. Given the hybrid nature of the ULC structure and the intercompany loan arrangements, there is a risk that some portion of a deemed inclusion could fall outside the scope of the § 245A DRD.
(ii) The § 245A DRD is available only to "domestic corporations." If the ownership structure were to change — for example, if the equity sponsors were to include individual investors, partnerships, or other non-corporate U.S. persons — the § 245A DRD might not be available to all U.S. shareholders, potentially creating adverse tax consequences from a pledge in excess of 65%.
(iii) Subpart F income considerations (IRC §§ 951–964) and the global intangible low-taxed income ("GILTI") regime (IRC § 951A) interact with the § 956 analysis in ways that can produce unexpected results. A full pledge of CFC stock could have collateral effects on subpart F and GILTI calculations that are difficult to predict with certainty.
(iv) Lender's counsel (in this transaction, Whitfield & Gage LLP) consistently insists on preserving the traditional 65% limitation as a risk management measure. This position is supported by the LSTA Model Credit Agreement and related market guidance.
Accordingly, the Credit Agreement and the related collateral documents in this transaction follow the customary approach: the pledge of equity in a first-tier CFC held by a domestic entity or CFC Holdco is limited to 65% of total outstanding voting equity and 100% of total outstanding non-voting equity.
B. Application to Nexford International Holdings, Inc. (CFC Holdco) and NCH ULC
The 65% / 100% pledge limitation applies as follows in the context of the Nexford Canadian subsidiary structure:
NIH Intl as Subsidiary Guarantor and Grantor. NIH Intl is a Subsidiary Guarantor under the Guarantee Agreement and a grantor under the Security Agreement with respect to its personal property assets (including accounts, general intangibles, equipment, and other personal property located in the United States). As a domestic corporation, NIH Intl is subject to a full guarantee obligation and a full grant of security interests in its personal property — the CFC Holdco designation does not limit NIH Intl's own guarantee or security obligations.
Limited Pledge of NCH ULC Equity. However, the pledge by NIH Intl of its equity interest in NCH ULC is subject to the 65% / 100% limitation. Specifically:
(a) NIH Intl will pledge to the Collateral Agent 65% of the total outstanding voting equity interests in NCH ULC.
(b) NIH Intl will pledge to the Collateral Agent 100% of the total outstanding non-voting equity interests in NCH ULC, if any are outstanding from time to time.
This limited pledge will be documented in a standalone CFC Holdco Limited Pledge Agreement, a form of which is currently being negotiated between borrower's counsel (our firm) and lender's counsel (Whitfield & Gage LLP). The CFC Holdco Limited Pledge Agreement is expected to be executed on March 28, 2025, the target closing date for the Credit Facility.
Full Pledge of NIH Intl Equity. By contrast, Nexford (as the Borrower) will pledge 100% of the equity interests in NIH Intl to the Collateral Agent under the Borrower Pledge Agreement. Because NIH Intl is a domestic corporation — not a CFC — the 65% / 100% limitation does not apply to the pledge of NIH Intl's own equity. The Collateral Agent will hold a first-priority security interest in 100% of the outstanding shares of NIH Intl.
Key distinction: It is the equity of the foreign subsidiary (NCH ULC) held by NIH Intl that is subject to the 65% voting / 100% non-voting limitation, not the equity of NIH Intl itself. This is a point that occasionally causes confusion in practice and should be clearly articulated in the collateral documentation and in communications with the Crescent Harbor Bank deal team.
C. Current Equity Structure of NCH ULC
Based on our review of NCH ULC's Notice of Articles (filed with the British Columbia Registrar of Companies) and the Articles of NCH ULC (as amended and restated), NCH ULC has a single class of authorized shares, designated as "Common Shares." All outstanding Common Shares carry full and equal voting rights — one vote per share — on all matters submitted to a vote of shareholders.
As of the date of this memorandum, NCH ULC has 1,000 Common Shares issued and outstanding, all of which are held by NIH Intl. There are no non-voting shares, preferred shares, or any other class or series of equity interests currently authorized, issued, or outstanding. There are no outstanding warrants, options, convertible instruments, or other rights to acquire equity interests in NCH ULC.
Accordingly, only 65% of the outstanding Common Shares of NCH ULC (i.e., 650 shares) will be pledged to the Collateral Agent under the CFC Holdco Limited Pledge Agreement. The remaining 35% (i.e., 350 shares) will remain unpledged.
If NCH ULC were to issue non-voting equity interests in the future, the after-acquired property provisions of the CFC Holdco Limited Pledge Agreement would require NIH Intl to pledge 100% of such non-voting equity to the Collateral Agent promptly upon issuance. The Credit Agreement's negative covenant on the issuance of equity by subsidiaries should also be reviewed to confirm that any such issuance is permitted.
D. No Pledge of NCM Equity
NCM is a second-tier foreign subsidiary — that is, it is held by NCH ULC, which is itself a Foreign Subsidiary. Under the Credit Agreement's collateral requirements, the pledge obligation extends only to equity interests in first-tier CFCs held by a domestic entity (i.e., the Borrower or a domestic Subsidiary Guarantor) or by a CFC Holdco. Because NCM's equity is held by NCH ULC (a Foreign Subsidiary that is not a Loan Party and not a grantor under any collateral document), no pledge of NCM's equity is required or contemplated.
The Collateral Agent's recourse to NCM's equity is therefore entirely indirect. In a foreclosure scenario, the Collateral Agent could enforce its security interest in the pledged 65% of NCH ULC shares. A purchaser of those shares at a foreclosure sale would become a 65% shareholder of NCH ULC, and NCH ULC in turn holds 100% of NCM. The purchaser would thus obtain an indirect 65% economic interest in NCM — but would not hold a direct lien on or security interest in NCM's equity or NCM's assets.
E. Implications for Collateral Coverage
The exclusion of the Canadian subsidiaries from the guarantee and collateral package has implications for the overall collateral coverage available to the Secured Parties. The key considerations are as follows:
U.S. collateral base. The domestic collateral package includes a first-priority security interest in substantially all personal property of the Borrower and the domestic Subsidiary Guarantors, as well as first-priority mortgages on certain real property owned by the Borrower and the domestic Subsidiary Guarantors. The total appraised value of the U.S. mortgaged properties is approximately $193,000,000, based on the appraisals delivered in connection with the transaction.
Excluded Canadian assets. The Canadian subsidiaries' assets — including the manufacturing facility in Mississauga, Ontario (owned by NCM), the working capital (accounts receivable, inventory, and cash) of NCM and NCH ULC, the equipment and machinery used in the Canadian manufacturing operations, and the intellectual property (if any) held by the Canadian subsidiaries — are not subject to any lien, pledge, mortgage, or security interest in favor of the Secured Parties. These assets are entirely outside the collateral perimeter.
Market acceptance. This is a known and accepted limitation of the security package in the Term Loan B market. Institutional lenders in the syndicated loan market for U.S. sponsor-backed transactions routinely accept security packages that exclude foreign subsidiary assets and limit the pledge of foreign subsidiary equity to 65% of voting stock. The Crescent Harbor Bank commitment letter and term sheet expressly contemplate this limitation, and we do not anticipate any pushback from the lender group on this point.
Recovery implications. If Nexford's Canadian operations contribute material value to the consolidated enterprise — as they do here, with approximately $127,000,000 in revenue and $31,000,000 in EBITDA — the Secured Parties' recovery in a distressed or foreclosure scenario would depend on their ability to exercise rights with respect to the pledged 65% NCH ULC shares. Such exercise would require the Collateral Agent to pursue a UCC Article 9 disposition of the pledged shares, and the purchaser at any such sale would need to contend with the practical complexities of acquiring a 65% ownership stake in a British Columbia ULC (including the unlimited liability exposure discussed in Section VII.C below). Moreover, to the extent Canadian insolvency proceedings are commenced with respect to NCH ULC or NCM, Canadian courts would exercise jurisdiction over the administration of Canadian-situs assets, and the interests of the U.S. Secured Parties could be subordinated to those of Canadian creditors with direct claims against the Canadian entities.
V. Guarantee Exclusion Analysis
A. Rationale for Excluding Foreign Subsidiaries from Guarantee
It is customary in U.S. leveraged finance transactions — and virtually universal in the sponsor-backed Term Loan B market — to exclude foreign subsidiaries from the guarantee package. The reasons for this exclusion are both tax-driven and practical:
(i) IRC § 956 deemed dividend issue. A guarantee by a CFC of the obligations of its U.S. parent (or a related U.S. person) is treated under IRC § 956 as a pledge of the CFC's assets to secure those obligations. This treatment can trigger a deemed dividend inclusion for the U.S. shareholder of the CFC, in the same manner as a direct pledge of the CFC's stock in excess of the safe harbor threshold. Accordingly, obtaining a guarantee from NCH ULC or NCM of Nexford's obligations under the Credit Facility could create the very § 956 exposure that the 65% pledge limitation is designed to avoid.
(ii) Practical complications of foreign law enforcement. A guarantee executed by a Canadian entity and governed by Canadian law (or even by New York law) would raise significant practical enforcement issues. Canadian courts may impose requirements for recognition and enforcement of foreign judgments or arbitral awards, and the guaranteeing entity would likely need to submit to Canadian court jurisdiction for enforcement purposes. The process would be more time-consuming and costly than enforcement against domestic guarantors.
(iii) Additional transaction costs. Obtaining a guarantee from a Canadian subsidiary would require the engagement of Canadian counsel (both borrower's Canadian counsel and lender's Canadian counsel) for purposes of reviewing the guarantee, delivering enforceability opinions, and addressing Canadian regulatory requirements. These costs are generally not justified by the incremental credit support provided, particularly where the Canadian subsidiaries are not granting security interests in their assets.
(iv) Withholding tax implications. Payments under a guarantee by a Canadian entity in respect of obligations of a U.S. borrower could be subject to Canadian withholding tax. While the Canada-U.S. Tax Convention may provide relief in certain circumstances, the withholding tax analysis introduces additional complexity and risk.
(v) Financial assistance restrictions under Canadian corporate law. Canadian corporate statutes contain provisions relating to financial assistance that could restrict or condition a Canadian corporation's ability to provide a guarantee of its parent's or an affiliate's obligations, as discussed in Section V.B below.
For all of these reasons, the Credit Agreement defines "Guarantors" to exclude any Foreign Subsidiary, and no Foreign Subsidiary will execute the Guarantee Agreement or any other Loan Document as an obligor.
B. Financial Assistance and Corporate Benefit Considerations Under Canadian Law
Although the question of financial assistance under Canadian corporate law is moot in the current transaction — because no guarantee is being sought from NCH ULC or NCM — we note the applicable legal framework for completeness and for reference in the event that the transaction structure is revised or the issue arises in future transactions involving the Nexford Canadian subsidiaries.
British Columbia (NCH ULC). The Business Corporations Act (British Columbia), S.B.C. 2002, c. 57, largely repealed the traditional financial assistance restrictions that existed under prior British Columbia corporate legislation. Part 8 of the BCBCA does not contain a blanket prohibition on financial assistance of the type found in some other Canadian corporate statutes. However, the directors of a British Columbia company (including a ULC) owe a fiduciary duty to act honestly and in good faith with a view to the best interests of the company (BCBCA, s. 142). A guarantee by NCH ULC of its U.S. parent's obligations — where the proceeds of the guaranteed indebtedness are not used for the benefit of NCH ULC — could raise questions about whether the directors have fulfilled their duty to act in the best interests of NCH ULC. A "corporate benefit" analysis would be required, and Canadian counsel would likely recommend that the directors of NCH ULC document the corporate benefit supporting the guarantee (e.g., the ongoing financial support from the Nexford group, the availability of intercompany funding, and the indirect benefit of the parent's continued access to capital markets).
Ontario (NCM). The Business Corporations Act (Ontario), R.S.O. 1990, c. B.16, section 20, imposes restrictions on financial assistance. Under s. 20(1), a corporation shall not, directly or indirectly, give financial assistance by means of a loan, guarantee, or otherwise to any person for the purpose of, or in connection with, the purchase of shares of the corporation or of an affiliated body corporate, or for the purpose of acquiring or funding the acquisition of shares. There are exceptions to this prohibition (including an exception for financial assistance that is incidental to or in furtherance of the corporation's business and that does not materially prejudice the interests of the corporation's shareholders or creditors), but the analysis requires careful review. In the context of a dividend recapitalization, where the proceeds of the new indebtedness will be used in part to fund a distribution to the equity sponsors, the argument that NCM's guarantee would facilitate the acquisition of shares or benefit only the equity holders (rather than NCM itself) could trigger the s. 20 restrictions.
As noted above, these considerations are moot in the current transaction. No guarantee from NCH ULC or NCM is being sought, and no financial assistance analysis is required.
VI. Intercompany Loan Considerations
A. Existing Intercompany Loans
Based on our review of the intercompany loan documentation and related due diligence materials provided by Priya Mehta, Vice President, Treasury of Nexford, the following intercompany loan arrangements are currently in place within the Canadian subsidiary structure:
(i) Nexford to NIH Intl: Nexford has made intercompany loans to NIH Intl, which in turn has on-lent those funds downstream to NCH ULC. The outstanding principal balance of the intercompany loan from Nexford to NIH Intl, as of the most recent reporting date (January 31, 2025), is approximately $42,000,000. This loan bears interest at a rate determined by reference to the applicable federal rate published by the IRS, adjusted to reflect an arm's-length rate consistent with Nexford's transfer pricing policy.
(ii) NIH Intl to NCH ULC: NIH Intl has an outstanding intercompany loan to NCH ULC in the approximate principal amount of $40,500,000. This loan was funded with the proceeds of the intercompany loan from Nexford to NIH Intl, with the difference representing accrued but unpaid interest and working capital retained by NIH Intl.
(iii) NCH ULC to NCM: NCH ULC has made intercompany loans to NCM to fund the Canadian manufacturing operations and capital expenditures. The outstanding principal balance of the intercompany loan from NCH ULC to NCM is approximately $38,000,000. This loan bears interest at a rate intended to comply with Canadian transfer pricing requirements.
These intercompany notes are material intercompany obligations within the Nexford group. To the extent such notes evidence obligations owed to a domestic Loan Party (i.e., Nexford or NIH Intl), the notes constitute personal property of the domestic Loan Party and are includable in the collateral package. Specifically:
• The intercompany note from NIH Intl to Nexford (evidencing the obligation owed to Nexford) is a general intangible of Nexford and will be pledged to the Collateral Agent under the Security Agreement (Nexford being the Borrower and a grantor under the Security Agreement).
• The intercompany note from NCH ULC to NIH Intl (evidencing the obligation owed to NIH Intl) is a general intangible of NIH Intl and will be pledged to the Collateral Agent under the Security Agreement (NIH Intl being a Subsidiary Guarantor and a grantor under the Security Agreement).
The intercompany promissory notes (to the extent they exist in physical, executed form) should be endorsed in blank and delivered to the Collateral Agent at closing. If the intercompany loans have not previously been evidenced by executed promissory notes, the Borrower and NIH Intl should execute intercompany notes in a form satisfactory to the Collateral Agent prior to closing, dated as of March 28, 2025.
B. Tax Implications of Intercompany Loans
The intercompany loan structure between Nexford, NIH Intl, NCH ULC, and NCM raises a number of tax considerations under both U.S. and Canadian law. These issues are addressed in greater detail in the tax memoranda prepared by Sylvia Hartwell, including the Tax Structure and Dividend Recapitalization Analysis (February 28, 2025) and the forthcoming Section 163(j) Memorandum (March 5, 2025). We summarize the key considerations below for the benefit of the Banking & Finance team.
Transfer pricing (IRC § 482 and ITA § 247). Intercompany loans between related parties must bear interest at arm's-length rates. Under IRC § 482, the IRS has the authority to adjust the terms of intercompany transactions — including the interest rate, principal amount, and other terms of intercompany loans — to reflect the results that would have been obtained if the parties had been unrelated and dealing at arm's length. On the Canadian side, ITA § 247 provides corresponding authority to the Canada Revenue Agency ("CRA") to adjust the terms of transactions between Canadian taxpayers and non-arm's-length non-residents. Nexford should ensure that the intercompany loan interest rates are supported by contemporaneous transfer pricing documentation, including a benchmarking analysis that compares the rates charged on the intercompany loans to rates that would be charged between unrelated parties in comparable circumstances.
Thin capitalization (ITA § 18(4)). Canada's thin capitalization rules limit the deductibility of interest paid or payable by a Canadian-resident corporation (or a partnership of which a Canadian-resident corporation is a member) to specified non-resident shareholders (or persons who do not deal at arm's length with specified non-resident shareholders) where the ratio of relevant debt to equity exceeds 1.5:1. For these purposes, the "specified non-resident shareholder" of NCM would be NIH Intl (as the indirect U.S. parent holding more than 25% of the votes or value). If the aggregate amount of intercompany debt owed by NCM to specified non-resident shareholders (or related persons) exceeds 1.5 times NCM's equity for Canadian tax purposes, the interest on the excess debt will be non-deductible and may be recharacterized as a dividend for Canadian withholding tax purposes. Given the approximate $38,000,000 intercompany loan from NCH ULC to NCM, and depending on NCM's equity base for Canadian tax purposes, there is a risk that the thin capitalization limits could be exceeded. This issue should be analyzed in coordination with Sylvia Hartwell and Nexford's Canadian tax advisors.
Withholding tax on interest (Part XIII, ITA; Canada-U.S. Tax Convention). Interest paid or credited by NCH ULC or NCM to U.S. persons (including NIH Intl and Nexford) may be subject to Canadian withholding tax under Part XIII of the Income Tax Act (Canada). The statutory rate of Canadian withholding tax on interest paid to a non-resident is 25%. However, under Article XI of the Canada-U.S. Tax Convention (1980, as amended by the Protocols thereto), the withholding rate on interest arising in Canada and paid to a U.S. resident is generally reduced to 0% for arm's-length interest. Interest between related parties also qualifies for the 0% rate under Article XI, provided that the interest is paid to a qualifying U.S. resident (i.e., a person entitled to benefits under the Treaty) and the interest is not contingent on or determined by reference to receipts, sales, income, profits, or other cash flow of the debtor. Nexford should confirm that the intercompany interest payments satisfy the conditions for the 0% Treaty rate and should maintain the documentation necessary to support the Treaty benefit claim (including CRA Form NR301 or similar certification).
IRC § 956 considerations for upstream intercompany loans. Intercompany loans from a CFC (such as NCH ULC, if treated as a corporation for § 956 purposes) to a U.S. parent or U.S. affiliate can constitute an investment in "United States property" under IRC § 956(c). If NCH ULC has made, or in the future makes, an upstream intercompany loan to NIH Intl or Nexford, such a loan could trigger a deemed dividend inclusion for the U.S. shareholder (Nexford or NIH Intl) to the extent of NCH ULC's applicable earnings. Based on the due diligence materials reviewed to date, the current intercompany loan flow is downstream (from Nexford to NIH Intl to NCH ULC to NCM), which does not raise the § 956 upstream investment concern. However, any existing upstream obligations — including intercompany payables or other amounts owed by a U.S. entity to NCH ULC — should be reviewed to confirm that they do not constitute investments in United States property. The TCJA § 245A DRD may mitigate the U.S. tax cost of any § 956 inclusion for corporate shareholders, but care is warranted given the complexities noted in Section IV.A above.
Guarantee fee / support fee. If NIH Intl or Nexford provides any form of credit support — whether by way of guarantee, letter of comfort, keepwell agreement, or otherwise — for the third-party obligations of NCH ULC or NCM (if any), an arm's-length fee should be charged for such credit support. The failure to charge an arm's-length fee could result in a transfer pricing adjustment under IRC § 482 or ITA § 247, and could also create Canadian withholding tax exposure.
C. Treatment Under the Credit Agreement — Investments Covenant
Intercompany loans from the Borrower or any Guarantor to a Foreign Subsidiary — including NCH ULC and NCM — are classified as "Investments" under the Credit Agreement's negative covenant on Investments (expected to be set forth in Section 7.02 of the Credit Agreement). The proposed covenant restricts the ability of the Borrower and the Restricted Subsidiaries to make, hold, or permit to exist any Investment, except for Investments permitted under enumerated baskets.
The following Permitted Investment baskets are expected to be available to accommodate existing intercompany loans and ongoing operational funding to the Canadian subsidiaries:
(a) Investments existing on the closing date. The Credit Agreement will include a schedule listing all Investments existing as of the closing date, including the outstanding intercompany loans from Nexford to NIH Intl, from NIH Intl to NCH ULC, and from NCH ULC to NCM. These existing Investments will be grandfathered as permitted Investments so long as the aggregate amount of such Investments does not increase beyond the scheduled amount (except as otherwise permitted under another basket).
(b) General Investment basket. A general basket of $35,000,000 (which is included within the overall general basket available for investments, restricted payments, and prepayments of subordinated indebtedness) is expected to be available for Investments in any person, including Foreign Subsidiaries. The amount and structure of this basket remain subject to ongoing negotiation with Whitfield & Gage.
(c) Foreign Subsidiary Investment sub-basket. A dedicated sub-basket for Investments in Foreign Subsidiaries is expected to be included, in an amount equal to the greater of (x) a fixed dollar amount (currently under negotiation, expected in the range of $25,000,000 to $40,000,000) and (y) a percentage of consolidated Adjusted EBITDA (expected to be approximately 7.5% to 10% of LTM Adjusted EBITDA). This sub-basket is subject to ongoing negotiation, and the final terms will be reflected in the Credit Agreement.
(d) Builder basket capacity. The Credit Agreement is expected to include a "builder basket" (also referred to as a "cumulative credit" or "Available Amount") that is built from 50% of cumulative consolidated net income of the Borrower and its Restricted Subsidiaries from the first fiscal quarter commencing after the closing date, plus a starter amount of $50,000,000. Amounts available under the builder basket may generally be used for Investments (including Investments in Foreign Subsidiaries), restricted payments, and prepayments of subordinated indebtedness, subject to compliance with a pro forma leverage test.
Monitoring. Nexford should ensure that any new intercompany loans to NCH ULC or NCM — whether funded as new advances or as roll-overs of existing loans — are tracked against the applicable Investment basket to maintain ongoing covenant compliance. We recommend that Nexford establish a tracking mechanism (coordinated with Michelle Kaplan, CFO, and Priya Mehta, VP Treasury) to monitor the aggregate outstanding amount of Investments in Foreign Subsidiaries and to flag any potential basket utilization issues before new intercompany funding is advanced.
D. Collateral Implications of Intercompany Notes
The collateral treatment of intercompany notes within the Canadian subsidiary structure depends on the identity of the holder of each note:
(i) Intercompany notes from NIH Intl payable to Nexford. These notes evidence obligations owed to Nexford. As general intangibles of Nexford, they are included in the collateral package and are pledged to the Collateral Agent under the Security Agreement. Nexford is the Borrower and a grantor under the Security Agreement.
(ii) Intercompany notes from NCH ULC payable to NIH Intl. These notes evidence obligations owed to NIH Intl. As general intangibles of NIH Intl, they are included in the collateral package and are pledged to the Collateral Agent under the Security Agreement. NIH Intl is a Subsidiary Guarantor and a grantor under the Security Agreement.
(iii) Intercompany notes from NCM payable to NCH ULC. These notes evidence obligations owed to NCH ULC. As assets of NCH ULC (a Foreign Subsidiary that is not a Loan Party and not a grantor under any collateral document), these notes are not pledged to the Collateral Agent and are not part of the collateral package. The Collateral Agent has no direct security interest in NCH ULC's receivable from NCM.
Closing deliverables. If the intercompany loans from Nexford to NIH Intl and from NIH Intl to NCH ULC are evidenced by physical promissory notes, the original notes should be endorsed in blank and delivered to the Collateral Agent at closing. If the intercompany loans are currently undocumented or are evidenced only by book entries, Nexford and NIH Intl should execute intercompany promissory notes in a form satisfactory to the Collateral Agent in advance of the closing date. We will coordinate with Whitfield & Gage on the form of intercompany note and the endorsement requirements.
VII. Perfection and Enforcement Considerations — Canadian Assets
A. No Canadian Law Security Being Taken
The transaction does not contemplate any security interest filings or registrations under Canadian provincial personal property security legislation. No General Security Agreement, debenture, or other Canadian-law collateral document will be executed by NCH ULC or NCM. Specifically:
(i) No registrations will be made under the Personal Property Security Act (British Columbia) (the "BC PPSA") against NCH ULC.
(ii) No registrations will be made under the Personal Property Security Act (Ontario) (the "Ontario PPSA") against NCM.
(iii) No filings will be made under the Bank Act (Canada) in respect of any security taken under section 427 thereof.
(iv) No mortgages, charges, deeds of trust, or other real property security instruments will be registered against Canadian-situs real property. The manufacturing facility in Mississauga, Ontario, owned by NCM, is not included in the list of mortgaged properties under the Credit Agreement.
(v) No Canadian counsel has been retained for purposes of collateral perfection, priority analysis, or opinion delivery.
This approach is consistent with market practice and with the terms of the Crescent Harbor Bank commitment letter and term sheet, which do not require any Canadian-law security as a condition to closing.
B. Perfection of Pledge of NCH ULC Shares Under U.S. Law
Although NCH ULC is a British Columbia entity, the pledge of NCH ULC shares is granted by NIH Intl, a Delaware corporation, and is documented under and governed by New York law (with Delaware law applicable to certain UCC perfection matters). Perfection of the security interest in the NCH ULC shares is therefore analyzed under the UCC as enacted in the applicable jurisdiction.
Perfection method — certificated securities. If the shares of NCH ULC are certificated (i.e., represented by physical share certificates), perfection is achieved by delivery of the share certificates to the Collateral Agent, together with a signed stock transfer power executed in blank. Under UCC § 8-301, delivery of a certificated security occurs when the purchaser (including a secured party) acquires possession of the security certificate. Under UCC § 9-313(a), a security interest in a certificated security may be perfected by delivery.
Perfection method — uncertificated securities. If the shares of NCH ULC are uncertificated, perfection may be achieved by "control" under UCC § 8-106. A purchaser (including a secured party) has "control" of an uncertificated security if (a) the uncertificated security is delivered to the purchaser, or (b) the issuer has agreed that it will comply with instructions originated by the purchaser without further consent by the registered owner. In practice, this would require NCH ULC (as the issuer) to execute an instruction agreement or control agreement in favor of the Collateral Agent.
UCC-1 Financing Statement. In addition to perfection by delivery or control (as applicable), a UCC-1 Financing Statement will be filed against NIH Intl with the Delaware Secretary of State (NIH Intl being organized in Delaware). The financing statement will cover all personal property of NIH Intl, including the pledged NCH ULC shares. The UCC-1 filing provides "belt and suspenders" protection and ensures that the Collateral Agent's security interest is reflected in the public record, even though perfection of a security interest in securities is ordinarily achieved by delivery or control rather than by filing.
Practical step. We need to confirm whether NCH ULC shares are currently certificated or uncertificated. If certificated, the original share certificates representing 65% of the outstanding shares (i.e., certificates for 650 shares) must be delivered to the Collateral Agent at closing, accompanied by stock transfer powers (or "stock powers") executed in blank by NIH Intl as the registered owner. If uncertificated, we will need to arrange for either (a) the issuance of share certificates for the pledged shares, to be delivered at closing, or (b) the execution of an instruction agreement or control agreement by NCH ULC in favor of the Collateral Agent. We recommend contacting Priya Mehta to determine the current form of NCH ULC shares and to initiate the steps necessary to effect the pledge at closing.
C. Enforcement Considerations
In a distressed scenario — whether following an Event of Default under the Credit Agreement or in connection with insolvency proceedings — the Collateral Agent's ability to realize on the pledged 65% NCH ULC shares would involve the following considerations:
UCC Article 9 remedies. The Collateral Agent would exercise remedies under UCC Article 9 (as adopted in the governing jurisdiction) to dispose of or accept the pledged 65% NCH ULC shares. Under UCC § 9-610, the Collateral Agent may sell, lease, license, or otherwise dispose of the collateral in a commercially reasonable manner after providing notice as required under UCC § 9-611. Alternatively, under UCC § 9-620, the Collateral Agent may propose to accept the collateral in full or partial satisfaction of the secured obligations, subject to the consent requirements set forth therein.
British Columbia corporate law requirements. Because NCH ULC is a British Columbia ULC, any transfer of its shares (whether by way of voluntary sale, foreclosure, or otherwise) may be subject to the share transfer provisions set forth in NCH ULC's Articles. Under the BCBCA, the Articles of a company may contain restrictions on the transfer of shares, including requirements for directors' approval of any transfer. We have reviewed the Articles of NCH ULC and note that they contain a provision requiring the approval of the directors of NCH ULC for any transfer of shares. In a foreclosure context, this transfer restriction could create an impediment to the Collateral Agent's ability to convey the pledged shares to a purchaser at a UCC foreclosure sale. The Collateral Agent may need to seek a court order overriding the transfer restriction, or may need to negotiate with the remaining shareholder (NIH Intl, as the holder of the unpledged 35%) and the directors of NCH ULC to obtain the necessary approvals. We recommend flagging this issue to the Crescent Harbor Bank deal team.
Unlimited liability exposure of transferee. Perhaps the most significant practical impediment to enforcement against the NCH ULC shares is the unlimited liability nature of the ULC structure. Under the BCBCA, the shareholders of an unlimited liability company are jointly and severally liable for all debts, obligations, and liabilities of the company if the company is unable to pay them. This means that any purchaser of the pledged 65% NCH ULC shares — whether at a UCC foreclosure sale or in a negotiated disposition — would assume unlimited personal liability for the debts and obligations of NCH ULC (to the extent that NCH ULC is unable to satisfy t

MEMORANDUM

MATTER NO.: 1005-00001

CLIENT/MATTER CODE: IBL-NIH-2025-031

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