PRIVILEGED & CONFIDENTIAL — ATTORNEY WORK PRODUCT
CALDERWOOD & HARKNESS LLP 425 Lexington Avenue New York, New York 10017
INTERNAL MEMORANDUM
TO: Claudia Merritt, Responsible Partner, Banking & Finance, Calderwood & Harkness LLP
FROM: Marcus Leung, Lead Associate, Banking & Finance, Calderwood & Harkness LLP
DATE: February 27, 2025
RE: Nexford Industrial Holdings Inc. — Regulatory and Compliance Review (Sanctions, OFAC, Anti-Corruption, Anti-Money Laundering) in connection with the $1,400,000,000 Senior Secured Term Loan B Refinancing and Dividend Recapitalization
MATTER NO.: 1005-00001
BILLING CODE: IBL-NIH-2025-031
THIS MEMORANDUM IS PROTECTED BY THE ATTORNEY-CLIENT PRIVILEGE AND CONSTITUTES ATTORNEY WORK PRODUCT. IT IS PREPARED SOLELY FOR THE INTERNAL USE OF CALDERWOOD & HARKNESS LLP IN CONNECTION WITH THE ABOVE-REFERENCED MATTER. THIS MEMORANDUM IS NOT INTENDED FOR DISTRIBUTION TO, NOR RELIANCE BY, ANY THIRD PARTY. IT DOES NOT CONSTITUTE A LEGAL OPINION.
I. EXECUTIVE SUMMARY
This memorandum summarizes the results of Calderwood & Harkness LLP's ("C&H") regulatory and compliance review of Nexford Industrial Holdings Inc. ("Nexford" or the "Borrower"), Granite Peak NIH Holdings, LLC ("Holdings"), and each of the eleven Subsidiary Guarantors (collectively, the "Loan Parties") in connection with the proposed $1,400,000,000 senior secured Term Loan B facility (the "Term Loan B" or the "Facility"). Crescent Harbor Bank, N.A. will serve as Administrative Agent and Collateral Agent under the Credit Agreement (the "Credit Agreement"), which is currently under negotiation with Whitfield & Gage LLP, counsel to Crescent Harbor Bank.
The purpose of this review is to assess the Loan Parties' compliance posture with respect to applicable sanctions laws and regulations, anti-corruption laws, and anti-money laundering laws, and to support the representations and covenants that will be required under the Credit Agreement. Specifically, the Credit Agreement is expected to include customary representations regarding (i) compliance with sanctions administered by the Office of Foreign Assets Control ("OFAC") of the U.S. Department of the Treasury, the U.S. Department of State, the United Nations Security Council, and other relevant governmental authorities, (ii) compliance with the U.S. Foreign Corrupt Practices Act ("FCPA") and other applicable anti-corruption laws, and (iii) compliance with the Bank Secrecy Act ("BSA"), the USA PATRIOT Act, and other applicable anti-money laundering laws and regulations. The first draft of the Credit Agreement was received from Whitfield & Gage LLP on February 24, 2025, and our comments are currently being prepared for circulation.
Overall Conclusion. Based on our review, no Loan Party, nor any director, officer, or employee, or, to the knowledge of the Loan Parties, any agent of any Loan Party, is a Sanctioned Person (as such term is expected to be defined in the Credit Agreement). No proceeds of the Term Loans will be used in violation of any Sanctions, including those administered by OFAC, the U.S. Department of State, or any other relevant governmental authority. No material compliance deficiencies were identified in the areas of anti-corruption, anti-money laundering, or sanctions. Nexford maintains written compliance policies and procedures that are appropriate in scope and substance for an industrial company of its size, risk profile, and geographic footprint. We are satisfied that Nexford and the other Loan Parties are in a position to make the required regulatory compliance representations and covenants under the Credit Agreement at closing, which is currently targeted for March 28, 2025.
This review is based on due diligence materials provided by Nexford through David Engstrom, General Counsel and Corporate Secretary, and Priya Mehta, Vice President, Treasury & Corporate Finance, as well as publicly available information, screening results as described in detail below, and officer certifications executed by Mr. Engstrom on February 19, 2025. The scope of the review and the materials examined are described in Section II below. The limitations of the review are set forth in Section II.D.
II. SCOPE OF REVIEW
A. Applicable Laws and Regulations Reviewed
The regulatory and compliance review addressed the following principal bodies of law and regulation:
Sanctions Laws and Regulations:
• The International Emergency Economic Powers Act ("IEEPA"), 50 U.S.C. §§ 1701–1706, which provides the statutory authority for most current OFAC sanctions programs and authorizes the President to impose economic sanctions in response to unusual and extraordinary threats to the national security, foreign policy, or economy of the United States.
• The Trading with the Enemy Act ("TWEA"), 50 U.S.C. §§ 4301–4341, which provides the statutory authority for certain legacy sanctions programs, including the Cuba sanctions program administered by OFAC.
• Sanctions programs administered by OFAC, including but not limited to the Specially Designated Nationals and blocked Persons List (the "SDN List"), the Sectoral Sanctions Identifications List (the "SSI List"), the Consolidated Non-SDN List (which encompasses the Foreign Sanctions Evaders List, the Non-SDN Palestinian Legislative Council List, the Non-SDN Menu-Based Sanctions List, and other sub-lists), and all associated Executive Orders and regulations codified in 31 C.F.R. Parts 500–599.
• Sanctions administered by the U.S. Department of State, including designations under Executive Order 13224 (Global Terrorism Sanctions) and various nonproliferation sanctions programs, including those under Executive Order 13382 (Weapons of Mass Destruction Proliferators and Their Supporters).
• United Nations Security Council sanctions, as implemented through relevant Security Council Resolutions and the UN Consolidated Sanctions List, to the extent applicable to U.S. persons and entities.
• European Union restrictive measures, including Council Regulations implementing EU sanctions programs, to the extent applicable to the cross-border activities of Nexford Canada Holdings ULC and Nexford Canada Manufacturing, Inc. While the Canadian subsidiaries are not EU-based, EU sanctions may have extraterritorial reach in certain circumstances involving EU-nexus transactions, and were reviewed for completeness given the international character of certain customer relationships.
• Canadian sanctions regulations under the Special Economic Measures Act ("SEMA"), S.C. 1992, c. 17, and the Justice for Victims of Corrupt Foreign Officials Act ("JVCFOA"), S.C. 2017, c. 21, both of which are directly applicable to Nexford Canada Holdings ULC (a British Columbia unlimited liability company) and Nexford Canada Manufacturing, Inc. (an Ontario corporation).
Anti-Corruption Laws:
• The U.S. Foreign Corrupt Practices Act ("FCPA"), 15 U.S.C. §§ 78dd-1 et seq., including both the anti-bribery provisions (prohibiting payments to foreign government officials to obtain or retain business) and the accounting provisions (requiring issuers and domestic concerns to maintain accurate books and records and adequate internal controls), 15 U.S.C. § 78m.
• Applicable state anti-bribery statutes in jurisdictions where the Loan Parties are incorporated or maintain operations, including Illinois (720 ILCS 5/29-1 et seq.), Delaware, Pennsylvania, South Carolina, Texas, and Michigan.
• The Canadian Corruption of Foreign Public Officials Act ("CFPOA"), S.C. 1998, c. 34, which is applicable to Nexford Canada Holdings ULC and Nexford Canada Manufacturing, Inc. as Canadian entities, and which prohibits the bribery of foreign public officials in connection with international business transactions.
Anti-Money Laundering Laws:
• The Bank Secrecy Act ("BSA"), 31 U.S.C. §§ 5311 et seq., and implementing regulations promulgated by the Financial Crimes Enforcement Network ("FinCEN"), codified at 31 C.F.R. Chapter X.
• The USA PATRIOT Act (Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001), Pub. L. 107-56, 115 Stat. 272, particularly Sections 311 (Special Measures for Jurisdictions, Financial Institutions, or International Transactions of Primary Money Laundering Concern), 312 (Special Due Diligence for Correspondent Accounts and Private Banking Accounts), 313 (Prohibition on United States Correspondent Accounts with Foreign Shell Banks), 314 (Cooperative Efforts to Deter Money Laundering), and 326 (Verification of Identification).
• Applicable state money transmission and anti-money laundering laws in jurisdictions where the Loan Parties maintain operations, to the extent relevant to a non-financial industrial company.
B. Entities Covered
The following entities were subject to the full scope of the regulatory and compliance review, including sanctions screening, compliance program evaluation, and enforcement history analysis:
Loan Parties:
Clearfield Tool & Die, Inc. was acquired by Nexford in 2021; Summit Industrial Fabrication Co. was acquired in 2022; Ridgepoint Specialty Coatings, LLC was acquired in 2023; and Lakeshore Precision Engineering, Inc. was acquired in 2024. Each acquisition was a "bolt-on" acquisition consistent with Nexford's stated growth strategy under Granite Peak Capital Partners' ownership.
Non-Loan Party Affiliates Reviewed for Completeness:
In addition to the Loan Parties, the following non-Loan Party affiliates were reviewed for completeness, given their inclusion in the broader Nexford corporate family and their relevance to the compliance representations in the Credit Agreement:
• Nexford Canada Holdings ULC — a British Columbia unlimited liability company, with its registered office at 1055 West Georgia Street, Suite 1500, Vancouver, BC V6E 4N7, Canada. This entity serves as the holding company for Nexford's Canadian operations and is a direct subsidiary of Nexford International Holdings, Inc. It is not a Guarantor under the Credit Agreement but 65% of its voting equity and 100% of its non-voting equity is pledged as collateral.
• Nexford Canada Manufacturing, Inc. — an Ontario corporation, with its principal office and manufacturing facility located at 400 Industrial Road, Mississauga, ON L5T 2R3, Canada. This entity is the primary operating subsidiary for Nexford's Canadian manufacturing operations and is a direct subsidiary of Nexford Canada Holdings ULC. It is not a Guarantor under the Credit Agreement.
Sponsor Entities Reviewed:
The following sponsor entities were screened and reviewed in connection with their relationship to the Loan Parties and their role as the indirect equity owners of the Borrower:
• Granite Peak Capital Partners, LP — a Delaware limited partnership, with its principal office at 600 Steamboat Road, Suite 300, Greenwich, CT 06830. Granite Peak Capital Partners is a private equity firm focused on middle-market industrial and manufacturing investments.
• Granite Peak Capital Fund IV, LP — a Delaware limited partnership, which is the primary investment fund through which Granite Peak Capital Partners holds its investment in Nexford, owning approximately 92% of the equity of Granite Peak NIH Holdings, LLC.
• GP Fund IV Co-Invest, LP — a Delaware limited partnership, the co-investment vehicle holding approximately 8% of the equity of Granite Peak NIH Holdings, LLC.
C. Materials Reviewed
In conducting the regulatory and compliance review, C&H reviewed the following categories of materials and information:
1. Nexford's written compliance policies and procedures, including: (a) the Anti-Corruption and Anti-Bribery Policy (revised June 2024), (b) the Sanctions Compliance Policy (updated August 2024), (c) the Employee Code of Conduct (revised January 2024), and (d) the Third-Party Due Diligence Procedures Manual (revised March 2024).
2. Nexford's third-party and vendor due diligence procedures, including the onboarding protocols for new customers, suppliers, and business partners, and the annual re-screening procedures for existing counterparties.
3. Organizational documents and corporate governance records for all Loan Parties, including certificates of incorporation, limited liability company agreements, bylaws, board resolutions, and certificates of good standing (or equivalent), as delivered in connection with the broader due diligence process.
4. Responses to the C&H due diligence request list dated February 4, 2025 (the "Due Diligence Request List"), specifically items 14.1 through 14.27, which addressed regulatory compliance, sanctions, anti-corruption, anti-money laundering, export controls, and government investigations. Responses were provided by David Engstrom and Priya Mehta on behalf of Nexford management on a rolling basis between February 10 and February 21, 2025, through the Thackeray Solutions virtual data room (Project Granite — Room 3: Regulatory & Compliance).
5. Officer certifications provided by David Engstrom, General Counsel and Corporate Secretary of Nexford, dated February 19, 2025, specifically certifying: (a) that no Loan Party, nor any director, officer, or employee, or, to the knowledge of the Loan Parties, any agent of any Loan Party, is a Sanctioned Person; (b) that no Loan Party has been the subject of any OFAC enforcement action, FCPA investigation, or anti-money laundering proceeding within the past five years; and (c) that no voluntary self-disclosures have been made to OFAC, the SEC, the DOJ, or any other governmental authority regarding potential compliance violations.
6. Results of independent sanctions screening conducted by C&H using the Glenrock Solutions screening platform and the OFAC Sanctions List Search tool, as described in detail in Section III.A below.
7. Nexford's export control and trade compliance records, including the export classification matrix for the Precision Components and Engineered Systems product lines, and management's representations regarding the absence of ITAR-controlled items or EAR Category 600 series items in the product portfolio.
8. Insurance program information provided by Vantage Risk Advisors, LLC (Rachel Sorensen, Account Executive), to the extent relevant to compliance-related risk management, including the directors and officers liability insurance program, the crime/fidelity insurance program, and the general liability program.
9. The litigation and regulatory proceedings docket from the litigation and contingent liability review conducted by C&H (cross-reference to separate memorandum dated February 26, 2025, prepared by Sophie Tremblay).
10. Information regarding the Canadian operations, including corporate organizational documents for Nexford Canada Holdings ULC and Nexford Canada Manufacturing, Inc., and management representations regarding the nature and scope of the Canadian business activities, provided by Nexford management and reviewed in consultation with Canadian counsel.
D. Limitations. This review is based on the information and documents provided by Nexford and publicly available records as of the date hereof. C&H has not conducted independent field audits, site visits, or forensic investigations of any Loan Party or affiliate. Where noted, we have relied on officer certifications and management representations provided by David Engstrom and other members of Nexford's management team. We have not independently verified the accuracy or completeness of such certifications and representations, and we have assumed that information provided to us is true, complete, and not misleading in any material respect. This memorandum does not constitute a legal opinion and should not be relied upon as such by any person or entity.
The sanctions screening described in Section III.A below was conducted as of February 25, 2025. OFAC and other sanctions-listing authorities update their lists on a rolling basis, and it is possible that designations or amendments may occur between the date of screening and the closing date. Accordingly, we recommend a refresh screening within five business days of closing, as discussed in Section X below.
Our review of Canadian law matters is based on a general understanding of Canadian sanctions and anti-corruption legislation and does not constitute an opinion on Canadian law. For matters requiring definitive Canadian legal analysis, we would recommend consultation with qualified Canadian counsel.
III. SANCTIONS COMPLIANCE REVIEW
A. OFAC Screening Results
C&H conducted comprehensive sanctions screening of all Loan Parties, their directors and officers, and key personnel associated with the sponsor entities. The screening was performed using the Glenrock Solutions screening platform (which aggregates data from over 1,200 government and regulatory sanction, watch, and enforcement lists worldwide) and was cross-checked against the OFAC Sanctions List Search tool maintained by the U.S. Department of the Treasury. The screening was conducted on February 25, 2025.
The following sanctions lists were screened:
• OFAC Specially Designated Nationals and blocked Persons List (SDN List)
• OFAC Sectoral Sanctions Identifications List (SSI List)
• OFAC Consolidated Non-SDN List, including:
• Foreign Sanctions Evaders List (FSE List)
• Non-SDN Palestinian Legislative Council List (NS-PLC List)
• Non-SDN Menu-Based Sanctions List (NS-MBS List)
• Capta List (CAP List)
• Non-SDN Chinese Military-Industrial Complex Companies List (NS-CMIC List)
• U.S. Department of State Nonproliferation Sanctions lists
• United Nations Consolidated Sanctions List
• EU Consolidated Financial Sanctions List
• Canadian Consolidated Autonomous Sanctions List (encompassing designations under the Special Economic Measures Act and the Justice for Victims of Corrupt Foreign Officials Act)
Entities Screened. All thirteen Loan Party entities were screened by their full legal names, including any former names, trade names, and "doing business as" names identified in the organizational documents and due diligence materials. The two Canadian subsidiary entities (Nexford Canada Holdings ULC and Nexford Canada Manufacturing, Inc.) were also screened, as were the three sponsor entities (Granite Peak Capital Partners, LP, Granite Peak Capital Fund IV, LP, and GP Fund IV Co-Invest, LP).
Individuals Screened. The following directors, officers, and key personnel were screened by full legal name, including any known aliases or alternative name spellings:
• James Thornton, Chief Executive Officer, Nexford Industrial Holdings Inc.
• Michelle Kaplan, Chief Financial Officer, Nexford Industrial Holdings Inc.
• David Engstrom, General Counsel and Corporate Secretary, Nexford Industrial Holdings Inc.
• Priya Mehta, Vice President, Treasury and Corporate Finance, Nexford Industrial Holdings Inc.
• Derek Calloway, Co-Founder and Managing Partner, Granite Peak Capital Partners, LP
• Vanessa Liu, Co-Founder and Managing Partner, Granite Peak Capital Partners, LP
• Ryan Ostrowski, Principal, Granite Peak Capital Partners, LP
• All members of the board of directors of Nexford Industrial Holdings Inc. (seven individuals in total, including the foregoing officers and Granite Peak representatives, as well as the two independent directors)
Results. No matches or potential matches were identified for any Loan Party entity, any non-Loan Party affiliate, any sponsor entity, any director, any officer, or any known agent on any of the screened sanctions lists. No Loan Party entity name, trade name, or former name triggered any alert or required further investigation. No individual screened returned a positive or potential match requiring disambiguation or enhanced due diligence.
Conclusion. Based on the sanctions screening results, no Loan Party, nor any director, officer, or employee, or, to the knowledge of the Loan Parties, any agent of any Loan Party, is a Sanctioned Person as that term is expected to be defined in the draft Credit Agreement. No Loan Party is located, organized, or resident in a Sanctioned Country.
B. Sanctions-Related Business Activities
Nexford operates exclusively in the diversified industrials and specialty manufacturing sector across North America. The company's business is organized into three principal operating segments:
• Precision Components (approximately 52% of LTM revenue), which manufactures high-tolerance machined components, tooling, and dies for industrial OEM customers, primarily in the aerospace aftermarket, automotive, and general industrial end markets. This segment includes the operations of Nexford Precision Components, Inc., Clearfield Tool & Die, Inc., and Lakeshore Precision Engineering, Inc.
• Engineered Systems (approximately 31% of LTM revenue), which designs and manufactures custom engineered systems, assemblies, and fabricated products for industrial customers, primarily in the energy, infrastructure, and heavy equipment end markets. This segment includes the operations of Nexford Engineered Systems, LLC and Summit Industrial Fabrication Co.
• Industrial Coatings & Surface Technologies (approximately 17% of LTM revenue), which provides specialty coating, surface treatment, and finishing services for industrial applications, including thermal spray coatings, anodizing, and other proprietary surface technologies. This segment includes the operations of Nexford Coatings & Surface Technologies, Inc. and Ridgepoint Specialty Coatings, LLC.
For the twelve-month period ended December 31, 2024, Nexford generated total revenue of approximately $2,100,000,000 from approximately 8,400 employees across fourteen manufacturing facilities located in the United States and Canada.
Geographic Operations. All of Nexford's manufacturing operations are located in the United States and Canada. Nexford does not maintain any manufacturing facilities, offices, representative offices, permanent establishments, or other physical presence in any country subject to comprehensive OFAC sanctions. As of the date of this review, the countries subject to comprehensive OFAC sanctions are Cuba, Iran, North Korea, Syria, and the Crimea, Donetsk People's Republic, and Luhansk People's Republic regions of Ukraine. Nexford has no operations, joint ventures, or equity investments in any of these jurisdictions.
Customer and Supplier Analysis. Based on information provided by Nexford management in response to item 14.7 of the Due Diligence Request List, and as confirmed in the officer certification of David Engstrom dated February 19, 2025, Nexford does not have any direct customers or material suppliers located in comprehensively sanctioned jurisdictions. Nexford's customer base is predominantly composed of U.S.-based industrial original equipment manufacturers ("OEMs") and distributors, with a smaller portion of revenue derived from Canadian customers served through Nexford Canada Manufacturing, Inc. Management has represented that it is not aware of any indirect customer relationships that would implicate comprehensively sanctioned jurisdictions, although we note that Nexford does not have complete visibility into the end-use destinations of all products sold through distributor channels. This is typical for a company of Nexford's profile and does not give rise to material sanctions risk given the nature of the products involved and the predominantly domestic distribution chain.
Export Controls. Nexford's products are primarily manufactured and sold within the domestic U.S. market. Certain Precision Components and Engineered Systems products are exported to Canada through Nexford Canada Manufacturing, Inc., which serves as the distribution and manufacturing hub for Canadian customers. Nexford management has confirmed that no products are currently exported to or through any comprehensively sanctioned jurisdiction, and no transshipment arrangements exist that could result in the diversion of products to sanctioned destinations. Nexford maintains an export classification matrix, which was reviewed by C&H. No products manufactured by Nexford are classified under the International Traffic in Arms Regulations ("ITAR") or under the Export Administration Regulations ("EAR") Category 600 series. The majority of Nexford's products are classified as EAR99 (items subject to the EAR but not listed on the Commerce Control List) or as low-sensitivity items that do not require specific export licenses for shipment to Canada.
Use of Proceeds Analysis. The proceeds of the $1,400,000,000 Term Loan B will be applied as follows: (i) refinancing the existing first lien term loan held by Atlas Meridian Bank, N.A. in the amount of approximately $879,375,000 (consisting of $875,000,000 in outstanding principal and approximately $4,375,000 in accrued and unpaid interest through the expected closing date), (ii) termination of the existing $190,000,000 revolving credit facility with Atlas Meridian Bank, N.A. (which has $0 currently drawn), (iii) funding a dividend distribution to Granite Peak NIH Holdings, LLC in the approximate amount of $335,000,000, (iv) payment of transaction fees and expenses in the approximate amount of $38,625,000, and (v) cash to the Borrower's balance sheet in the amount of approximately $147,000,000. None of the foregoing uses of proceeds involve any sanctioned jurisdiction, sanctioned person, or activity that would violate any applicable sanctions law or regulation.
Conclusion. No sanctions-related business activity concerns were identified. The Loan Parties' business operations are geographically limited to the United States and Canada, their customer and supplier bases are predominantly domestic, and the proposed use of proceeds does not implicate any sanctioned jurisdiction, person, or activity.
C. Nexford's Sanctions Compliance Program
Nexford maintains a written sanctions compliance policy (the "Sanctions Compliance Policy"), which was last updated in August 2024. The Sanctions Compliance Policy is administered by David Engstrom in his capacity as General Counsel and designated compliance officer, with oversight from the board of directors of Nexford Industrial Holdings Inc.
The key elements of Nexford's sanctions compliance program are summarized as follows:
1. Counterparty Screening. All new customers, suppliers, and business partners are screened against OFAC sanctions lists (including the SDN List, SSI List, and Consolidated Non-SDN List) prior to onboarding. Nexford uses a third-party screening platform (currently Glenrock Solutions) to conduct these checks. Positive or potential matches are escalated to the General Counsel for review and resolution before any transaction is processed.
2. Annual Re-Screening. Existing counterparties are re-screened on an annual basis against updated OFAC lists. The most recent annual re-screening was completed in November 2024 and covered approximately 4,200 active customer and supplier accounts. No positive matches were identified.
3. Prohibited Transaction Protocols. The Sanctions Compliance Policy includes explicit prohibitions on any dealings involving sanctioned countries or sanctioned persons. Employees are instructed to immediately halt any transaction that may involve a sanctioned party or sanctioned jurisdiction and to report the matter to the General Counsel.
4. Designated Compliance Officer. David Engstrom serves as the designated compliance officer with direct reporting to the board of directors on sanctions compliance matters. Mr. Engstrom is responsible for the day-to-day administration of the sanctions compliance program, including maintaining the screening platform, reviewing and resolving alerts, and coordinating training.
5. Training. Annual compliance training is conducted for all employees with customer-facing or procurement responsibilities. The training covers OFAC sanctions basics, red flags for sanctions evasion, and the company's internal policies and procedures. Training records for 2024 were reviewed and confirmed to be current.
6. Escalation Procedures. The Sanctions Compliance Policy includes documented escalation procedures for potential sanctions matches or alerts, including protocols for escalation from operational personnel to the General Counsel, and from the General Counsel to the board of directors or outside counsel as appropriate.
Assessment. The sanctions compliance program is appropriate in scope and substance for Nexford's predominantly domestic operations and risk profile. No material deficiencies were identified. We note positively that the program was updated in August 2024 to incorporate expanded secondary sanctions screening procedures following OFAC's issuance of updated guidance in 2024 regarding the potential application of secondary sanctions to non-U.S. persons engaging in certain transactions involving sanctioned jurisdictions. While this guidance is of limited direct applicability to Nexford given its U.S.-centric operations, the proactive update reflects a commendable compliance posture. The program would benefit from certain enhancements in connection with the new credit facility, as discussed in Section X below.
D. Credit Agreement Representations and Covenants — Sanctions
The draft Credit Agreement (first draft received from Whitfield & Gage LLP on February 24, 2025) includes the following sanctions-related provisions:
Representation (Article V, Section 5.20). Each Loan Party represents and warrants that no Loan Party, nor any director, officer, employee, or, to the knowledge of the Loan Parties, any agent of any Loan Party, is a Sanctioned Person. Each Loan Party further represents that no Loan Party is located, organized, or resident in a Sanctioned Country. The term "Sanctioned Person" is defined in the Credit Agreement to mean any person that is the subject or target of sanctions administered or enforced by OFAC, the U.S. Department of State, the United Nations Security Council, the European Union, Her Majesty's Treasury of the United Kingdom, or any other relevant sanctions authority. The term "Sanctioned Country" is defined to mean any country or territory that is itself the subject or target of comprehensive Sanctions (currently Cuba, Iran, North Korea, Syria, and the Crimea, Donetsk People's Republic, and Luhansk People's Republic regions of Ukraine).
Covenant (Article VI, Section 6.16). Each Loan Party covenants that it will not, directly or indirectly, use the proceeds of the Loans or other credit extensions, or lend, contribute, or otherwise make available such proceeds to any subsidiary, joint venture partner, or other person or entity, in any manner that would result in a violation of any applicable Sanctions by any person (including any person participating in the transaction, whether as lender, arranger, administrative agent, or otherwise).
Event of Default (Article VIII, Section 8.01(d)). A breach of the sanctions representation (Section 5.20) or the sanctions covenant (Section 6.16) constitutes an Event of Default under the Credit Agreement, entitling the Administrative Agent, at the direction of the Required Lenders, to accelerate the outstanding obligations and exercise remedies against the collateral.
Assessment of Ability to Make Representations. Based on the screening results described in Section III.A, the business activity review described in Section III.B, and the compliance program assessment described in Section III.C, Nexford and each Loan Party can make the required sanctions representations and covenants at closing. The representations should be confirmed through the Officer's Certificate and the Use of Proceeds Compliance Certificate to be delivered at closing on March 28, 2025, as discussed in Section VIII.B below. We note that the "knowledge" qualifier in the sanctions representation (i.e., "to the knowledge of the Loan Parties, any agent of any Loan Party") is consistent with market practice for leveraged lending transactions and provides appropriate protection given that the Loan Parties may not have complete visibility into the sanctions status of every third-party agent at all times.
IV. ANTI-CORRUPTION COMPLIANCE REVIEW
A. FCPA Compliance Program Review
Nexford maintains a written anti-corruption and anti-bribery policy (the "Anti-Corruption Policy"), which was last revised in June 2024. The Anti-Corruption Policy is a comprehensive document that addresses the following key topics:
• Prohibition on Bribery of Government Officials. The policy explicitly prohibits the payment, offer, or promise of anything of value to any domestic or foreign government official, political party, party official, or candidate for political office, for the purpose of obtaining or retaining business, securing an improper advantage, or influencing any official act or decision.
• Prohibition on Facilitation Payments. The policy contains an absolute prohibition on facilitation payments (sometimes referred to as "grease payments"), which are small payments made to foreign government officials to expedite routine governmental actions. Although the FCPA contains a narrow exception for certain facilitation payments, Nexford's policy takes the more conservative approach of prohibiting all such payments, which is consistent with the CFPOA (which does not recognize a facilitation payment exception) and current best practices.
• Gifts, Entertainment, and Hospitality Guidelines. The policy sets forth detailed guidelines for gifts, entertainment, and hospitality provided to government officials and private-sector business partners. Monetary thresholds are established (individual gift limit of $150; aggregate annual limit of $500 per recipient; entertainment and hospitality subject to prior approval above specified thresholds), and pre-approval is required for any gift or hospitality involving a government official, regardless of value.
• Third-Party Due Diligence. The policy requires risk-based due diligence on all third parties engaged as agents, consultants, intermediaries, or representatives, particularly those who will interact with government officials or government-controlled entities on Nexford's behalf. The due diligence procedures include background checks, sanctions screening, and written certifications from the third party regarding compliance with anti-corruption laws.
• Accurate Books and Records. Consistent with the FCPA's accounting provisions under 15 U.S.C. § 78m, the policy requires that all transactions be accurately recorded in Nexford's books and records, that no off-books accounts be maintained, and that all payments be supported by appropriate documentation and approvals.
• Whistleblower and Reporting Mechanisms. The policy establishes multiple channels for reporting suspected violations, including a direct report to the General Counsel, a report to the employee's supervisor or human resources department, and an anonymous ethics hotline administered through an independent third-party provider (currently Crowne Albany Technologies). The policy prohibits retaliation against any employee who reports a suspected violation in good faith.
• Disciplinary Procedures. The policy provides for disciplinary action, up to and including termination of employment, for any employee who violates the Anti-Corruption Policy or fails to report a known or suspected violation.
The Anti-Corruption Policy applies to all employees, officers, directors, and agents of Nexford and its subsidiaries globally, including the Canadian operations conducted through Nexford Canada Holdings ULC and Nexford Canada Manufacturing, Inc.
Annual FCPA and anti-corruption training is conducted for relevant personnel, including all employees with customer-facing, government-facing, or procurement responsibilities, as well as all officers and members of the board of directors. Training completion records for 2024 were reviewed and confirmed by David Engstrom, who represented that compliance training was completed by 100% of designated personnel by December 31, 2024.
Assessment. The Anti-Corruption Policy is comprehensive and well-structured. Its key provisions are consistent with DOJ and SEC guidance on effective FCPA compliance programs, including the factors set forth in the DOJ's "Evaluation of Corporate Compliance Programs" (updated March 2023). The prohibition on facilitation payments, the risk-based third-party due diligence procedures, and the anonymous reporting mechanisms reflect current best practices. No material deficiencies were identified in the design or implementation of the anti-corruption compliance program.
B. Government Contracting Exposure
Nexford has limited direct U.S. government contracting exposure. Approximately 3% of LTM revenue (approximately $63,000,000) is derived from contracts with U.S. federal, state, and local government entities, primarily through the Precision Components and Engineered Systems segments. These contracts involve the supply of machined components, tooling, and fabricated assemblies for government-sponsored infrastructure and defense maintenance programs. Nexford management has represented that these contracts are generally competitively bid and do not involve the use of agents, consultants, or intermediaries in the procurement process.
C&H checked the System for Award Management (SAM.gov) Exclusions database on February 25, 2025, for all Loan Party entities (by legal name, EIN, and DUNS number where available). No matches were found, confirming that no Loan Party is currently debarred, suspended, proposed for debarment, declared ineligible, or voluntarily excluded from participation in covered transactions by any federal department or agency.
C. International Operations and Risk Assessment
Nexford's international operations are limited to Canada, conducted through Nexford Canada Holdings ULC (the holding company, located in Vancouver, British Columbia) and Nexford Canada Manufacturing, Inc. (the operating company, located in Mississauga, Ontario). Canada is consistently ranked as a low-risk jurisdiction for corruption under Transparency International's Corruption Perceptions Index, receiving a score of 76 out of 100 in the 2024 index (ranked 14th globally). The Canadian operations involve the manufacture and sale of precision components and engineered systems to Canadian industrial customers and do not involve any interaction with foreign government officials in high-risk jurisdictions.
No operations, joint ventures, sales offices, representative offices, or material business relationships exist in jurisdictions designated as high-risk for corruption under Transparency International's Corruption Perceptions Index or the C&H internal country risk assessment framework. No agents, consultants, intermediaries, or representatives are engaged in connection with foreign government relationships in any high-risk jurisdiction.
Nexford management has represented that the company does not participate in any offset arrangements, countertrade agreements, or similar arrangements involving foreign governments, and has not made any charitable contributions, sponsorship payments, or political contributions at the request of or for the benefit of any foreign government official.
D. Enforcement Actions and Investigations
Based on information provided by Nexford management in response to items 14.15 through 14.19 of the Due Diligence Request List, and as confirmed in the officer certification of David Engstrom dated February 19, 2025, no Loan Party is currently the subject of, or has within the past five years been the subject of, any of the following:
• Any FCPA enforcement action, civil or criminal proceeding, or formal or informal investigation or inquiry by the U.S. Securities and Exchange Commission ("SEC") or the U.S. Department of Justice ("DOJ") relating to potential violations of the FCPA.
• Any enforcement action, investigation, or inquiry by any foreign governmental authority relating to potential violations of the CFPOA or any other foreign anti-corruption law.
• Any enforcement action, investigation, or inquiry by any state attorney general or other state governmental authority relating to potential violations of state anti-bribery statutes.
No voluntary self-disclosures have been made to the SEC, the DOJ, or any other governmental authority regarding potential FCPA violations or other anti-corruption compliance concerns.
No pending or threatened anti-corruption proceedings were identified in the litigation and contingent liability review conducted by C&H (see separate memorandum dated February 26, 2025, prepared by Sophie Tremblay). The litigation docket review, which included searches of federal and state court records, SEC EDGAR filings, and publicly available enforcement databases, did not reveal any anti-corruption-related proceedings involving any Loan Party or any current or former officer or director.
E. Credit Agreement Representations and Covenants — Anti-Corruption
The draft Credit Agreement includes the following anti-corruption-related provisions:
Representation (Article V, Section 5.21). Each Loan Party represents and warrants that it has implemented and maintains in effect policies and procedures designed to promote and achieve compliance with applicable anti-corruption laws, including the FCPA and, to the extent applicable, the CFPOA.
Covenant (Article VI, Section 6.17). No Loan Party will, directly or indirectly, use the proceeds of the Loans or other credit extensions for the purpose of making any payment or bestowing any benefit in violation of the FCPA, the CFPOA, or any other applicable anti-corruption law. Each Loan Party will maintain in effect policies and procedures designed to promote and achieve compliance with such laws.
Assessment. Based on the review described above, including the compliance program assessment, the government contracting analysis, the international operations risk assessment, and the enforcement history review, Nexford can make the required anti-corruption representations at closing on March 28, 2025. The Anti-Corruption Policy and the broader compliance program are adequate for Nexford's risk profile, taking into account the company's predominantly domestic operations, its limited international footprint (restricted to low-risk Canada), and its limited government contracting exposure.
V. ANTI-MONEY LAUNDERING AND USA PATRIOT ACT COMPLIANCE REVIEW
A. Bank Secrecy Act / AML Compliance
Nexford is a non-financial industrial company engaged in the manufacture and sale of precision components, engineered systems, and industrial coatings and surface technologies. It is not a "financial institution" as defined under the BSA or FinCEN regulations at 31 C.F.R. § 1010.100(t), and it is not a "money services business" as defined at 31 C.F.R. § 1010.100(ff). Accordingly, Nexford is not directly subject to the BSA's Customer Identification Program ("CIP") requirements, Suspicious Activity Report ("SAR") filing requirements, Currency Transaction Report ("CTR") filing requirements, or other BSA compliance obligations that apply to financial institutions.
However, certain representations and covenants in the Credit Agreement require that no Loan Party engage in transactions that would constitute money laundering or that would violate the BSA or the USA PATRIOT Act. Additionally, the general federal money laundering statutes, 18 U.S.C. §§ 1956 and 1957, which prohibit the laundering of the proceeds of specified unlawful activities and engaging in monetary transactions involving property derived from specified unlawful activities, apply to all persons, including non-financial companies.
Nexford's corporate compliance program includes general anti-money laundering awareness provisions within its Employee Code of Conduct (revised January 2024). The Code of Conduct instructs employees to be alert to potential indicators of money laundering or other financial crime in the course of their business activities, and to report any suspicious circumstances to the General Counsel. While Nexford does not maintain a standalone anti-money laundering compliance program (which is appropriate given its status as a non-financial company), the general provisions in the Code of Conduct are consistent with industry practice for non-financial industrial companies and are adequate for Nexford's risk profile.
B. USA PATRIOT Act Compliance
Crescent Harbor Bank, N.A. (as Administrative Agent), Ironwood Capital Markets, LLC, Northvane Securities, Inc., and the syndicate lenders are financial institutions subject to the requirements of the USA PATRIOT Act, including the obligation under Section 326 to verify the identity of the Borrower and Guarantors and the obligation under FinCEN's Customer Due Diligence Rule (31 C.F.R. § 1010.230) to identify and verify the beneficial owners of legal entity customers.
Nexford has cooperated fully with the USA PATRIOT Act and beneficial ownership due diligence requirements of Crescent Harbor Bank and the arranging banks. Specifically, Nexford has provided the following documentation and information:
1. Certified Organizational Documents. Certified copies of the certificates of incorporation, certificates of formation, limited liability company agreements, bylaws, and certificates of good standing (or equivalent) for all Loan Parties, together with certified copies of board resolutions and officer incumbency certificates.
2. Beneficial Ownership Certifications. Beneficial ownership certifications in the form required by FinCEN's Customer Due Diligence Rule, identifying Granite Peak Capital Partners, LP as the ultimate beneficial owner of each Loan Party through the following ownership chain: Granite Peak Capital Fund IV, LP (approximately 92%) and GP Fund IV Co-Invest, LP (approximately 8%) hold 100% of the membership interests of Granite Peak NIH Holdings, LLC (Holdings), which holds 100% of the equity of Nexford Industrial Holdings Inc. (the Borrower). The beneficial ownership certifications identify the following natural persons as the individuals with 25% or greater ownership interest or significant management responsibility:
• Derek Calloway, Co-Founder and Managing Partner, Granite Peak Capital Partners, LP — identified as a control person and an individual with significant management responsibility over each Loan Party through his role as Managing Partner of the general partner entity of Granite Peak Capital Fund IV, LP.
• Vanessa Liu, Co-Founder and Managing Partner, Granite Peak Capital Partners, LP — identified as a control person and an individual with significant management responsibility over each Loan Party through her role as Managing Partner of the general partner entity of Granite Peak Capital Fund IV, LP.
3. Identification Documents. Government-issued identification documents for Derek Calloway and Vanessa Liu, as required for verification of the identity of the beneficial owners.
4. Employer Identification Numbers. The Employer Identification Number (EIN) for each Loan Party entity, including Nexford Industrial Holdings Inc. (EIN: 36-4178552) and Granite Peak NIH Holdings, LLC (EIN: 85-3291047), together with the EINs for each of the eleven Subsidiary Guarantors.
Assessment. Nexford has cooperated fully with USA PATRIOT Act due diligence requirements, and no deficiencies were identified in the information provided to the arranging banks. The Credit Agreement is expected to include a customary USA PATRIOT Act notice provision in the form recommended by the Loan Syndications and Trading Association ("LSTA"), advising the Lenders of their obligations under the USA PATRIOT Act to verify the identity of the Borrower and Guarantors and to obtain and verify certain information about the Loan Parties, including names, addresses, tax identification numbers, and other information.
C. Source of Funds
The source of funds for the transaction is the $1,400,000,000 Term Loan B to be syndicated by Crescent Harbor Bank, N.A. to institutional lenders. The initial commitments are held by the following entities, all of which are regulated U.S. financial institutions, CLO vehicles, or institutional investors subject to their own AML and KYC requirements:
The general syndication process is managed by Crescent Harbor Bank, N.A. and the joint lead arrangers, with a target completion date of March 21, 2025. All syndicate participants are expected to be institutional investors and CLO vehicles that are themselves subject to AML and KYC requirements under applicable law and regulation. The Credit Agreement is expected to include customary provisions requiring each Lender to comply with applicable AML/KYC requirements and to provide any additional information reasonably requested by the Administrative Agent for AML/KYC compliance purposes.
No AML concerns were identified with respect to the source of loan proceeds. All commitments are from identifiable, regulated entities within the U.S. financial system.
VI. EXPORT CONTROLS AND TRADE COMPLIANCE
Nexford's trade compliance posture was reviewed in connection with the broader regulatory and compliance assessment. The following summarizes the key findings:
Product Classifications. Nexford's product portfolio consists of precision machined components, engineered systems and assemblies, tooling and dies, and industrial coatings and surface treatment services. None of Nexford's products are classified under the International Traffic in Arms Regulations ("ITAR"), 22 C.F.R. Parts 120–130, administered by the U.S. Department of State's Directorate of Defense Trade Controls ("DDTC"). Nexford does not hold a DDTC registration and is not a registered manufacturer, exporter, or broker of defense articles or defense services.
Under the Export Administration Regulations ("EAR"), 15 C.F.R. Parts 730–774, administered by the U.S. Department of Commerce's Bureau of Industry and Security ("BIS"), the substantial majority of Nexford's products are classified as EAR99 — items subject to the EAR but not specifically listed on the Commerce Control List ("CCL"). Certain precision components manufactured by Nexford Precision Components, Inc. and Lakeshore Precision Engineering, Inc. may fall within low-sensitivity ECCNs (Export Control Classification Numbers) on the CCL, but none are classified under EAR Category 600 series (items that were previously on the U.S. Munitions List and were transitioned to Commerce Department jurisdiction). No products require specific export licenses for shipment to Canada, Nexford's only export destination.
Export Activity. Nexford's export activities are limited to shipments of precision components and engineered systems products to Canada through the intercompany supply chain involving Nexford Canada Manufacturing, Inc. in Mississauga, Ontario. These shipments are conducted under the applicable license exceptions and do not require individual validated export licenses. No transshipment, reexport, or diversion to restricted destinations has been identified by Nexford management or in our review.
Enforcement History. Based on information provided by Nexford management and a review of publicly available records, no Loan Party is currently or has within the past five years been the subject of any enforcement action, penalty, or denial order issued by the Bureau of Industry and Security. No Loan Party appears on the BIS Entity List (Supplement No. 4 to 15 C.F.R. Part 744), the Denied Persons List, or the Unverified List. No voluntary self-disclosures have been made to BIS regarding potential EAR violations.
Conclusion. Nexford's export control and trade compliance posture is consistent with that of a predominantly domestic industrial manufacturer with limited international operations. No export control concerns were identified that would affect the Loan Parties' ability to make the required representations under the Credit Agreement or that would give rise to material risk exposure.
VII. REGULATORY PROCEEDINGS AND GOVERNMENT INVESTIGATIONS
A comprehensive review of regulatory proceedings and government investigations involving the Loan Parties has been conducted in connection with the broader due diligence process. The detailed findings are set forth in the separate memorandum on litigation and contingent liability review dated February 26, 2025, prepared by Sophie Tremblay. This Section VII provides a summary of the findings as they relate specifically to sanctions, anti-corruption, anti-money laundering, and export control matters.
Based on information provided by Nexford management, the officer certification of David Engstrom dated February 19, 2025, and C&H's independent review of publicly available records (including searches of federal and state court dockets, SEC EDGAR filings, OFAC enforcement actions, DOJ press releases, and BIS enforcement databases), the following conclusions were reached:
1. No Pending or Threatened Proceedings. No Loan Party is currently the subject of any pending or threatened regulatory proceeding, enforcement action, investigation, inquiry, or examination by the SEC, the DOJ, OFAC, FinCEN, BIS, or any other federal, state, local, or foreign governmental authority relating to sanctions, anti-corruption, anti-money laundering, or export control matters.
2. No Consent Orders or Settlement Agreements. No Loan Party is currently subject to, or has within the past five years been subject to, any consent order, cease-and-desist order, administrative order, settlement agreement, deferred prosecution agreement ("DPA"), non-prosecution agreement ("NPA"), or similar agreement or arrangement with any governmental authority relating to sanctions, anti-corruption, anti-money laundering, or export control matters.
3. No Voluntary Self-Disclosures. No Loan Party has made any voluntary self-disclosure to OFAC, the SEC, the DOJ, BIS, FinCEN, or any other governmental authority relating to potential violations of sanctions, anti-corruption, anti-money laundering, or export control laws within the past five years.
4. No Individual Proceedings. No current director, officer, or employee of any Loan Party is, to the knowledge of Nexford management, the subject of any pending or threatened proceeding, investigation, or inquiry relating to sanctions, anti-corruption, anti-money laundering, or export control matters arising out of their activities on behalf of any Loan Party.
These findings are consistent with the representations that will be required under the Credit Agreement and support the Loan Parties' ability to make such representations at closing.
VIII. COMPLIANCE CONSIDERATIONS SPECIFIC TO THE TRANSACTION
A. Use of Proceeds
The proceeds of the $1,400,000,000 Term Loan B will be used as follows:
Each of the foregoing uses of proceeds has been analyzed for compliance with applicable sanctions, anti-corruption, and anti-money laundering laws, and no issues were identified:
• Refinancing. The existing first lien term loan is held by Atlas Meridian Bank, N.A., a nationally chartered U.S. bank regulated by the Office of the Comptroller of the Currency. The payoff of this facility does not involve any sanctioned person, sanctioned jurisdiction, or activity that would implicate anti-corruption or anti-money laundering concerns.
• Dividend. The dividend payment of approximately $335,000,000 flows to Granite Peak NIH Holdings, LLC, a Delaware limited liability company, and thence to Granite Peak Capital Fund IV, LP and GP Fund IV Co-Invest, LP, both of which are Delaware limited partnerships with their principal offices in Greenwich, Connecticut. All of these entities are U.S.-based and have been screened against applicable sanctions lists with no matches identified. The dividend does not involve any payment to or for the benefit of any sanctioned person or any person located in a sanctioned jurisdiction.
• Transaction Fees. Transaction fees and expenses of approximately $38,625,000 are payable to Crescent Harbor Bank, N.A. (arrangement and syndication fees), the joint lead arrangers, C&H (as borrower's counsel), Whitfield & Gage LLP (as lender's counsel), and other professional advisors — all U.S.-based entities.
• Cash to Balance Sheet. The $147,000,000 retained as cash on the balance sheet of Nexford Industrial Holdings Inc. will be available for general corporate purposes, working capital needs, and potential bolt-on acquisitions. Any future use of these funds will remain subject to the ongoing sanctions, anti-corruption, and anti-money laundering covenants under the Credit Agreement.
B. Closing Deliverables — Compliance Certificates
At closing, which is currently targeted for March 28, 2025, the following compliance-related certificates and deliverables will be required under the Credit Agreement:
1. Use of Proceeds Compliance Certificate. A certificate executed by an authorized officer of the Borrower certifying that the proceeds of the Term Loan B have been applied in accordance with the stated purposes and that such application does not violate any applicable OFAC sanctions, anti-corruption laws (including the FCPA), or anti-money laundering laws (including the BSA and the USA PATRIOT Act). C&H will prepare the initial draft of this certificate for review by David Engstrom and Priya Mehta.
2. Officer's Certificate. A certificate executed by a responsible officer of the Borrower (expected to be David Engstrom, as General Counsel, or James Thornton, as Chief Executive Officer) certifying the accuracy of all representations and warranties contained in the Credit Agreement as of the closing date, including the sanctions representations (Section 5.20), the anti-corruption representations (Section 5.21), and the anti-money laundering representations (Section 5.22). C&H will prepare the initial draft and coordinate execution.
3. Solvency Certificate. A solvency certificate to be executed by Michelle Kaplan, Chief Financial Officer of Nexford Industrial Holdings Inc., certifying the solvency of the Borrower and its subsidiaries on a consolidated basis after giving effect to the transactions contemplated by the Credit Agreement, including the refinancing and the dividend recapitalization. While the solvency certificate is not directly a "compliance" deliverable in the sanctions/anti-corruption context, it is included here for completeness as a closing deliverable that C&H will prepare.
C&H will prepare drafts of each of these certificates and circulate them to David Engstrom and Michelle Kaplan for review and comment no later than March 14, 2025, to allow sufficient time for review, revision, and execution prior to the target closing date.
C. Ongoing Compliance Obligations Under the Credit Agreement
The Credit Agreement will impose ongoing compliance obligations on the Loan Parties with respect to sanctions, anti-corruption, and anti-money laundering matters. These obligations are not limited to the closing date but extend throughout the term of the Credit Agreement, and any breach would constitute an Event of Default that could result in acceleration of the outstanding obligations and enforcement of remedies against the collateral.
Specifically, the ongoing obligations are expected to include: