PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT
CALDERWOOD & HARKNESS LLP
INTERNAL MEMORANDUM
Date: December 1, 2025
Matter No.: 1005-00002
To: Jennifer Kwon, Responsible Partner, Capital Markets Theodore Langston, Billing Partner, Capital Markets
From: Natasha Forbes, Lead Associate, Capital Markets Eric Johannsen, Working Associate, Capital Markets
Re: Nexford Industrial Holdings Inc. — $150,000,000 Add-On Tap of 8.750% Senior Secured Notes due 2030
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I. Executive Summary
Calderwood & Harkness LLP has been engaged as issuer's counsel to Nexford Industrial Holdings Inc. ("Nexford" or the "Issuer"), a Delaware corporation headquartered at 2400 Commerce Parkway, Suite 800, Schaumburg, IL 60173, in connection with a proposed $150,000,000 add-on tap (further issuance) of Nexford's existing 8.750% Senior Secured Notes due 2030 (the "Existing Notes"). The Existing Notes were originally issued in an aggregate principal amount of $475,000,000 under an indenture dated March 15, 2023 (the "Indenture"), with Ridgeline Trust Company, N.A. serving as trustee and collateral agent. After giving effect to the proposed add-on issuance, the aggregate outstanding principal amount of the notes will be $625,000,000.
The additional notes to be issued in this offering (the "Additional Notes") will be offered and sold in a private placement pursuant to Rule 144A under the Securities Act of 1933, as amended (the "Securities Act"), to qualified institutional buyers ("QIBs") and pursuant to Regulation S under the Securities Act to non-U.S. persons in offshore transactions. No registration under the Securities Act will occur at the time of issuance. The Additional Notes will be issued under the existing Indenture as "Additional Notes" and will, upon completion of the 40-day Regulation S distribution compliance period, become fungible with and form a single series with the Existing Notes for all purposes.
The primary purpose of the offering is to fund the acquisition (the "Kessler Acquisition") of Kessler Precision Components, Inc. ("Kessler"), a privately held Ohio corporation based in Dayton, Ohio, for an all-cash purchase price of $138,000,000. The Kessler Acquisition was approved by the Nexford board of directors on November 8, 2025, and the definitive purchase agreement was executed on November 15, 2025, subject to a financing condition requiring the completion of the add-on notes offering or an alternative financing sufficient to fund the purchase price. The balance of the net proceeds, after payment of estimated transaction fees and expenses, will be added to Nexford's balance sheet for general corporate purposes.
Nexford is a portfolio company of Granite Peak Capital Partners, LP ("Granite Peak"), a middle-market private equity firm organized as a Delaware limited partnership, headquartered at 300 South Wacker Drive, Suite 3200, Chicago, IL 60606. Granite Peak acquired Nexford in a take-private transaction in 2022 through its Fund V vehicle, Granite Peak Capital Fund V, LP. Granite Peak holds approximately 82% of Nexford's equity through Nexford Parent Corp., a Delaware corporation that serves as the direct parent of the Issuer. The remaining equity is held by members of Nexford's management team and certain co-investors.
The engagement was opened on December 1, 2025. The expected offering timeline contemplates a launch on December 3, 2025, with distribution of the preliminary offering memorandum supplement to QIBs and non-U.S. persons, pricing on December 5, 2025, and closing and settlement on December 10, 2025 (T+3 business days from pricing). The Kessler Acquisition is expected to close on December 12, 2025, funded from escrow or directly from the notes proceeds.
This memorandum summarizes the transaction, identifies the parties and their respective counsel, analyzes Nexford's pre- and post-deal capital structure, reviews key covenant compliance under the Indenture, addresses fungibility, intercreditor, registration rights, and other structural considerations, and flags principal legal issues and open items requiring resolution prior to closing. This memorandum is intended solely for use by the Calderwood & Harkness deal team and is subject to the attorney-client privilege and the work product doctrine.
II. Client Background
A. Nexford Industrial Holdings Inc.
Nexford Industrial Holdings Inc. is a Delaware corporation, EIN 84-3291057, with its principal executive offices located at 2400 Commerce Parkway, Suite 800, Schaumburg, IL 60173. The Issuer's registered agent in Delaware is c/o Cascade Systems, 160 Greentree Drive, Suite 101, Dover, DE 19904.
Nexford operates as a diversified industrials platform focused on the design, engineering, and manufacture of precision-engineered metal components, thermal management systems, and specialty fasteners. The company serves a range of end markets, with particular concentration in the aerospace, defense, and energy sectors. Through its subsidiary operations, Nexford maintains a network of manufacturing facilities across the Midwest and Southern United States and holds long-standing supplier relationships with major aerospace and defense OEMs.
For the last twelve months ("LTM") ended September 30, 2025, Nexford reported revenue of approximately $1,280,000,000 and Adjusted EBITDA of approximately $247,000,000, representing an Adjusted EBITDA margin of approximately 19.3%. These figures reflect the consolidated performance of Nexford and its existing subsidiaries, prior to giving effect to the Kessler Acquisition. Cash and cash equivalents on the balance sheet as of September 30, 2025 totaled approximately $52,000,000.
The Issuer's financial statements are audited by Meridian Ledger LLP, an independent registered public accounting firm with offices at 155 North Wacker Drive, Suite 2500, Chicago, IL 60606. Meridian Ledger has served as Nexford's auditor since the 2022 take-private transaction.
B. Nexford Parent Corp.
Nexford Parent Corp. is a Delaware corporation, EIN 84-3290814, that serves as the direct parent of the Issuer. Nexford Parent Corp.'s registered agent in Delaware is also c/o Cascade Systems, 160 Greentree Drive, Suite 101, Dover, DE 19904. Nexford Parent Corp. is wholly owned by Granite Peak Capital Fund V, LP, together with certain management co-investors who hold minority equity interests.
Nexford Parent Corp. is a party to the Indenture as a guarantor and has provided a senior secured guaranty of the Existing Notes. Nexford Parent Corp. will also guarantee the Additional Notes on the same basis. Nexford Parent Corp. does not have any independent operations or material assets other than its equity interest in the Issuer and related holding company assets.
C. Granite Peak Capital Partners, LP
Granite Peak Capital Partners, LP is a Delaware limited partnership that serves as the investment advisor and manager of a family of private equity funds focused on the middle market. Granite Peak maintains its principal offices at 300 South Wacker Drive, Suite 3200, Chicago, IL 60606. Granite Peak acquired Nexford in a take-private transaction in 2022 through its Fund V vehicle, Granite Peak Capital Fund V, LP.
Granite Peak holds approximately 82% of Nexford's equity through Nexford Parent Corp. The remaining approximately 18% is held by members of Nexford's management team and by certain co-investors who participated alongside Fund V in the 2022 transaction.
Key Granite Peak personnel involved in the Nexford portfolio investment and this transaction include:
• Paul Henriksen, Managing Director — Granite Peak's board designee on the Nexford board of directors and the primary point of contact at the sponsor for capital structure decisions and strategic acquisitions.
• Catherine Briggs, Vice President — day-to-day deal team coverage for the Nexford portfolio investment.
Granite Peak's outside counsel on this transaction is Archer, Dodd & Feinberg LLP (Philip Magnusson, Partner), 200 South Michigan Avenue, Suite 4100, Chicago, IL 60604.
D. Nexford Management
The following members of Nexford's senior management team are expected to be actively involved in the add-on notes offering and the Kessler Acquisition:
• Marcus DeLeon, Chief Executive Officer — Mr. DeLeon will participate in investor marketing efforts (if any investor calls are scheduled during the offering window) and will sign the Officers' Certificate as a closing deliverable.
• Sandra Okafor, Chief Financial Officer — Ms. Okafor is the primary financial contact for the deal team and will coordinate on EBITDA adjustments, incurrence test calculations, funds flow, and the Officers' Certificate. She is also the principal contact for Meridian Ledger LLP on any comfort letter or financial verification matters.
• Raymond Chiu, General Counsel & Secretary — Mr. Chiu is our day-to-day legal contact at the Issuer. He will review and negotiate transaction documents, prepare the Secretary's Certificate (including certified copies of board resolutions adopted November 8, 2025, the certificate of incorporation, and bylaws), and coordinate with Calderwood & Harkness on all legal deliverables.
• David Altschuler, Treasurer — Mr. Altschuler is responsible for treasury operations and will coordinate on the funds flow memorandum, escrow mechanics (if applicable), and cash management related to the use of proceeds.
III. Transaction Overview
A. Offering Structure
The proposed transaction is structured as an add-on tap (i.e., a further issuance) of Additional Notes under the existing Indenture dated March 15, 2023. The Additional Notes will have an aggregate principal amount of $150,000,000 and will bear interest at a rate of 8.750% per annum, identical to the coupon on the Existing Notes. Interest on the Additional Notes will be payable semi-annually on March 15 and September 15 of each year, consistent with the interest payment dates applicable to the Existing Notes. The first interest payment on the Additional Notes will include accrued interest from the most recent interest payment date on the Existing Notes.
The maturity date of the Additional Notes will be March 15, 2030, identical to the maturity of the Existing Notes. All optional and mandatory redemption provisions, covenants, events of default, and other terms of the Additional Notes will be identical in all respects to the corresponding terms of the Existing Notes. This identity of terms is a prerequisite to achieving fungibility of the Additional Notes with the Existing Notes upon expiration of the 40-day Regulation S distribution compliance period, as discussed further in Section X below.
The expected issue price for the Additional Notes is 101.500% of par value, subject to market conditions prevailing at the time of pricing on or about December 5, 2025. At an issue price of 101.500%, the estimated yield to worst on the Additional Notes would be approximately 8.450%, calculated based on the assumed issue price and the applicable optional redemption schedule. The yield to worst calculation assumes that the notes are called at the first par call date (March 15, 2028).
The gross proceeds to the Issuer at an issue price of 101.500% would be $152,250,000 (calculated as $150,000,000 multiplied by 101.500%). The initial purchaser discount, payable to Broadleaf Securities LLC as lead initial purchaser and bookrunner and Fieldstone Capital Markets, Inc. as co-manager, is 1.750% of the aggregate principal amount, or $2,625,000. After deduction of the initial purchaser discount, the net proceeds to the Issuer (before payment of other transaction fees and expenses) would be $149,625,000 ($152,250,000 minus $2,625,000).
The Additional Notes will be fungible with the Existing Notes following the expiration of the 40-day Regulation S distribution compliance period. Assuming a closing date of December 10, 2025, the distribution compliance period will expire on January 19, 2026, after which the Additional Notes will be consolidated with the Existing Notes and will trade under the same CUSIPs and ISINs. After giving effect to the add-on, the aggregate outstanding principal amount of the combined notes will be $625,000,000 ($475,000,000 of Existing Notes plus $150,000,000 of Additional Notes).
The offering is structured as a Rule 144A / Regulation S private placement. No registration statement under the Securities Act will be filed in connection with the initial issuance and sale of the Additional Notes. However, the existing Registration Rights Agreement, as supplemented or amended to cover the Additional Notes, will require the Issuer to file a registration statement for an exchange offer and to use commercially reasonable efforts to cause such registration statement to become effective within 365 days of the closing of the offering — i.e., by December 10, 2026.
The governing law of the Indenture, the Additional Notes, and the related transaction documents is the law of the State of New York.
B. CUSIP / ISIN Information
The following CUSIP and ISIN information is applicable to the Existing Notes and the Additional Notes:
Existing Notes:
• CUSIP (Rule 144A): 65438T AA5
• ISIN (Rule 144A): US65438TAA51
• CUSIP (Regulation S): U65438 AA7
• ISIN (Regulation S): USU65438AA72
Additional Notes (Temporary, Prior to Fungibility):
• Temporary CUSIP (Rule 144A): 65438T AB3
• Temporary CUSIP (Regulation S): U65438 AB5
Upon fungibility after January 19, 2026, the Additional Notes will no longer trade under the temporary CUSIPs and will instead trade under the Existing Notes CUSIPs (65438T AA5 for Rule 144A and U65438 AA7 for Regulation S) and the corresponding ISINs (US65438TAA51 and USU65438AA72). The temporary CUSIPs will be retired at that time.
C. DTC Eligibility
The Additional Notes will be DTC-eligible and will be issued in book-entry form through The Depository Trust Company ("DTC"). Beneficial interests in the Additional Notes will be recorded through DTC participants. International holders may hold beneficial interests through Stonefield Industries ("Thackeray Partners LLC") and Harborview Industries ("Ashgrove Enterprises"), which maintain indirect participant accounts with DTC. DTC eligibility letters and CUSIP confirmations will be obtained as closing deliverables.
D. Optional Redemption Schedule (Applicable to All Notes Post-Tap)
The following optional redemption schedule is set forth in the Indenture and will apply equally to the Existing Notes and the Additional Notes following the add-on:
In addition, upon a Change of Control (as defined in the Indenture), each holder of the notes has the right to require the Issuer to repurchase its notes at a price equal to 101% of the principal amount thereof, plus accrued and unpaid interest to the date of repurchase.
The equity clawback provision permits the Issuer to redeem up to 40% of the original aggregate principal amount of the notes at a price of 108.750% of par, using the net cash proceeds of one or more equity offerings, provided that at least 60% of the original aggregate principal amount of the notes remains outstanding after such redemption and the redemption occurs within 180 days of the closing of the applicable equity offering. For purposes of the equity clawback, "original aggregate principal amount" should be confirmed to mean the aggregate principal amount of all notes issued under the Indenture (including the Additional Notes), which would be $625,000,000.
IV. Use of Proceeds
The estimated net proceeds of the offering will be applied as follows:
• Kessler Acquisition: Approximately $138,000,000 of the net proceeds will be used to fund the all-cash purchase price for the acquisition of Kessler Precision Components, Inc. The purchase price is payable entirely in cash at the closing of the Kessler Acquisition; no rollover equity or earn-out components are contemplated.
• Transaction Fees and Expenses: Approximately $5,000,000 of the gross proceeds will be used to pay estimated transaction fees and expenses associated with the offering and the Kessler Acquisition, including the initial purchaser discount, legal fees of issuer's counsel and initial purchasers' counsel, rating agency fees, trustee fees, and miscellaneous costs. A detailed breakdown of estimated fees and expenses is set forth in Section V below.
• General Corporate Purposes: The remainder of the proceeds, estimated at approximately $9,250,000 (calculated as $152,250,000 in gross proceeds minus $138,000,000 for the Kessler Acquisition purchase price minus approximately $5,000,000 in estimated fees and expenses), will be retained on the Issuer's balance sheet for general corporate purposes, including working capital.
The use of proceeds disclosure in the offering memorandum supplement should reflect these allocations and should include appropriate language regarding the possibility that the Kessler Acquisition may not close contemporaneously with the notes offering, in which case the purchase price funds may temporarily be held in escrow or invested in short-term instruments pending the acquisition closing on December 12, 2025. The offering memorandum supplement should also address the scenario in which the Kessler Acquisition does not close, including the potential use of proceeds for other permitted purposes and any obligation to offer to repurchase the Additional Notes if the proceeds are not used as described.
V. Transaction Fees and Expenses
The following table summarizes the estimated transaction fees and expenses associated with the offering and the Kessler Acquisition:
The initial purchaser discount of $2,625,000 will be deducted from the gross proceeds of the offering at settlement. All other transaction costs (totaling approximately $3,700,000) will be paid by the Issuer from the offering proceeds or from available cash on hand. The aggregate of the initial purchaser discount and other transaction costs is approximately $6,325,000. However, for purposes of the use of proceeds summary in Section IV, the approximately $5,000,000 figure reflects an estimate of total transaction expenses that is inclusive of the initial purchaser discount but net of certain costs that may be allocated to the Kessler Acquisition (such as R&W insurance premiums and seller's counsel fees, which are borne separately).
Calderwood & Harkness's fee arrangement provides for a cap of $475,000 in legal fees, plus disbursements at cost. This cap covers all legal work related to the add-on notes offering, including preparation of the First Supplemental Indenture, the Purchase Agreement, the offering memorandum supplement, legal opinions, and the 10b-5 negative assurance letter. Legal work related to the Kessler Acquisition guarantor joinder and supplemental security documents is included within this cap, but any significant additional scope (such as contested ABL amendments or material Indenture waivers) would require a fee discussion with the client.
The Issuer is also responsible for the fees of Whitmore & Stein LLP, counsel to the initial purchasers, which are estimated at approximately $300,000 and are payable pursuant to the terms of the Purchase Agreement.
VI. Kessler Acquisition Summary
Target
Kessler Precision Components, Inc. is a privately held Ohio corporation, EIN 31-1784623, located at 1455 Innovation Boulevard, Dayton, OH 45402. Kessler was founded by Thomas Kessler, who currently serves as President and remains actively involved in the business operations.
Business Description
Kessler is a manufacturer of precision-machined aluminum and titanium components for aerospace and defense original equipment manufacturers ("OEMs"). The company's core capabilities include CNC machining, multi-axis milling, and surface treatment processes for complex, tight-tolerance parts used in airframe structures, propulsion systems, and defense electronics enclosures. Kessler operates from a single manufacturing campus in Dayton, Ohio, and maintains long-standing relationships with several major aerospace and defense prime contractors.
The Kessler Acquisition is strategically complementary to Nexford's existing aerospace components business, particularly the operations of Nexford Aerospace Components, Inc. Kessler's capabilities in titanium machining and its customer base in the defense segment are expected to provide incremental revenue synergies and enhance Nexford's competitive positioning for multi-component supply contracts.
Financial Profile
For the LTM period ended September 30, 2025, Kessler reported revenue of approximately $115,000,000 and EBITDA of approximately $23,000,000. These figures are based on Kessler's internally prepared financial statements, which have been reviewed by Meridian Ledger LLP as part of the acquisition due diligence process but have not been audited. Audited financial statements for Kessler's most recent fiscal year (ended December 31, 2024) are expected to be included in or incorporated by reference into the offering memorandum supplement.
Purchase Price and Structure
The all-cash purchase price for the Kessler Acquisition is $138,000,000, representing an acquisition multiple of approximately 6.0x LTM EBITDA. No rollover equity, seller notes, or earn-out payments are contemplated as part of the acquisition consideration. The purchase price is payable in full at the closing of the Kessler Acquisition.
Sellers
The sellers in the Kessler Acquisition are:
• The Kessler Family Trust — holding approximately 72% of Kessler's outstanding equity.
• Northland Growth Equity Fund III, LP — holding approximately 28% of Kessler's outstanding equity. Northland is a growth equity fund that made a minority investment in Kessler in 2019.
Purchase Agreement
The definitive purchase agreement for the Kessler Acquisition was executed on November 15, 2025. The purchase agreement includes a financing condition — specifically, the closing of the Kessler Acquisition is conditioned upon the completion of the add-on notes offering or alternative financing sufficient to fund the $138,000,000 purchase price. The purchase agreement contains customary representations and warranties, covenants (including interim operating covenants between signing and closing), and indemnification provisions. Representations and warranties survive for a period specified in the purchase agreement, subject to certain fundamental representations with longer survival periods.
Seller's Counsel
The sellers are represented by Hargrove & Tilson LLP (Harold Griswold, Partner), 130 West Second Street, Suite 700, Dayton, OH 45402.
Expected Closing Date
The Kessler Acquisition is expected to close on December 12, 2025, two business days after the expected settlement of the add-on notes offering on December 10, 2025. The purchase price will be funded from the notes offering proceeds, either directly or from an escrow account established at closing of the offering. The specific mechanics will be set forth in the funds flow memorandum to be prepared in advance of the notes closing.
Representations and Warranties Insurance
A representations and warranties insurance ("R&W Insurance") policy has been bound with Atherton Specialty Insurance Co. in connection with the Kessler Acquisition. The policy provides a coverage limit of $13,800,000, representing approximately 10% of the enterprise value of the Kessler Acquisition, with a retention (i.e., deductible) of $1,380,000. The R&W Insurance policy provides buy-side coverage for breaches of the sellers' representations and warranties in the purchase agreement, subject to customary exclusions and limitations. The R&W Insurance policy relates to the Kessler Acquisition rather than to the notes offering directly, but the existence of the policy and its material terms may require disclosure in the risk factor section of the offering memorandum supplement.
Guarantor Joinder
Following the closing of the Kessler Acquisition, Kessler Precision Components, Inc. will be required to become a Guarantor under the Indenture within 30 days of the acquisition closing, pursuant to the after-acquired property covenant contained in the Indenture. Since the acquisition is expected to close on December 12, 2025, the deadline for Kessler's guarantor joinder is approximately January 11, 2026. The guarantor joinder and related security documents are discussed in further detail in Sections VIII.D and IX.C below.
Board Approval
The Nexford board of directors authorized the exploration and pursuit of the add-on notes offering and the Kessler Acquisition at a board meeting held on November 8, 2025. Certified copies of the board resolutions adopted at that meeting will be included in the Secretary's Certificate delivered at closing.
VII. Capital Structure Analysis
A. Pre-Deal Capital Structure (as of September 30, 2025)
The following table summarizes Nexford's capital structure as of September 30, 2025, prior to giving effect to the add-on notes offering and the Kessler Acquisition:
The ABL Revolving Credit Facility is a $200,000,000 asset-based revolving credit facility provided by a syndicate of lenders with Lakefront National Bank serving as administrative agent. The facility is secured by a first-priority lien on ABL Priority Collateral (accounts receivable, inventory, and deposit accounts) and a subordinate lien on Notes Priority Collateral. As of September 30, 2025, approximately $45,000,000 was drawn under the facility, approximately $8,200,000 was committed in respect of outstanding letters of credit, and approximately $146,800,000 remained available under the borrowing base. The facility matures on September 15, 2027.
The 10.250% Senior Unsecured Notes due 2031 in an aggregate principal amount of $310,000,000 represent unsecured obligations of the Issuer that rank junior in right of payment to the Senior Secured Notes with respect to the collateral securing the Senior Secured Notes, but rank pari passu with the Senior Secured Notes on an unsecured basis. The unsecured notes were issued under a separate indenture and are not directly implicated by the add-on notes offering, other than as a component of Nexford's total capital structure for purposes of leverage calculations and covenant compliance.
B. Pro Forma Capital Structure (After Add-On and Kessler Acquisition)
The following table presents Nexford's pro forma capital structure after giving effect to the add-on notes offering and the Kessler Acquisition:
An important note regarding leverage metrics in the offering materials: The approximately 4.1x figure that will be cited in the offering memorandum supplement reflects unadjusted EBITDA of approximately $225,000,000 — that is, EBITDA before giving effect to approximately $45,000,000 in aggregate pro forma cost savings, synergies, and other run-rate adjustments that are backed out for Indenture covenant calculation purposes (comprising approximately $22,000,000 in Nexford standalone adjustments and approximately $23,000,000 attributable to Kessler's contribution). The adjusted figure of $270,000,000 reflects Pro Forma Adjusted EBITDA calculated in accordance with the definitions in the Indenture, which permits the addition of projected run-rate cost savings and synergies that are reasonably identifiable and factually supportable within a specified time horizon (typically 18 months). Both the unadjusted and adjusted leverage metrics should be disclosed in the offering memorandum supplement, accompanied by appropriate reconciliation tables and cautionary language regarding the speculative nature of projected adjustments.
C. Pro Forma Secured Leverage
The following table presents the pro forma secured leverage metrics after giving effect to the offering and the Kessler Acquisition:
The pro forma secured leverage metrics are relevant to the Indenture's incurrence-based tests as well as to the ABL credit agreement's financial maintenance covenants (if any). The secured leverage figures will also be relevant to the rating agency analysis, as the differential between secured and total leverage informs recovery rate assumptions and instrument-level ratings.
VIII. Security and Collateral Structure
A. Notes Priority Collateral
The Senior Secured Notes (including the Additional Notes after issuance) are secured by a first-priority lien on the "Notes Priority Collateral," which consists of:
• All equipment owned by the Issuer and the Guarantors, including machinery, vehicles, furniture, and fixtures;
• All real property owned by the Issuer and the Guarantors, including owned manufacturing facilities, warehouses, and office space;
• All intellectual property owned by the Issuer and the Guarantors, including patents, trademarks, trade names, copyrights, and related licenses;
• All equity interests in the Issuer's subsidiaries held by the Issuer or any Guarantor.
The notes collateral agent's first-priority lien on the Notes Priority Collateral is granted pursuant to the security documents executed in connection with the original issuance of the Existing Notes on March 15, 2023, including a pledge agreement, security agreement, mortgage instruments, and related UCC financing statements. The Additional Notes will be secured by the same Notes Priority Collateral on a pari passu basis with the Existing Notes, without the need for new grants of security (other than supplemental filings that may be required in connection with the Kessler guarantor joinder — see Section IX.C below).
The notes have a subordinate lien on the ABL Priority Collateral, which is junior in right of payment to the ABL facility's first-priority lien on such collateral.
B. ABL Priority Collateral
The ABL Revolving Credit Facility is secured by a first-priority lien on the "ABL Priority Collateral," which consists of:
• All accounts receivable of the Issuer and the Guarantors;
• All inventory of the Issuer and the Guarantors;
• All deposit accounts of the Issuer and the Guarantors.
The ABL facility has a subordinate lien on the Notes Priority Collateral, which is junior in right of enforcement and payment to the notes' first-priority lien on such collateral.
C. Intercreditor Agreement
The relative rights and priorities of the holders of the Senior Secured Notes and the lenders under the ABL Revolving Credit Facility with respect to the collateral are governed by an Intercreditor Agreement dated March 15, 2023, entered into between Ridgeline Trust Company, N.A. (in its capacity as collateral agent for the note holders) and Lakefront National Bank (in its capacity as administrative agent for the ABL lenders).
The Intercreditor Agreement establishes a "split-collateral" lien structure under which each set of creditors has a first-priority lien on its own priority collateral and a subordinate lien on the other party's priority collateral. The Intercreditor Agreement also governs enforcement rights, including standstill periods, marshaling restrictions, and provisions addressing the application of proceeds from collateral following an enforcement event.
The add-on notes will be covered by the existing intercreditor arrangements because the Additional Notes constitute "Additional Notes" issued under the same Indenture and secured by the same collateral. No amendment to the Intercreditor Agreement is expected to be required in connection with the add-on offering. However, the Intercreditor Agreement should be reviewed to confirm this conclusion, as discussed in Section XIII below.
D. Guarantors
The Indenture is guaranteed on a senior secured basis by Nexford Parent Corp. (as parent guarantor) and by all of Nexford's existing domestic restricted subsidiaries (as subsidiary guarantors). The following nine entities are currently party to the Indenture as subsidiary guarantors:
1. Nexford Thermal Systems, LLC — a Delaware limited liability company
2. Nexford Fastener Group, Inc. — a Delaware corporation
3. Nexford Aerospace Components, Inc. — a Delaware corporation
4. Prairie Metal Works, LLC — an Illinois limited liability company
5. Great Lakes Precision, Inc. — a Michigan corporation
6. Nexford Defense Solutions, LLC — a Delaware limited liability company
7. Nexford Energy Products, Inc. — a Texas corporation
8. Veltrano Tool & Die, LLC — an Ohio limited liability company
9. Nexford International Holdings, Inc. — a Delaware corporation
Each subsidiary guarantor has granted liens on its assets to secure the notes obligations (to the extent such assets constitute Notes Priority Collateral) and subordinate liens on its ABL Priority Collateral.
Following the closing of the Kessler Acquisition, Kessler Precision Components, Inc. will be required to join the Indenture as an additional subsidiary guarantor within 30 days of the acquisition closing, pursuant to the after-acquired property covenant. Upon execution of the guarantor joinder, Kessler will become the tenth subsidiary guarantor, and its assets will be subject to the same split-collateral lien structure described above. The guarantor joinder process and related documentation requirements are discussed in Section IX.C below.
IX. Covenant Analysis Under the Existing Indenture
A. Fixed Charge Coverage Ratio Incurrence Test
The Indenture contains an incurrence-based financial test that restricts the ability of the Issuer and the restricted subsidiaries to incur additional indebtedness. Specifically, the Indenture requires that the Issuer maintain a minimum Fixed Charge Coverage Ratio ("FCCR") of 2.00 to 1.00 on a pro forma basis in order to incur additional indebtedness under the ratio basket.
The FCCR is defined in the Indenture as the ratio of (a) Consolidated Adjusted EBITDA (as defined in the Indenture, which permits the addition of projected run-rate cost savings and synergies that are reasonably identifiable and factually supportable) to (b) Consolidated Fixed Charges (generally consisting of consolidated interest expense, including interest on capital lease obligations, plus scheduled principal amortization payments, but excluding any bullet maturity payments).
The Additional Notes will be incurred pursuant to the ratio basket rather than the Permitted Indebtedness general basket. This is the appropriate basket for several reasons. First, the Permitted Indebtedness general basket (the greater of $75,000,000 and 12.5% of Total Assets) may be insufficient by itself to accommodate the full $150,000,000 add-on amount, particularly if portions of the general basket have already been utilized for other permitted purposes. Second, and more fundamentally, the Additional Notes are being issued under the same Indenture as pari passu obligations secured by the same collateral, and it is standard market practice for add-on taps to be incurred under the ratio basket to demonstrate ongoing compliance with the Indenture's financial framework.
Preliminary FCCR Calculation:
On a pro forma basis, giving effect to the add-on offering and the Kessler Acquisition, the combined Pro Forma Adjusted EBITDA is approximately $270,000,000. The pro forma fixed charges (consisting primarily of interest expense on $980,000,000 of total debt at a blended weighted average interest rate) must be calculated with precision based on the actual coupon rates and terms of each debt instrument. The preliminary calculation, based on our initial review of the Issuer's financial data, indicates that the FCCR will be satisfied with meaningful headroom above the 2.00x minimum. A detailed FCCR calculation, with supporting schedules and workpapers, will be set forth in the Compliance Certificate to be prepared for closing. The deal team should coordinate with Sandra Okafor (CFO) and David Altschuler (Treasurer) on the inputs to this calculation, including the specific EBITDA adjustments and the components of fixed charges.
B. Restricted Payments Basket
The Indenture contains a restricted payments covenant that limits the ability of the Issuer and the restricted subsidiaries to make dividends, distributions, equity repurchases, and certain other restricted payments. The restricted payments basket is set at the greater of $60,000,000 and 10% of Total Assets, plus a cumulative "builder" basket based on a percentage of cumulative Consolidated Net Income and other specified credits.
No restricted payment is being made in connection with the add-on notes offering or the Kessler Acquisition. The offering proceeds are being used to fund a permitted acquisition and for general corporate purposes, neither of which constitutes a restricted payment. Accordingly, the restricted payments basket analysis is not directly triggered by this transaction. However, as part of the general compliance check to be conducted in connection with the offering, the deal team should confirm the current available capacity under the restricted payments basket and verify that no restricted payment has been made since the last compliance review that would reduce available capacity below expected levels.
C. After-Acquired Property Covenant / Kessler Guarantor Joinder
The Indenture contains an after-acquired property covenant that requires any domestic restricted subsidiary that is newly acquired or formed by the Issuer to become a Guarantor under the Indenture, and to grant liens on its assets to secure the notes obligations, within 30 days of the date on which such subsidiary becomes a restricted subsidiary.
Since Kessler Precision Components, Inc. will become a wholly owned domestic restricted subsidiary of the Issuer upon the closing of the Kessler Acquisition (expected December 12, 2025), Kessler must execute a joinder agreement and become a Guarantor under the Indenture by approximately January 11, 2026 (30 days after the acquisition closing). Calderwood & Harkness will be responsible for preparing the following documents in connection with the Kessler guarantor joinder:
(a) Guarantor Joinder Agreement — pursuant to which Kessler joins the Indenture as a subsidiary guarantor and assumes all obligations of a Guarantor thereunder;
(b) Supplemental Security Agreement — granting the collateral agent a security interest in Kessler's assets constituting Notes Priority Collateral (equipment, real property, intellectual property, and equity interests in subsidiaries, if any);
(c) UCC Financing Statements — to be filed with the Ohio Secretary of State and any other applicable filing offices to perfect the security interest in Kessler's personal property collateral;
(d) IP Security Agreement Supplement — to the extent Kessler holds registered patents, trademarks, or copyrights, filings with the United States Patent and Trademark Office and the United States Copyright Office to perfect the security interest in such intellectual property; and
(e) Any additional collateral documents required under the terms of the Indenture or the Security Agreement, including landlord waivers, bailee letters, or deposit account control agreements as applicable.
Coordination with Hargrove & Tilson LLP (Harold Griswold, seller's counsel) and Archer, Dodd & Feinberg LLP (Philip Magnusson, sponsor counsel) will be necessary to ensure that the Kessler guarantor joinder is completed within the required 30-day period. The deal team should begin preparing draft joinder and security documents promptly so that they can be circulated for review and comment prior to the Kessler Acquisition closing.
D. Permitted Indebtedness General Basket
As noted above, the Permitted Indebtedness general basket under the Indenture permits the incurrence of additional indebtedness in an amount equal to the greater of $75,000,000 and 12.5% of Total Assets (as defined in the Indenture), without regard to the FCCR incurrence test. The Additional Notes are being incurred under the ratio basket rather than the general basket.
However, the deal team should confirm the currently available capacity under the general basket for informational purposes, as any ancillary indebtedness incurred in connection with or around the time of the add-on offering (such as incremental ABL commitments, capital lease obligations, or purchase money indebtedness related to the Kessler business) may need to rely on the general basket or other specific permitted indebtedness exceptions. The Compliance Certificate should include a schedule of general basket utilization.
E. Asset Sale Covenant
The Indenture contains an asset sale covenant that restricts the ability of the Issuer and the restricted subsidiaries to sell, transfer, or otherwise dispose of assets outside of the ordinary course of business. Proceeds from asset sales must be applied within a 365-day reinvestment period (with a 180-day extension for committed projects) to repay senior indebtedness, make capital expenditures, or acquire replacement assets. Any excess asset sale proceeds not reinvested within the applicable period must be applied to make an offer to repurchase the notes at par.
The asset sale covenant is not directly implicated by the add-on notes offering or the Kessler Acquisition, as neither involves a sale of assets by the Issuer or its restricted subsidiaries. However, the covenant is noted here for completeness as an ongoing obligation under the Indenture that should be monitored as part of the general compliance framework.
X. Fungibility Analysis
The Additional Notes will be issued under the existing Indenture as "Additional Notes" pursuant to the provisions of the Indenture that expressly permit the issuance of further notes in an unlimited aggregate principal amount, subject to compliance with the applicable incurrence covenants. The First Supplemental Indenture to be executed at closing will formally designate the Additional Notes as "Additional Notes" under the Indenture and will confirm that the Additional Notes constitute a single series with the Existing Notes for all purposes under the Indenture, including voting, acceleration, and enforcement.
During the period prior to fungibility — that is, during the 40-day Regulation S distribution compliance period — the Additional Notes will trade under temporary CUSIPs (65438T AB3 for Rule 144A and U65438 AB5 for Regulation S) that are separate from the CUSIPs assigned to the Existing Notes. The temporary CUSIPs are required by market convention and DTC procedures to distinguish the Additional Notes from the Existing Notes during the distribution compliance period, during which Regulation S notes may not be sold into the United States.
After the expiration of the 40-day distribution compliance period, which will occur on January 19, 2026 (assuming a closing date of December 10, 2025), the Additional Notes will become fully fungible with the Existing Notes. At that time, the temporary global notes representing the Additional Notes will be exchanged for interests in the existing global notes, the temporary CUSIPs will be retired, and the Additional Notes will thereafter trade under the Existing Notes CUSIPs (65438T AA5 for Rule 144A and U65438 AA7 for Regulation S) and the corresponding ISINs (US65438TAA51 and USU65438AA72).
Key Legal Issue — Identity of Terms: A critical prerequisite to achieving fungibility is that the terms of the Additional Notes must be identical in all respects to the terms of the Existing Notes. This includes, without limitation, the coupon rate (8.750%), the maturity date (March 15, 2030), the interest payment dates (March 15 and September 15), the optional and mandatory redemption provisions, all covenants and events of default, and the governing law. Any deviation between the terms of the Additional Notes and the Existing Notes — even a seemingly minor one — could create a separate series of notes that would be required to trade under separate CUSIPs permanently and would not be fungible with the Existing Notes. The deal team must carefully review the First Supplemental Indenture and the form of the Additional Notes to ensure complete identity of terms.
Tax Considerations — Original Issue discount / Premium: The Additional Notes may be issued with original issue discount ("OID") or original issue premium, depending on the issue price relative to par value and the adjusted issue price of the Existing Notes. At the expected issue price of 101.500%, the Additional Notes will be issued at a premium to par. Under applicable Treasury Regulations, the premium treatment of the Additional Notes and the tax consequences for holders must be analyzed by tax counsel. If the Additional Notes are treated as part of the same issue as the Existing Notes for federal income tax purposes, the OID or premium analysis may be affected by the adjusted issue price of the Existing Notes at the time of the add-on issuance. Tax counsel should confirm the appropriate treatment and any disclosure requirements for inclusion in the offering memorandum supplement.
XI. DTC Eligibility and Book-Entry Mechanics
The Additional Notes will be issued in book-entry form, represented by one or more global notes deposited with Ridgeline Trust Company, N.A., as trustee, acting as custodian for DTC. Beneficial interests in the Additional Notes will be recorded through the book-entry system maintained by DTC and its direct and indirect participants.
DTC is a New York-chartered limited purpose trust company that serves as a central securities depository and clearing organization for a wide range of securities traded in the United States and internationally. Beneficial owners of the Additional Notes will not receive physical certificates representing their notes; instead, ownership will be evidenced through book-entry credits recorded in the accounts of DTC participants.
International holders of the Additional Notes may hold beneficial interests through Stonefield Industries ("Thackeray Partners LLC") and Harborview Industries ("Ashgrove Enterprises"), each of which maintains a participant account with DTC. Transfers between Thackeray Partners LLC and Ashgrove Enterprises participants, on the one hand, and DTC participants, on the other hand, will be effected in accordance with DTC's standard procedures.
Continental Transfer Services, Inc. (17 Ashbury Asset Advisors, 30th Floor, New York, NY 10004) serves as transfer agent and registrar under the Indenture. Continental Transfer Services will maintain the register of holders of the notes and will process any transfers or exchanges of notes in accordance with the terms of the Indenture.
The following DTC-related items must be obtained as closing deliverables:
(a) DTC eligibility letter confirming that the Additional Notes are eligible for deposit with DTC and for book-entry transfer and settlement through the DTC system;
(b) CUSIP confirmations from CUSIP Global Services for the temporary CUSIPs assigned to the Additional Notes (65438T AB3 and U65438 AB5);
(c) Any other DTC documentation or certifications required by DTC or by the initial purchasers in connection with the settlement of the offering.
Upon fungibility after January 19, 2026, the temporary global notes representing the Additional Notes will be exchanged for interests in the existing global notes deposited with DTC, and the Additional Notes will thereafter be evidenced by increased balances in the existing global notes. The specific exchange mechanics will be coordinated with Ridgeline Trust Company, N.A. and Continental Transfer Services, Inc.
XII. Registration Rights and Exchange Offer
The existing Registration Rights Agreement, dated March 15, 2023, was entered into in connection with the original issuance of the Existing Notes and provides certain registration rights to the holders of the notes. Under the Registration Rights Agreement, the Issuer is obligated to file a registration statement with the Securities and Exchange Commission (the "SEC") for an exchange offer pursuant to which holders of the notes may exchange their unregistered notes for a new series of registered notes with identical terms, and to use commercially reasonable efforts to cause such registration statement to become effective within 365 days of the issuance of the notes.
For the Additional Notes to be issued on the expected closing date of December 10, 2025, the applicable registration effectiveness deadline will be December 10, 2026. If the Issuer fails to cause the exchange offer registration statement to become effective by this deadline, or if the exchange offer is not completed within the required time frame, additional interest will accrue on the notes at the rate specified in the Registration Rights Agreement (typically 0.25% per annum, with increases in increments of 0.25% per annum for each subsequent 90-day period during which the default continues, up to a maximum additional interest rate of 1.00% per annum).
Calderwood & Harkness will prepare a joinder or amendment to the Registration Rights Agreement to extend its coverage to the Additional Notes on the same terms and conditions applicable to the Existing Notes. This joinder or amendment will be executed at or prior to the closing of the offering and will constitute a closing deliverable. The deal team should calendar the December 10, 2026 deadline for exchange offer registration effectiveness and should ensure that the timeline for preparation and filing of the registration statement is factored into the post-closing work plan.
In the alternative, if the Issuer determines that an exchange offer is not available (for example, due to the applicability of certain SEC staff positions regarding exchange offers by non-reporting issuers), the Registration Rights Agreement typically provides a shelf registration alternative. Under this alternative, the Issuer would be required to file a shelf registration statement covering resales of the notes by holders and to use commercially reasonable efforts to cause such shelf registration statement to become effective within the specified time frame. The deal team should review the Registration Rights Agreement to confirm the availability and terms of the shelf registration alternative.
XIII. Intercreditor Agreement Considerations
The Intercreditor Agreement dated March 15, 2023, between Ridgeline Trust Company, N.A. (in its capacity as collateral agent for the note holders) and Lakefront National Bank (in its capacity as administrative agent for the ABL lenders) governs the relative rights and priorities of the secured note holders and the ABL lenders with respect to the collateral securing the Issuer's obligations.
The following details regarding the ABL Revolving Credit Facility are relevant to the intercreditor analysis:
• Commitment: $200,000,000 revolving credit commitment
• Agent: Lakefront National Bank, headquartered at 231 South LaSalle Street, Chicago, IL 60604
• Maturity: September 15, 2027
• Outstanding Borrowings (as of September 30, 2025): ~$45,000,000
• Letters of Credit Outstanding: ~$8,200,000
• Available Commitment: ~$146,800,000
The deal team should review the Intercreditor Agreement to confirm the following points in connection with the add-on offering: