UNANIMOUS WRITTEN CONSENT OF THE BOARD OF DIRECTORS OF NEXFORD INDUSTRIAL HOLDINGS INC.
IN LIEU OF A SPECIAL MEETING
June 22, 2022
The undersigned, being all of the members of the Board of Directors (the "Board") of Nexford Industrial Holdings Inc., a Delaware corporation (the "Company" or "Nexford"), acting pursuant to Section 141(f) of the General Corporation Law of the State of Delaware (the "DGCL") and Article III, Section 3.9 of the Amended and Restated Bylaws of the Company (the "Bylaws"), which provisions permit the Board to take action without a meeting if all members of the Board consent thereto in writing, hereby adopt the following recitals and resolutions by unanimous written consent, effective as of the date first written above, in lieu of a special meeting of the Board duly called and held for such purposes:
RECITALS
WHEREAS, the Company is a corporation duly organized, validly existing, and in good standing under the laws of the State of Delaware, with its principal executive office located at 2200 Corporate Center Drive, Suite 800, Schaumburg, Illinois 60173, and the Company operates as a diversified industrial platform through three wholly-owned operating subsidiaries: (i) Nexford Conveyor Systems, LLC, a Delaware limited liability company engaged in the design, manufacture, and distribution of industrial conveyor systems and related components; (ii) Triton Fastener Corp., an Illinois corporation engaged in the manufacture and sale of specialty industrial fasteners and related hardware products; and (iii) Marlowe Asset Management Precision Machining, Inc., an Ohio corporation engaged in precision CNC machining and engineered component manufacturing (collectively, the "Subsidiaries," and together with the Company, the "Nexford Group"); and
WHEREAS, the Company's consolidated revenue for the fiscal year ended December 31, 2021 ("FY2021") was approximately One Billion Four Hundred Twenty Million Dollars ($1,420,000,000), and the Company's estimated current enterprise value, based on the most recent third-party valuation conducted in connection with the Company's annual equity incentive plan administration, is approximately Two Billion Six Hundred Million Dollars ($2,600,000,000); and
WHEREAS, approximately sixty-eight and one-half percent (68.5%) of the outstanding equity interests of the Company are held by Veltrano Capital Partners Fund IV, LP, a Delaware limited partnership (the "Sponsor" or "Veltrano"); approximately nineteen and three-tenths percent (19.3%) of the outstanding equity interests are held by certain members of the Company's management team who participated in equity rollovers at the time of the Sponsor's acquisition (collectively, the "Management Rollover Participants"); and the remaining twelve and two-tenths percent (12.2%) of the outstanding equity interests are held by certain co-investment vehicles and individual co-investors (collectively, the "Co-Investors"); and
WHEREAS, the Board currently consists of nine (9) duly elected or appointed directors, of whom five (5) have been designated by the Sponsor pursuant to the terms of the Stockholders Agreement, dated as of March 15, 2019, by and among the Company, the Sponsor, and the other parties thereto (the "Stockholders Agreement"), and four (4) are independent directors within the meaning of applicable corporate governance standards; and Gerald "Gerry" Whitcomb serves as Chairman of the Board in accordance with the Bylaws; and
WHEREAS, the Company maintains a directors and officers liability insurance program (the "D&O Tower") providing an aggregate limit of liability of Fifty-Five Million Dollars ($55,000,000), structured across multiple layers of coverage including a primary policy, excess follow-form policies, and a dedicated Side-A difference-in-conditions ("Side-A DIC") policy, for the benefit of the Company's directors, officers, and, where applicable, the Company as an entity; and
WHEREAS, the Company also maintains a product-liability and commercial general liability insurance program (the "PL Tower") providing an aggregate limit of liability of Seventy-Five Million Dollars ($75,000,000), structured across a primary general liability/product liability policy, an excess umbrella policy, and additional excess layers, for the benefit of the Nexford Group; and
WHEREAS, the current policy period for both the D&O Tower and the PL Tower commenced on July 1, 2021 and is scheduled to expire at 12:01 a.m. Eastern Time on July 1, 2022 (the "Current Policy Expiration Date"), thereby requiring the Company to take timely action to effect renewal of both insurance towers in advance of the Current Policy Expiration Date in order to avoid any lapse or gap in coverage; and
WHEREAS, in anticipation of the 2022-2023 renewal cycle, the Company engaged the law firm of Calderwood & Harkness LLP ("C&H") under Matter No. 1005-00003, with Douglas Fairchild, Esq. serving as the responsible partner and primary contact, to conduct a comprehensive legal review of both the D&O Tower and the PL Tower, including an assessment of existing coverage terms and conditions, identification of potential coverage gaps or deficiencies, analysis of renewal proposals received from the insurance market, and preparation of negotiation recommendations for the renewal cycle; and
WHEREAS, C&H delivered a preliminary coverage gap memorandum to the Company's General Counsel on May 27, 2022, identifying certain coverage deficiencies and areas of concern across both insurance towers, and subsequently delivered comprehensive tower review reports for both the D&O program and the product-liability program on June 17, 2022, which reports have been made available to all members of the Board; and
WHEREAS, Ashford Breckinridge LLP ("Ashford Breckinridge"), the Company's insurance broker of record, circulated broker marketing submissions to the insurance market on May 3, 2022, soliciting renewal quotes and competitive proposals from incumbent carriers and prospective replacement carriers for both the D&O Tower and the PL Tower; and carrier renewal quotes were received between May 18, 2022 and June 8, 2022, representing a comprehensive canvass of the available market for each layer of coverage; and
WHEREAS, C&H prepared carrier quote comparison matrices for both the D&O Tower and the PL Tower (the "Carrier Comparison Matrices"), dated June 10, 2022, summarizing the key terms, conditions, limits, retentions, exclusions, and premiums offered by each responding carrier, as well as a renewal negotiation points memorandum dated June 13, 2022 (the "Negotiation Points Memo"), setting forth eighteen (18) prioritized policy wording improvements — ten (10) pertaining to the D&O Tower and eight (8) pertaining to the PL Tower — recommended by C&H for negotiation with the respective carriers during the binding and policy issuance process; and
WHEREAS, based upon C&H's analysis and recommendations, and after due consideration of the Company's risk profile, capitalization structure, sponsor control dynamics, potential initial public offering timeline in the 2023-2024 timeframe, and current market conditions, C&H recommended, and the Company concurs, that the dedicated Side-A DIC policy limit be increased from Fifteen Million Dollars ($15,000,000) to Twenty Million Dollars ($20,000,000) in order to provide enhanced personal asset protection for the Company's directors and officers in circumstances where entity-level indemnification may be unavailable or impaired, particularly in light of the concentrated equity ownership structure, the Sponsor's control position, and the heightened D&O exposure that may accompany a potential public offering process; and
WHEREAS, C&H further recommended, and the Company concurs, that the product recall sub-limit contained in the primary commercial general liability/product liability policy be increased from Two Million Five Hundred Thousand Dollars ($2,500,000) per occurrence with a Five Million Dollar ($5,000,000) aggregate to Five Million Dollars ($5,000,000) per occurrence with a Ten Million Dollar ($10,000,000) aggregate, in light of the Company's historical recall-related costs — including approximately One Million One Hundred Thousand Dollars ($1,100,000) incurred in connection with the Triton Fastener Corp. voluntary recall in March 2020 and approximately Three Hundred Forty Thousand Dollars ($340,000) incurred in connection with the Nexford Conveyor Systems, LLC advisory notice in August 2020 — as well as industry benchmarking data and the potential severity of a future recall event given the Company's expanded product lines and customer base; and
WHEREAS, the Board has reviewed the board presentation memorandum dated June 22, 2022 (the "Board Presentation Memo"), prepared by the Company's General Counsel in consultation with C&H and Ashford Breckinridge, which memorandum summarizes the proposed renewal terms for both the D&O Tower and the PL Tower for the policy period July 1, 2022 through July 1, 2023 (the "Renewal Period"), including carrier selections, coverage limits, retentions, key policy terms, and premium amounts, a copy of which is attached hereto as Exhibit A; and
WHEREAS, the proposed D&O Tower renewal terms provide for an aggregate limit of Fifty-Five Million Dollars ($55,000,000) across the following layers:
(a) Primary Layer: Vandermeer National Insurance Company, providing a limit of Ten Million Dollars ($10,000,000) per claim and in the aggregate, on a claims-made basis, subject to entity coverage self-insured retention of One Million Dollars ($1,000,000);
(b) First Excess Layer: Commonwealth Indemnity Group, providing a limit of Ten Million Dollars ($10,000,000) in excess of Ten Million Dollars ($10,000,000), follow-form to the primary policy;
(c) Second Excess Layer: Northfield Excess Insurance Company (replacing Graystone Mutual Assurance Co. as the incumbent carrier on this layer), providing a limit of Ten Million Dollars ($10,000,000) in excess of Twenty Million Dollars ($20,000,000), at an annual premium of Two Hundred Twenty-One Thousand Dollars ($221,000);
(d) Third Excess Layer: Pinnacle Re Insurance Ltd., providing a limit of Ten Million Dollars ($10,000,000) in excess of Thirty Million Dollars ($30,000,000), follow-form to the primary policy with standard excess layer modifications; and
(e) Side-A DIC Policy: Harrington Specialty Insurance Co., providing a dedicated limit of Twenty Million Dollars ($20,000,000) (increased from Fifteen Million Dollars ($15,000,000) in the expiring program), with no self-insured retention, at an annual premium of Two Hundred Eighty-Nine Thousand Five Hundred Dollars ($289,500);
and the total annual renewal premium for the D&O Tower is One Million Four Hundred Ninety-Eight Thousand Two Hundred Dollars ($1,498,200), representing an increase of One Hundred Thirty-Four Thousand Seven Hundred Fifty Dollars ($134,750), or approximately nine and eighty-eight hundredths percent (9.88%), over the prior year D&O Tower premium of One Million Three Hundred Sixty-Three Thousand Four Hundred Fifty Dollars ($1,363,450); and entity coverage under the D&O Tower is subject to a self-insured retention of One Million Dollars ($1,000,000), and the Side-A DIC policy carries no self-insured retention; and
WHEREAS, the proposed PL Tower renewal terms provide for an aggregate limit of Seventy-Five Million Dollars ($75,000,000) across the following layers:
(a) Primary GL/PL Layer: Midland Casualty & Surety Company, providing a limit of Five Million Dollars ($5,000,000) per occurrence and Ten Million Dollars ($10,000,000) in the aggregate, with a product recall sub-limit increased to Five Million Dollars ($5,000,000) per occurrence and Ten Million Dollars ($10,000,000) in the aggregate (the increase in the product recall sub-limit resulting in an incremental premium of Sixty-Seven Thousand Dollars ($67,000)), subject to a self-insured retention of Five Hundred Thousand Dollars ($500,000) per occurrence;
(b) First Excess / Umbrella Layer: Great Basin Insurance Company, providing a limit of Twenty-Five Million Dollars ($25,000,000) in excess of Ten Million Dollars ($10,000,000);
(c) Second Excess Layer: Cornerstone Reinsurance Corp., providing a limit of Twenty-Five Million Dollars ($25,000,000) in excess of Thirty-Five Million Dollars ($35,000,000); and
(d) Third Excess Layer: Allegheny Pacific Underwriters, Inc., providing a limit of Fifteen Million Dollars ($15,000,000) in excess of Sixty Million Dollars ($60,000,000);
and the total annual renewal premium for the PL Tower is Two Million Nine Hundred Eighty-Five Thousand Five Hundred Dollars ($2,985,500), representing an increase of Three Hundred Forty-Two Thousand Six Hundred Dollars ($342,600), or approximately twelve and ninety-six hundredths percent (12.96%), over the prior year PL Tower premium of Two Million Six Hundred Forty-Two Thousand Nine Hundred Dollars ($2,642,900); and
WHEREAS, the combined annual renewal premium for the D&O Tower and the PL Tower is Four Million Four Hundred Eighty-Three Thousand Seven Hundred Dollars ($4,483,700), representing an increase of Four Hundred Seventy-Seven Thousand Three Hundred Fifty Dollars ($477,350), or approximately eleven and ninety-one hundredths percent (11.91%), over the prior year combined premium of Four Million Six Thousand Three Hundred Fifty Dollars ($4,006,350); and such combined renewal premium represents approximately twenty-eight hundredths of one percent (0.282%) of the Company's FY2021 consolidated annual revenue of approximately One Billion Four Hundred Twenty Million Dollars ($1,420,000,000); and
WHEREAS, the Board is aware that two product-liability claims are currently pending against members of the Nexford Group: (i) Higgins v. Nexford Conveyor Systems, LLC et al., Case No. 2021-L-04382, pending in the Circuit Court of Will County, Illinois, in which the plaintiff seeks damages of approximately Fourteen Million Five Hundred Thousand Dollars ($14,500,000) in connection with alleged product defects in a conveyor system installation; and (ii) Consolidated Builders Supply Co. v. Triton Fastener Corp., Case No. 1:21-cv-08914, pending in the United States District Court for the Northern District of Illinois, in which the plaintiff seeks damages of approximately Six Million Eight Hundred Thousand Dollars ($6,800,000) in connection with alleged defects in specialty fastener products; and total open product-liability loss reserves established by the Company in respect of these pending claims are Eight Million Three Hundred Thousand Dollars ($8,300,000); and C&H has analyzed the treatment of these pending claims under the proposed renewal terms, including the applicability of prior-acts coverage, the effect of the self-insured retention, and the potential allocation of losses across the PL Tower layers, and has confirmed that the proposed renewal terms provide continuity of coverage for these pending matters; and
WHEREAS, the proposed renewal effective date of July 1, 2022 is imminent, and it is necessary and appropriate for the Board to authorize the binding of both insurance towers in advance of that date to ensure uninterrupted coverage for the Nexford Group, its directors, and its officers;
RESOLUTIONS
NOW, THEREFORE, BE IT RESOLVED, that each of Sandra Elliston, in her capacity as Chief Executive Officer of the Company, and Priya Sundaram, in her capacity as General Counsel and Corporate Secretary of the Company (each, an "Authorized Officer" and collectively, the "Authorized Officers"), is hereby authorized, empowered, and directed, acting individually or together, and without the need for further action or approval by the Board, to bind the renewal of the Company's D&O Tower and the Company's PL Tower for the Renewal Period (July 1, 2022 through July 1, 2023), on terms and conditions substantially as presented to the Board in the Board Presentation Memo and as summarized in the recitals set forth above.
RESOLVED FURTHER, that the combined annual premium payable by the Company for the D&O Tower and the PL Tower during the Renewal Period shall not exceed Four Million Six Hundred Thousand Dollars ($4,600,000) in the aggregate (the "Premium Cap") without further approval of the Board; it being noted that the anticipated combined annual renewal premium is Four Million Four Hundred Eighty-Three Thousand Seven Hundred Dollars ($4,483,700), which amount is within the Premium Cap; and in the event that final premium amounts, after application of any adjustments, surcharges, taxes, or fees, would cause the combined premium to exceed the Premium Cap, the Authorized Officers shall promptly notify the Board and seek supplemental authorization before committing to such excess amounts.
RESOLVED FURTHER, that the Authorized Officers are hereby authorized to bind the D&O Tower at an aggregate limit of Fifty-Five Million Dollars ($55,000,000) with the carriers and on the terms and conditions set forth in the recitals above, including without limitation: (i) the replacement of Graystone Mutual Assurance Co. by Northfield Excess Insurance Company on the second excess layer of the D&O Tower; and (ii) the increase of the dedicated Side-A DIC policy limit from Fifteen Million Dollars ($15,000,000) to Twenty Million Dollars ($20,000,000) with Harrington Specialty Insurance Co.; at a total D&O Tower premium not to exceed One Million Four Hundred Ninety-Eight Thousand Two Hundred Dollars ($1,498,200).
RESOLVED FURTHER, that the Authorized Officers are hereby authorized to bind the PL Tower at an aggregate limit of Seventy-Five Million Dollars ($75,000,000) with the carriers and on the terms and conditions set forth in the recitals above, including without limitation the increase of the product recall sub-limit under the primary GL/PL policy issued by Midland Casualty & Surety Company to Five Million Dollars ($5,000,000) per occurrence and Ten Million Dollars ($10,000,000) in the aggregate; at a total PL Tower premium not to exceed Two Million Nine Hundred Eighty-Five Thousand Five Hundred Dollars ($2,985,500).
RESOLVED FURTHER, that the Authorized Officers are hereby authorized and directed to instruct and direct Ashford Breckinridge LLP, as the Company's broker of record, to bind coverage with each of the carriers identified in the recitals above on behalf of the Company and each of its Subsidiaries — Nexford Conveyor Systems, LLC, Triton Fastener Corp., and Marlowe Asset Management Precision Machining, Inc. — as Named Insureds under the respective policies constituting the D&O Tower and the PL Tower, and to take all actions necessary to ensure that binder confirmations are issued by each carrier on or before the Current Policy Expiration Date of July 1, 2022.
RESOLVED FURTHER, that each Authorized Officer is hereby authorized, empowered, and directed to execute and deliver, on behalf of the Company and its Subsidiaries, any and all binders, insurance applications, policy acknowledgments, warranty statements, premium finance agreements, broker-of-record letters, and any other documents, instruments, certificates, or agreements as may be necessary, appropriate, or desirable to effectuate the foregoing resolutions and to secure the issuance of the renewal policies on the terms and conditions approved hereby.
RESOLVED FURTHER, that the Authorized Officers are hereby authorized to negotiate final policy wording with the respective carriers through and in coordination with Ashford Breckinridge LLP, consistent with the eighteen (18) prioritized renewal negotiation points identified by C&H in the Negotiation Points Memo dated June 13, 2022 (attached hereto as Exhibit C), and to accept such final policy wording on behalf of the Company and its Subsidiaries; provided, however, that the Authorized Officers shall use commercially reasonable efforts to secure the policy wording improvements set forth in the Negotiation Points Memo, and shall promptly advise the Board if any carrier declines to accept any negotiation point that C&H has identified as being of critical importance.
RESOLVED FURTHER, that any and all actions heretofore taken by any officer, director, or authorized representative of the Company or any of its Subsidiaries in connection with the matters contemplated by these resolutions, including without limitation the engagement of C&H, the engagement of Ashford Breckinridge as broker of record, the submission of marketing materials to the insurance market, the solicitation and receipt of carrier quotes, and all negotiations and communications with carriers, brokers, and advisors relating to the 2022-2023 insurance renewal cycle, are hereby ratified, confirmed, and approved in all respects as the acts and deeds of the Company.
RESOLVED FURTHER, that each Authorized Officer is further authorized, empowered, and directed to take any and all such further actions and to execute, deliver, and file any and all such further documents, instruments, agreements, certificates, and filings as such Authorized Officer may deem necessary, appropriate, or advisable to carry out the intent and purposes of the foregoing resolutions, with the execution by such Authorized Officer of any such document or the taking of any such action being conclusive evidence of such Authorized Officer's determination that such document or action is necessary, appropriate, or advisable and of such Authorized Officer's authority to execute, deliver, or take the same on behalf of the Company and its Subsidiaries.
CONSENT AND EXECUTION
This Unanimous Written Consent shall be effective as of June 22, 2022 (the "Effective Date"). This Consent may be executed in one or more counterparts, including by facsimile or electronic signature (including PDF transmitted via electronic mail), each of which shall be deemed an original and all of which, taken together, shall constitute one and the same instrument. This Consent shall be filed with the minutes of the proceedings of the Board of Directors of the Company and shall have the same force and effect as a unanimous vote of the Board at a duly called and held special meeting.
IN WITNESS WHEREOF, each of the undersigned directors of Nexford Industrial Holdings Inc. has executed this Unanimous Written Consent as of the Effective Date.
________________________________________
Gerald "Gerry" Whitcomb Chairman of the Board (Sponsor-Appointed Director)
Date: ________
________________________________________
Sandra Elliston Director; Chief Executive Officer (Sponsor-Appointed Director)
Date: ________
________________________________________
Richard A. Thornburg Director (Sponsor-Appointed Director)
Date: ________
________________________________________
Catherine M. Reeves Director (Sponsor-Appointed Director)
Date: ________
________________________________________
Jonathan P. Hartwell Director (Sponsor-Appointed Director)
Date: ________
________________________________________
Margaret Liu Chen Independent Director
Date: ________
________________________________________
David R. Okonkwo Independent Director
Date: ________
________________________________________
Patricia S. Vandenberg Independent Director
Date: ________
________________________________________
Robert J. Castellano Independent Director
Date: ________
EXHIBITS
The following exhibits are attached to and incorporated by reference into this Unanimous Written Consent:
Exhibit A — Board Presentation Memorandum: Insurance Tower Review Summary, dated June 22, 2022, prepared by the Office of the General Counsel of Nexford Industrial Holdings Inc. in consultation with Calderwood & Harkness LLP and Ashford Breckinridge LLP.
Exhibit B — Carrier Quote Comparison Matrices (D&O Tower and PL Tower), dated June 10, 2022, prepared by Calderwood & Harkness LLP, Matter No. 1005-00003.
Exhibit C — Renewal Negotiation Points Memorandum, dated June 13, 2022, prepared by Calderwood & Harkness LLP, Matter No. 1005-00003, identifying eighteen (18) prioritized policy wording improvements (ten (10) for the D&O Tower and eight (8) for the PL Tower).
Form of resolution prepared by Calderwood & Harkness LLP for consideration and adoption by the Board of Directors of Nexford Industrial Holdings Inc.