1005-00003 · Calderwood & Harkness LLP · Board & Governance

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PRIVILEGED AND CONFIDENTIAL — ATTORNEY-CLIENT COMMUNICATION

MEMORANDUM

FROM: Naomi Petersen, Lead Associate Calderwood & Harkness LLP 155 North Wacker Drive, Suite 4200 Chicago, IL 60606

TO: Douglas Fairchild, Responsible Partner Calderwood & Harkness LLP

CC: Angela Fontaine, Billing Partner, Calderwood & Harkness LLP Yuki Nakamura, Working Associate, Calderwood & Harkness LLP

DATE: June 4, 2022

RE: Nexford Industrial Holdings Inc. — Review of Form Director and Officer Indemnification Agreements for Consistency with D&O Insurance Tower Structure

MATTER NO.: 1005-00003

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I. Purpose and Scope of Review

This memorandum was prepared in connection with Calderwood & Harkness LLP's comprehensive review of Nexford Industrial Holdings Inc.'s ("Nexford" or the "Company") Directors & Officers ("D&O") liability insurance tower and product-liability insurance tower for the 2022–2023 renewal cycle. The renewal effective date is July 1, 2022. The engagement encompasses a holistic assessment of the Company's director and officer protection framework to ensure that all elements of that framework are properly coordinated and that no gaps exist that could leave individual directors or officers exposed to uninsured or unindemnified personal liability.

The specific focus of this memorandum is the review of Nexford's form director and officer indemnification agreement (the "Form Indemnification Agreement") for consistency with the D&O tower structure. Particular attention has been paid to the coordination between the Form Indemnification Agreement and the Side-A Difference-in-Conditions ("DIC") policy issued by Harrington Specialty Insurance Co. (Policy No. HSI-DIC-2021-00342) (the "Harrington DIC Policy"), which serves as the dedicated excess layer of coverage for non-indemnifiable losses incurred by individual directors and officers.

The Form Indemnification Agreement is entered into between Nexford Industrial Holdings Inc., a Delaware corporation headquartered at 2200 Corporate Center Drive, Suite 800, Schaumburg, Illinois 60173, and each of its nine directors. The Board of Directors comprises four independent directors and five sponsor-appointed directors, with Gerald "Gerry" Whitcomb serving as Chairman of the Board. Each director has executed a substantially identical indemnification agreement based on the form document reviewed herein.

This review was requested by Priya Sundaram, General Counsel and Corporate Secretary of Nexford. Ms. Sundaram specifically asked that we analyze whether the indemnification agreements, which were originally adopted at the closing of the Company's leveraged buyout in June 2018, remain properly coordinated with the D&O insurance tower as currently structured and as proposed for the 2022–2023 policy year.

This analysis complements two prior memoranda previously delivered to Ms. Sundaram and the broader engagement team: (1) the Side-A DIC Policy Analysis Memorandum dated June 3, 2022, which provides a detailed coverage analysis of the Harrington DIC Policy and identifies certain limitations and exclusions requiring attention at renewal; and (2) the Preliminary Coverage Gap Memorandum — D&O Tower dated May 27, 2022, which maps the full D&O tower and identifies potential inter-policy gaps among the primary, excess, and DIC layers. This memorandum should be read in conjunction with those prior deliverables, and certain cross-references are made throughout.

II. Background

A. Nexford Corporate Structure and Governance

Nexford Industrial Holdings Inc. is incorporated in the State of Delaware and maintains its principal executive offices at 2200 Corporate Center Drive, Suite 800, Schaumburg, Illinois 60173. The Company serves as the holding company for three operating subsidiaries engaged in the industrial manufacturing sector.

Nexford is majority-owned (68.5%) by Veltrano Capital Partners Fund IV, LP, a Delaware limited partnership. Veltrano Capital Partners Fund IV is a 2017-vintage fund with approximately $4.8 billion in committed capital. Veltrano acquired Nexford in a leveraged buyout that closed on June 15, 2018, at an enterprise value of approximately $2.1 billion. The acquisition was structured as a reverse triangular merger through a special purpose acquisition vehicle formed for the transaction. The remaining equity in Nexford is held by management rollover participants (19.3%), who reinvested a portion of their pre-acquisition equity alongside the sponsor, and co-investors (12.2%), including several institutional limited partners in Fund IV who elected to participate through a co-investment vehicle.

The Company's Board of Directors consists of nine members. Five directors are appointed by Veltrano Capital Partners pursuant to the terms of the Stockholders' Agreement, which grants Veltrano the right to designate a majority of the board so long as it holds at least 50% of the Company's outstanding equity. Four directors serve as independent directors and were recruited to the board through a search process coordinated between Veltrano and the Company's then-incoming Chief Executive Officer. In addition to the nine voting directors, Celeste Brogan of Veltrano Capital Partners serves as a board observer with customary rights to attend meetings and receive information, but without voting rights.

This governance dynamic — in which the private equity sponsor controls a majority of board seats — creates a heightened importance of individual director protections, and in particular, Side-A D&O coverage and robust indemnification agreements. Independent directors serving on PE-controlled boards face a distinct risk profile: they may be asked to exercise independent judgment on transactions where the sponsor has a controlling interest and potentially conflicting economic incentives. In such circumstances, the Company's willingness and ability to indemnify may itself be subject to sponsor influence, making contractual indemnification rights and independent Side-A insurance coverage essential features of the director protection framework.

Nexford operates through three wholly owned operating subsidiaries:

(a) Nexford Conveyor Systems, LLC, a Delaware limited liability company with manufacturing operations in Joliet, Illinois, which designs and manufactures conveyor and material handling systems for industrial and logistics applications;

(b) Triton Fastener Corp., an Illinois corporation headquartered in Rockford, Illinois, which manufactures precision fasteners, specialty bolts, and related hardware for aerospace, automotive, and heavy equipment applications; and

(c) Marlowe Asset Management Precision Machining, Inc., an Ohio corporation headquartered in Akron, Ohio, which provides CNC precision machining, metal stamping, and fabrication services for the defense, energy, and industrial equipment sectors.

For its fiscal year ended December 31, 2021, Nexford reported consolidated revenue of approximately $1.42 billion and consolidated EBITDA of approximately $218 million. The Company's capital structure includes total funded debt of approximately $1.05 billion, consisting of a Term Loan B facility and a Revolving Credit Facility, in each case with Broadleaf Capital Markets, LLC serving as administrative agent. Based on the Company's current financial performance and prevailing market multiples for comparable industrial manufacturing businesses, the Company's estimated current enterprise value is approximately $2.6 billion.

Of particular relevance to this engagement, Veltrano Capital Partners and Nexford management have indicated that a potential initial public offering is being contemplated in the 2023–2024 timeframe. An IPO would significantly alter the Company's D&O risk profile by introducing securities class action exposure, Section 11 and Section 12 liability, heightened regulatory scrutiny from the Securities and Exchange Commission, and increased derivative litigation risk. As discussed further in Section VI.E below, the prospect of an IPO warrants forward planning with respect to the Company's indemnification framework and D&O insurance program.

B. Summary of D&O Insurance Tower (2021–2022 Policy Year)

The Company's current D&O insurance tower for the 2021–2022 policy year (July 1, 2021 through July 1, 2022) consists of four layers of traditional D&O liability coverage plus a dedicated Side-A DIC policy. The tower structure is summarized below:

The total D&O tower provides $55 million in aggregate coverage across all layers. Total annual premium for the tower is $1,363,450, representing a blended rate-on-line of approximately 2.48%. This rate-on-line is within the market range for PE-backed industrials of comparable size and risk profile, though slightly elevated relative to pre-pandemic levels, reflecting the general hardening of the D&O insurance market that began in 2019.

The Company's five-year D&O loss history is favorable. Only one claim has been reported during this period: a shareholder demand letter received in 2020 relating to allegations of inadequate board oversight of supply chain disruptions. The matter was reported to Vandermeer as a potential claim and was ultimately resolved without any payment by the Company or the insurer. There are zero paid losses across the entire tower.

As noted in our Side-A DIC Policy Analysis Memorandum dated June 3, 2022, we are recommending that the Harrington Side-A DIC limit be increased from $15 million to $20 million at the July 1, 2022 renewal. This recommendation is based on several factors, including the Company's growing enterprise value, the anticipated increase in regulatory exposure associated with potential IPO preparations, and the relatively modest incremental premium required for additional DIC limits in the current market.

C. Role of the Form Indemnification Agreement

The protection framework for directors and officers of a Delaware corporation such as Nexford typically consists of three complementary tiers, each of which is designed to work in concert with the others to provide seamless protection against personal liability arising from service in a directorial or officer capacity:

Tier 1 — Corporate Indemnification (Bylaws and Indemnification Agreements). The first tier is the Company's own obligation to indemnify its directors and officers against losses and expenses arising from their service to the Company. This obligation may derive from the Company's bylaws, from individual contractual indemnification agreements, or both. Under the Delaware General Corporation Law, a corporation is permitted — and in certain circumstances required — to indemnify its directors and officers against expenses (including attorneys' fees), judgments, fines, and amounts paid in settlement in connection with proceedings arising from their service to the corporation. Individual indemnification agreements provide contractual certainty beyond what the bylaws alone can offer, as they create enforceable contractual rights that survive subsequent bylaw amendments.

Tier 2 — D&O Insurance (Tower). The second tier is the Company's D&O liability insurance program, which provides coverage for losses arising from claims made against directors and officers. Traditional D&O policies cover three categories of insured loss: Side-A coverage for non-indemnifiable loss (i.e., losses where the Company cannot or will not indemnify); Side-B coverage for indemnifiable loss (i.e., reimbursement to the Company for indemnification payments made to directors and officers); and Side-C or entity coverage for certain claims against the entity itself, typically limited to securities claims. The D&O tower protects the Company's balance sheet (through Side-B and Side-C coverage) and protects individual directors and officers (through Side-A coverage) against losses exceeding the Company's indemnification obligations.

Tier 3 — Side-A DIC Insurance (Gap-Filler). The third tier is the Side-A DIC policy, which provides a dedicated, excess layer of coverage exclusively for the benefit of individual directors and officers. The DIC policy is designed to respond when the underlying D&O insurance tower fails to pay for a covered loss due to insurer insolvency, coverage disputes, or other specified triggering events. Critically, the DIC policy also responds when the Company itself is unable or unwilling to indemnify — for example, due to the Company's insolvency, a decision by the Board to deny indemnification, or a legal prohibition on indemnification. The DIC policy is sometimes referred to as a "sleep at night" policy for directors, because it provides a layer of protection that is independent of both the Company's financial condition and the responsiveness of the underlying D&O tower.

The Form Indemnification Agreement under review sits within Tier 1 of this framework. It provides contractual indemnification rights that are intended to be coextensive with the maximum indemnification permitted under the DGCL and broader than the minimum indemnification required by statute. As a contractual commitment, the Form Indemnification Agreement provides individual directors with enforceable rights that cannot be diminished by a subsequent amendment to the Company's bylaws or certificate of incorporation — an important protection in the PE context, where sponsor-driven corporate governance changes are not uncommon.

For a PE-controlled portfolio company such as Nexford, indemnification agreements serve particularly important governance and director recruitment functions. Independent directors who agree to serve on the boards of sponsor-controlled companies often negotiate for robust indemnification protections as a condition of their service, recognizing that the sponsor's control over the board and the Company's financial resources creates a dynamic in which the Company's willingness to indemnify cannot be taken for granted in all scenarios.

Proper coordination between indemnification agreement terms and D&O policy terms is essential to avoid gaps in the director protection framework. Specifically, it is critical that the triggering definitions, procedural requirements, and scope of coverage under the indemnification agreement are consistent with — and, where possible, broader than — the corresponding provisions of the D&O insurance policies. A misalignment between these instruments can create a scenario in which a director reasonably believes they are protected but neither the Company's indemnification obligation nor the insurance policy responds, leaving the director personally exposed. The analysis in this memorandum is directed at identifying and remedying any such misalignments.

III. Documents Reviewed

In connection with the preparation of this memorandum, we reviewed the following documents:

1. Nexford Industrial Holdings Inc. Form Director and Officer Indemnification Agreement (undated form, believed adopted in connection with the leveraged buyout closing on June 15, 2018) (the "Form Indemnification Agreement").

2. Amended and Restated Bylaws of Nexford Industrial Holdings Inc. (as amended through December 10, 2020).

3. Amended and Restated Certificate of Incorporation of Nexford Industrial Holdings Inc. (filed with the Delaware Secretary of State on June 15, 2018, as amended through the date hereof).

4. Vandermeer National Insurance Company Directors & Officers Liability Insurance Policy, Policy No. VNI-DO-2021-88473, effective July 1, 2021 through July 1, 2022 (the "Vandermeer Primary Policy").

5. Harrington Specialty Insurance Co. Side-A Difference-in-Conditions Directors & Officers Liability Insurance Policy, Policy No. HSI-DIC-2021-00342, effective July 1, 2021 through July 1, 2022 (the "Harrington DIC Policy").

6. Commonwealth Indemnity Group First Excess Directors & Officers Liability Insurance Policy, Policy No. CIG-XS1-2021-55290, effective July 1, 2021 through July 1, 2022 (the "Commonwealth 1st Excess Policy").

7. Graystone Mutual Assurance Co. Second Excess Directors & Officers Liability Insurance Policy, Policy No. GMA-XS2-2021-71048, effective July 1, 2021 through July 1, 2022 (the "Graystone 2nd Excess Policy").

8. Pinnacle Re Insurance Ltd. Third Excess Directors & Officers Liability Insurance Policy, Policy No. PRI-XS3-2021-19867, effective July 1, 2021 through July 1, 2022 (the "Pinnacle 3rd Excess Policy").

9. Calderwood & Harkness LLP Side-A DIC Policy Analysis Memorandum dated June 3, 2022.

10. Calderwood & Harkness LLP Preliminary Coverage Gap Memorandum — D&O Tower dated May 27, 2022.

We note that we did not independently verify the accuracy or completeness of the factual information contained in the documents reviewed. Our analysis is based on the documents as provided to us by the Company and the Company's insurance broker, Meridian Risk Advisors.

IV. Summary of Key Findings

Based on our review of the documents identified above, the Form Indemnification Agreement is generally well-drafted and provides broad indemnification rights consistent with the maximums permitted under Delaware law. The agreement includes key protective provisions that are standard in indemnification agreements for directors and officers of PE-backed portfolio companies, including mandatory indemnification to the fullest extent permitted by law, a presumption of entitlement to indemnification, and a provision for the selection of independent counsel in the event of disputes regarding the right to indemnification.

However, our review identified two provisions requiring update to align the Form Indemnification Agreement with the current D&O tower structure, and in particular with the Harrington Side-A DIC Policy. These findings are summarized as follows:

Finding 1 — Advancement of Expenses Clause. The advancement of expenses clause in the Form Indemnification Agreement does not align with the Harrington DIC trigger mechanism. Specifically, the Form Indemnification Agreement conditions advancement of expenses on a determination by the Board of Directors (or a committee thereof) that advancement is not prohibited by applicable law. This procedural prerequisite introduces a potential delay that may prevent advancement from occurring within the 60-day window that triggers the Harrington DIC Policy's "refusal to indemnify" coverage. The result is a potential gap period during which the director has received neither corporate advancement nor DIC coverage.

Finding 2 — Definition of "Proceeding." The definition of "Proceeding" in the Form Indemnification Agreement — which serves as the triggering event for the Company's indemnification obligations — is narrower than the policy definition of "Claim" in both the Vandermeer Primary D&O Policy and the Harrington Side-A DIC Policy. Specifically, the indemnification agreement's definition does not expressly cover certain categories of matters that constitute "Claims" under the insurance policies, including informal regulatory inquiries, pre-investigation subpoenas, shareholder books-and-records demands, and extradition proceedings. This definitional mismatch creates scenarios in which the D&O insurance is triggered but the Company has no contractual obligation to indemnify, leaving a gap in the first tier of the director protection framework.

Both misalignments create potential coverage coordination gaps that could leave directors exposed in certain scenarios. These issues are analyzed in detail in Section V below.

V. Detailed Analysis

A. Finding 1: Advancement of Expenses Clause Does Not Align with Harrington DIC Trigger

1. Current Indemnification Agreement Language. Section 4 of the Form Indemnification Agreement sets forth the Company's obligation to advance expenses to covered directors and officers. In its current form, the advancement provision reads, in relevant part:

"The Company shall advance all Expenses incurred by or on behalf of the Indemnitee in connection with any Proceeding, whether prior to or after the final disposition of such Proceeding. Such advancement shall be made upon receipt by the Company of (a) a written request by the Indemnitee for advancement, together with reasonable documentation of the Expenses incurred, and (b) an undertaking by or on behalf of the Indemnitee to repay such amounts advanced if it shall ultimately be determined by a court of competent jurisdiction in a final, non-appealable order that the Indemnitee is not entitled to be indemnified by the Company as authorized by this Agreement; provided, that, no advance shall be made by the Company if a determination is made by the Board of Directors (or a committee thereof designated for such purpose) that such advance would be prohibited by applicable law."

While the first clause of this provision establishes a mandatory advancement obligation, the proviso at the end of the quoted language introduces a critical procedural condition: the Board of Directors (or a Board-designated committee) must make a determination that the requested advancement is not prohibited by applicable law before the Company is obligated to disburse funds. In practice, this means that the advancement process cannot be completed until the Board or its committee has convened, considered the matter, and rendered a determination — a process that, depending on the Board's meeting schedule, the availability of board members, and the complexity of the legal issues involved, could take several weeks or longer.

Moreover, the provision does not specify a time frame within which the Board must complete its determination. The absence of a mandatory timeline creates further ambiguity regarding when the Company's advancement obligation becomes operative and when a failure to advance might be characterized as a "refusal" that triggers alternative coverage under the DIC policy.

2. Harrington Side-A DIC Trigger Mechanism. The Harrington Side-A DIC Policy is designed to respond in circumstances where the underlying D&O insurance fails to pay for a covered loss due to specified triggering events. As described in detail in our Side-A DIC Policy Analysis Memorandum dated June 3, 2022, the Harrington DIC Policy identifies four principal triggering events under which the policy will respond:

(i) Financial Inability to Indemnify. The Company is financially unable to indemnify the Insured Person, whether due to insolvency, bankruptcy, receivership, or other financial incapacity. The policy defines "financially unable" to include both formal insolvency proceedings and situations where the Company has insufficient liquid assets to satisfy its indemnification obligations.

(ii) Refusal to Indemnify. The Company refuses to indemnify the Insured Person. Critically, the Harrington DIC Policy defines "refusal" broadly to encompass not only an express refusal to indemnify or advance but also any failure to make an indemnification or advancement payment within sixty (60) days of the Insured Person's written demand for such payment. This constructive refusal provision is designed to prevent situations in which the Company neither affirmatively refuses nor affirmatively pays, effectively stranding the director in procedural limbo.

(iii) Coverage Gap in Underlying Tower. A covered loss is not paid by the underlying D&O insurance tower due to a policy exclusion, an exhaustion of limits, or a coverage dispute between the insurer and the insured.

(iv) Insurer Insolvency. An insurer in the underlying D&O tower becomes insolvent or otherwise unable to meet its policy obligations.

The "refusal to indemnify" trigger — identified as item (ii) above — is the trigger most relevant to the analysis of the Form Indemnification Agreement. Under the Harrington DIC Policy, the 60-day window begins to run upon the Company's receipt of the Insured Person's written demand for indemnification or advancement. If the Company fails to make payment within 60 days of receiving the demand, the failure is treated as a "refusal" under the policy, and the DIC coverage is activated.

3. The Misalignment. The misalignment between the Form Indemnification Agreement and the Harrington DIC Policy arises from the intersection of the Board determination prerequisite in the indemnification agreement and the 60-day constructive refusal trigger in the DIC policy.

Consider the following illustrative scenario. A director is named as a defendant in a securities fraud lawsuit. The director submits a written request for advancement of defense costs to the Company, together with the required undertaking and reasonable documentation of expenses. Under the Form Indemnification Agreement, the Company is not obligated to advance funds until the Board (or its designated committee) has determined that the advancement is not prohibited by applicable law. Assume that the Board does not have a regularly scheduled meeting for three weeks and that, once convened, the Board refers the matter to a special committee for further analysis. The committee retains outside counsel, reviews the applicable legal standards, and renders its determination. This process takes a total of 75 days from the date of the director's written request.

During this 75-day period, the following has occurred:

• The director has not received advancement from the Company, because the Board determination has not yet been made.

• The Harrington DIC Policy's 60-day constructive refusal trigger has expired on Day 60. However, the Company has not technically "refused" to advance — the Board process is still pending, and no affirmative determination either granting or denying advancement has been made. The Company might argue (and the DIC insurer might accept the argument) that a pending Board process does not constitute a "refusal" within the meaning of the policy.

• As a result, during the gap period between Day 60 and the date the Board renders its determination, the director has neither corporate advancement nor DIC coverage. The director is personally bearing defense costs with no recourse to either the Company or the DIC insurer.

This gap period — while potentially short in duration — can be financially significant. Defense costs in complex commercial and securities litigation frequently run to hundreds of thousands of dollars per month, and directors reasonably expect that the protection framework will provide seamless coverage without periods of personal exposure.

Additionally, even if the Harrington DIC insurer were to accept a claim based on the Company's failure to advance within 60 days notwithstanding the pendency of a Board determination process, the ambiguity itself creates risk. Coverage disputes are costly, time-consuming, and inherently uncertain, and the goal of a well-coordinated D&O protection framework is to minimize the potential for such disputes.

4. Recommendation. We recommend the following corrective measures to address this misalignment:

First, the advancement of expenses clause in Section 4 of the Form Indemnification Agreement should be amended to eliminate the Board determination prerequisite. The revised provision should provide for mandatory advancement upon the Company's receipt of the Indemnitee's written request and undertaking, without any requirement for a prior Board determination. This approach is consistent with Delaware law, which expressly permits — and, for many companies, encourages — mandatory advancement provisions. Section 145(e) of the DGCL provides that a corporation may pay expenses in advance of the final disposition of a proceeding upon receipt of an undertaking by the director or officer to repay such amount if it is ultimately determined that they are not entitled to indemnification. Nothing in the DGCL requires a Board determination as a condition to advancement. Eliminating this prerequisite removes the procedural bottleneck that creates the gap period identified above.

Second, the revised advancement clause should include a specific time period within which the Company is obligated to make advancement payments following receipt of a proper demand. We recommend a period of thirty (30) calendar days from the date of the Company's receipt of the Indemnitee's written request and required undertaking. This 30-day period serves a dual purpose: it provides the Company with a reasonable period to process the request and verify the documentation, while also ensuring that if the Company fails to advance within the specified period, the Harrington DIC Policy's 60-day constructive refusal trigger will clearly be activated with a full 30-day buffer. The sequencing — 30-day advancement deadline under the indemnification agreement, 60-day DIC trigger under the Harrington policy — creates a belt-and-suspenders mechanism that eliminates the gap period identified above.

Third, we recommend that the revised advancement clause include a provision expressly stating that the failure of the Company to advance expenses within the specified 30-day period shall be deemed a refusal to indemnify for purposes of any Side-A DIC policy maintained by the Company. This provision, while not technically necessary (as the DIC policy defines "refusal" independently), provides additional clarity and reinforces the coordination between the indemnification agreement and the DIC policy.

Fourth, we note that the Amended and Restated Bylaws of Nexford should also be reviewed for consistency with the revised indemnification agreement language. If the bylaws contain a similar Board determination prerequisite for advancement, the bylaws should be amended concurrently. We will conduct this review as part of the recommended action items identified in Section VII below.

Draft revised language for the advancement clause will be prepared by our team and circulated to Priya Sundaram for review and comment.

B. Finding 2: Definition of "Proceeding" Narrower Than Policy Definition of "Claim"

1. Current Indemnification Agreement Language. The Form Indemnification Agreement uses the defined term "Proceeding" as the triggering event for the Company's indemnification and advancement obligations. Under the agreement, the Company's obligation to indemnify arises only "in connection with any Proceeding," and the obligation to advance expenses applies only to "Expenses incurred by or on behalf of the Indemnitee in connection with any Proceeding." The scope of the Company's contractual obligations is therefore bounded by the breadth of the definition of "Proceeding."

Section 1(e) of the Form Indemnification Agreement defines "Proceeding" as follows:

"'Proceeding' means any threatened, pending, or completed action, suit, arbitration, alternate dispute resolution mechanism, investigation, inquiry, administrative hearing, or any other actual or threatened proceeding, whether civil, criminal, administrative, investigative, or other."

On its face, this definition is broad and covers a wide range of formal and quasi-formal proceedings. The inclusion of "investigation," "inquiry," and "administrative hearing" extends the definition beyond traditional litigation to encompass governmental and regulatory proceedings. The catch-all phrase "any other actual or threatened proceeding" is intended to sweep in matters that do not fit neatly into the enumerated categories.

However, upon closer analysis, this definition is limited in several important respects. It is anchored to the concept of a "proceeding" — a term that, even when broadly construed, connotes a formal or quasi-formal procedural mechanism for the resolution of disputes or the exercise of governmental authority. The definition does not expressly include several categories of matters that may expose directors and officers to personal liability or require them to incur significant legal expenses, including:

(a) Informal regulatory inquiries or requests for information. Many regulatory matters begin with an informal request for information — a letter or telephone call from a regulatory agency seeking documents or information about a company's operations, practices, or compliance. These informal inquiries may precede any formal investigation and may never result in a formal proceeding. However, they can require significant legal analysis and response preparation, and they often serve as precursors to enforcement actions that may name individual directors or officers as respondents.

(b) Pre-investigation subpoenas or document demands. Federal and state regulatory agencies, including OSHA, the CPSC, the SEC, and state attorneys general, frequently issue subpoenas or civil investigative demands before initiating a formal investigation. These pre-investigation demands require legal counsel, document review, and privilege analysis, all of which generate significant expenses. The Form Indemnification Agreement's definition of "Proceeding" may not encompass these pre-investigation demands, particularly where the demand is directed to the Company rather than to the individual director or officer.

(c) Written demands by third parties. Shareholder books-and-records demands under Section 220 of the DGCL, demand letters asserting claims against the Company or its directors, and similar written demands for information or action may not constitute "proceedings" within the meaning of the indemnification agreement. Such demands are often preludes to formal litigation and require immediate legal attention, but they may fall outside the scope of the Company's contractual indemnification obligations.

(d) Extradition proceedings or foreign regulatory matters. As Nexford's business potentially expands internationally, its directors and officers may face foreign regulatory inquiries or, in extreme cases, extradition proceedings. The Form Indemnification Agreement's definition of "Proceeding" does not expressly address these matters.

2. D&O Policy Definition of "Claim". By contrast, the Vandermeer Primary D&O Policy (VNI-DO-2021-88473) defines "Claim" — the triggering event for coverage under the policy — more broadly than the indemnification agreement's definition of "Proceeding." The Vandermeer policy defines "Claim" to include:

(a) a written demand for monetary damages or non-monetary relief against any Insured Person;

(b) a civil, criminal, administrative, regulatory, or arbitration proceeding commenced against any Insured Person, including any appeal therefrom;

(c) a formal or informal investigation of an Insured Person by a governmental, regulatory, or self-regulatory body, including the service of a subpoena, civil investigative demand, or other request for documents or testimony in connection with such investigation;

(d) a written request to any Insured Person to toll or waive any applicable statute of limitations relating to a potential claim or proceeding; and

(e) an extradition proceeding brought against any Insured Person.

The Harrington Side-A DIC Policy uses a similarly broad definition of "Claim" that tracks the Vandermeer definition and adds an additional category: "any pre-investigation inquiry by a governmental body, including any request for information, interview request, or informal inquiry that could reasonably be expected to lead to a formal investigation of an Insured Person." This expansion is consistent with the DIC policy's purpose of providing the broadest possible coverage for individual directors and officers.

3. The Gap. The gap between the indemnification agreement's definition of "Proceeding" and the D&O policies' definition of "Claim" creates scenarios in which a matter qualifies as a "Claim" under the D&O insurance policies — thereby triggering coverage obligations, notice requirements, and defense cost provisions — but does not qualify as a "Proceeding" under the indemnification agreement — meaning the Company has no contractual obligation to indemnify or advance expenses.

This gap creates two categories of problems:

First, it undermines the coordination of the three-tier director protection framework. When a matter constitutes a "Claim" under the D&O policies, the director is expected to provide timely notice to the insurer and the Company. If the director incurs expenses in connection with the matter, the director expects to look first to the Company for indemnification (Tier 1), then to the D&O tower for reimbursement of indemnification payments (Tier 2, Side-B), or directly to the D&O tower for non-indemnifiable losses (Tier 2, Side-A). If the indemnification agreement does not cover the matter, the first tier is unavailable, and the director must look directly to the D&O tower — but the D&O tower's Side-B coverage (which reimburses the Company for indemnification payments) is inapplicable because the Company has no indemnification obligation. The result is that the matter falls into the Side-A category by default, potentially consuming Side-A limits that are intended to be reserved for true non-indemnifiable losses.

Second, it creates director uncertainty and potential exposure. A director who receives an informal OSHA inquiry or a shareholder books-and-records demand may be uncertain whether the Company is contractually obligated to advance defense costs. The director may be reluctant to engage counsel or respond to the matter without assurance that costs will be reimbursed, which in turn may result in delayed or inadequate responses that exacerbate the Company's regulatory or litigation risk.

To illustrate the practical significance of this gap, consider the following scenario. The Occupational Safety and Health Administration ("OSHA") issues an informal request for information to Nexford Conveyor Systems, LLC's Joliet, Illinois facility regarding workplace safety practices and recent incident reports. The request is addressed to the facility manager but also identifies two Nexford directors by name as individuals from whom OSHA may seek interviews. Under both the Vandermeer Primary Policy and the Harrington DIC Policy, this informal request would constitute a "Claim" — the Vandermeer policy expressly covers "formal or informal investigation[s]" by governmental bodies, and the Harrington DIC Policy covers "pre-investigation inquir[ies]." Notice would be required under both policies, and defense costs associated with the directors' participation in the inquiry would be covered. However, the informal OSHA request might not constitute a "Proceeding" under the Form Indemnification Agreement because it is not a formal investigation, inquiry, hearing, or other quasi-judicial proceeding. As a result, the Company would have no contractual obligation to advance the directors' legal expenses in connection with the OSHA matter, even though the D&O insurance policies would cover those expenses.

We note that this analysis is relevant to the Regulatory Investigation Coverage Memorandum currently in preparation (anticipated delivery date of June 14, 2022), which will provide a comprehensive analysis of D&O coverage for OSHA, CPSC, and state attorney general investigations involving the Company and its subsidiaries.

4. Recommendation. We recommend the following corrective measures to address this definitional misalignment:

First, the definition of "Proceeding" in Section 1(e) of the Form Indemnification Agreement should be amended to align with — and be at least as broad as — the definition of "Claim" in the Vandermeer Primary D&O Policy and the Harrington Side-A DIC Policy. Specifically, the revised definition should add express coverage for the following categories of matters:

(a) formal or informal investigations, examinations, or inquiries by any governmental, regulatory, or self-regulatory body, organization, or agency, including without limitation the receipt of any subpoena, civil investigative demand, interrogatory, or request for documents or testimony;

(b) pre-investigation inquiries by any governmental body, including any request for information, interview request, or informal inquiry that could reasonably be expected to lead to a formal investigation;

(d) written requests to toll, waive, or extend any applicable statute of limitations or contractual limitations period;

(e) extradition proceedings or requests for international judicial assistance; and

(f) any proceeding, inquiry, or matter before a foreign governmental, regulatory, or judicial body.

Second, as an alternative approach, we recommend that the Company consider replacing the defined term "Proceeding" in the Form Indemnification Agreement entirely with the defined term "Claim," using a definition that mirrors the definition of "Claim" in the Vandermeer Primary Policy (or, if broader, the definition in the Harrington DIC Policy). This approach offers the advantage of definitional consistency across the entire D&O protection framework — the same defined term and substantially the same definition would be used in the indemnification agreement, the primary D&O policy, the excess policies (which follow form to the primary), and the DIC policy. Definitional consistency reduces the risk of future coordination gaps if the D&O policies are renewed or replaced with policies containing modified definitions.

Third, regardless of which approach is adopted, the revised definition should include a provision stating that the enumeration of specific categories of covered matters is not intended to limit the generality of the definition and that the definition shall be construed as broadly as possible consistent with applicable law. This interpretive provision is a common feature of well-drafted indemnification agreements and serves to prevent a narrow judicial construction of the definition in the event of a coverage dispute.

Draft revised language for the definition of "Proceeding" (or "Claim," as applicable) will be prepared by our team and circulated to Priya Sundaram for review and comment.

VI. Additional Observations

In the course of our review of the Form Indemnification Agreement, we identified several additional matters that, while not presenting the same degree of urgency as the two principal findings discussed in Section V, warrant attention as part of the Company's broader effort to ensure a fully coordinated director and officer protection framework.

A. Consistency Across All Nine Indemnification Agreements

We have confirmed, based on our review of the executed agreements provided by the Company, that the same Form Indemnification Agreement was used for all nine directors. No material modifications were made to the form for any individual director, and all nine agreements contain the same provisions addressed in this memorandum. This uniformity simplifies the amendment process, as the same revisions can be applied consistently across all nine agreements.

We recommend that any amendments to the Form Indemnification Agreement be implemented for all nine directors simultaneously through uniform amendment agreements. A consistent approach avoids the creation of differential indemnification rights among board members and reduces the administrative burden of maintaining multiple versions of the agreement.

We further note that the Company's four independent directors may have heightened sensitivity to indemnification protections given that they do not have the implicit backing of the Veltrano organization. Unlike the five sponsor-appointed directors — who, in practice, may look to Veltrano Capital Partners and its affiliated entities for supplemental indemnification or other support in the event of a claim — the independent directors rely solely on the Company's indemnification agreement, the Company's bylaws, and the D&O insurance program for protection against personal liability. Ensuring that the indemnification agreements provide seamless, coordinated protection is therefore particularly important for the independent directors, and any delay in implementing the recommended amendments may create an unnecessary risk to their willingness to continue serving on the Board.

B. Officer Indemnification Agreements

The Form Indemnification Agreement is not limited to directors; it also covers officers of the Company who have executed the agreement. Based on information provided by Priya Sundaram, the following officers have executed the Form Indemnification Agreement:

• Sandra Elliston, Chief Executive Officer

• Marcus Delacroix, Chief Financial Officer

• Priya Sundaram, General Counsel and Corporate Secretary

The same two findings identified in Section V apply with equal force to the officer indemnification agreements. Indeed, officers face additional categories of exposure that make broad indemnification and alignment with D&O coverage particularly important. These additional exposure categories include:

• Securities law certifications. If the Company proceeds with a potential IPO, the CEO and CFO will be required to provide certifications under Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 in connection with periodic reports filed with the SEC. Personal liability for inaccurate certifications can be substantial, and coverage for such claims is a critical element of the officer protection framework.

• Employment practices claims. Officers with supervisory authority may be named individually as defendants in employment discrimination, harassment, or retaliation claims. While such claims are typically covered by the Company's employment practices liability insurance, they may also implicate the D&O tower and the indemnification agreement.

• Regulatory compliance. Officers with responsibility for regulatory compliance — including environmental, health, and safety compliance — may face personal liability for regulatory violations at the Company's operating subsidiaries. Given the industrial manufacturing nature of Nexford's business, OSHA, EPA, and state regulatory exposure is significant.

We recommend that the amendments to the Form Indemnification Agreement be extended to all officer agreements as well, ensuring consistency across the entire population of covered individuals.

C. Subsidiary Director and Officer Coverage

Nexford's three operating subsidiaries — Nexford Conveyor Systems, LLC; Triton Fastener Corp.; and Marlowe Asset Management Precision Machining, Inc. — each have their own directors (or managers, in the case of the Delaware LLC) and officers who may face personal liability arising from their service to the subsidiary. The Vandermeer Primary D&O Policy's definition of "Insured Person" extends to directors and officers of subsidiaries that are identified in the policy's subsidiary schedule, and we have confirmed that all three operating subsidiaries are listed on the Vandermeer subsidiary schedule for the current policy year.

However, the extension of D&O insurance coverage to subsidiary directors and officers does not automatically establish a contractual indemnification obligation at the subsidiary level. If the subsidiaries have not entered into indemnification agreements with their respective directors and officers — or if the subsidiary-level governing documents (operating agreements, bylaws, or articles of incorporation) do not include adequate indemnification and advancement provisions — then the first tier of the director protection framework may be absent at the subsidiary level.

We recommend that Priya Sundaram confirm the status of subsidiary-level indemnification agreements for all three operating subsidiaries. If such agreements are not in place, or if the existing subsidiary governing documents do not provide indemnification protections equivalent to those in the Nexford parent-level Form Indemnification Agreement, we recommend that subsidiary-level indemnification agreements be adopted promptly. These subsidiary agreements should incorporate the same revisions recommended in this memorandum to ensure consistency across the entire corporate group.

D. Coordination with Bylaws and Certificate of Incorporation

The Amended and Restated Certificate of Incorporation of Nexford includes a standard exculpation clause adopted pursuant to Section 102(b)(7) of the DGCL. This provision eliminates or limits the personal liability of directors for monetary damages arising from breaches of the duty of care, subject to the exceptions set forth in Section 102(b)(7) (which preserves liability for breaches of the duty of loyalty, acts or omissions not in good faith, intentional misconduct, knowing violations of law, and improper personal benefit transactions). The exculpation clause is properly drafted and does not present any coordination issues with the Form Indemnification Agreement or the D&O insurance tower.

The Amended and Restated Bylaws of Nexford include indemnification and advancement provisions in Article VII. These bylaw provisions should be reviewed for consistency with the recommended amendments to the Form Indemnification Agreement. In particular, the bylaws should be reviewed to determine whether they contain a Board determination prerequisite for advancement of expenses similar to the one identified in Section V.A of this memorandum. If so, the bylaws should be amended concurrently with the indemnification agreements to ensure a consistent approach.

The Form Indemnification Agreement includes a standard provision stating that the contractual indemnification rights conferred by the agreement are "supplementary to and not in limitation of any rights to indemnification or advancement of expenses to which the Indemnitee may be entitled under the Certificate of Incorporation, the Bylaws, any other agreement, any vote of stockholders or directors, the DGCL, or otherwise." This provision is appropriately drafted to ensure that the indemnification agreement does not inadvertently limit broader rights that may be available under other instruments. We have confirmed that no conflicts exist between the Form Indemnification Agreement, the Amended and Restated Bylaws, and the Amended and Restated Certificate of Incorporation, subject to the need to review the bylaw advancement provisions as noted above.

E. Pre-IPO Considerations

If Nexford proceeds with a potential initial public offering in the 2023–2024 timeframe, the entire indemnification framework — including the Form Indemnification Agreement, the bylaws, the certificate of incorporation, and the D&O insurance program — will need to be comprehensively revisited. The transition from a private, PE-backed company to a publicly traded company introduces a fundamentally different risk environment for directors and officers, requiring corresponding adjustments to the protection framework.

Public company indemnification agreements typically include additional provisions addressing the following matters:

• Securities law claims, including claims under Sections 11, 12, and 15 of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934;

• SEC investigations and enforcement proceedings, including formal orders of investigation and Wells notices;

• Derivative actions brought by stockholders on behalf of the corporation;

• Class action securities litigation, which is the predominant source of D&O claims for public companies;

• Provisions addressing the Company's obligation to maintain D&O insurance at specified minimum coverage levels; and

• Provisions addressing the interplay between indemnification and insurance, including the priority of payment as among the Company, the D&O insurers, and any other sources of indemnification (such as sponsor indemnification obligations).

The D&O tower structure will also need significant augmentation in connection with an IPO. As noted in the D&O Limits Adequacy Memorandum dated June 6, 2022 (prepared by our team in connection with this engagement), the Company's current $55 million D&O tower is adequate for a private, PE-backed company of Nexford's size and risk profile, but would likely be insufficient for a newly public company. Newly public companies in the industrial sector with Nexford's revenue profile and enterprise value typically maintain D&O towers in the range of $75 million to $125 million, with dedicated Side-A limits of $25 million or more.

We recommend that the revised Form Indemnification Agreement include a provision addressing the Company's obligations in connection with a public offering or a change of control. Specifically, we recommend that the agreement include a covenant by the Company to review and, if necessary, amend the indemnification agreement in connection with any public offering to ensure continued compliance with applicable law and market practice. Additionally, the agreement should include a provision requiring the Company to maintain D&O insurance at levels consistent with its obligations under the indemnification agreement, with a specific requirement that such insurance include Side-A coverage for non-indemnifiable losses.

These pre-IPO considerations are flagged for future attention and do not require immediate action, but they should be incorporated into the Company's IPO readiness planning as the timeline for a potential offering crystallizes.

VII. Recommended Action Items

Based on the findings and analysis set forth in this memorandum, we recommend the following action items:

1. Draft revised advancement of expenses clause. Prepare a revised Section 4 of the Form Indemnification Agreement that eliminates the Board determination prerequisite and establishes a mandatory 30-day advancement timeline, coordinated with the Harrington DIC Policy's 60-day constructive refusal trigger. The revised clause should provide for mandatory advancement upon receipt of the Indemnitee's written request and undertaking, without any prior Board approval or determination. Responsible: Naomi Petersen / Yuki Nakamura. Target date: June 10, 2022.

2. Draft revised definition of "Proceeding." Prepare a revised definition of "Proceeding" (or, if the alternative approach is adopted, a new defined term "Claim") that aligns with and is at least as broad as the definition of "Claim" in the Vandermeer Primary D&O Policy and the Harrington Side-A DIC Policy. The revised definition should expressly cover informal regulatory inquiries, subpoenas, document demands, tolling requests, extradition proceedings, and foreign regulatory matters. Responsible: Naomi Petersen / Yuki Nakamura. Target date: June 10, 2022.

3. Circulate proposed revisions to General Counsel. Circulate the proposed revisions, together with a cover memorandum explaining the rationale for each change, to Priya Sundaram, General Counsel and Corporate Secretary of Nexford, for review and comment. Responsible: Naomi Petersen. Target date: June 13, 2022.

4. Prepare uniform amendment agreements. Upon approval of the proposed revisions by Ms. Sundaram (and, if required, by the Board of Directors), prepare uniform amendment agreements for execution by all nine directors and all covered officers. The amendment agreements should be in the form of a First Amendment to Director and Officer Indemnification Agreement and should incorporate the revised advancement clause and revised definition as set forth in the proposed revisions. Responsible: Yuki Nakamura. Target date: June 20, 2022 (subject to client approval timeline).

5. Confirm status of subsidiary-level indemnification agreements. Request that Priya Sundaram confirm whether indemnification agreements are in place at the subsidiary level for directors and officers (or managers) of Nexford Conveyor Systems, LLC; Triton Fastener Corp.; and Marlowe Asset Management Precision Machining, Inc. If such agreements are not in place or are inadequate, prepare form subsidiary indemnification agreements incorporating the same protections as the amended parent-level agreement. Responsible: Naomi Petersen. Target date: June 13, 2022 (initial inquiry).

6. Review Amended and Restated Bylaws. Review the indemnification and advancement provisions of the Amended and Restated Bylaws of Nexford for consistency with the proposed amendments to the Form Indemnification Agreement. If the bylaws contain a Board determination prerequisite for advancement or a narrow definition of "Proceeding" (or equivalent term), prepare recommended bylaw amendments for consideration by the Board. Responsible: Yuki Nakamura. Target date: June 17, 2022.

7. Flag pre-IPO indemnification agreement overhaul. Add to the engagement's tracking log a future work item for a comprehensive overhaul of the indemnification agreement framework in connection with any potential IPO. This work item should be activated when the IPO timeline crystallizes and should encompass revised indemnification agreements, revised bylaws, D&O tower restructuring, and IPO-specific Side-A DIC coverage. Responsible: Naomi Petersen / Douglas Fairchild. Target date: To be determined based on IPO timeline.

VIII. Conclusion

The Form Indemnification Agreement adopted by Nexford Industrial Holdings Inc. provides robust indemnification protections for the Company's directors and officers that are generally consistent with Delaware law and market practice for PE-backed portfolio companies. The agreement reflects a clear intent to provide the broadest permissible indemnification and to create enforceable contractual rights that supplement — and survive any amendment to — the Company's bylaw indemnification provisions.

However, the two misalignments identified in this memorandum — the advancement of expenses clause and the definition of "Proceeding" — represent meaningful coordination gaps that could leave directors and officers exposed in certain scenarios. These misalignments are not uncommon in form indemnification agreements adopted at the time of a leveraged buyout, as the agreements are frequently drafted and negotiated before the specific D&O tower has been structured and placed. In Nexford's case, the Form Indemnification Agreement was adopted at the closing of the June 15, 2018 leveraged buyout, and the current D&O tower was structured for the 2021–2022 policy year, nearly three years later. It is therefore unsurprising that the agreement's provisions are not perfectly calibrated to the current policy terms.

Both issues are readily remediable through targeted amendments. The proposed revisions — eliminating the Board determination prerequisite for advancement and broadening the definition of the triggering event to match the D&O policy definition of "Claim" — are straightforward, well-supported by Delaware law, and consistent with market practice. Neither revision expands the Company's indemnification obligations beyond what is permitted by the DGCL; rather, each revision aligns the procedural and definitional provisions of the indemnification agreement with the Company's existing D&O insurance program to ensure that the entire director and officer protection framework operates as an integrated whole.

We recommend that these amendments be completed in connection with the 2022–2023 D&O tower renewal, which is effective July 1, 2022. Coordinating the indemnification agreement amendments with the D&O tower renewal ensures that the entire director and officer protection framework — indemnification agreements, bylaws, D&O tower, and Side-A DIC — is fully coordinated and effective as of the same date. This approach also presents an opportunity to confirm the framework's alignment with the renewed policies, including any changes to policy terms, definitions, or trigger mechanisms that may be negotiated as part of the renewal process.

Calderwood & Harkness LLP stands ready to prepare the necessary amendment documents upon authorization from Nexford's General Counsel. We are available to discuss the findings and recommendations in this memorandum at your convenience.

Respectfully submitted,

CALDERWOOD & HARKNESS LLP

By: ________

Naomi Petersen Lead Associate, Mergers & Acquisitions Department

Reviewed by: ________ Douglas Fairchild Responsibl

PRIVILEGED AND CONFIDENTIAL — ATTORNEY-CLIENT COMMUNICATION
MEMORANDUM
FROM: Naomi Petersen, Lead Associate Calderwood & Harkness LLP 155 North Wacker Drive, Suite 4200 Chicago, IL 60606
TO: Douglas Fairchild, Responsible Partner Calderwood & Harkness LLP
CC: Angela Fontaine, Billing Partner, Calderwood & Harkness LLP Yuki Nakamura, Working Associate, Calderwood & Harkness LLP
DATE: June 4, 2022
RE: Nexford Industrial Holdings Inc. — Review of Form Director and Officer Indemnification Agreements for Consistency with D&O Insurance Tower Structure
MATTER NO.: 1005-00003
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I. Purpose and Scope of Review
This memorandum was prepared in connection with Calderwood & Harkness LLP's comprehensive review of Nexford Industrial Holdings Inc.'s ("Nexford" or the "Company") Directors & Officers ("D&O") liability insurance tower and product-liability insurance tower for the 2022–2023 renewal cycle. The renewal effective date is July 1, 2022. The engagement encompasses a holistic assessment of the Company's director and officer protection framework to ensure that all elements of that framework are properly coordinated and that no gaps exist that could leave individual directors or officers exposed to uninsured or unindemnified personal liability.
The specific focus of this memorandum is the review of Nexford's form director and officer indemnification agreement (the "Form Indemnification Agreement") for consistency with the D&O tower structure. Particular attention has been paid to the coordination between the Form Indemnification Agreement and the Side-A Difference-in-Conditions ("DIC") policy issued by Harrington Specialty Insurance Co. (Policy No. HSI-DIC-2021-00342) (the "Harrington DIC Policy"), which serves as the dedicated excess layer of coverage for non-indemnifiable losses incurred by individual directors and officers.
The Form Indemnification Agreement is entered into between Nexford Industrial Holdings Inc., a Delaware corporation headquartered at 2200 Corporate Center Drive, Suite 800, Schaumburg, Illinois 60173, and each of its nine directors. The Board of Directors comprises four independent directors and five sponsor-appointed directors, with Gerald "Gerry" Whitcomb serving as Chairman of the Board. Each director has executed a substantially identical indemnification agreement based on the form document reviewed herein.
This review was requested by Priya Sundaram, General Counsel and Corporate Secretary of Nexford. Ms. Sundaram specifically asked that we analyze whether the indemnification agreements, which were originally adopted at the closing of the Company's leveraged buyout in June 2018, remain properly coordinated with the D&O insurance tower as currently structured and as proposed for the 2022–2023 policy year.
This analysis complements two prior memoranda previously delivered to Ms. Sundaram and the broader engagement team: (1) the Side-A DIC Policy Analysis Memorandum dated June 3, 2022, which provides a detailed coverage analysis of the Harrington DIC Policy and identifies certain limitations and exclusions requiring attention at renewal; and (2) the Preliminary Coverage Gap Memorandum — D&O Tower dated May 27, 2022, which maps the full D&O tower and identifies potential inter-policy gaps among the primary, excess, and DIC layers. This memorandum should be read in conjunction with those prior deliverables, and certain cross-references are made throughout.
II. Background
A. Nexford Corporate Structure and Governance
Nexford Industrial Holdings Inc. is incorporated in the State of Delaware and maintains its principal executive offices at 2200 Corporate Center Drive, Suite 800, Schaumburg, Illinois 60173. The Company serves as the holding company for three operating subsidiaries engaged in the industrial manufacturing sector.
Nexford is majority-owned (68.5%) by Veltrano Capital Partners Fund IV, LP, a Delaware limited partnership. Veltrano Capital Partners Fund IV is a 2017-vintage fund with approximately $4.8 billion in committed capital. Veltrano acquired Nexford in a leveraged buyout that closed on June 15, 2018, at an enterprise value of approximately $2.1 billion. The acquisition was structured as a reverse triangular merger through a special purpose acquisition vehicle formed for the transaction. The remaining equity in Nexford is held by management rollover participants (19.3%), who reinvested a portion of their pre-acquisition equity alongside the sponsor, and co-investors (12.2%), including several institutional limited partners in Fund IV who elected to participate through a co-investment vehicle.
The Company's Board of Directors consists of nine members. Five directors are appointed by Veltrano Capital Partners pursuant to the terms of the Stockholders' Agreement, which grants Veltrano the right to designate a majority of the board so long as it holds at least 50% of the Company's outstanding equity. Four directors serve as independent directors and were recruited to the board through a search process coordinated between Veltrano and the Company's then-incoming Chief Executive Officer. In addition to the nine voting directors, Celeste Brogan of Veltrano Capital Partners serves as a board observer with customary rights to attend meetings and receive information, but without voting rights.
This governance dynamic — in which the private equity sponsor controls a majority of board seats — creates a heightened importance of individual director protections, and in particular, Side-A D&O coverage and robust indemnification agreements. Independent directors serving on PE-controlled boards face a distinct risk profile: they may be asked to exercise independent judgment on transactions where the sponsor has a controlling interest and potentially conflicting economic incentives. In such circumstances, the Company's willingness and ability to indemnify may itself be subject to sponsor influence, making contractual indemnification rights and independent Side-A insurance coverage essential features of the director protection framework.
Nexford operates through three wholly owned operating subsidiaries:
(a) Nexford Conveyor Systems, LLC, a Delaware limited liability company with manufacturing operations in Joliet, Illinois, which designs and manufactures conveyor and material handling systems for industrial and logistics applications;
(b) Triton Fastener Corp., an Illinois corporation headquartered in Rockford, Illinois, which manufactures precision fasteners, specialty bolts, and related hardware for aerospace, automotive, and heavy equipment applications; and
(c) Marlowe Asset Management Precision Machining, Inc., an Ohio corporation headquartered in Akron, Ohio, which provides CNC precision machining, metal stamping, and fabrication services for the defense, energy, and industrial equipment sectors.
For its fiscal year ended December 31, 2021, Nexford reported consolidated revenue of approximately $1.42 billion and consolidated EBITDA of approximately $218 million. The Company's capital structure includes total funded debt of approximately $1.05 billion, consisting of a Term Loan B facility and a Revolving Credit Facility, in each case with Broadleaf Capital Markets, LLC serving as administrative agent. Based on the Company's current financial performance and prevailing market multiples for comparable industrial manufacturing businesses, the Company's estimated current enterprise value is approximately $2.6 billion.
Of particular relevance to this engagement, Veltrano Capital Partners and Nexford management have indicated that a potential initial public offering is being contemplated in the 2023–2024 timeframe. An IPO would significantly alter the Company's D&O risk profile by introducing securities class action exposure, Section 11 and Section 12 liability, heightened regulatory scrutiny from the Securities and Exchange Commission, and increased derivative litigation risk. As discussed further in Section VI.E below, the prospect of an IPO warrants forward planning with respect to the Company's indemnification framework and D&O insurance program.
B. Summary of D&O Insurance Tower (2021–2022 Policy Year)
The Company's current D&O insurance tower for the 2021–2022 policy year (July 1, 2021 through July 1, 2022) consists of four layers of traditional D&O liability coverage plus a dedicated Side-A DIC policy. The tower structure is summarized below:
The total D&O tower provides $55 million in aggregate coverage across all layers. Total annual premium for the tower is $1,363,450, representing a blended rate-on-line of approximately 2.48%. This rate-on-line is within the market range for PE-backed industrials of comparable size and risk profile, though slightly elevated relative to pre-pandemic levels, reflecting the general hardening of the D&O insurance market that began in 2019.
The Company's five-year D&O loss history is favorable. Only one claim has been reported during this period: a shareholder demand letter received in 2020 relating to allegations of inadequate board oversight of supply chain disruptions. The matter was reported to Vandermeer as a potential claim and was ultimately resolved without any payment by the Company or the insurer. There are zero paid losses across the entire tower.
As noted in our Side-A DIC Policy Analysis Memorandum dated June 3, 2022, we are recommending that the Harrington Side-A DIC limit be increased from $15 million to $20 million at the July 1, 2022 renewal. This recommendation is based on several factors, including the Company's growing enterprise value, the anticipated increase in regulatory exposure associated with potential IPO preparations, and the relatively modest incremental premium required for additional DIC limits in the current market.
C. Role of the Form Indemnification Agreement
The protection framework for directors and officers of a Delaware corporation such as Nexford typically consists of three complementary tiers, each of which is designed to work in concert with the others to provide seamless protection against personal liability arising from service in a directorial or officer capacity:
Tier 1 — Corporate Indemnification (Bylaws and Indemnification Agreements). The first tier is the Company's own obligation to indemnify its directors and officers against losses and expenses arising from their service to the Company. This obligation may derive from the Company's bylaws, from individual contractual indemnification agreements, or both. Under the Delaware General Corporation Law, a corporation is permitted — and in certain circumstances required — to indemnify its directors and officers against expenses (including attorneys' fees), judgments, fines, and amounts paid in settlement in connection with proceedings arising from their service to the corporation. Individual indemnification agreements provide contractual certainty beyond what the bylaws alone can offer, as they create enforceable contractual rights that survive subsequent bylaw amendments.
Tier 2 — D&O Insurance (Tower). The second tier is the Company's D&O liability insurance program, which provides coverage for losses arising from claims made against directors and officers. Traditional D&O policies cover three categories of insured loss: Side-A coverage for non-indemnifiable loss (i.e., losses where the Company cannot or will not indemnify); Side-B coverage for indemnifiable loss (i.e., reimbursement to the Company for indemnification payments made to directors and officers); and Side-C or entity coverage for certain claims against the entity itself, typically limited to securities claims. The D&O tower protects the Company's balance sheet (through Side-B and Side-C coverage) and protects individual directors and officers (through Side-A coverage) against losses exceeding the Company's indemnification obligations.
Tier 3 — Side-A DIC Insurance (Gap-Filler). The third tier is the Side-A DIC policy, which provides a dedicated, excess layer of coverage exclusively for the benefit of individual directors and officers. The DIC policy is designed to respond when the underlying D&O insurance tower fails to pay for a covered loss due to insurer insolvency, coverage disputes, or other specified triggering events. Critically, the DIC policy also responds when the Company itself is unable or unwilling to indemnify — for example, due to the Company's insolvency, a decision by the Board to deny indemnification, or a legal prohibition on indemnification. The DIC policy is sometimes referred to as a "sleep at night" policy for directors, because it provides a layer of protection that is independent of both the Company's financial condition and the responsiveness of the underlying D&O tower.
The Form Indemnification Agreement under review sits within Tier 1 of this framework. It provides contractual indemnification rights that are intended to be coextensive with the maximum indemnification permitted under the DGCL and broader than the minimum indemnification required by statute. As a contractual commitment, the Form Indemnification Agreement provides individual directors with enforceable rights that cannot be diminished by a subsequent amendment to the Company's bylaws or certificate of incorporation — an important protection in the PE context, where sponsor-driven corporate governance changes are not uncommon.
For a PE-controlled portfolio company such as Nexford, indemnification agreements serve particularly important governance and director recruitment functions. Independent directors who agree to serve on the boards of sponsor-controlled companies often negotiate for robust indemnification protections as a condition of their service, recognizing that the sponsor's control over the board and the Company's financial resources creates a dynamic in which the Company's willingness to indemnify cannot be taken for granted in all scenarios.
Proper coordination between indemnification agreement terms and D&O policy terms is essential to avoid gaps in the director protection framework. Specifically, it is critical that the triggering definitions, procedural requirements, and scope of coverage under the indemnification agreement are consistent with — and, where possible, broader than — the corresponding provisions of the D&O insurance policies. A misalignment between these instruments can create a scenario in which a director reasonably believes they are protected but neither the Company's indemnification obligation nor the insurance policy responds, leaving the director personally exposed. The analysis in this memorandum is directed at identifying and remedying any such misalignments.
III. Documents Reviewed
In connection with the preparation of this memorandum, we reviewed the following documents:
1. Nexford Industrial Holdings Inc. Form Director and Officer Indemnification Agreement (undated form, believed adopted in connection with the leveraged buyout closing on June 15, 2018) (the "Form Indemnification Agreement").
2. Amended and Restated Bylaws of Nexford Industrial Holdings Inc. (as amended through December 10, 2020).
3. Amended and Restated Certificate of Incorporation of Nexford Industrial Holdings Inc. (filed with the Delaware Secretary of State on June 15, 2018, as amended through the date hereof).
4. Vandermeer National Insurance Company Directors & Officers Liability Insurance Policy, Policy No. VNI-DO-2021-88473, effective July 1, 2021 through July 1, 2022 (the "Vandermeer Primary Policy").
5. Harrington Specialty Insurance Co. Side-A Difference-in-Conditions Directors & Officers Liability Insurance Policy, Policy No. HSI-DIC-2021-00342, effective July 1, 2021 through July 1, 2022 (the "Harrington DIC Policy").
6. Commonwealth Indemnity Group First Excess Directors & Officers Liability Insurance Policy, Policy No. CIG-XS1-2021-55290, effective July 1, 2021 through July 1, 2022 (the "Commonwealth 1st Excess Policy").
7. Graystone Mutual Assurance Co. Second Excess Directors & Officers Liability Insurance Policy, Policy No. GMA-XS2-2021-71048, effective July 1, 2021 through July 1, 2022 (the "Graystone 2nd Excess Policy").
8. Pinnacle Re Insurance Ltd. Third Excess Directors & Officers Liability Insurance Policy, Policy No. PRI-XS3-2021-19867, effective July 1, 2021 through July 1, 2022 (the "Pinnacle 3rd Excess Policy").
9. Calderwood & Harkness LLP Side-A DIC Policy Analysis Memorandum dated June 3, 2022.
10. Calderwood & Harkness LLP Preliminary Coverage Gap Memorandum — D&O Tower dated May 27, 2022.
We note that we did not independently verify the accuracy or completeness of the factual information contained in the documents reviewed. Our analysis is based on the documents as provided to us by the Company and the Company's insurance broker, Meridian Risk Advisors.
IV. Summary of Key Findings
Based on our review of the documents identified above, the Form Indemnification Agreement is generally well-drafted and provides broad indemnification rights consistent with the maximums permitted under Delaware law. The agreement includes key protective provisions that are standard in indemnification agreements for directors and officers of PE-backed portfolio companies, including mandatory indemnification to the fullest extent permitted by law, a presumption of entitlement to indemnification, and a provision for the selection of independent counsel in the event of disputes regarding the right to indemnification.
However, our review identified two provisions requiring update to align the Form Indemnification Agreement with the current D&O tower structure, and in particular with the Harrington Side-A DIC Policy. These findings are summarized as follows:
Finding 1 — Advancement of Expenses Clause. The advancement of expenses clause in the Form Indemnification Agreement does not align with the Harrington DIC trigger mechanism. Specifically, the Form Indemnification Agreement conditions advancement of expenses on a determination by the Board of Directors (or a committee thereof) that advancement is not prohibited by applicable law. This procedural prerequisite introduces a potential delay that may prevent advancement from occurring within the 60-day window that triggers the Harrington DIC Policy's "refusal to indemnify" coverage. The result is a potential gap period during which the director has received neither corporate advancement nor DIC coverage.
Finding 2 — Definition of "Proceeding." The definition of "Proceeding" in the Form Indemnification Agreement — which serves as the triggering event for the Company's indemnification obligations — is narrower than the policy definition of "Claim" in both the Vandermeer Primary D&O Policy and the Harrington Side-A DIC Policy. Specifically, the indemnification agreement's definition does not expressly cover certain categories of matters that constitute "Claims" under the insurance policies, including informal regulatory inquiries, pre-investigation subpoenas, shareholder books-and-records demands, and extradition proceedings. This definitional mismatch creates scenarios in which the D&O insurance is triggered but the Company has no contractual obligation to indemnify, leaving a gap in the first tier of the director protection framework.
Both misalignments create potential coverage coordination gaps that could leave directors exposed in certain scenarios. These issues are analyzed in detail in Section V below.
V. Detailed Analysis
A. Finding 1: Advancement of Expenses Clause Does Not Align with Harrington DIC Trigger
1. Current Indemnification Agreement Language. Section 4 of the Form Indemnification Agreement sets forth the Company's obligation to advance expenses to covered directors and officers. In its current form, the advancement provision reads, in relevant part:
"The Company shall advance all Expenses incurred by or on behalf of the Indemnitee in connection with any Proceeding, whether prior to or after the final disposition of such Proceeding. Such advancement shall be made upon receipt by the Company of (a) a written request by the Indemnitee for advancement, together with reasonable documentation of the Expenses incurred, and (b) an undertaking by or on behalf of the Indemnitee to repay such amounts advanced if it shall ultimately be determined by a court of competent jurisdiction in a final, non-appealable order that the Indemnitee is not entitled to be indemnified by the Company as authorized by this Agreement; provided, that, no advance shall be made by the Company if a determination is made by the Board of Directors (or a committee thereof designated for such purpose) that such advance would be prohibited by applicable law."
While the first clause of this provision establishes a mandatory advancement obligation, the proviso at the end of the quoted language introduces a critical procedural condition: the Board of Directors (or a Board-designated committee) must make a determination that the requested advancement is not prohibited by applicable law before the Company is obligated to disburse funds. In practice, this means that the advancement process cannot be completed until the Board or its committee has convened, considered the matter, and rendered a determination — a process that, depending on the Board's meeting schedule, the availability of board members, and the complexity of the legal issues involved, could take several weeks or longer.
Moreover, the provision does not specify a time frame within which the Board must complete its determination. The absence of a mandatory timeline creates further ambiguity regarding when the Company's advancement obligation becomes operative and when a failure to advance might be characterized as a "refusal" that triggers alternative coverage under the DIC policy.
2. Harrington Side-A DIC Trigger Mechanism. The Harrington Side-A DIC Policy is designed to respond in circumstances where the underlying D&O insurance fails to pay for a covered loss due to specified triggering events. As described in detail in our Side-A DIC Policy Analysis Memorandum dated June 3, 2022, the Harrington DIC Policy identifies four principal triggering events under which the policy will respond:
(i) Financial Inability to Indemnify. The Company is financially unable to indemnify the Insured Person, whether due to insolvency, bankruptcy, receivership, or other financial incapacity. The policy defines "financially unable" to include both formal insolvency proceedings and situations where the Company has insufficient liquid assets to satisfy its indemnification obligations.
(ii) Refusal to Indemnify. The Company refuses to indemnify the Insured Person. Critically, the Harrington DIC Policy defines "refusal" broadly to encompass not only an express refusal to indemnify or advance but also any failure to make an indemnification or advancement payment within sixty (60) days of the Insured Person's written demand for such payment. This constructive refusal provision is designed to prevent situations in which the Company neither affirmatively refuses nor affirmatively pays, effectively stranding the director in procedural limbo.
(iii) Coverage Gap in Underlying Tower. A covered loss is not paid by the underlying D&O insurance tower due to a policy exclusion, an exhaustion of limits, or a coverage dispute between the insurer and the insured.
(iv) Insurer Insolvency. An insurer in the underlying D&O tower becomes insolvent or otherwise unable to meet its policy obligations.
The "refusal to indemnify" trigger — identified as item (ii) above — is the trigger most relevant to the analysis of the Form Indemnification Agreement. Under the Harrington DIC Policy, the 60-day window begins to run upon the Company's receipt of the Insured Person's written demand for indemnification or advancement. If the Company fails to make payment within 60 days of receiving the demand, the failure is treated as a "refusal" under the policy, and the DIC coverage is activated.
3. The Misalignment. The misalignment between the Form Indemnification Agreement and the Harrington DIC Policy arises from the intersection of the Board determination prerequisite in the indemnification agreement and the 60-day constructive refusal trigger in the DIC policy.
Consider the following illustrative scenario. A director is named as a defendant in a securities fraud lawsuit. The director submits a written request for advancement of defense costs to the Company, together with the required undertaking and reasonable documentation of expenses. Under the Form Indemnification Agreement, the Company is not obligated to advance funds until the Board (or its designated committee) has determined that the advancement is not prohibited by applicable law. Assume that the Board does not have a regularly scheduled meeting for three weeks and that, once convened, the Board refers the matter to a special committee for further analysis. The committee retains outside counsel, reviews the applicable legal standards, and renders its determination. This process takes a total of 75 days from the date of the director's written request.
During this 75-day period, the following has occurred:
• The director has not received advancement from the Company, because the Board determination has not yet been made.
• The Harrington DIC Policy's 60-day constructive refusal trigger has expired on Day 60. However, the Company has not technically "refused" to advance — the Board process is still pending, and no affirmative determination either granting or denying advancement has been made. The Company might argue (and the DIC insurer might accept the argument) that a pending Board process does not constitute a "refusal" within the meaning of the policy.
• As a result, during the gap period between Day 60 and the date the Board renders its determination, the director has neither corporate advancement nor DIC coverage. The director is personally bearing defense costs with no recourse to either the Company or the DIC insurer.
This gap period — while potentially short in duration — can be financially significant. Defense costs in complex commercial and securities litigation frequently run to hundreds of thousands of dollars per month, and directors reasonably expect that the protection framework will provide seamless coverage without periods of personal exposure.
Additionally, even if the Harrington DIC insurer were to accept a claim based on the Company's failure to advance within 60 days notwithstanding the pendency of a Board determination process, the ambiguity itself creates risk. Coverage disputes are costly, time-consuming, and inherently uncertain, and the goal of a well-coordinated D&O protection framework is to minimize the potential for such disputes.
4. Recommendation. We recommend the following corrective measures to address this misalignment:
First, the advancement of expenses clause in Section 4 of the Form Indemnification Agreement should be amended to eliminate the Board determination prerequisite. The revised provision should provide for mandatory advancement upon the Company's receipt of the Indemnitee's written request and undertaking, without any requirement for a prior Board determination. This approach is consistent with Delaware law, which expressly permits — and, for many companies, encourages — mandatory advancement provisions. Section 145(e) of the DGCL provides that a corporation may pay expenses in advance of the final disposition of a proceeding upon receipt of an undertaking by the director or officer to repay such amount if it is ultimately determined that they are not entitled to indemnification. Nothing in the DGCL requires a Board determination as a condition to advancement. Eliminating this prerequisite removes the procedural bottleneck that creates the gap period identified above.
Second, the revised advancement clause should include a specific time period within which the Company is obligated to make advancement payments following receipt of a proper demand. We recommend a period of thirty (30) calendar days from the date of the Company's receipt of the Indemnitee's written request and required undertaking. This 30-day period serves a dual purpose: it provides the Company with a reasonable period to process the request and verify the documentation, while also ensuring that if the Company fails to advance within the specified period, the Harrington DIC Policy's 60-day constructive refusal trigger will clearly be activated with a full 30-day buffer. The sequencing — 30-day advancement deadline under the indemnification agreement, 60-day DIC trigger under the Harrington policy — creates a belt-and-suspenders mechanism that eliminates the gap period identified above.
Third, we recommend that the revised advancement clause include a provision expressly stating that the failure of the Company to advance expenses within the specified 30-day period shall be deemed a refusal to indemnify for purposes of any Side-A DIC policy maintained by the Company. This provision, while not technically necessary (as the DIC policy defines "refusal" independently), provides additional clarity and reinforces the coordination between the indemnification agreement and the DIC policy.
Fourth, we note that the Amended and Restated Bylaws of Nexford should also be reviewed for consistency with the revised indemnification agreement language. If the bylaws contain a similar Board determination prerequisite for advancement, the bylaws should be amended concurrently. We will conduct this review as part of the recommended action items identified in Section VII below.
Draft revised language for the advancement clause will be prepared by our team and circulated to Priya Sundaram for review and comment.
B. Finding 2: Definition of "Proceeding" Narrower Than Policy Definition of "Claim"
1. Current Indemnification Agreement Language. The Form Indemnification Agreement uses the defined term "Proceeding" as the triggering event for the Company's indemnification and advancement obligations. Under the agreement, the Company's obligation to indemnify arises only "in connection with any Proceeding," and the obligation to advance expenses applies only to "Expenses incurred by or on behalf of the Indemnitee in connection with any Proceeding." The scope of the Company's contractual obligations is therefore bounded by the breadth of the definition of "Proceeding."
Section 1(e) of the Form Indemnification Agreement defines "Proceeding" as follows:
"'Proceeding' means any threatened, pending, or completed action, suit, arbitration, alternate dispute resolution mechanism, investigation, inquiry, administrative hearing, or any other actual or threatened proceeding, whether civil, criminal, administrative, investigative, or other."
On its face, this definition is broad and covers a wide range of formal and quasi-formal proceedings. The inclusion of "investigation," "inquiry," and "administrative hearing" extends the definition beyond traditional litigation to encompass governmental and regulatory proceedings. The catch-all phrase "any other actual or threatened proceeding" is intended to sweep in matters that do not fit neatly into the enumerated categories.
However, upon closer analysis, this definition is limited in several important respects. It is anchored to the concept of a "proceeding" — a term that, even when broadly construed, connotes a formal or quasi-formal procedural mechanism for the resolution of disputes or the exercise of governmental authority. The definition does not expressly include several categories of matters that may expose directors and officers to personal liability or require them to incur significant legal expenses, including:
(a) Informal regulatory inquiries or requests for information. Many regulatory matters begin with an informal request for information — a letter or telephone call from a regulatory agency seeking documents or information about a company's operations, practices, or compliance. These informal inquiries may precede any formal investigation and may never result in a formal proceeding. However, they can require significant legal analysis and response preparation, and they often serve as precursors to enforcement actions that may name individual directors or officers as respondents.
(b) Pre-investigation subpoenas or document demands. Federal and state regulatory agencies, including OSHA, the CPSC, the SEC, and state attorneys general, frequently issue subpoenas or civil investigative demands before initiating a formal investigation. These pre-investigation demands require legal counsel, document review, and privilege analysis, all of which generate significant expenses. The Form Indemnification Agreement's definition of "Proceeding" may not encompass these pre-investigation demands, particularly where the demand is directed to the Company rather than to the individual director or officer.
(c) Written demands by third parties. Shareholder books-and-records demands under Section 220 of the DGCL, demand letters asserting claims against the Company or its directors, and similar written demands for information or action may not constitute "proceedings" within the meaning of the indemnification agreement. Such demands are often preludes to formal litigation and require immediate legal attention, but they may fall outside the scope of the Company's contractual indemnification obligations.
(d) Extradition proceedings or foreign regulatory matters. As Nexford's business potentially expands internationally, its directors and officers may face foreign regulatory inquiries or, in extreme cases, extradition proceedings. The Form Indemnification Agreement's definition of "Proceeding" does not expressly address these matters.
2. D&O Policy Definition of "Claim". By contrast, the Vandermeer Primary D&O Policy (VNI-DO-2021-88473) defines "Claim" — the triggering event for coverage under the policy — more broadly than the indemnification agreement's definition of "Proceeding." The Vandermeer policy defines "Claim" to include:
(a) a written demand for monetary damages or non-monetary relief against any Insured Person;
(b) a civil, criminal, administrative, regulatory, or arbitration proceeding commenced against any Insured Person, including any appeal therefrom;
(c) a formal or informal investigation of an Insured Person by a governmental, regulatory, or self-regulatory body, including the service of a subpoena, civil investigative demand, or other request for documents or testimony in connection with such investigation;
(d) a written request to any Insured Person to toll or waive any applicable statute of limitations relating to a potential claim or proceeding; and
(e) an extradition proceeding brought against any Insured Person.
The Harrington Side-A DIC Policy uses a similarly broad definition of "Claim" that tracks the Vandermeer definition and adds an additional category: "any pre-investigation inquiry by a governmental body, including any request for information, interview request, or informal inquiry that could reasonably be expected to lead to a formal investigation of an Insured Person." This expansion is consistent with the DIC policy's purpose of providing the broadest possible coverage for individual directors and officers.
3. The Gap. The gap between the indemnification agreement's definition of "Proceeding" and the D&O policies' definition of "Claim" creates scenarios in which a matter qualifies as a "Claim" under the D&O insurance policies — thereby triggering coverage obligations, notice requirements, and defense cost provisions — but does not qualify as a "Proceeding" under the indemnification agreement — meaning the Company has no contractual obligation to indemnify or advance expenses.
This gap creates two categories of problems:
First, it undermines the coordination of the three-tier director protection framework. When a matter constitutes a "Claim" under the D&O policies, the director is expected to provide timely notice to the insurer and the Company. If the director incurs expenses in connection with the matter, the director expects to look first to the Company for indemnification (Tier 1), then to the D&O tower for reimbursement of indemnification payments (Tier 2, Side-B), or directly to the D&O tower for non-indemnifiable losses (Tier 2, Side-A). If the indemnification agreement does not cover the matter, the first tier is unavailable, and the director must look directly to the D&O tower — but the D&O tower's Side-B coverage (which reimburses the Company for indemnification payments) is inapplicable because the Company has no indemnification obligation. The result is that the matter falls into the Side-A category by default, potentially consuming Side-A limits that are intended to be reserved for true non-indemnifiable losses.
Second, it creates director uncertainty and potential exposure. A director who receives an informal OSHA inquiry or a shareholder books-and-records demand may be uncertain whether the Company is contractually obligated to advance defense costs. The director may be reluctant to engage counsel or respond to the matter without assurance that costs will be reimbursed, which in turn may result in delayed or inadequate responses that exacerbate the Company's regulatory or litigation risk.
To illustrate the practical significance of this gap, consider the following scenario. The Occupational Safety and Health Administration ("OSHA") issues an informal request for information to Nexford Conveyor Systems, LLC's Joliet, Illinois facility regarding workplace safety practices and recent incident reports. The request is addressed to the facility manager but also identifies two Nexford directors by name as individuals from whom OSHA may seek interviews. Under both the Vandermeer Primary Policy and the Harrington DIC Policy, this informal request would constitute a "Claim" — the Vandermeer policy expressly covers "formal or informal investigation[s]" by governmental bodies, and the Harrington DIC Policy covers "pre-investigation inquir[ies]." Notice would be required under both policies, and defense costs associated with the directors' participation in the inquiry would be covered. However, the informal OSHA request might not constitute a "Proceeding" under the Form Indemnification Agreement because it is not a formal investigation, inquiry, hearing, or other quasi-judicial proceeding. As a result, the Company would have no contractual obligation to advance the directors' legal expenses in connection with the OSHA matter, even though the D&O insurance policies would cover those expenses.
We note that this analysis is relevant to the Regulatory Investigation Coverage Memorandum currently in preparation (anticipated delivery date of June 14, 2022), which will provide a comprehensive analysis of D&O coverage for OSHA, CPSC, and state attorney general investigations involving the Company and its subsidiaries.
4. Recommendation. We recommend the following corrective measures to address this definitional misalignment:
First, the definition of "Proceeding" in Section 1(e) of the Form Indemnification Agreement should be amended to align with — and be at least as broad as — the definition of "Claim" in the Vandermeer Primary D&O Policy and the Harrington Side-A DIC Policy. Specifically, the revised definition should add express coverage for the following categories of matters:
(a) formal or informal investigations, examinations, or inquiries by any governmental, regulatory, or self-regulatory body, organization, or agency, including without limitation the receipt of any subpoena, civil investigative demand, interrogatory, or request for documents or testimony;
(b) pre-investigation inquiries by any governmental body, including any request for information, interview request, or informal inquiry that could reasonably be expected to lead to a formal investigation;
(c) written demands for monetary damages or non-monetary relief by any person or entity;
(d) written requests to toll, waive, or extend any applicable statute of limitations or contractual limitations period;
(e) extradition proceedings or requests for international judicial assistance; and
(f) any proceeding, inquiry, or matter before a foreign governmental, regulatory, or judicial body.
Second, as an alternative approach, we recommend that the Company consider replacing the defined term "Proceeding" in the Form Indemnification Agreement entirely with the defined term "Claim," using a definition that mirrors the definition of "Claim" in the Vandermeer Primary Policy (or, if broader, the definition in the Harrington DIC Policy). This approach offers the advantage of definitional consistency across the entire D&O protection framework — the same defined term and substantially the same definition would be used in the indemnification agreement, the primary D&O policy, the excess policies (which follow form to the primary), and the DIC policy. Definitional consistency reduces the risk of future coordination gaps if the D&O policies are renewed or replaced with policies containing modified definitions.
Third, regardless of which approach is adopted, the revised definition should include a provision stating that the enumeration of specific categories of covered matters is not intended to limit the generality of the definition and that the definition shall be construed as broadly as possible consistent with applicable law. This interpretive provision is a common feature of well-drafted indemnification agreements and serves to prevent a narrow judicial construction of the definition in the event of a coverage dispute.
Draft revised language for the definition of "Proceeding" (or "Claim," as applicable) will be prepared by our team and circulated to Priya Sundaram for review and comment.
VI. Additional Observations
In the course of our review of the Form Indemnification Agreement, we identified several additional matters that, while not presenting the same degree of urgency as the two principal findings discussed in Section V, warrant attention as part of the Company's broader effort to ensure a fully coordinated director and officer protection framework.
A. Consistency Across All Nine Indemnification Agreements
We have confirmed, based on our review of the executed agreements provided by the Company, that the same Form Indemnification Agreement was used for all nine directors. No material modifications were made to the form for any individual director, and all nine agreements contain the same provisions addressed in this memorandum. This uniformity simplifies the amendment process, as the same revisions can be applied consistently across all nine agreements.
We recommend that any amendments to the Form Indemnification Agreement be implemented for all nine directors simultaneously through uniform amendment agreements. A consistent approach avoids the creation of differential indemnification rights among board members and reduces the administrative burden of maintaining multiple versions of the agreement.
We further note that the Company's four independent directors may have heightened sensitivity to indemnification protections given that they do not have the implicit backing of the Veltrano organization. Unlike the five sponsor-appointed directors — who, in practice, may look to Veltrano Capital Partners and its affiliated entities for supplemental indemnification or other support in the event of a claim — the independent directors rely solely on the Company's indemnification agreement, the Company's bylaws, and the D&O insurance program for protection against personal liability. Ensuring that the indemnification agreements provide seamless, coordinated protection is therefore particularly important for the independent directors, and any delay in implementing the recommended amendments may create an unnecessary risk to their willingness to continue serving on the Board.
B. Officer Indemnification Agreements
The Form Indemnification Agreement is not limited to directors; it also covers officers of the Company who have executed the agreement. Based on information provided by Priya Sundaram, the following officers have executed the Form Indemnification Agreement:
• Sandra Elliston, Chief Executive Officer
• Marcus Delacroix, Chief Financial Officer
• Priya Sundaram, General Counsel and Corporate Secretary
The same two findings identified in Section V apply with equal force to the officer indemnification agreements. Indeed, officers face additional categories of exposure that make broad indemnification and alignment with D&O coverage particularly important. These additional exposure categories include:
• Securities law certifications. If the Company proceeds with a potential IPO, the CEO and CFO will be required to provide certifications under Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 in connection with periodic reports filed with the SEC. Personal liability for inaccurate certifications can be substantial, and coverage for such claims is a critical element of the officer protection framework.
• Employment practices claims. Officers with supervisory authority may be named individually as defendants in employment discrimination, harassment, or retaliation claims. While such claims are typically covered by the Company's employment practices liability insurance, they may also implicate the D&O tower and the indemnification agreement.
• Regulatory compliance. Officers with responsibility for regulatory compliance — including environmental, health, and safety compliance — may face personal liability for regulatory violations at the Company's operating subsidiaries. Given the industrial manufacturing nature of Nexford's business, OSHA, EPA, and state regulatory exposure is significant.
We recommend that the amendments to the Form Indemnification Agreement be extended to all officer agreements as well, ensuring consistency across the entire population of covered individuals.
C. Subsidiary Director and Officer Coverage
Nexford's three operating subsidiaries — Nexford Conveyor Systems, LLC; Triton Fastener Corp.; and Marlowe Asset Management Precision Machining, Inc. — each have their own directors (or managers, in the case of the Delaware LLC) and officers who may face personal liability arising from their service to the subsidiary. The Vandermeer Primary D&O Policy's definition of "Insured Person" extends to directors and officers of subsidiaries that are identified in the policy's subsidiary schedule, and we have confirmed that all three operating subsidiaries are listed on the Vandermeer subsidiary schedule for the current policy year.
However, the extension of D&O insurance coverage to subsidiary directors and officers does not automatically establish a contractual indemnification obligation at the subsidiary level. If the subsidiaries have not entered into indemnification agreements with their respective directors and officers — or if the subsidiary-level governing documents (operating agreements, bylaws, or articles of incorporation) do not include adequate indemnification and advancement provisions — then the first tier of the director protection framework may be absent at the subsidiary level.
We recommend that Priya Sundaram confirm the status of subsidiary-level indemnification agreements for all three operating subsidiaries. If such agreements are not in place, or if the existing subsidiary governing documents do not provide indemnification protections equivalent to those in the Nexford parent-level Form Indemnification Agreement, we recommend that subsidiary-level indemnification agreements be adopted promptly. These subsidiary agreements should incorporate the same revisions recommended in this memorandum to ensure consistency across the entire corporate group.
D. Coordination with Bylaws and Certificate of Incorporation
The Amended and Restated Certificate of Incorporation of Nexford includes a standard exculpation clause adopted pursuant to Section 102(b)(7) of the DGCL. This provision eliminates or limits the personal liability of directors for monetary damages arising from breaches of the duty of care, subject to the exceptions set forth in Section 102(b)(7) (which preserves liability for breaches of the duty of loyalty, acts or omissions not in good faith, intentional misconduct, knowing violations of law, and improper personal benefit transactions). The exculpation clause is properly drafted and does not present any coordination issues with the Form Indemnification Agreement or the D&O insurance tower.
The Amended and Restated Bylaws of Nexford include indemnification and advancement provisions in Article VII. These bylaw provisions should be reviewed for consistency with the recommended amendments to the Form Indemnification Agreement. In particular, the bylaws should be reviewed to determine whether they contain a Board determination prerequisite for advancement of expenses similar to the one identified in Section V.A of this memorandum. If so, the bylaws should be amended concurrently with the indemnification agreements to ensure a consistent approach.
The Form Indemnification Agreement includes a standard provision stating that the contractual indemnification rights conferred by the agreement are "supplementary to and not in limitation of any rights to indemnification or advancement of expenses to which the Indemnitee may be entitled under the Certificate of Incorporation, the Bylaws, any other agreement, any vote of stockholders or directors, the DGCL, or otherwise." This provision is appropriately drafted to ensure that the indemnification agreement does not inadvertently limit broader rights that may be available under other instruments. We have confirmed that no conflicts exist between the Form Indemnification Agreement, the Amended and Restated Bylaws, and the Amended and Restated Certificate of Incorporation, subject to the need to review the bylaw advancement provisions as noted above.
E. Pre-IPO Considerations
If Nexford proceeds with a potential initial public offering in the 2023–2024 timeframe, the entire indemnification framework — including the Form Indemnification Agreement, the bylaws, the certificate of incorporation, and the D&O insurance program — will need to be comprehensively revisited. The transition from a private, PE-backed company to a publicly traded company introduces a fundamentally different risk environment for directors and officers, requiring corresponding adjustments to the protection framework.
Public company indemnification agreements typically include additional provisions addressing the following matters:
• Securities law claims, including claims under Sections 11, 12, and 15 of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934;
• SEC investigations and enforcement proceedings, including formal orders of investigation and Wells notices;
• Derivative actions brought by stockholders on behalf of the corporation;
• Class action securities litigation, which is the predominant source of D&O claims for public companies;
• Provisions addressing the Company's obligation to maintain D&O insurance at specified minimum coverage levels; and
• Provisions addressing the interplay between indemnification and insurance, including the priority of payment as among the Company, the D&O insurers, and any other sources of indemnification (such as sponsor indemnification obligations).
The D&O tower structure will also need significant augmentation in connection with an IPO. As noted in the D&O Limits Adequacy Memorandum dated June 6, 2022 (prepared by our team in connection with this engagement), the Company's current $55 million D&O tower is adequate for a private, PE-backed company of Nexford's size and risk profile, but would likely be insufficient for a newly public company. Newly public companies in the industrial sector with Nexford's revenue profile and enterprise value typically maintain D&O towers in the range of $75 million to $125 million, with dedicated Side-A limits of $25 million or more.
We recommend that the revised Form Indemnification Agreement include a provision addressing the Company's obligations in connection with a public offering or a change of control. Specifically, we recommend that the agreement include a covenant by the Company to review and, if necessary, amend the indemnification agreement in connection with any public offering to ensure continued compliance with applicable law and market practice. Additionally, the agreement should include a provision requiring the Company to maintain D&O insurance at levels consistent with its obligations under the indemnification agreement, with a specific requirement that such insurance include Side-A coverage for non-indemnifiable losses.
These pre-IPO considerations are flagged for future attention and do not require immediate action, but they should be incorporated into the Company's IPO readiness planning as the timeline for a potential offering crystallizes.
VII. Recommended Action Items
Based on the findings and analysis set forth in this memorandum, we recommend the following action items:
1. Draft revised advancement of expenses clause. Prepare a revised Section 4 of the Form Indemnification Agreement that eliminates the Board determination prerequisite and establishes a mandatory 30-day advancement timeline, coordinated with the Harrington DIC Policy's 60-day constructive refusal trigger. The revised clause should provide for mandatory advancement upon receipt of the Indemnitee's written request and undertaking, without any prior Board approval or determination. Responsible: Naomi Petersen / Yuki Nakamura. Target date: June 10, 2022.
2. Draft revised definition of "Proceeding." Prepare a revised definition of "Proceeding" (or, if the alternative approach is adopted, a new defined term "Claim") that aligns with and is at least as broad as the definition of "Claim" in the Vandermeer Primary D&O Policy and the Harrington Side-A DIC Policy. The revised definition should expressly cover informal regulatory inquiries, subpoenas, document demands, tolling requests, extradition proceedings, and foreign regulatory matters. Responsible: Naomi Petersen / Yuki Nakamura. Target date: June 10, 2022.
3. Circulate proposed revisions to General Counsel. Circulate the proposed revisions, together with a cover memorandum explaining the rationale for each change, to Priya Sundaram, General Counsel and Corporate Secretary of Nexford, for review and comment. Responsible: Naomi Petersen. Target date: June 13, 2022.
4. Prepare uniform amendment agreements. Upon approval of the proposed revisions by Ms. Sundaram (and, if required, by the Board of Directors), prepare uniform amendment agreements for execution by all nine directors and all covered officers. The amendment agreements should be in the form of a First Amendment to Director and Officer Indemnification Agreement and should incorporate the revised advancement clause and revised definition as set forth in the proposed revisions. Responsible: Yuki Nakamura. Target date: June 20, 2022 (subject to client approval timeline).
5. Confirm status of subsidiary-level indemnification agreements. Request that Priya Sundaram confirm whether indemnification agreements are in place at the subsidiary level for directors and officers (or managers) of Nexford Conveyor Systems, LLC; Triton Fastener Corp.; and Marlowe Asset Management Precision Machining, Inc. If such agreements are not in place or are inadequate, prepare form subsidiary indemnification agreements incorporating the same protections as the amended parent-level agreement. Responsible: Naomi Petersen. Target date: June 13, 2022 (initial inquiry).
6. Review Amended and Restated Bylaws. Review the indemnification and advancement provisions of the Amended and Restated Bylaws of Nexford for consistency with the proposed amendments to the Form Indemnification Agreement. If the bylaws contain a Board determination prerequisite for advancement or a narrow definition of "Proceeding" (or equivalent term), prepare recommended bylaw amendments for consideration by the Board. Responsible: Yuki Nakamura. Target date: June 17, 2022.
7. Flag pre-IPO indemnification agreement overhaul. Add to the engagement's tracking log a future work item for a comprehensive overhaul of the indemnification agreement framework in connection with any potential IPO. This work item should be activated when the IPO timeline crystallizes and should encompass revised indemnification agreements, revised bylaws, D&O tower restructuring, and IPO-specific Side-A DIC coverage. Responsible: Naomi Petersen / Douglas Fairchild. Target date: To be determined based on IPO timeline.
VIII. Conclusion
The Form Indemnification Agreement adopted by Nexford Industrial Holdings Inc. provides robust indemnification protections for the Company's directors and officers that are generally consistent with Delaware law and market practice for PE-backed portfolio companies. The agreement reflects a clear intent to provide the broadest permissible indemnification and to create enforceable contractual rights that supplement — and survive any amendment to — the Company's bylaw indemnification provisions.
However, the two misalignments identified in this memorandum — the advancement of expenses clause and the definition of "Proceeding" — represent meaningful coordination gaps that could leave directors and officers exposed in certain scenarios. These misalignments are not uncommon in form indemnification agreements adopted at the time of a leveraged buyout, as the agreements are frequently drafted and negotiated before the specific D&O tower has been structured and placed. In Nexford's case, the Form Indemnification Agreement was adopted at the closing of the June 15, 2018 leveraged buyout, and the current D&O tower was structured for the 2021–2022 policy year, nearly three years later. It is therefore unsurprising that the agreement's provisions are not perfectly calibrated to the current policy terms.
Both issues are readily remediable through targeted amendments. The proposed revisions — eliminating the Board determination prerequisite for advancement and broadening the definition of the triggering event to match the D&O policy definition of "Claim" — are straightforward, well-supported by Delaware law, and consistent with market practice. Neither revision expands the Company's indemnification obligations beyond what is permitted by the DGCL; rather, each revision aligns the procedural and definitional provisions of the indemnification agreement with the Company's existing D&O insurance program to ensure that the entire director and officer protection framework operates as an integrated whole.
We recommend that these amendments be completed in connection with the 2022–2023 D&O tower renewal, which is effective July 1, 2022. Coordinating the indemnification agreement amendments with the D&O tower renewal ensures that the entire director and officer protection framework — indemnification agreements, bylaws, D&O tower, and Side-A DIC — is fully coordinated and effective as of the same date. This approach also presents an opportunity to confirm the framework's alignment with the renewed policies, including any changes to policy terms, definitions, or trigger mechanisms that may be negotiated as part of the renewal process.
Calderwood & Harkness LLP stands ready to prepare the necessary amendment documents upon authorization from Nexford's General Counsel. We are available to discuss the findings and recommendations in this memorandum at your convenience.
Respectfully submitted,
CALDERWOOD & HARKNESS LLP
By: ________
Naomi Petersen Lead Associate, Mergers & Acquisitions Department
Reviewed by: ________ Douglas Fairchild Responsibl

PRIVILEGED AND CONFIDENTIAL — ATTORNEY-CLIENT COMMUNICATION

MEMORANDUM

MATTER NO.: 1005-00003

CALDERWOOD & HARKNESS LLP

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