CALDERWOOD & HARKNESS LLP
NEW MATTER MEMORANDUM
CONFIDENTIAL — FOR INTERNAL USE ONLY
Form NMM-4 (Rev. 01/2021)
Date Prepared: April 26, 2022
Prepared By: Douglas Fairchild, Partner
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SECTION 1: MATTER INFORMATION
Matter Number: 1005-00003
Matter Name: Nexford Industrial Holdings Inc. — D&O and Product-Liability Insurance Tower Review
Date Opened: April 26, 2022
Engagement Letter Date: April 22, 2022
Engagement Type: Advisory / Transactional (Non-Litigation)
Practice Area Classification: Insurance / Policy Review
Secondary Practice Area(s): Corporate Governance; Risk Management
Office(s): Chicago (primary); New York (supporting)
Anticipated Duration: Approximately four (4) months (through completion of the 2022–2023 renewal cycle, with a target completion date of approximately August 31, 2022)
Related Matter Number(s): None currently on file. Should any related matters be opened in connection with litigation, regulatory proceedings, or other advisory work arising from or relating to this engagement, cross-references will be updated in the firm's matter management system.
SECTION 2: CLIENT INFORMATION
Client Full Legal Name: Nexford Industrial Holdings Inc.
Short Name / Acronym: Nexford / NIH
Entity Type: Corporation
Jurisdiction of Incorporation: Delaware
Principal Place of Business / Headquarters:
2200 Corporate Center Drive, Suite 800 Schaumburg, IL 60173
Registered Agent Address:
c/o Cobalt Ridge Technologies 1209 Orange Street Wilmington, DE 19801
EIN: 83-2174650
Client Contacts:
Primary: Priya Sundaram, General Counsel & Corporate Secretary. Ms. Sundaram will serve as the principal point of contact for all matters relating to this engagement, including policy document production, decision-making authority on scope, and internal coordination among Nexford's management team and board of directors. All substantive communications regarding the engagement should be directed to or copied to Ms. Sundaram.
Secondary: Trevor Haines, Vice President, Risk Management. Mr. Haines oversees Nexford's enterprise risk management function and manages the relationship with Ashford Breckinridge LLP, the company's insurance broker of record. Mr. Haines will be the primary source of claims data, loss history, and operational risk information.
Tertiary: Donna Kowalski, Director of Insurance and Claims. Ms. Kowalski manages day-to-day insurance program administration, including certificate issuance, claims reporting, and coordination with carrier adjusters. She maintains the company's centralized policy repository and will be the primary contact for document requests and policy production.
Existing Client: Yes. Nexford Industrial Holdings Inc. is a standing client of Calderwood & Harkness LLP pursuant to an Outside Counsel Agreement dated January 15, 2020. The firm has previously provided corporate governance, employment, and general corporate advisory services to Nexford under prior matter numbers, all of which have been closed. This engagement represents the first insurance-specific advisory matter for the client.
Industry / Sector: Industrial Manufacturing. Nexford and its subsidiaries design, manufacture, and distribute conveyor systems, industrial fasteners, and precision-machined components, primarily serving the automotive and construction sectors. The company operates three principal manufacturing facilities across Illinois and Ohio, with a combined workforce of approximately 3,200 employees.
Annual Revenue (FY2021): $1.42 billion, as reported in audited financial statements prepared by Pemberton & Associates CPAs, LLP, the company's independent auditor.
Ownership Structure: Nexford is privately held. The company's equity is distributed as follows:
• Veltrano Capital Partners Fund IV, LP — 68.5% majority ownership
• Management rollover equity — 19.3% (held by members of Nexford's senior management team, including the CEO, CFO, and certain operational leadership)
• Co-investors — 12.2% (limited partners and co-investment vehicles affiliated with Veltrano Capital Partners)
The company was acquired by Veltrano Capital Partners Fund IV, LP in a leveraged buyout transaction that closed on June 15, 2018, at a total enterprise valuation of $2.1 billion.
SECTION 3: RELATED ENTITIES / AFFILIATED PARTIES
3.1 Subsidiaries (Named Insureds Under Policies Being Reviewed)
The following wholly-owned subsidiaries of Nexford Industrial Holdings Inc. are named insureds under both the D&O and product-liability insurance programs being reviewed in this engagement. Each subsidiary represents a distinct operating division of the Nexford enterprise, and each maintains separate manufacturing operations and product lines.
Nexford Conveyor Systems, LLC
• Entity Type: Delaware limited liability company
• EIN: 83-2174651
• Principal Facility: 4500 Industrial Parkway, Joliet, IL 60436
• Operations: Design, manufacture, and installation of heavy-duty belt and roller conveyor systems for automotive assembly lines, mining operations, distribution centers, and construction materials handling applications
• Revenue Contribution (FY2021): Approximately $795.2 million, representing 56% of Nexford's consolidated revenue
• Employees: Approximately 1,750
• Notes: Nexford Conveyor Systems is the largest operating subsidiary and the subject of the Higgins v. Nexford Conveyor Systems, LLC et al. product-liability litigation described in Section 8 below. The subsidiary's product portfolio includes the Model NCS-7200 heavy-duty conveyor system at issue in that proceeding.
Triton Fastener Corp.
• Entity Type: Illinois corporation
• EIN: 36-4892103
• Principal Facility: 1010 Whitman Avenue, Rockford, IL 61101
• Operations: Manufacture and distribution of industrial fasteners, bolts, anchoring systems, and related hardware for structural, automotive, and construction applications
• Revenue Contribution (FY2021): Approximately $397.6 million, representing 28% of Nexford's consolidated revenue
• Employees: Approximately 920
• Notes: Triton Fastener Corp. is a defendant in the Consolidated Builders Supply Co. v. Triton Fastener Corp. product-liability action described in Section 8 below. The subsidiary conducted a voluntary product recall in March 2020, as further detailed in Section 11.
Marlowe Asset Management Precision Machining, Inc.
• Entity Type: Ohio corporation
• EIN: 31-1784529
• Principal Facility: 775 Summit Industrial Boulevard, Akron, OH 44311
• Operations: Precision machining, CNC milling, and fabrication of automotive and construction components, including brake rotor assemblies, transmission housings, and structural steel connectors
• Revenue Contribution (FY2021): Approximately $227.2 million, representing 16% of Nexford's consolidated revenue
• Employees: Approximately 530
• Notes: Marlowe Asset Management Precision Machining is not currently involved in any pending litigation. However, its products are integrated into finished goods manufactured by third-party OEMs, creating potential downstream product-liability exposure that must be addressed in the completed operations coverage analysis.
3.2 Majority Owner / Sponsor
Veltrano Capital Partners Fund IV, LP
• Entity Type: Delaware limited partnership
• Principal Office: 301 South Tryon Street, Suite 2800, Charlotte, NC 28202
• Ownership Interest in Nexford: 68.5%
• Fund Characteristics: $4.8 billion committed capital; 2017 vintage year; mid-market buyout fund focused on industrial, healthcare, and business services sectors
• Acquisition of Nexford: Leveraged buyout closed June 15, 2018, at a total enterprise value of approximately $2.1 billion
• General Partner: Veltrano Capital Partners, LLC, a Delaware limited liability company, serves as the general partner of the Fund
• Key Personnel:
• Jonathan Veltrano — Founding Managing Partner of Veltrano Capital Partners, LLC. Mr. Veltrano is a member of the Fund's Investment Committee and serves as an observer on the Nexford board of directors.
• Celeste Brogan — Partner, Portfolio Operations, Veltrano Capital Partners, LLC. Ms. Brogan leads the Fund's portfolio operations team and serves as a board observer for Nexford. She is the primary Veltrano point of contact for portfolio company governance and risk management matters.
• Relevance to Matter: Veltrano's majority ownership position and appointment of five of nine board seats creates significant implications for the D&O insurance program structure, including the importance of Side-A DIC coverage, entity-versus-individual coverage allocation, and the need to ensure that the D&O program adequately addresses sponsor-related risks. Veltrano has separately retained the Kessler Quinn Advisory Group (see Section 3.3 below) for its own loss-modeling and limits-adequacy analysis. Coordination between the Calderwood & Harkness engagement team and Kessler Quinn will be necessary.
3.3 Other Key Third Parties Relevant to Matter
The following third parties are expected to be involved in or relevant to this engagement. These entities are not clients of the firm in connection with this matter, but the engagement team should be aware of their roles and maintain appropriate lines of communication as indicated.
Ashford Breckinridge LLP — Insurance Broker of Record
• Address: 321 South Plymouth Court, Suite 1500, Chicago, IL 60604
• Role: Ashford Breckinridge serves as Nexford's insurance broker of record for both the D&O and product-liability programs. The firm will be responsible for preparing and distributing the renewal submission to incumbent and prospective carriers, soliciting and evaluating quotes, and placing the renewed programs.
• Contacts:
• Phillip Garza — Senior Vice President, Executive Risk Practice. Mr. Garza manages the D&O and fiduciary liability placements.
• Tamara Fisk — Account Executive, Manufacturing & Industrial. Ms. Fisk manages the product-liability and general liability placements and serves as the day-to-day account manager for the Nexford relationship.
Kessler Quinn Advisory Group — Insurance Coverage Consultant
• Address: 55 Farmington Avenue, Suite 700, Hartford, CT 06105
• Role: Kessler Quinn has been separately retained by Veltrano Capital Partners for loss-modeling, actuarial analysis, and adequacy-of-limits assessment for the D&O and PL programs. Kessler Quinn's work product will inform Veltrano's evaluation of the insurance programs and may be shared with the Calderwood & Harkness team for use in the tower review, subject to any applicable privilege or confidentiality considerations.
• Contacts:
• Arthur Kessler — Managing Director
• Diana Cho — Vice President, Actuarial Services. Ms. Cho is the primary point of contact for loss data, IBNR estimates, and actuarial modeling inputs.
Hollander Byrne & Strauss LLP — Outside Litigation Counsel
• Address: 70 West Madison Street, Suite 3600, Chicago, IL 60602
• Role: Hollander Byrne & Strauss LLP serves as outside litigation counsel to Nexford for the two pending product-liability lawsuits described in Section 8 below (Higgins v. Nexford Conveyor Systems, LLC et al. and Consolidated Builders Supply Co. v. Triton Fastener Corp.). Coordination with this firm will be necessary to understand the current status and exposure assessment for each pending claim, as the existence and posture of these claims will directly impact renewal terms, conditions, and pricing.
• Contacts:
• Catherine Byrne — Partner, Lead Trial Counsel
• Rafael Mendez — Senior Associate
Broadleaf Capital Markets, LLC — Administrative Agent
• Address: 383 Madison Avenue, 24th Floor, New York, NY 10179
• Role: Broadleaf Capital Markets, LLC serves as the administrative agent for Nexford's senior secured credit facility, with total funded debt of approximately $1.05 billion. The credit agreement may contain covenants requiring maintenance of specified insurance coverages, including D&O and product-liability insurance, and the engagement team should review any such provisions as part of the tower adequacy analysis.
Pemberton & Associates CPAs, LLP — Independent Auditor
• Address: 200 South Michigan Avenue, Suite 1100, Chicago, IL 60604
• Role: Pemberton & Associates serves as Nexford's independent auditor and has prepared the audited financial statements referenced herein. The engagement team may require access to Pemberton's audited financials, management letters, or internal control assessments to the extent relevant to the insurance program review.
SECTION 4: STAFFING & TIMEKEEPER ASSIGNMENT
4.1 Responsible Partner
Name: Douglas Fairchild Department: Real Estate Office: Chicago (155 North Wacker Drive, Suite 4200, Chicago, IL 60606) Bar Admissions: Illinois (2001); New York (2002) Hourly Rate: $1,150 Role: Mr. Fairchild will serve as the responsible partner for this engagement, providing overall strategic direction and maintaining the primary client relationship with Priya Sundaram and other senior Nexford executives. Mr. Fairchild has extensive experience advising private-equity portfolio companies on insurance program structuring, D&O tower design, and renewal negotiations, having previously led similar engagements for Veltrano Capital Partners portfolio companies and other institutional investor clients.
4.2 Billing Partner
Name: Angela Fontaine Department: Real Estate Office: Chicago (155 North Wacker Drive, Suite 4200, Chicago, IL 60606) Billing Partner Code: AFO-7724 Bar Admissions: Illinois (1999) Hourly Rate: $1,150 Role: Ms. Fontaine will serve as the billing partner and will be responsible for invoice review, billing compliance with the Outside Counsel Agreement, and financial administration of the matter. Ms. Fontaine has served as the billing partner for the Nexford relationship since the firm's initial engagement in 2020 and is familiar with the client's billing guidelines and preferences.
4.3 Lead Associate
Name: Naomi Petersen Department: Mergers & Acquisitions Office: New York (600 Lexington Avenue, 30th Floor, New York, NY 10022) Bar Admissions: New York (2015) Hourly Rate: $825 (Senior Associate) Role: Ms. Petersen will serve as the lead associate on this engagement, responsible for the day-to-day management of the policy review, drafting of the gap analysis and policy-wording comparison memoranda, coordination with the broker and consultant, and preparation of board presentation materials. Ms. Petersen's M&A practice includes significant experience with representations and warranties insurance, D&O tail policies, and insurance provisions in leveraged buyout documentation, providing valuable context for assessing the interplay between Nexford's insurance programs and its ownership and capital structure.
4.4 Working Associate
Name: Yuki Nakamura Department: Litigation (General) Office: Chicago (155 North Wacker Drive, Suite 4200, Chicago, IL 60606) Bar Admissions: Illinois (2020) Hourly Rate: $625 (Associate, Years 1–4) Role: Mr. Nakamura will assist with the product-liability insurance tower review, with particular focus on claims-interface analysis, coordination with Hollander Byrne & Strauss LLP regarding the pending litigation matters, review of notice-of-claim provisions, and analysis of the interaction between pending product-liability claims and renewal terms. Mr. Nakamura's litigation background provides useful perspective on claims-handling and coverage dispute dynamics.
4.5 Additional Staffing Notes
No paralegal or staff attorney assignments have been made at this time. Should the scope of the engagement require additional resources — for example, in connection with an intensive policy-wording comparison across multiple carrier forms or preparation of extensive board materials — the responsible partner will evaluate the need for supplemental staffing and seek client approval before expanding the team.
The current staffing reflects a cross-departmental team assembled to provide the full range of expertise required for a comprehensive insurance coverage review. The combination of real estate, M&A, and litigation practitioners is consistent with the multi-disciplinary nature of the engagement, which requires knowledge of corporate governance, transactional risk allocation, insurance coverage, and claims management.
SECTION 5: SCOPE OF ENGAGEMENT
The firm has been engaged to conduct a comprehensive review of Nexford Industrial Holdings Inc.'s Directors & Officers ("D&O") liability insurance tower and product-liability ("PL") insurance tower in connection with the 2022–2023 policy renewal cycle. The incumbent policy period under review runs from July 1, 2021 through July 1, 2022, and the target renewal effective date is July 1, 2022.
The scope of the engagement encompasses the following workstreams:
1. Adequacy of Limits Analysis. Assessment of the adequacy of the current aggregate limits for both the D&O tower ($55 million aggregate, inclusive of Side-A DIC) and the PL tower ($75 million aggregate). This analysis will take into account Nexford's risk profile, financial scale, industry benchmarking data, loss history, pending litigation exposure, and the company's estimated current enterprise value of approximately $2.6 billion.
2. Gap Analysis Across Both Towers. Identification of gaps, overlaps, or inconsistencies in coverage across all layers of both the D&O and PL programs, including differences in definitions, exclusions, conditions, and endorsements between primary and excess layers that could give rise to coverage disputes or unintended exposure.
3. Policy Wording Comparison Across All Layers. Side-by-side comparison of the policy forms used by each carrier in both towers to identify material differences in insuring agreements, definitions, exclusions, conditions, and notice provisions. This comparison will encompass the primary, excess, and Side-A DIC layers in the D&O program and the primary, excess/umbrella, and follow-form excess layers in the PL program.
4. Coordination Between D&O and Product-Liability Programs. Analysis of the interaction and potential overlap or gaps between the D&O and PL programs, including coverage for directors and officers in product-liability-related securities or derivative claims, allocation issues, and the potential for erosion of D&O limits by entity-level product-liability claims.
5. Side-A DIC Policy Review and Limit Recommendation. Detailed review of the Side-A Difference-in-Conditions policy issued by Harrington Specialty Insurance Co., including assessment of the adequacy of the dedicated $15 million limit, analysis of DIC triggering conditions, and evaluation of whether the Side-A DIC appropriately addresses the risks arising from Nexford's PE-controlled governance structure.
6. Product Recall Sub-Limit Adequacy Assessment. Evaluation of the current product recall sub-limit of $2.5 million per occurrence / $5 million aggregate within the primary GL/PL policy in light of Nexford's historical recall experience, product distribution volume (approximately 42,000 SKUs shipped annually), and the company's exposure profile across three operating subsidiaries.
7. Interaction of Pending Product-Liability Claims with Renewal Terms. Analysis of how the two pending product-liability lawsuits (Higgins and Consolidated Builders) and the associated $8.3 million in open reserves may affect renewal pricing, terms, conditions, and available capacity. This workstream will require coordination with Hollander Byrne & Strauss LLP to obtain current exposure assessments and case status updates.
8. Broker Submission Review. Review of the renewal submission prepared by Ashford Breckinridge LLP prior to distribution to incumbent and prospective carriers, to ensure completeness, accuracy, and appropriate presentation of Nexford's risk profile.
9. Carrier Quote Comparison and Renewal Negotiation Support. Comparative analysis of quotes received from incumbent and prospective carriers for the 2022–2023 renewal, including premium, terms, conditions, and carrier financial strength. The team will provide strategic advice and negotiation support to Nexford's management and broker throughout the renewal process.
10. Board Presentation Materials and Resolution Drafting. Preparation of a summary presentation for the Nexford board of directors (or appropriate board committee) summarizing the results of the tower review, renewal recommendations, and any proposed changes to the insurance program structure. The team will also draft any board resolutions required to authorize the placement of the renewed program.
11. Post-Bind Policy Form Verification. Following the binding of the renewed 2022–2023 program, the team will review the issued policy forms against the bound terms to verify that the policies as issued accurately reflect the negotiated terms, conditions, endorsements, and limits.
This engagement does not include the representation of Nexford or any of its subsidiaries in any pending or future litigation, regulatory proceeding, or dispute with any insurance carrier. If any coverage dispute or litigation arises during or as a result of this engagement, a separate matter will be opened and staffed accordingly, subject to applicable conflict-of-interest and engagement letter requirements.
SECTION 6: D&O TOWER — INCUMBENT CARRIERS (2021–2022)
The following table sets forth the current structure of Nexford's Directors & Officers liability insurance tower for the policy period July 1, 2021 through July 1, 2022, as placed by Ashford Breckinridge LLP:
Key Program Parameters:
• D&O Rate-on-Line (ROL): 2.48% (calculated as total premium of $1,363,450 divided by total aggregate limit of $55 million)
• Entity Coverage Self-Insured Retention (SIR): $1,000,000 per claim. The SIR applies to entity-coverage (Side-B and Side-C) claims only. Individual director and officer claims (Side-A) are not subject to the SIR under the primary policy, and the dedicated Side-A DIC policy issued by Harrington Specialty Insurance Co. carries no SIR.
• Side-A DIC Policy: The Harrington Specialty Insurance Co. Side-A DIC policy provides $15 million in dedicated, non-eroding limits for the personal liability of individual directors and officers in circumstances where the company is unable or unwilling to indemnify, or where the underlying D&O tower is exhausted, subject to the DIC triggering conditions specified in the policy. This layer is critical given the PE-controlled governance structure described below.
• Board Composition: Nexford's board of directors consists of nine (9) members, comprised of four (4) independent directors and five (5) directors appointed by Veltrano Capital Partners Fund IV, LP in accordance with the stockholders' agreement. The sponsor-majority board composition warrants careful attention to Side-A coverage adequacy, potential conflicts between entity and individual interests, and allocation provisions within the D&O tower.
SECTION 7: PRODUCT-LIABILITY TOWER — INCUMBENT CARRIERS (2021–2022)
The following table sets forth the current structure of Nexford's product-liability insurance tower for the policy period July 1, 2021 through July 1, 2022, as placed by Ashford Breckinridge LLP:
Key Program Parameters:
• PL Rate-on-Line (ROL): 3.52% (calculated as total premium of $2,642,900 divided by total aggregate limit of $75 million)
• PL Self-Insured Retention (SIR): $500,000 per occurrence under the primary GL/PL policy
• Product Recall Sub-Limit: $2.5 million per occurrence / $5.0 million aggregate, included within the primary GL/PL policy issued by Midland Casualty & Surety Company. As discussed in Section 11, this sub-limit should be assessed in light of Nexford's historical recall costs and its annual SKU distribution volume.
• Completed Operations Coverage: The primary GL/PL policy provides completed operations coverage extending ten (10) years post-delivery. Given that Nexford's three subsidiaries collectively ship approximately 42,000 SKUs annually, the completed operations exposure represents a significant component of the overall product-liability risk profile.
Combined D&O and PL Program Summary:
• Total Combined Annual Premium (D&O + PL): $4,006,350
• Premium as Percentage of Revenue: 0.282% of FY2021 revenue of $1.42 billion
• Total Combined Aggregate Limits (D&O + PL): $130 million ($55M D&O + $75M PL)
SECTION 8: PENDING LITIGATION RELEVANT TO MATTER
The following pending product-liability lawsuits are relevant to the insurance tower review and will directly impact the renewal process for the 2022–2023 policy period. Both claims are being defended by Hollander Byrne & Strauss LLP.
8.1 Higgins v. Nexford Conveyor Systems, LLC et al.
• Case Number: 2021-L-04382
• Court: Circuit Court of Will County, Illinois
• Date Filed: September 14, 2021
• Plaintiff: Richard Higgins, individually, and as assignee of SafeHarbor Specialty Materials, Inc. (plaintiff's employer)
• Defendants: Nexford Conveyor Systems, LLC; Nexford Industrial Holdings Inc.
• Nature of Action: Personal injury — product liability. Plaintiff alleges catastrophic crush injury sustained during operation of a Model NCS-7200 heavy-duty belt conveyor system manufactured by Nexford Conveyor Systems, LLC, due to a purportedly defective emergency stop mechanism. Plaintiff alleges strict liability (manufacturing defect and design defect), negligence, and breach of implied warranty of merchantability.
• Damages Sought: $14.5 million (inclusive of claimed past and future medical expenses, lost wages, pain and suffering, and loss of consortium)
• Current Status: Active. The case is in the discovery phase. The court has entered a case management order establishing a fact discovery cutoff of January 31, 2023, and an expert disclosure deadline of April 30, 2023. Depositions of the plaintiff and key Nexford Conveyor Systems engineering personnel are anticipated in the third and fourth quarters of 2022. No dispositive motions have been filed.
• Defense Counsel: Catherine Byrne and Rafael Mendez, Hollander Byrne & Strauss LLP
• Insurance Implications: This claim has been reported under the Midland Casualty & Surety Company primary GL/PL policy (Policy No. MCS-GL-2021-55671). The SIR of $500,000 is expected to be exhausted or substantially eroded. The magnitude of the damages sought ($14.5M) could potentially reach the 1st Excess/Umbrella layer (Great Basin Insurance Company). The existence of this pending claim may result in prior-acts exclusions, increased retentions, or premium surcharges at renewal.
8.2 Consolidated Builders Supply Co. v. Triton Fastener Corp.
• Case Number: 1:21-cv-08914
• Court: United States District Court for the Northern District of Illinois
• Date Filed: November 2, 2021
• Plaintiff: Consolidated Builders Supply Co., a Wisconsin corporation
• Defendant: Triton Fastener Corp.
• Nature of Action: Product liability — property damage and economic loss. Plaintiff alleges structural failure of Grade 8 hex bolts manufactured by Triton Fastener Corp. and used in the construction of a commercial warehouse facility in Kenosha, Wisconsin. Plaintiff claims the bolts failed under normal loading conditions, resulting in a partial structural collapse that required emergency remediation and reconstruction.
• Damages Sought: $6.8 million (inclusive of claimed remediation costs, reconstruction expenses, lost rental income, and consequential damages)
• Current Status: Active. The court denied defendant's motion to dismiss on February 11, 2022. The case is proceeding through fact discovery. Expert reports have not yet been exchanged. A mediation date has not been set.
• Defense Counsel: Catherine Byrne and Rafael Mendez, Hollander Byrne & Strauss LLP
• Insurance Implications: This claim has been reported under the Midland Casualty & Surety Company primary GL/PL policy. The plaintiff's claimed damages of $6.8 million are within the primary policy limits but, if a verdict or settlement approaches or exceeds the primary limits, could implicate the 1st Excess/Umbrella layer. This claim, in combination with the Higgins matter, contributes to an aggregate claims environment that will be closely scrutinized by renewal underwriters.
8.3 Loss History Summary
• Open Product-Liability Reserves (as of April 2022): $8.3 million across both pending claims (Higgins and Consolidated Builders)
• IBNR Estimate (per Kessler Quinn Advisory Group): $2.1 million
• Total Five-Year Product-Liability Incurred Loss Experience:
• Paid losses: $4.72 million
• Open reserves: $8.3 million
• IBNR: $2.1 million
• Total five-year incurred: $15.12 million
• Five-Year D&O Loss History: One reported claim, consisting of a shareholder demand letter received in 2020. The demand was resolved without payment and without the filing of litigation. Zero paid D&O losses in the five-year period.
SECTION 9: FEE ARRANGEMENT & BILLING INFORMATION
Billing Basis: Time-based billing at hourly rates in accordance with the standing Outside Counsel Agreement between Calderwood & Harkness LLP and Nexford Industrial Holdings Inc. dated January 15, 2020. The Outside Counsel Agreement governs the terms and conditions of the engagement, including billing practices, electronic billing requirements, and outside counsel guidelines.
Rate Schedule: The following hourly rates are applicable to this engagement, consistent with the rate schedule set forth in the Outside Counsel Agreement:
Billing Partner Code: AFO-7724 (Angela Fontaine)
Billing Frequency: Monthly. Invoices will be prepared and submitted on a monthly cycle, reflecting all professional fees and disbursements incurred during the preceding calendar month.
Invoicing Instructions: Standard monthly invoices shall be directed to:
Priya Sundaram General Counsel & Corporate Secretary Nexford Industrial Holdings Inc. 2200 Corporate Center Drive, Suite 800 Schaumburg, IL 60173
Invoices will be submitted in accordance with the electronic billing format and submission procedures specified in the Outside Counsel Agreement.
Budget Estimate: The engagement is not subject to a fee cap or alternative fee arrangement. Based on an assessment of the anticipated scope of work as described in Section 5, including the complexity of the two insurance towers, the number of carrier policies to be reviewed, the coordination required with multiple third parties, and the preparation of board materials and renewal negotiation support, the estimated professional fees for the full scope of the engagement are in the range of $150,000 to $200,000. This estimate encompasses all workstreams through post-bind policy form verification and assumes no material expansion of scope or complications arising from the pending litigation matters. The responsible partner will provide the client with regular budget-to-actual updates and will promptly communicate any anticipated deviation from this estimate.
Disbursement Policy: Disbursements and out-of-pocket expenses (including travel, research databases, document reproduction, and messenger/courier charges) will be billed at actual cost on a standard pass-through basis, with no markup. All disbursements will be itemized on monthly invoices in accordance with the Outside Counsel Agreement.
SECTION 10: CONFLICT CHECK CLEARANCE
A comprehensive conflicts clearance check was conducted prior to the opening of this matter, in accordance with Calderwood & Harkness LLP's conflicts management policies and procedures.
Date of Conflicts Check Completion: April 20, 2022
Result: Cleared. No adverse representations were identified against Nexford Industrial Holdings Inc., any of its subsidiaries (Nexford Conveyor Systems, LLC; Triton Fastener Corp.; Marlowe Asset Management Precision Machining, Inc.), or the company's majority owner, Veltrano Capital Partners Fund IV, LP. In addition, no current adverse representations were identified against any of the incumbent carriers in the D&O or PL insurance towers, specifically:
• Vandermeer National Insurance Company
• Commonwealth Indemnity Group
• Graystone Mutual Assurance Co.