1005-00003 · Calderwood & Harkness LLP · Renewal Support

broker-submission-review-letter.docx DOCUMENT M&A / Corporate

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CALDERWOOD & HARKNESS LLP Attorneys at Law

155 North Wacker Drive, Suite 4200 Chicago, Illinois 60606 Telephone: (312) 555-7400 Facsimile: (312) 555-7401 www.calderwoodharkness.com

May 10, 2022

VIA EMAIL AND FIRST CLASS MAIL

Priya Sundaram, Esq. General Counsel & Corporate Secretary Nexford Industrial Holdings Inc. 2200 Corporate Center Drive, Suite 800 Schaumburg, IL 60173

Re: Review of Ashford Breckinridge LLP Broker Marketing Submission — D&O and Product-Liability Tower Renewal (July 1, 2022 – July 1, 2023)

Matter No.: 1005-00003

Dear Ms. Sundaram:

I. Introduction and Purpose

We write on behalf of Calderwood & Harkness LLP ("C&H") in connection with our engagement by Nexford Industrial Holdings Inc. ("Nexford" or the "Company") pursuant to the engagement letter dated April 22, 2022, entered into under the standing outside counsel agreement between C&H and Nexford dated January 15, 2020. The purpose of this letter is to communicate the results of our review of the broker marketing submission (the "Submission") prepared and circulated by Ashford Breckinridge LLP ("Ashford Breckinridge") on May 3, 2022.

The Submission was prepared under the direction of Phillip Garza, Senior Vice President, Executive Risk Practice, and Tamara Fisk, Account Executive, Manufacturing & Industrial, at Ashford Breckinridge. It was circulated on May 3, 2022 to incumbent and prospective carriers in both the Directors & Officers liability insurance tower (the "D&O Tower") and the product-liability/general liability insurance tower (the "PL Tower") in connection with the 2022-2023 policy renewal cycle. The incumbent policy period is July 1, 2021 through July 1, 2022, and the targeted renewal effective date is July 1, 2022.

C&H received a copy of the Submission on May 4, 2022, transmitted by Donna Kowalski, Director of Insurance and Claims, Nexford Industrial Holdings Inc. Our review of the Submission has been completed, and we provide our findings below.

As summarized in this letter, our review has identified three factual corrections requiring amendment and two presentation recommendations that we believe will improve underwriter response, position the renewal competitively, and minimize the risk of adverse selection or unnecessary follow-up inquiries from underwriting teams. We address each item in detail in the sections that follow.

II. Scope of Review

C&H reviewed the complete broker marketing submission package as circulated by Ashford Breckinridge on May 3, 2022. The Submission package consisted of the following components:

(a) Narrative underwriting submission (12 pages);

(b) Financial summary and exhibits (including revenue, EBITDA, balance sheet summary, and capital structure overview);

(d) Corporate organizational chart (depicting the parent-subsidiary structure and ownership breakdown);

(e) Product and operations overview (manufacturing capabilities, end markets, geographic footprint, and workforce data); and

(f) Renewal specifications for both the D&O Tower ($55 million aggregate limit across five layers) and the PL Tower ($75 million aggregate limit across four layers).

In conducting our review, we compared the contents of the Submission against the source documents previously produced to C&H pursuant to the document request list dated April 28, 2022. Those source documents included, without limitation, the following:

• Audited consolidated financial statements for fiscal year ended December 31, 2021, prepared by Pemberton & Associates CPAs, LLP ("Pemberton & Associates"), 200 South Michigan Avenue, Suite 1100, Chicago, IL 60604;

• Corporate formation documents for Nexford Industrial Holdings Inc. and each of its three operating subsidiaries, including certificates of incorporation, certificates of formation, operating agreements, and bylaws, as applicable;

• Existing policy declarations and endorsement schedules for all placements in the D&O and PL towers for the current (2021-2022) policy period;

• Carrier loss runs from all incumbent carriers, including Midland Casualty & Surety Company (primary GL/PL) and the relevant excess and umbrella carriers; and

• Claims files and litigation summaries for the two pending product-liability matters described below in Section III.B.

Our review also cross-referenced certain information in the Submission against actuarial work product prepared by Kessler Quinn Advisory Group ("Kessler Quinn"), specifically the actuarial loss reserve and IBNR analysis provided by Kessler Quinn to Veltrano Capital Partners, LLC ("Veltrano") and made available to C&H in connection with this engagement. This actuarial work product was prepared under the supervision of Arthur Kessler, Managing Director, and Diana Cho, Vice President, Actuarial Services, at Kessler Quinn.

We did not independently audit or verify the underlying financial data, nor did we conduct any investigation beyond a comparison of the Submission against the source documents enumerated above. Our observations are limited to the scope of this review and should not be construed as an opinion on the adequacy of insurance coverage, policy terms, or tower structure, which will be addressed separately in the forthcoming coverage gap memoranda described in Section V below.

III. Factual Corrections Required

We have identified three factual errors or omissions in the Submission that require correction before the Submission is re-circulated to the carrier market. Each is described in detail below.

A. Correction No. 1: FY2021 Consolidated Revenue Figure

The Submission states Nexford's FY2021 consolidated revenue as "$1.45 billion" in the financial summary section (page 4 of the narrative) and in the accompanying financial exhibits. This figure is inaccurate.

Per the audited consolidated financial statements for the fiscal year ended December 31, 2021, prepared by Pemberton & Associates CPAs, LLP (200 South Michigan Avenue, Suite 1100, Chicago, IL 60604), Nexford's FY2021 consolidated revenue was $1.42 billion. The $30 million discrepancy between the figure reported in the Submission and the audited figure is material. We believe this discrepancy most likely stems from either (i) the inclusion of intercompany revenue that should have been eliminated in consolidation or (ii) the inadvertent use of a preliminary, unaudited revenue figure that predated the completion of the FY2021 audit.

This figure is of particular significance to underwriters for several reasons. Consolidated revenue is a primary rating variable in both D&O and PL underwriting, and it is used by underwriters to calculate premium rates, assess exposure, and benchmark the Company against industry peers. A revenue overstatement of $30 million — approximately 2.1% — may not be immediately flagged by all underwriters, but if discovered during the underwriting process or at the time of a claim, it could undermine the credibility of the Submission and give rise to questions regarding the accuracy of other reported data.

We recommend immediate correction of the consolidated revenue figure to $1.42 billion throughout the Submission, including in the narrative text, the financial summary, and all supporting exhibits.

We have also confirmed that the EBITDA figure stated in the Submission — $218 million — is consistent with management-reported figures and the audited financial statements. No correction to the EBITDA figure is required.

Additionally, we recommend that the revenue breakdown by subsidiary be independently verified against audited segment data and confirmed to reflect the following allocation, which is consistent with the audited financials:

Any restatement of the subsidiary-level figures should likewise be reflected in the corrected Submission to ensure internal consistency across all financial disclosures.

B. Correction No. 2: Claims History Presentation

The five-year product-liability loss history section of the Submission (pages 8-9) reports "11 reported claims" with "8 closed" and "3 open." This presentation contains both a factual error and a material omission. We address each in turn.

Claim Count Discrepancy. Per the loss runs provided by Midland Casualty & Surety Company (primary GL/PL carrier, Policy No. MCS-GL-2021-55671) and C&H's independent review of the claims files, the correct five-year product-liability loss history reflects the following:

The Submission omits one closed claim from the 2018-2019 policy period. Based on our review, this was a minor property damage claim that was paid and closed at approximately $47,000. While the quantum of this claim is modest, we strongly recommend that it be included in the corrected Submission. Underwriters routinely reconcile the loss data presented in broker submissions against the carrier-generated loss runs that they obtain independently or request from the incumbent carriers. A discrepancy between the submission and the loss runs — even one that is favorable to the insured — can raise credibility concerns and trigger additional underwriting inquiries, which can delay the quoting process and may lead to a more cautious underwriting posture.

IBNR Disclosure. Additionally, the Submission does not include or reference the incurred but not reported ("IBNR") loss estimate developed by Kessler Quinn Advisory Group. The Kessler Quinn actuarial analysis, prepared under the supervision of Arthur Kessler, Managing Director, and Diana Cho, Vice President, Actuarial Services, estimates the IBNR reserve for the five-year period at $2.1 million. We recommend that the IBNR figure be included in the loss history presentation, or at minimum that the Submission disclose that an independent actuarial analysis has been performed and that IBNR estimates have been developed. This disclosure demonstrates a level of analytical sophistication and proactive risk management that underwriters view favorably, particularly in the current hard market environment for manufacturing risks.

With these corrections, the total five-year incurred loss figure for the PL program should be presented as follows:

Total Paid (Closed Claims): $4,720,000 Total Reserves (Open Claims): $8,300,000 IBNR Estimate: $2,100,000 Total Five-Year Incurred: $15,120,000

Pending Litigation. The two pending product-liability matters referenced in the Submission as "open claims" should be specifically identified with correct case information, current status, and damages sought. Our review of the claims files confirms the following case details:

1. Higgins v. Nexford Conveyor Systems, LLC et al., Case No. 2021-L-04382, Circuit Court of Will County, Illinois, filed September 14, 2021. The plaintiff alleges a catastrophic crush injury caused by a defective emergency stop mechanism on the Company's Model NCS-7200 conveyor system. Damages sought: $14.5 million. Status: Active; case is currently in discovery. Nexford Conveyor Systems, LLC is being defended by Kincaid, Quelston & Associates LLP under a reservation of rights issued by Midland Casualty & Surety Company.

2. Consolidated Builders Supply Co. v. Triton Fastener Corp., Case No. 1:21-cv-08914, United States District Court for the Northern District of Illinois, filed November 2, 2021. The plaintiff alleges structural failure of Grade 8 hex bolts manufactured by Triton Fastener Corp., resulting in a partial collapse at a commercial construction site. Damages sought: $6.8 million. Status: Active; defendant's motion to dismiss was denied on February 11, 2022, and the case is proceeding to discovery.

While we recognize that the Submission is not the appropriate forum for detailed litigation analysis, the identification of pending matters with accurate case numbers, filing dates, alleged damages, and current status is standard practice in broker submissions for manufacturing and industrial risks, and underwriters expect this level of detail. Vague references to "open claims" without supporting information are more likely to generate underwriter inquiries than transparent, well-organized disclosures.

D&O Loss History. We have confirmed that the D&O loss history section of the Submission correctly reports one claim — a 2020 shareholder demand letter that was resolved without payment — and zero paid losses over the relevant reporting period. No correction to the D&O loss history is required.

Product Recalls. Finally, we recommend that the two prior product-recall events be clearly itemized in the corrected Submission. The current Submission references recall activity in general terms but does not provide specific dates, costs, or descriptions. Based on our review, the two recall events are as follows:

(1) Triton Fastener Corp. voluntary recall, initiated March 12, 2020, affecting certain lots of Grade 5 and Grade 8 structural fasteners distributed between October 2019 and February 2020. Total recall cost: $1.1 million (inclusive of product retrieval, replacement, customer notification, and third-party testing).

(2) Nexford Conveyor Systems, LLC advisory notice, issued August 7, 2020, relating to a potential wiring harness defect in certain Model NCS-5500 and NCS-6000 conveyor systems manufactured between January 2020 and June 2020. This advisory notice was not classified as a formal recall by the Consumer Product Safety Commission or any other regulatory authority. Total cost: $340,000 (inclusive of field inspection, remediation, and customer communication).

Total recall-related costs across both events: $1.44 million. We note that the current PL program includes a recall sub-limit of $2.5 million per occurrence / $5.0 million in the aggregate, and the presentation of this information in the Submission provides useful context for underwriters assessing the adequacy of the existing recall coverage and the Company's recall risk profile.

C. Correction No. 3: Subsidiary Naming and Entity Descriptions

The corporate organizational chart on page 3 of the Submission lists the Company's third subsidiary as "Marlowe Asset Management Precision Machining, LLC." This is incorrect. The correct legal name of the entity is Marlowe Asset Management Precision Machining, Inc. — it is an Ohio corporation, not a limited liability company. The entity's employer identification number is 31-1784529, and its principal address is 775 Summit Industrial Boulevard, Akron, OH 44311.

This distinction is not merely formal. All three of the Company's operating subsidiaries are named insureds under both the D&O Tower and the PL Tower. Any discrepancy between the entity names as stated in the broker submission and the entity names as they appear on the policy declarations could create a named-insured ambiguity at the time of a claim. While most well-drafted insurance policies contain provisions addressing minor errors in named-insured designations, it is far preferable to avoid any such ambiguity at the outset, particularly given the significant limits at stake in both towers.

We recommend that the corrected Submission confirm all subsidiary names and entity types as follows, and that these names be verified against the current policy declarations to ensure consistency:

For the avoidance of doubt, the parent entity — Nexford Industrial Holdings Inc. — is a Delaware corporation. Its registered agent for service of process is c/o Cobalt Ridge Technologies, 1209 Orange Street, Wilmington, DE 19801. Its principal executive offices are located at 2200 Corporate Center Drive, Suite 800, Schaumburg, IL 60173.

We recommend that Ashford Breckinridge update the organizational chart and all references to subsidiary entities throughout the Submission to reflect the correct legal names and entity types as set forth above, and that the corrected organizational chart be cross-checked against the policy declarations for both the incumbent D&O and PL programs prior to re-circulation.

IV. Presentation Recommendations

In addition to the factual corrections described above, we offer two presentation recommendations that we believe will strengthen the Submission, improve the quality of underwriter responses, and position the Company more favorably in competitive negotiations. These are not corrections of errors but rather suggestions for enhancement based on our experience with broker submissions for private-equity-backed manufacturing companies.

A. Recommendation No. 1: Enhanced Governance and Risk Management Narrative

The Submission's governance section describes the board of directors as consisting of "nine directors" but provides no further detail regarding board composition, independence, institutional sponsorship, or risk management infrastructure. In our experience, this level of generality is a missed opportunity to distinguish the Company favorably in the eyes of D&O underwriters in particular, and we recommend that the governance narrative be expanded substantially.

Specifically, we recommend that the corrected Submission disclose the following:

(a) Board Composition and Independence. The Nexford board of directors consists of nine members, of whom four are independent directors and five are appointed by Veltrano Capital Partners Fund IV, LP ("Veltrano Fund IV"), which holds a 68.5% majority equity interest in the Company. Veltrano Fund IV is a 2017 vintage buyout fund with $4.8 billion in committed capital. Veltrano Capital Partners, LLC serves as the general partner of Veltrano Fund IV. The board is chaired by Gerald "Gerry" Whitcomb, a Veltrano-appointed director. Celeste Brogan, Partner, Portfolio Operations, at Veltrano Capital Partners, LLC, serves as a board observer.

(b) Risk Management Function. The Company maintains a dedicated risk management function led by Trevor Haines, Vice President, Risk Management, and Donna Kowalski, Director of Insurance and Claims. In addition, the Company has engaged Kessler Quinn Advisory Group as an independent actuarial and insurance advisory consultant. Kessler Quinn was retained at the sponsor level and provides actuarial analysis, loss reserve development, and insurance program benchmarking services to the Company and to Veltrano.

(c) Outside Insurance Coverage Counsel. The Company has engaged Calderwood & Harkness LLP as outside insurance coverage counsel to review the Company's D&O and PL insurance programs, analyze policy terms and conditions, and assist with the renewal process. The proactive engagement of specialized outside counsel for tower review is evidence of a sophisticated and institutionally supported approach to risk management.

(d) Side-A DIC Coverage. The Company's D&O program includes a dedicated Side-A difference-in-conditions ("DIC") policy placed with Harrington Specialty Insurance Co. (Policy No. HSI-DIC-2021-00342), providing a $15 million dedicated limit with no self-insured retention. Side-A DIC coverage is a best-practice structure for private-equity-backed companies, as it provides individual directors and officers with a dedicated layer of protection that is not subject to the insured entity's self-insured retention or to potential erosion by entity-side claims.

Underwriters — and D&O underwriters in particular — view detailed governance disclosure favorably. Strong institutional sponsorship by a well-known private equity firm, meaningful independent director representation, a professional risk management team, and engagement of independent actuarial and legal advisors are all positive underwriting factors that can differentiate the Company from less sophisticated risks and support a more favorable rate outcome. We believe that the inclusion of this information will materially improve the quality of the Submission.

B. Recommendation No. 2: Financial Context and Insurance Spend Benchmarking

The financial summary in the Submission presents revenue and EBITDA figures but does not provide any context regarding the Company's insurance expenditure relative to its financial profile, enterprise value, or industry benchmarks. We recommend adding a dedicated section that contextualizes the Company's insurance spend and provides underwriters with the data necessary to assess the adequacy of current limits and the reasonableness of renewal pricing.

Specifically, we recommend the inclusion of the following data points:

Current Insurance Expenditure:

Benchmarking Metrics:

• Insurance spend as a percentage of FY2021 consolidated revenue ($1.42 billion): 0.282%

• D&O rate-on-line: 2.48% ($1,363,450 ÷ $55,000,000 aggregate limit)

• PL rate-on-line: 3.52% ($2,642,900 ÷ $75,000,000 aggregate limit)

Enterprise Value and Capital Structure Context:

• The Company was acquired by Veltrano Fund IV in a leveraged buyout in 2018 at an enterprise value of $2.1 billion.

• Estimated current enterprise value: approximately $2.6 billion (per Veltrano internal valuation as of the most recent quarterly reporting period).

• Total funded debt: $1.05 billion, consisting of a Term Loan B facility and a Revolving Credit Facility, with Broadleaf Capital Markets, LLC serving as administrative agent.

• Management rollover equity: 19.3% of total equity.

• Co-investor equity (limited partners co-investing alongside Veltrano Fund IV): 12.2% of total equity.

Operational Exposure Metric:

• Approximately 42,000 SKUs are shipped annually across all three operating subsidiaries. This metric is directly relevant for PL underwriters assessing frequency exposure, as the number of distinct product types in distribution is a key variable in product-liability risk assessment.

The inclusion of this contextual information serves several purposes. First, it helps underwriters assess the adequacy of current limits relative to the Company's enterprise value and overall financial complexity. An aggregate D&O limit of $55 million against an enterprise value of approximately $2.6 billion, and a PL aggregate limit of $75 million against $1.42 billion in annual revenue, provides underwriters with a clear picture of the Company's insurance-to-value ratios. Second, the presentation of rate-on-line data positions the submission competitively by demonstrating that the Company's management team and risk advisors have a clear understanding of market pricing. Third, the capital structure and ownership data provides useful context for D&O underwriters evaluating the risk profile of a PE-backed company, including the debt-to-equity ratio and the alignment of management incentives through rollover equity. We believe these additions will strengthen the Submission materially and facilitate a more efficient underwriting process.

V. Process and Next Steps

Based on the foregoing, we recommend the following steps:

1. Ashford Breckinridge should prepare a corrected and supplemented Submission incorporating the three factual corrections (Section III.A through III.C) and the two presentation recommendations (Section IV.A and IV.B) outlined in this letter.

2. The corrected Submission should be re-circulated to all incumbent and prospective carriers before the end of May 2022. We understand that carrier renewal quotes are expected to be received during the window of May 18 through June 8, 2022, and it is important that the corrected Submission be in underwriters' hands with sufficient lead time to be reflected in the initial renewal quotes.

3. C&H is available to review the corrected Submission prior to re-circulation. We commit to a turnaround of 48 hours from receipt of the revised document.

4. A copy of this letter has been provided to Trevor Haines, Vice President, Risk Management, and Donna Kowalski, Director of Insurance and Claims, for their reference in coordinating with Ashford Breckinridge (Phillip Garza and Tamara Fisk) on the preparation of the corrected Submission.

5. Separately, C&H's initial coverage gap memoranda for both the D&O Tower and the PL Tower are currently in preparation. We expect to deliver these memoranda to you by May 27, 2022. The coverage gap memoranda will address policy terms and conditions, identified coverage gaps and overlaps within each tower, and recommendations for policy-level improvements to be negotiated during the renewal process.

We are happy to discuss the contents of this letter at your convenience. Please do not hesitate to contact us if you have any questions or require any additional information.

VI. Confidentiality and Privilege Notice

This letter constitutes a privileged and confidential attorney-client communication and attorney work product. It has been prepared by Calderwood & Harkness LLP in connection with its engagement by Nexford Industrial Holdings Inc. under Matter No. 1005-00003. The information, analysis, and recommendations contained herein are protected by the attorney-client privilege and the work product doctrine.

This letter should not be shared with insurance carriers, brokers, or any other third parties without the prior written consent of Calderwood & Harkness LLP. We note that while the broker marketing submission prepared by Ashford Breckinridge LLP is not itself privileged, C&H's analysis of that submission and the recommendations set forth in this letter are privileged, and disclosure of this letter could result in a waiver of the attorney-client privilege with respect to the matters discussed herein.

Very truly yours,

CALDERWOOD & HARKNESS LLP

By: ________

Douglas Fairchild Partner Calderwood & Harkness LLP 155 North Wacker Drive, Suite 4200 Chicago, IL 60606 Telephone: (312) 555-7412

Email: dfairchild@calderwoodharkness.com

By: ________

Naomi Petersen Associate Calderwood & Harkness LLP 155 North Wacker Drive, Suite 4200 Chicago, IL 60606 Telephone: (312) 555-7438

Email: npetersen@calderwoodharkness.com

cc: (via email)

Trevor Haines, Vice President, Risk Management, Nexford Industrial Holdings Inc.

Donna Kowalski, Director of Insurance and Claims, Nexford Industrial Holdings Inc.

Angela Fontaine, Partner, Calderwood & Harkness LLP

Naomi Petersen, Associate, Calderwood & Harkness LLP

Subsidiary	FY2021 Revenue	% of Consolidated Revenue
Nexford Conveyor Systems, LLC	$795.2 million	56%
Triton Fastener Corp.	$397.6 million	28%
Marlowe Asset Management Precision Machining, Inc.	$227.2 million	16%
Total (Consolidated)	$1,420.0 million	100%
Metric	Per Submission	Per Loss Runs / C&H Review
Total Reported Claims (5-Year)	11	12
Closed Claims	8	9
Open Claims	3	3
Total Paid (Closed Claims)	Not specified	$4.72 million
Total Reserves (Open Claims)	Not specified	$8.3 million
Entity	Entity Type	State of Formation	EIN	Principal Address
Nexford Industrial Holdings Inc.	Corporation	Delaware	83-2174650	2200 Corporate Center Drive, Suite 800, Schaumburg, IL 60173
Nexford Conveyor Systems, LLC	Limited Liability Company	Delaware	83-2174651	4500 Industrial Parkway, Joliet, IL 60436
Triton Fastener Corp.	Corporation	Illinois	36-4892103	1010 Whitman Avenue, Rockford, IL 61101
Marlowe Asset Management Precision Machining, Inc.	Corporation	Ohio	31-1784529	775 Summit Industrial Boulevard, Akron, OH 44311
Program	2021-2022 Annual Premium
D&O Tower ($55M aggregate, five layers)	$1,363,450
PL Tower ($75M aggregate, four layers)	$2,642,900
Combined D&O + PL Premium	$4,006,350

CALDERWOOD & HARKNESS LLP Attorneys at Law
155 North Wacker Drive, Suite 4200 Chicago, Illinois 60606 Telephone: (312) 555-7400 Facsimile: (312) 555-7401 www.calderwoodharkness.com
May 10, 2022
VIA EMAIL AND FIRST CLASS MAIL
Priya Sundaram, Esq. General Counsel & Corporate Secretary Nexford Industrial Holdings Inc. 2200 Corporate Center Drive, Suite 800 Schaumburg, IL 60173
Re: Review of Ashford Breckinridge LLP Broker Marketing Submission — D&O and Product-Liability Tower Renewal (July 1, 2022 – July 1, 2023)
Matter No.: 1005-00003
Dear Ms. Sundaram:
I. Introduction and Purpose
We write on behalf of Calderwood & Harkness LLP ("C&H") in connection with our engagement by Nexford Industrial Holdings Inc. ("Nexford" or the "Company") pursuant to the engagement letter dated April 22, 2022, entered into under the standing outside counsel agreement between C&H and Nexford dated January 15, 2020. The purpose of this letter is to communicate the results of our review of the broker marketing submission (the "Submission") prepared and circulated by Ashford Breckinridge LLP ("Ashford Breckinridge") on May 3, 2022.
The Submission was prepared under the direction of Phillip Garza, Senior Vice President, Executive Risk Practice, and Tamara Fisk, Account Executive, Manufacturing & Industrial, at Ashford Breckinridge. It was circulated on May 3, 2022 to incumbent and prospective carriers in both the Directors & Officers liability insurance tower (the "D&O Tower") and the product-liability/general liability insurance tower (the "PL Tower") in connection with the 2022-2023 policy renewal cycle. The incumbent policy period is July 1, 2021 through July 1, 2022, and the targeted renewal effective date is July 1, 2022.
C&H received a copy of the Submission on May 4, 2022, transmitted by Donna Kowalski, Director of Insurance and Claims, Nexford Industrial Holdings Inc. Our review of the Submission has been completed, and we provide our findings below.
As summarized in this letter, our review has identified three factual corrections requiring amendment and two presentation recommendations that we believe will improve underwriter response, position the renewal competitively, and minimize the risk of adverse selection or unnecessary follow-up inquiries from underwriting teams. We address each item in detail in the sections that follow.
II. Scope of Review
C&H reviewed the complete broker marketing submission package as circulated by Ashford Breckinridge on May 3, 2022. The Submission package consisted of the following components:
(a) Narrative underwriting submission (12 pages);
(b) Financial summary and exhibits (including revenue, EBITDA, balance sheet summary, and capital structure overview);
(c) Loss history and claims summary (five-year histories for both the D&O and PL programs);
(d) Corporate organizational chart (depicting the parent-subsidiary structure and ownership breakdown);
(e) Product and operations overview (manufacturing capabilities, end markets, geographic footprint, and workforce data); and
(f) Renewal specifications for both the D&O Tower ($55 million aggregate limit across five layers) and the PL Tower ($75 million aggregate limit across four layers).
In conducting our review, we compared the contents of the Submission against the source documents previously produced to C&H pursuant to the document request list dated April 28, 2022. Those source documents included, without limitation, the following:
• Audited consolidated financial statements for fiscal year ended December 31, 2021, prepared by Pemberton & Associates CPAs, LLP ("Pemberton & Associates"), 200 South Michigan Avenue, Suite 1100, Chicago, IL 60604;
• Corporate formation documents for Nexford Industrial Holdings Inc. and each of its three operating subsidiaries, including certificates of incorporation, certificates of formation, operating agreements, and bylaws, as applicable;
• Existing policy declarations and endorsement schedules for all placements in the D&O and PL towers for the current (2021-2022) policy period;
• Carrier loss runs from all incumbent carriers, including Midland Casualty & Surety Company (primary GL/PL) and the relevant excess and umbrella carriers; and
• Claims files and litigation summaries for the two pending product-liability matters described below in Section III.B.
Our review also cross-referenced certain information in the Submission against actuarial work product prepared by Kessler Quinn Advisory Group ("Kessler Quinn"), specifically the actuarial loss reserve and IBNR analysis provided by Kessler Quinn to Veltrano Capital Partners, LLC ("Veltrano") and made available to C&H in connection with this engagement. This actuarial work product was prepared under the supervision of Arthur Kessler, Managing Director, and Diana Cho, Vice President, Actuarial Services, at Kessler Quinn.
We did not independently audit or verify the underlying financial data, nor did we conduct any investigation beyond a comparison of the Submission against the source documents enumerated above. Our observations are limited to the scope of this review and should not be construed as an opinion on the adequacy of insurance coverage, policy terms, or tower structure, which will be addressed separately in the forthcoming coverage gap memoranda described in Section V below.
III. Factual Corrections Required
We have identified three factual errors or omissions in the Submission that require correction before the Submission is re-circulated to the carrier market. Each is described in detail below.
A. Correction No. 1: FY2021 Consolidated Revenue Figure
The Submission states Nexford's FY2021 consolidated revenue as "$1.45 billion" in the financial summary section (page 4 of the narrative) and in the accompanying financial exhibits. This figure is inaccurate.
Per the audited consolidated financial statements for the fiscal year ended December 31, 2021, prepared by Pemberton & Associates CPAs, LLP (200 South Michigan Avenue, Suite 1100, Chicago, IL 60604), Nexford's FY2021 consolidated revenue was $1.42 billion. The $30 million discrepancy between the figure reported in the Submission and the audited figure is material. We believe this discrepancy most likely stems from either (i) the inclusion of intercompany revenue that should have been eliminated in consolidation or (ii) the inadvertent use of a preliminary, unaudited revenue figure that predated the completion of the FY2021 audit.
This figure is of particular significance to underwriters for several reasons. Consolidated revenue is a primary rating variable in both D&O and PL underwriting, and it is used by underwriters to calculate premium rates, assess exposure, and benchmark the Company against industry peers. A revenue overstatement of $30 million — approximately 2.1% — may not be immediately flagged by all underwriters, but if discovered during the underwriting process or at the time of a claim, it could undermine the credibility of the Submission and give rise to questions regarding the accuracy of other reported data.
We recommend immediate correction of the consolidated revenue figure to $1.42 billion throughout the Submission, including in the narrative text, the financial summary, and all supporting exhibits.
We have also confirmed that the EBITDA figure stated in the Submission — $218 million — is consistent with management-reported figures and the audited financial statements. No correction to the EBITDA figure is required.
Additionally, we recommend that the revenue breakdown by subsidiary be independently verified against audited segment data and confirmed to reflect the following allocation, which is consistent with the audited financials:
Any restatement of the subsidiary-level figures should likewise be reflected in the corrected Submission to ensure internal consistency across all financial disclosures.
B. Correction No. 2: Claims History Presentation
The five-year product-liability loss history section of the Submission (pages 8-9) reports "11 reported claims" with "8 closed" and "3 open." This presentation contains both a factual error and a material omission. We address each in turn.
Claim Count Discrepancy. Per the loss runs provided by Midland Casualty & Surety Company (primary GL/PL carrier, Policy No. MCS-GL-2021-55671) and C&H's independent review of the claims files, the correct five-year product-liability loss history reflects the following:
The Submission omits one closed claim from the 2018-2019 policy period. Based on our review, this was a minor property damage claim that was paid and closed at approximately $47,000. While the quantum of this claim is modest, we strongly recommend that it be included in the corrected Submission. Underwriters routinely reconcile the loss data presented in broker submissions against the carrier-generated loss runs that they obtain independently or request from the incumbent carriers. A discrepancy between the submission and the loss runs — even one that is favorable to the insured — can raise credibility concerns and trigger additional underwriting inquiries, which can delay the quoting process and may lead to a more cautious underwriting posture.
IBNR Disclosure. Additionally, the Submission does not include or reference the incurred but not reported ("IBNR") loss estimate developed by Kessler Quinn Advisory Group. The Kessler Quinn actuarial analysis, prepared under the supervision of Arthur Kessler, Managing Director, and Diana Cho, Vice President, Actuarial Services, estimates the IBNR reserve for the five-year period at $2.1 million. We recommend that the IBNR figure be included in the loss history presentation, or at minimum that the Submission disclose that an independent actuarial analysis has been performed and that IBNR estimates have been developed. This disclosure demonstrates a level of analytical sophistication and proactive risk management that underwriters view favorably, particularly in the current hard market environment for manufacturing risks.
With these corrections, the total five-year incurred loss figure for the PL program should be presented as follows:
Total Paid (Closed Claims): $4,720,000 Total Reserves (Open Claims): $8,300,000 IBNR Estimate: $2,100,000 Total Five-Year Incurred: $15,120,000
Pending Litigation. The two pending product-liability matters referenced in the Submission as "open claims" should be specifically identified with correct case information, current status, and damages sought. Our review of the claims files confirms the following case details:
1. Higgins v. Nexford Conveyor Systems, LLC et al., Case No. 2021-L-04382, Circuit Court of Will County, Illinois, filed September 14, 2021. The plaintiff alleges a catastrophic crush injury caused by a defective emergency stop mechanism on the Company's Model NCS-7200 conveyor system. Damages sought: $14.5 million. Status: Active; case is currently in discovery. Nexford Conveyor Systems, LLC is being defended by Kincaid, Quelston & Associates LLP under a reservation of rights issued by Midland Casualty & Surety Company.
2. Consolidated Builders Supply Co. v. Triton Fastener Corp., Case No. 1:21-cv-08914, United States District Court for the Northern District of Illinois, filed November 2, 2021. The plaintiff alleges structural failure of Grade 8 hex bolts manufactured by Triton Fastener Corp., resulting in a partial collapse at a commercial construction site. Damages sought: $6.8 million. Status: Active; defendant's motion to dismiss was denied on February 11, 2022, and the case is proceeding to discovery.
While we recognize that the Submission is not the appropriate forum for detailed litigation analysis, the identification of pending matters with accurate case numbers, filing dates, alleged damages, and current status is standard practice in broker submissions for manufacturing and industrial risks, and underwriters expect this level of detail. Vague references to "open claims" without supporting information are more likely to generate underwriter inquiries than transparent, well-organized disclosures.
D&O Loss History. We have confirmed that the D&O loss history section of the Submission correctly reports one claim — a 2020 shareholder demand letter that was resolved without payment — and zero paid losses over the relevant reporting period. No correction to the D&O loss history is required.
Product Recalls. Finally, we recommend that the two prior product-recall events be clearly itemized in the corrected Submission. The current Submission references recall activity in general terms but does not provide specific dates, costs, or descriptions. Based on our review, the two recall events are as follows:
(1) Triton Fastener Corp. voluntary recall, initiated March 12, 2020, affecting certain lots of Grade 5 and Grade 8 structural fasteners distributed between October 2019 and February 2020. Total recall cost: $1.1 million (inclusive of product retrieval, replacement, customer notification, and third-party testing).
(2) Nexford Conveyor Systems, LLC advisory notice, issued August 7, 2020, relating to a potential wiring harness defect in certain Model NCS-5500 and NCS-6000 conveyor systems manufactured between January 2020 and June 2020. This advisory notice was not classified as a formal recall by the Consumer Product Safety Commission or any other regulatory authority. Total cost: $340,000 (inclusive of field inspection, remediation, and customer communication).
Total recall-related costs across both events: $1.44 million. We note that the current PL program includes a recall sub-limit of $2.5 million per occurrence / $5.0 million in the aggregate, and the presentation of this information in the Submission provides useful context for underwriters assessing the adequacy of the existing recall coverage and the Company's recall risk profile.
C. Correction No. 3: Subsidiary Naming and Entity Descriptions
The corporate organizational chart on page 3 of the Submission lists the Company's third subsidiary as "Marlowe Asset Management Precision Machining, LLC." This is incorrect. The correct legal name of the entity is Marlowe Asset Management Precision Machining, Inc. — it is an Ohio corporation, not a limited liability company. The entity's employer identification number is 31-1784529, and its principal address is 775 Summit Industrial Boulevard, Akron, OH 44311.
This distinction is not merely formal. All three of the Company's operating subsidiaries are named insureds under both the D&O Tower and the PL Tower. Any discrepancy between the entity names as stated in the broker submission and the entity names as they appear on the policy declarations could create a named-insured ambiguity at the time of a claim. While most well-drafted insurance policies contain provisions addressing minor errors in named-insured designations, it is far preferable to avoid any such ambiguity at the outset, particularly given the significant limits at stake in both towers.
We recommend that the corrected Submission confirm all subsidiary names and entity types as follows, and that these names be verified against the current policy declarations to ensure consistency:
For the avoidance of doubt, the parent entity — Nexford Industrial Holdings Inc. — is a Delaware corporation. Its registered agent for service of process is c/o Cobalt Ridge Technologies, 1209 Orange Street, Wilmington, DE 19801. Its principal executive offices are located at 2200 Corporate Center Drive, Suite 800, Schaumburg, IL 60173.
We recommend that Ashford Breckinridge update the organizational chart and all references to subsidiary entities throughout the Submission to reflect the correct legal names and entity types as set forth above, and that the corrected organizational chart be cross-checked against the policy declarations for both the incumbent D&O and PL programs prior to re-circulation.
IV. Presentation Recommendations
In addition to the factual corrections described above, we offer two presentation recommendations that we believe will strengthen the Submission, improve the quality of underwriter responses, and position the Company more favorably in competitive negotiations. These are not corrections of errors but rather suggestions for enhancement based on our experience with broker submissions for private-equity-backed manufacturing companies.
A. Recommendation No. 1: Enhanced Governance and Risk Management Narrative
The Submission's governance section describes the board of directors as consisting of "nine directors" but provides no further detail regarding board composition, independence, institutional sponsorship, or risk management infrastructure. In our experience, this level of generality is a missed opportunity to distinguish the Company favorably in the eyes of D&O underwriters in particular, and we recommend that the governance narrative be expanded substantially.
Specifically, we recommend that the corrected Submission disclose the following:
(a) Board Composition and Independence. The Nexford board of directors consists of nine members, of whom four are independent directors and five are appointed by Veltrano Capital Partners Fund IV, LP ("Veltrano Fund IV"), which holds a 68.5% majority equity interest in the Company. Veltrano Fund IV is a 2017 vintage buyout fund with $4.8 billion in committed capital. Veltrano Capital Partners, LLC serves as the general partner of Veltrano Fund IV. The board is chaired by Gerald "Gerry" Whitcomb, a Veltrano-appointed director. Celeste Brogan, Partner, Portfolio Operations, at Veltrano Capital Partners, LLC, serves as a board observer.
(b) Risk Management Function. The Company maintains a dedicated risk management function led by Trevor Haines, Vice President, Risk Management, and Donna Kowalski, Director of Insurance and Claims. In addition, the Company has engaged Kessler Quinn Advisory Group as an independent actuarial and insurance advisory consultant. Kessler Quinn was retained at the sponsor level and provides actuarial analysis, loss reserve development, and insurance program benchmarking services to the Company and to Veltrano.
(c) Outside Insurance Coverage Counsel. The Company has engaged Calderwood & Harkness LLP as outside insurance coverage counsel to review the Company's D&O and PL insurance programs, analyze policy terms and conditions, and assist with the renewal process. The proactive engagement of specialized outside counsel for tower review is evidence of a sophisticated and institutionally supported approach to risk management.
(d) Side-A DIC Coverage. The Company's D&O program includes a dedicated Side-A difference-in-conditions ("DIC") policy placed with Harrington Specialty Insurance Co. (Policy No. HSI-DIC-2021-00342), providing a $15 million dedicated limit with no self-insured retention. Side-A DIC coverage is a best-practice structure for private-equity-backed companies, as it provides individual directors and officers with a dedicated layer of protection that is not subject to the insured entity's self-insured retention or to potential erosion by entity-side claims.
Underwriters — and D&O underwriters in particular — view detailed governance disclosure favorably. Strong institutional sponsorship by a well-known private equity firm, meaningful independent director representation, a professional risk management team, and engagement of independent actuarial and legal advisors are all positive underwriting factors that can differentiate the Company from less sophisticated risks and support a more favorable rate outcome. We believe that the inclusion of this information will materially improve the quality of the Submission.
B. Recommendation No. 2: Financial Context and Insurance Spend Benchmarking
The financial summary in the Submission presents revenue and EBITDA figures but does not provide any context regarding the Company's insurance expenditure relative to its financial profile, enterprise value, or industry benchmarks. We recommend adding a dedicated section that contextualizes the Company's insurance spend and provides underwriters with the data necessary to assess the adequacy of current limits and the reasonableness of renewal pricing.
Specifically, we recommend the inclusion of the following data points:
Current Insurance Expenditure:
Benchmarking Metrics:
• Insurance spend as a percentage of FY2021 consolidated revenue ($1.42 billion): 0.282%
• D&O rate-on-line: 2.48% ($1,363,450 ÷ $55,000,000 aggregate limit)
• PL rate-on-line: 3.52% ($2,642,900 ÷ $75,000,000 aggregate limit)
Enterprise Value and Capital Structure Context:
• The Company was acquired by Veltrano Fund IV in a leveraged buyout in 2018 at an enterprise value of $2.1 billion.
• Estimated current enterprise value: approximately $2.6 billion (per Veltrano internal valuation as of the most recent quarterly reporting period).
• Total funded debt: $1.05 billion, consisting of a Term Loan B facility and a Revolving Credit Facility, with Broadleaf Capital Markets, LLC serving as administrative agent.
• Management rollover equity: 19.3% of total equity.
• Co-investor equity (limited partners co-investing alongside Veltrano Fund IV): 12.2% of total equity.
Operational Exposure Metric:
• Approximately 42,000 SKUs are shipped annually across all three operating subsidiaries. This metric is directly relevant for PL underwriters assessing frequency exposure, as the number of distinct product types in distribution is a key variable in product-liability risk assessment.
The inclusion of this contextual information serves several purposes. First, it helps underwriters assess the adequacy of current limits relative to the Company's enterprise value and overall financial complexity. An aggregate D&O limit of $55 million against an enterprise value of approximately $2.6 billion, and a PL aggregate limit of $75 million against $1.42 billion in annual revenue, provides underwriters with a clear picture of the Company's insurance-to-value ratios. Second, the presentation of rate-on-line data positions the submission competitively by demonstrating that the Company's management team and risk advisors have a clear understanding of market pricing. Third, the capital structure and ownership data provides useful context for D&O underwriters evaluating the risk profile of a PE-backed company, including the debt-to-equity ratio and the alignment of management incentives through rollover equity. We believe these additions will strengthen the Submission materially and facilitate a more efficient underwriting process.
V. Process and Next Steps
Based on the foregoing, we recommend the following steps:
1. Ashford Breckinridge should prepare a corrected and supplemented Submission incorporating the three factual corrections (Section III.A through III.C) and the two presentation recommendations (Section IV.A and IV.B) outlined in this letter.
2. The corrected Submission should be re-circulated to all incumbent and prospective carriers before the end of May 2022. We understand that carrier renewal quotes are expected to be received during the window of May 18 through June 8, 2022, and it is important that the corrected Submission be in underwriters' hands with sufficient lead time to be reflected in the initial renewal quotes.
3. C&H is available to review the corrected Submission prior to re-circulation. We commit to a turnaround of 48 hours from receipt of the revised document.
4. A copy of this letter has been provided to Trevor Haines, Vice President, Risk Management, and Donna Kowalski, Director of Insurance and Claims, for their reference in coordinating with Ashford Breckinridge (Phillip Garza and Tamara Fisk) on the preparation of the corrected Submission.
5. Separately, C&H's initial coverage gap memoranda for both the D&O Tower and the PL Tower are currently in preparation. We expect to deliver these memoranda to you by May 27, 2022. The coverage gap memoranda will address policy terms and conditions, identified coverage gaps and overlaps within each tower, and recommendations for policy-level improvements to be negotiated during the renewal process.
We are happy to discuss the contents of this letter at your convenience. Please do not hesitate to contact us if you have any questions or require any additional information.
VI. Confidentiality and Privilege Notice
This letter constitutes a privileged and confidential attorney-client communication and attorney work product. It has been prepared by Calderwood & Harkness LLP in connection with its engagement by Nexford Industrial Holdings Inc. under Matter No. 1005-00003. The information, analysis, and recommendations contained herein are protected by the attorney-client privilege and the work product doctrine.
This letter should not be shared with insurance carriers, brokers, or any other third parties without the prior written consent of Calderwood & Harkness LLP. We note that while the broker marketing submission prepared by Ashford Breckinridge LLP is not itself privileged, C&H's analysis of that submission and the recommendations set forth in this letter are privileged, and disclosure of this letter could result in a waiver of the attorney-client privilege with respect to the matters discussed herein.
Very truly yours,
CALDERWOOD & HARKNESS LLP
By: ________
Douglas Fairchild Partner Calderwood & Harkness LLP 155 North Wacker Drive, Suite 4200 Chicago, IL 60606 Telephone: (312) 555-7412
Email: dfairchild@calderwoodharkness.com
By: ________
Naomi Petersen Associate Calderwood & Harkness LLP 155 North Wacker Drive, Suite 4200 Chicago, IL 60606 Telephone: (312) 555-7438
Email: npetersen@calderwoodharkness.com
cc: (via email)
Trevor Haines, Vice President, Risk Management, Nexford Industrial Holdings Inc.
Donna Kowalski, Director of Insurance and Claims, Nexford Industrial Holdings Inc.
Angela Fontaine, Partner, Calderwood & Harkness LLP
Naomi Petersen, Associate, Calderwood & Harkness LLP
Subsidiary | FY2021 Revenue | % of Consolidated Revenue
Nexford Conveyor Systems, LLC | $795.2 million | 56%
Triton Fastener Corp. | $397.6 million | 28%
Marlowe Asset Management Precision Machining, Inc. | $227.2 million | 16%
Total (Consolidated) | $1,420.0 million | 100%
Metric | Per Submission | Per Loss Runs / C&H Review
Total Reported Claims (5-Year) | 11 | 12
Closed Claims | 8 | 9
Open Claims | 3 | 3
Total Paid (Closed Claims) | Not specified | $4.72 million
Total Reserves (Open Claims) | Not specified | $8.3 million
Entity | Entity Type | State of Formation | EIN | Principal Address
Nexford Industrial Holdings Inc. | Corporation | Delaware | 83-2174650 | 2200 Corporate Center Drive, Suite 800, Schaumburg, IL 60173
Nexford Conveyor Systems, LLC | Limited Liability Company | Delaware | 83-2174651 | 4500 Industrial Parkway, Joliet, IL 60436
Triton Fastener Corp. | Corporation | Illinois | 36-4892103 | 1010 Whitman Avenue, Rockford, IL 61101
Marlowe Asset Management Precision Machining, Inc. | Corporation | Ohio | 31-1784529 | 775 Summit Industrial Boulevard, Akron, OH 44311
Program | 2021-2022 Annual Premium
D&O Tower ($55M aggregate, five layers) | $1,363,450
PL Tower ($75M aggregate, four layers) | $2,642,900
Combined D&O + PL Premium | $4,006,350

CALDERWOOD & HARKNESS LLP Attorneys at Law

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