1005-00005 · Nexford Industrial Holdings · Correspondence/Client

status-report-q1-2023.docx DOCUMENT Litigation

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CALDERWOOD & HARKNESS LLP Attorneys at Law

200 South Wacker Drive, Suite 4400 Chicago, Illinois 60606

Telephone: (312) 555-7200 Facsimile: (312) 555-7201 www.calderwoodharkness.com

March 30, 2023

VIA ELECTRONIC MAIL AND HAND DELIVERY

Deborah Whitfield, Esq. General Counsel Nexford Industrial Holdings Inc. 4200 West Lakeshore Industrial Parkway, Suite 300 Waukegan, Illinois 60085

Martin Schaeffer Chief Executive Officer Nexford Industrial Holdings Inc. 4200 West Lakeshore Industrial Parkway, Suite 300 Waukegan, Illinois 60085

Re: Quarterly Status Report — Q1 2023 Cardinal Peak Industries v. Nexford Industrial Holdings Inc. Case No. 2022-L-008471, Circuit Court of Cook County, Illinois, County Department, Law Division Calderwood & Harkness Matter No. 1005-00005

PRIVILEGED AND CONFIDENTIAL — ATTORNEY-CLIENT COMMUNICATION / ATTORNEY WORK PRODUCT

This letter and all of its contents, including any attachments, enclosures, and related materials, are protected by the attorney-client privilege and the work product doctrine. This communication is intended solely for the use of the addressees named above and other authorized representatives of Nexford Industrial Holdings Inc. This letter should not be disclosed, distributed, or otherwise disseminated to any third party without the prior written consent of Calderwood & Harkness LLP. Inadvertent disclosure does not constitute a waiver of any applicable privilege or protection.

Dear Deborah and Martin:

I am writing in my capacity as the Responsible Partner on this engagement to provide Nexford Industrial Holdings Inc. ("Nexford" or the "Company") with a comprehensive summary of the material developments in the Cardinal Peak Industries v. Nexford Industrial Holdings Inc. litigation during the first quarter of 2023, covering the period from January through March 2023. This report is intended to keep Nexford's leadership fully apprised of the status of this matter and to present our recommendations for the next phase of the case.

As you will recall, the posture of the case entering Q1 2023 was as follows. Nexford's Answer and Affirmative Defenses were filed on September 19, 2022, and Nexford's Counterclaim was filed on October 3, 2022. Cardinal Peak's Motion to Dismiss the Counterclaim was denied by the Court on November 14, 2022, preserving Nexford's affirmative claims. Written discovery commenced in December 2022, with both parties serving initial interrogatories and document requests. In addition, Nexford retained Meridian Bridge Consulting LLC as its damages expert on December 12, 2022. The first quarter has been an active and productive period in the litigation, and the developments summarized below meaningfully strengthen Nexford's defensive posture and its position in any future settlement discussions.

1. Completion of Written discovery

1.1 Nexford's discovery Responses

On January 9, 2023, Calderwood & Harkness served Nexford's Responses to Cardinal Peak's First Set of Interrogatories (Nos. 1 through 18) and Nexford's Responses to Cardinal Peak's First Request for Production of Documents (Nos. 1 through 24). These responses were prepared in close coordination with the Company's internal team and were verified under oath by Russell Okonkwo, Vice President of Procurement, and Lydia Tran, Chief Financial Officer, as the individuals with the most direct personal knowledge of the facts underlying the dispute.

The responsive document production accompanying these responses was comprehensive and included the following categories of materials:

• Internal procurement records relating to Cardinal Peak's raw materials supply agreements, including purchase orders, delivery confirmations, and pricing schedules for the period March 2021 through May 2022;

• Surcharge review logs maintained by Russell Okonkwo and his procurement team, which tracked receipt dates of Cardinal Peak's Surcharge Notices, the team's recalculation of surcharge amounts using the contractually specified published indices, and the basis for each acceptance, partial payment, or rejection;

• Payment records and accounts payable ledgers reflecting all surcharge-related payments made by Nexford to Cardinal Peak during the disputed period, totaling $1.68 million in surcharges that Nexford determined met the contractual requirements of the Master Supply Agreement (Contract No. MSA-NIH-CPI-2020-001, the "MSA"); and

• Correspondence between Nexford personnel and Cardinal Peak representatives regarding the disputed surcharge invoices, including written objections transmitted by Nexford's procurement department and Cardinal Peak's responses thereto.

The factual basis for Nexford's surcharge rejections was set forth in detail across three distinct defense categories, which together account for the entirety of the disputed amount:

1. Late Surcharge Notices ($2.18 million): Surcharge Notices for seven of the fourteen disputed months were delivered beyond the 15-business-day deadline mandated by MSA Section 7.4(a). Under the plain terms of the MSA, untimely Surcharge Notices do not create a payment obligation for Nexford.

2. Deviation from Exhibit C Surcharge Methodology ($1.47 million): Cardinal Peak computed surcharges using an internal "blended cost" metric rather than the published Ferrous Scrap Index (as reported by Platts/SPI) and the Industrial Energy Cost Index that are expressly prescribed in Exhibit C of the MSA. The resulting surcharge amounts diverge significantly from those that would have been calculated under the agreed methodology.

3. Surcharges Exceeding the 12% Cap Without Prior Written Consent ($1.08 million): For four months during the disputed period, the surcharges billed by Cardinal Peak exceeded 12% of the applicable Base Price. Under MSA Section 7.4(c), surcharges in excess of the 12% cap require Nexford's prior written consent. No such consent was given.

We are satisfied that Nexford's discovery responses were thorough, accurate, and well-supported by the underlying documentation. No supplementation has been required to date, and we do not anticipate any material supplementation will be necessary.

1.2 Cardinal Peak's discovery Responses

Cardinal Peak served its responses to Nexford's First Set of Interrogatories (Nos. 1 through 15) and Nexford's First Set of Requests for Production of Documents (Nos. 1 through 21), both of which had been originally served by Calderwood & Harkness on December 5, 2022. Cardinal Peak's responses were received in late January 2023 and were accompanied by a document production of approximately 4,200 pages.

The key categories of documents obtained from Cardinal Peak's production include:

• Surcharge Notices for each of the fourteen disputed months covering the period from March 2021 through May 2022, including the date-stamped transmittal records reflecting when each notice was sent to Nexford;

• Internal surcharge computation worksheets prepared by Cardinal Peak's finance and commercial teams, detailing the inputs, formulas, and cost data used to calculate the surcharge amounts billed to Nexford;

• Internal communications among Cardinal Peak personnel referencing the "blended cost" metric, including emails and memoranda discussing the development and application of this methodology to customer surcharge calculations; and

• Published Ferrous Scrap Index (Platts/SPI) and Industrial Energy Cost Index data for the disputed period, which Cardinal Peak apparently compiled but did not consistently apply in its surcharge computations.

Significantly, Cardinal Peak's own production confirms that it used an internal blended cost methodology for its surcharge calculations rather than the contractually mandated published indices prescribed in Exhibit C of the MSA. This is a critical evidentiary point. The internal computation worksheets produced by Cardinal Peak show that the blended cost metric incorporates proprietary weighting factors and internal cost allocations that are not contemplated by the MSA and that systematically produce surcharge amounts higher than those that would result from application of the agreed-upon published indices.

In our assessment, Cardinal Peak's document production materially supports Nexford's position that the surcharge calculations deviated from the agreed methodology. These documents will be central to both the expert analysis and any mediation presentation.

2. Depositions

Two key depositions were conducted during Q1 2023. Both depositions advanced Nexford's litigation position significantly and are summarized below.

2.1 Deposition of Natalie Gunderson — January 18, 2023

Natalie Gunderson, Vice President of Sales & Commercial at Cardinal Peak Industries, was deposed on January 18, 2023 at the offices of Calderwood & Harkness LLP. The examination was conducted by Simone Laroche, Lead Associate, with the assistance of Jeffrey Park, Working Associate. The deposition lasted approximately six hours and forty minutes, and a certified transcript has been received and reviewed.

Ms. Gunderson was designated by Cardinal Peak as a knowledgeable representative regarding Cardinal Peak's surcharge billing practices, its communications with Nexford concerning the disputed invoices, and the commercial relationship between the parties. Her testimony produced several key admissions and highlights that materially strengthen Nexford's defenses:

a. Late Surcharge Notices. Ms. Gunderson acknowledged under oath that Surcharge Notices for seven of the fourteen disputed months were delivered to Nexford beyond the 15-business-day deadline required by MSA Section 7.4(a). When confronted with the date-stamped transmittal records from Cardinal Peak's own production, Ms. Gunderson conceded that these notices were sent between two and eleven business days late in each instance. She was unable to offer any contractual justification for the late delivery and acknowledged that she was not aware of any waiver by Nexford of the 15-business-day notice requirement. The surcharges associated with these seven months of late notices account for approximately $2.18 million of Cardinal Peak's total claim of $4.73 million.

b. Deviation from Exhibit C Methodology. Ms. Gunderson acknowledged that Cardinal Peak used a "blended cost" metric for its surcharge calculations rather than the published Ferrous Scrap Index (Platts/SPI) and Industrial Energy Cost Index specified in Exhibit C of the MSA. When asked to identify the contractual provision authorizing the use of the blended cost metric, Ms. Gunderson was unable to do so. She testified that the blended cost approach was developed internally by Cardinal Peak's finance team as a "more accurate reflection of actual cost pressures," but she conceded that this approach was not reflected in or authorized by the MSA. The methodology deviation accounts for approximately $1.47 million of the $4.73 million claimed by Cardinal Peak.

c. Cap Exceedances Without Written Consent. Ms. Gunderson was unable to identify any written consent from Nexford authorizing surcharges in excess of the 12% cap under Section 7.4(c) of the MSA for the four months during the disputed period where the cap was exceeded. When asked specifically whether she had any record of Nexford providing written authorization for surcharges above 12% of the applicable Base Price, Ms. Gunderson testified that she did not and stated that she "believed" verbal discussions had taken place, but she could not identify the participants, dates, or substance of any such discussions. The surcharge amounts exceeding the 12% cap during these four months total approximately $1.08 million.

Assessment: Ms. Gunderson's testimony materially strengthens Nexford's defenses across all three categories of the surcharge dispute and significantly undercuts Cardinal Peak's claimed damages of $4.73 million. Her admissions regarding notice timeliness, methodology deviation, and the absence of written consent for cap exceedances were clear and unequivocal. In our judgment, these admissions will be highly effective in any mediation presentation and, if necessary, at trial.

A full deposition summary analysis was provided to the Calderwood & Harkness litigation team in a separate internal memorandum dated January 25, 2023. That memorandum is maintained in the privileged matter file and is available for your review upon request.

2.2 Deposition of Russell Okonkwo — February 7, 2023

Russell Okonkwo, Vice President of Procurement at Nexford, was deposed on February 7, 2023 by Garrett Blackwood of Blackwood Stein & Associates LLP (plaintiff's counsel, 717 Seventeenth Street, Suite 2200, Denver, Colorado 80202). The deposition was taken at the offices of Calderwood & Harkness LLP and lasted approximately five hours and fifteen minutes.

Mr. Okonkwo was thoroughly prepared for the deposition by Simone Laroche in accordance with the detailed deposition preparation memorandum dated January 30, 2023. The preparation sessions addressed the anticipated areas of inquiry, the key contractual provisions at issue, and the documentary record.

During his deposition, Mr. Okonkwo testified credibly and consistently regarding the following topics:

• Nexford's internal surcharge review process, including the procedures used by the procurement team to verify the timeliness of Surcharge Notices, recalculate surcharge amounts using the published indices required by Exhibit C, and assess compliance with the 12% cap under Section 7.4(c);

• The specific basis for rejecting or partially paying each disputed surcharge invoice, including the identification of the applicable defense category (late notice, methodology deviation, or cap exceedance) for each invoice;

• Nexford's consistent reliance on the published Ferrous Scrap Index and Industrial Energy Cost Index as the sole appropriate bases for surcharge calculations under the MSA; and

• The procurement team's practice of tracking the 15-business-day notice deadline under Section 7.4(a) and documenting each instance in which a Surcharge Notice was received after the deadline had passed.

Mr. Okonkwo's testimony was consistent with Nexford's litigation positions throughout, and there were no material adverse admissions. Notably, Mr. Okonkwo confirmed under oath that Nexford paid a total of $1.68 million in surcharges during the disputed period on invoices that met the contractual requirements of the MSA, and that based on his team's calculations, Nexford's maximum additional obligation—accounting for minor rounding differences and one invoice where partial payment was arguably understated—is approximately $0.21 million.

We consider Mr. Okonkwo's deposition to have been successful. His testimony was clear, well-organized, and firmly supported by the documentary record. Plaintiff's counsel did not elicit any testimony that we believe could be used effectively against Nexford at mediation or trial.

3. Expert Work and Report Exchange

3.1 Dr. Anita Rosenthal — Damages Rebuttal Report (March 15, 2023)

In accordance with the discovery schedule set by the Court, expert reports were exchanged on March 15, 2023. Dr. Anita Rosenthal, CPA, ABV, of Meridian Bridge Consulting LLC (311 South Michigan Avenue, Suite 1500, Chicago, Illinois 60604), submitted her damages rebuttal report on behalf of Nexford. As you will recall, Meridian Bridge was retained on December 12, 2022 pursuant to an expert retention letter executed on that date, and Dr. Rosenthal has been working closely with the Calderwood & Harkness litigation team throughout Q1 2023 to develop her analysis.

Dr. Rosenthal's report provides a thorough and methodical rebuttal of Cardinal Peak's claimed $4.73 million in unpaid surcharges. The report analyzes each of the three categories of Nexford's defense in detail:

a. Late Surcharge Notices — $2.18 Million. Dr. Rosenthal's report identifies the seven months during the disputed period (March 2021 through May 2022) for which Cardinal Peak's Surcharge Notices were not timely delivered within the 15-business-day period required by Section 7.4(a) of the MSA. Using the date-stamped transmittal records from Cardinal Peak's own production and the contractual notice requirements, Dr. Rosenthal calculates that $2.18 million in surcharges are attributable to these untimely notices and should be disallowed in their entirety.

b. Deviation from Exhibit C Methodology — $1.47 Million. Dr. Rosenthal's report recalculates the surcharges for each disputed month using the published Ferrous Scrap Index (Platts/SPI) and Industrial Energy Cost Index, as prescribed by Exhibit C of the MSA, applied against the contractually established baseline scrap cost of $340 per ton and baseline energy cost of $48 per ton. By comparing the surcharges properly calculated under the Exhibit C methodology with the amounts actually billed by Cardinal Peak using its internal blended cost metric, Dr. Rosenthal identifies a total overcharge of $1.47 million attributable to the methodology deviation.

c. Cap Exceedances — $1.08 Million. Dr. Rosenthal's report identifies four months during the disputed period in which Cardinal Peak's billed surcharges exceeded 12% of the applicable Base Price—specifically, $620 per ton for Hot-Rolled Coil (HRC) and $740 per ton for Cold-Rolled Coil (CRC)—without Nexford's prior written consent as required by Section 7.4(c). The aggregate amount of surcharges exceeding the 12% cap across these four months totals approximately $1.08 million.

Dr. Rosenthal's report concludes that after applying all three categories of Nexford's defense—and properly accounting for the overlap among defense categories where a single month's surcharge may implicate more than one defense—Nexford's maximum additional exposure is approximately $0.21 million beyond the $1.68 million in surcharges that Nexford has already paid. This conclusion is consistent with Mr. Okonkwo's deposition testimony and with the analysis our team has developed throughout the case.

We believe Dr. Rosenthal's report is well-supported by the contractual provisions of the MSA, the published index data for the disputed period, and Cardinal Peak's own production documents, including the internal surcharge computation worksheets and the Gunderson deposition admissions. The report is clearly written, methodologically sound, and will serve as a powerful tool in any mediation presentation and, if necessary, at trial.

3.2 Anticipated Plaintiff's Expert Report

Cardinal Peak's damages expert is Dr. Theodore Voss of Pinnacle Economics Group LLC (1900 Sixteenth Street, Suite 400, Denver, Colorado 80202). Under the discovery schedule, Dr. Voss is expected to submit his expert report by April 12, 2023.

Based on our review of the case to date and the positions taken by Cardinal Peak in its pleadings and discovery responses, we anticipate that Dr. Voss will seek to justify the full $4.73 million claim. We further expect Dr. Voss to argue for the addition of prejudgment interest, which, depending on the rate applied, could add a significant amount to Cardinal Peak's claimed damages. We also anticipate that Dr. Voss may attempt to offer opinions regarding the reasonableness of Cardinal Peak's blended cost methodology or argue that Nexford waived the notice and cap requirements through its course of dealing.

Upon receipt of Dr. Voss's report, Calderwood & Harkness will prepare a detailed internal analysis memorandum identifying methodological flaws, unsupported assumptions, and potential vulnerabilities in his opinions. This analysis will also assess whether grounds exist to pursue a Daubert-style challenge to Dr. Voss's testimony under the applicable Illinois evidentiary standards, including any challenge to the reliability or relevance of his methodology. We will circulate this memorandum to the litigation team and to Nexford promptly following its completion.

4. Current Case Posture and Upcoming Milestones

As a result of the substantial progress made during Q1 2023, the case is now well-positioned for the next phase. The current posture and key upcoming milestones are as follows:

• Written discovery: Written discovery is now substantially complete. Both parties have served and responded to their initial sets of interrogatories and document requests. We do not anticipate any significant outstanding discovery disputes, though the possibility of limited supplemental document production remains depending on the content of Dr. Voss's expert report.

• Depositions: The two key fact depositions—Natalie Gunderson (Cardinal Peak) and Russell Okonkwo (Nexford)—have been concluded. No additional fact depositions are currently scheduled or anticipated.

• Expert Reports: Nexford's damages rebuttal report (Dr. Rosenthal) was timely submitted on March 15, 2023. Cardinal Peak's damages expert report (Dr. Voss) is due on April 12, 2023. Following the exchange of expert reports, the parties may schedule rebuttal expert depositions. We expect that Nexford will seek to depose Dr. Voss and that Cardinal Peak may seek to depose Dr. Rosenthal.

• Remaining discovery: Any remaining discovery activity is expected to be limited to potential rebuttal expert depositions and any narrowly tailored supplemental document production that may be necessary in light of the expert reports.

• Mandatory Mediation: We wish to remind you that Section 14.3 of the MSA contains a mandatory mediation provision requiring the parties to engage in mediation in Chicago, Illinois before the litigation may proceed to trial. Compliance with this provision is a contractual prerequisite to trial, and we believe the timing is now appropriate to initiate mediation discussions.

5. Recommendation to Pursue Mediation

Based on the strength of Nexford's defenses as confirmed through the discovery process and expert analysis conducted during Q1 2023, Calderwood & Harkness recommends that the parties move forward with mediation as contemplated by MSA Section 14.3. We believe the case is now ripe for mediation and that Nexford is in an exceptionally strong position to achieve a favorable resolution.

Our recommendation is based on the following considerations:

a. Strength of Nexford's Position Following discovery. The Gunderson deposition admissions have significantly weakened Cardinal Peak's position on all three of Nexford's defense categories—notice compliance, surcharge methodology, and cap consent. Ms. Gunderson's concessions regarding the late delivery of seven months of Surcharge Notices, Cardinal Peak's unauthorized use of the blended cost metric, and the absence of any written consent for cap exceedances are direct and largely unequivocal. These admissions will be difficult for Cardinal Peak to overcome at mediation or at trial.

b. Compelling Expert Analysis. Dr. Rosenthal's rebuttal report provides a well-documented and persuasive damages analysis that reduces Nexford's maximum additional exposure to approximately $0.21 million—a fraction of Cardinal Peak's claimed $4.73 million. The report is grounded in the contractual provisions, the published index data, and Cardinal Peak's own documents, making it a compelling basis for negotiation.

c. Cost-Effectiveness of Mediation. Mediation offers the opportunity to resolve this dispute at a fraction of the claimed $4.73 million while also avoiding the substantial additional costs that would be incurred in proceeding through trial. As discussed in greater detail in Section 6 below, the estimated budget through mediation was $200,000 to $275,000, compared with an estimated $350,000 to $500,000 through trial. Current legal spend is tracking within the mediation budget range, and a successful mediation would preserve this cost advantage.

d. Operational and Commercial Considerations. Resolution of this litigation through mediation would allow Nexford's management team to redirect its attention and resources to operational matters and to the Company's ongoing commercial relationship transition with Cardinal Peak. We understand that the parties continue to have commercial interactions notwithstanding this litigation, and a mediated resolution would reduce the strain on that relationship.

With Nexford's approval, we propose to contact Blackwood Stein & Associates LLP to initiate discussions regarding the joint selection of a mediator and to explore the possibility of filing a joint motion to stay the litigation pending mediation. We believe that a stay would be in both parties' interests and would reduce unnecessary litigation expenses during the mediation process.

As a potential mediator, we suggest exploring the availability of the Honorable Catherine Lindström (Ret.) of the Great Lakes Dispute Resolution Center (150 North Riverside Plaza, Suite 2700, Chicago, Illinois 60606). Judge Lindström is a former Circuit Court judge with extensive experience mediating complex commercial contract disputes. She is well-regarded by the bench and bar in Cook County and has particular familiarity with supply agreement and pricing disputes in the industrial sector. We believe she would be an effective and credible neutral for this matter.

Finally, we request that Nexford's leadership and Marlowe Asset Management Bluff Capital Partners, LP begin considering settlement authority parameters in advance of any mediation session. We recognize that defining a specific settlement range at this juncture may be premature, given that Cardinal Peak's expert report has not yet been received. We will provide further guidance on an appropriate settlement range once we have had the opportunity to receive and analyze Dr. Voss's report. However, early consideration of Nexford's objectives and constraints will facilitate efficient mediation preparation.

6. Budget and Billing Update

We are pleased to report that the engagement remains within the expected budget parameters for the mediation track. As set forth in the engagement letter dated August 22, 2022, the estimated legal fees and costs for this matter through mediation were projected at $200,000 to $275,000. Current total fees and costs billed through the end of Q1 2023 are tracking within this range, reflecting the substantial discovery and expert work completed during the quarter.

The billing rates applicable to this engagement remain as set forth in the August 22, 2022 engagement letter:

In addition to professional fees, costs incurred to date include expert fees paid to Meridian Bridge Consulting LLC for Dr. Rosenthal's engagement and report preparation, court reporter fees for the Gunderson and Okonkwo depositions, and miscellaneous filing and service fees. All costs have been invoiced in the ordinary course and are reflected in the monthly billing statements provided to the Company.

If mediation is successful and the matter is resolved without the need for further litigation, we expect the total engagement cost to remain within the $200,000 to $275,000 budget range originally projected. Should the matter proceed to trial, the estimated total engagement cost would increase to the $350,000 to $500,000 range, as previously communicated. We will continue to monitor legal spend closely and will promptly advise if any developments cause us to revise the budget estimate.

7. Lender and Sponsor Coordination Reminder

We wish to remind you that Nexford's $45 million revolving credit facility with Ridgecrest National Bank, N.A. (dated March 12, 2021) contains a reporting covenant under Section 6.03(b) requiring Nexford to provide notice to the lender of any litigation settlement exceeding $1.0 million. While we believe Nexford's maximum additional exposure in this matter is significantly below that threshold—Dr. Rosenthal's analysis places it at approximately $0.21 million—it is possible that the final terms of any mediated resolution could implicate this notice requirement depending on the structure and characterization of the settlement.

We recommend that Nexford plan to coordinate with Karen Whitmore, Relationship Manager at Ridgecrest National Bank, at the appropriate time to ensure compliance with this covenant. We are available to assist in preparing any required notices or related communications.

Additionally, we understand that Diana Calloway of Marlowe Asset Management Bluff Capital Partners, LP is being kept apprised of developments in this litigation in her capacity as Board Observer. We will continue to coordinate with Ms. Calloway and with Conrad Yeung as settlement discussions develop, and we will ensure that Marlowe Asset Management Bluff has adequate visibility into the mediation process and any proposed settlement terms for purposes of its governance and investment oversight responsibilities.

8. Next Steps

Looking ahead to Q2 2023, the following action items represent the principal next steps in the litigation:

1. Receive and Analyze Dr. Voss's Expert Report. Dr. Voss's damages expert report is due on April 12, 2023. Upon receipt, Calderwood & Harkness will conduct a thorough review and prepare a detailed internal analysis memorandum identifying methodological weaknesses, unsupported assumptions, and potential grounds for challenge.

2. Prepare Internal Analysis Memorandum. The Voss report analysis memorandum will be circulated to the litigation team and to Nexford's leadership promptly following its completion, along with our recommendations regarding any rebuttal expert work or evidentiary challenges.

3. Initiate Mediation Discussions. Subject to Nexford's authorization, we will contact Blackwood Stein & Associates LLP to initiate discussions regarding mediation scheduling and the joint selection of a mediator.

4. Prepare and File Joint Motion to Stay. If the parties reach agreement on mediation, we will prepare and file a joint motion to stay the litigation pending the completion of the mediation process.

5. Develop Mediation Strategy and Settlement Range Analysis. We will continue to develop the mediation strategy and prepare a detailed settlement range analysis for review and approval by Nexford's leadership and Marlowe Asset Management Bluff Capital Partners, LP. This analysis will incorporate the findings from Dr. Voss's report once received.

6. Schedule Mediation Preparation Call. We recommend scheduling a call with Deborah Whitfield, Martin Schaeffer, and Diana Calloway to discuss mediation preparation, settlement authority, and strategic considerations once Dr. Voss's report has been received and analyzed. We will propose dates for this call in early-to-mid April.

Closing

We are encouraged by the significant progress achieved during Q1 2023. The discovery record and expert analysis developed to date provide Nexford with a strong foundation for a favorable resolution of this dispute, whether through mediation or, if necessary, at trial. We remain committed to advancing Nexford's interests in this matter efficiently and effectively.

Please do not hesitate to contact me or Simone Laroche with any questions regarding this report or any other aspect of the litigation. I can be reached at (312) 555-7218 or panand@calderwoodharkness.com, and Simone can be reached at (312) 555-7234 or slaroche@calderwoodharkness.com.

We respectfully request Nexford's authorization to proceed with mediation outreach to Blackwood Stein & Associates LLP as described in Section 5 above. We are prepared to initiate those discussions immediately upon receiving your approval.

A copy of this letter is being maintained in the privileged matter file under Calderwood & Harkness Matter No. 1005-00005.

We look forward to discussing these matters with you further.

Very truly yours,

CALDERWOOD & HARKNESS LLP

By: ________

Priya Anand Partner

200 South Wacker Drive, Suite 4400 Chicago, Illinois 60606 Telephone: (312) 555-7218

Email: panand@calderwoodharkness.com

cc: Douglas Carmichael, Billing Partner, Calderwood & Harkness LLP Simone Laroche, Lead Associate, Calderwood & Harkness LLP Diana Calloway, Marlowe Asset Management Bluff Capital Partners, LP (via separate privileged cover)

Enclosures: None. Internal memoranda and the expert report referenced herein are maintained in the privileged matter file and are not enclosed with this letter for privilege protection purposes. These materials are available for review upon request.

Timekeeper	Role	Rate
Priya Anand	Responsible Partner	$895/hr
Douglas Carmichael	Billing Partner	$875/hr
Simone Laroche	Lead Associate	$585/hr
Jeffrey Park	Working Associate	$435/hr
Paralegal Staff	Paralegal	$275/hr

CALDERWOOD & HARKNESS LLP Attorneys at Law
200 South Wacker Drive, Suite 4400 Chicago, Illinois 60606
Telephone: (312) 555-7200 Facsimile: (312) 555-7201 www.calderwoodharkness.com
March 30, 2023
VIA ELECTRONIC MAIL AND HAND DELIVERY
Deborah Whitfield, Esq. General Counsel Nexford Industrial Holdings Inc. 4200 West Lakeshore Industrial Parkway, Suite 300 Waukegan, Illinois 60085
Martin Schaeffer Chief Executive Officer Nexford Industrial Holdings Inc. 4200 West Lakeshore Industrial Parkway, Suite 300 Waukegan, Illinois 60085
Re: Quarterly Status Report — Q1 2023 Cardinal Peak Industries v. Nexford Industrial Holdings Inc. Case No. 2022-L-008471, Circuit Court of Cook County, Illinois, County Department, Law Division Calderwood & Harkness Matter No. 1005-00005
PRIVILEGED AND CONFIDENTIAL — ATTORNEY-CLIENT COMMUNICATION / ATTORNEY WORK PRODUCT
This letter and all of its contents, including any attachments, enclosures, and related materials, are protected by the attorney-client privilege and the work product doctrine. This communication is intended solely for the use of the addressees named above and other authorized representatives of Nexford Industrial Holdings Inc. This letter should not be disclosed, distributed, or otherwise disseminated to any third party without the prior written consent of Calderwood & Harkness LLP. Inadvertent disclosure does not constitute a waiver of any applicable privilege or protection.
Dear Deborah and Martin:
I am writing in my capacity as the Responsible Partner on this engagement to provide Nexford Industrial Holdings Inc. ("Nexford" or the "Company") with a comprehensive summary of the material developments in the Cardinal Peak Industries v. Nexford Industrial Holdings Inc. litigation during the first quarter of 2023, covering the period from January through March 2023. This report is intended to keep Nexford's leadership fully apprised of the status of this matter and to present our recommendations for the next phase of the case.
As you will recall, the posture of the case entering Q1 2023 was as follows. Nexford's Answer and Affirmative Defenses were filed on September 19, 2022, and Nexford's Counterclaim was filed on October 3, 2022. Cardinal Peak's Motion to Dismiss the Counterclaim was denied by the Court on November 14, 2022, preserving Nexford's affirmative claims. Written discovery commenced in December 2022, with both parties serving initial interrogatories and document requests. In addition, Nexford retained Meridian Bridge Consulting LLC as its damages expert on December 12, 2022. The first quarter has been an active and productive period in the litigation, and the developments summarized below meaningfully strengthen Nexford's defensive posture and its position in any future settlement discussions.
1. Completion of Written discovery
1.1 Nexford's discovery Responses
On January 9, 2023, Calderwood & Harkness served Nexford's Responses to Cardinal Peak's First Set of Interrogatories (Nos. 1 through 18) and Nexford's Responses to Cardinal Peak's First Request for Production of Documents (Nos. 1 through 24). These responses were prepared in close coordination with the Company's internal team and were verified under oath by Russell Okonkwo, Vice President of Procurement, and Lydia Tran, Chief Financial Officer, as the individuals with the most direct personal knowledge of the facts underlying the dispute.
The responsive document production accompanying these responses was comprehensive and included the following categories of materials:
• Internal procurement records relating to Cardinal Peak's raw materials supply agreements, including purchase orders, delivery confirmations, and pricing schedules for the period March 2021 through May 2022;
• Surcharge review logs maintained by Russell Okonkwo and his procurement team, which tracked receipt dates of Cardinal Peak's Surcharge Notices, the team's recalculation of surcharge amounts using the contractually specified published indices, and the basis for each acceptance, partial payment, or rejection;
• Payment records and accounts payable ledgers reflecting all surcharge-related payments made by Nexford to Cardinal Peak during the disputed period, totaling $1.68 million in surcharges that Nexford determined met the contractual requirements of the Master Supply Agreement (Contract No. MSA-NIH-CPI-2020-001, the "MSA"); and
• Correspondence between Nexford personnel and Cardinal Peak representatives regarding the disputed surcharge invoices, including written objections transmitted by Nexford's procurement department and Cardinal Peak's responses thereto.
The factual basis for Nexford's surcharge rejections was set forth in detail across three distinct defense categories, which together account for the entirety of the disputed amount:
1. Late Surcharge Notices ($2.18 million): Surcharge Notices for seven of the fourteen disputed months were delivered beyond the 15-business-day deadline mandated by MSA Section 7.4(a). Under the plain terms of the MSA, untimely Surcharge Notices do not create a payment obligation for Nexford.
2. Deviation from Exhibit C Surcharge Methodology ($1.47 million): Cardinal Peak computed surcharges using an internal "blended cost" metric rather than the published Ferrous Scrap Index (as reported by Platts/SPI) and the Industrial Energy Cost Index that are expressly prescribed in Exhibit C of the MSA. The resulting surcharge amounts diverge significantly from those that would have been calculated under the agreed methodology.
3. Surcharges Exceeding the 12% Cap Without Prior Written Consent ($1.08 million): For four months during the disputed period, the surcharges billed by Cardinal Peak exceeded 12% of the applicable Base Price. Under MSA Section 7.4(c), surcharges in excess of the 12% cap require Nexford's prior written consent. No such consent was given.
We are satisfied that Nexford's discovery responses were thorough, accurate, and well-supported by the underlying documentation. No supplementation has been required to date, and we do not anticipate any material supplementation will be necessary.
1.2 Cardinal Peak's discovery Responses
Cardinal Peak served its responses to Nexford's First Set of Interrogatories (Nos. 1 through 15) and Nexford's First Set of Requests for Production of Documents (Nos. 1 through 21), both of which had been originally served by Calderwood & Harkness on December 5, 2022. Cardinal Peak's responses were received in late January 2023 and were accompanied by a document production of approximately 4,200 pages.
The key categories of documents obtained from Cardinal Peak's production include:
• Surcharge Notices for each of the fourteen disputed months covering the period from March 2021 through May 2022, including the date-stamped transmittal records reflecting when each notice was sent to Nexford;
• Internal surcharge computation worksheets prepared by Cardinal Peak's finance and commercial teams, detailing the inputs, formulas, and cost data used to calculate the surcharge amounts billed to Nexford;
• Internal communications among Cardinal Peak personnel referencing the "blended cost" metric, including emails and memoranda discussing the development and application of this methodology to customer surcharge calculations; and
• Published Ferrous Scrap Index (Platts/SPI) and Industrial Energy Cost Index data for the disputed period, which Cardinal Peak apparently compiled but did not consistently apply in its surcharge computations.
Significantly, Cardinal Peak's own production confirms that it used an internal blended cost methodology for its surcharge calculations rather than the contractually mandated published indices prescribed in Exhibit C of the MSA. This is a critical evidentiary point. The internal computation worksheets produced by Cardinal Peak show that the blended cost metric incorporates proprietary weighting factors and internal cost allocations that are not contemplated by the MSA and that systematically produce surcharge amounts higher than those that would result from application of the agreed-upon published indices.
In our assessment, Cardinal Peak's document production materially supports Nexford's position that the surcharge calculations deviated from the agreed methodology. These documents will be central to both the expert analysis and any mediation presentation.
2. Depositions
Two key depositions were conducted during Q1 2023. Both depositions advanced Nexford's litigation position significantly and are summarized below.
2.1 Deposition of Natalie Gunderson — January 18, 2023
Natalie Gunderson, Vice President of Sales & Commercial at Cardinal Peak Industries, was deposed on January 18, 2023 at the offices of Calderwood & Harkness LLP. The examination was conducted by Simone Laroche, Lead Associate, with the assistance of Jeffrey Park, Working Associate. The deposition lasted approximately six hours and forty minutes, and a certified transcript has been received and reviewed.
Ms. Gunderson was designated by Cardinal Peak as a knowledgeable representative regarding Cardinal Peak's surcharge billing practices, its communications with Nexford concerning the disputed invoices, and the commercial relationship between the parties. Her testimony produced several key admissions and highlights that materially strengthen Nexford's defenses:
a. Late Surcharge Notices. Ms. Gunderson acknowledged under oath that Surcharge Notices for seven of the fourteen disputed months were delivered to Nexford beyond the 15-business-day deadline required by MSA Section 7.4(a). When confronted with the date-stamped transmittal records from Cardinal Peak's own production, Ms. Gunderson conceded that these notices were sent between two and eleven business days late in each instance. She was unable to offer any contractual justification for the late delivery and acknowledged that she was not aware of any waiver by Nexford of the 15-business-day notice requirement. The surcharges associated with these seven months of late notices account for approximately $2.18 million of Cardinal Peak's total claim of $4.73 million.
b. Deviation from Exhibit C Methodology. Ms. Gunderson acknowledged that Cardinal Peak used a "blended cost" metric for its surcharge calculations rather than the published Ferrous Scrap Index (Platts/SPI) and Industrial Energy Cost Index specified in Exhibit C of the MSA. When asked to identify the contractual provision authorizing the use of the blended cost metric, Ms. Gunderson was unable to do so. She testified that the blended cost approach was developed internally by Cardinal Peak's finance team as a "more accurate reflection of actual cost pressures," but she conceded that this approach was not reflected in or authorized by the MSA. The methodology deviation accounts for approximately $1.47 million of the $4.73 million claimed by Cardinal Peak.
c. Cap Exceedances Without Written Consent. Ms. Gunderson was unable to identify any written consent from Nexford authorizing surcharges in excess of the 12% cap under Section 7.4(c) of the MSA for the four months during the disputed period where the cap was exceeded. When asked specifically whether she had any record of Nexford providing written authorization for surcharges above 12% of the applicable Base Price, Ms. Gunderson testified that she did not and stated that she "believed" verbal discussions had taken place, but she could not identify the participants, dates, or substance of any such discussions. The surcharge amounts exceeding the 12% cap during these four months total approximately $1.08 million.
Assessment: Ms. Gunderson's testimony materially strengthens Nexford's defenses across all three categories of the surcharge dispute and significantly undercuts Cardinal Peak's claimed damages of $4.73 million. Her admissions regarding notice timeliness, methodology deviation, and the absence of written consent for cap exceedances were clear and unequivocal. In our judgment, these admissions will be highly effective in any mediation presentation and, if necessary, at trial.
A full deposition summary analysis was provided to the Calderwood & Harkness litigation team in a separate internal memorandum dated January 25, 2023. That memorandum is maintained in the privileged matter file and is available for your review upon request.
2.2 Deposition of Russell Okonkwo — February 7, 2023
Russell Okonkwo, Vice President of Procurement at Nexford, was deposed on February 7, 2023 by Garrett Blackwood of Blackwood Stein & Associates LLP (plaintiff's counsel, 717 Seventeenth Street, Suite 2200, Denver, Colorado 80202). The deposition was taken at the offices of Calderwood & Harkness LLP and lasted approximately five hours and fifteen minutes.
Mr. Okonkwo was thoroughly prepared for the deposition by Simone Laroche in accordance with the detailed deposition preparation memorandum dated January 30, 2023. The preparation sessions addressed the anticipated areas of inquiry, the key contractual provisions at issue, and the documentary record.
During his deposition, Mr. Okonkwo testified credibly and consistently regarding the following topics:
• Nexford's internal surcharge review process, including the procedures used by the procurement team to verify the timeliness of Surcharge Notices, recalculate surcharge amounts using the published indices required by Exhibit C, and assess compliance with the 12% cap under Section 7.4(c);
• The specific basis for rejecting or partially paying each disputed surcharge invoice, including the identification of the applicable defense category (late notice, methodology deviation, or cap exceedance) for each invoice;
• Nexford's consistent reliance on the published Ferrous Scrap Index and Industrial Energy Cost Index as the sole appropriate bases for surcharge calculations under the MSA; and
• The procurement team's practice of tracking the 15-business-day notice deadline under Section 7.4(a) and documenting each instance in which a Surcharge Notice was received after the deadline had passed.
Mr. Okonkwo's testimony was consistent with Nexford's litigation positions throughout, and there were no material adverse admissions. Notably, Mr. Okonkwo confirmed under oath that Nexford paid a total of $1.68 million in surcharges during the disputed period on invoices that met the contractual requirements of the MSA, and that based on his team's calculations, Nexford's maximum additional obligation—accounting for minor rounding differences and one invoice where partial payment was arguably understated—is approximately $0.21 million.
We consider Mr. Okonkwo's deposition to have been successful. His testimony was clear, well-organized, and firmly supported by the documentary record. Plaintiff's counsel did not elicit any testimony that we believe could be used effectively against Nexford at mediation or trial.
3. Expert Work and Report Exchange
3.1 Dr. Anita Rosenthal — Damages Rebuttal Report (March 15, 2023)
In accordance with the discovery schedule set by the Court, expert reports were exchanged on March 15, 2023. Dr. Anita Rosenthal, CPA, ABV, of Meridian Bridge Consulting LLC (311 South Michigan Avenue, Suite 1500, Chicago, Illinois 60604), submitted her damages rebuttal report on behalf of Nexford. As you will recall, Meridian Bridge was retained on December 12, 2022 pursuant to an expert retention letter executed on that date, and Dr. Rosenthal has been working closely with the Calderwood & Harkness litigation team throughout Q1 2023 to develop her analysis.
Dr. Rosenthal's report provides a thorough and methodical rebuttal of Cardinal Peak's claimed $4.73 million in unpaid surcharges. The report analyzes each of the three categories of Nexford's defense in detail:
a. Late Surcharge Notices — $2.18 Million. Dr. Rosenthal's report identifies the seven months during the disputed period (March 2021 through May 2022) for which Cardinal Peak's Surcharge Notices were not timely delivered within the 15-business-day period required by Section 7.4(a) of the MSA. Using the date-stamped transmittal records from Cardinal Peak's own production and the contractual notice requirements, Dr. Rosenthal calculates that $2.18 million in surcharges are attributable to these untimely notices and should be disallowed in their entirety.
b. Deviation from Exhibit C Methodology — $1.47 Million. Dr. Rosenthal's report recalculates the surcharges for each disputed month using the published Ferrous Scrap Index (Platts/SPI) and Industrial Energy Cost Index, as prescribed by Exhibit C of the MSA, applied against the contractually established baseline scrap cost of $340 per ton and baseline energy cost of $48 per ton. By comparing the surcharges properly calculated under the Exhibit C methodology with the amounts actually billed by Cardinal Peak using its internal blended cost metric, Dr. Rosenthal identifies a total overcharge of $1.47 million attributable to the methodology deviation.
c. Cap Exceedances — $1.08 Million. Dr. Rosenthal's report identifies four months during the disputed period in which Cardinal Peak's billed surcharges exceeded 12% of the applicable Base Price—specifically, $620 per ton for Hot-Rolled Coil (HRC) and $740 per ton for Cold-Rolled Coil (CRC)—without Nexford's prior written consent as required by Section 7.4(c). The aggregate amount of surcharges exceeding the 12% cap across these four months totals approximately $1.08 million.
Dr. Rosenthal's report concludes that after applying all three categories of Nexford's defense—and properly accounting for the overlap among defense categories where a single month's surcharge may implicate more than one defense—Nexford's maximum additional exposure is approximately $0.21 million beyond the $1.68 million in surcharges that Nexford has already paid. This conclusion is consistent with Mr. Okonkwo's deposition testimony and with the analysis our team has developed throughout the case.
We believe Dr. Rosenthal's report is well-supported by the contractual provisions of the MSA, the published index data for the disputed period, and Cardinal Peak's own production documents, including the internal surcharge computation worksheets and the Gunderson deposition admissions. The report is clearly written, methodologically sound, and will serve as a powerful tool in any mediation presentation and, if necessary, at trial.
3.2 Anticipated Plaintiff's Expert Report
Cardinal Peak's damages expert is Dr. Theodore Voss of Pinnacle Economics Group LLC (1900 Sixteenth Street, Suite 400, Denver, Colorado 80202). Under the discovery schedule, Dr. Voss is expected to submit his expert report by April 12, 2023.
Based on our review of the case to date and the positions taken by Cardinal Peak in its pleadings and discovery responses, we anticipate that Dr. Voss will seek to justify the full $4.73 million claim. We further expect Dr. Voss to argue for the addition of prejudgment interest, which, depending on the rate applied, could add a significant amount to Cardinal Peak's claimed damages. We also anticipate that Dr. Voss may attempt to offer opinions regarding the reasonableness of Cardinal Peak's blended cost methodology or argue that Nexford waived the notice and cap requirements through its course of dealing.
Upon receipt of Dr. Voss's report, Calderwood & Harkness will prepare a detailed internal analysis memorandum identifying methodological flaws, unsupported assumptions, and potential vulnerabilities in his opinions. This analysis will also assess whether grounds exist to pursue a Daubert-style challenge to Dr. Voss's testimony under the applicable Illinois evidentiary standards, including any challenge to the reliability or relevance of his methodology. We will circulate this memorandum to the litigation team and to Nexford promptly following its completion.
4. Current Case Posture and Upcoming Milestones
As a result of the substantial progress made during Q1 2023, the case is now well-positioned for the next phase. The current posture and key upcoming milestones are as follows:
• Written discovery: Written discovery is now substantially complete. Both parties have served and responded to their initial sets of interrogatories and document requests. We do not anticipate any significant outstanding discovery disputes, though the possibility of limited supplemental document production remains depending on the content of Dr. Voss's expert report.
• Depositions: The two key fact depositions—Natalie Gunderson (Cardinal Peak) and Russell Okonkwo (Nexford)—have been concluded. No additional fact depositions are currently scheduled or anticipated.
• Expert Reports: Nexford's damages rebuttal report (Dr. Rosenthal) was timely submitted on March 15, 2023. Cardinal Peak's damages expert report (Dr. Voss) is due on April 12, 2023. Following the exchange of expert reports, the parties may schedule rebuttal expert depositions. We expect that Nexford will seek to depose Dr. Voss and that Cardinal Peak may seek to depose Dr. Rosenthal.
• Remaining discovery: Any remaining discovery activity is expected to be limited to potential rebuttal expert depositions and any narrowly tailored supplemental document production that may be necessary in light of the expert reports.
• Mandatory Mediation: We wish to remind you that Section 14.3 of the MSA contains a mandatory mediation provision requiring the parties to engage in mediation in Chicago, Illinois before the litigation may proceed to trial. Compliance with this provision is a contractual prerequisite to trial, and we believe the timing is now appropriate to initiate mediation discussions.
5. Recommendation to Pursue Mediation
Based on the strength of Nexford's defenses as confirmed through the discovery process and expert analysis conducted during Q1 2023, Calderwood & Harkness recommends that the parties move forward with mediation as contemplated by MSA Section 14.3. We believe the case is now ripe for mediation and that Nexford is in an exceptionally strong position to achieve a favorable resolution.
Our recommendation is based on the following considerations:
a. Strength of Nexford's Position Following discovery. The Gunderson deposition admissions have significantly weakened Cardinal Peak's position on all three of Nexford's defense categories—notice compliance, surcharge methodology, and cap consent. Ms. Gunderson's concessions regarding the late delivery of seven months of Surcharge Notices, Cardinal Peak's unauthorized use of the blended cost metric, and the absence of any written consent for cap exceedances are direct and largely unequivocal. These admissions will be difficult for Cardinal Peak to overcome at mediation or at trial.
b. Compelling Expert Analysis. Dr. Rosenthal's rebuttal report provides a well-documented and persuasive damages analysis that reduces Nexford's maximum additional exposure to approximately $0.21 million—a fraction of Cardinal Peak's claimed $4.73 million. The report is grounded in the contractual provisions, the published index data, and Cardinal Peak's own documents, making it a compelling basis for negotiation.
c. Cost-Effectiveness of Mediation. Mediation offers the opportunity to resolve this dispute at a fraction of the claimed $4.73 million while also avoiding the substantial additional costs that would be incurred in proceeding through trial. As discussed in greater detail in Section 6 below, the estimated budget through mediation was $200,000 to $275,000, compared with an estimated $350,000 to $500,000 through trial. Current legal spend is tracking within the mediation budget range, and a successful mediation would preserve this cost advantage.
d. Operational and Commercial Considerations. Resolution of this litigation through mediation would allow Nexford's management team to redirect its attention and resources to operational matters and to the Company's ongoing commercial relationship transition with Cardinal Peak. We understand that the parties continue to have commercial interactions notwithstanding this litigation, and a mediated resolution would reduce the strain on that relationship.
With Nexford's approval, we propose to contact Blackwood Stein & Associates LLP to initiate discussions regarding the joint selection of a mediator and to explore the possibility of filing a joint motion to stay the litigation pending mediation. We believe that a stay would be in both parties' interests and would reduce unnecessary litigation expenses during the mediation process.
As a potential mediator, we suggest exploring the availability of the Honorable Catherine Lindström (Ret.) of the Great Lakes Dispute Resolution Center (150 North Riverside Plaza, Suite 2700, Chicago, Illinois 60606). Judge Lindström is a former Circuit Court judge with extensive experience mediating complex commercial contract disputes. She is well-regarded by the bench and bar in Cook County and has particular familiarity with supply agreement and pricing disputes in the industrial sector. We believe she would be an effective and credible neutral for this matter.
Finally, we request that Nexford's leadership and Marlowe Asset Management Bluff Capital Partners, LP begin considering settlement authority parameters in advance of any mediation session. We recognize that defining a specific settlement range at this juncture may be premature, given that Cardinal Peak's expert report has not yet been received. We will provide further guidance on an appropriate settlement range once we have had the opportunity to receive and analyze Dr. Voss's report. However, early consideration of Nexford's objectives and constraints will facilitate efficient mediation preparation.
6. Budget and Billing Update
We are pleased to report that the engagement remains within the expected budget parameters for the mediation track. As set forth in the engagement letter dated August 22, 2022, the estimated legal fees and costs for this matter through mediation were projected at $200,000 to $275,000. Current total fees and costs billed through the end of Q1 2023 are tracking within this range, reflecting the substantial discovery and expert work completed during the quarter.
The billing rates applicable to this engagement remain as set forth in the August 22, 2022 engagement letter:
In addition to professional fees, costs incurred to date include expert fees paid to Meridian Bridge Consulting LLC for Dr. Rosenthal's engagement and report preparation, court reporter fees for the Gunderson and Okonkwo depositions, and miscellaneous filing and service fees. All costs have been invoiced in the ordinary course and are reflected in the monthly billing statements provided to the Company.
If mediation is successful and the matter is resolved without the need for further litigation, we expect the total engagement cost to remain within the $200,000 to $275,000 budget range originally projected. Should the matter proceed to trial, the estimated total engagement cost would increase to the $350,000 to $500,000 range, as previously communicated. We will continue to monitor legal spend closely and will promptly advise if any developments cause us to revise the budget estimate.
7. Lender and Sponsor Coordination Reminder
We wish to remind you that Nexford's $45 million revolving credit facility with Ridgecrest National Bank, N.A. (dated March 12, 2021) contains a reporting covenant under Section 6.03(b) requiring Nexford to provide notice to the lender of any litigation settlement exceeding $1.0 million. While we believe Nexford's maximum additional exposure in this matter is significantly below that threshold—Dr. Rosenthal's analysis places it at approximately $0.21 million—it is possible that the final terms of any mediated resolution could implicate this notice requirement depending on the structure and characterization of the settlement.
We recommend that Nexford plan to coordinate with Karen Whitmore, Relationship Manager at Ridgecrest National Bank, at the appropriate time to ensure compliance with this covenant. We are available to assist in preparing any required notices or related communications.
Additionally, we understand that Diana Calloway of Marlowe Asset Management Bluff Capital Partners, LP is being kept apprised of developments in this litigation in her capacity as Board Observer. We will continue to coordinate with Ms. Calloway and with Conrad Yeung as settlement discussions develop, and we will ensure that Marlowe Asset Management Bluff has adequate visibility into the mediation process and any proposed settlement terms for purposes of its governance and investment oversight responsibilities.
8. Next Steps
Looking ahead to Q2 2023, the following action items represent the principal next steps in the litigation:
1. Receive and Analyze Dr. Voss's Expert Report. Dr. Voss's damages expert report is due on April 12, 2023. Upon receipt, Calderwood & Harkness will conduct a thorough review and prepare a detailed internal analysis memorandum identifying methodological weaknesses, unsupported assumptions, and potential grounds for challenge.
2. Prepare Internal Analysis Memorandum. The Voss report analysis memorandum will be circulated to the litigation team and to Nexford's leadership promptly following its completion, along with our recommendations regarding any rebuttal expert work or evidentiary challenges.
3. Initiate Mediation Discussions. Subject to Nexford's authorization, we will contact Blackwood Stein & Associates LLP to initiate discussions regarding mediation scheduling and the joint selection of a mediator.
4. Prepare and File Joint Motion to Stay. If the parties reach agreement on mediation, we will prepare and file a joint motion to stay the litigation pending the completion of the mediation process.
5. Develop Mediation Strategy and Settlement Range Analysis. We will continue to develop the mediation strategy and prepare a detailed settlement range analysis for review and approval by Nexford's leadership and Marlowe Asset Management Bluff Capital Partners, LP. This analysis will incorporate the findings from Dr. Voss's report once received.
6. Schedule Mediation Preparation Call. We recommend scheduling a call with Deborah Whitfield, Martin Schaeffer, and Diana Calloway to discuss mediation preparation, settlement authority, and strategic considerations once Dr. Voss's report has been received and analyzed. We will propose dates for this call in early-to-mid April.
Closing
We are encouraged by the significant progress achieved during Q1 2023. The discovery record and expert analysis developed to date provide Nexford with a strong foundation for a favorable resolution of this dispute, whether through mediation or, if necessary, at trial. We remain committed to advancing Nexford's interests in this matter efficiently and effectively.
Please do not hesitate to contact me or Simone Laroche with any questions regarding this report or any other aspect of the litigation. I can be reached at (312) 555-7218 or panand@calderwoodharkness.com, and Simone can be reached at (312) 555-7234 or slaroche@calderwoodharkness.com.
We respectfully request Nexford's authorization to proceed with mediation outreach to Blackwood Stein & Associates LLP as described in Section 5 above. We are prepared to initiate those discussions immediately upon receiving your approval.
A copy of this letter is being maintained in the privileged matter file under Calderwood & Harkness Matter No. 1005-00005.
We look forward to discussing these matters with you further.
Very truly yours,
CALDERWOOD & HARKNESS LLP
By: ________
Priya Anand Partner
200 South Wacker Drive, Suite 4400 Chicago, Illinois 60606 Telephone: (312) 555-7218
Email: panand@calderwoodharkness.com
cc: Douglas Carmichael, Billing Partner, Calderwood & Harkness LLP Simone Laroche, Lead Associate, Calderwood & Harkness LLP Diana Calloway, Marlowe Asset Management Bluff Capital Partners, LP (via separate privileged cover)
Enclosures: None. Internal memoranda and the expert report referenced herein are maintained in the privileged matter file and are not enclosed with this letter for privilege protection purposes. These materials are available for review upon request.
Timekeeper | Role | Rate
Priya Anand | Responsible Partner | $895/hr
Douglas Carmichael | Billing Partner | $875/hr
Simone Laroche | Lead Associate | $585/hr
Jeffrey Park | Working Associate | $435/hr
Paralegal Staff | Paralegal | $275/hr

CALDERWOOD & HARKNESS LLP Attorneys at Law

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