CALDERWOOD & HARKNESS LLP Attorneys at Law

CALDERWOOD & HARKNESS LLP Attorneys at Law
200 South Wacker Drive, Suite 4400 Chicago, Illinois 60606 Telephone: (312) 555-7800 Facsimile: (312) 555-7801 www.calderwoodharkness.com
August 21, 2023
Ms. Karen Whitmore Relationship Manager Ridgecrest National Bank, N.A. 120 North LaSalle Street Chicago, Illinois 60602
Re: Notice Pursuant to Section 6.03(b) of Credit Agreement — Settlement of Litigation by Nexford Industrial Holdings Inc.
Credit Agreement: $45,000,000 Revolving Credit Facility, dated as of March 12, 2021, by and between Nexford Industrial Holdings Inc. (as Borrower) and Ridgecrest National Bank, N.A. (as Administrative Agent and Lender) (as amended, restated, supplemented, or otherwise modified from time to time, the "Credit Agreement")
Calderwood & Harkness Matter No. 1005-00005
Dear Ms. Whitmore:
I. Purpose of This Letter and Legal Basis for Notice
Calderwood & Harkness LLP writes on behalf of its client, Nexford Industrial Holdings Inc. ("Nexford" or the "Borrower"), a corporation duly organized and existing under the laws of the State of Delaware, with its principal executive offices located at 4200 West Lakeshore Industrial Parkway, Suite 300, Waukegan, Illinois 60085 (Employer Identification Number: 36-4821097; Delaware Charter No. 7284159). This firm serves as outside litigation counsel to Nexford in connection with the matter described herein and has been authorized by the Borrower to deliver this notice on its behalf.
The purpose of this letter is to provide formal written notice to Ridgecrest National Bank, N.A., in its capacity as Administrative Agent under the Credit Agreement (the "Administrative Agent"), pursuant to Section 6.03(b) of that certain Credit Agreement, dated as of March 12, 2021, by and between the Borrower and Ridgecrest National Bank, N.A. (as amended, restated, supplemented, or otherwise modified from time to time, the "Credit Agreement"), governing the $45,000,000 revolving credit facility made available to the Borrower thereunder. Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to them in the Credit Agreement.
As you are aware, Section 6.03(b) of the Credit Agreement requires the Borrower to promptly notify the Administrative Agent in writing of any settlement of litigation, arbitration, or other legal proceedings involving the Borrower or any of its Subsidiaries where the aggregate settlement amount, including any amounts payable by or on behalf of the Borrower in connection therewith, exceeds One Million Dollars ($1,000,000). The settlement described in detail below meets and exceeds that threshold, and accordingly this letter is being delivered to satisfy the Borrower's notice obligation under Section 6.03(b). The Borrower believes that this notice is being provided promptly following the execution of the definitive settlement documentation and well within the time period contemplated by the Credit Agreement.
II. Description of the Underlying Litigation
A. Case Caption and Parties
The litigation that is the subject of this notice was captioned as follows:
Cardinal Peak Industries v. Nexford Industrial Holdings Inc. Case No. 2022-L-008471 Circuit Court of Cook County, Illinois County Department, Law Division
The plaintiff in the action was Cardinal Peak Industries ("Cardinal Peak" or "CPI"), a Colorado limited liability company with its principal place of business at 1580 Ridgeline Boulevard, Pueblo, Colorado 81001. Cardinal Peak is a domestic producer and distributor of flat-rolled steel products, including hot-rolled coil and cold-rolled coil products used in industrial manufacturing applications.
The defendant in the action was Nexford Industrial Holdings Inc., the Borrower under the Credit Agreement.
B. Counsel of Record
Cardinal Peak was represented by the law firm of Blackwood Stein & Associates LLP, located at 717 Seventeenth Street, Suite 2200, Denver, Colorado 80202. The lead partner responsible for the prosecution of the matter on behalf of Cardinal Peak was Garrett Blackwood.
Nexford was represented in its defense by this firm, Calderwood & Harkness LLP. The responsible partner for the matter was Priya Anand, and the billing partner was Douglas Carmichael, both of the firm's Chicago office.
C. Nature of the Dispute
The dispute arose from a pricing disagreement between the parties under a Master Supply Agreement dated January 15, 2020 (MSA Reference No. MSA-NIH-CPI-2020-001) (the "MSA"), pursuant to which Nexford, in its capacity as buyer, purchased hot-rolled coil ("HRC") and cold-rolled coil ("CRC") steel products from Cardinal Peak, in its capacity as seller. Specifically, the dispute centered on contested raw-material surcharge pass-throughs that Cardinal Peak sought to impose on Nexford during a period of significant volatility in raw-material input costs, particularly in the pricing of iron ore, metallurgical coal, and zinc used in the production of flat-rolled steel products.
Cardinal Peak contended that it was contractually entitled, under Section 7.4 of the MSA, to pass through to Nexford certain increases in its raw-material input costs in the form of surcharges applied to the base price of HRC and CRC products. Nexford disputed both the methodology employed by Cardinal Peak in calculating those surcharges and the procedural manner in which the surcharges were communicated and invoiced.
D. Claims Asserted by Cardinal Peak
Cardinal Peak's complaint, filed on August 8, 2022, asserted three causes of action against Nexford:
1.  Breach of Contract — Cardinal Peak alleged that Nexford breached its obligations under the MSA by failing and refusing to pay invoiced surcharges on shipments of HRC and CRC products delivered during the period from March 2021 through May 2022, and that such refusal constituted a material breach of Sections 7.4 and 8.1 of the MSA.
2.  Unjust Enrichment — Cardinal Peak alleged, in the alternative, that Nexford was unjustly enriched by receiving steel products at prices that did not reflect the true cost of raw-material inputs borne by Cardinal Peak, and that equity and good conscience required Nexford to compensate Cardinal Peak for the difference.
3.  Account Stated — Cardinal Peak alleged that the invoices it issued to Nexford for the disputed surcharges were received, retained, and not objected to within a commercially reasonable time, and therefore constituted an account stated binding upon Nexford.
E. Claimed Damages
Cardinal Peak's complaint sought recovery of the following amounts:
•  Unpaid surcharges for the period March 2021 through May 2022: $4,730,000
•  Prejudgment interest on unpaid surcharges: $380,000
•  Total claimed damages: $5,110,000
Cardinal Peak also sought recovery of its reasonable attorneys' fees and costs of litigation pursuant to the fee-shifting provision in Section 14.6 of the MSA, as well as such other and further relief as the Court deemed just and proper.
F. Nexford's Defenses and Counterclaim
Nexford filed its Answer and Affirmative Defenses on September 19, 2022, denying the material allegations of the complaint and asserting several affirmative defenses, including the following:
•  Failure to Comply with Contractual Notice Requirements. Nexford asserted that Cardinal Peak failed to comply with the mandatory written notice requirements set forth in Section 7.4(a) of the MSA, which required Cardinal Peak to provide Nexford with no less than forty-five (45) days' prior written notice of any proposed surcharge adjustment, accompanied by supporting documentation demonstrating the basis for the adjustment and the methodology used to calculate it. Nexford contended that Cardinal Peak's notices were untimely, incomplete, and did not include the requisite supporting documentation.
•  Deviation from Agreed Surcharge Methodology. Nexford asserted that Cardinal Peak deviated from the Surcharge Methodology set forth in Exhibit C to the MSA, which established a specific formula for calculating permissible surcharges based on published index prices for raw-material inputs. Nexford contended that Cardinal Peak unilaterally substituted its own internal cost data for the agreed-upon published index references, resulting in surcharges that were materially inflated and inconsistent with the parties' bargained-for pricing structure.
•  Exceeded Surcharge Cap Without Written Consent. Nexford asserted that numerous surcharges invoiced by Cardinal Peak exceeded the twelve percent (12%) cap on aggregate surcharge increases established by Section 7.4(c) of the MSA, and that Cardinal Peak failed to obtain Nexford's prior written consent before imposing surcharges in excess of that cap, as expressly required by the MSA.
In addition, on October 3, 2022, Nexford filed a counterclaim against Cardinal Peak seeking: (i) a declaratory judgment that Cardinal Peak's surcharges were not properly imposed under the terms of the MSA; and (ii) recovery of approximately $210,000 in alleged overpayments that Nexford had made to Cardinal Peak on invoices that included improperly calculated surcharges during the early months of the disputed period, before Nexford commenced its practice of withholding payment on the disputed surcharge amounts.
III. Procedural History Leading to Settlement
Following the close of pleadings in November 2022, the litigation proceeded through several phases of discovery and motion practice.
Written discovery and Depositions (December 2022 – April 2023). The parties engaged in extensive written discovery, exchanging document productions relating to the MSA, the surcharge invoices, the Exhibit C Surcharge Methodology, internal pricing analyses, and correspondence between the parties' respective procurement and commercial departments. The combined document production exceeded 48,000 pages. The parties also conducted a total of six fact-witness depositions, including depositions of key commercial personnel from both Nexford and Cardinal Peak who were directly involved in the administration of the MSA and the surcharge disputes.
Expert Reports (March – April 2023). Each party retained damages experts. Cardinal Peak's expert, a forensic accountant, submitted a report quantifying the claimed unpaid surcharges and prejudgment interest. Nexford's expert, an industry pricing consultant with specific expertise in flat-rolled steel surcharge methodologies, submitted a rebuttal report concluding that Cardinal Peak's surcharges deviated materially from the Exhibit C Surcharge Methodology and that, had the correct methodology been applied, the aggregate surcharges for the relevant period would have been approximately $1.6 million less than the amount invoiced by Cardinal Peak.
Mandatory Mediation. Section 14.3 of the MSA contained a mandatory mediation provision requiring the parties to submit any unresolved dispute to non-binding mediation prior to proceeding to trial. On May 22, 2023, the parties filed a joint motion to stay litigation pending completion of mandatory mediation pursuant to MSA Section 14.3. The Court entered an order granting the joint motion on June 5, 2023, staying all proceedings and deadlines pending the conclusion of the mediation process.
Mediation Proceedings. A full-day mediation session was conducted on August 2, 2023, before the Honorable Catherine Lindström (Ret.) at the Great Lakes Dispute Resolution Center, located at 150 North Riverside Plaza, Suite 2700, Chicago, Illinois 60606. Judge Lindström, a former Justice of the Illinois Appellate Court with extensive experience mediating complex commercial disputes, conducted separate caucuses with the parties and their counsel throughout the day. After extensive arm's-length negotiations, the parties reached a settlement in principle at the conclusion of the mediation session. A term sheet memorializing the essential terms of the settlement was signed by authorized representatives of both Nexford and Cardinal Peak on August 2, 2023.
IV. Terms of the Settlement
A. Definitive Settlement Documentation
Following execution of the term sheet, the parties and their respective counsel negotiated the terms of a formal Settlement Agreement and Mutual Release (the "Settlement Agreement"), which was fully executed by both parties on August 18, 2023. A copy of the executed Settlement Agreement is enclosed herewith for the Administrative Agent's records, subject to the confidentiality restrictions described below in Section IV.F.
B. Settlement Amount
The total settlement amount payable by Nexford to Cardinal Peak under the Settlement Agreement is One Million Eight Hundred Ninety Thousand Dollars ($1,890,000). This amount represents approximately forty percent (40%) of Cardinal Peak's claimed $4,730,000 in allegedly unpaid surcharges, and reflects a substantial discount from the total claimed damages of $5,110,000 (inclusive of prejudgment interest). Nexford's litigation counsel and management believe this result represents a favorable outcome for the Borrower, particularly in light of the inherent risks and costs of continued litigation and trial.
C. Payment Structure
The settlement amount is payable in two installments, as follows:
The Settlement Agreement provides that failure by Nexford to make either installment payment when due (subject to a five-business-day cure period following written notice from Cardinal Peak) would constitute a breach of the Settlement Agreement, potentially entitling Cardinal Peak to pursue enforcement of the settlement and to seek entry of a consent judgment in the amount of the unpaid balance, plus interest at the rate of eight percent (8%) per annum from the date of default.
D. Notice Threshold
The Administrative Agent will note that the aggregate settlement amount of $1,890,000 exceeds the $1,000,000 notice threshold set forth in Section 6.03(b) of the Credit Agreement. Accordingly, this notice is being provided in satisfaction of the Borrower's obligation under that section.
E. Mutual Release and No Admission of Liability
Under the terms of the Settlement Agreement, Nexford and Cardinal Peak have exchanged full and mutual general releases, releasing each other and their respective affiliates, officers, directors, employees, agents, successors, and assigns from any and all claims, counterclaims, demands, causes of action, damages, liabilities, costs, and expenses of whatever kind or nature, whether known or unknown, arising out of or relating to the MSA, the surcharge dispute, or the litigation, from the beginning of time through the date of execution of the Settlement Agreement.
Importantly, the Settlement Agreement contains an express provision confirming that neither party admits any liability, fault, or wrongdoing in connection with the underlying dispute. The settlement was entered into solely for the purpose of resolving the litigation and avoiding the expense, burden, and uncertainty of continued proceedings.
F. Confidentiality Provisions
The Settlement Agreement contains mutual confidentiality provisions pursuant to which both parties have agreed to maintain the terms of the settlement, including the settlement amount and payment schedule, in strict confidence. Disclosure is permitted only: (i) to the parties' respective legal, financial, and tax advisors; (ii) as required by applicable law or regulation; (iii) in connection with the enforcement of the Settlement Agreement; and (iv) as required by any contractual reporting obligation, including without limitation loan agreement covenants.
This notice is being provided to Ridgecrest National Bank, N.A. in reliance upon the exception described in clause (iv) above. We respectfully request that the Administrative Agent and Ridgecrest National Bank, N.A. maintain the confidentiality of the settlement terms disclosed herein, consistent with the bank's own confidentiality obligations under Section 11.08 of the Credit Agreement, and that the enclosed copy of the Settlement Agreement not be further distributed, copied, or disclosed to any third party without the prior written consent of the Borrower.
G. Termination of the MSA
As a component of the overall settlement, the parties have agreed to terminate the MSA by mutual consent, effective August 31, 2023. The parties have further agreed to a transition period extending through October 31, 2023, during which Cardinal Peak will fulfill all outstanding purchase orders issued by Nexford prior to the effective date of termination at the prices set forth in such purchase orders (exclusive of any disputed surcharges). No new purchase orders will be issued under the MSA following August 31, 2023. Nexford has already identified and is in the process of onboarding alternative suppliers for HRC and CRC products.
H. Dismissal of Litigation
The Settlement Agreement provides for the filing of a Stipulation of Dismissal with Prejudice of all claims and counterclaims in the litigation. As of the date of this letter, the Stipulation of Dismissal had not yet been filed but was expected to be filed imminently upon completion of certain administrative formalities. We note for the Administrative Agent's records that the Stipulation of Dismissal with Prejudice was subsequently filed with the Circuit Court of Cook County on September 14, 2023, and the case has been closed.
V. Financial Impact and Borrower's Compliance
A. Source of Settlement Funds
The aggregate settlement payment of $1,890,000 will be funded from Nexford's operating cash flow and, to the extent necessary, from available capacity under the $45,000,000 revolving credit facility governed by the Credit Agreement. Nexford's Chief Financial Officer has confirmed that the Borrower maintains sufficient liquidity to satisfy both installment payments when due without material impact on the Borrower's working capital position or its ability to meet its other financial obligations.
B. Materiality Assessment
To provide the Administrative Agent with appropriate context for assessing the financial significance of the settlement, we note the following:
•  Nexford's consolidated annual revenue for the fiscal year ended December 31, 2022 was approximately $287,000,000.
•  The aggregate settlement amount of $1,890,000 represents approximately 0.66% of Nexford's annual revenue — well below one percent.
•  The settlement, while material for purposes of the Section 6.03(b) notice threshold, does not, in the Borrower's assessment, constitute a Material Adverse Effect as defined in Section 1.01 of the Credit Agreement.
C. Total Legal Costs
The total legal costs incurred by Nexford in connection with the defense of the Cardinal Peak litigation and the negotiation of the settlement are approximately $272,085, broken down as follows:
D. Savings Analysis
The settlement achieved significant savings for the Borrower relative to the amounts originally claimed by Cardinal Peak:
•  Gross savings: $4,730,000 (claimed unpaid surcharges) minus $1,890,000 (settlement amount) = $2,840,000
•  Net savings after legal costs: $2,840,000 minus $272,085 = approximately $2,567,915
These figures do not account for the additional prejudgment interest of $380,000 claimed by Cardinal Peak, or the potential exposure to Cardinal Peak's attorneys' fees under the MSA's fee-shifting provision, which would have further increased Nexford's potential liability had the case proceeded to an adverse judgment at trial.
E. Compliance Representations
The Borrower hereby represents to the Administrative Agent as follows:
1.  The execution, delivery, and performance of the Settlement Agreement, and the payment of the settlement amount contemplated thereby, do not result in a Default or an Event of Default under the Credit Agreement, as those terms are defined in Article VIII thereof.
2.  After giving effect to the settlement and the anticipated settlement payments, the Borrower remains in compliance with all financial covenants set forth in Section 7.01 of the Credit Agreement, including without limitation the Maximum Leverage Ratio, the Minimum Fixed Charge Coverage Ratio, and the Minimum Consolidated Tangible Net Worth requirements.
3.  The Borrower is in compliance with all other material terms, conditions, covenants, and obligations under the Credit Agreement as of the date of this letter.
4.  No other litigation, arbitration, or proceedings are pending or, to the knowledge of the Borrower, threatened against the Borrower that would reasonably be expected to result in a Material Adverse Effect.
VI. Awareness and Approval by Nexford's Equity Sponsor
For the Administrative Agent's information, Nexford's majority equity owner, Marlowe Asset Management Bluff Capital Partners, LP (the "Sponsor"), a Delaware limited partnership (general partner: Marlowe Asset Management Bluff Capital Management LLC; managing partner: Conrad Yeung), has been kept fully apprised of the Cardinal Peak litigation from its inception, including all material developments in the proceedings and the terms of the proposed settlement. The Sponsor's designated board observer, Diana Calloway, Principal at Marlowe Asset Management Bluff Capital Partners, LP, has participated in all relevant board discussions concerning the litigation and the settlement.
The Borrower's Board of Directors, with the knowledge and concurrence of the Sponsor, authorized the settlement at the amounts and on the terms described in this letter prior to the execution of the Settlement Agreement. Accordingly, the settlement has received all necessary corporate and sponsor-level approvals.
VII. Contact Information and Availability for Questions
Should the Administrative Agent have any questions regarding this notice, the underlying litigation, or the terms of the settlement, or should the Administrative Agent require any additional information or documentation, please do not hesitate to contact any of the following individuals:
For questions regarding the litigation and settlement terms:
Priya Anand, Partner Calderwood & Harkness LLP 200 South Wacker Drive, Suite 4400 Chicago, Illinois 60606 Telephone: (312) 555-7842
Email: panand@calderwoodharkness.com
For questions regarding legal and corporate governance matters:
Deborah Whitfield, General Counsel Nexford Industrial Holdings Inc. 4200 West Lakeshore Industrial Parkway, Suite 300 Waukegan, Illinois 60085 Telephone: (847) 555-3100
Email: dwhitfield@nexfordindustrial.com
For financial inquiries regarding the settlement payment schedule:
Lydia Tran, Chief Financial Officer Nexford Industrial Holdings Inc. 4200 West Lakeshore Industrial Parkway, Suite 300 Waukegan, Illinois 60085 Telephone: (847) 555-3115
Email: ltran@nexfordindustrial.com
We are available at your convenience to discuss this matter further or to arrange a call among the relevant parties should that be helpful.
VIII. Reservation of Rights
This notice is provided solely for informational purposes, in satisfaction of the Borrower's notice obligation under Section 6.03(b) of the Credit Agreement. Nothing in this letter shall be construed as, or deemed to constitute, a waiver, modification, or amendment of any rights, remedies, defenses, or obligations of the Borrower, the Administrative Agent, or any other party under the Credit Agreement or under applicable law. The Borrower expressly reserves all of its rights and remedies under the Credit Agreement, the other Loan Documents, and applicable law, all of which are hereby preserved in full.
This letter and the obligations described herein shall be governed by and construed in accordance with the laws of the State of Illinois, without regard to conflict-of-laws principles, consistent with the governing law provision set forth in Section 11.05 of the Credit Agreement.
We trust that this notice provides the Administrative Agent with the information required under Section 6.03(b) of the Credit Agreement. We appreciate the Administrative Agent's continued cooperation and attention to this matter.
Very truly yours,
CALDERWOOD & HARKNESS LLP
By: ________
Priya Anand Partner
Date: August 21, 2023
cc: (via email and first-class mail)
Deborah Whitfield, General Counsel, Nexford Industrial Holdings Inc. Martin Schaeffer, Chief Executive Officer, Nexford Industrial Holdings Inc. Lydia Tran, Chief Financial Officer, Nexford Industrial Holdings Inc. Diana Calloway, Principal, Marlowe Asset Management Bluff Capital Partners, LP Douglas Carmichael, Partner, Calderwood & Harkness LLP
Enclosure:
Copy of executed Settlement Agreement and Mutual Release, dated August 18, 2023, by and between Nexford Industrial Holdings Inc. and Cardinal Peak Industries (subject to confidentiality restrictions — provided for the Administrative Agent's records only; not for further distribution without the prior written consent of the Borrower)
CONFIDENTIAL — This letter and its enclosure contain information that is confidential and subject to the confidentiality provisions of the Settlement Agreement and Mutual Release and Section 11.08 of the Credit Agreement. This communication is intended solely for the use of the addressee and other authorized recipients identified herein. Any unauthorized review, use, disclosure, or distribution is prohibited.
Installment | Amount | Percentage of Total | Due Date
Installment 1 | $1,134,000 | 60% | September 17, 2023 (30 days after execution)
Installment 2 | $756,000 | 40% | November 16, 2023 (90 days after execution)
Total | $1,890,000 | 100%
Category | Amount
Legal fees (Calderwood & Harkness LLP) | $243,670
Costs advanced (filing fees, deposition costs, expert fees, mediation fees, etc.) | $28,415
Total legal costs | $272,085