Contract analysis

I. Executive Summary The purpose of this memorandum is to provide an initial analysis of the pre-restructuring capital structure, leverage profile, and liquidity position of Stonefield Logistics Group Inc. ("Stonefield," "SLG," or the "Company"), a Delaware corporation headquartered at 4200 Commerce Street, Suite 1500, Dallas, TX 75201. This analysis is intended to inform restructuring strategy recommendations for Na

II. Background and Business Overview A. Company Description Stonefield Logistics Group Inc. is a Delaware corporation (EIN: 83-2457109; DE File No.: 6341872) with its principal place of business at 4200 Commerce Street, Suite 1500, Dallas, TX 75201. The Company's registered agent in the State of Delaware is Capitol Registered Agents, Inc., located at 1209 Orange Street, Wilmington, DE 19801. Stonefield operates in th

III. Pre-Restructuring Capital Structure A. Overview Table The following table summarizes the Company's pre-restructuring capital structure as of March 31, 2023: As reflected in the table, the Company's capital structure consists of two tiers of secured debt — a first lien facility and a second lien mezzanine tranche — with equity held by the private equity sponsor. There is no unsecured bond debt or other meaningful

IV. Leverage Analysis A. Total Leverage The Company's total leverage ratio is calculated as follows: Total Funded Debt: $475.1 million LTM Q1 2023 Adjusted EBITDA: $41.2 million Total Leverage Ratio: $475.1M ÷ $41.2M = 11.5x A leverage ratio of 11.5x is profoundly unsustainable for a mid-market logistics platform. For context, comparable publicly traded and privately held mid-market logistics companies — including fr

V. Liquidity Analysis A. Current Liquidity Position (as of March 31, 2023) The Company's total available liquidity as of March 31, 2023 is summarized as follows: Total liquidity of $15.8 million is dangerously low for a business of the Company's scale (approximately $545 million in projected annual revenue and 3,800 employees across 26 terminals). As a general benchmark, companies in the logistics sector typically ma

VI. Maturity Wall Analysis A. Near-Term Maturities The Company's capital structure is characterized by a concentrated and imminent maturity wall that presents the most acute financial challenge facing the business. The maturity schedule is as follows: December 15, 2024 (approximately 20 months from the date of this memorandum): Both the Revolving Credit Facility ($50.0 million committed / $42.0 million drawn) and the

VII. Financial Advisor Engagement and Management Projections On March 15, 2023, the Board of Directors of Stonefield Logistics Group Inc. formally retained Hargrove Advisory Group LLC (1345 Avenue of the Americas, 38th Floor, New York, NY 10105) as financial advisor to the Company. The lead contact at Hargrove is Elena Voss, Managing Director. Hargrove has been engaged to provide liability management advisory service

VIII. D&O Insurance Coverage The Company currently maintains directors' and officers' liability insurance coverage in the aggregate amount of $15.0 million. The policy is provided by Northgate Specialty Insurance Company, a Connecticut-domiciled insurance carrier, under Policy No. NSI-DOL-2023-07721. The policy is structured as a Side A DIC (difference in conditions) and ABC (Side A, Side B, Side C) program, which pr

IX. Preliminary Observations and Restructuring Considerations A. Key Challenges Based on the analysis presented in this memorandum, the Company faces five principal challenges that must be addressed through a restructuring:

1. Unsustainable leverage. Total leverage of 11.5x (and potentially rising to 12.3x or higher) is far in excess of sustainable levels for a mid-market logistics platform. The Company's capital structure must be substantially deleveraged to bring total leverage within the range of 3.0x to 5.0x and enable the business to operate on a going-concern basis.

2. Imminent maturity wall. The first lien debt maturity of $327.0 million on December 15, 2024 is approximately 20 months away. This maturity cannot be satisfied through repayment at maturity, and a refinancing is not available in the capital markets. The maturity must be extended through a consensual amendment or a bankruptcy process.

3. Deteriorating EBITDA and revenue. Adjusted EBITDA has declined approximately 30% from FY 2022 ($58.7 million) to LTM Q1 2023 ($41.2 million), with further decline projected to $38.5 million for FY 2023. Revenue contraction, driven by macroeconomic headwinds in the freight sector, is ongoing and may persist through 2024.

4. Constrained liquidity. Total liquidity of $15.8 million, with ongoing cash burn of approximately $2.5 million per month, provides a runway of only approximately 6 months before liquidity is exhausted. This timeline is further compressed by the "springing" effects of the approaching maturity on trade credit and counterparty relationships.

5. Interest coverage at or below breakeven. With an interest coverage ratio of approximately 0.9x to 1.1x, the Company is unable to service its debt from current operations. This condition is unsustainable and, if uncorrected, will accelerate the depletion of remaining liquidity. B. Potential Restructuring Paths Based on our preliminary assessment, four potential restructuring paths warrant further analysis and discu

1. Consensual Amend-and-Extend with Deleveraging The preferred path would involve a consensual out-of-court restructuring negotiated among the Company, the first lien lenders, the mezzanine noteholders, and the equity sponsor. The key elements of such a transaction could include: • Negotiation with the first lien lenders to extend the maturity of the TLB and revolver by two to three years (to December 2026 or Decembe

2. New Money Facility Independent of or in conjunction with the amend-and-extend and deleveraging transaction described above, the Company should explore the possibility of securing a new money facility to bridge liquidity needs during the negotiation period and to provide post-restructuring operating runway. Such a facility could be structured as a super-priority or first-out tranche, senior to existing first lien c

3. Chapter 11 Filing (Fallback) If consensual out-of-court negotiations fail to produce a viable restructuring agreement within an acceptable timeframe, a prepackaged or prearranged Chapter 11 filing could be utilized to accomplish the same structural objectives — maturity extension, deleveraging, and new money injection — under the supervision of the bankruptcy court. A prepackaged plan, in which the requisite credi

4. Sale Process A sale of the Company's business — either as a going concern (in whole) or as a disposition of individual business lines or terminal assets — could be considered as an alternative or supplement to a restructuring. A sale process could be conducted either out of court (through a negotiated transaction) or in connection with a Chapter 11 filing (under Section 363 of the Bankruptcy Code). However, curren