Contract analysis

I. Executive Summary The purpose of this memorandum is to analyze the October 3, 2022 coverage declination letter issued by Graymark Insurance Company ("Graymark") in response to Stonefield Logistics Group Inc.'s ("Stonefield" or the "Company") September 6, 2022 tender of the claims asserted by Vantor Holdings Corp. ("Vantor") in Vantor Holdings Corp. v. Stonefield Logistics Group Inc., Case No. 22-cv-07841 (S.D.N.Y.

II. Background A. The Underlying Litigation On August 12, 2022, Vantor Holdings Corp. filed a Complaint in the United States District Court for the Southern District of New York, assigned Case No. 22-cv-07841 (the "Complaint"), against Stonefield Logistics Group Inc. The Complaint alleges wrongful termination of the Transportation Services Agreement dated March 15, 2019, between Stonefield and Vantor Transport Servic

1. Contractual Liability Exclusion (Section 5(g)): Graymark determined that the Vantor claims arise out of, are based upon, and are attributable to Stonefield's actual or alleged liability under the TSA. Because the claims sound entirely in contract, the Contractual Liability Exclusion applies to preclude coverage. Graymark further determined that the "absent the contract" carve-back does not apply because Stonefield

2. Insured Capacity Requirement / Absence of Named Individual Defendants: Graymark noted that the Complaint names only Stonefield Logistics Group Inc. as defendant. No individual director or officer of Stonefield is named as a defendant. The Complaint does not allege that any Insured Person committed a Wrongful Act in their capacity as a director or officer. Accordingly, the fundamental predicate for coverage under S

III. Analysis of the Declination Having reviewed the Complaint, the Policy, the Declination Letter, and applicable case law, we have independently assessed the legal soundness of Graymark's coverage declination. For the reasons set forth below, we conclude that the declination is well-founded and that Stonefield does not have a viable basis for challenging it. A. The Contractual Liability Exclusion Bars Coverage The

1. Potential "Mixed Claims" Argument. We have considered whether Stonefield could argue that the Vantor claims are "mixed claims" — that is, claims that implicate both contractual obligations and the judgment and good faith of Stonefield's directors and officers — and that the Policy should therefore provide coverage for at least a portion of the defense. The principal basis for such an argument would be Vantor's all

2. Defense Cost Obligation. Even setting aside the applicability of the Contractual Liability Exclusion, the duty to advance or reimburse defense costs under the Policy is triggered only when a covered Claim is made against an Insured Person. Because no Insured Person is a defendant in the Underlying Action, the duty to advance defense costs does not arise under any provision of the Policy. The practical consequence

3. CGL Policy. We have also considered whether coverage for the Vantor claims might be available under Stonefield's Commercial General Liability ("CGL") insurance policy. Stonefield maintains a CGL policy with Brindoval Mutual Insurance Co., Policy No. CGL-SLG-2022-11902. However, CGL policies provide coverage for bodily injury and property damage arising from an "occurrence" — generally defined as an accident, inclu

IV. Assessment of Options In light of the foregoing analysis, Stonefield has three principal options with respect to the Graymark declination. Each is assessed below. A. Option 1: Challenge the Declination (Not Recommended) Stonefield could initiate a coverage action against Graymark in the Connecticut Superior Court (pursuant to the Policy's forum selection clause) or in the Southern District of New York, seeking a

1. Accept the declination without filing a coverage action or requesting formal reconsideration.

2. Proceed with the defense of the Underlying Action at Stonefield's direct expense, consistent with the preliminary litigation budget and strategy developed by Calderwood & Harkness LLP.

3. Preserve the right to re-tender the claim to Graymark in the event of material changes to the nature of the claims asserted in the Underlying Action. Specifically, if Vantor amends its Complaint to (a) name individual directors or officers as defendants, or (b) assert claims sounding in tort, fraud, or fiduciary duty that could constitute "Wrongful Acts" within the meaning of the Policy, Stonefield should promptly

4. Retain the Declination Letter and all related correspondence in the firm's matter files (Matter No. 1012-00005). Ensure that Stonefield's General Counsel maintains copies of all coverage-related correspondence for potential future reference, including in connection with any future policy renewals or applications where disclosure of prior claims or declinations may be required.

V. Impact on Litigation Budget and Funding With the D&O coverage declination confirmed, all defense costs for the Underlying Action will be borne directly by Stonefield Logistics Group Inc. This section addresses the financial and operational implications of this determination. Defense Cost Estimates. Per the preliminary litigation budget prepared by Calderwood & Harkness LLP on September 12, 2022, the estimated tota

VI. Recommendation Based on the analysis set forth in this memorandum, we recommend the following course of action:

1. Accept Graymark's declination without challenge. The declination is legally defensible. The Contractual Liability Exclusion and the absence of named individual defendants each independently support Graymark's determination that the Policy does not provide coverage for the Vantor claims.

2. Do not file a coverage action or request formal reconsideration. The cost, timing, and likelihood of success of a coverage challenge do not justify the expenditure, and a challenge could create adverse precedent.

3. Preserve the right to re-tender in the event of material changes to the nature of the claims asserted in the Underlying Action — specifically, if individual directors or officers are named as defendants or if Vantor asserts tort-based claims that could constitute "Wrongful Acts" under the Policy.

4. Inform the client team and PE sponsor contacts. Tobias Wren (General Counsel) and Priya Ramachandran (CFO) at Stonefield, as well as Alison Trang and Douglas Whitmore at Ridgeline Capital Partners, should be advised that defense costs will not be offset by D&O insurance and will be borne directly by the Company.

5. Update financial and reporting stakeholders. Lakeshore National Bank (Catherine Devereaux) and Clarendon Partners LLP (Robert Farraday) should be advised of the absence of insurance coverage for purposes of credit agreement compliance reporting and financial statement disclosure, respectively.

6. Retain all documentation. The Declination Letter and all related correspondence should be retained in the matter file (Matter No. 1012-00005) and in Stonefield's corporate records.

VII. Conclusion Graymark Insurance Company's October 3, 2022 declination of coverage under D&O Policy No. GLG-DO-1025-00008 is legally sound. The claims asserted by Vantor Holdings Corp. in Vantor Holdings Corp. v. Stonefield Logistics Group Inc., Case No. 22-cv-07841 (S.D.N.Y.), are quintessential breach-of-contract claims arising from a commercial transportation services agreement. They do not allege wrongful acts

1. Graymark Insurance Company Declination Letter, dated October 3, 2022

2. D&O Policy No. GLG-DO-1025-00008 (Selected Provisions)

3. Vantor Holdings Corp. Complaint, dated August 12, 2022

4. Stonefield Tender Letter, dated September 6, 2022

5. Preliminary Litigation Budget, dated September 12, 2022 Cost Category | Low Estimate | High Estimate Attorney Fees (through summary judgment) | $3,500,000 | $5,200,000 Costs and Disbursements (through summary judgment) | $400,000 | $750,000 Total (through summary judgment) | $3,900,000 | $5,950,000