Contract analysis

I. Introduction and Purpose This letter is submitted on behalf of Stonefield Logistics Group Inc. ("Stonefield" or the "Company") and constitutes the first quarterly litigation status update in connection with the above-referenced matter. As you will recall, on August 24, 2022, I provided written notification to you, in my capacity as General Counsel of Stonefield, pursuant to Section 6.03(b) of the Credit Agreement

II. Case Overview and Background For ease of reference, and to ensure that this update is self-contained, we restate below the essential background of the litigation. Filing and Assignment. On August 12, 2022, Vantor Holdings Corp. ("Vantor") filed a civil complaint against Stonefield Logistics Group Inc. in the United States District Court for the Southern District of New York. The matter has been assigned Case No.

III. Engagement of Defense Counsel Following the filing of Vantor's complaint, Stonefield retained Calderwood & Harkness LLP ("C&H") as lead defense counsel for this matter. The engagement became effective on September 1, 2022, and has been assigned C&H Matter No. 1012-00005. The responsible partner at C&H is Samuel Eklund, a senior litigation partner in the firm's New York office with extensive experience in complex

IV. Insurance Coverage Status On September 6, 2022, Stonefield tendered the Vantor claims to Graymark Insurance Company ("Graymark") under Stonefield's Directors & Officers liability insurance policy, Policy No. GLG-DO-1025-00008, which carries a $15 million aggregate limit. This tender was made promptly following engagement of defense counsel and consistent with Stonefield's practice of tendering significant claims

V. Litigation Developments During Q4 2022 The following is a summary of material developments in the litigation during the fourth quarter of 2022. A. Motion to Dismiss (Filed October 14, 2022) On October 14, 2022, C&H filed a Motion to Dismiss on behalf of Stonefield pursuant to Federal Rule of Civil Procedure 12(b)(6), seeking dismissal of two categories of claims asserted in Vantor's original complaint. The Motion

VI. Stonefield's Defenses — Summary Set forth below is a summary of the principal defenses that Stonefield intends to assert in this litigation. Certain of these defenses were raised in the original Motion to Dismiss discussed above, and all of them will be formally asserted in Stonefield's forthcoming Answer and Affirmative Defenses to the Amended Complaint. This summary is provided for informational purposes and sh

1. Valid Termination for Cause. Stonefield maintains that its termination of the TSA was valid and proper under Section 13.1(a). VTS's service failures across all five SLOs during Q4 2021 were sustained, severe, and pervasive, as detailed in Section II above. The failures were not isolated or marginal; they reflected a systemic breakdown in VTS's ability to perform its obligations under the TSA. VTS received a writte

2. Force Majeure / No Volume Shortfall Breach. With respect to Vantor's newly asserted volume shortfall claims, Stonefield properly invoked the force majeure provision in Section 12.1 of the TSA in connection with the extraordinary impact of the COVID-19 pandemic on freight demand during the period from April through September 2020. Stonefield provided timely written notice of force majeure as required by the TSA. Af

3. No Exclusivity Violation. Vantor's allegations regarding freight diversion to Cascade Freight Systems Inc. and Briarwood Trucking Co. are without merit. Stonefield's use of these carriers was limited to Lanes 8 through 14, which are designated as "Secondary Lanes" under Schedule C to the TSA. The exclusivity restrictions set forth in Section 5.3 of the TSA apply only to the fourteen (14) "Primary Lanes" identified

4. Liquidated Damages Unenforceable as Penalty. As argued in the Motion to Dismiss, the liquidated damages formula in Section 14.2 of the TSA produces a grossly disproportionate result that is not reasonably related to Vantor's anticipated or actual harm. Under well-established New York law, a liquidated damages clause that functions as a penalty — rather than as a reasonable estimate of anticipated damages — is unen

5. Failure to Mitigate. Vantor had a duty under applicable law to take reasonable steps to mitigate its damages following termination of the TSA. The evidence is expected to show that Vantor made no meaningful efforts to replace the Stonefield volume, despite highly favorable freight market conditions throughout 2022 that presented ample opportunities to redeploy VTS's fleet capacity and secure replacement business.

6. Contributory Breach / First-to-Breach Doctrine. The evidence is expected to demonstrate that VTS's performance failures in Q4 2021 were not the result of external factors or resource constraints, but were caused by VTS's own intentional redeployment of dedicated fleet capacity away from Stonefield lanes to other, more profitable accounts. VTS's internal fleet allocation records are expected to show that VTS delibe

VII. Upcoming Anticipated Developments The following developments are anticipated in the first quarter of 2023 and beyond. A. Answer and Counterclaim Stonefield's Answer and Affirmative Defenses to the Amended Complaint are currently in preparation by C&H and are expected to be filed in January 2023, within the time permitted by the Federal Rules of Civil Procedure. In addition to asserting the affirmative defenses s

VIII. Financial Exposure Assessment As noted above, Vantor's Amended Complaint seeks total damages of approximately $95.4 million. The following is management's current assessment of the financial exposure associated with this litigation. Likelihood of Adverse Outcome. Based on the advice of defense counsel and management's independent analysis of the underlying facts and applicable law, Stonefield's management conti

IX. Impact on Credit Facility Stonefield confirms that this litigation does not currently affect availability under the revolving credit facility or the Company's compliance with any financial covenants under the Credit Agreement. The Company has adequate liquidity and financial resources to manage the defense of this action and any reasonably foreseeable outcome without adverse impact on the Facility. No Event of De

X. Next Quarterly Update The next quarterly litigation status update will be provided on or about April 2023, covering material developments through the first quarter of 2023. That update is expected to address, among other things, the filing of Stonefield's Answer and Counterclaim, the outcome of the Initial Pretrial Conference, the entry of the Case Management Order, and the commencement of discovery. In addition t

XI. Closing Should you have any questions regarding the contents of this update, or if you require any additional information in connection with this matter, please do not hesitate to contact me directly at Stonefield Logistics Group Inc., 4200 Commerce Parkway, Suite 800, Fort Worth, Texas 76102, telephone (817) 555-4200, email twren@stonefieldlogistics.com. You may also direct questions to Samuel Eklund, Partner, C