Contract analysis

I. Introduction and Purpose of This Letter This firm represents Whitmore Aerospace LLC ("WAL"), a Virginia limited liability company with its principal place of business at 4200 Commerce Park Drive, Suite 600, Chantilly, Virginia 20151. WAL is a named insured under two policies of insurance issued by Meridian Surety & Insurance Group ("Meridian"), specifically: (1) Directors' and Officers' Liability Policy No. MSI-DO

II. The Insured — Whitmore Aerospace LLC WAL is a Virginia limited liability company organized and existing under the laws of the Commonwealth of Virginia. Its Employer Identification Number is 54-2198437. WAL was founded in 2006 by Marcus J. Whitmore and Elaine Whitmore, and has grown into a significant participant in the aerospace and defense manufacturing industry. WAL specializes in the design, engineering, and p

III. Applicable Insurance Policies WAL maintains two insurance policies with Meridian that are potentially implicated by the HDDS Demand. The material terms of each policy are summarized below. A. Directors' and Officers' Liability Policy The D&O Policy provides coverage for claims made against WAL's directors, officers, managing members, and other insured persons for wrongful acts committed in their capacity as such

IV. Background Facts A. The Prime Contract and the Teaming Agreement HDDS is a Delaware corporation headquartered at 1100 Garrison Boulevard, Suite 2200, Bethesda, Maryland 20817. HDDS is a major prime defense contractor with approximately $3.4 billion in annual revenue. HDDS is the prime contractor under U.S. Air Force Prime Contract No. FA8620-19-C-0337 for the Advanced Tactical Airframe Program ("ATAP"), which is

1. Titanium raw-material cost escalation — approximately $4,200,000, resulting from global supply-chain disruptions and commodity-price volatility affecting the cost of aerospace-grade titanium alloy;

2. Rework due to non-conforming machining tolerances — approximately $5,100,000, attributed to alleged deviations from engineering specifications in the machining of certain structural components, requiring rework and re-inspection;

3. Schedule delays causing idle-labor charges — approximately $2,300,000, resulting from production schedule disruptions that caused labor resources to remain idle during periods of delayed work; and

4. Engineering change proposal implementation costs — approximately $1,200,000, arising from the implementation of government-directed engineering changes during the performance period. It is critically important to note that the COPD is a preliminary determination only. No costs have been formally disallowed by the Contracting Officer or the Defense Contract Audit Agency ("DCAA"). The COPD expressly states that it i

Section 11.5 of the Teaming Agreement provides a cap on the team member's aggregate liability: "Notwithstanding anything to the contrary in this Agreement, Team Member's aggregate liability under this Article 11 shall not exceed one hundred twenty percent (120%) of the value of Team Member's Work Package." Applying the 120% cap to WAL's allocated share of the target cost ($74,160,000), WAL's maximum aggregate liabili

V. Basis for Coverage Under the D&O Policy The HDDS Demand directly implicates potential liability of WAL's officers and managing members for decisions made in their capacities as directors and officers of WAL in connection with the performance of WP-4. The decisions at issue include, but are not limited to, the procurement strategy for titanium raw materials, the selection and oversight of manufacturing processes an

VI. Basis for Coverage Under the CGL Policy The HDDS Demand arises directly from WAL's performance of aerospace manufacturing operations — the core business operations for which WAL obtained and maintains the CGL Policy. The cost overruns identified in the COPD relate to WAL's fabrication and delivery of titanium structural assemblies under WP-4, and include claims of alleged defective machining and manufacturing pro

VII. Formal Tender and Request for Defense and Indemnity By this letter, Whitmore Aerospace LLC hereby formally tenders the HDDS indemnification demand of Fourteen Million Seven Hundred Twenty-Six Thousand Five Hundred Eighty-Three Dollars ($14,726,583) to Meridian Surety & Insurance Group for defense and indemnification under both: • Directors' and Officers' Liability Policy No. MSI-DO-2022-07814; and • Commercial G

VIII. Preservation of Rights This letter is not intended to, and shall not be construed to, waive, limit, or modify any of WAL's rights or remedies under the Policies, at law, or in equity. WAL expressly reserves all such rights and remedies, including, without limitation: (a) The right to challenge any denial, reservation, or limitation of coverage asserted by Meridian; (b) The right to seek a judicial determination

IX. Enclosed Documents The following documents are enclosed with this letter for Meridian's review in connection with its coverage investigation: Enclosure 1: Copy of the HDDS Indemnification Demand Letter dated September 9, 2022. Enclosure 2: Copy of the DCMA Contracting Officer's Preliminary Determination (COPD) dated August 1, 2022. Enclosure 3: Copy of the Teaming Agreement between WAL and HDDS dated June 12, 201

X. Contact Information and Response Requested All correspondence, notices, and communications regarding this claim should be directed to: Priya Anand, Partner Calderwood & Harkness LLP 600 Lexington Avenue, 28th Floor New York, New York 10022 Telephone: (212) 554-7218 Email: panand@calderwoodharkness.com with a copy to: Gregory Poole, General Counsel Whitmore Aerospace LLC 4200 Commerce Park Drive, Suite 600 Chantill

1. HDDS Indemnification Demand Letter dated September 9, 2022

2. DCMA Contracting Officer's Preliminary Determination (COPD) dated August 1, 2022

3. Teaming Agreement dated June 12, 2019 (relevant excerpts: Sections 11.4, 11.5, 11.6, 18.1, 18.2, and 18.3) cc: Gregory Poole, General Counsel, Whitmore Aerospace LLC cc: Douglas Carmichael, Partner, Calderwood & Harkness LLP Term | Detail Carrier | Meridian Surety & Insurance Group Policy Number | MSI-DO-2022-07814 Aggregate Limit of Liability | $10,000,000 Retention (per Claim) | $250,000 Policy Period | July 1,