MEMORANDUM
PRIVILEGED & CONFIDENTIAL ATTORNEY WORK PRODUCT
TO: Nathaniel Bower, Partner, Bankruptcy & Restructuring, Calderwood & Harkness LLP
FROM: Nathan Ikeda, Associate, Bankruptcy & Restructuring, Calderwood & Harkness LLP
DATE: April 2, 2023
RE: Conflict Check Results — Proposed Representation of Stonefield Logistics Group Inc. in Consensual Out-of-Court Restructuring
Matter No.: 1012-00002
I. Purpose and Scope
This memorandum documents the results of a comprehensive conflicts analysis conducted in connection with the proposed engagement of Calderwood & Harkness LLP ("C&H" or the "Firm") as restructuring counsel to Stonefield Logistics Group Inc. ("Stonefield" or "SLG"), a Delaware corporation headquartered at 4200 Commerce Street, Suite 1500, Dallas, TX 75201. The purpose of this memorandum is to identify and evaluate any actual or potential conflicts of interest that may arise from the proposed representation, and to recommend appropriate courses of action, including any required disclosures or waivers.
The proposed engagement involves representation of Stonefield in a consensual out-of-court restructuring of approximately $485 million in funded debt. The contemplated restructuring transactions include, without limitation: (a) an amend-and-extend of the existing first lien term loan B facility and revolving credit facility under the First Lien Credit Agreement dated as of December 15, 2017, among Stonefield, the lenders party thereto, and Pinnacle National Bank, N.A., as administrative agent and collateral agent; (b) the negotiation and documentation of a new-money super-priority facility in an aggregate principal amount of approximately $55.0 million; and (c) the equitization of approximately $140.0 million in outstanding mezzanine debt represented by 11.50% Senior Secured Second Lien Notes due June 15, 2025, which equitization is expected to result in a conversion of a portion or all of such mezzanine indebtedness into equity interests in the reorganized capital structure of the Company. The engagement may also encompass ancillary matters, including negotiation of a restructuring support agreement, intercreditor agreement amendments, and corporate governance modifications.
Conflict checks were run through the Firm's internal conflicts database (ConflictCheck Pro, version 8.4) on April 1, 2023, at approximately 3:15 p.m. Eastern Time, using the Firm's standard search protocols. The initial database search was supplemented by manual review conducted on April 2, 2023, including review of hard-copy files and consultation with relevant practice group leaders. All searches were conducted in accordance with the Firm's Conflicts Review Policy (revised January 2023) and applicable provisions of the New York Rules of Professional Conduct, including Rules 1.7 (Conflict of Interest: Current Clients), 1.8 (Current Clients: Specific Conflict of Interest Rules), 1.9 (Duties to Former Clients), and 1.10 (Imputation of Conflicts of Interest).
All known parties were checked against the Firm's current and former client records, adverse party records, and personnel databases. The universe of checked parties includes the prospective client and its affiliates and subsidiaries, the private equity sponsor and its affiliated fund and management entities, the administrative agent and all identified members of the first lien lender syndicate, all identified revolving credit facility lenders, all identified mezzanine noteholders and members of the ad hoc mezzanine group, the indenture trustee and collateral agent for the mezzanine notes, counsel to opposing and counterparty groups, financial advisors to both the Company and the counterparty groups, the Company's independent auditors, the Company's directors' and officers' liability insurance carrier, and the Company's Delaware registered agent. The results of these checks are set forth in detail below.
II. Prospective Client and Affiliated Entities
Each entity listed below, together with each entity's known aliases, trade names, and prior names, was run through the Firm's conflicts system. In addition, the names of all known officers and directors of the prospective client were individually checked against the Firm's databases.
A. Stonefield Logistics Group Inc.
• Full Legal Name: Stonefield Logistics Group Inc.
• Entity Type: Corporation
• Jurisdiction of Organization: Delaware
• Employer Identification Number (EIN): 83-2457109
• Delaware Division of Corporations File Number: 6341872
• Registered Agent: Capitol Registered Agents, Inc., 1209 Orange Street, Wilmington, DE 19801
• Principal Executive Office: 4200 Commerce Street, Suite 1500, Dallas, TX 75201
• Date of Incorporation: November 3, 2017
• Fiscal Year End: December 31
Conflicts Result: No prior or current representation by C&H was identified. No adverse matters involving Stonefield Logistics Group Inc. as an opposing party, adverse party, or interested party were identified in any current or former matter of the Firm. The entity name and all known variations were searched. The result is clear.
B. Stonefield Logistics Holdings LLC ("SLG Holdings")
• Entity Type: Limited Liability Company
• Jurisdiction of Organization: Delaware
• Relationship to SLG: Direct parent entity; sole member of Stonefield Logistics Group Inc.
• Managing Member: Ridgeline Capital Management III LLC
Conflicts Result: No prior or current representation by C&H was identified. No adverse matters were identified. The result is clear.
C. Stonefield Freight Services LLC ("SLG Freight")
• Entity Type: Limited Liability Company
• Jurisdiction of Organization: Texas
• Relationship to SLG: Wholly-owned operating subsidiary of Stonefield Logistics Group Inc.
• Principal Business: Long-haul and regional freight brokerage and transportation services
Conflicts Result: No prior or current representation by C&H was identified. No adverse matters were identified. The result is clear.
D. Stonefield Last Mile Inc. ("SLG Last Mile")
• Entity Type: Corporation
• Jurisdiction of Organization: Delaware
• Relationship to SLG: Wholly-owned operating subsidiary of Stonefield Logistics Group Inc.
• Principal Business: Last-mile delivery logistics and parcel distribution services
Conflicts Result: No prior or current representation by C&H was identified. No adverse matters were identified. The result is clear.
E. Stonefield Warehousing LLC ("SLG Warehousing")
• Entity Type: Limited Liability Company
• Jurisdiction of Organization: Texas
• Relationship to SLG: Wholly-owned operating subsidiary of Stonefield Logistics Group Inc.
• Principal Business: Warehousing, distribution center management, and fulfillment services
Conflicts Result: No prior or current representation by C&H was identified. No adverse matters were identified. The result is clear.
F. Key Officers and Directors of SLG
The following individuals were identified as officers and directors of Stonefield Logistics Group Inc. and were individually checked through the Firm's conflicts system:
• Marcus Delano — Chief Executive Officer and Director
• Priya Sundaram — Chief Financial Officer and Treasurer
• Howard Kessler — General Counsel, Vice President, and Secretary
• Julian Voight — Director (designated by Ridgeline Capital Partners Fund III, L.P.)
• Serena Chu — Director (designated by Ridgeline Capital Partners Fund III, L.P.)
Conflicts Result: No conflicts were identified for any individual officer or director listed above. No prior or current representations of, or adverse matters involving, any of these individuals in their personal capacities were found in the Firm's records. The result is clear as to each individual.
III. Private Equity Sponsor and Affiliates
Stonefield was acquired by Ridgeline Capital Partners Fund III, L.P. in a leveraged buyout that closed on December 15, 2017. Ridgeline invested approximately $210 million in equity in connection with the acquisition. As of the date of this memorandum, Ridgeline Capital Partners Fund III, L.P. is the 100% equity holder of Stonefield (on a pre-restructuring basis) through its indirect ownership of SLG Holdings. Given the central role of the private equity sponsor in the restructuring and the potential for the sponsor's interests to diverge from those of the Company during negotiations, the sponsor and all known affiliated entities were thoroughly checked.
A. Ridgeline Capital Partners Fund III, L.P. ("RCP III")
• Entity Type: Limited Partnership
• Jurisdiction of Organization: Delaware
• Principal Office: 300 Park Avenue, 28th Floor, New York, NY 10022
• General Partner: Ridgeline Capital Management III LLC
• Investment in SLG: Approximately $210 million equity contribution in connection with the December 15, 2017 leveraged buyout
• Current Ownership: 100% equity holder of SLG Holdings (pre-restructuring)
Conflicts Result: No current or prior representation by C&H was identified. No adverse matters involving Ridgeline Capital Partners Fund III, L.P. were identified in any current or former matter of the Firm. The result is clear.
B. Ridgeline Capital Management III LLC ("RCM III")
• Entity Type: Limited Liability Company
• Jurisdiction of Organization: Delaware
• Relationship: General Partner of Ridgeline Capital Partners Fund III, L.P.
• Key Personnel: Julian Voight, Managing Director; Serena Chu, Principal
Conflicts Result: No current or prior representation by C&H was identified. No adverse matters were identified. The result is clear.
C. Ridgeline Platform (Firm-wide)
In addition to the specific fund and management entity identified above, a broader search was conducted across the entire Ridgeline Capital Partners platform. Ridgeline manages approximately $4.8 billion in assets under management across multiple fund vintages. Fund III, which holds the Stonefield investment, has committed capital of approximately $1.6 billion. All known Ridgeline-affiliated fund names, management entities, and related vehicles identified in publicly available sources and in the party lists provided by the Company were checked against the Firm's conflicts system. The following additional entities were specifically searched:
• Ridgeline Capital Partners Fund I, L.P.
• Ridgeline Capital Partners Fund II, L.P.
• Ridgeline Capital Management I LLC
• Ridgeline Capital Management II LLC
• Ridgeline Capital Partners Holdings LLC
• Ridgeline Capital Advisors LLC
Conflicts Result: No current engagements or adverse matters involving any Ridgeline entity were identified in the Firm's records. The result is clear across the entire Ridgeline platform.
D. Hargrove Advisory Group LLC
• Entity Type: Limited Liability Company
• Jurisdiction of Organization: Delaware
• Principal Office: 1345 Avenue of the Americas, 38th Floor, New York, NY 10105
• Relationship: Retained by the Stonefield Board of Directors as financial advisor to the Company in connection with the restructuring
• Engagement Date: March 15, 2023
• Managing Director (Lead): Elena Voss
Hargrove Advisory Group LLC is the Company's financial advisor and will serve as a co-professional alongside C&H in the proposed engagement. As such, Hargrove is aligned with the Company's interests and is not a counterparty or adverse party.
Conflicts Result: No current or prior C&H representation of Hargrove Advisory Group LLC was identified. No adverse matters were identified. Hargrove's role as the Company's financial advisor and anticipated co-professional does not create a conflict. The result is clear.
IV. First Lien Lender Group — Administrative Agent and Syndicate Members
The first lien debt consists of (a) a term loan B facility with an outstanding principal balance of approximately $240.0 million and (b) a revolving credit facility with a total commitment of $50.0 million, in each case under the First Lien Credit Agreement dated as of December 15, 2017. The first lien lender group and its members are counterparties in the restructuring, as the Company will seek to negotiate an amend-and-extend of both the term loan B and the revolving credit facility, as well as the incurrence of a new super-priority facility that will prime the existing first lien debt. Each identified member of the first lien syndicate, the administrative agent, and the collateral agent were checked through the Firm's conflicts system.
A. Pinnacle National Bank, N.A. (Administrative Agent and Collateral Agent)
• Entity Type: National Banking Association
• Principal Office: 200 Liberty Street, New York, NY 10281
• OCC Charter Number: 14482
• Role: Administrative Agent and Collateral Agent under the First Lien Credit Agreement dated December 15, 2017
• Agent Contact: Daniel Wexford, Managing Director, Loan Restructuring Group
• Approximate TLB Hold: $45.0 million (inclusive of own account)
• Approximate Revolver Commitment: $20.0 million
Conflicts Result: C&H has previously represented Pinnacle National Bank, N.A. in an unrelated matter. Specifically, the Firm's conflicts database identified one prior engagement: Matter No. 1012-00002, involving C&H's representation of Pinnacle National Bank, N.A. as underwriter's counsel in a $750 million senior unsecured notes offering by Pinnacle Financial Holdings Corp. (the bank's parent holding company), which closed on or about September 12, 2019. That matter was closed effective November 1, 2019, and all active work on the engagement was completed prior to that date. The engagement was handled by the Firm's Capital Markets practice group and involved no bankruptcy, restructuring, or credit facility work.
No current active matters involving Pinnacle National Bank, N.A. as either a client or adverse party are pending at the Firm. No other historical matters involving Pinnacle were identified. No current adverse representation against Pinnacle exists.
The prior representation does not create a disqualifying conflict given that: (i) the subject matter of the prior engagement (a capital markets securities offering) is entirely unrelated to the subject matter of the proposed engagement (a consensual out-of-court debt restructuring); (ii) the prior matter has been fully closed since November 1, 2019, approximately three and one-half years prior to the proposed engagement; (iii) no confidential information material to the proposed engagement was obtained during the prior representation; and (iv) the advance waiver language contained in the Firm's engagement letter for Matter No. 1012-00002, dated August 7, 2019, specifically contemplates that C&H may in the future represent other clients in matters adverse to Pinnacle, provided that such matters are not substantially related to the subject matter of the prior representation.
Notwithstanding the foregoing, disclosure of this prior representation is recommended to Stonefield in the engagement letter, as discussed further in Section XI below. No waiver from Pinnacle is required.
B. Tralvendo CLO 2018-I, Ltd.
• Entity Type: Exempted Company
• Jurisdiction of Organization: Cayman Islands
• CLO Manager: Tralvendo Asset Management LLC, a Delaware limited liability company
• Approximate TLB Hold: $38.5 million
Both Tralvendo CLO 2018-I, Ltd. and its CLO manager, Tralvendo Asset Management LLC, were individually checked through the Firm's conflicts system.
Conflicts Result: No current or prior representation by C&H of either Tralvendo CLO 2018-I, Ltd. or Tralvendo Asset Management LLC was identified. No adverse matters involving either entity were identified. The result is clear.
C. Belvedere Credit Opportunities Fund LP
• Entity Type: Limited Partnership
• Jurisdiction of Organization: Delaware
• Principal Office: 450 Lexington Avenue, 30th Floor, New York, NY 10017
• Managing Partner: Christopher Hartigan
• Approximate TLB Hold: $32.0 million
• Additional Role: Identified as the prospective new-money lender for the proposed $55.0 million super-priority facility
Conflicts Result: No current or prior representation by C&H of Belvedere Credit Opportunities Fund LP was identified. No adverse matters involving Belvedere were identified.
It is noted that Belvedere occupies a dual role in the restructuring: it is both an existing first lien term loan B lender and the prospective provider of the new-money super-priority facility. In this capacity, Belvedere will be a counterparty to Stonefield in the negotiation of the terms of both the amend-and-extend and the super-priority facility. Belvedere is expected to retain its own independent legal counsel (Thornbury McCaffrey LLP, as discussed in Section VII.B below) in connection with both of these roles. The dual role of Belvedere in the transaction is noted for completeness but does not create a conflict of interest for C&H's proposed representation of Stonefield. The result is clear.
D. Kelvantis Capital Partners LLC
• Entity Type: Limited Liability Company
• Jurisdiction of Organization: Delaware
• Approximate TLB Hold: $28.0 million
Conflicts Result: No current or prior representation by C&H was identified. No adverse matters involving Kelvantis Capital Partners LLC were identified. The result is clear.
E. Kingsway Institutional Investors LLC
• Entity Type: Limited Liability Company
• Jurisdiction of Organization: Delaware
• Approximate TLB Hold: $24.5 million
Conflicts Result: No current or prior representation by C&H was identified. No adverse matters involving Kingsway Institutional Investors LLC were identified. The result is clear.
F. Other Syndicate Members
Eleven additional term loan B lenders have been identified by the Company and the administrative agent as holding positions in the first lien term loan B facility, with an aggregate outstanding principal balance of approximately $117.0 million across these holders. The names and known entity details of each of these lenders were provided to the conflicts department and run through the Firm's conflicts system. A complete list of these lenders, together with their approximate hold amounts, is maintained in the working conflict check file for Matter No. 1012-00002.
Conflicts Result: No conflicts were identified for any of the eleven additional syndicate members listed. All results were clear. If additional lenders are identified during the course of the engagement — whether through loan trading activity, assignment, or otherwise — supplemental conflict checks will be performed promptly and the results will be documented in a supplement to this memorandum.
G. Revolving Credit Facility Lenders
The revolving credit facility under the First Lien Credit Agreement provides for aggregate commitments of $50.0 million, of which approximately $42.0 million was drawn as of March 31, 2023. The revolver syndicate consists of three lenders:
1. Pinnacle National Bank, N.A.
• Commitment: $20.0 million
• See Section IV.A above for full conflicts analysis.
2. Great Basin Commercial Bank
• Entity Type: State-chartered commercial bank
• Jurisdiction of Organization: Nevada
• Commitment: $15.0 million
• Conflicts Result: No current or prior representation by C&H was identified. No adverse matters involving Great Basin Commercial Bank were identified. The result is clear.
3. Tidewater Lending Corporation
• Entity Type: Corporation
• Jurisdiction of Organization: Virginia
• Commitment: $15.0 million
• Conflicts Result: No current or prior representation by C&H was identified. No adverse matters involving Tidewater Lending Corporation were identified. The result is clear.
V. Mezzanine Holders / Second Lien Noteholders
The mezzanine debt consists of $140.0 million in aggregate outstanding principal amount of 11.50% Senior Secured Second Lien Notes due June 15, 2025 (CUSIP: 861537 AA 2), issued pursuant to an Indenture dated as of December 15, 2017, by and among Stonefield Logistics Group Inc., as issuer, certain subsidiaries of the Company, as guarantors, and Continental Fiduciary Trust Company, as trustee and second lien collateral agent. The proposed restructuring contemplates the equitization of a substantial portion or all of this mezzanine debt. As a result, the mezzanine holders are significant counterparties in the restructuring, and an ad hoc group of three major holders has been formed and has engaged separate legal and financial advisors.
A. Graystone Mezzanine Capital Fund II LP
• Entity Type: Limited Partnership
• Jurisdiction of Organization: Delaware
• Approximate Hold: $52.0 million (37.1% of outstanding mezzanine principal)
• Ad Hoc Group Membership: Member of the ad hoc mezzanine group; cooperation agreement signed March 10, 2023
Conflicts Result: No current or prior representation by C&H was identified. No adverse matters involving Graystone Mezzanine Capital Fund II LP were identified. The result is clear.
B. Ashland Structured Credit LLC
• Entity Type: Limited Liability Company
• Jurisdiction of Organization: Delaware
• Approximate Hold: $40.0 million (28.6% of outstanding mezzanine principal)
• Ad Hoc Group Membership: Member of the ad hoc mezzanine group; cooperation agreement signed March 10, 2023
Conflicts Result: No current or prior representation by C&H was identified. No adverse matters involving Ashland Structured Credit LLC were identified. The result is clear.
C. Dunmore Special Situations Fund LP
• Entity Type: Limited Partnership
• Jurisdiction of Organization: Delaware
• Approximate Hold: $30.0 million (21.4% of outstanding mezzanine principal)
• Ad Hoc Group Membership: Member of the ad hoc mezzanine group; cooperation agreement signed March 10, 2023
Conflicts Result: No current or prior representation by C&H was identified. No adverse matters involving Dunmore Special Situations Fund LP were identified. The result is clear.
D. Other Mezzanine Holders
Four additional funds have been identified as holders of the 11.50% Senior Secured Second Lien Notes, holding an aggregate principal amount of approximately $18.0 million. The names and known entity details of each of these holders were provided to the conflicts department and run through the Firm's conflicts system. A complete list of these holders, together with their approximate hold amounts, is maintained in the working conflict check file for Matter No. 1012-00002.
Conflicts Result: No conflicts were identified for any of the four additional mezzanine holders. All results were clear. Supplemental checks will be run if additional holders are identified through the course of the restructuring.
E. Ad Hoc Group Summary
The three members of the ad hoc mezzanine group — Graystone Mezzanine Capital Fund II LP, Ashland Structured Credit LLC, and Dunmore Special Situations Fund LP — collectively hold approximately $122.0 million in principal amount of the mezzanine notes, representing approximately 87.1% of the $140.0 million in aggregate outstanding mezzanine principal. This group has entered into a cooperation agreement dated March 10, 2023, and has retained separate legal counsel (Thornbury McCaffrey LLP) and a separate financial advisor (Meridian Veltrian Partners LLC). The ad hoc group's advisors are checked separately in Sections VII and VIII below, respectively. The members of the ad hoc group are expected to be the Company's primary counterparties in the negotiation of the equitization terms for the mezzanine debt.
VI. Indenture Trustee
A. Continental Fiduciary Trust Company
• Entity Type: Trust Company
• Jurisdiction of Organization: New York
• Address: 100 Wall Street, 15th Floor, New York, NY 10005
• Role: Trustee and Second Lien Collateral Agent under the Indenture dated December 15, 2017, governing the 11.50% Senior Secured Second Lien Notes due June 15, 2025
Continental Fiduciary Trust Company serves in a fiduciary capacity under the Mezzanine Indenture and, as such, occupies a neutral role in the restructuring. Nevertheless, the trustee was checked as it will be a party to any supplemental indenture or other amendments to the Mezzanine Indenture that may be required in connection with the equitization of the mezzanine debt.
Conflicts Result: No current or prior representation by C&H of Continental Fiduciary Trust Company was identified. No adverse matters involving Continental Fiduciary Trust Company were identified in any current or former matter of the Firm. The result is clear.
VII. Opposing / Counterparty Counsel
A. Westlake Harden & Cole LLP (First Lien Lenders' Counsel)
• Entity Type: Limited Liability Partnership
• Jurisdiction of Organization: New York
• Address: 787 Seventh Avenue, 34th Floor, New York, NY 10019
• Role: Legal counsel to Pinnacle National Bank, N.A., as administrative agent, and the first lien lender group in connection with the restructuring
• Lead Partner: Ramona Quelibo
• Associate: Gregory Noll
Westlake Harden & Cole LLP ("WHC") is opposing counsel in this matter, representing the first lien lender group whose interests will be adverse to, or at a minimum divergent from, those of the Company on certain issues in the restructuring negotiations, including with respect to the terms of the amend-and-extend, the incurrence of the super-priority facility, and any modifications to intercreditor arrangements.
Conflicts Result: WHC has been identified as opposing counsel in this matter. A review of the Firm's records indicates no current joint representations or co-counsel relationships with WHC in any pending matter. C&H and WHC have appeared on opposite sides and on the same side of other transactions over the years, as is common among major restructuring and bankruptcy practices, but no current relationship exists that would create a disqualifying conflict. Individual attorneys Ramona Quelibo and Gregory Noll were separately checked against the Firm's personnel and lateral hire databases; no conflicts were identified with respect to either individual. The result does not present any disqualifying relationship.
B. Thornbury McCaffrey LLP (Mezzanine Ad Hoc Group Counsel / New Money Lender's Counsel)
• Entity Type: Limited Liability Partnership
• Jurisdiction of Organization: New York
• Address: 375 Park Avenue, 25th Floor, New York, NY 10152
• Role (Mezzanine): Legal counsel to the ad hoc mezzanine group (Graystone Mezzanine Capital Fund II LP, Ashland Structured Credit LLC, and Dunmore Special Situations Fund LP) in connection with the restructuring
• Role (New Money): Also expected to serve as legal counsel to Belvedere Credit Opportunities Fund LP in connection with the proposed $55.0 million super-priority facility
• Lead Partner: Alan Driscoll
• Associate: Monica Firth