1012-00003 · Stonefield Logistics Group · Engagement

engagement-letter-slg.docx DOCUMENT Litigation

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CALDERWOOD & HARKNESS LLP Attorneys at Law

700 Louisiana Street, Suite 4500 Houston, Texas 77002 Telephone: (713) 484-7200 Facsimile: (713) 484-7201 www.calderwoodharkness.com

February 5, 2024

Mr. Dale Engstrom Vice President of Risk Management Stonefield Logistics Group Inc. 2900 Petroleum Tower Boulevard, Suite 400 Midland, TX 79701

Re: Engagement of Calderwood & Harkness LLP by Stonefield Logistics Group Inc. Matter: Coverage Dispute — Meridian Surety & Indemnity Company Inland Marine Cargo Legal Liability Policy No. IML-TX-0039821-2023 Calderwood & Harkness Matter No.: 1012-00003

Dear Mr. Engstrom:

1. Purpose and Confirmation of Engagement

Calderwood & Harkness LLP (the "Firm") is pleased to confirm its engagement by Stonefield Logistics Group Inc. ("SLG" or the "Company"), a Texas corporation (FEIN 84-3291057), with principal offices at 2900 Petroleum Tower Boulevard, Suite 400, Midland, TX 79701. This letter (the "Engagement Letter") sets forth the terms and conditions governing the Firm's representation of SLG in connection with the above-referenced matter, and is intended to memorialize the mutual understanding of the parties regarding the scope, terms, and conditions of the attorney-client relationship.

This Engagement Letter is entered into following discussions between the undersigned and Mr. Dale Engstrom, Vice President of Risk Management, as well as SLG's Chief Executive Officer, Marcus D. Stonefield, regarding the Company's insurance coverage dispute with Meridian Surety & Indemnity Company ("Meridian"), an Ohio-domiciled stock insurance company (NAIC No. 28471), with principal offices at 600 Scioto Crossing, Suite 1200, Columbus, OH 43215. Based on those discussions, and on the preliminary information and documentation provided to the Firm to date, the Firm has undertaken an initial assessment of the matter and believes it is well-positioned to provide effective representation to SLG as described herein.

We ask that you review this Engagement Letter carefully. If the terms set forth herein are acceptable to SLG, please execute this letter in the space provided at the end and return a signed copy to the Firm. Until a countersigned copy is received, this letter shall serve as the Firm's statement of the terms upon which it is proceeding with the engagement, subject to SLG's acceptance.

2. Scope of Representation

The Firm's representation of SLG in this matter will encompass the evaluation of coverage under Meridian Surety & Indemnity Company's Inland Marine Cargo Legal Liability Policy No. IML-TX-0039821-2023 (the "Policy"), effective April 1, 2023 through March 31, 2024, in connection with the cargo loss sustained at SLG's transload facility located at 4501 East County Road 130, Midland, TX 79706 (specifically, the facility commonly referred to as "Warehouse Building C") on November 17, 2023 (the "Loss"). As the Firm understands it, the Loss involved significant damage to and destruction of third-party cargo stored in Warehouse Building C as a result of a fire event, the precise origin and cause of which remain the subject of investigation.

The specific tasks within the scope of this engagement include the following:

(a) Policy Review and Analysis. Review and analysis of the Policy, including the all-risk coverage grant, the policy limits (per-occurrence limit of $5,000,000; annual aggregate limit of $10,000,000), the self-insured retention ($250,000 per occurrence), and all applicable exclusions, conditions, and endorsements. This review will extend to the Policy's definitions section, the notice and cooperation provisions, the valuation methodology, and any manuscripted or brokered endorsements that may affect the coverage analysis.

(b) Review of Meridian's Coverage Position. Review and analysis of Meridian's Reservation of Rights letter dated December 4, 2023 and Meridian's coverage denial letter dated January 22, 2024, including Meridian's invocation of Exclusion 4(f) (Improper Storage) and Exclusion 4(k) (Failure to Maintain), as well as any other coverage defenses asserted or reserved by Meridian. The Firm will assess the factual and legal bases for Meridian's stated position and identify any weaknesses or vulnerabilities in the insurer's analysis.

(c) Coverage Opinion Memorandum. Preparation of a comprehensive written coverage opinion memorandum analyzing all coverage issues raised by Meridian's denial, including the applicability and enforceability of the cited exclusions under Texas law, the burden of proof applicable to the insurer's reliance on policy exclusions, the interplay between the all-risk coverage grant and the specific exclusionary provisions, and any extra-contractual theories of liability that may be available to SLG against Meridian.

(d) Expert Consultant Retention and Coordination. Retention and coordination of expert consultants, including fire investigation and forensic consultants, as may be necessary to support the coverage analysis and any demand or litigation. The Firm anticipates that the engagement of a qualified origin-and-cause expert may be critical to countering Meridian's reliance on the Improper Storage and Failure to Maintain exclusions, and will work with SLG to identify and retain appropriate consultants. All expert retentions will be subject to SLG's approval as to scope and estimated cost.

(e) Demand Letter. Preparation and submission of a formal demand letter to Meridian and its coverage counsel, Kessler, Brandt & Howe LLP, setting forth SLG's coverage position, demanding payment of the covered claim, and preserving all of SLG's rights under the Policy and applicable law, including rights under the Texas Insurance Code and the Texas Prompt Payment of Claims Act.

(f) Pre-Litigation Negotiations. Pre-litigation negotiations with Meridian and/or its counsel, including any mediation or alternative dispute resolution proceedings that the parties may agree to pursue. The Firm will coordinate closely with SLG on all settlement discussions and will not agree to any settlement or resolution without SLG's express prior authorization.

(g) Litigation (if necessary). If pre-litigation efforts do not result in a satisfactory resolution, preparation for and prosecution of litigation against Meridian, including but not limited to claims for breach of contract, violations of the Texas Insurance Code Chapters 541 (Unfair Methods of Competition and Unfair or Deceptive Acts or Practices) and 542 (Processing and Settlement of Claims), and related causes of action. SLG and the Firm acknowledge that any transition from the pre-litigation phase to active litigation would be subject to a separate budget discussion and mutual written agreement between the parties before any lawsuit is filed. The Firm will not institute litigation on SLG's behalf without SLG's prior written authorization to do so.

Scope Limitations. This engagement does not encompass, and the Firm is not being retained to provide, representation in connection with any claim by third-party cargo owners against SLG arising from the Loss, any property insurance claim for building or structural damage at the Midland Facility (which the Firm understands is being handled under a separate property insurance policy), or any regulatory matter arising from the Loss, including but not limited to any inquiries or proceedings initiated by the Texas Department of Insurance, the State Fire marshal's Office, or any local fire authority having jurisdiction. Should SLG desire the Firm's assistance with any of these related matters, a separate engagement letter would be required.

The Firm also acknowledges that SLG's insurance broker, Calvert & Strauss Insurance Brokers, Inc. (Account Executive: Jason Muñoz), placed the Policy and assisted with the initial claim submission to Meridian. The Firm may coordinate with Calvert & Strauss as needed in connection with this engagement, including to obtain Policy placement files, correspondence with Meridian, and other relevant documentation. However, the Firm does not represent Calvert & Strauss Insurance Brokers, Inc. or any of its employees, agents, or affiliates in this matter or in any other matter, and the Firm's duties of loyalty and confidentiality run exclusively to SLG.

3. Identification of the Client

The client in this matter is Stonefield Logistics Group Inc., and only Stonefield Logistics Group Inc. The Firm's duties of loyalty, confidentiality, competence, and diligence in this engagement run solely to SLG as the identified client.

The Firm acknowledges that SLG is a portfolio company of Irongate Capital Partners, LP, a Delaware limited partnership with offices at 200 Clarendon Street, 42nd Floor, Boston, MA 02116, which holds approximately seventy-two percent (72%) of the equity interest in SLG through Irongate Industrial Partners Fund IV, LP. The Firm further acknowledges that the relationship between SLG and its equity sponsor may give rise to shared commercial interests and a desire for information sharing between the entities.

Notwithstanding the foregoing, neither Irongate Capital Partners, LP, Irongate Industrial Partners Fund IV, LP, nor any of their respective affiliates, general partners, limited partners, managing directors, officers, employees, advisors, or other portfolio companies is a client of the Firm in connection with this matter. The Firm owes no duty of loyalty or confidentiality to any Irongate entity by virtue of this engagement.

If Irongate Capital Partners, LP or any affiliated entity wishes to receive privileged communications relating to this engagement or to be included within the scope of the attorney-client relationship, a separate written agreement between the Firm and such entity will be required. SLG is advised that the sharing of privileged communications with non-client third parties, including affiliated entities, may result in the waiver of the attorney-client privilege and/or work-product protection, and SLG should consult with the Firm before disclosing any such communications outside of the attorney-client relationship.

4. Engagement Team

The following attorneys have been assigned to this engagement. The Firm believes that this team possesses the requisite experience, skill, and availability to provide effective and efficient representation to SLG in connection with the coverage dispute.

Howard Bellamy — Responsible Partner. Mr. Bellamy will serve as the partner with overall responsibility for the engagement, including supervision of all legal work, client communications, and strategic decisions relating to the coverage analysis, demand, negotiations, and any potential litigation. Mr. Bellamy is a partner in the Firm's Antitrust & Competition practice who is cross-staffed for insurance coverage matters involving regulated industries. Mr. Bellamy has more than twenty-five years of experience in complex commercial disputes, including significant experience with first-party and third-party insurance coverage matters in the energy and logistics sectors. Mr. Bellamy will serve as the primary point of contact for SLG on all strategic and substantive matters.

Douglas Fairchild — Billing Partner. Mr. Fairchild will serve as the billing partner responsible for the Firm's billing relationship with SLG and the coordination of invoicing. Mr. Fairchild is a partner in the Firm's Real Estate practice who handles the billing relationship with Irongate Capital Partners portfolio companies and is familiar with the billing and reporting requirements of institutional sponsors. Mr. Fairchild will contribute minimal substantive time to this matter and will not serve as a primary point of contact for legal strategy or work product.

Andrew Fitzpatrick — Lead Associate. Mr. Fitzpatrick will serve as the lead associate responsible for day-to-day management of the matter, including legal research, drafting of memoranda and correspondence, coordination with expert consultants, and ongoing communication with SLG's internal team. Mr. Fitzpatrick is a senior associate in the Firm's Mergers & Acquisitions practice with significant experience in post-acquisition insurance recovery matters, including disputes involving cargo policies, environmental liability policies, and representations-and-warranties insurance. Mr. Fitzpatrick will work closely with Mr. Bellamy and will serve as the day-to-day contact for the engagement.

Naomi Petersen — Working Associate. Ms. Petersen will support Mr. Fitzpatrick in legal research, document review, and drafting. Ms. Petersen is an associate in the Firm's Mergers & Acquisitions practice with experience in transactional due diligence and insurance-related matters.

The Firm may assign additional attorneys or paraprofessionals to this matter as the scope of work requires. Should additional personnel be assigned, the Firm will provide prior notice to SLG identifying such personnel, their roles, and their applicable hourly rates.

5. Fee Arrangement and Hourly Rates

Fees for this engagement will be charged on an hourly basis. This engagement is not on a contingency-fee basis, and the Firm's fees are not contingent upon the outcome of the coverage dispute or any related proceeding.

The current hourly rates for the members of the engagement team are as follows:

The hourly rates for any additional attorneys or paraprofessionals assigned to this matter will be provided to SLG at the time of their assignment and will be commensurate with the rates in effect for professionals of similar experience and seniority.

The Firm's standard hourly rates are subject to annual adjustment, which typically takes effect on January 1 of each calendar year. SLG will be notified in writing of any rate changes at least thirty (30) days prior to the effective date of the adjustment. If the engagement extends beyond December 31, 2024, adjusted rates will apply to services performed on or after the effective date of the rate change.

All time will be recorded and billed in partial-hour increments of one-tenth of an hour (i.e., six-minute increments). The Firm will maintain contemporaneous time records for all professionals working on the matter.

6. Estimated Fee Budget

Based on the Firm's current understanding of the matter, including the information and documentation provided by SLG to date, the estimated fee budget for the pre-litigation phase of the engagement is $175,000 to $225,000. The pre-litigation phase encompasses coverage evaluation, forensic expert coordination, preparation of the coverage opinion memorandum, preparation and submission of the formal demand letter to Meridian, and negotiations with Meridian and/or its counsel, including any mediation or alternative dispute resolution proceedings.

This estimate is provided for planning purposes only and does not constitute a cap, a fixed fee, a guaranteed maximum, or a not-to-exceed commitment. Actual fees will depend upon a number of factors that cannot be predicted with certainty at the outset of the engagement, including the complexity of the coverage issues as they develop, the volume and nature of the documentation to be reviewed, the insurer's response to the demand and the course of negotiations, the extent and duration of any mediation or alternative dispute resolution proceedings, and other circumstances that may arise during the engagement.

If litigation against Meridian becomes necessary, the Firm will prepare a separate litigation budget for SLG's review and approval before filing suit. That budget will address anticipated phases of the litigation, including pleadings, discovery, motion practice, expert work, and trial preparation, and will be subject to mutual agreement between the Firm and SLG.

The Firm will endeavor to keep SLG informed on a regular basis regarding the status of fees incurred and, if it appears at any point during the engagement that fees will materially exceed the upper range of the pre-litigation estimate set forth above, the Firm will promptly notify SLG and discuss options for managing costs.

7. Costs and Disbursements

In addition to professional fees, SLG will be responsible for reimbursement of all reasonable out-of-pocket costs and disbursements incurred by the Firm in connection with the matter. The Firm does not mark up costs or add any surcharge to disbursements; costs are passed through to SLG at the Firm's actual cost.

Anticipated costs and disbursements include, but are not limited to, the following:

• Fees for expert consultants retained by the Firm on SLG's behalf, including forensic fire investigators, origin-and-cause experts, cargo valuation experts, and any other consultants whose services may be required in connection with the coverage analysis, demand, or litigation;

• Mediation and arbitration fees, including JAMS or AAA filing fees and mediator or arbitrator compensation, if alternative dispute resolution proceedings are pursued;

• Court filing fees, service of process costs, deposition transcript fees, and related litigation expenses, if applicable;

• Travel expenses reasonably incurred by Firm personnel in connection with the matter, including airfare, lodging, ground transportation, and meals, consistent with the Firm's standard travel policies;

• Document reproduction, scanning, and imaging charges;

• Courier and overnight delivery charges;

• Electronic legal research charges (e.g., Westmark Data Systems, Sundial Solutions, and comparable services); and

• Any other out-of-pocket costs reasonably and necessarily incurred in connection with the representation.

The Firm will obtain SLG's prior written approval before incurring any single disbursement in excess of $10,000. In the event that an expenditure of this magnitude is required on an expedited basis and prior approval is not practicable, the Firm will notify SLG as soon as reasonably possible after the commitment is made.

All costs and disbursements will be itemized on the Firm's monthly invoices alongside the professional fees for the same billing period.

8. Billing and Payment Terms

The Firm will render monthly invoices for professional fees and costs incurred during the preceding calendar month. Invoices will include a summary of fees by timekeeper, a narrative description of services rendered, and an itemization of costs and disbursements.

Invoices will be directed to:

Mr. Dale Engstrom Vice President of Risk Management Stonefield Logistics Group Inc. 2900 Petroleum Tower Boulevard, Suite 400 Midland, TX 79701

SLG may designate an alternative billing contact or address by providing written notice to the Firm's billing partner, Douglas Fairchild. Invoices may be transmitted by United States mail, email (in PDF format), or electronic billing platform, as SLG may direct.

Payment of all invoices is due within thirty (30) days of the invoice date. The Firm reserves the right to charge interest at the rate of one percent (1.0%) per month (twelve percent (12%) per annum) on any amount remaining unpaid more than thirty (30) days after the date of the invoice. Interest will accrue from the date payment was due until the date full payment is received.

If any billing dispute arises with respect to a particular invoice or any portion thereof, SLG shall notify the Firm in writing within fifteen (15) days of receipt of the invoice, specifying the nature and basis of the dispute in reasonable detail. Upon receipt of such notice, the Firm and SLG shall endeavor to resolve the dispute promptly and in good faith. Any undisputed portion of the invoice shall remain due and payable in accordance with the standard payment terms set forth above, and the pendency of a dispute regarding a portion of an invoice shall not excuse the timely payment of the undisputed balance.

9. Conflicts of Interest

The Firm has conducted a comprehensive conflicts check with respect to the proposed representation, in accordance with the Firm's standard conflicts-clearance procedures and the requirements of the Texas Disciplinary Rules of Professional Conduct. Based on the results of that check, the Firm has identified no conflicts of interest that would preclude the Firm from undertaking the engagement on behalf of SLG.

The parties searched in connection with the conflicts check included, without limitation, the following: Stonefield Logistics Group Inc.; Irongate Capital Partners, LP; Irongate Industrial Partners Fund IV, LP; Meridian Surety & Indemnity Company (NAIC No. 28471); Kessler, Brandt & Howe LLP; Calvert & Strauss Insurance Brokers, Inc.; and key individuals associated with those entities, including officers, directors, and designated representatives identified by SLG.

SLG acknowledges that Calderwood & Harkness LLP is a large, multi-practice law firm with offices in multiple jurisdictions and that the Firm represents a substantial number of clients across diverse industries and practice areas. The Firm may currently represent, or may in the future undertake representation of, other clients with interests adverse to Meridian Surety & Indemnity Company in matters unrelated to this engagement. SLG consents to such representations by the Firm, provided that they are not substantially related to this matter and do not involve the use or disclosure of confidential information obtained through this engagement. This consent does not extend to any matter in which the Firm would be required to assert a position directly adverse to SLG's interests in this coverage dispute.

10. Confidentiality and Attorney-Client Privilege

All communications between SLG and the Firm in connection with this engagement, including but not limited to oral and written communications, memoranda, correspondence, draft documents, notes, and work product, are subject to the attorney-client privilege and the work-product doctrine to the fullest extent permitted by applicable law.

The Firm will not disclose confidential information relating to the representation to any third party without SLG's prior written consent, except as may be required by law, court order, or the Texas Disciplinary Rules of Professional Conduct. The Firm will take reasonable precautions to protect the confidentiality of all information provided by SLG in connection with this engagement.

SLG should ensure that privileged communications and work product are not shared with third parties outside the scope of the attorney-client privilege, including non-client affiliated entities such as Irongate Capital Partners, LP and its affiliates, without prior consultation with the Firm. As noted in Section 3 above, the sharing of privileged communications with non-client third parties may result in the waiver of the attorney-client privilege and/or work-product protection, which could have significant adverse consequences for SLG's position in the coverage dispute and any related proceedings.

11. Document Retention

During the pendency of the engagement, the Firm will maintain all files relating to the matter, including both hard-copy and electronic files, in accordance with the Firm's document-retention policies and applicable professional responsibility obligations.

Upon conclusion of the engagement, whether by completion, termination, or otherwise, the Firm will retain its files relating to the matter for a period of seven (7) years from the date of the engagement's conclusion. After the expiration of that seven-year period, the Firm may destroy or dispose of the files in its possession, including both hard-copy and electronic files, without further notice to SLG, unless SLG has requested the return of files in writing prior to the date of destruction.

Original documents provided by SLG to the Firm in connection with this engagement will be returned to SLG upon written request at any time during or after the engagement. The Firm will retain copies of any such original documents in its files for the retention period described above.

12. Termination of Engagement

Either party may terminate this engagement at any time upon written notice to the other party, subject to the terms set forth below.

SLG's Right to Terminate. SLG may discharge the Firm at any time, with or without cause, by providing written notice to the Firm. In the event of termination by SLG, SLG will remain responsible for the payment of all fees and costs incurred by the Firm through the effective date of termination, in accordance with the billing and payment terms set forth in this Engagement Letter.

The Firm's Right to Withdraw. The Firm may withdraw from the representation in accordance with the Texas Disciplinary Rules of Professional Conduct, including but not limited to situations where (i) SLG fails to fulfill its financial obligations under this Engagement Letter, (ii) SLG fails to cooperate with the Firm or to follow the Firm's advice on material matters, (iii) the continued representation would result in a violation of the Texas Disciplinary Rules of Professional Conduct or other applicable law, or (iv) other good cause for withdrawal exists. In the event the Firm determines that withdrawal is necessary or appropriate, the Firm will provide reasonable advance written notice to SLG and will take all steps reasonably necessary to protect SLG's interests during the transition, including the provision of adequate time for SLG to retain successor counsel.

Transition Upon Termination. Upon termination of the engagement by either party, the Firm will cooperate fully in the orderly transition of the matter to successor counsel designated by SLG, including the prompt transfer of files, documents, and work product, and the provision of reasonable assistance to successor counsel in connection with the transition.

13. Governing Law

This Engagement Letter and any disputes arising hereunder, including disputes regarding the interpretation, performance, or enforcement of this letter, shall be governed by and construed in accordance with the laws of the State of Texas, without regard to conflict-of-law or choice-of-law principles that would result in the application of the substantive law of any other jurisdiction.

14. No Guarantee of Outcome

While the Firm will use its best professional efforts on SLG's behalf and will bring to bear its experience and judgment in the prosecution of SLG's coverage claim, the Firm does not and cannot guarantee any particular outcome in the coverage dispute with Meridian Surety & Indemnity Company. The practice of law involves inherent uncertainty, and no attorney can predict with certainty the resolution of any legal matter.

The ultimate resolution of the matter will depend on many factors, including the insurer's conduct and litigation posture, the applicable statutory and decisional law as it may develop, the specific facts and evidence as they are developed during the engagement, the decisions of any mediator, arbitrator, judge, or jury, and other circumstances beyond the control of the Firm. Any opinions or assessments expressed by the Firm regarding the merits of SLG's claims or the likely outcome of the matter are professional judgments based on the information available at the time they are rendered and should not be construed as guarantees or assurances.

15. Entire Agreement and Amendments

This Engagement Letter constitutes the entire agreement between the Firm and SLG with respect to the subject matter of this engagement and supersedes all prior discussions, negotiations, understandings, and agreements, whether oral or written, between the parties relating to the engagement.

Any amendments, modifications, or supplements to this Engagement Letter must be in writing and signed by an authorized representative of each party in order to be effective. No oral modification of this letter shall be binding on either party.

16. Acceptance and Execution

We respectfully request that SLG indicate its acceptance of the terms and conditions set forth in this Engagement Letter by having an authorized representative sign and date this letter in the space provided below, and return a fully executed copy to the Firm at the address set forth in the letterhead above, or by email to Howard Bellamy at hbellamy@calderwoodharkness.com.

We appreciate the confidence that Stonefield Logistics Group Inc. has placed in Calderwood & Harkness LLP, and we look forward to working with you and your team on this important matter. Should you have any questions regarding this Engagement Letter or the engagement generally, please do not hesitate to contact me directly.

Very truly yours,

CALDERWOOD & HARKNESS LLP

By: ________

Name: Howard Bellamy

Title: Partner

Date: February 5, 2024

ACCEPTED AND AGREED:

STONEFIELD LOGISTICS GROUP INC.

By: ________

Name: Dale Engstrom

Title: Vice President of Risk Management

Date: ________

cc:

Marcus D. Stonefield, Chief Executive Officer, Stonefield Logistics Group Inc. Leah Tran, Chief Financial Officer, Stonefield Logistics Group Inc. Douglas Fairchild, Billing Partner, Calderwood & Harkness LLP (internal)

Timekeeper	Position	Hourly Rate
Howard Bellamy	Partner	$1,050.00
Douglas Fairchild	Partner	$975.00
Andrew Fitzpatrick	Senior Associate	$725.00
Naomi Petersen	Associate	$575.00

CALDERWOOD & HARKNESS LLP Attorneys at Law
700 Louisiana Street, Suite 4500 Houston, Texas 77002 Telephone: (713) 484-7200 Facsimile: (713) 484-7201 www.calderwoodharkness.com
February 5, 2024
Mr. Dale Engstrom Vice President of Risk Management Stonefield Logistics Group Inc. 2900 Petroleum Tower Boulevard, Suite 400 Midland, TX 79701
Re: Engagement of Calderwood & Harkness LLP by Stonefield Logistics Group Inc. Matter: Coverage Dispute — Meridian Surety & Indemnity Company Inland Marine Cargo Legal Liability Policy No. IML-TX-0039821-2023 Calderwood & Harkness Matter No.: 1012-00003
Dear Mr. Engstrom:
1. Purpose and Confirmation of Engagement
Calderwood & Harkness LLP (the "Firm") is pleased to confirm its engagement by Stonefield Logistics Group Inc. ("SLG" or the "Company"), a Texas corporation (FEIN 84-3291057), with principal offices at 2900 Petroleum Tower Boulevard, Suite 400, Midland, TX 79701. This letter (the "Engagement Letter") sets forth the terms and conditions governing the Firm's representation of SLG in connection with the above-referenced matter, and is intended to memorialize the mutual understanding of the parties regarding the scope, terms, and conditions of the attorney-client relationship.
This Engagement Letter is entered into following discussions between the undersigned and Mr. Dale Engstrom, Vice President of Risk Management, as well as SLG's Chief Executive Officer, Marcus D. Stonefield, regarding the Company's insurance coverage dispute with Meridian Surety & Indemnity Company ("Meridian"), an Ohio-domiciled stock insurance company (NAIC No. 28471), with principal offices at 600 Scioto Crossing, Suite 1200, Columbus, OH 43215. Based on those discussions, and on the preliminary information and documentation provided to the Firm to date, the Firm has undertaken an initial assessment of the matter and believes it is well-positioned to provide effective representation to SLG as described herein.
We ask that you review this Engagement Letter carefully. If the terms set forth herein are acceptable to SLG, please execute this letter in the space provided at the end and return a signed copy to the Firm. Until a countersigned copy is received, this letter shall serve as the Firm's statement of the terms upon which it is proceeding with the engagement, subject to SLG's acceptance.
2. Scope of Representation
The Firm's representation of SLG in this matter will encompass the evaluation of coverage under Meridian Surety & Indemnity Company's Inland Marine Cargo Legal Liability Policy No. IML-TX-0039821-2023 (the "Policy"), effective April 1, 2023 through March 31, 2024, in connection with the cargo loss sustained at SLG's transload facility located at 4501 East County Road 130, Midland, TX 79706 (specifically, the facility commonly referred to as "Warehouse Building C") on November 17, 2023 (the "Loss"). As the Firm understands it, the Loss involved significant damage to and destruction of third-party cargo stored in Warehouse Building C as a result of a fire event, the precise origin and cause of which remain the subject of investigation.
The specific tasks within the scope of this engagement include the following:
(a) Policy Review and Analysis. Review and analysis of the Policy, including the all-risk coverage grant, the policy limits (per-occurrence limit of $5,000,000; annual aggregate limit of $10,000,000), the self-insured retention ($250,000 per occurrence), and all applicable exclusions, conditions, and endorsements. This review will extend to the Policy's definitions section, the notice and cooperation provisions, the valuation methodology, and any manuscripted or brokered endorsements that may affect the coverage analysis.
(b) Review of Meridian's Coverage Position. Review and analysis of Meridian's Reservation of Rights letter dated December 4, 2023 and Meridian's coverage denial letter dated January 22, 2024, including Meridian's invocation of Exclusion 4(f) (Improper Storage) and Exclusion 4(k) (Failure to Maintain), as well as any other coverage defenses asserted or reserved by Meridian. The Firm will assess the factual and legal bases for Meridian's stated position and identify any weaknesses or vulnerabilities in the insurer's analysis.
(c) Coverage Opinion Memorandum. Preparation of a comprehensive written coverage opinion memorandum analyzing all coverage issues raised by Meridian's denial, including the applicability and enforceability of the cited exclusions under Texas law, the burden of proof applicable to the insurer's reliance on policy exclusions, the interplay between the all-risk coverage grant and the specific exclusionary provisions, and any extra-contractual theories of liability that may be available to SLG against Meridian.
(d) Expert Consultant Retention and Coordination. Retention and coordination of expert consultants, including fire investigation and forensic consultants, as may be necessary to support the coverage analysis and any demand or litigation. The Firm anticipates that the engagement of a qualified origin-and-cause expert may be critical to countering Meridian's reliance on the Improper Storage and Failure to Maintain exclusions, and will work with SLG to identify and retain appropriate consultants. All expert retentions will be subject to SLG's approval as to scope and estimated cost.
(e) Demand Letter. Preparation and submission of a formal demand letter to Meridian and its coverage counsel, Kessler, Brandt & Howe LLP, setting forth SLG's coverage position, demanding payment of the covered claim, and preserving all of SLG's rights under the Policy and applicable law, including rights under the Texas Insurance Code and the Texas Prompt Payment of Claims Act.
(f) Pre-Litigation Negotiations. Pre-litigation negotiations with Meridian and/or its counsel, including any mediation or alternative dispute resolution proceedings that the parties may agree to pursue. The Firm will coordinate closely with SLG on all settlement discussions and will not agree to any settlement or resolution without SLG's express prior authorization.
(g) Litigation (if necessary). If pre-litigation efforts do not result in a satisfactory resolution, preparation for and prosecution of litigation against Meridian, including but not limited to claims for breach of contract, violations of the Texas Insurance Code Chapters 541 (Unfair Methods of Competition and Unfair or Deceptive Acts or Practices) and 542 (Processing and Settlement of Claims), and related causes of action. SLG and the Firm acknowledge that any transition from the pre-litigation phase to active litigation would be subject to a separate budget discussion and mutual written agreement between the parties before any lawsuit is filed. The Firm will not institute litigation on SLG's behalf without SLG's prior written authorization to do so.
Scope Limitations. This engagement does not encompass, and the Firm is not being retained to provide, representation in connection with any claim by third-party cargo owners against SLG arising from the Loss, any property insurance claim for building or structural damage at the Midland Facility (which the Firm understands is being handled under a separate property insurance policy), or any regulatory matter arising from the Loss, including but not limited to any inquiries or proceedings initiated by the Texas Department of Insurance, the State Fire marshal's Office, or any local fire authority having jurisdiction. Should SLG desire the Firm's assistance with any of these related matters, a separate engagement letter would be required.
The Firm also acknowledges that SLG's insurance broker, Calvert & Strauss Insurance Brokers, Inc. (Account Executive: Jason Muñoz), placed the Policy and assisted with the initial claim submission to Meridian. The Firm may coordinate with Calvert & Strauss as needed in connection with this engagement, including to obtain Policy placement files, correspondence with Meridian, and other relevant documentation. However, the Firm does not represent Calvert & Strauss Insurance Brokers, Inc. or any of its employees, agents, or affiliates in this matter or in any other matter, and the Firm's duties of loyalty and confidentiality run exclusively to SLG.
3. Identification of the Client
The client in this matter is Stonefield Logistics Group Inc., and only Stonefield Logistics Group Inc. The Firm's duties of loyalty, confidentiality, competence, and diligence in this engagement run solely to SLG as the identified client.
The Firm acknowledges that SLG is a portfolio company of Irongate Capital Partners, LP, a Delaware limited partnership with offices at 200 Clarendon Street, 42nd Floor, Boston, MA 02116, which holds approximately seventy-two percent (72%) of the equity interest in SLG through Irongate Industrial Partners Fund IV, LP. The Firm further acknowledges that the relationship between SLG and its equity sponsor may give rise to shared commercial interests and a desire for information sharing between the entities.
Notwithstanding the foregoing, neither Irongate Capital Partners, LP, Irongate Industrial Partners Fund IV, LP, nor any of their respective affiliates, general partners, limited partners, managing directors, officers, employees, advisors, or other portfolio companies is a client of the Firm in connection with this matter. The Firm owes no duty of loyalty or confidentiality to any Irongate entity by virtue of this engagement.
If Irongate Capital Partners, LP or any affiliated entity wishes to receive privileged communications relating to this engagement or to be included within the scope of the attorney-client relationship, a separate written agreement between the Firm and such entity will be required. SLG is advised that the sharing of privileged communications with non-client third parties, including affiliated entities, may result in the waiver of the attorney-client privilege and/or work-product protection, and SLG should consult with the Firm before disclosing any such communications outside of the attorney-client relationship.
4. Engagement Team
The following attorneys have been assigned to this engagement. The Firm believes that this team possesses the requisite experience, skill, and availability to provide effective and efficient representation to SLG in connection with the coverage dispute.
Howard Bellamy — Responsible Partner. Mr. Bellamy will serve as the partner with overall responsibility for the engagement, including supervision of all legal work, client communications, and strategic decisions relating to the coverage analysis, demand, negotiations, and any potential litigation. Mr. Bellamy is a partner in the Firm's Antitrust & Competition practice who is cross-staffed for insurance coverage matters involving regulated industries. Mr. Bellamy has more than twenty-five years of experience in complex commercial disputes, including significant experience with first-party and third-party insurance coverage matters in the energy and logistics sectors. Mr. Bellamy will serve as the primary point of contact for SLG on all strategic and substantive matters.
Douglas Fairchild — Billing Partner. Mr. Fairchild will serve as the billing partner responsible for the Firm's billing relationship with SLG and the coordination of invoicing. Mr. Fairchild is a partner in the Firm's Real Estate practice who handles the billing relationship with Irongate Capital Partners portfolio companies and is familiar with the billing and reporting requirements of institutional sponsors. Mr. Fairchild will contribute minimal substantive time to this matter and will not serve as a primary point of contact for legal strategy or work product.
Andrew Fitzpatrick — Lead Associate. Mr. Fitzpatrick will serve as the lead associate responsible for day-to-day management of the matter, including legal research, drafting of memoranda and correspondence, coordination with expert consultants, and ongoing communication with SLG's internal team. Mr. Fitzpatrick is a senior associate in the Firm's Mergers & Acquisitions practice with significant experience in post-acquisition insurance recovery matters, including disputes involving cargo policies, environmental liability policies, and representations-and-warranties insurance. Mr. Fitzpatrick will work closely with Mr. Bellamy and will serve as the day-to-day contact for the engagement.
Naomi Petersen — Working Associate. Ms. Petersen will support Mr. Fitzpatrick in legal research, document review, and drafting. Ms. Petersen is an associate in the Firm's Mergers & Acquisitions practice with experience in transactional due diligence and insurance-related matters.
The Firm may assign additional attorneys or paraprofessionals to this matter as the scope of work requires. Should additional personnel be assigned, the Firm will provide prior notice to SLG identifying such personnel, their roles, and their applicable hourly rates.
5. Fee Arrangement and Hourly Rates
Fees for this engagement will be charged on an hourly basis. This engagement is not on a contingency-fee basis, and the Firm's fees are not contingent upon the outcome of the coverage dispute or any related proceeding.
The current hourly rates for the members of the engagement team are as follows:
The hourly rates for any additional attorneys or paraprofessionals assigned to this matter will be provided to SLG at the time of their assignment and will be commensurate with the rates in effect for professionals of similar experience and seniority.
The Firm's standard hourly rates are subject to annual adjustment, which typically takes effect on January 1 of each calendar year. SLG will be notified in writing of any rate changes at least thirty (30) days prior to the effective date of the adjustment. If the engagement extends beyond December 31, 2024, adjusted rates will apply to services performed on or after the effective date of the rate change.
All time will be recorded and billed in partial-hour increments of one-tenth of an hour (i.e., six-minute increments). The Firm will maintain contemporaneous time records for all professionals working on the matter.
6. Estimated Fee Budget
Based on the Firm's current understanding of the matter, including the information and documentation provided by SLG to date, the estimated fee budget for the pre-litigation phase of the engagement is $175,000 to $225,000. The pre-litigation phase encompasses coverage evaluation, forensic expert coordination, preparation of the coverage opinion memorandum, preparation and submission of the formal demand letter to Meridian, and negotiations with Meridian and/or its counsel, including any mediation or alternative dispute resolution proceedings.
This estimate is provided for planning purposes only and does not constitute a cap, a fixed fee, a guaranteed maximum, or a not-to-exceed commitment. Actual fees will depend upon a number of factors that cannot be predicted with certainty at the outset of the engagement, including the complexity of the coverage issues as they develop, the volume and nature of the documentation to be reviewed, the insurer's response to the demand and the course of negotiations, the extent and duration of any mediation or alternative dispute resolution proceedings, and other circumstances that may arise during the engagement.
If litigation against Meridian becomes necessary, the Firm will prepare a separate litigation budget for SLG's review and approval before filing suit. That budget will address anticipated phases of the litigation, including pleadings, discovery, motion practice, expert work, and trial preparation, and will be subject to mutual agreement between the Firm and SLG.
The Firm will endeavor to keep SLG informed on a regular basis regarding the status of fees incurred and, if it appears at any point during the engagement that fees will materially exceed the upper range of the pre-litigation estimate set forth above, the Firm will promptly notify SLG and discuss options for managing costs.
7. Costs and Disbursements
In addition to professional fees, SLG will be responsible for reimbursement of all reasonable out-of-pocket costs and disbursements incurred by the Firm in connection with the matter. The Firm does not mark up costs or add any surcharge to disbursements; costs are passed through to SLG at the Firm's actual cost.
Anticipated costs and disbursements include, but are not limited to, the following:
•  Fees for expert consultants retained by the Firm on SLG's behalf, including forensic fire investigators, origin-and-cause experts, cargo valuation experts, and any other consultants whose services may be required in connection with the coverage analysis, demand, or litigation;
•  Mediation and arbitration fees, including JAMS or AAA filing fees and mediator or arbitrator compensation, if alternative dispute resolution proceedings are pursued;
•  Court filing fees, service of process costs, deposition transcript fees, and related litigation expenses, if applicable;
•  Travel expenses reasonably incurred by Firm personnel in connection with the matter, including airfare, lodging, ground transportation, and meals, consistent with the Firm's standard travel policies;
•  Document reproduction, scanning, and imaging charges;
•  Courier and overnight delivery charges;
•  Electronic legal research charges (e.g., Westmark Data Systems, Sundial Solutions, and comparable services); and
•  Any other out-of-pocket costs reasonably and necessarily incurred in connection with the representation.
The Firm will obtain SLG's prior written approval before incurring any single disbursement in excess of $10,000. In the event that an expenditure of this magnitude is required on an expedited basis and prior approval is not practicable, the Firm will notify SLG as soon as reasonably possible after the commitment is made.
All costs and disbursements will be itemized on the Firm's monthly invoices alongside the professional fees for the same billing period.
8. Billing and Payment Terms
The Firm will render monthly invoices for professional fees and costs incurred during the preceding calendar month. Invoices will include a summary of fees by timekeeper, a narrative description of services rendered, and an itemization of costs and disbursements.
Invoices will be directed to:
Mr. Dale Engstrom Vice President of Risk Management Stonefield Logistics Group Inc. 2900 Petroleum Tower Boulevard, Suite 400 Midland, TX 79701
SLG may designate an alternative billing contact or address by providing written notice to the Firm's billing partner, Douglas Fairchild. Invoices may be transmitted by United States mail, email (in PDF format), or electronic billing platform, as SLG may direct.
Payment of all invoices is due within thirty (30) days of the invoice date. The Firm reserves the right to charge interest at the rate of one percent (1.0%) per month (twelve percent (12%) per annum) on any amount remaining unpaid more than thirty (30) days after the date of the invoice. Interest will accrue from the date payment was due until the date full payment is received.
If any billing dispute arises with respect to a particular invoice or any portion thereof, SLG shall notify the Firm in writing within fifteen (15) days of receipt of the invoice, specifying the nature and basis of the dispute in reasonable detail. Upon receipt of such notice, the Firm and SLG shall endeavor to resolve the dispute promptly and in good faith. Any undisputed portion of the invoice shall remain due and payable in accordance with the standard payment terms set forth above, and the pendency of a dispute regarding a portion of an invoice shall not excuse the timely payment of the undisputed balance.
9. Conflicts of Interest
The Firm has conducted a comprehensive conflicts check with respect to the proposed representation, in accordance with the Firm's standard conflicts-clearance procedures and the requirements of the Texas Disciplinary Rules of Professional Conduct. Based on the results of that check, the Firm has identified no conflicts of interest that would preclude the Firm from undertaking the engagement on behalf of SLG.
The parties searched in connection with the conflicts check included, without limitation, the following: Stonefield Logistics Group Inc.; Irongate Capital Partners, LP; Irongate Industrial Partners Fund IV, LP; Meridian Surety & Indemnity Company (NAIC No. 28471); Kessler, Brandt & Howe LLP; Calvert & Strauss Insurance Brokers, Inc.; and key individuals associated with those entities, including officers, directors, and designated representatives identified by SLG.
SLG acknowledges that Calderwood & Harkness LLP is a large, multi-practice law firm with offices in multiple jurisdictions and that the Firm represents a substantial number of clients across diverse industries and practice areas. The Firm may currently represent, or may in the future undertake representation of, other clients with interests adverse to Meridian Surety & Indemnity Company in matters unrelated to this engagement. SLG consents to such representations by the Firm, provided that they are not substantially related to this matter and do not involve the use or disclosure of confidential information obtained through this engagement. This consent does not extend to any matter in which the Firm would be required to assert a position directly adverse to SLG's interests in this coverage dispute.
10. Confidentiality and Attorney-Client Privilege
All communications between SLG and the Firm in connection with this engagement, including but not limited to oral and written communications, memoranda, correspondence, draft documents, notes, and work product, are subject to the attorney-client privilege and the work-product doctrine to the fullest extent permitted by applicable law.
The Firm will not disclose confidential information relating to the representation to any third party without SLG's prior written consent, except as may be required by law, court order, or the Texas Disciplinary Rules of Professional Conduct. The Firm will take reasonable precautions to protect the confidentiality of all information provided by SLG in connection with this engagement.
SLG should ensure that privileged communications and work product are not shared with third parties outside the scope of the attorney-client privilege, including non-client affiliated entities such as Irongate Capital Partners, LP and its affiliates, without prior consultation with the Firm. As noted in Section 3 above, the sharing of privileged communications with non-client third parties may result in the waiver of the attorney-client privilege and/or work-product protection, which could have significant adverse consequences for SLG's position in the coverage dispute and any related proceedings.
11. Document Retention
During the pendency of the engagement, the Firm will maintain all files relating to the matter, including both hard-copy and electronic files, in accordance with the Firm's document-retention policies and applicable professional responsibility obligations.
Upon conclusion of the engagement, whether by completion, termination, or otherwise, the Firm will retain its files relating to the matter for a period of seven (7) years from the date of the engagement's conclusion. After the expiration of that seven-year period, the Firm may destroy or dispose of the files in its possession, including both hard-copy and electronic files, without further notice to SLG, unless SLG has requested the return of files in writing prior to the date of destruction.
Original documents provided by SLG to the Firm in connection with this engagement will be returned to SLG upon written request at any time during or after the engagement. The Firm will retain copies of any such original documents in its files for the retention period described above.
12. Termination of Engagement
Either party may terminate this engagement at any time upon written notice to the other party, subject to the terms set forth below.
SLG's Right to Terminate. SLG may discharge the Firm at any time, with or without cause, by providing written notice to the Firm. In the event of termination by SLG, SLG will remain responsible for the payment of all fees and costs incurred by the Firm through the effective date of termination, in accordance with the billing and payment terms set forth in this Engagement Letter.
The Firm's Right to Withdraw. The Firm may withdraw from the representation in accordance with the Texas Disciplinary Rules of Professional Conduct, including but not limited to situations where (i) SLG fails to fulfill its financial obligations under this Engagement Letter, (ii) SLG fails to cooperate with the Firm or to follow the Firm's advice on material matters, (iii) the continued representation would result in a violation of the Texas Disciplinary Rules of Professional Conduct or other applicable law, or (iv) other good cause for withdrawal exists. In the event the Firm determines that withdrawal is necessary or appropriate, the Firm will provide reasonable advance written notice to SLG and will take all steps reasonably necessary to protect SLG's interests during the transition, including the provision of adequate time for SLG to retain successor counsel.
Transition Upon Termination. Upon termination of the engagement by either party, the Firm will cooperate fully in the orderly transition of the matter to successor counsel designated by SLG, including the prompt transfer of files, documents, and work product, and the provision of reasonable assistance to successor counsel in connection with the transition.
13. Governing Law
This Engagement Letter and any disputes arising hereunder, including disputes regarding the interpretation, performance, or enforcement of this letter, shall be governed by and construed in accordance with the laws of the State of Texas, without regard to conflict-of-law or choice-of-law principles that would result in the application of the substantive law of any other jurisdiction.
14. No Guarantee of Outcome
While the Firm will use its best professional efforts on SLG's behalf and will bring to bear its experience and judgment in the prosecution of SLG's coverage claim, the Firm does not and cannot guarantee any particular outcome in the coverage dispute with Meridian Surety & Indemnity Company. The practice of law involves inherent uncertainty, and no attorney can predict with certainty the resolution of any legal matter.
The ultimate resolution of the matter will depend on many factors, including the insurer's conduct and litigation posture, the applicable statutory and decisional law as it may develop, the specific facts and evidence as they are developed during the engagement, the decisions of any mediator, arbitrator, judge, or jury, and other circumstances beyond the control of the Firm. Any opinions or assessments expressed by the Firm regarding the merits of SLG's claims or the likely outcome of the matter are professional judgments based on the information available at the time they are rendered and should not be construed as guarantees or assurances.
15. Entire Agreement and Amendments
This Engagement Letter constitutes the entire agreement between the Firm and SLG with respect to the subject matter of this engagement and supersedes all prior discussions, negotiations, understandings, and agreements, whether oral or written, between the parties relating to the engagement.
Any amendments, modifications, or supplements to this Engagement Letter must be in writing and signed by an authorized representative of each party in order to be effective. No oral modification of this letter shall be binding on either party.
16. Acceptance and Execution
We respectfully request that SLG indicate its acceptance of the terms and conditions set forth in this Engagement Letter by having an authorized representative sign and date this letter in the space provided below, and return a fully executed copy to the Firm at the address set forth in the letterhead above, or by email to Howard Bellamy at hbellamy@calderwoodharkness.com.
We appreciate the confidence that Stonefield Logistics Group Inc. has placed in Calderwood & Harkness LLP, and we look forward to working with you and your team on this important matter. Should you have any questions regarding this Engagement Letter or the engagement generally, please do not hesitate to contact me directly.
Very truly yours,
CALDERWOOD & HARKNESS LLP
By: ________
Name: Howard Bellamy
Title: Partner
Date: February 5, 2024
ACCEPTED AND AGREED:
STONEFIELD LOGISTICS GROUP INC.
By: ________
Name: Dale Engstrom
Title: Vice President of Risk Management
Date: ________
cc:
Marcus D. Stonefield, Chief Executive Officer, Stonefield Logistics Group Inc. Leah Tran, Chief Financial Officer, Stonefield Logistics Group Inc. Douglas Fairchild, Billing Partner, Calderwood & Harkness LLP (internal)
Timekeeper | Position | Hourly Rate
Howard Bellamy | Partner | $1,050.00
Douglas Fairchild | Partner | $975.00
Andrew Fitzpatrick | Senior Associate | $725.00
Naomi Petersen | Associate | $575.00

CALDERWOOD & HARKNESS LLP Attorneys at Law

CALDERWOOD & HARKNESS LLP

ACCEPTED AND AGREED:

STONEFIELD LOGISTICS GROUP INC.

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