Stonefield Logistics Group Inc. 4200 Commerce Parkway, Suite 800 Fort Worth, Texas 76102
August 24, 2022
VIA OVERNIGHT COURIER AND EMAIL
Catherine Devereaux Senior Vice President, Loan Administration Lakeshore National Bank 135 South LaSalle Street Chicago, Illinois 60603
Re: Credit Agreement dated October 12, 2017 (as amended and restated June 30, 2021), Reference No. LNB-SLG-2017-CA-4402 (the "Credit Agreement"), among Stonefield Logistics Group Inc. (the "Borrower"), the lenders party thereto, and Lakeshore National Bank, as Administrative Agent
Notice of Material Litigation Pursuant to Section 6.03(b) of the Credit Agreement
Dear Ms. Devereaux:
This letter is delivered on behalf of Stonefield Logistics Group Inc. ("Stonefield" or the "Borrower") to Lakeshore National Bank, in its capacity as Administrative Agent (the "Administrative Agent") under the Credit Agreement referenced above, pursuant to Section 6.03(b) of the Credit Agreement. Section 6.03(b) requires the Borrower to provide written notice to the Administrative Agent within ten (10) business days of the commencement of any litigation, arbitration, or governmental proceeding against the Borrower or any of its Subsidiaries in which the aggregate potential liability is reasonably expected to exceed Twenty-Five Million Dollars ($25,000,000).
By this notice, Stonefield is informing the Administrative Agent that it has been named as a defendant in a civil litigation matter in which the plaintiff seeks damages in the approximate aggregate amount of Ninety-Five Million Four Hundred Thousand Dollars ($95,400,000). The Complaint in this matter was filed on August 12, 2022, and was served upon Stonefield on August 15, 2022. This letter, dated August 24, 2022, is being delivered within eight (8) business days of the date of service, well within the ten (10) business day notification window prescribed by Section 6.03(b) of the Credit Agreement.
The details of this litigation matter are set forth below.
I. Description of the Litigation
On August 12, 2022, Vantor Holdings Corp. ("Vantor"), a New York corporation headquartered at 580 Eighth Avenue, 14th Floor, New York, New York 10018, filed a civil complaint against Stonefield Logistics Group Inc. in the United States District Court for the Southern District of New York. The case has been assigned Case No. 22-cv-07841 (the "Litigation"). The full caption of the matter is as follows:
Vantor Holdings Corp. v. Stonefield Logistics Group Inc., Case No. 22-cv-07841 (S.D.N.Y.)
The Complaint asserts claims for breach of contract arising from Stonefield's termination of a Transportation Services Agreement dated March 15, 2019 (Contract Reference No. SLG-VTS-2019-0315) (the "TSA") between Stonefield and Vantor Transport Services LLC ("VTS"), a wholly owned subsidiary of Vantor.
The TSA was a five-year agreement, with an original term commencing on April 1, 2019 and expiring on March 31, 2024, pursuant to which VTS provided dedicated and on-demand truckload transportation services to Stonefield across specified lanes in the Northeast, Mid-Atlantic, and Southeast corridors. Under the terms of the TSA, Stonefield committed to an annual volume of approximately Forty-Three Million Two Hundred Thousand Dollars ($43,200,000) in transportation charges, and VTS was obligated to meet specified service level obligations, including contractual thresholds for on-time pickup rates, on-time delivery rates, tender acceptance rates, equipment availability, and cargo claims ratios.
On January 18, 2022, Stonefield delivered a written Cure Notice to VTS pursuant to the terms of the TSA, identifying material breaches by VTS of its service level obligations. The Cure Notice specifically detailed VTS's failures to meet the contractual performance thresholds across all five service level metrics during the fourth quarter of 2021 (Q4 2021). VTS failed to cure the identified breaches within the thirty (30) day cure period provided under the TSA. Accordingly, on March 4, 2022, Stonefield terminated the TSA for Cause, effective immediately, pursuant to Section 13.1(a) of the TSA.
In the Complaint, Vantor alleges that Stonefield's termination of the TSA was wrongful and constituted a material breach of the TSA by Stonefield. In addition, Vantor alleges that, prior to termination, Stonefield failed to tender minimum committed freight volumes under the TSA and diverted freight to competing carriers in violation of the exclusivity provisions contained in the TSA. Vantor contends that these actions caused it to suffer significant financial damages.
A copy of the Complaint is enclosed with this letter for the Administrative Agent's reference.
II. Damages Claimed and Potential Exposure
Vantor's Complaint seeks damages in the approximate aggregate amount of Ninety-Five Million Four Hundred Thousand Dollars ($95,400,000), comprised of the following categories:
The aggregate amount of damages claimed by Vantor in the Complaint exceeds the Twenty-Five Million Dollar ($25,000,000) notification threshold set forth in Section 6.03(b) of the Credit Agreement, which is the basis for the delivery of this notice.
III. Stonefield's Position and Assessment of the Claims
Management of the Borrower has carefully reviewed the allegations set forth in Vantor's Complaint, in consultation with internal and external legal advisors, and believes that the claims asserted by Vantor lack merit. The Borrower intends to vigorously defend against the Complaint and all claims asserted therein.
Without limiting any defenses or arguments that may be raised in the course of the Litigation, the principal bases for Stonefield's defense position are summarized as follows:
(a) Valid Termination for Cause. The termination of the TSA was a valid and proper exercise of Stonefield's contractual rights under Section 13.1(a) of the TSA. VTS's material failures to satisfy its service level obligations across all five contractual performance metrics during Q4 2021 were thoroughly documented by Stonefield's operations and compliance teams and were specifically identified in the written Cure Notice delivered to VTS on January 18, 2022. These failures were persistent, material, and went uncured during the thirty (30) day cure period provided under the TSA, thereby entitling Stonefield to terminate the TSA for Cause.
(b) Failure to Cure. VTS did not cure, or make reasonable efforts to cure, the identified service level breaches within the contractual cure period. The deficiencies in VTS's performance remained substantially unchanged through the expiration of the cure period, and VTS did not present a credible remediation plan.
(c) Force Majeure and Volume Compliance. To the extent Vantor alleges that Stonefield failed to meet minimum committed freight volumes under the TSA, such allegation fails to account for the force majeure provision set forth in Section 12.1 of the TSA, which was properly invoked by Stonefield for COVID-19-related freight demand impacts during the period from April 2020 through September 2020. When the volume commitments are adjusted to reflect the proper application of the force majeure provision, as required by the express terms of the TSA, Stonefield's freight tenders demonstrate compliance with the minimum volume commitments for all relevant periods.
(d) No Violation of Exclusivity Provisions. The freight diversion alleged by Vantor in the Complaint involved secondary, non-exclusive lanes that were not subject to the exclusivity provisions of the TSA. The TSA's exclusivity obligations applied only to specifically designated primary lanes set forth in Exhibit B to the TSA, and Stonefield's use of alternative carriers on secondary and overflow lanes was expressly permitted under the terms of the agreement.
(e) Unenforceability of the Liquidated Damages Clause. The liquidated damages provision set forth in Section 14.2 of the TSA, which forms the largest single component of Vantor's claimed damages at approximately $67,230,000, is, in Stonefield's view, an unenforceable penalty under applicable New York law. The formula specified in Section 14.2 bears no reasonable relationship to the actual damages that Vantor could be expected to incur as a result of early termination of the TSA, and the provision operates as a punitive measure rather than a genuine pre-estimate of anticipated harm.
(f) Failure to Mitigate. Vantor failed to take reasonable steps to mitigate its alleged damages following the termination of the TSA. Information available to Stonefield indicates that VTS had available capacity and market opportunities to redeploy its assets and workforce following the termination, and Vantor's failure to pursue such mitigation opportunities precludes or substantially reduces any recovery to which it might otherwise be entitled.
Based on the foregoing, and subject to the inherent uncertainties of litigation, management of the Borrower does not believe that this litigation will result in a material adverse outcome for the Borrower.
IV. Retention of Counsel
Stonefield is in the process of retaining experienced outside litigation counsel to defend this matter. Stonefield's existing outside counsel, Ashford Meridian LLP, is providing initial guidance and legal support in connection with the Litigation while specialized litigation counsel is being formally engaged. The Borrower expects to finalize the retention of defense counsel promptly and will provide the Administrative Agent with further details regarding the identity and contact information of lead defense counsel once the engagement has been completed.
V. Ongoing Reporting Commitment
The Borrower acknowledges that the Administrative Agent, acting on behalf of the lenders under the Credit Agreement, may from time to time request additional information regarding this litigation matter. The Borrower is prepared to provide periodic updates on the status of the Litigation at reasonable intervals and in a manner consistent with its obligations under the Credit Agreement, subject to applicable privileges and confidentiality considerations.
In addition, the Borrower will promptly notify the Administrative Agent of any material developments in the Litigation, including, without limitation, any settlement discussions, adverse rulings, changes in the assessed risk profile, the entry of any judgment, or any other development that could reasonably be expected to have a Material Adverse Effect (as defined in the Credit Agreement) on the Borrower or its Subsidiaries.
The Borrower hereby confirms that, as of the date hereof, it is in compliance with all covenants, agreements, and obligations under the Credit Agreement, including all financial covenants set forth in Article VII thereof, and that the commencement of this litigation does not currently affect the Borrower's ability to perform its obligations under the Credit Agreement or any other Loan Document (as defined therein).
VI. No Impact on Credit Facility
The Borrower affirms that the commencement of this litigation does not constitute a Default or an Event of Default under the Credit Agreement, including under Section 8.01(h) (Judgments) or any other provision thereof.
The Borrower's financial condition remains sound. Even in the unlikely event that an adverse outcome were to be reached in this matter — which management does not expect — the Borrower does not believe that such an outcome would materially impair the Borrower's ability to service its obligations under the Senior Secured Credit Facility in the aggregate principal amount of Four Hundred Twenty-Five Million Dollars ($425,000,000), consisting of the One Hundred Seventy-Five Million Dollar ($175,000,000) revolving credit facility and the Two Hundred Fifty Million Dollar ($250,000,000) term loan B facility. For reference, Stonefield reported consolidated revenues of approximately $1.42 billion for fiscal year 2021, and the company maintains a strong operating position with substantial liquidity and cash flow generation capacity to support its ongoing obligations.
VII. Reservation of Rights
The delivery of this notice is made solely for purposes of compliance with Section 6.03(b) of the Credit Agreement. Nothing contained in this notice shall constitute, or shall be construed as, an admission of liability by the Borrower, an acknowledgment of the merits of any claims asserted by Vantor in the Complaint, or a waiver of any rights, defenses, or remedies available to the Borrower in the Litigation or otherwise.
The Borrower hereby expressly reserves all of its rights and remedies under the Credit Agreement, the TSA, and applicable law, including, without limitation, the right to assert counterclaims, affirmative defenses, and any and all other rights and remedies that may be available to the Borrower in connection with the Litigation or otherwise.
VIII. Closing. Should you or any representative of the Administrative Agent wish to discuss this matter further, or should you require any additional information regarding the Litigation, please do not hesitate to contact me directly at your earliest convenience. I am available to arrange a call or meeting to address any questions or concerns the Administrative Agent may have.
My direct contact information is as follows:
Tobias Wren General Counsel Stonefield Logistics Group Inc. 4200 Commerce Parkway, Suite 800 Fort Worth, Texas 76102 Telephone: (817) 555-4120
Email: twren@stonefieldlogistics.com
We appreciate the continued partnership with Lakeshore National Bank and remain committed to maintaining full transparency with the Administrative Agent and the lenders under the Credit Agreement.
Very truly yours,
STONEFIELD LOGISTICS GROUP INC.
By: ________
Name: Tobias Wren
Title: General Counsel
Enclosure:
Complaint, Vantor Holdings Corp. v. Stonefield Logistics Group Inc., Case No. 22-cv-07841 (S.D.N.Y.), filed August 12, 2022
cc:
Marcus Denton, Chief Executive Officer, Stonefield Logistics Group Inc. Priya Ramachandran, Chief Financial Officer, Stonefield Logistics Group Inc.
| Category of Damages | Approximate Amount Claimed |
| Liquidated damages under Section 14.2 of the TSA (calculated as 75% of the $43.2 million annual committed volume multiplied by the remaining contract term of approximately 2.07 years) | $67,230,000 |
| Lost profits | $18,700,000 |
| Stranded asset and equipment costs | $5,200,000 |
| Workforce reduction costs | $2,870,000 |
| Mitigation costs | $1,400,000 |
| Total Damages Claimed | $95,400,000 |