1012-00005 · Stonefield Logistics Group · Insurance & Lender Notifications

quarterly-lakeshore-update-q4-2022.docx DOCUMENT Litigation

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CONFIDENTIAL — SUBJECT TO ATTORNEY-CLIENT PRIVILEGE PREPARED AT THE DIRECTION OF COUNSEL — DO NOT DISTRIBUTE

January 12, 2023

STONEFIELD LOGISTICS GROUP INC. 4200 Commerce Parkway, Suite 800 Fort Worth, Texas 76102

VIA ELECTRONIC MAIL AND CERTIFIED MAIL

Catherine Devereaux Senior Vice President, Loan Administration Lakeshore National Bank 135 South LaSalle Street Chicago, Illinois 60603

Re: Quarterly Litigation Status Update — Vantor Holdings Corp. v. Stonefield Logistics Group Inc., Case No. 22-cv-07841 (S.D.N.Y.)

Credit Agreement dated October 12, 2017 (as amended and restated June 30, 2021) Ref. No. LNB-SLG-2017-CA-4402 — Section 6.03(b) Reporting Obligation

Dear Ms. Devereaux:

I. Introduction and Purpose

This letter is submitted on behalf of Stonefield Logistics Group Inc. ("Stonefield" or the "Company") and constitutes the first quarterly litigation status update in connection with the above-referenced matter. As you will recall, on August 24, 2022, I provided written notification to you, in my capacity as General Counsel of Stonefield, pursuant to Section 6.03(b) of the Credit Agreement dated October 12, 2017 (as amended and restated June 30, 2021) between Stonefield Logistics Group Inc., as Borrower, and Lakeshore National Bank, as Administrative Agent (Ref. No. LNB-SLG-2017-CA-4402) (the "Credit Agreement"), advising Lakeshore National Bank ("Lakeshore" or the "Bank") of the commencement of litigation involving potential liability in excess of the $25 million notification threshold set forth in that section.

By letter dated August 30, 2022, Lakeshore acknowledged receipt of the initial notification and requested that Stonefield provide quarterly litigation status updates regarding the matter, to be delivered in writing within fifteen (15) days following the close of each fiscal quarter, until the matter is resolved or otherwise disposed of. Stonefield agreed to that request and has undertaken to comply with it.

This letter constitutes the first such quarterly update and covers the period from the date of initial notification through the end of the fourth quarter of 2022 — that is, the period from approximately August 24, 2022 through December 31, 2022. This update is provided in connection with the Company's obligations under the $425 million Senior Secured Credit Facility (the "Facility"), which consists of a $175 million revolving credit facility and a $250 million term loan B, with Lakeshore National Bank serving as Administrative Agent for the syndicated lender group.

This letter has been prepared under the direction of, and reviewed by, Calderwood & Harkness LLP, defense counsel for Stonefield in the referenced litigation. Patrick Gallagher, Lead Associate at Calderwood & Harkness LLP, has reviewed this update for accuracy and completeness. The contents of this letter are protected by the attorney-client privilege and the work product doctrine, and disclosure to Lakeshore is made in confidence pursuant to the common interest and reporting obligations established under the Credit Agreement. This letter should not be disclosed to any third party without the prior written consent of Stonefield.

II. Case Overview and Background

For ease of reference, and to ensure that this update is self-contained, we restate below the essential background of the litigation.

Filing and Assignment. On August 12, 2022, Vantor Holdings Corp. ("Vantor") filed a civil complaint against Stonefield Logistics Group Inc. in the United States District Court for the Southern District of New York. The matter has been assigned Case No. 22-cv-07841 and is before the Honorable Margaret T. Calloway, United States District Judge.

Nature of Claims. Vantor alleges that Stonefield wrongfully terminated a five-year Transportation Services Agreement dated March 15, 2019 (the "TSA," Contract Ref. No. SLG-VTS-2019-0315) between Stonefield and Vantor Transport Services LLC ("VTS"), a wholly owned operating subsidiary of Vantor Holdings Corp. The TSA was a transportation services arrangement under which VTS provided dedicated and on-demand truckload services across Stonefield's national distribution network. The TSA had a term commencing on April 1, 2019 and running through March 31, 2024, with an annual committed volume ("ACV") of $43.2 million. The ACV represented the minimum level of transportation services volume that Stonefield committed to tender to VTS during each contract year of the agreement, subject to certain adjustments set forth in the TSA.

Stonefield's Termination of the TSA. On January 18, 2022, Stonefield delivered a written Cure Notice to VTS pursuant to Section 13.1(a) of the TSA, identifying material failures by VTS to meet Service Level Obligations ("SLOs") during the fourth quarter of 2021 (October through December 2021). The Cure Notice specified the following performance deficiencies:

VTS failed across all five measured SLOs, in certain cases by significant margins. As reflected in the table above, the shortfalls ranged from 11.4 percentage points (on-time delivery) to 23.0 percentage points (equipment availability), and the cargo claims ratio was more than double the contractual maximum.

The Cure Notice provided VTS with a thirty (30) day cure period, as required under Section 13.1(a) of the TSA, expiring on February 17, 2022. VTS did not cure the identified deficiencies within the cure period, nor did VTS deliver any written response to the Cure Notice disputing the accuracy of the performance data or contesting the materiality of the service failures. Accordingly, on March 4, 2022, Stonefield terminated the TSA effective immediately, citing VTS's uncured material breach under Section 13.1(a).

Claimed Damages. Vantor's complaint seeks approximately $95.4 million in total damages, broken down as follows:

The bulk of the claimed damages ($67.23 million) derives from a liquidated damages provision set forth in Section 14.2 of the TSA, which purports to calculate early termination damages as 75% of the ACV multiplied by the number of years remaining in the contract term. Vantor contends that, at the time of termination, approximately 2.08 years remained on the TSA (from March 4, 2022 to March 31, 2024), yielding the claimed liquidated damages figure. The remaining claims total approximately $28.17 million and encompass alleged lost profits, stranded asset costs relating to equipment and facilities dedicated to the Stonefield account, workforce reduction costs, and mitigation-related expenses.

The total claimed damages of approximately $95.4 million significantly exceed the $25 million notification threshold established under Section 6.03(b) of the Credit Agreement, which gave rise to our initial notification letter of August 24, 2022.

III. Engagement of Defense Counsel

Following the filing of Vantor's complaint, Stonefield retained Calderwood & Harkness LLP ("C&H") as lead defense counsel for this matter. The engagement became effective on September 1, 2022, and has been assigned C&H Matter No. 1012-00005. The responsible partner at C&H is Samuel Eklund, a senior litigation partner in the firm's New York office with extensive experience in complex commercial litigation and transportation industry disputes. The lead associate assigned to the matter is Patrick Gallagher, who has been actively involved in all aspects of the defense effort and has reviewed this update.

C&H filed its Notice of Appearance on behalf of Stonefield on September 8, 2022, and has been actively managing the defense since that date. All substantive communications with the Court, opposing counsel, and third parties are being coordinated through C&H.

IV. Insurance Coverage Status

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

On October 3, 2022, Graymark issued a formal coverage determination letter declining coverage for the Vantor claims. Graymark determined that the claims asserted by Vantor arise from a commercial contract dispute — specifically, the alleged wrongful termination of the TSA — and fall squarely within the policy's contractual liability exclusion. Graymark concluded that the claims do not arise from "wrongful acts" of directors or officers as defined under the policy and, therefore, are not covered under the D&O policy.

Stonefield's Commercial General Liability policy, issued by Brindoval Mutual Insurance Co. under Policy No. CGL-SLG-2022-11902, was also evaluated for potential coverage. That policy does not provide coverage for breach of contract claims or claims arising from the performance or non-performance of contractual obligations, and accordingly does not respond to the Vantor claims.

Stonefield has evaluated all other potentially applicable insurance policies and has concluded that no insurance coverage is available for this matter. Accordingly, Stonefield will bear defense costs and any potential liability directly and without insurance reimbursement. We will promptly notify Lakeshore if this assessment changes at any point during the course of the litigation.

V. Litigation Developments During Q4 2022

The following is a summary of material developments in the litigation during the fourth quarter of 2022.

A. Motion to Dismiss (Filed October 14, 2022)

On October 14, 2022, C&H filed a Motion to Dismiss on behalf of Stonefield pursuant to Federal Rule of Civil Procedure 12(b)(6), seeking dismissal of two categories of claims asserted in Vantor's original complaint.

The Motion to Dismiss advanced the following principal arguments:

(i) Liquidated Damages Clause Constitutes an Unenforceable Penalty. The Motion argued that the liquidated damages provision in Section 14.2 of the TSA is unenforceable as a matter of New York law because actual damages arising from early termination of a transportation services agreement were readily ascertainable at the time of contracting. Stonefield argued that both parties to the TSA are sophisticated commercial entities operating in a mature freight market with established pricing benchmarks and publicly available market data, making it straightforward to calculate actual damages from termination with reasonable certainty at the time the TSA was executed. The Motion further argued that the liquidated damages formula — 75% of the ACV multiplied by the remaining contract term — produces a grossly disproportionate result that bears no reasonable relationship to Vantor's anticipated or actual harm. Specifically, the formula yields a figure of $67.23 million, a sum that Stonefield contends vastly exceeds any plausible measure of Vantor's actual economic loss, particularly given Vantor's ability to redeploy assets and capacity to other customers in the active freight market.

(ii) Inadequate Pleading of Lost Profits. The Motion argued that Vantor's lost profits claim of $18.7 million was inadequately pled under applicable pleading standards. Stonefield contended that the complaint failed to allege lost profits with the requisite certainty, offering only conclusory assertions of lost revenue without identifying the specific business opportunities allegedly lost, the basis for the lost profits calculation, or any factual foundation demonstrating that the claimed lost profits were foreseeable, non-speculative, and causally connected to the alleged wrongful termination.

On November 18, 2022, Vantor filed its opposition to Stonefield's Motion to Dismiss. The opposition papers argued, among other things, that the liquidated damages clause was the product of arm's-length negotiation between sophisticated parties and is enforceable under New York's well-established standards, and that the lost profits claim was adequately pled at the motion to dismiss stage, where Vantor need only plausibly allege — not prove — damages.

The Motion to Dismiss was fully briefed as of November 18, 2022 and was pending before the Court at the time the Amended Complaint was filed, as discussed below.

B. Amended Complaint (Filed December 2, 2022)

On December 2, 2022, Vantor filed an Amended Complaint as of right under Federal Rule of Civil Procedure 15(a)(1), which permits a party to amend its pleading once as a matter of course within twenty-one (21) days after service of a responsive pleading or a motion under Rule 12. Vantor's filing was timely under this rule.

The Amended Complaint retains all of the claims and allegations set forth in the original complaint and adds several new factual allegations and theories. Specifically, the Amended Complaint adds the following material allegations:

(1) Volume Shortfall Claims. Vantor now alleges that Stonefield failed to tender the minimum annual committed volume under the TSA in Contract Years 2 and 3 (approximately April 2020 through March 2022). Vantor alleges that Stonefield's actual tender volumes fell short of the ACV by approximately $11.4 million in Contract Year 2 (April 2020 through March 2021) and by approximately $6.7 million in Contract Year 3 (April 2021 through March 2022). Vantor characterizes these shortfalls as independent breaches of the TSA entitling VTS to damages separate and apart from any termination-related claims.

(2) Freight Diversion and Exclusivity Violations. Vantor alleges that Stonefield improperly diverted freight to competing carriers — specifically, Cascade Freight Systems Inc. and Briarwood Trucking Co. — in alleged violation of the exclusivity provisions set forth in Section 5.3 of the TSA. Vantor contends that these diversions occurred during Contract Years 2 and 3 and contributed to the volume shortfalls described above.

(3) Pretextual Termination. Vantor alleges that Stonefield's purported termination for Cause was pretextual and was in fact motivated by Stonefield's desire to avoid a projected 14.3% rate increase that was scheduled to take effect on April 1, 2022 under the TSA's Rate Adjustment Mechanism set forth in Section 7.4 and Schedule D. Vantor alleges that Stonefield had been seeking to renegotiate rates for several months prior to issuing the Cure Notice and that the timing of the termination was calculated to avoid the rate increase.

(4) Causation Defense to SLO Failures. Vantor further alleges, in response to Stonefield's reliance on VTS's SLO failures as the basis for termination, that VTS's performance deficiencies were caused or substantially contributed to by Stonefield's own volume shortfalls and freight diversion practices. Vantor contends that by failing to provide the committed volume and by diverting freight to competing carriers, Stonefield deprived VTS of the operational scale and lane density necessary to maintain the contracted service levels, thereby rendering the SLO failures a consequence of Stonefield's own conduct rather than an independent basis for termination.

Notwithstanding the addition of these new factual allegations and theories, the total damages claimed in the Amended Complaint remain approximately $95.4 million. The damages breakdown in the Amended Complaint is materially identical to that set forth in the original complaint, as summarized in Section II above.

C. Motion to Dismiss — Denied as Moot

On December 16, 2022, the Court issued a text order denying Stonefield's Motion to Dismiss without prejudice as moot, in light of the filing of the Amended Complaint on December 2, 2022. This is a routine procedural outcome that occurs when an amended pleading supersedes the original complaint against which the motion was directed.

It is important to note that this denial does not reflect any determination by the Court on the merits of the arguments raised in the Motion to Dismiss. The Court did not address the substance of Stonefield's arguments regarding the enforceability of the liquidated damages clause or the adequacy of the lost profits allegations. These arguments remain fully available to Stonefield and may be reasserted in a renewed motion to dismiss directed at the Amended Complaint, or alternatively, at the summary judgment stage, as defense counsel determines to be strategically appropriate.

VI. Stonefield's Defenses — Summary

Set forth below is a summary of the principal defenses that Stonefield intends to assert in this litigation. Certain of these defenses were raised in the original Motion to Dismiss discussed above, and all of them will be formally asserted in Stonefield's forthcoming Answer and Affirmative Defenses to the Amended Complaint. This summary is provided for informational purposes and should not be construed as an exhaustive listing of all available defenses.

1. Valid Termination for Cause. Stonefield maintains that its termination of the TSA was valid and proper under Section 13.1(a). VTS's service failures across all five SLOs during Q4 2021 were sustained, severe, and pervasive, as detailed in Section II above. The failures were not isolated or marginal; they reflected a systemic breakdown in VTS's ability to perform its obligations under the TSA. VTS received a written Cure Notice specifying the deficiencies and was afforded the full thirty-day cure period mandated by the agreement. VTS failed to cure within that period, and Stonefield thereafter exercised its contractual right to terminate. The termination was not pretextual; it was a lawful exercise of a contractual remedy in response to documented and undisputed performance failures.

2. Force Majeure / No Volume Shortfall Breach. With respect to Vantor's newly asserted volume shortfall claims, Stonefield properly invoked the force majeure provision in Section 12.1 of the TSA in connection with the extraordinary impact of the COVID-19 pandemic on freight demand during the period from April through September 2020. Stonefield provided timely written notice of force majeure as required by the TSA. After applying the contractual adjustments provided for under Section 12.1, the adjusted ACV for Contract Year 2 was approximately $21.6 million. Stonefield's actual tenders in Contract Year 2 totaled approximately $31.8 million, which exceeded the adjusted ACV by approximately $10.2 million. Accordingly, Stonefield did not breach the volume commitment in Contract Year 2 after proper adjustment for the force majeure period. Similar analyses apply to Contract Year 3, where volume adjustments and market conditions are expected to rebut Vantor's shortfall claims.

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

4. Liquidated Damages Unenforceable as Penalty. As argued in the Motion to Dismiss, the liquidated damages formula in Section 14.2 of the TSA produces a grossly disproportionate result that is not reasonably related to Vantor's anticipated or actual harm. Under well-established New York law, a liquidated damages clause that functions as a penalty — rather than as a reasonable estimate of anticipated damages — is unenforceable. The $67.23 million figure produced by the formula vastly exceeds any plausible calculation of Vantor's actual damages, and actual damages were readily ascertainable at the time of contracting given the mature and transparent nature of the truckload freight market.

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

6. Contributory Breach / First-to-Breach Doctrine. The evidence is expected to demonstrate that VTS's performance failures in Q4 2021 were not the result of external factors or resource constraints, but were caused by VTS's own intentional redeployment of dedicated fleet capacity away from Stonefield lanes to other, more profitable accounts. VTS's internal fleet allocation records are expected to show that VTS deliberately reduced the number of tractors and drivers assigned to Stonefield dedicated lanes during Q4 2021 in order to service spot market opportunities. Under the first-to-breach doctrine and principles of contributory fault, VTS's own conduct bars or limits recovery.

Based on the foregoing, and on the advice of defense counsel, Stonefield's management continues to believe that Vantor's claims lack merit. Stonefield intends to vigorously defend the action through all available means, including renewed dispositive motions and, if necessary, trial.

VII. Upcoming Anticipated Developments

The following developments are anticipated in the first quarter of 2023 and beyond.

A. Answer and Counterclaim

Stonefield's Answer and Affirmative Defenses to the Amended Complaint are currently in preparation by C&H and are expected to be filed in January 2023, within the time permitted by the Federal Rules of Civil Procedure. In addition to asserting the affirmative defenses summarized in Section VI above, Stonefield intends to assert a counterclaim seeking a declaratory judgment that (a) the termination of the TSA was valid and for Cause under Section 13.1(a), (b) no liquidated damages are owed under Section 14.2 of the TSA, and (c) the liquidated damages clause is unenforceable as a penalty under New York law. The counterclaim will seek to resolve these threshold legal issues in Stonefield's favor, potentially narrowing or eliminating Vantor's damages claims early in the proceedings.

B. Initial Pretrial Conference

An Initial Pretrial Conference before Judge Calloway is anticipated to be scheduled in the first quarter of 2023, likely in February or March. At the Initial Pretrial Conference, the Court is expected to enter a Case Management Order establishing a schedule for fact and expert discovery, dispositive motions, and trial. We will promptly advise Lakeshore of the key dates once the Case Management Order is entered.

C. Discovery. Document discovery is anticipated to commence in Q1 2023, following entry of the Case Management Order. Stonefield has taken proactive steps to prepare for the discovery phase of the litigation. Specifically:

• Stonefield has engaged Pinnacle Forensics LLC as its eDiscovery vendor for document processing, hosting, and review in connection with this matter (Project ID: PF-SLG-2022-0914). Pinnacle has already begun working with C&H to identify relevant custodians, develop search terms, and establish review protocols. Stonefield's litigation hold was issued on August 15, 2022, shortly after the complaint was filed, and is being actively monitored and enforced.

• Stonefield is also in the process of retaining a damages rebuttal expert to challenge Vantor's claimed $95.4 million in damages. Defense counsel has identified qualified candidates with expertise in transportation industry economics and damages analysis and expects to formalize the engagement in Q1 2023. The rebuttal expert will be tasked with analyzing Vantor's damages model, identifying methodological flaws, and presenting an alternative damages analysis.

VIII. Financial Exposure Assessment

As noted above, Vantor's Amended Complaint seeks total damages of approximately $95.4 million. The following is management's current assessment of the financial exposure associated with this litigation.

Likelihood of Adverse Outcome. Based on the advice of defense counsel and management's independent analysis of the underlying facts and applicable law, Stonefield's management continues to assess the likelihood of a material adverse outcome in this litigation as remote. Stonefield has strong defenses on both liability and damages, as summarized in Section VI above. The termination of the TSA was based on documented and severe performance failures by VTS, the liquidated damages clause presents significant enforceability issues under New York law, and Vantor's newly asserted volume shortfall and exclusivity claims are rebutted by the contractual provisions and operational records.

Alternative Damages Analysis. Even in the event the Court were to find that Stonefield wrongfully terminated the TSA — a result that Stonefield firmly disputes and expects to avoid — the rebuttal expert analysis being developed is expected to demonstrate that Stonefield's maximum realistic exposure would be substantially below the $95.4 million claimed by Vantor. Preliminary analysis conducted by C&H, in consultation with potential expert witnesses, suggests that a worst-case alternative damages figure, calculated under a properly applied lost profits methodology and accounting for Vantor's duty to mitigate, would fall in the range of approximately $8.2 million. This figure represents an early, preliminary estimate and is subject to further refinement as discovery progresses and the damages rebuttal expert completes its analysis.

Accounting Treatment. Consistent with applicable accounting standards, including ASC 450 (Contingencies), no accrual or reserve has been established at this time in connection with this litigation. The matter is disclosed as a contingent liability in Stonefield's financial statements. This treatment reflects management's assessment that the likelihood of a material adverse outcome is remote and that any potential loss is not currently probable or reasonably estimable at a level that would warrant accrual. The Company's independent auditors have been advised of the litigation and concur with this treatment at this time. The accounting treatment will be reassessed on a quarterly basis as the litigation progresses.

Defense Costs. Defense costs incurred through Q4 2022, consisting of legal fees and disbursements paid or accrued to Calderwood & Harkness LLP and related vendors, total approximately $529,430, broken down as follows:

Defense costs are expected to increase materially in 2023 as the case enters the discovery phase, expert retention is formalized, and additional motion practice is undertaken. We will continue to report defense costs in each quarterly update.

IX. Impact on Credit Facility

Stonefield confirms that this litigation does not currently affect availability under the revolving credit facility or the Company's compliance with any financial covenants under the Credit Agreement. The Company has adequate liquidity and financial resources to manage the defense of this action and any reasonably foreseeable outcome without adverse impact on the Facility.

No Event of Default, as defined under Article VII of the Credit Agreement, has occurred or is continuing as a result of this litigation. The commencement of the litigation does not, in and of itself, constitute an Event of Default, and no judgment has been entered against Stonefield in connection with this matter.

Stonefield remains in full compliance with its reporting obligations under Section 6.03(b) of the Credit Agreement. This quarterly update is provided consistent with those obligations and the agreement reached with Lakeshore in its August 30, 2022 acknowledgment letter.

X. Next Quarterly Update

The next quarterly litigation status update will be provided on or about April 2023, covering material developments through the first quarter of 2023. That update is expected to address, among other things, the filing of Stonefield's Answer and Counterclaim, the outcome of the Initial Pretrial Conference, the entry of the Case Management Order, and the commencement of discovery.

In addition to the regularly scheduled quarterly updates, Stonefield will promptly notify Lakeshore of any material developments occurring between scheduled updates, including without limitation any court rulings on dispositive motions, any settlement discussions or proposals, any material changes to the damages assessment, and any development that could reasonably be expected to affect the Company's financial position or its compliance with the terms of the Credit Agreement.

XI. Closing

Should you have any questions regarding the contents of this update, or if you require any additional information in connection with this matter, please do not hesitate to contact me directly at Stonefield Logistics Group Inc., 4200 Commerce Parkway, Suite 800, Fort Worth, Texas 76102, telephone (817) 555-4200, email twren@stonefieldlogistics.com. You may also direct questions to Samuel Eklund, Partner, Calderwood & Harkness LLP, 200 Park Avenue, 38th Floor, New York, New York 10166, telephone (212) 555-7300, email seklund@calderwoodharkness.com.

We appreciate Lakeshore's continued support and will continue to keep you fully informed as this matter progresses.

Respectfully submitted,

STONEFIELD LOGISTICS GROUP INC.

By: ________

Tobias Wren General Counsel Stonefield Logistics Group Inc. 4200 Commerce Parkway, Suite 800 Fort Worth, Texas 76102

Date: January 12, 2023

This letter has been reviewed by Calderwood & Harkness LLP, defense counsel for Stonefield Logistics Group Inc. in the referenced litigation.

CONFIDENTIALITY NOTICE: This letter and all attachments hereto are confidential and privileged communications prepared at the direction of counsel and are protected by the attorney-client privilege, the work product doctrine, and any other applicable privileges and protections. This letter is provided to Lakeshore National Bank solely in its capacity as Administrative Agent under the Credit Agreement and solely for purposes of compliance with the reporting obligations set forth in Section 6.03(b) thereof. Receipt of this letter does not constitute a waiver of any privilege or protection. This letter and its contents may not be disclosed, distributed, or reproduced, in whole or in part, to any third party without the prior written consent of Stonefield Logistics Group Inc. and Calderwood & Harkness LLP. If you have received this communication in error, please notify the sender immediately and destroy all copies.

cc: Samuel Eklund, Calderwood & Harkness LLP (via email — privileged) Patrick Gallagher, Calderwood & Harkness LLP (via email — privileged) Margaret Huang, Chief Financial Officer, Stonefield Logistics Group Inc. (via email — privileged)

Service Level Obligation	Contractual SLO	VTS Actual (Q4 2021)	Shortfall
On-Time Pickup Rate	95.0%	78.2%	-16.8 pts
On-Time Delivery Rate	93.0%	81.6%	-11.4 pts
Tender Acceptance Rate	90.0%	71.4%	-18.6 pts
Equipment Availability	85.0%	62.0%	-23.0 pts
Cargo Claims Ratio	≤ 0.5%	1.07%	+0.57 pts
Damages Category	Claimed Amount
Liquidated Damages (Section 14.2 of the TSA: 75% × ACV × remaining term)	$67,230,000
Lost Profits	$18,700,000
Stranded Asset Costs	$5,200,000
Workforce Reduction Costs	$2,870,000
Mitigation Costs	$1,400,000
Total Claimed Damages	$95,400,000
Category	Amount
Legal Fees (C&H)	$487,250
Disbursements (filing fees, research, travel, eDiscovery vendor costs)	$42,180
Total Defense Costs (through Q4 2022)	$529,430

CONFIDENTIAL — SUBJECT TO ATTORNEY-CLIENT PRIVILEGE PREPARED AT THE DIRECTION OF COUNSEL — DO NOT DISTRIBUTE
January 12, 2023
STONEFIELD LOGISTICS GROUP INC. 4200 Commerce Parkway, Suite 800 Fort Worth, Texas 76102
VIA ELECTRONIC MAIL AND CERTIFIED MAIL
Catherine Devereaux Senior Vice President, Loan Administration Lakeshore National Bank 135 South LaSalle Street Chicago, Illinois 60603
Re: Quarterly Litigation Status Update — Vantor Holdings Corp. v. Stonefield Logistics Group Inc., Case No. 22-cv-07841 (S.D.N.Y.)
Credit Agreement dated October 12, 2017 (as amended and restated June 30, 2021) Ref. No. LNB-SLG-2017-CA-4402 — Section 6.03(b) Reporting Obligation
Dear Ms. Devereaux:
I. Introduction and Purpose
This letter is submitted on behalf of Stonefield Logistics Group Inc. ("Stonefield" or the "Company") and constitutes the first quarterly litigation status update in connection with the above-referenced matter. As you will recall, on August 24, 2022, I provided written notification to you, in my capacity as General Counsel of Stonefield, pursuant to Section 6.03(b) of the Credit Agreement dated October 12, 2017 (as amended and restated June 30, 2021) between Stonefield Logistics Group Inc., as Borrower, and Lakeshore National Bank, as Administrative Agent (Ref. No. LNB-SLG-2017-CA-4402) (the "Credit Agreement"), advising Lakeshore National Bank ("Lakeshore" or the "Bank") of the commencement of litigation involving potential liability in excess of the $25 million notification threshold set forth in that section.
By letter dated August 30, 2022, Lakeshore acknowledged receipt of the initial notification and requested that Stonefield provide quarterly litigation status updates regarding the matter, to be delivered in writing within fifteen (15) days following the close of each fiscal quarter, until the matter is resolved or otherwise disposed of. Stonefield agreed to that request and has undertaken to comply with it.
This letter constitutes the first such quarterly update and covers the period from the date of initial notification through the end of the fourth quarter of 2022 — that is, the period from approximately August 24, 2022 through December 31, 2022. This update is provided in connection with the Company's obligations under the $425 million Senior Secured Credit Facility (the "Facility"), which consists of a $175 million revolving credit facility and a $250 million term loan B, with Lakeshore National Bank serving as Administrative Agent for the syndicated lender group.
This letter has been prepared under the direction of, and reviewed by, Calderwood & Harkness LLP, defense counsel for Stonefield in the referenced litigation. Patrick Gallagher, Lead Associate at Calderwood & Harkness LLP, has reviewed this update for accuracy and completeness. The contents of this letter are protected by the attorney-client privilege and the work product doctrine, and disclosure to Lakeshore is made in confidence pursuant to the common interest and reporting obligations established under the Credit Agreement. This letter should not be disclosed to any third party without the prior written consent of Stonefield.
II. Case Overview and Background
For ease of reference, and to ensure that this update is self-contained, we restate below the essential background of the litigation.
Filing and Assignment. On August 12, 2022, Vantor Holdings Corp. ("Vantor") filed a civil complaint against Stonefield Logistics Group Inc. in the United States District Court for the Southern District of New York. The matter has been assigned Case No. 22-cv-07841 and is before the Honorable Margaret T. Calloway, United States District Judge.
Nature of Claims. Vantor alleges that Stonefield wrongfully terminated a five-year Transportation Services Agreement dated March 15, 2019 (the "TSA," Contract Ref. No. SLG-VTS-2019-0315) between Stonefield and Vantor Transport Services LLC ("VTS"), a wholly owned operating subsidiary of Vantor Holdings Corp. The TSA was a transportation services arrangement under which VTS provided dedicated and on-demand truckload services across Stonefield's national distribution network. The TSA had a term commencing on April 1, 2019 and running through March 31, 2024, with an annual committed volume ("ACV") of $43.2 million. The ACV represented the minimum level of transportation services volume that Stonefield committed to tender to VTS during each contract year of the agreement, subject to certain adjustments set forth in the TSA.
Stonefield's Termination of the TSA. On January 18, 2022, Stonefield delivered a written Cure Notice to VTS pursuant to Section 13.1(a) of the TSA, identifying material failures by VTS to meet Service Level Obligations ("SLOs") during the fourth quarter of 2021 (October through December 2021). The Cure Notice specified the following performance deficiencies:
VTS failed across all five measured SLOs, in certain cases by significant margins. As reflected in the table above, the shortfalls ranged from 11.4 percentage points (on-time delivery) to 23.0 percentage points (equipment availability), and the cargo claims ratio was more than double the contractual maximum.
The Cure Notice provided VTS with a thirty (30) day cure period, as required under Section 13.1(a) of the TSA, expiring on February 17, 2022. VTS did not cure the identified deficiencies within the cure period, nor did VTS deliver any written response to the Cure Notice disputing the accuracy of the performance data or contesting the materiality of the service failures. Accordingly, on March 4, 2022, Stonefield terminated the TSA effective immediately, citing VTS's uncured material breach under Section 13.1(a).
Claimed Damages. Vantor's complaint seeks approximately $95.4 million in total damages, broken down as follows:
The bulk of the claimed damages ($67.23 million) derives from a liquidated damages provision set forth in Section 14.2 of the TSA, which purports to calculate early termination damages as 75% of the ACV multiplied by the number of years remaining in the contract term. Vantor contends that, at the time of termination, approximately 2.08 years remained on the TSA (from March 4, 2022 to March 31, 2024), yielding the claimed liquidated damages figure. The remaining claims total approximately $28.17 million and encompass alleged lost profits, stranded asset costs relating to equipment and facilities dedicated to the Stonefield account, workforce reduction costs, and mitigation-related expenses.
The total claimed damages of approximately $95.4 million significantly exceed the $25 million notification threshold established under Section 6.03(b) of the Credit Agreement, which gave rise to our initial notification letter of August 24, 2022.
III. Engagement of Defense Counsel
Following the filing of Vantor's complaint, Stonefield retained Calderwood & Harkness LLP ("C&H") as lead defense counsel for this matter. The engagement became effective on September 1, 2022, and has been assigned C&H Matter No. 1012-00005. The responsible partner at C&H is Samuel Eklund, a senior litigation partner in the firm's New York office with extensive experience in complex commercial litigation and transportation industry disputes. The lead associate assigned to the matter is Patrick Gallagher, who has been actively involved in all aspects of the defense effort and has reviewed this update.
C&H filed its Notice of Appearance on behalf of Stonefield on September 8, 2022, and has been actively managing the defense since that date. All substantive communications with the Court, opposing counsel, and third parties are being coordinated through C&H.
IV. Insurance Coverage Status
On September 6, 2022, Stonefield tendered the Vantor claims to Graymark Insurance Company ("Graymark") under Stonefield's Directors & Officers liability insurance policy, Policy No. GLG-DO-1025-00008, which carries a $15 million aggregate limit. This tender was made promptly following engagement of defense counsel and consistent with Stonefield's practice of tendering significant claims under all potentially applicable policies.
On October 3, 2022, Graymark issued a formal coverage determination letter declining coverage for the Vantor claims. Graymark determined that the claims asserted by Vantor arise from a commercial contract dispute — specifically, the alleged wrongful termination of the TSA — and fall squarely within the policy's contractual liability exclusion. Graymark concluded that the claims do not arise from "wrongful acts" of directors or officers as defined under the policy and, therefore, are not covered under the D&O policy.
Stonefield's Commercial General Liability policy, issued by Brindoval Mutual Insurance Co. under Policy No. CGL-SLG-2022-11902, was also evaluated for potential coverage. That policy does not provide coverage for breach of contract claims or claims arising from the performance or non-performance of contractual obligations, and accordingly does not respond to the Vantor claims.
Stonefield has evaluated all other potentially applicable insurance policies and has concluded that no insurance coverage is available for this matter. Accordingly, Stonefield will bear defense costs and any potential liability directly and without insurance reimbursement. We will promptly notify Lakeshore if this assessment changes at any point during the course of the litigation.
V. Litigation Developments During Q4 2022
The following is a summary of material developments in the litigation during the fourth quarter of 2022.
A. Motion to Dismiss (Filed October 14, 2022)
On October 14, 2022, C&H filed a Motion to Dismiss on behalf of Stonefield pursuant to Federal Rule of Civil Procedure 12(b)(6), seeking dismissal of two categories of claims asserted in Vantor's original complaint.
The Motion to Dismiss advanced the following principal arguments:
(i) Liquidated Damages Clause Constitutes an Unenforceable Penalty. The Motion argued that the liquidated damages provision in Section 14.2 of the TSA is unenforceable as a matter of New York law because actual damages arising from early termination of a transportation services agreement were readily ascertainable at the time of contracting. Stonefield argued that both parties to the TSA are sophisticated commercial entities operating in a mature freight market with established pricing benchmarks and publicly available market data, making it straightforward to calculate actual damages from termination with reasonable certainty at the time the TSA was executed. The Motion further argued that the liquidated damages formula — 75% of the ACV multiplied by the remaining contract term — produces a grossly disproportionate result that bears no reasonable relationship to Vantor's anticipated or actual harm. Specifically, the formula yields a figure of $67.23 million, a sum that Stonefield contends vastly exceeds any plausible measure of Vantor's actual economic loss, particularly given Vantor's ability to redeploy assets and capacity to other customers in the active freight market.
(ii) Inadequate Pleading of Lost Profits. The Motion argued that Vantor's lost profits claim of $18.7 million was inadequately pled under applicable pleading standards. Stonefield contended that the complaint failed to allege lost profits with the requisite certainty, offering only conclusory assertions of lost revenue without identifying the specific business opportunities allegedly lost, the basis for the lost profits calculation, or any factual foundation demonstrating that the claimed lost profits were foreseeable, non-speculative, and causally connected to the alleged wrongful termination.
On November 18, 2022, Vantor filed its opposition to Stonefield's Motion to Dismiss. The opposition papers argued, among other things, that the liquidated damages clause was the product of arm's-length negotiation between sophisticated parties and is enforceable under New York's well-established standards, and that the lost profits claim was adequately pled at the motion to dismiss stage, where Vantor need only plausibly allege — not prove — damages.
The Motion to Dismiss was fully briefed as of November 18, 2022 and was pending before the Court at the time the Amended Complaint was filed, as discussed below.
B. Amended Complaint (Filed December 2, 2022)
On December 2, 2022, Vantor filed an Amended Complaint as of right under Federal Rule of Civil Procedure 15(a)(1), which permits a party to amend its pleading once as a matter of course within twenty-one (21) days after service of a responsive pleading or a motion under Rule 12. Vantor's filing was timely under this rule.
The Amended Complaint retains all of the claims and allegations set forth in the original complaint and adds several new factual allegations and theories. Specifically, the Amended Complaint adds the following material allegations:
(1) Volume Shortfall Claims. Vantor now alleges that Stonefield failed to tender the minimum annual committed volume under the TSA in Contract Years 2 and 3 (approximately April 2020 through March 2022). Vantor alleges that Stonefield's actual tender volumes fell short of the ACV by approximately $11.4 million in Contract Year 2 (April 2020 through March 2021) and by approximately $6.7 million in Contract Year 3 (April 2021 through March 2022). Vantor characterizes these shortfalls as independent breaches of the TSA entitling VTS to damages separate and apart from any termination-related claims.
(2) Freight Diversion and Exclusivity Violations. Vantor alleges that Stonefield improperly diverted freight to competing carriers — specifically, Cascade Freight Systems Inc. and Briarwood Trucking Co. — in alleged violation of the exclusivity provisions set forth in Section 5.3 of the TSA. Vantor contends that these diversions occurred during Contract Years 2 and 3 and contributed to the volume shortfalls described above.
(3) Pretextual Termination. Vantor alleges that Stonefield's purported termination for Cause was pretextual and was in fact motivated by Stonefield's desire to avoid a projected 14.3% rate increase that was scheduled to take effect on April 1, 2022 under the TSA's Rate Adjustment Mechanism set forth in Section 7.4 and Schedule D. Vantor alleges that Stonefield had been seeking to renegotiate rates for several months prior to issuing the Cure Notice and that the timing of the termination was calculated to avoid the rate increase.
(4) Causation Defense to SLO Failures. Vantor further alleges, in response to Stonefield's reliance on VTS's SLO failures as the basis for termination, that VTS's performance deficiencies were caused or substantially contributed to by Stonefield's own volume shortfalls and freight diversion practices. Vantor contends that by failing to provide the committed volume and by diverting freight to competing carriers, Stonefield deprived VTS of the operational scale and lane density necessary to maintain the contracted service levels, thereby rendering the SLO failures a consequence of Stonefield's own conduct rather than an independent basis for termination.
Notwithstanding the addition of these new factual allegations and theories, the total damages claimed in the Amended Complaint remain approximately $95.4 million. The damages breakdown in the Amended Complaint is materially identical to that set forth in the original complaint, as summarized in Section II above.
C. Motion to Dismiss — Denied as Moot
On December 16, 2022, the Court issued a text order denying Stonefield's Motion to Dismiss without prejudice as moot, in light of the filing of the Amended Complaint on December 2, 2022. This is a routine procedural outcome that occurs when an amended pleading supersedes the original complaint against which the motion was directed.
It is important to note that this denial does not reflect any determination by the Court on the merits of the arguments raised in the Motion to Dismiss. The Court did not address the substance of Stonefield's arguments regarding the enforceability of the liquidated damages clause or the adequacy of the lost profits allegations. These arguments remain fully available to Stonefield and may be reasserted in a renewed motion to dismiss directed at the Amended Complaint, or alternatively, at the summary judgment stage, as defense counsel determines to be strategically appropriate.
VI. Stonefield's Defenses — Summary
Set forth below is a summary of the principal defenses that Stonefield intends to assert in this litigation. Certain of these defenses were raised in the original Motion to Dismiss discussed above, and all of them will be formally asserted in Stonefield's forthcoming Answer and Affirmative Defenses to the Amended Complaint. This summary is provided for informational purposes and should not be construed as an exhaustive listing of all available defenses.
1.  Valid Termination for Cause. Stonefield maintains that its termination of the TSA was valid and proper under Section 13.1(a). VTS's service failures across all five SLOs during Q4 2021 were sustained, severe, and pervasive, as detailed in Section II above. The failures were not isolated or marginal; they reflected a systemic breakdown in VTS's ability to perform its obligations under the TSA. VTS received a written Cure Notice specifying the deficiencies and was afforded the full thirty-day cure period mandated by the agreement. VTS failed to cure within that period, and Stonefield thereafter exercised its contractual right to terminate. The termination was not pretextual; it was a lawful exercise of a contractual remedy in response to documented and undisputed performance failures.
2.  Force Majeure / No Volume Shortfall Breach. With respect to Vantor's newly asserted volume shortfall claims, Stonefield properly invoked the force majeure provision in Section 12.1 of the TSA in connection with the extraordinary impact of the COVID-19 pandemic on freight demand during the period from April through September 2020. Stonefield provided timely written notice of force majeure as required by the TSA. After applying the contractual adjustments provided for under Section 12.1, the adjusted ACV for Contract Year 2 was approximately $21.6 million. Stonefield's actual tenders in Contract Year 2 totaled approximately $31.8 million, which exceeded the adjusted ACV by approximately $10.2 million. Accordingly, Stonefield did not breach the volume commitment in Contract Year 2 after proper adjustment for the force majeure period. Similar analyses apply to Contract Year 3, where volume adjustments and market conditions are expected to rebut Vantor's shortfall claims.
3.  No Exclusivity Violation. Vantor's allegations regarding freight diversion to Cascade Freight Systems Inc. and Briarwood Trucking Co. are without merit. Stonefield's use of these carriers was limited to Lanes 8 through 14, which are designated as "Secondary Lanes" under Schedule C to the TSA. The exclusivity restrictions set forth in Section 5.3 of the TSA apply only to the fourteen (14) "Primary Lanes" identified in Schedule C. The TSA expressly permits Stonefield to utilize alternative carriers for Secondary Lanes, and Stonefield's use of Cascade and Briarwood for those lanes was fully consistent with the terms of the agreement.
4.  Liquidated Damages Unenforceable as Penalty. As argued in the Motion to Dismiss, the liquidated damages formula in Section 14.2 of the TSA produces a grossly disproportionate result that is not reasonably related to Vantor's anticipated or actual harm. Under well-established New York law, a liquidated damages clause that functions as a penalty — rather than as a reasonable estimate of anticipated damages — is unenforceable. The $67.23 million figure produced by the formula vastly exceeds any plausible calculation of Vantor's actual damages, and actual damages were readily ascertainable at the time of contracting given the mature and transparent nature of the truckload freight market.
5.  Failure to Mitigate. Vantor had a duty under applicable law to take reasonable steps to mitigate its damages following termination of the TSA. The evidence is expected to show that Vantor made no meaningful efforts to replace the Stonefield volume, despite highly favorable freight market conditions throughout 2022 that presented ample opportunities to redeploy VTS's fleet capacity and secure replacement business. Vantor's failure to mitigate should substantially reduce — or eliminate — any damages award.
6.  Contributory Breach / First-to-Breach Doctrine. The evidence is expected to demonstrate that VTS's performance failures in Q4 2021 were not the result of external factors or resource constraints, but were caused by VTS's own intentional redeployment of dedicated fleet capacity away from Stonefield lanes to other, more profitable accounts. VTS's internal fleet allocation records are expected to show that VTS deliberately reduced the number of tractors and drivers assigned to Stonefield dedicated lanes during Q4 2021 in order to service spot market opportunities. Under the first-to-breach doctrine and principles of contributory fault, VTS's own conduct bars or limits recovery.
Based on the foregoing, and on the advice of defense counsel, Stonefield's management continues to believe that Vantor's claims lack merit. Stonefield intends to vigorously defend the action through all available means, including renewed dispositive motions and, if necessary, trial.
VII. Upcoming Anticipated Developments
The following developments are anticipated in the first quarter of 2023 and beyond.
A. Answer and Counterclaim
Stonefield's Answer and Affirmative Defenses to the Amended Complaint are currently in preparation by C&H and are expected to be filed in January 2023, within the time permitted by the Federal Rules of Civil Procedure. In addition to asserting the affirmative defenses summarized in Section VI above, Stonefield intends to assert a counterclaim seeking a declaratory judgment that (a) the termination of the TSA was valid and for Cause under Section 13.1(a), (b) no liquidated damages are owed under Section 14.2 of the TSA, and (c) the liquidated damages clause is unenforceable as a penalty under New York law. The counterclaim will seek to resolve these threshold legal issues in Stonefield's favor, potentially narrowing or eliminating Vantor's damages claims early in the proceedings.
B. Initial Pretrial Conference
An Initial Pretrial Conference before Judge Calloway is anticipated to be scheduled in the first quarter of 2023, likely in February or March. At the Initial Pretrial Conference, the Court is expected to enter a Case Management Order establishing a schedule for fact and expert discovery, dispositive motions, and trial. We will promptly advise Lakeshore of the key dates once the Case Management Order is entered.
C. Discovery.  Document discovery is anticipated to commence in Q1 2023, following entry of the Case Management Order. Stonefield has taken proactive steps to prepare for the discovery phase of the litigation. Specifically:
•  Stonefield has engaged Pinnacle Forensics LLC as its eDiscovery vendor for document processing, hosting, and review in connection with this matter (Project ID: PF-SLG-2022-0914). Pinnacle has already begun working with C&H to identify relevant custodians, develop search terms, and establish review protocols. Stonefield's litigation hold was issued on August 15, 2022, shortly after the complaint was filed, and is being actively monitored and enforced.
•  Stonefield is also in the process of retaining a damages rebuttal expert to challenge Vantor's claimed $95.4 million in damages. Defense counsel has identified qualified candidates with expertise in transportation industry economics and damages analysis and expects to formalize the engagement in Q1 2023. The rebuttal expert will be tasked with analyzing Vantor's damages model, identifying methodological flaws, and presenting an alternative damages analysis.
VIII. Financial Exposure Assessment
As noted above, Vantor's Amended Complaint seeks total damages of approximately $95.4 million. The following is management's current assessment of the financial exposure associated with this litigation.
Likelihood of Adverse Outcome. Based on the advice of defense counsel and management's independent analysis of the underlying facts and applicable law, Stonefield's management continues to assess the likelihood of a material adverse outcome in this litigation as remote. Stonefield has strong defenses on both liability and damages, as summarized in Section VI above. The termination of the TSA was based on documented and severe performance failures by VTS, the liquidated damages clause presents significant enforceability issues under New York law, and Vantor's newly asserted volume shortfall and exclusivity claims are rebutted by the contractual provisions and operational records.
Alternative Damages Analysis. Even in the event the Court were to find that Stonefield wrongfully terminated the TSA — a result that Stonefield firmly disputes and expects to avoid — the rebuttal expert analysis being developed is expected to demonstrate that Stonefield's maximum realistic exposure would be substantially below the $95.4 million claimed by Vantor. Preliminary analysis conducted by C&H, in consultation with potential expert witnesses, suggests that a worst-case alternative damages figure, calculated under a properly applied lost profits methodology and accounting for Vantor's duty to mitigate, would fall in the range of approximately $8.2 million. This figure represents an early, preliminary estimate and is subject to further refinement as discovery progresses and the damages rebuttal expert completes its analysis.
Accounting Treatment. Consistent with applicable accounting standards, including ASC 450 (Contingencies), no accrual or reserve has been established at this time in connection with this litigation. The matter is disclosed as a contingent liability in Stonefield's financial statements. This treatment reflects management's assessment that the likelihood of a material adverse outcome is remote and that any potential loss is not currently probable or reasonably estimable at a level that would warrant accrual. The Company's independent auditors have been advised of the litigation and concur with this treatment at this time. The accounting treatment will be reassessed on a quarterly basis as the litigation progresses.
Defense Costs. Defense costs incurred through Q4 2022, consisting of legal fees and disbursements paid or accrued to Calderwood & Harkness LLP and related vendors, total approximately $529,430, broken down as follows:
Defense costs are expected to increase materially in 2023 as the case enters the discovery phase, expert retention is formalized, and additional motion practice is undertaken. We will continue to report defense costs in each quarterly update.
IX. Impact on Credit Facility
Stonefield confirms that this litigation does not currently affect availability under the revolving credit facility or the Company's compliance with any financial covenants under the Credit Agreement. The Company has adequate liquidity and financial resources to manage the defense of this action and any reasonably foreseeable outcome without adverse impact on the Facility.
No Event of Default, as defined under Article VII of the Credit Agreement, has occurred or is continuing as a result of this litigation. The commencement of the litigation does not, in and of itself, constitute an Event of Default, and no judgment has been entered against Stonefield in connection with this matter.
Stonefield remains in full compliance with its reporting obligations under Section 6.03(b) of the Credit Agreement. This quarterly update is provided consistent with those obligations and the agreement reached with Lakeshore in its August 30, 2022 acknowledgment letter.
X. Next Quarterly Update
The next quarterly litigation status update will be provided on or about April 2023, covering material developments through the first quarter of 2023. That update is expected to address, among other things, the filing of Stonefield's Answer and Counterclaim, the outcome of the Initial Pretrial Conference, the entry of the Case Management Order, and the commencement of discovery.
In addition to the regularly scheduled quarterly updates, Stonefield will promptly notify Lakeshore of any material developments occurring between scheduled updates, including without limitation any court rulings on dispositive motions, any settlement discussions or proposals, any material changes to the damages assessment, and any development that could reasonably be expected to affect the Company's financial position or its compliance with the terms of the Credit Agreement.
XI. Closing
Should you have any questions regarding the contents of this update, or if you require any additional information in connection with this matter, please do not hesitate to contact me directly at Stonefield Logistics Group Inc., 4200 Commerce Parkway, Suite 800, Fort Worth, Texas 76102, telephone (817) 555-4200, email twren@stonefieldlogistics.com. You may also direct questions to Samuel Eklund, Partner, Calderwood & Harkness LLP, 200 Park Avenue, 38th Floor, New York, New York 10166, telephone (212) 555-7300, email seklund@calderwoodharkness.com.
We appreciate Lakeshore's continued support and will continue to keep you fully informed as this matter progresses.
Respectfully submitted,
STONEFIELD LOGISTICS GROUP INC.
By: ________
Tobias Wren General Counsel Stonefield Logistics Group Inc. 4200 Commerce Parkway, Suite 800 Fort Worth, Texas 76102
Date: January 12, 2023
This letter has been reviewed by Calderwood & Harkness LLP, defense counsel for Stonefield Logistics Group Inc. in the referenced litigation.
CONFIDENTIALITY NOTICE: This letter and all attachments hereto are confidential and privileged communications prepared at the direction of counsel and are protected by the attorney-client privilege, the work product doctrine, and any other applicable privileges and protections. This letter is provided to Lakeshore National Bank solely in its capacity as Administrative Agent under the Credit Agreement and solely for purposes of compliance with the reporting obligations set forth in Section 6.03(b) thereof. Receipt of this letter does not constitute a waiver of any privilege or protection. This letter and its contents may not be disclosed, distributed, or reproduced, in whole or in part, to any third party without the prior written consent of Stonefield Logistics Group Inc. and Calderwood & Harkness LLP. If you have received this communication in error, please notify the sender immediately and destroy all copies.
cc: Samuel Eklund, Calderwood & Harkness LLP (via email — privileged) Patrick Gallagher, Calderwood & Harkness LLP (via email — privileged) Margaret Huang, Chief Financial Officer, Stonefield Logistics Group Inc. (via email — privileged)
Service Level Obligation | Contractual SLO | VTS Actual (Q4 2021) | Shortfall
On-Time Pickup Rate | 95.0% | 78.2% | -16.8 pts
On-Time Delivery Rate | 93.0% | 81.6% | -11.4 pts
Tender Acceptance Rate | 90.0% | 71.4% | -18.6 pts
Equipment Availability | 85.0% | 62.0% | -23.0 pts
Cargo Claims Ratio | ≤ 0.5% | 1.07% | +0.57 pts
Damages Category | Claimed Amount
Liquidated Damages (Section 14.2 of the TSA: 75% × ACV × remaining term) | $67,230,000
Lost Profits | $18,700,000
Stranded Asset Costs | $5,200,000
Workforce Reduction Costs | $2,870,000
Mitigation Costs | $1,400,000
Total Claimed Damages | $95,400,000
Category | Amount
Legal Fees (C&H) | $487,250
Disbursements (filing fees, research, travel, eDiscovery vendor costs) | $42,180
Total Defense Costs (through Q4 2022) | $529,430

CONFIDENTIAL — SUBJECT TO ATTORNEY-CLIENT PRIVILEGE PREPARED AT THE DIRECTION OF COUNSEL — DO NOT DISTRIBUTE

VIA ELECTRONIC MAIL AND CERTIFIED MAIL

STONEFIELD LOGISTICS GROUP INC.

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