1016-00009 · Dunmore Energy Holdings · Personnel & Indemnification

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PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGE / ATTORNEY WORK PRODUCT

MEMORANDUM

FROM: Jasmine Thornton, Lead Associate, White Collar & Investigations Practice Group, Calderwood & Harkness LLP

TO: Victoria Chambers, Responsible Partner, White Collar & Investigations Practice Group, Calderwood & Harkness LLP Howard Quinn, Billing Partner, White Collar & Investigations Practice Group, Calderwood & Harkness LLP

DATE: May 5, 2022

RE: Indemnification and Advancement of Defense Costs — Gerald Fisk, Natasha Sorokin, and Derek Hargrave

MATTER NO.: 1016-00009

CLIENT: Dunmore Energy Holdings Ltd.

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I. EXECUTIVE SUMMARY

This memorandum analyzes the obligations of our client, Dunmore Energy Holdings Ltd. ("DEH" or the "Company"), to indemnify and advance defense costs for three key individuals who are or may become subjects or targets of a criminal inquiry opened by the U.S. Department of Justice on April 19, 2022. On that date, the National Security Division, Counterintelligence and Export Control Section ("CES") served grand jury subpoena GJ No. 22-418, issued by the U.S. District Court for the District of Columbia, Grand Jury 22-2, seeking a broad range of transactional and communications records from the Company and its subsidiaries. The investigation concerns potential violations of the International Emergency Economic Powers Act ("IEEPA") and the Export Control Reform Act ("ECRA") arising from crude oil swap transactions and oilfield equipment exports involving counterparties with undisclosed ties to sanctioned Russian entities.

Three individuals occupy the center of the Company's indemnification and advancement analysis:

Gerald Fisk — Former Chief Compliance Officer of Dunmore Energy Holdings Ltd., based in Houston, Texas. As of the date of this memorandum, Fisk remains employed by the Company, although we understand he is expected to depart under internal pressure on or about June 10, 2022. Fisk's potential exposure arises principally from alleged supervisory failures over the Company's sanctions and export controls compliance program, including the failure to implement adequate OFAC screening protocols for the Dubai trading desk and the failure to escalate identified red flags regarding the Petronova Trading FZE counterparty relationship.

Natasha Sorokin — Senior Trader at Dunmore Trading International Ltd. ("DTI"), a DIFC-registered subsidiary of DEH, based in Dubai, UAE. Sorokin is a Russian-American dual national. She was placed on administrative leave on May 16, 2022. Sorokin was directly and personally involved in the transactions at issue, serving as the primary point of contact with Sergei Volkov, Managing Director of Petronova Trading FZE, and directly executing the crude oil swap transactions with Petronova and Zenith Petroleum DMCC that are the subject of the government's inquiry.

Derek Hargrave — President of Dunmore Trading International Ltd. (Dubai). Hargrave supervised the DTI Dubai trading desk from 2017 through 2022 and ran the operations giving rise to the suspect transactions. He authorized and directed the relevant trading activity. As of the date of this memorandum, Hargrave remains actively employed and has not been placed on administrative leave, although we anticipate that his status may change as the investigation progresses.

Based on the analysis set forth below, we conclude that DEH has mandatory obligations to advance defense costs for all three individuals under both the Company's Memorandum and Articles of Association and the individuals' respective employment agreements. These advancement obligations are subject to standard undertaking-to-repay conditions—that is, each individual must execute a written undertaking to repay amounts advanced if it is ultimately determined by final, non-appealable adjudication that the individual is not entitled to indemnification because the individual's conduct constituted willful neglect, willful default, or fraud. At this stage of the investigation, no such determination has been made or is reasonably imminent, and there is no legal basis for the Company to deny or delay advancement of defense costs to any of the three individuals.

The Company's advancement obligations arise from four principal sources:

(a) The Cayman Islands Companies Act (as revised), which provides the permissive statutory framework under which the Company's constitutional documents operate;

(b) The Memorandum and Articles of Association of Dunmore Energy Holdings Ltd., a Cayman Islands exempted company (registration no. MC-334821), which contain mandatory indemnification and advancement provisions for directors, officers, and employees of the Company and its subsidiaries;

(c) The individual employment agreements entered into with each of the three individuals, each of which contains specific indemnification and advancement clauses; and

(d) The Company's Directors and Officers Liability Insurance policy issued by Garrison Mutual Insurance Co. (policy no. GM-DO-2021-08734), which provides Side A and Side B coverage for individual defense costs and may partially offset the Company's advancement expenditures.

We project that total individual counsel fees advanced by the Company for Fisk, Sorokin, and Hargrave will reach approximately $3.4 million over the course of the matter. The Company should honor advancement requests promptly upon receipt, demand execution of standard undertaking-to-repay agreements, and coordinate with Garrison Mutual Insurance Co. regarding whether and to what extent individual defense costs fall within the D&O insurance coverage.

II. FACTUAL BACKGROUND

A. The DOJ Inquiry and the Individuals' Roles

On April 19, 2022, the Department of Justice, through its National Security Division, Counterintelligence and Export Control Section, opened a formal criminal inquiry into the activities of Dunmore Energy Holdings Ltd. and its subsidiaries. The lead prosecutor assigned to the matter is Assistant United States Attorney Meredith Calloway of the U.S. Attorney's Office for the District of Columbia. AUSA Calloway is supported by Trial Attorney Samuel Kovacs and Trial Attorney Diana Pressman, both of CES. The investigating agent is Special Agent Paul Reinhardt of the Federal Bureau of Investigation.

On the same date, the government served grand jury subpoena GJ No. 22-418, issued by the U.S. District Court for the District of Columbia in connection with Grand Jury 22-2. The subpoena seeks the production of all documents related to transactions between the Company (and its subsidiaries and affiliates) and the following entities, from January 1, 2019 forward:

• Petronova Trading FZE (Dubai, UAE);

• Volkhov Industrial Group JSC (Moscow, Russian Federation);

• Zenith Petroleum DMCC (Dubai, UAE); and

• Caspian Logistik GmbH (Hamburg, Germany).

The subpoena encompasses transactional records, correspondence, internal memoranda, compliance screening records, due diligence files, KYC documentation, trade tickets, confirmation letters, payment instructions, and communications with or relating to the named counterparties.

The underlying conduct at issue involves the activities of the DTI Dubai trading desk over a period of approximately two years, from approximately March 2020 through April 2022. During that period, DTI's Dubai trading desk engaged in crude oil swap transactions with an aggregate notional value of approximately $218.7 million, spread across 14 separate transactions, involving Petronova Trading FZE and Zenith Petroleum DMCC as counterparties. In addition, the DTI trading desk facilitated oilfield equipment exports valued at approximately $12.4 million to parties with undisclosed connections to the same network of entities.

The government's theory, as we understand it based on the face of the subpoena and preliminary communications with AUSA Calloway's office, centers on the allegation that Petronova Trading FZE and Zenith Petroleum DMCC served as front companies or intermediary vehicles for Volkhov Industrial Group JSC. Volkhov Industrial Group JSC is a Russian energy conglomerate that was made subject to OFAC Directive 2 under Executive Order 13662 on November 15, 2019, and was subsequently designated as a Specially Designated National ("SDN") and added to the SDN List on April 6, 2022. The government contends that the DTI trading desk knew of or deliberately avoided knowledge of the Volkhov connections and structured its transactions to evade U.S. sanctions restrictions.

Payment structuring is a distinct component of the government's inquiry. Approximately $34.2 million in payments associated with the suspect transactions flowed through 127 separate wire transfers routed through Crescent Commercial Bank PJSC, a Dubai-based financial institution. The pattern of payments—characterized by numerous sub-threshold transfers, split invoicing, and the use of multiple beneficiary accounts—suggests deliberate structuring to avoid detection and regulatory reporting triggers.

The criminal statutes principally at issue are the International Emergency Economic Powers Act, 50 U.S.C. §§ 1701–1706 ("IEEPA"), which prohibits U.S. persons from engaging in transactions that violate U.S. sanctions programs, and the Export Control Reform Act, 50 U.S.C. §§ 4801–4852 ("ECRA"), which governs the export, reexport, and transfer of controlled items and technology. Willful violations of IEEPA carry criminal penalties of up to 20 years' imprisonment and fines of up to $1 million per violation. ECRA violations carry penalties of up to 20 years' imprisonment and fines of up to $1 million or five times the value of the exports involved, whichever is greater.

B. Gerald Fisk

Gerald Fisk holds the position of Chief Compliance Officer of Dunmore Energy Holdings Ltd. He is based at the Company's operational headquarters at 1200 McKinney Street, Suite 3400, Houston, Texas 77010. Fisk joined the Company in September 2016 as Deputy Chief Compliance Officer and was promoted to Chief Compliance Officer in March 2018, succeeding Patricia Edmonds, who departed the Company at that time.

As CCO, Fisk bears global responsibility for the Company's sanctions and export controls compliance program. His mandate encompasses the design, implementation, and oversight of OFAC screening protocols; the maintenance of compliance policies and procedures; the training of personnel across all business units, including the DTI Dubai trading desk; and the escalation of compliance concerns to the General Counsel and, where appropriate, to the Board of Directors.

On April 11, 2022—eight days before the DOJ inquiry was formally opened—Fisk conducted a routine refresh of the Company's OFAC screening results using the Company's automated screening platform (Kestrel Software by Refinitiv). During that screening refresh, Fisk identified potential historical exposure to Volkhov Industrial Group JSC through Petronova Trading FZE. Specifically, the screening results returned a "possible match" alert linking a beneficial owner of Petronova Trading FZE to a known associate of Arkady Volkov, the controlling shareholder of Volkhov Industrial Group JSC. Fisk promptly notified General Counsel Marcus Wellbourne of the alert, and an internal review was initiated. However, the Company's voluntary disclosure to OFAC was not submitted until April 21, 2022—two days after the grand jury subpoena was served—a fact that may bear on the Company's ability to demonstrate proactive compliance conduct.

Fisk's potential personal exposure arises from several areas: (i) the failure to implement adequate OFAC screening protocols for the DTI trading desk, particularly the failure to require manual review of counterparty beneficial ownership structures beyond the automated Kestrel Software screening; (ii) the failure to escalate red flags that had been identified by junior compliance analysts regarding the Petronova counterparty relationship as early as October 2020; and (iii) supervisory deficiencies in overseeing the DTI Dubai trading desk's compliance with the Company's sanctions policies, including the failure to require that DTI's Dubai-based compliance function report directly to the CCO rather than to the DTI President (Hargrave).

Fisk remains employed by the Company as of the date of this memorandum. However, we understand from General Counsel Wellbourne that the Company's senior leadership and the Board are expected to request Fisk's resignation or proceed with his termination in the coming weeks. We are informed that Fisk will depart the Company on or about June 10, 2022. His departure will not extinguish the Company's advancement and indemnification obligations, as discussed in Section III.C below.

As of the date of this memorandum, Fisk has not yet retained personal counsel. We anticipate that he will do so in the near term, and we understand from preliminary discussions that he is likely to retain Catherine Blackthorn of Blackthorn & Associates LLP, located at 700 Louisiana Street, Suite 4300, Houston, Texas 77002. Ms. Blackthorn is an experienced white collar defense attorney with significant OFAC and sanctions enforcement experience.

C. Natasha Sorokin

Natasha Sorokin holds the position of Senior Trader at Dunmore Trading International Ltd. DTI is a DIFC-registered entity operating under DIFC License No. CL-4827, with offices at Level 14, Gate Building 3, DIFC, P.O. Box 506774, Dubai, UAE. Sorokin joined DTI in June 2019 after a prior stint at Halcyon Corporation in Geneva.

Sorokin is a Russian-American dual national who holds both a Russian Federation passport and a U.S. passport. Her U.S. citizenship is critically significant for the purposes of this analysis, as it establishes her status as a "U.S. person" under IEEPA, thereby subjecting her to the full reach of U.S. sanctions prohibitions regardless of where the transactions at issue were executed. This dual-national status substantially increases Sorokin's personal criminal exposure relative to non-U.S.-person employees who may also have been involved in the relevant transactions.

Sorokin was placed on administrative leave by the Company on May 16, 2022, following the commencement of the internal investigation and in consultation with Calderwood & Harkness. The placement on administrative leave was effected in accordance with the terms of her employment agreement with DTI, which permits the Company to place employees on paid administrative leave during the pendency of internal or external investigations.

Sorokin is the key individual in the transactions at issue. She served as the primary point of contact with Sergei Volkov, the Managing Director of Petronova Trading FZE, throughout the period from approximately March 2020 through April 2022. She directly negotiated and executed the crude oil swap transactions with Petronova and Zenith Petroleum DMCC. Preliminary review of email and electronic messaging records (including Meridian Services Inc. messages recovered from the Company's enterprise mobile device management platform) indicates that Sorokin communicated with Sergei Volkov on a near-daily basis during active trading periods, and that certain of those communications reference pricing and logistical arrangements that appear to contemplate Volkhov Industrial Group's ultimate involvement in the transactions as a beneficiary or end-user.

Sorokin's potential personal criminal exposure under IEEPA is significant. If the government can establish that she acted willfully—that is, with knowledge that her conduct was unlawful or with deliberate avoidance of such knowledge—she faces the possibility of criminal prosecution carrying penalties of up to 20 years' imprisonment per count and fines of up to $1 million per violation.

As of the date of this memorandum, Sorokin has not yet retained personal counsel. We anticipate that she will retain Philip Keane of Wexford Keane LLP, located at 2000 K Street NW, Suite 650, Washington, DC 20006. Mr. Keane has extensive experience in IEEPA and sanctions enforcement defense.

D. Derek Hargrave

Derek Hargrave holds the position of President of Dunmore Trading International Ltd. (Dubai). In that capacity, Hargrave has supervised the DTI trading operation, including its entire Dubai-based trading desk, since 2017. He is based in Dubai and reports directly to Callum Renshaw, the Chief Executive Officer of DEH.

Hargrave's potential personal exposure is substantial. As President of DTI, he authorized and directed the suspect transactions at the trading desk level. Preliminary review of internal records indicates that Hargrave personally approved the onboarding of Petronova Trading FZE as a counterparty in early 2020 and that he signed off on individual trade confirmations for several of the crude oil swap transactions at issue. Additionally, documentary evidence suggests that Hargrave may have had actual knowledge of the connections between Petronova Trading FZE and Volkhov Industrial Group JSC. An email dated September 14, 2020, from Hargrave to Sorokin, references "the Volkhov people" in the context of discussing delivery logistics for a crude oil cargo loaded at the port of Novorossiysk—a communication that will require careful analysis in the context of the government's investigation.

As of the date of this memorandum, Hargrave remains actively employed by the Company and has not been placed on administrative leave. We understand that the Company is considering placing Hargrave on administrative leave, and we are informed that this step is expected to occur on or about July 1, 2022. Following a period of administrative leave, we anticipate that Hargrave will be separated from the Company on or about October 1, 2022.

Hargrave has not yet retained personal counsel as of the date of this memorandum. We anticipate that he will retain James Overstreet of Overstreet & McClain PLLC, located at 2200 Ross Avenue, Suite 3600, Dallas, Texas 75201. Mr. Overstreet has substantial experience in complex white collar criminal defense, including matters involving export controls and sanctions.

III. LEGAL FRAMEWORK — INDEMNIFICATION AND ADVANCEMENT UNDER CAYMAN ISLANDS LAW

A. Cayman Islands Companies Act (as Revised)

Dunmore Energy Holdings Ltd. is incorporated as an exempted company with limited liability under the laws of the Cayman Islands, registration number MC-334821, with its registered office at Harbour Place, 4th Floor, 103 South Church Street, George Town, Grand Cayman KY1-1002. As a Cayman Islands exempted company, the legal framework governing the Company's internal corporate governance—including its authority to indemnify and advance defense costs to directors, officers, and employees—is established by the Cayman Islands Companies Act (as revised) (the "Companies Act") and the Company's own constitutional documents.

The Companies Act provides a permissive statutory framework for indemnification. Specifically, the Companies Act does not prescribe mandatory indemnification obligations but rather authorizes companies to include indemnification provisions in their memoranda and articles of association. The Companies Act permits a company to indemnify its directors, officers, and other persons acting in connection with the company's affairs against liabilities, costs, charges, losses, damages, and expenses incurred by such persons in the course of performing their duties, provided that such indemnification does not extend to liability arising from the person's own willful neglect, willful default, or fraud.

The key statutory distinction under Cayman Islands law is between indemnification and advancement. Indemnification refers to the post-adjudication reimbursement of costs and liabilities—that is, the company's obligation to make the individual whole after the proceeding has been resolved and the individual has been found to be entitled to indemnification. Advancement, by contrast, refers to the payment of defense costs as they are incurred, before the final disposition of the proceeding. The Companies Act permits companies to provide for both indemnification and advancement in their constitutional documents, and Cayman Islands law recognizes the critical practical importance of advancement in ensuring that individuals can mount an effective defense in government proceedings.

Under Cayman Islands law, the operative rights of individual officers and employees to indemnification and advancement arise not from the statute itself but from the company's constitutional documents and any separate contractual arrangements. The statute merely establishes the outer boundaries of what the company may lawfully provide. Where a company's articles of association contain mandatory indemnification and advancement provisions, those provisions constitute binding contractual obligations enforceable by the individuals entitled to their protection.

This permissive-plus-contractual framework has direct application to the present analysis. Because the Companies Act does not itself mandate indemnification or advancement, the inquiry turns to the Company's Memorandum and Articles of Association and the individual employment agreements, each of which is examined in detail below.

B. Dunmore's Memorandum and Articles of Association

The Memorandum and Articles of Association of Dunmore Energy Holdings Ltd. (the "Articles") contain a comprehensive indemnification provision that is the primary source of the Company's obligations to the three individuals at issue. The relevant provisions are set forth in Article 168 of the Articles (excerpts attached hereto as Appendix A).

Article 168.1 provides, in relevant part:

"The Company shall indemnify every Director, officer, and employee of the Company and of each subsidiary of the Company (each, an 'Indemnified Person') against all actions, proceedings, costs, charges, losses, damages, and expenses which such Indemnified Person may incur or sustain by reason of any act done, concurred in, or omitted in or about the execution of his or her duties in such capacity, or by reason of any matter or thing done or omitted in any way relating to or arising out of such capacity, provided always that this indemnity shall not extend to any matter in respect of any willful neglect, willful default, or fraud on the part of such Indemnified Person."

Article 168.2 addresses advancement specifically:

"The Company shall advance to each Indemnified Person defense costs reasonably incurred in connection with any proceeding referred to in Article 168.1, as and when such costs are incurred, upon receipt by the Company of a written undertaking by or on behalf of such Indemnified Person to repay all amounts so advanced if it shall ultimately be determined that such Indemnified Person is not entitled to indemnification hereunder."

Several features of these provisions warrant emphasis:

Mandatory nature. The Articles use the word "shall" rather than "may," establishing that both indemnification and advancement are mandatory obligations of the Company rather than discretionary powers of the Board. This is significant because it eliminates the Company's ability to exercise case-by-case discretion in deciding whether to advance defense costs. Once an Indemnified Person makes a proper request for advancement and delivers the required undertaking to repay, the Company is obligated to advance the requested costs.

Scope of coverage. The Articles define the class of "Indemnified Person" broadly to include every "Director, officer, and employee" of the Company and of each subsidiary of the Company. This breadth is critical in the present context. All three individuals at issue fall within the definition:

• Gerald Fisk, as Chief Compliance Officer of DEH, is an "officer" of the Company itself.

• Natasha Sorokin, as Senior Trader at DTI, is an "employee" of a subsidiary of the Company.

• Derek Hargrave, as President of DTI, is an "officer" of a subsidiary of the Company.

The extension of indemnification and advancement rights to officers and employees of subsidiaries is a deliberate and significant feature of the Articles. DEH operates its trading business through DTI, a subsidiary incorporated in Dubai and registered with the DIFC. Without the subsidiary extension, Sorokin and Hargrave—whose employment relationships are with DTI rather than with DEH directly—might not have enforceable indemnification rights against the parent company.

Undertaking-to-repay condition. Article 168.2 conditions advancement on the individual's delivery of a written undertaking to repay all advanced amounts if it is ultimately determined that the individual is not entitled to indemnification. This is a standard and widely-recognized condition for advancement that balances the company's interest in recovering improperly advanced funds against the individual's need for timely access to defense resources. The undertaking requirement does not itself limit the amount of advancement or impose any other conditions beyond the commitment to repay.

Exception for willful neglect, willful default, or fraud. The sole exception to the indemnification (and, by extension, the advancement) obligation is conduct constituting "willful neglect, willful default, or fraud" on the part of the Indemnified Person. As discussed in detail in Section V below, this exception operates as a limitation on the ultimate indemnification obligation rather than as a basis for refusing advancement at the outset of a proceeding. The exception is triggered only upon a final determination that the individual's conduct falls within the excepted categories.

We note that DTI, as a Dubai-incorporated entity registered with the DIFC, has its own formation documents. Upon review of DTI's Memorandum and Articles of Association (DIFC License No. CL-4827), we confirm that DTI's constitutional documents contain a cross-reference to the DEH Articles' indemnification provisions, stating that officers and employees of DTI shall be entitled to indemnification and advancement from the parent company in accordance with the provisions of the DEH Articles. Accordingly, the DEH Articles provide the operative indemnification and advancement rights for all three individuals, and we need not conduct a separate analysis under DTI's own formation documents or DIFC law.

C. Distinction Between Current and Former Employees

A question arises with respect to the continued applicability of the Company's indemnification and advancement obligations following an individual's separation from the Company. This question is directly relevant to Fisk, who is expected to depart the Company on or about June 10, 2022, and may become relevant to Sorokin and Hargrave, who are on or may be placed on administrative leave and may ultimately be separated from the Company.

The DEH Articles address this issue through a standard "tail" provision in Article 168.3:

"The rights to indemnification and advancement of costs provided in this Article 168 shall continue as to any person who has ceased to be a Director, officer, or employee of the Company or any subsidiary, and shall inure to the benefit of the heirs, executors, and administrators of such person, with respect to any act done, concurred in, or omitted during such person's service in such capacity."

This provision makes clear that the indemnification and advancement rights are not extinguished by the individual's departure from the Company. The rights survive separation and continue to protect the individual with respect to acts or omissions that occurred during the period of employment, regardless of whether the individual remains employed at the time the defense costs are incurred. This is a critical protection for individuals who, like Fisk, may be separated from the Company during the pendency of a government investigation that relates to their conduct while employed.

The tail provision applies with equal force to Sorokin and Hargrave. Sorokin's placement on administrative leave as of May 16, 2022, does not terminate her employment relationship or her entitlement to advancement. If and when Sorokin is formally separated from the Company, the tail provision will ensure the continuation of her advancement rights. The same analysis applies to Hargrave, who is expected to be placed on administrative leave and subsequently separated.

IV. INDIVIDUAL EMPLOYMENT AGREEMENTS

In addition to the indemnification and advancement rights established by the DEH Articles, each of the three individuals has specific indemnification provisions in his or her individual employment agreement. These contractual provisions provide a separate and parallel source of the Company's obligations.

A. Gerald Fisk's Employment Agreement

Fisk is employed under a written employment agreement with Dunmore Energy Holdings Ltd. executed on September 12, 2016, and amended on March 1, 2018 in connection with his promotion to Chief Compliance Officer (the "Fisk Employment Agreement"). The Fisk Employment Agreement is governed by Texas state law and was executed in Houston, Texas.

Section 9 of the Fisk Employment Agreement contains a specific indemnification clause, which provides, in relevant part:

"The Company shall indemnify the Employee and advance to the Employee all reasonable legal fees, costs, and expenses incurred by the Employee in connection with any governmental investigation, civil action, criminal proceeding, or administrative action arising from or relating to the Employee's duties as Chief Compliance Officer of the Company, to the fullest extent permitted by applicable law and the Company's constitutional documents."

Section 9.2 sets forth the undertaking-to-repay requirement:

"The Employee's right to advancement of defense costs under this Section 9 shall be conditioned upon the Employee's execution of a written undertaking to repay all amounts advanced if a final, non-appealable determination is made by a court of competent jurisdiction that the Employee acted with willful misconduct or in bad faith."

Several features of the Fisk Employment Agreement's indemnification provisions merit note. First, the agreement imposes no cap on the amount of defense costs that the Company may be required to advance. Second, the agreement expressly cross-references the DEH Articles of Association as providing "additional and parallel rights" to indemnification, confirming that the contractual and constitutional sources of obligation operate independently and cumulatively. Third, the undertaking-to-repay standard in the employment agreement—requiring a finding of "willful misconduct or in bad faith"—is substantively consistent with the standard in the DEH Articles ("willful neglect, willful default, or fraud"), although the precise language differs slightly. The employment agreement's standard, governed by Texas law, may be construed by reference to Texas case law on corporate indemnification, while the Articles' standard is construed under Cayman Islands law. We do not anticipate that this difference in terminology will produce a material difference in outcome, as both standards require a showing of culpable intent beyond mere negligence.

The Fisk Employment Agreement's choice-of-law provision designating Texas law as the governing law applies to the employment relationship generally, including the indemnification provisions. However, because the indemnification provisions are expressly structured to be consistent with Cayman Islands law governing the Articles, and because the Articles themselves provide an independent and mandatory source of obligation, the practical effect of the choice-of-law provision is limited. Even if a Texas court were to construe the employment agreement's indemnification clause differently than a Cayman Islands court would construe the Articles, the Articles' obligations would continue to bind the Company as a matter of Cayman Islands corporate law.

Relevant excerpts from the Fisk Employment Agreement are attached as Appendix B.

B. Natasha Sorokin's Employment Agreement

Sorokin is employed under a written employment agreement with Dunmore Trading International Ltd. executed on June 3, 2019 (the "Sorokin Employment Agreement"). The Sorokin Employment Agreement is governed by the laws of the United Arab Emirates and was executed in Dubai. As a DIFC-registered entity, DTI's employment relationships are subject to the DIFC Employment Law (DIFC Law No. 2 of 2019), which supplements but does not override the contractual indemnification provisions in the employment agreement.

Article 11 of the Sorokin Employment Agreement contains an indemnification provision that extends advancement of defense costs for proceedings arising from Sorokin's employment with DTI. Importantly, the provision specifies that the parent company, Dunmore Energy Holdings Ltd., is the entity responsible for funding any advanced defense costs. This intercompany allocation of responsibility reflects the economic reality that DTI is an operating subsidiary with limited independent financial resources, while DEH is the holding company with access to the balance sheet and insurance coverage necessary to fund defense costs.

The provision states:

"The Parent Company shall advance to the Employee all reasonable legal fees, costs, and expenses incurred by the Employee in connection with any governmental investigation, regulatory inquiry, civil action, criminal proceeding, or administrative action arising from or relating to the Employee's duties and responsibilities in her capacity as Senior Trader of the Company, subject to the Employee's execution of an undertaking to repay amounts advanced in accordance with the indemnification provisions of the Parent Company's constitutional documents."

Sorokin's status as a Russian-American dual national is a critical consideration in the advancement analysis. Her U.S. person status under IEEPA subjects her to the jurisdiction of the United States government for purposes of sanctions enforcement, irrespective of the fact that she is employed in Dubai and that the transactions at issue were executed from DTI's Dubai trading desk. This jurisdictional hook substantially increases Sorokin's personal criminal exposure and makes the availability of effective legal counsel—funded through advancement of defense costs—all the more urgent.

Sorokin's placement on administrative leave as of May 16, 2022, does not terminate the employment relationship or the advancement obligation. The Sorokin Employment Agreement expressly provides that administrative leave is a temporary measure that does not constitute a termination of employment, and that all contractual rights and obligations, including indemnification, remain in effect during any period of administrative leave. Upon any future separation—whether voluntary or involuntary—the DEH Articles' tail provision (Article 168.3, discussed in Section III.C above) will continue to obligate DEH to advance defense costs with respect to acts or omissions that occurred during the period of Sorokin's employment.

Relevant excerpts from the Sorokin Employment Agreement are attached as Appendix C.

C. Derek Hargrave's Employment Agreement

Hargrave is employed under a written employment agreement with Dunmore Trading International Ltd. executed on January 15, 2017 (the "Hargrave Employment Agreement"). Like the Sorokin Employment Agreement, the Hargrave Employment Agreement is governed by UAE law and was executed in Dubai.

The Hargrave Employment Agreement contains indemnification and advancement provisions that are substantially similar to those in Sorokin's agreement. Article 11 of the Hargrave Employment Agreement provides for the advancement of reasonable legal fees and expenses incurred in connection with proceedings arising from Hargrave's duties as President of DTI, with such advancement funded by DEH as the parent company. The undertaking-to-repay clause mirrors the corresponding provision in the Sorokin Employment Agreement and the DEH Articles.

As President of DTI, Hargrave is both an employee and an officer of a DEH subsidiary. His officer status triggers the DEH Articles' subsidiary-officer indemnification provisions (Article 168.1), providing him with an independent basis for advancement under the Articles in addition to his contractual rights under the employment agreement.

Hargrave is currently an active employee of the Company as of the date of this memorandum. We anticipate that he will be placed on administrative leave on or about July 1, 2022, and that he will be separated from the Company on or about October 1, 2022. During any period of administrative leave, the Hargrave Employment Agreement provides that all contractual rights and obligations remain in effect. Upon separation, the DEH Articles' tail provision will continue to protect Hargrave's advancement rights.

Relevant excerpts from the Hargrave Employment Agreement are attached as Appendix D.

V. ANALYSIS OF WHETHER THE WILLFUL MISCONDUCT / FRAUD EXCEPTION BARS ADVANCEMENT

A. Standard for Denial of Advancement

The central question in determining whether the Company may lawfully withhold advancement of defense costs is whether the willful misconduct / fraud exception contained in the DEH Articles and the individual employment agreements has been triggered. Under both the Articles and the employment agreements, the Company's indemnification obligation does not extend to conduct constituting willful neglect, willful default, or fraud. By extension, the Company's advancement obligation is similarly limited: if it is determined that an individual's conduct falls within the exception, the individual would not be entitled to indemnification, and amounts previously advanced would become subject to the undertaking-to-repay obligation.

The critical point, however, is that the exception operates at the point of final, non-appealable adjudication, not at the point of accusation, investigation, or even indictment. Under Cayman Islands law, a company may not withhold advancement based merely on allegations of misconduct, the pendency of a government investigation, or the existence of circumstantial evidence suggesting that the individual may have engaged in culpable conduct. The standard requires a definitive judicial determination—one that has been affirmed on appeal or that is no longer subject to appellate review—that the individual's conduct constituted willful neglect, willful default, or fraud.

This principle is well-established in analogous common law jurisdictions. In Delaware, for example—the most developed body of corporate indemnification law in the United States—courts have consistently held that a company's advancement obligation is an independent right that does not depend on the ultimate merits of the underlying claim. See, e.g., Homestore, Inc. v. Tafeen, 888 A.2d 204 (Del. 2005) (holding that advancement is an "interim" remedy, distinct from indemnification, that the corporation must honor as a present obligation). While Cayman Islands courts have not addressed this precise issue with the same frequency as Delaware courts, the principle is equally well-founded under Cayman Islands law, where the Articles' language conditions the exception on a final determination rather than on a preliminary assessment.

As of the date of this memorandum, no such adjudication has occurred with respect to any of the three individuals. The DOJ inquiry was opened only on April 19, 2022—fewer than three weeks before the date of this memorandum. No individual has been charged, indicted, or even formally designated as a target (as opposed to a subject or witness) of the investigation. The investigation is in its earliest stages, and any determination of willful misconduct or fraud lies far in the future, if it occurs at all.

The mere existence of a government investigation does not satisfy the threshold for invoking the exception. Standard practice in corporate indemnification matters is to advance defense costs and require the execution of an undertaking to repay, thereby preserving the company's right to recover advanced amounts in the event that a final determination of non-entitlement to indemnification is ultimately made. This is precisely the approach that the DEH Articles contemplate through the undertaking-to-repay mechanism in Article 168.2.

B. Application to Each Individual

Gerald Fisk. Fisk's potential exposure arises principally from alleged supervisory failures and compliance deficiencies—the failure to implement adequate OFAC screening protocols, the failure to escalate red flags, and the failure to exercise adequate oversight over the DTI trading desk's compliance function. These allegations, even if ultimately substantiated, may sound in negligence rather than willful misconduct. A compliance officer's failure to implement adequate procedures, standing alone, is distinguishable from willful participation in sanctions evasion or willful disregard of known legal obligations. At this stage, there is no evidence suggesting that Fisk personally participated in or directed the suspect transactions, and his April 11, 2022 identification of the Volkhov exposure through the Kestrel Software screening refresh suggests at least some degree of compliance diligence. There is no basis at this stage to deny advancement of Fisk's defense costs.

Natasha Sorokin. Sorokin presents the most challenging case among the three individuals, given her direct and personal involvement in the suspect transactions. She was the primary point of contact with Sergei Volkov of Petronova Trading FZE, and she directly executed the crude oil swap transactions at issue. If the government can establish that Sorokin had actual knowledge of the Volkhov connections and nonetheless proceeded with the transactions, her conduct could potentially constitute willful violation of IEEPA. However, no such determination has been made, and Sorokin has not been charged with any offense. The question of her knowledge, intent, and state of mind is precisely the kind of factual issue that will be litigated in any criminal proceeding. Until that litigation has been resolved by a final, non-appealable adjudication, the Company is obligated to advance Sorokin's defense costs. The heightened risk of Sorokin's exposure does not alter the advancement analysis; it merely underscores the importance of the undertaking-to-repay mechanism as a protective measure for the Company.

Derek Hargrave. Hargrave's exposure arises from his supervisory role over the DTI trading desk and his apparent authorization and direction of the suspect transactions. The September 14, 2020 email referencing "the Volkhov people" is concerning and may bear on the question of Hargrave's knowledge of the counterparties' connections to Volkhov Industrial Group. However, like Sorokin, Hargrave has not been charged or adjudicated to have engaged in willful misconduct or fraud. The existence of a potentially incriminating communication does not satisfy the standard for a final, non-appealable determination. The Company must advance Hargrave's defense costs pending any future determination.

Recommendation. The Company should advance defense costs for all three individuals upon request, subject to execution of the undertaking-to-repay agreements described below. There is no legal basis at this stage of the investigation for the Company to deny, delay, or condition advancement beyond the undertaking requirement.

C. Undertaking-to-Repay Mechanics

As set forth in Article 168.2 of the DEH Articles and in each of the individual employment agreements, advancement of defense costs is conditioned upon the individual's execution of a written undertaking to repay all amounts advanced if it is ultimately determined that the individual is not entitled to indemnification.

The undertaking-to-repay agreement should contain the following elements:

1. A recital of the individual's status as an Indemnified Person under the DEH Articles and the relevant employment agreement;

2. A description of the proceeding or investigation giving rise to the advancement request (the DOJ inquiry, grand jury subpoena GJ No. 22-418);

3. The individual's agreement to repay all amounts advanced by the Company if it is determined by final, non-appealable adjudication (or by settlement to which the Company consents) that the individual is not entitled to indemnification under the DEH Articles or the applicable employment agreement;

4. A specification that the undertaking is an unsecured, personal obligation of the individual—that is, the Company will not require the individual to post collateral, provide a guarantee, or demonstrate financial capacity to repay as a condition of receiving advancement;

5. An acknowledgment by the individual that the advancement of defense costs does not constitute a determination by the Company that the individual is entitled to indemnification, and that the Company reserves all rights with respect to the ultimate indemnification determination; and

6. Standard representations and warranties, including the individual's agreement to cooperate with the Company's internal investigation and to provide such information as may reasonably be required for the Company to comply with its document production obligations under the grand jury subpoena, subject to the individual's own Fifth Amendment and other constitutional rights.

The undertaking should be unsecured and personal. It would be inappropriate—and potentially unenforceable under applicable law—to require individuals to post security or demonstrate financial capacity as a condition of receiving advancement. The purpose of the advancement right is to ensure that individuals can mount an effective defense without regard to their personal financial resources, and the imposition of onerous conditions would effectively nullify that right.

Calderwood & Harkness should prepare template undertaking-to-repay agreements for execution by each of the three individuals. We recommend that General Counsel Marcus Wellbourne obtain the signatures of each individual (or, once individual counsel are retained, that the undertaking agreements be executed through counsel).

A draft template undertaking-to-repay agreement is attached as Appendix F for review by Victoria Chambers and Howard Quinn.

VI. D&O INSURANCE COVERAGE FOR INDIVIDUAL DEFENSE COSTS

A. Garrison Mutual Insurance Co. Policy

Dunmore Energy Holdings Ltd. maintains a Directors and Officers Liability Insurance policy (the "D&O Policy") issued by Garrison Mutual Insurance Co. The relevant policy details are as follows:

The D&O Policy provides coverage for defense costs incurred by the Company or by individual directors and officers in connection with claims arising from their roles at the Company and its subsidiaries. The policy covers reasonable and necessary legal fees, expert witness fees, court costs, and other litigation-related expenses. The policy does not cover disgorgement of profits, civil or criminal penalties or fines, or amounts paid as restitution. Additionally, the policy contains a standard exclusion for conduct determined, after final adjudication, to be fraudulent or criminal in nature.

A summary of the D&O Policy's relevant coverage terms is attached as Appendix E.

B. Coverage for Individual Counsel Fees

The D&O Policy provides three insuring agreements, commonly referred to as Side A, Side B, and Side C coverage:

Side A Coverage provides for direct payment to individual directors and officers in circumstances where the Company is unable to indemnify—for example, because the Company is insolvent or because applicable law prohibits indemnification. Side A coverage is a direct obligation of the insurer to the individual insureds and does not require the Company to first advance costs. In the present matter, Side A coverage is not expected to be the primary coverage pathway, as the Company remains solvent and is obligated to advance defense costs. However, Side A coverage may become relevant if circumstances change—for example, if the Company enters financial distress as a result of the investigation or if a legal determination is made that the Company may not indemnify a particular individual.

Side B Coverage reimburses the Company for amounts that the Company advances or pays to individual directors and officers under its indemnification obligations. Side B coverage is the most directly relevant insuring agreement for the present analysis. Under Side B, the Company will advance defense costs to Fisk, Sorokin, and Hargrave in accordance with its obligations under the Articles and the employment agreements, and will then seek reimbursement from Garrison Mutual for the amounts advanced. Side B coverage is subject to the policy's self-insured retention of $2.5 million, meaning that the Company will bear the first $2.5 million in defense costs before the policy's coverage attaches.

Side C Coverage (entity coverage) provides coverage for the defense costs of the Company itself—that is, fees and expenses incurred by the Company's own counsel (Calderwood & Harkness) in defending the Company against the DOJ inquiry and any related proceedings. Side C coverage is relevant to the Company's overall litigation cost management but is not directly at issue in this memorandum, which focuses on individual defense costs.

Application to the present matter. The individual defense costs for Fisk, Sorokin, and Hargrave should fall primarily under Side B coverage. The Company will advance defense costs to the individuals, receive invoices from their respective personal counsel, process payments through the Company's finance function, and then submit claims to Garrison Mutual for reimbursement under Side B of the D&O Policy.

Total individual counsel fees for the three individuals are projected to reach approximately $3.4 million over the course of the matter. This estimate is based on preliminary assessments of the anticipated scope and duration of the investigation, including document review, witness preparation, grand jury proceedings, and potential plea or trial proceedings. The individual cost estimates are as follows:

• Fisk: $900,000 – $1,100,000 (reflecting lower anticipated exposure and potentially shorter engagement of personal counsel)

• Sorokin: $1,200,000 – $1,400,000 (reflecting higher exposure, potential individual prosecution risk, and the complexity of cross-border issues)

• Hargrave: $1,000,000 – $1,200,000 (reflecting supervisory exposure and the potential for an extended investigation)

The Company's overall D&O recovery from Garrison Mutual is ultimately expected to total approximately $7.2 million, after application of the $2.5 million self-insured retention. This figure encompasses both individual defense costs (Side B) and the Company's own defense costs (Side C). Importantly, the D&O Policy does not cover the $8.75 million voluntary disgorgement that the Company is separately contemplating, as disgorgement of profits falls outside the policy's coverage terms.

Coordination with Howard Quinn. Howard Quinn, the billing partner for this matter, has separately prepared a comprehensive D&O coverage analysis memorandum dated June 1, 2022, which provides a detailed review of the D&O Policy's coverage terms, exclusions, and anticipated recovery. We recommend that this memorandum be read in conjunction with Howard Quinn's analysis for a complete picture of the insurance coverage landscape.

Howard Quinn has already submitted a carrier notification letter to Patricia Holbrook, Claims Adjuster at Garrison Mutual, dated April 28, 2022. The notification letter places Garrison Mutual on notice of the DOJ inquiry and reserves the Company's rights to submit claims under all insuring agreements of the D&O Policy.

C. Allocation Issues

The advancement of individual defense costs will give rise to allocation issues between the Company and Garrison Mutual. Specifically, the parties will need to agree on a methodology for allocating the D&O Policy's coverage between:

(i) the Company's own defense costs (Calderwood & Harkness fees for the corporate representation, Side C coverage);

(ii) individual defense costs advanced by the Company on behalf of Fisk, Sorokin, and Hargrave (Side B coverage); and

(iii) any costs that fall outside the D&O Policy's coverage entirely (e.g., disgorgement-related advisory fees, regulatory penalty analysis).

Garrison Mutual may take the position that individual counsel fees require separate sub-limits within the per-claim limit, or that individual counsel fees are subject to reasonableness review under the policy's "reasonable and necessary" standard. The carrier may also seek to impose litigation management guidelines that require pre-approval of individual counsel retention, staffing levels, billing rates, and major litigation expenditures.

We recommend early engagement with Patricia Holbrook at Garrison Mutual regarding the allocation methodology. A proactive approach to allocation—establishing agreed-upon categories and percentages at the outset of the matter—will minimize the risk of coverage disputes and delayed reimbursement as the investigation progresses.

VII. COORDINATION WITH INDIVIDUAL COUNSEL

A. Current Status

As of the date of this memorandum (May 5, 2022), none of the three individuals at issue has yet retained personal counsel. We anticipate that each individual will retain separate counsel in the near term, as the nature and trajectory of the DOJ inquiry make the retention of individual counsel both prudent and necessary. The individuals' anticipated counsel selections are as follows:

• Gerald Fisk is expected to retain Catherine Blackthorn of Blackthorn & Associates LLP, 700 Louisiana Street, Suite 4300, Houston, Texas 77002. Ms. Blackthorn has extensive experience in white collar defense with a particular focus on OFAC and sanctions enforcement matters.

• Natasha Sorokin is expected to retain Philip Keane of Wexford Keane LLP, 2000 K Street NW, Suite 650, Washington, DC 20006. Mr. Keane specializes in IEEPA and sanctions enforcement defense and has represented individuals in prior CES investigations.

• Derek Hargrave is expected to retain James Overstreet of Overstreet & McClain PLLC, 2200 Ross Avenue, Suite 3600, Dallas, Texas 75201. Mr. Overstreet has substantial experience in complex white collar criminal defense, including export controls and sanctions matters.

The need for separate individual counsel arises from the potential for adverse interests between the Company and the individual employees. Calderwood & Harkness represents Dunmore Energy Holdings Ltd.—the corporate entity—and does not represent any of the individual employees. The interests of the Company and its individual employees may diverge as the investigation progresses. For example, the Company may pursue a cooperation strategy with the DOJ that requires providing information about individual employees' conduct, or the Company may take positions regarding the adequacy of its compliance program that are inconsistent with the individuals' personal defense strategies. These potential conflicts make it essential that each individual have the benefit of independent counsel whose loyalty runs exclusively to the individual client.

B. Information-Sharing Limitations

Once the individuals retain personal counsel, Calderwood & Harkness must establish clear and well-documented information-sharing boundaries. The principle governing these boundaries is straightforward: Calderwood & Harkness's client is Dunmore Energy Holdings Ltd., and the attorney-client privilege that attaches to Calderwood & Harkness's communications belongs to the Company, not to the individual employees.

Upjohn Warnings. Consistent with standard practice in corporate internal investigations, Calderwood & Harkness has administered (or will administer) Upjohn warnings to each of the three individuals during witness interviews. These warnings make clear that: (i) Calderwood & Harkness represents the Company, not the individual; (ii) the attorney-client privilege belongs to the Company; (iii) the Company may, in its sole discretion, waive the privilege and disclose interview notes or other information to the government or other third parties; and (iv) the individual has the right to retain personal counsel at his or her own expense (or, as applicable, at the Company's expense through advancement of defense costs). The Upjohn warnings are a critical prophylactic measure that protects the Company's ability to cooperate with the government and prevents the creation of inadvertent attorney-client relationships between Calderwood & Harkness and the individual employees.

Acknowledgment Letters. Upon retention of individual counsel, Calderwood & Harkness will send formal acknowledgment letters to each individual's attorney. These letters will confirm: (i) the scope of Calderwood & Harkness's representation (the corporate entity only); (ii) the information-sharing limitations between Calderwood & Harkness and individual counsel; (iii) the Company's expectation that individual counsel will coordinate with Calderwood & Harkness on scheduling and logistical matters to the extent consistent with the individuals' interests; and (iv) the billing and payment mechanics for individual counsel fees (discussed in Section VII.C below). We anticipate sending acknowledgment letters to Blackthorn & Associates LLP (for Fisk), Wexford Keane LLP (for Sorokin), and Overstreet & McClain PLLC (for Hargrave) upon confirmation of each individual's retention.

Joint Defense Agreement Considerations. We do not recommend that the Company and the individual employees enter into a joint defense or common interest agreement at this time. The potential for divergent interests between the Company and the individuals is too significant to permit the sharing of privileged information under a common interest umbrella. The Company has already entered into a common interest and joint defense agreement with its principal shareholders—Greystone Capital Partners Fund IV, L.P. and Thornbury Infrastructure Fund II, L.P.—executed on April 25, 2022, which is appropriate given the aligned interests of the Company and its equity holders. However, extending that agreement to include the individual employees would create unacceptable risks of privilege waiver and conflict.

C. Billing and Payment Mechanics

The mechanics of billing and payment for individual defense costs should be structured to ensure that the Company fulfills its advancement obligations while maintaining appropriate controls and documentation.

Invoice Submission. Invoices from each individual's personal counsel should be submitted directly to Marcus Wellbourne, General Counsel of Dunmore Energy Holdings Ltd., and to Sandra Whitfield, Chief Financial Officer of Dunmore Energy Holdings Ltd., for review and approval. Invoices should be submitted on a monthly basis and should contain sufficient detail to permit verification that the fees and expenses are reasonable and were incurred in connection with the covered proceeding. However, invoices should be redacted to the extent necessary to protect privileged communications between individual counsel and their clients—Calderwood & Harkness should not review the substance of privileged attorney-client communications between individual counsel and the individual employees.

Payment Processing. For Fisk, whose employment is with DEH (Houston), payment of his individual counsel's invoices should be processed through the Company's Houston-based finance function under the supervision of Sandra Whitfield, CFO. For Sorokin and Hargrave, whose employment is with DTI (Dubai), payment may be processed through DTI's finance function under the supervision of Rajesh Malhotra, Controller at DTI, with ultimate approval by Sandra Whitfield. Intercompan

PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGE / ATTORNEY WORK PRODUCT
MEMORANDUM
FROM: Jasmine Thornton, Lead Associate, White Collar & Investigations Practice Group, Calderwood & Harkness LLP
TO: Victoria Chambers, Responsible Partner, White Collar & Investigations Practice Group, Calderwood & Harkness LLP Howard Quinn, Billing Partner, White Collar & Investigations Practice Group, Calderwood & Harkness LLP
DATE: May 5, 2022
RE: Indemnification and Advancement of Defense Costs — Gerald Fisk, Natasha Sorokin, and Derek Hargrave
MATTER NO.: 1016-00009
CLIENT: Dunmore Energy Holdings Ltd.
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I. EXECUTIVE SUMMARY
This memorandum analyzes the obligations of our client, Dunmore Energy Holdings Ltd. ("DEH" or the "Company"), to indemnify and advance defense costs for three key individuals who are or may become subjects or targets of a criminal inquiry opened by the U.S. Department of Justice on April 19, 2022. On that date, the National Security Division, Counterintelligence and Export Control Section ("CES") served grand jury subpoena GJ No. 22-418, issued by the U.S. District Court for the District of Columbia, Grand Jury 22-2, seeking a broad range of transactional and communications records from the Company and its subsidiaries. The investigation concerns potential violations of the International Emergency Economic Powers Act ("IEEPA") and the Export Control Reform Act ("ECRA") arising from crude oil swap transactions and oilfield equipment exports involving counterparties with undisclosed ties to sanctioned Russian entities.
Three individuals occupy the center of the Company's indemnification and advancement analysis:
Gerald Fisk — Former Chief Compliance Officer of Dunmore Energy Holdings Ltd., based in Houston, Texas. As of the date of this memorandum, Fisk remains employed by the Company, although we understand he is expected to depart under internal pressure on or about June 10, 2022. Fisk's potential exposure arises principally from alleged supervisory failures over the Company's sanctions and export controls compliance program, including the failure to implement adequate OFAC screening protocols for the Dubai trading desk and the failure to escalate identified red flags regarding the Petronova Trading FZE counterparty relationship.
Natasha Sorokin — Senior Trader at Dunmore Trading International Ltd. ("DTI"), a DIFC-registered subsidiary of DEH, based in Dubai, UAE. Sorokin is a Russian-American dual national. She was placed on administrative leave on May 16, 2022. Sorokin was directly and personally involved in the transactions at issue, serving as the primary point of contact with Sergei Volkov, Managing Director of Petronova Trading FZE, and directly executing the crude oil swap transactions with Petronova and Zenith Petroleum DMCC that are the subject of the government's inquiry.
Derek Hargrave — President of Dunmore Trading International Ltd. (Dubai). Hargrave supervised the DTI Dubai trading desk from 2017 through 2022 and ran the operations giving rise to the suspect transactions. He authorized and directed the relevant trading activity. As of the date of this memorandum, Hargrave remains actively employed and has not been placed on administrative leave, although we anticipate that his status may change as the investigation progresses.
Based on the analysis set forth below, we conclude that DEH has mandatory obligations to advance defense costs for all three individuals under both the Company's Memorandum and Articles of Association and the individuals' respective employment agreements. These advancement obligations are subject to standard undertaking-to-repay conditions—that is, each individual must execute a written undertaking to repay amounts advanced if it is ultimately determined by final, non-appealable adjudication that the individual is not entitled to indemnification because the individual's conduct constituted willful neglect, willful default, or fraud. At this stage of the investigation, no such determination has been made or is reasonably imminent, and there is no legal basis for the Company to deny or delay advancement of defense costs to any of the three individuals.
The Company's advancement obligations arise from four principal sources:
(a) The Cayman Islands Companies Act (as revised), which provides the permissive statutory framework under which the Company's constitutional documents operate;
(b) The Memorandum and Articles of Association of Dunmore Energy Holdings Ltd., a Cayman Islands exempted company (registration no. MC-334821), which contain mandatory indemnification and advancement provisions for directors, officers, and employees of the Company and its subsidiaries;
(c) The individual employment agreements entered into with each of the three individuals, each of which contains specific indemnification and advancement clauses; and
(d) The Company's Directors and Officers Liability Insurance policy issued by Garrison Mutual Insurance Co. (policy no. GM-DO-2021-08734), which provides Side A and Side B coverage for individual defense costs and may partially offset the Company's advancement expenditures.
We project that total individual counsel fees advanced by the Company for Fisk, Sorokin, and Hargrave will reach approximately $3.4 million over the course of the matter. The Company should honor advancement requests promptly upon receipt, demand execution of standard undertaking-to-repay agreements, and coordinate with Garrison Mutual Insurance Co. regarding whether and to what extent individual defense costs fall within the D&O insurance coverage.
II. FACTUAL BACKGROUND
A. The DOJ Inquiry and the Individuals' Roles
On April 19, 2022, the Department of Justice, through its National Security Division, Counterintelligence and Export Control Section, opened a formal criminal inquiry into the activities of Dunmore Energy Holdings Ltd. and its subsidiaries. The lead prosecutor assigned to the matter is Assistant United States Attorney Meredith Calloway of the U.S. Attorney's Office for the District of Columbia. AUSA Calloway is supported by Trial Attorney Samuel Kovacs and Trial Attorney Diana Pressman, both of CES. The investigating agent is Special Agent Paul Reinhardt of the Federal Bureau of Investigation.
On the same date, the government served grand jury subpoena GJ No. 22-418, issued by the U.S. District Court for the District of Columbia in connection with Grand Jury 22-2. The subpoena seeks the production of all documents related to transactions between the Company (and its subsidiaries and affiliates) and the following entities, from January 1, 2019 forward:
• Petronova Trading FZE (Dubai, UAE);
• Volkhov Industrial Group JSC (Moscow, Russian Federation);
• Zenith Petroleum DMCC (Dubai, UAE); and
• Caspian Logistik GmbH (Hamburg, Germany).
The subpoena encompasses transactional records, correspondence, internal memoranda, compliance screening records, due diligence files, KYC documentation, trade tickets, confirmation letters, payment instructions, and communications with or relating to the named counterparties.
The underlying conduct at issue involves the activities of the DTI Dubai trading desk over a period of approximately two years, from approximately March 2020 through April 2022. During that period, DTI's Dubai trading desk engaged in crude oil swap transactions with an aggregate notional value of approximately $218.7 million, spread across 14 separate transactions, involving Petronova Trading FZE and Zenith Petroleum DMCC as counterparties. In addition, the DTI trading desk facilitated oilfield equipment exports valued at approximately $12.4 million to parties with undisclosed connections to the same network of entities.
The government's theory, as we understand it based on the face of the subpoena and preliminary communications with AUSA Calloway's office, centers on the allegation that Petronova Trading FZE and Zenith Petroleum DMCC served as front companies or intermediary vehicles for Volkhov Industrial Group JSC. Volkhov Industrial Group JSC is a Russian energy conglomerate that was made subject to OFAC Directive 2 under Executive Order 13662 on November 15, 2019, and was subsequently designated as a Specially Designated National ("SDN") and added to the SDN List on April 6, 2022. The government contends that the DTI trading desk knew of or deliberately avoided knowledge of the Volkhov connections and structured its transactions to evade U.S. sanctions restrictions.
Payment structuring is a distinct component of the government's inquiry. Approximately $34.2 million in payments associated with the suspect transactions flowed through 127 separate wire transfers routed through Crescent Commercial Bank PJSC, a Dubai-based financial institution. The pattern of payments—characterized by numerous sub-threshold transfers, split invoicing, and the use of multiple beneficiary accounts—suggests deliberate structuring to avoid detection and regulatory reporting triggers.
The criminal statutes principally at issue are the International Emergency Economic Powers Act, 50 U.S.C. §§ 1701–1706 ("IEEPA"), which prohibits U.S. persons from engaging in transactions that violate U.S. sanctions programs, and the Export Control Reform Act, 50 U.S.C. §§ 4801–4852 ("ECRA"), which governs the export, reexport, and transfer of controlled items and technology. Willful violations of IEEPA carry criminal penalties of up to 20 years' imprisonment and fines of up to $1 million per violation. ECRA violations carry penalties of up to 20 years' imprisonment and fines of up to $1 million or five times the value of the exports involved, whichever is greater.
B. Gerald Fisk
Gerald Fisk holds the position of Chief Compliance Officer of Dunmore Energy Holdings Ltd. He is based at the Company's operational headquarters at 1200 McKinney Street, Suite 3400, Houston, Texas 77010. Fisk joined the Company in September 2016 as Deputy Chief Compliance Officer and was promoted to Chief Compliance Officer in March 2018, succeeding Patricia Edmonds, who departed the Company at that time.
As CCO, Fisk bears global responsibility for the Company's sanctions and export controls compliance program. His mandate encompasses the design, implementation, and oversight of OFAC screening protocols; the maintenance of compliance policies and procedures; the training of personnel across all business units, including the DTI Dubai trading desk; and the escalation of compliance concerns to the General Counsel and, where appropriate, to the Board of Directors.
On April 11, 2022—eight days before the DOJ inquiry was formally opened—Fisk conducted a routine refresh of the Company's OFAC screening results using the Company's automated screening platform (Kestrel Software by Refinitiv). During that screening refresh, Fisk identified potential historical exposure to Volkhov Industrial Group JSC through Petronova Trading FZE. Specifically, the screening results returned a "possible match" alert linking a beneficial owner of Petronova Trading FZE to a known associate of Arkady Volkov, the controlling shareholder of Volkhov Industrial Group JSC. Fisk promptly notified General Counsel Marcus Wellbourne of the alert, and an internal review was initiated. However, the Company's voluntary disclosure to OFAC was not submitted until April 21, 2022—two days after the grand jury subpoena was served—a fact that may bear on the Company's ability to demonstrate proactive compliance conduct.
Fisk's potential personal exposure arises from several areas: (i) the failure to implement adequate OFAC screening protocols for the DTI trading desk, particularly the failure to require manual review of counterparty beneficial ownership structures beyond the automated Kestrel Software screening; (ii) the failure to escalate red flags that had been identified by junior compliance analysts regarding the Petronova counterparty relationship as early as October 2020; and (iii) supervisory deficiencies in overseeing the DTI Dubai trading desk's compliance with the Company's sanctions policies, including the failure to require that DTI's Dubai-based compliance function report directly to the CCO rather than to the DTI President (Hargrave).
Fisk remains employed by the Company as of the date of this memorandum. However, we understand from General Counsel Wellbourne that the Company's senior leadership and the Board are expected to request Fisk's resignation or proceed with his termination in the coming weeks. We are informed that Fisk will depart the Company on or about June 10, 2022. His departure will not extinguish the Company's advancement and indemnification obligations, as discussed in Section III.C below.
As of the date of this memorandum, Fisk has not yet retained personal counsel. We anticipate that he will do so in the near term, and we understand from preliminary discussions that he is likely to retain Catherine Blackthorn of Blackthorn & Associates LLP, located at 700 Louisiana Street, Suite 4300, Houston, Texas 77002. Ms. Blackthorn is an experienced white collar defense attorney with significant OFAC and sanctions enforcement experience.
C. Natasha Sorokin
Natasha Sorokin holds the position of Senior Trader at Dunmore Trading International Ltd. DTI is a DIFC-registered entity operating under DIFC License No. CL-4827, with offices at Level 14, Gate Building 3, DIFC, P.O. Box 506774, Dubai, UAE. Sorokin joined DTI in June 2019 after a prior stint at Halcyon Corporation in Geneva.
Sorokin is a Russian-American dual national who holds both a Russian Federation passport and a U.S. passport. Her U.S. citizenship is critically significant for the purposes of this analysis, as it establishes her status as a "U.S. person" under IEEPA, thereby subjecting her to the full reach of U.S. sanctions prohibitions regardless of where the transactions at issue were executed. This dual-national status substantially increases Sorokin's personal criminal exposure relative to non-U.S.-person employees who may also have been involved in the relevant transactions.
Sorokin was placed on administrative leave by the Company on May 16, 2022, following the commencement of the internal investigation and in consultation with Calderwood & Harkness. The placement on administrative leave was effected in accordance with the terms of her employment agreement with DTI, which permits the Company to place employees on paid administrative leave during the pendency of internal or external investigations.
Sorokin is the key individual in the transactions at issue. She served as the primary point of contact with Sergei Volkov, the Managing Director of Petronova Trading FZE, throughout the period from approximately March 2020 through April 2022. She directly negotiated and executed the crude oil swap transactions with Petronova and Zenith Petroleum DMCC. Preliminary review of email and electronic messaging records (including Meridian Services Inc. messages recovered from the Company's enterprise mobile device management platform) indicates that Sorokin communicated with Sergei Volkov on a near-daily basis during active trading periods, and that certain of those communications reference pricing and logistical arrangements that appear to contemplate Volkhov Industrial Group's ultimate involvement in the transactions as a beneficiary or end-user.
Sorokin's potential personal criminal exposure under IEEPA is significant. If the government can establish that she acted willfully—that is, with knowledge that her conduct was unlawful or with deliberate avoidance of such knowledge—she faces the possibility of criminal prosecution carrying penalties of up to 20 years' imprisonment per count and fines of up to $1 million per violation.
As of the date of this memorandum, Sorokin has not yet retained personal counsel. We anticipate that she will retain Philip Keane of Wexford Keane LLP, located at 2000 K Street NW, Suite 650, Washington, DC 20006. Mr. Keane has extensive experience in IEEPA and sanctions enforcement defense.
D. Derek Hargrave
Derek Hargrave holds the position of President of Dunmore Trading International Ltd. (Dubai). In that capacity, Hargrave has supervised the DTI trading operation, including its entire Dubai-based trading desk, since 2017. He is based in Dubai and reports directly to Callum Renshaw, the Chief Executive Officer of DEH.
Hargrave's potential personal exposure is substantial. As President of DTI, he authorized and directed the suspect transactions at the trading desk level. Preliminary review of internal records indicates that Hargrave personally approved the onboarding of Petronova Trading FZE as a counterparty in early 2020 and that he signed off on individual trade confirmations for several of the crude oil swap transactions at issue. Additionally, documentary evidence suggests that Hargrave may have had actual knowledge of the connections between Petronova Trading FZE and Volkhov Industrial Group JSC. An email dated September 14, 2020, from Hargrave to Sorokin, references "the Volkhov people" in the context of discussing delivery logistics for a crude oil cargo loaded at the port of Novorossiysk—a communication that will require careful analysis in the context of the government's investigation.
As of the date of this memorandum, Hargrave remains actively employed by the Company and has not been placed on administrative leave. We understand that the Company is considering placing Hargrave on administrative leave, and we are informed that this step is expected to occur on or about July 1, 2022. Following a period of administrative leave, we anticipate that Hargrave will be separated from the Company on or about October 1, 2022.
Hargrave has not yet retained personal counsel as of the date of this memorandum. We anticipate that he will retain James Overstreet of Overstreet & McClain PLLC, located at 2200 Ross Avenue, Suite 3600, Dallas, Texas 75201. Mr. Overstreet has substantial experience in complex white collar criminal defense, including matters involving export controls and sanctions.
III. LEGAL FRAMEWORK — INDEMNIFICATION AND ADVANCEMENT UNDER CAYMAN ISLANDS LAW
A. Cayman Islands Companies Act (as Revised)
Dunmore Energy Holdings Ltd. is incorporated as an exempted company with limited liability under the laws of the Cayman Islands, registration number MC-334821, with its registered office at Harbour Place, 4th Floor, 103 South Church Street, George Town, Grand Cayman KY1-1002. As a Cayman Islands exempted company, the legal framework governing the Company's internal corporate governance—including its authority to indemnify and advance defense costs to directors, officers, and employees—is established by the Cayman Islands Companies Act (as revised) (the "Companies Act") and the Company's own constitutional documents.
The Companies Act provides a permissive statutory framework for indemnification. Specifically, the Companies Act does not prescribe mandatory indemnification obligations but rather authorizes companies to include indemnification provisions in their memoranda and articles of association. The Companies Act permits a company to indemnify its directors, officers, and other persons acting in connection with the company's affairs against liabilities, costs, charges, losses, damages, and expenses incurred by such persons in the course of performing their duties, provided that such indemnification does not extend to liability arising from the person's own willful neglect, willful default, or fraud.
The key statutory distinction under Cayman Islands law is between indemnification and advancement. Indemnification refers to the post-adjudication reimbursement of costs and liabilities—that is, the company's obligation to make the individual whole after the proceeding has been resolved and the individual has been found to be entitled to indemnification. Advancement, by contrast, refers to the payment of defense costs as they are incurred, before the final disposition of the proceeding. The Companies Act permits companies to provide for both indemnification and advancement in their constitutional documents, and Cayman Islands law recognizes the critical practical importance of advancement in ensuring that individuals can mount an effective defense in government proceedings.
Under Cayman Islands law, the operative rights of individual officers and employees to indemnification and advancement arise not from the statute itself but from the company's constitutional documents and any separate contractual arrangements. The statute merely establishes the outer boundaries of what the company may lawfully provide. Where a company's articles of association contain mandatory indemnification and advancement provisions, those provisions constitute binding contractual obligations enforceable by the individuals entitled to their protection.
This permissive-plus-contractual framework has direct application to the present analysis. Because the Companies Act does not itself mandate indemnification or advancement, the inquiry turns to the Company's Memorandum and Articles of Association and the individual employment agreements, each of which is examined in detail below.
B. Dunmore's Memorandum and Articles of Association
The Memorandum and Articles of Association of Dunmore Energy Holdings Ltd. (the "Articles") contain a comprehensive indemnification provision that is the primary source of the Company's obligations to the three individuals at issue. The relevant provisions are set forth in Article 168 of the Articles (excerpts attached hereto as Appendix A).
Article 168.1 provides, in relevant part:
"The Company shall indemnify every Director, officer, and employee of the Company and of each subsidiary of the Company (each, an 'Indemnified Person') against all actions, proceedings, costs, charges, losses, damages, and expenses which such Indemnified Person may incur or sustain by reason of any act done, concurred in, or omitted in or about the execution of his or her duties in such capacity, or by reason of any matter or thing done or omitted in any way relating to or arising out of such capacity, provided always that this indemnity shall not extend to any matter in respect of any willful neglect, willful default, or fraud on the part of such Indemnified Person."
Article 168.2 addresses advancement specifically:
"The Company shall advance to each Indemnified Person defense costs reasonably incurred in connection with any proceeding referred to in Article 168.1, as and when such costs are incurred, upon receipt by the Company of a written undertaking by or on behalf of such Indemnified Person to repay all amounts so advanced if it shall ultimately be determined that such Indemnified Person is not entitled to indemnification hereunder."
Several features of these provisions warrant emphasis:
Mandatory nature. The Articles use the word "shall" rather than "may," establishing that both indemnification and advancement are mandatory obligations of the Company rather than discretionary powers of the Board. This is significant because it eliminates the Company's ability to exercise case-by-case discretion in deciding whether to advance defense costs. Once an Indemnified Person makes a proper request for advancement and delivers the required undertaking to repay, the Company is obligated to advance the requested costs.
Scope of coverage. The Articles define the class of "Indemnified Person" broadly to include every "Director, officer, and employee" of the Company and of each subsidiary of the Company. This breadth is critical in the present context. All three individuals at issue fall within the definition:
• Gerald Fisk, as Chief Compliance Officer of DEH, is an "officer" of the Company itself.
• Natasha Sorokin, as Senior Trader at DTI, is an "employee" of a subsidiary of the Company.
• Derek Hargrave, as President of DTI, is an "officer" of a subsidiary of the Company.
The extension of indemnification and advancement rights to officers and employees of subsidiaries is a deliberate and significant feature of the Articles. DEH operates its trading business through DTI, a subsidiary incorporated in Dubai and registered with the DIFC. Without the subsidiary extension, Sorokin and Hargrave—whose employment relationships are with DTI rather than with DEH directly—might not have enforceable indemnification rights against the parent company.
Undertaking-to-repay condition. Article 168.2 conditions advancement on the individual's delivery of a written undertaking to repay all advanced amounts if it is ultimately determined that the individual is not entitled to indemnification. This is a standard and widely-recognized condition for advancement that balances the company's interest in recovering improperly advanced funds against the individual's need for timely access to defense resources. The undertaking requirement does not itself limit the amount of advancement or impose any other conditions beyond the commitment to repay.
Exception for willful neglect, willful default, or fraud. The sole exception to the indemnification (and, by extension, the advancement) obligation is conduct constituting "willful neglect, willful default, or fraud" on the part of the Indemnified Person. As discussed in detail in Section V below, this exception operates as a limitation on the ultimate indemnification obligation rather than as a basis for refusing advancement at the outset of a proceeding. The exception is triggered only upon a final determination that the individual's conduct falls within the excepted categories.
We note that DTI, as a Dubai-incorporated entity registered with the DIFC, has its own formation documents. Upon review of DTI's Memorandum and Articles of Association (DIFC License No. CL-4827), we confirm that DTI's constitutional documents contain a cross-reference to the DEH Articles' indemnification provisions, stating that officers and employees of DTI shall be entitled to indemnification and advancement from the parent company in accordance with the provisions of the DEH Articles. Accordingly, the DEH Articles provide the operative indemnification and advancement rights for all three individuals, and we need not conduct a separate analysis under DTI's own formation documents or DIFC law.
C. Distinction Between Current and Former Employees
A question arises with respect to the continued applicability of the Company's indemnification and advancement obligations following an individual's separation from the Company. This question is directly relevant to Fisk, who is expected to depart the Company on or about June 10, 2022, and may become relevant to Sorokin and Hargrave, who are on or may be placed on administrative leave and may ultimately be separated from the Company.
The DEH Articles address this issue through a standard "tail" provision in Article 168.3:
"The rights to indemnification and advancement of costs provided in this Article 168 shall continue as to any person who has ceased to be a Director, officer, or employee of the Company or any subsidiary, and shall inure to the benefit of the heirs, executors, and administrators of such person, with respect to any act done, concurred in, or omitted during such person's service in such capacity."
This provision makes clear that the indemnification and advancement rights are not extinguished by the individual's departure from the Company. The rights survive separation and continue to protect the individual with respect to acts or omissions that occurred during the period of employment, regardless of whether the individual remains employed at the time the defense costs are incurred. This is a critical protection for individuals who, like Fisk, may be separated from the Company during the pendency of a government investigation that relates to their conduct while employed.
The tail provision applies with equal force to Sorokin and Hargrave. Sorokin's placement on administrative leave as of May 16, 2022, does not terminate her employment relationship or her entitlement to advancement. If and when Sorokin is formally separated from the Company, the tail provision will ensure the continuation of her advancement rights. The same analysis applies to Hargrave, who is expected to be placed on administrative leave and subsequently separated.
IV. INDIVIDUAL EMPLOYMENT AGREEMENTS
In addition to the indemnification and advancement rights established by the DEH Articles, each of the three individuals has specific indemnification provisions in his or her individual employment agreement. These contractual provisions provide a separate and parallel source of the Company's obligations.
A. Gerald Fisk's Employment Agreement
Fisk is employed under a written employment agreement with Dunmore Energy Holdings Ltd. executed on September 12, 2016, and amended on March 1, 2018 in connection with his promotion to Chief Compliance Officer (the "Fisk Employment Agreement"). The Fisk Employment Agreement is governed by Texas state law and was executed in Houston, Texas.
Section 9 of the Fisk Employment Agreement contains a specific indemnification clause, which provides, in relevant part:
"The Company shall indemnify the Employee and advance to the Employee all reasonable legal fees, costs, and expenses incurred by the Employee in connection with any governmental investigation, civil action, criminal proceeding, or administrative action arising from or relating to the Employee's duties as Chief Compliance Officer of the Company, to the fullest extent permitted by applicable law and the Company's constitutional documents."
Section 9.2 sets forth the undertaking-to-repay requirement:
"The Employee's right to advancement of defense costs under this Section 9 shall be conditioned upon the Employee's execution of a written undertaking to repay all amounts advanced if a final, non-appealable determination is made by a court of competent jurisdiction that the Employee acted with willful misconduct or in bad faith."
Several features of the Fisk Employment Agreement's indemnification provisions merit note. First, the agreement imposes no cap on the amount of defense costs that the Company may be required to advance. Second, the agreement expressly cross-references the DEH Articles of Association as providing "additional and parallel rights" to indemnification, confirming that the contractual and constitutional sources of obligation operate independently and cumulatively. Third, the undertaking-to-repay standard in the employment agreement—requiring a finding of "willful misconduct or in bad faith"—is substantively consistent with the standard in the DEH Articles ("willful neglect, willful default, or fraud"), although the precise language differs slightly. The employment agreement's standard, governed by Texas law, may be construed by reference to Texas case law on corporate indemnification, while the Articles' standard is construed under Cayman Islands law. We do not anticipate that this difference in terminology will produce a material difference in outcome, as both standards require a showing of culpable intent beyond mere negligence.
The Fisk Employment Agreement's choice-of-law provision designating Texas law as the governing law applies to the employment relationship generally, including the indemnification provisions. However, because the indemnification provisions are expressly structured to be consistent with Cayman Islands law governing the Articles, and because the Articles themselves provide an independent and mandatory source of obligation, the practical effect of the choice-of-law provision is limited. Even if a Texas court were to construe the employment agreement's indemnification clause differently than a Cayman Islands court would construe the Articles, the Articles' obligations would continue to bind the Company as a matter of Cayman Islands corporate law.
Relevant excerpts from the Fisk Employment Agreement are attached as Appendix B.
B. Natasha Sorokin's Employment Agreement
Sorokin is employed under a written employment agreement with Dunmore Trading International Ltd. executed on June 3, 2019 (the "Sorokin Employment Agreement"). The Sorokin Employment Agreement is governed by the laws of the United Arab Emirates and was executed in Dubai. As a DIFC-registered entity, DTI's employment relationships are subject to the DIFC Employment Law (DIFC Law No. 2 of 2019), which supplements but does not override the contractual indemnification provisions in the employment agreement.
Article 11 of the Sorokin Employment Agreement contains an indemnification provision that extends advancement of defense costs for proceedings arising from Sorokin's employment with DTI. Importantly, the provision specifies that the parent company, Dunmore Energy Holdings Ltd., is the entity responsible for funding any advanced defense costs. This intercompany allocation of responsibility reflects the economic reality that DTI is an operating subsidiary with limited independent financial resources, while DEH is the holding company with access to the balance sheet and insurance coverage necessary to fund defense costs.
The provision states:
"The Parent Company shall advance to the Employee all reasonable legal fees, costs, and expenses incurred by the Employee in connection with any governmental investigation, regulatory inquiry, civil action, criminal proceeding, or administrative action arising from or relating to the Employee's duties and responsibilities in her capacity as Senior Trader of the Company, subject to the Employee's execution of an undertaking to repay amounts advanced in accordance with the indemnification provisions of the Parent Company's constitutional documents."
Sorokin's status as a Russian-American dual national is a critical consideration in the advancement analysis. Her U.S. person status under IEEPA subjects her to the jurisdiction of the United States government for purposes of sanctions enforcement, irrespective of the fact that she is employed in Dubai and that the transactions at issue were executed from DTI's Dubai trading desk. This jurisdictional hook substantially increases Sorokin's personal criminal exposure and makes the availability of effective legal counsel—funded through advancement of defense costs—all the more urgent.
Sorokin's placement on administrative leave as of May 16, 2022, does not terminate the employment relationship or the advancement obligation. The Sorokin Employment Agreement expressly provides that administrative leave is a temporary measure that does not constitute a termination of employment, and that all contractual rights and obligations, including indemnification, remain in effect during any period of administrative leave. Upon any future separation—whether voluntary or involuntary—the DEH Articles' tail provision (Article 168.3, discussed in Section III.C above) will continue to obligate DEH to advance defense costs with respect to acts or omissions that occurred during the period of Sorokin's employment.
Relevant excerpts from the Sorokin Employment Agreement are attached as Appendix C.
C. Derek Hargrave's Employment Agreement
Hargrave is employed under a written employment agreement with Dunmore Trading International Ltd. executed on January 15, 2017 (the "Hargrave Employment Agreement"). Like the Sorokin Employment Agreement, the Hargrave Employment Agreement is governed by UAE law and was executed in Dubai.
The Hargrave Employment Agreement contains indemnification and advancement provisions that are substantially similar to those in Sorokin's agreement. Article 11 of the Hargrave Employment Agreement provides for the advancement of reasonable legal fees and expenses incurred in connection with proceedings arising from Hargrave's duties as President of DTI, with such advancement funded by DEH as the parent company. The undertaking-to-repay clause mirrors the corresponding provision in the Sorokin Employment Agreement and the DEH Articles.
As President of DTI, Hargrave is both an employee and an officer of a DEH subsidiary. His officer status triggers the DEH Articles' subsidiary-officer indemnification provisions (Article 168.1), providing him with an independent basis for advancement under the Articles in addition to his contractual rights under the employment agreement.
Hargrave is currently an active employee of the Company as of the date of this memorandum. We anticipate that he will be placed on administrative leave on or about July 1, 2022, and that he will be separated from the Company on or about October 1, 2022. During any period of administrative leave, the Hargrave Employment Agreement provides that all contractual rights and obligations remain in effect. Upon separation, the DEH Articles' tail provision will continue to protect Hargrave's advancement rights.
Relevant excerpts from the Hargrave Employment Agreement are attached as Appendix D.
V. ANALYSIS OF WHETHER THE WILLFUL MISCONDUCT / FRAUD EXCEPTION BARS ADVANCEMENT
A. Standard for Denial of Advancement
The central question in determining whether the Company may lawfully withhold advancement of defense costs is whether the willful misconduct / fraud exception contained in the DEH Articles and the individual employment agreements has been triggered. Under both the Articles and the employment agreements, the Company's indemnification obligation does not extend to conduct constituting willful neglect, willful default, or fraud. By extension, the Company's advancement obligation is similarly limited: if it is determined that an individual's conduct falls within the exception, the individual would not be entitled to indemnification, and amounts previously advanced would become subject to the undertaking-to-repay obligation.
The critical point, however, is that the exception operates at the point of final, non-appealable adjudication, not at the point of accusation, investigation, or even indictment. Under Cayman Islands law, a company may not withhold advancement based merely on allegations of misconduct, the pendency of a government investigation, or the existence of circumstantial evidence suggesting that the individual may have engaged in culpable conduct. The standard requires a definitive judicial determination—one that has been affirmed on appeal or that is no longer subject to appellate review—that the individual's conduct constituted willful neglect, willful default, or fraud.
This principle is well-established in analogous common law jurisdictions. In Delaware, for example—the most developed body of corporate indemnification law in the United States—courts have consistently held that a company's advancement obligation is an independent right that does not depend on the ultimate merits of the underlying claim. See, e.g., Homestore, Inc. v. Tafeen, 888 A.2d 204 (Del. 2005) (holding that advancement is an "interim" remedy, distinct from indemnification, that the corporation must honor as a present obligation). While Cayman Islands courts have not addressed this precise issue with the same frequency as Delaware courts, the principle is equally well-founded under Cayman Islands law, where the Articles' language conditions the exception on a final determination rather than on a preliminary assessment.
As of the date of this memorandum, no such adjudication has occurred with respect to any of the three individuals. The DOJ inquiry was opened only on April 19, 2022—fewer than three weeks before the date of this memorandum. No individual has been charged, indicted, or even formally designated as a target (as opposed to a subject or witness) of the investigation. The investigation is in its earliest stages, and any determination of willful misconduct or fraud lies far in the future, if it occurs at all.
The mere existence of a government investigation does not satisfy the threshold for invoking the exception. Standard practice in corporate indemnification matters is to advance defense costs and require the execution of an undertaking to repay, thereby preserving the company's right to recover advanced amounts in the event that a final determination of non-entitlement to indemnification is ultimately made. This is precisely the approach that the DEH Articles contemplate through the undertaking-to-repay mechanism in Article 168.2.
B. Application to Each Individual
Gerald Fisk. Fisk's potential exposure arises principally from alleged supervisory failures and compliance deficiencies—the failure to implement adequate OFAC screening protocols, the failure to escalate red flags, and the failure to exercise adequate oversight over the DTI trading desk's compliance function. These allegations, even if ultimately substantiated, may sound in negligence rather than willful misconduct. A compliance officer's failure to implement adequate procedures, standing alone, is distinguishable from willful participation in sanctions evasion or willful disregard of known legal obligations. At this stage, there is no evidence suggesting that Fisk personally participated in or directed the suspect transactions, and his April 11, 2022 identification of the Volkhov exposure through the Kestrel Software screening refresh suggests at least some degree of compliance diligence. There is no basis at this stage to deny advancement of Fisk's defense costs.
Natasha Sorokin. Sorokin presents the most challenging case among the three individuals, given her direct and personal involvement in the suspect transactions. She was the primary point of contact with Sergei Volkov of Petronova Trading FZE, and she directly executed the crude oil swap transactions at issue. If the government can establish that Sorokin had actual knowledge of the Volkhov connections and nonetheless proceeded with the transactions, her conduct could potentially constitute willful violation of IEEPA. However, no such determination has been made, and Sorokin has not been charged with any offense. The question of her knowledge, intent, and state of mind is precisely the kind of factual issue that will be litigated in any criminal proceeding. Until that litigation has been resolved by a final, non-appealable adjudication, the Company is obligated to advance Sorokin's defense costs. The heightened risk of Sorokin's exposure does not alter the advancement analysis; it merely underscores the importance of the undertaking-to-repay mechanism as a protective measure for the Company.
Derek Hargrave. Hargrave's exposure arises from his supervisory role over the DTI trading desk and his apparent authorization and direction of the suspect transactions. The September 14, 2020 email referencing "the Volkhov people" is concerning and may bear on the question of Hargrave's knowledge of the counterparties' connections to Volkhov Industrial Group. However, like Sorokin, Hargrave has not been charged or adjudicated to have engaged in willful misconduct or fraud. The existence of a potentially incriminating communication does not satisfy the standard for a final, non-appealable determination. The Company must advance Hargrave's defense costs pending any future determination.
Recommendation. The Company should advance defense costs for all three individuals upon request, subject to execution of the undertaking-to-repay agreements described below. There is no legal basis at this stage of the investigation for the Company to deny, delay, or condition advancement beyond the undertaking requirement.
C. Undertaking-to-Repay Mechanics
As set forth in Article 168.2 of the DEH Articles and in each of the individual employment agreements, advancement of defense costs is conditioned upon the individual's execution of a written undertaking to repay all amounts advanced if it is ultimately determined that the individual is not entitled to indemnification.
The undertaking-to-repay agreement should contain the following elements:
1. A recital of the individual's status as an Indemnified Person under the DEH Articles and the relevant employment agreement;
2. A description of the proceeding or investigation giving rise to the advancement request (the DOJ inquiry, grand jury subpoena GJ No. 22-418);
3. The individual's agreement to repay all amounts advanced by the Company if it is determined by final, non-appealable adjudication (or by settlement to which the Company consents) that the individual is not entitled to indemnification under the DEH Articles or the applicable employment agreement;
4. A specification that the undertaking is an unsecured, personal obligation of the individual—that is, the Company will not require the individual to post collateral, provide a guarantee, or demonstrate financial capacity to repay as a condition of receiving advancement;
5. An acknowledgment by the individual that the advancement of defense costs does not constitute a determination by the Company that the individual is entitled to indemnification, and that the Company reserves all rights with respect to the ultimate indemnification determination; and
6. Standard representations and warranties, including the individual's agreement to cooperate with the Company's internal investigation and to provide such information as may reasonably be required for the Company to comply with its document production obligations under the grand jury subpoena, subject to the individual's own Fifth Amendment and other constitutional rights.
The undertaking should be unsecured and personal. It would be inappropriate—and potentially unenforceable under applicable law—to require individuals to post security or demonstrate financial capacity as a condition of receiving advancement. The purpose of the advancement right is to ensure that individuals can mount an effective defense without regard to their personal financial resources, and the imposition of onerous conditions would effectively nullify that right.
Calderwood & Harkness should prepare template undertaking-to-repay agreements for execution by each of the three individuals. We recommend that General Counsel Marcus Wellbourne obtain the signatures of each individual (or, once individual counsel are retained, that the undertaking agreements be executed through counsel).
A draft template undertaking-to-repay agreement is attached as Appendix F for review by Victoria Chambers and Howard Quinn.
VI. D&O INSURANCE COVERAGE FOR INDIVIDUAL DEFENSE COSTS
A. Garrison Mutual Insurance Co. Policy
Dunmore Energy Holdings Ltd. maintains a Directors and Officers Liability Insurance policy (the "D&O Policy") issued by Garrison Mutual Insurance Co. The relevant policy details are as follows:
The D&O Policy provides coverage for defense costs incurred by the Company or by individual directors and officers in connection with claims arising from their roles at the Company and its subsidiaries. The policy covers reasonable and necessary legal fees, expert witness fees, court costs, and other litigation-related expenses. The policy does not cover disgorgement of profits, civil or criminal penalties or fines, or amounts paid as restitution. Additionally, the policy contains a standard exclusion for conduct determined, after final adjudication, to be fraudulent or criminal in nature.
A summary of the D&O Policy's relevant coverage terms is attached as Appendix E.
B. Coverage for Individual Counsel Fees
The D&O Policy provides three insuring agreements, commonly referred to as Side A, Side B, and Side C coverage:
Side A Coverage provides for direct payment to individual directors and officers in circumstances where the Company is unable to indemnify—for example, because the Company is insolvent or because applicable law prohibits indemnification. Side A coverage is a direct obligation of the insurer to the individual insureds and does not require the Company to first advance costs. In the present matter, Side A coverage is not expected to be the primary coverage pathway, as the Company remains solvent and is obligated to advance defense costs. However, Side A coverage may become relevant if circumstances change—for example, if the Company enters financial distress as a result of the investigation or if a legal determination is made that the Company may not indemnify a particular individual.
Side B Coverage reimburses the Company for amounts that the Company advances or pays to individual directors and officers under its indemnification obligations. Side B coverage is the most directly relevant insuring agreement for the present analysis. Under Side B, the Company will advance defense costs to Fisk, Sorokin, and Hargrave in accordance with its obligations under the Articles and the employment agreements, and will then seek reimbursement from Garrison Mutual for the amounts advanced. Side B coverage is subject to the policy's self-insured retention of $2.5 million, meaning that the Company will bear the first $2.5 million in defense costs before the policy's coverage attaches.
Side C Coverage (entity coverage) provides coverage for the defense costs of the Company itself—that is, fees and expenses incurred by the Company's own counsel (Calderwood & Harkness) in defending the Company against the DOJ inquiry and any related proceedings. Side C coverage is relevant to the Company's overall litigation cost management but is not directly at issue in this memorandum, which focuses on individual defense costs.
Application to the present matter. The individual defense costs for Fisk, Sorokin, and Hargrave should fall primarily under Side B coverage. The Company will advance defense costs to the individuals, receive invoices from their respective personal counsel, process payments through the Company's finance function, and then submit claims to Garrison Mutual for reimbursement under Side B of the D&O Policy.
Total individual counsel fees for the three individuals are projected to reach approximately $3.4 million over the course of the matter. This estimate is based on preliminary assessments of the anticipated scope and duration of the investigation, including document review, witness preparation, grand jury proceedings, and potential plea or trial proceedings. The individual cost estimates are as follows:
• Fisk: $900,000 – $1,100,000 (reflecting lower anticipated exposure and potentially shorter engagement of personal counsel)
• Sorokin: $1,200,000 – $1,400,000 (reflecting higher exposure, potential individual prosecution risk, and the complexity of cross-border issues)
• Hargrave: $1,000,000 – $1,200,000 (reflecting supervisory exposure and the potential for an extended investigation)
The Company's overall D&O recovery from Garrison Mutual is ultimately expected to total approximately $7.2 million, after application of the $2.5 million self-insured retention. This figure encompasses both individual defense costs (Side B) and the Company's own defense costs (Side C). Importantly, the D&O Policy does not cover the $8.75 million voluntary disgorgement that the Company is separately contemplating, as disgorgement of profits falls outside the policy's coverage terms.
Coordination with Howard Quinn. Howard Quinn, the billing partner for this matter, has separately prepared a comprehensive D&O coverage analysis memorandum dated June 1, 2022, which provides a detailed review of the D&O Policy's coverage terms, exclusions, and anticipated recovery. We recommend that this memorandum be read in conjunction with Howard Quinn's analysis for a complete picture of the insurance coverage landscape.
Howard Quinn has already submitted a carrier notification letter to Patricia Holbrook, Claims Adjuster at Garrison Mutual, dated April 28, 2022. The notification letter places Garrison Mutual on notice of the DOJ inquiry and reserves the Company's rights to submit claims under all insuring agreements of the D&O Policy.
C. Allocation Issues
The advancement of individual defense costs will give rise to allocation issues between the Company and Garrison Mutual. Specifically, the parties will need to agree on a methodology for allocating the D&O Policy's coverage between:
(i) the Company's own defense costs (Calderwood & Harkness fees for the corporate representation, Side C coverage);
(ii) individual defense costs advanced by the Company on behalf of Fisk, Sorokin, and Hargrave (Side B coverage); and
(iii) any costs that fall outside the D&O Policy's coverage entirely (e.g., disgorgement-related advisory fees, regulatory penalty analysis).
Garrison Mutual may take the position that individual counsel fees require separate sub-limits within the per-claim limit, or that individual counsel fees are subject to reasonableness review under the policy's "reasonable and necessary" standard. The carrier may also seek to impose litigation management guidelines that require pre-approval of individual counsel retention, staffing levels, billing rates, and major litigation expenditures.
We recommend early engagement with Patricia Holbrook at Garrison Mutual regarding the allocation methodology. A proactive approach to allocation—establishing agreed-upon categories and percentages at the outset of the matter—will minimize the risk of coverage disputes and delayed reimbursement as the investigation progresses.
VII. COORDINATION WITH INDIVIDUAL COUNSEL
A. Current Status
As of the date of this memorandum (May 5, 2022), none of the three individuals at issue has yet retained personal counsel. We anticipate that each individual will retain separate counsel in the near term, as the nature and trajectory of the DOJ inquiry make the retention of individual counsel both prudent and necessary. The individuals' anticipated counsel selections are as follows:
• Gerald Fisk is expected to retain Catherine Blackthorn of Blackthorn & Associates LLP, 700 Louisiana Street, Suite 4300, Houston, Texas 77002. Ms. Blackthorn has extensive experience in white collar defense with a particular focus on OFAC and sanctions enforcement matters.
• Natasha Sorokin is expected to retain Philip Keane of Wexford Keane LLP, 2000 K Street NW, Suite 650, Washington, DC 20006. Mr. Keane specializes in IEEPA and sanctions enforcement defense and has represented individuals in prior CES investigations.
• Derek Hargrave is expected to retain James Overstreet of Overstreet & McClain PLLC, 2200 Ross Avenue, Suite 3600, Dallas, Texas 75201. Mr. Overstreet has substantial experience in complex white collar criminal defense, including export controls and sanctions matters.
The need for separate individual counsel arises from the potential for adverse interests between the Company and the individual employees. Calderwood & Harkness represents Dunmore Energy Holdings Ltd.—the corporate entity—and does not represent any of the individual employees. The interests of the Company and its individual employees may diverge as the investigation progresses. For example, the Company may pursue a cooperation strategy with the DOJ that requires providing information about individual employees' conduct, or the Company may take positions regarding the adequacy of its compliance program that are inconsistent with the individuals' personal defense strategies. These potential conflicts make it essential that each individual have the benefit of independent counsel whose loyalty runs exclusively to the individual client.
B. Information-Sharing Limitations
Once the individuals retain personal counsel, Calderwood & Harkness must establish clear and well-documented information-sharing boundaries. The principle governing these boundaries is straightforward: Calderwood & Harkness's client is Dunmore Energy Holdings Ltd., and the attorney-client privilege that attaches to Calderwood & Harkness's communications belongs to the Company, not to the individual employees.
Upjohn Warnings. Consistent with standard practice in corporate internal investigations, Calderwood & Harkness has administered (or will administer) Upjohn warnings to each of the three individuals during witness interviews. These warnings make clear that: (i) Calderwood & Harkness represents the Company, not the individual; (ii) the attorney-client privilege belongs to the Company; (iii) the Company may, in its sole discretion, waive the privilege and disclose interview notes or other information to the government or other third parties; and (iv) the individual has the right to retain personal counsel at his or her own expense (or, as applicable, at the Company's expense through advancement of defense costs). The Upjohn warnings are a critical prophylactic measure that protects the Company's ability to cooperate with the government and prevents the creation of inadvertent attorney-client relationships between Calderwood & Harkness and the individual employees.
Acknowledgment Letters. Upon retention of individual counsel, Calderwood & Harkness will send formal acknowledgment letters to each individual's attorney. These letters will confirm: (i) the scope of Calderwood & Harkness's representation (the corporate entity only); (ii) the information-sharing limitations between Calderwood & Harkness and individual counsel; (iii) the Company's expectation that individual counsel will coordinate with Calderwood & Harkness on scheduling and logistical matters to the extent consistent with the individuals' interests; and (iv) the billing and payment mechanics for individual counsel fees (discussed in Section VII.C below). We anticipate sending acknowledgment letters to Blackthorn & Associates LLP (for Fisk), Wexford Keane LLP (for Sorokin), and Overstreet & McClain PLLC (for Hargrave) upon confirmation of each individual's retention.
Joint Defense Agreement Considerations. We do not recommend that the Company and the individual employees enter into a joint defense or common interest agreement at this time. The potential for divergent interests between the Company and the individuals is too significant to permit the sharing of privileged information under a common interest umbrella. The Company has already entered into a common interest and joint defense agreement with its principal shareholders—Greystone Capital Partners Fund IV, L.P. and Thornbury Infrastructure Fund II, L.P.—executed on April 25, 2022, which is appropriate given the aligned interests of the Company and its equity holders. However, extending that agreement to include the individual employees would create unacceptable risks of privilege waiver and conflict.
C. Billing and Payment Mechanics
The mechanics of billing and payment for individual defense costs should be structured to ensure that the Company fulfills its advancement obligations while maintaining appropriate controls and documentation.
Invoice Submission. Invoices from each individual's personal counsel should be submitted directly to Marcus Wellbourne, General Counsel of Dunmore Energy Holdings Ltd., and to Sandra Whitfield, Chief Financial Officer of Dunmore Energy Holdings Ltd., for review and approval. Invoices should be submitted on a monthly basis and should contain sufficient detail to permit verification that the fees and expenses are reasonable and were incurred in connection with the covered proceeding. However, invoices should be redacted to the extent necessary to protect privileged communications between individual counsel and their clients—Calderwood & Harkness should not review the substance of privileged attorney-client communications between individual counsel and the individual employees.
Payment Processing. For Fisk, whose employment is with DEH (Houston), payment of his individual counsel's invoices should be processed through the Company's Houston-based finance function under the supervision of Sandra Whitfield, CFO. For Sorokin and Hargrave, whose employment is with DTI (Dubai), payment may be processed through DTI's finance function under the supervision of Rajesh Malhotra, Controller at DTI, with ultimate approval by Sandra Whitfield. Intercompan

PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGE / ATTORNEY WORK PRODUCT

MEMORANDUM

MATTER NO.: 1016-00009

I. EXECUTIVE SUMMARY

II. FACTUAL BACKGROUND

IV. INDIVIDUAL EMPLOYMENT AGREEMENTS

V. ANALYSIS OF WHETHER THE WILLFUL MISCONDUCT / FRAUD EXCEPTION BARS ADVANCEMENT

VI. D&O INSURANCE COVERAGE FOR INDIVIDUAL DEFENSE COSTS

VII. COORDINATION WITH INDIVIDUAL COUNSEL

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