1007-00005 · Calderwood & Harkness LLP · Correspondence

response-letter-wcn-2021-1247.docx DOCUMENT Litigation

5 / 12 ← → ✕

CONFIDENTIAL

CALDERWOOD & HARKNESS LLP Attorneys at Law 200 South Wacker Drive, Suite 3100 Chicago, Illinois 60606 Telephone: (312) 555-8400 Facsimile: (312) 555-8401 www.calderwoodharkness.com

March 11, 2022

Via Email (rdrummond@prattgivens.com) and DocuSign

Rachel Drummond, Esq. Pratt, Givens & Lowell LLP 155 North Michigan Avenue, Suite 2700 Chicago, Illinois 60601

Re: Warranty Chargeback Notice WCN-2021-1247, dated December 6, 2021 Long-Term Supply Agreement Ref. No. LTSA-MPT-2020-0315 Vantage Mobility Systems Corp. / Meridian Powertrain Holdings, Inc. Calderwood & Harkness Matter No. 1007-00005

Dear Ms. Drummond:

This firm represents Vantage Mobility Systems Corp. ("Vantage"), a Delaware corporation with its principal place of business at 4280 Mound Road, Sterling Heights, Michigan 48310, in connection with the warranty-chargeback dispute initiated by your client, Meridian Powertrain Holdings, Inc. ("Meridian"). We have been authorized by Vantage's General Counsel, Priya Nandakumar, to communicate on behalf of Vantage with respect to all matters relating to this dispute, and we request that all further communications regarding this matter be directed to the undersigned at the address set forth above.

The purpose of this letter is to formally contest, on behalf of Vantage, the first Warranty Chargeback Notice bearing Meridian Reference Number WCN-2021-1247 (the "First WCN" or "WCN-2021-1247"), dated December 6, 2021, issued by Meridian to Vantage pursuant to the Long-Term Supply Agreement dated March 15, 2020, bearing Reference Number LTSA-MPT-2020-0315 (the "LTSA"). The First WCN asserts a total chargeback amount of $1,583,654.60 against Vantage, which Vantage contests in its entirety on the procedural and substantive grounds set forth in detail below.

This letter is submitted within the framework of the contest provisions set forth in Section 9.4 of the LTSA. As you are aware, Section 9.4 prescribes a 60-day period following the date of a warranty chargeback notice during which the supplier may contest the chargeback in writing. The First WCN was issued on December 6, 2021, establishing a contest deadline of February 4, 2022. Vantage itself transmitted a preliminary written objection to Meridian's attention on January 31, 2022 — within the prescribed 60-day contest period — setting forth the principal bases for its challenge to the First WCN. While this firm was not formally engaged by Vantage in this matter until February 14, 2022, this letter supplements and formalizes the preliminary objection timely submitted by Vantage and provides a comprehensive statement of Vantage's contest of the First WCN in its entirety.

We respectfully request that Meridian and its counsel treat this letter as Vantage's complete and formal statement of contest under Section 9.4 of the LTSA.

I. Background and Summary of the Disputed Chargeback

Vantage and Meridian are parties to the LTSA, which was executed on March 15, 2020, and carries a five-year term running through March 14, 2025. The LTSA is governed by the laws of the State of Illinois, as specified in Section 22.4 thereof, without regard to conflict-of-laws principles. The parties' commercial relationship predates the current LTSA; Meridian has been a Vantage customer since approximately 2016, and the LTSA is the latest in a series of successive supply agreements between the parties covering substantially similar product lines.

Under the LTSA, Vantage supplies precision-machined aluminum valve body housings to Meridian's assembly facility located in Schaumburg, Illinois. The relevant part numbers are VMS-4400A through VMS-4400F (collectively, the "Valve Body Housings" or the "Parts"). Meridian integrates these Valve Body Housings into its 8-speed automatic transmission modules, designated Model MPT-8AT, which Meridian in turn supplies to original equipment manufacturer ("OEM") customers for use in passenger and light-duty commercial vehicles. Annual supply volumes under the LTSA are approximately 480,000 units at a weighted average unit price of $78.50, representing a significant commercial relationship between the parties.

The LTSA contains warranty provisions set forth principally in Section 9. Under Section 9.1, Vantage warrants that the Parts supplied to Meridian will conform to Meridian's applicable engineering specifications — specifically, Meridian Drawing Set MER-DWG-4400, Revision C (the "Engineering Specifications") — and will be free from defects in material and workmanship for a period of 36 months from the date of the OEM vehicle sale to the end consumer or 60,000 miles, whichever occurs first. Section 9.3 defines the categories of costs that Meridian may recover from Vantage through warranty chargebacks in the event of a confirmed warranty failure attributable to a nonconformity in the Parts. Section 9.4 establishes the procedural framework for the issuance and contest of warranty chargeback notices, including the inspection and tender provisions that are central to this dispute.

On December 6, 2021, Meridian issued the First WCN, bearing Meridian Reference Number WCN-2021-1247, addressed to Vantage. The First WCN covers 3,842 individual units of Valve Body Housings and asserts a total chargeback amount of $1,583,654.60. The per-unit chargeback amount is stated as $412.30, which Meridian breaks down into the following components:

In the First WCN and accompanying documentation, Meridian alleges that Vantage's castings exhibit micro-porosity that causes hydraulic fluid bypass through the Valve Body Housings. Meridian further alleges that this hydraulic fluid bypass results in solenoid-circuit malfunctions, erratic shift behavior, and limp-mode activation in vehicles equipped with the MPT-8AT transmission. Meridian characterizes these field failures as warranty-covered defects attributable to nonconforming material supplied by Vantage.

As set forth in detail in the following sections, Vantage contests this chargeback in its entirety. The First WCN is procedurally defective, substantively unfounded, and inflated by cost components lacking any contractual basis. Vantage's challenge rests on three independent grounds: (1) Meridian's failure to comply with the procedural requirements of Section 9.4(b) of the LTSA, which are conditions precedent to Meridian's chargeback recovery rights; (2) the Parts' full conformity with the Engineering Specifications, combined with substantial evidence that the field failures are attributable to Meridian's own assembly process rather than Vantage's castings; and (3) the inclusion in the per-unit chargeback calculation of a $48.00 "contractual administrative fee" that has no basis in Section 9.3 of the LTSA.

II. Procedural Non-Compliance Under LTSA Section 9.4(b)

Meridian's right to recover warranty chargebacks under the LTSA is expressly conditioned on its compliance with the procedural framework established in Section 9.4. As detailed below, Meridian has failed to comply with these procedural requirements in two critical respects: (a) it failed to make returned parts available for Vantage's inspection within the contractually mandated 30-day period, and (b) it has failed entirely to tender more than half of the units referenced in the First WCN. Each of these failures independently undermines the validity of the First WCN.

A. Failure to Tender Parts Within the 30-Day Inspection Deadline

Section 9.4(b) of the LTSA expressly provides that, upon issuance of a warranty chargeback notice, Meridian "shall make the parts that are the subject of such notice available to Supplier for inspection at a mutually agreed upon location within thirty (30) days of the date of such notice." This provision reflects a fundamental aspect of the warranty chargeback framework negotiated by the parties: the supplier's right to independently inspect and evaluate the allegedly defective parts on a timely basis, including through root-cause analysis, metallurgical examination, and comparison against specification requirements.

The First WCN was issued on December 6, 2021. Accordingly, under the plain and unambiguous terms of Section 9.4(b), Meridian was required to make the 3,842 units referenced in the First WCN available for Vantage's inspection no later than January 5, 2022.

Meridian did not comply with this requirement. The first parts were not made available to Vantage until January 27, 2022 — fifty-two (52) days after issuance of the First WCN, exceeding the contractual 30-day deadline by twenty-two (22) days. Vantage's VP of Quality, Thomas Reinhardt, made multiple written requests to his counterparts at Meridian during the intervening period, seeking access to the returned parts for inspection. These requests were acknowledged by Meridian's quality team but not acted upon in a timely manner. Mr. Reinhardt's correspondence on this subject is available for review and will be provided to Meridian's counsel upon request.

This delay is not de minimis, and it is not excusable under the LTSA. The 30-day inspection deadline serves the critical function of ensuring that the supplier has access to the allegedly defective parts at a time sufficiently close to the asserted field failures to permit meaningful forensic analysis. Delay in making the parts available introduces the risk that the parts' condition may change — whether through handling, storage conditions, or further disassembly by Meridian — and diminishes the supplier's ability to conduct a contemporaneous and reliable root-cause analysis. In this instance, the 22-day delay materially prejudiced Vantage's ability to examine the parts in a condition reflective of their state at the time of the alleged field failures. This prejudice is compounded by the fact that, as discussed in Section III.B below, Vantage has identified a plausible alternative root cause for the field failures that relates to Meridian's own assembly process, and timely access to the returned parts would have facilitated a more definitive analysis on this point.

B. Failure to Tender 2,108 Units

Of the 3,842 units referenced in WCN-2021-1247, Meridian has made only 1,734 units available to Vantage for inspection. The remaining 2,108 units — representing 54.9% of the total units covered by the First WCN — have never been tendered to Vantage for inspection, despite repeated and specific requests from Mr. Reinhardt. To date, Meridian has offered no explanation for its failure to tender these units and has not provided any commitment as to when, if ever, they will be made available.

The magnitude of this omission cannot be overstated. Meridian seeks to recover $869,119.40 in chargeback amounts attributable to the 2,108 untended units (2,108 × $412.30), yet it has denied Vantage any opportunity to inspect, test, or evaluate a single one of these units. Vantage does not know — and has no means of determining — whether these 2,108 units actually exhibit the micro-porosity that Meridian alleges, whether they are in fact Vantage-manufactured parts bearing Vantage part numbers, whether they were installed in vehicles that actually experienced the field failures described in the First WCN, or whether any condition of these parts may be attributable to causes other than an alleged manufacturing defect.

Section 9.4(b) of the LTSA conditions Meridian's right to recover warranty chargebacks on compliance with the inspection procedures set forth therein. The contractual language is clear: the parts that are the subject of a warranty chargeback notice must be made available to the supplier for inspection. This is not a mere formality; it is a substantive condition that protects the supplier's due-process right to verify the factual basis for a chargeback before being required to absorb the associated cost. Meridian's failure to tender more than half the units at issue constitutes a material breach of these procedures and forecloses any right to chargeback recovery for the 2,108 units that Vantage has never had the opportunity to examine.

Vantage submits that Meridian is not entitled to any chargeback recovery for the 2,108 units that were never made available for inspection. Vantage has been denied its contractual right to independently verify the existence of the alleged defect in these units, and no amount of post-hoc documentation from Meridian can substitute for Vantage's right to conduct its own physical inspection and root-cause analysis.

C. Legal Effect of Procedural Non-Compliance

The inspection and contest provisions set forth in Section 9.4 of the LTSA are not discretionary guidelines; they are conditions precedent to Meridian's right to recover warranty chargebacks from Vantage. The parties expressly negotiated these provisions as part of the integrated framework governing warranty-related cost allocation, and Meridian accepted these procedural requirements as a necessary corollary to the chargeback rights it obtained under Section 9.3.

Meridian's failure to comply with these conditions — both the timing requirement of the 30-day inspection deadline and the completeness of tender — vitiates the validity of WCN-2021-1247 in its entirety, or at a minimum with respect to the 2,108 units that Meridian has never made available for Vantage's inspection.

Under Illinois law, which governs the LTSA pursuant to Section 22.4, a party seeking to enforce a contractual right that is subject to conditions precedent must demonstrate substantial compliance with those conditions. See, e.g., Gallagher Corp. v. Russ, 309 Ill. App. 3d 192, 199 (1st Dist. 1999) (holding that a party's failure to satisfy a contractual condition precedent bars enforcement of the right conditioned thereon); Inner-City Redevelopment Corp. v. Thalen, 96 Ill. App. 3d 1145, 1148 (1st Dist. 1981) (conditions precedent must be strictly performed unless the agreement provides otherwise). Meridian has not substantially complied with the inspection procedures of Section 9.4(b). Its failure to tender any parts within the 30-day window, coupled with its wholesale failure to tender 54.9% of the units at issue, falls well short of the threshold of substantial compliance that Illinois law demands.

Vantage therefore submits that Meridian's procedural non-compliance independently warrants the complete reversal of WCN-2021-1247, or at minimum the removal of the 2,108 untended units — and the associated $869,119.40 in chargeback amounts — from the scope of the First WCN.

III. Substantive Challenge — Specification Compliance

Even setting aside the procedural deficiencies addressed above, the First WCN fails on its merits. Vantage's Parts conform to Meridian's Engineering Specifications. Moreover, there is substantial evidence that the field failures underlying the First WCN are attributable not to Vantage's castings, but to Meridian's own assembly process at its Schaumburg facility.

A. Vantage's Parts Conform to Meridian's Engineering Specifications

Meridian's chargeback rests on the assertion that Vantage's Valve Body Housings exhibit micro-porosity at levels causing hydraulic fluid bypass through the castings. The warranty obligation set forth in Section 9.1 of the LTSA requires that the Parts conform to Meridian's Engineering Specifications — that is, Meridian Drawing Set MER-DWG-4400, Revision C. The question, therefore, is whether Vantage's Parts meet the porosity standard established in those specifications. They do.

MER-DWG-4400, Revision C establishes a maximum porosity threshold of ASTM E505 Level 2 for the Valve Body Housings. ASTM E505 is the recognized industry-standard reference radiograph system for the inspection of aluminum and magnesium die castings; it establishes a graduated scale of porosity severity, with Level 1 representing the lowest (most restrictive) level of porosity and higher levels representing progressively greater porosity. By specifying a maximum of Level 2, Meridian's Engineering Specifications permit castings exhibiting porosity up to and including Level 2 on the ASTM E505 scale.

Vantage's Production Part Approval Process ("PPAP") documentation and ongoing Statistical Process Control ("SPC") data conclusively demonstrate that Vantage's Parts have consistently met and exceeded this specification. Specifically:

• Of all parts sampled during the relevant production period, 97.3% met the more stringent ASTM E505 Level 1 standard — meaning that the vast majority of Vantage's output exhibited porosity below even the tightest commercially recognized threshold.

• 100% of all sampled parts met the required ASTM E505 Level 2 threshold. Not a single part in Vantage's SPC sampling fell outside the specification limit established by Meridian's own engineering drawings.

Accordingly, Vantage's Parts as shipped to Meridian's Schaumburg facility were in full conformity with the contractual specifications. Meridian's Engineering Specifications define the parties' agreement as to what constitutes an acceptable casting, and Vantage has met that standard without exception in the sampled population.

If Meridian believed that a tighter porosity standard — such as a maximum of ASTM E505 Level 1, or a custom porosity threshold below Level 2 — was necessary to ensure adequate field performance of the MPT-8AT transmission, it was obligated to specify that standard in its Engineering Specifications at the time the specifications were issued and incorporated into the LTSA. Meridian's Drawing Set MER-DWG-4400, Revision C does not contain any such tighter requirement. Vantage cannot be held responsible for field failures allegedly arising from a level of porosity that falls within the specification range that Meridian itself defined and approved.

Vantage is prepared to make its complete PPAP records, SPC data, and related quality documentation available for joint review by the parties and their respective technical experts at a time and place to be mutually agreed upon. Vantage is confident that this data will confirm the full specification compliance of its Parts.

B. Alternative Root Cause — Meridian's Assembly Process

Vantage has substantial reason to believe that the field failures attributed to its Valve Body Housings are in fact caused, in whole or in significant part, by deficiencies in Meridian's own assembly process at its Schaumburg facility. This alternative root cause is not speculative; it is supported by specific, identifiable changes in Meridian's manufacturing operations that are temporally correlated with the onset of the field failures.

Specifically, Vantage's VP of Quality, Thomas Reinhardt, has identified through discussions with Meridian's quality personnel and review of available assembly documentation that Meridian changed its torque-wrench calibration protocol for the solenoid-pack retaining bolts at the Schaumburg assembly plant in approximately August 2021. This change occurred shortly before the field failures that form the basis of WCN-2021-1247 began to emerge in the field, with the first reports of solenoid-circuit malfunctions and erratic shift behavior appearing in approximately October 2021.

The significance of this timing is considerable. The solenoid-pack retaining bolts secure the solenoid assembly to the valve body housing within the MPT-8AT transmission module. These bolts are specified at a torque of 12 Nm per Meridian's own assembly procedures. If the solenoid-pack retaining bolts are insufficiently torqued — whether due to a change in calibration protocol, miscalibrated torque tools, or operator error following a procedural change — the resulting inadequate clamping force on the solenoid pack would produce precisely the types of field failures that Meridian has attributed to casting porosity. Specifically, insufficient bolt torque would allow the solenoid pack to seat improperly against the valve body housing, creating gaps or misalignment at the interface between the solenoid pack and the housing. These gaps would permit hydraulic fluid bypass around the solenoid circuits, causing solenoid-circuit malfunctions, erratic shift behavior, and limp-mode activation — the very failure modes described in the First WCN.

In other words, the symptoms that Meridian attributes to micro-porosity in Vantage's castings are equally consistent with, and in Vantage's assessment more likely attributable to, an assembly-process deficiency at Meridian's own facility. The temporal correlation between Meridian's August 2021 calibration protocol change and the October 2021 onset of field failures is significant and cannot be disregarded. The Parts supplied by Vantage did not change during this period; Vantage's manufacturing process, tooling, raw materials, and quality controls remained consistent throughout 2021 and continued to produce Parts in full conformity with the Engineering Specifications. What changed was Meridian's assembly process.

Vantage expressly reserves the right to conduct further investigation into this alternative root cause, including through the retention and use of independent expert failure analysis resources. Vantage has already retained qualified metallurgical and mechanical engineering experts for this purpose and anticipates that a thorough failure analysis of the returned Valve Body Housings — including both the 1,734 units that have been tendered and the 2,108 units that have not — will support the conclusion that the field failures are attributable to Meridian's assembly process rather than to any deficiency in Vantage's castings. Vantage intends to present evidence of Meridian's contributory or sole causation at the appropriate time and in the appropriate forum.

IV. Challenge to the Per-Unit Chargeback Calculation

Independent of the procedural and substantive deficiencies set forth above, the per-unit chargeback amount asserted in the First WCN is inflated by the inclusion of a cost component — the so-called "contractual administrative fee" — that has no basis in the LTSA.

A. The $48.00 Administrative Fee Lacks Contractual Basis

Each of the 3,842 units in WCN-2021-1247 includes a $48.00 "contractual administrative fee" as a component of the stated per-unit chargeback amount of $412.30. Across the 3,842 units covered by the First WCN, this fee accounts for $184,416.00 of the total asserted chargeback of $1,583,654.60 (calculated as 3,842 × $48.00 = $184,416.00).

Section 9.3 of the LTSA defines with specificity the categories of costs that Meridian may recover from Vantage through the warranty chargeback mechanism. These categories are limited to: (i) the cost of the replacement part; (ii) reasonable OEM dealer labor costs associated with the warranty repair or replacement; and (iii) documented internal failure-analysis and logistics costs that are directly attributable to the warranty return. Section 9.3 does not authorize the recovery of a general "administrative fee," an overhead allocation, or any other formulaic charge not directly and demonstrably linked to the actual incremental costs of processing a specific warranty return.

The $48.00 administrative fee included in the First WCN does not correspond to any of the cost categories enumerated in Section 9.3. Meridian has characterized this charge as a "contractual administrative fee," but the LTSA contains no provision establishing, authorizing, or defining such a fee. Meridian has provided no documentation demonstrating that the $48.00 figure represents an actual, incremental cost incurred by Meridian in connection with the processing of the specific warranty returns at issue, as opposed to a standardized overhead charge applied formulaically to all warranty chargebacks regardless of the actual costs incurred.

Vantage contests the inclusion of this fee in the per-unit chargeback calculation for WCN-2021-1247, and Vantage further objects to the inclusion of this fee in any subsequent chargeback notice issued to Vantage under the LTSA. To the extent that Meridian contends that its administrative costs associated with warranty processing are recoverable, it bears the burden of demonstrating that such costs are (a) authorized under Section 9.3, (b) documented on a per-unit or per-incident basis, and (c) actually and directly attributable to the warranty returns at issue. Meridian has made no such showing.

The financial significance of this issue extends well beyond the First WCN. Vantage is aware that Meridian has issued three warranty chargeback notices to date: WCN-2021-1247 (3,842 units), WCN-2022-0103, and WCN-2022-0289, covering a combined total of 11,814 units. Across all three notices, the cumulative administrative fee component totals $567,072.00 (11,814 × $48.00). None of this amount is contractually recoverable under Section 9.3 of the LTSA. Vantage's contest of the administrative fee applies not only to the First WCN but to all warranty chargeback notices issued or to be issued under the LTSA.

V. Demand for Immediate Reversal of Accounts Receivable Deductions

Vantage is aware that Meridian commenced unilateral deductions of chargeback amounts from Vantage's open accounts receivable beginning with the January 2022 payment cycle, without waiting for the resolution of Vantage's timely contest of the First WCN. As of the date of this letter, Meridian has withheld approximately $2.4 million from payments otherwise due and owing to Vantage under the LTSA and related purchase orders. This amount includes deductions attributable not only to WCN-2021-1247 but also to the subsequent chargeback notices WCN-2022-0103 and WCN-2022-0289.

These unilateral deductions are improper and are not authorized by the LTSA. The contest provisions of Section 9.4 establish a mechanism by which the supplier may challenge a warranty chargeback notice within the prescribed 60-day period. Implicit in this framework — and consistent with ordinary commercial practice and fundamental principles of good faith — is the expectation that the buyer will not unilaterally enforce a chargeback through accounts-receivable deductions while the chargeback is the subject of a timely, pending contest. To hold otherwise would render the contest provisions of Section 9.4 a nullity: the supplier's right to contest a chargeback would be meaningless if the buyer could simultaneously collect the full chargeback amount by withholding it from the supplier's receivables.

Vantage's preliminary written objection to WCN-2021-1247 was submitted on January 31, 2022, within the 60-day contest period. This letter supplements and formalizes that objection. The First WCN has been and remains the subject of a timely, pending contest under Section 9.4, and Meridian's continued withholding of amounts from Vantage's accounts receivable during the pendency of that contest constitutes a material breach of the LTSA's payment provisions and of Meridian's obligation of good faith and fair dealing under the agreement.

Vantage demands that Meridian take the following actions immediately:

1. Reverse all deductions from Vantage's accounts receivable that are related to WCN-2021-1247, and credit Vantage's account for the full amount withheld to date in connection with the First WCN.

2. Refrain from further unilateral withholdings from Vantage's accounts receivable in connection with any warranty chargeback notice that is the subject of a pending contest under Section 9.4 of the LTSA.

3. Remit all amounts currently due and owing to Vantage under the LTSA and related purchase orders, without offset or deduction for disputed chargeback amounts.

Vantage reserves all rights arising from Meridian's unauthorized deductions, including the right to seek recovery of the withheld amounts together with interest, costs, and any consequential damages resulting from the improper withholding.

VI. Reservation of Rights

Vantage expressly reserves all rights and remedies available to it under the LTSA, at law, and in equity, including but not limited to:

(a) The right to pursue claims for breach of contract arising from Meridian's unilateral deductions from Vantage's accounts receivable in the absence of a resolved and undisputed chargeback;

(b) The right to seek recovery of all costs and expenses incurred by Vantage in connection with this dispute, including attorneys' fees, expert fees, and internal costs of investigation and administration;

(c) The right to pursue any and all claims arising from Meridian's failure to comply with the procedural requirements of Section 9.4(b) of the LTSA, including claims for damages resulting from Vantage's inability to conduct timely and complete inspection of the returned Parts;

(d) The right to assert defenses based on Meridian's own contributory fault in causing the field failures underlying the First WCN, including defenses arising from Meridian's August 2021 change in torque-wrench calibration protocol and any other assembly-process deficiency identified through Vantage's ongoing investigation; and

(e) Any and all other rights, claims, counterclaims, and defenses available to Vantage under the LTSA, the Uniform Commercial Code as adopted in the State of Illinois, or otherwise.

Nothing in this letter, or in any prior or subsequent communication from Vantage or its counsel, shall be construed as a waiver, release, or relinquishment of any right, claim, defense, or remedy available to Vantage, whether presently known or hereafter discovered. Vantage's willingness to engage in commercial discussions with Meridian regarding a potential resolution of this dispute does not and shall not constitute an acknowledgment of liability, an admission of any deficiency in Vantage's Parts, or a concession as to the validity of any warranty chargeback notice issued by Meridian.

VII. Proposed Next Steps

Notwithstanding the serious deficiencies in the First WCN identified in this letter, Vantage remains committed to the commercial relationship reflected in the LTSA and is willing to engage in good-faith discussions aimed at a fair and commercially reasonable resolution of this dispute. To that end, Vantage proposes a meet-and-confer between counsel for the parties — and, to the extent helpful, representatives of the parties' respective quality and engineering teams — to discuss the issues raised in this letter and explore potential paths to resolution.

In the interim, and as a precondition to productive discussions, Vantage requests that Meridian take the following actions:

1. Immediately tender the remaining 2,108 units referenced in WCN-2021-1247 that have not been made available to Vantage for inspection, and provide Vantage with reasonable access to those units at a mutually agreed upon location for purposes of conducting a complete physical inspection and root-cause analysis.

2. Reverse all unilateral deductions from Vantage's accounts receivable related to WCN-2021-1247, as well as any deductions related to WCN-2022-0103 and WCN-2022-0289 that are or may become the subject of a contest under Section 9.4, and remit all amounts currently due and owing to Vantage.

3. Refrain from issuing additional warranty chargeback notices or making further deductions from Vantage's accounts receivable pending the outcome of discussions between the parties and their counsel regarding a resolution of this dispute.

Vantage has retained independent technical experts — including metallurgical engineers and transmission-systems specialists — to conduct a comprehensive failure analysis of the returned Valve Body Housings. This analysis is ongoing and will encompass both the 1,734 units that Meridian has made available and, once tendered, the 2,108 units that remain outstanding. Vantage will share relevant findings of this analysis with Meridian and its counsel at the appropriate time and in the appropriate context.

This firm is available to discuss scheduling and logistics for a meet-and-confer at the parties' mutual convenience. We would suggest a target date within the next thirty (30) days and are flexible as to format, whether in person or by videoconference.

We respectfully request that you acknowledge receipt of this letter and provide a substantive response on behalf of Meridian within fourteen (14) days of the date hereof. As stated above, all further communications regarding this matter should be directed to the undersigned at the contact information set forth below.

Very truly yours,

CALDERWOOD & HARKNESS LLP

By: ________

Samuel Eklund Partner

200 South Wacker Drive, Suite 3100 Chicago, Illinois 60606 Telephone: (312) 555-8417

Email: seklund@calderwoodharkness.com

cc: Priya Nandakumar, Esq., General Counsel, Vantage Mobility Systems Corp. Derek Calloway, Chief Executive Officer, Vantage Mobility Systems Corp. Carlos Espinoza, Esq., Calderwood & Harkness LLP Linda Osei, Esq., Calderwood & Harkness LLP

Enclosures: None. PPAP records, SPC data, and related quality documentation referenced herein are available for joint review upon request.

Cost Component	Per-Unit Amount	Total (3,842 Units)
Replacement part cost	$78.50	$301,597.00
OEM dealer labor	$218.00	$837,556.00
Internal failure-analysis and logistics costs	$67.80	$260,487.60
Contractual administrative fee	$48.00	$184,416.00
Total	$412.30	$1,583,654.60

CONFIDENTIAL
CALDERWOOD & HARKNESS LLP Attorneys at Law 200 South Wacker Drive, Suite 3100 Chicago, Illinois 60606 Telephone: (312) 555-8400 Facsimile: (312) 555-8401 www.calderwoodharkness.com
March 11, 2022
Via Email (rdrummond@prattgivens.com) and DocuSign
Rachel Drummond, Esq. Pratt, Givens & Lowell LLP 155 North Michigan Avenue, Suite 2700 Chicago, Illinois 60601
Re: Warranty Chargeback Notice WCN-2021-1247, dated December 6, 2021 Long-Term Supply Agreement Ref. No. LTSA-MPT-2020-0315 Vantage Mobility Systems Corp. / Meridian Powertrain Holdings, Inc. Calderwood & Harkness Matter No. 1007-00005
Dear Ms. Drummond:
This firm represents Vantage Mobility Systems Corp. ("Vantage"), a Delaware corporation with its principal place of business at 4280 Mound Road, Sterling Heights, Michigan 48310, in connection with the warranty-chargeback dispute initiated by your client, Meridian Powertrain Holdings, Inc. ("Meridian"). We have been authorized by Vantage's General Counsel, Priya Nandakumar, to communicate on behalf of Vantage with respect to all matters relating to this dispute, and we request that all further communications regarding this matter be directed to the undersigned at the address set forth above.
The purpose of this letter is to formally contest, on behalf of Vantage, the first Warranty Chargeback Notice bearing Meridian Reference Number WCN-2021-1247 (the "First WCN" or "WCN-2021-1247"), dated December 6, 2021, issued by Meridian to Vantage pursuant to the Long-Term Supply Agreement dated March 15, 2020, bearing Reference Number LTSA-MPT-2020-0315 (the "LTSA"). The First WCN asserts a total chargeback amount of $1,583,654.60 against Vantage, which Vantage contests in its entirety on the procedural and substantive grounds set forth in detail below.
This letter is submitted within the framework of the contest provisions set forth in Section 9.4 of the LTSA. As you are aware, Section 9.4 prescribes a 60-day period following the date of a warranty chargeback notice during which the supplier may contest the chargeback in writing. The First WCN was issued on December 6, 2021, establishing a contest deadline of February 4, 2022. Vantage itself transmitted a preliminary written objection to Meridian's attention on January 31, 2022 — within the prescribed 60-day contest period — setting forth the principal bases for its challenge to the First WCN. While this firm was not formally engaged by Vantage in this matter until February 14, 2022, this letter supplements and formalizes the preliminary objection timely submitted by Vantage and provides a comprehensive statement of Vantage's contest of the First WCN in its entirety.
We respectfully request that Meridian and its counsel treat this letter as Vantage's complete and formal statement of contest under Section 9.4 of the LTSA.
I. Background and Summary of the Disputed Chargeback
Vantage and Meridian are parties to the LTSA, which was executed on March 15, 2020, and carries a five-year term running through March 14, 2025. The LTSA is governed by the laws of the State of Illinois, as specified in Section 22.4 thereof, without regard to conflict-of-laws principles. The parties' commercial relationship predates the current LTSA; Meridian has been a Vantage customer since approximately 2016, and the LTSA is the latest in a series of successive supply agreements between the parties covering substantially similar product lines.
Under the LTSA, Vantage supplies precision-machined aluminum valve body housings to Meridian's assembly facility located in Schaumburg, Illinois. The relevant part numbers are VMS-4400A through VMS-4400F (collectively, the "Valve Body Housings" or the "Parts"). Meridian integrates these Valve Body Housings into its 8-speed automatic transmission modules, designated Model MPT-8AT, which Meridian in turn supplies to original equipment manufacturer ("OEM") customers for use in passenger and light-duty commercial vehicles. Annual supply volumes under the LTSA are approximately 480,000 units at a weighted average unit price of $78.50, representing a significant commercial relationship between the parties.
The LTSA contains warranty provisions set forth principally in Section 9. Under Section 9.1, Vantage warrants that the Parts supplied to Meridian will conform to Meridian's applicable engineering specifications — specifically, Meridian Drawing Set MER-DWG-4400, Revision C (the "Engineering Specifications") — and will be free from defects in material and workmanship for a period of 36 months from the date of the OEM vehicle sale to the end consumer or 60,000 miles, whichever occurs first. Section 9.3 defines the categories of costs that Meridian may recover from Vantage through warranty chargebacks in the event of a confirmed warranty failure attributable to a nonconformity in the Parts. Section 9.4 establishes the procedural framework for the issuance and contest of warranty chargeback notices, including the inspection and tender provisions that are central to this dispute.
On December 6, 2021, Meridian issued the First WCN, bearing Meridian Reference Number WCN-2021-1247, addressed to Vantage. The First WCN covers 3,842 individual units of Valve Body Housings and asserts a total chargeback amount of $1,583,654.60. The per-unit chargeback amount is stated as $412.30, which Meridian breaks down into the following components:
In the First WCN and accompanying documentation, Meridian alleges that Vantage's castings exhibit micro-porosity that causes hydraulic fluid bypass through the Valve Body Housings. Meridian further alleges that this hydraulic fluid bypass results in solenoid-circuit malfunctions, erratic shift behavior, and limp-mode activation in vehicles equipped with the MPT-8AT transmission. Meridian characterizes these field failures as warranty-covered defects attributable to nonconforming material supplied by Vantage.
As set forth in detail in the following sections, Vantage contests this chargeback in its entirety. The First WCN is procedurally defective, substantively unfounded, and inflated by cost components lacking any contractual basis. Vantage's challenge rests on three independent grounds: (1) Meridian's failure to comply with the procedural requirements of Section 9.4(b) of the LTSA, which are conditions precedent to Meridian's chargeback recovery rights; (2) the Parts' full conformity with the Engineering Specifications, combined with substantial evidence that the field failures are attributable to Meridian's own assembly process rather than Vantage's castings; and (3) the inclusion in the per-unit chargeback calculation of a $48.00 "contractual administrative fee" that has no basis in Section 9.3 of the LTSA.
II. Procedural Non-Compliance Under LTSA Section 9.4(b)
Meridian's right to recover warranty chargebacks under the LTSA is expressly conditioned on its compliance with the procedural framework established in Section 9.4. As detailed below, Meridian has failed to comply with these procedural requirements in two critical respects: (a) it failed to make returned parts available for Vantage's inspection within the contractually mandated 30-day period, and (b) it has failed entirely to tender more than half of the units referenced in the First WCN. Each of these failures independently undermines the validity of the First WCN.
A. Failure to Tender Parts Within the 30-Day Inspection Deadline
Section 9.4(b) of the LTSA expressly provides that, upon issuance of a warranty chargeback notice, Meridian "shall make the parts that are the subject of such notice available to Supplier for inspection at a mutually agreed upon location within thirty (30) days of the date of such notice." This provision reflects a fundamental aspect of the warranty chargeback framework negotiated by the parties: the supplier's right to independently inspect and evaluate the allegedly defective parts on a timely basis, including through root-cause analysis, metallurgical examination, and comparison against specification requirements.
The First WCN was issued on December 6, 2021. Accordingly, under the plain and unambiguous terms of Section 9.4(b), Meridian was required to make the 3,842 units referenced in the First WCN available for Vantage's inspection no later than January 5, 2022.
Meridian did not comply with this requirement. The first parts were not made available to Vantage until January 27, 2022 — fifty-two (52) days after issuance of the First WCN, exceeding the contractual 30-day deadline by twenty-two (22) days. Vantage's VP of Quality, Thomas Reinhardt, made multiple written requests to his counterparts at Meridian during the intervening period, seeking access to the returned parts for inspection. These requests were acknowledged by Meridian's quality team but not acted upon in a timely manner. Mr. Reinhardt's correspondence on this subject is available for review and will be provided to Meridian's counsel upon request.
This delay is not de minimis, and it is not excusable under the LTSA. The 30-day inspection deadline serves the critical function of ensuring that the supplier has access to the allegedly defective parts at a time sufficiently close to the asserted field failures to permit meaningful forensic analysis. Delay in making the parts available introduces the risk that the parts' condition may change — whether through handling, storage conditions, or further disassembly by Meridian — and diminishes the supplier's ability to conduct a contemporaneous and reliable root-cause analysis. In this instance, the 22-day delay materially prejudiced Vantage's ability to examine the parts in a condition reflective of their state at the time of the alleged field failures. This prejudice is compounded by the fact that, as discussed in Section III.B below, Vantage has identified a plausible alternative root cause for the field failures that relates to Meridian's own assembly process, and timely access to the returned parts would have facilitated a more definitive analysis on this point.
B. Failure to Tender 2,108 Units
Of the 3,842 units referenced in WCN-2021-1247, Meridian has made only 1,734 units available to Vantage for inspection. The remaining 2,108 units — representing 54.9% of the total units covered by the First WCN — have never been tendered to Vantage for inspection, despite repeated and specific requests from Mr. Reinhardt. To date, Meridian has offered no explanation for its failure to tender these units and has not provided any commitment as to when, if ever, they will be made available.
The magnitude of this omission cannot be overstated. Meridian seeks to recover $869,119.40 in chargeback amounts attributable to the 2,108 untended units (2,108 × $412.30), yet it has denied Vantage any opportunity to inspect, test, or evaluate a single one of these units. Vantage does not know — and has no means of determining — whether these 2,108 units actually exhibit the micro-porosity that Meridian alleges, whether they are in fact Vantage-manufactured parts bearing Vantage part numbers, whether they were installed in vehicles that actually experienced the field failures described in the First WCN, or whether any condition of these parts may be attributable to causes other than an alleged manufacturing defect.
Section 9.4(b) of the LTSA conditions Meridian's right to recover warranty chargebacks on compliance with the inspection procedures set forth therein. The contractual language is clear: the parts that are the subject of a warranty chargeback notice must be made available to the supplier for inspection. This is not a mere formality; it is a substantive condition that protects the supplier's due-process right to verify the factual basis for a chargeback before being required to absorb the associated cost. Meridian's failure to tender more than half the units at issue constitutes a material breach of these procedures and forecloses any right to chargeback recovery for the 2,108 units that Vantage has never had the opportunity to examine.
Vantage submits that Meridian is not entitled to any chargeback recovery for the 2,108 units that were never made available for inspection. Vantage has been denied its contractual right to independently verify the existence of the alleged defect in these units, and no amount of post-hoc documentation from Meridian can substitute for Vantage's right to conduct its own physical inspection and root-cause analysis.
C. Legal Effect of Procedural Non-Compliance
The inspection and contest provisions set forth in Section 9.4 of the LTSA are not discretionary guidelines; they are conditions precedent to Meridian's right to recover warranty chargebacks from Vantage. The parties expressly negotiated these provisions as part of the integrated framework governing warranty-related cost allocation, and Meridian accepted these procedural requirements as a necessary corollary to the chargeback rights it obtained under Section 9.3.
Meridian's failure to comply with these conditions — both the timing requirement of the 30-day inspection deadline and the completeness of tender — vitiates the validity of WCN-2021-1247 in its entirety, or at a minimum with respect to the 2,108 units that Meridian has never made available for Vantage's inspection.
Under Illinois law, which governs the LTSA pursuant to Section 22.4, a party seeking to enforce a contractual right that is subject to conditions precedent must demonstrate substantial compliance with those conditions. See, e.g., Gallagher Corp. v. Russ, 309 Ill. App. 3d 192, 199 (1st Dist. 1999) (holding that a party's failure to satisfy a contractual condition precedent bars enforcement of the right conditioned thereon); Inner-City Redevelopment Corp. v. Thalen, 96 Ill. App. 3d 1145, 1148 (1st Dist. 1981) (conditions precedent must be strictly performed unless the agreement provides otherwise). Meridian has not substantially complied with the inspection procedures of Section 9.4(b). Its failure to tender any parts within the 30-day window, coupled with its wholesale failure to tender 54.9% of the units at issue, falls well short of the threshold of substantial compliance that Illinois law demands.
Vantage therefore submits that Meridian's procedural non-compliance independently warrants the complete reversal of WCN-2021-1247, or at minimum the removal of the 2,108 untended units — and the associated $869,119.40 in chargeback amounts — from the scope of the First WCN.
III. Substantive Challenge — Specification Compliance
Even setting aside the procedural deficiencies addressed above, the First WCN fails on its merits. Vantage's Parts conform to Meridian's Engineering Specifications. Moreover, there is substantial evidence that the field failures underlying the First WCN are attributable not to Vantage's castings, but to Meridian's own assembly process at its Schaumburg facility.
A. Vantage's Parts Conform to Meridian's Engineering Specifications
Meridian's chargeback rests on the assertion that Vantage's Valve Body Housings exhibit micro-porosity at levels causing hydraulic fluid bypass through the castings. The warranty obligation set forth in Section 9.1 of the LTSA requires that the Parts conform to Meridian's Engineering Specifications — that is, Meridian Drawing Set MER-DWG-4400, Revision C. The question, therefore, is whether Vantage's Parts meet the porosity standard established in those specifications. They do.
MER-DWG-4400, Revision C establishes a maximum porosity threshold of ASTM E505 Level 2 for the Valve Body Housings. ASTM E505 is the recognized industry-standard reference radiograph system for the inspection of aluminum and magnesium die castings; it establishes a graduated scale of porosity severity, with Level 1 representing the lowest (most restrictive) level of porosity and higher levels representing progressively greater porosity. By specifying a maximum of Level 2, Meridian's Engineering Specifications permit castings exhibiting porosity up to and including Level 2 on the ASTM E505 scale.
Vantage's Production Part Approval Process ("PPAP") documentation and ongoing Statistical Process Control ("SPC") data conclusively demonstrate that Vantage's Parts have consistently met and exceeded this specification. Specifically:
• Of all parts sampled during the relevant production period, 97.3% met the more stringent ASTM E505 Level 1 standard — meaning that the vast majority of Vantage's output exhibited porosity below even the tightest commercially recognized threshold.
• 100% of all sampled parts met the required ASTM E505 Level 2 threshold. Not a single part in Vantage's SPC sampling fell outside the specification limit established by Meridian's own engineering drawings.
Accordingly, Vantage's Parts as shipped to Meridian's Schaumburg facility were in full conformity with the contractual specifications. Meridian's Engineering Specifications define the parties' agreement as to what constitutes an acceptable casting, and Vantage has met that standard without exception in the sampled population.
If Meridian believed that a tighter porosity standard — such as a maximum of ASTM E505 Level 1, or a custom porosity threshold below Level 2 — was necessary to ensure adequate field performance of the MPT-8AT transmission, it was obligated to specify that standard in its Engineering Specifications at the time the specifications were issued and incorporated into the LTSA. Meridian's Drawing Set MER-DWG-4400, Revision C does not contain any such tighter requirement. Vantage cannot be held responsible for field failures allegedly arising from a level of porosity that falls within the specification range that Meridian itself defined and approved.
Vantage is prepared to make its complete PPAP records, SPC data, and related quality documentation available for joint review by the parties and their respective technical experts at a time and place to be mutually agreed upon. Vantage is confident that this data will confirm the full specification compliance of its Parts.
B. Alternative Root Cause — Meridian's Assembly Process
Vantage has substantial reason to believe that the field failures attributed to its Valve Body Housings are in fact caused, in whole or in significant part, by deficiencies in Meridian's own assembly process at its Schaumburg facility. This alternative root cause is not speculative; it is supported by specific, identifiable changes in Meridian's manufacturing operations that are temporally correlated with the onset of the field failures.
Specifically, Vantage's VP of Quality, Thomas Reinhardt, has identified through discussions with Meridian's quality personnel and review of available assembly documentation that Meridian changed its torque-wrench calibration protocol for the solenoid-pack retaining bolts at the Schaumburg assembly plant in approximately August 2021. This change occurred shortly before the field failures that form the basis of WCN-2021-1247 began to emerge in the field, with the first reports of solenoid-circuit malfunctions and erratic shift behavior appearing in approximately October 2021.
The significance of this timing is considerable. The solenoid-pack retaining bolts secure the solenoid assembly to the valve body housing within the MPT-8AT transmission module. These bolts are specified at a torque of 12 Nm per Meridian's own assembly procedures. If the solenoid-pack retaining bolts are insufficiently torqued — whether due to a change in calibration protocol, miscalibrated torque tools, or operator error following a procedural change — the resulting inadequate clamping force on the solenoid pack would produce precisely the types of field failures that Meridian has attributed to casting porosity. Specifically, insufficient bolt torque would allow the solenoid pack to seat improperly against the valve body housing, creating gaps or misalignment at the interface between the solenoid pack and the housing. These gaps would permit hydraulic fluid bypass around the solenoid circuits, causing solenoid-circuit malfunctions, erratic shift behavior, and limp-mode activation — the very failure modes described in the First WCN.
In other words, the symptoms that Meridian attributes to micro-porosity in Vantage's castings are equally consistent with, and in Vantage's assessment more likely attributable to, an assembly-process deficiency at Meridian's own facility. The temporal correlation between Meridian's August 2021 calibration protocol change and the October 2021 onset of field failures is significant and cannot be disregarded. The Parts supplied by Vantage did not change during this period; Vantage's manufacturing process, tooling, raw materials, and quality controls remained consistent throughout 2021 and continued to produce Parts in full conformity with the Engineering Specifications. What changed was Meridian's assembly process.
Vantage expressly reserves the right to conduct further investigation into this alternative root cause, including through the retention and use of independent expert failure analysis resources. Vantage has already retained qualified metallurgical and mechanical engineering experts for this purpose and anticipates that a thorough failure analysis of the returned Valve Body Housings — including both the 1,734 units that have been tendered and the 2,108 units that have not — will support the conclusion that the field failures are attributable to Meridian's assembly process rather than to any deficiency in Vantage's castings. Vantage intends to present evidence of Meridian's contributory or sole causation at the appropriate time and in the appropriate forum.
IV. Challenge to the Per-Unit Chargeback Calculation
Independent of the procedural and substantive deficiencies set forth above, the per-unit chargeback amount asserted in the First WCN is inflated by the inclusion of a cost component — the so-called "contractual administrative fee" — that has no basis in the LTSA.
A. The $48.00 Administrative Fee Lacks Contractual Basis
Each of the 3,842 units in WCN-2021-1247 includes a $48.00 "contractual administrative fee" as a component of the stated per-unit chargeback amount of $412.30. Across the 3,842 units covered by the First WCN, this fee accounts for $184,416.00 of the total asserted chargeback of $1,583,654.60 (calculated as 3,842 × $48.00 = $184,416.00).
Section 9.3 of the LTSA defines with specificity the categories of costs that Meridian may recover from Vantage through the warranty chargeback mechanism. These categories are limited to: (i) the cost of the replacement part; (ii) reasonable OEM dealer labor costs associated with the warranty repair or replacement; and (iii) documented internal failure-analysis and logistics costs that are directly attributable to the warranty return. Section 9.3 does not authorize the recovery of a general "administrative fee," an overhead allocation, or any other formulaic charge not directly and demonstrably linked to the actual incremental costs of processing a specific warranty return.
The $48.00 administrative fee included in the First WCN does not correspond to any of the cost categories enumerated in Section 9.3. Meridian has characterized this charge as a "contractual administrative fee," but the LTSA contains no provision establishing, authorizing, or defining such a fee. Meridian has provided no documentation demonstrating that the $48.00 figure represents an actual, incremental cost incurred by Meridian in connection with the processing of the specific warranty returns at issue, as opposed to a standardized overhead charge applied formulaically to all warranty chargebacks regardless of the actual costs incurred.
Vantage contests the inclusion of this fee in the per-unit chargeback calculation for WCN-2021-1247, and Vantage further objects to the inclusion of this fee in any subsequent chargeback notice issued to Vantage under the LTSA. To the extent that Meridian contends that its administrative costs associated with warranty processing are recoverable, it bears the burden of demonstrating that such costs are (a) authorized under Section 9.3, (b) documented on a per-unit or per-incident basis, and (c) actually and directly attributable to the warranty returns at issue. Meridian has made no such showing.
The financial significance of this issue extends well beyond the First WCN. Vantage is aware that Meridian has issued three warranty chargeback notices to date: WCN-2021-1247 (3,842 units), WCN-2022-0103, and WCN-2022-0289, covering a combined total of 11,814 units. Across all three notices, the cumulative administrative fee component totals $567,072.00 (11,814 × $48.00). None of this amount is contractually recoverable under Section 9.3 of the LTSA. Vantage's contest of the administrative fee applies not only to the First WCN but to all warranty chargeback notices issued or to be issued under the LTSA.
V. Demand for Immediate Reversal of Accounts Receivable Deductions
Vantage is aware that Meridian commenced unilateral deductions of chargeback amounts from Vantage's open accounts receivable beginning with the January 2022 payment cycle, without waiting for the resolution of Vantage's timely contest of the First WCN. As of the date of this letter, Meridian has withheld approximately $2.4 million from payments otherwise due and owing to Vantage under the LTSA and related purchase orders. This amount includes deductions attributable not only to WCN-2021-1247 but also to the subsequent chargeback notices WCN-2022-0103 and WCN-2022-0289.
These unilateral deductions are improper and are not authorized by the LTSA. The contest provisions of Section 9.4 establish a mechanism by which the supplier may challenge a warranty chargeback notice within the prescribed 60-day period. Implicit in this framework — and consistent with ordinary commercial practice and fundamental principles of good faith — is the expectation that the buyer will not unilaterally enforce a chargeback through accounts-receivable deductions while the chargeback is the subject of a timely, pending contest. To hold otherwise would render the contest provisions of Section 9.4 a nullity: the supplier's right to contest a chargeback would be meaningless if the buyer could simultaneously collect the full chargeback amount by withholding it from the supplier's receivables.
Vantage's preliminary written objection to WCN-2021-1247 was submitted on January 31, 2022, within the 60-day contest period. This letter supplements and formalizes that objection. The First WCN has been and remains the subject of a timely, pending contest under Section 9.4, and Meridian's continued withholding of amounts from Vantage's accounts receivable during the pendency of that contest constitutes a material breach of the LTSA's payment provisions and of Meridian's obligation of good faith and fair dealing under the agreement.
Vantage demands that Meridian take the following actions immediately:
1. Reverse all deductions from Vantage's accounts receivable that are related to WCN-2021-1247, and credit Vantage's account for the full amount withheld to date in connection with the First WCN.
2. Refrain from further unilateral withholdings from Vantage's accounts receivable in connection with any warranty chargeback notice that is the subject of a pending contest under Section 9.4 of the LTSA.
3. Remit all amounts currently due and owing to Vantage under the LTSA and related purchase orders, without offset or deduction for disputed chargeback amounts.
Vantage reserves all rights arising from Meridian's unauthorized deductions, including the right to seek recovery of the withheld amounts together with interest, costs, and any consequential damages resulting from the improper withholding.
VI. Reservation of Rights
Vantage expressly reserves all rights and remedies available to it under the LTSA, at law, and in equity, including but not limited to:
(a) The right to pursue claims for breach of contract arising from Meridian's unilateral deductions from Vantage's accounts receivable in the absence of a resolved and undisputed chargeback;
(b) The right to seek recovery of all costs and expenses incurred by Vantage in connection with this dispute, including attorneys' fees, expert fees, and internal costs of investigation and administration;
(c) The right to pursue any and all claims arising from Meridian's failure to comply with the procedural requirements of Section 9.4(b) of the LTSA, including claims for damages resulting from Vantage's inability to conduct timely and complete inspection of the returned Parts;
(d) The right to assert defenses based on Meridian's own contributory fault in causing the field failures underlying the First WCN, including defenses arising from Meridian's August 2021 change in torque-wrench calibration protocol and any other assembly-process deficiency identified through Vantage's ongoing investigation; and
(e) Any and all other rights, claims, counterclaims, and defenses available to Vantage under the LTSA, the Uniform Commercial Code as adopted in the State of Illinois, or otherwise.
Nothing in this letter, or in any prior or subsequent communication from Vantage or its counsel, shall be construed as a waiver, release, or relinquishment of any right, claim, defense, or remedy available to Vantage, whether presently known or hereafter discovered. Vantage's willingness to engage in commercial discussions with Meridian regarding a potential resolution of this dispute does not and shall not constitute an acknowledgment of liability, an admission of any deficiency in Vantage's Parts, or a concession as to the validity of any warranty chargeback notice issued by Meridian.
VII. Proposed Next Steps
Notwithstanding the serious deficiencies in the First WCN identified in this letter, Vantage remains committed to the commercial relationship reflected in the LTSA and is willing to engage in good-faith discussions aimed at a fair and commercially reasonable resolution of this dispute. To that end, Vantage proposes a meet-and-confer between counsel for the parties — and, to the extent helpful, representatives of the parties' respective quality and engineering teams — to discuss the issues raised in this letter and explore potential paths to resolution.
In the interim, and as a precondition to productive discussions, Vantage requests that Meridian take the following actions:
1. Immediately tender the remaining 2,108 units referenced in WCN-2021-1247 that have not been made available to Vantage for inspection, and provide Vantage with reasonable access to those units at a mutually agreed upon location for purposes of conducting a complete physical inspection and root-cause analysis.
2. Reverse all unilateral deductions from Vantage's accounts receivable related to WCN-2021-1247, as well as any deductions related to WCN-2022-0103 and WCN-2022-0289 that are or may become the subject of a contest under Section 9.4, and remit all amounts currently due and owing to Vantage.
3. Refrain from issuing additional warranty chargeback notices or making further deductions from Vantage's accounts receivable pending the outcome of discussions between the parties and their counsel regarding a resolution of this dispute.
Vantage has retained independent technical experts — including metallurgical engineers and transmission-systems specialists — to conduct a comprehensive failure analysis of the returned Valve Body Housings. This analysis is ongoing and will encompass both the 1,734 units that Meridian has made available and, once tendered, the 2,108 units that remain outstanding. Vantage will share relevant findings of this analysis with Meridian and its counsel at the appropriate time and in the appropriate context.
This firm is available to discuss scheduling and logistics for a meet-and-confer at the parties' mutual convenience. We would suggest a target date within the next thirty (30) days and are flexible as to format, whether in person or by videoconference.
We respectfully request that you acknowledge receipt of this letter and provide a substantive response on behalf of Meridian within fourteen (14) days of the date hereof. As stated above, all further communications regarding this matter should be directed to the undersigned at the contact information set forth below.
Very truly yours,
CALDERWOOD & HARKNESS LLP
By: ________
Samuel Eklund Partner
200 South Wacker Drive, Suite 3100 Chicago, Illinois 60606 Telephone: (312) 555-8417
Email: seklund@calderwoodharkness.com
cc: Priya Nandakumar, Esq., General Counsel, Vantage Mobility Systems Corp. Derek Calloway, Chief Executive Officer, Vantage Mobility Systems Corp. Carlos Espinoza, Esq., Calderwood & Harkness LLP Linda Osei, Esq., Calderwood & Harkness LLP
Enclosures: None. PPAP records, SPC data, and related quality documentation referenced herein are available for joint review upon request.
Cost Component | Per-Unit Amount | Total (3,842 Units)
Replacement part cost | $78.50 | $301,597.00
OEM dealer labor | $218.00 | $837,556.00
Internal failure-analysis and logistics costs | $67.80 | $260,487.60
Contractual administrative fee | $48.00 | $184,416.00
Total | $412.30 | $1,583,654.60

CONFIDENTIAL

CALDERWOOD & HARKNESS LLP

Record

Parties

Dates

Amounts