settlement-counteroffer-letter.docx

1007-00005 · Calderwood & Harkness LLP · Settlement

settlement-counteroffer-letter.docx DOCUMENT Litigation

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CALDERWOOD & HARKNESS LLP Attorneys at Law 200 South Wacker Drive, Suite 3100 Chicago, Illinois 60606 Telephone: (312) 555-7400 Facsimile: (312) 555-7401

July 22, 2022

VIA EMAIL AND FIRST CLASS MAIL

CONFIDENTIAL — SETTLEMENT COMMUNICATION / FRE 408 This letter constitutes a settlement communication within the meaning of Federal Rule of Evidence 408 and its Illinois state-law equivalents, including Illinois Rule of Evidence 408. It is made for the purpose of compromising and settling disputed claims and is not admissible in any judicial, arbitral, or administrative proceeding. This communication is made without prejudice to any rights, claims, defenses, or remedies of Vantage Mobility Systems Corp. or any related party.

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

Re: Vantage Mobility Systems Corp. / Meridian Powertrain Holdings, Inc. — Warranty Chargeback Dispute Matter No.: 1007-00005 LTSA Ref. No.: LTSA-MPT-2020-0315 Warranty Chargeback Notices: WCN-2021-1247; WCN-2022-0103; WCN-2022-0289

Dear Ms. Drummond:

I write on behalf of our client, Vantage Mobility Systems Corp. ("Vantage"), in connection with the above-referenced warranty-chargeback dispute between Vantage and your client, Meridian Powertrain Holdings, Inc. ("Meridian"). This letter follows the second meet-and-confer session held on July 8, 2022, at our offices in Chicago, which was attended by counsel for both parties as well as principals of both Vantage and Meridian. We appreciated the productive tone of that session and the willingness of all parties to explore a commercial resolution.

The purpose of this letter is to present Vantage's formal counter-position and proposed terms for a comprehensive commercial resolution of the warranty-chargeback dispute arising from the three Warranty Chargeback Notices referenced above. As noted in the legend above, this letter constitutes a settlement communication protected under Federal Rule of Evidence 408, Illinois Rule of Evidence 408, and any other applicable evidentiary protections. It is submitted without prejudice to Vantage's rights, claims, defenses, and remedies, all of which are expressly reserved.

We have organized this letter into sections addressing: (1) the background and dispute summary; (2) Vantage's substantive and procedural defenses; (3) an assessment of Meridian's claimed exposure; (4) Vantage's proposed settlement terms; (5) the rationale for our proposed resolution; (6) Vantage's litigation readiness and reservation of rights; and (7) an invitation to respond and proposed next steps.

1. Background and Dispute Summary

Vantage and Meridian are parties to a Long-Term Supply Agreement dated March 15, 2020 (Ref. No. LTSA-MPT-2020-0315) (the "LTSA"). The LTSA has a five-year term running through March 14, 2025, and is governed by Illinois law, as set forth in Section 22.4 of the LTSA.

Under the LTSA, Vantage supplies precision-machined aluminum valve body housings, designated as Part Nos. VMS-4400A through VMS-4400F, for use in Meridian's 8-speed automatic transmission modules (Model MPT-8AT). These valve body housings are delivered to Meridian's assembly plant located in Schaumburg, Illinois, where they are integrated into the MPT-8AT transmission modules during Meridian's assembly process. The LTSA contemplates annual volumes of approximately 480,000 units at a weighted average unit price of $78.50, making this a substantial ongoing commercial relationship with significant volume commitments on both sides.

Beginning in December 2021, Meridian issued a series of three Warranty Chargeback Notices (collectively, the "WCNs") to Vantage, asserting that field failures of MPT-8AT transmission modules at the OEM dealer level were attributable to defects in Vantage's valve body housings. The three WCNs, and the amounts claimed thereunder, are as follows:

Meridian's per-unit chargeback amount of $412.30 is calculated as follows:

• Replacement part cost: $78.50

• OEM dealer labor: $218.00

• Internal failure-analysis and logistics costs: $67.80

• Administrative fee: $48.00

• Total per-unit chargeback: $412.30

Without awaiting resolution of Vantage's timely contestation of these chargebacks, Meridian unilaterally began deducting amounts from Vantage's open accounts receivable beginning with the January 2022 payment cycle. 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.

As you are aware, Calderwood & Harkness submitted a detailed response letter on behalf of Vantage contesting WCN-2021-1247 on March 11, 2022, and a consolidated response letter contesting WCN-2022-0103 and WCN-2022-0289 on March 25, 2022. Those letters set forth Vantage's objections in full, and the grounds stated therein are incorporated by reference here. The present letter is intended to advance the settlement dialogue that was initiated during the two meet-and-confer sessions and to put forward a concrete proposal for resolution.

2. Vantage's Defenses — Substantive and Procedural Grounds

Vantage has strong substantive and procedural defenses to Meridian's warranty-chargeback claims, which we summarize below. We do so not to relitigate positions already exchanged in prior correspondence, but to provide the analytical framework for the settlement proposal set forth in Section 4.

2.1 Specification Compliance

At the core of Vantage's defense is the fact that its valve body housings were manufactured in full conformity with Meridian's own engineering specifications, as set forth in Meridian Drawing Set MER-DWG-4400, Revision C. Those specifications establish the dimensional tolerances, material composition requirements, and — critically for the present dispute — the porosity acceptance criteria applicable to the valve body housings.

The applicable porosity acceptance criterion is ASTM E505 Level 2. That is, the contract requires that valve body housings meet ASTM E505 Level 2 or better. This standard was incorporated by reference into the LTSA's engineering documentation and has been the governing specification throughout the life of the supply relationship.

Vantage's internal quality records, including its Production Part Approval Process ("PPAP") documentation submitted to and approved by Meridian, as well as ongoing Statistical Process Control ("SPC") data maintained at Vantage's Sterling Heights, Michigan production facility, demonstrate robust and consistent compliance with this specification. Specifically, Vantage's quality data shows that 97.3% of sampled parts met the more stringent ASTM E505 Level 1, and 100% of sampled parts met the contractually required ASTM E505 Level 2 threshold.

Section 9 of the LTSA provides a warranty that the supplied parts will conform to the applicable engineering specifications. Vantage met that standard. The warranty does not extend to field performance of the finished assembly into which Vantage's parts are integrated, nor does it impose liability on Vantage for defects or failures introduced during Meridian's own downstream assembly operations. This distinction is critical to the present dispute, as discussed in the following subsection.

2.2 Mixed Causation — Independent Expert Findings

In connection with its investigation of the warranty-chargeback claims, Vantage, through counsel, retained Dr. Stefan Vorhaus, Ph.D., of Apex Metallurgical Consulting, Inc., to conduct an independent failure analysis of the returned valve body housings. Dr. Vorhaus is a metallurgical engineer with twenty-two years of experience in automotive component failure analysis, including extensive work with aluminum castings, powertrain components, and warranty-return investigations. His qualifications and experience are well-suited to the technical questions at issue in this dispute.

Dr. Vorhaus examined eighty-seven (87) returned valve body housings that Meridian made available from the population of units underlying the three WCNs. His preliminary report, dated April 22, 2022, sets forth detailed findings that we have previously summarized in our prior correspondence but restate here given their significance to the settlement analysis:

(a) Porosity exceedances: Thirty-four of the eighty-seven units examined (39.1%) exhibited porosity exceeding ASTM E505 Level 2, with the porosity concentrations localized near the solenoid bore region of the housing. These are the only units in the sample for which a manufacturing-related defect attributable to Vantage's production process was identified.

(b) Assembly-process failures: Forty-one of the eighty-seven units examined (47.1%) showed clear evidence of insufficient solenoid-pack bolt torque during Meridian's assembly process. Specifically, these units exhibited bolt-head witness marks and gasket compression patterns that are inconsistent with Meridian's own specified torque value of 12 Nm. These findings indicate that the field failures in these units were caused by Meridian's assembly process, not by any defect in Vantage's castings.

(c) No identifiable defect: Twelve of the eighty-seven units examined (13.8%) showed no identifiable defect whatsoever — neither porosity exceedances nor evidence of improper assembly. The root cause of any reported field failure in these units cannot be determined, and Meridian cannot attribute these units to a Vantage manufacturing defect.

It bears emphasis that a greater number of units in the sample showed signs of Meridian's own assembly-process failure (47.1%) than showed porosity exceedances attributable to Vantage's manufacturing process (39.1%). This finding is significant and, we believe, dispositive of the question of whether Meridian may properly charge the full $4,870,550.20 back to Vantage.

The expert findings are further corroborated by internal intelligence developed by Vantage. Specifically, Thomas Reinhardt, Vantage's Vice President of Quality, has identified that Meridian changed its torque-wrench calibration protocol at the Schaumburg assembly plant in August 2021 — approximately two months before the onset of OEM-reported field failures in October 2021. The temporal proximity between Meridian's calibration protocol change and the spike in field failures is striking and strongly suggests that Meridian's own process change was a significant contributing cause — and quite possibly the principal root cause — of the field-failure population that gave rise to the three WCNs.

Under Illinois law and applicable Uniform Commercial Code warranty principles, Meridian cannot recover warranty chargebacks from Vantage for defects that are attributable to Meridian's own assembly processes. The LTSA warranty under Section 9 covers defects in material and workmanship of Vantage's supplied parts; it does not cover defects introduced by Meridian during downstream assembly. Where, as here, the independent expert evidence demonstrates that a significant majority of field failures in the examined sample are either not attributable to Vantage (the 47.1% assembly-process failures and the 13.8% no-defect units, totaling 60.9%) or are of indeterminate cause, Meridian's claim to the full $4,870,550.20 is severely undermined.

2.3 Procedural Non-Compliance Under LTSA Section 9.4(b)

In addition to the substantive defenses described above, Vantage has identified material procedural deficiencies in Meridian's administration of the chargeback process, particularly with respect to the first Warranty Chargeback Notice, WCN-2021-1247.

Section 9.4(b) of the LTSA requires that, following issuance of a warranty chargeback notice, Meridian shall make returned parts available to Vantage for inspection within thirty (30) days. This provision is a condition precedent to Meridian's right to enforce warranty chargebacks, and it serves the essential purpose of allowing the supplier a fair opportunity to examine returned parts, verify the claimed defect, and conduct its own root-cause analysis.

With respect to WCN-2021-1247, issued December 6, 2021, Meridian did not make any returned parts available to Vantage until January 27, 2022 — fifty-two (52) days after the notice was issued, which is twenty-two (22) days beyond the contractual thirty-day deadline. This delay materially prejudiced Vantage's ability to conduct a timely inspection and root-cause analysis.

More significantly, of the 3,842 units referenced in WCN-2021-1247, only 1,734 units were ever made available to Vantage for inspection. The remaining 2,108 units — constituting a substantial majority of the units claimed under the first WCN — were never tendered for inspection at all. Meridian has not provided a satisfactory explanation for its failure to make these units available, and Vantage has been deprived of any opportunity to evaluate the claimed defects in those units.

Meridian's failure to comply with the conditions precedent set forth in Section 9.4(b) renders WCN-2021-1247 procedurally defective as to a substantial majority of the units claimed thereunder, and materially prejudiced Vantage's contractual right to contest the chargebacks. The 2,108 non-tendered units represent approximately $869,128.40 in chargebacks (calculated as 2,108 units × $412.30 per unit) that Meridian simply cannot substantiate. Moreover, the procedural deficiency calls into question the integrity of WCN-2021-1247 as a whole, which accounts for $1,583,654.60 of the total claimed amount.

While the procedural record is less clear-cut with respect to WCN-2022-0103 and WCN-2022-0289, the pattern of non-compliance established by Meridian's handling of the first WCN underscores the broader unreliability of Meridian's chargeback process and lends further support to Vantage's position that the aggregate chargeback amount is significantly overstated.

2.4 Administrative Fee Challenge

The per-unit chargeback amount of $412.30 applied by Meridian across all three WCNs includes a $48.00 per-unit "administrative fee." This administrative fee is not a recoverable warranty cost under the LTSA.

Section 9.3 of the LTSA defines the categories of costs that may be recovered through the warranty-chargeback mechanism. Those categories are limited to: (i) the replacement part cost, (ii) reasonable OEM dealer labor costs, and (iii) documented failure-analysis and logistics costs. Section 9.3 does not include, and cannot reasonably be read to include, general administrative overhead allocations of the type that Meridian has labeled as an "administrative fee."

The $48.00 administrative fee, applied across all 11,814 units in the three WCNs, totals $567,072.00. This amount is not contractually recoverable under the LTSA, regardless of the merits of the underlying defect claims. Even if Meridian could establish — which it cannot — that every single unit in the chargeback population was defective and attributable to Vantage, the aggregate chargeback amount would need to be reduced by at least $567,072.00 to reflect the exclusion of the non-recoverable administrative fee component.

2.5 Unilateral Deductions as Material Breach

Finally, and of significant concern to Vantage, Meridian's unilateral withholding of approximately $2.4 million from Vantage's accounts receivable, which commenced with the January 2022 payment cycle, constitutes a material breach of the LTSA's payment terms.

Section 9.4 of the LTSA provides Vantage with a sixty-day period following receipt of a warranty chargeback notice to contest the chargeback. Vantage timely exercised that right with respect to all three WCNs, as documented in our letters of March 11, 2022, and March 25, 2022. Notwithstanding Vantage's timely contestation, Meridian began withholding amounts from Vantage's receivables without awaiting resolution of the dispute, and without any contractual authorization to do so during the pendency of a contested chargeback.

Meridian's unauthorized deductions have caused, and continue to cause, material financial harm to Vantage. Vantage reserves all rights and remedies arising from Meridian's unauthorized deductions, including the right to seek interest on wrongfully withheld amounts, consequential damages to the extent recoverable under the LTSA and applicable law, and any other relief to which Vantage may be entitled.

3. Assessment of Meridian's Claimed Exposure

In light of the defenses summarized above, Vantage submits that the full claimed amount of $4,870,550.20 is unsupportable on multiple independent grounds:

(a) Mixed causation: The expert data compiled by Dr. Vorhaus attributes only 39.1% of the examined sample to porosity exceedances potentially attributable to Vantage's manufacturing process, while a near-majority (47.1%) of failures are attributable to Meridian's own assembly process, and 13.8% of units show no defect at all. In total, 60.9% of the examined sample cannot be attributed to Vantage.

(b) Procedural defects in WCN-2021-1247: Meridian's failure to comply with the inspection requirements of LTSA Section 9.4(b) compromises over $869,000 in claims associated with units never tendered for inspection, and potentially undermines the entirety of WCN-2021-1247 ($1,583,654.60).

(c) Non-recoverable administrative fees: The $48.00 per-unit administrative fee, totaling $567,072.00 across all three WCNs, is not a recoverable warranty cost under Section 9.3 of the LTSA and inflates the claimed amount by more than half a million dollars.

(d) Over-inclusive chargeback claims: The 13.8% of sampled units that showed no defect at all suggests that a meaningful percentage of the broader field-return population had no warranty basis, further reducing the supportable chargeback amount.

We also note that during the July 8, 2022 meet-and-confer session, Meridian's representative, James Okoro, acknowledged that Meridian's own internal failure-analysis data could not rule out assembly-related causation for a substantial portion of the returns. This concession further undermines Meridian's position that the full chargeback amount is attributable to Vantage.

Taking all of these factors into account — the mixed-causation evidence, the procedural deficiencies, the administrative fee overreach, and the evidence of over-inclusion — Vantage believes that a reasonable assessment of its actual exposure is substantially below 50% of the claimed amount. It is against this backdrop that Vantage puts forward the following settlement proposal.

4. Proposed Settlement Terms

Vantage proposes the following terms for a comprehensive commercial resolution of the warranty-chargeback dispute:

4.1 Lump-Sum Settlement Payment

Vantage proposes a one-time lump-sum payment to Meridian in the amount of One Million Seven Hundred Fifty Thousand Dollars ($1,750,000.00) in full and final resolution of all claims arising from or related to WCN-2021-1247, WCN-2022-0103, and WCN-2022-0289.

This settlement amount represents approximately 35.9% of the aggregate $4,870,550.20 claimed by Meridian ($1,750,000.00 ÷ $4,870,550.20 = 35.93%), which Vantage submits is a fair and reasonable figure in light of the defenses and analytical framework set forth in Sections 2 and 3 above.

Payment shall be made within thirty (30) business days of the execution of a definitive settlement agreement and mutual release by authorized representatives of both parties.

The settlement payment shall be characterized as a one-time quality accommodation, with no admission of liability, fault, or deficiency by either party. Neither the payment nor any term of the settlement agreement shall be construed or deemed an admission by Vantage that any of its valve body housings were defective, non-conforming, or the cause of any field failure.

4.2 Full Reversal of Chargebacks and Restoration of Accounts Receivable

Concurrently with Vantage's payment of the $1,750,000.00 settlement amount, Meridian shall reverse all withheld chargeback amounts, reflecting the full $4,870,550.20 in aggregate chargebacks that Meridian has asserted under the three WCNs. The reversal shall be net of the $1,750,000.00 settlement payment, resulting in the restoration of $3,120,550.20 to Vantage's accounts receivable.

The reversal of chargeback amounts and the corresponding restoration of Vantage's accounts receivable shall occur simultaneously with, and shall be a condition of, Vantage's settlement payment. Neither party's obligation shall be independent of the other; rather, the payment and reversal shall be mutually conditioned and concurrent.

Going forward, Meridian shall not deduct, withhold, set off, or otherwise apply any amounts related to WCN-2021-1247, WCN-2022-0103, or WCN-2022-0289 from Vantage's receivables, invoices, or any other amounts due or payable to Vantage under the LTSA or otherwise.

4.3 Mutual General Release

The parties shall execute a mutual general release of all claims, counterclaims, demands, causes of action, obligations, and liabilities of any kind, whether known or unknown, arising from or related to WCN-2021-1247, WCN-2022-0103, and WCN-2022-0289, and the underlying facts and circumstances giving rise to those warranty chargeback notices.

The release shall run to each party and its respective affiliates, parents, subsidiaries, officers, directors, employees, agents, representatives, successors, and assigns. The scope of the release shall encompass, without limitation:

(a) all warranty claims and warranty-chargeback claims asserted by Meridian against Vantage under the LTSA or otherwise in connection with the three WCNs;

(b) all breach-of-contract claims that either party may have against the other arising from or related to the WCNs, including Vantage's claims arising from Meridian's unilateral deductions from Vantage's accounts receivable; and

(c) all other claims, whether sounding in contract, tort, statute, or otherwise, that arise from or relate to the subject matter of the three WCNs or the parties' dispute regarding the same.

The release shall not extend to claims or obligations arising under the LTSA that are unrelated to the three WCNs, nor shall it affect either party's rights and obligations under the LTSA with respect to future performance, future warranty matters, or other matters not encompassed by the present dispute.

4.4 Amendment of LTSA Section 9.4(b) — Inspection Deadlines and Administrative Fee

As part of the settlement, Vantage proposes that the parties concurrently execute a formal amendment to the LTSA (Ref. No. LTSA-MPT-2020-0315) to address two provisions that gave rise to significant points of contention in the present dispute. Specifically, the LTSA amendment would provide as follows:

(a) Revised Inspection Deadline (Section 9.4(b)): The current unilateral thirty-day deadline for the OEM customer (Meridian) to make returned parts available for supplier inspection following issuance of a warranty chargeback notice shall be replaced with a mutual forty-five (45) day deadline applicable to both parties. Under the revised provision, (i) Meridian shall make returned parts available to Vantage for inspection within forty-five (45) days following issuance of a warranty chargeback notice, and (ii) Vantage shall complete its inspection and provide a written response within forty-five (45) days following the date on which the returned parts are made available. This mutual framework provides adequate time for both parties to fulfill their respective obligations and eliminates the procedural ambiguities that contributed to the present dispute.

(b) Removal of Administrative Fee (Section 9.3): The $48.00 per-unit administrative fee shall be removed from the definition of recoverable warranty-chargeback costs under Section 9.3 of the LTSA. Recoverable costs shall be limited to: (i) the replacement part cost, (ii) reasonable OEM dealer labor, and (iii) documented failure-analysis and logistics costs, consistent with the plain language of the existing Section 9.3 as Vantage reads it. This clarification will eliminate the disputed administrative fee component and reduce the risk of future disagreements over the scope of recoverable chargeback costs.

This prospective amendment would address the specific procedural and cost-calculation issues that gave rise to the present dispute and would provide a clearer, more balanced framework for the administration of warranty chargebacks during the remaining term of the LTSA.

4.5 Supplemental Quality Protocol

In a demonstration of its good faith and commitment to the highest standards of product quality, Vantage is prepared to voluntarily implement a supplemental porosity-screening protocol at its manufacturing facility located at 4280 Mound Road, Sterling Heights, Michigan 48310.

The supplemental protocol would consist of computed tomography (CT) scan sampling at a frequency of one (1) in every two hundred (200) units produced for valve body housings bearing Part Nos. VMS-4400A through VMS-4400F. This CT-scan sampling would supplement Vantage's existing quality-control procedures, which — as noted above — have consistently demonstrated compliance with the contractually required ASTM E505 Level 2 porosity specification.

Vantage proposes that this commitment be memorialized in the LTSA amendment described in Section 4.4 above, with appropriate provisions regarding the duration of the commitment, reporting obligations, and access to sampling data. Vantage offers this enhanced quality protocol notwithstanding the fact that its existing production has met the applicable contractual specification, and does so as a further indication of its investment in the long-term supply relationship with Meridian.

4.6 Confidentiality. The terms of any settlement agreement executed by the parties shall be subject to mutual confidentiality and non-disparagement provisions. Neither party shall disclose the existence or terms of the settlement to any third party, except as may be required by law, regulation, or legal process, or to the party's auditors, insurers, or professional advisors who have a need to know and who agree to be bound by equivalent confidentiality obligations.

5. Rationale for the Proposed Resolution

Vantage submits that the proposed $1,750,000.00 settlement payment represents a fair and reasonable allocation of responsibility in light of the totality of the circumstances. In particular:

(a) The independent expert findings of Dr. Vorhaus demonstrate mixed causation, with 47.1% of the examined sample attributable to Meridian's own assembly-process failures (insufficient solenoid-pack bolt torque) versus 39.1% showing porosity exceedances potentially attributable to Vantage. This evidence strongly supports the conclusion that Meridian bears responsibility for a substantial share — indeed, likely the larger share — of the field-failure population.

(b) Meridian's procedural failures under LTSA Section 9.4(b) — including the untimely provision of returned parts and the complete failure to tender 2,108 units for inspection under WCN-2021-1247 — compromise the evidentiary foundation for a material portion of the chargebacks and, at a minimum, shift the burden of uncertainty to Meridian.

(c) The $567,072.00 in non-recoverable administrative fees that Meridian included in its per-unit chargeback calculation inflates the claimed amount beyond the bounds of what the LTSA permits, and must be excluded regardless of the outcome of the merits analysis.

(d) The 13.8% of examined units showing no identifiable defect suggests that Meridian's chargeback claims are over-inclusive and that a meaningful percentage of field returns had no warranty basis.

Beyond the specific defenses and numerical analysis, the proposed resolution is designed to preserve a valuable, long-standing supply relationship. Vantage and Meridian have been doing business together since approximately 2016, and the current LTSA has approximately two and a half years remaining, running through March 14, 2025. A protracted dispute — whether through formal litigation, arbitration, or an extended period of commercial friction — would be costly, disruptive, and damaging to both parties. The uncertainty and expense of contested proceedings would far exceed the cost of a reasonable commercial accommodation.

Vantage's proposal reflects this pragmatic orientation. The $1,750,000.00 settlement payment recognizes that, while Vantage has strong defenses to the full chargeback amount, the porosity data does suggest that a minority of Vantage's production may have fallen outside the contractual specification. The proposed LTSA amendment and supplemental quality protocol further demonstrate Vantage's commitment to the commercial relationship and to continuous improvement, and will provide both parties with a more robust and transparent framework for addressing quality and warranty matters going forward.

In short, the proposal allows both parties to resolve the present dispute on reasonable terms, restore the commercial relationship to a sound footing, and focus their energies on successful performance of the LTSA for the balance of its term.

6. Litigation Readiness / Reservation of Rights

While Vantage strongly prefers a negotiated commercial resolution and submits this proposal in the spirit of good faith and a constructive desire to resolve the dispute, Vantage wishes to be transparent that it is fully prepared to enforce its rights through litigation if the parties are unable to reach a reasonable settlement.

In the event that settlement efforts are unsuccessful, Vantage would anticipate pursuing claims for breach of contract based on Meridian's unilateral and unauthorized deductions from Vantage's accounts receivable, as well as seeking declaratory relief regarding the proper interpretation and application of the LTSA's warranty and chargeback provisions, including Sections 9.3 and 9.4. Vantage's expert analysis by Dr. Vorhaus, its comprehensive quality records and PPAP documentation, its SPC data, and its procedural defenses under LTSA Section 9.4(b) collectively provide a strong evidentiary foundation for a favorable outcome at trial.

As noted above, the LTSA is governed by Illinois law pursuant to Section 22.4. Vantage reserves all rights and remedies available to it under the LTSA, the Illinois Uniform Commercial Code (810 ILCS 5/1-101 et seq.), and applicable common law, including but not limited to claims for breach of contract, unjust enrichment, interest on wrongfully withheld amounts, and any other relief to which Vantage may be entitled.

This letter is without prejudice to any of Vantage's rights, claims, defenses, or remedies, all of which are expressly reserved and none of which are waived by this communication or by Vantage's willingness to engage in settlement discussions.

7. Invitation to Respond / Next Steps

Vantage respectfully invites Meridian to respond to this proposal within thirty (30) days of the date of this letter. We believe the proposed terms represent a fair and commercially reasonable framework for resolution, and we are hopeful that Meridian will view them in the same light.

If the terms outlined above are acceptable to Meridian in principle, Calderwood & Harkness is prepared to promptly circulate drafts of a Settlement Agreement and Mutual Release, together with the corresponding LTSA amendment, for review and comment by Meridian and your firm. We would anticipate that the definitive documents could be negotiated and executed on an expedited basis, given the degree of specificity reflected in this proposal.

Should Meridian wish to discuss the proposal further before responding in writing, or if there are aspects of the proposal that Meridian would like to explore in greater detail, Vantage is open to a telephone conference or an additional in-person meeting at a mutually convenient time. We are committed to a constructive dialogue and are flexible with respect to scheduling.

Please direct all responses and communications regarding this matter to the undersigned at Calderwood & Harkness LLP, 200 South Wacker Drive, Suite 3100, Chicago, Illinois 60606, with a copy to my colleague Carlos Espinoza at the same address.

We appreciate your and your client's attention to this matter and look forward to Meridian's response.

Sincerely,

CALDERWOOD & HARKNESS LLP

By: ________

Samuel Eklund Partner Calderwood & Harkness LLP 200 South Wacker Drive, Suite 3100 Chicago, Illinois 60606 Telephone: (312) 555-7400

Email: seklund@calderwoodharkness.com

cc: Priya Nandakumar, General Counsel, Vantage Mobility Systems Corp. (via email)

cc: Victor Saldana, Esq., Pratt, Givens & Lowell LLP (via email)

Enclosures: None (all referenced documents previously exchanged between the parties)

Warranty Chargeback Notice	Date Issued	Units Claimed	Amount Claimed
WCN-2021-1247	December 6, 2021	3,842	$1,583,654.60
WCN-2022-0103	January 18, 2022	4,260	$1,756,398.00
WCN-2022-0289	February 7, 2022	3,712	$1,530,497.60
Total	11,814	$4,870,550.20

CALDERWOOD & HARKNESS LLP Attorneys at Law 200 South Wacker Drive, Suite 3100 Chicago, Illinois 60606 Telephone: (312) 555-7400 Facsimile: (312) 555-7401
July 22, 2022
VIA EMAIL AND FIRST CLASS MAIL
CONFIDENTIAL — SETTLEMENT COMMUNICATION / FRE 408 This letter constitutes a settlement communication within the meaning of Federal Rule of Evidence 408 and its Illinois state-law equivalents, including Illinois Rule of Evidence 408. It is made for the purpose of compromising and settling disputed claims and is not admissible in any judicial, arbitral, or administrative proceeding. This communication is made without prejudice to any rights, claims, defenses, or remedies of Vantage Mobility Systems Corp. or any related party.
Rachel Drummond, Esq. Pratt, Givens & Lowell LLP 155 North Michigan Avenue, Suite 2700 Chicago, Illinois 60601
Re: Vantage Mobility Systems Corp. / Meridian Powertrain Holdings, Inc. — Warranty Chargeback Dispute Matter No.: 1007-00005 LTSA Ref. No.: LTSA-MPT-2020-0315 Warranty Chargeback Notices: WCN-2021-1247; WCN-2022-0103; WCN-2022-0289
Dear Ms. Drummond:
I write on behalf of our client, Vantage Mobility Systems Corp. ("Vantage"), in connection with the above-referenced warranty-chargeback dispute between Vantage and your client, Meridian Powertrain Holdings, Inc. ("Meridian"). This letter follows the second meet-and-confer session held on July 8, 2022, at our offices in Chicago, which was attended by counsel for both parties as well as principals of both Vantage and Meridian. We appreciated the productive tone of that session and the willingness of all parties to explore a commercial resolution.
The purpose of this letter is to present Vantage's formal counter-position and proposed terms for a comprehensive commercial resolution of the warranty-chargeback dispute arising from the three Warranty Chargeback Notices referenced above. As noted in the legend above, this letter constitutes a settlement communication protected under Federal Rule of Evidence 408, Illinois Rule of Evidence 408, and any other applicable evidentiary protections. It is submitted without prejudice to Vantage's rights, claims, defenses, and remedies, all of which are expressly reserved.
We have organized this letter into sections addressing: (1) the background and dispute summary; (2) Vantage's substantive and procedural defenses; (3) an assessment of Meridian's claimed exposure; (4) Vantage's proposed settlement terms; (5) the rationale for our proposed resolution; (6) Vantage's litigation readiness and reservation of rights; and (7) an invitation to respond and proposed next steps.
1. Background and Dispute Summary
Vantage and Meridian are parties to a Long-Term Supply Agreement dated March 15, 2020 (Ref. No. LTSA-MPT-2020-0315) (the "LTSA"). The LTSA has a five-year term running through March 14, 2025, and is governed by Illinois law, as set forth in Section 22.4 of the LTSA.
Under the LTSA, Vantage supplies precision-machined aluminum valve body housings, designated as Part Nos. VMS-4400A through VMS-4400F, for use in Meridian's 8-speed automatic transmission modules (Model MPT-8AT). These valve body housings are delivered to Meridian's assembly plant located in Schaumburg, Illinois, where they are integrated into the MPT-8AT transmission modules during Meridian's assembly process. The LTSA contemplates annual volumes of approximately 480,000 units at a weighted average unit price of $78.50, making this a substantial ongoing commercial relationship with significant volume commitments on both sides.
Beginning in December 2021, Meridian issued a series of three Warranty Chargeback Notices (collectively, the "WCNs") to Vantage, asserting that field failures of MPT-8AT transmission modules at the OEM dealer level were attributable to defects in Vantage's valve body housings. The three WCNs, and the amounts claimed thereunder, are as follows:
Meridian's per-unit chargeback amount of $412.30 is calculated as follows:
• Replacement part cost: $78.50
• OEM dealer labor: $218.00
• Internal failure-analysis and logistics costs: $67.80
• Administrative fee: $48.00
• Total per-unit chargeback: $412.30
Without awaiting resolution of Vantage's timely contestation of these chargebacks, Meridian unilaterally began deducting amounts from Vantage's open accounts receivable beginning with the January 2022 payment cycle. 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.
As you are aware, Calderwood & Harkness submitted a detailed response letter on behalf of Vantage contesting WCN-2021-1247 on March 11, 2022, and a consolidated response letter contesting WCN-2022-0103 and WCN-2022-0289 on March 25, 2022. Those letters set forth Vantage's objections in full, and the grounds stated therein are incorporated by reference here. The present letter is intended to advance the settlement dialogue that was initiated during the two meet-and-confer sessions and to put forward a concrete proposal for resolution.
2. Vantage's Defenses — Substantive and Procedural Grounds
Vantage has strong substantive and procedural defenses to Meridian's warranty-chargeback claims, which we summarize below. We do so not to relitigate positions already exchanged in prior correspondence, but to provide the analytical framework for the settlement proposal set forth in Section 4.
2.1 Specification Compliance
At the core of Vantage's defense is the fact that its valve body housings were manufactured in full conformity with Meridian's own engineering specifications, as set forth in Meridian Drawing Set MER-DWG-4400, Revision C. Those specifications establish the dimensional tolerances, material composition requirements, and — critically for the present dispute — the porosity acceptance criteria applicable to the valve body housings.
The applicable porosity acceptance criterion is ASTM E505 Level 2. That is, the contract requires that valve body housings meet ASTM E505 Level 2 or better. This standard was incorporated by reference into the LTSA's engineering documentation and has been the governing specification throughout the life of the supply relationship.
Vantage's internal quality records, including its Production Part Approval Process ("PPAP") documentation submitted to and approved by Meridian, as well as ongoing Statistical Process Control ("SPC") data maintained at Vantage's Sterling Heights, Michigan production facility, demonstrate robust and consistent compliance with this specification. Specifically, Vantage's quality data shows that 97.3% of sampled parts met the more stringent ASTM E505 Level 1, and 100% of sampled parts met the contractually required ASTM E505 Level 2 threshold.
Section 9 of the LTSA provides a warranty that the supplied parts will conform to the applicable engineering specifications. Vantage met that standard. The warranty does not extend to field performance of the finished assembly into which Vantage's parts are integrated, nor does it impose liability on Vantage for defects or failures introduced during Meridian's own downstream assembly operations. This distinction is critical to the present dispute, as discussed in the following subsection.
2.2 Mixed Causation — Independent Expert Findings
In connection with its investigation of the warranty-chargeback claims, Vantage, through counsel, retained Dr. Stefan Vorhaus, Ph.D., of Apex Metallurgical Consulting, Inc., to conduct an independent failure analysis of the returned valve body housings. Dr. Vorhaus is a metallurgical engineer with twenty-two years of experience in automotive component failure analysis, including extensive work with aluminum castings, powertrain components, and warranty-return investigations. His qualifications and experience are well-suited to the technical questions at issue in this dispute.
Dr. Vorhaus examined eighty-seven (87) returned valve body housings that Meridian made available from the population of units underlying the three WCNs. His preliminary report, dated April 22, 2022, sets forth detailed findings that we have previously summarized in our prior correspondence but restate here given their significance to the settlement analysis:
(a) Porosity exceedances: Thirty-four of the eighty-seven units examined (39.1%) exhibited porosity exceeding ASTM E505 Level 2, with the porosity concentrations localized near the solenoid bore region of the housing. These are the only units in the sample for which a manufacturing-related defect attributable to Vantage's production process was identified.
(b) Assembly-process failures: Forty-one of the eighty-seven units examined (47.1%) showed clear evidence of insufficient solenoid-pack bolt torque during Meridian's assembly process. Specifically, these units exhibited bolt-head witness marks and gasket compression patterns that are inconsistent with Meridian's own specified torque value of 12 Nm. These findings indicate that the field failures in these units were caused by Meridian's assembly process, not by any defect in Vantage's castings.
(c) No identifiable defect: Twelve of the eighty-seven units examined (13.8%) showed no identifiable defect whatsoever — neither porosity exceedances nor evidence of improper assembly. The root cause of any reported field failure in these units cannot be determined, and Meridian cannot attribute these units to a Vantage manufacturing defect.
It bears emphasis that a greater number of units in the sample showed signs of Meridian's own assembly-process failure (47.1%) than showed porosity exceedances attributable to Vantage's manufacturing process (39.1%). This finding is significant and, we believe, dispositive of the question of whether Meridian may properly charge the full $4,870,550.20 back to Vantage.
The expert findings are further corroborated by internal intelligence developed by Vantage. Specifically, Thomas Reinhardt, Vantage's Vice President of Quality, has identified that Meridian changed its torque-wrench calibration protocol at the Schaumburg assembly plant in August 2021 — approximately two months before the onset of OEM-reported field failures in October 2021. The temporal proximity between Meridian's calibration protocol change and the spike in field failures is striking and strongly suggests that Meridian's own process change was a significant contributing cause — and quite possibly the principal root cause — of the field-failure population that gave rise to the three WCNs.
Under Illinois law and applicable Uniform Commercial Code warranty principles, Meridian cannot recover warranty chargebacks from Vantage for defects that are attributable to Meridian's own assembly processes. The LTSA warranty under Section 9 covers defects in material and workmanship of Vantage's supplied parts; it does not cover defects introduced by Meridian during downstream assembly. Where, as here, the independent expert evidence demonstrates that a significant majority of field failures in the examined sample are either not attributable to Vantage (the 47.1% assembly-process failures and the 13.8% no-defect units, totaling 60.9%) or are of indeterminate cause, Meridian's claim to the full $4,870,550.20 is severely undermined.
2.3 Procedural Non-Compliance Under LTSA Section 9.4(b)
In addition to the substantive defenses described above, Vantage has identified material procedural deficiencies in Meridian's administration of the chargeback process, particularly with respect to the first Warranty Chargeback Notice, WCN-2021-1247.
Section 9.4(b) of the LTSA requires that, following issuance of a warranty chargeback notice, Meridian shall make returned parts available to Vantage for inspection within thirty (30) days. This provision is a condition precedent to Meridian's right to enforce warranty chargebacks, and it serves the essential purpose of allowing the supplier a fair opportunity to examine returned parts, verify the claimed defect, and conduct its own root-cause analysis.
With respect to WCN-2021-1247, issued December 6, 2021, Meridian did not make any returned parts available to Vantage until January 27, 2022 — fifty-two (52) days after the notice was issued, which is twenty-two (22) days beyond the contractual thirty-day deadline. This delay materially prejudiced Vantage's ability to conduct a timely inspection and root-cause analysis.
More significantly, of the 3,842 units referenced in WCN-2021-1247, only 1,734 units were ever made available to Vantage for inspection. The remaining 2,108 units — constituting a substantial majority of the units claimed under the first WCN — were never tendered for inspection at all. Meridian has not provided a satisfactory explanation for its failure to make these units available, and Vantage has been deprived of any opportunity to evaluate the claimed defects in those units.
Meridian's failure to comply with the conditions precedent set forth in Section 9.4(b) renders WCN-2021-1247 procedurally defective as to a substantial majority of the units claimed thereunder, and materially prejudiced Vantage's contractual right to contest the chargebacks. The 2,108 non-tendered units represent approximately $869,128.40 in chargebacks (calculated as 2,108 units × $412.30 per unit) that Meridian simply cannot substantiate. Moreover, the procedural deficiency calls into question the integrity of WCN-2021-1247 as a whole, which accounts for $1,583,654.60 of the total claimed amount.
While the procedural record is less clear-cut with respect to WCN-2022-0103 and WCN-2022-0289, the pattern of non-compliance established by Meridian's handling of the first WCN underscores the broader unreliability of Meridian's chargeback process and lends further support to Vantage's position that the aggregate chargeback amount is significantly overstated.
2.4 Administrative Fee Challenge
The per-unit chargeback amount of $412.30 applied by Meridian across all three WCNs includes a $48.00 per-unit "administrative fee." This administrative fee is not a recoverable warranty cost under the LTSA.
Section 9.3 of the LTSA defines the categories of costs that may be recovered through the warranty-chargeback mechanism. Those categories are limited to: (i) the replacement part cost, (ii) reasonable OEM dealer labor costs, and (iii) documented failure-analysis and logistics costs. Section 9.3 does not include, and cannot reasonably be read to include, general administrative overhead allocations of the type that Meridian has labeled as an "administrative fee."
The $48.00 administrative fee, applied across all 11,814 units in the three WCNs, totals $567,072.00. This amount is not contractually recoverable under the LTSA, regardless of the merits of the underlying defect claims. Even if Meridian could establish — which it cannot — that every single unit in the chargeback population was defective and attributable to Vantage, the aggregate chargeback amount would need to be reduced by at least $567,072.00 to reflect the exclusion of the non-recoverable administrative fee component.
2.5 Unilateral Deductions as Material Breach
Finally, and of significant concern to Vantage, Meridian's unilateral withholding of approximately $2.4 million from Vantage's accounts receivable, which commenced with the January 2022 payment cycle, constitutes a material breach of the LTSA's payment terms.
Section 9.4 of the LTSA provides Vantage with a sixty-day period following receipt of a warranty chargeback notice to contest the chargeback. Vantage timely exercised that right with respect to all three WCNs, as documented in our letters of March 11, 2022, and March 25, 2022. Notwithstanding Vantage's timely contestation, Meridian began withholding amounts from Vantage's receivables without awaiting resolution of the dispute, and without any contractual authorization to do so during the pendency of a contested chargeback.
Meridian's unauthorized deductions have caused, and continue to cause, material financial harm to Vantage. Vantage reserves all rights and remedies arising from Meridian's unauthorized deductions, including the right to seek interest on wrongfully withheld amounts, consequential damages to the extent recoverable under the LTSA and applicable law, and any other relief to which Vantage may be entitled.
3. Assessment of Meridian's Claimed Exposure
In light of the defenses summarized above, Vantage submits that the full claimed amount of $4,870,550.20 is unsupportable on multiple independent grounds:
(a) Mixed causation: The expert data compiled by Dr. Vorhaus attributes only 39.1% of the examined sample to porosity exceedances potentially attributable to Vantage's manufacturing process, while a near-majority (47.1%) of failures are attributable to Meridian's own assembly process, and 13.8% of units show no defect at all. In total, 60.9% of the examined sample cannot be attributed to Vantage.
(b) Procedural defects in WCN-2021-1247: Meridian's failure to comply with the inspection requirements of LTSA Section 9.4(b) compromises over $869,000 in claims associated with units never tendered for inspection, and potentially undermines the entirety of WCN-2021-1247 ($1,583,654.60).
(c) Non-recoverable administrative fees: The $48.00 per-unit administrative fee, totaling $567,072.00 across all three WCNs, is not a recoverable warranty cost under Section 9.3 of the LTSA and inflates the claimed amount by more than half a million dollars.
(d) Over-inclusive chargeback claims: The 13.8% of sampled units that showed no defect at all suggests that a meaningful percentage of the broader field-return population had no warranty basis, further reducing the supportable chargeback amount.
We also note that during the July 8, 2022 meet-and-confer session, Meridian's representative, James Okoro, acknowledged that Meridian's own internal failure-analysis data could not rule out assembly-related causation for a substantial portion of the returns. This concession further undermines Meridian's position that the full chargeback amount is attributable to Vantage.
Taking all of these factors into account — the mixed-causation evidence, the procedural deficiencies, the administrative fee overreach, and the evidence of over-inclusion — Vantage believes that a reasonable assessment of its actual exposure is substantially below 50% of the claimed amount. It is against this backdrop that Vantage puts forward the following settlement proposal.
4. Proposed Settlement Terms
Vantage proposes the following terms for a comprehensive commercial resolution of the warranty-chargeback dispute:
4.1 Lump-Sum Settlement Payment
Vantage proposes a one-time lump-sum payment to Meridian in the amount of One Million Seven Hundred Fifty Thousand Dollars ($1,750,000.00) in full and final resolution of all claims arising from or related to WCN-2021-1247, WCN-2022-0103, and WCN-2022-0289.
This settlement amount represents approximately 35.9% of the aggregate $4,870,550.20 claimed by Meridian ($1,750,000.00 ÷ $4,870,550.20 = 35.93%), which Vantage submits is a fair and reasonable figure in light of the defenses and analytical framework set forth in Sections 2 and 3 above.
Payment shall be made within thirty (30) business days of the execution of a definitive settlement agreement and mutual release by authorized representatives of both parties.
The settlement payment shall be characterized as a one-time quality accommodation, with no admission of liability, fault, or deficiency by either party. Neither the payment nor any term of the settlement agreement shall be construed or deemed an admission by Vantage that any of its valve body housings were defective, non-conforming, or the cause of any field failure.
4.2 Full Reversal of Chargebacks and Restoration of Accounts Receivable
Concurrently with Vantage's payment of the $1,750,000.00 settlement amount, Meridian shall reverse all withheld chargeback amounts, reflecting the full $4,870,550.20 in aggregate chargebacks that Meridian has asserted under the three WCNs. The reversal shall be net of the $1,750,000.00 settlement payment, resulting in the restoration of $3,120,550.20 to Vantage's accounts receivable.
The reversal of chargeback amounts and the corresponding restoration of Vantage's accounts receivable shall occur simultaneously with, and shall be a condition of, Vantage's settlement payment. Neither party's obligation shall be independent of the other; rather, the payment and reversal shall be mutually conditioned and concurrent.
Going forward, Meridian shall not deduct, withhold, set off, or otherwise apply any amounts related to WCN-2021-1247, WCN-2022-0103, or WCN-2022-0289 from Vantage's receivables, invoices, or any other amounts due or payable to Vantage under the LTSA or otherwise.
4.3 Mutual General Release
The parties shall execute a mutual general release of all claims, counterclaims, demands, causes of action, obligations, and liabilities of any kind, whether known or unknown, arising from or related to WCN-2021-1247, WCN-2022-0103, and WCN-2022-0289, and the underlying facts and circumstances giving rise to those warranty chargeback notices.
The release shall run to each party and its respective affiliates, parents, subsidiaries, officers, directors, employees, agents, representatives, successors, and assigns. The scope of the release shall encompass, without limitation:
(a) all warranty claims and warranty-chargeback claims asserted by Meridian against Vantage under the LTSA or otherwise in connection with the three WCNs;
(b) all breach-of-contract claims that either party may have against the other arising from or related to the WCNs, including Vantage's claims arising from Meridian's unilateral deductions from Vantage's accounts receivable; and
(c) all other claims, whether sounding in contract, tort, statute, or otherwise, that arise from or relate to the subject matter of the three WCNs or the parties' dispute regarding the same.
The release shall not extend to claims or obligations arising under the LTSA that are unrelated to the three WCNs, nor shall it affect either party's rights and obligations under the LTSA with respect to future performance, future warranty matters, or other matters not encompassed by the present dispute.
4.4 Amendment of LTSA Section 9.4(b) — Inspection Deadlines and Administrative Fee
As part of the settlement, Vantage proposes that the parties concurrently execute a formal amendment to the LTSA (Ref. No. LTSA-MPT-2020-0315) to address two provisions that gave rise to significant points of contention in the present dispute. Specifically, the LTSA amendment would provide as follows:
(a) Revised Inspection Deadline (Section 9.4(b)): The current unilateral thirty-day deadline for the OEM customer (Meridian) to make returned parts available for supplier inspection following issuance of a warranty chargeback notice shall be replaced with a mutual forty-five (45) day deadline applicable to both parties. Under the revised provision, (i) Meridian shall make returned parts available to Vantage for inspection within forty-five (45) days following issuance of a warranty chargeback notice, and (ii) Vantage shall complete its inspection and provide a written response within forty-five (45) days following the date on which the returned parts are made available. This mutual framework provides adequate time for both parties to fulfill their respective obligations and eliminates the procedural ambiguities that contributed to the present dispute.
(b) Removal of Administrative Fee (Section 9.3): The $48.00 per-unit administrative fee shall be removed from the definition of recoverable warranty-chargeback costs under Section 9.3 of the LTSA. Recoverable costs shall be limited to: (i) the replacement part cost, (ii) reasonable OEM dealer labor, and (iii) documented failure-analysis and logistics costs, consistent with the plain language of the existing Section 9.3 as Vantage reads it. This clarification will eliminate the disputed administrative fee component and reduce the risk of future disagreements over the scope of recoverable chargeback costs.
This prospective amendment would address the specific procedural and cost-calculation issues that gave rise to the present dispute and would provide a clearer, more balanced framework for the administration of warranty chargebacks during the remaining term of the LTSA.
4.5 Supplemental Quality Protocol
In a demonstration of its good faith and commitment to the highest standards of product quality, Vantage is prepared to voluntarily implement a supplemental porosity-screening protocol at its manufacturing facility located at 4280 Mound Road, Sterling Heights, Michigan 48310.
The supplemental protocol would consist of computed tomography (CT) scan sampling at a frequency of one (1) in every two hundred (200) units produced for valve body housings bearing Part Nos. VMS-4400A through VMS-4400F. This CT-scan sampling would supplement Vantage's existing quality-control procedures, which — as noted above — have consistently demonstrated compliance with the contractually required ASTM E505 Level 2 porosity specification.
Vantage proposes that this commitment be memorialized in the LTSA amendment described in Section 4.4 above, with appropriate provisions regarding the duration of the commitment, reporting obligations, and access to sampling data. Vantage offers this enhanced quality protocol notwithstanding the fact that its existing production has met the applicable contractual specification, and does so as a further indication of its investment in the long-term supply relationship with Meridian.
4.6 Confidentiality. The terms of any settlement agreement executed by the parties shall be subject to mutual confidentiality and non-disparagement provisions. Neither party shall disclose the existence or terms of the settlement to any third party, except as may be required by law, regulation, or legal process, or to the party's auditors, insurers, or professional advisors who have a need to know and who agree to be bound by equivalent confidentiality obligations.
5. Rationale for the Proposed Resolution
Vantage submits that the proposed $1,750,000.00 settlement payment represents a fair and reasonable allocation of responsibility in light of the totality of the circumstances. In particular:
(a) The independent expert findings of Dr. Vorhaus demonstrate mixed causation, with 47.1% of the examined sample attributable to Meridian's own assembly-process failures (insufficient solenoid-pack bolt torque) versus 39.1% showing porosity exceedances potentially attributable to Vantage. This evidence strongly supports the conclusion that Meridian bears responsibility for a substantial share — indeed, likely the larger share — of the field-failure population.
(b) Meridian's procedural failures under LTSA Section 9.4(b) — including the untimely provision of returned parts and the complete failure to tender 2,108 units for inspection under WCN-2021-1247 — compromise the evidentiary foundation for a material portion of the chargebacks and, at a minimum, shift the burden of uncertainty to Meridian.
(c) The $567,072.00 in non-recoverable administrative fees that Meridian included in its per-unit chargeback calculation inflates the claimed amount beyond the bounds of what the LTSA permits, and must be excluded regardless of the outcome of the merits analysis.
(d) The 13.8% of examined units showing no identifiable defect suggests that Meridian's chargeback claims are over-inclusive and that a meaningful percentage of field returns had no warranty basis.
Beyond the specific defenses and numerical analysis, the proposed resolution is designed to preserve a valuable, long-standing supply relationship. Vantage and Meridian have been doing business together since approximately 2016, and the current LTSA has approximately two and a half years remaining, running through March 14, 2025. A protracted dispute — whether through formal litigation, arbitration, or an extended period of commercial friction — would be costly, disruptive, and damaging to both parties. The uncertainty and expense of contested proceedings would far exceed the cost of a reasonable commercial accommodation.
Vantage's proposal reflects this pragmatic orientation. The $1,750,000.00 settlement payment recognizes that, while Vantage has strong defenses to the full chargeback amount, the porosity data does suggest that a minority of Vantage's production may have fallen outside the contractual specification. The proposed LTSA amendment and supplemental quality protocol further demonstrate Vantage's commitment to the commercial relationship and to continuous improvement, and will provide both parties with a more robust and transparent framework for addressing quality and warranty matters going forward.
In short, the proposal allows both parties to resolve the present dispute on reasonable terms, restore the commercial relationship to a sound footing, and focus their energies on successful performance of the LTSA for the balance of its term.
6. Litigation Readiness / Reservation of Rights
While Vantage strongly prefers a negotiated commercial resolution and submits this proposal in the spirit of good faith and a constructive desire to resolve the dispute, Vantage wishes to be transparent that it is fully prepared to enforce its rights through litigation if the parties are unable to reach a reasonable settlement.
In the event that settlement efforts are unsuccessful, Vantage would anticipate pursuing claims for breach of contract based on Meridian's unilateral and unauthorized deductions from Vantage's accounts receivable, as well as seeking declaratory relief regarding the proper interpretation and application of the LTSA's warranty and chargeback provisions, including Sections 9.3 and 9.4. Vantage's expert analysis by Dr. Vorhaus, its comprehensive quality records and PPAP documentation, its SPC data, and its procedural defenses under LTSA Section 9.4(b) collectively provide a strong evidentiary foundation for a favorable outcome at trial.
As noted above, the LTSA is governed by Illinois law pursuant to Section 22.4. Vantage reserves all rights and remedies available to it under the LTSA, the Illinois Uniform Commercial Code (810 ILCS 5/1-101 et seq.), and applicable common law, including but not limited to claims for breach of contract, unjust enrichment, interest on wrongfully withheld amounts, and any other relief to which Vantage may be entitled.
This letter is without prejudice to any of Vantage's rights, claims, defenses, or remedies, all of which are expressly reserved and none of which are waived by this communication or by Vantage's willingness to engage in settlement discussions.
7. Invitation to Respond / Next Steps
Vantage respectfully invites Meridian to respond to this proposal within thirty (30) days of the date of this letter. We believe the proposed terms represent a fair and commercially reasonable framework for resolution, and we are hopeful that Meridian will view them in the same light.
If the terms outlined above are acceptable to Meridian in principle, Calderwood & Harkness is prepared to promptly circulate drafts of a Settlement Agreement and Mutual Release, together with the corresponding LTSA amendment, for review and comment by Meridian and your firm. We would anticipate that the definitive documents could be negotiated and executed on an expedited basis, given the degree of specificity reflected in this proposal.
Should Meridian wish to discuss the proposal further before responding in writing, or if there are aspects of the proposal that Meridian would like to explore in greater detail, Vantage is open to a telephone conference or an additional in-person meeting at a mutually convenient time. We are committed to a constructive dialogue and are flexible with respect to scheduling.
Please direct all responses and communications regarding this matter to the undersigned at Calderwood & Harkness LLP, 200 South Wacker Drive, Suite 3100, Chicago, Illinois 60606, with a copy to my colleague Carlos Espinoza at the same address.
We appreciate your and your client's attention to this matter and look forward to Meridian's response.
Sincerely,
CALDERWOOD & HARKNESS LLP
By: ________
Samuel Eklund Partner Calderwood & Harkness LLP 200 South Wacker Drive, Suite 3100 Chicago, Illinois 60606 Telephone: (312) 555-7400
Email: seklund@calderwoodharkness.com
cc: Priya Nandakumar, General Counsel, Vantage Mobility Systems Corp. (via email)
cc: Victor Saldana, Esq., Pratt, Givens & Lowell LLP (via email)
Enclosures: None (all referenced documents previously exchanged between the parties)
Warranty Chargeback Notice | Date Issued | Units Claimed | Amount Claimed
WCN-2021-1247 | December 6, 2021 | 3,842 | $1,583,654.60
WCN-2022-0103 | January 18, 2022 | 4,260 | $1,756,398.00
WCN-2022-0289 | February 7, 2022 | 3,712 | $1,530,497.60
Total | 11,814 | $4,870,550.20

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