1007-00008 · Vantage Mobility Systems Corp · Correspondence/Lender

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CONFIDENTIAL

CALDERWOOD & HARKNESS LLP Attorneys at Law

600 Renaissance Center, Suite 3200 Detroit, Michigan 48243

Telephone: (313) 552-8000 Facsimile: (313) 552-8001 www.calderwoodharkness.com

August 10, 2023

Matter No.: 1007-00008

VIA ELECTRONIC MAIL AND OVERNIGHT COURIER

Mr. Howard Segal Relationship Manager Pinnacle National Bank, N.A. In its capacity as Administrative Agent under the Senior Secured Revolving Credit Facility 150 Federal Street Boston, Massachusetts 02110

Re: Notice Pursuant to Section 6.12 of the Senior Secured Revolving Credit Facility Agreement, dated September 12, 2019 — Material Contract Status Change (Dormancy) — Vantage Mobility Systems Corp.

Dear Mr. Segal:

I. Purpose and Authority

Calderwood & Harkness LLP writes on behalf of its client, Vantage Mobility Systems Corp. ("VMS" or the "Borrower"), a Delaware corporation headquartered at 4100 Industrial Parkway, Sterling Heights, Michigan 48312. The purpose of this letter is to provide formal notice to Pinnacle National Bank, N.A. ("Pinnacle" or the "Administrative Agent") pursuant to Section 6.12 of the Senior Secured Revolving Credit Facility Agreement, dated September 12, 2019 (as amended, restated, supplemented, or otherwise modified from time to time, the "Credit Agreement"), among VMS, as Borrower, Pinnacle, as Administrative Agent, and the several lenders from time to time party thereto (collectively, the "Lenders").

As you are aware, Section 6.12 of the Credit Agreement requires the Borrower to notify the Administrative Agent promptly, and in any event within thirty (30) days, of any material contract modification, termination, suspension, or dispute involving aggregate contractual commitments exceeding Five Million Dollars ($5,000,000). This notification obligation extends to any change in the operative status of such a material contract that could reasonably bear upon the Borrower's business operations, financial condition, or ability to perform its obligations under the Credit Agreement.

This letter constitutes timely notice of a material status change — specifically, the imposition of "Dormancy Status" — affecting a contract whose total commitments equal Twenty Million Dollars ($20,000,000), thereby exceeding the Five Million Dollar ($5,000,000) reporting threshold set forth in Section 6.12. The facts and circumstances giving rise to this notification are described in detail below.

II. Identification of the Material Contract

The material contract at issue is the Master Embedded Software License and Services Agreement (the "MESLSA"), dated June 21, 2022, entered into between Vantage Mobility Systems Corp., as licensee, and Meridian Code Technologies, Inc. ("MeridianCode"), a California corporation headquartered at 2750 Orchard Blvd., Suite 400, Santa Clara, California 95054 (Nasdaq: MCDT), as licensor.

The MESLSA governs the license by MeridianCode to VMS of the ATLAS-RT™ embedded real-time operating system, Version 4.2, a proprietary software platform designed for safety-critical automotive applications. The licensed software is intended for integration into VMS's next-generation adaptive vehicle platform program, known internally as "Project Argonaut," which encompasses the development, testing, and commercialization of a modular adaptive-mobility vehicle architecture intended for deployment across multiple vehicle platform configurations.

The total deal value of the MESLSA is Twenty Million Dollars ($20,000,000), comprised of the following components:

(a) Upfront License Fee: Eight Million Dollars ($8,000,000), payable upon execution and delivered by wire transfer on June 21, 2022;

(b) Annual Maintenance & Support Fees: Two Million Four Hundred Thousand Dollars ($2,400,000) per annum, payable in advance on each anniversary of the Effective Date, covering full-spectrum technical support, software updates, security patching, and dedicated engineering liaison services;

(c) Integration Services Fee: Three Million Two Hundred Thousand Dollars ($3,200,000), payable on a milestone basis across five (5) defined integration milestones, each corresponding to a discrete phase of the software integration process as set forth in Exhibit C to the MESLSA; and

(d) Per-Unit Runtime Royalties: Eighty Dollars ($80) per unit for each production vehicle incorporating the licensed ATLAS-RT™ software, subject to an aggregate royalty cap of Four Million Dollars ($4,000,000) (representing a maximum of 50,000 units over the term of the agreement).

The MESLSA has a five-year term commencing on its Effective Date and expiring on June 20, 2027. The agreement is governed by the laws of the State of Michigan, without regard to conflict-of-laws principles. All disputes arising under or in connection with the MESLSA are subject to binding arbitration administered under the rules of the Midwest Arbitration Institute, with the arbitral seat in Detroit, Michigan.

III. Description of the Material Status Change — Dormancy

We write to advise the Administrative Agent that the MESLSA has been placed into "Dormancy Status" as that term is defined in Section 9.4 of the MESLSA. The relevant facts and chronology are as follows.

On March 14, 2023, the Board of Directors of VMS approved a strategic rescoping of Project Argonaut. Under the original project plan, Project Argonaut encompassed five distinct vehicle platform configurations, designated Argonaut-A through Argonaut-E, each tailored to a specific segment of the adaptive-mobility market. Following the Board's determination, the number of target vehicle platform configurations was reduced from five to two — specifically, Argonaut-A (the full-size accessible van platform) and Argonaut-C (the mid-size accessible crossover platform) — with all work on Argonaut-B, Argonaut-D, and Argonaut-E deferred indefinitely. In addition, the Board directed that electrification integration, originally planned as a concurrent workstream within Project Argonaut, be deferred to a future program phase, the timing of which remains under evaluation.

The rescoping decision was driven primarily by two factors. First, VMS experienced persistent and escalating supply-chain delays in the procurement of specialty semiconductor components critical to the ATLAS-RT™ integration process, including application-specific integrated circuits sourced from a sole-source supplier in Southeast Asia. Second, Kestrel Capital Partners, LP, VMS's majority private equity sponsor, issued a portfolio-wide capital expenditure reduction directive in February 2023, mandating that all portfolio companies reduce non-essential capital commitments by no less than fifteen percent (15%) during fiscal year 2023. The combination of these external and internal pressures led the Board to conclude that a focused, two-platform approach represented the most prudent path forward for Project Argonaut.

As a direct and proximate result of the rescoping, VMS suspended all active integration work under the MESLSA on March 22, 2023. Since that date, no integration engineering, testing, or development activities have been conducted under the MESLSA, and no MeridianCode integration services personnel have been deployed to VMS facilities or engaged in project-related work.

Section 9.4 of the MESLSA provides, in relevant part, that if VMS suspends active integration work for more than one hundred twenty (120) consecutive days without providing written notice of suspension to MeridianCode, MeridianCode may, at its election, convert the license to a "Dormancy Status." Under Dormancy Status, MeridianCode's support obligations are reduced to critical-security-patch-only level, all milestone deadlines under Exhibit C are tolled for the duration of the dormancy period, and VMS's obligation to deploy integration resources is suspended. Section 9.4 further provides that Dormancy Status may not exceed twelve (12) consecutive months; if the dormancy period reaches twelve months without reactivation, the parties are obligated to enter into mandatory renegotiation of the MESLSA's material terms, failing which either party may terminate the agreement upon sixty (60) days' prior written notice.

The one hundred twenty (120)-day suspension threshold, calculated from March 22, 2023, fell on July 20, 2023. VMS, acting proactively and through undersigned counsel, delivered formal written notice of dormancy to MeridianCode's General Counsel, Priya Ramaswamy, on July 14, 2023 — six (6) calendar days prior to the one hundred twenty (120)-day trigger date — thereby invoking Dormancy Status under Section 9.4 of the MESLSA in a timely manner and preserving VMS's rights thereunder.

MeridianCode formally acknowledged the imposition of Dormancy Status in a written communication delivered to undersigned counsel on August 3, 2023, confirming that MeridianCode recognized VMS's invocation of Section 9.4, that MeridianCode would transition its support obligations to the critical-security-patch-only level effective immediately, and that the twelve (12)-month dormancy clock would commence on the date of such acknowledgment.

Accordingly, the MESLSA is now in Dormancy Status, effective as of August 3, 2023.

IV. Financial Status — Fees Paid and Remaining Obligations

For the Administrative Agent's reference, we set forth below a summary of amounts paid and remaining obligations under the MESLSA as of the effective date of Dormancy Status.

Fees Paid by VMS Through August 3, 2023:

Remaining Contractual Commitments Under the MESLSA:

With respect to the Year 2 Annual Maintenance & Support Fee, MeridianCode issued an invoice in the amount of $2,400,000 on July 1, 2023, covering the maintenance and support period from June 21, 2023 through June 20, 2024. VMS has disputed payment of this invoice in full on the basis that Dormancy Status, as acknowledged by MeridianCode, reduces MeridianCode's support obligations to critical-security-patch-only level, which VMS maintains does not warrant payment of the full annual maintenance and support fee. VMS has communicated its position to MeridianCode in writing and has proposed a reduced maintenance fee commensurate with the diminished scope of services during the dormancy period. This matter remains under active negotiation between the parties.

No event of default has occurred under the MESLSA, and VMS is not aware of any pending claim, demand, or threatened action by MeridianCode other than the disputed Year 2 Maintenance & Support Fee invoice described above.

V. Impact on the Borrower's Operations and Credit Facility

VMS does not believe that the dormancy of the MESLSA constitutes, or will result in, a "Material Adverse Effect" as that term is defined in Section 1.01 of the Credit Agreement. Project Argonaut, while an important strategic initiative for VMS, represents one of several parallel development programs within VMS's overall product portfolio, and the rescoping of Project Argonaut does not impair VMS's ability to generate revenue from its existing product lines or to service its debt obligations.

As of the date of this letter, VMS's current outstanding borrowings under the Credit Agreement are approximately Ninety-Two Million Dollars ($92,000,000) against the One Hundred Seventy-Five Million Dollar ($175,000,000) revolving credit facility commitment, representing a utilization rate of approximately 52.6%. VMS remains in compliance with all financial covenants set forth in Article VII of the Credit Agreement, including the minimum Interest Coverage Ratio, the maximum Total Leverage Ratio, and the minimum Liquidity requirement, in each case as calculated for the most recently completed fiscal quarter ended June 30, 2023.

The dormancy of the MESLSA does not affect VMS's ability to service its obligations under the Credit Agreement, including its obligations to make timely payments of principal, interest, fees, and other amounts due thereunder. VMS's cash position and liquidity remain adequate to meet its near-term obligations, and VMS does not anticipate that the dormancy or the disputed Year 2 Maintenance & Support Fee will have a material impact on its financial results for the current fiscal year.

VMS is actively engaged, through undersigned counsel, in negotiations with MeridianCode, which is represented by Redstone Whitaker LLP of Palo Alto, California, regarding the resolution of all dormancy-related issues. These negotiations encompass the following matters: (i) resolution of the disputed Year 2 Maintenance & Support Fee; (ii) potential scope reduction of the license to align with the rescoped Project Argonaut (two-platform configuration); and (iii) possible reactivation of integration work on a modified timeline, or, alternatively, a structured wind-down of the MESLSA on commercially reasonable terms. VMS will keep the Administrative Agent apprised of the status and outcome of these negotiations as they progress.

VI. Key Dates and Deadlines

For the Administrative Agent's convenience, VMS provides the following summary of key dates and deadlines relevant to the MESLSA and the current Dormancy Status:

(a) December 21, 2023 — Section 4.3 of the MESLSA requires VMS to have commenced integration testing on at least two (2) vehicle platforms within eighteen (18) months of the Effective Date. It is VMS's position that Dormancy Status, properly invoked under Section 9.4, operates to toll this deadline for the duration of the dormancy period, thereby extending the integration-testing commencement deadline by a period equal to the number of days during which Dormancy Status is in effect. VMS has communicated this position to MeridianCode, and MeridianCode has not, as of the date of this letter, contested VMS's interpretation of the tolling provisions of Section 9.4.

(b) June 21, 2024 — The twenty-four (24)-month anniversary of the MESLSA Effective Date. Under Section 9.1 of the MESLSA, termination for convenience by VMS prior to the twenty-four (24)-month anniversary triggers forfeiture of all prepaid fees, including the Eight Million Dollar ($8,000,000) Upfront License Fee. After the twenty-four (24)-month anniversary, termination for convenience by VMS would not result in forfeiture of prepaid fees, although VMS would remain liable for any accrued and unpaid obligations through the date of termination.

(c) August 3, 2024 — The twelve (12)-month dormancy cap under Section 9.4. If Dormancy Status has not been lifted through reactivation of integration work on or before this date, the parties are required to enter into mandatory renegotiation of the MESLSA's material terms within thirty (30) days. If the parties are unable to reach agreement through renegotiation within such thirty (30)-day period, either party may terminate the MESLSA upon sixty (60) days' prior written notice to the other party, subject to the provisions of Section 9.5 regarding survival of certain obligations.

(d) June 20, 2027 — Expiration of the MESLSA's five (5)-year term, absent earlier termination.

VII. Reservation of Rights and Continuing Obligations

VMS hereby expressly reserves all of its rights, remedies, and defenses under the MESLSA, the Credit Agreement, and applicable law, including but not limited to its rights to reactivate integration work, to negotiate modified terms, to dispute invoices and claims, and to terminate the MESLSA in accordance with its terms. Nothing in this letter shall be construed as a waiver or relinquishment of any right, remedy, or defense available to VMS under any agreement or at law or in equity.

VMS will continue to keep the Administrative Agent informed of any material developments concerning the MESLSA, including without limitation: (i) the outcome of negotiations with MeridianCode regarding the disputed Year 2 Maintenance & Support Fee and the future scope or status of the license; (ii) any formal dispute proceedings, including any demand for or commencement of binding arbitration before the Midwest Arbitration Institute; (iii) any further modifications, amendments, or supplements to the MESLSA; (iv) any reactivation of integration work or lifting of Dormancy Status; and (v) any termination or expiration of the MESLSA.

VMS confirms that, to its knowledge, as of the date of this letter, no other material contracts require notification under Section 6.12 of the Credit Agreement at this time.

VIII. Contact Information

Should the Administrative Agent have any questions concerning the matters addressed in this letter, or should the Administrative Agent wish to request additional information or documentation, please direct such inquiries to either of the following:

Martin G. Cross, Esq. General Counsel Vantage Mobility Systems Corp. 4100 Industrial Parkway Sterling Heights, Michigan 48312 Telephone: (586) 274-3300

Email: m.cross@vantagemobility.com

Bernard Crawford, Esq. Partner Calderwood & Harkness LLP 600 Renaissance Center, Suite 3200 Detroit, Michigan 48243 Telephone: (313) 552-8014

Email: bcrawford@calderwoodharkness.com

Matter No.: 1007-00008

We trust this notice provides the Administrative Agent with the information required under Section 6.12 of the Credit Agreement. We remain available at your convenience to discuss any aspect of this matter in greater detail.

Very truly yours,

CALDERWOOD & HARKNESS LLP

By: ________

Bernard Crawford Partner

Calderwood & Harkness LLP 600 Renaissance Center, Suite 3200 Detroit, Michigan 48243

cc:

Martin G. Cross, Esq., General Counsel, Vantage Mobility Systems Corp. Sandra M. Okafor, Chief Financial Officer, Vantage Mobility Systems Corp. Conrad Ashby, Esq., Partner, Calderwood & Harkness LLP

Enclosures: None. VMS's dormancy notice to MeridianCode dated July 14, 2023 and MeridianCode's acknowledgment letter dated August 3, 2023 are referenced herein but are not enclosed with this correspondence in order to preserve applicable privileges and confidentiality protections. Copies of such documents are available upon written request of the Administrative Agent, subject to the execution of an appropriate confidentiality undertaking.

Component	Amount
Upfront License Fee	$8,000,000
Year 1 Annual Maintenance & Support Fee (June 21, 2022 – June 20, 2023)	$2,400,000
Integration Services Fees — Milestones 1, 2, and 3	$1,920,000
Total Fees Paid	$12,320,000
Component	Amount	Status
Year 2 Annual Maintenance & Support Fee (June 21, 2023 – June 20, 2024)	$2,400,000	Invoiced July 1, 2023; currently disputed (see below)
Integration Services Fees — Milestones 4 and 5	$1,280,000	Tolled during dormancy
Per-Unit Runtime Royalties	Up to $4,000,000 (aggregate cap)	No units shipped; $0 incurred
Total Remaining Commitment	$7,680,000

CONFIDENTIAL
CALDERWOOD & HARKNESS LLP Attorneys at Law
600 Renaissance Center, Suite 3200 Detroit, Michigan 48243
Telephone: (313) 552-8000 Facsimile: (313) 552-8001 www.calderwoodharkness.com
August 10, 2023
Matter No.: 1007-00008
VIA ELECTRONIC MAIL AND OVERNIGHT COURIER
Mr. Howard Segal Relationship Manager Pinnacle National Bank, N.A. In its capacity as Administrative Agent under the Senior Secured Revolving Credit Facility 150 Federal Street Boston, Massachusetts 02110
Re: Notice Pursuant to Section 6.12 of the Senior Secured Revolving Credit Facility Agreement, dated September 12, 2019 — Material Contract Status Change (Dormancy) — Vantage Mobility Systems Corp.
Dear Mr. Segal:
I. Purpose and Authority
Calderwood & Harkness LLP writes on behalf of its client, Vantage Mobility Systems Corp. ("VMS" or the "Borrower"), a Delaware corporation headquartered at 4100 Industrial Parkway, Sterling Heights, Michigan 48312. The purpose of this letter is to provide formal notice to Pinnacle National Bank, N.A. ("Pinnacle" or the "Administrative Agent") pursuant to Section 6.12 of the Senior Secured Revolving Credit Facility Agreement, dated September 12, 2019 (as amended, restated, supplemented, or otherwise modified from time to time, the "Credit Agreement"), among VMS, as Borrower, Pinnacle, as Administrative Agent, and the several lenders from time to time party thereto (collectively, the "Lenders").
As you are aware, Section 6.12 of the Credit Agreement requires the Borrower to notify the Administrative Agent promptly, and in any event within thirty (30) days, of any material contract modification, termination, suspension, or dispute involving aggregate contractual commitments exceeding Five Million Dollars ($5,000,000). This notification obligation extends to any change in the operative status of such a material contract that could reasonably bear upon the Borrower's business operations, financial condition, or ability to perform its obligations under the Credit Agreement.
This letter constitutes timely notice of a material status change — specifically, the imposition of "Dormancy Status" — affecting a contract whose total commitments equal Twenty Million Dollars ($20,000,000), thereby exceeding the Five Million Dollar ($5,000,000) reporting threshold set forth in Section 6.12. The facts and circumstances giving rise to this notification are described in detail below.
II. Identification of the Material Contract
The material contract at issue is the Master Embedded Software License and Services Agreement (the "MESLSA"), dated June 21, 2022, entered into between Vantage Mobility Systems Corp., as licensee, and Meridian Code Technologies, Inc. ("MeridianCode"), a California corporation headquartered at 2750 Orchard Blvd., Suite 400, Santa Clara, California 95054 (Nasdaq: MCDT), as licensor.
The MESLSA governs the license by MeridianCode to VMS of the ATLAS-RT™ embedded real-time operating system, Version 4.2, a proprietary software platform designed for safety-critical automotive applications. The licensed software is intended for integration into VMS's next-generation adaptive vehicle platform program, known internally as "Project Argonaut," which encompasses the development, testing, and commercialization of a modular adaptive-mobility vehicle architecture intended for deployment across multiple vehicle platform configurations.
The total deal value of the MESLSA is Twenty Million Dollars ($20,000,000), comprised of the following components:
(a) Upfront License Fee: Eight Million Dollars ($8,000,000), payable upon execution and delivered by wire transfer on June 21, 2022;
(b) Annual Maintenance & Support Fees: Two Million Four Hundred Thousand Dollars ($2,400,000) per annum, payable in advance on each anniversary of the Effective Date, covering full-spectrum technical support, software updates, security patching, and dedicated engineering liaison services;
(c) Integration Services Fee: Three Million Two Hundred Thousand Dollars ($3,200,000), payable on a milestone basis across five (5) defined integration milestones, each corresponding to a discrete phase of the software integration process as set forth in Exhibit C to the MESLSA; and
(d) Per-Unit Runtime Royalties: Eighty Dollars ($80) per unit for each production vehicle incorporating the licensed ATLAS-RT™ software, subject to an aggregate royalty cap of Four Million Dollars ($4,000,000) (representing a maximum of 50,000 units over the term of the agreement).
The MESLSA has a five-year term commencing on its Effective Date and expiring on June 20, 2027. The agreement is governed by the laws of the State of Michigan, without regard to conflict-of-laws principles. All disputes arising under or in connection with the MESLSA are subject to binding arbitration administered under the rules of the Midwest Arbitration Institute, with the arbitral seat in Detroit, Michigan.
III. Description of the Material Status Change — Dormancy
We write to advise the Administrative Agent that the MESLSA has been placed into "Dormancy Status" as that term is defined in Section 9.4 of the MESLSA. The relevant facts and chronology are as follows.
On March 14, 2023, the Board of Directors of VMS approved a strategic rescoping of Project Argonaut. Under the original project plan, Project Argonaut encompassed five distinct vehicle platform configurations, designated Argonaut-A through Argonaut-E, each tailored to a specific segment of the adaptive-mobility market. Following the Board's determination, the number of target vehicle platform configurations was reduced from five to two — specifically, Argonaut-A (the full-size accessible van platform) and Argonaut-C (the mid-size accessible crossover platform) — with all work on Argonaut-B, Argonaut-D, and Argonaut-E deferred indefinitely. In addition, the Board directed that electrification integration, originally planned as a concurrent workstream within Project Argonaut, be deferred to a future program phase, the timing of which remains under evaluation.
The rescoping decision was driven primarily by two factors. First, VMS experienced persistent and escalating supply-chain delays in the procurement of specialty semiconductor components critical to the ATLAS-RT™ integration process, including application-specific integrated circuits sourced from a sole-source supplier in Southeast Asia. Second, Kestrel Capital Partners, LP, VMS's majority private equity sponsor, issued a portfolio-wide capital expenditure reduction directive in February 2023, mandating that all portfolio companies reduce non-essential capital commitments by no less than fifteen percent (15%) during fiscal year 2023. The combination of these external and internal pressures led the Board to conclude that a focused, two-platform approach represented the most prudent path forward for Project Argonaut.
As a direct and proximate result of the rescoping, VMS suspended all active integration work under the MESLSA on March 22, 2023. Since that date, no integration engineering, testing, or development activities have been conducted under the MESLSA, and no MeridianCode integration services personnel have been deployed to VMS facilities or engaged in project-related work.
Section 9.4 of the MESLSA provides, in relevant part, that if VMS suspends active integration work for more than one hundred twenty (120) consecutive days without providing written notice of suspension to MeridianCode, MeridianCode may, at its election, convert the license to a "Dormancy Status." Under Dormancy Status, MeridianCode's support obligations are reduced to critical-security-patch-only level, all milestone deadlines under Exhibit C are tolled for the duration of the dormancy period, and VMS's obligation to deploy integration resources is suspended. Section 9.4 further provides that Dormancy Status may not exceed twelve (12) consecutive months; if the dormancy period reaches twelve months without reactivation, the parties are obligated to enter into mandatory renegotiation of the MESLSA's material terms, failing which either party may terminate the agreement upon sixty (60) days' prior written notice.
The one hundred twenty (120)-day suspension threshold, calculated from March 22, 2023, fell on July 20, 2023. VMS, acting proactively and through undersigned counsel, delivered formal written notice of dormancy to MeridianCode's General Counsel, Priya Ramaswamy, on July 14, 2023 — six (6) calendar days prior to the one hundred twenty (120)-day trigger date — thereby invoking Dormancy Status under Section 9.4 of the MESLSA in a timely manner and preserving VMS's rights thereunder.
MeridianCode formally acknowledged the imposition of Dormancy Status in a written communication delivered to undersigned counsel on August 3, 2023, confirming that MeridianCode recognized VMS's invocation of Section 9.4, that MeridianCode would transition its support obligations to the critical-security-patch-only level effective immediately, and that the twelve (12)-month dormancy clock would commence on the date of such acknowledgment.
Accordingly, the MESLSA is now in Dormancy Status, effective as of August 3, 2023.
IV. Financial Status — Fees Paid and Remaining Obligations
For the Administrative Agent's reference, we set forth below a summary of amounts paid and remaining obligations under the MESLSA as of the effective date of Dormancy Status.
Fees Paid by VMS Through August 3, 2023:
Remaining Contractual Commitments Under the MESLSA:
With respect to the Year 2 Annual Maintenance & Support Fee, MeridianCode issued an invoice in the amount of $2,400,000 on July 1, 2023, covering the maintenance and support period from June 21, 2023 through June 20, 2024. VMS has disputed payment of this invoice in full on the basis that Dormancy Status, as acknowledged by MeridianCode, reduces MeridianCode's support obligations to critical-security-patch-only level, which VMS maintains does not warrant payment of the full annual maintenance and support fee. VMS has communicated its position to MeridianCode in writing and has proposed a reduced maintenance fee commensurate with the diminished scope of services during the dormancy period. This matter remains under active negotiation between the parties.
No event of default has occurred under the MESLSA, and VMS is not aware of any pending claim, demand, or threatened action by MeridianCode other than the disputed Year 2 Maintenance & Support Fee invoice described above.
V. Impact on the Borrower's Operations and Credit Facility
VMS does not believe that the dormancy of the MESLSA constitutes, or will result in, a "Material Adverse Effect" as that term is defined in Section 1.01 of the Credit Agreement. Project Argonaut, while an important strategic initiative for VMS, represents one of several parallel development programs within VMS's overall product portfolio, and the rescoping of Project Argonaut does not impair VMS's ability to generate revenue from its existing product lines or to service its debt obligations.
As of the date of this letter, VMS's current outstanding borrowings under the Credit Agreement are approximately Ninety-Two Million Dollars ($92,000,000) against the One Hundred Seventy-Five Million Dollar ($175,000,000) revolving credit facility commitment, representing a utilization rate of approximately 52.6%. VMS remains in compliance with all financial covenants set forth in Article VII of the Credit Agreement, including the minimum Interest Coverage Ratio, the maximum Total Leverage Ratio, and the minimum Liquidity requirement, in each case as calculated for the most recently completed fiscal quarter ended June 30, 2023.
The dormancy of the MESLSA does not affect VMS's ability to service its obligations under the Credit Agreement, including its obligations to make timely payments of principal, interest, fees, and other amounts due thereunder. VMS's cash position and liquidity remain adequate to meet its near-term obligations, and VMS does not anticipate that the dormancy or the disputed Year 2 Maintenance & Support Fee will have a material impact on its financial results for the current fiscal year.
VMS is actively engaged, through undersigned counsel, in negotiations with MeridianCode, which is represented by Redstone Whitaker LLP of Palo Alto, California, regarding the resolution of all dormancy-related issues. These negotiations encompass the following matters: (i) resolution of the disputed Year 2 Maintenance & Support Fee; (ii) potential scope reduction of the license to align with the rescoped Project Argonaut (two-platform configuration); and (iii) possible reactivation of integration work on a modified timeline, or, alternatively, a structured wind-down of the MESLSA on commercially reasonable terms. VMS will keep the Administrative Agent apprised of the status and outcome of these negotiations as they progress.
VI. Key Dates and Deadlines
For the Administrative Agent's convenience, VMS provides the following summary of key dates and deadlines relevant to the MESLSA and the current Dormancy Status:
(a) December 21, 2023 — Section 4.3 of the MESLSA requires VMS to have commenced integration testing on at least two (2) vehicle platforms within eighteen (18) months of the Effective Date. It is VMS's position that Dormancy Status, properly invoked under Section 9.4, operates to toll this deadline for the duration of the dormancy period, thereby extending the integration-testing commencement deadline by a period equal to the number of days during which Dormancy Status is in effect. VMS has communicated this position to MeridianCode, and MeridianCode has not, as of the date of this letter, contested VMS's interpretation of the tolling provisions of Section 9.4.
(b) June 21, 2024 — The twenty-four (24)-month anniversary of the MESLSA Effective Date. Under Section 9.1 of the MESLSA, termination for convenience by VMS prior to the twenty-four (24)-month anniversary triggers forfeiture of all prepaid fees, including the Eight Million Dollar ($8,000,000) Upfront License Fee. After the twenty-four (24)-month anniversary, termination for convenience by VMS would not result in forfeiture of prepaid fees, although VMS would remain liable for any accrued and unpaid obligations through the date of termination.
(c) August 3, 2024 — The twelve (12)-month dormancy cap under Section 9.4. If Dormancy Status has not been lifted through reactivation of integration work on or before this date, the parties are required to enter into mandatory renegotiation of the MESLSA's material terms within thirty (30) days. If the parties are unable to reach agreement through renegotiation within such thirty (30)-day period, either party may terminate the MESLSA upon sixty (60) days' prior written notice to the other party, subject to the provisions of Section 9.5 regarding survival of certain obligations.
(d) June 20, 2027 — Expiration of the MESLSA's five (5)-year term, absent earlier termination.
VII. Reservation of Rights and Continuing Obligations
VMS hereby expressly reserves all of its rights, remedies, and defenses under the MESLSA, the Credit Agreement, and applicable law, including but not limited to its rights to reactivate integration work, to negotiate modified terms, to dispute invoices and claims, and to terminate the MESLSA in accordance with its terms. Nothing in this letter shall be construed as a waiver or relinquishment of any right, remedy, or defense available to VMS under any agreement or at law or in equity.
VMS will continue to keep the Administrative Agent informed of any material developments concerning the MESLSA, including without limitation: (i) the outcome of negotiations with MeridianCode regarding the disputed Year 2 Maintenance & Support Fee and the future scope or status of the license; (ii) any formal dispute proceedings, including any demand for or commencement of binding arbitration before the Midwest Arbitration Institute; (iii) any further modifications, amendments, or supplements to the MESLSA; (iv) any reactivation of integration work or lifting of Dormancy Status; and (v) any termination or expiration of the MESLSA.
VMS confirms that, to its knowledge, as of the date of this letter, no other material contracts require notification under Section 6.12 of the Credit Agreement at this time.
VIII. Contact Information
Should the Administrative Agent have any questions concerning the matters addressed in this letter, or should the Administrative Agent wish to request additional information or documentation, please direct such inquiries to either of the following:
Martin G. Cross, Esq. General Counsel Vantage Mobility Systems Corp. 4100 Industrial Parkway Sterling Heights, Michigan 48312 Telephone: (586) 274-3300
Email: m.cross@vantagemobility.com
Bernard Crawford, Esq. Partner Calderwood & Harkness LLP 600 Renaissance Center, Suite 3200 Detroit, Michigan 48243 Telephone: (313) 552-8014
Email: bcrawford@calderwoodharkness.com
Matter No.: 1007-00008
We trust this notice provides the Administrative Agent with the information required under Section 6.12 of the Credit Agreement. We remain available at your convenience to discuss any aspect of this matter in greater detail.
Very truly yours,
CALDERWOOD & HARKNESS LLP
By: ________
Bernard Crawford Partner
Calderwood & Harkness LLP 600 Renaissance Center, Suite 3200 Detroit, Michigan 48243
cc:
Martin G. Cross, Esq., General Counsel, Vantage Mobility Systems Corp. Sandra M. Okafor, Chief Financial Officer, Vantage Mobility Systems Corp. Conrad Ashby, Esq., Partner, Calderwood & Harkness LLP
Enclosures: None. VMS's dormancy notice to MeridianCode dated July 14, 2023 and MeridianCode's acknowledgment letter dated August 3, 2023 are referenced herein but are not enclosed with this correspondence in order to preserve applicable privileges and confidentiality protections. Copies of such documents are available upon written request of the Administrative Agent, subject to the execution of an appropriate confidentiality undertaking.
Component | Amount
Upfront License Fee | $8,000,000
Year 1 Annual Maintenance & Support Fee (June 21, 2022 – June 20, 2023) | $2,400,000
Integration Services Fees — Milestones 1, 2, and 3 | $1,920,000
Total Fees Paid | $12,320,000
Component | Amount | Status
Year 2 Annual Maintenance & Support Fee (June 21, 2023 – June 20, 2024) | $2,400,000 | Invoiced July 1, 2023; currently disputed (see below)
Integration Services Fees — Milestones 4 and 5 | $1,280,000 | Tolled during dormancy
Per-Unit Runtime Royalties | Up to $4,000,000 (aggregate cap) | No units shipped; $0 incurred
Total Remaining Commitment | $7,680,000

CONFIDENTIAL

VIA ELECTRONIC MAIL AND OVERNIGHT COURIER

CALDERWOOD & HARKNESS LLP

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