1007-00008 · Vantage Mobility Systems Corp · Correspondence/Opposing Counsel

letter-sc-to-rw-initial-position-dormancy.docx DOCUMENT IP / Technology

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CALDERWOOD & HARKNESS LLP Attorneys at Law

600 Renaissance Center, Suite 3200 Detroit, Michigan 48243 Telephone: (313) 555-7400 Facsimile: (313) 555-7401 www.calderwoodharkness.com

August 18, 2023

Via Email and Overnight Courier

Alan M. Briscoe, Esq. Redstone Whitaker LLP 555 Mission Street, Suite 2800 San Francisco, California 94105

Re: Master Embedded Software License and Services Agreement, dated June 21, 2022 (the "MESLSA"), by and between Vantage Mobility Systems Corp. ("VMS" or "Vantage") and Meridian Code Technologies, Inc. ("MeridianCode") Dormancy Status, Fee Dispute, and Related Matters C&H Matter No. 1007-00008

Dear Mr. Briscoe:

1. Introduction and Purpose of Letter

This firm represents Vantage Mobility Systems Corp. ("VMS" or "Vantage") in connection with that certain Master Embedded Software License and Services Agreement, dated June 21, 2022 (the "MESLSA"), by and between VMS, as licensee, and Meridian Code Technologies, Inc. ("MeridianCode"), as licensor. We understand that your firm, Redstone Whitaker LLP, serves as outside counsel to MeridianCode with respect to the MESLSA and related matters. Accordingly, we direct this correspondence to your attention.

The purpose of this letter is to set forth VMS's position on three interconnected issues arising from the license dormancy currently in effect under the MESLSA, specifically:

(1) the validity and scope of Dormancy Status as properly invoked by VMS under Section 9.4 of the MESLSA;

(2) VMS's dispute of the Year 2 Annual Maintenance & Support Fee invoice in the amount of Two Million Four Hundred Thousand Dollars ($2,400,000), dated July 1, 2023 (Invoice No. MCT-2023-0701, or such other internal reference as MeridianCode may assign); and

(3) the tolling effect of Dormancy Status on all milestone deadlines under the MESLSA, including, without limitation, the Section 4.3 "Use-It-or-Lose-It" deadline requiring the commencement of integration testing on at least two platforms within eighteen (18) months of the Effective Date.

As a threshold matter, we wish to note that this letter is sent without waiver of any rights, remedies, claims, or defenses available to VMS under the MESLSA, under applicable law, or in equity. VMS expressly reserves all such rights and remedies, whether or not specifically referenced herein. As you are aware, Section 14.7 of the MESLSA provides that the agreement is governed by and construed in accordance with the laws of the State of Michigan, without regard to its conflict of laws principles. All positions advanced in this letter are accordingly informed by and premised upon Michigan governing law.

VMS hopes and expects that the issues identified in this letter can be resolved amicably through good-faith negotiation between the parties and their respective counsel. However, VMS is prepared to pursue all available contractual and legal remedies in the event that a negotiated resolution cannot be reached.

2. Background and Factual Summary

To ensure a common understanding of the relevant facts and to provide context for the legal positions set forth below, we summarize the pertinent background as follows.

2.1 The MESLSA and Project Argonaut

The MESLSA was duly executed on June 21, 2022, by and between VMS, as licensee, and MeridianCode, as licensor. The MESLSA has an aggregate deal value of Twenty Million Dollars ($20,000,000) and governs the licensing of MeridianCode's proprietary ATLAS-RT™ embedded real-time operating system, Version 4.2 (the "Licensed Software"), for integration into VMS's next-generation adaptive vehicle platform program, internally designated by VMS as "Project Argonaut."

The original scope of the MESLSA contemplated integration of the Licensed Software across five (5) designated vehicle platform configurations, designated Argonaut-A, Argonaut-B, Argonaut-C, Argonaut-D, and Argonaut-E (collectively, the "Designated Platforms"). The license territory is worldwide, and the initial term of the MESLSA is five (5) years, commencing on June 21, 2022, and expiring on June 20, 2027 (the "Term"), subject to earlier termination or extension in accordance with the terms of the MESLSA.

The fee structure under the MESLSA is as follows:

(a) Upfront License Fee: Eight Million Dollars ($8,000,000), paid at signing on June 21, 2022;

(b) Year 1 Annual Maintenance & Support Fee: Two Million Four Hundred Thousand Dollars ($2,400,000), paid on July 15, 2022;

(c) Integration Services Fee: Three Million Two Hundred Thousand Dollars ($3,200,000), payable on a milestone basis across five (5) integration milestones, with payments due upon VMS's acceptance of each milestone deliverable;

(d) Per-Unit Runtime Royalties: Eighty Dollars ($80) per unit, subject to an aggregate cap of Four Million Dollars ($4,000,000), equivalent to fifty thousand (50,000) units; and

(e) Year 2 Annual Maintenance & Support Fee: Two Million Four Hundred Thousand Dollars ($2,400,000), invoiced by MeridianCode on July 1, 2023 (the "Disputed Invoice"), which is the subject of the fee dispute addressed in Section 4 of this letter.

The foregoing fee components, taken together, reflect the total deal value of $20,000,000 referenced above. Project Argonaut represented a significant strategic initiative for VMS, and VMS committed substantial financial and engineering resources to its execution, as further described below.

2.2 Project Argonaut Rescoping

On March 14, 2023, the VMS Board of Directors adopted a resolution (the "Rescoping Resolution") to rescope Project Argonaut, reducing the number of target vehicle platforms from five (5) to two (2) — specifically, Argonaut-A and Argonaut-C — and deferring the electrification integration component of the program to a future Phase II initiative, the timing and scope of which remain under consideration. The Rescoping Resolution was adopted following a comprehensive review by VMS's executive management team and was driven by a confluence of factors, including:

(i) persistent supply-chain delays in the procurement of critical semiconductor components, which had resulted in significant schedule uncertainty and cost escalation across VMS's vehicle platform programs;

(ii) a portfolio-wide capital expenditure reduction initiative undertaken by VMS in response to macroeconomic conditions and revised revenue projections; and

(iii) a strategic decision by VMS to prioritize internal combustion engine ("ICE") platform fleet vehicles, which represented the largest share of VMS's near-term revenue pipeline and customer backlog.

At the time of the Rescoping Resolution, the integration status of the five Designated Platforms under the MESLSA was as follows:

• Argonaut-A: Milestone 3 of 5 completed. Alpha integration testing was successfully passed on February 28, 2023, representing substantial progress through the integration lifecycle.

• Argonaut-C: Milestone 2 of 5 completed. Source-code customization was delivered by MeridianCode and accepted by VMS on January 15, 2023. Integration work on this platform was actively progressing at the time of rescoping.

• Argonaut-B: Milestone 1 only. Requirements specification had been approved, but no code integration work had commenced.

• Argonaut-D: Not commenced. No integration milestones had been initiated.

• Argonaut-E: Not commenced. No integration milestones had been initiated.

In total, VMS invested approximately fourteen thousand two hundred (14,200) engineering hours across its internal software engineering, systems integration, and quality assurance teams in connection with Project Argonaut prior to the rescoping. This substantial investment underscores VMS's good-faith commitment to the MESLSA and its intention to derive full value from the Licensed Software.

2.3 Suspension of Integration Work and Dormancy Notice

Following the Rescoping Resolution, VMS suspended all active integration work on the Licensed Software effective March 22, 2023 (the "Suspension Date"). VMS promptly communicated the operational suspension to MeridianCode's project team through established program management channels, although no formal written notice under Section 9.4 was issued at that time.

Section 9.4 of the MESLSA provides, in pertinent part, that if the licensee suspends active integration for more than one hundred twenty (120) consecutive days without providing written notice, the licensor may unilaterally convert the license to Dormancy Status. The 120-day period, measured from the Suspension Date of March 22, 2023, would have expired on July 20, 2023.

On July 14, 2023 — six (6) calendar days before the expiration of the 120-day trigger period — VMS, acting through its General Counsel, Martin G. Cross, transmitted formal written notice to MeridianCode's General Counsel, Priya Ramaswamy, expressly invoking Section 9.4 to place the MESLSA license in Dormancy Status (the "Dormancy Notice"). The Dormancy Notice was delivered by both electronic mail and overnight courier, in compliance with the notice provisions set forth in Section 15.1 of the MESLSA.

MeridianCode, through Ms. Ramaswamy, acknowledged receipt of the Dormancy Notice and confirmed the commencement of Dormancy Status by written correspondence dated August 3, 2023 (the "Acknowledgment"). The Acknowledgment did not raise any objection to the timeliness or procedural sufficiency of VMS's Dormancy Notice. MeridianCode's acknowledgment, without reservation or qualification, confirms the validity of the Dormancy Status and estops MeridianCode from subsequently challenging the propriety of VMS's invocation of Section 9.4.

VMS's timely Dormancy Notice preserved all of VMS's rights under the MESLSA and complied fully with the procedural requirements of Section 9.4. VMS affirmatively elected to invoke dormancy rather than passively permitting the 120-day period to lapse, thereby retaining control over the dormancy process and preventing any unilateral conversion by MeridianCode.

2.4 Fees Paid to Date

As of the date of the Dormancy Notice, VMS has paid MeridianCode a total of Twelve Million Three Hundred Twenty Thousand Dollars ($12,320,000) under the MESLSA. The breakdown of fees paid is as follows:

No per-unit runtime royalties have been incurred, as VMS has not yet shipped any units incorporating the Licensed Software. No additional integration services fees have accrued, as Milestones 4 and 5 have not been completed. These substantial payments — representing more than sixty-one percent (61%) of the total deal value — reflect VMS's good-faith performance of its financial obligations under the MESLSA and its significant investment in the Licensed Software and Project Argonaut.

3. VMS's Position on Dormancy Status Under Section 9.4

3.1 Validity and Timeliness of the Dormancy Notice

VMS's invocation of Dormancy Status under Section 9.4 was both procedurally valid and timely. As noted above, Section 9.4 provides that if the licensee suspends active integration for more than one hundred twenty (120) consecutive days without written notice, the licensor may convert the license to Dormancy Status. By negative implication, a licensee that provides timely written notice prior to the expiration of the 120-day period retains the right to affirmatively invoke dormancy and to control the terms and timing of the dormancy election.

VMS affirmatively invoked Dormancy Status by written notice on July 14, 2023, a full six (6) days prior to the July 20, 2023 trigger date. The Dormancy Notice was addressed to MeridianCode's General Counsel, was delivered in accordance with the contractual notice provisions, and expressly identified Section 9.4 as the basis for the invocation. By providing timely notice, VMS retained control of the dormancy invocation and prevented any unilateral conversion by MeridianCode. VMS did not passively allow the 120-day period to lapse; rather, VMS took affirmative, deliberate action to preserve its rights under the MESLSA.

MeridianCode's August 3, 2023 Acknowledgment, which confirmed the commencement of Dormancy Status without objection, reservation, or qualification, constitutes binding confirmation of the validity of the Dormancy Status. Any subsequent attempt by MeridianCode to challenge the timeliness, form, or sufficiency of the Dormancy Notice would be inconsistent with its own prior written acknowledgment and would be barred by principles of estoppel, waiver, and good faith.

3.2 Effects of Dormancy Status

Under Section 9.4, Dormancy Status has three principal effects on the rights and obligations of the parties under the MESLSA:

(a) Reduction of Support Level. During Dormancy Status, MeridianCode's maintenance and support obligations are reduced to critical-security-patch-only support. Full-scope maintenance and support services — including, without limitation, regular software updates, technical support and consultation, bug fixes, compatibility testing, and engineering consultation — are suspended for the duration of the dormancy period. MeridianCode remains obligated, however, to deliver critical security patches in a timely manner throughout the dormancy period, consistent with the severity classifications set forth in Schedule D to the MESLSA.

(b) Tolling of Milestone Deadlines. All milestone deadlines under the MESLSA are tolled during the dormancy period. This tolling provision is essential to the commercial logic of dormancy: if a licensee is permitted to place a license in dormancy to accommodate business exigencies, it would be commercially unreasonable and internally contradictory for the licensee's milestone obligations to continue running during a period when active integration work has ceased by mutual acknowledgment of the parties. The tolling provision ensures that VMS is not penalized for exercising a contractual right expressly provided for in the MESLSA.

(c) 12-Month Dormancy Cap. Dormancy Status may not exceed twelve (12) consecutive months before triggering a mandatory renegotiation of the MESLSA or, in the absence of a renegotiated agreement, termination of the MESLSA on terms to be determined in accordance with the provisions of Section 9.4. The parties must engage in good-faith discussions regarding the future of the MESLSA prior to the expiration of the 12-month dormancy cap.

The 12-month dormancy cap, measured from MeridianCode's August 3, 2023 Acknowledgment, will expire on August 3, 2024. VMS is entitled to the full benefit of this 12-month period and to full tolling of all milestone deadlines during such period. Throughout the dormancy period, MeridianCode's obligation to provide critical security patches remains in full force and effect, and VMS expects MeridianCode to honor this obligation promptly and completely.

3.3 VMS's Reservation of Reactivation Rights

VMS expressly reserves its right to reactivate the MESLSA at any time during the dormancy period for the rescoped program, encompassing the Argonaut-A and Argonaut-C vehicle platform configurations. VMS's decision to place the license in Dormancy Status was driven by the business considerations described in Section 2.2 above and does not reflect any dissatisfaction with the Licensed Software or any intention to abandon Project Argonaut. VMS continues to view the ATLAS-RT™ platform as a viable candidate for integration into its next-generation vehicle platforms and anticipates that reactivation will occur at such time as VMS's internal program readiness permits.

Nothing in Section 9.4 extinguishes or diminishes VMS's rights under the MESLSA during dormancy. VMS's license rights — including, without limitation, its right to use, copy, and integrate the Licensed Software in accordance with the scope of the license grant — remain fully intact, subject only to the reduced support level and tolled milestone deadlines described above. VMS does not, by invoking dormancy, relinquish or forfeit any interest in the Licensed Software or any rights under the MESLSA.

4. Dispute Regarding Year 2 Maintenance & Support Fee ($2,400,000)

4.1 The Invoice and VMS's Objection

On July 1, 2023, MeridianCode issued an invoice to VMS in the amount of Two Million Four Hundred Thousand Dollars ($2,400,000) for the Year 2 Annual Maintenance & Support Fee (the "Disputed Invoice"). The Disputed Invoice was issued pursuant to the fee schedule set forth in Section 6.2 of the MESLSA and purports to cover the annual maintenance and support period from July 2023 through June 2024.

VMS disputes the Disputed Invoice and respectfully declines to remit payment at this time. VMS's objection is based on the grounds set forth below and is asserted in good faith, with full reservation of all rights and remedies under the MESLSA and applicable law.

The timing of the Disputed Invoice is noteworthy. It was issued on July 1, 2023 — just thirteen (13) days before VMS transmitted its Dormancy Notice on July 14, 2023. At the time the Disputed Invoice was issued, integration work under the MESLSA had already been suspended for more than three months (since March 22, 2023). The Disputed Invoice thus relates to a maintenance and support period during which active integration had ceased and during which VMS was in the process of formalizing its dormancy election.

4.2 Contractual Basis for Dispute

VMS's dispute of the Disputed Invoice is grounded in the text and commercial logic of the MESLSA itself. The relevant contractual provisions are as follows:

Section 9.4 explicitly provides that during Dormancy Status, MeridianCode's support obligations are reduced to critical-security-patch-only support. The full suite of maintenance and support services for which VMS paid $2,400,000 in Year 1, and for which MeridianCode now seeks an identical $2,400,000 in Year 2, encompasses a broad range of services as defined in Section 6.1 and detailed in Schedule C of the MESLSA. These services include, but are not limited to:

• Regular software updates and version releases;

• Dedicated technical support with guaranteed response times (4-hour response for Severity 1 issues, 24-hour response for Severity 2 issues);

• Bug identification, diagnosis, and remediation;

• Compatibility testing across designated hardware platforms;

• Engineering consultation hours (up to 200 hours per year); and

• Access to MeridianCode's online knowledge base, developer documentation portal, and support ticket system.

During Dormancy Status, VMS is entitled to receive only critical security patches — a single, narrowly defined subset of the full maintenance and support offering. VMS will not receive, and is not entitled to receive, the regular updates, technical support, bug fixes, compatibility testing, engineering consultation, or other services that comprise the full maintenance and support package. The $2,400,000 annual fee was negotiated and priced to compensate MeridianCode for the provision of the entire suite of services described above. It was not priced as compensation for the delivery of critical security patches alone.

It would be commercially unreasonable and contrary to the evident purpose and design of Section 9.4 to require VMS to pay the full, undiscounted maintenance and support fee while receiving only a fraction — indeed, a small fraction — of the contracted-for services. The dormancy provision was included in the MESLSA to provide the licensee with a mechanism to accommodate business disruptions without forfeiting its license rights. Requiring the licensee to continue paying full maintenance fees during dormancy, when the licensor's obligations have been contractually reduced to a minimal level, would undermine the commercial purpose of the dormancy provision and would unjustly enrich the licensor at the licensee's expense.

Under Michigan law, the covenant of good faith and fair dealing implied in every contract requires the parties to act in a manner consistent with the justified expectations of the other party. See Burkhardt v. City Nat'l Bank of Detroit, 57 Mich. App. 649, 652 (1975); Fodale v. Waste Mgmt. of Mich., Inc., 271 Mich. App. 11, 35 (2006). MeridianCode's demand for full payment of the Year 2 Maintenance & Support Fee, when its own support obligations have been contractually reduced to critical-security-patch-only support, is inconsistent with the reasonable expectations of the parties as reflected in the MESLSA.

VMS's position is that the Year 2 Maintenance & Support Fee should be either:

(a) Fully abated during the dormancy period, on the ground that the triggering conditions for the fee obligation — namely, the provision of full maintenance and support services by MeridianCode — have not been and will not be satisfied during dormancy; or

(b) Prorated to reflect the substantially reduced scope of services actually being provided during dormancy (i.e., critical-security-patch-only support), based on a reasonable allocation of MeridianCode's costs attributable to that reduced level of support.

Either approach would produce a result consistent with the contractual framework of the MESLSA, the reasonable expectations of the parties, and Michigan law.

4.3 Good Faith Proposal

Consistent with VMS's desire to resolve this matter cooperatively, VMS is prepared to discuss a reasonable prorated payment reflecting the actual level of support provided during the dormancy period. VMS does not seek to avoid all payment obligations during dormancy if MeridianCode is, in fact, incurring costs to provide critical security patches. However, VMS cannot accept the full $2,400,000 Disputed Invoice as currently presented, as it bears no reasonable relationship to the scope of services being provided during Dormancy Status.

VMS invites MeridianCode to provide a detailed accounting of the costs associated with critical-security-patch-only support, including personnel costs, infrastructure costs, and any other direct costs attributable to the maintenance of patch-readiness during dormancy. Such an accounting would provide a reasonable and transparent basis for determining any prorated amount that may be appropriate. VMS is prepared to engage in good-faith discussions regarding this accounting and to agree upon a fair prorated payment, subject to resolution of the other issues identified in this letter.

5. Tolling of Section 4.3 "Use-It-or-Lose-It" Deadline

5.1 The Section 4.3 Requirement

Section 4.3 of the MESLSA contains a provision commonly known as a "use-it-or-lose-it" clause. Specifically, Section 4.3 requires VMS to commence integration testing on at least two (2) of the Designated Platforms within eighteen (18) months of the Effective Date of the MESLSA (i.e., June 21, 2022). The 18-month deadline falls on December 21, 2023 (the "Section 4.3 Deadline").

This provision was designed to ensure that the licensee actively utilized the Licensed Software within a reasonable period following the grant of the license and the payment of the upfront license fee. The Section 4.3 Deadline serves as a performance benchmark intended to prevent indefinite warehousing of the Licensed Software without active integration. VMS acknowledges the legitimate commercial purpose of this provision.

5.2 VMS's Position: Dormancy Tolls the Section 4.3 Deadline

VMS's position is that the Section 4.3 Deadline is tolled during the dormancy period by operation of Section 9.4 of the MESLSA.

Section 9.4 expressly provides that Dormancy Status tolls "all milestone deadlines" under the MESLSA. VMS's position is that the Section 4.3 Deadline constitutes a "milestone deadline" within the meaning of Section 9.4, or, at a minimum, is functionally equivalent to a milestone deadline and is therefore subject to tolling during the dormancy period under the plain language of Section 9.4.

The Section 4.3 Deadline is, by its nature, a performance milestone: it establishes a specific point in time by which VMS must achieve a defined level of performance (i.e., the commencement of integration testing on at least two platforms). It is of the same character as the integration milestones set forth in Schedule B, which are indisputably "milestone deadlines" subject to tolling under Section 9.4. There is no textual basis for distinguishing the Section 4.3 Deadline from other milestone deadlines for purposes of the tolling provision. The MESLSA does not define "milestone deadline" in a manner that would exclude the Section 4.3 Deadline, and VMS is not aware of any extrinsic evidence suggesting such an exclusion was intended.

Accordingly, the 18-month clock under Section 4.3 should be suspended as of the commencement of Dormancy Status and should resume only upon reactivation of the MESLSA. At the time dormancy was invoked, approximately twelve (12) months and twenty-three (23) days of the 18-month period had elapsed. Upon reactivation, VMS would have the remaining approximately five (5) months and seven (7) days to satisfy the Section 4.3 requirement, if it has not already been satisfied by virtue of the integration work completed prior to dormancy (as discussed in Section 5.3 below).

Moreover, reading Section 4.3 and Section 9.4 together as parts of an integrated agreement — as Michigan law requires, see Klapp v. United Ins. Group Agency, Inc., 468 Mich. 459, 468 (2003) — it would be internally contradictory for the MESLSA to permit dormancy while simultaneously requiring active integration testing during the dormancy period. Dormancy and active integration testing are mutually exclusive states under the MESLSA. A licensee in Dormancy Status has, by definition, suspended active integration. To require the licensee to satisfy a deadline predicated on active integration testing during a period of contractually recognized dormancy would render the dormancy provision illusory and would deprive VMS of the benefit of a bargained-for contractual right. Michigan courts have long held that contracts should be construed to avoid rendering any provision meaningless or inoperative. See Klapp, 468 Mich. at 468; DaimlerChrysler Corp. v. Wesco Dist., Inc., 281 Mich. App. 240, 248 (2008).

VMS therefore maintains that the Section 4.3 Deadline is tolled during the dormancy period and that VMS is not in breach, and cannot be placed in breach, of Section 4.3 by virtue of the dormancy.

5.3 Substantial Compliance Argument

Even setting aside the tolling argument, VMS submits that it has substantially complied with the purpose and requirements of Section 4.3. As detailed in Section 2.2 above, VMS commenced integration work on two (2) platforms prior to the rescoping of Project Argonaut:

• Argonaut-A: VMS completed Milestone 3 of 5, including the successful completion of alpha integration testing on February 28, 2023. The completion of alpha integration testing constitutes "integration testing" by any reasonable definition of that term. VMS has therefore commenced — and completed the initial phase of — integration testing on the Argonaut-A platform.

• Argonaut-C: VMS completed Milestone 2 of 5, including the delivery and acceptance of source-code customization on January 15, 2023. While Argonaut-C had not yet reached the formal "integration testing" milestone at the time of suspension, VMS had actively commenced integration work on this platform and had invested substantial engineering resources in its development.

VMS commenced integration work on two (2) platforms before the rescoping, consistent with the spirit and purpose of Section 4.3. The evident purpose of Section 4.3 is to ensure that the licensee is actively utilizing the Licensed Software, not merely warehousing it. VMS's commencement of integration work across two platforms, its investment of more than 14,200 engineering hours, and its payment of $12,320,000 in fees demonstrate the antithesis of warehousing. VMS has demonstrated a sustained, good-faith commitment to the integration of the Licensed Software.

VMS reserves the right to present additional arguments in support of compliance, substantial compliance, or excuse with respect to the Section 4.3 requirement if this issue is not resolved through negotiation. Nothing in this letter should be construed as a concession that Section 4.3 has been breached or that its requirements have not been met.

6. Reservation of Rights Regarding Derivative Works

Without prejudice to the positions set forth above, VMS also expressly reserves all of its rights with respect to the ownership, use, and further development of derivative works created by VMS engineers during the integration process in connection with Project Argonaut. These derivative works have been internally designated as DW-001, DW-002, and DW-003, and comprise in the aggregate approximately forty-seven thousand (47,000) lines of original source code developed by VMS personnel (the "VMS Derivative Works").

VMS's position regarding the ownership of the VMS Derivative Works under Section 7.2 of the MESLSA, and VMS's rights to use, modify, and exploit such works independently of the Licensed Software, will be addressed in a separate communication to be provided under separate cover. VMS anticipates that this communication will be transmitted within the coming weeks.

In the interim, VMS does not, by this letter, concede any rights that MeridianCode may claim under Section 7.2 of the MESLSA or otherwise with respect to the VMS Derivative Works. VMS's silence on this issue in the present letter should not be construed as acquiescence in any position that MeridianCode may adopt regarding the scope, ownership, or licensing of derivative works. VMS affirmatively asserts that the VMS Derivative Works constitute valuable intellectual property of VMS and that VMS's rights therein are fully preserved.

7. Fee Forfeiture Provisions and Termination — Preservation of Rights

VMS brings to the parties' attention certain provisions of the MESLSA bearing on the consequences of termination, which inform VMS's approach to the issues addressed in this letter.

Section 9.1 of the MESLSA provides that termination for convenience by the licensee prior to the twenty-four (24) month anniversary of the Effective Date (i.e., prior to June 21, 2024) results in the forfeiture of all prepaid fees. As set forth in Section 2.4 above, VMS has paid Twelve Million Three Hundred Twenty Thousand Dollars ($12,320,000) in fees to date. These fees represent a substantial financial commitment by VMS, and VMS has no intention of voluntarily forfeiting these payments.

VMS does not intend to exercise termination for convenience at this time. VMS expressly reserves all rights under the MESLSA, including, without limitation:

(a) the right to maintain Dormancy Status through the 24-month anniversary of the Effective Date and beyond, up to the expiration of the 12-month dormancy cap;

(b) the right to reactivate the MESLSA at any time during the dormancy period;

(c) the right to renegotiate the terms of the MESLSA, including the scope, fee structure, and timeline, in connection with the rescoped Project Argonaut program or otherwise; and

(d) the right to pursue any and all remedies available under the MESLSA or applicable law in the event of a breach by MeridianCode.

VMS wishes to make clear, and hereby expressly states, that VMS's dispute of the Year 2 Maintenance & Support Fee and its invocation of dormancy rights shall not be construed by MeridianCode, or by any tribunal or arbitral body, as a termination for convenience or as conduct giving rise to grounds for MeridianCode to claim forfeiture of any prepaid fees under Section 9.1 or any other provision of the MESLSA. VMS's exercise of its contractual right to invoke Dormancy Status and its good-faith dispute of a fee invoice are lawful exercises of VMS's rights under the MESLSA and do not constitute termination, repudiation, or anticipatory breach. Any attempt by MeridianCode to characterize VMS's conduct as a termination for convenience, or to invoke the fee forfeiture provisions of Section 9.1 on that basis, would be without contractual or legal merit and would be vigorously opposed by VMS.

8. Proposed Path Forward

VMS values the commercial relationship with MeridianCode and remains committed to resolving the issues identified in this letter through good-faith negotiation. VMS proposes that the parties and their respective counsel engage in structured discussions to address the following matters:

(1) Resolution of the Year 2 Maintenance Fee Dispute. VMS proposes that the parties negotiate a resolution of the Disputed Invoice, including potential full abatement of the Year 2 Maintenance & Support Fee during the dormancy period or, alternatively, proration of the fee to reflect the reduced scope of critical-security-patch-only support being provided during dormancy.

(2) Confirmation of Tolling. VMS seeks MeridianCode's written confirmation that the Dormancy Status tolls the Section 4.3 Deadline and all other milestone deadlines under the MESLSA, consistent with the plain language of Section 9.4.

(3) Scope Reduction and Fee Adjustment. VMS proposes discussion of a potential formal amendment to the MESLSA to reflect the rescoping of Project Argonaut from five (5) platforms to two (2) platforms (Argonaut-A and Argonaut-C), with corresponding adjustments to the fee schedule, including the integration services fee structure and per-unit runtime royalty projections.

(4) Extension of Dormancy Cap. VMS recognizes that the 12-month dormancy cap will expire on August 3, 2024. If reactivation timing requires it, VMS proposes that the parties discuss a mutually agreeable extension of the dormancy cap to accommodate VMS's program schedule and MeridianCode's legitimate interests.

(5) Derivative Works Ownership. As noted in Section 6 above, VMS intends to address the ownership and use of the VMS Derivative Works in a forthcoming separate communication. VMS proposes that the parties include this issue in their broader negotiations to facilitate a comprehensive resolution of all outstanding matters.

VMS is prepared to engage constructively and cooperatively with MeridianCode and Redstone Whitaker LLP to reach a negotiated resolution that preserves the legitimate interests of both parties and provides a workable framework for the future of the MESLSA, whether through reactivation, renegotiation, or an orderly wind-down on commercially reasonable terms.

VMS's General Counsel, Martin G. Cross, and the undersigned are available to schedule a telephone conference or in-person meeting at your and your client's convenience to discuss these matters. We are flexible as to timing and format and would welcome an initial discussion at the earliest mutually convenient opportunity.

9. Dispute Resolution and Arbitration

The parties' attention is directed to Section 13.2 of the MESLSA, which provides for binding arbitration of disputes arising under or in connection with the MESLSA. Section 13.2 specifies that arbitration shall be conducted under the rules of the Midwest Arbitration Institute ("MAI"), with the arbitral seat in Detroit, Michigan. For disputes in which the amount in controversy exceeds One Million Dollars ($1,000,000), the MESLSA requires a three-arbitrator panel, with each party selecting one arbitrator and the two party-appointed arbitrators selecting a neutral chair.

VMS strongly prefers to resolve the matters addressed in this letter through negotiation and does not wish to invoke arbitration at this time. VMS is confident that the parties can reach a mutually acceptable resolution through direct discussions, and VMS approaches these discussions in that spirit.

However, VMS expressly reserves its right to initiate arbitration proceedings under Section 13.2 if the parties are unable to reach a satisfactory resolution through negotiation. Nothing in this letter shall be construed as a waiver of VMS's right to arbitrate, a waiver of any claims VMS may assert in arbitration, or a waiver of any applicable statutes of limitations, contractual limitations periods, or other time-based defenses. VMS further reserves the right to seek provisional or interim relief from a court of competent jurisdiction to the extent permitted by Section 13.4 of the MESLSA and applicable law.

10. General Reservation of Rights

This letter does not constitute, and shall not be construed as, a waiver of any rights, remedies, claims, or defenses available to VMS under the MESLSA, at law, or in equity. All rights and remedies of VMS are expressly reserved, whether or not specifically referenced herein. VMS's decision to address certain issues in this letter and to defer others to future communications does not constitute a waiver, abandonment, or limitation of any claim or defense that VMS may assert at any time.

The positions set forth in this letter are based on the information currently available to VMS and its counsel and are subject to revision, supplementation, or modification as additional facts, documents, or legal analysis may warrant. VMS reserves the right to assert additional arguments, theories, or defenses not set forth herein, and nothing in this letter shall be deemed to limit VMS's ability to do so.

We respectfully request that Redstone Whitaker LLP acknowledge receipt of this letter at your earliest convenience and respond with MeridianCode's position on the matters addressed herein within thirty (30) days of the date of this letter — that is, on or before September 17, 2023.

VMS and the undersigned remain willing and available to discuss these matters in person or by teleconference. Please do not hesitate to contact me directly at the number below to arrange a mutually convenient time for an initial discussion. We look forward to your response and to working with you toward a constructive resolution of these matters.

Very truly yours,

CALDERWOOD & HARKNESS LLP

By: ________

Bernard Crawford Partner

600 Renaissance Center, Suite 3200 Detroit, Michigan 48243 Telephone: (313) 555-7412

Email: bcrawford@calderwoodharkness.com

Enclosures: None

cc: Martin G. Cross, General Counsel, Vantage Mobility Systems Corp. (via email) Conrad Ashby, Calderwood & Harkness LLP (via email) Gabrielle Moss, Calderwood & Harkness LLP (via email)

Fee Component	Amount	Date Paid
Upfront License Fee	$8,000,000	June 21, 2022
Year 1 Annual Maintenance & Support Fee	$2,400,000	July 15, 2022
Integration Services Fees (Milestones 1–3)	$1,920,000	Various (2022–2023)
Total Paid	$12,320,000

CALDERWOOD & HARKNESS LLP Attorneys at Law
600 Renaissance Center, Suite 3200 Detroit, Michigan 48243 Telephone: (313) 555-7400 Facsimile: (313) 555-7401 www.calderwoodharkness.com
August 18, 2023
Via Email and Overnight Courier
Alan M. Briscoe, Esq. Redstone Whitaker LLP 555 Mission Street, Suite 2800 San Francisco, California 94105
Re: Master Embedded Software License and Services Agreement, dated June 21, 2022 (the "MESLSA"), by and between Vantage Mobility Systems Corp. ("VMS" or "Vantage") and Meridian Code Technologies, Inc. ("MeridianCode") Dormancy Status, Fee Dispute, and Related Matters C&H Matter No. 1007-00008
Dear Mr. Briscoe:
1. Introduction and Purpose of Letter
This firm represents Vantage Mobility Systems Corp. ("VMS" or "Vantage") in connection with that certain Master Embedded Software License and Services Agreement, dated June 21, 2022 (the "MESLSA"), by and between VMS, as licensee, and Meridian Code Technologies, Inc. ("MeridianCode"), as licensor. We understand that your firm, Redstone Whitaker LLP, serves as outside counsel to MeridianCode with respect to the MESLSA and related matters. Accordingly, we direct this correspondence to your attention.
The purpose of this letter is to set forth VMS's position on three interconnected issues arising from the license dormancy currently in effect under the MESLSA, specifically:
(1) the validity and scope of Dormancy Status as properly invoked by VMS under Section 9.4 of the MESLSA;
(2) VMS's dispute of the Year 2 Annual Maintenance & Support Fee invoice in the amount of Two Million Four Hundred Thousand Dollars ($2,400,000), dated July 1, 2023 (Invoice No. MCT-2023-0701, or such other internal reference as MeridianCode may assign); and
(3) the tolling effect of Dormancy Status on all milestone deadlines under the MESLSA, including, without limitation, the Section 4.3 "Use-It-or-Lose-It" deadline requiring the commencement of integration testing on at least two platforms within eighteen (18) months of the Effective Date.
As a threshold matter, we wish to note that this letter is sent without waiver of any rights, remedies, claims, or defenses available to VMS under the MESLSA, under applicable law, or in equity. VMS expressly reserves all such rights and remedies, whether or not specifically referenced herein. As you are aware, Section 14.7 of the MESLSA provides that the agreement is governed by and construed in accordance with the laws of the State of Michigan, without regard to its conflict of laws principles. All positions advanced in this letter are accordingly informed by and premised upon Michigan governing law.
VMS hopes and expects that the issues identified in this letter can be resolved amicably through good-faith negotiation between the parties and their respective counsel. However, VMS is prepared to pursue all available contractual and legal remedies in the event that a negotiated resolution cannot be reached.
2. Background and Factual Summary
To ensure a common understanding of the relevant facts and to provide context for the legal positions set forth below, we summarize the pertinent background as follows.
2.1 The MESLSA and Project Argonaut
The MESLSA was duly executed on June 21, 2022, by and between VMS, as licensee, and MeridianCode, as licensor. The MESLSA has an aggregate deal value of Twenty Million Dollars ($20,000,000) and governs the licensing of MeridianCode's proprietary ATLAS-RT™ embedded real-time operating system, Version 4.2 (the "Licensed Software"), for integration into VMS's next-generation adaptive vehicle platform program, internally designated by VMS as "Project Argonaut."
The original scope of the MESLSA contemplated integration of the Licensed Software across five (5) designated vehicle platform configurations, designated Argonaut-A, Argonaut-B, Argonaut-C, Argonaut-D, and Argonaut-E (collectively, the "Designated Platforms"). The license territory is worldwide, and the initial term of the MESLSA is five (5) years, commencing on June 21, 2022, and expiring on June 20, 2027 (the "Term"), subject to earlier termination or extension in accordance with the terms of the MESLSA.
The fee structure under the MESLSA is as follows:
(a) Upfront License Fee: Eight Million Dollars ($8,000,000), paid at signing on June 21, 2022;
(b) Year 1 Annual Maintenance & Support Fee: Two Million Four Hundred Thousand Dollars ($2,400,000), paid on July 15, 2022;
(c) Integration Services Fee: Three Million Two Hundred Thousand Dollars ($3,200,000), payable on a milestone basis across five (5) integration milestones, with payments due upon VMS's acceptance of each milestone deliverable;
(d) Per-Unit Runtime Royalties: Eighty Dollars ($80) per unit, subject to an aggregate cap of Four Million Dollars ($4,000,000), equivalent to fifty thousand (50,000) units; and
(e) Year 2 Annual Maintenance & Support Fee: Two Million Four Hundred Thousand Dollars ($2,400,000), invoiced by MeridianCode on July 1, 2023 (the "Disputed Invoice"), which is the subject of the fee dispute addressed in Section 4 of this letter.
The foregoing fee components, taken together, reflect the total deal value of $20,000,000 referenced above. Project Argonaut represented a significant strategic initiative for VMS, and VMS committed substantial financial and engineering resources to its execution, as further described below.
2.2 Project Argonaut Rescoping
On March 14, 2023, the VMS Board of Directors adopted a resolution (the "Rescoping Resolution") to rescope Project Argonaut, reducing the number of target vehicle platforms from five (5) to two (2) — specifically, Argonaut-A and Argonaut-C — and deferring the electrification integration component of the program to a future Phase II initiative, the timing and scope of which remain under consideration. The Rescoping Resolution was adopted following a comprehensive review by VMS's executive management team and was driven by a confluence of factors, including:
(i) persistent supply-chain delays in the procurement of critical semiconductor components, which had resulted in significant schedule uncertainty and cost escalation across VMS's vehicle platform programs;
(ii) a portfolio-wide capital expenditure reduction initiative undertaken by VMS in response to macroeconomic conditions and revised revenue projections; and
(iii) a strategic decision by VMS to prioritize internal combustion engine ("ICE") platform fleet vehicles, which represented the largest share of VMS's near-term revenue pipeline and customer backlog.
At the time of the Rescoping Resolution, the integration status of the five Designated Platforms under the MESLSA was as follows:
• Argonaut-A: Milestone 3 of 5 completed. Alpha integration testing was successfully passed on February 28, 2023, representing substantial progress through the integration lifecycle.
• Argonaut-C: Milestone 2 of 5 completed. Source-code customization was delivered by MeridianCode and accepted by VMS on January 15, 2023. Integration work on this platform was actively progressing at the time of rescoping.
• Argonaut-B: Milestone 1 only. Requirements specification had been approved, but no code integration work had commenced.
• Argonaut-D: Not commenced. No integration milestones had been initiated.
• Argonaut-E: Not commenced. No integration milestones had been initiated.
In total, VMS invested approximately fourteen thousand two hundred (14,200) engineering hours across its internal software engineering, systems integration, and quality assurance teams in connection with Project Argonaut prior to the rescoping. This substantial investment underscores VMS's good-faith commitment to the MESLSA and its intention to derive full value from the Licensed Software.
2.3 Suspension of Integration Work and Dormancy Notice
Following the Rescoping Resolution, VMS suspended all active integration work on the Licensed Software effective March 22, 2023 (the "Suspension Date"). VMS promptly communicated the operational suspension to MeridianCode's project team through established program management channels, although no formal written notice under Section 9.4 was issued at that time.
Section 9.4 of the MESLSA provides, in pertinent part, that if the licensee suspends active integration for more than one hundred twenty (120) consecutive days without providing written notice, the licensor may unilaterally convert the license to Dormancy Status. The 120-day period, measured from the Suspension Date of March 22, 2023, would have expired on July 20, 2023.
On July 14, 2023 — six (6) calendar days before the expiration of the 120-day trigger period — VMS, acting through its General Counsel, Martin G. Cross, transmitted formal written notice to MeridianCode's General Counsel, Priya Ramaswamy, expressly invoking Section 9.4 to place the MESLSA license in Dormancy Status (the "Dormancy Notice"). The Dormancy Notice was delivered by both electronic mail and overnight courier, in compliance with the notice provisions set forth in Section 15.1 of the MESLSA.
MeridianCode, through Ms. Ramaswamy, acknowledged receipt of the Dormancy Notice and confirmed the commencement of Dormancy Status by written correspondence dated August 3, 2023 (the "Acknowledgment"). The Acknowledgment did not raise any objection to the timeliness or procedural sufficiency of VMS's Dormancy Notice. MeridianCode's acknowledgment, without reservation or qualification, confirms the validity of the Dormancy Status and estops MeridianCode from subsequently challenging the propriety of VMS's invocation of Section 9.4.
VMS's timely Dormancy Notice preserved all of VMS's rights under the MESLSA and complied fully with the procedural requirements of Section 9.4. VMS affirmatively elected to invoke dormancy rather than passively permitting the 120-day period to lapse, thereby retaining control over the dormancy process and preventing any unilateral conversion by MeridianCode.
2.4 Fees Paid to Date
As of the date of the Dormancy Notice, VMS has paid MeridianCode a total of Twelve Million Three Hundred Twenty Thousand Dollars ($12,320,000) under the MESLSA. The breakdown of fees paid is as follows:
No per-unit runtime royalties have been incurred, as VMS has not yet shipped any units incorporating the Licensed Software. No additional integration services fees have accrued, as Milestones 4 and 5 have not been completed. These substantial payments — representing more than sixty-one percent (61%) of the total deal value — reflect VMS's good-faith performance of its financial obligations under the MESLSA and its significant investment in the Licensed Software and Project Argonaut.
3. VMS's Position on Dormancy Status Under Section 9.4
3.1 Validity and Timeliness of the Dormancy Notice
VMS's invocation of Dormancy Status under Section 9.4 was both procedurally valid and timely. As noted above, Section 9.4 provides that if the licensee suspends active integration for more than one hundred twenty (120) consecutive days without written notice, the licensor may convert the license to Dormancy Status. By negative implication, a licensee that provides timely written notice prior to the expiration of the 120-day period retains the right to affirmatively invoke dormancy and to control the terms and timing of the dormancy election.
VMS affirmatively invoked Dormancy Status by written notice on July 14, 2023, a full six (6) days prior to the July 20, 2023 trigger date. The Dormancy Notice was addressed to MeridianCode's General Counsel, was delivered in accordance with the contractual notice provisions, and expressly identified Section 9.4 as the basis for the invocation. By providing timely notice, VMS retained control of the dormancy invocation and prevented any unilateral conversion by MeridianCode. VMS did not passively allow the 120-day period to lapse; rather, VMS took affirmative, deliberate action to preserve its rights under the MESLSA.
MeridianCode's August 3, 2023 Acknowledgment, which confirmed the commencement of Dormancy Status without objection, reservation, or qualification, constitutes binding confirmation of the validity of the Dormancy Status. Any subsequent attempt by MeridianCode to challenge the timeliness, form, or sufficiency of the Dormancy Notice would be inconsistent with its own prior written acknowledgment and would be barred by principles of estoppel, waiver, and good faith.
3.2 Effects of Dormancy Status
Under Section 9.4, Dormancy Status has three principal effects on the rights and obligations of the parties under the MESLSA:
(a) Reduction of Support Level. During Dormancy Status, MeridianCode's maintenance and support obligations are reduced to critical-security-patch-only support. Full-scope maintenance and support services — including, without limitation, regular software updates, technical support and consultation, bug fixes, compatibility testing, and engineering consultation — are suspended for the duration of the dormancy period. MeridianCode remains obligated, however, to deliver critical security patches in a timely manner throughout the dormancy period, consistent with the severity classifications set forth in Schedule D to the MESLSA.
(b) Tolling of Milestone Deadlines. All milestone deadlines under the MESLSA are tolled during the dormancy period. This tolling provision is essential to the commercial logic of dormancy: if a licensee is permitted to place a license in dormancy to accommodate business exigencies, it would be commercially unreasonable and internally contradictory for the licensee's milestone obligations to continue running during a period when active integration work has ceased by mutual acknowledgment of the parties. The tolling provision ensures that VMS is not penalized for exercising a contractual right expressly provided for in the MESLSA.
(c) 12-Month Dormancy Cap. Dormancy Status may not exceed twelve (12) consecutive months before triggering a mandatory renegotiation of the MESLSA or, in the absence of a renegotiated agreement, termination of the MESLSA on terms to be determined in accordance with the provisions of Section 9.4. The parties must engage in good-faith discussions regarding the future of the MESLSA prior to the expiration of the 12-month dormancy cap.
The 12-month dormancy cap, measured from MeridianCode's August 3, 2023 Acknowledgment, will expire on August 3, 2024. VMS is entitled to the full benefit of this 12-month period and to full tolling of all milestone deadlines during such period. Throughout the dormancy period, MeridianCode's obligation to provide critical security patches remains in full force and effect, and VMS expects MeridianCode to honor this obligation promptly and completely.
3.3 VMS's Reservation of Reactivation Rights
VMS expressly reserves its right to reactivate the MESLSA at any time during the dormancy period for the rescoped program, encompassing the Argonaut-A and Argonaut-C vehicle platform configurations. VMS's decision to place the license in Dormancy Status was driven by the business considerations described in Section 2.2 above and does not reflect any dissatisfaction with the Licensed Software or any intention to abandon Project Argonaut. VMS continues to view the ATLAS-RT™ platform as a viable candidate for integration into its next-generation vehicle platforms and anticipates that reactivation will occur at such time as VMS's internal program readiness permits.
Nothing in Section 9.4 extinguishes or diminishes VMS's rights under the MESLSA during dormancy. VMS's license rights — including, without limitation, its right to use, copy, and integrate the Licensed Software in accordance with the scope of the license grant — remain fully intact, subject only to the reduced support level and tolled milestone deadlines described above. VMS does not, by invoking dormancy, relinquish or forfeit any interest in the Licensed Software or any rights under the MESLSA.
4. Dispute Regarding Year 2 Maintenance & Support Fee ($2,400,000)
4.1 The Invoice and VMS's Objection
On July 1, 2023, MeridianCode issued an invoice to VMS in the amount of Two Million Four Hundred Thousand Dollars ($2,400,000) for the Year 2 Annual Maintenance & Support Fee (the "Disputed Invoice"). The Disputed Invoice was issued pursuant to the fee schedule set forth in Section 6.2 of the MESLSA and purports to cover the annual maintenance and support period from July 2023 through June 2024.
VMS disputes the Disputed Invoice and respectfully declines to remit payment at this time. VMS's objection is based on the grounds set forth below and is asserted in good faith, with full reservation of all rights and remedies under the MESLSA and applicable law.
The timing of the Disputed Invoice is noteworthy. It was issued on July 1, 2023 — just thirteen (13) days before VMS transmitted its Dormancy Notice on July 14, 2023. At the time the Disputed Invoice was issued, integration work under the MESLSA had already been suspended for more than three months (since March 22, 2023). The Disputed Invoice thus relates to a maintenance and support period during which active integration had ceased and during which VMS was in the process of formalizing its dormancy election.
4.2 Contractual Basis for Dispute
VMS's dispute of the Disputed Invoice is grounded in the text and commercial logic of the MESLSA itself. The relevant contractual provisions are as follows:
Section 9.4 explicitly provides that during Dormancy Status, MeridianCode's support obligations are reduced to critical-security-patch-only support. The full suite of maintenance and support services for which VMS paid $2,400,000 in Year 1, and for which MeridianCode now seeks an identical $2,400,000 in Year 2, encompasses a broad range of services as defined in Section 6.1 and detailed in Schedule C of the MESLSA. These services include, but are not limited to:
• Regular software updates and version releases;
• Dedicated technical support with guaranteed response times (4-hour response for Severity 1 issues, 24-hour response for Severity 2 issues);
• Bug identification, diagnosis, and remediation;
• Compatibility testing across designated hardware platforms;
• Engineering consultation hours (up to 200 hours per year); and
• Access to MeridianCode's online knowledge base, developer documentation portal, and support ticket system.
During Dormancy Status, VMS is entitled to receive only critical security patches — a single, narrowly defined subset of the full maintenance and support offering. VMS will not receive, and is not entitled to receive, the regular updates, technical support, bug fixes, compatibility testing, engineering consultation, or other services that comprise the full maintenance and support package. The $2,400,000 annual fee was negotiated and priced to compensate MeridianCode for the provision of the entire suite of services described above. It was not priced as compensation for the delivery of critical security patches alone.
It would be commercially unreasonable and contrary to the evident purpose and design of Section 9.4 to require VMS to pay the full, undiscounted maintenance and support fee while receiving only a fraction — indeed, a small fraction — of the contracted-for services. The dormancy provision was included in the MESLSA to provide the licensee with a mechanism to accommodate business disruptions without forfeiting its license rights. Requiring the licensee to continue paying full maintenance fees during dormancy, when the licensor's obligations have been contractually reduced to a minimal level, would undermine the commercial purpose of the dormancy provision and would unjustly enrich the licensor at the licensee's expense.
Under Michigan law, the covenant of good faith and fair dealing implied in every contract requires the parties to act in a manner consistent with the justified expectations of the other party. See Burkhardt v. City Nat'l Bank of Detroit, 57 Mich. App. 649, 652 (1975); Fodale v. Waste Mgmt. of Mich., Inc., 271 Mich. App. 11, 35 (2006). MeridianCode's demand for full payment of the Year 2 Maintenance & Support Fee, when its own support obligations have been contractually reduced to critical-security-patch-only support, is inconsistent with the reasonable expectations of the parties as reflected in the MESLSA.
VMS's position is that the Year 2 Maintenance & Support Fee should be either:
(a) Fully abated during the dormancy period, on the ground that the triggering conditions for the fee obligation — namely, the provision of full maintenance and support services by MeridianCode — have not been and will not be satisfied during dormancy; or
(b) Prorated to reflect the substantially reduced scope of services actually being provided during dormancy (i.e., critical-security-patch-only support), based on a reasonable allocation of MeridianCode's costs attributable to that reduced level of support.
Either approach would produce a result consistent with the contractual framework of the MESLSA, the reasonable expectations of the parties, and Michigan law.
4.3 Good Faith Proposal
Consistent with VMS's desire to resolve this matter cooperatively, VMS is prepared to discuss a reasonable prorated payment reflecting the actual level of support provided during the dormancy period. VMS does not seek to avoid all payment obligations during dormancy if MeridianCode is, in fact, incurring costs to provide critical security patches. However, VMS cannot accept the full $2,400,000 Disputed Invoice as currently presented, as it bears no reasonable relationship to the scope of services being provided during Dormancy Status.
VMS invites MeridianCode to provide a detailed accounting of the costs associated with critical-security-patch-only support, including personnel costs, infrastructure costs, and any other direct costs attributable to the maintenance of patch-readiness during dormancy. Such an accounting would provide a reasonable and transparent basis for determining any prorated amount that may be appropriate. VMS is prepared to engage in good-faith discussions regarding this accounting and to agree upon a fair prorated payment, subject to resolution of the other issues identified in this letter.
5. Tolling of Section 4.3 "Use-It-or-Lose-It" Deadline
5.1 The Section 4.3 Requirement
Section 4.3 of the MESLSA contains a provision commonly known as a "use-it-or-lose-it" clause. Specifically, Section 4.3 requires VMS to commence integration testing on at least two (2) of the Designated Platforms within eighteen (18) months of the Effective Date of the MESLSA (i.e., June 21, 2022). The 18-month deadline falls on December 21, 2023 (the "Section 4.3 Deadline").
This provision was designed to ensure that the licensee actively utilized the Licensed Software within a reasonable period following the grant of the license and the payment of the upfront license fee. The Section 4.3 Deadline serves as a performance benchmark intended to prevent indefinite warehousing of the Licensed Software without active integration. VMS acknowledges the legitimate commercial purpose of this provision.
5.2 VMS's Position: Dormancy Tolls the Section 4.3 Deadline
VMS's position is that the Section 4.3 Deadline is tolled during the dormancy period by operation of Section 9.4 of the MESLSA.
Section 9.4 expressly provides that Dormancy Status tolls "all milestone deadlines" under the MESLSA. VMS's position is that the Section 4.3 Deadline constitutes a "milestone deadline" within the meaning of Section 9.4, or, at a minimum, is functionally equivalent to a milestone deadline and is therefore subject to tolling during the dormancy period under the plain language of Section 9.4.
The Section 4.3 Deadline is, by its nature, a performance milestone: it establishes a specific point in time by which VMS must achieve a defined level of performance (i.e., the commencement of integration testing on at least two platforms). It is of the same character as the integration milestones set forth in Schedule B, which are indisputably "milestone deadlines" subject to tolling under Section 9.4. There is no textual basis for distinguishing the Section 4.3 Deadline from other milestone deadlines for purposes of the tolling provision. The MESLSA does not define "milestone deadline" in a manner that would exclude the Section 4.3 Deadline, and VMS is not aware of any extrinsic evidence suggesting such an exclusion was intended.
Accordingly, the 18-month clock under Section 4.3 should be suspended as of the commencement of Dormancy Status and should resume only upon reactivation of the MESLSA. At the time dormancy was invoked, approximately twelve (12) months and twenty-three (23) days of the 18-month period had elapsed. Upon reactivation, VMS would have the remaining approximately five (5) months and seven (7) days to satisfy the Section 4.3 requirement, if it has not already been satisfied by virtue of the integration work completed prior to dormancy (as discussed in Section 5.3 below).
Moreover, reading Section 4.3 and Section 9.4 together as parts of an integrated agreement — as Michigan law requires, see Klapp v. United Ins. Group Agency, Inc., 468 Mich. 459, 468 (2003) — it would be internally contradictory for the MESLSA to permit dormancy while simultaneously requiring active integration testing during the dormancy period. Dormancy and active integration testing are mutually exclusive states under the MESLSA. A licensee in Dormancy Status has, by definition, suspended active integration. To require the licensee to satisfy a deadline predicated on active integration testing during a period of contractually recognized dormancy would render the dormancy provision illusory and would deprive VMS of the benefit of a bargained-for contractual right. Michigan courts have long held that contracts should be construed to avoid rendering any provision meaningless or inoperative. See Klapp, 468 Mich. at 468; DaimlerChrysler Corp. v. Wesco Dist., Inc., 281 Mich. App. 240, 248 (2008).
VMS therefore maintains that the Section 4.3 Deadline is tolled during the dormancy period and that VMS is not in breach, and cannot be placed in breach, of Section 4.3 by virtue of the dormancy.
5.3 Substantial Compliance Argument
Even setting aside the tolling argument, VMS submits that it has substantially complied with the purpose and requirements of Section 4.3. As detailed in Section 2.2 above, VMS commenced integration work on two (2) platforms prior to the rescoping of Project Argonaut:
• Argonaut-A: VMS completed Milestone 3 of 5, including the successful completion of alpha integration testing on February 28, 2023. The completion of alpha integration testing constitutes "integration testing" by any reasonable definition of that term. VMS has therefore commenced — and completed the initial phase of — integration testing on the Argonaut-A platform.
• Argonaut-C: VMS completed Milestone 2 of 5, including the delivery and acceptance of source-code customization on January 15, 2023. While Argonaut-C had not yet reached the formal "integration testing" milestone at the time of suspension, VMS had actively commenced integration work on this platform and had invested substantial engineering resources in its development.
VMS commenced integration work on two (2) platforms before the rescoping, consistent with the spirit and purpose of Section 4.3. The evident purpose of Section 4.3 is to ensure that the licensee is actively utilizing the Licensed Software, not merely warehousing it. VMS's commencement of integration work across two platforms, its investment of more than 14,200 engineering hours, and its payment of $12,320,000 in fees demonstrate the antithesis of warehousing. VMS has demonstrated a sustained, good-faith commitment to the integration of the Licensed Software.
VMS reserves the right to present additional arguments in support of compliance, substantial compliance, or excuse with respect to the Section 4.3 requirement if this issue is not resolved through negotiation. Nothing in this letter should be construed as a concession that Section 4.3 has been breached or that its requirements have not been met.
6. Reservation of Rights Regarding Derivative Works
Without prejudice to the positions set forth above, VMS also expressly reserves all of its rights with respect to the ownership, use, and further development of derivative works created by VMS engineers during the integration process in connection with Project Argonaut. These derivative works have been internally designated as DW-001, DW-002, and DW-003, and comprise in the aggregate approximately forty-seven thousand (47,000) lines of original source code developed by VMS personnel (the "VMS Derivative Works").
VMS's position regarding the ownership of the VMS Derivative Works under Section 7.2 of the MESLSA, and VMS's rights to use, modify, and exploit such works independently of the Licensed Software, will be addressed in a separate communication to be provided under separate cover. VMS anticipates that this communication will be transmitted within the coming weeks.
In the interim, VMS does not, by this letter, concede any rights that MeridianCode may claim under Section 7.2 of the MESLSA or otherwise with respect to the VMS Derivative Works. VMS's silence on this issue in the present letter should not be construed as acquiescence in any position that MeridianCode may adopt regarding the scope, ownership, or licensing of derivative works. VMS affirmatively asserts that the VMS Derivative Works constitute valuable intellectual property of VMS and that VMS's rights therein are fully preserved.
7. Fee Forfeiture Provisions and Termination — Preservation of Rights
VMS brings to the parties' attention certain provisions of the MESLSA bearing on the consequences of termination, which inform VMS's approach to the issues addressed in this letter.
Section 9.1 of the MESLSA provides that termination for convenience by the licensee prior to the twenty-four (24) month anniversary of the Effective Date (i.e., prior to June 21, 2024) results in the forfeiture of all prepaid fees. As set forth in Section 2.4 above, VMS has paid Twelve Million Three Hundred Twenty Thousand Dollars ($12,320,000) in fees to date. These fees represent a substantial financial commitment by VMS, and VMS has no intention of voluntarily forfeiting these payments.
VMS does not intend to exercise termination for convenience at this time. VMS expressly reserves all rights under the MESLSA, including, without limitation:
(a) the right to maintain Dormancy Status through the 24-month anniversary of the Effective Date and beyond, up to the expiration of the 12-month dormancy cap;
(b) the right to reactivate the MESLSA at any time during the dormancy period;
(c) the right to renegotiate the terms of the MESLSA, including the scope, fee structure, and timeline, in connection with the rescoped Project Argonaut program or otherwise; and
(d) the right to pursue any and all remedies available under the MESLSA or applicable law in the event of a breach by MeridianCode.
VMS wishes to make clear, and hereby expressly states, that VMS's dispute of the Year 2 Maintenance & Support Fee and its invocation of dormancy rights shall not be construed by MeridianCode, or by any tribunal or arbitral body, as a termination for convenience or as conduct giving rise to grounds for MeridianCode to claim forfeiture of any prepaid fees under Section 9.1 or any other provision of the MESLSA. VMS's exercise of its contractual right to invoke Dormancy Status and its good-faith dispute of a fee invoice are lawful exercises of VMS's rights under the MESLSA and do not constitute termination, repudiation, or anticipatory breach. Any attempt by MeridianCode to characterize VMS's conduct as a termination for convenience, or to invoke the fee forfeiture provisions of Section 9.1 on that basis, would be without contractual or legal merit and would be vigorously opposed by VMS.
8. Proposed Path Forward
VMS values the commercial relationship with MeridianCode and remains committed to resolving the issues identified in this letter through good-faith negotiation. VMS proposes that the parties and their respective counsel engage in structured discussions to address the following matters:
(1) Resolution of the Year 2 Maintenance Fee Dispute. VMS proposes that the parties negotiate a resolution of the Disputed Invoice, including potential full abatement of the Year 2 Maintenance & Support Fee during the dormancy period or, alternatively, proration of the fee to reflect the reduced scope of critical-security-patch-only support being provided during dormancy.
(2) Confirmation of Tolling. VMS seeks MeridianCode's written confirmation that the Dormancy Status tolls the Section 4.3 Deadline and all other milestone deadlines under the MESLSA, consistent with the plain language of Section 9.4.
(3) Scope Reduction and Fee Adjustment. VMS proposes discussion of a potential formal amendment to the MESLSA to reflect the rescoping of Project Argonaut from five (5) platforms to two (2) platforms (Argonaut-A and Argonaut-C), with corresponding adjustments to the fee schedule, including the integration services fee structure and per-unit runtime royalty projections.
(4) Extension of Dormancy Cap. VMS recognizes that the 12-month dormancy cap will expire on August 3, 2024. If reactivation timing requires it, VMS proposes that the parties discuss a mutually agreeable extension of the dormancy cap to accommodate VMS's program schedule and MeridianCode's legitimate interests.
(5) Derivative Works Ownership. As noted in Section 6 above, VMS intends to address the ownership and use of the VMS Derivative Works in a forthcoming separate communication. VMS proposes that the parties include this issue in their broader negotiations to facilitate a comprehensive resolution of all outstanding matters.
VMS is prepared to engage constructively and cooperatively with MeridianCode and Redstone Whitaker LLP to reach a negotiated resolution that preserves the legitimate interests of both parties and provides a workable framework for the future of the MESLSA, whether through reactivation, renegotiation, or an orderly wind-down on commercially reasonable terms.
VMS's General Counsel, Martin G. Cross, and the undersigned are available to schedule a telephone conference or in-person meeting at your and your client's convenience to discuss these matters. We are flexible as to timing and format and would welcome an initial discussion at the earliest mutually convenient opportunity.
9. Dispute Resolution and Arbitration
The parties' attention is directed to Section 13.2 of the MESLSA, which provides for binding arbitration of disputes arising under or in connection with the MESLSA. Section 13.2 specifies that arbitration shall be conducted under the rules of the Midwest Arbitration Institute ("MAI"), with the arbitral seat in Detroit, Michigan. For disputes in which the amount in controversy exceeds One Million Dollars ($1,000,000), the MESLSA requires a three-arbitrator panel, with each party selecting one arbitrator and the two party-appointed arbitrators selecting a neutral chair.
VMS strongly prefers to resolve the matters addressed in this letter through negotiation and does not wish to invoke arbitration at this time. VMS is confident that the parties can reach a mutually acceptable resolution through direct discussions, and VMS approaches these discussions in that spirit.
However, VMS expressly reserves its right to initiate arbitration proceedings under Section 13.2 if the parties are unable to reach a satisfactory resolution through negotiation. Nothing in this letter shall be construed as a waiver of VMS's right to arbitrate, a waiver of any claims VMS may assert in arbitration, or a waiver of any applicable statutes of limitations, contractual limitations periods, or other time-based defenses. VMS further reserves the right to seek provisional or interim relief from a court of competent jurisdiction to the extent permitted by Section 13.4 of the MESLSA and applicable law.
10. General Reservation of Rights
This letter does not constitute, and shall not be construed as, a waiver of any rights, remedies, claims, or defenses available to VMS under the MESLSA, at law, or in equity. All rights and remedies of VMS are expressly reserved, whether or not specifically referenced herein. VMS's decision to address certain issues in this letter and to defer others to future communications does not constitute a waiver, abandonment, or limitation of any claim or defense that VMS may assert at any time.
The positions set forth in this letter are based on the information currently available to VMS and its counsel and are subject to revision, supplementation, or modification as additional facts, documents, or legal analysis may warrant. VMS reserves the right to assert additional arguments, theories, or defenses not set forth herein, and nothing in this letter shall be deemed to limit VMS's ability to do so.
We respectfully request that Redstone Whitaker LLP acknowledge receipt of this letter at your earliest convenience and respond with MeridianCode's position on the matters addressed herein within thirty (30) days of the date of this letter — that is, on or before September 17, 2023.
VMS and the undersigned remain willing and available to discuss these matters in person or by teleconference. Please do not hesitate to contact me directly at the number below to arrange a mutually convenient time for an initial discussion. We look forward to your response and to working with you toward a constructive resolution of these matters.
Very truly yours,
CALDERWOOD & HARKNESS LLP
By: ________
Bernard Crawford Partner
600 Renaissance Center, Suite 3200 Detroit, Michigan 48243 Telephone: (313) 555-7412
Email: bcrawford@calderwoodharkness.com
Enclosures: None
cc: Martin G. Cross, General Counsel, Vantage Mobility Systems Corp. (via email) Conrad Ashby, Calderwood & Harkness LLP (via email) Gabrielle Moss, Calderwood & Harkness LLP (via email)
Fee Component | Amount | Date Paid
Upfront License Fee | $8,000,000 | June 21, 2022
Year 1 Annual Maintenance & Support Fee | $2,400,000 | July 15, 2022
Integration Services Fees (Milestones 1–3) | $1,920,000 | Various (2022–2023)
Total Paid | $12,320,000

CALDERWOOD & HARKNESS LLP Attorneys at Law

CALDERWOOD & HARKNESS LLP

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