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MEMORANDUM

PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGED / ATTORNEY WORK PRODUCT

TO: Bernard Crawford, Partner, Calderwood & Harkness LLP

FROM: Aaron Liu, Associate, Calderwood & Harkness LLP

DATE: September 18, 2023

RE: Arbitration Strategy and Forum Analysis — Midwest Arbitration Institute Rules; Vantage Mobility Systems Corp. v. Meridian Code Technologies, Inc. — MESLSA Disputes

MATTER NO.: C&H Matter No. 1007-00008

REVIEWED BY: Bernard Crawford

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I. Executive Summary

This memorandum analyzes the binding arbitration provision contained in Section 11 of the Master Embedded Software License and Services Agreement (the "MESLSA"), dated June 21, 2022, between Vantage Mobility Systems Corp. ("VMS" or "Vantage") and Meridian Code Technologies, Inc. ("MeridianCode"). The purpose of this memorandum is to evaluate the procedural framework for arbitration under the rules of the Midwest Arbitration Institute ("MAI"), to identify and assess the likely arbitrable disputes arising from the rescoping and dormancy of Project Argonaut, to estimate the costs and timeline of arbitration, and to provide a recommended strategy for VMS's approach to dispute resolution in the near, medium, and long term.

The MESLSA mandates binding arbitration under the rules of the MAI, seated in Detroit, Michigan. For disputes in which the aggregate amount in controversy exceeds $1,000,000, the arbitration clause requires a three-arbitrator panel. For disputes at or below that threshold, a sole arbitrator is contemplated by implication. Michigan law governs both the substantive merits and procedural questions not addressed by the MAI rules, and the Federal Arbitration Act, 9 U.S.C. §§ 1–16, governs the enforceability of the arbitration clause in this interstate commercial transaction.

Multiple disputes have crystallized or are reasonably likely to crystallize in the near term arising from the dormancy of Project Argonaut, including: (i) VMS's obligation to pay the $2,400,000 Year 2 Maintenance & Support Fee invoiced by MeridianCode on July 1, 2023; (ii) the ownership of derivative software modules DW-001, DW-002, and DW-003, consisting of approximately 47,000 lines of code created by VMS engineers during ATLAS-RT™ integration; (iii) the interaction between dormancy status under Section 9.4 and the Section 4.3 "Use-It-or-Lose-It" deadline requiring commencement of integration testing on at least two platforms by December 21, 2023; and (iv) the potential forfeiture of $12,320,000 in prepaid fees upon termination for convenience under Section 9.1 before the 24-month anniversary of the MESLSA.

Each of these disputes individually or collectively exceeds the $1,000,000 threshold, thereby triggering the three-arbitrator panel requirement under Section 11. The total financial exposure across all potential claims is substantial: up to $12,320,000 in fees already paid is at risk of forfeiture, and an additional $7,680,000 in remaining contractual commitments could be the subject of claims by MeridianCode, resulting in an aggregate MESLSA deal value of $20,000,000 that is implicated by these disputes. The derivative works at issue carry an independent estimated commercial value of $1,800,000 to $2,500,000, with additional strategic value to VMS's future platform development efforts that is difficult to quantify but significant.

This memorandum evaluates: (a) the procedural framework under the MAI rules; (b) likely scenarios for arbitration, including the possibility of defensive arbitration in response to a MeridianCode filing; (c) estimated timelines and costs; (d) arbitrator selection strategy; and (e) strategic considerations that favor or disfavor the initiation of arbitration by VMS at this juncture, including the impact on ongoing negotiations, credit facility covenant compliance, and insurance coverage preservation.

Recommendation: Based on the analysis set forth below, it is our recommendation that VMS should not initiate arbitration at this time. Instead, VMS should prepare comprehensively for defensive arbitration and should use the credible threat of arbitration as negotiation leverage in discussions with MeridianCode's counsel, Redstone Whitaker LLP. The optimal window for affirmative arbitration filing, if negotiations fail, is between June 21, 2024 (when the fee-forfeiture risk under Section 9.1 lapses) and August 3, 2024 (when the 12-month dormancy cap under Section 9.4 expires). In the interim, VMS should prioritize securing a written tolling agreement or written confirmation from MeridianCode that dormancy tolls the Section 4.3 deadline before December 21, 2023, failing which a limited declaratory arbitration demand focused on the Section 4.3 issue should be considered.

II. Background and Contractual Framework

A. The MESLSA and Project Argonaut

On June 21, 2022, VMS and MeridianCode executed the Master Embedded Software License and Services Agreement (the "MESLSA"), a comprehensive technology licensing agreement with a total deal value of $20,000,000 over a five-year term. The MESLSA governs VMS's license to use, integrate, and deploy MeridianCode's proprietary ATLAS-RT™ embedded real-time operating system, Version 4.2 (subsequently updated during the course of performance to Version 4.2.3, released by MeridianCode in November 2022), across VMS's next-generation adaptive vehicle platform program, internally designated as "Project Argonaut."

The licensed product, ATLAS-RT™, is a real-time operating system ("RTOS") designed for safety-critical embedded applications. It provides deterministic scheduling, low-latency interrupt handling, and automotive-grade reliability features that are essential for the electronic control units ("ECUs") deployed in VMS's adaptive vehicle platforms, which include wheelchair-accessible modified vehicles and other specialized mobility solutions.

The scope of the license under the MESLSA permits VMS to integrate ATLAS-RT™ into up to five designated vehicle platform configurations, identified as Argonaut-A through Argonaut-E, each corresponding to a distinct hardware and vehicle architecture within the Project Argonaut program. The MESLSA contemplates a phased integration approach, with platform-specific customization and milestone-based deliverables for each configuration.

The fee structure under the MESLSA is comprised of four components:

(a) Upfront License Fee: $8,000,000, payable at signing and paid in full on June 21, 2022. This fee grants VMS the right to use the ATLAS-RT™ source code and object code for integration into the five designated platform configurations.

(b) Maintenance and Support Fees: $2,400,000 per year, payable annually on each anniversary of the Effective Date. These fees entitle VMS to ongoing maintenance, software updates, bug fixes, security patches, and technical support from MeridianCode's engineering team.

(c) Milestone-Based Integration Services Fees: $3,200,000 in the aggregate, divided across five integration milestones per platform configuration, payable upon MeridianCode's completion and VMS's acceptance of each milestone deliverable. The five milestones are: (1) initial source code delivery and environment setup; (2) platform-specific source code customization; (3) alpha integration testing; (4) beta integration testing and validation; and (5) production-ready release and final acceptance.

(d) Per-Unit Runtime Royalties: $80 per unit for each vehicle in which ATLAS-RT™ is deployed in a production configuration, subject to an aggregate cap of $4,000,000 (equivalent to 50,000 units across all platform configurations).

The term of the MESLSA is five years, running from June 21, 2022 through June 20, 2027. The governing law is the law of the State of Michigan, without regard to its conflict-of-laws principles.

B. Project Argonaut Rescoping and Dormancy

The trajectory of Project Argonaut changed materially in early 2023. On March 14, 2023, the VMS Board of Directors adopted a resolution to rescope Project Argonaut from its original five-platform scope to two platforms only — specifically, Argonaut-A and Argonaut-C. The board resolution cited two principal factors driving the rescoping decision: (1) persistent semiconductor supply-chain delays that had increased estimated per-unit component costs by approximately 18% and extended projected availability timelines for key application-specific integrated circuits ("ASICs") required for the Argonaut-B, Argonaut-D, and Argonaut-E configurations; and (2) a portfolio-wide capital expenditure reduction directive issued by Kestrel Capital Partners, LP, VMS's majority equity sponsor, which mandated a 22% reduction in discretionary capital expenditures across all Ashgrove Equity Partners portfolio companies for fiscal year 2023.

The electrification integration component of Project Argonaut — which had been planned for the Argonaut-D and Argonaut-E configurations and involved coupling the ATLAS-RT™ RTOS with VMS's proprietary battery management system software — was deferred indefinitely. The Argonaut-B configuration, which was at the earliest stage of integration, was deprioritized and work was suspended.

All integration work across all platform configurations was formally suspended on March 22, 2023. At the time of suspension, the status of each platform configuration was as follows:

• Argonaut-A: Milestone 3 of 5 (alpha integration testing) had been passed on February 28, 2023. This represented the most advanced stage of integration across all five platforms.

• Argonaut-C: Milestone 2 of 5 (platform-specific source code customization) had been delivered by MeridianCode on January 15, 2023 and accepted by VMS. Integration testing had not yet commenced.

• Argonaut-B: Milestone 1 only (initial source code delivery and environment setup) had been completed. No platform-specific customization had been initiated.

• Argonaut-D: Not commenced. No milestone work had been initiated.

• Argonaut-E: Not commenced. No milestone work had been initiated.

As of the date of the suspension of integration work, VMS had paid a total of $12,320,000 under the MESLSA, comprised of: the $8,000,000 upfront license fee; $2,400,000 for Year 1 Maintenance and Support (paid on June 21, 2022); and $1,920,000 in integration services milestone fees corresponding to Milestones 1 through 3 across the platforms that had achieved those milestones.

Following the suspension of work, VMS issued a formal Dormancy Notice to MeridianCode on July 14, 2023, invoking the dormancy provisions of Section 9.4 of the MESLSA. The Dormancy Notice was transmitted six days before the 120-day trigger date of July 20, 2023, which was the date on which, absent a Dormancy Notice, MeridianCode would have been entitled to assert that the 120-day cessation of integration activities constituted a material breach. The timing of the Dormancy Notice was carefully calibrated to preserve VMS's rights under Section 9.4 while complying with the notice period requirements.

MeridianCode acknowledged the Dormancy Status in a letter dated August 3, 2023. MeridianCode's acknowledgment, while not disputing VMS's right to invoke dormancy, reserved all of MeridianCode's rights under the MESLSA and specifically noted that MeridianCode "does not concur that dormancy status affects VMS's obligation to pay the Year 2 Maintenance and Support Fee invoiced on July 1, 2023." This reservation of rights has been the genesis of the maintenance fee dispute described in Section III.A below.

Under Section 9.4, the dormancy period is capped at 12 months from the date of the counterparty's acknowledgment — in this case, August 3, 2024. Upon expiration of the 12-month dormancy cap, the MESLSA provides for a mandatory renegotiation period of 60 days, failing which either party may terminate the MESLSA upon 30 days' written notice. The interplay between this mandatory renegotiation/termination mechanism and the fee forfeiture provisions of Section 9.1 is a critical open question that is addressed in Section III.D below.

C. The Arbitration Clause

Section 11 of the MESLSA contains a broad, mandatory arbitration provision that governs the resolution of all disputes arising out of or relating to the MESLSA. The clause reads, in relevant part, as follows:

"11.1 Binding Arbitration. Any dispute, controversy, or claim arising out of or relating to this Agreement, including but not limited to disputes regarding formation, validity, interpretation, performance, breach, or termination of this Agreement, shall be resolved exclusively by binding arbitration administered under the rules of the Midwest Arbitration Institute ('MAI') then in effect. The seat of arbitration shall be Detroit, Michigan.

11.2 Arbitrator Selection. For any dispute in which the aggregate amount in controversy exceeds One Million United States Dollars ($1,000,000), the arbitration shall be conducted by a panel of three (3) arbitrators. Each Party shall designate one (1) arbitrator, and the two (2) Party-designated arbitrators shall select a third arbitrator who shall serve as chair of the arbitral panel. If the Party-designated arbitrators are unable to agree upon a chair within thirty (30) days, the MAI shall appoint the chair. For any dispute in which the aggregate amount in controversy is One Million United States Dollars ($1,000,000) or less, the arbitration shall be conducted by a sole arbitrator appointed by the MAI.

11.3 Governing Law. The arbitral panel shall apply the substantive law of the State of Michigan, including its statutes of limitations, without regard to principles of conflict of laws. Procedural questions not addressed by the MAI rules shall likewise be governed by Michigan law.

11.4 Award. The arbitral panel shall render a written, reasoned award. The award shall be final and binding upon the Parties and may be entered as a judgment in any court of competent jurisdiction. The Parties acknowledge that this Agreement involves interstate commerce and that the Federal Arbitration Act, 9 U.S.C. §§ 1–16, shall govern the enforcement of this arbitration provision and the confirmation, modification, or vacatur of any arbitral award.

11.5 Costs. Each Party shall bear its own attorneys' fees and costs. The administrative fees and arbitrator compensation shall be apportioned by the arbitral panel in the award, taking into account the relative merits of the Parties' positions."

Several features of the arbitration clause warrant particular attention for purposes of this analysis:

Breadth of the clause. The arbitration clause is broadly drafted, encompassing "any dispute, controversy, or claim arising out of or relating to" the MESLSA. This language is routinely interpreted by courts and arbitral panels as reaching all disputes that have a significant relationship to the contract, including claims sounding in tort, fraud, and unjust enrichment, as well as claims for declaratory and injunctive relief. There is no carve-out for injunctive relief or intellectual property ownership disputes — a feature that is unusual in technology licensing agreements of this sophistication and that has the effect of funneling all claims, including the derivative works ownership dispute, to arbitration rather than permitting resort to a court of equity.

Three-arbitrator panel threshold. The $1,000,000 threshold for a three-arbitrator panel is clearly met in this matter. Each of the four identified disputes individually exceeds or is reasonably likely to exceed $1,000,000 in amount in controversy, and the aggregate amount in controversy across all potential claims is conservatively $5,000,000 to $20,000,000. There is no question that a three-arbitrator panel will be required.

Michigan substantive law. The choice of Michigan law for substantive issues is favorable to VMS, as Michigan courts have generally adopted a textualist approach to contract interpretation that focuses on the plain meaning of contractual language. This is relevant to VMS's tolling argument under Section 4.3 (discussed below), which relies on the plain meaning of "all milestone deadlines" in Section 9.4.

Federal Arbitration Act. The FAA governs the enforceability of the arbitration clause and the grounds for vacatur of any arbitral award. Under the FAA, the grounds for vacatur are extremely limited — fraud, corruption, evident partiality, misconduct by the arbitrators, or excess of authority — and courts routinely refuse to vacate arbitral awards for mere errors of law or fact. This means that the arbitral award will, as a practical matter, be final and unreviewable. There is no appellate mechanism within the MAI framework, and the parties did not negotiate for expanded judicial review (which, under Hall Street Associates, L.L.C. v. Mattel, Inc., 552 U.S. 576 (2008), would likely be unenforceable in any event).

No injunctive relief carve-out. The absence of a carve-out for provisional or injunctive relief means that VMS cannot seek a temporary restraining order or preliminary injunction in court to prevent MeridianCode from exploiting or licensing the derivative works during the pendency of arbitration. While some courts have held that parties may seek provisional injunctive relief from a court even in the presence of a broad arbitration clause (see, e.g., Benihana, Inc. v. Benihana of Tokyo, LLC, 784 F.3d 887 (2d Cir. 2015)), the Michigan courts have not definitively addressed this issue, and the specific language of Section 11.1 — "shall be resolved exclusively by binding arbitration" — could be read to preclude all resort to judicial fora, including for provisional relief. This is a risk factor that should be monitored, particularly with respect to the derivative works.

III. Identification and Analysis of Likely Arbitrable Disputes

Based on our review of the MESLSA, the correspondence between the parties and their respective counsel, and our discussions with VMS's management team (principally Dennis J. Whitfield, CTO, and Lena Petrova, Director, Software Integration Engineering), we have identified four disputes that have crystallized or are reasonably likely to crystallize in the near to medium term. Each is analyzed below with respect to the factual and contractual basis for the dispute, the positions of the parties, the amount in controversy, and an assessment of VMS's relative strength on the merits.

A. Dispute 1: Year 2 Maintenance & Support Fee ($2,400,000)

MeridianCode invoiced VMS in the amount of $2,400,000 on July 1, 2023, for Year 2 Maintenance and Support under the MESLSA. The invoice was transmitted by MeridianCode's finance department to VMS's accounts payable department in the ordinary course, with payment terms of net-30. VMS has not paid this invoice and, following consultation with Calderwood & Harkness, has formally disputed the invoice in a letter from C&H to Redstone Whitaker LLP dated August 18, 2023.

VMS's position is that the full Year 2 Maintenance and Support Fee is not owed because Section 9.4 of the MESLSA expressly provides that, during dormancy, MeridianCode's support obligations are reduced to "critical-security-patch-only" support, meaning that MeridianCode is not required to (and in practice is not) providing the full suite of maintenance and support services for which the $2,400,000 annual fee compensates VMS. VMS contends that it would be inequitable to require payment of the full maintenance fee when the scope of services being rendered is materially diminished. VMS's position is that the maintenance fee should be abated in full during the dormancy period or, alternatively, prorated to reflect the reduced level of service.

MeridianCode's position, as articulated in Redstone Whitaker's response letter dated September 1, 2023, is that the $2,400,000 annual maintenance fee obligation is unconditional and is not affected by dormancy status. MeridianCode points to Exhibit B (Fee Schedule) of the MESLSA, which sets forth the maintenance fee as a fixed annual amount payable "on each anniversary of the Effective Date, regardless of the volume of support requests submitted by Licensee or the extent of Licensee's utilization of the Licensed Software during the applicable period." MeridianCode further argues that Section 9.4's reduction of support scope is a unilateral accommodation extended to MeridianCode during dormancy — allowing MeridianCode to reduce its staffing and resource allocation to the VMS account — rather than a reduction in VMS's payment obligation.

Amount in controversy: $2,400,000. This amount independently exceeds the $1,000,000 threshold for a three-arbitrator panel.

Strength assessment: VMS has a reasonable argument based on the interplay between Section 9.4's support-reduction language and the maintenance fee provisions. The fundamental question is whether the maintenance fee is a fixed, unconditional payment obligation or whether it is implicitly tied to the scope of services being provided. VMS's argument draws support from the principle of mutuality of obligation and from Michigan case law holding that contractual obligations should be interpreted in a manner that avoids producing absurd or commercially unreasonable results. See Klapp v. United Ins. Grp. Agency, Inc., 468 Mich. 459, 473 (2003). However, the fee schedule in Exhibit B does not contain an express dormancy abatement provision, and the "regardless of utilization" language is a significant obstacle to VMS's position. This creates a genuine ambiguity that could be resolved in either party's favor, making the outcome uncertain. We assess VMS's likelihood of prevailing on this claim at approximately 40–50%.

B. Dispute 2: Derivative Works Ownership (DW-001, DW-002, DW-003)

During the course of ATLAS-RT™ integration for the Argonaut-A and Argonaut-C platform configurations, VMS's software integration engineering team, led by Lena Petrova, created three derivative software modules designated DW-001 (a vehicle-bus communication abstraction layer), DW-002 (a real-time sensor-fusion pre-processing module), and DW-003 (an adaptive suspension control interface module). These three modules comprise approximately 47,000 lines of source code and were developed by VMS engineers using the ATLAS-RT™ application programming interfaces ("APIs") and, in the case of DW-001 and DW-003, incorporating certain ATLAS-RT™ header files and function calls. DW-002 is the most independently developed of the three modules, with approximately 80% of its code base consisting of original VMS-authored code that does not reference or incorporate any ATLAS-RT™ source code directly, although it was designed to operate within the ATLAS-RT™ runtime environment.

Hargrove Technical Consulting, LLC, a technology valuation and expert consulting firm engaged by C&H, has conducted a preliminary assessment of the commercial value of these derivative works under the direction of Dr. Samuel Beecroft, a principal at the firm with expertise in embedded software valuation and licensing. Dr. Beecroft's preliminary assessment estimates the fair market value of the three modules at $1,800,000 to $2,500,000, based on the cost of development (approximately 18 person-months of senior software engineering effort), the avoided cost of independent development by a third party, and the potential licensing revenue that could be derived from the modules in the adaptive vehicle and autonomous driving markets.

VMS's position is that the modules, or at least DW-002, are VMS-originated works that should be solely owned by VMS. VMS contends that Section 7.2's definition of "Derivative Work" — which provides that derivative works are "works that are based upon, incorporate, or are derived from the Licensed Software" — should be narrowly construed to include only works that directly incorporate or modify the ATLAS-RT™ source code, and should not encompass independently developed modules that merely interface with the ATLAS-RT™ APIs. VMS further argues that, even to the extent Section 7.2 applies, the perpetual royalty-free license-back to MeridianCode is unenforceable as applied to independently developed VMS code because it constitutes an unconscionable restriction on VMS's intellectual property rights without adequate consideration.

MeridianCode's position is that Section 7.2 unambiguously establishes joint ownership of all derivative works created "in connection with" the integration of the Licensed Software, and that the perpetual, royalty-free license-back to MeridianCode is a core element of the bargained-for exchange under the MESLSA. MeridianCode contends that all three modules — DW-001, DW-002, and DW-003 — fall within the contractual definition of "Derivative Work" because they were developed specifically for integration with ATLAS-RT™ and cannot function independently of the ATLAS-RT™ runtime environment. MeridianCode further contends that the license-back provision in Section 7.2 was negotiated at arm's length and is enforceable under Michigan law.

Amount in controversy: $1,800,000 to $2,500,000 in direct valuation, plus strategic value to VMS's future platform development that is difficult to quantify but significant. VMS has indicated that the derivative modules, particularly DW-002, represent core differentiating technology for its next-generation adaptive vehicle platforms and that loss of sole ownership or the granting of a perpetual license-back to MeridianCode could enable MeridianCode (or its other licensees, including potential VMS competitors) to develop competing functionality. The amount in controversy exceeds the $1,000,000 threshold.

Strength assessment: Section 7.2 language, as reinforced by the definitions in Exhibit C (Intellectual Property Terms) of the MESLSA, is relatively clear in establishing joint ownership of derivative works and the perpetual royalty-free license-back. VMS's argument depends on successfully characterizing the modules — or at least DW-002 — as falling outside the contractual definition of "Derivative Work." This is a fact-intensive inquiry that will require detailed technical expert testimony regarding the extent to which each module incorporates, references, or is "derived from" the ATLAS-RT™ source code. Dr. Beecroft's preliminary analysis suggests that DW-002 has the strongest case for independent characterization, while DW-001 and DW-003 more clearly fall within the "derivative work" definition due to their direct incorporation of ATLAS-RT™ header files and function calls. We assess VMS's likelihood of prevailing on sole ownership of all three modules at approximately 25–35%, with a somewhat higher likelihood (40–50%) of prevailing on DW-002 alone.

C. Dispute 3: Section 4.3 "Use-It-or-Lose-It" Compliance

Section 4.3 of the MESLSA contains a "Use-It-or-Lose-It" provision that requires VMS to "commence integration testing" on at least two platform configurations within 18 months of the Effective Date. The Effective Date is June 21, 2022, making the Section 4.3 deadline December 21, 2023. If VMS fails to satisfy this requirement by the deadline, MeridianCode has the right to restrict the license scope to the platform configurations on which integration testing has commenced and, in certain circumstances, to terminate the license entirely.

The compliance analysis presents two distinct issues: first, whether VMS has commenced integration testing on the requisite number of platforms; and second, whether the dormancy status tolls the Section 4.3 deadline.

Platform compliance status. Argonaut-A reached Milestone 3 (alpha integration testing passed) on February 28, 2023. The passage of alpha integration testing clearly constitutes the "commencement" of integration testing for purposes of Section 4.3, and there is no dispute that Argonaut-A satisfies the requirement as to one platform. Argonaut-C, however, reached only Milestone 2 (platform-specific source code customization delivered on January 15, 2023). Milestone 2 is a source code delivery and customization milestone, not an integration testing milestone, and it is arguable that the delivery of customized source code does not constitute "commencing integration testing" within the meaning of Section 4.3. If Argonaut-C does not satisfy the requirement, VMS may have a compliance gap with respect to the second platform.

Tolling question. Section 9.4, the dormancy provision, states that dormancy tolls "all milestone deadlines" under the MESLSA. The critical question is whether the Section 4.3 deadline is a "milestone deadline" within the meaning of Section 9.4. VMS contends that "all milestone deadlines" should be read broadly to encompass the Section 4.3 deadline, which is functionally a milestone-related requirement because it references milestones (integration testing) and is tied to the phased integration approach contemplated by the MESLSA. MeridianCode is expected to argue that Section 4.3 is a condition — a licensee obligation that exists independently of the milestone structure — rather than a "milestone deadline" as that term is used in Section 9.4.

Exposure. If the Section 4.3 deadline is not tolled and VMS has not commenced integration testing on two platforms by December 21, 2023, MeridianCode could invoke Section 4.3 to restrict the license scope to Argonaut-A only (the sole platform on which integration testing has clearly commenced) or, under a broad reading of the clause, to terminate the license entirely. The potential exposure includes forfeiture of license rights to three or more of the five platforms, loss of the commercial benefit of the MESLSA, and, depending on the interaction with other provisions, potential loss of prepaid fees.

Strength assessment: VMS has a strong textual argument that "all milestone deadlines" in Section 9.4 encompasses the Section 4.3 deadline. The word "all" is unrestricted, and the Section 4.3 deadline is directly tied to milestone activities (integration testing). Under Michigan's general rule of contract interpretation favoring the plain and ordinary meaning of contractual language, VMS's reading has considerable force. See Rory v. Continental Ins. Co., 473 Mich. 457, 468 (2005). However, MeridianCode will argue that Section 4.3 is a free-standing condition that operates independently of the milestone schedule and that the tolling provision in Section 9.4 was intended to address only the specific milestone deadlines set forth in Exhibit D (Milestone Schedule), not licensee compliance conditions. This is a genuine interpretive dispute that will turn on the arbitral panel's reading of the contractual text and the extrinsic evidence of the parties' negotiations. We assess VMS's likelihood of prevailing on the tolling argument at approximately 55–65%.

D. Dispute 4: Fee Forfeiture on Termination (Section 9.1)

Section 9.1 of the MESLSA provides that if VMS terminates the MESLSA for convenience prior to the 24-month anniversary of the Effective Date (i.e., before June 21, 2024), VMS "shall forfeit all fees previously paid to [MeridianCode] under this Agreement, which shall be retained by [MeridianCode] as liquidated damages." The forfeiture provision was negotiated as a means of protecting MeridianCode's upfront investment in customization and engineering resources dedicated to Project Argonaut and as a deterrent against early termination by the licensee.

This dispute has not yet materialized but could crystallize in one of two scenarios. First, if VMS elects to terminate the MESLSA for convenience before June 21, 2024, the forfeiture provision would be directly triggered, and VMS would lose $12,320,000 in prepaid fees. Second, and more concerning, MeridianCode could argue that VMS's conduct — specifically, the rescoping of Project Argonaut, the suspension of integration work, and the invocation of dormancy status — constitutes a de facto or constructive termination of the MESLSA, thereby triggering the forfeiture provision regardless of whether VMS issues a formal termination notice.

The interaction between the 12-month dormancy cap (expiring August 3, 2024) and the Section 9.1 forfeiture provision presents a particularly difficult interpretive question. If the dormancy cap expires and the mandatory renegotiation period under Section 9.4 fails to produce an agreement, either party may terminate on 30 days' notice. If VMS issues such a termination notice after August 3, 2024, the question arises whether the termination is one "for convenience" under Section 9.1 — thereby triggering forfeiture if it occurs before June 21, 2024 — or whether it is a termination pursuant to the dormancy-cap mechanism of Section 9.4, which does not expressly address the fee consequences of termination. The MESLSA does not clearly resolve this ambiguity.

Potential exposure: $12,320,000 in fees already paid.

Strength assessment: VMS should take every step to avoid triggering the Section 9.1 forfeiture provision. The most prudent course is to maintain dormancy status through at least June 21, 2024, at which point the 24-month anniversary will have passed and termination for convenience will no longer trigger forfeiture. The risk of a constructive-termination argument by MeridianCode increases if VMS takes actions inconsistent with maintaining the license, such as commencing development of a competing RTOS solution, entering into discussions with MeridianCode's competitors for alternative RTOS licensing, or explicitly communicating an intent to abandon Project Argonaut. VMS's management should be cautioned to avoid any such actions or communications. We assess the risk of MeridianCode successfully asserting a constructive-termination theory at approximately 20–30%, provided VMS maintains dormancy status and does not take affirmatively inconsistent actions.

E. Potential Consolidation of Claims

All four disputes identified above arise under the same MESLSA and involve substantially overlapping factual predicates — the rescoping of Project Argonaut, the invocation of dormancy, the parties' respective performance and non-performance under the agreement, and the interpretation of interrelated contractual provisions. The aggregate amount in controversy across all disputes is conservatively estimated at $5,000,000 to $20,000,000, depending on how the claims are framed and which counterclaims MeridianCode asserts.

The MAI rules, consistent with established commercial arbitration practice, provide the arbitral panel with broad discretion to consolidate related claims and counterclaims into a single proceeding, and it is our expectation that the panel would exercise this discretion to consolidate all MESLSA-related disputes. Consolidation serves the interests of efficiency, avoids the risk of inconsistent rulings on overlapping factual and legal issues, and allows the panel to address the interplay between dormancy, fee obligations, intellectual property ownership, and compliance deadlines in a holistic and integrated manner.

Recommendation: If arbitration is initiated — whether by VMS or by MeridianCode — all claims should be presented in a single consolidated proceeding. VMS should resist any effort by MeridianCode to bifurcate claims (e.g., separating the maintenance fee dispute from the derivative works dispute), as bifurcation would increase costs and could result in inconsistent rulings on the dormancy provisions that are central to multiple claims.

IV. Midwest Arbitration Institute — Forum Analysis

A. Overview of MAI

The Midwest Arbitration Institute is a non-profit arbitration administration organization headquartered in Chicago, Illinois. MAI administers commercial arbitrations across the Midwest region, including Michigan, Illinois, Ohio, Indiana, Wisconsin, Minnesota, and Iowa, and maintains a roster of approximately 450 active commercial arbitrators with expertise spanning a wide range of industries and practice areas, including technology, intellectual property, financial services, manufacturing, and energy.

MAI's procedural rules are generally modeled on established commercial arbitration frameworks, including the American Arbitration Association's Commercial Arbitration Rules and the International Chamber of Commerce's Arbitration Rules, but with certain modifications reflecting MAI's regional orientation and the preferences of Midwest-based commercial parties. MAI's rules are regularly updated and are currently in their 2021 Revised Edition, which is the version applicable to any arbitration commenced under the MESLSA's arbitration clause.

The designation of Detroit, Michigan as the seat of arbitration is favorable to VMS in several respects. VMS's corporate headquarters are located in Sterling Heights, Michigan, approximately 25 miles north of Detroit, providing convenience of access for VMS's management team, fact witnesses, and counsel. Detroit is home to a well-established technology licensing and automotive-industry legal community, which facilitates the identification of local counsel and technical experts if needed. The Michigan courts, which would be the supervisory courts for purposes of FAA confirmation and vacatur proceedings, are experienced in commercial disputes involving technology companies and are generally regarded as efficient and business-oriented.

B. Arbitrator Selection Process

Under the MAI rules for three-arbitrator panels, the selection process operates as follows. Each party designates one arbitrator within 30 days of the constitution of the panel (i.e., within 30 days of the respondent's filing of its answer or within 30 days of the MAI's confirmation of the arbitration demand, whichever is later). The two party-designated arbitrators then have 30 days to select a third arbitrator who will serve as chair of the arbitral panel. If the party-designated arbitrators are unable to agree upon a chair within the allotted 30-day period, the MAI will appoint the chair from its roster, giving consideration to the nature of the dispute, the parties' preferences (if communicated), and the need for diversity of expertise on the panel.

For VMS's party-designated arbitrator, we should identify candidates with backgrounds in one or more of the following areas:

• Technology licensing and software distribution agreements, with particular emphasis on embedded software and RTOS platforms;

• intellectual property ownership disputes, particularly those involving derivative works, joint ownership, and license-back provisions in the software licensing context;

• Automotive industry transactions, including familiarity with the regulatory and commercial landscape for adaptive and accessible vehicle technologies;

• Michigan contract law, including expertise in the principles of contract interpretation applied by Michigan courts.

Desirable characteristics for the chair of the panel include demonstrated neutrality, a reputation for thorough and reasoned decision-making, and familiarity with the technical subject matter (to the extent possible) or, at minimum, a demonstrated capacity to absorb and evaluate complex technical evidence. We should consider whether to seek arbitrators from the automotive-technology corridor (primarily Michigan and Ohio, where the intersection of automotive manufacturing and embedded software development creates a natural pool of practitioners with relevant experience) or from the national technology-licensing community (which may offer a broader pool of candidates with specific experience in RTOS licensing and IP ownership disputes, but at the cost of reduced familiarity with Michigan law and the local commercial context).

Recommendation: Pre-screening of the MAI arbitrator roster should begin immediately, even though VMS is not currently planning to file an arbitration demand. Identifying two to three strong candidates for VMS's party-designated arbitrator position will allow VMS to move quickly if arbitration is initiated — whether by VMS or by MeridianCode — and will ensure that VMS is not disadvantaged by time pressure in the selection process. We will circulate a preliminary list of candidates in the companion Appendix C to this memorandum.

C. Procedural Rules and Timeline

Based on our review of the MAI 2021 Revised Edition rules and our experience with MAI-administered arbitrations, we estimate the following procedural timeline from the filing of an arbitration demand through the issuance of a final award:

Total estimated timeline from filing of demand to issuance of final award: approximately 12 to 18 months.

Several procedural features of the MAI rules warrant mention. First, discovery in MAI arbitrations is more limited than in federal or state court litigation. The MAI rules provide for document exchanges on a schedule set by the panel, but do not provide for the broad discovery permitted under the Federal Rules of Civil Procedure. Depositions are generally limited to key fact witnesses, and panels typically authorize three to five depositions per side. Expert witness reports are exchanged in advance of the hearing, and cross-examination of experts takes place at the evidentiary hearing. This limited discovery regime is generally favorable to VMS, as it reduces the cost and duration of the proceeding, although it may limit VMS's ability to probe MeridianCode's internal documents regarding the negotiation history of Section 7.2 and the intended scope of the "Derivative Work" definition.

Second, there is no appellate review of MAI arbitral awards. The sole mechanism for challenging an award is a petition to vacate under 9 U.S.C. § 10 of the FAA, which permits vacatur only on the extremely limited grounds of fraud, corruption, evident partiality, misconduct by the arbitrators, or excess of arbitral authority. Courts consistently refuse to vacate awards for errors of law or fact, even manifest errors. See, e.g., Stolt-Nielsen S.A. v. AnimalFeeds Int'l Corp., 559 U.S. 662, 671 (2010). As a practical matter, the arbitral award will be final and binding, which underscores the importance of selecting well-qualified arbitrators and presenting VMS's case effectively at the evidentiary hearing.

D. Confidentiality

MAI arbitration proceedings are private and confidential. The MAI rules provide that the arbitration proceedings, including all filings, testimony, and the arbitral award, are to be treated as confidential by the parties, the arbitrators, and the MAI administration, and may not be disclosed to third parties absent the written consent of all parties or an order of a court of competent jurisdiction.

This confidentiality is particularly important in the present circumstances for two reasons. First, VMS is a portfolio company of Kestrel Capital Partners, LP, a private equity sponsor. The rescoping of Project Argonaut, the dormancy of the MESLSA, and the potential disputes with MeridianCode are matters of sensitivity to Ashgrove Equity Partners and to VMS's relationships with its customers, suppliers, and prospective investors. Public disclosure of these matters could adversely affect VMS's competitive position and Ashgrove Equity Partners's exit timeline for its VMS investment.

Second, MeridianCode is a publicly traded company (Nasdaq: MCDT) with annual revenue of approximately $310 million. MeridianCode may have SEC disclosure obligations regarding material arbitration proceedings. If the arbitration is deemed material to MeridianCode — which is likely given the $20,000,000 total MESLSA deal value and MeridianCode's revenue base — MeridianCode may be required to disclose the existence and general nature of the arbitration in its periodic filings (Form 10-K, Form 10-Q) and in current reports (Form 8-K) if the dispute constitutes a material event. This could result in partial public disclosure of the arbitration, notwithstanding the confidentiality provisions of the MAI rules.

VMS benefits from confidentiality and should seek to maximize the scope of the confidentiality protections in any arbitration proceeding. Conversely, the prospect of SEC-mandated disclosure may serve as a negotiating lever, as MeridianCode may prefer to resolve the dispute without a formal arbitration filing to avoid triggering disclosure obligations.

V. Estimated Costs of Arbitration

A. MAI Administrative Fees and Arbitrator Compensation

The MAI's fee schedule is scaled to the amount in controversy. Based on our estimate that the aggregate amount in controversy in a consolidated proceeding would exceed $5,000,000, we estimate the following MAI-related costs:

• Filing fee: $15,000 to $25,000, payable by the claimant at the time of filing (subject to potential reallocation in the final award).

• Arbitrator compensation: MAI arbitrators are compensated at rates established by the MAI in consultation with the arbitrators, typically ranging from $1,500 to $2,500 per arbitrator per hearing day. For a three-arbitrator panel conducting a 5 to 10-day evidentiary hearing, with additional compensation for pre-hearing preparation, review of submissions, and post-hearing deliberations, we estimate total arbitrator compensation in the range of $150,000 to $300,000. Under the MESLSA's arbitration clause, arbitrator compensation is to be apportioned by the panel in the final award; however, as an initial matter, the parties will each be required to advance their respective shares of estimated arbitrator compensation at the outset of the proceeding.

• MAI administrative charges: The MAI assesses ongoing administrative fees for case management, scheduling, and hearing-room coordination. We estimate these charges at $30,000 to $50,000 for a proceeding of this complexity and duration.

Total estimated MAI fees and arbitrator compensation: $195,000 to $375,000.

B. Legal Fees (Calderwood & Harkness LLP)

Based on our assessment of the complexity of the issues, the scope of discovery likely to be required, the number of witnesses and expert reports, and the anticipated length of the evidentiary hearing, we estimate the following legal fees for C&H's representation of VMS through the issuance of a final arbitral award:

• Estimated attorney hours: 1,200 to 2,000 hours. This estimate encompasses all phases of the arbitration, including demand preparation, answer and counterclaim preparation (if VMS is the respondent), panel selection, organizational conference preparation, discovery (including document collection and review, deposition preparation and attendance, and expert coordination), pre-hearing briefing, hearing preparation and attendance, and post-hearing briefing. The estimate assumes a single consolidated proceeding addressing all four identified disputes.

• Blended rate: Partner hours at $895 per hour; associate hours at $545 per hour. Assuming a blended rate reflecting the expected mix of partner and associate time, we estimate a blended rate of approximately $650 to $700 per hour.

• Estimated legal fees: $750,000 to $1,300,000.

These estimates do not include costs that would be incurred in connection with any separate proceedings in court — for example, a petition to compel arbitration under 9 U.S.C. § 4, a petition to confirm or vacate the award under 9 U.S.C. §§ 9–10, or any application for provisional injunctive relief (to the extent such an application would be entertained by a court notwithstanding the arbitration clause). If such proceedings become necessary, additional fees would be incurred.

C. Expert Witness Costs

VMS has already retained Hargrove Technical Consulting, LLC, under the direction of Dr. Samuel Beecroft, for purposes of assessing the commercial value and technical characteristics of the derivative works (DW-001, DW-002, DW-003). Dr. Beecroft's preliminary assessment has been completed and was addressed to C&H as attorney work product. If arbitration is filed, Dr. Beecroft would be expected to prepare a formal expert report and testify at the evidentiary hearing regarding the technical characteristics of the derivative modules, the extent to which they incorporate ATLAS-RT™ source code, and their estimated commercial value. We estimate additional costs for Dr. Beecroft's engagement in arbitration at $100,000 to $200,000, depending on the scope of his testimony and the extent of cross-examination preparation required.

In addition, VMS may need to retain a licensing and valuation expert to address the fee forfeiture and damages issues, including the reasonableness of the maintenance fee in light of the reduced services during dormancy and the appropriate measure of damages (if any) for breach of the MESLSA. We estimate the cost of a separate licensing/valuation expert at $75,000 to $150,000.

Total estimated expert witness costs: $175,000 to $350,000.

D. Total Estimated Cost of Arbitration

These cost estimates do not include any fees, damages, or cost allocations that may be awarded against VMS in the final award. If VMS is unsuccessful in the arbitration, it could be required to pay a portion of MeridianCode's arbitrator compensation advances and MAI administrative fees in addition to any substantive damages award.

Cost-benefit analysis: The estimated arbitration costs of approximately $1.1 million to $2.0 million are significant but manageable relative to the amounts at stake. VMS has $12,320,000 in prepaid fees at risk of forfeiture, $1,800,000 to $2,500,000 in derivative works value, and $2,400,000 in disputed maintenance fees. The cost of arbitration represents approximately 5.6% to 10.2% of the minimum aggregate amount at risk, which is within the range typically considered reasonable for commercial disputes of this magnitude. However, the cost must be weighed against the Ashgrove Equity Partners-directed capital expenditure reduction and the possibility that a negotiated resolution could achieve similar or better outcomes at lower cost.

VI. Strategic Considerations

A. Arguments Favoring VMS Initiating Arbitration

Several considerations weigh in favor of VMS filing an affirmative arbitration demand:

1. Control of timing and framing. Filing first allows VMS to frame the narrative as a defensive licensee that acted in good faith under the dormancy provisions of the MESLSA and is seeking declaratory relief to clarify its rights and obligations during a period of contractual uncertainty. The claimant typically sets the framing of the dispute in the initial demand, and VMS can use this advantage to present its position as one of contractual compliance rather than avoidance.

2. Tolling argument preservation. Filing an arbitration demand before December 21, 2023 — the Section 4.3 "Use-It-or-Lose-It" deadline — could serve as evidence of VMS's good-faith engagement with the contractual issues and support VMS's argument that it was actively seeking to resolve the tolling question before the deadline. While filing an arbitration demand does not, in itself, toll a contractual deadline, it demonstrates that VMS was not passively allowing the deadline to lapse and could be persuasive to an arbitral panel in evaluating the parties' relative conduct.

3. Leverage in negotiations. A filed arbitration demand demonstrates seriousness of purpose and may accelerate MeridianCode's willingness to negotiate a commercial resolution, including a dormancy extension, fee restructuring, or amendment to the derivative works provisions. Experience suggests that the filing of a formal arbitration demand often serves as a catalyst for settlement discussions, particularly when the respondent is a publicly traded company facing potential SEC disclosure obligations.

4. Securing derivative works ownership. An affirmative declaratory claim on DW-001, DW-002, and DW-003 — seeking a declaration that these modules are the sole property of VMS and that MeridianCode's license-back right under Section 7.2 is inapplicable or unenforceable — could serve a prophylactic function by preventing MeridianCode from independently exploiting, licensing, or incorporating these modules into MeridianCode's product offerings during the pendency of the dispute. Although the arbitration clause's lack of an injunctive-relief carve-out limits VMS's ability to seek interim injunctive protection from a court, an affirmative arbitration demand puts MeridianCode on notice that any exploitation of the derivative works during the pendency of the proceeding would be at its own risk and could be the subject of a damages claim.

B. Arguments Against VMS Initiating Arbitration at This Time

Countervailing considerations weigh more heavily against filing at this time:

1. Premature — negotiations ongoing. C&H has circulated a term sheet to Redstone Whitaker LLP proposing a comprehensive resolution of the outstanding issues, including a 12-month dormancy extension, a restructured maintenance fee schedule reflecting the reduced service scope, a clarification of the Section 4.3 tolling question, and a revised derivative works ownership allocation. MeridianCode's initial response to the term sheet has been cautious but not dismissive, and a substantive counter-proposal is expected in the coming weeks. Initiating arbitration at this juncture may be perceived by MeridianCode and its counsel as an act of bad faith that undermines the productive discussions underway and could cause MeridianCode to harden its negotiating position or abandon negotiations entirely.

2. Fee forfeiture risk. This is the most significant risk of premature arbitration filing. Initiating arbitration before the 24-month anniversary of the MESLSA (June 21, 2024) could be characterized by MeridianCode as evidence that VMS has abandoned or is abandoning the MESLSA license, potentially supporting a constructive-termination argument that would trigger Section 9.1's forfeiture of $12,320,000 in prepaid fees. While we believe the constructive-termination argument is weak (VMS is invoking its contractual right to dormancy, not terminating the agreement), the risk is non-trivial and the potential exposure is substantial. The prudent course is to avoid any action before June 21, 2024 that could be construed as indicative of VMS's intent to exit the MESLSA.

3. Cost considerations. Estimated arbitration costs of $1.1 million to $2.0 million represent a significant expenditure for VMS, particularly in light of the Kestrel Capital Partners-directed capital expenditure reduction applicable to all Ashgrove Equity Partners portfolio companies. While the arbitration costs are manageable relative to the amounts at stake, they are not trivial, and VMS's management has expressed a preference for resolving the MESLSA disputes through negotiation rather than formal proceedings, if possible.

4. MeridianCode's public-company dynamics. MeridianCode (Nasdaq: MCDT, approximately $310 million in annual revenue, approximately $1.1 billion market capitalization) faces distinctive pressures as a publicly traded company. MeridianCode may be incentivized to settle quietly to avoid SEC disclosure of a material dispute with a major licensee, which could negatively affect investor sentiment, analyst coverage, and MeridianCode's ability to market ATLAS-RT™ to other potential licensees. This incentive to settle quietly is a valuable negotiating lever for VMS — but it evaporates upon the filing of a formal arbitration demand, which would likely trigger MeridianCode's disclosure obligations and remove MeridianCode's motivation to resolve the dispute outside of the formal process.

5. Dormancy clock still running. VMS has until August 3, 2024 — approximately ten and a half months from the date of this memorandum — before the 12-month dormancy cap under Section 9.4 triggers the mandatory renegotiation or termination mechanism. This provides a meaningful window for continued negotiations without the pressure of an imminent contractual trigger. There is no urgency to file arbitration at this time unless a specific deadline (such as the Section 4.3 deadline on December 21, 2023) necessitates action.

6. Uncertain outcome on derivative works. As discussed in Section III.B above, the Section 7.2 language favoring joint ownership of derivative works is relatively clear, and VMS's argument for sole ownership — particularly with respect to DW-001 and DW-003 — faces significant textual and evidentiary obstacles. An arbitration filing that seeks sole ownership of the derivative works and fails to achieve that result could produce an award that formally confirms MeridianCode's joint ownership and perpetual license-back rights, which would be worse for VMS than the current ambiguous status quo in which the derivative works ownership question remains unresolved and VMS retains de facto exclusive control of the modules.

C. Timing Considerations and Key Deadlines

The following deadlines are critical to VMS's strategic decision-making:

December 21, 2023 — Section 4.3 "Use-It-or-Lose-It" Deadline. This is the 18-month anniversary of the MESLSA Effective Date and the deadline by which VMS must have commenced integration testing on at least two platform configurations. If VMS's tolling argument fails and VMS has not commenced integration testing on a second platform (beyond Argonaut-A) by this date, MeridianCode could invoke Section 4.3 to restrict or terminate the license. VMS must have a tolling position firmly established before this date, whether through a negotiated amendment to the MESLSA, a mutual tolling agreement executed by both parties, or a written confirmation from MeridianCode (via Redstone Whitaker) that dormancy tolls the Section 4.3 deadline. If MeridianCode refuses to provide such confirmation or to enter into a tolling agreement, VMS should consider filing a limited declaratory arbitration demand specifically addressing the Section 4.3 tolling question before the December 21, 2023 deadline.

June 21, 2024 — 24-Month Anniversary of the MESLSA. After this date, VMS may terminate the MESLSA for convenience without triggering the fee forfeiture provision of Section 9.1. This date is critical because it represents the elimination of the single largest financial risk facing VMS — the potential loss of $12,320,000 in prepaid fees. VMS should avoid any action that could be construed as a termination for convenience before this date, including the filing of an affirmative arbitration demand that could be characterized as indicative of an intent to abandon the license.

August 3, 2024 — 12-Month Dormancy Cap Expiration. On this date, the 12-month dormancy period under Section 9.4 expires, triggering the mandatory renegotiation mechanism. The parties will have 60 days (through approximately October 2, 2024) to negotiate an amendment or restructuring of the MESLSA. If the renegotiation period expires without agreement, either party may terminate the MESLSA upon 30 days' written notice. If negotiations have not produced an amendment by this date, arbitration may become necessary as the only alternative to either party's exercise of the termination right and the resulting dispute over fee forfeiture and other consequences.

Optimal arbitration filing window (if necessary): June 21, 2024 through August 3, 2024. This window opens after the fee-forfeiture risk under Section 9.1 has lapsed and closes before the dormancy cap expires and the mandatory renegotiation/termination mechanism triggers. Filing during this window would position VMS to assert all claims affirmatively while minimizing the risk that the filing itself creates adverse consequences.

D. MeridianCode's Likely Arbitration Posture

VMS should be prepared for the possibility that MeridianCode will initiate arbitration before VMS does. The most likely trigger for a MeridianCode-initiated arbitration is VMS's continued refusal to pay the $2,400,000 Year 2 Maintenance and Support Fee. MeridianCode may file an arbitration demand seeking payment of the overdue invoice, together with interest, and may use the arbitration as a vehicle to assert additional claims and counterclaims.

MeridianCode's counsel, Redstone Whitaker LLP,

MEMORANDUM
PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGED / ATTORNEY WORK PRODUCT
TO: Bernard Crawford, Partner, Calderwood & Harkness LLP
FROM: Aaron Liu, Associate, Calderwood & Harkness LLP
DATE: September 18, 2023
RE: Arbitration Strategy and Forum Analysis — Midwest Arbitration Institute Rules; Vantage Mobility Systems Corp. v. Meridian Code Technologies, Inc. — MESLSA Disputes
MATTER NO.: C&H Matter No. 1007-00008
REVIEWED BY: Bernard Crawford
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I. Executive Summary
This memorandum analyzes the binding arbitration provision contained in Section 11 of the Master Embedded Software License and Services Agreement (the "MESLSA"), dated June 21, 2022, between Vantage Mobility Systems Corp. ("VMS" or "Vantage") and Meridian Code Technologies, Inc. ("MeridianCode"). The purpose of this memorandum is to evaluate the procedural framework for arbitration under the rules of the Midwest Arbitration Institute ("MAI"), to identify and assess the likely arbitrable disputes arising from the rescoping and dormancy of Project Argonaut, to estimate the costs and timeline of arbitration, and to provide a recommended strategy for VMS's approach to dispute resolution in the near, medium, and long term.
The MESLSA mandates binding arbitration under the rules of the MAI, seated in Detroit, Michigan. For disputes in which the aggregate amount in controversy exceeds $1,000,000, the arbitration clause requires a three-arbitrator panel. For disputes at or below that threshold, a sole arbitrator is contemplated by implication. Michigan law governs both the substantive merits and procedural questions not addressed by the MAI rules, and the Federal Arbitration Act, 9 U.S.C. §§ 1–16, governs the enforceability of the arbitration clause in this interstate commercial transaction.
Multiple disputes have crystallized or are reasonably likely to crystallize in the near term arising from the dormancy of Project Argonaut, including: (i) VMS's obligation to pay the $2,400,000 Year 2 Maintenance & Support Fee invoiced by MeridianCode on July 1, 2023; (ii) the ownership of derivative software modules DW-001, DW-002, and DW-003, consisting of approximately 47,000 lines of code created by VMS engineers during ATLAS-RT™ integration; (iii) the interaction between dormancy status under Section 9.4 and the Section 4.3 "Use-It-or-Lose-It" deadline requiring commencement of integration testing on at least two platforms by December 21, 2023; and (iv) the potential forfeiture of $12,320,000 in prepaid fees upon termination for convenience under Section 9.1 before the 24-month anniversary of the MESLSA.
Each of these disputes individually or collectively exceeds the $1,000,000 threshold, thereby triggering the three-arbitrator panel requirement under Section 11. The total financial exposure across all potential claims is substantial: up to $12,320,000 in fees already paid is at risk of forfeiture, and an additional $7,680,000 in remaining contractual commitments could be the subject of claims by MeridianCode, resulting in an aggregate MESLSA deal value of $20,000,000 that is implicated by these disputes. The derivative works at issue carry an independent estimated commercial value of $1,800,000 to $2,500,000, with additional strategic value to VMS's future platform development efforts that is difficult to quantify but significant.
This memorandum evaluates: (a) the procedural framework under the MAI rules; (b) likely scenarios for arbitration, including the possibility of defensive arbitration in response to a MeridianCode filing; (c) estimated timelines and costs; (d) arbitrator selection strategy; and (e) strategic considerations that favor or disfavor the initiation of arbitration by VMS at this juncture, including the impact on ongoing negotiations, credit facility covenant compliance, and insurance coverage preservation.
Recommendation: Based on the analysis set forth below, it is our recommendation that VMS should not initiate arbitration at this time. Instead, VMS should prepare comprehensively for defensive arbitration and should use the credible threat of arbitration as negotiation leverage in discussions with MeridianCode's counsel, Redstone Whitaker LLP. The optimal window for affirmative arbitration filing, if negotiations fail, is between June 21, 2024 (when the fee-forfeiture risk under Section 9.1 lapses) and August 3, 2024 (when the 12-month dormancy cap under Section 9.4 expires). In the interim, VMS should prioritize securing a written tolling agreement or written confirmation from MeridianCode that dormancy tolls the Section 4.3 deadline before December 21, 2023, failing which a limited declaratory arbitration demand focused on the Section 4.3 issue should be considered.
II. Background and Contractual Framework
A. The MESLSA and Project Argonaut
On June 21, 2022, VMS and MeridianCode executed the Master Embedded Software License and Services Agreement (the "MESLSA"), a comprehensive technology licensing agreement with a total deal value of $20,000,000 over a five-year term. The MESLSA governs VMS's license to use, integrate, and deploy MeridianCode's proprietary ATLAS-RT™ embedded real-time operating system, Version 4.2 (subsequently updated during the course of performance to Version 4.2.3, released by MeridianCode in November 2022), across VMS's next-generation adaptive vehicle platform program, internally designated as "Project Argonaut."
The licensed product, ATLAS-RT™, is a real-time operating system ("RTOS") designed for safety-critical embedded applications. It provides deterministic scheduling, low-latency interrupt handling, and automotive-grade reliability features that are essential for the electronic control units ("ECUs") deployed in VMS's adaptive vehicle platforms, which include wheelchair-accessible modified vehicles and other specialized mobility solutions.
The scope of the license under the MESLSA permits VMS to integrate ATLAS-RT™ into up to five designated vehicle platform configurations, identified as Argonaut-A through Argonaut-E, each corresponding to a distinct hardware and vehicle architecture within the Project Argonaut program. The MESLSA contemplates a phased integration approach, with platform-specific customization and milestone-based deliverables for each configuration.
The fee structure under the MESLSA is comprised of four components:
(a) Upfront License Fee: $8,000,000, payable at signing and paid in full on June 21, 2022. This fee grants VMS the right to use the ATLAS-RT™ source code and object code for integration into the five designated platform configurations.
(b) Maintenance and Support Fees: $2,400,000 per year, payable annually on each anniversary of the Effective Date. These fees entitle VMS to ongoing maintenance, software updates, bug fixes, security patches, and technical support from MeridianCode's engineering team.
(c) Milestone-Based Integration Services Fees: $3,200,000 in the aggregate, divided across five integration milestones per platform configuration, payable upon MeridianCode's completion and VMS's acceptance of each milestone deliverable. The five milestones are: (1) initial source code delivery and environment setup; (2) platform-specific source code customization; (3) alpha integration testing; (4) beta integration testing and validation; and (5) production-ready release and final acceptance.
(d) Per-Unit Runtime Royalties: $80 per unit for each vehicle in which ATLAS-RT™ is deployed in a production configuration, subject to an aggregate cap of $4,000,000 (equivalent to 50,000 units across all platform configurations).
The term of the MESLSA is five years, running from June 21, 2022 through June 20, 2027. The governing law is the law of the State of Michigan, without regard to its conflict-of-laws principles.
B. Project Argonaut Rescoping and Dormancy
The trajectory of Project Argonaut changed materially in early 2023. On March 14, 2023, the VMS Board of Directors adopted a resolution to rescope Project Argonaut from its original five-platform scope to two platforms only — specifically, Argonaut-A and Argonaut-C. The board resolution cited two principal factors driving the rescoping decision: (1) persistent semiconductor supply-chain delays that had increased estimated per-unit component costs by approximately 18% and extended projected availability timelines for key application-specific integrated circuits ("ASICs") required for the Argonaut-B, Argonaut-D, and Argonaut-E configurations; and (2) a portfolio-wide capital expenditure reduction directive issued by Kestrel Capital Partners, LP, VMS's majority equity sponsor, which mandated a 22% reduction in discretionary capital expenditures across all Ashgrove Equity Partners portfolio companies for fiscal year 2023.
The electrification integration component of Project Argonaut — which had been planned for the Argonaut-D and Argonaut-E configurations and involved coupling the ATLAS-RT™ RTOS with VMS's proprietary battery management system software — was deferred indefinitely. The Argonaut-B configuration, which was at the earliest stage of integration, was deprioritized and work was suspended.
All integration work across all platform configurations was formally suspended on March 22, 2023. At the time of suspension, the status of each platform configuration was as follows:
• Argonaut-A: Milestone 3 of 5 (alpha integration testing) had been passed on February 28, 2023. This represented the most advanced stage of integration across all five platforms.
• Argonaut-C: Milestone 2 of 5 (platform-specific source code customization) had been delivered by MeridianCode on January 15, 2023 and accepted by VMS. Integration testing had not yet commenced.
• Argonaut-B: Milestone 1 only (initial source code delivery and environment setup) had been completed. No platform-specific customization had been initiated.
• Argonaut-D: Not commenced. No milestone work had been initiated.
• Argonaut-E: Not commenced. No milestone work had been initiated.
As of the date of the suspension of integration work, VMS had paid a total of $12,320,000 under the MESLSA, comprised of: the $8,000,000 upfront license fee; $2,400,000 for Year 1 Maintenance and Support (paid on June 21, 2022); and $1,920,000 in integration services milestone fees corresponding to Milestones 1 through 3 across the platforms that had achieved those milestones.
Following the suspension of work, VMS issued a formal Dormancy Notice to MeridianCode on July 14, 2023, invoking the dormancy provisions of Section 9.4 of the MESLSA. The Dormancy Notice was transmitted six days before the 120-day trigger date of July 20, 2023, which was the date on which, absent a Dormancy Notice, MeridianCode would have been entitled to assert that the 120-day cessation of integration activities constituted a material breach. The timing of the Dormancy Notice was carefully calibrated to preserve VMS's rights under Section 9.4 while complying with the notice period requirements.
MeridianCode acknowledged the Dormancy Status in a letter dated August 3, 2023. MeridianCode's acknowledgment, while not disputing VMS's right to invoke dormancy, reserved all of MeridianCode's rights under the MESLSA and specifically noted that MeridianCode "does not concur that dormancy status affects VMS's obligation to pay the Year 2 Maintenance and Support Fee invoiced on July 1, 2023." This reservation of rights has been the genesis of the maintenance fee dispute described in Section III.A below.
Under Section 9.4, the dormancy period is capped at 12 months from the date of the counterparty's acknowledgment — in this case, August 3, 2024. Upon expiration of the 12-month dormancy cap, the MESLSA provides for a mandatory renegotiation period of 60 days, failing which either party may terminate the MESLSA upon 30 days' written notice. The interplay between this mandatory renegotiation/termination mechanism and the fee forfeiture provisions of Section 9.1 is a critical open question that is addressed in Section III.D below.
C. The Arbitration Clause
Section 11 of the MESLSA contains a broad, mandatory arbitration provision that governs the resolution of all disputes arising out of or relating to the MESLSA. The clause reads, in relevant part, as follows:
"11.1 Binding Arbitration. Any dispute, controversy, or claim arising out of or relating to this Agreement, including but not limited to disputes regarding formation, validity, interpretation, performance, breach, or termination of this Agreement, shall be resolved exclusively by binding arbitration administered under the rules of the Midwest Arbitration Institute ('MAI') then in effect. The seat of arbitration shall be Detroit, Michigan.
11.2 Arbitrator Selection. For any dispute in which the aggregate amount in controversy exceeds One Million United States Dollars ($1,000,000), the arbitration shall be conducted by a panel of three (3) arbitrators. Each Party shall designate one (1) arbitrator, and the two (2) Party-designated arbitrators shall select a third arbitrator who shall serve as chair of the arbitral panel. If the Party-designated arbitrators are unable to agree upon a chair within thirty (30) days, the MAI shall appoint the chair. For any dispute in which the aggregate amount in controversy is One Million United States Dollars ($1,000,000) or less, the arbitration shall be conducted by a sole arbitrator appointed by the MAI.
11.3 Governing Law. The arbitral panel shall apply the substantive law of the State of Michigan, including its statutes of limitations, without regard to principles of conflict of laws. Procedural questions not addressed by the MAI rules shall likewise be governed by Michigan law.
11.4 Award. The arbitral panel shall render a written, reasoned award. The award shall be final and binding upon the Parties and may be entered as a judgment in any court of competent jurisdiction. The Parties acknowledge that this Agreement involves interstate commerce and that the Federal Arbitration Act, 9 U.S.C. §§ 1–16, shall govern the enforcement of this arbitration provision and the confirmation, modification, or vacatur of any arbitral award.
11.5 Costs. Each Party shall bear its own attorneys' fees and costs. The administrative fees and arbitrator compensation shall be apportioned by the arbitral panel in the award, taking into account the relative merits of the Parties' positions."
Several features of the arbitration clause warrant particular attention for purposes of this analysis:
Breadth of the clause. The arbitration clause is broadly drafted, encompassing "any dispute, controversy, or claim arising out of or relating to" the MESLSA. This language is routinely interpreted by courts and arbitral panels as reaching all disputes that have a significant relationship to the contract, including claims sounding in tort, fraud, and unjust enrichment, as well as claims for declaratory and injunctive relief. There is no carve-out for injunctive relief or intellectual property ownership disputes — a feature that is unusual in technology licensing agreements of this sophistication and that has the effect of funneling all claims, including the derivative works ownership dispute, to arbitration rather than permitting resort to a court of equity.
Three-arbitrator panel threshold. The $1,000,000 threshold for a three-arbitrator panel is clearly met in this matter. Each of the four identified disputes individually exceeds or is reasonably likely to exceed $1,000,000 in amount in controversy, and the aggregate amount in controversy across all potential claims is conservatively $5,000,000 to $20,000,000. There is no question that a three-arbitrator panel will be required.
Michigan substantive law. The choice of Michigan law for substantive issues is favorable to VMS, as Michigan courts have generally adopted a textualist approach to contract interpretation that focuses on the plain meaning of contractual language. This is relevant to VMS's tolling argument under Section 4.3 (discussed below), which relies on the plain meaning of "all milestone deadlines" in Section 9.4.
Federal Arbitration Act. The FAA governs the enforceability of the arbitration clause and the grounds for vacatur of any arbitral award. Under the FAA, the grounds for vacatur are extremely limited — fraud, corruption, evident partiality, misconduct by the arbitrators, or excess of authority — and courts routinely refuse to vacate arbitral awards for mere errors of law or fact. This means that the arbitral award will, as a practical matter, be final and unreviewable. There is no appellate mechanism within the MAI framework, and the parties did not negotiate for expanded judicial review (which, under Hall Street Associates, L.L.C. v. Mattel, Inc., 552 U.S. 576 (2008), would likely be unenforceable in any event).
No injunctive relief carve-out. The absence of a carve-out for provisional or injunctive relief means that VMS cannot seek a temporary restraining order or preliminary injunction in court to prevent MeridianCode from exploiting or licensing the derivative works during the pendency of arbitration. While some courts have held that parties may seek provisional injunctive relief from a court even in the presence of a broad arbitration clause (see, e.g., Benihana, Inc. v. Benihana of Tokyo, LLC, 784 F.3d 887 (2d Cir. 2015)), the Michigan courts have not definitively addressed this issue, and the specific language of Section 11.1 — "shall be resolved exclusively by binding arbitration" — could be read to preclude all resort to judicial fora, including for provisional relief. This is a risk factor that should be monitored, particularly with respect to the derivative works.
III. Identification and Analysis of Likely Arbitrable Disputes
Based on our review of the MESLSA, the correspondence between the parties and their respective counsel, and our discussions with VMS's management team (principally Dennis J. Whitfield, CTO, and Lena Petrova, Director, Software Integration Engineering), we have identified four disputes that have crystallized or are reasonably likely to crystallize in the near to medium term. Each is analyzed below with respect to the factual and contractual basis for the dispute, the positions of the parties, the amount in controversy, and an assessment of VMS's relative strength on the merits.
A. Dispute 1: Year 2 Maintenance & Support Fee ($2,400,000)
MeridianCode invoiced VMS in the amount of $2,400,000 on July 1, 2023, for Year 2 Maintenance and Support under the MESLSA. The invoice was transmitted by MeridianCode's finance department to VMS's accounts payable department in the ordinary course, with payment terms of net-30. VMS has not paid this invoice and, following consultation with Calderwood & Harkness, has formally disputed the invoice in a letter from C&H to Redstone Whitaker LLP dated August 18, 2023.
VMS's position is that the full Year 2 Maintenance and Support Fee is not owed because Section 9.4 of the MESLSA expressly provides that, during dormancy, MeridianCode's support obligations are reduced to "critical-security-patch-only" support, meaning that MeridianCode is not required to (and in practice is not) providing the full suite of maintenance and support services for which the $2,400,000 annual fee compensates VMS. VMS contends that it would be inequitable to require payment of the full maintenance fee when the scope of services being rendered is materially diminished. VMS's position is that the maintenance fee should be abated in full during the dormancy period or, alternatively, prorated to reflect the reduced level of service.
MeridianCode's position, as articulated in Redstone Whitaker's response letter dated September 1, 2023, is that the $2,400,000 annual maintenance fee obligation is unconditional and is not affected by dormancy status. MeridianCode points to Exhibit B (Fee Schedule) of the MESLSA, which sets forth the maintenance fee as a fixed annual amount payable "on each anniversary of the Effective Date, regardless of the volume of support requests submitted by Licensee or the extent of Licensee's utilization of the Licensed Software during the applicable period." MeridianCode further argues that Section 9.4's reduction of support scope is a unilateral accommodation extended to MeridianCode during dormancy — allowing MeridianCode to reduce its staffing and resource allocation to the VMS account — rather than a reduction in VMS's payment obligation.
Amount in controversy: $2,400,000. This amount independently exceeds the $1,000,000 threshold for a three-arbitrator panel.
Strength assessment: VMS has a reasonable argument based on the interplay between Section 9.4's support-reduction language and the maintenance fee provisions. The fundamental question is whether the maintenance fee is a fixed, unconditional payment obligation or whether it is implicitly tied to the scope of services being provided. VMS's argument draws support from the principle of mutuality of obligation and from Michigan case law holding that contractual obligations should be interpreted in a manner that avoids producing absurd or commercially unreasonable results. See Klapp v. United Ins. Grp. Agency, Inc., 468 Mich. 459, 473 (2003). However, the fee schedule in Exhibit B does not contain an express dormancy abatement provision, and the "regardless of utilization" language is a significant obstacle to VMS's position. This creates a genuine ambiguity that could be resolved in either party's favor, making the outcome uncertain. We assess VMS's likelihood of prevailing on this claim at approximately 40–50%.
B. Dispute 2: Derivative Works Ownership (DW-001, DW-002, DW-003)
During the course of ATLAS-RT™ integration for the Argonaut-A and Argonaut-C platform configurations, VMS's software integration engineering team, led by Lena Petrova, created three derivative software modules designated DW-001 (a vehicle-bus communication abstraction layer), DW-002 (a real-time sensor-fusion pre-processing module), and DW-003 (an adaptive suspension control interface module). These three modules comprise approximately 47,000 lines of source code and were developed by VMS engineers using the ATLAS-RT™ application programming interfaces ("APIs") and, in the case of DW-001 and DW-003, incorporating certain ATLAS-RT™ header files and function calls. DW-002 is the most independently developed of the three modules, with approximately 80% of its code base consisting of original VMS-authored code that does not reference or incorporate any ATLAS-RT™ source code directly, although it was designed to operate within the ATLAS-RT™ runtime environment.
Hargrove Technical Consulting, LLC, a technology valuation and expert consulting firm engaged by C&H, has conducted a preliminary assessment of the commercial value of these derivative works under the direction of Dr. Samuel Beecroft, a principal at the firm with expertise in embedded software valuation and licensing. Dr. Beecroft's preliminary assessment estimates the fair market value of the three modules at $1,800,000 to $2,500,000, based on the cost of development (approximately 18 person-months of senior software engineering effort), the avoided cost of independent development by a third party, and the potential licensing revenue that could be derived from the modules in the adaptive vehicle and autonomous driving markets.
VMS's position is that the modules, or at least DW-002, are VMS-originated works that should be solely owned by VMS. VMS contends that Section 7.2's definition of "Derivative Work" — which provides that derivative works are "works that are based upon, incorporate, or are derived from the Licensed Software" — should be narrowly construed to include only works that directly incorporate or modify the ATLAS-RT™ source code, and should not encompass independently developed modules that merely interface with the ATLAS-RT™ APIs. VMS further argues that, even to the extent Section 7.2 applies, the perpetual royalty-free license-back to MeridianCode is unenforceable as applied to independently developed VMS code because it constitutes an unconscionable restriction on VMS's intellectual property rights without adequate consideration.
MeridianCode's position is that Section 7.2 unambiguously establishes joint ownership of all derivative works created "in connection with" the integration of the Licensed Software, and that the perpetual, royalty-free license-back to MeridianCode is a core element of the bargained-for exchange under the MESLSA. MeridianCode contends that all three modules — DW-001, DW-002, and DW-003 — fall within the contractual definition of "Derivative Work" because they were developed specifically for integration with ATLAS-RT™ and cannot function independently of the ATLAS-RT™ runtime environment. MeridianCode further contends that the license-back provision in Section 7.2 was negotiated at arm's length and is enforceable under Michigan law.
Amount in controversy: $1,800,000 to $2,500,000 in direct valuation, plus strategic value to VMS's future platform development that is difficult to quantify but significant. VMS has indicated that the derivative modules, particularly DW-002, represent core differentiating technology for its next-generation adaptive vehicle platforms and that loss of sole ownership or the granting of a perpetual license-back to MeridianCode could enable MeridianCode (or its other licensees, including potential VMS competitors) to develop competing functionality. The amount in controversy exceeds the $1,000,000 threshold.
Strength assessment: Section 7.2 language, as reinforced by the definitions in Exhibit C (Intellectual Property Terms) of the MESLSA, is relatively clear in establishing joint ownership of derivative works and the perpetual royalty-free license-back. VMS's argument depends on successfully characterizing the modules — or at least DW-002 — as falling outside the contractual definition of "Derivative Work." This is a fact-intensive inquiry that will require detailed technical expert testimony regarding the extent to which each module incorporates, references, or is "derived from" the ATLAS-RT™ source code. Dr. Beecroft's preliminary analysis suggests that DW-002 has the strongest case for independent characterization, while DW-001 and DW-003 more clearly fall within the "derivative work" definition due to their direct incorporation of ATLAS-RT™ header files and function calls. We assess VMS's likelihood of prevailing on sole ownership of all three modules at approximately 25–35%, with a somewhat higher likelihood (40–50%) of prevailing on DW-002 alone.
C. Dispute 3: Section 4.3 "Use-It-or-Lose-It" Compliance
Section 4.3 of the MESLSA contains a "Use-It-or-Lose-It" provision that requires VMS to "commence integration testing" on at least two platform configurations within 18 months of the Effective Date. The Effective Date is June 21, 2022, making the Section 4.3 deadline December 21, 2023. If VMS fails to satisfy this requirement by the deadline, MeridianCode has the right to restrict the license scope to the platform configurations on which integration testing has commenced and, in certain circumstances, to terminate the license entirely.
The compliance analysis presents two distinct issues: first, whether VMS has commenced integration testing on the requisite number of platforms; and second, whether the dormancy status tolls the Section 4.3 deadline.
Platform compliance status. Argonaut-A reached Milestone 3 (alpha integration testing passed) on February 28, 2023. The passage of alpha integration testing clearly constitutes the "commencement" of integration testing for purposes of Section 4.3, and there is no dispute that Argonaut-A satisfies the requirement as to one platform. Argonaut-C, however, reached only Milestone 2 (platform-specific source code customization delivered on January 15, 2023). Milestone 2 is a source code delivery and customization milestone, not an integration testing milestone, and it is arguable that the delivery of customized source code does not constitute "commencing integration testing" within the meaning of Section 4.3. If Argonaut-C does not satisfy the requirement, VMS may have a compliance gap with respect to the second platform.
Tolling question. Section 9.4, the dormancy provision, states that dormancy tolls "all milestone deadlines" under the MESLSA. The critical question is whether the Section 4.3 deadline is a "milestone deadline" within the meaning of Section 9.4. VMS contends that "all milestone deadlines" should be read broadly to encompass the Section 4.3 deadline, which is functionally a milestone-related requirement because it references milestones (integration testing) and is tied to the phased integration approach contemplated by the MESLSA. MeridianCode is expected to argue that Section 4.3 is a condition — a licensee obligation that exists independently of the milestone structure — rather than a "milestone deadline" as that term is used in Section 9.4.
Exposure. If the Section 4.3 deadline is not tolled and VMS has not commenced integration testing on two platforms by December 21, 2023, MeridianCode could invoke Section 4.3 to restrict the license scope to Argonaut-A only (the sole platform on which integration testing has clearly commenced) or, under a broad reading of the clause, to terminate the license entirely. The potential exposure includes forfeiture of license rights to three or more of the five platforms, loss of the commercial benefit of the MESLSA, and, depending on the interaction with other provisions, potential loss of prepaid fees.
Strength assessment: VMS has a strong textual argument that "all milestone deadlines" in Section 9.4 encompasses the Section 4.3 deadline. The word "all" is unrestricted, and the Section 4.3 deadline is directly tied to milestone activities (integration testing). Under Michigan's general rule of contract interpretation favoring the plain and ordinary meaning of contractual language, VMS's reading has considerable force. See Rory v. Continental Ins. Co., 473 Mich. 457, 468 (2005). However, MeridianCode will argue that Section 4.3 is a free-standing condition that operates independently of the milestone schedule and that the tolling provision in Section 9.4 was intended to address only the specific milestone deadlines set forth in Exhibit D (Milestone Schedule), not licensee compliance conditions. This is a genuine interpretive dispute that will turn on the arbitral panel's reading of the contractual text and the extrinsic evidence of the parties' negotiations. We assess VMS's likelihood of prevailing on the tolling argument at approximately 55–65%.
D. Dispute 4: Fee Forfeiture on Termination (Section 9.1)
Section 9.1 of the MESLSA provides that if VMS terminates the MESLSA for convenience prior to the 24-month anniversary of the Effective Date (i.e., before June 21, 2024), VMS "shall forfeit all fees previously paid to [MeridianCode] under this Agreement, which shall be retained by [MeridianCode] as liquidated damages." The forfeiture provision was negotiated as a means of protecting MeridianCode's upfront investment in customization and engineering resources dedicated to Project Argonaut and as a deterrent against early termination by the licensee.
This dispute has not yet materialized but could crystallize in one of two scenarios. First, if VMS elects to terminate the MESLSA for convenience before June 21, 2024, the forfeiture provision would be directly triggered, and VMS would lose $12,320,000 in prepaid fees. Second, and more concerning, MeridianCode could argue that VMS's conduct — specifically, the rescoping of Project Argonaut, the suspension of integration work, and the invocation of dormancy status — constitutes a de facto or constructive termination of the MESLSA, thereby triggering the forfeiture provision regardless of whether VMS issues a formal termination notice.
The interaction between the 12-month dormancy cap (expiring August 3, 2024) and the Section 9.1 forfeiture provision presents a particularly difficult interpretive question. If the dormancy cap expires and the mandatory renegotiation period under Section 9.4 fails to produce an agreement, either party may terminate on 30 days' notice. If VMS issues such a termination notice after August 3, 2024, the question arises whether the termination is one "for convenience" under Section 9.1 — thereby triggering forfeiture if it occurs before June 21, 2024 — or whether it is a termination pursuant to the dormancy-cap mechanism of Section 9.4, which does not expressly address the fee consequences of termination. The MESLSA does not clearly resolve this ambiguity.
Potential exposure: $12,320,000 in fees already paid.
Strength assessment: VMS should take every step to avoid triggering the Section 9.1 forfeiture provision. The most prudent course is to maintain dormancy status through at least June 21, 2024, at which point the 24-month anniversary will have passed and termination for convenience will no longer trigger forfeiture. The risk of a constructive-termination argument by MeridianCode increases if VMS takes actions inconsistent with maintaining the license, such as commencing development of a competing RTOS solution, entering into discussions with MeridianCode's competitors for alternative RTOS licensing, or explicitly communicating an intent to abandon Project Argonaut. VMS's management should be cautioned to avoid any such actions or communications. We assess the risk of MeridianCode successfully asserting a constructive-termination theory at approximately 20–30%, provided VMS maintains dormancy status and does not take affirmatively inconsistent actions.
E. Potential Consolidation of Claims
All four disputes identified above arise under the same MESLSA and involve substantially overlapping factual predicates — the rescoping of Project Argonaut, the invocation of dormancy, the parties' respective performance and non-performance under the agreement, and the interpretation of interrelated contractual provisions. The aggregate amount in controversy across all disputes is conservatively estimated at $5,000,000 to $20,000,000, depending on how the claims are framed and which counterclaims MeridianCode asserts.
The MAI rules, consistent with established commercial arbitration practice, provide the arbitral panel with broad discretion to consolidate related claims and counterclaims into a single proceeding, and it is our expectation that the panel would exercise this discretion to consolidate all MESLSA-related disputes. Consolidation serves the interests of efficiency, avoids the risk of inconsistent rulings on overlapping factual and legal issues, and allows the panel to address the interplay between dormancy, fee obligations, intellectual property ownership, and compliance deadlines in a holistic and integrated manner.
Recommendation: If arbitration is initiated — whether by VMS or by MeridianCode — all claims should be presented in a single consolidated proceeding. VMS should resist any effort by MeridianCode to bifurcate claims (e.g., separating the maintenance fee dispute from the derivative works dispute), as bifurcation would increase costs and could result in inconsistent rulings on the dormancy provisions that are central to multiple claims.
IV. Midwest Arbitration Institute — Forum Analysis
A. Overview of MAI
The Midwest Arbitration Institute is a non-profit arbitration administration organization headquartered in Chicago, Illinois. MAI administers commercial arbitrations across the Midwest region, including Michigan, Illinois, Ohio, Indiana, Wisconsin, Minnesota, and Iowa, and maintains a roster of approximately 450 active commercial arbitrators with expertise spanning a wide range of industries and practice areas, including technology, intellectual property, financial services, manufacturing, and energy.
MAI's procedural rules are generally modeled on established commercial arbitration frameworks, including the American Arbitration Association's Commercial Arbitration Rules and the International Chamber of Commerce's Arbitration Rules, but with certain modifications reflecting MAI's regional orientation and the preferences of Midwest-based commercial parties. MAI's rules are regularly updated and are currently in their 2021 Revised Edition, which is the version applicable to any arbitration commenced under the MESLSA's arbitration clause.
The designation of Detroit, Michigan as the seat of arbitration is favorable to VMS in several respects. VMS's corporate headquarters are located in Sterling Heights, Michigan, approximately 25 miles north of Detroit, providing convenience of access for VMS's management team, fact witnesses, and counsel. Detroit is home to a well-established technology licensing and automotive-industry legal community, which facilitates the identification of local counsel and technical experts if needed. The Michigan courts, which would be the supervisory courts for purposes of FAA confirmation and vacatur proceedings, are experienced in commercial disputes involving technology companies and are generally regarded as efficient and business-oriented.
B. Arbitrator Selection Process
Under the MAI rules for three-arbitrator panels, the selection process operates as follows. Each party designates one arbitrator within 30 days of the constitution of the panel (i.e., within 30 days of the respondent's filing of its answer or within 30 days of the MAI's confirmation of the arbitration demand, whichever is later). The two party-designated arbitrators then have 30 days to select a third arbitrator who will serve as chair of the arbitral panel. If the party-designated arbitrators are unable to agree upon a chair within the allotted 30-day period, the MAI will appoint the chair from its roster, giving consideration to the nature of the dispute, the parties' preferences (if communicated), and the need for diversity of expertise on the panel.
For VMS's party-designated arbitrator, we should identify candidates with backgrounds in one or more of the following areas:
• Technology licensing and software distribution agreements, with particular emphasis on embedded software and RTOS platforms;
• intellectual property ownership disputes, particularly those involving derivative works, joint ownership, and license-back provisions in the software licensing context;
• Automotive industry transactions, including familiarity with the regulatory and commercial landscape for adaptive and accessible vehicle technologies;
• Michigan contract law, including expertise in the principles of contract interpretation applied by Michigan courts.
Desirable characteristics for the chair of the panel include demonstrated neutrality, a reputation for thorough and reasoned decision-making, and familiarity with the technical subject matter (to the extent possible) or, at minimum, a demonstrated capacity to absorb and evaluate complex technical evidence. We should consider whether to seek arbitrators from the automotive-technology corridor (primarily Michigan and Ohio, where the intersection of automotive manufacturing and embedded software development creates a natural pool of practitioners with relevant experience) or from the national technology-licensing community (which may offer a broader pool of candidates with specific experience in RTOS licensing and IP ownership disputes, but at the cost of reduced familiarity with Michigan law and the local commercial context).
Recommendation: Pre-screening of the MAI arbitrator roster should begin immediately, even though VMS is not currently planning to file an arbitration demand. Identifying two to three strong candidates for VMS's party-designated arbitrator position will allow VMS to move quickly if arbitration is initiated — whether by VMS or by MeridianCode — and will ensure that VMS is not disadvantaged by time pressure in the selection process. We will circulate a preliminary list of candidates in the companion Appendix C to this memorandum.
C. Procedural Rules and Timeline
Based on our review of the MAI 2021 Revised Edition rules and our experience with MAI-administered arbitrations, we estimate the following procedural timeline from the filing of an arbitration demand through the issuance of a final award:
Total estimated timeline from filing of demand to issuance of final award: approximately 12 to 18 months.
Several procedural features of the MAI rules warrant mention. First, discovery in MAI arbitrations is more limited than in federal or state court litigation. The MAI rules provide for document exchanges on a schedule set by the panel, but do not provide for the broad discovery permitted under the Federal Rules of Civil Procedure. Depositions are generally limited to key fact witnesses, and panels typically authorize three to five depositions per side. Expert witness reports are exchanged in advance of the hearing, and cross-examination of experts takes place at the evidentiary hearing. This limited discovery regime is generally favorable to VMS, as it reduces the cost and duration of the proceeding, although it may limit VMS's ability to probe MeridianCode's internal documents regarding the negotiation history of Section 7.2 and the intended scope of the "Derivative Work" definition.
Second, there is no appellate review of MAI arbitral awards. The sole mechanism for challenging an award is a petition to vacate under 9 U.S.C. § 10 of the FAA, which permits vacatur only on the extremely limited grounds of fraud, corruption, evident partiality, misconduct by the arbitrators, or excess of arbitral authority. Courts consistently refuse to vacate awards for errors of law or fact, even manifest errors. See, e.g., Stolt-Nielsen S.A. v. AnimalFeeds Int'l Corp., 559 U.S. 662, 671 (2010). As a practical matter, the arbitral award will be final and binding, which underscores the importance of selecting well-qualified arbitrators and presenting VMS's case effectively at the evidentiary hearing.
D. Confidentiality
MAI arbitration proceedings are private and confidential. The MAI rules provide that the arbitration proceedings, including all filings, testimony, and the arbitral award, are to be treated as confidential by the parties, the arbitrators, and the MAI administration, and may not be disclosed to third parties absent the written consent of all parties or an order of a court of competent jurisdiction.
This confidentiality is particularly important in the present circumstances for two reasons. First, VMS is a portfolio company of Kestrel Capital Partners, LP, a private equity sponsor. The rescoping of Project Argonaut, the dormancy of the MESLSA, and the potential disputes with MeridianCode are matters of sensitivity to Ashgrove Equity Partners and to VMS's relationships with its customers, suppliers, and prospective investors. Public disclosure of these matters could adversely affect VMS's competitive position and Ashgrove Equity Partners's exit timeline for its VMS investment.
Second, MeridianCode is a publicly traded company (Nasdaq: MCDT) with annual revenue of approximately $310 million. MeridianCode may have SEC disclosure obligations regarding material arbitration proceedings. If the arbitration is deemed material to MeridianCode — which is likely given the $20,000,000 total MESLSA deal value and MeridianCode's revenue base — MeridianCode may be required to disclose the existence and general nature of the arbitration in its periodic filings (Form 10-K, Form 10-Q) and in current reports (Form 8-K) if the dispute constitutes a material event. This could result in partial public disclosure of the arbitration, notwithstanding the confidentiality provisions of the MAI rules.
VMS benefits from confidentiality and should seek to maximize the scope of the confidentiality protections in any arbitration proceeding. Conversely, the prospect of SEC-mandated disclosure may serve as a negotiating lever, as MeridianCode may prefer to resolve the dispute without a formal arbitration filing to avoid triggering disclosure obligations.
V. Estimated Costs of Arbitration
A. MAI Administrative Fees and Arbitrator Compensation
The MAI's fee schedule is scaled to the amount in controversy. Based on our estimate that the aggregate amount in controversy in a consolidated proceeding would exceed $5,000,000, we estimate the following MAI-related costs:
• Filing fee: $15,000 to $25,000, payable by the claimant at the time of filing (subject to potential reallocation in the final award).
• Arbitrator compensation: MAI arbitrators are compensated at rates established by the MAI in consultation with the arbitrators, typically ranging from $1,500 to $2,500 per arbitrator per hearing day. For a three-arbitrator panel conducting a 5 to 10-day evidentiary hearing, with additional compensation for pre-hearing preparation, review of submissions, and post-hearing deliberations, we estimate total arbitrator compensation in the range of $150,000 to $300,000. Under the MESLSA's arbitration clause, arbitrator compensation is to be apportioned by the panel in the final award; however, as an initial matter, the parties will each be required to advance their respective shares of estimated arbitrator compensation at the outset of the proceeding.
• MAI administrative charges: The MAI assesses ongoing administrative fees for case management, scheduling, and hearing-room coordination. We estimate these charges at $30,000 to $50,000 for a proceeding of this complexity and duration.
Total estimated MAI fees and arbitrator compensation: $195,000 to $375,000.
B. Legal Fees (Calderwood & Harkness LLP)
Based on our assessment of the complexity of the issues, the scope of discovery likely to be required, the number of witnesses and expert reports, and the anticipated length of the evidentiary hearing, we estimate the following legal fees for C&H's representation of VMS through the issuance of a final arbitral award:
• Estimated attorney hours: 1,200 to 2,000 hours. This estimate encompasses all phases of the arbitration, including demand preparation, answer and counterclaim preparation (if VMS is the respondent), panel selection, organizational conference preparation, discovery (including document collection and review, deposition preparation and attendance, and expert coordination), pre-hearing briefing, hearing preparation and attendance, and post-hearing briefing. The estimate assumes a single consolidated proceeding addressing all four identified disputes.
• Blended rate: Partner hours at $895 per hour; associate hours at $545 per hour. Assuming a blended rate reflecting the expected mix of partner and associate time, we estimate a blended rate of approximately $650 to $700 per hour.
• Estimated legal fees: $750,000 to $1,300,000.
These estimates do not include costs that would be incurred in connection with any separate proceedings in court — for example, a petition to compel arbitration under 9 U.S.C. § 4, a petition to confirm or vacate the award under 9 U.S.C. §§ 9–10, or any application for provisional injunctive relief (to the extent such an application would be entertained by a court notwithstanding the arbitration clause). If such proceedings become necessary, additional fees would be incurred.
C. Expert Witness Costs
VMS has already retained Hargrove Technical Consulting, LLC, under the direction of Dr. Samuel Beecroft, for purposes of assessing the commercial value and technical characteristics of the derivative works (DW-001, DW-002, DW-003). Dr. Beecroft's preliminary assessment has been completed and was addressed to C&H as attorney work product. If arbitration is filed, Dr. Beecroft would be expected to prepare a formal expert report and testify at the evidentiary hearing regarding the technical characteristics of the derivative modules, the extent to which they incorporate ATLAS-RT™ source code, and their estimated commercial value. We estimate additional costs for Dr. Beecroft's engagement in arbitration at $100,000 to $200,000, depending on the scope of his testimony and the extent of cross-examination preparation required.
In addition, VMS may need to retain a licensing and valuation expert to address the fee forfeiture and damages issues, including the reasonableness of the maintenance fee in light of the reduced services during dormancy and the appropriate measure of damages (if any) for breach of the MESLSA. We estimate the cost of a separate licensing/valuation expert at $75,000 to $150,000.
Total estimated expert witness costs: $175,000 to $350,000.
D. Total Estimated Cost of Arbitration
These cost estimates do not include any fees, damages, or cost allocations that may be awarded against VMS in the final award. If VMS is unsuccessful in the arbitration, it could be required to pay a portion of MeridianCode's arbitrator compensation advances and MAI administrative fees in addition to any substantive damages award.
Cost-benefit analysis: The estimated arbitration costs of approximately $1.1 million to $2.0 million are significant but manageable relative to the amounts at stake. VMS has $12,320,000 in prepaid fees at risk of forfeiture, $1,800,000 to $2,500,000 in derivative works value, and $2,400,000 in disputed maintenance fees. The cost of arbitration represents approximately 5.6% to 10.2% of the minimum aggregate amount at risk, which is within the range typically considered reasonable for commercial disputes of this magnitude. However, the cost must be weighed against the Ashgrove Equity Partners-directed capital expenditure reduction and the possibility that a negotiated resolution could achieve similar or better outcomes at lower cost.
VI. Strategic Considerations
A. Arguments Favoring VMS Initiating Arbitration
Several considerations weigh in favor of VMS filing an affirmative arbitration demand:
1. Control of timing and framing. Filing first allows VMS to frame the narrative as a defensive licensee that acted in good faith under the dormancy provisions of the MESLSA and is seeking declaratory relief to clarify its rights and obligations during a period of contractual uncertainty. The claimant typically sets the framing of the dispute in the initial demand, and VMS can use this advantage to present its position as one of contractual compliance rather than avoidance.
2. Tolling argument preservation. Filing an arbitration demand before December 21, 2023 — the Section 4.3 "Use-It-or-Lose-It" deadline — could serve as evidence of VMS's good-faith engagement with the contractual issues and support VMS's argument that it was actively seeking to resolve the tolling question before the deadline. While filing an arbitration demand does not, in itself, toll a contractual deadline, it demonstrates that VMS was not passively allowing the deadline to lapse and could be persuasive to an arbitral panel in evaluating the parties' relative conduct.
3. Leverage in negotiations. A filed arbitration demand demonstrates seriousness of purpose and may accelerate MeridianCode's willingness to negotiate a commercial resolution, including a dormancy extension, fee restructuring, or amendment to the derivative works provisions. Experience suggests that the filing of a formal arbitration demand often serves as a catalyst for settlement discussions, particularly when the respondent is a publicly traded company facing potential SEC disclosure obligations.
4. Securing derivative works ownership. An affirmative declaratory claim on DW-001, DW-002, and DW-003 — seeking a declaration that these modules are the sole property of VMS and that MeridianCode's license-back right under Section 7.2 is inapplicable or unenforceable — could serve a prophylactic function by preventing MeridianCode from independently exploiting, licensing, or incorporating these modules into MeridianCode's product offerings during the pendency of the dispute. Although the arbitration clause's lack of an injunctive-relief carve-out limits VMS's ability to seek interim injunctive protection from a court, an affirmative arbitration demand puts MeridianCode on notice that any exploitation of the derivative works during the pendency of the proceeding would be at its own risk and could be the subject of a damages claim.
B. Arguments Against VMS Initiating Arbitration at This Time
Countervailing considerations weigh more heavily against filing at this time:
1. Premature — negotiations ongoing. C&H has circulated a term sheet to Redstone Whitaker LLP proposing a comprehensive resolution of the outstanding issues, including a 12-month dormancy extension, a restructured maintenance fee schedule reflecting the reduced service scope, a clarification of the Section 4.3 tolling question, and a revised derivative works ownership allocation. MeridianCode's initial response to the term sheet has been cautious but not dismissive, and a substantive counter-proposal is expected in the coming weeks. Initiating arbitration at this juncture may be perceived by MeridianCode and its counsel as an act of bad faith that undermines the productive discussions underway and could cause MeridianCode to harden its negotiating position or abandon negotiations entirely.
2. Fee forfeiture risk. This is the most significant risk of premature arbitration filing. Initiating arbitration before the 24-month anniversary of the MESLSA (June 21, 2024) could be characterized by MeridianCode as evidence that VMS has abandoned or is abandoning the MESLSA license, potentially supporting a constructive-termination argument that would trigger Section 9.1's forfeiture of $12,320,000 in prepaid fees. While we believe the constructive-termination argument is weak (VMS is invoking its contractual right to dormancy, not terminating the agreement), the risk is non-trivial and the potential exposure is substantial. The prudent course is to avoid any action before June 21, 2024 that could be construed as indicative of VMS's intent to exit the MESLSA.
3. Cost considerations. Estimated arbitration costs of $1.1 million to $2.0 million represent a significant expenditure for VMS, particularly in light of the Kestrel Capital Partners-directed capital expenditure reduction applicable to all Ashgrove Equity Partners portfolio companies. While the arbitration costs are manageable relative to the amounts at stake, they are not trivial, and VMS's management has expressed a preference for resolving the MESLSA disputes through negotiation rather than formal proceedings, if possible.
4. MeridianCode's public-company dynamics. MeridianCode (Nasdaq: MCDT, approximately $310 million in annual revenue, approximately $1.1 billion market capitalization) faces distinctive pressures as a publicly traded company. MeridianCode may be incentivized to settle quietly to avoid SEC disclosure of a material dispute with a major licensee, which could negatively affect investor sentiment, analyst coverage, and MeridianCode's ability to market ATLAS-RT™ to other potential licensees. This incentive to settle quietly is a valuable negotiating lever for VMS — but it evaporates upon the filing of a formal arbitration demand, which would likely trigger MeridianCode's disclosure obligations and remove MeridianCode's motivation to resolve the dispute outside of the formal process.
5. Dormancy clock still running. VMS has until August 3, 2024 — approximately ten and a half months from the date of this memorandum — before the 12-month dormancy cap under Section 9.4 triggers the mandatory renegotiation or termination mechanism. This provides a meaningful window for continued negotiations without the pressure of an imminent contractual trigger. There is no urgency to file arbitration at this time unless a specific deadline (such as the Section 4.3 deadline on December 21, 2023) necessitates action.
6. Uncertain outcome on derivative works. As discussed in Section III.B above, the Section 7.2 language favoring joint ownership of derivative works is relatively clear, and VMS's argument for sole ownership — particularly with respect to DW-001 and DW-003 — faces significant textual and evidentiary obstacles. An arbitration filing that seeks sole ownership of the derivative works and fails to achieve that result could produce an award that formally confirms MeridianCode's joint ownership and perpetual license-back rights, which would be worse for VMS than the current ambiguous status quo in which the derivative works ownership question remains unresolved and VMS retains de facto exclusive control of the modules.
C. Timing Considerations and Key Deadlines
The following deadlines are critical to VMS's strategic decision-making:
December 21, 2023 — Section 4.3 "Use-It-or-Lose-It" Deadline. This is the 18-month anniversary of the MESLSA Effective Date and the deadline by which VMS must have commenced integration testing on at least two platform configurations. If VMS's tolling argument fails and VMS has not commenced integration testing on a second platform (beyond Argonaut-A) by this date, MeridianCode could invoke Section 4.3 to restrict or terminate the license. VMS must have a tolling position firmly established before this date, whether through a negotiated amendment to the MESLSA, a mutual tolling agreement executed by both parties, or a written confirmation from MeridianCode (via Redstone Whitaker) that dormancy tolls the Section 4.3 deadline. If MeridianCode refuses to provide such confirmation or to enter into a tolling agreement, VMS should consider filing a limited declaratory arbitration demand specifically addressing the Section 4.3 tolling question before the December 21, 2023 deadline.
June 21, 2024 — 24-Month Anniversary of the MESLSA. After this date, VMS may terminate the MESLSA for convenience without triggering the fee forfeiture provision of Section 9.1. This date is critical because it represents the elimination of the single largest financial risk facing VMS — the potential loss of $12,320,000 in prepaid fees. VMS should avoid any action that could be construed as a termination for convenience before this date, including the filing of an affirmative arbitration demand that could be characterized as indicative of an intent to abandon the license.
August 3, 2024 — 12-Month Dormancy Cap Expiration. On this date, the 12-month dormancy period under Section 9.4 expires, triggering the mandatory renegotiation mechanism. The parties will have 60 days (through approximately October 2, 2024) to negotiate an amendment or restructuring of the MESLSA. If the renegotiation period expires without agreement, either party may terminate the MESLSA upon 30 days' written notice. If negotiations have not produced an amendment by this date, arbitration may become necessary as the only alternative to either party's exercise of the termination right and the resulting dispute over fee forfeiture and other consequences.
Optimal arbitration filing window (if necessary): June 21, 2024 through August 3, 2024. This window opens after the fee-forfeiture risk under Section 9.1 has lapsed and closes before the dormancy cap expires and the mandatory renegotiation/termination mechanism triggers. Filing during this window would position VMS to assert all claims affirmatively while minimizing the risk that the filing itself creates adverse consequences.
D. MeridianCode's Likely Arbitration Posture
VMS should be prepared for the possibility that MeridianCode will initiate arbitration before VMS does. The most likely trigger for a MeridianCode-initiated arbitration is VMS's continued refusal to pay the $2,400,000 Year 2 Maintenance and Support Fee. MeridianCode may file an arbitration demand seeking payment of the overdue invoice, together with interest, and may use the arbitration as a vehicle to assert additional claims and counterclaims.
MeridianCode's counsel, Redstone Whitaker LLP,

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