1007-00008 · Vantage Mobility Systems Corp · Memoranda

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PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGE / ATTORNEY WORK PRODUCT

MEMORANDUM

TO: Bernard Crawford, Responsible Partner Conrad Ashby, Billing Partner

FROM: Gabrielle Moss, Lead Associate

DATE: August 11, 2023

RE: Analysis of Meridian Code Technologies, Inc.'s August 3, 2023 Dormancy Acknowledgment — Identification of Departures from VMS Position

MATTER: Calderwood & Harkness LLP Matter No. 1007-00008

CLIENT: Vantage Mobility Systems Corp.

I. Executive Summary

This memorandum analyzes the formal acknowledgment of Dormancy Status received from Meridian Code Technologies, Inc. ("MeridianCode") dated August 3, 2023, in response to the dormancy notice issued by Vantage Mobility Systems Corp. ("VMS") on July 14, 2023. VMS's notice invoked Section 9.4 of the Master Embedded Software License and Services Agreement dated June 21, 2022 (the "MESLSA"), which governs the licensing and integration of MeridianCode's ATLAS-RT™ embedded real-time operating system into VMS's vehicle platform configurations under the initiative internally designated as "Project Argonaut."

MeridianCode's response was transmitted by letter from Priya Ramaswamy, General Counsel and Corporate Secretary of MeridianCode, addressed to Martin G. Cross, General Counsel of VMS, with a courtesy copy directed to Calderwood & Harkness LLP. The letter bears a date of August 3, 2023, and was received at our offices via electronic transmission on the same date, with hard copy following by overnight courier and received on August 4, 2023.

While MeridianCode's letter formally acknowledges that the MESLSA has entered Dormancy Status effective as of the 120-day trigger date of July 20, 2023, the response contains several material qualifications, reservations of rights, and characterizations of the parties' respective rights and obligations that depart significantly from VMS's stated position as set forth in the July 14, 2023 dormancy notice. These departures are not mere procedural formalities; they reflect a deliberate effort by MeridianCode — and, in all likelihood, by its outside counsel, Alan M. Briscoe at Redstone Whitaker LLP — to stake out aggressive positions in anticipation of the mandatory renegotiation that the MESLSA requires upon expiration of the dormancy period.

Three principal areas of divergence between MeridianCode's response and VMS's position have been identified:

(1) Year 2 Maintenance & Support Fee. MeridianCode insists that the $2,400,000 Year 2 Maintenance & Support Fee, invoiced on July 1, 2023, remains fully due and payable notwithstanding the invocation of Dormancy Status. MeridianCode characterizes this fee as a fixed annual obligation that accrued prior to the formal invocation of dormancy and is not subject to abatement or proration based on the reduced level of support actually provided during the dormancy period.

(2) Scope of Support Obligations During Dormancy. MeridianCode describes the scope of its support obligations during dormancy in terms that are materially broader than the "critical-security-patch-only level" expressly contemplated by Section 9.4 of the MESLSA. MeridianCode's characterization — which references "maintenance of license compliance infrastructure," "ongoing version compatibility monitoring," and "security vulnerability assessment and remediation" — appears calculated to preserve a factual basis for full maintenance fee recovery by constructing a record of purportedly "substantial" ongoing support.

(3) Derivative Works License-Back Rights. MeridianCode expressly reasserts and purports to expand its derivative works license-back rights under Section 7.2 of the MESLSA. The letter specifically identifies three derivative work modules — designated DW-001, DW-002, and DW-003, comprising approximately 47,000 lines of code — and characterizes them as "jointly owned" assets that MeridianCode may exploit in any field, including automotive applications. This characterization exceeds the scope of the Section 7.2 license-back provision and effectively converts a limited license-back right into an unrestricted co-ownership claim with full exploitation rights.

In addition to these three principal areas of divergence, several secondary issues have been identified that require careful attention:

• MeridianCode's interpretation of the commencement date for the 12-month dormancy cap, which MeridianCode dates from August 3, 2023 (the date of its acknowledgment) rather than from July 20, 2023 (the 120-day trigger date), thereby shifting the mandatory renegotiation/termination deadline from July 20, 2024 to August 3, 2024.

• MeridianCode's refusal to concede that dormancy tolls the Section 4.3 Use-It-or-Lose-It deadline of December 21, 2023, which requires VMS to have commenced integration testing on at least two platforms within eighteen months of the MESLSA's effective date.

• MeridianCode's express reservation of rights to initiate arbitration proceedings before the Midwest Arbitration Institute at any time for any claims arising prior to or during the dormancy period.

• MeridianCode's inclusion of a reminder regarding the Section 12.6 change-of-control consent requirement, which appears to be a prophylactic assertion potentially signaling awareness of portfolio-level activity by Kestrel Capital Partners, LP.

Recommendation: VMS should respond promptly and comprehensively to MeridianCode's August 3, 2023 acknowledgment to preserve its positions on each point of divergence and to avoid any implication of acquiescence in MeridianCode's characterizations. Total financial exposure across all issues — including the $12,320,000 in fees already paid, the $2,400,000 in disputed Year 2 maintenance fees, the remaining $5,280,000 in contractual commitments, and the $1,800,000–$2,500,000 estimated commercial value of the derivative works — warrants diligent and immediate attention to each substantive point raised in MeridianCode's letter. The recommended response actions and their respective timelines are set forth in detail in Section VI of this memorandum.

II. Background and Procedural History

A. The MESLSA and Project Argonaut

The Master Embedded Software License and Services Agreement was executed on June 21, 2022, between VMS, as licensee, and MeridianCode, as licensor. The MESLSA represents a comprehensive embedded software licensing, maintenance, and integration services transaction with a total deal value of approximately $20,000,000 over a five-year term expiring June 20, 2027. The agreement was negotiated over a period of approximately four months, with Calderwood & Harkness LLP serving as outside counsel to VMS throughout the negotiation process and Redstone Whitaker LLP representing MeridianCode.

The licensed product under the MESLSA is ATLAS-RT™, MeridianCode's proprietary embedded real-time operating system designed for safety-critical automotive applications. At the time of execution, the licensed version was ATLAS-RT Version 4.2. MeridianCode subsequently released an updated version, Version 4.2.3, on October 15, 2022, which was delivered to VMS under the maintenance provisions of the MESLSA and which forms the basis of all current integration work.

The MESLSA grants VMS a non-exclusive, non-transferable license to integrate ATLAS-RT into up to five designated vehicle platform configurations under the initiative internally known at VMS as "Project Argonaut." The five designated platforms are identified in Schedule A to the MESLSA as Argonaut-A through Argonaut-E, each corresponding to a specific vehicle model and powertrain configuration within the VMS commercial fleet product line.

The fee structure under the MESLSA is multi-component, reflecting the complexity of the licensing and integration relationship:

• Upfront License Fee: $8,000,000, payable upon execution of the MESLSA. This amount was paid in full on June 21, 2022 and is non-refundable except in circumstances of material breach by MeridianCode, subject to the fee-forfeiture provisions of Section 9.1.

• Annual Maintenance & Support Fee: $2,400,000 per year, invoiced on the anniversary of the MESLSA effective date (i.e., annually on or about June 21 of each year, though the Year 2 invoice was dated July 1, 2023). The Year 1 Maintenance & Support Fee was paid on July 15, 2022.

• Integration Services Fee: $3,200,000, payable across five milestones corresponding to the progressive stages of integration for each platform. Milestones 1 through 3 have been paid, representing $1,920,000 in aggregate. The remaining Milestones 4 and 5, totaling $1,280,000, have not yet been invoiced or paid.

• Per-Unit Runtime Royalties: $80 per unit for each vehicle incorporating the ATLAS-RT software, subject to a lifetime cap of $4,000,000 over the five-year term of the MESLSA. No runtime royalties have been invoiced to date, as no integrated vehicles have entered production.

In summary, total fees paid by VMS through the date of dormancy invocation stand at $12,320,000, broken down as follows: $8,000,000 (upfront license fee) + $2,400,000 (Year 1 Maintenance & Support) + $1,920,000 (Milestones 1–3 integration services). The remaining contractual commitment, exclusive of the disputed Year 2 Maintenance & Support Fee, consists of $1,280,000 in unpaid integration services fees and up to $4,000,000 in per-unit runtime royalties, plus additional annual maintenance fees for the remaining years of the MESLSA term.

The MESLSA is governed by the laws of the State of Michigan, without regard to conflict-of-laws principles. All disputes arising under or in connection with the MESLSA are subject to binding arbitration under the rules of the Midwest Arbitration Institute ("MAI"), seated in Detroit, Michigan. For disputes involving amounts exceeding $1,000,000, the MESLSA requires a three-arbitrator panel, with each party selecting one arbitrator and the two party-selected arbitrators jointly selecting the third. This threshold is relevant to several of the disputes identified in this memorandum.

B. Project Argonaut Rescoping

On March 14, 2023, the VMS Board of Directors adopted a resolution to rescope Project Argonaut from five vehicle platform configurations to two. Under the revised project scope, integration work would proceed on only two platforms — Argonaut-A and Argonaut-C — with the remaining three platforms (Argonaut-B, Argonaut-D, and Argonaut-E) deferred indefinitely to a contemplated but uncommitted Phase II. The Board resolution specifically noted that the deferral of the three platforms was related to the strategic decision to prioritize internal combustion engine ("ICE") platform fleet vehicles over electric vehicle ("EV") platforms, with the electrification integration work originally planned for Argonaut-D and Argonaut-E being indefinitely postponed.

The rescoping decision was driven by a confluence of factors, including: (a) persistent supply-chain delays in the procurement of specialized semiconductor components required for the ATLAS-RT integration, which had resulted in cumulative schedule slippage of approximately eight weeks across all active platforms; (b) a portfolio-wide capital expenditure reduction directive issued by Kestrel Capital Partners, LP ("Ashgrove Equity Partners"), the private equity sponsor of VMS, in response to macroeconomic conditions and rising interest rates affecting the broader Ashgrove Equity Partners fund portfolio; and (c) VMS management's independent strategic assessment that the near-term revenue opportunity in ICE-platform commercial fleet vehicles outweighed the long-term positioning benefit of the EV-platform integration.

At the time of the rescoping decision, the integration status across the five platforms was as follows:

• Argonaut-A: Milestone 3 of 5 completed. Alpha integration testing was passed on February 28, 2023. This platform was the most advanced of the five and represents the primary commercial integration target.

• Argonaut-C: Milestone 2 of 5 completed. Source-code customization was delivered by MeridianCode on January 15, 2023. However, formal integration testing had not yet commenced on this platform at the time of the rescoping decision.

• Argonaut-B: Milestone 1 only completed. Preliminary architecture review and interface specification had been completed, but no code integration work had commenced.

• Argonaut-D: Not commenced. This platform was designated for the EV powertrain integration and was contingent on the completion of Argonaut-A and Argonaut-B.

• Argonaut-E: Not commenced. This platform was also designated for EV integration and was the lowest priority in the original project schedule.

VMS's internal engineering investment in Project Argonaut through the date of integration suspension was substantial, totaling approximately 14,200 engineering hours across the VMS Software Integration Engineering team led by Lena Petrova, Director of Software Integration Engineering. These hours were distributed primarily across Argonaut-A (approximately 8,400 hours) and Argonaut-C (approximately 4,100 hours), with the remaining hours allocated to Argonaut-B preliminary work and cross-platform architecture planning.

Following the Board's rescoping resolution, VMS management issued an internal directive to suspend all active integration work on Project Argonaut effective March 22, 2023. No integration work has been performed on any platform since that date. MeridianCode was not formally notified of the suspension on March 22, 2023; rather, MeridianCode became aware of the suspension through the cessation of engineering activity and the absence of milestone deliverables. The formal dormancy notice was not issued until July 14, 2023, as discussed in the following subsection.

C. VMS Dormancy Notice and Timing

The timing of VMS's dormancy notice is a critical element of the procedural history and warrants detailed examination.

Section 9.4 of the MESLSA provides, in relevant part, that if the licensee suspends active integration work for more than 120 consecutive days without providing written notice to the licensor invoking Dormancy Status, the licensor may unilaterally convert the license to Dormancy Status and impose certain conditions on reactivation. This provision was negotiated to provide VMS with a right, but not an obligation, to invoke Dormancy Status proactively before the 120-day window closes, thereby retaining control over the terms of dormancy rather than ceding that control to MeridianCode.

The relevant dates are as follows:

• March 22, 2023: VMS suspends all active integration work on Project Argonaut. This date represents the commencement of the consecutive-day count under Section 9.4.

• July 20, 2023: The 120th consecutive day following March 22, 2023. This is the date on which MeridianCode's unilateral conversion right would have become exercisable under Section 9.4, absent a prior written notice from VMS.

• July 14, 2023: VMS issues its dormancy notice — six calendar days before the 120-day trigger date. The notice was transmitted by letter from Martin G. Cross, General Counsel of VMS, to Priya Ramaswamy, General Counsel and Corporate Secretary of MeridianCode. The letter was prepared by Calderwood & Harkness LLP and was sent via both electronic transmission and overnight courier. The notice affirmatively invoked Dormancy Status under Section 9.4, asserted that all milestone deadlines under the MESLSA are tolled during the dormancy period, and disputed the Year 2 Maintenance & Support Fee invoiced on July 1, 2023.

• August 3, 2023: MeridianCode issues its acknowledgment of Dormancy Status. This letter, authored by Priya Ramaswamy and bearing the stylistic hallmarks of Redstone Whitaker draftsmanship, was received by VMS and Calderwood & Harkness LLP on August 3, 2023. The acknowledgment was transmitted 14 calendar days after the Section 9.4 trigger date of July 20, 2023 — and 20 calendar days after VMS's July 14, 2023 notice.

Two observations regarding timing merit emphasis. First, VMS's notice was timely, a point that MeridianCode expressly concedes in its August 3, 2023 acknowledgment. This concession eliminates any argument that MeridianCode possesses a unilateral conversion right or that the terms of dormancy should be determined by MeridianCode rather than by the mutual provisions of Section 9.4 applicable when the licensee proactively invokes dormancy. Second, the 20-day gap between VMS's notice and MeridianCode's response is consistent with a period of internal review and outside counsel involvement; the qualifications and reservations contained in the response suggest that the letter underwent careful legal review before transmission.

III. Summary of MeridianCode's August 3, 2023 Acknowledgment

This section provides a detailed summary of the substance of MeridianCode's August 3, 2023 acknowledgment letter, organized by subject matter. The analysis of each issue — including identification of departures from VMS's position, risk assessment, and recommended responses — is set forth in Section IV below.

A. Acknowledgment of Dormancy Status

MeridianCode's letter formally acknowledges that the MESLSA has entered Dormancy Status as of August 3, 2023, with such status deemed effective as of the 120-day trigger date of July 20, 2023. MeridianCode's letter states, in relevant part, that "MeridianCode acknowledges that the conditions for Dormancy Status under Section 9.4 of the Agreement have been satisfied and that the Agreement is, as of the Effective Date of Dormancy identified herein, in Dormancy Status."

The letter further notes that VMS's July 14, 2023 notice was timely submitted prior to the expiration of the 120-day period specified in Section 9.4. This is a significant and favorable concession. By acknowledging the timeliness and validity of VMS's dormancy invocation, MeridianCode has effectively waived any argument that VMS failed to comply with the procedural requirements of Section 9.4 or that MeridianCode retains a unilateral conversion right. There is no dispute between the parties regarding the validity of the dormancy invocation itself, and this point should be treated as settled for purposes of all subsequent discussions and, if necessary, arbitration proceedings.

MeridianCode identifies the commencement of the 12-month dormancy cap under Section 9.4 as running from August 3, 2023 — the date of its acknowledgment — rather than from July 20, 2023, the 120-day trigger date. This characterization positions the mandatory renegotiation or termination deadline at August 3, 2024, rather than July 20, 2024. The implications of this 14-day discrepancy are analyzed in Section IV.E below.

B. Reservations of Rights and Qualifications

MeridianCode's letter contains a broad and sweeping reservation of rights. The letter expressly states that MeridianCode "reserves all rights, remedies, claims, and defenses under the Agreement, at law, and in equity, that are not specifically addressed in this letter, and that nothing in this letter shall be construed as a waiver, release, or relinquishment of any such rights, remedies, claims, or defenses." This language is essentially boilerplate, but its breadth is notable and serves to preserve MeridianCode's ability to assert positions on issues not directly addressed in the acknowledgment.

More specifically, MeridianCode states that its acknowledgment of Dormancy Status "does not constitute, and shall not be construed as, a waiver of any claims MeridianCode may have against VMS, including without limitation claims for unpaid fees, damages arising from the suspension of integration work, or any other claims arising under or in connection with the Agreement." This language is particularly significant in that it expressly preserves claims for "damages arising from the suspension of integration work" — a category of claims that VMS has not previously contemplated MeridianCode asserting. While no specific claim is articulated, the reservation should be noted as a potential future point of contention.

MeridianCode further reserves the right to initiate arbitration proceedings before the Midwest Arbitration Institute "at any time, without further notice, for any claims arising prior to or during the Dormancy Status period." This reservation is consistent with the arbitration clause in the MESLSA, but its express inclusion in the acknowledgment letter underscores MeridianCode's posture of preserving maximum optionality.

C. Year 2 Maintenance & Support Fee Position

MeridianCode's letter devotes substantial attention to the $2,400,000 Year 2 Maintenance & Support Fee invoiced on July 1, 2023. MeridianCode asserts unequivocally that this fee is "fully due and payable in accordance with the terms of the Agreement" and was "not affected or abated by the subsequent invocation of Dormancy Status."

MeridianCode advances several arguments in support of this position. First, MeridianCode emphasizes the chronological sequencing: the invoice was issued on July 1, 2023, whereas VMS's dormancy notice was not sent until July 14, 2023, and the 120-day trigger date did not occur until July 20, 2023. MeridianCode argues that the maintenance fee obligation accrued upon the annual anniversary of the MESLSA, which occurred on or about June 21, 2023, and that the invoicing on July 1, 2023 merely reflected an obligation that had already crystallized. According to MeridianCode, the subsequent invocation of dormancy cannot retroactively negate a fee obligation that had already vested.

Second, MeridianCode characterizes the maintenance fee as a "fixed annual obligation" under the MESLSA, distinguishable from a fee-for-services-rendered that fluctuates with the level of support actually provided. MeridianCode's letter states that "the Annual Maintenance & Support Fee is a fixed contractual obligation payable in full upon the annual anniversary of the Agreement, independent of the level of maintenance or support services actually utilized or requested by the Licensee in any given period."

Third, MeridianCode demands payment of the full $2,400,000 within 30 calendar days of the date of the acknowledgment letter (i.e., by September 2, 2023) and expressly reserves its rights to pursue all contractual remedies for nonpayment, including interest on overdue amounts at the rate specified in Section 8.5 of the MESLSA (which provides for interest at the lesser of 1.5% per month or the maximum rate permitted by applicable law).

D. Scope of Support During Dormancy

Section 9.4 of the MESLSA provides that during Dormancy Status, MeridianCode's support obligations are reduced to a "critical-security-patch-only level." VMS's July 14, 2023 dormancy notice expressly referenced this provision and stated VMS's understanding that dormancy support is strictly limited to the issuance of critical security patches applicable to the ATLAS-RT codebase then in use.

MeridianCode's August 3, 2023 acknowledgment describes its intended support scope during dormancy in terms that are materially broader than the critical-security-patch-only formulation. The letter states that during dormancy, MeridianCode "will continue to provide the following support services in furtherance of its ongoing obligations under the Agreement":

(a) "Maintenance of license compliance infrastructure, including monitoring of license utilization parameters and ensuring continued integrity of the license management system";

(b) "Ongoing version compatibility monitoring, including assessment of compatibility between the Licensed Software version currently deployed by VMS (Version 4.2.3) and any subsequent releases of the ATLAS-RT platform";

(c) "Security vulnerability assessment and remediation, including proactive identification of vulnerabilities in the Licensed Software, assessment of severity and impact, and development and delivery of remediation measures."

Each of these categories describes a scope of activity that extends well beyond the issuance of critical security patches. "Maintenance of license compliance infrastructure" and "ongoing version compatibility monitoring" are functions that are typically associated with full-scope maintenance and support arrangements, not with the stripped-down, patch-only support contemplated by Section 9.4 during dormancy. Similarly, "security vulnerability assessment and remediation" encompasses proactive vulnerability identification and impact assessment activities that go beyond the mere delivery of patches for critical, already-identified security vulnerabilities.

MeridianCode appears to be constructing a contemporaneous record that it continues to provide substantial, ongoing support services during the dormancy period. If left unchallenged, this characterization could serve multiple strategic purposes for MeridianCode: it supports the argument that the full Year 2 Maintenance & Support Fee remains justified because MeridianCode continues to deliver material value; it positions MeridianCode to argue that VMS benefited from significant ongoing services during dormancy, undermining any fee-abatement claim; and it could be cited in future arbitration proceedings as evidence of MeridianCode's good-faith performance of its obligations, potentially influencing an arbitral panel's equitable assessment of the parties' respective positions.

E. Derivative Works License-Back Assertion

MeridianCode's August 3, 2023 acknowledgment devotes a full section to the reassertion and purported expansion of its derivative works license-back rights under Section 7.2 of the MESLSA. This section of MeridianCode's letter is, in our assessment, the most concerning element of the response and warrants immediate and forceful pushback.

MeridianCode expressly reasserts its rights under Section 7.2 to "a perpetual, royalty-free, irrevocable, worldwide license to all derivative works created by or on behalf of VMS during the integration process." The letter specifically identifies three derivative work modules — DW-001, DW-002, and DW-003 — as falling within the scope of Section 7.2's license-back provision. According to MeridianCode, these three modules comprise "approximately 47,000 lines of code developed in connection with the integration of ATLAS-RT into the Licensee's designated platforms."

MeridianCode further states that dormancy "does not affect, diminish, or suspend MeridianCode's license-back rights under Section 7.2" and that "these rights survive any termination, expiration, or other conclusion of the Agreement, regardless of the reason for such termination or expiration."

Of particular concern, MeridianCode's letter goes significantly beyond the license-back language of Section 7.2 by characterizing the derivative works as "jointly owned" assets. The letter states that "the derivative works identified herein are jointly owned by MeridianCode and VMS, and MeridianCode retains the right to exploit such jointly owned works in any field of use, including without limitation the automotive field, without restriction and without the obligation to account to VMS for any revenues or other benefits derived from such exploitation." This language represents a material escalation from the Section 7.2 license-back concept — which grants MeridianCode a license to use derivative works — into a co-ownership claim with unrestricted exploitation rights, effectively giving MeridianCode the ability to use VMS-developed code in competing products without compensation or even notification.

Notably, MeridianCode's letter does not acknowledge, address, or respond to VMS's position as stated in the July 14, 2023 dormancy notice. VMS's dormancy notice expressly stated that "VMS considers DW-001, DW-002, and DW-003 to be solely VMS-originated works, created by VMS personnel using VMS resources, and owned exclusively by VMS" and that "the derivative works license-back provisions of Section 7.2 do not apply to independently originated code that merely interfaces with the ATLAS-RT platform." MeridianCode's silence on VMS's position — and its simultaneous assertion of an even more expansive claim (joint ownership rather than mere license-back) — suggests a deliberate choice to ignore VMS's framing and to establish its own, more aggressive characterization as the starting point for any future negotiation or arbitration.

F. Section 4.3 Use-It-or-Lose-It Clause

MeridianCode's letter addresses the Section 4.3 Use-It-or-Lose-It provision in qualified and ambiguous terms that preserve maximum flexibility for MeridianCode while leaving VMS exposed to potential non-compliance claims.

Section 4.3 of the MESLSA requires that VMS "commence integration testing on at least two (2) Designated Platforms" within eighteen months of the MESLSA's effective date. The MESLSA was executed on June 21, 2022, which places the Section 4.3 deadline at December 21, 2023 — approximately four months and ten days from the date of this memorandum. If VMS fails to satisfy this requirement, Section 4.3 provides that the number of platforms covered by the license is automatically reduced to the number of platforms on which integration testing has been commenced, with a corresponding adjustment (or forfeiture) of unused platform allocations.

MeridianCode's letter does not explicitly concede that dormancy tolls the Section 4.3 deadline. Rather, MeridianCode states that it "reserves all rights with respect to VMS's compliance with Section 4.3 of the Agreement" and that MeridianCode "will assess the Licensee's compliance posture upon reactivation of the Agreement or at the expiration of the Dormancy Status period, as applicable." This language is carefully crafted to avoid committing MeridianCode to any position on tolling while preserving the option to argue, at a later date, that the Section 4.3 deadline continued to run during dormancy and that VMS is non-compliant.

The significance of this ambiguity cannot be overstated. If MeridianCode ultimately contends that the Section 4.3 deadline is not tolled by dormancy, VMS would need to demonstrate compliance by December 21, 2023 — a date by which VMS will have been in dormancy for approximately five months and during which no integration work is being performed. The consequences of non-compliance under Section 4.3 could include the automatic reduction of VMS's license scope, potentially to a single platform (Argonaut-A only), with the loss of the Argonaut-C platform allocation and any associated investment.

VMS's current compliance status under Section 4.3, even if the deadline is not tolled, is itself a substantive interpretive question. Argonaut-A has passed alpha integration testing as of February 28, 2023 (Milestone 3), which clearly constitutes "commencement" of integration testing on that platform. Argonaut-C has completed source-code customization as of January 15, 2023 (Milestone 2), but has not commenced formal integration testing as that term is commonly understood in the software integration context. Whether the delivery of customized source code and the completion of Milestone 2 constitutes "commencement of integration testing" within the meaning of Section 4.3 is debatable and would likely depend on the specific definitions and milestone descriptions set forth in Schedule B to the MESLSA, as well as industry custom and practice.

G. 12-Month Dormancy Cap and Mandatory Renegotiation

As noted in Section III.A above, MeridianCode dates the commencement of the 12-month dormancy cap from August 3, 2023 — the date of its acknowledgment — rather than from July 20, 2023 — the 120-day trigger date specified in Section 9.4. This positions the mandatory renegotiation/termination deadline at August 3, 2024, rather than July 20, 2024.

MeridianCode's letter states that "upon expiration of the twelve-month Dormancy Status period on August 3, 2024, the parties shall enter mandatory renegotiation of the Agreement in accordance with Section 9.4(c)." The letter further states that "if the parties are unable to reach agreement on revised terms within sixty (60) days following the expiration of the Dormancy Status period, MeridianCode reserves the right to terminate the Agreement in accordance with Section 9.4(d), subject to the fee and termination provisions of the Agreement." This characterization is generally consistent with the structure of Section 9.4, though MeridianCode's emphasis on its termination right (rather than the mutual termination right that Section 9.4(d) arguably contemplates) is notable.

The 14-day discrepancy between MeridianCode's commencement date (August 3, 2023) and VMS's potential commencement date (July 20, 2023) has strategic implications that are analyzed in Section IV.E below.

H. Change of Control Provision

MeridianCode's letter includes a brief but pointed paragraph reminding VMS that Section 12.6 of the MESLSA requires MeridianCode's prior written consent for any assignment of VMS's rights or obligations under the MESLSA in connection with a change of control of VMS, and that "the existence of Dormancy Status does not modify, limit, or waive the requirements of Section 12.6."

This provision appears to be a prophylactic assertion that may not be directly responsive to any specific factual development. However, its inclusion in the acknowledgment letter is noteworthy and may signal MeridianCode's awareness of — or concern about — potential portfolio-level activity by Kestrel Capital Partners, LP, VMS's private equity sponsor. Ashgrove Equity Partners's portfolio-wide capital expenditure reduction directive was a contributing factor to the Project Argonaut rescoping, and it is possible that MeridianCode has information or suspicions regarding Ashgrove Equity Partners's interest in exiting its VMS investment, restructuring the VMS portfolio company, or otherwise undertaking a transaction that could implicate the Section 12.6 consent requirement. We recommend advising VMS management to treat this reminder as a signal that MeridianCode is monitoring VMS's corporate structure and ownership and to be mindful of the consent requirement in any discussions with Ashgrove Equity Partners regarding potential transactions.

IV. Detailed Analysis of Departures from VMS Position

This section provides a detailed analytical framework for each of the principal and secondary issues identified in MeridianCode's August 3, 2023 acknowledgment, comparing VMS's position with MeridianCode's position, assessing the relative strengths and weaknesses of each position, and providing preliminary recommendations.

A. Year 2 Maintenance Fee: VMS Position vs. MeridianCode Position

VMS Position (per July 14, 2023 dormancy notice): The $2,400,000 Year 2 Maintenance & Support Fee should be abated or prorated during dormancy because Section 9.4 reduces MeridianCode's support obligation to a critical-security-patch-only level. VMS's position is that it should not be required to pay the full maintenance fee — which was negotiated as consideration for a full suite of maintenance and support services including technical support, bug fixes, compatibility updates, documentation updates, and version upgrades — when MeridianCode's obligation is reduced by contract to a single, narrow category of service (critical security patches only). VMS's dormancy notice asserted that the maintenance fee should be prorated to reflect the reduced scope of services, with VMS proposing a pro rata reduction based on the portion of the year during which full services were available (approximately 10 days out of the annual period, from July 1, 2023 through July 10, 2023, the last date on which full services could reasonably be said to have been in effect).

MeridianCode Position (per August 3, 2023 acknowledgment): The fee is a fixed annual obligation that accrued before dormancy was invoked. The invoice was issued July 1, 2023, a full 13 days before VMS's dormancy notice and 19 days before the 120-day trigger date. MeridianCode characterizes the maintenance fee as independent of the level of support actually provided, analogous to a standing-charge or retainer-type fee that is payable regardless of utilization. Payment is demanded within 30 days, with interest at 1.5% per month for overdue amounts.

Analysis: MeridianCode's timing argument has some surface appeal. The invoice was issued before dormancy was formally invoked, and there is a reasonable argument that a fee obligation that has already accrued cannot be retroactively modified by a subsequent change in the parties' relationship. However, this argument is subject to several significant counterpoints.

First, VMS can argue that the substance of the dormancy relationship was already in effect well before the formal notice. Integration work was suspended on March 22, 2023 — more than three months before the invoice was issued. By July 1, 2023, VMS had been receiving no integration-related services for over 100 days, and MeridianCode's support activities had presumably been declining in parallel with the cessation of integration work. The formal invocation of dormancy merely ratified a de facto state of affairs that had existed for months.

Second, Section 9.4's reduction of support obligations to critical-security-patch-only level represents a contractual acknowledgment that the value of MeridianCode's services during dormancy is substantially less than the value of full maintenance and support. If the maintenance fee is properly characterized as consideration for defined support services — as VMS contends — then a reduction in the scope of services should logically warrant a corresponding reduction in the consideration owed. The alternative characterization — that the fee is a fixed obligation independent of service levels — effectively decouples price from value in a manner that may not be supportable under the MESLSA's overall fee architecture, which is structured around identified deliverables and service categories.

Third, MeridianCode's own expansion of the dormancy support scope (discussed in Section III.D and analyzed in Section IV.B below) arguably cuts against its fixed-fee characterization. If MeridianCode genuinely believed that the maintenance fee is a fixed, service-independent obligation, it would have no need to characterize its dormancy support activities in expansive terms; the fee would be payable regardless. The fact that MeridianCode devotes significant attention to describing its ongoing support activities during dormancy suggests an awareness that the fixed-fee argument may be vulnerable and that MeridianCode may need to demonstrate ongoing value delivery to justify the full fee claim.

Risk Assessment: MeridianCode has a colorable argument that the fee is a fixed obligation. If this dispute proceeds to arbitration, the outcome is uncertain. The total amount in dispute — $2,400,000 — exceeds the $1,000,000 threshold for a three-arbitrator panel under MAI rules, which would make any arbitration more procedurally complex, time-consuming, and expensive. A three-arbitrator panel in a dispute of this magnitude could reasonably be expected to cost each party $200,000–$400,000 in arbitration fees and expenses alone, exclusive of legal fees. The arbitration timeline under MAI rules for a three-panel proceeding is typically 12–18 months from initiation to award.

Cross-Reference: A separate Calderwood & Harkness memorandum analyzing the Year 2 Maintenance & Support Fee obligation during dormancy is being prepared concurrently by Gabrielle Moss and will address the contractual interpretation, industry practice, and equitable considerations in greater detail.

B. Dormancy Support Scope: Narrow vs. Broad Characterization

VMS Position: Section 9.4 limits dormancy support to a "critical-security-patch-only level." This language is clear and unambiguous. During dormancy, MeridianCode's sole obligation is to issue critical security patches applicable to the ATLAS-RT codebase currently deployed by VMS (Version 4.2.3). MeridianCode is not obligated — and VMS has not requested and does not desire — broader support activities such as license compliance monitoring, version compatibility assessment, or proactive vulnerability identification. VMS's understanding of "critical-security-patch-only" is that it encompasses the delivery of patches for identified, critical-severity security vulnerabilities in the ATLAS-RT software, and nothing more.

MeridianCode Position: As described in Section III.D above, MeridianCode characterizes its dormancy support scope to include three categories of activities that extend beyond the critical-security-patch-only formulation: (a) maintenance of license compliance infrastructure; (b) ongoing version compatibility monitoring; and (c) security vulnerability assessment and remediation.

Analysis: MeridianCode's characterization appears designed to serve two interrelated purposes. First, it creates a factual record of ongoing "substantial" support activity during dormancy, which could be cited in arbitration as evidence that MeridianCode continued to deliver significant value to VMS even during the dormancy period, thereby justifying the full maintenance fee. Second, it establishes a basis for MeridianCode to argue that VMS accepted and benefited from a broader scope of dormancy support than the contractual minimum, potentially giving rise to an implied-in-fact or quasi-contractual obligation to pay for such services.

The danger for VMS is one of acquiescence. If VMS fails to object to MeridianCode's expansive characterization of dormancy support, MeridianCode could argue in future proceedings that VMS's silence constituted acceptance of the broader support scope. Under Michigan contract law, a party's failure to object to the other party's characterization of their contractual relationship may, in certain circumstances, be construed as an admission or acquiescence, particularly where the non-objecting party had knowledge of the characterization and an opportunity to dispute it. See Michigan National Bank v. Diversified Investments Corp., 189 Mich. App. 476 (1991) (discussing acquiescence in the context of course-of-dealing interpretation).

Recommendation: VMS should respond promptly and unequivocally to reject MeridianCode's expansive characterization of dormancy support. The response should: (a) reaffirm that Section 9.4 limits dormancy support to critical-security-patch-only; (b) state that VMS does not request, authorize, or accept any support services beyond critical security patches during the dormancy period; (c) state that VMS does not acknowledge or agree that any support services other than critical security patches are being or will be provided during dormancy; and (d) state that VMS's position on the Year 2 Maintenance & Support Fee is not affected by MeridianCode's unilateral characterization of its dormancy activities. This response should be transmitted within ten business days to minimize any acquiescence risk.

C. Derivative Works: Joint Ownership vs. Sole VMS Ownership

VMS Position: Derivative work modules DW-001, DW-002, and DW-003 are solely VMS-originated works, created by VMS engineers under the direction of Lena Petrova, Director of Software Integration Engineering, using VMS resources and representing approximately 14,200 engineering hours of VMS investment. These modules should be owned exclusively by VMS. VMS's July 14, 2023 dormancy notice stated that "the derivative works license-back provisions of Section 7.2 do not apply to independently originated code that merely interfaces with the ATLAS-RT platform" and that VMS "reserves all ownership rights" in DW-001, DW-002, and DW-003.

VMS's position rests on the distinction between code that is truly "derived from" the ATLAS-RT source code — i.e., code that incorporates, modifies, adapts, or extends ATLAS-RT source code in a manner that renders it a derivative work within the meaning of Section 7.2 and applicable copyright law — and code that is independently developed by VMS and merely designed to interface with or operate alongside the ATLAS-RT platform. If the 47,000 lines of code in DW-001, DW-002, and DW-003 fall into the latter category, Section 7.2 should not apply, and VMS should retain full ownership without any license-back obligation.

MeridianCode Position: Section 7.2 provides for joint ownership of "all derivative works created during integration," and MeridianCode retains a perpetual, royalty-free license to such works. MeridianCode specifically identifies DW-001, DW-002, and DW-003 as falling within the scope of Section 7.2 and characterizes them as "jointly owned" assets that MeridianCode may exploit "in any field of use, including without limitation the automotive field, without restriction and without the obligation to account to VMS for any revenues or other benefits derived from such exploitation."

Analysis: The resolution of this issue depends on two distinct but interrelated inquiries: (1) the proper interpretation of Section 7.2's definition of "derivative works" and (2) the factual question of whether the code in DW-001, DW-002, and DW-003 constitutes a derivative work of ATLAS-RT or independently originated code.

On the interpretive question, Section 7.2 defines "derivative works" as "any modifications, adaptations, or extensions to the ATLAS-RT source code created by or on behalf of the Licensee during the integration process." The key interpretive question is whether the 47,000 lines of code in DW-001, DW-002, and DW-003 constitute "modifications, adaptations, or extensions to ATLAS-RT source code" — which would bring them within Section 7.2 — or whether they are independently developed VMS code that happens to interface with ATLAS-RT but does not modify, adapt, or extend the ATLAS-RT source code itself. The preposition "to" in the phrase "modifications, adaptations, or extensions to ATLAS-RT source code" is critical: it suggests that the derivative works provision applies only to code that acts upon or is built upon the ATLAS-RT source code, not to code that operates alongside or in conjunction with it.

On the factual question, the nature of the code in DW-001, DW-002, and DW-003 must be assessed by reference to the actual source code, the development process, and the relationship between the VMS-developed modules and the ATLAS-RT codebase. This is precisely the kind of technical assessment that Hargrove Technical Consulting, LLC has been retained to provide. Dr. Samuel Beecroft, the principal consultant at Hargrove, is conducting an independent technical analysis of the derivative works, including: (a) an examination of the source code in each module to determine the degree to which it incorporates, modifies, or extends ATLAS-RT source code versus independently developed VMS logic; (b) an assessment of the functional relationship between each module and the ATLAS-RT platform; and (c) an estimate of the commercial value of each module, both as a standalone component and as an integrated element of the ATLAS-RT ecosystem. Dr. Beecroft's preliminary assessment estimates the commercial value of the three modules at $1,800,000–$2,500,000.

MeridianCode's characterization of the derivative works as "jointly owned" assets with unrestricted exploitation rights goes beyond the language of Section 7.2, which provides for a "perpetual, royalty-free license" rather than joint ownership. A license and joint ownership are legally distinct concepts. A license grants the licensee the right to use the licensed property but does not convey an ownership interest; joint ownership, by contrast, confers co-equal ownership rights, including the right to license, assign, and otherwise exploit the jointly owned property. Under Michigan law and the Copyright Act, 17 U.S.C. § 101 et seq., a joint work is a work "prepared by two or more authors with the intention that their contributions be merged into inseparable or interdependent parts of a unitary whole." Whether the 47,000 lines of code in DW-001 through DW-003 constitute a "joint work" jointly authored by VMS and MeridianCode is a separate and distinct question from whether those lines of code constitute "derivative works" within the meaning of Section 7.2. MeridianCode's conflation of these two concepts in its August 3, 2023 letter should be challenged directly.

Cross-Reference: A separate Calderwood & Harkness memorandum analyzing derivative works ownership under Section 7.2 and Michigan IP law is being prepared concurrently by Gabrielle Moss and Aaron Liu.

D. Section 4.3 Use-It-or-Lose-It Tolling

VMS Position: Dormancy under Section 9.4 tolls all milestone deadlines under the MESLSA, which should logically include the Section 4.3 Use-It-or-Lose-It deadline of December 21, 2023. VMS's July 14, 2023 dormancy notice expressly asserted that "all milestone deadlines under the Agreement are tolled during the Dormancy Status period." VMS's position is grounded in the text of Section 9.4, which states that dormancy has the effect of "tolling all milestone deadlines under this Agreement for the duration of the Dormancy Status period."

MeridianCode Position: MeridianCode reserves all rights regarding Section 4.3 compliance and will "assess the licensee's compliance posture upon reactivation or at the expiration of the dormancy period." MeridianCode does not concede that dormancy tolls the Section 4.3 deadline.

Analysis: The strongest VMS argument is textual. Section 9.4 expressly tolls "all milestone deadlines," and the Section 4.3 Use-It-or-Lose-It requirement is functionally a milestone deadline — it imposes a time-limited performance obligation that, if not satisfied, triggers consequences (scope reduction). The use of the word "all" in Section 9.4 is expansive and should encompass any deadline that functions as a milestone, regardless of where in the MESLSA it appears.

However, MeridianCode could advance a counter-argument that Section 4.3 is a separate license-scope provision, not a "milestone" within the meaning of the integration services framework. The MESLSA uses the term "milestone" primarily in the context of the five integration services milestones described in Schedule B (Milestones 1 through 5 for each platform). MeridianCode could argue that "milestone deadlines" as used in Section 9.4 refers specifically to these integration services milestones — which are explicitly described as "milestones" throughout the MESLSA — and not to the Section 4.3 deadline, which is characterized in the MESLSA as a "license condition" rather than a "milestone." This interpretive argument has some textual basis, though it is narrower than the plain meaning of "all milestone deadlines" would suggest.

This interpretive dispute is significant because of the timing. The Section 4.3 deadline is December 21, 2023 — just over four months from the date of this memorandum and well within the dormancy period. If the deadline is not tolled, VMS must demonstrate compliance while integration is dormant, which is practically impossible given that no integration work is being performed. The consequences of non-compliance are severe: automatic reduction of the license scope to the number of platforms on which integration testing has been commenced.

Even if the Section 4.3 deadline is not tolled, the question of VMS's current compliance status is itself debatable. Argonaut-A clearly satisfies the requirement, as alpha integration testing was passed on February 28, 2023 (Milestone 3). The question is whether Argonaut-C's current status — completion of source-code customization (Milestone 2) on January 15, 2023, without formal commencement of integration testing — satisfies the Section 4.3 requirement that VMS "commence integration testing" on at least two platforms. The term "integration testing" is not independently defined in the MESLSA, and its meaning in context may be informed by the milestone descriptions in Schedule B, industry custom and practice, and the parties' course of dealing. If "integration testing" requires something more than source-code customization — e.g., the commencement of Milestone 3 (alpha integration testing) — then Argonaut-C does not currently satisfy the requirement, and VMS would be at risk of non-compliance even under the most favorable interpretation.

Recommendation: This is a high-priority issue requiring separate, detailed analysis. If the tolling argument fails, VMS's fallback position must be that Argonaut-C's current status satisfies Section 4.3, which will require both a legal analysis of the contractual language and a technical analysis of the integration process. A cross-reference to the separate Use-It-or-Lose-It compliance memorandum, currently in preparation, is noted here.

E. Dormancy Cap Commencement Date

Analysis: MeridianCode dates the commencement of the 12-month dormancy cap from August 3, 2023 (the date of its acknowledgment), which positions the mandatory renegotiation/termination deadline at August 3, 2024. VMS could argue that the dormancy cap should run from July 20, 2023 (the 120-day trigger date), which would position the mandatory renegotiation/termination deadline at July 20, 2024.

The 14-day difference between these two dates has strategic significance primarily in relation to the June 21, 2024 date — the 24-month anniversary of the MESLSA. Under Section 9.1, VMS forfeits all prepaid fees ($12,320,000) if it terminates for convenience before the 24-month anniversary. After June 21, 2024, this fee-forfeiture provision no longer applies, and VMS can terminate without forfeiting prepaid fees (subject to other termination provisions).

Under either interpretation of the dormancy cap commencement date, the mandatory renegotiation/termination deadline falls after June 21, 2024:

• If dormancy cap runs from July 20, 2023 (trigger date): mandatory renegotiation/termination deadline is July 20, 2024 — 29 days after the June 21, 2024 fee-forfeiture cutoff.

• If dormancy cap runs from August 3, 2023 (acknowledgment date): mandatory renegotiation/termination deadline is August 3, 2024 — 43 days after the June 21, 2024 fee-forfeiture cutoff.

Under either scenario, VMS will have passed the fee-forfeiture cutoff before the mandatory renegotiation/termination deadline arrives. This means that the precise commencement date of the dormancy cap is not dispositive of the fee-forfeiture question, and VMS's position is protected under either interpretation.

From a pure timing perspective, VMS may actually benefit from MeridianCode's later commencement date. The later date provides VMS with an additional 14 days of dormancy protection — 14 additional days before the mandatory renegotiation/termination deadline — and positions the mandatory renegotiation period (60 days following expiration of dormancy) to begin on August 3, 2024 rather than July 20, 2024. This additional time could be strategically valuable in the event that renegotiation discussions prove contentious or require extended deliberation.

Recommendation: VMS should not contest MeridianCode's later commencement date. The August 3, 2023 commencement date is more favorable to VMS than the July 20, 2023 alternative, and challenging this point would gain nothing while potentially prompting MeridianCode to reconsider and assert the earlier date. VMS should note the discrepancy internally for tracking purposes but should not raise it in its response.

V. Strategic Implications and Interdependencies

The issues identified in MeridianCode's August 3, 2023 acknowledgment do not exist in isolation. Each interacts with and is affected by broader strategic considerations relating to VMS's financial position, its obligations to third parties, and its private equity sponsor's investment horizon. This section addresses the principal interdependencies.

A. Interaction with Fee Forfeiture Analysis

The dormancy strategy must be understood in the context of the fee-forfeiture risk under Section 9.1 of the MESLSA. Under Section 9.1, if VMS terminates the MESLSA for convenience before the 24-month anniversary of the MESLSA's effective date (i.e., before June 21, 2024), VMS forfeits all prepaid fees. As of the date of this memorandum, VMS has paid $12,320,000 in aggregate fees under the MESLSA. The forfeiture of this amount would represent a material loss to VMS and a significant write-down for Ashgrove Equity Partners's investment.

The dormancy strategy was designed, in part, to navigate this fee-forfeiture risk. By invoking Dormancy Status rather than terminating for convenience, VMS preserves the MESLSA as a live agreement, avoids triggering the fee-forfeiture provision, and allows time to pass until the 24-month anniversary. Both interpretations of the dormancy cap commencement date — August 3, 2023 (MeridianCode's date) and July 20, 2023 (trigger date) — result in a mandatory renegotiation/termination deadline that falls after June 21, 2024. This means VMS can maintain dormancy through the fee-forfeiture cutoff and then choose among several strategic options:

(a) Reactivation: Resume integration work under the MESLSA, potentially with a reduced platform scope and renegotiated fee structure.

(b) Negotiated Termination: Negotiate a mutual termination of the MESLSA with MeridianCode, potentially including fee credits, milestone payment adjustments, and resolution of the derivative works dispute.

(c) Mandatory Renegotiation: Allow the dormancy cap to expire and enter the mandatory renegotiation period under Section 9.4(c), using the renegotiation process to restructure the agreement terms.

(d) Termination Post-Cutoff: If renegotiation fails and MeridianCode exercises its termination right under Section 9.4(d), VMS would exit the agreement without fee forfeiture (the 24-month anniversary having already passed).

Each of these options is available to VMS without risking forfeiture of the $12,320,000 already paid, provided that VMS does not take any action before June 21, 2024 that could be construed as a termination for convenience.

B. Credit Facility Considerations

VMS notified Pinnacle National Bank, N.A. ("Pinnacle") of the invocation of Dormancy Status on August 10, 2023, in compliance with Section 6.12 of the $175,000,000 Senior Secured Revolving Credit Facility Agreement dated March 8, 2021 (as amended on November 15, 2022). Section 6.12 of the credit facility requires VMS to notify Pinnacle of any material contract modifications or disputes exceeding $5,000,000 within ten business days of the occurrence thereof. The MESLSA's total deal value of $20,000,000 well exceeds this threshold, and the invocation of dormancy — which modifies the active performance obligations under the MESLSA — constitutes a material contract modification within the meaning of Section 6.12. The notification was directed to Howard Segal, Relationship Manager at Pinnacle's Commercial Lending Division.

VMS's outstanding borrowings under the Pinnacle credit facility stood at approximately $92,000,000 as of July 2023, representing approximately 52.6% utilization of the $175,000,000 commitment. VMS is currently in compliance with all financial covenants under the credit facility, including the minimum interest coverage ratio, maximum leverage ratio, and minimum liquidity requirements.

MeridianCode's assertion that $2,400,000 in Year 2 Maintenance & Support Fees is immediately due, combined with its express reservation of the right to initiate arbitration proceedings, could, if escalated to a formal dispute or arbitration demand, require supplemental notification to Pinnacle. The determination of whether a supplemental notification is required depends on whether MeridianCode's fee demand, standing alone, constitutes a "dispute exceeding $5,000,000" or whether it must be aggregated with other potential claims (such as the derivative works claim) to reach the threshold. Prudence counsels monitoring this issue and preparing a supplemental notification for prompt submission if MeridianCode t

PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGE / ATTORNEY WORK PRODUCT
MEMORANDUM
TO: Bernard Crawford, Responsible Partner Conrad Ashby, Billing Partner
FROM: Gabrielle Moss, Lead Associate
DATE: August 11, 2023
RE: Analysis of Meridian Code Technologies, Inc.'s August 3, 2023 Dormancy Acknowledgment — Identification of Departures from VMS Position
MATTER: Calderwood & Harkness LLP Matter No. 1007-00008
CLIENT: Vantage Mobility Systems Corp.
I. Executive Summary
This memorandum analyzes the formal acknowledgment of Dormancy Status received from Meridian Code Technologies, Inc. ("MeridianCode") dated August 3, 2023, in response to the dormancy notice issued by Vantage Mobility Systems Corp. ("VMS") on July 14, 2023. VMS's notice invoked Section 9.4 of the Master Embedded Software License and Services Agreement dated June 21, 2022 (the "MESLSA"), which governs the licensing and integration of MeridianCode's ATLAS-RT™ embedded real-time operating system into VMS's vehicle platform configurations under the initiative internally designated as "Project Argonaut."
MeridianCode's response was transmitted by letter from Priya Ramaswamy, General Counsel and Corporate Secretary of MeridianCode, addressed to Martin G. Cross, General Counsel of VMS, with a courtesy copy directed to Calderwood & Harkness LLP. The letter bears a date of August 3, 2023, and was received at our offices via electronic transmission on the same date, with hard copy following by overnight courier and received on August 4, 2023.
While MeridianCode's letter formally acknowledges that the MESLSA has entered Dormancy Status effective as of the 120-day trigger date of July 20, 2023, the response contains several material qualifications, reservations of rights, and characterizations of the parties' respective rights and obligations that depart significantly from VMS's stated position as set forth in the July 14, 2023 dormancy notice. These departures are not mere procedural formalities; they reflect a deliberate effort by MeridianCode — and, in all likelihood, by its outside counsel, Alan M. Briscoe at Redstone Whitaker LLP — to stake out aggressive positions in anticipation of the mandatory renegotiation that the MESLSA requires upon expiration of the dormancy period.
Three principal areas of divergence between MeridianCode's response and VMS's position have been identified:
(1) Year 2 Maintenance & Support Fee. MeridianCode insists that the $2,400,000 Year 2 Maintenance & Support Fee, invoiced on July 1, 2023, remains fully due and payable notwithstanding the invocation of Dormancy Status. MeridianCode characterizes this fee as a fixed annual obligation that accrued prior to the formal invocation of dormancy and is not subject to abatement or proration based on the reduced level of support actually provided during the dormancy period.
(2) Scope of Support Obligations During Dormancy. MeridianCode describes the scope of its support obligations during dormancy in terms that are materially broader than the "critical-security-patch-only level" expressly contemplated by Section 9.4 of the MESLSA. MeridianCode's characterization — which references "maintenance of license compliance infrastructure," "ongoing version compatibility monitoring," and "security vulnerability assessment and remediation" — appears calculated to preserve a factual basis for full maintenance fee recovery by constructing a record of purportedly "substantial" ongoing support.
(3) Derivative Works License-Back Rights. MeridianCode expressly reasserts and purports to expand its derivative works license-back rights under Section 7.2 of the MESLSA. The letter specifically identifies three derivative work modules — designated DW-001, DW-002, and DW-003, comprising approximately 47,000 lines of code — and characterizes them as "jointly owned" assets that MeridianCode may exploit in any field, including automotive applications. This characterization exceeds the scope of the Section 7.2 license-back provision and effectively converts a limited license-back right into an unrestricted co-ownership claim with full exploitation rights.
In addition to these three principal areas of divergence, several secondary issues have been identified that require careful attention:
•  MeridianCode's interpretation of the commencement date for the 12-month dormancy cap, which MeridianCode dates from August 3, 2023 (the date of its acknowledgment) rather than from July 20, 2023 (the 120-day trigger date), thereby shifting the mandatory renegotiation/termination deadline from July 20, 2024 to August 3, 2024.
•  MeridianCode's refusal to concede that dormancy tolls the Section 4.3 Use-It-or-Lose-It deadline of December 21, 2023, which requires VMS to have commenced integration testing on at least two platforms within eighteen months of the MESLSA's effective date.
•  MeridianCode's express reservation of rights to initiate arbitration proceedings before the Midwest Arbitration Institute at any time for any claims arising prior to or during the dormancy period.
•  MeridianCode's inclusion of a reminder regarding the Section 12.6 change-of-control consent requirement, which appears to be a prophylactic assertion potentially signaling awareness of portfolio-level activity by Kestrel Capital Partners, LP.
Recommendation: VMS should respond promptly and comprehensively to MeridianCode's August 3, 2023 acknowledgment to preserve its positions on each point of divergence and to avoid any implication of acquiescence in MeridianCode's characterizations. Total financial exposure across all issues — including the $12,320,000 in fees already paid, the $2,400,000 in disputed Year 2 maintenance fees, the remaining $5,280,000 in contractual commitments, and the $1,800,000–$2,500,000 estimated commercial value of the derivative works — warrants diligent and immediate attention to each substantive point raised in MeridianCode's letter. The recommended response actions and their respective timelines are set forth in detail in Section VI of this memorandum.
II. Background and Procedural History
A. The MESLSA and Project Argonaut
The Master Embedded Software License and Services Agreement was executed on June 21, 2022, between VMS, as licensee, and MeridianCode, as licensor. The MESLSA represents a comprehensive embedded software licensing, maintenance, and integration services transaction with a total deal value of approximately $20,000,000 over a five-year term expiring June 20, 2027. The agreement was negotiated over a period of approximately four months, with Calderwood & Harkness LLP serving as outside counsel to VMS throughout the negotiation process and Redstone Whitaker LLP representing MeridianCode.
The licensed product under the MESLSA is ATLAS-RT™, MeridianCode's proprietary embedded real-time operating system designed for safety-critical automotive applications. At the time of execution, the licensed version was ATLAS-RT Version 4.2. MeridianCode subsequently released an updated version, Version 4.2.3, on October 15, 2022, which was delivered to VMS under the maintenance provisions of the MESLSA and which forms the basis of all current integration work.
The MESLSA grants VMS a non-exclusive, non-transferable license to integrate ATLAS-RT into up to five designated vehicle platform configurations under the initiative internally known at VMS as "Project Argonaut." The five designated platforms are identified in Schedule A to the MESLSA as Argonaut-A through Argonaut-E, each corresponding to a specific vehicle model and powertrain configuration within the VMS commercial fleet product line.
The fee structure under the MESLSA is multi-component, reflecting the complexity of the licensing and integration relationship:
•  Upfront License Fee: $8,000,000, payable upon execution of the MESLSA. This amount was paid in full on June 21, 2022 and is non-refundable except in circumstances of material breach by MeridianCode, subject to the fee-forfeiture provisions of Section 9.1.
•  Annual Maintenance & Support Fee: $2,400,000 per year, invoiced on the anniversary of the MESLSA effective date (i.e., annually on or about June 21 of each year, though the Year 2 invoice was dated July 1, 2023). The Year 1 Maintenance & Support Fee was paid on July 15, 2022.
•  Integration Services Fee: $3,200,000, payable across five milestones corresponding to the progressive stages of integration for each platform. Milestones 1 through 3 have been paid, representing $1,920,000 in aggregate. The remaining Milestones 4 and 5, totaling $1,280,000, have not yet been invoiced or paid.
•  Per-Unit Runtime Royalties: $80 per unit for each vehicle incorporating the ATLAS-RT software, subject to a lifetime cap of $4,000,000 over the five-year term of the MESLSA. No runtime royalties have been invoiced to date, as no integrated vehicles have entered production.
In summary, total fees paid by VMS through the date of dormancy invocation stand at $12,320,000, broken down as follows: $8,000,000 (upfront license fee) + $2,400,000 (Year 1 Maintenance & Support) + $1,920,000 (Milestones 1–3 integration services). The remaining contractual commitment, exclusive of the disputed Year 2 Maintenance & Support Fee, consists of $1,280,000 in unpaid integration services fees and up to $4,000,000 in per-unit runtime royalties, plus additional annual maintenance fees for the remaining years of the MESLSA term.
The MESLSA is governed by the laws of the State of Michigan, without regard to conflict-of-laws principles. All disputes arising under or in connection with the MESLSA are subject to binding arbitration under the rules of the Midwest Arbitration Institute ("MAI"), seated in Detroit, Michigan. For disputes involving amounts exceeding $1,000,000, the MESLSA requires a three-arbitrator panel, with each party selecting one arbitrator and the two party-selected arbitrators jointly selecting the third. This threshold is relevant to several of the disputes identified in this memorandum.
B. Project Argonaut Rescoping
On March 14, 2023, the VMS Board of Directors adopted a resolution to rescope Project Argonaut from five vehicle platform configurations to two. Under the revised project scope, integration work would proceed on only two platforms — Argonaut-A and Argonaut-C — with the remaining three platforms (Argonaut-B, Argonaut-D, and Argonaut-E) deferred indefinitely to a contemplated but uncommitted Phase II. The Board resolution specifically noted that the deferral of the three platforms was related to the strategic decision to prioritize internal combustion engine ("ICE") platform fleet vehicles over electric vehicle ("EV") platforms, with the electrification integration work originally planned for Argonaut-D and Argonaut-E being indefinitely postponed.
The rescoping decision was driven by a confluence of factors, including: (a) persistent supply-chain delays in the procurement of specialized semiconductor components required for the ATLAS-RT integration, which had resulted in cumulative schedule slippage of approximately eight weeks across all active platforms; (b) a portfolio-wide capital expenditure reduction directive issued by Kestrel Capital Partners, LP ("Ashgrove Equity Partners"), the private equity sponsor of VMS, in response to macroeconomic conditions and rising interest rates affecting the broader Ashgrove Equity Partners fund portfolio; and (c) VMS management's independent strategic assessment that the near-term revenue opportunity in ICE-platform commercial fleet vehicles outweighed the long-term positioning benefit of the EV-platform integration.
At the time of the rescoping decision, the integration status across the five platforms was as follows:
•  Argonaut-A: Milestone 3 of 5 completed. Alpha integration testing was passed on February 28, 2023. This platform was the most advanced of the five and represents the primary commercial integration target.
•  Argonaut-C: Milestone 2 of 5 completed. Source-code customization was delivered by MeridianCode on January 15, 2023. However, formal integration testing had not yet commenced on this platform at the time of the rescoping decision.
•  Argonaut-B: Milestone 1 only completed. Preliminary architecture review and interface specification had been completed, but no code integration work had commenced.
•  Argonaut-D: Not commenced. This platform was designated for the EV powertrain integration and was contingent on the completion of Argonaut-A and Argonaut-B.
•  Argonaut-E: Not commenced. This platform was also designated for EV integration and was the lowest priority in the original project schedule.
VMS's internal engineering investment in Project Argonaut through the date of integration suspension was substantial, totaling approximately 14,200 engineering hours across the VMS Software Integration Engineering team led by Lena Petrova, Director of Software Integration Engineering. These hours were distributed primarily across Argonaut-A (approximately 8,400 hours) and Argonaut-C (approximately 4,100 hours), with the remaining hours allocated to Argonaut-B preliminary work and cross-platform architecture planning.
Following the Board's rescoping resolution, VMS management issued an internal directive to suspend all active integration work on Project Argonaut effective March 22, 2023. No integration work has been performed on any platform since that date. MeridianCode was not formally notified of the suspension on March 22, 2023; rather, MeridianCode became aware of the suspension through the cessation of engineering activity and the absence of milestone deliverables. The formal dormancy notice was not issued until July 14, 2023, as discussed in the following subsection.
C. VMS Dormancy Notice and Timing
The timing of VMS's dormancy notice is a critical element of the procedural history and warrants detailed examination.
Section 9.4 of the MESLSA provides, in relevant part, that if the licensee suspends active integration work for more than 120 consecutive days without providing written notice to the licensor invoking Dormancy Status, the licensor may unilaterally convert the license to Dormancy Status and impose certain conditions on reactivation. This provision was negotiated to provide VMS with a right, but not an obligation, to invoke Dormancy Status proactively before the 120-day window closes, thereby retaining control over the terms of dormancy rather than ceding that control to MeridianCode.
The relevant dates are as follows:
•  March 22, 2023: VMS suspends all active integration work on Project Argonaut. This date represents the commencement of the consecutive-day count under Section 9.4.
•  July 20, 2023: The 120th consecutive day following March 22, 2023. This is the date on which MeridianCode's unilateral conversion right would have become exercisable under Section 9.4, absent a prior written notice from VMS.
•  July 14, 2023: VMS issues its dormancy notice — six calendar days before the 120-day trigger date. The notice was transmitted by letter from Martin G. Cross, General Counsel of VMS, to Priya Ramaswamy, General Counsel and Corporate Secretary of MeridianCode. The letter was prepared by Calderwood & Harkness LLP and was sent via both electronic transmission and overnight courier. The notice affirmatively invoked Dormancy Status under Section 9.4, asserted that all milestone deadlines under the MESLSA are tolled during the dormancy period, and disputed the Year 2 Maintenance & Support Fee invoiced on July 1, 2023.
•  August 3, 2023: MeridianCode issues its acknowledgment of Dormancy Status. This letter, authored by Priya Ramaswamy and bearing the stylistic hallmarks of Redstone Whitaker draftsmanship, was received by VMS and Calderwood & Harkness LLP on August 3, 2023. The acknowledgment was transmitted 14 calendar days after the Section 9.4 trigger date of July 20, 2023 — and 20 calendar days after VMS's July 14, 2023 notice.
Two observations regarding timing merit emphasis. First, VMS's notice was timely, a point that MeridianCode expressly concedes in its August 3, 2023 acknowledgment. This concession eliminates any argument that MeridianCode possesses a unilateral conversion right or that the terms of dormancy should be determined by MeridianCode rather than by the mutual provisions of Section 9.4 applicable when the licensee proactively invokes dormancy. Second, the 20-day gap between VMS's notice and MeridianCode's response is consistent with a period of internal review and outside counsel involvement; the qualifications and reservations contained in the response suggest that the letter underwent careful legal review before transmission.
III. Summary of MeridianCode's August 3, 2023 Acknowledgment
This section provides a detailed summary of the substance of MeridianCode's August 3, 2023 acknowledgment letter, organized by subject matter. The analysis of each issue — including identification of departures from VMS's position, risk assessment, and recommended responses — is set forth in Section IV below.
A. Acknowledgment of Dormancy Status
MeridianCode's letter formally acknowledges that the MESLSA has entered Dormancy Status as of August 3, 2023, with such status deemed effective as of the 120-day trigger date of July 20, 2023. MeridianCode's letter states, in relevant part, that "MeridianCode acknowledges that the conditions for Dormancy Status under Section 9.4 of the Agreement have been satisfied and that the Agreement is, as of the Effective Date of Dormancy identified herein, in Dormancy Status."
The letter further notes that VMS's July 14, 2023 notice was timely submitted prior to the expiration of the 120-day period specified in Section 9.4. This is a significant and favorable concession. By acknowledging the timeliness and validity of VMS's dormancy invocation, MeridianCode has effectively waived any argument that VMS failed to comply with the procedural requirements of Section 9.4 or that MeridianCode retains a unilateral conversion right. There is no dispute between the parties regarding the validity of the dormancy invocation itself, and this point should be treated as settled for purposes of all subsequent discussions and, if necessary, arbitration proceedings.
MeridianCode identifies the commencement of the 12-month dormancy cap under Section 9.4 as running from August 3, 2023 — the date of its acknowledgment — rather than from July 20, 2023, the 120-day trigger date. This characterization positions the mandatory renegotiation or termination deadline at August 3, 2024, rather than July 20, 2024. The implications of this 14-day discrepancy are analyzed in Section IV.E below.
B. Reservations of Rights and Qualifications
MeridianCode's letter contains a broad and sweeping reservation of rights. The letter expressly states that MeridianCode "reserves all rights, remedies, claims, and defenses under the Agreement, at law, and in equity, that are not specifically addressed in this letter, and that nothing in this letter shall be construed as a waiver, release, or relinquishment of any such rights, remedies, claims, or defenses." This language is essentially boilerplate, but its breadth is notable and serves to preserve MeridianCode's ability to assert positions on issues not directly addressed in the acknowledgment.
More specifically, MeridianCode states that its acknowledgment of Dormancy Status "does not constitute, and shall not be construed as, a waiver of any claims MeridianCode may have against VMS, including without limitation claims for unpaid fees, damages arising from the suspension of integration work, or any other claims arising under or in connection with the Agreement." This language is particularly significant in that it expressly preserves claims for "damages arising from the suspension of integration work" — a category of claims that VMS has not previously contemplated MeridianCode asserting. While no specific claim is articulated, the reservation should be noted as a potential future point of contention.
MeridianCode further reserves the right to initiate arbitration proceedings before the Midwest Arbitration Institute "at any time, without further notice, for any claims arising prior to or during the Dormancy Status period." This reservation is consistent with the arbitration clause in the MESLSA, but its express inclusion in the acknowledgment letter underscores MeridianCode's posture of preserving maximum optionality.
C. Year 2 Maintenance & Support Fee Position
MeridianCode's letter devotes substantial attention to the $2,400,000 Year 2 Maintenance & Support Fee invoiced on July 1, 2023. MeridianCode asserts unequivocally that this fee is "fully due and payable in accordance with the terms of the Agreement" and was "not affected or abated by the subsequent invocation of Dormancy Status."
MeridianCode advances several arguments in support of this position. First, MeridianCode emphasizes the chronological sequencing: the invoice was issued on July 1, 2023, whereas VMS's dormancy notice was not sent until July 14, 2023, and the 120-day trigger date did not occur until July 20, 2023. MeridianCode argues that the maintenance fee obligation accrued upon the annual anniversary of the MESLSA, which occurred on or about June 21, 2023, and that the invoicing on July 1, 2023 merely reflected an obligation that had already crystallized. According to MeridianCode, the subsequent invocation of dormancy cannot retroactively negate a fee obligation that had already vested.
Second, MeridianCode characterizes the maintenance fee as a "fixed annual obligation" under the MESLSA, distinguishable from a fee-for-services-rendered that fluctuates with the level of support actually provided. MeridianCode's letter states that "the Annual Maintenance & Support Fee is a fixed contractual obligation payable in full upon the annual anniversary of the Agreement, independent of the level of maintenance or support services actually utilized or requested by the Licensee in any given period."
Third, MeridianCode demands payment of the full $2,400,000 within 30 calendar days of the date of the acknowledgment letter (i.e., by September 2, 2023) and expressly reserves its rights to pursue all contractual remedies for nonpayment, including interest on overdue amounts at the rate specified in Section 8.5 of the MESLSA (which provides for interest at the lesser of 1.5% per month or the maximum rate permitted by applicable law).
D. Scope of Support During Dormancy
Section 9.4 of the MESLSA provides that during Dormancy Status, MeridianCode's support obligations are reduced to a "critical-security-patch-only level." VMS's July 14, 2023 dormancy notice expressly referenced this provision and stated VMS's understanding that dormancy support is strictly limited to the issuance of critical security patches applicable to the ATLAS-RT codebase then in use.
MeridianCode's August 3, 2023 acknowledgment describes its intended support scope during dormancy in terms that are materially broader than the critical-security-patch-only formulation. The letter states that during dormancy, MeridianCode "will continue to provide the following support services in furtherance of its ongoing obligations under the Agreement":
(a) "Maintenance of license compliance infrastructure, including monitoring of license utilization parameters and ensuring continued integrity of the license management system";
(b) "Ongoing version compatibility monitoring, including assessment of compatibility between the Licensed Software version currently deployed by VMS (Version 4.2.3) and any subsequent releases of the ATLAS-RT platform";
(c) "Security vulnerability assessment and remediation, including proactive identification of vulnerabilities in the Licensed Software, assessment of severity and impact, and development and delivery of remediation measures."
Each of these categories describes a scope of activity that extends well beyond the issuance of critical security patches. "Maintenance of license compliance infrastructure" and "ongoing version compatibility monitoring" are functions that are typically associated with full-scope maintenance and support arrangements, not with the stripped-down, patch-only support contemplated by Section 9.4 during dormancy. Similarly, "security vulnerability assessment and remediation" encompasses proactive vulnerability identification and impact assessment activities that go beyond the mere delivery of patches for critical, already-identified security vulnerabilities.
MeridianCode appears to be constructing a contemporaneous record that it continues to provide substantial, ongoing support services during the dormancy period. If left unchallenged, this characterization could serve multiple strategic purposes for MeridianCode: it supports the argument that the full Year 2 Maintenance & Support Fee remains justified because MeridianCode continues to deliver material value; it positions MeridianCode to argue that VMS benefited from significant ongoing services during dormancy, undermining any fee-abatement claim; and it could be cited in future arbitration proceedings as evidence of MeridianCode's good-faith performance of its obligations, potentially influencing an arbitral panel's equitable assessment of the parties' respective positions.
E. Derivative Works License-Back Assertion
MeridianCode's August 3, 2023 acknowledgment devotes a full section to the reassertion and purported expansion of its derivative works license-back rights under Section 7.2 of the MESLSA. This section of MeridianCode's letter is, in our assessment, the most concerning element of the response and warrants immediate and forceful pushback.
MeridianCode expressly reasserts its rights under Section 7.2 to "a perpetual, royalty-free, irrevocable, worldwide license to all derivative works created by or on behalf of VMS during the integration process." The letter specifically identifies three derivative work modules — DW-001, DW-002, and DW-003 — as falling within the scope of Section 7.2's license-back provision. According to MeridianCode, these three modules comprise "approximately 47,000 lines of code developed in connection with the integration of ATLAS-RT into the Licensee's designated platforms."
MeridianCode further states that dormancy "does not affect, diminish, or suspend MeridianCode's license-back rights under Section 7.2" and that "these rights survive any termination, expiration, or other conclusion of the Agreement, regardless of the reason for such termination or expiration."
Of particular concern, MeridianCode's letter goes significantly beyond the license-back language of Section 7.2 by characterizing the derivative works as "jointly owned" assets. The letter states that "the derivative works identified herein are jointly owned by MeridianCode and VMS, and MeridianCode retains the right to exploit such jointly owned works in any field of use, including without limitation the automotive field, without restriction and without the obligation to account to VMS for any revenues or other benefits derived from such exploitation." This language represents a material escalation from the Section 7.2 license-back concept — which grants MeridianCode a license to use derivative works — into a co-ownership claim with unrestricted exploitation rights, effectively giving MeridianCode the ability to use VMS-developed code in competing products without compensation or even notification.
Notably, MeridianCode's letter does not acknowledge, address, or respond to VMS's position as stated in the July 14, 2023 dormancy notice. VMS's dormancy notice expressly stated that "VMS considers DW-001, DW-002, and DW-003 to be solely VMS-originated works, created by VMS personnel using VMS resources, and owned exclusively by VMS" and that "the derivative works license-back provisions of Section 7.2 do not apply to independently originated code that merely interfaces with the ATLAS-RT platform." MeridianCode's silence on VMS's position — and its simultaneous assertion of an even more expansive claim (joint ownership rather than mere license-back) — suggests a deliberate choice to ignore VMS's framing and to establish its own, more aggressive characterization as the starting point for any future negotiation or arbitration.
F. Section 4.3 Use-It-or-Lose-It Clause
MeridianCode's letter addresses the Section 4.3 Use-It-or-Lose-It provision in qualified and ambiguous terms that preserve maximum flexibility for MeridianCode while leaving VMS exposed to potential non-compliance claims.
Section 4.3 of the MESLSA requires that VMS "commence integration testing on at least two (2) Designated Platforms" within eighteen months of the MESLSA's effective date. The MESLSA was executed on June 21, 2022, which places the Section 4.3 deadline at December 21, 2023 — approximately four months and ten days from the date of this memorandum. If VMS fails to satisfy this requirement, Section 4.3 provides that the number of platforms covered by the license is automatically reduced to the number of platforms on which integration testing has been commenced, with a corresponding adjustment (or forfeiture) of unused platform allocations.
MeridianCode's letter does not explicitly concede that dormancy tolls the Section 4.3 deadline. Rather, MeridianCode states that it "reserves all rights with respect to VMS's compliance with Section 4.3 of the Agreement" and that MeridianCode "will assess the Licensee's compliance posture upon reactivation of the Agreement or at the expiration of the Dormancy Status period, as applicable." This language is carefully crafted to avoid committing MeridianCode to any position on tolling while preserving the option to argue, at a later date, that the Section 4.3 deadline continued to run during dormancy and that VMS is non-compliant.
The significance of this ambiguity cannot be overstated. If MeridianCode ultimately contends that the Section 4.3 deadline is not tolled by dormancy, VMS would need to demonstrate compliance by December 21, 2023 — a date by which VMS will have been in dormancy for approximately five months and during which no integration work is being performed. The consequences of non-compliance under Section 4.3 could include the automatic reduction of VMS's license scope, potentially to a single platform (Argonaut-A only), with the loss of the Argonaut-C platform allocation and any associated investment.
VMS's current compliance status under Section 4.3, even if the deadline is not tolled, is itself a substantive interpretive question. Argonaut-A has passed alpha integration testing as of February 28, 2023 (Milestone 3), which clearly constitutes "commencement" of integration testing on that platform. Argonaut-C has completed source-code customization as of January 15, 2023 (Milestone 2), but has not commenced formal integration testing as that term is commonly understood in the software integration context. Whether the delivery of customized source code and the completion of Milestone 2 constitutes "commencement of integration testing" within the meaning of Section 4.3 is debatable and would likely depend on the specific definitions and milestone descriptions set forth in Schedule B to the MESLSA, as well as industry custom and practice.
G. 12-Month Dormancy Cap and Mandatory Renegotiation
As noted in Section III.A above, MeridianCode dates the commencement of the 12-month dormancy cap from August 3, 2023 — the date of its acknowledgment — rather than from July 20, 2023 — the 120-day trigger date specified in Section 9.4. This positions the mandatory renegotiation/termination deadline at August 3, 2024, rather than July 20, 2024.
MeridianCode's letter states that "upon expiration of the twelve-month Dormancy Status period on August 3, 2024, the parties shall enter mandatory renegotiation of the Agreement in accordance with Section 9.4(c)." The letter further states that "if the parties are unable to reach agreement on revised terms within sixty (60) days following the expiration of the Dormancy Status period, MeridianCode reserves the right to terminate the Agreement in accordance with Section 9.4(d), subject to the fee and termination provisions of the Agreement." This characterization is generally consistent with the structure of Section 9.4, though MeridianCode's emphasis on its termination right (rather than the mutual termination right that Section 9.4(d) arguably contemplates) is notable.
The 14-day discrepancy between MeridianCode's commencement date (August 3, 2023) and VMS's potential commencement date (July 20, 2023) has strategic implications that are analyzed in Section IV.E below.
H. Change of Control Provision
MeridianCode's letter includes a brief but pointed paragraph reminding VMS that Section 12.6 of the MESLSA requires MeridianCode's prior written consent for any assignment of VMS's rights or obligations under the MESLSA in connection with a change of control of VMS, and that "the existence of Dormancy Status does not modify, limit, or waive the requirements of Section 12.6."
This provision appears to be a prophylactic assertion that may not be directly responsive to any specific factual development. However, its inclusion in the acknowledgment letter is noteworthy and may signal MeridianCode's awareness of — or concern about — potential portfolio-level activity by Kestrel Capital Partners, LP, VMS's private equity sponsor. Ashgrove Equity Partners's portfolio-wide capital expenditure reduction directive was a contributing factor to the Project Argonaut rescoping, and it is possible that MeridianCode has information or suspicions regarding Ashgrove Equity Partners's interest in exiting its VMS investment, restructuring the VMS portfolio company, or otherwise undertaking a transaction that could implicate the Section 12.6 consent requirement. We recommend advising VMS management to treat this reminder as a signal that MeridianCode is monitoring VMS's corporate structure and ownership and to be mindful of the consent requirement in any discussions with Ashgrove Equity Partners regarding potential transactions.
IV. Detailed Analysis of Departures from VMS Position
This section provides a detailed analytical framework for each of the principal and secondary issues identified in MeridianCode's August 3, 2023 acknowledgment, comparing VMS's position with MeridianCode's position, assessing the relative strengths and weaknesses of each position, and providing preliminary recommendations.
A. Year 2 Maintenance Fee: VMS Position vs. MeridianCode Position
VMS Position (per July 14, 2023 dormancy notice): The $2,400,000 Year 2 Maintenance & Support Fee should be abated or prorated during dormancy because Section 9.4 reduces MeridianCode's support obligation to a critical-security-patch-only level. VMS's position is that it should not be required to pay the full maintenance fee — which was negotiated as consideration for a full suite of maintenance and support services including technical support, bug fixes, compatibility updates, documentation updates, and version upgrades — when MeridianCode's obligation is reduced by contract to a single, narrow category of service (critical security patches only). VMS's dormancy notice asserted that the maintenance fee should be prorated to reflect the reduced scope of services, with VMS proposing a pro rata reduction based on the portion of the year during which full services were available (approximately 10 days out of the annual period, from July 1, 2023 through July 10, 2023, the last date on which full services could reasonably be said to have been in effect).
MeridianCode Position (per August 3, 2023 acknowledgment): The fee is a fixed annual obligation that accrued before dormancy was invoked. The invoice was issued July 1, 2023, a full 13 days before VMS's dormancy notice and 19 days before the 120-day trigger date. MeridianCode characterizes the maintenance fee as independent of the level of support actually provided, analogous to a standing-charge or retainer-type fee that is payable regardless of utilization. Payment is demanded within 30 days, with interest at 1.5% per month for overdue amounts.
Analysis: MeridianCode's timing argument has some surface appeal. The invoice was issued before dormancy was formally invoked, and there is a reasonable argument that a fee obligation that has already accrued cannot be retroactively modified by a subsequent change in the parties' relationship. However, this argument is subject to several significant counterpoints.
First, VMS can argue that the substance of the dormancy relationship was already in effect well before the formal notice. Integration work was suspended on March 22, 2023 — more than three months before the invoice was issued. By July 1, 2023, VMS had been receiving no integration-related services for over 100 days, and MeridianCode's support activities had presumably been declining in parallel with the cessation of integration work. The formal invocation of dormancy merely ratified a de facto state of affairs that had existed for months.
Second, Section 9.4's reduction of support obligations to critical-security-patch-only level represents a contractual acknowledgment that the value of MeridianCode's services during dormancy is substantially less than the value of full maintenance and support. If the maintenance fee is properly characterized as consideration for defined support services — as VMS contends — then a reduction in the scope of services should logically warrant a corresponding reduction in the consideration owed. The alternative characterization — that the fee is a fixed obligation independent of service levels — effectively decouples price from value in a manner that may not be supportable under the MESLSA's overall fee architecture, which is structured around identified deliverables and service categories.
Third, MeridianCode's own expansion of the dormancy support scope (discussed in Section III.D and analyzed in Section IV.B below) arguably cuts against its fixed-fee characterization. If MeridianCode genuinely believed that the maintenance fee is a fixed, service-independent obligation, it would have no need to characterize its dormancy support activities in expansive terms; the fee would be payable regardless. The fact that MeridianCode devotes significant attention to describing its ongoing support activities during dormancy suggests an awareness that the fixed-fee argument may be vulnerable and that MeridianCode may need to demonstrate ongoing value delivery to justify the full fee claim.
Risk Assessment: MeridianCode has a colorable argument that the fee is a fixed obligation. If this dispute proceeds to arbitration, the outcome is uncertain. The total amount in dispute — $2,400,000 — exceeds the $1,000,000 threshold for a three-arbitrator panel under MAI rules, which would make any arbitration more procedurally complex, time-consuming, and expensive. A three-arbitrator panel in a dispute of this magnitude could reasonably be expected to cost each party $200,000–$400,000 in arbitration fees and expenses alone, exclusive of legal fees. The arbitration timeline under MAI rules for a three-panel proceeding is typically 12–18 months from initiation to award.
Cross-Reference: A separate Calderwood & Harkness memorandum analyzing the Year 2 Maintenance & Support Fee obligation during dormancy is being prepared concurrently by Gabrielle Moss and will address the contractual interpretation, industry practice, and equitable considerations in greater detail.
B. Dormancy Support Scope: Narrow vs. Broad Characterization
VMS Position: Section 9.4 limits dormancy support to a "critical-security-patch-only level." This language is clear and unambiguous. During dormancy, MeridianCode's sole obligation is to issue critical security patches applicable to the ATLAS-RT codebase currently deployed by VMS (Version 4.2.3). MeridianCode is not obligated — and VMS has not requested and does not desire — broader support activities such as license compliance monitoring, version compatibility assessment, or proactive vulnerability identification. VMS's understanding of "critical-security-patch-only" is that it encompasses the delivery of patches for identified, critical-severity security vulnerabilities in the ATLAS-RT software, and nothing more.
MeridianCode Position: As described in Section III.D above, MeridianCode characterizes its dormancy support scope to include three categories of activities that extend beyond the critical-security-patch-only formulation: (a) maintenance of license compliance infrastructure; (b) ongoing version compatibility monitoring; and (c) security vulnerability assessment and remediation.
Analysis: MeridianCode's characterization appears designed to serve two interrelated purposes. First, it creates a factual record of ongoing "substantial" support activity during dormancy, which could be cited in arbitration as evidence that MeridianCode continued to deliver significant value to VMS even during the dormancy period, thereby justifying the full maintenance fee. Second, it establishes a basis for MeridianCode to argue that VMS accepted and benefited from a broader scope of dormancy support than the contractual minimum, potentially giving rise to an implied-in-fact or quasi-contractual obligation to pay for such services.
The danger for VMS is one of acquiescence. If VMS fails to object to MeridianCode's expansive characterization of dormancy support, MeridianCode could argue in future proceedings that VMS's silence constituted acceptance of the broader support scope. Under Michigan contract law, a party's failure to object to the other party's characterization of their contractual relationship may, in certain circumstances, be construed as an admission or acquiescence, particularly where the non-objecting party had knowledge of the characterization and an opportunity to dispute it. See Michigan National Bank v. Diversified Investments Corp., 189 Mich. App. 476 (1991) (discussing acquiescence in the context of course-of-dealing interpretation).
Recommendation: VMS should respond promptly and unequivocally to reject MeridianCode's expansive characterization of dormancy support. The response should: (a) reaffirm that Section 9.4 limits dormancy support to critical-security-patch-only; (b) state that VMS does not request, authorize, or accept any support services beyond critical security patches during the dormancy period; (c) state that VMS does not acknowledge or agree that any support services other than critical security patches are being or will be provided during dormancy; and (d) state that VMS's position on the Year 2 Maintenance & Support Fee is not affected by MeridianCode's unilateral characterization of its dormancy activities. This response should be transmitted within ten business days to minimize any acquiescence risk.
C. Derivative Works: Joint Ownership vs. Sole VMS Ownership
VMS Position: Derivative work modules DW-001, DW-002, and DW-003 are solely VMS-originated works, created by VMS engineers under the direction of Lena Petrova, Director of Software Integration Engineering, using VMS resources and representing approximately 14,200 engineering hours of VMS investment. These modules should be owned exclusively by VMS. VMS's July 14, 2023 dormancy notice stated that "the derivative works license-back provisions of Section 7.2 do not apply to independently originated code that merely interfaces with the ATLAS-RT platform" and that VMS "reserves all ownership rights" in DW-001, DW-002, and DW-003.
VMS's position rests on the distinction between code that is truly "derived from" the ATLAS-RT source code — i.e., code that incorporates, modifies, adapts, or extends ATLAS-RT source code in a manner that renders it a derivative work within the meaning of Section 7.2 and applicable copyright law — and code that is independently developed by VMS and merely designed to interface with or operate alongside the ATLAS-RT platform. If the 47,000 lines of code in DW-001, DW-002, and DW-003 fall into the latter category, Section 7.2 should not apply, and VMS should retain full ownership without any license-back obligation.
MeridianCode Position: Section 7.2 provides for joint ownership of "all derivative works created during integration," and MeridianCode retains a perpetual, royalty-free license to such works. MeridianCode specifically identifies DW-001, DW-002, and DW-003 as falling within the scope of Section 7.2 and characterizes them as "jointly owned" assets that MeridianCode may exploit "in any field of use, including without limitation the automotive field, without restriction and without the obligation to account to VMS for any revenues or other benefits derived from such exploitation."
Analysis: The resolution of this issue depends on two distinct but interrelated inquiries: (1) the proper interpretation of Section 7.2's definition of "derivative works" and (2) the factual question of whether the code in DW-001, DW-002, and DW-003 constitutes a derivative work of ATLAS-RT or independently originated code.
On the interpretive question, Section 7.2 defines "derivative works" as "any modifications, adaptations, or extensions to the ATLAS-RT source code created by or on behalf of the Licensee during the integration process." The key interpretive question is whether the 47,000 lines of code in DW-001, DW-002, and DW-003 constitute "modifications, adaptations, or extensions to ATLAS-RT source code" — which would bring them within Section 7.2 — or whether they are independently developed VMS code that happens to interface with ATLAS-RT but does not modify, adapt, or extend the ATLAS-RT source code itself. The preposition "to" in the phrase "modifications, adaptations, or extensions to ATLAS-RT source code" is critical: it suggests that the derivative works provision applies only to code that acts upon or is built upon the ATLAS-RT source code, not to code that operates alongside or in conjunction with it.
On the factual question, the nature of the code in DW-001, DW-002, and DW-003 must be assessed by reference to the actual source code, the development process, and the relationship between the VMS-developed modules and the ATLAS-RT codebase. This is precisely the kind of technical assessment that Hargrove Technical Consulting, LLC has been retained to provide. Dr. Samuel Beecroft, the principal consultant at Hargrove, is conducting an independent technical analysis of the derivative works, including: (a) an examination of the source code in each module to determine the degree to which it incorporates, modifies, or extends ATLAS-RT source code versus independently developed VMS logic; (b) an assessment of the functional relationship between each module and the ATLAS-RT platform; and (c) an estimate of the commercial value of each module, both as a standalone component and as an integrated element of the ATLAS-RT ecosystem. Dr. Beecroft's preliminary assessment estimates the commercial value of the three modules at $1,800,000–$2,500,000.
MeridianCode's characterization of the derivative works as "jointly owned" assets with unrestricted exploitation rights goes beyond the language of Section 7.2, which provides for a "perpetual, royalty-free license" rather than joint ownership. A license and joint ownership are legally distinct concepts. A license grants the licensee the right to use the licensed property but does not convey an ownership interest; joint ownership, by contrast, confers co-equal ownership rights, including the right to license, assign, and otherwise exploit the jointly owned property. Under Michigan law and the Copyright Act, 17 U.S.C. § 101 et seq., a joint work is a work "prepared by two or more authors with the intention that their contributions be merged into inseparable or interdependent parts of a unitary whole." Whether the 47,000 lines of code in DW-001 through DW-003 constitute a "joint work" jointly authored by VMS and MeridianCode is a separate and distinct question from whether those lines of code constitute "derivative works" within the meaning of Section 7.2. MeridianCode's conflation of these two concepts in its August 3, 2023 letter should be challenged directly.
Cross-Reference: A separate Calderwood & Harkness memorandum analyzing derivative works ownership under Section 7.2 and Michigan IP law is being prepared concurrently by Gabrielle Moss and Aaron Liu.
D. Section 4.3 Use-It-or-Lose-It Tolling
VMS Position: Dormancy under Section 9.4 tolls all milestone deadlines under the MESLSA, which should logically include the Section 4.3 Use-It-or-Lose-It deadline of December 21, 2023. VMS's July 14, 2023 dormancy notice expressly asserted that "all milestone deadlines under the Agreement are tolled during the Dormancy Status period." VMS's position is grounded in the text of Section 9.4, which states that dormancy has the effect of "tolling all milestone deadlines under this Agreement for the duration of the Dormancy Status period."
MeridianCode Position: MeridianCode reserves all rights regarding Section 4.3 compliance and will "assess the licensee's compliance posture upon reactivation or at the expiration of the dormancy period." MeridianCode does not concede that dormancy tolls the Section 4.3 deadline.
Analysis: The strongest VMS argument is textual. Section 9.4 expressly tolls "all milestone deadlines," and the Section 4.3 Use-It-or-Lose-It requirement is functionally a milestone deadline — it imposes a time-limited performance obligation that, if not satisfied, triggers consequences (scope reduction). The use of the word "all" in Section 9.4 is expansive and should encompass any deadline that functions as a milestone, regardless of where in the MESLSA it appears.
However, MeridianCode could advance a counter-argument that Section 4.3 is a separate license-scope provision, not a "milestone" within the meaning of the integration services framework. The MESLSA uses the term "milestone" primarily in the context of the five integration services milestones described in Schedule B (Milestones 1 through 5 for each platform). MeridianCode could argue that "milestone deadlines" as used in Section 9.4 refers specifically to these integration services milestones — which are explicitly described as "milestones" throughout the MESLSA — and not to the Section 4.3 deadline, which is characterized in the MESLSA as a "license condition" rather than a "milestone." This interpretive argument has some textual basis, though it is narrower than the plain meaning of "all milestone deadlines" would suggest.
This interpretive dispute is significant because of the timing. The Section 4.3 deadline is December 21, 2023 — just over four months from the date of this memorandum and well within the dormancy period. If the deadline is not tolled, VMS must demonstrate compliance while integration is dormant, which is practically impossible given that no integration work is being performed. The consequences of non-compliance are severe: automatic reduction of the license scope to the number of platforms on which integration testing has been commenced.
Even if the Section 4.3 deadline is not tolled, the question of VMS's current compliance status is itself debatable. Argonaut-A clearly satisfies the requirement, as alpha integration testing was passed on February 28, 2023 (Milestone 3). The question is whether Argonaut-C's current status — completion of source-code customization (Milestone 2) on January 15, 2023, without formal commencement of integration testing — satisfies the Section 4.3 requirement that VMS "commence integration testing" on at least two platforms. The term "integration testing" is not independently defined in the MESLSA, and its meaning in context may be informed by the milestone descriptions in Schedule B, industry custom and practice, and the parties' course of dealing. If "integration testing" requires something more than source-code customization — e.g., the commencement of Milestone 3 (alpha integration testing) — then Argonaut-C does not currently satisfy the requirement, and VMS would be at risk of non-compliance even under the most favorable interpretation.
Recommendation: This is a high-priority issue requiring separate, detailed analysis. If the tolling argument fails, VMS's fallback position must be that Argonaut-C's current status satisfies Section 4.3, which will require both a legal analysis of the contractual language and a technical analysis of the integration process. A cross-reference to the separate Use-It-or-Lose-It compliance memorandum, currently in preparation, is noted here.
E. Dormancy Cap Commencement Date
Analysis: MeridianCode dates the commencement of the 12-month dormancy cap from August 3, 2023 (the date of its acknowledgment), which positions the mandatory renegotiation/termination deadline at August 3, 2024. VMS could argue that the dormancy cap should run from July 20, 2023 (the 120-day trigger date), which would position the mandatory renegotiation/termination deadline at July 20, 2024.
The 14-day difference between these two dates has strategic significance primarily in relation to the June 21, 2024 date — the 24-month anniversary of the MESLSA. Under Section 9.1, VMS forfeits all prepaid fees ($12,320,000) if it terminates for convenience before the 24-month anniversary. After June 21, 2024, this fee-forfeiture provision no longer applies, and VMS can terminate without forfeiting prepaid fees (subject to other termination provisions).
Under either interpretation of the dormancy cap commencement date, the mandatory renegotiation/termination deadline falls after June 21, 2024:
•  If dormancy cap runs from July 20, 2023 (trigger date): mandatory renegotiation/termination deadline is July 20, 2024 — 29 days after the June 21, 2024 fee-forfeiture cutoff.
•  If dormancy cap runs from August 3, 2023 (acknowledgment date): mandatory renegotiation/termination deadline is August 3, 2024 — 43 days after the June 21, 2024 fee-forfeiture cutoff.
Under either scenario, VMS will have passed the fee-forfeiture cutoff before the mandatory renegotiation/termination deadline arrives. This means that the precise commencement date of the dormancy cap is not dispositive of the fee-forfeiture question, and VMS's position is protected under either interpretation.
From a pure timing perspective, VMS may actually benefit from MeridianCode's later commencement date. The later date provides VMS with an additional 14 days of dormancy protection — 14 additional days before the mandatory renegotiation/termination deadline — and positions the mandatory renegotiation period (60 days following expiration of dormancy) to begin on August 3, 2024 rather than July 20, 2024. This additional time could be strategically valuable in the event that renegotiation discussions prove contentious or require extended deliberation.
Recommendation: VMS should not contest MeridianCode's later commencement date. The August 3, 2023 commencement date is more favorable to VMS than the July 20, 2023 alternative, and challenging this point would gain nothing while potentially prompting MeridianCode to reconsider and assert the earlier date. VMS should note the discrepancy internally for tracking purposes but should not raise it in its response.
V. Strategic Implications and Interdependencies
The issues identified in MeridianCode's August 3, 2023 acknowledgment do not exist in isolation. Each interacts with and is affected by broader strategic considerations relating to VMS's financial position, its obligations to third parties, and its private equity sponsor's investment horizon. This section addresses the principal interdependencies.
A. Interaction with Fee Forfeiture Analysis
The dormancy strategy must be understood in the context of the fee-forfeiture risk under Section 9.1 of the MESLSA. Under Section 9.1, if VMS terminates the MESLSA for convenience before the 24-month anniversary of the MESLSA's effective date (i.e., before June 21, 2024), VMS forfeits all prepaid fees. As of the date of this memorandum, VMS has paid $12,320,000 in aggregate fees under the MESLSA. The forfeiture of this amount would represent a material loss to VMS and a significant write-down for Ashgrove Equity Partners's investment.
The dormancy strategy was designed, in part, to navigate this fee-forfeiture risk. By invoking Dormancy Status rather than terminating for convenience, VMS preserves the MESLSA as a live agreement, avoids triggering the fee-forfeiture provision, and allows time to pass until the 24-month anniversary. Both interpretations of the dormancy cap commencement date — August 3, 2023 (MeridianCode's date) and July 20, 2023 (trigger date) — result in a mandatory renegotiation/termination deadline that falls after June 21, 2024. This means VMS can maintain dormancy through the fee-forfeiture cutoff and then choose among several strategic options:
(a) Reactivation: Resume integration work under the MESLSA, potentially with a reduced platform scope and renegotiated fee structure.
(b) Negotiated Termination: Negotiate a mutual termination of the MESLSA with MeridianCode, potentially including fee credits, milestone payment adjustments, and resolution of the derivative works dispute.
(c) Mandatory Renegotiation: Allow the dormancy cap to expire and enter the mandatory renegotiation period under Section 9.4(c), using the renegotiation process to restructure the agreement terms.
(d) Termination Post-Cutoff: If renegotiation fails and MeridianCode exercises its termination right under Section 9.4(d), VMS would exit the agreement without fee forfeiture (the 24-month anniversary having already passed).
Each of these options is available to VMS without risking forfeiture of the $12,320,000 already paid, provided that VMS does not take any action before June 21, 2024 that could be construed as a termination for convenience.
B. Credit Facility Considerations
VMS notified Pinnacle National Bank, N.A. ("Pinnacle") of the invocation of Dormancy Status on August 10, 2023, in compliance with Section 6.12 of the $175,000,000 Senior Secured Revolving Credit Facility Agreement dated March 8, 2021 (as amended on November 15, 2022). Section 6.12 of the credit facility requires VMS to notify Pinnacle of any material contract modifications or disputes exceeding $5,000,000 within ten business days of the occurrence thereof. The MESLSA's total deal value of $20,000,000 well exceeds this threshold, and the invocation of dormancy — which modifies the active performance obligations under the MESLSA — constitutes a material contract modification within the meaning of Section 6.12. The notification was directed to Howard Segal, Relationship Manager at Pinnacle's Commercial Lending Division.
VMS's outstanding borrowings under the Pinnacle credit facility stood at approximately $92,000,000 as of July 2023, representing approximately 52.6% utilization of the $175,000,000 commitment. VMS is currently in compliance with all financial covenants under the credit facility, including the minimum interest coverage ratio, maximum leverage ratio, and minimum liquidity requirements.
MeridianCode's assertion that $2,400,000 in Year 2 Maintenance & Support Fees is immediately due, combined with its express reservation of the right to initiate arbitration proceedings, could, if escalated to a formal dispute or arbitration demand, require supplemental notification to Pinnacle. The determination of whether a supplemental notification is required depends on whether MeridianCode's fee demand, standing alone, constitutes a "dispute exceeding $5,000,000" or whether it must be aggregated with other potential claims (such as the derivative works claim) to reach the threshold. Prudence counsels monitoring this issue and preparing a supplemental notification for prompt submission if MeridianCode t

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