1007-00008 · Vantage Mobility Systems Corp · Memoranda

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PRIVILEGED AND CONFIDENTIAL — ATTORNEY-CLIENT PRIVILEGED / ATTORNEY WORK PRODUCT

MEMORANDUM

TO: Martin G. Cross, General Counsel, Vantage Mobility Systems Corp.

CC: Thomas R. Keating, CEO, Vantage Mobility Systems Corp.; Sandra M. Okafor, CFO, Vantage Mobility Systems Corp.; Dennis J. Whitfield, CTO, Vantage Mobility Systems Corp.

FROM: Bernard Crawford, Partner, Calderwood & Harkness LLP; Gabrielle Moss, Associate, Calderwood & Harkness LLP

DATE: September 29, 2023

RE: Reactivation vs. Termination — Strategic Options Analysis under the Master Embedded Software License and Services Agreement dated June 21, 2022 (the "MESLSA") between Vantage Mobility Systems Corp. ("VMS") and Meridian Code Technologies, Inc. ("MeridianCode")

C&H Matter No.: 1007-00008

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I. Executive Summary

This memorandum presents and evaluates four strategic options available to Vantage Mobility Systems Corp. ("VMS") for resolving the current dormancy of the Master Embedded Software License and Services Agreement dated June 21, 2022 (the "MESLSA") with Meridian Code Technologies, Inc. ("MeridianCode"). The analysis is necessitated by the rescoping of Project Argonaut from five designated vehicle platform configurations to two, and the resulting financial exposure that VMS now confronts under the existing contractual framework.

To date, VMS has paid a total of $12,320,000 under the MESLSA, comprising the following:

• $8,000,000 upfront license fee for the ATLAS-RT™ embedded real-time operating system;

• $2,400,000 in Year 1 Maintenance & Support fees; and

• $1,920,000 in integration services fees for completed Milestones 1 through 3.

VMS's total remaining contractual commitment under the MESLSA — absent amendment or termination — is $7,680,000, broken down as follows:

• $2,400,000 in disputed Year 2 Maintenance & Support fees (invoiced July 1, 2023; VMS disputes the obligation during dormancy);

• $1,280,000 in unpaid integration services fees for Milestones 4 and 5; and

• $4,000,000 in per-unit runtime royalty cap exposure over the remaining license term.

As discussed in greater detail below, MeridianCode acknowledged Dormancy Status under the MESLSA on August 3, 2023. Under Section 9.4 of the MESLSA, the 12-month dormancy cap expires on August 3, 2024, at which point the parties are obligated to enter into mandatory renegotiation or the agreement is subject to termination. Separately, the 24-month anniversary of the MESLSA falls on June 21, 2024 — a critical inflection point because termination for convenience before that date triggers forfeiture of all prepaid fees under Section 9.1 of the MESLSA.

An additional near-term deadline requires urgent attention. Section 4.3 of the MESLSA contains a "Use-It-or-Lose-It" provision requiring VMS to commence integration testing on at least two platforms within 18 months of the Effective Date. That deadline falls on December 21, 2023 — less than three months from the date of this memorandum. While dormancy tolling arguments are available to VMS under Section 9.4's tolling of "all milestone deadlines," the applicability of that tolling provision to Section 4.3 — which operates as a condition precedent rather than a milestone — is not free from doubt. A separate memorandum (Use-It-or-Lose-It Compliance Memo) addresses this issue in detail.

Adding further complexity, a derivative works dispute has emerged concerning three bodies of code designated DW-001, DW-002, and DW-003, comprising approximately 47,000 lines of code with an estimated commercial value of $1,800,000 to $2,500,000 per the assessment of Hargrove Technical Consulting (Dr. Samuel Beecroft). VMS contends that these works are solely owned by VMS, while MeridianCode asserts joint ownership under Section 7.2 of the MESLSA with a perpetual royalty-free license-back.

After careful analysis of the contractual provisions, financial exposure, commercial considerations, and litigation risk, we recommend Option 2 — Negotiated Fee Restructuring and Dormancy Extension as the preferred strategic path. This option preserves VMS's reactivation optionality while managing financial exposure, addresses the derivative works dispute, and aligns with the capital expenditure reduction objectives communicated by Kestrel Capital Partners, LP. In the event that Option 2 negotiations do not produce acceptable terms, VMS should be prepared to pursue Option 3 — Termination for Convenience After June 21, 2024 as a defined contingency.

The balance of this memorandum sets forth the background, identifies the key contractual provisions governing the analysis, presents each option in detail with a full assessment of financial, legal, and strategic implications, and concludes with a comparative financial exposure summary and specific action items for VMS's leadership team.

II. Background

A. The MESLSA and Project Argonaut

VMS and MeridianCode executed the MESLSA on June 21, 2022. The total deal value of the MESLSA is $20,000,000, encompassing upfront license fees, annual maintenance and support fees, integration services fees, and per-unit runtime royalties over a five-year term.

The licensed product under the MESLSA is MeridianCode's proprietary ATLAS-RT™ embedded real-time operating system, Version 4.2, which has been subsequently updated to Version 4.2.3 through standard maintenance releases. ATLAS-RT is a deterministic, hard-real-time operating system designed for safety-critical embedded applications, including automotive platforms requiring compliance with ISO 26262 functional safety standards.

The license scope granted under the MESLSA is perpetual (subject to a five-year term ending June 20, 2027), worldwide, and specifically scoped for integration into up to five designated vehicle platform configurations under the internal VMS initiative designated as "Project Argonaut." The five platforms are identified in the MESLSA as Argonaut-A, Argonaut-B, Argonaut-C, Argonaut-D, and Argonaut-E, each with distinct hardware reference designs and target vehicle applications specified in Exhibit B to the MESLSA.

The MESLSA is governed by the laws of the State of Michigan. Disputes arising under the agreement are subject to binding arbitration under the rules of the Midwest Arbitration Institute. For disputes exceeding $1,000,000, the arbitration is conducted before a three-arbitrator panel, seated in Detroit, Michigan.

Project Argonaut, in its original conception, was VMS's strategic initiative to deploy a unified embedded-software architecture across its entire next-generation lineup of adaptive vehicle platforms. The project was designed to consolidate VMS's disparate embedded systems onto a single, standards-based RTOS layer, reducing engineering complexity, accelerating time-to-market, and achieving cost efficiencies through platform commonality. Project Argonaut was a cornerstone of the growth strategy developed following Kestrel Capital Partners' acquisition of VMS in 2019.

B. Fee Structure

The MESLSA establishes the following fee structure, with a total aggregate deal value of $20,000,000:

Upfront License Fee: $8,000,000, paid on June 21, 2022 upon execution of the MESLSA. This fee covers the perpetual license grant for ATLAS-RT Version 4.2 across all five designated platforms.

Year 1 Annual Maintenance & Support: $2,400,000, paid on July 15, 2022. This fee covers standard maintenance and support services including software updates, bug fixes, security patches, and technical support for the first year of the license term (June 21, 2022 through June 20, 2023).

Year 2 Annual Maintenance & Support: $2,400,000, invoiced by MeridianCode on July 1, 2023 for the second year of the license term (June 21, 2023 through June 20, 2024). VMS has not paid this invoice and disputes its obligation to make this payment during the dormancy period. This dispute is addressed in a separate memorandum (Year 2 Maintenance Fee Obligation Memo).

Integration Services Fee: $3,200,000 in total across five milestones, payable upon completion of each milestone as set forth in Exhibit C to the MESLSA. Of this amount, $1,920,000 has been paid for Milestones 1 through 3 (completed). The remaining $1,280,000 is allocable to Milestones 4 and 5, which have not been commenced for any platform following the Project Argonaut rescoping and subsequent dormancy.

Per-Unit Runtime Royalties: $80 per unit deployed in production vehicles, subject to an aggregate cap of $4,000,000 over the five-year license term, which equates to a maximum of 50,000 production units. As of the date of this memorandum, no runtime royalties have been incurred because VMS has not shipped any production units incorporating ATLAS-RT.

The total deal value reconciliation is as follows: $8,000,000 (upfront license) + $2,400,000 (Year 1 Maintenance) + $2,400,000 (Year 2 Maintenance) + $3,200,000 (integration services) + $4,000,000 (runtime royalty cap) = $20,000,000.

C. Rescoping of Project Argonaut

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 rescoped program, VMS will retain only Argonaut-A and Argonaut-C, which correspond to internal combustion engine (ICE) fleet vehicle platforms. Argonaut-B, Argonaut-D, and Argonaut-E — which were oriented toward electric vehicle (EV) and hybrid powertrain platforms — are deferred indefinitely to a future "Phase II" electrification initiative for which no firm date has been established.

The Board's decision to rescope was driven by three principal factors:

First, persistent supply-chain delays in semiconductor procurement, particularly affecting the specialized system-on-chip (SoC) components required for the EV-focused platforms (Argonaut-B, D, and E). Lead times for these components had extended to 42–56 weeks, rendering the original program timeline unachievable.

Second, a portfolio-wide capital expenditure reduction directive issued by Kestrel Capital Partners, LP, VMS's private equity sponsor. This directive, communicated to VMS management in January 2023, required all Ashgrove Equity Partners portfolio companies to reduce discretionary capital spending by 15–20% in response to macroeconomic conditions and rising financing costs.

Third, a strategic decision by VMS management, concurred in by the Board, to prioritize the development and deployment of ICE-platform fleet vehicles (Argonaut-A and Argonaut-C) over the EV platforms, based on near-term market demand analysis and revenue projections indicating stronger commercial opportunity in the adaptive mobility ICE segment through 2026.

At the time of the rescoping decision, integration work under the MESLSA had progressed to the following stages across the five platforms:

Argonaut-A: Milestone 3 of 5 completed. Alpha integration testing was successfully passed on February 28, 2023. This platform had the most advanced integration status and represented the greatest engineering investment.

Argonaut-B: Milestone 1 only. The requirements specification had been approved, but no source-code integration had commenced. Integration work on this platform was in its earliest stages.

Argonaut-C: Milestone 2 of 5 completed. Source-code customization for the Argonaut-C hardware reference design was delivered by MeridianCode on January 15, 2023. This platform was at an intermediate stage of integration.

Argonaut-D and Argonaut-E: Not commenced. Neither platform had progressed beyond preliminary scoping discussions. No milestones had been initiated for either platform.

In addition to the contractual fees paid to MeridianCode, VMS's internal engineering teams had invested approximately 14,200 person-hours across multiple departments (Software Integration Engineering, Platform Architecture, Quality Assurance, and Systems Testing) on Project Argonaut integration work. This investment represents significant sunk costs irrespective of the strategic option ultimately selected.

D. Dormancy Status

Following the March 14, 2023 Board resolution to rescope Project Argonaut, VMS suspended all active integration work under the MESLSA effective March 22, 2023. From that date forward, no integration activities have been performed on any platform.

Under Section 9.4 of the MESLSA, a suspension of active integration for more than 120 consecutive days without written notice from the licensee constitutes a triggering event for deemed abandonment. Calculated from the suspension date of March 22, 2023, the 120-day dormancy trigger date fell on July 20, 2023.

VMS acted to preserve its rights under the MESLSA by sending a formal dormancy notice to MeridianCode on July 14, 2023 — six days before the 120-day trigger date. The notice formally invoked Section 9.4 of the MESLSA and stated VMS's intention to place the license into Dormancy Status while VMS evaluated its forward program requirements.

MeridianCode acknowledged Dormancy Status in a written response dated August 3, 2023, signed by Gregory L. Fisk, SVP, Automotive & Mobility Licensing. However, MeridianCode's acknowledgment letter departed from VMS's position in three material respects:

First, MeridianCode asserted that VMS's obligation to pay the Year 2 Maintenance & Support Fee of $2,400,000 (invoiced July 1, 2023) is not suspended or abated during dormancy, and that the fee became due and payable upon invoicing regardless of the integration status of the licensed software.

Second, MeridianCode took the position that support during dormancy is limited to "critical-security-patch-only" level as provided in Section 9.4, but that this reduced support level does not entitle VMS to any reduction in the Maintenance & Support Fee, which MeridianCode characterizes as a platform license maintenance fee rather than a services fee.

Third, MeridianCode reasserted its position under Section 7.2 that it holds joint ownership of all derivative works created during the integration process, including DW-001, DW-002, and DW-003, and that its perpetual royalty-free license-back to such derivative works survives dormancy and any subsequent termination of the MESLSA.

Under Section 9.4, the dormancy period may not exceed 12 months before triggering mandatory renegotiation or termination. Because the 12-month dormancy clock runs from MeridianCode's formal acknowledgment date of August 3, 2023, the dormancy cap expires on August 3, 2024.

During the dormancy period, support from MeridianCode has been reduced to critical-security-patch-only level, and all milestone deadlines under the integration services schedule have been tolled. No integration work of any kind is being performed.

E. Related Matters

Several related matters bear on the strategic options analysis and are summarized here for context:

Credit Facility Notification. VMS notified Pinnacle National Bank, N.A., in its capacity as administrative agent under VMS's $175,000,000 Senior Secured Revolving Credit Facility dated September 12, 2019, of the dormancy of the MESLSA on August 10, 2023. This notification was made pursuant to Section 6.12 of the credit agreement, which requires VMS to notify the administrative agent of any material adverse development with respect to any contract having a value in excess of $5,000,000. As of July 2023, VMS had $92,000,000 in outstanding borrowings under the revolving facility. The relationship between the MESLSA situation and VMS's ongoing compliance with the credit facility covenants is addressed in a separate memorandum (Credit Facility Covenant Compliance Memo).

Technology E&O Policy. VMS maintains a Technology Errors & Omissions Insurance Policy, Policy No. TEO-2022-7891, issued by Commonwealth Surety & Insurance Co. The policy provides coverage of $10,000,000 per occurrence and $20,000,000 in the aggregate, with a $500,000 per-occurrence retention. This policy may have potential applicability to losses arising from the derivative works intellectual property dispute with MeridianCode, depending on the characterization of the claim and the specific policy exclusions. The coverage analysis is addressed in a separate memorandum (Insurance Coverage Analysis Memo), and early notice to Commonwealth is recommended regardless of the strategic option selected.

Derivative Works Dispute. During the course of integration work on Argonaut-A and Argonaut-C, VMS's Software Integration Engineering team, under the direction of Lena Petrova (Director, Software Integration Engineering), developed three distinct bodies of code designated DW-001, DW-002, and DW-003, comprising in the aggregate approximately 47,000 lines of code. VMS contends that these works are VMS-originated original works of authorship, created by VMS employees using VMS resources, and that VMS is the sole owner thereof. MeridianCode contends that DW-001, DW-002, and DW-003 constitute "modifications, adaptations, or extensions" to ATLAS-RT source code within the meaning of Section 7.2 of the MESLSA, and are therefore jointly owned by VMS and MeridianCode, with MeridianCode retaining a perpetual, royalty-free license-back. Hargrove Technical Consulting (Dr. Samuel Beecroft) has been retained by VMS to perform an independent technical assessment of the derivative works; Dr. Beecroft's preliminary report values the derivative works at $1,800,000 to $2,500,000 based on replacement cost, commercial utility, and code complexity metrics. The derivative works ownership dispute is analyzed in detail in a separate memorandum (Derivative Works Ownership Memo).

III. Key Contractual Provisions Governing the Analysis

The following provisions of the MESLSA are central to the strategic options analysis. Each is discussed here in the context of its application to VMS's current situation. Cross-references to the specific MESLSA sections are provided for ease of reference.

A. Section 9.1 — Termination for Convenience

Section 9.1 of the MESLSA provides that either party may terminate the agreement for convenience upon 180 days' prior written notice to the other party. The termination for convenience right is not conditioned on any showing of cause, breach, or default, and is available to either party at any time during the term of the agreement, subject to the notice requirement.

However, Section 9.1 contains a critical limitation that directly affects VMS's strategic calculus. If the licensee exercises its termination for convenience right prior to the 24-month anniversary of the Effective Date (i.e., prior to June 21, 2024), the licensee forfeits all prepaid fees, including the upfront license fee and any maintenance and support fees previously paid. This forfeiture provision was negotiated by MeridianCode as a mechanism to protect its upfront investment in licensing and configuring the ATLAS-RT platform for VMS's specific vehicle configurations, and to provide MeridianCode with a minimum revenue guarantee during the initial implementation period.

As applied to VMS's situation, termination for convenience prior to June 21, 2024 would result in the forfeiture of at least $10,400,000 in prepaid fees ($8,000,000 upfront license fee plus $2,400,000 Year 1 Maintenance & Support fee), and potentially $12,320,000 if the $1,920,000 in integration services fees for Milestones 1–3 are also treated as "prepaid fees" subject to forfeiture. The scope of the forfeiture provision as applied to integration services fees is ambiguous and would require further analysis, but the risk is substantial.

After June 21, 2024, the forfeiture provision in Section 9.1 ceases to apply. However, it is important to note that the MESLSA does not expressly provide for any refund or credit of prepaid fees upon a post-anniversary termination for convenience. The absence of a refund provision means that, while VMS would not be required to forfeit prepaid fees, VMS also has no contractual basis to demand return of those fees. The upfront license fee and Year 1 Maintenance & Support fee would likely be characterized as fully earned and non-refundable under the MESLSA's payment terms. Any argument for recapture of prepaid fees in a post-anniversary termination scenario would need to rely on unjust enrichment, failure of consideration, or similar equitable theories, which face significant uncertainty under Michigan law. A detailed analysis of recapture rights is included in the Fee Forfeiture Risk Analysis Memo.

B. Section 9.4 — Dormancy

Section 9.4 of the MESLSA establishes the dormancy framework that governs the current suspension of integration activities. The dormancy provision is triggered when the licensee suspends active integration work for more than 120 consecutive days without providing written notice to the licensor. If the licensee provides timely written notice of its intent to suspend integration activities (as VMS did on July 14, 2023), the licensor converts the license to "Dormancy Status."

During Dormancy Status, the following conditions apply:

(a) Support from the licensor is reduced to a critical-security-patch-only level. The licensor is not obligated to provide general maintenance releases, feature updates, compatibility updates, or technical support during the dormancy period, other than patches addressing identified security vulnerabilities rated "Critical" or "High" under the Common Vulnerability Scoring System (CVSS).

(b) All milestone deadlines under the integration services schedule (Exhibit C) are tolled for the duration of the dormancy period. The tolled deadlines resume running upon the licensee's written notice of reactivation.

(c) The dormancy period may not exceed 12 months from the date of the licensor's acknowledgment of Dormancy Status. Upon expiration of the 12-month dormancy cap, the parties must enter into mandatory renegotiation of the agreement terms, or the agreement is subject to termination.

As applied to VMS's situation, the 12-month dormancy cap runs from August 3, 2023 (the date of MeridianCode's acknowledgment) and expires on August 3, 2024. At that point, VMS and MeridianCode will be obligated to enter into mandatory renegotiation, failing which the MESLSA is subject to termination under the provisions of Section 9.4.

The tolling provision in Section 9.4 is a critical interpretive issue. Section 9.4 states that dormancy tolls "all milestone deadlines," and VMS has taken the position that this tolling extends to the Section 4.3 Use-It-or-Lose-It deadline. However, as discussed in Section III.C below, this argument is not free from doubt.

C. Section 4.3 — Use-It-or-Lose-It

Section 4.3 of the MESLSA imposes a condition precedent requiring the licensee to commence integration testing on at least two designated platforms within 18 months of the Effective Date. Calculated from the June 21, 2022 Effective Date, the Section 4.3 deadline falls on December 21, 2023.

This provision was included in the MESLSA at MeridianCode's insistence to ensure that VMS would make timely and meaningful use of the ATLAS-RT license and not merely warehouse the technology to prevent competitors from licensing it. The consequence of failing to satisfy the Section 4.3 condition precedent is not expressly stated in the MESLSA, but the provision is structured as a condition to the continuation of the full license grant. Failure to satisfy it arguably gives MeridianCode the right to narrow the license scope, impose additional fees, or assert a material breach.

The key question for VMS is whether the dormancy tolling provision in Section 9.4 — which tolls "all milestone deadlines" — also tolls the Section 4.3 deadline. This question turns on whether the Section 4.3 requirement is properly characterized as a "milestone deadline" within the meaning of Section 9.4.

VMS has a reasonable argument that Section 9.4's tolling provision should be read broadly to encompass all contractual deadlines related to integration activities, including the Section 4.3 commencement requirement. The purpose of the dormancy provision is to preserve the licensee's rights during a period of suspended activity, and it would be inconsistent with that purpose to toll milestone deadlines while simultaneously requiring compliance with a deadline that presupposes active integration work. Furthermore, the term "milestone deadlines" is not defined in the MESLSA, and under Michigan principles of contract construction, ambiguous terms are generally construed against the drafter — in this case, MeridianCode, which proposed the dormancy framework.

However, this argument is not free from doubt. Section 4.3 is structured as a standalone condition precedent in Article 4 (License Grant), not as a milestone in Exhibit C (Integration Services Schedule). The integration milestones in Exhibit C are discrete, enumerated deliverables (Milestones 1 through 5) with specific acceptance criteria and payment triggers. Section 4.3, by contrast, establishes a general commencement requirement that operates at a higher level of abstraction. MeridianCode can be expected to argue that the tolling provision in Section 9.4 applies only to the specifically enumerated milestone deadlines in Exhibit C and does not extend to the distinct condition precedent in Section 4.3.

A separate memorandum (Use-It-or-Lose-It Compliance Memo) addresses this issue in detail and evaluates VMS's fallback arguments, including the argument that Argonaut-A's successful completion of Milestone 3 (alpha integration testing passed on February 28, 2023) constitutes "commenced integration testing" on one platform, and that Argonaut-C's completion of Milestone 2 (source-code customization delivered January 15, 2023) constitutes — or at minimum substantially constitutes — commencement of integration testing on a second platform, thereby satisfying the two-platform requirement of Section 4.3 irrespective of tolling.

D. Section 7.2 — Derivative Works

Section 7.2 of the MESLSA addresses the ownership of derivative works created during the integration process. The provision establishes a joint-ownership framework for "modifications, adaptations, or extensions" to the ATLAS-RT source code created by VMS engineers (or VMS's contractors) during integration. Under Section 7.2, such derivative works are jointly owned by VMS and MeridianCode, and MeridianCode retains a perpetual, royalty-free, non-exclusive license to use, reproduce, distribute, and create further derivative works from such jointly owned works.

The central dispute regarding Section 7.2 involves the characterization of DW-001, DW-002, and DW-003. VMS contends that these three bodies of code are not "modifications, adaptations, or extensions" to the ATLAS-RT source code, but rather independently developed VMS works that interact with — but do not modify — the ATLAS-RT platform. VMS's position is that DW-001, DW-002, and DW-003 communicate with ATLAS-RT through published application programming interfaces (APIs) and standard inter-process communication protocols, and that the code does not incorporate, adapt, or extend any ATLAS-RT source code.

MeridianCode's position, as communicated by its outside counsel at Redstone Whitaker LLP, is that DW-001, DW-002, and DW-003 are derivative works within the meaning of Section 7.2 because they (a) were developed specifically for integration with the ATLAS-RT platform, (b) rely upon proprietary ATLAS-RT kernel data structures and scheduling primitives that go beyond published APIs, and (c) incorporate ATLAS-RT header files and configuration templates that constitute ATLAS-RT source code.

The resolution of this dispute has significant implications for each strategic option, as discussed in the option-specific analyses below. Under the current terms of the MESLSA, the Section 7.2 joint-ownership regime and MeridianCode's perpetual license-back survive termination of the agreement, meaning that VMS cannot unilaterally resolve this dispute through termination alone.

E. Section 12.6 — Change of Control

Section 12.6 of the MESLSA provides that assignment of the agreement by the licensee in connection with a change of control of the licensee requires the prior written consent of the licensor, such consent not to be unreasonably withheld, conditioned, or delayed.

This provision is relevant primarily to Option 1 (Reactivation) if Meridian Growth Partners a future exit from its investment in VMS — whether through a sale, initial public offering, or recapitalization — during the remaining license term (through June 20, 2027). Any such transaction would likely constitute a change of control of VMS and would require MeridianCode's consent to assignment of the MESLSA. While the "not to be unreasonably withheld" standard provides some protection to VMS, the consent requirement introduces a potential friction point in any future exit process and may affect deal timing and valuation.

IV. Option 1: Reactivation for Rescoped 2-Platform Program

A. Description. Under Option 1, VMS would exit Dormancy Status, reactivate integration activities under the MESLSA, and resume the Project Argonaut program on a rescoped basis encompassing only two platforms: Argonaut-A and Argonaut-C. Integration work would resume from the current milestone status of each platform — Argonaut-A at Milestone 3 (alpha integration testing passed) and Argonaut-C at Milestone 2 (source-code customization delivered). Platforms Argonaut-B, Argonaut-D, and Argonaut-E would be abandoned entirely; no further integration work would be performed on those platforms.

Under this option, no amendment to the MESLSA would be executed. VMS would continue to operate under the existing terms of the agreement, including the five-platform license scope, the existing fee structure, and the existing provisions regarding derivative works, maintenance and support, and runtime royalties. The unused license capacity for platforms B, D, and E would remain on VMS's books but would generate no value.

Reactivation would be accomplished by VMS's delivery of a written notice to MeridianCode under Section 9.4 indicating VMS's intent to exit Dormancy Status and resume active integration. Upon receipt of such notice, MeridianCode would be obligated to restore full maintenance and support services and to resume milestone deliverable activities under the integration services schedule.

B. Financial Implications

The financial implications of Option 1 are as follows:

Year 2 Maintenance Fee ($2,400,000). Upon reactivation, the Year 2 Maintenance & Support Fee becomes payable. MeridianCode has already invoiced this amount and is expected to demand payment as a condition of exiting Dormancy Status and restoring full support services. MeridianCode may also demand accrued interest on the unpaid invoice and may assert late-payment fees under Section 5.4 of the MESLSA, which provides for interest on past-due amounts at the rate of 1.5% per month (18% per annum). If VMS reactivates in, for example, January 2024 (approximately six months after the July 1, 2023 invoice date), accrued interest at 18% per annum on $2,400,000 would total approximately $216,000.

Integration Services Milestones 4 and 5 ($1,280,000). The remaining $1,280,000 in integration services fees becomes payable upon completion of Milestones 4 and 5. However, VMS should argue that the milestone deliverables specified in Exhibit C are structured on a per-platform basis and that certain milestone activities may not be required for all platforms. If VMS is pursuing only Argonaut-A and Argonaut-C, a portion of the milestone fees may not be triggered if the applicable deliverables relate to platforms that are no longer being pursued. This argument requires careful examination of the Exhibit C milestone specifications and may or may not yield a meaningful fee reduction.

Runtime Royalties. VMS's exposure to per-unit runtime royalties remains at $80 per unit with an aggregate cap of $4,000,000, but with only two platforms in production rather than five, VMS is unlikely to reach the 50,000-unit cap during the remaining license term. Based on current production forecasts for Argonaut-A and Argonaut-C, a realistic deployment volume of 20,000 to 30,000 units over the remaining term would result in runtime royalty exposure of approximately $1,600,000 to $2,400,000. For purposes of this analysis, we use an estimated midpoint of $2,000,000.

Total Forward Cost Estimate. Combining the foregoing, VMS's estimated forward cash outlay under Option 1 is approximately $5,680,000, consisting of $2,400,000 (Year 2 Maintenance) + $1,280,000 (Milestones 4–5) + $2,000,000 (estimated runtime royalties).

Total All-In Cost. Adding the $12,320,000 already paid to the estimated $5,680,000 in forward costs, VMS's total all-in cost under Option 1 would be approximately $18,000,000 for a two-platform program that was originally scoped and priced for five platforms.

Cost-Per-Platform Comparison. Under the original five-platform scope, the $20,000,000 total deal value represented $4,000,000 per platform. Under the rescoped two-platform program at an all-in cost of approximately $18,000,000, the effective cost per platform increases to approximately $9,000,000 — more than double the original per-platform pricing. This significant deterioration in unit economics is a fundamental concern with Option 1.

Engineering Sunk Costs. VMS's internal engineering investment of approximately 14,200 person-hours represents sunk costs that are incurred regardless of which option VMS selects. Under Option 1, the integration progress achieved through those engineering hours (particularly on Argonaut-A and Argonaut-C) would be preserved and leveraged, partially mitigating the sunk cost impact.

C. Advantages. Option 1 offers several advantages:

1. Preservation of Paid Value. Reactivation preserves the value of the $12,320,000 already paid under the MESLSA. VMS avoids any risk of forfeiture, write-off, or loss of the prepaid fees. The upfront license fee, Year 1 Maintenance Fee, and Milestones 1–3 integration services fees continue to yield value through the resumed program.

2. Leverage of Existing Integration Progress. Significant integration work has already been completed on Argonaut-A (Milestone 3, alpha integration testing passed) and Argonaut-C (Milestone 2, source-code customization delivered). Reactivation allows VMS to build on this progress rather than starting from scratch with an alternative RTOS vendor.

3. Technology Validation. The ATLAS-RT platform has been partially validated through the alpha integration testing on Argonaut-A. VMS's internal engineering team has developed domain familiarity with the ATLAS-RT architecture, APIs, and configuration requirements. This institutional knowledge has significant value and would be lost if VMS terminates and procures an alternative RTOS.

4. No Arbitration Risk. Reactivation under existing terms involves no dispute, no termination, and therefore no risk of arbitration proceedings before the Midwest Arbitration Institute. VMS avoids the estimated $500,000 to $1,200,000 in arbitration costs and the associated management distraction and uncertainty.

5. Relationship Preservation. Reactivation maintains VMS's commercial relationship with MeridianCode, which may be valuable for future licensing needs. If VMS proceeds with Phase II electrification and requires ATLAS-RT or next-generation RTOS capabilities for future EV platforms, a preserved relationship with MeridianCode would facilitate those negotiations.

D. Disadvantages. Option 1 has significant disadvantages:

1. Unfavorable Unit Economics. As noted above, VMS would be paying approximately $9,000,000 per platform for a license originally priced at $4,000,000 per platform. This represents a 125% increase in per-platform cost, which is difficult to justify from a business case perspective.

2. Over-Scoped License. VMS retains a five-platform license for a two-platform program. There is no fee credit, rebate, or reduction under the existing MESLSA terms for the unused license capacity associated with Argonaut-B, Argonaut-D, and Argonaut-E. VMS essentially pays for capacity it will not use.

3. Year 2 Maintenance Fee Dispute. The $2,400,000 Year 2 Maintenance Fee dispute must be resolved as an entry price for reactivation. MeridianCode has made clear that it expects payment of this amount in full, including potential interest and late fees. VMS loses its leverage on this dispute because reactivation signals commitment to the MESLSA on existing terms.

4. Derivative Works Dispute Unresolved. Reactivation without amendment leaves the derivative works dispute regarding DW-001, DW-002, and DW-003 unresolved. MeridianCode retains its Section 7.2 joint-ownership claim and perpetual royalty-free license-back. This means that MeridianCode could potentially incorporate VMS-developed code into its own products or license it to VMS's competitors, subject to any restrictions that may be implied by the joint-ownership arrangement.

5. Capital Expenditure Pressure. Option 1 requires VMS to commit approximately $5,680,000 in additional forward capital expenditure, which is inconsistent with Ashgrove Equity Partners's portfolio-wide capital expenditure reduction directive. Any decision to proceed with Option 1 would require Ashgrove Equity Partners's concurrence and may face scrutiny from the board.

6. Section 4.3 Risk. The Section 4.3 Use-It-or-Lose-It compliance issue remains outstanding even under Option 1. If the tolling argument is rejected by MeridianCode (or in a potential arbitration), MeridianCode may assert that VMS has already lost certain rights under the MESLSA, notwithstanding VMS's willingness to reactivate.

E. Assessment. Option 1 is viable if, and only if, VMS has a strong commercial rationale and near-term revenue justification for proceeding with Argonaut-A and Argonaut-C on the ATLAS-RT platform at the effective per-platform cost of approximately $9,000,000. This assessment requires input from Dennis Whitfield (CTO) and Lena Petrova (Director, Software Integration Engineering) regarding the technical feasibility and estimated timeline for resumed integration, as well as from Sandra Okafor (CFO) regarding the financial justification and return-on-investment analysis.

Option 1 is not recommended without concurrent negotiation of fee restructuring (as contemplated by Option 2), because the per-platform economics under the existing MESLSA terms are fundamentally unfavorable in a two-platform scenario. If VMS determines that reactivation is the preferred commercial path, it should pursue Option 2 to obtain fee concessions and scope alignment before committing to resume integration activities.

V. Option 2: Negotiated Fee Restructuring and Dormancy Extension

A. Description. Under Option 2, VMS and MeridianCode would negotiate and execute an amendment to the MESLSA (provisionally designated "Draft Amendment No. 1") implementing the following terms:

(a) Dormancy Extension. Extension of the 12-month dormancy cap established by Section 9.4 by an additional 12 months, moving the dormancy expiration from August 3, 2024 to August 3, 2025. This provides VMS with a full additional year to evaluate its program requirements, secure supply-chain commitments, and make a final determination regarding reactivation.

(b) Scope Reduction. Formal reduction of the license scope from five designated platforms (Argonaut-A through Argonaut-E) to two (Argonaut-A and Argonaut-C only). This would amend the platform schedule in Exhibit B and eliminate the unused capacity for platforms B, D, and E.

(c) Year 2 Maintenance Fee Credit. Credit of the disputed $2,400,000 Year 2 Maintenance & Support Fee against future integration services fees or runtime royalties, rather than requiring VMS to make an additional cash payment. This resolves the outstanding fee dispute without conceding VMS's position that the fee was not payable during dormancy.

(d) Royalty Cap Reduction. Reduction of the per-unit runtime royalty aggregate cap from $4,000,000 to $2,000,000, reflecting the reduced scope of the program from five platforms to two. The per-unit royalty rate of $80 would remain unchanged.

(e) Derivative Works Resolution. A carve-out of DW-001, DW-002, and DW-003 from the Section 7.2 joint-ownership regime, establishing sole VMS ownership of these derivative works. In exchange, VMS would grant MeridianCode a limited, non-exclusive, perpetual license-back to use DW-001, DW-002, and DW-003 solely for non-automotive applications. This license-back would be narrower than the unrestricted perpetual license-back contemplated by Section 7.2, and would prevent MeridianCode from incorporating VMS's code into competing automotive products.

(f) Section 4.3 Revision. Revision of the Section 4.3 Use-It-or-Lose-It deadline to accommodate dormancy tolling and the rescoped program timeline. The revised deadline would require VMS to commence integration testing on at least two platforms within a specified period following reactivation (e.g., 12 months after delivery of a written reactivation notice), rather than within 18 months of the original Effective Date.

Simultaneously with the negotiation of these terms, VMS would preserve its flexibility to either reactivate the program (if commercial conditions warrant) or terminate the MESLSA (if reactivation is ultimately not justified) at a future date. The dormancy extension provides VMS with a protected window during which it can make this decision without being forced into mandatory renegotiation or termination under the existing Section 9.4 timeline.

B. Financial Implications

The financial implications of Option 2 are significantly more favorable to VMS than Option 1:

Year 2 Maintenance Fee. Under the proposed amendment, the $2,400,000 Year 2 Maintenance Fee would be credited against future fees rather than paid in cash. This reduces VMS's forward cash outlay by $2,400,000 compared to Option 1 and resolves the pending fee dispute without arbitration.

Integration Services Fees. The $1,280,000 in remaining integration services fees for Milestones 4 and 5 would potentially be restructured to reflect the reduced scope of the program. With only two platforms rather than five, certain milestone deliverables may be eliminated or consolidated. Depending on the outcome of negotiations, the restructured integration services fee for the remaining work could range from approximately $800,000 to $1,280,000.

Runtime Royalties. The aggregate royalty cap would be reduced from $4,000,000 to $2,000,000, reflecting the reduced production volume expected from a two-platform program. The per-unit rate of $80 would remain unchanged. This reduction aligns the royalty structure with the actual commercial scope of the program.

Total Potential Forward Cost. Under Option 2, VMS's estimated forward cost ranges from approximately $2,800,000 to $3,280,000, consisting of $0 in Year 2 Maintenance (credited) + $800,000 to $1,280,000 in restructured integration services fees + $2,000,000 in reduced royalty cap exposure.

Total All-In Cost. Adding the $12,320,000 already paid, VMS's total all-in cost under Option 2 would range from approximately $15,120,000 to $15,600,000 for the two-platform program.

Cost-Per-Platform. The effective cost per platform under Option 2 ranges from approximately $7,560,000 to $7,800,000, which represents an improvement over Option 1's approximately $9,000,000 per platform but remains above the original per-platform pricing of $4,000,000.

MeridianCode Reactivation Fee. As discussed in Section V.C below, MeridianCode has proposed a $1,500,000 reactivation fee in its counter-proposals to Draft Amendment No. 1. If this fee is accepted (which is not recommended), the total all-in cost would increase to approximately $16,620,000 to $17,100,000. C&H recommends negotiating this fee down to a maximum of $750,000, if any reactivation fee is conceded at all.

Derivative Works Value Preservation. If the derivative works carve-out is successful, VMS retains sole ownership of DW-001, DW-002, and DW-003, representing $1,800,000 to $2,500,000 in code assets (per Hargrove Technical Consulting's assessment). This is a significant advantage compared to the other options, under which VMS either shares ownership with MeridianCode or loses leverage to negotiate a favorable resolution.

C. MeridianCode's Likely Negotiating Position

MeridianCode is represented in the MESLSA negotiations by Redstone Whitaker LLP, an intellectual property and technology transactions boutique based in San Francisco. The lead partners on the matter are Alan M. Briscoe (co-chair of Redstone Whitaker's Technology Licensing Practice) and Natasha C. Ferraro (who handled the original MESLSA negotiation). MeridianCode's commercial negotiators are Gregory L. Fisk (SVP, Automotive & Mobility Licensing) and Diana Cho (Director, Enterprise License Management).

Based on the correspondence and counter-proposals exchanged to date, MeridianCode's negotiating position is expected to include the following elements:

Maintenance Fee During Dormancy. MeridianCode has consistently pushed back on VMS's position that the Year 2 Maintenance Fee is suspended or abated during dormancy. MeridianCode is likely to insist on at least a partial maintenance fee payment during the dormancy period, arguing that it continues to incur costs in maintaining the ATLAS-RT platform and providing critical-security-patch support. MeridianCode may accept a credit structure for the full $2,400,000 but is more likely to propose that a portion (e.g., 50%) be paid in cash with the remainder credited.

Reactivation Fee. In its redline of Draft Amendment No. 1, MeridianCode proposed a reactivation fee of $1,500,000, payable upon VMS's delivery of a written reactivation notice. MeridianCode characterizes this fee as compensation for the cost of re-mobilizing its engineering and support teams after a prolonged dormancy period. This fee is not provided for in the original MESLSA and represents a significant new cost element.

Derivative Works. MeridianCode is unlikely to fully relinquish its Section 7.2 joint-ownership claim with respect to DW-001, DW-002, and DW-003. However, MeridianCode may accept a compromise under which its license-back rights are restricted to non-automotive applications, particularly if VMS is willing to make concessions on other terms. The non-automotive restriction would protect VMS's competitive position in the adaptive mobility vehicle market while allowing MeridianCode to leverage the derivative works in other verticals (e.g., industrial automation, medical devices, or aerospace).

Royalty Cap Reduction. MeridianCode may resist a full proportional reduction of the royalty cap. MeridianCode's position is likely to be that the royalty structure was negotiated on the basis of the overall deal economics and should not be mechanically adjusted for scope reductions that were unilaterally initiated by VMS.

It is worth noting that MeridianCode has a commercial incentive to maintain VMS as a customer. MeridianCode's FY2022 revenue was approximately $310,000,000, and the $20,000,000 VMS deal represents a material contract for MeridianCode's Automotive & Mobility Licensing division. Losing VMS as a customer would create a revenue gap and potentially a negative reference in the automotive RTOS market. This commercial incentive provides VMS with meaningful leverage in the negotiations, notwithstanding MeridianCode's strong contractual position on certain issues.

D. Advantages. Option 2 offers the best combination of advantages among the four options:

1. Preservation of Reactivation Optionality. The 12-month dormancy extension (to August 3, 2025) gives VMS a full additional year to evaluate market conditions, supply-chain availability, and program economics before committing to reactivation or deciding to terminate. This optionality has significant strategic value, particularly in the current environment of supply-chain uncertainty and capital constraint.

2. Reduced Financial Exposure. The credit of the Year 2 Maintenance Fee, the potential restructuring of integration services fees, and the reduction of the royalty cap all serve to reduce VMS's forward financial exposure compared to Option 1. The estimated total all-in cost of $15,120,000 to $15,600,000 (or $16,620,000 to $17,100,000 with a reactivation fee) represents a meaningful improvement over Option 1's $18,000,000.

3. Derivative Works Resolution. Option 2 provides the best opportunity to resolve the derivative works dispute on terms favorable to VMS. The carve-out of DW-001, DW-002, and DW-003 to sole VMS ownership (with a limited non-automotive license-back) protects VMS's intellectual property and prevents MeridianCode from incorporating VMS-developed code into competing automotive products.

4. Forfeiture Risk Avoidance. Because no termination is required under Option 2, VMS avoids any risk of fee forfeiture under Section 9.1.

5. Section 4.3 Resolution. The contractual revision of the Section 4.3 deadline eliminates the Use-It-or-Lose-It compliance risk entirely, removing a source of uncertainty and potential leverage for MeridianCode.

6. Relationship Preservation. As with Option 1, Option 2 maintains the commercial relationship between VMS and MeridianCode, facilitating future licensing needs.

7. Alignment with Capital Expenditure Directive. By deferring major cash outlays and reducing forward financial commitments, Option 2 aligns with Ashgrove Equity Partners's portfolio-wide capital expenditure reduction directive. The dormancy extension defers the point at which VMS must make significant new expenditures under the MESLSA.

E. Disadvantages. Option 2 is not without disadvantages:

1. Requires MeridianCode's Agreement. Unlike Options 1 and 3, which VMS can pursue unilaterally (reactivation under existing terms or termination for convenience, respectively), Option 2 requires MeridianCode's agreement to amend the MESLSA. If MeridianCode refuses to negotiate in good faith, or if the parties cannot reach mutually acceptable terms, Option 2 cannot be achieved.

2. Negotiation Costs and Timeline. Negotiation of a definitive amendment is likely to be protracted, given the complexity of the issues and the number of commercial and legal terms to be addressed. Legal fees for the negotiation process will accumulate on both sides, adding to the overall cost of the transaction. Based on the pace of negotiations to date, C&H estimates that reaching a definitive agreement could take three to six months.

3. Residual Financial Exposure. Even with the restructured terms, VMS has already invested $12,320,000 in the MESLSA with no production revenue to date. If VMS ultimately concludes that reactivation is not justified and terminates after the dormancy extension period, the $12,320,000 remains at risk of being written off. Option 2 defers but does not eliminate this risk.

4. MeridianCode's Reactivation Fee. MeridianCode's proposed $1,500,000 reactivation fee adds a cost element that was not contemplated by the original MESLSA. If VMS is unable to negotiate this fee down to an acceptable level, it increases the effective cost of Option 2 significantly.

5. Credit Facility Notification. Any material amendment to the MESLSA may require notification to Pinnacle National Bank, N.A. under Section 6.12 of the credit facility agreement, as the MESLSA exceeds the $5,000,000 material contract threshold. While VMS has already notified Pinnacle of the dormancy, additional notifications regarding an amendment could draw further attention from the lender and may prompt questions about VMS's strategic program execution.

F. Assessment. Option 2 is the recommended option. It provides the best balance of financial risk management, optionality preservation, relationship maintenance, and alignment with Ashgrove Equity Partners's strategic objectives. The combination of a dormancy extension, fee restructuring, scope alignment, and derivative works resolution addresses the most significant risks facing VMS under the MESLSA while preserving VMS's ability to reactivate the program if and when commercial conditions warrant.

C&H has already circulated a term sheet and Draft Amendment No. 1 to Redstone Whitaker LLP. Counter-proposals have been received and are currently under review by the C&H team. The substantive gaps between the parties' positions are meaningful but, in our assessment, bridgeable through continued negotiation.

We recommend that VMS's Board of Directors establish authorized negotiation parameters for the engagement team, with input from Kestrel Capital Partners (Kate Drummond, Partner, Portfolio Operations, serving as board observer). The negotiation parameters should establish floor positions on each of the key terms identified above, including the maximum acceptable reactivation fee, the minimum acceptable royalty cap reduction, and the required scope of the derivative works carve-out.

The target for completion of the amendment is before August 3, 2024 — the date on which the existing 12-month dormancy cap expires and mandatory renegotiation or termination is triggered under Section 9.4. If the amendment is not executed before that date, the parties will be operating under the mandatory renegotiation framework of Section 9.4, which introduces additional procedural uncertainty and potentially weakens VMS's negotiating position.

VI. Option 3: Termination for Convenience After June 21, 2024

A. Description. Under Option 3, VMS would wait until the 24-month anniversary of the MESLSA (June 21, 2024) passes and then exercise its right to terminate for convenience under Section 9.1 by delivering 180 days' prior written notice to MeridianCode.

The earliest date on which VMS could deliver a termination for convenience notice without triggering the fee-forfeiture provision is June 22, 2024 — the day after the 24-month anniversary. With the 180-day notice period running from that date, the earliest effective termination date would be December 19, 2024 (180 days later). Upon the effective termination date, VMS would cease all obligations under the MESLSA and the license to ATLAS-RT would expire.

This option represents a clean break from MeridianCode and the MESLSA. VMS would walk away from the agreement, forfeit no prepaid fees (because the forfeiture provision no longer applies after the 24-month anniversary), but also recover none of the $12,320,000 already paid.

B. Financial Implications

Fee Forfeiture. After June 21, 2024, the fee-forfeiture clause in Section 9.1 no longer applies. VMS would not be required to forfeit prepaid fees as a consequence of terminating for convenience. This is the primary advantage of waiting until after the 24-month anniversary.

Refund of Prepaid Fees. However, as discussed in Section III.A above, the MESLSA does not expressly provide for any refund or credit of prepaid fees upon a post-anniversary termination for convenience. The $8,000,000 upfront license fee and $2,400,000 Year 1 Maintenance & Support fee are likely to be characterized as fully earned and non-refundable. The licensor's position will be that these fees were consideration for the grant of the license and the provision of first-year maintenance services, both of which were delivered, and that VMS's subsequent decision not to use the license does not give rise to a refund obligation.

Integration Services Fees. The $1,920,000 in integration services fees paid for Milestones 1 through 3 were paid in exchange for completed deliverables (requirements specifications, source-code customization, and alpha integration testing). MeridianCode delivered the contracted work product for each milestone, and VMS accepted the deliverables. There is no contractual or equitable basis for a refund of these fees.

Year 2 Maintenance Fee. If VMS has not paid the $2,400,000 Year 2 Maintenance Fee by the effective termination date, and VMS's dormancy-period abatement argument is upheld (or the dispute is resolved in VMS's favor through negotiation), VMS may owe nothing or only a prorated amount for the period during which the license was active. If the abatement argument is rejected, VMS could be liable for the full $2,400,000 plus accrued interest.

Total Write-Off. Under Option 3, the total financial write-off is $12,320,000 in fees already paid, which are likely non-recoverable. VMS would have no further forward payment obligations under the MESLSA — no Milestones 4–5 fees ($1,280,000 avoided), no runtime royalties ($4,000,000 cap avoided), and potentially no Year 2 Maintenance Fee ($2,400,000 avoided if abatement argument prevails).

Alternative RTOS Costs. Option 3 requires VMS to procure an alternative RTOS for the Argonaut-A and Argonaut-C platforms. The cost of an alternative RTOS license, integration services, and engineering time to re-do the integration work from scratch is not included in the above figures but would be substantial. Based on preliminary market intelligence, licensing fees for comparable embedded RTOS platforms (e.g., Wind River VxWorks, Green Hills INTEGRITY, or BlackBerry QNX) for a two-platform automotive deployment would likely range from $3,000,000 to $6,000,000, with integration services and engineering costs adding an additional $2,000,000 to $4,000,000. Total alternative RTOS procurement and integration costs could therefore range from $5,000,000 to $10,000,000.

Derivative Works. Under Section 7.2, MeridianCode's perpetual royalty-free license to DW-001, DW-002, and DW-003 survives termination of the MESLSA. Unless VMS executes a pre-termination side letter or amendment resolving derivative works ownership, MeridianCode would retain its license-back rights post-termination and could potentially incorporate VMS-developed code into its own products or license it to third parties. This represents a loss of control over $1,800,000 to $2,500,000 in VMS-developed code assets.

Net Financial Outcome. VMS walks away having spent $12,320,000 with no usable license, having ceded derivative works rights to MeridianCode, and facing the need to incur $5,000,000 to $10,000,000 in new costs to procure and integrate an alternative RTOS. The total effective cost of the Project Argonaut RTOS strategy under Option 3 could reach $17,320,000 to $22,320,000 when the write-off and replacement costs are combined.

C. Timing Considerations

Option 3 involves several overlapping deadlines that must be carefully coordinated:

The 12-month dormancy cap under Section 9.4 expires on August 3, 2024. This date falls after the 24-month anniversary of June 21, 2024, but before the earliest possible effective termination date of December 19, 2024. This creates a gap period of approximately four and a half months (August 3, 2024 to December 19, 2024) during which the dormancy cap has expired but the termination notice is still pending and the MESLSA remains in effect.

During this gap period, the mandatory renegotiation or termination mechanism of Section 9.4 is triggered. This means that MeridianCode could attempt to force mandatory renegotiation under Section 9.4, potentially imposing new terms or conditions as a prerequisite to continuing the agreement through the notice period. Alternatively, MeridianCode could take the position that the dormancy cap expiration constitutes an independent basis for termination under Section 9.4, separate from VMS's pending Section 9.1 termination. The interaction between these two termination pathways — Section 9.1 (termination for convenience with 180-day notice) and Section 9.4 (mandatory renegotiation or termination upon dormancy cap expiration) — is not clearly addressed in the MESLSA and could become a source of dispute.

To manage this timing issue, VMS has several options. VMS could issue its termination for convenience notice on June 22, 2024 (the day after the 24-month anniversary), establishing December 19, 2024 as the effective termination date. W

PRIVILEGED AND CONFIDENTIAL — ATTORNEY-CLIENT PRIVILEGED / ATTORNEY WORK PRODUCT
MEMORANDUM
TO: Martin G. Cross, General Counsel, Vantage Mobility Systems Corp.
CC: Thomas R. Keating, CEO, Vantage Mobility Systems Corp.; Sandra M. Okafor, CFO, Vantage Mobility Systems Corp.; Dennis J. Whitfield, CTO, Vantage Mobility Systems Corp.
FROM: Bernard Crawford, Partner, Calderwood & Harkness LLP; Gabrielle Moss, Associate, Calderwood & Harkness LLP
DATE: September 29, 2023
RE: Reactivation vs. Termination — Strategic Options Analysis under the Master Embedded Software License and Services Agreement dated June 21, 2022 (the "MESLSA") between Vantage Mobility Systems Corp. ("VMS") and Meridian Code Technologies, Inc. ("MeridianCode")
C&H Matter No.: 1007-00008
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I. Executive Summary
This memorandum presents and evaluates four strategic options available to Vantage Mobility Systems Corp. ("VMS") for resolving the current dormancy of the Master Embedded Software License and Services Agreement dated June 21, 2022 (the "MESLSA") with Meridian Code Technologies, Inc. ("MeridianCode"). The analysis is necessitated by the rescoping of Project Argonaut from five designated vehicle platform configurations to two, and the resulting financial exposure that VMS now confronts under the existing contractual framework.
To date, VMS has paid a total of $12,320,000 under the MESLSA, comprising the following:
• $8,000,000 upfront license fee for the ATLAS-RT™ embedded real-time operating system;
• $2,400,000 in Year 1 Maintenance & Support fees; and
• $1,920,000 in integration services fees for completed Milestones 1 through 3.
VMS's total remaining contractual commitment under the MESLSA — absent amendment or termination — is $7,680,000, broken down as follows:
• $2,400,000 in disputed Year 2 Maintenance & Support fees (invoiced July 1, 2023; VMS disputes the obligation during dormancy);
• $1,280,000 in unpaid integration services fees for Milestones 4 and 5; and
• $4,000,000 in per-unit runtime royalty cap exposure over the remaining license term.
As discussed in greater detail below, MeridianCode acknowledged Dormancy Status under the MESLSA on August 3, 2023. Under Section 9.4 of the MESLSA, the 12-month dormancy cap expires on August 3, 2024, at which point the parties are obligated to enter into mandatory renegotiation or the agreement is subject to termination. Separately, the 24-month anniversary of the MESLSA falls on June 21, 2024 — a critical inflection point because termination for convenience before that date triggers forfeiture of all prepaid fees under Section 9.1 of the MESLSA.
An additional near-term deadline requires urgent attention. Section 4.3 of the MESLSA contains a "Use-It-or-Lose-It" provision requiring VMS to commence integration testing on at least two platforms within 18 months of the Effective Date. That deadline falls on December 21, 2023 — less than three months from the date of this memorandum. While dormancy tolling arguments are available to VMS under Section 9.4's tolling of "all milestone deadlines," the applicability of that tolling provision to Section 4.3 — which operates as a condition precedent rather than a milestone — is not free from doubt. A separate memorandum (Use-It-or-Lose-It Compliance Memo) addresses this issue in detail.
Adding further complexity, a derivative works dispute has emerged concerning three bodies of code designated DW-001, DW-002, and DW-003, comprising approximately 47,000 lines of code with an estimated commercial value of $1,800,000 to $2,500,000 per the assessment of Hargrove Technical Consulting (Dr. Samuel Beecroft). VMS contends that these works are solely owned by VMS, while MeridianCode asserts joint ownership under Section 7.2 of the MESLSA with a perpetual royalty-free license-back.
After careful analysis of the contractual provisions, financial exposure, commercial considerations, and litigation risk, we recommend Option 2 — Negotiated Fee Restructuring and Dormancy Extension as the preferred strategic path. This option preserves VMS's reactivation optionality while managing financial exposure, addresses the derivative works dispute, and aligns with the capital expenditure reduction objectives communicated by Kestrel Capital Partners, LP. In the event that Option 2 negotiations do not produce acceptable terms, VMS should be prepared to pursue Option 3 — Termination for Convenience After June 21, 2024 as a defined contingency.
The balance of this memorandum sets forth the background, identifies the key contractual provisions governing the analysis, presents each option in detail with a full assessment of financial, legal, and strategic implications, and concludes with a comparative financial exposure summary and specific action items for VMS's leadership team.
II. Background
A. The MESLSA and Project Argonaut
VMS and MeridianCode executed the MESLSA on June 21, 2022. The total deal value of the MESLSA is $20,000,000, encompassing upfront license fees, annual maintenance and support fees, integration services fees, and per-unit runtime royalties over a five-year term.
The licensed product under the MESLSA is MeridianCode's proprietary ATLAS-RT™ embedded real-time operating system, Version 4.2, which has been subsequently updated to Version 4.2.3 through standard maintenance releases. ATLAS-RT is a deterministic, hard-real-time operating system designed for safety-critical embedded applications, including automotive platforms requiring compliance with ISO 26262 functional safety standards.
The license scope granted under the MESLSA is perpetual (subject to a five-year term ending June 20, 2027), worldwide, and specifically scoped for integration into up to five designated vehicle platform configurations under the internal VMS initiative designated as "Project Argonaut." The five platforms are identified in the MESLSA as Argonaut-A, Argonaut-B, Argonaut-C, Argonaut-D, and Argonaut-E, each with distinct hardware reference designs and target vehicle applications specified in Exhibit B to the MESLSA.
The MESLSA is governed by the laws of the State of Michigan. Disputes arising under the agreement are subject to binding arbitration under the rules of the Midwest Arbitration Institute. For disputes exceeding $1,000,000, the arbitration is conducted before a three-arbitrator panel, seated in Detroit, Michigan.
Project Argonaut, in its original conception, was VMS's strategic initiative to deploy a unified embedded-software architecture across its entire next-generation lineup of adaptive vehicle platforms. The project was designed to consolidate VMS's disparate embedded systems onto a single, standards-based RTOS layer, reducing engineering complexity, accelerating time-to-market, and achieving cost efficiencies through platform commonality. Project Argonaut was a cornerstone of the growth strategy developed following Kestrel Capital Partners' acquisition of VMS in 2019.
B. Fee Structure
The MESLSA establishes the following fee structure, with a total aggregate deal value of $20,000,000:
Upfront License Fee: $8,000,000, paid on June 21, 2022 upon execution of the MESLSA. This fee covers the perpetual license grant for ATLAS-RT Version 4.2 across all five designated platforms.
Year 1 Annual Maintenance & Support: $2,400,000, paid on July 15, 2022. This fee covers standard maintenance and support services including software updates, bug fixes, security patches, and technical support for the first year of the license term (June 21, 2022 through June 20, 2023).
Year 2 Annual Maintenance & Support: $2,400,000, invoiced by MeridianCode on July 1, 2023 for the second year of the license term (June 21, 2023 through June 20, 2024). VMS has not paid this invoice and disputes its obligation to make this payment during the dormancy period. This dispute is addressed in a separate memorandum (Year 2 Maintenance Fee Obligation Memo).
Integration Services Fee: $3,200,000 in total across five milestones, payable upon completion of each milestone as set forth in Exhibit C to the MESLSA. Of this amount, $1,920,000 has been paid for Milestones 1 through 3 (completed). The remaining $1,280,000 is allocable to Milestones 4 and 5, which have not been commenced for any platform following the Project Argonaut rescoping and subsequent dormancy.
Per-Unit Runtime Royalties: $80 per unit deployed in production vehicles, subject to an aggregate cap of $4,000,000 over the five-year license term, which equates to a maximum of 50,000 production units. As of the date of this memorandum, no runtime royalties have been incurred because VMS has not shipped any production units incorporating ATLAS-RT.
The total deal value reconciliation is as follows: $8,000,000 (upfront license) + $2,400,000 (Year 1 Maintenance) + $2,400,000 (Year 2 Maintenance) + $3,200,000 (integration services) + $4,000,000 (runtime royalty cap) = $20,000,000.
C. Rescoping of Project Argonaut
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 rescoped program, VMS will retain only Argonaut-A and Argonaut-C, which correspond to internal combustion engine (ICE) fleet vehicle platforms. Argonaut-B, Argonaut-D, and Argonaut-E — which were oriented toward electric vehicle (EV) and hybrid powertrain platforms — are deferred indefinitely to a future "Phase II" electrification initiative for which no firm date has been established.
The Board's decision to rescope was driven by three principal factors:
First, persistent supply-chain delays in semiconductor procurement, particularly affecting the specialized system-on-chip (SoC) components required for the EV-focused platforms (Argonaut-B, D, and E). Lead times for these components had extended to 42–56 weeks, rendering the original program timeline unachievable.
Second, a portfolio-wide capital expenditure reduction directive issued by Kestrel Capital Partners, LP, VMS's private equity sponsor. This directive, communicated to VMS management in January 2023, required all Ashgrove Equity Partners portfolio companies to reduce discretionary capital spending by 15–20% in response to macroeconomic conditions and rising financing costs.
Third, a strategic decision by VMS management, concurred in by the Board, to prioritize the development and deployment of ICE-platform fleet vehicles (Argonaut-A and Argonaut-C) over the EV platforms, based on near-term market demand analysis and revenue projections indicating stronger commercial opportunity in the adaptive mobility ICE segment through 2026.
At the time of the rescoping decision, integration work under the MESLSA had progressed to the following stages across the five platforms:
Argonaut-A: Milestone 3 of 5 completed. Alpha integration testing was successfully passed on February 28, 2023. This platform had the most advanced integration status and represented the greatest engineering investment.
Argonaut-B: Milestone 1 only. The requirements specification had been approved, but no source-code integration had commenced. Integration work on this platform was in its earliest stages.
Argonaut-C: Milestone 2 of 5 completed. Source-code customization for the Argonaut-C hardware reference design was delivered by MeridianCode on January 15, 2023. This platform was at an intermediate stage of integration.
Argonaut-D and Argonaut-E: Not commenced. Neither platform had progressed beyond preliminary scoping discussions. No milestones had been initiated for either platform.
In addition to the contractual fees paid to MeridianCode, VMS's internal engineering teams had invested approximately 14,200 person-hours across multiple departments (Software Integration Engineering, Platform Architecture, Quality Assurance, and Systems Testing) on Project Argonaut integration work. This investment represents significant sunk costs irrespective of the strategic option ultimately selected.
D. Dormancy Status
Following the March 14, 2023 Board resolution to rescope Project Argonaut, VMS suspended all active integration work under the MESLSA effective March 22, 2023. From that date forward, no integration activities have been performed on any platform.
Under Section 9.4 of the MESLSA, a suspension of active integration for more than 120 consecutive days without written notice from the licensee constitutes a triggering event for deemed abandonment. Calculated from the suspension date of March 22, 2023, the 120-day dormancy trigger date fell on July 20, 2023.
VMS acted to preserve its rights under the MESLSA by sending a formal dormancy notice to MeridianCode on July 14, 2023 — six days before the 120-day trigger date. The notice formally invoked Section 9.4 of the MESLSA and stated VMS's intention to place the license into Dormancy Status while VMS evaluated its forward program requirements.
MeridianCode acknowledged Dormancy Status in a written response dated August 3, 2023, signed by Gregory L. Fisk, SVP, Automotive & Mobility Licensing. However, MeridianCode's acknowledgment letter departed from VMS's position in three material respects:
First, MeridianCode asserted that VMS's obligation to pay the Year 2 Maintenance & Support Fee of $2,400,000 (invoiced July 1, 2023) is not suspended or abated during dormancy, and that the fee became due and payable upon invoicing regardless of the integration status of the licensed software.
Second, MeridianCode took the position that support during dormancy is limited to "critical-security-patch-only" level as provided in Section 9.4, but that this reduced support level does not entitle VMS to any reduction in the Maintenance & Support Fee, which MeridianCode characterizes as a platform license maintenance fee rather than a services fee.
Third, MeridianCode reasserted its position under Section 7.2 that it holds joint ownership of all derivative works created during the integration process, including DW-001, DW-002, and DW-003, and that its perpetual royalty-free license-back to such derivative works survives dormancy and any subsequent termination of the MESLSA.
Under Section 9.4, the dormancy period may not exceed 12 months before triggering mandatory renegotiation or termination. Because the 12-month dormancy clock runs from MeridianCode's formal acknowledgment date of August 3, 2023, the dormancy cap expires on August 3, 2024.
During the dormancy period, support from MeridianCode has been reduced to critical-security-patch-only level, and all milestone deadlines under the integration services schedule have been tolled. No integration work of any kind is being performed.
E. Related Matters
Several related matters bear on the strategic options analysis and are summarized here for context:
Credit Facility Notification. VMS notified Pinnacle National Bank, N.A., in its capacity as administrative agent under VMS's $175,000,000 Senior Secured Revolving Credit Facility dated September 12, 2019, of the dormancy of the MESLSA on August 10, 2023. This notification was made pursuant to Section 6.12 of the credit agreement, which requires VMS to notify the administrative agent of any material adverse development with respect to any contract having a value in excess of $5,000,000. As of July 2023, VMS had $92,000,000 in outstanding borrowings under the revolving facility. The relationship between the MESLSA situation and VMS's ongoing compliance with the credit facility covenants is addressed in a separate memorandum (Credit Facility Covenant Compliance Memo).
Technology E&O Policy. VMS maintains a Technology Errors & Omissions Insurance Policy, Policy No. TEO-2022-7891, issued by Commonwealth Surety & Insurance Co. The policy provides coverage of $10,000,000 per occurrence and $20,000,000 in the aggregate, with a $500,000 per-occurrence retention. This policy may have potential applicability to losses arising from the derivative works intellectual property dispute with MeridianCode, depending on the characterization of the claim and the specific policy exclusions. The coverage analysis is addressed in a separate memorandum (Insurance Coverage Analysis Memo), and early notice to Commonwealth is recommended regardless of the strategic option selected.
Derivative Works Dispute. During the course of integration work on Argonaut-A and Argonaut-C, VMS's Software Integration Engineering team, under the direction of Lena Petrova (Director, Software Integration Engineering), developed three distinct bodies of code designated DW-001, DW-002, and DW-003, comprising in the aggregate approximately 47,000 lines of code. VMS contends that these works are VMS-originated original works of authorship, created by VMS employees using VMS resources, and that VMS is the sole owner thereof. MeridianCode contends that DW-001, DW-002, and DW-003 constitute "modifications, adaptations, or extensions" to ATLAS-RT source code within the meaning of Section 7.2 of the MESLSA, and are therefore jointly owned by VMS and MeridianCode, with MeridianCode retaining a perpetual, royalty-free license-back. Hargrove Technical Consulting (Dr. Samuel Beecroft) has been retained by VMS to perform an independent technical assessment of the derivative works; Dr. Beecroft's preliminary report values the derivative works at $1,800,000 to $2,500,000 based on replacement cost, commercial utility, and code complexity metrics. The derivative works ownership dispute is analyzed in detail in a separate memorandum (Derivative Works Ownership Memo).
III. Key Contractual Provisions Governing the Analysis
The following provisions of the MESLSA are central to the strategic options analysis. Each is discussed here in the context of its application to VMS's current situation. Cross-references to the specific MESLSA sections are provided for ease of reference.
A. Section 9.1 — Termination for Convenience
Section 9.1 of the MESLSA provides that either party may terminate the agreement for convenience upon 180 days' prior written notice to the other party. The termination for convenience right is not conditioned on any showing of cause, breach, or default, and is available to either party at any time during the term of the agreement, subject to the notice requirement.
However, Section 9.1 contains a critical limitation that directly affects VMS's strategic calculus. If the licensee exercises its termination for convenience right prior to the 24-month anniversary of the Effective Date (i.e., prior to June 21, 2024), the licensee forfeits all prepaid fees, including the upfront license fee and any maintenance and support fees previously paid. This forfeiture provision was negotiated by MeridianCode as a mechanism to protect its upfront investment in licensing and configuring the ATLAS-RT platform for VMS's specific vehicle configurations, and to provide MeridianCode with a minimum revenue guarantee during the initial implementation period.
As applied to VMS's situation, termination for convenience prior to June 21, 2024 would result in the forfeiture of at least $10,400,000 in prepaid fees ($8,000,000 upfront license fee plus $2,400,000 Year 1 Maintenance & Support fee), and potentially $12,320,000 if the $1,920,000 in integration services fees for Milestones 1–3 are also treated as "prepaid fees" subject to forfeiture. The scope of the forfeiture provision as applied to integration services fees is ambiguous and would require further analysis, but the risk is substantial.
After June 21, 2024, the forfeiture provision in Section 9.1 ceases to apply. However, it is important to note that the MESLSA does not expressly provide for any refund or credit of prepaid fees upon a post-anniversary termination for convenience. The absence of a refund provision means that, while VMS would not be required to forfeit prepaid fees, VMS also has no contractual basis to demand return of those fees. The upfront license fee and Year 1 Maintenance & Support fee would likely be characterized as fully earned and non-refundable under the MESLSA's payment terms. Any argument for recapture of prepaid fees in a post-anniversary termination scenario would need to rely on unjust enrichment, failure of consideration, or similar equitable theories, which face significant uncertainty under Michigan law. A detailed analysis of recapture rights is included in the Fee Forfeiture Risk Analysis Memo.
B. Section 9.4 — Dormancy
Section 9.4 of the MESLSA establishes the dormancy framework that governs the current suspension of integration activities. The dormancy provision is triggered when the licensee suspends active integration work for more than 120 consecutive days without providing written notice to the licensor. If the licensee provides timely written notice of its intent to suspend integration activities (as VMS did on July 14, 2023), the licensor converts the license to "Dormancy Status."
During Dormancy Status, the following conditions apply:
(a) Support from the licensor is reduced to a critical-security-patch-only level. The licensor is not obligated to provide general maintenance releases, feature updates, compatibility updates, or technical support during the dormancy period, other than patches addressing identified security vulnerabilities rated "Critical" or "High" under the Common Vulnerability Scoring System (CVSS).
(b) All milestone deadlines under the integration services schedule (Exhibit C) are tolled for the duration of the dormancy period. The tolled deadlines resume running upon the licensee's written notice of reactivation.
(c) The dormancy period may not exceed 12 months from the date of the licensor's acknowledgment of Dormancy Status. Upon expiration of the 12-month dormancy cap, the parties must enter into mandatory renegotiation of the agreement terms, or the agreement is subject to termination.
As applied to VMS's situation, the 12-month dormancy cap runs from August 3, 2023 (the date of MeridianCode's acknowledgment) and expires on August 3, 2024. At that point, VMS and MeridianCode will be obligated to enter into mandatory renegotiation, failing which the MESLSA is subject to termination under the provisions of Section 9.4.
The tolling provision in Section 9.4 is a critical interpretive issue. Section 9.4 states that dormancy tolls "all milestone deadlines," and VMS has taken the position that this tolling extends to the Section 4.3 Use-It-or-Lose-It deadline. However, as discussed in Section III.C below, this argument is not free from doubt.
C. Section 4.3 — Use-It-or-Lose-It
Section 4.3 of the MESLSA imposes a condition precedent requiring the licensee to commence integration testing on at least two designated platforms within 18 months of the Effective Date. Calculated from the June 21, 2022 Effective Date, the Section 4.3 deadline falls on December 21, 2023.
This provision was included in the MESLSA at MeridianCode's insistence to ensure that VMS would make timely and meaningful use of the ATLAS-RT license and not merely warehouse the technology to prevent competitors from licensing it. The consequence of failing to satisfy the Section 4.3 condition precedent is not expressly stated in the MESLSA, but the provision is structured as a condition to the continuation of the full license grant. Failure to satisfy it arguably gives MeridianCode the right to narrow the license scope, impose additional fees, or assert a material breach.
The key question for VMS is whether the dormancy tolling provision in Section 9.4 — which tolls "all milestone deadlines" — also tolls the Section 4.3 deadline. This question turns on whether the Section 4.3 requirement is properly characterized as a "milestone deadline" within the meaning of Section 9.4.
VMS has a reasonable argument that Section 9.4's tolling provision should be read broadly to encompass all contractual deadlines related to integration activities, including the Section 4.3 commencement requirement. The purpose of the dormancy provision is to preserve the licensee's rights during a period of suspended activity, and it would be inconsistent with that purpose to toll milestone deadlines while simultaneously requiring compliance with a deadline that presupposes active integration work. Furthermore, the term "milestone deadlines" is not defined in the MESLSA, and under Michigan principles of contract construction, ambiguous terms are generally construed against the drafter — in this case, MeridianCode, which proposed the dormancy framework.
However, this argument is not free from doubt. Section 4.3 is structured as a standalone condition precedent in Article 4 (License Grant), not as a milestone in Exhibit C (Integration Services Schedule). The integration milestones in Exhibit C are discrete, enumerated deliverables (Milestones 1 through 5) with specific acceptance criteria and payment triggers. Section 4.3, by contrast, establishes a general commencement requirement that operates at a higher level of abstraction. MeridianCode can be expected to argue that the tolling provision in Section 9.4 applies only to the specifically enumerated milestone deadlines in Exhibit C and does not extend to the distinct condition precedent in Section 4.3.
A separate memorandum (Use-It-or-Lose-It Compliance Memo) addresses this issue in detail and evaluates VMS's fallback arguments, including the argument that Argonaut-A's successful completion of Milestone 3 (alpha integration testing passed on February 28, 2023) constitutes "commenced integration testing" on one platform, and that Argonaut-C's completion of Milestone 2 (source-code customization delivered January 15, 2023) constitutes — or at minimum substantially constitutes — commencement of integration testing on a second platform, thereby satisfying the two-platform requirement of Section 4.3 irrespective of tolling.
D. Section 7.2 — Derivative Works
Section 7.2 of the MESLSA addresses the ownership of derivative works created during the integration process. The provision establishes a joint-ownership framework for "modifications, adaptations, or extensions" to the ATLAS-RT source code created by VMS engineers (or VMS's contractors) during integration. Under Section 7.2, such derivative works are jointly owned by VMS and MeridianCode, and MeridianCode retains a perpetual, royalty-free, non-exclusive license to use, reproduce, distribute, and create further derivative works from such jointly owned works.
The central dispute regarding Section 7.2 involves the characterization of DW-001, DW-002, and DW-003. VMS contends that these three bodies of code are not "modifications, adaptations, or extensions" to the ATLAS-RT source code, but rather independently developed VMS works that interact with — but do not modify — the ATLAS-RT platform. VMS's position is that DW-001, DW-002, and DW-003 communicate with ATLAS-RT through published application programming interfaces (APIs) and standard inter-process communication protocols, and that the code does not incorporate, adapt, or extend any ATLAS-RT source code.
MeridianCode's position, as communicated by its outside counsel at Redstone Whitaker LLP, is that DW-001, DW-002, and DW-003 are derivative works within the meaning of Section 7.2 because they (a) were developed specifically for integration with the ATLAS-RT platform, (b) rely upon proprietary ATLAS-RT kernel data structures and scheduling primitives that go beyond published APIs, and (c) incorporate ATLAS-RT header files and configuration templates that constitute ATLAS-RT source code.
The resolution of this dispute has significant implications for each strategic option, as discussed in the option-specific analyses below. Under the current terms of the MESLSA, the Section 7.2 joint-ownership regime and MeridianCode's perpetual license-back survive termination of the agreement, meaning that VMS cannot unilaterally resolve this dispute through termination alone.
E. Section 12.6 — Change of Control
Section 12.6 of the MESLSA provides that assignment of the agreement by the licensee in connection with a change of control of the licensee requires the prior written consent of the licensor, such consent not to be unreasonably withheld, conditioned, or delayed.
This provision is relevant primarily to Option 1 (Reactivation) if Meridian Growth Partners a future exit from its investment in VMS — whether through a sale, initial public offering, or recapitalization — during the remaining license term (through June 20, 2027). Any such transaction would likely constitute a change of control of VMS and would require MeridianCode's consent to assignment of the MESLSA. While the "not to be unreasonably withheld" standard provides some protection to VMS, the consent requirement introduces a potential friction point in any future exit process and may affect deal timing and valuation.
IV. Option 1: Reactivation for Rescoped 2-Platform Program
A. Description. Under Option 1, VMS would exit Dormancy Status, reactivate integration activities under the MESLSA, and resume the Project Argonaut program on a rescoped basis encompassing only two platforms: Argonaut-A and Argonaut-C. Integration work would resume from the current milestone status of each platform — Argonaut-A at Milestone 3 (alpha integration testing passed) and Argonaut-C at Milestone 2 (source-code customization delivered). Platforms Argonaut-B, Argonaut-D, and Argonaut-E would be abandoned entirely; no further integration work would be performed on those platforms.
Under this option, no amendment to the MESLSA would be executed. VMS would continue to operate under the existing terms of the agreement, including the five-platform license scope, the existing fee structure, and the existing provisions regarding derivative works, maintenance and support, and runtime royalties. The unused license capacity for platforms B, D, and E would remain on VMS's books but would generate no value.
Reactivation would be accomplished by VMS's delivery of a written notice to MeridianCode under Section 9.4 indicating VMS's intent to exit Dormancy Status and resume active integration. Upon receipt of such notice, MeridianCode would be obligated to restore full maintenance and support services and to resume milestone deliverable activities under the integration services schedule.
B. Financial Implications
The financial implications of Option 1 are as follows:
Year 2 Maintenance Fee ($2,400,000). Upon reactivation, the Year 2 Maintenance & Support Fee becomes payable. MeridianCode has already invoiced this amount and is expected to demand payment as a condition of exiting Dormancy Status and restoring full support services. MeridianCode may also demand accrued interest on the unpaid invoice and may assert late-payment fees under Section 5.4 of the MESLSA, which provides for interest on past-due amounts at the rate of 1.5% per month (18% per annum). If VMS reactivates in, for example, January 2024 (approximately six months after the July 1, 2023 invoice date), accrued interest at 18% per annum on $2,400,000 would total approximately $216,000.
Integration Services Milestones 4 and 5 ($1,280,000). The remaining $1,280,000 in integration services fees becomes payable upon completion of Milestones 4 and 5. However, VMS should argue that the milestone deliverables specified in Exhibit C are structured on a per-platform basis and that certain milestone activities may not be required for all platforms. If VMS is pursuing only Argonaut-A and Argonaut-C, a portion of the milestone fees may not be triggered if the applicable deliverables relate to platforms that are no longer being pursued. This argument requires careful examination of the Exhibit C milestone specifications and may or may not yield a meaningful fee reduction.
Runtime Royalties. VMS's exposure to per-unit runtime royalties remains at $80 per unit with an aggregate cap of $4,000,000, but with only two platforms in production rather than five, VMS is unlikely to reach the 50,000-unit cap during the remaining license term. Based on current production forecasts for Argonaut-A and Argonaut-C, a realistic deployment volume of 20,000 to 30,000 units over the remaining term would result in runtime royalty exposure of approximately $1,600,000 to $2,400,000. For purposes of this analysis, we use an estimated midpoint of $2,000,000.
Total Forward Cost Estimate. Combining the foregoing, VMS's estimated forward cash outlay under Option 1 is approximately $5,680,000, consisting of $2,400,000 (Year 2 Maintenance) + $1,280,000 (Milestones 4–5) + $2,000,000 (estimated runtime royalties).
Total All-In Cost. Adding the $12,320,000 already paid to the estimated $5,680,000 in forward costs, VMS's total all-in cost under Option 1 would be approximately $18,000,000 for a two-platform program that was originally scoped and priced for five platforms.
Cost-Per-Platform Comparison. Under the original five-platform scope, the $20,000,000 total deal value represented $4,000,000 per platform. Under the rescoped two-platform program at an all-in cost of approximately $18,000,000, the effective cost per platform increases to approximately $9,000,000 — more than double the original per-platform pricing. This significant deterioration in unit economics is a fundamental concern with Option 1.
Engineering Sunk Costs. VMS's internal engineering investment of approximately 14,200 person-hours represents sunk costs that are incurred regardless of which option VMS selects. Under Option 1, the integration progress achieved through those engineering hours (particularly on Argonaut-A and Argonaut-C) would be preserved and leveraged, partially mitigating the sunk cost impact.
C. Advantages. Option 1 offers several advantages:
1. Preservation of Paid Value. Reactivation preserves the value of the $12,320,000 already paid under the MESLSA. VMS avoids any risk of forfeiture, write-off, or loss of the prepaid fees. The upfront license fee, Year 1 Maintenance Fee, and Milestones 1–3 integration services fees continue to yield value through the resumed program.
2. Leverage of Existing Integration Progress. Significant integration work has already been completed on Argonaut-A (Milestone 3, alpha integration testing passed) and Argonaut-C (Milestone 2, source-code customization delivered). Reactivation allows VMS to build on this progress rather than starting from scratch with an alternative RTOS vendor.
3. Technology Validation. The ATLAS-RT platform has been partially validated through the alpha integration testing on Argonaut-A. VMS's internal engineering team has developed domain familiarity with the ATLAS-RT architecture, APIs, and configuration requirements. This institutional knowledge has significant value and would be lost if VMS terminates and procures an alternative RTOS.
4. No Arbitration Risk. Reactivation under existing terms involves no dispute, no termination, and therefore no risk of arbitration proceedings before the Midwest Arbitration Institute. VMS avoids the estimated $500,000 to $1,200,000 in arbitration costs and the associated management distraction and uncertainty.
5. Relationship Preservation. Reactivation maintains VMS's commercial relationship with MeridianCode, which may be valuable for future licensing needs. If VMS proceeds with Phase II electrification and requires ATLAS-RT or next-generation RTOS capabilities for future EV platforms, a preserved relationship with MeridianCode would facilitate those negotiations.
D. Disadvantages. Option 1 has significant disadvantages:
1. Unfavorable Unit Economics. As noted above, VMS would be paying approximately $9,000,000 per platform for a license originally priced at $4,000,000 per platform. This represents a 125% increase in per-platform cost, which is difficult to justify from a business case perspective.
2. Over-Scoped License. VMS retains a five-platform license for a two-platform program. There is no fee credit, rebate, or reduction under the existing MESLSA terms for the unused license capacity associated with Argonaut-B, Argonaut-D, and Argonaut-E. VMS essentially pays for capacity it will not use.
3. Year 2 Maintenance Fee Dispute. The $2,400,000 Year 2 Maintenance Fee dispute must be resolved as an entry price for reactivation. MeridianCode has made clear that it expects payment of this amount in full, including potential interest and late fees. VMS loses its leverage on this dispute because reactivation signals commitment to the MESLSA on existing terms.
4. Derivative Works Dispute Unresolved. Reactivation without amendment leaves the derivative works dispute regarding DW-001, DW-002, and DW-003 unresolved. MeridianCode retains its Section 7.2 joint-ownership claim and perpetual royalty-free license-back. This means that MeridianCode could potentially incorporate VMS-developed code into its own products or license it to VMS's competitors, subject to any restrictions that may be implied by the joint-ownership arrangement.
5. Capital Expenditure Pressure. Option 1 requires VMS to commit approximately $5,680,000 in additional forward capital expenditure, which is inconsistent with Ashgrove Equity Partners's portfolio-wide capital expenditure reduction directive. Any decision to proceed with Option 1 would require Ashgrove Equity Partners's concurrence and may face scrutiny from the board.
6. Section 4.3 Risk. The Section 4.3 Use-It-or-Lose-It compliance issue remains outstanding even under Option 1. If the tolling argument is rejected by MeridianCode (or in a potential arbitration), MeridianCode may assert that VMS has already lost certain rights under the MESLSA, notwithstanding VMS's willingness to reactivate.
E. Assessment. Option 1 is viable if, and only if, VMS has a strong commercial rationale and near-term revenue justification for proceeding with Argonaut-A and Argonaut-C on the ATLAS-RT platform at the effective per-platform cost of approximately $9,000,000. This assessment requires input from Dennis Whitfield (CTO) and Lena Petrova (Director, Software Integration Engineering) regarding the technical feasibility and estimated timeline for resumed integration, as well as from Sandra Okafor (CFO) regarding the financial justification and return-on-investment analysis.
Option 1 is not recommended without concurrent negotiation of fee restructuring (as contemplated by Option 2), because the per-platform economics under the existing MESLSA terms are fundamentally unfavorable in a two-platform scenario. If VMS determines that reactivation is the preferred commercial path, it should pursue Option 2 to obtain fee concessions and scope alignment before committing to resume integration activities.
V. Option 2: Negotiated Fee Restructuring and Dormancy Extension
A. Description. Under Option 2, VMS and MeridianCode would negotiate and execute an amendment to the MESLSA (provisionally designated "Draft Amendment No. 1") implementing the following terms:
(a) Dormancy Extension. Extension of the 12-month dormancy cap established by Section 9.4 by an additional 12 months, moving the dormancy expiration from August 3, 2024 to August 3, 2025. This provides VMS with a full additional year to evaluate its program requirements, secure supply-chain commitments, and make a final determination regarding reactivation.
(b) Scope Reduction. Formal reduction of the license scope from five designated platforms (Argonaut-A through Argonaut-E) to two (Argonaut-A and Argonaut-C only). This would amend the platform schedule in Exhibit B and eliminate the unused capacity for platforms B, D, and E.
(c) Year 2 Maintenance Fee Credit. Credit of the disputed $2,400,000 Year 2 Maintenance & Support Fee against future integration services fees or runtime royalties, rather than requiring VMS to make an additional cash payment. This resolves the outstanding fee dispute without conceding VMS's position that the fee was not payable during dormancy.
(d) Royalty Cap Reduction. Reduction of the per-unit runtime royalty aggregate cap from $4,000,000 to $2,000,000, reflecting the reduced scope of the program from five platforms to two. The per-unit royalty rate of $80 would remain unchanged.
(e) Derivative Works Resolution. A carve-out of DW-001, DW-002, and DW-003 from the Section 7.2 joint-ownership regime, establishing sole VMS ownership of these derivative works. In exchange, VMS would grant MeridianCode a limited, non-exclusive, perpetual license-back to use DW-001, DW-002, and DW-003 solely for non-automotive applications. This license-back would be narrower than the unrestricted perpetual license-back contemplated by Section 7.2, and would prevent MeridianCode from incorporating VMS's code into competing automotive products.
(f) Section 4.3 Revision. Revision of the Section 4.3 Use-It-or-Lose-It deadline to accommodate dormancy tolling and the rescoped program timeline. The revised deadline would require VMS to commence integration testing on at least two platforms within a specified period following reactivation (e.g., 12 months after delivery of a written reactivation notice), rather than within 18 months of the original Effective Date.
Simultaneously with the negotiation of these terms, VMS would preserve its flexibility to either reactivate the program (if commercial conditions warrant) or terminate the MESLSA (if reactivation is ultimately not justified) at a future date. The dormancy extension provides VMS with a protected window during which it can make this decision without being forced into mandatory renegotiation or termination under the existing Section 9.4 timeline.
B. Financial Implications
The financial implications of Option 2 are significantly more favorable to VMS than Option 1:
Year 2 Maintenance Fee. Under the proposed amendment, the $2,400,000 Year 2 Maintenance Fee would be credited against future fees rather than paid in cash. This reduces VMS's forward cash outlay by $2,400,000 compared to Option 1 and resolves the pending fee dispute without arbitration.
Integration Services Fees. The $1,280,000 in remaining integration services fees for Milestones 4 and 5 would potentially be restructured to reflect the reduced scope of the program. With only two platforms rather than five, certain milestone deliverables may be eliminated or consolidated. Depending on the outcome of negotiations, the restructured integration services fee for the remaining work could range from approximately $800,000 to $1,280,000.
Runtime Royalties. The aggregate royalty cap would be reduced from $4,000,000 to $2,000,000, reflecting the reduced production volume expected from a two-platform program. The per-unit rate of $80 would remain unchanged. This reduction aligns the royalty structure with the actual commercial scope of the program.
Total Potential Forward Cost. Under Option 2, VMS's estimated forward cost ranges from approximately $2,800,000 to $3,280,000, consisting of $0 in Year 2 Maintenance (credited) + $800,000 to $1,280,000 in restructured integration services fees + $2,000,000 in reduced royalty cap exposure.
Total All-In Cost. Adding the $12,320,000 already paid, VMS's total all-in cost under Option 2 would range from approximately $15,120,000 to $15,600,000 for the two-platform program.
Cost-Per-Platform. The effective cost per platform under Option 2 ranges from approximately $7,560,000 to $7,800,000, which represents an improvement over Option 1's approximately $9,000,000 per platform but remains above the original per-platform pricing of $4,000,000.
MeridianCode Reactivation Fee. As discussed in Section V.C below, MeridianCode has proposed a $1,500,000 reactivation fee in its counter-proposals to Draft Amendment No. 1. If this fee is accepted (which is not recommended), the total all-in cost would increase to approximately $16,620,000 to $17,100,000. C&H recommends negotiating this fee down to a maximum of $750,000, if any reactivation fee is conceded at all.
Derivative Works Value Preservation. If the derivative works carve-out is successful, VMS retains sole ownership of DW-001, DW-002, and DW-003, representing $1,800,000 to $2,500,000 in code assets (per Hargrove Technical Consulting's assessment). This is a significant advantage compared to the other options, under which VMS either shares ownership with MeridianCode or loses leverage to negotiate a favorable resolution.
C. MeridianCode's Likely Negotiating Position
MeridianCode is represented in the MESLSA negotiations by Redstone Whitaker LLP, an intellectual property and technology transactions boutique based in San Francisco. The lead partners on the matter are Alan M. Briscoe (co-chair of Redstone Whitaker's Technology Licensing Practice) and Natasha C. Ferraro (who handled the original MESLSA negotiation). MeridianCode's commercial negotiators are Gregory L. Fisk (SVP, Automotive & Mobility Licensing) and Diana Cho (Director, Enterprise License Management).
Based on the correspondence and counter-proposals exchanged to date, MeridianCode's negotiating position is expected to include the following elements:
Maintenance Fee During Dormancy. MeridianCode has consistently pushed back on VMS's position that the Year 2 Maintenance Fee is suspended or abated during dormancy. MeridianCode is likely to insist on at least a partial maintenance fee payment during the dormancy period, arguing that it continues to incur costs in maintaining the ATLAS-RT platform and providing critical-security-patch support. MeridianCode may accept a credit structure for the full $2,400,000 but is more likely to propose that a portion (e.g., 50%) be paid in cash with the remainder credited.
Reactivation Fee. In its redline of Draft Amendment No. 1, MeridianCode proposed a reactivation fee of $1,500,000, payable upon VMS's delivery of a written reactivation notice. MeridianCode characterizes this fee as compensation for the cost of re-mobilizing its engineering and support teams after a prolonged dormancy period. This fee is not provided for in the original MESLSA and represents a significant new cost element.
Derivative Works. MeridianCode is unlikely to fully relinquish its Section 7.2 joint-ownership claim with respect to DW-001, DW-002, and DW-003. However, MeridianCode may accept a compromise under which its license-back rights are restricted to non-automotive applications, particularly if VMS is willing to make concessions on other terms. The non-automotive restriction would protect VMS's competitive position in the adaptive mobility vehicle market while allowing MeridianCode to leverage the derivative works in other verticals (e.g., industrial automation, medical devices, or aerospace).
Royalty Cap Reduction. MeridianCode may resist a full proportional reduction of the royalty cap. MeridianCode's position is likely to be that the royalty structure was negotiated on the basis of the overall deal economics and should not be mechanically adjusted for scope reductions that were unilaterally initiated by VMS.
It is worth noting that MeridianCode has a commercial incentive to maintain VMS as a customer. MeridianCode's FY2022 revenue was approximately $310,000,000, and the $20,000,000 VMS deal represents a material contract for MeridianCode's Automotive & Mobility Licensing division. Losing VMS as a customer would create a revenue gap and potentially a negative reference in the automotive RTOS market. This commercial incentive provides VMS with meaningful leverage in the negotiations, notwithstanding MeridianCode's strong contractual position on certain issues.
D. Advantages. Option 2 offers the best combination of advantages among the four options:
1. Preservation of Reactivation Optionality. The 12-month dormancy extension (to August 3, 2025) gives VMS a full additional year to evaluate market conditions, supply-chain availability, and program economics before committing to reactivation or deciding to terminate. This optionality has significant strategic value, particularly in the current environment of supply-chain uncertainty and capital constraint.
2. Reduced Financial Exposure. The credit of the Year 2 Maintenance Fee, the potential restructuring of integration services fees, and the reduction of the royalty cap all serve to reduce VMS's forward financial exposure compared to Option 1. The estimated total all-in cost of $15,120,000 to $15,600,000 (or $16,620,000 to $17,100,000 with a reactivation fee) represents a meaningful improvement over Option 1's $18,000,000.
3. Derivative Works Resolution. Option 2 provides the best opportunity to resolve the derivative works dispute on terms favorable to VMS. The carve-out of DW-001, DW-002, and DW-003 to sole VMS ownership (with a limited non-automotive license-back) protects VMS's intellectual property and prevents MeridianCode from incorporating VMS-developed code into competing automotive products.
4. Forfeiture Risk Avoidance. Because no termination is required under Option 2, VMS avoids any risk of fee forfeiture under Section 9.1.
5. Section 4.3 Resolution. The contractual revision of the Section 4.3 deadline eliminates the Use-It-or-Lose-It compliance risk entirely, removing a source of uncertainty and potential leverage for MeridianCode.
6. Relationship Preservation. As with Option 1, Option 2 maintains the commercial relationship between VMS and MeridianCode, facilitating future licensing needs.
7. Alignment with Capital Expenditure Directive. By deferring major cash outlays and reducing forward financial commitments, Option 2 aligns with Ashgrove Equity Partners's portfolio-wide capital expenditure reduction directive. The dormancy extension defers the point at which VMS must make significant new expenditures under the MESLSA.
E. Disadvantages. Option 2 is not without disadvantages:
1. Requires MeridianCode's Agreement. Unlike Options 1 and 3, which VMS can pursue unilaterally (reactivation under existing terms or termination for convenience, respectively), Option 2 requires MeridianCode's agreement to amend the MESLSA. If MeridianCode refuses to negotiate in good faith, or if the parties cannot reach mutually acceptable terms, Option 2 cannot be achieved.
2. Negotiation Costs and Timeline. Negotiation of a definitive amendment is likely to be protracted, given the complexity of the issues and the number of commercial and legal terms to be addressed. Legal fees for the negotiation process will accumulate on both sides, adding to the overall cost of the transaction. Based on the pace of negotiations to date, C&H estimates that reaching a definitive agreement could take three to six months.
3. Residual Financial Exposure. Even with the restructured terms, VMS has already invested $12,320,000 in the MESLSA with no production revenue to date. If VMS ultimately concludes that reactivation is not justified and terminates after the dormancy extension period, the $12,320,000 remains at risk of being written off. Option 2 defers but does not eliminate this risk.
4. MeridianCode's Reactivation Fee. MeridianCode's proposed $1,500,000 reactivation fee adds a cost element that was not contemplated by the original MESLSA. If VMS is unable to negotiate this fee down to an acceptable level, it increases the effective cost of Option 2 significantly.
5. Credit Facility Notification. Any material amendment to the MESLSA may require notification to Pinnacle National Bank, N.A. under Section 6.12 of the credit facility agreement, as the MESLSA exceeds the $5,000,000 material contract threshold. While VMS has already notified Pinnacle of the dormancy, additional notifications regarding an amendment could draw further attention from the lender and may prompt questions about VMS's strategic program execution.
F. Assessment. Option 2 is the recommended option. It provides the best balance of financial risk management, optionality preservation, relationship maintenance, and alignment with Ashgrove Equity Partners's strategic objectives. The combination of a dormancy extension, fee restructuring, scope alignment, and derivative works resolution addresses the most significant risks facing VMS under the MESLSA while preserving VMS's ability to reactivate the program if and when commercial conditions warrant.
C&H has already circulated a term sheet and Draft Amendment No. 1 to Redstone Whitaker LLP. Counter-proposals have been received and are currently under review by the C&H team. The substantive gaps between the parties' positions are meaningful but, in our assessment, bridgeable through continued negotiation.
We recommend that VMS's Board of Directors establish authorized negotiation parameters for the engagement team, with input from Kestrel Capital Partners (Kate Drummond, Partner, Portfolio Operations, serving as board observer). The negotiation parameters should establish floor positions on each of the key terms identified above, including the maximum acceptable reactivation fee, the minimum acceptable royalty cap reduction, and the required scope of the derivative works carve-out.
The target for completion of the amendment is before August 3, 2024 — the date on which the existing 12-month dormancy cap expires and mandatory renegotiation or termination is triggered under Section 9.4. If the amendment is not executed before that date, the parties will be operating under the mandatory renegotiation framework of Section 9.4, which introduces additional procedural uncertainty and potentially weakens VMS's negotiating position.
VI. Option 3: Termination for Convenience After June 21, 2024
A. Description. Under Option 3, VMS would wait until the 24-month anniversary of the MESLSA (June 21, 2024) passes and then exercise its right to terminate for convenience under Section 9.1 by delivering 180 days' prior written notice to MeridianCode.
The earliest date on which VMS could deliver a termination for convenience notice without triggering the fee-forfeiture provision is June 22, 2024 — the day after the 24-month anniversary. With the 180-day notice period running from that date, the earliest effective termination date would be December 19, 2024 (180 days later). Upon the effective termination date, VMS would cease all obligations under the MESLSA and the license to ATLAS-RT would expire.
This option represents a clean break from MeridianCode and the MESLSA. VMS would walk away from the agreement, forfeit no prepaid fees (because the forfeiture provision no longer applies after the 24-month anniversary), but also recover none of the $12,320,000 already paid.
B. Financial Implications
Fee Forfeiture. After June 21, 2024, the fee-forfeiture clause in Section 9.1 no longer applies. VMS would not be required to forfeit prepaid fees as a consequence of terminating for convenience. This is the primary advantage of waiting until after the 24-month anniversary.
Refund of Prepaid Fees. However, as discussed in Section III.A above, the MESLSA does not expressly provide for any refund or credit of prepaid fees upon a post-anniversary termination for convenience. The $8,000,000 upfront license fee and $2,400,000 Year 1 Maintenance & Support fee are likely to be characterized as fully earned and non-refundable. The licensor's position will be that these fees were consideration for the grant of the license and the provision of first-year maintenance services, both of which were delivered, and that VMS's subsequent decision not to use the license does not give rise to a refund obligation.
Integration Services Fees. The $1,920,000 in integration services fees paid for Milestones 1 through 3 were paid in exchange for completed deliverables (requirements specifications, source-code customization, and alpha integration testing). MeridianCode delivered the contracted work product for each milestone, and VMS accepted the deliverables. There is no contractual or equitable basis for a refund of these fees.
Year 2 Maintenance Fee. If VMS has not paid the $2,400,000 Year 2 Maintenance Fee by the effective termination date, and VMS's dormancy-period abatement argument is upheld (or the dispute is resolved in VMS's favor through negotiation), VMS may owe nothing or only a prorated amount for the period during which the license was active. If the abatement argument is rejected, VMS could be liable for the full $2,400,000 plus accrued interest.
Total Write-Off. Under Option 3, the total financial write-off is $12,320,000 in fees already paid, which are likely non-recoverable. VMS would have no further forward payment obligations under the MESLSA — no Milestones 4–5 fees ($1,280,000 avoided), no runtime royalties ($4,000,000 cap avoided), and potentially no Year 2 Maintenance Fee ($2,400,000 avoided if abatement argument prevails).
Alternative RTOS Costs. Option 3 requires VMS to procure an alternative RTOS for the Argonaut-A and Argonaut-C platforms. The cost of an alternative RTOS license, integration services, and engineering time to re-do the integration work from scratch is not included in the above figures but would be substantial. Based on preliminary market intelligence, licensing fees for comparable embedded RTOS platforms (e.g., Wind River VxWorks, Green Hills INTEGRITY, or BlackBerry QNX) for a two-platform automotive deployment would likely range from $3,000,000 to $6,000,000, with integration services and engineering costs adding an additional $2,000,000 to $4,000,000. Total alternative RTOS procurement and integration costs could therefore range from $5,000,000 to $10,000,000.
Derivative Works. Under Section 7.2, MeridianCode's perpetual royalty-free license to DW-001, DW-002, and DW-003 survives termination of the MESLSA. Unless VMS executes a pre-termination side letter or amendment resolving derivative works ownership, MeridianCode would retain its license-back rights post-termination and could potentially incorporate VMS-developed code into its own products or license it to third parties. This represents a loss of control over $1,800,000 to $2,500,000 in VMS-developed code assets.
Net Financial Outcome. VMS walks away having spent $12,320,000 with no usable license, having ceded derivative works rights to MeridianCode, and facing the need to incur $5,000,000 to $10,000,000 in new costs to procure and integrate an alternative RTOS. The total effective cost of the Project Argonaut RTOS strategy under Option 3 could reach $17,320,000 to $22,320,000 when the write-off and replacement costs are combined.
C. Timing Considerations
Option 3 involves several overlapping deadlines that must be carefully coordinated:
The 12-month dormancy cap under Section 9.4 expires on August 3, 2024. This date falls after the 24-month anniversary of June 21, 2024, but before the earliest possible effective termination date of December 19, 2024. This creates a gap period of approximately four and a half months (August 3, 2024 to December 19, 2024) during which the dormancy cap has expired but the termination notice is still pending and the MESLSA remains in effect.
During this gap period, the mandatory renegotiation or termination mechanism of Section 9.4 is triggered. This means that MeridianCode could attempt to force mandatory renegotiation under Section 9.4, potentially imposing new terms or conditions as a prerequisite to continuing the agreement through the notice period. Alternatively, MeridianCode could take the position that the dormancy cap expiration constitutes an independent basis for termination under Section 9.4, separate from VMS's pending Section 9.1 termination. The interaction between these two termination pathways — Section 9.1 (termination for convenience with 180-day notice) and Section 9.4 (mandatory renegotiation or termination upon dormancy cap expiration) — is not clearly addressed in the MESLSA and could become a source of dispute.
To manage this timing issue, VMS has several options. VMS could issue its termination for convenience notice on June 22, 2024 (the day after the 24-month anniversary), establishing December 19, 2024 as the effective termination date. W

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