CALDERWOOD & HARKNESS LLP Attorneys at Law
125 Park Avenue, 34th Floor New York, NY 10017
Telephone: (212) 841-7600 Facsimile: (212) 841-7601 www.calderwoodharkness.com
Elaine Forsythe Partner — Antitrust & Competition Practice Direct Dial: (212) 841-7644 eforsythe@calderwoodharkness.com
October 30, 2023
Via Email (costrowski@dunleavyph.com) and Sundial Data Systems
Carolyn Ostrowski, Esq. Dunleavy, Proctor & Hale LLP 300 South Tryon Street, Suite 2200 Charlotte, NC 28202
Re: Termination of Master Services Agreement Negotiations — MSA-PDS-MCB-2023 Meridian Consumer Brands LLC / Pinecrest Digital Solutions Inc. Calderwood & Harkness LLP Matter No. 1011-00008
Dear Ms. Ostrowski:
This firm represents Meridian Consumer Brands LLC ("MCB"), a Delaware limited liability company with its principal offices at 680 Fifth Avenue, 22nd Floor, New York, NY 10019. We write on behalf of MCB to provide formal notice of MCB's decision to terminate, in its entirety, the negotiation process for the proposed Master Services Agreement bearing document reference number MSA-PDS-MCB-2023 (the "Proposed MSA") between Meridian Consumer Brands LLC, in its capacity as Customer, and Pinecrest Digital Solutions Inc. ("Pinecrest"), in its capacity as Service Provider. This letter constitutes MCB's definitive and final communication on the matter, and no further negotiation sessions, draft exchanges, or escalation discussions will be pursued by MCB.
As you are aware, by letter dated October 18, 2023, this firm notified Dunleavy, Proctor & Hale LLP ("DPH"), on behalf of MCB, that MCB was pausing all negotiations related to the Proposed MSA pending MCB's internal assessment of the implications of the announced acquisition of Pinecrest Digital Solutions Inc. by Vaulton Technologies Group, Inc. ("Vaulton"). Having now completed that assessment, MCB has determined that the negotiation process cannot proceed, for the reasons set forth more fully below.
I. Background — Negotiation History
To place this termination in proper context, we briefly summarize the procedural history of the parties' engagement and the status of the Proposed MSA negotiations at the time they were paused.
On June 12, 2023, MCB issued Request for Proposal No. MCB-IT-RFP-2023-006, soliciting proposals from qualified vendors for the provision of managed IT services, data hosting, and analytics platform support. Following a competitive evaluation process involving multiple respondents, MCB selected Pinecrest Digital Solutions Inc. as its preferred vendor on July 10, 2023. Pinecrest was notified of its selection on that date, and the parties commenced preliminary discussions regarding the scope and structure of the anticipated engagement.
Calderwood & Harkness LLP was formally engaged by MCB on July 25, 2023 to serve as outside counsel for the negotiation and documentation of the Master Services Agreement. This firm delivered the initial draft of the Proposed MSA (MSA-PDS-MCB-2023) to MCB on August 4, 2023 for internal review. MCB provided its consolidated business and legal comments, and on August 11, 2023, this firm transmitted the initial draft MSA to your firm on behalf of Pinecrest. DPH, acting on behalf of Pinecrest, returned a comprehensive first redline of the Proposed MSA on August 25, 2023. That redline contained forty-seven (47) substantive comments and proposed revisions across a wide range of provisions, including but not limited to the scope of services, service level agreements, intellectual property ownership, data security obligations, indemnification, limitation of liability, termination provisions, and audit rights.
The parties thereafter engaged in two negotiation calls to resolve the open issues identified in DPH's redline. During the first call, held on September 8, 2023, the parties and their respective counsel successfully resolved twenty-nine (29) of the forty-seven (47) open issues. A revised draft reflecting those resolutions was circulated by this firm on September 15, 2023. During the second call, held on September 29, 2023, the parties resolved an additional eight (8) of the twelve (12) remaining issues, bringing the total number of resolved issues to thirty-seven (37) of the original forty-seven (47).
A near-final draft of the Proposed MSA was circulated by this firm on October 6, 2023. As of that date, four (4) issues remained unresolved and were to be escalated to the business principals of MCB and Pinecrest for resolution at the executive level. Those four issues were as follows:
(1) the specification and scope of data security standards applicable to MCB's proprietary information, including the question of whether Pinecrest would be required to comply with SOC 2 Type II and ISO 27001 standards on an ongoing basis;
(2) the structure and amount of the aggregate liability cap applicable to Pinecrest's obligations under the Proposed MSA;
(3) the calculation and applicability of a termination fee in the event of early termination by MCB for convenience; and
(4) the scope and frequency of MCB's audit rights with respect to Pinecrest's systems, facilities, and data handling practices.
We acknowledge that substantial progress had been made toward finalizing the Proposed MSA and that the negotiation process was conducted professionally and in good faith by all parties. Nevertheless, as detailed below, no binding Master Services Agreement was ever executed by either MCB or Pinecrest, and the Proposed MSA remained at all times a draft subject to final execution by both parties.
II. Change of Control Event — Vaulton Acquisition of Pinecrest
On October 12, 2023, Vaulton Technologies Group, Inc., a Delaware corporation headquartered at 1400 Peachtree Road NE, Suite 3100, Atlanta, GA 30309, publicly announced that it had entered into a definitive agreement to acquire one hundred percent (100%) of the outstanding equity interests of Pinecrest Digital Solutions Inc. for a reported aggregate purchase price of approximately $685 million. The acquisition was structured as a reverse triangular merger, and the transaction was subject to customary closing conditions, including regulatory approvals. We understand that the acquisition of Pinecrest by Vaulton closed on October 27, 2023, at which point Pinecrest became a wholly owned subsidiary of Vaulton.
For context, Vaulton Technologies Group, Inc. is a large-scale enterprise technology and IT services provider with reported fiscal year 2022 revenues of approximately $4.7 billion. Vaulton is led by Chief Executive Officer Robert "Rob" Castellano and maintains a broad portfolio of managed IT infrastructure, cloud hosting, data analytics, and enterprise software services across a diverse range of industry verticals.
We note that the near-final draft of the Proposed MSA (MSA-PDS-MCB-2023), as circulated on October 6, 2023, contained a Change of Control clause at Section 14.6, which would have permitted either party to terminate the agreement within thirty (30) days following the occurrence of a Change of Control event affecting the other party. While the Proposed MSA was never executed and therefore no contractual termination right was triggered, the underlying business rationale for inclusion of that provision — namely, the recognition by both parties that a fundamental change in ownership or control of a counterparty may materially alter the commercial calculus and risk profile of the engagement — is directly applicable to the present circumstances. The Vaulton acquisition of Pinecrest constitutes precisely the type of event that the Change of Control provision was designed to address, and MCB's decision to terminate the negotiation process is consistent with the principles reflected in that provision.
III. Grounds for Termination
MCB's decision to terminate the MSA negotiation process is based on a thorough internal assessment conducted between October 12, 2023 and October 25, 2023, involving MCB's senior management, information technology leadership, legal department, and competitive intelligence team. The principal grounds for this decision are as follows:
A. Competitive Overlap Concerns
MCB has determined that Vaulton Technologies Group, Inc. currently provides, and is contractually engaged to provide, managed IT services and related technology solutions to entities that are direct competitors of MCB in MCB's core product categories.
Specifically, Vaulton provides managed IT services, including infrastructure management and enterprise application support, to Brightleaf Brands, Inc. ("Brightleaf"), a Delaware corporation with approximately $2.1 billion in annual revenue. Brightleaf is a direct competitor of MCB in the household cleaning and personal care products categories. MCB and Brightleaf compete head-to-head in multiple product lines across retail and e-commerce channels in the United States and internationally.
In addition, Vaulton provides data analytics hosting services to Kessler Home & Personal Care Corp. ("Kessler"), a Delaware corporation with approximately $890 million in annual revenue. Kessler is a direct competitor of MCB in the personal care and beauty product categories. MCB and Kessler compete in overlapping product segments, including skin care, hair care, and personal hygiene products, across multiple distribution channels.
MCB, with fiscal year 2022 revenues of approximately $1.34 billion, competes directly with both Brightleaf Brands and Kessler Home & Personal Care Corp. in overlapping product categories and geographic markets. The provision of IT infrastructure and data services by a single vendor — Vaulton, through its newly acquired subsidiary Pinecrest — to MCB and two of MCB's principal direct competitors creates irreconcilable conflicts of interest that MCB cannot accept in an IT services relationship of the scope and sensitivity contemplated by the Proposed MSA. MCB's competitive position could be materially and adversely affected by the structural conflicts inherent in such an arrangement.
B. Data Security and Confidentiality Risks
The Proposed MSA contemplated that Pinecrest would host and manage significant categories of MCB's most commercially sensitive proprietary information. This information included, without limitation, MCB's proprietary trade promotion data, pricing algorithms, demand forecasting models, supply chain analytics, customer segmentation data, and product launch planning materials. The nature and sensitivity of this information is such that unauthorized disclosure or access — even inadvertent — by a competitor could cause substantial and irreparable harm to MCB's competitive position.
As a consequence of the Vaulton acquisition, Pinecrest's IT infrastructure, systems, and personnel are now under the ownership and control of an entity that simultaneously provides IT infrastructure, data hosting, and data analytics services to MCB's direct competitors, Brightleaf Brands, Inc. and Kessler Home & Personal Care Corp. This creates a structural risk of competitive intelligence leakage that MCB has determined to be unacceptable.
MCB acknowledges that contractual data isolation mechanisms, including logical and physical data segregation, access controls, and confidentiality covenants, exist as potential safeguards and are commonly employed in multi-client IT services environments. However, MCB has conducted a thorough assessment, with the assistance of its internal information security team and external consultants, and has concluded that such mechanisms, while valuable, are insufficient to mitigate the structural risk created by Vaulton's simultaneous service relationships with Brightleaf Brands, Kessler Home & Personal Care, and MCB. The risk is not merely contractual in nature; it is structural and organizational, arising from the concentration of competitively sensitive data from direct competitors within a single corporate family. No set of contractual protections can fully eliminate this risk.
C. Irreconcilability of Concerns
In light of the foregoing, MCB's internal assessment, conducted over the period from October 12, 2023 through October 25, 2023, has concluded that the combination of competitive overlap concerns, data security and confidentiality risks, and change-of-control considerations renders the continuation of the MSA negotiation process untenable. These concerns are not susceptible to resolution through further negotiation of the Proposed MSA's terms, as they arise from the structural position of Vaulton vis-à-vis MCB's competitive landscape, rather than from any particular contractual provision.
On October 25, 2023, MCB management, including Chief Executive Officer Margaret Thornbury and General Counsel David Halverston, formally decided to terminate the MSA process with Pinecrest Digital Solutions Inc. (now a subsidiary of Vaulton Technologies Group, Inc.). That decision is final and not subject to reconsideration.
IV. Confirmation of No Binding Agreement
MCB wishes to confirm, for the avoidance of any doubt, that no binding Master Services Agreement was executed between Meridian Consumer Brands LLC and Pinecrest Digital Solutions Inc. at any point during the negotiation process. All drafts of the Proposed MSA exchanged between the parties — including the initial draft transmitted on August 4, 2023, the revised draft circulated on September 15, 2023, and the near-final draft circulated on October 6, 2023 — were expressly subject to final execution by both parties and were, at all times, non-binding drafts provided for discussion and negotiation purposes only. No draft constituted a binding obligation or commitment on the part of either MCB or Pinecrest. The cover correspondence accompanying each draft exchange included express language to that effect, and neither party represented otherwise at any point during the negotiation process.
MCB further confirms that it did not migrate, transfer, or otherwise move any data, systems, applications, or other assets to Pinecrest's infrastructure at any time during the negotiation period. No services were performed by Pinecrest for or on behalf of MCB, and no consideration was paid or payable by either party to the other. Accordingly, no transition-out obligations, wind-down procedures, or other post-termination activities exist as a consequence of this termination of the negotiation process.
V. Confidential Information — Mutual Destruction Request
During the course of the MSA negotiation process, the parties exchanged certain confidential and proprietary information pursuant to the Mutual Non-Disclosure Agreement dated July 14, 2023 between Meridian Consumer Brands LLC and Pinecrest Digital Solutions Inc. (the "NDA") and subject to the confidentiality protections set forth therein.
In connection with the termination of the negotiation process, MCB hereby requests that Pinecrest Digital Solutions Inc. (now a subsidiary of Vaulton Technologies Group, Inc.) and Dunleavy, Proctor & Hale LLP promptly destroy or return to MCB all confidential information of MCB exchanged during the course of the MSA negotiation, including but not limited to:
(a) MCB's IT infrastructure specifications and network architecture documentation;
(b) MCB's data architecture documentation, including database schemas, data flow diagrams, and data classification frameworks;
(c) MCB's information security protocols, policies, and vulnerability assessments;
(d) MCB's vendor evaluation materials, including the RFP (MCB-IT-RFP-2023-006), scoring criteria, and comparative vendor analyses;
(e) all drafts, redlines, and mark-ups of the Proposed MSA (MSA-PDS-MCB-2023) and any related schedules, exhibits, or statements of work;
(f) all internal memoranda, correspondence, notes, and working papers generated by or on behalf of Pinecrest or DPH that contain, reflect, or are derived from MCB's confidential information; and
(g) any other proprietary, confidential, or non-public information of MCB, in whatever form or medium, received by Pinecrest or DPH during the negotiation process.
MCB acknowledges its reciprocal obligations and confirms that it will similarly destroy or return to Pinecrest all confidential information of Pinecrest received by MCB or its counsel during the negotiation process, in accordance with the terms of the NDA. MCB will complete such destruction or return within the same timeframe requested of Pinecrest.
MCB requests written confirmation from DPH, on behalf of Pinecrest Digital Solutions Inc. and Vaulton Technologies Group, Inc., of the completion of such destruction or return within fifteen (15) business days of the date of this letter — i.e., by no later than November 21, 2023. Such confirmation should be in the form of a written certificate executed by an authorized officer of Pinecrest Digital Solutions Inc. (or Vaulton Technologies Group, Inc., as applicable) and delivered to the undersigned at the address set forth above. The surviving confidentiality obligations under the NDA shall continue in effect in accordance with their terms, notwithstanding the termination of the MSA negotiation process.
VI. Reservation of Rights
MCB expressly reserves all rights, remedies, claims, and defenses available to it at law or in equity, whether arising under the NDA, applicable statutes, common law, or otherwise. Nothing in this letter shall be construed as a waiver, release, or relinquishment of any right, remedy, claim, or defense that MCB may now have or may hereafter acquire, including but not limited to any claims arising from unauthorized use or disclosure of MCB's confidential information. MCB's decision not to assert any particular claim or right at this time shall not be deemed a waiver thereof.
VII. Request for Acknowledgment
We respectfully request that DPH acknowledge receipt of this letter and confirm, on behalf of Pinecrest Digital Solutions Inc. (and, to the extent applicable, Vaulton Technologies Group, Inc.), that Pinecrest considers the MSA negotiation process to be terminated with no further obligations on either party, other than the mutual destruction or return of confidential information as described in Section V above and the surviving obligations under the NDA. We would appreciate receiving such acknowledgment at your earliest convenience, and in any event within ten (10) business days of the date of this letter.
VIII. Closing
We wish to express MCB's appreciation for the professional and constructive manner in which DPH and Pinecrest conducted the negotiation process. While the outcome is not the one any party anticipated at the outset of the engagement, MCB has acted deliberately and in good faith in reaching this decision. Should there be any administrative matters necessary to close out the negotiation process — including the disposition of any outstanding correspondence, file materials, or logistical items — we are prepared to address them promptly and cooperatively.
Please do not hesitate to contact the undersigned or my colleague Garrett Simmons at (212) 841-7692 should you have any questions regarding this letter or the matters addressed herein.
Very truly yours,
CALDERWOOD & HARKNESS LLP
By: ________
Elaine Forsythe Partner — Antitrust & Competition Practice Calderwood & Harkness LLP 125 Park Avenue, 34th Floor New York, NY 10017 Telephone: (212) 841-7644
Email: eforsythe@calderwoodharkness.com
cc: David Halverston, Esq., General Counsel, Meridian Consumer Brands LLC
Howard Bellamy, Esq., Partner, Calderwood & Harkness LLP Garrett Simmons, Esq., Senior Associate, Calderwood & Harkness LLP
Enclosures: None