1025-00008 · Quorum Insurance Holdings · Term Sheets

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PRIVILEGED & CONFIDENTIAL — ATTORNEY-CLIENT COMMUNICATION

CALDERWOOD & HARKNESS LLP 425 Park Avenue New York, NY 10022

September 16, 2022

C&H Matter No. 1025-00008

TO: Carolyn Whitford, General Counsel & Executive Vice President, Quorum Insurance Holdings Corp. Gregory Stahl, Vice President, Legal Affairs, Quorum Insurance Holdings Corp.

FROM: Wendy Schultz, Associate, intellectual Property Practice Group, Calderwood & Harkness LLP

REVIEWED BY: Leonard Cross, Partner (Responsible Partner) Patricia Heng, Senior Counsel, Technology Transactions

RE: Analysis of Meridian Credit intelligence, Inc. Initial Term Sheet Dated September 12, 2022 — Proposed Enterprise Data License

COPIES: Rajesh Anand (Chief Data Officer, QIH); Thomas Ng (VP, Enterprise Procurement, QIH) — via Carolyn Whitford

This memorandum is protected by the attorney-client privilege and the work product doctrine. It is intended solely for the use of the addressees and authorized copy recipients identified above. Any unauthorized disclosure, copying, or distribution of this memorandum or its contents is strictly prohibited.

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I. Executive Summary

Calderwood & Harkness LLP ("C&H" or the "Firm") has reviewed the initial term sheet (the "Term Sheet") delivered by Meridian Credit intelligence, Inc. ("Meridian" or "MCI") on September 12, 2022, proposing a five-year enterprise data-licensing arrangement with Quorum Insurance Holdings Corp. ("Quorum" or "QIH"). The Term Sheet was delivered by Keith Marlow, Senior Vice President, Data Licensing & Partnerships at MCI, to Thomas Ng, Vice President, Enterprise Procurement at QIH, and contemplates the execution of a definitive Master Data License Agreement (the "MDLA") to govern the relationship between the parties.

The Term Sheet contemplates aggregate license fees of $60,000,000 over a five-year initial term, structured as a discounted Year 1 fee of $10,800,000 followed by annual license fees of $12,300,000 in each of Years 2 through 5. Additionally, the Term Sheet provides for a one-time implementation and integration fee of $1,500,000, payable upon execution of the MDLA.

After a thorough review, our key findings are as follows:

(a) Pricing and MFN Protection. The pricing structure, while within the range anticipated by Quorum's enterprise procurement team, contains no most favored nation ("MFN") protection for Quorum despite the significant magnitude of the financial commitment. Given that Quorum would rank among Meridian's largest insurance-industry licensees, the absence of MFN protection exposes Quorum to the risk of subsidizing more favorable pricing for competitors and other similarly situated licensees.

(b) Derived-Data Provisions. The derived-data provisions are highly restrictive and, if accepted as drafted, would materially impair Quorum's ability to own and commercially exploit its proprietary analytics outputs, including the QuorumScore™ predictive underwriting model. The Term Sheet purports to grant Meridian a perpetual, royalty-free license-back on all derived data, vests Meridian with sole discretion to determine whether derived data has been "sufficiently transformed," and imposes a 15% revenue share on externally commercialized derived data. These provisions are incompatible with Quorum's strategic objectives and are far outside prevailing market norms.

(c) Dispute Resolution. The dispute resolution provision calls for binding arbitration under AAA Commercial Rules rather than court jurisdiction, which is inconsistent with Quorum's preference and would deprive Quorum of certain procedural protections available in judicial fora.

(d) Additional Provisions Favoring Meridian. Several additional provisions related to data security, post-termination data treatment, intellectual property ownership, and data quality warranties tilt heavily in Meridian's favor and require significant modification in Quorum's counter-term sheet.

This memorandum provides a section-by-section analysis of the Term Sheet, identifies areas of concern, assesses the legal and commercial implications of each material provision, and recommends specific negotiating positions for inclusion in Quorum's counter-term sheet. We have organized our recommendations into three categories: (i) Priority Issues (must-haves), (ii) Important Issues (strong negotiating positions), and (iii) Items Requiring Further Analysis (subject to additional work product from C&H and from Quorum's internal teams and other outside counsel).

C&H is prepared to begin drafting Quorum's counter-term sheet upon confirmation of Quorum's negotiating positions and receipt of feedback from the internal stakeholder team.

II. Background and Context

A. The Proposed Transaction

Quorum intends to license Meridian's consumer credit-file data, commercial credit data, and alternative-data feeds (collectively, the "Licensed Data Products") to enhance Quorum's automated underwriting models, claims-fraud detection algorithms, and customer propensity scoring capabilities across its property and casualty ("P&C"), life, and specialty insurance lines. The data license contemplated by the Term Sheet would represent one of the largest enterprise data-licensing arrangements in Quorum's history and would constitute a cornerstone of Quorum's broader data strategy.

Quorum Insurance Holdings Corp. is a Delaware corporation, publicly traded on the Nasdaq Stock Market under the ticker symbol QIHC, with its principal offices at 1200 Atlantic Street, Suite 3400, Stamford, Connecticut 06901. For the fiscal year ended December 31, 2022, Quorum reported total revenue of approximately $4.18 billion. As of the date of engagement opening, Quorum's market capitalization was approximately $8.9 billion. Quorum operates through a family of regulated insurance subsidiaries across all fifty states and the District of Columbia, with additional operations in Canada and the United Kingdom through wholly-owned foreign subsidiaries.

Meridian Credit intelligence, Inc. is a Georgia corporation, privately held, with its principal offices at 3300 Peachtree Road NE, Suite 2100, Atlanta, Georgia 30326. Meridian is majority-owned (62.5% of outstanding equity) by Breckenridge Capital Partners Fund IV, L.P. ("Breckenridge"), a private equity fund managed by Breckenridge Capital Partners, LLC. Meridian's remaining equity is held by management and earlier-stage investors, including certain venture capital funds and angel investors. For the fiscal year ended December 31, 2022, Meridian reported total revenue of approximately $1.42 billion and EBITDA of approximately $438 million. Meridian is one of the three principal consumer and commercial credit data aggregators in the United States, alongside the three major credit bureaus.

Meridian is represented by Kessler Pruitt & Ashe LLP, with offices in Atlanta and New York. The lead partner on this engagement is Graham Whitley, a partner in the firm's technology transactions and data licensing practice. Based on our prior dealings with Kessler Pruitt, we expect them to be well-prepared and commercially sophisticated negotiators.

The parties executed a Mutual Confidentiality and Non-Disclosure Agreement (reference NDA-QIH-MCI-2022-001) on August 15, 2022, governing the exchange of confidential information in connection with the evaluation and negotiation of the proposed data license. The NDA has a two-year term with standard carve-outs and is governed by New York law. We have reviewed the NDA and do not identify any material issues that would impact the current negotiation.

The Term Sheet was delivered by Keith Marlow (SVP, Data Licensing & Partnerships, MCI) to Thomas Ng (VP, Enterprise Procurement, QIH) on September 12, 2022, via email with a PDF attachment. The Term Sheet is marked "Non-Binding" and "For Discussion Purposes Only" on its face, and it contains a standard provision disclaiming binding effect except with respect to confidentiality and exclusivity provisions. Quorum is not subject to any exclusivity or lock-up provision under the Term Sheet as delivered. The Term Sheet is four pages in length and is attached as Appendix A for reference.

B. Strategic Importance to Quorum

The proposed data license is critical to Quorum's enterprise data strategy, as articulated by Chief Data Officer Rajesh Anand in his presentation to the Quorum Board of Directors in June 2022 and in subsequent discussions with C&H. The ingestion of Meridian's Licensed Data Products — particularly the MCI Consumer Credit File™, the MCI CommercialView™ database, and the MCI AltSignal™ alternative data feed — will enable material improvements across three core operational domains:

(i) Automated Underwriting. Integration of Meridian consumer and commercial credit data into Quorum's proprietary underwriting engine will allow for more granular risk segmentation, improved loss-ratio prediction, and reduced reliance on manual underwriting review for standard and near-standard risks.

(ii) Fraud Detection. Meridian's alternative data feeds, including utility payment history, telecom payment history, and rental payment data, will enrich Quorum's claims-fraud detection algorithms by providing behavioral signals that are not available through traditional credit bureau data.

(iii) Customer Propensity Scoring. Meridian data will support the development and refinement of Quorum's customer acquisition, retention, and cross-sell models, enhancing Quorum's ability to identify high-value policyholders and to tailor product offerings and pricing.

Of particular strategic significance is QuorumScore™, Quorum's proprietary predictive underwriting model. QuorumScore is the subject of a pending United States Patent and Trademark Office ("USPTO") application, Serial No. 97/482,116, filed on behalf of Quorum by Caldwell & Strauss LLP (Angela Firth, lead IP partner). QuorumScore is designed to blend Meridian credit data with Quorum's own first-party claims data, policy data, and telematics data to produce a composite risk score that Quorum believes will outperform existing market offerings in predictive accuracy for insurance underwriting purposes.

Critically, QuorumScore is central to Quorum's planned business-to-business ("B2B") licensing revenue line, pursuant to which Quorum intends to license QuorumScore outputs and analytics to third-party insurers, reinsurers, managing general agents, and insurtech platforms. Quorum's internal financial projections estimate that the QuorumScore B2B licensing business will generate $40 million to $50 million in annual revenue by 2027, representing a significant new revenue stream and a core element of Quorum's long-term growth strategy.

Any restrictions on Quorum's ability to create, own, and commercially exploit derived data using Meridian inputs as one component of a multi-factor model would directly threaten this strategic initiative. As discussed in detail in Section IV.A below, the derived-data provisions of the Term Sheet, if accepted as drafted, would effectively grant Meridian a veto right over Quorum's QuorumScore commercialization and would subject Quorum to a perpetual license-back obligation and a 15% revenue share that would materially impair the economics of the B2B licensing business.

C. Breckenridge Capital Partners — Context on Meridian's Ownership and Motivations

Understanding Meridian's ownership structure and the strategic priorities of its majority investor is essential to framing effective negotiating positions. Breckenridge Capital Partners Fund IV, L.P. holds a 62.5% equity stake in Meridian, acquired in a leveraged recapitalization in 2018. The Breckenridge investment is overseen by Caleb Rourke, a partner at Breckenridge Capital Partners, who serves on Meridian's Board of Directors. The managing partner of Breckenridge Capital Partners, LLC is Elaine Drummond.

Based on publicly available information and our discussions with Quorum's management team, we understand that Breckenridge has been advising Meridian's board to resist MFN clauses in enterprise data licenses that could compress Meridian's margins and create downward pricing pressure across its licensee base. This resistance is driven in significant part by Breckenridge's planned initial public offering ("IPO") of Meridian in the 2025–2026 timeframe. A successful IPO would represent Breckenridge's primary exit event for its investment in Meridian.

In connection with IPO preparations, Meridian's investment bank, Whitmore Zanthor & Co. (Rachel Ng-Castillo, Managing Director, TMT Coverage Group), has raised concerns that broad MFN provisions and expansive derived-data rights granted to licensees could negatively impact Meridian's valuation narrative. Specifically, Whitmore Zanthor has reportedly advised Meridian that its equity story to public market investors will depend in part on demonstrating (a) pricing power and the ability to maintain or grow per-record pricing over time, (b) data exclusivity and the ability to prevent licensees from creating competitive data products using Meridian inputs, and (c) revenue durability through long-term, high-value enterprise contracts.

These dynamics likely explain several of the Term Sheet's more aggressive positions, including (i) the absence of an MFN clause, (ii) the broad definition of "Derived Data" and the restrictive conditions on its commercialization, (iii) the perpetual license-back on derived data, and (iv) the post-termination cessation of derived-data rights. While we recognize that Meridian has legitimate commercial interests in protecting its data assets and pricing flexibility, several of the provisions as drafted go well beyond what is necessary to protect those interests and would impose undue restrictions on Quorum's business.

Quorum's negotiating position is strengthened by the fact that a $60 million, five-year enterprise license with a Fortune 1000 insurance holding company would represent a marquee deal for Meridian and would itself contribute to the valuation narrative Meridian is building for its planned IPO. Quorum should leverage this dynamic in negotiations to obtain more balanced terms.

III. Summary of Key Commercial Terms

Set forth below is a detailed summary of the key commercial terms proposed in the Term Sheet, together with C&H's initial observations and commentary.

A. Term and Renewal

The Term Sheet proposes the following term and renewal structure:

Initial Term: Five (5) years, commencing on the effective date of the MDLA (the "Effective Date").

Renewal: Automatic renewal for successive one (1)-year periods unless either party provides not less than one hundred eighty (180) days' prior written notice of non-renewal to the other party before the expiration of the then-current term.

C&H Observation: The automatic renewal mechanism with a 180-day notice period is generally standard in enterprise data-licensing arrangements of this nature. The 180-day notice period provides adequate time for both parties to plan for potential non-renewal and to identify alternative data sources or replacement licensees, as applicable. However, the Term Sheet is silent on pricing for any renewal term. This omission is notable because it leaves open the possibility that Meridian could impose significant price increases at the commencement of the first renewal term, at a point when Quorum would be deeply integrated with Meridian's data products and would face significant switching costs.

C&H Recommendation: Quorum should negotiate a contractual right to renew at fixed or capped pricing for the first renewal term. We recommend proposing that the annual license fee for the first one-year renewal term be capped at the Year 5 rate plus an adjustment not to exceed the Consumer Price Index ("CPI") increase for the twelve-month period preceding the renewal, or a fixed percentage cap (e.g., 3% per annum), whichever is lower. This approach balances Meridian's interest in pricing flexibility with Quorum's need for cost predictability. The renewal pricing issue should be addressed in the counter-term sheet and in the definitive MDLA.

B. Licensed Data Products

The Term Sheet identifies three Meridian data products within the scope of the proposed license:

The total estimated monthly volume across all three data products is approximately 437 million records per month, which represents approximately 87.4% of the 500 million records/month base tier proposed by Meridian in the pricing structure. The 437 million figure is based on Meridian's estimates of the current data universe and does not account for organic growth in Meridian's data assets over the five-year term, which could increase volumes beyond current projections.

C&H Observation: Quorum should confirm with Priya Nair (Director, Data Engineering, QIH) that the record-count estimates provided by Meridian are consistent with Quorum's internal projections and that anticipated growth in Quorum's data consumption over the five-year term — driven by new product launches, geographic expansion, and increasing model sophistication — will not push volumes significantly above the 500 million record/month base tier. If volumes are expected to approach or exceed the base tier by Year 3 or Year 4, the overage rate of $0.003 per record above 500 million could result in material incremental costs that should be factored into Quorum's total cost of ownership analysis.

We also note that the Term Sheet does not address the addition of new data products that Meridian may develop during the license term. Quorum should consider negotiating a right of first offer or preferential pricing on new Meridian data products introduced during the initial term, to avoid a situation in which Quorum must negotiate separate license terms for new data feeds that complement or extend the currently licensed products.

C. Pricing Structure

The Term Sheet proposes the following pricing structure for the enterprise data license:

Total deal value (aggregate license fees over the initial five-year term): $60,000,000.

The annual license fee structure is as follows:

Year 1 Annual License Fee: $10,800,000, payable in quarterly installments in advance of $2,700,000 each ($10,800,000 ÷ 4 = $2,700,000 per quarter). The Year 1 fee of $10,800,000 equates to a monthly rate of $900,000.

The Year 1 discount rationale stated in the Term Sheet is that the reduced Year 1 fee reflects a six-month implementation and ramp period during which Quorum will not have full access to the Licensed Data Products. During this period, Meridian will work with Quorum's data engineering team to establish connectivity, validate data feeds, and complete integration with Quorum's internal systems.

Years 2–5 Annual License Fee (each year): $12,300,000 per year, payable in quarterly installments in advance of $3,075,000 each ($12,300,000 ÷ 4 = $3,075,000 per quarter). The Years 2–5 fee of $12,300,000 equates to a monthly rate of $1,025,000.

Reconciliation of Total Deal Value:

One-Time Implementation/Integration Fee: $1,500,000, payable upon execution of the MDLA. This fee is not included in the $60,000,000 aggregate license fee value and is billed separately. The implementation fee covers Meridian's costs of technical onboarding, API provisioning, SFTP configuration, initial data load, and dedicated integration support during the ramp period.

Data-Volume Overage: The Term Sheet establishes a base tier of up to 500 million records per month (consumer and commercial combined). For any month in which Quorum's total record consumption exceeds 500 million records, an overage rate of $0.003 per record applies to each record above the 500 million threshold. The overage fee is billed in arrears on a monthly basis.

Payment Terms: All license fees are payable quarterly in advance. Invoices are to be issued by Meridian thirty (30) days prior to the commencement of each quarter.

Late Payment Interest: The Term Sheet provides for late payment interest of 1.5% per month (18% per annum, computed as simple interest) on any amounts not paid when due. Late payment interest accrues from the due date until the date of actual payment.

C&H Observations on Pricing

We offer the following observations on the pricing structure proposed in the Term Sheet:

(i) Year 1 discount. The Year 1 discount reduces the annual fee from $12,300,000 to $10,800,000, a reduction of $1,500,000, or approximately 12.2% from the annualized Year 2–5 rate. However, if the implementation and ramp period truly limits Quorum's access to full data feeds for six months — meaning that Quorum would not derive full commercial value from the Licensed Data Products during that period — the Year 1 fee should more accurately reflect only six months of access at the full rate plus six months at a materially reduced rate. Under this approach, a more appropriate Year 1 fee might be calculated as: (6 months × $1,025,000) + (6 months × $500,000) = $6,150,000 + $3,000,000 = $9,150,000, resulting in total five-year fees of approximately $58,350,000 rather than $60,000,000. Quorum should press for a deeper Year 1 discount, supported by empirical evidence of the ramp period's impact on data availability and usability.

(ii) Overage Rate. The overage rate of $0.003 per record should be benchmarked against comparable enterprise credit-data licenses in the insurance industry and adjacent sectors (financial services, fintech). We recommend engaging Pinnacle Ridge Advisory LLC (Franklin Osei, Managing Director) to conduct a pricing benchmark study and validate the proposed overage rate. Mr. Osei has extensive experience in credit-data market pricing and has been retained by Quorum for this purpose. The benchmark study is expected to be delivered in the first quarter of 2023. Pending the results of the benchmark study, Quorum should reserve the right to negotiate the overage rate in the definitive MDLA.

(iii) Late Payment Interest Rate. The 18% per annum late-payment interest rate is above typical commercial rates for enterprise technology and data-licensing arrangements, which generally range from 8% to 12% per annum or are tied to a prime-plus formula. We recommend negotiating the late payment interest rate down to the lesser of (a) the prime rate as published by The Wall Street Journal plus 3% per annum or (b) 12% per annum, in each case not to exceed the maximum rate permitted by applicable law. This is a standard negotiating point and we do not anticipate significant resistance from Meridian.

(iv) Payment in Advance. The requirement to pay quarterly license fees in advance means that Quorum will have made $2,700,000 in payments before receiving any data, and will continue to pay in advance of data receipt throughout the term. Quorum should consider negotiating for the first quarterly payment to be deferred until thirty (30) days after the completion of the implementation period and successful validation of initial data feeds.

D. Most Favored Nation Clause — Absent

This is a critical finding. The Term Sheet contains no most favored nation pricing provision. This is a significant omission given the magnitude of Quorum's proposed commitment and Quorum's position as one of the largest potential insurance-industry licensees for Meridian's data products.

Quorum had indicated in preliminary discussions — per Thomas Ng's account of conversations with Keith Marlow — its expectation that the MDLA would include an MFN clause ensuring that Meridian would not offer more favorable per-record pricing, volume discounts, or aggregate fee terms to any other insurance-industry licensee. The absence of such a provision from the Term Sheet suggests that Meridian has made a deliberate decision to exclude it, likely at the direction of its private equity sponsor and investment bank, as discussed in Section II.C above.

Meridian's stated rationale for declining to include MFN protection, as communicated by Keith Marlow in prior discussions with Thomas Ng, includes the following:

(a) Confidentiality obligations to existing licensees prevent Meridian from disclosing or benchmarking pricing terms across its licensee base.

(b) The impracticability of cross-licensee price comparisons, given that each enterprise data license involves a bespoke combination of data products, volumes, refresh frequencies, and value-added services.

(c) Antitrust sensitivities in credit-data markets, including concerns that MFN provisions could give rise to allegations of coordinated pricing or price-fixing under Section 1 of the Sherman Act.

C&H Analysis: We do not find Meridian's stated rationale to be persuasive. With respect to confidentiality, an MFN clause does not require disclosure of specific licensee identities or terms; it merely requires a commitment that the licensor will not offer more favorable pricing to comparably situated licensees. With respect to impracticability, standard MFN provisions address this concern by normalizing pricing on a per-record basis or on another objective metric that permits apples-to-apples comparison despite bespoke deal structures. With respect to antitrust concerns, MFN clauses in data-licensing arrangements are common and have not been the subject of antitrust challenge in the credit-data industry. To the extent Meridian has concerns about specific MFN language, those concerns can be addressed through careful drafting.

C&H Recommendation: MFN protection should be a priority negotiating item for Quorum. We recommend proposing an MFN clause covering all U.S.-domiciled insurance carriers, managing general agents ("MGAs"), and insurtech firms with annual premiums written of $500 million or more (the "Comparable Licensee Class"). The MFN clause would provide that Meridian shall not offer any member of the Comparable Licensee Class an effective per-record rate, volume discount, or aggregate annual fee more favorable than the corresponding rate, discount, or fee provided to Quorum, and that if Meridian offers more favorable terms to any Comparable Licensee, Quorum's pricing shall be automatically adjusted to match the more favorable terms on a going-forward basis.

If Meridian categorically refuses to accept an MFN clause, a fallback position of a limited annual pricing audit right should be considered. Under this approach, Quorum would have the right, once per calendar year, to engage an independent third-party auditor (selected from a pre-approved list agreed upon by both parties) to verify that Quorum's effective per-record rate does not exceed 110% of the lowest effective per-record rate charged by Meridian to any member of the Comparable Licensee Class. The auditor would have access to redacted pricing data (with licensee identities removed) sufficient to complete the comparison, and the costs of the audit would be borne by Quorum unless the audit reveals a pricing discrepancy, in which case Meridian would bear the audit costs and provide a retroactive pricing adjustment.

We note again that the likely resistance to MFN provisions reflects the influence of Breckenridge Capital Partners and Whitmore Zanthor, which are advising Meridian to preserve margin flexibility and pricing power ahead of the planned 2025–2026 IPO. Quorum should be prepared for a firm initial refusal on this point and should develop a clear escalation strategy, potentially including direct engagement between Carolyn Whitford and senior Meridian management.

IV. Analysis of Key Provisions — Areas of Concern

A. Derived-Data Rights and intellectual Property Ownership (Critical Issue)

1. Summary of Meridian's Proposed Position

The derived-data provisions of the Term Sheet represent the most significant area of concern from Quorum's perspective and constitute what we consider a potential deal-breaker if not materially revised.

The Term Sheet provides that Meridian retains all intellectual property rights in the Licensed Data Products and in any "Derived Data," which is defined broadly as:

"any data, models, scores, indices, analytics outputs, or other materials created, generated, or derived by or for Licensee using the Licensed Data as an input, in whole or in part."

This definition is extraordinarily expansive. It would capture not only data that is directly derived from Meridian raw data (e.g., aggregated statistics, enriched records, or reformatted data), but also sophisticated analytics outputs, machine-learning model weights and predictions, composite scores, and any other work product that incorporates Meridian data as even a partial input — regardless of the extent to which Quorum's own proprietary data, methodologies, and intellectual property contribute to the creation of those outputs.

Meridian's proposed restrictions on Derived Data include three specific provisions:

(i) Perpetual, Royalty-Free License-Back. Meridian demands a perpetual, irrevocable, royalty-free, fully paid-up, worldwide license to use all Derived Data for Meridian's own internal and external business purposes, without restriction. This license-back would survive termination of the MDLA.

(ii) External Commercialization — "Sufficient Transformation" Standard. Quorum is prohibited from selling, licensing, sublicensing, or otherwise providing Derived Data to any third party unless the Derived Data has been "sufficiently transformed" such that no Meridian raw data can be reverse-engineered from the Derived Data. The Term Sheet provides that Meridian shall have sole discretion to determine whether any particular item of Derived Data meets the "sufficient transformation" standard, and that Quorum must submit all Derived Data intended for external commercialization to Meridian for review and approval prior to distribution.

(iii) Revenue Share. If Quorum commercializes Derived Data that Meridian determines has been "sufficiently transformed," Meridian receives 15% of net revenues attributable to such Derived Data. The Term Sheet does not define "net revenues" or specify the methodology for attributing revenues to Derived Data in cases where the Derived Data is one component of a broader product or service offering.

2. C&H Legal Analysis

Ownership of Derived Data. Meridian's position that Derived Data constitutes a "derivative work" under federal copyright law, and is therefore subject to Meridian's underlying intellectual property rights in the Licensed Data Products, is legally aggressive and, in our view, not well-supported by applicable law.

The leading Supreme Court precedent on copyright protection for factual data compilations is Feist Publications, Inc. v. Rural Telephone Service Co., 499 U.S. 340 (1991). In Feist, the Court held that factual data itself is not copyrightable and that copyright protection for data compilations extends only to the selection, coordination, and arrangement of data that reflects a minimum degree of creativity. The raw credit data that Meridian aggregates and licenses — including consumer tradeline data, payment histories, and alternative data records — consists primarily of factual information reported by creditors, utilities, and other data furnishers. While Meridian's particular selection, arrangement, and presentation of that data may qualify for thin copyright protection as a compilation, the underlying facts themselves are not proprietary to Meridian.

Whether analytics outputs generated by Quorum using Meridian data as one input among many constitute "derivative works" of Meridian's compilation is a nuanced question. Under 17 U.S.C. § 101, a "derivative work" is defined as a work "based upon one or more preexisting works." However, courts have generally interpreted this to require substantial incorporation of copyrightable expression from the preexisting work, rather than mere use of uncopyrightable facts contained in a factual compilation. Where Quorum's models ingest Meridian data alongside Quorum's proprietary first-party data and produce composite scores or predictions, the resulting outputs may not constitute derivative works of Meridian's compilation at all — particularly where the outputs do not reproduce or incorporate the selection, coordination, or arrangement of the Meridian compilation.

We are preparing a separate detailed memorandum on derived-data IP ownership under copyright law, trade secret law, and the law of database rights, which will be delivered by Wendy Schultz and Omar Siddiqui. That memorandum will provide a comprehensive analysis of the applicable legal framework, including relevant case law, and will inform the specific drafting of the derived-data provisions in Quorum's counter-term sheet and the definitive MDLA.

Perpetual License-Back. A perpetual, royalty-free license-back on all Derived Data would give Meridian unrestricted access to Quorum's proprietary analytics, including potentially the QuorumScore™ model outputs, trained model parameters, and composite scoring methodologies. This is commercially unacceptable for several reasons:

(a) It would effectively allow Meridian to offer QuorumScore or equivalent analytics to Meridian's other licensees, including Quorum's direct competitors in the insurance industry, without any compensation to Quorum and without any obligation to attribute the work product to Quorum.

(b) It would compromise the trade secret protection of QuorumScore and related analytics, potentially undermining the pending USPTO patent application (Serial No. 97/482,116) and any common-law trade secret rights Quorum may assert.

(c) It is far outside market norms for enterprise data-licensing arrangements. In our experience and based on Patricia Heng's survey of comparable agreements, data licensors in the credit-data and financial-data industries do not typically demand license-backs on derived data, and when they do, such license-backs are narrowly scoped (e.g., limited to aggregate, anonymized performance benchmarks for the purpose of improving the licensor's data quality).

"Sufficient Transformation" with Meridian Sole Discretion. Granting Meridian sole discretion to determine what constitutes "sufficient transformation" creates an effective veto right over Quorum's data commercialization activities. This is an extraordinary concession with no objective standard, no appeal mechanism, and no time-bounded review process. Under this provision, Meridian could block or indefinitely delay Quorum's commercialization of QuorumScore outputs by simply declining to approve the outputs as "sufficiently transformed," with no obligation to provide reasons and no external check on the exercise of that discretion. This provision is commercially untenable and, depending on the circumstances, could raise antitrust concerns if Meridian were to use its discretion to suppress competition in downstream analytics markets.

15% Revenue Share. A 15% revenue share on Derived Data commercialization, combined with the license-back, would significantly impair the economics of Quorum's planned B2B licensing strategy. If QuorumScore achieves the projected revenue target of $40–50 million by 2027, a 15% share would represent $6 million to $7.5 million annually payable to Meridian — on top of the $12.3 million annual license fee. Moreover, the Term Sheet does not define "net revenues" or provide a methodology for attributing revenues to Derived Data in cases where QuorumScore is sold as part of a bundled product or platform offering. This ambiguity would create ongoing disputes and administrative burden.

Machine-Learning Model Outputs. A particularly important issue that the Term Sheet does not address with sufficient clarity is the treatment of outputs from Quorum's machine-learning ("ML") models that are trained using Meridian data as one of multiple training inputs. The parties are likely to disagree on whether:

(a) the trained model weights and parameters of an ML model trained in part on Meridian data constitute "Derived Data" (a position Meridian is likely to assert);

(b) live predictions or scores generated by such a model when applied to new, non-Meridian input data constitute "Derived Data" (a position that is more difficult for Meridian to support, as the predictions at the inference stage do not directly incorporate or reproduce any Meridian data); and

(c) the model architecture, feature engineering, and training methodology — all of which are designed and implemented by Quorum's data science team using Quorum's proprietary expertise — are Quorum's intellectual property even if Meridian data was one component of the training dataset.

This technical distinction is critical and must be addressed in Quorum's counter-term sheet with precision. We recommend working with Quorum's data science team (specifically Priya Nair and her team leads) to develop a clear taxonomy of data categories and model outputs that can be used to draw defensible lines between Meridian's interests in its raw data and Quorum's interests in its proprietary models and analytics.

3. C&H Recommendation

Quorum should take the unequivocal position in its counter-term sheet that Quorum owns all intellectual property in Derived Data, with unrestricted rights to use, sublicense, and commercialize Derived Data without additional fees or Meridian consent. The specific recommendations are:

(a) Reject the license-back in its entirety. Quorum should not grant Meridian any rights to Quorum's Derived Data, except to the limited extent necessary for Meridian to perform its obligations under the MDLA (e.g., quality assurance testing).

(b) Reject the "sufficient transformation" standard and Meridian's sole-discretion review authority. If any approval mechanism is retained, it should be based on an objective standard defined in the MDLA and subject to expedited dispute resolution.

(c) Reject the 15% revenue share. The license fees paid by Quorum constitute full consideration for the right to use Meridian data as an input to Quorum's proprietary analytics.

(d) Define Derived Data narrowly. Quorum's counter should propose a definition of "Derived Data" that excludes (i) outputs of ML models at the inference stage when applied to non-Meridian inputs, (ii) composite scores or indices that incorporate Meridian data as one input alongside Quorum's proprietary data, and (iii) any work product in which Meridian raw data cannot be identified or extracted.

(e) Coordinate with Angela Firth at Caldwell & Strauss LLP on existing IP portfolio implications, including the pending QuorumScore patent application and any trade secret protections.

B. Dispute Resolution — Binding Arbitration vs. Court Jurisdiction

Term Sheet Provision. Meridian proposes that all disputes arising out of or relating to the MDLA be resolved through binding arbitration administered by the American Arbitration Association ("AAA") under its Commercial Arbitration Rules, seated in New York, New York, before a panel of three (3) arbitrators.

Quorum's Preference. Quorum has expressed a strong preference for exclusive jurisdiction in the United States District Court for the Southern District of New York or the Commercial Division of the New York Supreme Court, New York County, with a mutual waiver of jury trial.

C&H Analysis. The choice between binding arbitration and court jurisdiction involves trade-offs that should be assessed in light of the specific characteristics of this transaction:

(i) Precedent and Appellate Review. Court jurisdiction affords Quorum the benefit of binding precedent, reasoned judicial opinions, and appellate review of legal errors. Arbitral awards, by contrast, are subject to extremely limited judicial review under the Federal Arbitration Act (9 U.S.C. §§ 9–13) and may not be vacated except on narrow grounds such as arbitrator bias or manifest disregard of the law. Given the complexity of the IP ownership and derived-data issues at the heart of this transaction, the availability of appellate review is a significant advantage.

(ii) discovery. Federal court litigation provides access to the full range of discovery tools under the Federal Rules of Civil Procedure, including document requests, interrogatories, depositions, and subpoenas to third parties. Arbitration discovery is generally more limited and is subject to the discretion of the arbitral panel. If disputes arise regarding Meridian's compliance with MFN provisions, data-quality representations, or IP ownership, Quorum may need broad discovery to prove its case.

(iii) Confidentiality. Arbitration proceedings are generally confidential, whereas court proceedings are part of the public record. Confidentiality may benefit both parties given the sensitive commercial and financial information that would be at issue in any dispute. However, Quorum can address confidentiality concerns in litigation through protective orders and sealed filings.

(iv) Speed and Cost. Arbitration is often faster than federal court litigation, though this advantage can be offset by the costs of a three-arbitrator panel (including arbitrator fees) and the limited ability to obtain summary disposition of meritless claims. A three-arbitrator panel, as proposed by Meridian, is significantly more expensive than a single arbitrator.

(v) Injunctive Relief. Regardless of the dispute resolution mechanism, both parties will need the ability to seek emergency injunctive or equitable relief — for example, to enjoin misuse of intellectual property or breach of confidentiality obligations. If binding arbitration is agreed upon, a carve-out permitting either party to seek provisional injunctive relief from a court of competent jurisdiction should be included.

C&H Recommendation. On balance, and given the magnitude of the deal ($60M), the complexity of the IP ownership issues, and Quorum's potential need for broad discovery, we recommend that Quorum push for exclusive court jurisdiction in the S.D.N.Y. or the Commercial Division of the New York Supreme Court, New York County, with a mutual waiver of jury trial. The jury trial waiver should be mutual and irrevocable, and should be set forth in a standalone provision of the MDLA to ensure enforceability under New York law. If Meridian insists on arbitration, Quorum should counter with a single arbitrator (rather than a three-arbitrator panel), expanded discovery rights, and a carve-out for injunctive and equitable relief in court.

C. Governing Law

Term Sheet Provision. The Term Sheet provides that the MDLA shall be governed by the laws of the State of New York, without regard to its conflicts-of-law principles.

C&H Observation. This is consistent with Quorum's preference and is standard for technology transactions and data-licensing agreements involving New York-based parties or New York-seated dispute resolution. New York law provides a well-developed body of commercial law and is familiar to both C&H and Kessler Pruitt. We have no objection to this provision.

D. License Grant — Scope and Permitted Uses

Term Sheet Provision. The Term Sheet grants Quorum a non-exclusive, non-transferable license to access and use the specified Licensed Data Products for Quorum's internal business purposes in connection with insurance underwriting, claims processing, fraud detection, and customer analytics.

C&H Concern. The limitation of the license to "internal business purposes" is a standard restriction in data licenses, but in the context of this transaction, it may be read to prohibit Quorum from using Derived Data for B2B licensing, external consulting, or other commercial activities that involve providing analytics outputs to third parties. This limitation directly intersects with the Derived Data issue discussed in Section IV.A above and, if retained without modification, would effectively preclude Quorum's planned QuorumScore B2B licensing business.

Additionally, the Term Sheet provides that sublicensing is prohibited without Meridian's prior written consent. This restriction, if applied without exception, would prevent Quorum from providing Licensed Data Products or Derived Data to its wholly-owned subsidiaries and regulated insurance company affiliates — entities that are integral to Quorum's business operations and that would need access to the Licensed Data Products for underwriting, claims processing, and fraud detection purposes.

C&H Recommendation. Quorum should negotiate the following modifications to the license grant:

(a) Broadening Permitted Uses. The permitted-use definition should be expanded to encompass not only Quorum's internal business purposes but also the creation and commercialization of Derived Data, subject to the Derived Data provisions negotiated in the MDLA. This ensures that the license grant and the Derived Data provisions are internally consistent.

(b) Affiliate Sublicensing. Quorum should negotiate the right to sublicense the Licensed Data Products to its wholly-owned subsidiaries and affiliates (as defined in the MDLA, which should track Quorum's corporate structure) without the requirement of Meridian's prior written consent, provided that each sublicensee agrees to be bound by the terms and conditions of the MDLA. This is a standard carve-out in enterprise data licenses.

(c) Derived Data Sublicensing. Quorum should negotiate the right to sublicense Derived Data to third parties, subject to the broader Derived Data provisions negotiated in the MDLA (which, per our recommendation, should grant Quorum unrestricted commercialization rights).

E. Data Security and Privacy Obligations

Term Sheet Provision. The Term Sheet references compliance with the Fair Credit Reporting Act ("FCRA"), the Gramm-Leach-Bliley Act ("GLBA"), and "applicable data privacy laws" as baseline regulatory requirements, but defers the negotiation of detailed data-security terms to a Data Security Addendum to be negotiated alongside the MDLA.

The Term Sheet includes the following specific requirements and representations:

(a) Meridian requires Quorum to maintain SOC 2 Type II certification throughout the term of the MDLA.

(b) Meridian represents that it currently holds SOC 2 Type II and ISO 27001 certifications, and that it will maintain such certifications throughout the term.

(c) In the event of a data breach involving Licensed Data Products, the breaching party must notify the other party within 48 hours from the date of discovery of the breach.

C&H Observations. The data security and privacy provisions of the Term Sheet raise several issues that will require detailed attention in the MDLA and the Data Security Addendum:

(i) FCRA Permissible Purpose. Because the MCI Consumer Credit File™ and, to some extent, the MCI AltSignal™ products contain consumer credit information that may qualify as "consumer reports" under the FCRA (15 U.S.C. § 1681 et seq.), Quorum will be required to certify one or more permissible purposes under 15 U.S.C. § 1681b for each contemplated use of the data. The most likely permissible purposes for Quorum's uses are (a) insurance underwriting (§ 1681b(a)(3)(C)), (b) review of an existing account (§ 1681b(a)(3)(F)(ii)), and (c) legitimate business need in connection with a transaction initiated by the consumer (§ 1681b(a)(3)(F)(i)). Quorum's compliance team, led by Claudia Reeves (VP, Regulatory Compliance), should confirm the applicable permissible purpose categories and ensure that Quorum's data-use practices are fully compliant with FCRA requirements.

(ii) CCPA/CPRA. The California Consumer Privacy Act, as amended by the California Privacy Rights Act ("CCPA/CPRA"), may have implications for Quorum's creation and commercialization of Derived Data, particularly to the extent that Derived Data incorporates or is linked to personal information of California residents. The categorization of Derived Data as "personal information," "sale," "sharing," or "service provider" versus "third party" processing will need to be analyzed in the context of Quorum's contemplated data flows. A separate memorandum on CCPA/CPRA implications is forthcoming from Lisa Johannsen in C&H's Privacy & Data Security Practice Group.

(iii) NY DFS Cybersecurity Regulation. As a regulated insurance holding company with subsidiaries domiciled or licensed in New York, Quorum is subject to the New York Department of Financial Services ("DFS") Cybersecurity Regulation, 23 NYCRR 500. This regulation imposes specific requirements on the receipt, processing, storage, and protection of nonpublic information, including third-party service provider security obligations. The DFS regulation will apply to Quorum's receipt and processing of Meridian data, and the Data Security Addendum should be drafted to ensure compliance with 23 NYCRR 500 requirements. A separate memorandum on 23 NYCRR 500 compliance is forthcoming from David Cartwright in C&H's Insurance Regulatory Practice Group.

C&H Recommendation. Quorum should insist on the following in the MDLA and Data Security Addendum:

(a) Reciprocal Security Obligations. Both parties should be subject to equivalent data-security obligations, including minimum encryption standards, access controls, vulnerability management, and incident response procedures.

(b) Reciprocal Breach Notification. Both parties — not just Quorum — should be subject to the 48-hour breach-notification requirement. The current formulation of the Term Sheet appears to impose the 48-hour obligation only on the "breaching party," which could create ambiguity about whether Meridian has a notification obligation in the event of a breach of its own systems.

(c) Audit Rights. Quorum should have the right to conduct periodic security audits or assessments of Meridian's data security practices, either directly or through an independent third-party assessor, at least annually.

(d) SOC 2 and ISO 27001 Reciprocity. While Quorum currently maintains SOC 2 Type II certification, Meridian's representations regarding its own certifications should be accompanied by a covenant to maintain such certifications and to provide copies of current audit reports to Quorum upon request.

F. Insurance Requirements

The Term Sheet includes the following insurance requirements:

Meridian's required insurance minimums for Quorum:

• Commercial general liability insurance: $5,000,000 per occurrence.

• Cyber liability insurance: $50,000,000 aggregate.

C&H Observation. Meridian's cyber liability requirement for Quorum ($50 million aggregate) is high but reasonable given the sensitivity of consumer credit data and the scale of the data-licensing arrangement. Quorum's risk management team should confirm that Quorum's current cyber liability policy meets this threshold; if not, the cost of obtaining additional coverage should be factored into the total cost of ownership analysis.

Quorum should reciprocally require Meridian to maintain the following insurance coverage:

• Commercial general liability insurance: $5,000,000 per occurrence.

• Cyber/technology errors and omissions ("E&O") insurance: $25,000,000 aggregate.

The $25 million cyber/tech E&O requirement for Meridian is appropriate given that a data breach or service failure on Meridian's side could expose Quorum to significant regulatory liability and reputational harm. Both parties should be required to provide certificates of insurance upon request and to notify the other party of any material changes to or cancellations of required coverage.

G. Limitation of Liability and Indemnification

Term Sheet Provision. The Term Sheet proposes the following limitation of liability framework:

(a) Mutual Liability Cap. Each party's aggregate liability under the MDLA shall be limited to the total fees paid or payable by Quorum during the twelve (12)-month period immediately preceding the event giving rise to the claim.

(b) Exclusion of Consequential Damages. Neither party shall be liable for any consequential, incidental, special, or punitive damages, regardless of the cause of action or theory of liability.

(c) Carve-Outs. The liability cap and consequential damages exclusion do not apply to indemnification obligations arising from (i) intellectual property infringement, (ii) data breaches, and (iii) breaches of confidentiality obligations.

C&H Observations. The proposed limitation of liability framework raises the following concerns:

(i) Liability Cap Amount. At the Years 2–5 annual rate, the twelve-month fee cap would equal $12,300,000. While a twelve-month fee cap is a common structure in enterprise technology agreements, a $12.3 million cap on a $60 million deal with significant IP and data-security exposure is relatively low, representing only 20.5% of the total deal value. A party that suffers a major IP infringement or data breach could easily incur damages in excess of $12.3 million.

(ii) Carve-Out Scope. The stated carve-outs for IP infringement, data breaches, and confidentiality breaches are appropriate but should be expanded to include willful misconduct and gross negligence. A party that engages in willful misconduct or gross negligence should not benefit from the contractual liability cap.

(iii) Consequential Damages. The broad exclusion of consequential damages could bar Quorum from recovering lost profits in the event of IP infringement or a data breach by Meridian. Given that Quorum's primary damages in a dispute over derived-data rights or QuorumScore commercialization would likely take the form of lost profits, Quorum should ensure that the consequential damages exclusion does not bar recovery of lost profits relating to IP infringement or data breaches. This can be accomplished by including lost profits as a specific carve-out from the consequential damages exclusion, or by defining the IP infringement and data breach indemnification obligations to expressly include lost profits as recoverable damages.

C&H Recommendation. Quorum should negotiate for (a) a higher liability cap (e.g., total fees paid or payable over the full initial term, or a fixed dollar amount of $60 million), (b) broader carve-outs for willful misconduct and gross negligence, and (c) explicit preservation of the right to recover lost profits in connection with IP infringement and data breach claims.

H. Termination and Post-Termination Data Treatment

Term Sheet Provisions:

(i) Termination for Cause. Either party may terminate the MDLA upon material breach by the other party that is not cured within thirty (30) days of receipt of written notice specifying the breach in reasonable detail.

(ii) Termination for Convenience. Neither party may terminate the MDLA for convenience during the initial five (5)-year term. The Term Sheet does not provide a convenience termination right for either party.

(iii) Post-Termination Raw Data Treatment. Upon termination or expiration of the MDLA, Quorum must return or destroy (at Meridian's election) all Meridian raw data, including all copies in any format, within ninety (90) days. Quorum must certify in writing that all raw data has been returned or destroyed.

(iv) Post-Termination Derived Data Treatment. Upon termination or expiration of the MDLA, Quorum's license to all Derived Data terminates and Quorum must cease all use, distribution, and commercialization of Derived Data. The Term Sheet does not provide a wind-down period or any exception permitting continued use of Derived Data after termination.

C&H Concern. The post-termination Derived Data provision is deeply problematic and represents one of the most significant risks in the Term Sheet. If accepted as drafted, this provision would mean that upon termination of the MDLA — whether for cause, by non-renewal, or otherwise — Quorum would immediately lose all rights to use, distribute, and commercialize all Derived Data created during the term of the MDLA. This would include QuorumScore outputs, trained ML models, composite scores, analytics dashboards, and any other work product that incorporates Meridian data as an input.

The consequences of this provision are severe:

(a) If Quorum invests significant resources over a five-year period in building, training, and refining ML models, scoring algorithms, and analytics platforms using Meridian data as one of multiple inputs, the loss of all rights to those outputs upon termination would be a catastrophic outcome for Quorum's data strategy and B2B licensing business.

(b) Quorum's QuorumScore B2B licensees — who may have contracted for multi-year access to QuorumScore outputs — would be directly affected by a cessation of Quorum's right to distribute QuorumScore. This could expose Quorum to breach-of-contract claims from its own downstream licensees and customers.

(c) The provision creates an extreme lock-in effect, effectively ensuring that Quorum can never terminate the MDLA (even for cause) without suffering the loss of its most valuable data assets. This gives Meridian disproportionate leverage in any renegotiation, renewal, or dispute.

C&H Recommendation. Quorum must insist that rights to Derived Data survive termination of the MDLA in perpetuity, or at an absolute minimum for a commercially reasonable wind-down period of not less than three (3) years. The surviving rights should include the right to continue using, sublicensing, and commercializing all Derived Data created during the term, without any additional fees or Meridian consent. Quorum's obligation upon termination should be limited to (a) ceasing to access new Meridian raw data and (b) returning or destroying all copies of Meridian raw data within the specified 90-day period. The right to use Derived Data that has already been created should not be conditioned on the continued existence of the MDLA.

This is a deal-breaker issue and should be treated as a priority item in Quorum's counter-term sheet.

I. Exclusivity and Non-Compete

Term Sheet Provision. The Term Sheet grants Quorum a non-exclusive license. The Term Sheet does not include any exclusivity, non-compete, or non-solicitation provisions.

C&H Observation. A non-exclusive license is expected and typical in the credit-data industry, where data aggregators license substantially similar data products to multiple licensees. We do not object to the non-exclusive nature of the license. However, Quorum may wish to explore a limited exclusivity carve-out for certain specialized data feeds or analytics outputs if commercially important. For example, if Meridian offers a customized data feed tailored specifically for Quorum's use cases (e.g., a curated subset of AltSignal data optimized for P&C underwriting), Quorum could negotiate for a period of exclusivity on that customized feed, during which Meridian would not provide the same customized feed to other P&C insurance carriers. This would be a secondary negotiating point and not a priority item.

J. Representations and Warranties

Term Sheet Provisions. The Term Sheet includes the following representations and warranties:

(i) Mutual Representations. Standard mutual representations regarding due authorization, no conflict with existing agreements or applicable law, and compliance with applicable laws and regulations.

(ii) Meridian-Specific Representations. Meridian represents that (a) it has all necessary rights, licenses, and authorizations to license the Licensed Data Products to Quorum, and (b) the Licensed Data Products, as delivered by Meridian, do not infringe any third-party intellectual property rights.

(iii) Data Quality Disclaimer. Meridian provides no warranty as to the accuracy, completeness, timeliness, or fitness for a particular purpose of the Licensed Data Products. The data is provided "as is" and "as available," without warranty of any kind, express or implied.

C&H Concern. The "as is" data quality disclaimer is problematic in the context of a $60 million data license upon which Quorum will rely for insurance underwriting decisions, fraud detection, and customer analytics. Quorum is paying a significant premium for access to Meridian's data assets, and the value proposition of the license is predicated on the assumption that the data is accurate, complete, and current. If t

PRIVILEGED & CONFIDENTIAL — ATTORNEY-CLIENT COMMUNICATION
CALDERWOOD & HARKNESS LLP 425 Park Avenue New York, NY 10022
September 16, 2022
C&H Matter No. 1025-00008
TO: Carolyn Whitford, General Counsel & Executive Vice President, Quorum Insurance Holdings Corp. Gregory Stahl, Vice President, Legal Affairs, Quorum Insurance Holdings Corp.
FROM: Wendy Schultz, Associate, intellectual Property Practice Group, Calderwood & Harkness LLP
REVIEWED BY: Leonard Cross, Partner (Responsible Partner) Patricia Heng, Senior Counsel, Technology Transactions
RE: Analysis of Meridian Credit intelligence, Inc. Initial Term Sheet Dated September 12, 2022 — Proposed Enterprise Data License
COPIES: Rajesh Anand (Chief Data Officer, QIH); Thomas Ng (VP, Enterprise Procurement, QIH) — via Carolyn Whitford
This memorandum is protected by the attorney-client privilege and the work product doctrine. It is intended solely for the use of the addressees and authorized copy recipients identified above. Any unauthorized disclosure, copying, or distribution of this memorandum or its contents is strictly prohibited.
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I. Executive Summary
Calderwood & Harkness LLP ("C&H" or the "Firm") has reviewed the initial term sheet (the "Term Sheet") delivered by Meridian Credit intelligence, Inc. ("Meridian" or "MCI") on September 12, 2022, proposing a five-year enterprise data-licensing arrangement with Quorum Insurance Holdings Corp. ("Quorum" or "QIH"). The Term Sheet was delivered by Keith Marlow, Senior Vice President, Data Licensing & Partnerships at MCI, to Thomas Ng, Vice President, Enterprise Procurement at QIH, and contemplates the execution of a definitive Master Data License Agreement (the "MDLA") to govern the relationship between the parties.
The Term Sheet contemplates aggregate license fees of $60,000,000 over a five-year initial term, structured as a discounted Year 1 fee of $10,800,000 followed by annual license fees of $12,300,000 in each of Years 2 through 5. Additionally, the Term Sheet provides for a one-time implementation and integration fee of $1,500,000, payable upon execution of the MDLA.
After a thorough review, our key findings are as follows:
(a) Pricing and MFN Protection. The pricing structure, while within the range anticipated by Quorum's enterprise procurement team, contains no most favored nation ("MFN") protection for Quorum despite the significant magnitude of the financial commitment. Given that Quorum would rank among Meridian's largest insurance-industry licensees, the absence of MFN protection exposes Quorum to the risk of subsidizing more favorable pricing for competitors and other similarly situated licensees.
(b) Derived-Data Provisions. The derived-data provisions are highly restrictive and, if accepted as drafted, would materially impair Quorum's ability to own and commercially exploit its proprietary analytics outputs, including the QuorumScore™ predictive underwriting model. The Term Sheet purports to grant Meridian a perpetual, royalty-free license-back on all derived data, vests Meridian with sole discretion to determine whether derived data has been "sufficiently transformed," and imposes a 15% revenue share on externally commercialized derived data. These provisions are incompatible with Quorum's strategic objectives and are far outside prevailing market norms.
(c) Dispute Resolution. The dispute resolution provision calls for binding arbitration under AAA Commercial Rules rather than court jurisdiction, which is inconsistent with Quorum's preference and would deprive Quorum of certain procedural protections available in judicial fora.
(d) Additional Provisions Favoring Meridian. Several additional provisions related to data security, post-termination data treatment, intellectual property ownership, and data quality warranties tilt heavily in Meridian's favor and require significant modification in Quorum's counter-term sheet.
This memorandum provides a section-by-section analysis of the Term Sheet, identifies areas of concern, assesses the legal and commercial implications of each material provision, and recommends specific negotiating positions for inclusion in Quorum's counter-term sheet. We have organized our recommendations into three categories: (i) Priority Issues (must-haves), (ii) Important Issues (strong negotiating positions), and (iii) Items Requiring Further Analysis (subject to additional work product from C&H and from Quorum's internal teams and other outside counsel).
C&H is prepared to begin drafting Quorum's counter-term sheet upon confirmation of Quorum's negotiating positions and receipt of feedback from the internal stakeholder team.
II. Background and Context
A. The Proposed Transaction
Quorum intends to license Meridian's consumer credit-file data, commercial credit data, and alternative-data feeds (collectively, the "Licensed Data Products") to enhance Quorum's automated underwriting models, claims-fraud detection algorithms, and customer propensity scoring capabilities across its property and casualty ("P&C"), life, and specialty insurance lines. The data license contemplated by the Term Sheet would represent one of the largest enterprise data-licensing arrangements in Quorum's history and would constitute a cornerstone of Quorum's broader data strategy.
Quorum Insurance Holdings Corp. is a Delaware corporation, publicly traded on the Nasdaq Stock Market under the ticker symbol QIHC, with its principal offices at 1200 Atlantic Street, Suite 3400, Stamford, Connecticut 06901. For the fiscal year ended December 31, 2022, Quorum reported total revenue of approximately $4.18 billion. As of the date of engagement opening, Quorum's market capitalization was approximately $8.9 billion. Quorum operates through a family of regulated insurance subsidiaries across all fifty states and the District of Columbia, with additional operations in Canada and the United Kingdom through wholly-owned foreign subsidiaries.
Meridian Credit intelligence, Inc. is a Georgia corporation, privately held, with its principal offices at 3300 Peachtree Road NE, Suite 2100, Atlanta, Georgia 30326. Meridian is majority-owned (62.5% of outstanding equity) by Breckenridge Capital Partners Fund IV, L.P. ("Breckenridge"), a private equity fund managed by Breckenridge Capital Partners, LLC. Meridian's remaining equity is held by management and earlier-stage investors, including certain venture capital funds and angel investors. For the fiscal year ended December 31, 2022, Meridian reported total revenue of approximately $1.42 billion and EBITDA of approximately $438 million. Meridian is one of the three principal consumer and commercial credit data aggregators in the United States, alongside the three major credit bureaus.
Meridian is represented by Kessler Pruitt & Ashe LLP, with offices in Atlanta and New York. The lead partner on this engagement is Graham Whitley, a partner in the firm's technology transactions and data licensing practice. Based on our prior dealings with Kessler Pruitt, we expect them to be well-prepared and commercially sophisticated negotiators.
The parties executed a Mutual Confidentiality and Non-Disclosure Agreement (reference NDA-QIH-MCI-2022-001) on August 15, 2022, governing the exchange of confidential information in connection with the evaluation and negotiation of the proposed data license. The NDA has a two-year term with standard carve-outs and is governed by New York law. We have reviewed the NDA and do not identify any material issues that would impact the current negotiation.
The Term Sheet was delivered by Keith Marlow (SVP, Data Licensing & Partnerships, MCI) to Thomas Ng (VP, Enterprise Procurement, QIH) on September 12, 2022, via email with a PDF attachment. The Term Sheet is marked "Non-Binding" and "For Discussion Purposes Only" on its face, and it contains a standard provision disclaiming binding effect except with respect to confidentiality and exclusivity provisions. Quorum is not subject to any exclusivity or lock-up provision under the Term Sheet as delivered. The Term Sheet is four pages in length and is attached as Appendix A for reference.
B. Strategic Importance to Quorum
The proposed data license is critical to Quorum's enterprise data strategy, as articulated by Chief Data Officer Rajesh Anand in his presentation to the Quorum Board of Directors in June 2022 and in subsequent discussions with C&H. The ingestion of Meridian's Licensed Data Products — particularly the MCI Consumer Credit File™, the MCI CommercialView™ database, and the MCI AltSignal™ alternative data feed — will enable material improvements across three core operational domains:
(i) Automated Underwriting. Integration of Meridian consumer and commercial credit data into Quorum's proprietary underwriting engine will allow for more granular risk segmentation, improved loss-ratio prediction, and reduced reliance on manual underwriting review for standard and near-standard risks.
(ii) Fraud Detection. Meridian's alternative data feeds, including utility payment history, telecom payment history, and rental payment data, will enrich Quorum's claims-fraud detection algorithms by providing behavioral signals that are not available through traditional credit bureau data.
(iii) Customer Propensity Scoring. Meridian data will support the development and refinement of Quorum's customer acquisition, retention, and cross-sell models, enhancing Quorum's ability to identify high-value policyholders and to tailor product offerings and pricing.
Of particular strategic significance is QuorumScore™, Quorum's proprietary predictive underwriting model. QuorumScore is the subject of a pending United States Patent and Trademark Office ("USPTO") application, Serial No. 97/482,116, filed on behalf of Quorum by Caldwell & Strauss LLP (Angela Firth, lead IP partner). QuorumScore is designed to blend Meridian credit data with Quorum's own first-party claims data, policy data, and telematics data to produce a composite risk score that Quorum believes will outperform existing market offerings in predictive accuracy for insurance underwriting purposes.
Critically, QuorumScore is central to Quorum's planned business-to-business ("B2B") licensing revenue line, pursuant to which Quorum intends to license QuorumScore outputs and analytics to third-party insurers, reinsurers, managing general agents, and insurtech platforms. Quorum's internal financial projections estimate that the QuorumScore B2B licensing business will generate $40 million to $50 million in annual revenue by 2027, representing a significant new revenue stream and a core element of Quorum's long-term growth strategy.
Any restrictions on Quorum's ability to create, own, and commercially exploit derived data using Meridian inputs as one component of a multi-factor model would directly threaten this strategic initiative. As discussed in detail in Section IV.A below, the derived-data provisions of the Term Sheet, if accepted as drafted, would effectively grant Meridian a veto right over Quorum's QuorumScore commercialization and would subject Quorum to a perpetual license-back obligation and a 15% revenue share that would materially impair the economics of the B2B licensing business.
C. Breckenridge Capital Partners — Context on Meridian's Ownership and Motivations
Understanding Meridian's ownership structure and the strategic priorities of its majority investor is essential to framing effective negotiating positions. Breckenridge Capital Partners Fund IV, L.P. holds a 62.5% equity stake in Meridian, acquired in a leveraged recapitalization in 2018. The Breckenridge investment is overseen by Caleb Rourke, a partner at Breckenridge Capital Partners, who serves on Meridian's Board of Directors. The managing partner of Breckenridge Capital Partners, LLC is Elaine Drummond.
Based on publicly available information and our discussions with Quorum's management team, we understand that Breckenridge has been advising Meridian's board to resist MFN clauses in enterprise data licenses that could compress Meridian's margins and create downward pricing pressure across its licensee base. This resistance is driven in significant part by Breckenridge's planned initial public offering ("IPO") of Meridian in the 2025–2026 timeframe. A successful IPO would represent Breckenridge's primary exit event for its investment in Meridian.
In connection with IPO preparations, Meridian's investment bank, Whitmore Zanthor & Co. (Rachel Ng-Castillo, Managing Director, TMT Coverage Group), has raised concerns that broad MFN provisions and expansive derived-data rights granted to licensees could negatively impact Meridian's valuation narrative. Specifically, Whitmore Zanthor has reportedly advised Meridian that its equity story to public market investors will depend in part on demonstrating (a) pricing power and the ability to maintain or grow per-record pricing over time, (b) data exclusivity and the ability to prevent licensees from creating competitive data products using Meridian inputs, and (c) revenue durability through long-term, high-value enterprise contracts.
These dynamics likely explain several of the Term Sheet's more aggressive positions, including (i) the absence of an MFN clause, (ii) the broad definition of "Derived Data" and the restrictive conditions on its commercialization, (iii) the perpetual license-back on derived data, and (iv) the post-termination cessation of derived-data rights. While we recognize that Meridian has legitimate commercial interests in protecting its data assets and pricing flexibility, several of the provisions as drafted go well beyond what is necessary to protect those interests and would impose undue restrictions on Quorum's business.
Quorum's negotiating position is strengthened by the fact that a $60 million, five-year enterprise license with a Fortune 1000 insurance holding company would represent a marquee deal for Meridian and would itself contribute to the valuation narrative Meridian is building for its planned IPO. Quorum should leverage this dynamic in negotiations to obtain more balanced terms.
III. Summary of Key Commercial Terms
Set forth below is a detailed summary of the key commercial terms proposed in the Term Sheet, together with C&H's initial observations and commentary.
A. Term and Renewal
The Term Sheet proposes the following term and renewal structure:
Initial Term: Five (5) years, commencing on the effective date of the MDLA (the "Effective Date").
Renewal: Automatic renewal for successive one (1)-year periods unless either party provides not less than one hundred eighty (180) days' prior written notice of non-renewal to the other party before the expiration of the then-current term.
C&H Observation: The automatic renewal mechanism with a 180-day notice period is generally standard in enterprise data-licensing arrangements of this nature. The 180-day notice period provides adequate time for both parties to plan for potential non-renewal and to identify alternative data sources or replacement licensees, as applicable. However, the Term Sheet is silent on pricing for any renewal term. This omission is notable because it leaves open the possibility that Meridian could impose significant price increases at the commencement of the first renewal term, at a point when Quorum would be deeply integrated with Meridian's data products and would face significant switching costs.
C&H Recommendation: Quorum should negotiate a contractual right to renew at fixed or capped pricing for the first renewal term. We recommend proposing that the annual license fee for the first one-year renewal term be capped at the Year 5 rate plus an adjustment not to exceed the Consumer Price Index ("CPI") increase for the twelve-month period preceding the renewal, or a fixed percentage cap (e.g., 3% per annum), whichever is lower. This approach balances Meridian's interest in pricing flexibility with Quorum's need for cost predictability. The renewal pricing issue should be addressed in the counter-term sheet and in the definitive MDLA.
B. Licensed Data Products
The Term Sheet identifies three Meridian data products within the scope of the proposed license:
The total estimated monthly volume across all three data products is approximately 437 million records per month, which represents approximately 87.4% of the 500 million records/month base tier proposed by Meridian in the pricing structure. The 437 million figure is based on Meridian's estimates of the current data universe and does not account for organic growth in Meridian's data assets over the five-year term, which could increase volumes beyond current projections.
C&H Observation: Quorum should confirm with Priya Nair (Director, Data Engineering, QIH) that the record-count estimates provided by Meridian are consistent with Quorum's internal projections and that anticipated growth in Quorum's data consumption over the five-year term — driven by new product launches, geographic expansion, and increasing model sophistication — will not push volumes significantly above the 500 million record/month base tier. If volumes are expected to approach or exceed the base tier by Year 3 or Year 4, the overage rate of $0.003 per record above 500 million could result in material incremental costs that should be factored into Quorum's total cost of ownership analysis.
We also note that the Term Sheet does not address the addition of new data products that Meridian may develop during the license term. Quorum should consider negotiating a right of first offer or preferential pricing on new Meridian data products introduced during the initial term, to avoid a situation in which Quorum must negotiate separate license terms for new data feeds that complement or extend the currently licensed products.
C. Pricing Structure
The Term Sheet proposes the following pricing structure for the enterprise data license:
Total deal value (aggregate license fees over the initial five-year term): $60,000,000.
The annual license fee structure is as follows:
Year 1 Annual License Fee: $10,800,000, payable in quarterly installments in advance of $2,700,000 each ($10,800,000 ÷ 4 = $2,700,000 per quarter). The Year 1 fee of $10,800,000 equates to a monthly rate of $900,000.
The Year 1 discount rationale stated in the Term Sheet is that the reduced Year 1 fee reflects a six-month implementation and ramp period during which Quorum will not have full access to the Licensed Data Products. During this period, Meridian will work with Quorum's data engineering team to establish connectivity, validate data feeds, and complete integration with Quorum's internal systems.
Years 2–5 Annual License Fee (each year): $12,300,000 per year, payable in quarterly installments in advance of $3,075,000 each ($12,300,000 ÷ 4 = $3,075,000 per quarter). The Years 2–5 fee of $12,300,000 equates to a monthly rate of $1,025,000.
Reconciliation of Total Deal Value:
One-Time Implementation/Integration Fee: $1,500,000, payable upon execution of the MDLA. This fee is not included in the $60,000,000 aggregate license fee value and is billed separately. The implementation fee covers Meridian's costs of technical onboarding, API provisioning, SFTP configuration, initial data load, and dedicated integration support during the ramp period.
Data-Volume Overage: The Term Sheet establishes a base tier of up to 500 million records per month (consumer and commercial combined). For any month in which Quorum's total record consumption exceeds 500 million records, an overage rate of $0.003 per record applies to each record above the 500 million threshold. The overage fee is billed in arrears on a monthly basis.
Payment Terms: All license fees are payable quarterly in advance. Invoices are to be issued by Meridian thirty (30) days prior to the commencement of each quarter.
Late Payment Interest: The Term Sheet provides for late payment interest of 1.5% per month (18% per annum, computed as simple interest) on any amounts not paid when due. Late payment interest accrues from the due date until the date of actual payment.
C&H Observations on Pricing
We offer the following observations on the pricing structure proposed in the Term Sheet:
(i) Year 1 discount. The Year 1 discount reduces the annual fee from $12,300,000 to $10,800,000, a reduction of $1,500,000, or approximately 12.2% from the annualized Year 2–5 rate. However, if the implementation and ramp period truly limits Quorum's access to full data feeds for six months — meaning that Quorum would not derive full commercial value from the Licensed Data Products during that period — the Year 1 fee should more accurately reflect only six months of access at the full rate plus six months at a materially reduced rate. Under this approach, a more appropriate Year 1 fee might be calculated as: (6 months × $1,025,000) + (6 months × $500,000) = $6,150,000 + $3,000,000 = $9,150,000, resulting in total five-year fees of approximately $58,350,000 rather than $60,000,000. Quorum should press for a deeper Year 1 discount, supported by empirical evidence of the ramp period's impact on data availability and usability.
(ii) Overage Rate. The overage rate of $0.003 per record should be benchmarked against comparable enterprise credit-data licenses in the insurance industry and adjacent sectors (financial services, fintech). We recommend engaging Pinnacle Ridge Advisory LLC (Franklin Osei, Managing Director) to conduct a pricing benchmark study and validate the proposed overage rate. Mr. Osei has extensive experience in credit-data market pricing and has been retained by Quorum for this purpose. The benchmark study is expected to be delivered in the first quarter of 2023. Pending the results of the benchmark study, Quorum should reserve the right to negotiate the overage rate in the definitive MDLA.
(iii) Late Payment Interest Rate. The 18% per annum late-payment interest rate is above typical commercial rates for enterprise technology and data-licensing arrangements, which generally range from 8% to 12% per annum or are tied to a prime-plus formula. We recommend negotiating the late payment interest rate down to the lesser of (a) the prime rate as published by The Wall Street Journal plus 3% per annum or (b) 12% per annum, in each case not to exceed the maximum rate permitted by applicable law. This is a standard negotiating point and we do not anticipate significant resistance from Meridian.
(iv) Payment in Advance. The requirement to pay quarterly license fees in advance means that Quorum will have made $2,700,000 in payments before receiving any data, and will continue to pay in advance of data receipt throughout the term. Quorum should consider negotiating for the first quarterly payment to be deferred until thirty (30) days after the completion of the implementation period and successful validation of initial data feeds.
D. Most Favored Nation Clause — Absent
This is a critical finding. The Term Sheet contains no most favored nation pricing provision. This is a significant omission given the magnitude of Quorum's proposed commitment and Quorum's position as one of the largest potential insurance-industry licensees for Meridian's data products.
Quorum had indicated in preliminary discussions — per Thomas Ng's account of conversations with Keith Marlow — its expectation that the MDLA would include an MFN clause ensuring that Meridian would not offer more favorable per-record pricing, volume discounts, or aggregate fee terms to any other insurance-industry licensee. The absence of such a provision from the Term Sheet suggests that Meridian has made a deliberate decision to exclude it, likely at the direction of its private equity sponsor and investment bank, as discussed in Section II.C above.
Meridian's stated rationale for declining to include MFN protection, as communicated by Keith Marlow in prior discussions with Thomas Ng, includes the following:
(a) Confidentiality obligations to existing licensees prevent Meridian from disclosing or benchmarking pricing terms across its licensee base.
(b) The impracticability of cross-licensee price comparisons, given that each enterprise data license involves a bespoke combination of data products, volumes, refresh frequencies, and value-added services.
(c) Antitrust sensitivities in credit-data markets, including concerns that MFN provisions could give rise to allegations of coordinated pricing or price-fixing under Section 1 of the Sherman Act.
C&H Analysis: We do not find Meridian's stated rationale to be persuasive. With respect to confidentiality, an MFN clause does not require disclosure of specific licensee identities or terms; it merely requires a commitment that the licensor will not offer more favorable pricing to comparably situated licensees. With respect to impracticability, standard MFN provisions address this concern by normalizing pricing on a per-record basis or on another objective metric that permits apples-to-apples comparison despite bespoke deal structures. With respect to antitrust concerns, MFN clauses in data-licensing arrangements are common and have not been the subject of antitrust challenge in the credit-data industry. To the extent Meridian has concerns about specific MFN language, those concerns can be addressed through careful drafting.
C&H Recommendation: MFN protection should be a priority negotiating item for Quorum. We recommend proposing an MFN clause covering all U.S.-domiciled insurance carriers, managing general agents ("MGAs"), and insurtech firms with annual premiums written of $500 million or more (the "Comparable Licensee Class"). The MFN clause would provide that Meridian shall not offer any member of the Comparable Licensee Class an effective per-record rate, volume discount, or aggregate annual fee more favorable than the corresponding rate, discount, or fee provided to Quorum, and that if Meridian offers more favorable terms to any Comparable Licensee, Quorum's pricing shall be automatically adjusted to match the more favorable terms on a going-forward basis.
If Meridian categorically refuses to accept an MFN clause, a fallback position of a limited annual pricing audit right should be considered. Under this approach, Quorum would have the right, once per calendar year, to engage an independent third-party auditor (selected from a pre-approved list agreed upon by both parties) to verify that Quorum's effective per-record rate does not exceed 110% of the lowest effective per-record rate charged by Meridian to any member of the Comparable Licensee Class. The auditor would have access to redacted pricing data (with licensee identities removed) sufficient to complete the comparison, and the costs of the audit would be borne by Quorum unless the audit reveals a pricing discrepancy, in which case Meridian would bear the audit costs and provide a retroactive pricing adjustment.
We note again that the likely resistance to MFN provisions reflects the influence of Breckenridge Capital Partners and Whitmore Zanthor, which are advising Meridian to preserve margin flexibility and pricing power ahead of the planned 2025–2026 IPO. Quorum should be prepared for a firm initial refusal on this point and should develop a clear escalation strategy, potentially including direct engagement between Carolyn Whitford and senior Meridian management.
IV. Analysis of Key Provisions — Areas of Concern
A. Derived-Data Rights and intellectual Property Ownership (Critical Issue)
1. Summary of Meridian's Proposed Position
The derived-data provisions of the Term Sheet represent the most significant area of concern from Quorum's perspective and constitute what we consider a potential deal-breaker if not materially revised.
The Term Sheet provides that Meridian retains all intellectual property rights in the Licensed Data Products and in any "Derived Data," which is defined broadly as:
"any data, models, scores, indices, analytics outputs, or other materials created, generated, or derived by or for Licensee using the Licensed Data as an input, in whole or in part."
This definition is extraordinarily expansive. It would capture not only data that is directly derived from Meridian raw data (e.g., aggregated statistics, enriched records, or reformatted data), but also sophisticated analytics outputs, machine-learning model weights and predictions, composite scores, and any other work product that incorporates Meridian data as even a partial input — regardless of the extent to which Quorum's own proprietary data, methodologies, and intellectual property contribute to the creation of those outputs.
Meridian's proposed restrictions on Derived Data include three specific provisions:
(i) Perpetual, Royalty-Free License-Back. Meridian demands a perpetual, irrevocable, royalty-free, fully paid-up, worldwide license to use all Derived Data for Meridian's own internal and external business purposes, without restriction. This license-back would survive termination of the MDLA.
(ii) External Commercialization — "Sufficient Transformation" Standard. Quorum is prohibited from selling, licensing, sublicensing, or otherwise providing Derived Data to any third party unless the Derived Data has been "sufficiently transformed" such that no Meridian raw data can be reverse-engineered from the Derived Data. The Term Sheet provides that Meridian shall have sole discretion to determine whether any particular item of Derived Data meets the "sufficient transformation" standard, and that Quorum must submit all Derived Data intended for external commercialization to Meridian for review and approval prior to distribution.
(iii) Revenue Share. If Quorum commercializes Derived Data that Meridian determines has been "sufficiently transformed," Meridian receives 15% of net revenues attributable to such Derived Data. The Term Sheet does not define "net revenues" or specify the methodology for attributing revenues to Derived Data in cases where the Derived Data is one component of a broader product or service offering.
2. C&H Legal Analysis
Ownership of Derived Data. Meridian's position that Derived Data constitutes a "derivative work" under federal copyright law, and is therefore subject to Meridian's underlying intellectual property rights in the Licensed Data Products, is legally aggressive and, in our view, not well-supported by applicable law.
The leading Supreme Court precedent on copyright protection for factual data compilations is Feist Publications, Inc. v. Rural Telephone Service Co., 499 U.S. 340 (1991). In Feist, the Court held that factual data itself is not copyrightable and that copyright protection for data compilations extends only to the selection, coordination, and arrangement of data that reflects a minimum degree of creativity. The raw credit data that Meridian aggregates and licenses — including consumer tradeline data, payment histories, and alternative data records — consists primarily of factual information reported by creditors, utilities, and other data furnishers. While Meridian's particular selection, arrangement, and presentation of that data may qualify for thin copyright protection as a compilation, the underlying facts themselves are not proprietary to Meridian.
Whether analytics outputs generated by Quorum using Meridian data as one input among many constitute "derivative works" of Meridian's compilation is a nuanced question. Under 17 U.S.C. § 101, a "derivative work" is defined as a work "based upon one or more preexisting works." However, courts have generally interpreted this to require substantial incorporation of copyrightable expression from the preexisting work, rather than mere use of uncopyrightable facts contained in a factual compilation. Where Quorum's models ingest Meridian data alongside Quorum's proprietary first-party data and produce composite scores or predictions, the resulting outputs may not constitute derivative works of Meridian's compilation at all — particularly where the outputs do not reproduce or incorporate the selection, coordination, or arrangement of the Meridian compilation.
We are preparing a separate detailed memorandum on derived-data IP ownership under copyright law, trade secret law, and the law of database rights, which will be delivered by Wendy Schultz and Omar Siddiqui. That memorandum will provide a comprehensive analysis of the applicable legal framework, including relevant case law, and will inform the specific drafting of the derived-data provisions in Quorum's counter-term sheet and the definitive MDLA.
Perpetual License-Back. A perpetual, royalty-free license-back on all Derived Data would give Meridian unrestricted access to Quorum's proprietary analytics, including potentially the QuorumScore™ model outputs, trained model parameters, and composite scoring methodologies. This is commercially unacceptable for several reasons:
(a) It would effectively allow Meridian to offer QuorumScore or equivalent analytics to Meridian's other licensees, including Quorum's direct competitors in the insurance industry, without any compensation to Quorum and without any obligation to attribute the work product to Quorum.
(b) It would compromise the trade secret protection of QuorumScore and related analytics, potentially undermining the pending USPTO patent application (Serial No. 97/482,116) and any common-law trade secret rights Quorum may assert.
(c) It is far outside market norms for enterprise data-licensing arrangements. In our experience and based on Patricia Heng's survey of comparable agreements, data licensors in the credit-data and financial-data industries do not typically demand license-backs on derived data, and when they do, such license-backs are narrowly scoped (e.g., limited to aggregate, anonymized performance benchmarks for the purpose of improving the licensor's data quality).
"Sufficient Transformation" with Meridian Sole Discretion. Granting Meridian sole discretion to determine what constitutes "sufficient transformation" creates an effective veto right over Quorum's data commercialization activities. This is an extraordinary concession with no objective standard, no appeal mechanism, and no time-bounded review process. Under this provision, Meridian could block or indefinitely delay Quorum's commercialization of QuorumScore outputs by simply declining to approve the outputs as "sufficiently transformed," with no obligation to provide reasons and no external check on the exercise of that discretion. This provision is commercially untenable and, depending on the circumstances, could raise antitrust concerns if Meridian were to use its discretion to suppress competition in downstream analytics markets.
15% Revenue Share. A 15% revenue share on Derived Data commercialization, combined with the license-back, would significantly impair the economics of Quorum's planned B2B licensing strategy. If QuorumScore achieves the projected revenue target of $40–50 million by 2027, a 15% share would represent $6 million to $7.5 million annually payable to Meridian — on top of the $12.3 million annual license fee. Moreover, the Term Sheet does not define "net revenues" or provide a methodology for attributing revenues to Derived Data in cases where QuorumScore is sold as part of a bundled product or platform offering. This ambiguity would create ongoing disputes and administrative burden.
Machine-Learning Model Outputs. A particularly important issue that the Term Sheet does not address with sufficient clarity is the treatment of outputs from Quorum's machine-learning ("ML") models that are trained using Meridian data as one of multiple training inputs. The parties are likely to disagree on whether:
(a) the trained model weights and parameters of an ML model trained in part on Meridian data constitute "Derived Data" (a position Meridian is likely to assert);
(b) live predictions or scores generated by such a model when applied to new, non-Meridian input data constitute "Derived Data" (a position that is more difficult for Meridian to support, as the predictions at the inference stage do not directly incorporate or reproduce any Meridian data); and
(c) the model architecture, feature engineering, and training methodology — all of which are designed and implemented by Quorum's data science team using Quorum's proprietary expertise — are Quorum's intellectual property even if Meridian data was one component of the training dataset.
This technical distinction is critical and must be addressed in Quorum's counter-term sheet with precision. We recommend working with Quorum's data science team (specifically Priya Nair and her team leads) to develop a clear taxonomy of data categories and model outputs that can be used to draw defensible lines between Meridian's interests in its raw data and Quorum's interests in its proprietary models and analytics.
3. C&H Recommendation
Quorum should take the unequivocal position in its counter-term sheet that Quorum owns all intellectual property in Derived Data, with unrestricted rights to use, sublicense, and commercialize Derived Data without additional fees or Meridian consent. The specific recommendations are:
(a) Reject the license-back in its entirety. Quorum should not grant Meridian any rights to Quorum's Derived Data, except to the limited extent necessary for Meridian to perform its obligations under the MDLA (e.g., quality assurance testing).
(b) Reject the "sufficient transformation" standard and Meridian's sole-discretion review authority. If any approval mechanism is retained, it should be based on an objective standard defined in the MDLA and subject to expedited dispute resolution.
(c) Reject the 15% revenue share. The license fees paid by Quorum constitute full consideration for the right to use Meridian data as an input to Quorum's proprietary analytics.
(d) Define Derived Data narrowly. Quorum's counter should propose a definition of "Derived Data" that excludes (i) outputs of ML models at the inference stage when applied to non-Meridian inputs, (ii) composite scores or indices that incorporate Meridian data as one input alongside Quorum's proprietary data, and (iii) any work product in which Meridian raw data cannot be identified or extracted.
(e) Coordinate with Angela Firth at Caldwell & Strauss LLP on existing IP portfolio implications, including the pending QuorumScore patent application and any trade secret protections.
B. Dispute Resolution — Binding Arbitration vs. Court Jurisdiction
Term Sheet Provision. Meridian proposes that all disputes arising out of or relating to the MDLA be resolved through binding arbitration administered by the American Arbitration Association ("AAA") under its Commercial Arbitration Rules, seated in New York, New York, before a panel of three (3) arbitrators.
Quorum's Preference. Quorum has expressed a strong preference for exclusive jurisdiction in the United States District Court for the Southern District of New York or the Commercial Division of the New York Supreme Court, New York County, with a mutual waiver of jury trial.
C&H Analysis. The choice between binding arbitration and court jurisdiction involves trade-offs that should be assessed in light of the specific characteristics of this transaction:
(i) Precedent and Appellate Review. Court jurisdiction affords Quorum the benefit of binding precedent, reasoned judicial opinions, and appellate review of legal errors. Arbitral awards, by contrast, are subject to extremely limited judicial review under the Federal Arbitration Act (9 U.S.C. §§ 9–13) and may not be vacated except on narrow grounds such as arbitrator bias or manifest disregard of the law. Given the complexity of the IP ownership and derived-data issues at the heart of this transaction, the availability of appellate review is a significant advantage.
(ii) discovery. Federal court litigation provides access to the full range of discovery tools under the Federal Rules of Civil Procedure, including document requests, interrogatories, depositions, and subpoenas to third parties. Arbitration discovery is generally more limited and is subject to the discretion of the arbitral panel. If disputes arise regarding Meridian's compliance with MFN provisions, data-quality representations, or IP ownership, Quorum may need broad discovery to prove its case.
(iii) Confidentiality. Arbitration proceedings are generally confidential, whereas court proceedings are part of the public record. Confidentiality may benefit both parties given the sensitive commercial and financial information that would be at issue in any dispute. However, Quorum can address confidentiality concerns in litigation through protective orders and sealed filings.
(iv) Speed and Cost. Arbitration is often faster than federal court litigation, though this advantage can be offset by the costs of a three-arbitrator panel (including arbitrator fees) and the limited ability to obtain summary disposition of meritless claims. A three-arbitrator panel, as proposed by Meridian, is significantly more expensive than a single arbitrator.
(v) Injunctive Relief. Regardless of the dispute resolution mechanism, both parties will need the ability to seek emergency injunctive or equitable relief — for example, to enjoin misuse of intellectual property or breach of confidentiality obligations. If binding arbitration is agreed upon, a carve-out permitting either party to seek provisional injunctive relief from a court of competent jurisdiction should be included.
C&H Recommendation. On balance, and given the magnitude of the deal ($60M), the complexity of the IP ownership issues, and Quorum's potential need for broad discovery, we recommend that Quorum push for exclusive court jurisdiction in the S.D.N.Y. or the Commercial Division of the New York Supreme Court, New York County, with a mutual waiver of jury trial. The jury trial waiver should be mutual and irrevocable, and should be set forth in a standalone provision of the MDLA to ensure enforceability under New York law. If Meridian insists on arbitration, Quorum should counter with a single arbitrator (rather than a three-arbitrator panel), expanded discovery rights, and a carve-out for injunctive and equitable relief in court.
C. Governing Law
Term Sheet Provision. The Term Sheet provides that the MDLA shall be governed by the laws of the State of New York, without regard to its conflicts-of-law principles.
C&H Observation. This is consistent with Quorum's preference and is standard for technology transactions and data-licensing agreements involving New York-based parties or New York-seated dispute resolution. New York law provides a well-developed body of commercial law and is familiar to both C&H and Kessler Pruitt. We have no objection to this provision.
D. License Grant — Scope and Permitted Uses
Term Sheet Provision. The Term Sheet grants Quorum a non-exclusive, non-transferable license to access and use the specified Licensed Data Products for Quorum's internal business purposes in connection with insurance underwriting, claims processing, fraud detection, and customer analytics.
C&H Concern. The limitation of the license to "internal business purposes" is a standard restriction in data licenses, but in the context of this transaction, it may be read to prohibit Quorum from using Derived Data for B2B licensing, external consulting, or other commercial activities that involve providing analytics outputs to third parties. This limitation directly intersects with the Derived Data issue discussed in Section IV.A above and, if retained without modification, would effectively preclude Quorum's planned QuorumScore B2B licensing business.
Additionally, the Term Sheet provides that sublicensing is prohibited without Meridian's prior written consent. This restriction, if applied without exception, would prevent Quorum from providing Licensed Data Products or Derived Data to its wholly-owned subsidiaries and regulated insurance company affiliates — entities that are integral to Quorum's business operations and that would need access to the Licensed Data Products for underwriting, claims processing, and fraud detection purposes.
C&H Recommendation. Quorum should negotiate the following modifications to the license grant:
(a) Broadening Permitted Uses. The permitted-use definition should be expanded to encompass not only Quorum's internal business purposes but also the creation and commercialization of Derived Data, subject to the Derived Data provisions negotiated in the MDLA. This ensures that the license grant and the Derived Data provisions are internally consistent.
(b) Affiliate Sublicensing. Quorum should negotiate the right to sublicense the Licensed Data Products to its wholly-owned subsidiaries and affiliates (as defined in the MDLA, which should track Quorum's corporate structure) without the requirement of Meridian's prior written consent, provided that each sublicensee agrees to be bound by the terms and conditions of the MDLA. This is a standard carve-out in enterprise data licenses.
(c) Derived Data Sublicensing. Quorum should negotiate the right to sublicense Derived Data to third parties, subject to the broader Derived Data provisions negotiated in the MDLA (which, per our recommendation, should grant Quorum unrestricted commercialization rights).
E. Data Security and Privacy Obligations
Term Sheet Provision. The Term Sheet references compliance with the Fair Credit Reporting Act ("FCRA"), the Gramm-Leach-Bliley Act ("GLBA"), and "applicable data privacy laws" as baseline regulatory requirements, but defers the negotiation of detailed data-security terms to a Data Security Addendum to be negotiated alongside the MDLA.
The Term Sheet includes the following specific requirements and representations:
(a) Meridian requires Quorum to maintain SOC 2 Type II certification throughout the term of the MDLA.
(b) Meridian represents that it currently holds SOC 2 Type II and ISO 27001 certifications, and that it will maintain such certifications throughout the term.
(c) In the event of a data breach involving Licensed Data Products, the breaching party must notify the other party within 48 hours from the date of discovery of the breach.
C&H Observations. The data security and privacy provisions of the Term Sheet raise several issues that will require detailed attention in the MDLA and the Data Security Addendum:
(i) FCRA Permissible Purpose. Because the MCI Consumer Credit File™ and, to some extent, the MCI AltSignal™ products contain consumer credit information that may qualify as "consumer reports" under the FCRA (15 U.S.C. § 1681 et seq.), Quorum will be required to certify one or more permissible purposes under 15 U.S.C. § 1681b for each contemplated use of the data. The most likely permissible purposes for Quorum's uses are (a) insurance underwriting (§ 1681b(a)(3)(C)), (b) review of an existing account (§ 1681b(a)(3)(F)(ii)), and (c) legitimate business need in connection with a transaction initiated by the consumer (§ 1681b(a)(3)(F)(i)). Quorum's compliance team, led by Claudia Reeves (VP, Regulatory Compliance), should confirm the applicable permissible purpose categories and ensure that Quorum's data-use practices are fully compliant with FCRA requirements.
(ii) CCPA/CPRA. The California Consumer Privacy Act, as amended by the California Privacy Rights Act ("CCPA/CPRA"), may have implications for Quorum's creation and commercialization of Derived Data, particularly to the extent that Derived Data incorporates or is linked to personal information of California residents. The categorization of Derived Data as "personal information," "sale," "sharing," or "service provider" versus "third party" processing will need to be analyzed in the context of Quorum's contemplated data flows. A separate memorandum on CCPA/CPRA implications is forthcoming from Lisa Johannsen in C&H's Privacy & Data Security Practice Group.
(iii) NY DFS Cybersecurity Regulation. As a regulated insurance holding company with subsidiaries domiciled or licensed in New York, Quorum is subject to the New York Department of Financial Services ("DFS") Cybersecurity Regulation, 23 NYCRR 500. This regulation imposes specific requirements on the receipt, processing, storage, and protection of nonpublic information, including third-party service provider security obligations. The DFS regulation will apply to Quorum's receipt and processing of Meridian data, and the Data Security Addendum should be drafted to ensure compliance with 23 NYCRR 500 requirements. A separate memorandum on 23 NYCRR 500 compliance is forthcoming from David Cartwright in C&H's Insurance Regulatory Practice Group.
C&H Recommendation. Quorum should insist on the following in the MDLA and Data Security Addendum:
(a) Reciprocal Security Obligations. Both parties should be subject to equivalent data-security obligations, including minimum encryption standards, access controls, vulnerability management, and incident response procedures.
(b) Reciprocal Breach Notification. Both parties — not just Quorum — should be subject to the 48-hour breach-notification requirement. The current formulation of the Term Sheet appears to impose the 48-hour obligation only on the "breaching party," which could create ambiguity about whether Meridian has a notification obligation in the event of a breach of its own systems.
(c) Audit Rights. Quorum should have the right to conduct periodic security audits or assessments of Meridian's data security practices, either directly or through an independent third-party assessor, at least annually.
(d) SOC 2 and ISO 27001 Reciprocity. While Quorum currently maintains SOC 2 Type II certification, Meridian's representations regarding its own certifications should be accompanied by a covenant to maintain such certifications and to provide copies of current audit reports to Quorum upon request.
F. Insurance Requirements
The Term Sheet includes the following insurance requirements:
Meridian's required insurance minimums for Quorum:
• Commercial general liability insurance: $5,000,000 per occurrence.
• Cyber liability insurance: $50,000,000 aggregate.
C&H Observation. Meridian's cyber liability requirement for Quorum ($50 million aggregate) is high but reasonable given the sensitivity of consumer credit data and the scale of the data-licensing arrangement. Quorum's risk management team should confirm that Quorum's current cyber liability policy meets this threshold; if not, the cost of obtaining additional coverage should be factored into the total cost of ownership analysis.
Quorum should reciprocally require Meridian to maintain the following insurance coverage:
• Commercial general liability insurance: $5,000,000 per occurrence.
• Cyber/technology errors and omissions ("E&O") insurance: $25,000,000 aggregate.
The $25 million cyber/tech E&O requirement for Meridian is appropriate given that a data breach or service failure on Meridian's side could expose Quorum to significant regulatory liability and reputational harm. Both parties should be required to provide certificates of insurance upon request and to notify the other party of any material changes to or cancellations of required coverage.
G. Limitation of Liability and Indemnification
Term Sheet Provision. The Term Sheet proposes the following limitation of liability framework:
(a) Mutual Liability Cap. Each party's aggregate liability under the MDLA shall be limited to the total fees paid or payable by Quorum during the twelve (12)-month period immediately preceding the event giving rise to the claim.
(b) Exclusion of Consequential Damages. Neither party shall be liable for any consequential, incidental, special, or punitive damages, regardless of the cause of action or theory of liability.
(c) Carve-Outs. The liability cap and consequential damages exclusion do not apply to indemnification obligations arising from (i) intellectual property infringement, (ii) data breaches, and (iii) breaches of confidentiality obligations.
C&H Observations. The proposed limitation of liability framework raises the following concerns:
(i) Liability Cap Amount. At the Years 2–5 annual rate, the twelve-month fee cap would equal $12,300,000. While a twelve-month fee cap is a common structure in enterprise technology agreements, a $12.3 million cap on a $60 million deal with significant IP and data-security exposure is relatively low, representing only 20.5% of the total deal value. A party that suffers a major IP infringement or data breach could easily incur damages in excess of $12.3 million.
(ii) Carve-Out Scope. The stated carve-outs for IP infringement, data breaches, and confidentiality breaches are appropriate but should be expanded to include willful misconduct and gross negligence. A party that engages in willful misconduct or gross negligence should not benefit from the contractual liability cap.
(iii) Consequential Damages. The broad exclusion of consequential damages could bar Quorum from recovering lost profits in the event of IP infringement or a data breach by Meridian. Given that Quorum's primary damages in a dispute over derived-data rights or QuorumScore commercialization would likely take the form of lost profits, Quorum should ensure that the consequential damages exclusion does not bar recovery of lost profits relating to IP infringement or data breaches. This can be accomplished by including lost profits as a specific carve-out from the consequential damages exclusion, or by defining the IP infringement and data breach indemnification obligations to expressly include lost profits as recoverable damages.
C&H Recommendation. Quorum should negotiate for (a) a higher liability cap (e.g., total fees paid or payable over the full initial term, or a fixed dollar amount of $60 million), (b) broader carve-outs for willful misconduct and gross negligence, and (c) explicit preservation of the right to recover lost profits in connection with IP infringement and data breach claims.
H. Termination and Post-Termination Data Treatment
Term Sheet Provisions:
(i) Termination for Cause. Either party may terminate the MDLA upon material breach by the other party that is not cured within thirty (30) days of receipt of written notice specifying the breach in reasonable detail.
(ii) Termination for Convenience. Neither party may terminate the MDLA for convenience during the initial five (5)-year term. The Term Sheet does not provide a convenience termination right for either party.
(iii) Post-Termination Raw Data Treatment. Upon termination or expiration of the MDLA, Quorum must return or destroy (at Meridian's election) all Meridian raw data, including all copies in any format, within ninety (90) days. Quorum must certify in writing that all raw data has been returned or destroyed.
(iv) Post-Termination Derived Data Treatment. Upon termination or expiration of the MDLA, Quorum's license to all Derived Data terminates and Quorum must cease all use, distribution, and commercialization of Derived Data. The Term Sheet does not provide a wind-down period or any exception permitting continued use of Derived Data after termination.
C&H Concern. The post-termination Derived Data provision is deeply problematic and represents one of the most significant risks in the Term Sheet. If accepted as drafted, this provision would mean that upon termination of the MDLA — whether for cause, by non-renewal, or otherwise — Quorum would immediately lose all rights to use, distribute, and commercialize all Derived Data created during the term of the MDLA. This would include QuorumScore outputs, trained ML models, composite scores, analytics dashboards, and any other work product that incorporates Meridian data as an input.
The consequences of this provision are severe:
(a) If Quorum invests significant resources over a five-year period in building, training, and refining ML models, scoring algorithms, and analytics platforms using Meridian data as one of multiple inputs, the loss of all rights to those outputs upon termination would be a catastrophic outcome for Quorum's data strategy and B2B licensing business.
(b) Quorum's QuorumScore B2B licensees — who may have contracted for multi-year access to QuorumScore outputs — would be directly affected by a cessation of Quorum's right to distribute QuorumScore. This could expose Quorum to breach-of-contract claims from its own downstream licensees and customers.
(c) The provision creates an extreme lock-in effect, effectively ensuring that Quorum can never terminate the MDLA (even for cause) without suffering the loss of its most valuable data assets. This gives Meridian disproportionate leverage in any renegotiation, renewal, or dispute.
C&H Recommendation. Quorum must insist that rights to Derived Data survive termination of the MDLA in perpetuity, or at an absolute minimum for a commercially reasonable wind-down period of not less than three (3) years. The surviving rights should include the right to continue using, sublicensing, and commercializing all Derived Data created during the term, without any additional fees or Meridian consent. Quorum's obligation upon termination should be limited to (a) ceasing to access new Meridian raw data and (b) returning or destroying all copies of Meridian raw data within the specified 90-day period. The right to use Derived Data that has already been created should not be conditioned on the continued existence of the MDLA.
This is a deal-breaker issue and should be treated as a priority item in Quorum's counter-term sheet.
I. Exclusivity and Non-Compete
Term Sheet Provision. The Term Sheet grants Quorum a non-exclusive license. The Term Sheet does not include any exclusivity, non-compete, or non-solicitation provisions.
C&H Observation. A non-exclusive license is expected and typical in the credit-data industry, where data aggregators license substantially similar data products to multiple licensees. We do not object to the non-exclusive nature of the license. However, Quorum may wish to explore a limited exclusivity carve-out for certain specialized data feeds or analytics outputs if commercially important. For example, if Meridian offers a customized data feed tailored specifically for Quorum's use cases (e.g., a curated subset of AltSignal data optimized for P&C underwriting), Quorum could negotiate for a period of exclusivity on that customized feed, during which Meridian would not provide the same customized feed to other P&C insurance carriers. This would be a secondary negotiating point and not a priority item.
J. Representations and Warranties
Term Sheet Provisions. The Term Sheet includes the following representations and warranties:
(i) Mutual Representations. Standard mutual representations regarding due authorization, no conflict with existing agreements or applicable law, and compliance with applicable laws and regulations.
(ii) Meridian-Specific Representations. Meridian represents that (a) it has all necessary rights, licenses, and authorizations to license the Licensed Data Products to Quorum, and (b) the Licensed Data Products, as delivered by Meridian, do not infringe any third-party intellectual property rights.
(iii) Data Quality Disclaimer. Meridian provides no warranty as to the accuracy, completeness, timeliness, or fitness for a particular purpose of the Licensed Data Products. The data is provided "as is" and "as available," without warranty of any kind, express or implied.
C&H Concern. The "as is" data quality disclaimer is problematic in the context of a $60 million data license upon which Quorum will rely for insurance underwriting decisions, fraud detection, and customer analytics. Quorum is paying a significant premium for access to Meridian's data assets, and the value proposition of the license is predicated on the assumption that the data is accurate, complete, and current. If t

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