Matter Reference: 1042-00005
Priya and Connor,
I wanted to provide you with a comprehensive status update on our negotiations with Vantage Industrial Solutions, LLC on the OEM Reseller Agreement ahead of the outstanding issues call scheduled for tomorrow, February 14. As you know, we delivered our final redline to Lattimore, Parish & Keene LLP (Vantage's outside counsel) on February 12. We expect the following participants on tomorrow's call: BCS principals, Vantage principals (likely Laura Pentland and possibly Derek Yun or Gregory Harmon), ourselves, and LP&K (Thomas Ellsworth and Jennifer Murata).
We remain on track for the February 20, 2026 target execution date, though a few points remain open. I have organized these below for your review prior to the call.
**I. Open Negotiation Points**
We have five items that we expect to address on the call. My assessment and recommendation on each is as follows:
**1. Audit Rights (Section 8.4)**
Our position in the final redline holds at an annual audit right with 30 days' prior written notice to Vantage for inspection of resale records. Vantage had countered proposing biennial audits. We have received an informal indication from LP&K that Vantage may be prepared to concede on this point and accept annual audits. My recommendation is to hold firm. Annual audit rights are important for monitoring royalty compliance — you are entitled to 18% of Vantage's net resale price, payable quarterly in arrears — and for ensuring compliance with the $5,000,000 per year Minimum Annual Commitment. Biennial audits would create an unacceptable gap in visibility.
**2. Non-Compete / Competing Product Definition (Section 12.2)**
Vantage requested narrowing the definition of "Competing Product" to exclude legacy SCADA-only analytics. BCS conditionally agreed to the SCADA-only carve-out, but only for products that do not incorporate cloud-based IoT functionality. This position is reflected in our final redline. We believe this is a reasonable middle ground that protects BCS's core market position while acknowledging Vantage's existing legacy product lines. I expect this point may be resolved on the call without significant further discussion.
**3. Consequential Damages Carve-Outs (Section 14.3)**
LP&K proposed removing "breach of confidentiality" from the list of exceptions to the mutual consequential damages waiver. We rejected this in the final redline; breach of confidentiality remains carved out from the waiver, along with IP indemnity obligations and willful misconduct. We have received an informal indication from LP&K that Vantage may concede on this point as well. My recommendation is to continue to reject any removal of this carve-out. This is critical IP and trade secret protection for BCS, and the carve-out is standard market practice in agreements of this nature.
**4. MAC Shortfall Pro-Ration on Termination for Convenience (Section 5.6)**
Vantage proposed pro-rating the Minimum Annual Commitment shortfall if termination for convenience occurs mid-year. BCS agreed in the final redline to a pro-rata calculation based on elapsed days in the contract year: MAC × (elapsed days / 365). By way of example, if termination occurs on day 200 of a contract year, the pro-rated MAC would equal $5,000,000 × (200/365) = $2,739,726. This is a settled point; I note it here for completeness so that we can confirm closure on the call. As a reminder, termination for convenience requires 180 days' prior written notice and is available only after the first anniversary of the Effective Date (i.e., after February 20, 2027).
**5. Source Code Escrow Release Triggers (Exhibit E)**
This is the point I expect to be most contested on the call. The three-party escrow agreement with Pinnacle Escrow Services, Inc. covers the BrightEdge platform source code (version 4.2 and subsequent updates). The release conditions in our draft are: (a) BCS ceases business operations, (b) BCS files for bankruptcy, or (c) BCS materially fails to maintain or support the software for more than 120 consecutive days after written notice. Vantage has proposed adding "change of control of BCS" as a fourth release trigger. We rejected this in the final redline and I recommend continuing to reject it. A change of control is not an appropriate release trigger — it would not impair Vantage's ability to receive the licensed software or ongoing support, and it would create significant complications given Veltrano Capital Partners Fund IV's majority ownership position (~68% equity) and the possibility of future portfolio transactions. We should be prepared for pushback from Vantage on this point and can discuss our approach at the outset of the call.
**II. Settled Commercial Terms (Brief Recap for Context)**
For ease of reference, below is a summary of the key commercial terms that have been agreed:
- Total deal value: $15,000,000 (MAC of $5,000,000/year × 3-year initial term, February 20, 2026 through February 19, 2029) - Upfront License Fee: $750,000, non-refundable, due within 10 business days of execution — this means a payment date of March 6, 2026; credited against Year 1 MAC, leaving a net remaining Year 1 MAC obligation of $4,250,000 - Hardware pricing: BE-400 at $185/unit, BE-600 at $340/unit, FOB Austin, TX - Software royalty: 18% of Vantage net resale price, quarterly in arrears - Volume discount: 6% on hardware purchases above $7,500,000 annual threshold - Payment terms: Net 30; late interest at the lesser of 1.5%/month or the maximum rate permitted under Delaware law - Renewal: automatic 1-year renewals with 90 days' non-renewal notice; MAC escalates 4% annually upon renewal (Year 4: $5,200,000; Year 5: $5,408,000) - IP indemnity cap (BCS → Vantage): $15,000,000 (100% of deal value) - General liability cap (each party): $7,500,000 (50% of deal value) - Territory: United States and Canada, non-exclusive, with Limited Exclusivity Covenant (BCS will not appoint more than 4 additional OEM resellers in the industrial automation vertical during the initial 3-year term) - Governing law: State of Delaware; disputes resolved by binding arbitration (AAA, seated in Wilmington, DE) - Insurance: BCS maintaining CGL ($5M/occurrence) and Tech E&O ($10M/claim) through Meridian Mutual Insurance Company; Vantage maintaining CGL ($5M/occurrence) and product liability ($10M aggregate) through Ironclad Specialty Underwriters, Inc.
**III. Signing Logistics and Next Steps**
A few items require your attention:
(a) **Tomorrow's Call.** Please confirm your availability for the February 14 call and let us know who else from BCS should join. I would suggest that Sandra Trejo participate if possible, in the event technical questions arise about the BrightEdge platform or the scope of the escrow deposit materials.
(b) **Post-Call Revised Draft.** Following the call, we will circulate a revised execution draft incorporating any agreed changes. The target execution date remains February 20, 2026.
(c) **Signing Checklist.** Amy Chesterton is maintaining a signing checklist tracking all deliverables for execution, which she will circulate separately. The key deliverables include:
- Execution version of the OEM Reseller Agreement and all exhibits (A through E) - Officer's certificate from BCS (to be signed by Martin Lacroix, CEO) and corresponding certificate from Vantage - BCS certificate of good standing from the Delaware Secretary of State - Vantage certificate of good standing from the Delaware Secretary of State - Insurance certificates from Meridian Mutual (BCS) and Ironclad Specialty Underwriters (Vantage) - Wire instructions for the $750,000 upfront license fee - Executed three-party source code escrow agreement with Pinnacle Escrow Services, Inc. (Rafael Dominguez is the account manager)
(d) **Board Authorization.** Priya, could you please confirm the status of BCS's board authorization for this transaction? Given that Veltrano holds 3 of the 5 board seats, I wanted to confirm whether Nathaniel Burgess (Veltrano's deal partner and board observer) needs to be looped in at this stage or whether existing board approvals are sufficient for execution.
(e) **Vantage Deliverables.** Connor, it would be helpful if you could coordinate with Derek Yun (Vantage VP, Supply Chain & Procurement) to ensure that Vantage's deliverables are on track in parallel. We want to avoid any last-minute delays on their side.
**IV. Closing**
I am confident we can resolve the remaining open points on tomorrow's call. The deal is in good shape, and we are well positioned to meet the February 20 execution date. Please do not hesitate to reach out by phone or email over the weekend if any questions arise in the meantime.
Best regards,
Douglas Fairchild Partner Calderwood & Harkness LLP 1700 Pacific Avenue, Suite 4200 Dallas, TX 75201 dfairchild@calderwoodharkness.com