If you were given software under some Foo License, you may copy, distribute, and modify the software under the terms of the Foo License.
If the distributor of that software stops giving out new copies under the Foo License, that does not change the fact that you did receive a copy of it under the Foo License. As long as the licensor does not actively revoke your copy of the license, you cannot lose the rights granted to you. (Furthermore, many FOSS licenses are explicitly irrevocable. Furthermore still, there is legal precedent that simply making a work available under a FOSS license may often grant the licencor economic consideration, which would also make the license irrecoverable, or maybe at least not revocable without some kind payment to you, the licensee.)
You may need to take pains to prove that distribution did truly and legitimately happen under that original license, but you are legally in the right to continue operating under the specific license that was originally offered to you.
In your case, it's probably even simpler. If the author is still distributing Version 1 somewhere (e.g., in a "Releases History" page), then you don't even need to take pains to prove anything: if anyone complains about your continued redistribution of Version 1, you can very easily point to the place where Version 1 is still publicly available under the free Foo License.