ATTORNEY-CLIENT PRIVILEGED / ATTORNEY WORK PRODUCT
Internal Deal Summary Memorandum
Re: Lumos Analytics Inc. — $30,000,000 Senior Secured Revolving Credit Facility with Ridgeline National Bank, N.A.
C&H Matter No.: 1008-00001
Date: March 10, 2023
Prepared by: Daniel Obi, Lead Associate, Banking & Finance; Lisa Morrow, Working Associate, Banking & Finance
Reviewed by: Stephanie Okafor, Responsible Partner, Banking & Finance
Distribution: Internal Calderwood & Harkness LLP files only — not for distribution outside the firm
Billing Partner: Philip Hartmann
I. Executive Summary
Calderwood & Harkness LLP ("C&H" or the "Firm") represented Lumos Analytics Inc. ("Lumos" or the "Borrower"), a Delaware corporation headquartered in San Jose, California, as borrower's counsel in connection with the negotiation, documentation, and closing of a $30,000,000 senior secured revolving credit facility (the "Facility") provided by Ridgeline National Bank, National Association ("Ridgeline"), acting in its capacities as administrative agent, collateral agent, and sole initial lender. This memorandum summarizes the material terms of the transaction, the key negotiation points and their outcomes, the security and collateral package, the post-closing obligations, and the Firm's engagement details, and is intended to serve as a comprehensive internal reference for the C&H deal file.
Lumos is an enterprise software-as-a-service ("SaaS") platform company that provides AI-driven financial analytics and risk-modeling tools to mid-market banks and insurance carriers. The company was founded in 2017 and currently employs approximately 310 individuals across its San Jose, California headquarters and a satellite office in Austin, Texas. For fiscal year 2022, Lumos reported audited annualized recurring revenue ("ARR") of $52,400,000, total revenue of $49,100,000, and adjusted EBITDA of $4,200,000. The company was unlevered as of the closing date, with no pre-existing indebtedness.
Lumos is a portfolio company of Verdant Capital Partners Fund III, L.P. ("Verdant"), a $1.8 billion growth equity fund (vintage 2019) managed by Verdant Capital Management III, LLC. Verdant holds approximately 38.4% of the outstanding equity interests in Lumos. Additional significant equity holders include Northstar Venture Partners II, L.P. ("Northstar"), which holds approximately 22.1% of equity, and the company's founders and management team, who collectively hold approximately 26.8%. Other institutional and angel investors hold the remaining 12.7% of equity.
The Credit Agreement governing the Facility was executed and closed on March 9, 2023. The Facility has a three-year tenor with a maturity date of March 9, 2026. The transaction reflects a "covenant-lite" structure designed for a high-growth SaaS company, featuring springing financial covenants that are tested only when aggregate revolving credit outstandings exceed 35% of the total revolving commitment, as well as an accordion feature permitting up to $15,000,000 of incremental revolving commitments. Through the course of negotiations, C&H obtained several meaningful concessions from Ridgeline on behalf of the Borrower, including the complete removal of a proposed fixed charge coverage ratio covenant, the expansion of the permitted acquisitions basket, the inclusion of a capital expenditure carry-forward provision, a reduction of the change of control equity threshold, and a 30-day post-closing grace period for delivery of deposit account control agreements ("DACAs").
Certain post-closing deliverables remain outstanding as of the date of this memorandum. Updated insurance certificates and landlord lien waivers are due by March 24, 2023 (15 days post-closing), and DACAs for three deposit accounts at Pacific Horizon Bank are due by April 8, 2023 (30 days post-closing).
Ridgeline's internal deal identification number for this transaction is TL-2023-0447. Lender's counsel was Whitmore Graves & Fitch LLP ("WGF"), New York office, represented by Thomas A. Rennick, Partner, and Priya Narasimhan, Associate. WGF's matter number is 1008-00001.
II. Transaction Parties
A. Borrower — Lumos Analytics Inc.
The Borrower under the Facility is Lumos Analytics Inc., a corporation organized and existing under the laws of the State of Delaware and qualified to do business in the State of California. The company's Delaware file number is 6284501, and its employer identification number is 82-4917356.
Lumos maintains its registered agent in Delaware through Capitol Registered Agents LLC, located at 850 New Burton Road, Suite 201, Dover, Delaware 19904. The company's principal place of business and chief executive office is located at 2180 Gateway Boulevard, Suite 400, San Jose, California 95110. Lumos also maintains a satellite office at 7600 North Lamar Boulevard, Suite 220, Austin, Texas 78752, which serves as a secondary engineering and customer success hub.
The key officers of Lumos relevant to this transaction are as follows:
• Arjun Malhotra — Chief Executive Officer and Co-Founder. Mr. Malhotra serves as the primary business contact for the Borrower and was involved at the strategic level in the decision to establish the Facility.
• Catherine "Cat" Lindgren — Chief Financial Officer. Ms. Lindgren served as the primary financial contact and was the signatory on the Perfection Certificate and will be responsible for the delivery of quarterly compliance certificates and monthly liquidity reports.
• Marcus Delaney — General Counsel and Secretary. Mr. Delaney served as the primary legal contact for Lumos throughout the engagement, executed the Officer's Certificate (Closing Certificate) delivered at closing, and was the point of contact for the retention of C&H.
Lumos's independent auditor is Brindoval Thornton LLP, an accounting firm with offices at 50 Fremont Street, Suite 1800, San Francisco, California 94105. The engagement partner responsible for the Lumos audit is Alan Mercado, CPA. Brindoval Thornton LLP issued an unqualified audit opinion on Lumos's fiscal year 2022 financial statements, which were delivered to Ridgeline as a condition to closing.
Lumos maintains its primary depository banking relationship with Pacific Horizon Bank, located at 101 Park Center Plaza, San Jose, California 95113. Three deposit accounts at Pacific Horizon Bank — an operating account, a payroll account, and a reserve account — are subject to the DACA delivery requirement described in this memorandum.
The Borrower's commercial insurance is provided by Broadleaf Mutual Insurance Company, located at 280 Trumbull Street, Hartford, Connecticut 06103. Broadleaf is rated A- (Excellent) by AM Best. Updated insurance certificates naming Ridgeline as lender loss payee and additional insured are among the post-closing deliverables described herein.
B. Administrative Agent, Collateral Agent, and Sole Initial Lender — Ridgeline National Bank, N.A.
The administrative agent, collateral agent, and sole initial lender under the Facility is Ridgeline National Bank, National Association, a national banking association organized and existing under the laws of the United States and chartered by the Office of the Comptroller of the Currency ("OCC"). Ridgeline's principal office is located at 600 Lexington Avenue, 22nd Floor, New York, New York 10022, and its employer identification number is 13-6827410.
Ridgeline is a major financial institution with total assets of approximately $87 billion and a technology lending portfolio of approximately $6.2 billion. The bank has an active technology banking practice that focuses on providing credit facilities to venture-backed and growth-stage software and technology companies.
The key contacts at Ridgeline for this transaction are as follows:
• Sarah Whitfield — Senior Vice President, Technology Lending. Ms. Whitfield served as the authorized signatory on behalf of Ridgeline for the execution of the Credit Agreement and related Loan Documents.
• James R. Portman — Managing Director, Credit Risk. Mr. Portman was responsible for overseeing the credit underwriting process and obtaining internal credit committee approval for the Facility.
• Derek Huang — Vice President, Technology Banking (Relationship Manager). Mr. Huang served as the day-to-day point of contact for Ridgeline throughout the documentation and negotiation process and will serve as the ongoing relationship manager for the Lumos account.
C. Sponsor — Verdant Capital Partners Fund III, L.P.
Verdant Capital Partners Fund III, L.P. is the lead sponsor and largest equity holder of Lumos, holding approximately 38.4% of the outstanding equity interests. Verdant is a Delaware limited partnership with employer identification number 84-3291074. Its general partner is Verdant Capital Management III, LLC, a Delaware limited liability company. Verdant's principal office is located at 400 Hamilton Avenue, Suite 310, Palo Alto, California 94301.
The Managing Partner of Verdant Capital Management III, LLC is Rebecca Thornton. Nathan Griggs serves as Operating Partner and Board Observer for Lumos on behalf of Verdant. Mr. Griggs was actively involved in providing direction to Lumos management and to C&H with respect to certain negotiation points, including the change of control threshold applicable to Verdant's minimum equity holding (discussed in Section VIII.E below).
Verdant Capital Partners Fund III, L.P. is a $1.8 billion growth equity fund with a 2019 vintage, focused on investments in enterprise software, fintech, and data analytics companies. Although Verdant is not a direct party to the Credit Agreement, Verdant's equity position is referenced in the change of control provisions and the sponsor-related representations within the Loan Documents.
D. Other Equity Holders
Northstar Venture Partners II, L.P. holds approximately 22.1% of the outstanding equity interests in Lumos. Northstar is a Delaware limited partnership with employer identification number 81-5093287 and a principal office at 1 Embarcadero Center, Suite 2600, San Francisco, California 94111. David Choe serves as Managing Partner of Northstar. While Northstar is not a party to the Credit Agreement, its equity position was disclosed in the Perfection Certificate and in the capitalization representations made by the Borrower.
The remaining equity interests are held by the company's founders and management team (approximately 26.8%) and by other institutional and angel investors (approximately 12.7%). Detailed capitalization information, including the specific holdings of individual founders and management members, was provided to Ridgeline under separate cover as part of the due diligence process and is not reproduced in this memorandum.
III. Timeline of Key Events
The following is a chronological summary of the principal events and milestones in the transaction from engagement through closing and the anticipated post-closing period:
The negotiation of the Credit Agreement and ancillary documentation proceeded in an efficient and largely cooperative manner over the approximately five-week period between the execution of the term sheet on February 3, 2023 and the distribution of execution-ready documents on March 6, 2023. Multiple drafts of the Credit Agreement were exchanged between C&H and WGF during this period, with the principal points of negotiation described in Section VIII of this memorandum. Ridgeline's credit committee approval on February 27, 2023 was a significant milestone that confirmed the bank's internal authorization for the final terms, including the removal of the proposed fixed charge coverage ratio covenant.
IV. Deal Overview — Key Economic Terms
A. Facility Structure
The Facility is structured as a senior secured revolving credit facility in the aggregate principal amount of $30,000,000. The Facility provides Lumos with a flexible source of liquidity that may be drawn upon, repaid, and redrawn during the commitment period, subject to the terms and conditions of the Credit Agreement.
The Facility has a three-year tenor, with a maturity date of March 9, 2026. All outstanding loans and other obligations under the Facility must be repaid in full on or before the maturity date, and the revolving commitments terminate automatically on such date.
The purpose of the Facility, as specified in the Credit Agreement, is to provide financing for general corporate purposes, including working capital needs, permitted acquisitions (subject to the limitations described in Section VII.B below), and capital expenditures. The use of proceeds expressly excludes restricted payments beyond the defined permitted basket (tax distributions and limited management equity repurchases, as described in Section VII.C below).
The Credit Agreement includes a letter of credit sub-facility with a sub-limit of $5,000,000 within the overall $30,000,000 revolving commitment. This sub-facility permits Lumos to request the issuance of standby or commercial letters of credit by Ridgeline for the account of the Borrower, with the stated amount of any outstanding letters of credit reducing the available revolving commitment on a dollar-for-dollar basis.
In addition, the Credit Agreement contains an accordion feature permitting up to $15,000,000 of incremental revolving commitments, which, if exercised, would bring the aggregate revolving commitment to a potential maximum of $45,000,000. The terms of the accordion feature are described in greater detail in Section IX of this memorandum.
The Credit Agreement is governed by the laws of the State of California, without giving effect to conflict of laws principles that would cause the application of the laws of any other jurisdiction. Jurisdiction and venue are in the state and federal courts located in Santa Clara County, California. The parties have waived trial by jury.
B. Interest Rate
Loans under the Facility bear interest at a rate per annum equal to Adjusted Term SOFR plus the applicable margin. The benchmark rate is CME Term SOFR, with the Borrower having the option to elect either a one-month or three-month interest period for each borrowing.
A credit spread adjustment is applied to the base Term SOFR rate before the addition of the applicable margin, as follows:
• One-month Term SOFR: credit spread adjustment of 10 basis points (0.10%)
• Three-month Term SOFR: credit spread adjustment of 15 basis points (0.15%)
The applicable margin for all revolving loans under the Facility is 275 basis points (2.75%) per annum. There is no pricing grid or step-down mechanism — the margin remains fixed at 275 basis points throughout the term of the Facility regardless of financial performance or utilization levels.
Accordingly, the all-in interest rate for loans under the Facility is calculated as Adjusted Term SOFR (i.e., Term SOFR plus the applicable credit spread adjustment) plus 275 basis points. There is no SOFR floor; the floor is set at 0.00%, meaning that the Borrower receives the full benefit of any decline in the SOFR benchmark rate.
Upon the occurrence and during the continuance of any Event of Default, all outstanding obligations under the Facility will bear interest at the default rate, which is equal to the otherwise applicable interest rate plus an additional 200 basis points (2.00%) per annum.
C. Fees. The following fees are payable by the Borrower under the Facility:
Upfront Fee. An upfront fee of 50 basis points (0.50%) on the total revolving commitment was payable at closing. This fee was calculated as $30,000,000 multiplied by 0.50%, resulting in a payment of $150,000, which was paid by Lumos on March 9, 2023 as a condition to closing. The upfront fee was fully earned upon payment and is non-refundable.
Unused Commitment Fee. A commitment fee of 30 basis points (0.30%) per annum accrues on the daily average undrawn portion of the revolving commitment. The unused commitment fee is payable quarterly in arrears on the last business day of each fiscal quarter during the term of the Facility and on the maturity date. The commitment fee began accruing on March 9, 2023, and the first payment will be due on June 30, 2023.
Letter of Credit Fee. A letter of credit fee equal to 275 basis points (2.75%) per annum on the stated amount of each outstanding letter of credit is payable quarterly in arrears. In addition, a fronting fee of 12.5 basis points (0.125%) per annum on the stated amount of each outstanding letter of credit is payable to Ridgeline in its capacity as the issuing bank. Customary issuance, amendment, and drawing fees are also payable in connection with individual letter of credit transactions.
Agency Fee. An annual agency fee of $35,000 is payable to Ridgeline in its capacity as administrative agent. The first agency fee payment was made at closing on March 9, 2023, and subsequent payments are due on each anniversary of the closing date during the term of the Facility.
D. Borrower Financial Snapshot (FY 2022, Audited by Brindoval Thornton LLP)
The following table summarizes the key financial metrics of the Borrower as of and for the fiscal year ended December 31, 2022, as reflected in the audited financial statements delivered to Ridgeline in connection with the closing:
The distinction between ARR ($52,400,000) and total revenue ($49,100,000) reflects the timing of revenue recognition under ASC 606 and the fact that ARR is a forward-looking metric based on the annualized value of active subscription contracts, whereas total revenue includes the actual recognized amounts for the fiscal year. The company's 118% net revenue retention rate indicates strong expansion dynamics within the existing customer base, driven by upsell activity and usage-based pricing components within Lumos's subscription model. These metrics were central to the structuring of the financial covenant package, which is focused on ARR performance rather than traditional leverage or coverage metrics, consistent with the prevailing approach for high-growth SaaS credit facilities.
V. Financial Covenants — Springing ARR and Liquidity Mechanics
A. Springing Trigger Mechanism
The financial covenants contained in the Credit Agreement operate on a "springing" basis, meaning they are not tested at all times but instead become effective only when the aggregate revolving credit outstandings — defined as the sum of all outstanding revolving loans plus the aggregate stated amount of outstanding letters of credit — exceed 35% of the total revolving commitment as of the last day of any fiscal quarter.
Based on the current $30,000,000 commitment, the dollar threshold at which the springing covenants become effective is $10,500,000 (i.e., $30,000,000 multiplied by 35%). If, as of the last day of a given fiscal quarter, the aggregate revolving credit outstandings are equal to or less than $10,500,000, the financial covenants are not tested for that quarter. When utilization subsequently falls back below the 35% threshold as of the last day of a fiscal quarter, the financial covenants are no longer tested for that quarter and any subsequent quarters until the trigger is once again exceeded.
The rationale for this springing structure is to provide Lumos with meaningful flexibility to draw moderate amounts under the Facility for short-term working capital or other general corporate needs without subjecting the company to financial covenant compliance testing. This "covenant-lite" approach is appropriate given Lumos's profile as a high-growth SaaS company with a strong ARR trajectory and no pre-existing leverage. The springing mechanism effectively distinguishes between routine, moderate-level usage of the Facility and more substantial drawdowns that warrant enhanced lender oversight of the Borrower's financial performance.
B. Minimum Annualized Recurring Revenue Covenant
When the springing trigger is in effect, Lumos is required to maintain a minimum level of Annualized Recurring Revenue as of the last day of the applicable fiscal quarter. ARR is defined in the Credit Agreement as the annualized value of all recurring subscription revenue derived from active customer contracts as of the measurement date, calculated in accordance with the specific methodology set forth in the Credit Agreement. Importantly, the definition of ARR excludes professional services revenue, implementation fees, one-time charges, and any other non-recurring revenue streams.
The minimum ARR covenant level steps up annually, reflecting an approximate 15% annual growth requirement that aligns with Ridgeline's underwriting assumptions and Lumos's projected growth trajectory. The step-up schedule is as follows:
As of December 31, 2022, Lumos's actual ARR of $52,400,000 provides meaningful headroom above the initial 2023 covenant level of $48,000,000. Specifically, the Borrower's ARR exceeds the initial minimum by $4,400,000, representing approximately a 9.2% cushion. This cushion is designed to accommodate normal quarterly fluctuations in subscription activity, including customer churn and contract renewal timing, while still providing Ridgeline with a meaningful early warning mechanism in the event of a sustained deterioration in the Borrower's recurring revenue base.
It should be noted that the ARR covenant steps represent a compounding growth requirement. By the final year of the Facility (Q1 2026 through maturity), the minimum ARR level will be $73,002,000, which represents approximately a 52.1% increase from the initial $48,000,000 level and approximately a 39.3% increase from the Borrower's FY 2022 actual ARR. This trajectory is consistent with Lumos's internal business plan, which projects ARR growth in excess of 20% per annum over the next several years.
C. Minimum Liquidity Covenant
In addition to the ARR covenant, when the springing trigger is in effect, Lumos is required to maintain Minimum Liquidity of not less than $8,000,000 at all times. Minimum Liquidity is defined as the sum of (a) unrestricted cash and cash equivalents held in deposit accounts subject to a DACA or otherwise under the control of the Borrower and (b) undrawn revolving availability under the Facility (i.e., the total revolving commitment minus aggregate revolving credit outstandings).
The Minimum Liquidity covenant is tested on the last business day of each calendar month during any period in which the springing covenant trigger is in effect. This monthly testing frequency provides more frequent monitoring of the Borrower's liquidity position than the quarterly testing applicable to the ARR covenant.
As of the closing date, Lumos had $11,600,000 in cash and cash equivalents plus $30,000,000 in undrawn revolving availability, for total liquidity of $41,600,000 — well in excess of the $8,000,000 minimum. Even in a scenario where the Borrower were to draw the full $30,000,000 commitment under the Facility, the minimum liquidity requirement would be satisfied so long as Lumos maintained at least $8,000,000 in unrestricted cash and cash equivalents.
D. Reporting Requirements
The Credit Agreement imposes the following reporting obligations in connection with the financial covenants:
ARR Compliance Certificate. The Borrower is required to deliver a compliance certificate, in the form attached as an exhibit to the Credit Agreement, within 45 days after the end of each fiscal quarter. The compliance certificate must be signed by the Chief Financial Officer (currently Catherine Lindgren) and must set forth a detailed calculation of ARR as of the last day of the applicable fiscal quarter, a statement of aggregate revolving credit outstandings as of such date (for purposes of determining whether the springing trigger was exceeded), and a certification as to whether the Borrower was in compliance with the applicable financial covenants. The first compliance certificate is due on or before May 15, 2023, covering the fiscal quarter ending March 31, 2023 (Q1 2023).
Monthly Liquidity Report. The Borrower is required to deliver a monthly liquidity report within 30 days after the end of each calendar month. The liquidity report must set forth the Borrower's unrestricted cash and cash equivalent balances and undrawn revolving availability as of the last business day of the applicable month.
The form of Compliance Certificate is attached as an exhibit to the Credit Agreement and includes detailed line items and computational methodologies for determining ARR, aggregate outstandings, and Minimum Liquidity. C&H reviewed the form of Compliance Certificate during the documentation process and confirmed that the computational methodology is consistent with Lumos's internal ARR tracking practices as described by Ms. Lindgren.
VI. Security and Collateral Package
A. Scope of Collateral
The obligations of the Borrower under the Credit Agreement and the other Loan Documents are secured by a first-priority perfected security interest in substantially all of the assets of the Borrower, as set forth in the Security Agreement and the intellectual Property Security Agreement, each dated March 9, 2023.
The collateral subject to the security interest includes, without limitation, the following categories of assets:
• All intellectual property, including patents, patent applications, trademarks, trademark applications (other than intent-to-use applications prior to the filing of a statement of use), service marks, copyrights, copyright registrations, trade secrets, and all licenses and rights related thereto;
• All accounts receivable, including all rights to payment arising from the provision of services or the licensing of software under customer subscription agreements;
• All deposit accounts (subject to the DACA requirements described below);
• All equipment, including computer hardware, servers, networking equipment, and office furniture and fixtures;
• All general intangibles, including payment intangibles, software (to the extent not separately classified as intellectual property), customer lists, and contract rights;
• All investment property;
• All chattel paper, instruments, and documents;
• All inventory (though Lumos, as a SaaS company, maintains minimal physical inventory);
• All commercial tort claims identified in the Perfection Certificate; and
• All proceeds and products of the foregoing.
Customary exclusions from the collateral include intent-to-use trademark applications (to the extent that the grant of a security interest therein would impair the validity or enforceability of such applications under applicable law), certain immaterial foreign intellectual property rights, and excluded accounts holding no more than $250,000 individually (which are exempt from the DACA requirement).
Ridgeline serves in the dual capacity of administrative agent and collateral agent, holding the security interest for the benefit of itself and any future lenders that may join the Facility through the accordion mechanism or otherwise.
B. Perfection Steps
Perfection of the security interest in the Borrower's personal property assets was accomplished through the following filings and actions:
UCC-1 Financing Statements. UCC-1 financing statements were filed with (a) the Delaware Secretary of State, as the jurisdiction of organization of the Borrower, and (b) the California Secretary of State, as the state in which the Borrower's chief executive office is located. The Delaware filing is the primary filing for purposes of perfection under Article 9 of the Uniform Commercial Code, while the California filing provides additional notice protection. Both filings were processed by Pinnacle Filing Services, Inc., located at 1209 Orange Street, Wilmington, Delaware 19801. Filing confirmations and stamped copies of the UCC-1 financing statements have been received and are maintained in the closing binder.
Lien Searches. Prior to closing, comprehensive lien searches were conducted in both Delaware and California to confirm the absence of prior liens on the Borrower's assets. The searches, which included UCC financing statement searches, federal and state tax lien searches, and judgment searches, revealed no prior liens, encumbrances, or security interests affecting the collateral. The lien search results are documented in the search reports prepared by Pinnacle Filing Services, Inc. and are included in the closing binder.
intellectual Property Filings. A separate intellectual Property Security Agreement was executed at closing, and filings were prepared for submission to the United States Patent and Trademark Office ("USPTO") and the United States Copyright Office, as applicable. The schedules to the intellectual Property Security Agreement list specific patent registration numbers, patent application numbers, trademark registration numbers, and copyright registration numbers owned by the Borrower. These filings are required to perfect the security interest in registered intellectual property and to provide constructive notice to third parties.
C. Deposit Account Control Agreements
DACAs are required under the Credit Agreement for all deposit accounts of the Borrower holding more than $250,000. As of the closing date, Lumos maintains three deposit accounts at Pacific Horizon Bank (101 Park Center Plaza, San Jose, California 95113) that exceed this threshold and are therefore subject to the DACA requirement:
1. Operating account
2. Payroll account
3. Reserve account
The delivery of executed DACAs for these three accounts is a post-closing obligation with a deadline of April 8, 2023 (30 days post-closing). As described in Section VIII.D below, C&H negotiated a grace period for DACA delivery, as Pacific Horizon Bank's internal review and execution process could not be completed in advance of the closing date. The DACAs will be in the tri-party format customary for Pacific Horizon Bank, providing Ridgeline with "springing" control over the deposit accounts upon the occurrence of an Event of Default and delivery of a notice of exclusive control.
D. Perfection Certificate
A Perfection Certificate was executed by Catherine Lindgren, Chief Financial Officer, on March 9, 2023 and delivered to Ridgeline at closing. The Perfection Certificate is a comprehensive disclosure document required under the Security Agreement and provides detailed information regarding the Borrower's identity, organizational structure, and asset profile. Specifically, the Perfection Certificate sets forth the following:
• The exact legal name, employer identification number, jurisdiction of organization, and state organizational identification number of the Borrower;
• The address of the Borrower's principal place of business and all other locations at which the Borrower maintains offices, stores assets, or conducts business;
• The identity and address of the Borrower's registered agent in Delaware;
• A complete list of all deposit accounts maintained by the Borrower, including account numbers, depository bank names, and account types;
• A schedule of all registered intellectual property, including patent registration numbers, trademark registration numbers, and copyright registration numbers;
• A representation that the Borrower has no outstanding commercial tort claims or letter of credit rights other than as disclosed therein; and
• A list of all prior legal names, trade names, and fictitious business names used by the Borrower.
The Perfection Certificate was reviewed by C&H for accuracy and completeness prior to execution, and the information contained therein is consistent with the due diligence materials provided by the Borrower during the transaction.
E. Guarantors. As of the closing date, Lumos has no existing subsidiaries, and accordingly no guarantors or additional security providers were required at closing. However, the Credit Agreement contains a covenant requiring that any future domestic subsidiaries formed or acquired by the Borrower must guarantee the obligations under the Facility and pledge substantially all of their assets to the collateral agent within 30 days of formation or acquisition. This covenant ensures that Ridgeline's collateral position will be maintained and expanded as the Borrower's corporate structure evolves, particularly in connection with any permitted acquisitions.
F. Negative Pledge
The Credit Agreement contains a comprehensive negative pledge covenant prohibiting the Borrower from creating, incurring, assuming, or permitting to exist any lien on any of the collateral, except for Permitted Liens. The definition of "Permitted Liens" in the Credit Agreement includes customary carve-outs for liens securing purchase money indebtedness and capital lease obligations (up to the applicable permitted indebtedness basket), statutory liens (such as tax liens, mechanics' liens, and landlord liens) arising in the ordinary course of business, liens arising from judgments not constituting an Event of Default, and other customary exceptions. The negative pledge ensures the first-priority status of Ridgeline's security interest in the collateral.
VII. Key Negative Covenants (Summary)
The Credit Agreement contains a comprehensive set of negative covenants that restrict the Borrower's ability to take certain actions without the prior written consent of Ridgeline (or, in the case of a syndicated facility, the required lenders). The following is a summary of the most significant negative covenants and the applicable exceptions and baskets:
A. Indebtedness. The Credit Agreement prohibits the Borrower from creating, incurring, assuming, or suffering to exist any indebtedness, except for the following permitted categories:
• Obligations under the Credit Agreement and the other Loan Documents;
• Purchase money indebtedness and capital lease obligations in an aggregate principal amount not exceeding $2,000,000 at any time outstanding;
• Unsecured intercompany indebtedness in an aggregate principal amount not exceeding $1,000,000 at any time outstanding (applicable if and when Lumos forms or acquires domestic subsidiaries);
• Contingent obligations arising in the ordinary course of business (such as indemnification obligations under customer contracts and vendor agreements);
• Other customary permitted indebtedness carve-outs (e.g., workers' compensation obligations, surety bonds, trade payables).
All other indebtedness is prohibited without the prior written consent of Ridgeline. This covenant effectively prevents Lumos from incurring any material additional debt during the term of the Facility that could impair Ridgeline's collateral position or the Borrower's ability to service its obligations.
B. Permitted Acquisitions
The Credit Agreement permits the Borrower to consummate acquisitions of businesses and assets, subject to the following limitations and conditions:
• Individual Acquisition Limit: No single acquisition may involve consideration (including assumed indebtedness and earn-out obligations) in excess of $10,000,000;
• Aggregate Acquisition Limit: The aggregate consideration for all acquisitions during the term of the Facility may not exceed $20,000,000;
• Pro Forma Compliance: The Borrower must be in pro forma compliance with all financial covenants after giving effect to the proposed acquisition and any related borrowings under the Facility;
• Advance Lender Notice: The Borrower must provide Ridgeline with written notice of any proposed acquisition not less than 15 business days prior to the anticipated closing date, together with such financial and other information regarding the target as Ridgeline may reasonably request;
• No Default: No Default or Event of Default shall exist or would result from the consummation of the acquisition;
• Domestic Target: The target must be organized under the laws of the United States or any state thereof;
• Same or Related Line of Business: The target must be engaged in a line of business that is the same as, or reasonably related to, the Borrower's existing business.
As discussed in Section VIII.A below, these basket sizes were negotiated upward from Ridgeline's initial proposal. The permitted acquisitions framework reflects the parties' mutual acknowledgment that Lumos may pursue tuck-in acquisitions as part of its growth strategy, while providing Ridgeline with advance notice, information rights, and financial covenant protections.
C. Restricted Payments
The Credit Agreement restricts the Borrower's ability to make restricted payments, which include dividends, distributions, and equity repurchases. The following exceptions are permitted:
• Tax Distributions: Distributions to equity holders in an amount sufficient to cover their tax liabilities arising from the Borrower's income, calculated by multiplying the applicable combined federal and state income tax rate by the Borrower's taxable income for the applicable period. Given that Lumos is a C-corporation, this provision is primarily relevant to the extent of any flow-through tax obligations that may arise in connection with certain equity compensation arrangements.
• Management Equity Repurchases: Repurchases of equity interests from current or former officers, employees, and directors in an aggregate amount not exceeding $1,500,000 in any fiscal year. This basket is intended to accommodate the Borrower's customary practice of repurchasing vested equity from departing employees.
No other dividends, distributions, or equity repurchases are permitted without Ridgeline's prior written consent. This covenant is designed to preserve the Borrower's cash and prevent the leakage of value to equity holders to the detriment of the lender.
D. Capital Expenditures
Capital expenditures made by the Borrower may not exceed $5,000,000 in any fiscal year. In addition, as negotiated by C&H (see Section VIII.C below), the Credit Agreement includes a carry-forward provision permitting the Borrower to carry forward up to 25% of any unused capital expenditure capacity from one fiscal year to the immediately following fiscal year. The maximum carry-forward amount is therefore $1,250,000 (i.e., 25% of $5,000,000), resulting in a potential maximum capital expenditure capacity of $6,250,000 in any fiscal year in which the carry-forward is utilized.
The carry-forward provision does not accumulate beyond one year — unused amounts from fiscal year 2023 may be carried forward to fiscal year 2024 but not to fiscal year 2025. This mechanism provides Lumos with flexibility to accommodate uneven spending patterns, particularly with respect to infrastructure investments and equipment purchases that may not align perfectly with fiscal year boundaries.
E. Change of Control
The Credit Agreement provides that the occurrence of a Change of Control constitutes an Event of Default. A Change of Control is defined as the occurrence of either of the following events:
(a) Verdant Capital Partners and its affiliates ceasing to hold, directly or indirectly, at least 25% of the outstanding equity interests of the Borrower on a fully-diluted basis; or
(b) Any person or group (as such terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) other than Verdant Capital Partners and its affiliates acquiring, directly or indirectly, more than 50% of the outstanding equity interests of the Borrower on a fully-diluted basis, or the power to direct or cause the direction of the management and policies of the Borrower.
As discussed in Section VIII.E below, the Verdant minimum equity threshold was negotiated down from 35% to 25% at the direction of Verdant's operating partner, Nathan Griggs, to provide the sponsor with greater flexibility for potential secondary sales and dilutive follow-on financing rounds. Verdant's current 38.4% equity holding provides approximately 13.4 percentage points of cushion above the 25% threshold.
VIII. Key Negotiation Points and Outcomes
The following summarizes the principal points of negotiation between C&H (on behalf of the Borrower) and WGF (on behalf of Ridgeline) during the documentation of the Facility, together with the outcomes achieved:
A. Permitted Acquisitions Basket — Expanded
Ridgeline's initial term sheet proposed a permitted acquisitions basket with an individual acquisition limit of $5,000,000 and an aggregate limit of $10,000,000 over the life of the Facility. C&H advocated for substantially higher limits, arguing that the proposed baskets were insufficient to accommodate Lumos's active M&A strategy, which contemplates potential tuck-in acquisitions of complementary technology companies and data assets as part of the company's growth plan. C&H further emphasized that the Verdant-backed management team views selective acquisitions as a core component of the company's competitive strategy in the enterprise financial analytics market.
Following multiple rounds of discussion, including a conference call on February 17, 2023 involving Daniel Obi, Thomas Rennick, Derek Huang, and Marcus Delaney, Ridgeline agreed to increase the individual acquisition limit to $10,000,000 and the aggregate limit to $20,000,000, representing a doubling of the initially proposed baskets. In exchange, the Borrower retained the pro forma financial covenant compliance requirement and the 15-business-day advance written notice obligation as conditions precedent to any permitted acquisition. C&H views this outcome as favorable, as the expanded baskets provide Lumos with meaningful acquisition capacity while the retained conditions provide Ridgeline with appropriate protections.
B. Removal of Fixed Charge Coverage Ratio
Ridgeline's initial term sheet included a springing fixed charge coverage ratio ("FCCR") covenant requiring the Borrower to maintain a minimum FCCR of not less than 1.10x, tested quarterly on the same springing basis as the ARR covenant. C&H strongly opposed the inclusion of the FCCR, arguing that it was inappropriate for a high-growth, ARR-focused SaaS business with the following characteristics:
• Minimal capital expenditures relative to revenue, as Lumos's platform is cloud-hosted and does not require significant fixed asset investment;
• No existing debt service obligations, as Lumos was unlevered at the time of closing;
• A growth profile that prioritizes revenue expansion and customer acquisition over near-term profitability optimization, which could result in fixed charge coverage levels that fluctuate significantly from quarter to quarter;
• The ARR covenant, combined with the minimum liquidity covenant, already provides Ridgeline with robust monitoring of the Borrower's financial health, as ARR is the most meaningful indicator of a SaaS company's ability to generate recurring cash flows and service debt over time.
C&H prepared a detailed analysis comparing the financial covenant packages used in comparable SaaS revolving credit facilities, demonstrating that the prevailing market practice for similarly situated borrowers relies on ARR-based covenants (often as the sole financial covenant) rather than traditional leverage or coverage metrics. This analysis was shared with Thomas Rennick at WGF and James Portman in Ridgeline's credit risk group.
Following internal review by Ridgeline's credit committee, which granted its approval on February 27, 2023, the FCCR was removed entirely from the Credit Agreement. The financial covenant package now consists solely of the springing minimum ARR covenant and the springing minimum liquidity covenant, consistent with market practice for high-growth SaaS credit facilities. C&H considers the removal of the FCCR to be the most significant negotiation outcome in this transaction.
C. Capital Expenditure Carry-Forward
Ridgeline's original proposal included a hard annual capital expenditure cap of $5,000,000 with no carry-forward provision. C&H argued that the absence of a carry-forward mechanism would create unnecessary rigidity, particularly given that technology companies like Lumos may have uneven capital expenditure patterns driven by the timing of infrastructure upgrades, server procurement cycles, and office build-outs. C&H proposed a 25% carry-forward (up to $1,250,000 of unused capacity from one fiscal year to the next), noting that this provision is commonly included in comparable SaaS credit facilities and does not materially increase Ridgeline's risk exposure.
After discussion, Ridgeline agreed to include the 25% carry-forward provision. The carry-forward is limited to one fiscal year (i.e., no cumulative stacking over multiple years) and is subject to the same definition of capital expenditures that applies to the annual cap. This outcome provides Lumos with enhanced flexibility for planning and executing capital expenditure programs without the risk of forfeiting unused capacity at the end of each fiscal year.
D. DACA Delivery Grace Period
Ridgeline initially required the delivery of executed DACAs for all subject deposit accounts as a condition precedent to closing. C&H identified early in the documentation process that Pacific Horizon Bank's internal legal and compliance review process for tri-party DACAs would require a minimum of three to four weeks following submission of the DACA forms, and that completion prior to the anticipated March 9, 2023 closing date was not feasible without delaying the transaction.
C&H proposed, and Ridgeline ultimately agreed to, a 30-day post-closing grace period for the delivery of DACAs for the three deposit accounts at Pacific Horizon Bank. The deadline for DACA delivery is April 8, 2023 (30 days after the March 9, 2023 closing date). This arrangement was documented in both the post-closing obligations section of the Credit Agreement and a separate Post-Closing Letter dated March 9, 2023, prepared by Daniel Obi and countersigned by Ridgeline. The Post-Closing Letter was sent to Marcus Delaney and Catherine Lindgren at Lumos, with copies to Thomas A. Rennick at WGF and Derek Huang at Ridgeline, and sets forth the specific items, deadlines, and consequences of non-delivery.
The DACA grace period was critical to maintaining the March 9, 2023 closing date and avoiding the delays and potential business disruption that would have resulted from pushing the closing to late March or early April.
E. Change of Control — Verdant Minimum Equity Threshold
Ridgeline's initial proposal defined the Change of Control trigger as the event of Verdant Capital Partners and its affiliates ceasing to hold at least 35% of the outstanding equity interests of the Borrower. C&H negotiated on behalf of Lumos, and at the specific direction of Verdant's operating partner Nathan Griggs, to reduce this threshold from 35% to 25%.
The rationale for the reduction was twofold. First, as a growth-stage company that may pursue additional equity financing rounds, Lumos and its investors need to preserve flexibility for potential dilutive events that could reduce Verdant's percentage ownership. Setting the threshold at 35% would leave Verdant with only approximately 3.4 percentage points of cushion (relative to its current 38.4% holding), which could be consumed by a single follow-on round. Second, Verdant may wish to engage in secondary sales of a portion of its position as part of its fund management strategy, and a lower threshold provides additional room for such transactions. The 25% threshold was ultimately agreed upon, providing Verdant with approximately 13.4 percentage points of cushion above the trigger level.
Ridgeline accepted the reduced threshold on the basis that a 25% minimum equity commitment from the lead sponsor remains meaningful and ensures that Verdant retains a significant economic stake in the Borrower throughout the term of the Facility. The 50% acquisition threshold for parties other than Verdant was not contested and remained at the originally proposed level.
F. Springing Covenant Threshold
The 35% utilization trigger for the springing financial covenants (corresponding to a dollar threshold of $10,500,000 based on the $30,000,000 commitment) was established in the term sheet executed on February 3, 2023 and was not significantly contested during the documentation phase. Both parties viewed the 35% threshold as reasonable and market-appropriate, providing the Borrower with substantial day-to-day drawing capacity (up to $10,500,000) without triggering financial covenant testing, while ensuring that more material utilization of the Facility would be accompanied by enhanced financial monitoring.
C&H confirmed during the documentation process that the 35% threshold provides Lumos with meaningful operational flexibility, as the company's anticipated use of the Facility for working capital purposes is expected to result in average outstandings well below the $10,500,000 trigger level under normal business conditions.
IX. Accordion Feature
The Credit Agreement includes an accordion provision that permits the Borrower to request up to $15,000,000 in incremental revolving commitments from Ridgeline or from new lenders that may join the Facility. If fully exercised, the accordion feature would increase the aggregate revolving commitment from $30,000,000 to $45,000,000 ($30,000,000 original commitment plus $15,000,000 incremental commitment).
The exercise of the accordion feature is subject to the following conditions and requirements:
• Lender Consent: Incremental commitments require the consent of Ridgeline (in its capacity as administrative agent and sole initial lender) or, in the case of new lenders joining the Facility, the consent of such new lenders. There is no obligation on the part of Ridgeline or any other existing lender to provide incremental commitments.
• Consistent Terms: Any incremental commitments must be on terms and conditions (including pricing, maturity, and covenants) that are substantially consistent with the existing revolving commitments under the Facility. This "most favored nation" principle ensures that the incremental commitments do not create a bifurcated capital structure with disparate economic terms.
• No Default: No Default or Event of Default shall exist or would result from the incurrence of the incremental commitments.
• No Additional Financial Performance Conditions: Notably, the accordion provision does not impose any minimum ARR level or other financial performance conditions as prerequisites to exercise, other than the general requirement that no Event of Default exists. This was a point that C&H confirmed during the documentation process, ensuring that the Borrower's ability to access incremental capacity is not constrained by financial covenant metrics (which, as noted above, are tested only on a springing basis).
• Joinder Documentation: Any new lender joining the Facility through the accordion mechanism must execute a joinder agreement and related documentation in form and substance satisfactory to the administrative agent.
The accordion feature provides Lumos with a built-in mechanism to expand the Facility's capacity in the future as the company's business grows and its financing needs evolve. Potential use cases include funding larger acquisitions within the permitted acquisitions framework (particularly when combined with the expanded basket), accommodating seasonal working capital peaks, or simply increasing the Borrower's available liquidity cushion. The accordion eliminates the need for the Borrower to negotiate an entirely new credit facility or amendment in order to obtain additional revolving capacity, thereby reducing transaction costs and execution time.
X. Insurance Requirements
The Credit Agreement requires the Borrower to maintain the following insurance coverages at all times during the term of the Facility:
All insurance policies must be issued by carriers rated A- (Excellent) or better by AM Best. Lumos's current insurance carrier, Broadleaf Mutual Insurance Company (280 Trumbull Street, Hartford, Connecticut 06103), holds an A- (Excellent) rating from AM Best and satisfies this requirement.
The Credit Agreement further requires that Ridgeline National Bank, N.A. be named as lender loss payee on all property and casualty insurance policies and as additional insured on all commercial general liability, cyber liability, and technology errors and omissions policies. Updated insurance certificates reflecting these endorsements are a post-closing deliverable with a deadline of March 24, 2023 (15 days post-closing), as discussed in Section XI below.
The cyber liability / technology E&O coverage requirement of $10,000,000 per claim is particularly significant given Lumos's business as a provider of AI-driven financial analytics tools to regulated financial institutions. A cybersecurity incident or software defect affecting Lumos's platform could expose the company to significant third-party claims, and the $10,000,000 coverage level provides meaningful protection for both the Borrower and the lender.