1008-00003 · Client 1008 · Correspondence

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PRIVILEGED AND CONFIDENTIAL — SUBJECT TO FRE 408

CALDERWOOD & HARKNESS LLP 555 California Street, 30th Floor San Francisco, California 94104

Telephone: (415) 772-8000 Facsimile: (415) 772-8001 www.calderwoodharkness.com

Patricia Dunmore Partner Direct Dial: (415) 772-8034

Email: pdunmore@calderwoodharkness.com

October 19, 2023

VIA EMAIL AND U.S. MAIL

Jonathan Whitfield, Esq. Partner Whitfield Harte & Associates LLP 3000 El Camino Real, Suite 500 Palo Alto, California 94306

Re: Demand Letter dated October 18, 2023 on behalf of Vantage Peak Ventures Fund II, L.P. — Post-Money SAFE dated September 12, 2023 with Lumos Analytics Inc.

Dear Mr. Whitfield:

I. Introduction and Purpose

This firm represents Lumos Analytics Inc. ("Lumos" or the "Company"), a corporation duly organized and existing under the laws of the State of Delaware, in connection with the above-referenced matter. Calderwood & Harkness LLP has served as issuer's counsel to Lumos throughout its most recent SAFE financing round, including the negotiation, documentation, and execution of the Post-Money SAFE at issue.

We are in receipt of your demand letter dated October 18, 2023, transmitted via email and overnight courier, which you sent on behalf of your client, Vantage Peak Ventures Fund II, L.P. ("Vantage Peak"). We have carefully reviewed the claims, characterizations, and demands set forth in your correspondence, and we write now on behalf of Lumos to provide a substantive response.

At the outset, we wish to make clear that Lumos takes Vantage Peak's concerns seriously and has given them careful and considered attention. The Company values its relationship with Vantage Peak and with the broader venture capital community, and it is Lumos's sincere desire to address this matter in a constructive and amicable manner. That said, as we set forth in detail below, Lumos respectfully but firmly disputes the factual and legal bases of the claims asserted in your demand letter. Notwithstanding those disputes, and in the spirit of good faith, we include herein a concrete proposal for a mutually acceptable resolution.

This letter, and the proposal contained herein, are made in the context of settlement discussions and are protected under Federal Rule of Evidence 408 and its state-law equivalents. Nothing contained in this letter constitutes or shall be construed as an admission of liability, wrongdoing, or fault by Lumos or any of its officers, directors, employees, or agents.

II. Background and Factual Summary

To ensure that our discussion proceeds from a common factual foundation, we briefly summarize the relevant background, which we understand to be undisputed in all material respects.

On September 12, 2023, Lumos and Vantage Peak entered into a Post-Money SAFE (the "SAFE"), pursuant to which Vantage Peak made a purchase amount payment of Three Million Five Hundred Thousand Dollars ($3,500,000) to Lumos by wire transfer of immediately available funds. The SAFE is based upon the standard form promulgated by Calderon Partners LLC for post-money SAFEs, with certain negotiated modifications agreed upon between the parties. The SAFE provides for a post-money valuation cap of Twenty-Eight Million Dollars ($28,000,000), contains no discount rate, and is governed by the laws of the State of Delaware without regard to conflicts-of-law principles.

The SAFE was not executed in haste or on an asymmetric informational footing. Rather, it was the product of arms-length negotiations between sophisticated parties represented by experienced venture capital counsel. Specifically, Calderwood & Harkness LLP, on behalf of Lumos, and Whitfield Harte & Associates LLP, on behalf of Vantage Peak, exchanged multiple rounds of markups to both the SAFE instrument and to an ancillary side letter agreement. Those negotiations culminated in the execution of the SAFE and, concurrently, a Pro Rata Rights Side Letter dated September 12, 2023 (the "Side Letter"), which granted Vantage Peak certain participation rights in future equity financings of the Company. The terms of both instruments were fully negotiated and mutually agreed upon prior to execution.

As your firm is well aware, Vantage Peak conducted its own independent due diligence on Lumos's business, product, technology, market position, competitive landscape, and financial condition prior to executing the SAFE. The diligence process was led by Samantha Reyes, a Principal at Vantage Peak and the designated deal lead for this investment, and included, among other things, management presentations, product demonstrations, review of technical documentation, customer reference calls, and analysis of Lumos's financial projections. Vantage Peak is a sophisticated institutional investor — a venture capital fund with approximately $185 million in committed capital (2022 vintage) — and its investment team possesses deep experience in evaluating and investing in early-stage technology companies.

The SAFE round in which Vantage Peak participated was designed to raise up to $6,800,000 in aggregate from multiple investors, with Vantage Peak serving as the lead investor and anchor commitment at $3,500,000. The balance of the round was committed by other participating investors on substantially similar terms. Vantage Peak's role as lead investor afforded it significant visibility into the Company's operations and plans, and its diligence access was commensurate with that role.

III. Acknowledgment of the Prism Core v2.0 Product Development Setback

Your demand letter makes certain assertions regarding Lumos's machine-learning compliance scoring module known as Prism Core v2.0. We wish to set forth the facts surrounding this matter accurately and completely.

Lumos acknowledges that its Chief Executive Officer, Priya Narasimhan, voluntarily and proactively contacted Vantage Peak's deal lead, Samantha Reyes, on October 13, 2023 to disclose that Prism Core v2.0 had not met its anticipated validation benchmarks in third-party testing. This outreach was initiated by Lumos, not prompted by any inquiry, request, or demand from Vantage Peak.

Specifically, third-party validation testing of the Prism Core v2.0 module was conducted by Peralta IP Consulting LLC ("Peralta"), an independent testing and validation firm retained by Lumos. Peralta completed its testing on October 8, 2023, and delivered its written validation report to Lumos on October 9, 2023. The Peralta report indicated that the Prism Core v2.0 module achieved an accuracy rate of approximately 61% against a target benchmark of 92%. This shortfall was, of course, a significant and disappointing development for Lumos's management team.

Upon receipt of the Peralta report, Lumos's Chief Technology Officer, Elliot Marsh, presented the findings to Lumos's Board of Directors on October 10, 2023. The Board convened a formal meeting on October 12, 2023 to deliberate on the implications of the validation results and on the Company's disclosure obligations to its investors and other stakeholders. Following that deliberation, and in accordance with the Board's direction, CEO Narasimhan personally contacted Ms. Reyes the very next day, on October 13, 2023, to provide a candid and forthcoming briefing on the situation.

Lumos's management estimates that the remediation of Prism Core v2.0 — which will involve retraining certain model components, restructuring portions of the data pipeline, and re-running validation testing — will require approximately four to six months. The Company has already begun allocating engineering resources to this effort and is committed to resolving the technical issues as expeditiously as possible.

We wish to emphasize several critical points regarding the timeline of these events. First, Lumos's disclosure to Vantage Peak was entirely voluntary. The SAFE does not impose upon Lumos any obligation to provide real-time reporting of internal product development milestones, validation testing results, or engineering progress. There is no information rights provision in the SAFE, no reporting covenant, and no requirement of immediate notification upon the occurrence of a product setback of this nature. Second, the disclosure was made promptly — within three calendar days of the Board's formal deliberation on the matter, and within five calendar days of Lumos's receipt of the Peralta report. Third, the disclosure was made proactively, before Vantage Peak or any other investor had raised any questions or expressed any concerns about Prism Core v2.0. These facts are wholly inconsistent with the characterization of Lumos's conduct as fraudulent or deceptive, and they instead demonstrate precisely the kind of transparency and good faith that Lumos has exercised throughout its relationship with Vantage Peak.

IV. Response to Allegations of Misrepresentation

Your demand letter characterizes certain statements contained in Lumos's August 2023 investor pitch materials — specifically, the statement that the Prism Core v2.0 module would be "beta-ready by Q4 2023" — as constituting "material misrepresentations" that induced Vantage Peak to enter into the SAFE. Lumos respectfully but emphatically disputes this characterization, on multiple independent grounds, each of which is set forth below.

A. The Statements at Issue Were Forward-Looking Projections, Not Representations of Present Fact

The pitch materials' statements regarding Prism Core v2.0 being "beta-ready by Q4 2023" were, on their face, forward-looking statements reflecting management's then-current projections and expectations regarding future product development milestones. These statements addressed anticipated future events — the completion of a beta-ready product by a projected date — and were not representations of any present or historical fact. No reasonable investor, let alone a sophisticated institutional venture capital fund, would interpret a forward-looking product development timeline in an early-stage startup's pitch deck as a guarantee or warranty of future performance.

Such forward-looking projections are, by their very nature, inherently subject to technological risk, engineering uncertainty, and the myriad contingencies that attend the development of novel machine-learning systems. These risks are well known and foreseeable to any experienced participant in the venture capital ecosystem. Vantage Peak Ventures Fund II, L.P. is a $185 million fund with a 2022 vintage, managed by a team of seasoned venture capital professionals. Fund II and its general partner have invested in numerous early-stage technology companies and are thoroughly familiar with the realities of product development risk at the seed stage. The notion that Vantage Peak relied upon a pitch deck's forward-looking product timeline as a statement of assured fact is untenable, and it is inconsistent with the standard of sophistication that the law attributes to institutional investors of Vantage Peak's caliber.

B. No Scienter or Intent to Defraud

Your demand letter appears to suggest that Lumos made the forward-looking statements in its pitch materials with knowledge of their falsity or with reckless disregard for their truth. This suggestion is wholly without factual basis.

At the time the pitch materials were prepared and circulated in August 2023, Lumos's management — including CEO Narasimhan and CTO Marsh — genuinely and in good faith believed that the Q4 2023 beta timeline for Prism Core v2.0 was achievable. That belief was grounded in the engineering team's assessment of the module's development progress as of that date. The validation failure identified in the Peralta report was not discovered until October 8, 2023 — nearly one month after the SAFE was executed on September 12, 2023. There is simply no evidence, and no reasonable basis to allege, that Lumos knew or should have known of the product shortfall at the time the SAFE was negotiated, executed, and funded.

The element of scienter — whether framed as intentional misrepresentation, knowing falsity, or reckless disregard for the truth — is an essential element of any fraud claim, whether under Delaware common law or under general principles of contract and tort law. Here, that element is entirely absent. The chronology of events conclusively demonstrates that the product setback postdated the execution of the SAFE, and that Lumos's management disclosed the setback to Vantage Peak promptly upon learning of it. There is no basis, in law or in fact, for an allegation of fraud.

C. The SAFE's Contractual Provisions Preclude Extra-Contractual Reliance Claims

Even if the statements in Lumos's pitch materials could somehow be characterized as actionable misrepresentations — which Lumos emphatically denies — Vantage Peak's claims would nonetheless be barred by the express terms of the SAFE.

The SAFE contains a standard integration clause (Section 5(d)) providing that the instrument constitutes the entire agreement between the parties with respect to its subject matter and supersedes all prior and contemporaneous agreements, understandings, negotiations, and discussions, whether oral or written, between the parties. The SAFE does not include any specific representation or warranty regarding product development timelines, technology readiness levels, validation benchmarks, or the projected availability of any particular product feature or module, including Prism Core v2.0. Vantage Peak, through your firm, reviewed, negotiated, and agreed to the SAFE's terms, including its integration clause, with the benefit of experienced legal counsel.

Under well-settled Delaware law, a sophisticated party that has entered into a written agreement containing an integration or merger clause generally cannot maintain a claim for fraud based on extra-contractual statements — such as statements in a pitch deck — that were not incorporated into the written agreement. The Delaware courts have consistently held that where parties have defined the boundaries of the contractual relationship through an integration clause, and where the agreement does not include a specific representation on the subject at issue, a party may not circumvent the contract by asserting that it relied on oral or written statements made outside the four corners of the agreement. See, e.g., Abry Partners V, L.P. v. F & W Acquisition LLC, 891 A.2d 1032, 1057–58 (Del. Ch. 2006) (discussing anti-reliance provisions and the enforceability of contractual limitations on extra-contractual fraud claims under Delaware law); Prairie Capital III, L.P. v. Double E Holding Corp., 132 A.3d 35, 50–51 (Del. Ch. 2015). These principles apply with particular force where, as here, the complaining party is a sophisticated institutional investor represented by experienced counsel.

Furthermore, the SAFE's terms do not provide for termination, rescission, or a refund of the purchase amount upon the occurrence of a product development setback. The SAFE defines a limited set of Conversion Events — namely, an Equity Financing (defined as a bona fide transaction or series of transactions with the principal purpose of raising capital in which the Company issues and sells preferred stock with an aggregate sales price of not less than $1,000,000), a Liquidity Event, and a Dissolution Event — which are the exclusive circumstances under which the SAFE converts or pursuant to which the investor is entitled to a return of capital. A shortfall in validation testing of a product module does not constitute any of these defined events and does not give rise to any right of termination or refund under the instrument.

D. Lumos's Voluntary and Prompt Disclosure Is Inconsistent with Fraudulent Intent

Finally, we reiterate that Lumos's conduct in voluntarily and proactively disclosing the Prism Core v2.0 validation shortfall to Vantage Peak on October 13, 2023 — before any external discovery, before any investor inquiry, and within days of the Board's deliberation — is wholly inconsistent with the fraudulent intent alleged in your demand letter. A party engaged in fraud conceals adverse information; it does not rush to disclose it to the affected counterparty. Lumos's transparency throughout this process is powerful evidence of the Company's good faith, and it undermines any suggestion that Lumos sought to deceive or defraud Vantage Peak at any point during the SAFE financing process.

V. Analysis of SAFE Termination Provisions

Your demand letter requests, among other things, the immediate return of the $3,500,000 purchase amount paid by Vantage Peak under the SAFE. We have carefully analyzed the SAFE's termination and conversion provisions and conclude that Vantage Peak has no contractual entitlement to such a refund under the present circumstances.

The Post-Money SAFE, as modified and agreed upon by the parties, does not contain an express investor-initiated termination right outside of the defined Conversion Events. The SAFE provides for conversion of the purchase amount into equity upon an Equity Financing (as defined therein, requiring aggregate sales price of not less than $1,000,000), a Liquidity Event, or a Dissolution Event. In the event of a Dissolution Event, the SAFE provides for a return of the purchase amount to the investor, subject to the priority and order of payments set forth in the instrument.

Critically, the SAFE does not include a "material adverse change" or "material adverse effect" clause. It does not provide for termination upon the occurrence of a product development setback, a failure to meet engineering milestones, or a decline in the Company's business prospects. These omissions are not accidental; they reflect the fundamental nature of the SAFE instrument as a long-duration, high-risk investment in an early-stage technology company — an instrument designed to convert into equity upon a future qualifying event, not to provide a put option exercisable at the investor's discretion upon the occurrence of adverse developments.

Because no Dissolution Event has occurred, and because the SAFE contains no other provision entitling Vantage Peak to a return of its purchase amount under the present circumstances, Vantage Peak's demand for a refund of $3,500,000 is not supported by the express terms of the executed SAFE. Lumos is under no contractual obligation to return the purchase amount, and Vantage Peak has no contractual right to demand its return, absent the occurrence of a defined Conversion Event or Dissolution Event.

VI. Lumos's Position — No Admission of Liability

To be clear and to avoid any ambiguity: Lumos does not concede any misrepresentation, fraud, breach of contract, breach of the implied covenant of good faith and fair dealing, negligence, or any other wrongdoing in connection with the SAFE, the SAFE financing round, the pitch materials, or the Prism Core v2.0 product development process. Lumos believes that it has acted at all times in good faith, in compliance with its contractual obligations, and in accordance with applicable law.

Nothing in this letter, or in any prior or subsequent communications between counsel in connection with this matter, shall be construed as an admission of liability or fault by Lumos, its Board of Directors, or any of its officers, directors, employees, agents, or representatives. This letter, and the settlement proposal set forth herein, are made in the context of settlement discussions and compromise negotiations, and they are subject to the protections afforded by Federal Rule of Evidence 408, California Evidence Code § 1152, Delaware Rule of Evidence 408, and all analogous state and federal rules and statutes.

VII. Proposal for Mutual Resolution

Notwithstanding the foregoing — and notwithstanding Lumos's firm position that it bears no liability to Vantage Peak in connection with the matters described in your demand letter — Lumos recognizes the importance of maintaining constructive and productive relationships within the venture capital community. Lumos acknowledges that Vantage Peak has expressed genuine concerns, and the Company wishes to address those concerns in a manner that is fair, efficient, and respectful of both parties' interests.

Accordingly, and in the interest of achieving a prompt and amicable resolution of this matter without the expense, uncertainty, and disruption of formal proceedings, Lumos proposes the following terms for a comprehensive settlement:

A. Mutual Termination of the SAFE and Side Letter

The parties would enter into a Mutual Termination and Release Agreement (the "Termination Agreement") providing for the termination in full of (i) the Post-Money SAFE dated September 12, 2023, by and between Lumos Analytics Inc. and Vantage Peak Ventures Fund II, L.P., and (ii) the Pro Rata Rights Side Letter of the same date. Upon execution of the Termination Agreement, neither party would have any further rights or obligations under the SAFE or the Side Letter, except as expressly provided in the Termination Agreement.

B. Full Refund of Purchase Amount

Lumos would refund the full purchase amount of Three Million Five Hundred Thousand Dollars ($3,500,000) to Vantage Peak Ventures Fund II, L.P. by wire transfer of immediately available funds, without interest, penalties, fees, or deductions of any kind. The refund would be made within one (1) business day following the execution and delivery of the Termination Agreement by both parties. The wire transfer would be directed to a bank account designated by Vantage Peak in writing prior to the execution of the Termination Agreement.

C. Mutual General Releases

The Termination Agreement would include mutual general releases pursuant to which each party, on behalf of itself and its affiliates, partners, members, managers, officers, directors, employees, agents, successors, and assigns, would irrevocably release and forever discharge the other party and its respective affiliates, partners, members, managers, officers, directors, employees, agents, successors, and assigns from any and all claims, demands, actions, causes of action, suits, debts, obligations, liabilities, damages, losses, costs, and expenses of every kind and nature, whether known or unknown, suspected or unsuspected, at law or in equity, arising out of or in any way related to the SAFE, the Side Letter, the SAFE financing round, or the transactions and events contemplated thereby or related thereto.

D. No Admission of Liability

The Termination Agreement would expressly provide that neither party, by entering into the agreement, admits or concedes any wrongdoing, liability, fault, or violation of any law, regulation, contract, or duty. The agreement would further provide that it is being entered into solely for the purpose of resolving a disputed matter and avoiding the costs and uncertainties of litigation.

E. Mutual Non-Disparagement

The Termination Agreement would include a mutual non-disparagement covenant pursuant to which each party would agree not to make, publish, or cause to be made or published any statement, whether oral or written, that disparages, defames, or reflects negatively upon the other party or its affiliates, partners, members, managers, officers, directors, employees, or agents, in connection with the matters addressed by the Termination Agreement.

F. Confidentiality. The Termination Agreement, its terms, and the circumstances giving rise to it would be treated as strictly confidential by both parties, their counsel, and their respective affiliates and representatives. Neither party would disclose the existence or terms of the Termination Agreement to any third party, except as required by applicable law, regulation, or legal process, or to such party's legal, financial, and tax advisors on a need-to-know basis and subject to obligations of confidentiality.

G. Delaware Governing Law

The Termination Agreement would be governed by and construed in accordance with the laws of the State of Delaware, without regard to its conflicts-of-law principles, consistent with the governing law provision of the underlying SAFE.

VIII. Requested Response and Timeline

We respectfully request that you confer with your client regarding the foregoing proposal and provide us with Vantage Peak's response by no later than October 24, 2023. We believe that a prompt resolution is in the best interests of both parties and would allow Lumos and Vantage Peak alike to move forward without further expenditure of time and resources on this matter.

If the proposal set forth herein is acceptable in principle, Calderwood & Harkness LLP will prepare and circulate a draft Mutual Termination and Release Agreement for your review and comment promptly upon receipt of your confirmation. We are, of course, willing to discuss any modifications or refinements to the proposal that your client may wish to suggest, and we remain available for a telephone call or in-person meeting at your convenience to facilitate productive discussions.

For purposes of further communications regarding this matter, please direct all correspondence and inquiries to the undersigned as well as to Omar Siddiqui, the lead associate on this matter, who can be reached at (415) 772-8091 or osiddiqui@calderwoodharkness.com.

IX. Reservation of Rights

Lumos expressly reserves all rights, remedies, claims, and defenses available to it, whether at law or in equity, under the SAFE, the Side Letter, or otherwise, including without limitation all defenses to Vantage Peak's demands and all rights arising under applicable law. Nothing in this letter, including the settlement proposal set forth herein, shall constitute or be deemed to constitute a waiver of any such rights, remedies, claims, or defenses. Lumos's willingness to engage in settlement discussions and to propose the foregoing resolution shall not be construed as an acknowledgment of the validity of any of Vantage Peak's claims or as a concession that any refund or other relief is owed.

We look forward to your prompt response and to reaching a resolution that serves the interests of both Lumos and Vantage Peak. Please do not hesitate to contact me directly should you wish to discuss any aspect of this matter.

Very truly yours,

CALDERWOOD & HARKNESS LLP

By: ________

Patricia Dunmore Partner

Direct Dial: (415) 772-8034

Email: pdunmore@calderwoodharkness.com

cc: Priya Narasimhan, Chief Executive Officer, Lumos Analytics Inc. (via email)

Omar Siddiqui, Calderwood & Harkness LLP (via email)

PRIVILEGED AND CONFIDENTIAL — SUBJECT TO FRE 408
CALDERWOOD & HARKNESS LLP 555 California Street, 30th Floor San Francisco, California 94104
Telephone: (415) 772-8000 Facsimile: (415) 772-8001 www.calderwoodharkness.com
Patricia Dunmore Partner Direct Dial: (415) 772-8034
Email: pdunmore@calderwoodharkness.com
October 19, 2023
VIA EMAIL AND U.S. MAIL
Jonathan Whitfield, Esq. Partner Whitfield Harte & Associates LLP 3000 El Camino Real, Suite 500 Palo Alto, California 94306
Re: Demand Letter dated October 18, 2023 on behalf of Vantage Peak Ventures Fund II, L.P. — Post-Money SAFE dated September 12, 2023 with Lumos Analytics Inc.
Dear Mr. Whitfield:
I. Introduction and Purpose
This firm represents Lumos Analytics Inc. ("Lumos" or the "Company"), a corporation duly organized and existing under the laws of the State of Delaware, in connection with the above-referenced matter. Calderwood & Harkness LLP has served as issuer's counsel to Lumos throughout its most recent SAFE financing round, including the negotiation, documentation, and execution of the Post-Money SAFE at issue.
We are in receipt of your demand letter dated October 18, 2023, transmitted via email and overnight courier, which you sent on behalf of your client, Vantage Peak Ventures Fund II, L.P. ("Vantage Peak"). We have carefully reviewed the claims, characterizations, and demands set forth in your correspondence, and we write now on behalf of Lumos to provide a substantive response.
At the outset, we wish to make clear that Lumos takes Vantage Peak's concerns seriously and has given them careful and considered attention. The Company values its relationship with Vantage Peak and with the broader venture capital community, and it is Lumos's sincere desire to address this matter in a constructive and amicable manner. That said, as we set forth in detail below, Lumos respectfully but firmly disputes the factual and legal bases of the claims asserted in your demand letter. Notwithstanding those disputes, and in the spirit of good faith, we include herein a concrete proposal for a mutually acceptable resolution.
This letter, and the proposal contained herein, are made in the context of settlement discussions and are protected under Federal Rule of Evidence 408 and its state-law equivalents. Nothing contained in this letter constitutes or shall be construed as an admission of liability, wrongdoing, or fault by Lumos or any of its officers, directors, employees, or agents.
II. Background and Factual Summary
To ensure that our discussion proceeds from a common factual foundation, we briefly summarize the relevant background, which we understand to be undisputed in all material respects.
On September 12, 2023, Lumos and Vantage Peak entered into a Post-Money SAFE (the "SAFE"), pursuant to which Vantage Peak made a purchase amount payment of Three Million Five Hundred Thousand Dollars ($3,500,000) to Lumos by wire transfer of immediately available funds. The SAFE is based upon the standard form promulgated by Calderon Partners LLC for post-money SAFEs, with certain negotiated modifications agreed upon between the parties. The SAFE provides for a post-money valuation cap of Twenty-Eight Million Dollars ($28,000,000), contains no discount rate, and is governed by the laws of the State of Delaware without regard to conflicts-of-law principles.
The SAFE was not executed in haste or on an asymmetric informational footing. Rather, it was the product of arms-length negotiations between sophisticated parties represented by experienced venture capital counsel. Specifically, Calderwood & Harkness LLP, on behalf of Lumos, and Whitfield Harte & Associates LLP, on behalf of Vantage Peak, exchanged multiple rounds of markups to both the SAFE instrument and to an ancillary side letter agreement. Those negotiations culminated in the execution of the SAFE and, concurrently, a Pro Rata Rights Side Letter dated September 12, 2023 (the "Side Letter"), which granted Vantage Peak certain participation rights in future equity financings of the Company. The terms of both instruments were fully negotiated and mutually agreed upon prior to execution.
As your firm is well aware, Vantage Peak conducted its own independent due diligence on Lumos's business, product, technology, market position, competitive landscape, and financial condition prior to executing the SAFE. The diligence process was led by Samantha Reyes, a Principal at Vantage Peak and the designated deal lead for this investment, and included, among other things, management presentations, product demonstrations, review of technical documentation, customer reference calls, and analysis of Lumos's financial projections. Vantage Peak is a sophisticated institutional investor — a venture capital fund with approximately $185 million in committed capital (2022 vintage) — and its investment team possesses deep experience in evaluating and investing in early-stage technology companies.
The SAFE round in which Vantage Peak participated was designed to raise up to $6,800,000 in aggregate from multiple investors, with Vantage Peak serving as the lead investor and anchor commitment at $3,500,000. The balance of the round was committed by other participating investors on substantially similar terms. Vantage Peak's role as lead investor afforded it significant visibility into the Company's operations and plans, and its diligence access was commensurate with that role.
III. Acknowledgment of the Prism Core v2.0 Product Development Setback
Your demand letter makes certain assertions regarding Lumos's machine-learning compliance scoring module known as Prism Core v2.0. We wish to set forth the facts surrounding this matter accurately and completely.
Lumos acknowledges that its Chief Executive Officer, Priya Narasimhan, voluntarily and proactively contacted Vantage Peak's deal lead, Samantha Reyes, on October 13, 2023 to disclose that Prism Core v2.0 had not met its anticipated validation benchmarks in third-party testing. This outreach was initiated by Lumos, not prompted by any inquiry, request, or demand from Vantage Peak.
Specifically, third-party validation testing of the Prism Core v2.0 module was conducted by Peralta IP Consulting LLC ("Peralta"), an independent testing and validation firm retained by Lumos. Peralta completed its testing on October 8, 2023, and delivered its written validation report to Lumos on October 9, 2023. The Peralta report indicated that the Prism Core v2.0 module achieved an accuracy rate of approximately 61% against a target benchmark of 92%. This shortfall was, of course, a significant and disappointing development for Lumos's management team.
Upon receipt of the Peralta report, Lumos's Chief Technology Officer, Elliot Marsh, presented the findings to Lumos's Board of Directors on October 10, 2023. The Board convened a formal meeting on October 12, 2023 to deliberate on the implications of the validation results and on the Company's disclosure obligations to its investors and other stakeholders. Following that deliberation, and in accordance with the Board's direction, CEO Narasimhan personally contacted Ms. Reyes the very next day, on October 13, 2023, to provide a candid and forthcoming briefing on the situation.
Lumos's management estimates that the remediation of Prism Core v2.0 — which will involve retraining certain model components, restructuring portions of the data pipeline, and re-running validation testing — will require approximately four to six months. The Company has already begun allocating engineering resources to this effort and is committed to resolving the technical issues as expeditiously as possible.
We wish to emphasize several critical points regarding the timeline of these events. First, Lumos's disclosure to Vantage Peak was entirely voluntary. The SAFE does not impose upon Lumos any obligation to provide real-time reporting of internal product development milestones, validation testing results, or engineering progress. There is no information rights provision in the SAFE, no reporting covenant, and no requirement of immediate notification upon the occurrence of a product setback of this nature. Second, the disclosure was made promptly — within three calendar days of the Board's formal deliberation on the matter, and within five calendar days of Lumos's receipt of the Peralta report. Third, the disclosure was made proactively, before Vantage Peak or any other investor had raised any questions or expressed any concerns about Prism Core v2.0. These facts are wholly inconsistent with the characterization of Lumos's conduct as fraudulent or deceptive, and they instead demonstrate precisely the kind of transparency and good faith that Lumos has exercised throughout its relationship with Vantage Peak.
IV. Response to Allegations of Misrepresentation
Your demand letter characterizes certain statements contained in Lumos's August 2023 investor pitch materials — specifically, the statement that the Prism Core v2.0 module would be "beta-ready by Q4 2023" — as constituting "material misrepresentations" that induced Vantage Peak to enter into the SAFE. Lumos respectfully but emphatically disputes this characterization, on multiple independent grounds, each of which is set forth below.
A. The Statements at Issue Were Forward-Looking Projections, Not Representations of Present Fact
The pitch materials' statements regarding Prism Core v2.0 being "beta-ready by Q4 2023" were, on their face, forward-looking statements reflecting management's then-current projections and expectations regarding future product development milestones. These statements addressed anticipated future events — the completion of a beta-ready product by a projected date — and were not representations of any present or historical fact. No reasonable investor, let alone a sophisticated institutional venture capital fund, would interpret a forward-looking product development timeline in an early-stage startup's pitch deck as a guarantee or warranty of future performance.
Such forward-looking projections are, by their very nature, inherently subject to technological risk, engineering uncertainty, and the myriad contingencies that attend the development of novel machine-learning systems. These risks are well known and foreseeable to any experienced participant in the venture capital ecosystem. Vantage Peak Ventures Fund II, L.P. is a $185 million fund with a 2022 vintage, managed by a team of seasoned venture capital professionals. Fund II and its general partner have invested in numerous early-stage technology companies and are thoroughly familiar with the realities of product development risk at the seed stage. The notion that Vantage Peak relied upon a pitch deck's forward-looking product timeline as a statement of assured fact is untenable, and it is inconsistent with the standard of sophistication that the law attributes to institutional investors of Vantage Peak's caliber.
B. No Scienter or Intent to Defraud
Your demand letter appears to suggest that Lumos made the forward-looking statements in its pitch materials with knowledge of their falsity or with reckless disregard for their truth. This suggestion is wholly without factual basis.
At the time the pitch materials were prepared and circulated in August 2023, Lumos's management — including CEO Narasimhan and CTO Marsh — genuinely and in good faith believed that the Q4 2023 beta timeline for Prism Core v2.0 was achievable. That belief was grounded in the engineering team's assessment of the module's development progress as of that date. The validation failure identified in the Peralta report was not discovered until October 8, 2023 — nearly one month after the SAFE was executed on September 12, 2023. There is simply no evidence, and no reasonable basis to allege, that Lumos knew or should have known of the product shortfall at the time the SAFE was negotiated, executed, and funded.
The element of scienter — whether framed as intentional misrepresentation, knowing falsity, or reckless disregard for the truth — is an essential element of any fraud claim, whether under Delaware common law or under general principles of contract and tort law. Here, that element is entirely absent. The chronology of events conclusively demonstrates that the product setback postdated the execution of the SAFE, and that Lumos's management disclosed the setback to Vantage Peak promptly upon learning of it. There is no basis, in law or in fact, for an allegation of fraud.
C. The SAFE's Contractual Provisions Preclude Extra-Contractual Reliance Claims
Even if the statements in Lumos's pitch materials could somehow be characterized as actionable misrepresentations — which Lumos emphatically denies — Vantage Peak's claims would nonetheless be barred by the express terms of the SAFE.
The SAFE contains a standard integration clause (Section 5(d)) providing that the instrument constitutes the entire agreement between the parties with respect to its subject matter and supersedes all prior and contemporaneous agreements, understandings, negotiations, and discussions, whether oral or written, between the parties. The SAFE does not include any specific representation or warranty regarding product development timelines, technology readiness levels, validation benchmarks, or the projected availability of any particular product feature or module, including Prism Core v2.0. Vantage Peak, through your firm, reviewed, negotiated, and agreed to the SAFE's terms, including its integration clause, with the benefit of experienced legal counsel.
Under well-settled Delaware law, a sophisticated party that has entered into a written agreement containing an integration or merger clause generally cannot maintain a claim for fraud based on extra-contractual statements — such as statements in a pitch deck — that were not incorporated into the written agreement. The Delaware courts have consistently held that where parties have defined the boundaries of the contractual relationship through an integration clause, and where the agreement does not include a specific representation on the subject at issue, a party may not circumvent the contract by asserting that it relied on oral or written statements made outside the four corners of the agreement. See, e.g., Abry Partners V, L.P. v. F & W Acquisition LLC, 891 A.2d 1032, 1057–58 (Del. Ch. 2006) (discussing anti-reliance provisions and the enforceability of contractual limitations on extra-contractual fraud claims under Delaware law); Prairie Capital III, L.P. v. Double E Holding Corp., 132 A.3d 35, 50–51 (Del. Ch. 2015). These principles apply with particular force where, as here, the complaining party is a sophisticated institutional investor represented by experienced counsel.
Furthermore, the SAFE's terms do not provide for termination, rescission, or a refund of the purchase amount upon the occurrence of a product development setback. The SAFE defines a limited set of Conversion Events — namely, an Equity Financing (defined as a bona fide transaction or series of transactions with the principal purpose of raising capital in which the Company issues and sells preferred stock with an aggregate sales price of not less than $1,000,000), a Liquidity Event, and a Dissolution Event — which are the exclusive circumstances under which the SAFE converts or pursuant to which the investor is entitled to a return of capital. A shortfall in validation testing of a product module does not constitute any of these defined events and does not give rise to any right of termination or refund under the instrument.
D. Lumos's Voluntary and Prompt Disclosure Is Inconsistent with Fraudulent Intent
Finally, we reiterate that Lumos's conduct in voluntarily and proactively disclosing the Prism Core v2.0 validation shortfall to Vantage Peak on October 13, 2023 — before any external discovery, before any investor inquiry, and within days of the Board's deliberation — is wholly inconsistent with the fraudulent intent alleged in your demand letter. A party engaged in fraud conceals adverse information; it does not rush to disclose it to the affected counterparty. Lumos's transparency throughout this process is powerful evidence of the Company's good faith, and it undermines any suggestion that Lumos sought to deceive or defraud Vantage Peak at any point during the SAFE financing process.
V. Analysis of SAFE Termination Provisions
Your demand letter requests, among other things, the immediate return of the $3,500,000 purchase amount paid by Vantage Peak under the SAFE. We have carefully analyzed the SAFE's termination and conversion provisions and conclude that Vantage Peak has no contractual entitlement to such a refund under the present circumstances.
The Post-Money SAFE, as modified and agreed upon by the parties, does not contain an express investor-initiated termination right outside of the defined Conversion Events. The SAFE provides for conversion of the purchase amount into equity upon an Equity Financing (as defined therein, requiring aggregate sales price of not less than $1,000,000), a Liquidity Event, or a Dissolution Event. In the event of a Dissolution Event, the SAFE provides for a return of the purchase amount to the investor, subject to the priority and order of payments set forth in the instrument.
Critically, the SAFE does not include a "material adverse change" or "material adverse effect" clause. It does not provide for termination upon the occurrence of a product development setback, a failure to meet engineering milestones, or a decline in the Company's business prospects. These omissions are not accidental; they reflect the fundamental nature of the SAFE instrument as a long-duration, high-risk investment in an early-stage technology company — an instrument designed to convert into equity upon a future qualifying event, not to provide a put option exercisable at the investor's discretion upon the occurrence of adverse developments.
Because no Dissolution Event has occurred, and because the SAFE contains no other provision entitling Vantage Peak to a return of its purchase amount under the present circumstances, Vantage Peak's demand for a refund of $3,500,000 is not supported by the express terms of the executed SAFE. Lumos is under no contractual obligation to return the purchase amount, and Vantage Peak has no contractual right to demand its return, absent the occurrence of a defined Conversion Event or Dissolution Event.
VI. Lumos's Position — No Admission of Liability
To be clear and to avoid any ambiguity: Lumos does not concede any misrepresentation, fraud, breach of contract, breach of the implied covenant of good faith and fair dealing, negligence, or any other wrongdoing in connection with the SAFE, the SAFE financing round, the pitch materials, or the Prism Core v2.0 product development process. Lumos believes that it has acted at all times in good faith, in compliance with its contractual obligations, and in accordance with applicable law.
Nothing in this letter, or in any prior or subsequent communications between counsel in connection with this matter, shall be construed as an admission of liability or fault by Lumos, its Board of Directors, or any of its officers, directors, employees, agents, or representatives. This letter, and the settlement proposal set forth herein, are made in the context of settlement discussions and compromise negotiations, and they are subject to the protections afforded by Federal Rule of Evidence 408, California Evidence Code § 1152, Delaware Rule of Evidence 408, and all analogous state and federal rules and statutes.
VII. Proposal for Mutual Resolution
Notwithstanding the foregoing — and notwithstanding Lumos's firm position that it bears no liability to Vantage Peak in connection with the matters described in your demand letter — Lumos recognizes the importance of maintaining constructive and productive relationships within the venture capital community. Lumos acknowledges that Vantage Peak has expressed genuine concerns, and the Company wishes to address those concerns in a manner that is fair, efficient, and respectful of both parties' interests.
Accordingly, and in the interest of achieving a prompt and amicable resolution of this matter without the expense, uncertainty, and disruption of formal proceedings, Lumos proposes the following terms for a comprehensive settlement:
A. Mutual Termination of the SAFE and Side Letter
The parties would enter into a Mutual Termination and Release Agreement (the "Termination Agreement") providing for the termination in full of (i) the Post-Money SAFE dated September 12, 2023, by and between Lumos Analytics Inc. and Vantage Peak Ventures Fund II, L.P., and (ii) the Pro Rata Rights Side Letter of the same date. Upon execution of the Termination Agreement, neither party would have any further rights or obligations under the SAFE or the Side Letter, except as expressly provided in the Termination Agreement.
B. Full Refund of Purchase Amount
Lumos would refund the full purchase amount of Three Million Five Hundred Thousand Dollars ($3,500,000) to Vantage Peak Ventures Fund II, L.P. by wire transfer of immediately available funds, without interest, penalties, fees, or deductions of any kind. The refund would be made within one (1) business day following the execution and delivery of the Termination Agreement by both parties. The wire transfer would be directed to a bank account designated by Vantage Peak in writing prior to the execution of the Termination Agreement.
C. Mutual General Releases
The Termination Agreement would include mutual general releases pursuant to which each party, on behalf of itself and its affiliates, partners, members, managers, officers, directors, employees, agents, successors, and assigns, would irrevocably release and forever discharge the other party and its respective affiliates, partners, members, managers, officers, directors, employees, agents, successors, and assigns from any and all claims, demands, actions, causes of action, suits, debts, obligations, liabilities, damages, losses, costs, and expenses of every kind and nature, whether known or unknown, suspected or unsuspected, at law or in equity, arising out of or in any way related to the SAFE, the Side Letter, the SAFE financing round, or the transactions and events contemplated thereby or related thereto.
D. No Admission of Liability
The Termination Agreement would expressly provide that neither party, by entering into the agreement, admits or concedes any wrongdoing, liability, fault, or violation of any law, regulation, contract, or duty. The agreement would further provide that it is being entered into solely for the purpose of resolving a disputed matter and avoiding the costs and uncertainties of litigation.
E. Mutual Non-Disparagement
The Termination Agreement would include a mutual non-disparagement covenant pursuant to which each party would agree not to make, publish, or cause to be made or published any statement, whether oral or written, that disparages, defames, or reflects negatively upon the other party or its affiliates, partners, members, managers, officers, directors, employees, or agents, in connection with the matters addressed by the Termination Agreement.
F. Confidentiality. The Termination Agreement, its terms, and the circumstances giving rise to it would be treated as strictly confidential by both parties, their counsel, and their respective affiliates and representatives. Neither party would disclose the existence or terms of the Termination Agreement to any third party, except as required by applicable law, regulation, or legal process, or to such party's legal, financial, and tax advisors on a need-to-know basis and subject to obligations of confidentiality.
G. Delaware Governing Law
The Termination Agreement would be governed by and construed in accordance with the laws of the State of Delaware, without regard to its conflicts-of-law principles, consistent with the governing law provision of the underlying SAFE.
VIII. Requested Response and Timeline
We respectfully request that you confer with your client regarding the foregoing proposal and provide us with Vantage Peak's response by no later than October 24, 2023. We believe that a prompt resolution is in the best interests of both parties and would allow Lumos and Vantage Peak alike to move forward without further expenditure of time and resources on this matter.
If the proposal set forth herein is acceptable in principle, Calderwood & Harkness LLP will prepare and circulate a draft Mutual Termination and Release Agreement for your review and comment promptly upon receipt of your confirmation. We are, of course, willing to discuss any modifications or refinements to the proposal that your client may wish to suggest, and we remain available for a telephone call or in-person meeting at your convenience to facilitate productive discussions.
For purposes of further communications regarding this matter, please direct all correspondence and inquiries to the undersigned as well as to Omar Siddiqui, the lead associate on this matter, who can be reached at (415) 772-8091 or osiddiqui@calderwoodharkness.com.
IX. Reservation of Rights
Lumos expressly reserves all rights, remedies, claims, and defenses available to it, whether at law or in equity, under the SAFE, the Side Letter, or otherwise, including without limitation all defenses to Vantage Peak's demands and all rights arising under applicable law. Nothing in this letter, including the settlement proposal set forth herein, shall constitute or be deemed to constitute a waiver of any such rights, remedies, claims, or defenses. Lumos's willingness to engage in settlement discussions and to propose the foregoing resolution shall not be construed as an acknowledgment of the validity of any of Vantage Peak's claims or as a concession that any refund or other relief is owed.
We look forward to your prompt response and to reaching a resolution that serves the interests of both Lumos and Vantage Peak. Please do not hesitate to contact me directly should you wish to discuss any aspect of this matter.
Very truly yours,
CALDERWOOD & HARKNESS LLP
By: ________
Patricia Dunmore Partner
Direct Dial: (415) 772-8034
Email: pdunmore@calderwoodharkness.com
cc: Priya Narasimhan, Chief Executive Officer, Lumos Analytics Inc. (via email)
Omar Siddiqui, Calderwood & Harkness LLP (via email)

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