NON-BINDING TERM SHEET

NON-BINDING TERM SHEET
Simple Agreement for Future Equity (SAFE) Financing
Originally Circulated: August 25, 2023 Executed September 1, 2023
Issuer:
Lumos Analytics Inc., a Delaware corporation (the "Company" or "Lumos") 340 Folsom Street, Suite 1100, San Francisco, CA 94105
Lead Investor:
Vantage Peak Ventures Fund II, L.P., a Delaware limited partnership (the "Investor" or "Vantage Peak") 2900 Sand Hill Road, Suite 240, Menlo Park, CA 94025
Lumos Analytics Inc. proposes to issue Simple Agreements for Future Equity ("SAFEs") in a financing round (the "SAFE Round") on the terms and conditions summarized below. This term sheet is intended to summarize the principal terms of the proposed investment and is not intended to be legally binding upon the parties, except for the provisions contained in Section 13 (Governing Law), Section 14 (Confidentiality), and Section 15 (Exclusivity), which shall be binding upon the parties upon execution hereof. The consummation of the investment contemplated hereby is subject to, among other things, (i) completion of due diligence satisfactory to the Investor in its sole discretion, (ii) the negotiation, execution, and delivery of definitive documentation in form and substance satisfactory to the parties and their respective counsel, and (iii) any and all necessary corporate and partnership approvals of each of the parties.
Section 1: The Company
Full Legal Name: Lumos Analytics Inc.
State of Incorporation: Delaware (incorporated January 14, 2022)
Delaware Secretary of State File No.: 7394821
Federal Employer Identification Number (EIN): 87-3491026
Principal Place of Business: 340 Folsom Street, Suite 1100, San Francisco, CA 94105
Registered Agent: CT Cascade Systems, 1209 Orange Street, Wilmington, Delaware 19801
Principal Business: The Company develops and operates an AI-driven financial analytics platform marketed under the trade name "Lumos Prism." The Lumos Prism platform provides real-time regulatory compliance dashboards and predictive risk scoring capabilities to mid-market financial institutions, including community banks, regional credit unions, and specialty lending platforms. The platform leverages proprietary machine-learning models to analyze transactional data, identify anomalous patterns indicative of regulatory risk, and deliver actionable compliance insights through an integrated web and API-based interface.
Founders and Key Officers:
Board of Directors (as of the date hereof):
1.  Priya Narasimhan — Chair
2.  Elliot Marsh — Director
3.  Kenji Watanabe — Independent Director
Employees: The Company has fourteen (14) full-time employees as of August 2023, including the officers named above. All employees are based in San Francisco, California or work remotely within the United States.
Monthly Recurring Revenue: Approximately Thirty-Eight Thousand Dollars ($38,000) as of July 2023, derived from subscription agreements with six (6) active institutional customers.
Section 2: The Offering
Instrument: Post-Money Simple Agreement for Future Equity (Post-Money SAFE), based on the standard form published by Calderon Partners LLC, as modified to incorporate the specific terms and provisions set forth in this term sheet and as further modified in the definitive documentation to be negotiated by the parties and their respective counsel.
Total Round Target: Up to Six Million Eight Hundred Thousand Dollars ($6,800,000) in aggregate SAFE investments in the SAFE Round.
Lead Investor Commitment: The Investor commits to purchase a SAFE in the principal amount of Three Million Five Hundred Thousand Dollars ($3,500,000), representing the lead investment in the SAFE Round.
Additional Investors: The Company anticipates raising an additional Three Million Three Hundred Thousand Dollars ($3,300,000) from one or more additional investors (each, a "Co-Investor" and collectively, the "Co-Investors") to be mutually agreed upon by the Company and the Investor, in order to fill the balance of the SAFE Round. Each Co-Investor shall execute a separate Post-Money SAFE on substantially similar terms as those set forth herein, subject to any MFN adjustments as described in Section 5.
discount Rate: None. The SAFEs issued in the SAFE Round shall not include a discount rate.
Section 3: Post-Money Valuation Cap
Post-Money Valuation Cap: Twenty-Eight Million Dollars ($28,000,000).
Upon conversion of the Investor's SAFE in connection with an Equity Financing (as defined in Section 4), the Investor's pro forma ownership of the Company on a fully diluted basis shall be calculated as the quotient of the Purchase Amount divided by the Post-Money Valuation Cap, which, based on the Investor's commitment, yields:
$3,500,000 ÷ $28,000,000 = 12.50% pro forma ownership (fully diluted)
Assuming the SAFE Round is fully subscribed at the target amount of $6,800,000, the aggregate pro forma ownership of all new SAFE investors upon conversion shall be:
$6,800,000 ÷ $28,000,000 = 24.29% pro forma ownership (fully diluted)
For the avoidance of doubt, the Post-Money Valuation Cap is inclusive of (a) all shares of the Company's capital stock issued and outstanding as of the date of conversion, (b) all shares issuable upon conversion of outstanding options and other convertible securities (including the SAFEs issued in this SAFE Round and any previously issued SAFEs), and (c) any shares reserved under the Company's equity incentive plan, in each case calculated on a fully diluted basis using the treasury stock method.
Section 4: Conversion Events
The SAFEs issued in the SAFE Round shall convert into equity securities of the Company, or result in a payment to the holders thereof, upon the occurrence of the following events:
Equity Financing: The SAFE shall automatically convert into shares of the same class and series of preferred stock issued to investors in such Equity Financing upon the closing of a bona fide equity financing round in which the Company raises a minimum of One Million Dollars ($1,000,000) in aggregate gross cash proceeds (exclusive of the conversion of SAFEs and other convertible securities). The number of shares issuable upon conversion shall be determined by dividing the Purchase Amount by the applicable conversion price, which shall be equal to the lesser of (i) the price per share paid by the investors in such Equity Financing and (ii) the price per share derived from dividing the Post-Money Valuation Cap by the Company's fully diluted capitalization immediately prior to such closing (the "Safe Price").
Liquidity Event: In the event of a change of control, direct listing, or initial public offering (each, a "Liquidity Event") occurring prior to the conversion of the SAFE pursuant to an Equity Financing, the SAFE holder shall, at its option, receive either (a) a cash payment equal to the Purchase Amount or (b) a number of shares of Common Stock of the Company determined by dividing the Purchase Amount by the quotient obtained by dividing the Post-Money Valuation Cap by the Company's fully diluted capitalization immediately prior to such Liquidity Event, in each case as further specified in the definitive SAFE agreement.
Dissolution Event: In the event of a dissolution, winding up, or liquidation of the Company (whether voluntary or involuntary) prior to the conversion of the SAFE, the Company shall pay to the holder of the SAFE an amount equal to the Purchase Amount, which payment shall be made prior to any distribution to holders of the Company's Common Stock but after the payment of the Company's creditors in accordance with applicable law and the Company's organizational documents.
Section 5: Most Favored Nation (MFN) Provision
If, at any time while the Investor's SAFE remains outstanding and unconverted, the Company issues any subsequent SAFE, convertible note, or other convertible security (each, a "Subsequent Convertible Security") to any investor on terms that are, in any material respect, more favorable to the holder of such Subsequent Convertible Security than the terms of the Investor's SAFE (as determined by the Investor in its reasonable judgment), the Investor shall have the right, exercisable by written notice to the Company, to amend its SAFE to incorporate any or all such more favorable terms in lieu of the corresponding terms of its SAFE.
Without limiting the generality of the foregoing, the MFN right shall apply to, among other things, any more favorable (a) valuation cap (i.e., a lower post-money valuation cap), (b) discount rate, (c) additional rights, preferences, or protections granted to the holder of such Subsequent Convertible Security, or (d) any combination of the foregoing. The Company shall promptly notify the Investor in writing of the issuance of any Subsequent Convertible Security and shall provide the Investor with a true and complete copy of such instrument within five (5) business days following issuance.
Section 6: Pro Rata Rights
In connection with the closing of the SAFE Round, the Company and the Investor shall enter into a separate Pro Rata Rights Side Letter (the "Side Letter"), pursuant to which the Investor shall be granted the right to participate, on a pro rata basis (based on the Investor's ownership percentage on an as-converted, fully diluted basis), in the next equity financing round of the Company following the conversion of the SAFE into equity securities.
The pro rata right shall be subject to customary exceptions, including without limitation (a) issuances of compensatory equity to employees, officers, directors, advisors, or consultants of the Company pursuant to the Company's equity incentive plan as approved by the Board of Directors, (b) issuances in connection with bona fide strategic transactions approved by the Board of Directors, (c) issuances in connection with equipment lease financing or bank lending transactions, and (d) issuances of equity securities in connection with an initial public offering or direct listing.
Section 7: Information Rights
From and after the closing of the SAFE Round and for so long as the Investor holds an unconverted SAFE or equity securities of the Company issued upon conversion thereof, the Company shall provide to the Investor the following information:
(a) Annual Financial Statements. Within ninety (90) days following the end of each fiscal year of the Company, unaudited financial statements of the Company for such fiscal year, including a balance sheet, income statement, statement of cash flows, and a summary of significant accounting policies, prepared in accordance with generally accepted accounting principles applied on a consistent basis.
(b) Quarterly Reports. Within forty-five (45) days following the end of each fiscal quarter (other than the fourth quarter), a summary financial report for such quarter, including a comparison of actual results to the Company's internal operating budget and a brief narrative commentary on material developments.
(c) Material Adverse Developments. Prompt written notice of any material adverse development or event affecting the Company's business, financial condition, results of operations, intellectual property, key customer relationships, or regulatory standing, including without limitation any pending or threatened litigation, loss of material customers, or departure of key personnel.
The information rights described in this Section 7 shall terminate automatically upon the conversion of the SAFE into equity securities of the Company that carry equivalent or superior information rights pursuant to the definitive agreements governing such equity securities.
Section 8: Existing Capitalization
The Company represents that, as of the date hereof, the capitalization of the Company is as set forth below. The Company shall deliver to the Investor a certified capitalization table as part of the due diligence process, and shall represent and warrant in the definitive SAFE agreement that such capitalization table is true, correct, and complete as of the date of execution thereof.
Authorized Capital Stock:
Common Stock: 10,000,000 shares authorized, par value $0.0001 per share
Issued and Outstanding Common Stock: 8,600,000 shares, held as follows:
2022 Equity Incentive Plan:
Total shares reserved under plan: 1,200,000 shares Shares subject to outstanding grants: 480,000 shares Shares available for future grants: 720,000 shares
Outstanding Convertible Securities — Pre-Seed SAFEs:
The Company has previously issued Post-Money SAFEs in an aggregate principal amount of One Million Two Hundred Thousand Dollars ($1,200,000) at a post-money valuation cap of Eight Million Dollars ($8,000,000), to the following investors:
Other Securities: Except as set forth above, there are no other outstanding convertible securities, options (other than grants under the 2022 Equity Incentive Plan), warrants, rights of first refusal, preemptive rights, or other rights to acquire equity securities of the Company.
Section 9: Intellectual Property
The Company has filed U.S. Provisional Patent Application No. 63/987,214 with the United States Patent and Trademark Office on June 15, 2023, covering the proprietary predictive risk algorithm underlying the Prism Core module of the Lumos Prism platform (the "Provisional Patent Application"). The Company intends to file a non-provisional utility patent application within the twelve-month priority period following the filing date of the Provisional Patent Application.
In the definitive SAFE agreement and/or ancillary documents, the Company shall represent and warrant that it owns or holds valid and enforceable licenses to all material intellectual property used in or necessary for the conduct of the Company's business as currently conducted and as proposed to be conducted, including without limitation all software, source code, algorithms, data models, trademarks, service marks, domain names, trade secrets, and know-how, free and clear of all liens, encumbrances, and adverse claims, except as disclosed in writing to the Investor.
Section 10: Use of Proceeds
The Company intends to use the proceeds from the SAFE Round for general corporate purposes, including without limitation:
(a) continued development and enhancement of the Lumos Prism platform, including investment in the Prism Core predictive risk engine and expansion of the compliance dashboard feature set;
(b) hiring of additional engineering, data science, sales, and customer success personnel to support the Company's growth objectives;
(c) go-to-market activities, including sales and marketing expenditures, conference attendance, and establishment of partnerships with financial technology distribution channels; and
(d) general working capital and administrative expenses.
The Company shall not use any portion of the proceeds to repay indebtedness owed to any founder, officer, director, or affiliate of the Company, or for any purpose unrelated to the Company's core business, without the prior written consent of the Investor.
Section 11: Definitive Documents
The investment contemplated by this term sheet shall be made pursuant to a definitive Post-Money SAFE agreement and such related ancillary documents (including, without limitation, the Pro Rata Rights Side Letter and any board or stockholder resolutions) as may be reasonably required (collectively, the "Definitive Documents"), to be negotiated in good faith between the parties and their respective counsel.
Company Counsel:
Calderwood & Harkness LLP 555 California Street, 30th Floor San Francisco, CA 94104 Lead Contact: Patricia Dunmore, Partner Associate Contact: Omar Siddiqui, Associate
Investor Counsel:
Whitfield Harte & Associates LLP 3000 El Camino Real, Suite 500 Palo Alto, CA 94306 Lead Contact: Jonathan Whitfield, Partner
Target Execution Date: The parties shall use commercially reasonable efforts to negotiate, execute, and deliver the Definitive Documents on or before September 15, 2023. Failure to execute the Definitive Documents by such date shall not, in and of itself, constitute a termination of this term sheet or a waiver of any party's rights hereunder, but the parties acknowledge that such delay may affect the Exclusivity period set forth in Section 15.
Section 12: Due Diligence
The Investor's obligation to consummate the investment contemplated by this term sheet is subject to the completion of customary business, legal, financial, and intellectual property due diligence to the Investor's satisfaction in its sole discretion. Such due diligence may include, without limitation, review of the Company's corporate records, material contracts, financial statements, tax returns, intellectual property registrations and filings, employment agreements, customer agreements, regulatory filings, insurance policies, and any pending or threatened litigation or regulatory proceedings.
The Company agrees to cooperate fully with the Investor and its counsel and advisors in connection with such due diligence, and shall make available for review and inspection, upon reasonable request and during normal business hours, all relevant records, documents, and data, and shall make the Company's officers, directors, employees, accountants, and other advisors available for interviews and discussions as the Investor may reasonably request. The Company shall promptly respond to all due diligence requests submitted by the Investor or its counsel.
Section 13: Governing Law
THIS SECTION IS BINDING UPON THE PARTIES.
This term sheet and any disputes arising out of or in connection with this term sheet, including disputes relating to the Confidentiality, Exclusivity, and Governing Law provisions hereof, shall be governed by and construed in accordance with the internal laws of the State of Delaware, without giving effect to any choice of law or conflict of law rules or provisions (whether of the State of Delaware or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Delaware.
Section 14: Confidentiality
THIS SECTION IS BINDING UPON THE PARTIES.
The existence and terms of this term sheet, as well as all information exchanged between the parties in connection with the proposed investment (collectively, "Confidential Information"), are confidential and shall not be disclosed by either party to any third party without the prior written consent of the other party; provided, however, that each party may disclose Confidential Information (a) to its respective legal counsel, accountants, financial advisors, and, in the case of the Investor, its general partner, limited partners, and affiliated funds and their respective advisors, in each case who have a need to know such information and who are bound by obligations of confidentiality at least as restrictive as those set forth herein, and (b) as required by applicable law, regulation, or legal process, provided that the disclosing party shall provide the other party with prompt written notice of such required disclosure (to the extent permitted by law) and shall cooperate with the other party's reasonable efforts to obtain a protective order or other appropriate remedy.
This confidentiality obligation shall survive the termination or expiration of this term sheet and shall remain in effect for a period of two (2) years from the date hereof, regardless of whether the proposed investment is consummated.
Section 15: Exclusivity
THIS SECTION IS BINDING UPON THE PARTIES.
From the date of execution of this term sheet through September 30, 2023 (or such later date as the Company and the Investor may agree in writing) (the "Exclusivity Period"), the Company shall not, and shall cause its officers, directors, employees, agents, and advisors not to, directly or indirectly, (a) solicit, initiate, encourage, or facilitate any inquiry, proposal, or offer from any third party relating to any equity financing, debt financing convertible into equity, merger, acquisition, sale of all or substantially all of the Company's assets, or other similar transaction (a "Competing Transaction"), (b) participate in any discussions or negotiations with, or furnish any information to, any third party in connection with a Competing Transaction, or (c) enter into any agreement, arrangement, or understanding (whether binding or non-binding) with respect to a Competing Transaction.
Notwithstanding the foregoing, this Section 15 shall not restrict the Company from (i) engaging in discussions with anticipated Co-Investors for purposes of completing the SAFE Round, provided that such Co-Investors and the terms of their participation have been mutually agreed upon by the Company and the Investor, or (ii) responding to unsolicited inquiries by informing the inquiring party that the Company is subject to an exclusivity obligation.
If the Company receives an unsolicited proposal or indication of interest regarding a Competing Transaction during the Exclusivity Period, the Company shall promptly (and in any event within two (2) business days) notify the Investor in writing of such proposal or indication of interest, including the identity of the third party and the material terms thereof.
Section 16: Non-Binding Nature
Except for the provisions of Section 13 (Governing Law), Section 14 (Confidentiality), and Section 15 (Exclusivity), each of which is expressly binding upon the parties as set forth therein, this term sheet is non-binding and does not create any legally enforceable rights or obligations of either party. Neither party shall have any obligation to negotiate, execute, or deliver any Definitive Documents, or to consummate the investment contemplated by this term sheet, and either party may terminate discussions and negotiations at any time prior to the execution of such Definitive Documents, without liability or obligation to the other party, subject to the binding provisions referenced above.
No course of dealing, no partial performance, and no oral or written statement by any representative of either party shall be construed as imposing any obligation on either party to consummate the proposed investment, except as expressly set forth in executed Definitive Documents.
Section 17: Expenses
Each party shall bear its own legal, accounting, advisory, and other expenses incurred in connection with the negotiation, preparation, due diligence, and execution of this term sheet and the Definitive Documents. For the avoidance of doubt, the Company shall be responsible for its own counsel fees and the Investor shall be responsible for its own counsel fees, and neither party shall have any obligation to reimburse or indemnify the other party for any such expenses, regardless of whether the proposed investment is consummated.
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SIGNATURE PAGE TO NON-BINDING TERM SHEET SIMPLE AGREEMENT FOR FUTURE EQUITY (SAFE) FINANCING
IN WITNESS WHEREOF, the parties have caused this Non-Binding Term Sheet to be executed by their duly authorized representatives as of the dates set forth below.
AGREED AND ACCEPTED:
LUMOS ANALYTICS INC.
By: ________
Name: Priya Narasimhan
Title: Co-Founder, Chief Executive Officer & President
Date: August 25, 2023
VANTAGE PEAK VENTURES FUND II, L.P.
By: Vantage Peak Capital Management LLC, its General Partner
By: ________
Name: Samantha Reyes
Title: Principal
Date: September 1, 2023
CONTACT INFORMATION
Company Contact:
Priya Narasimhan, Chief Executive Officer Lumos Analytics Inc. 340 Folsom Street, Suite 1100 San Francisco, CA 94105
Email: priya@lumosanalytics.com
Company Counsel:
Calderwood & Harkness LLP 555 California Street, 30th Floor San Francisco, CA 94104
Attn: Patricia Dunmore, Partner / Omar Siddiqui, Associate
Investor Contact:
Samantha Reyes, Principal Vantage Peak Ventures Fund II, L.P. 2900 Sand Hill Road, Suite 240 Menlo Park, CA 94025
Email: sreyes@vantagepeak.com
Investor Counsel:
Whitfield Harte & Associates LLP 3000 El Camino Real, Suite 500 Palo Alto, CA 94306
Attn: Jonathan Whitfield, Partner
CONFIDENTIAL — This document and the information contained herein are confidential and are intended solely for the use of the parties named above and their respective advisors. Any unauthorized disclosure, reproduction, or distribution of this document is strictly prohibited.
Name | Title | Date Joined
Priya Narasimhan | Co-Founder, Chief Executive Officer & President | January 2022
Elliot Marsh | Co-Founder, Chief Technology Officer | January 2022
Danielle Okoye | Chief Financial Officer | March 2023
Stockholder | Shares | Percentage (Issued & Outstanding)
Priya Narasimhan | 4,200,000 | 48.84%
Elliot Marsh | 3,800,000 | 44.19%
Danielle Okoye | 600,000 | 6.98%
Total Issued & Outstanding | 8,600,000 | 100.00%
Pre-Seed SAFE Holder | Purchase Amount
Ridgeline Angel Fund, L.P. | $500,000
Angela Forsythe | $300,000
Dr. Naveen Iyer | $250,000
Sylvia Montero | $150,000
Total Pre-Seed SAFEs | $1,200,000