MEMORANDUM
PRIVILEGED & CONFIDENTIAL — ATTORNEY-CLIENT PRIVILEGED
FROM: Renata Vasquez (Partner, CA Bar No. 247503) and Devon Archer (Senior Associate, CA Bar No. 318274), Calderwood & Harkness LLP, Labor & Employment Practice Group, One Embarcadero Center, 34th Floor, San Francisco, CA 94111
TO: Camille Desrosiers, General Counsel & Vice President of Legal, Lumos Analytics Inc.; Gerald Huang, Vice President of People Operations, Lumos Analytics Inc.
DATE: May 29, 2024
RE: Implementation and Rollout Guidance — Revised Proprietary Information & Inventions Agreements for California-Based Employees
MATTER NO.: 1008-00006
CLIENT: Lumos Analytics Inc., 2200 Pacific Avenue, Suite 1400, San Francisco, CA 94115
This memorandum is a privileged and confidential communication prepared by Calderwood & Harkness LLP at the direction of Lumos Analytics Inc. for the purpose of providing legal advice. This memorandum is protected by the attorney-client privilege and the work-product doctrine. It should not be disclosed to any third party without the prior written consent of Calderwood & Harkness LLP and Lumos Analytics Inc. Unauthorized disclosure may result in waiver of applicable privileges.
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I. Purpose and Executive Summary
This memorandum provides comprehensive, step-by-step implementation and rollout guidance for Lumos Analytics Inc. ("Lumos" or the "Company") in connection with its deployment of the revised Proprietary Information & Inventions Agreement ("PIIA") templates to its one hundred forty-two (142) California-based employees. This memorandum should be read in conjunction with the final execution-ready PIIA templates, the accompanying exhibits, and our preliminary enforceability analysis memorandum dated April 8, 2024, all of which are being delivered concurrently or have been previously delivered to the Company.
By way of background, Calderwood & Harkness LLP ("Calderwood & Harkness" or the "Firm") was retained by Lumos following the Company's $68 million Series C financing round, which closed on February 14, 2024, at a post-money valuation of approximately $410 million. The Series C round was led by Ridgeline Ventures Fund IV, L.P. ("Ridgeline Ventures"), with participation from existing investors. As part of the post-closing due diligence and governance review process, Ridgeline Ventures board observer Priya Narayanan identified a number of compliance deficiencies in Lumos's existing employment agreements. Ms. Narayanan's findings were summarized in a board observer report dated February 28, 2024, which was circulated to the Lumos Board of Directors and senior leadership team. That report flagged several provisions in the Company's existing employment agreements that presented material legal risk under California law and recommended that the Company engage outside counsel to undertake a comprehensive review and remediation.
The existing employment agreements — specifically, the Proprietary Information & Inventions Agreement template and related confidentiality provisions — were last updated in the second quarter of 2021 by Whitmore & Cheng LLP, the Company's corporate counsel. Upon review, Calderwood & Harkness identified the following provisions requiring remediation:
(a) Twelve-Month Global Non-Compete. The existing agreements contained a post-employment non-compete clause with a duration of twelve (12) months and a geographic scope described as "worldwide." This provision is void and unenforceable under California Business & Professions Code Section 16600, which broadly prohibits restraints on an individual's ability to engage in a lawful profession, trade, or business. The continued maintenance of this clause in the Company's employment agreements creates affirmative legal exposure under recent legislation, as discussed in Section VIII of this memorandum.
(b) Eighteen-Month Non-Solicitation Clause. The existing agreements included an eighteen (18)-month post-employment non-solicitation clause covering both customer and employee solicitation. In light of California's broadly protective stance under Section 16600 and the California Supreme Court's reasoning in Edwards v. Kraft Quill CPAs LLP, 44 Cal. 4th 937 (2008), as well as post-AMN Healthcare Services, Inc. v. Superior Court, 28 Cal. App. 5th 923 (2018) precedent, this provision was overbroad and likely unenforceable in its current form.
(c) Invention-Assignment Clause Without Cal. Labor Code § 2870 Notice. The existing invention-assignment provision failed to include the mandatory statutory notice required under California Labor Code Section 2872, which requires employers to provide employees with a written copy of the provisions of Section 2870 at the time an employment agreement requiring assignment of inventions is executed. Section 2870 limits the scope of permissible invention-assignment clauses by carving out inventions developed entirely on the employee's own time, without use of the employer's equipment, supplies, facilities, or trade secret information, unless the invention relates to the employer's business or actual or demonstrably anticipated research or development.
(d) Indefinite Confidentiality Obligations Without Trade-Secret/Non-Trade-Secret Distinction. The existing confidentiality provisions imposed a blanket, indefinite post-employment obligation on all categories of confidential information, without distinguishing between information qualifying as a trade secret (which may warrant indefinite protection) and other confidential business information (which should be subject to a reasonable time limitation to avoid enforceability challenges).
(e) Absent DTSA Whistleblower Immunity Notice. The existing agreements did not include the notice required under the federal Defend Trade Secrets Act of 2016, 18 U.S.C. § 1833(b), advising employees of their immunity from criminal and civil liability for the confidential disclosure of trade secrets to government officials or in court filings made under seal for purposes of reporting a suspected violation of law.
Calderwood & Harkness has prepared three execution-ready PIIA templates, tailored to Lumos's workforce structure, along with accompanying exhibits, to address each of the foregoing deficiencies:
• Executive Tier PIIA — for C-suite officers and Vice Presidents;
• Senior Engineer / Data Scientist Tier PIIA — for senior technical contributors in engineering and data science roles; and
• Mid-Level / Entry-Level Combined Tier PIIA — for managers, analysts, associates, and junior engineers.
Each template is accompanied by Exhibit A (Prior Inventions Disclosure Schedule) and Exhibit B (California Labor Code § 2870 Statutory Notice). The substantive provisions of these templates were analyzed in detail in our enforceability analysis memorandum dated April 8, 2024. Redline mark-ups of the revised provisions to the existing agreements were delivered on April 22, 2024. Revised drafts incorporating Lumos's comments from the May 6, 2024 working call were delivered on May 13, 2024. The final execution-ready templates and exhibits are delivered concurrently with this memorandum on May 29, 2024.
The recommended target for completion of the rollout — i.e., execution of the revised PIIA by all 142 California-based employees — is June 30, 2024. This timeline accounts for the necessary preparatory steps, including board authorization, coordination with external advisors, preparation of employee communications, the statutorily recommended employee review period, and a follow-up window for collection of executed agreements.
The remainder of this memorandum addresses each component of the rollout in detail, including employee classification and tier assignment, consideration analysis, substantive provision summaries for HR communicators, communication strategy, coordination with external advisors, SB 699 notification requirements, recordkeeping obligations, rollout timeline, handling of employee refusals, new hire integration, and ongoing compliance recommendations.
II. Scope of Rollout — Employee Tiers and Classification
A. Employee Population
As of the date of this memorandum, Lumos employs a total of one hundred eighty-seven (187) full-time employees ("FTEs") across its operations. Of these, one hundred forty-two (142) employees are based in California, principally at the Company's headquarters at 2200 Pacific Avenue, Suite 1400, San Francisco, California 94115. The remaining forty-five (45) employees are distributed across other jurisdictions, including twenty-seven (27) employees based in New York and eighteen (18) employees based in various other states.
The rollout addressed in this memorandum covers only the 142 California-based employees. Employees based in New York, and those based in other states, are governed by different state laws that impose distinct requirements with respect to non-compete agreements, invention-assignment provisions, confidentiality obligations, and related employment terms. The preparation of separate, state-specific PIIA templates for these employees is not within the scope of the current engagement. Should Lumos wish to undertake a multi-state review and remediation, Calderwood & Harkness is available to discuss the scope and terms of an expanded engagement.
B. Tier Classification
For purposes of the revised PIIA rollout, Lumos's 142 California-based employees have been organized into four tiers. Each tier is matched to the appropriate PIIA template based on the employee's title, functional role, compensation level, and access to proprietary information. The tier structure is summarized in the following table:
The compensation data reflected in the table above has been sourced from Lumos's internal payroll records and verified against the workpapers prepared by Beacon Hill Audit Partners LLP (Sandra Okafor, Senior Manager, Audit) in connection with the Company's FY 2023 audit. Employee classification support — including the assignment of employees to the appropriate tier based on title, role, and functional responsibilities — has been provided by Orion Talent Advisors, Inc. (Marcus Reeves, Managing Director), the Company's external human resources consulting firm.
For additional context, the following aggregate financial data may be relevant to Lumos's internal planning:
• FY 2023 Total California Payroll: Approximately $25,800,000.
• FY 2023 Research & Development Expenditure: Approximately $18,400,000, representing approximately 43.5% of the Company's FY 2023 annual recurring revenue ("ARR") of $42,300,000.
These figures underscore the significance of the California-based workforce — and, in particular, the Senior Engineer / Data Scientist tier — to the Company's core operations and intellectual property development.
C. Template Assignment Guidance
The HR and People Operations team, under the direction of Gerald Huang, Vice President of People Operations, should cross-reference each employee's title, current compensation level, and functional role against the tier definitions set forth above to confirm the correct template assignment for each individual. The tier definitions are designed to be broadly inclusive, and the vast majority of employees should fall clearly within one of the four categories.
However, borderline cases may arise. For example, a senior individual contributor in engineering or data science who holds a "Staff Engineer" or "Principal Data Scientist" title and is compensated at or above the threshold for the Senior Engineer / Data Scientist tier (i.e., base salary of $195,000 or above) but who does not hold a managerial or supervisory title may require a classification determination. Similarly, employees who have been recently promoted or who are in the process of a title or compensation change may present classification questions.
In all such borderline cases, the classification determination should be escalated to Camille Desrosiers, General Counsel & Vice President of Legal, for resolution. Calderwood & Harkness is available for consultation on classification questions that present legal considerations — for example, where the choice of template may affect the scope of invention-assignment or confidentiality obligations applicable to a particular employee's role.
III. Consideration Analysis — Obtaining Execution from Current Employees
A central practical and legal issue in the rollout of revised employment agreements to an existing workforce is the question of consideration. Because the 142 California-based employees to whom the revised PIIA will be presented are existing employees — not new hires — it is necessary to confirm that legally adequate consideration supports the new agreements.
A. Fresh Consideration Requirement
Under California law, continued at-will employment generally constitutes adequate consideration for a new or revised restrictive covenant, invention-assignment agreement, or confidentiality agreement, provided that the agreement is presented as a condition of continued employment and the employee is given a reasonable opportunity to review and consider its terms before execution is required. California courts have consistently held that an employer's agreement to continue employing an at-will employee furnishes sufficient consideration for the employee's agreement to be bound by new or modified employment terms. See, e.g., Asmus v. Pacific Bell, 23 Cal. 4th 1, 15 (2000); Armendariz v. Foundation Health Psychcare Services, Inc., 24 Cal. 4th 83 (2000) (discussing adequacy of consideration in the employment context).
The analysis differs depending on whether the employee is a new hire or an existing employee:
• New Hires: For new hires, the analysis is straightforward. The offer of employment itself constitutes adequate consideration for the PIIA. The PIIA should be presented as a condition of the employment offer and executed prior to or on the first day of employment. The offer letter should expressly reference the PIIA as a condition of employment.
• Existing Employees: For existing employees, the employer must establish that some fresh consideration — most commonly, the employer's continued willingness to employ the individual on an at-will basis — supports the new agreement. While continued at-will employment is generally recognized as sufficient consideration in California, the strength of this position may vary depending on the circumstances, including the employee's seniority, bargaining power, and the nature of the obligations being imposed.
Calderwood & Harkness has considered the question of consideration carefully in the context of Lumos's workforce and has concluded that continued at-will employment constitutes legally sufficient consideration for the revised PIIA for all employee tiers. However, as set forth below, we recommend supplemental consideration for the executive tier to reduce litigation risk and demonstrate good faith.
B. Recommended Approach by Tier
Our recommendations regarding consideration vary by employee tier, reflecting differences in litigation risk, access to sensitive information, and bargaining dynamics:
Executive Tier (11 employees). For the eleven (11) executive-tier employees — including C-suite officers and Vice Presidents — Calderwood & Harkness recommends providing nominal supplemental consideration in addition to continued employment. Executive-tier employees have the greatest access to the Company's most sensitive trade secrets, strategic plans, and proprietary data. They are also the employees most likely to be represented by personal counsel and most likely to challenge the enforceability of a post-hire agreement in the event of a dispute. Providing supplemental consideration — even a nominal amount — strengthens the enforceability of the agreement and demonstrates the Company's good faith.
Recommended forms of supplemental consideration for executive-tier employees include:
(i) A one-time cash bonus in the range of $1,000 to $5,000, payable upon execution of the revised PIIA; or
(ii) Acceleration of a modest portion of unvested equity (e.g., acceleration of one month's vesting) under the Lumos Analytics Inc. 2020 Equity Incentive Plan, as amended (the "2020 Plan"), subject to approval by the Board or its Compensation Committee and confirmation by Whitmore & Cheng LLP that such acceleration is permissible under the Plan's terms and within existing share reserves.
The specific form and amount of supplemental consideration for each executive-tier employee should be determined by Camille Desrosiers in consultation with Gerald Huang and, as needed, with Calderwood & Harkness. Uniformity within the executive tier is desirable but not legally required.
Senior Engineer / Data Scientist Tier (38 employees). For the thirty-eight (38) employees in the Senior Engineer / Data Scientist tier, continued at-will employment constitutes legally sufficient consideration for the revised PIIA. No supplemental monetary or equity consideration is recommended. However, we suggest pairing the rollout communication with a positive acknowledgment of the employee's importance to the Company — for example, a brief note recognizing the employee's contributions and reminding the employee of their participation in the Company's equity program under the 2020 Plan. This approach supports employee goodwill and reduces the likelihood of resistance or negative perceptions.
Mid-Level / Entry-Level Tiers (93 employees combined). For the ninety-three (93) employees in the Mid-Level and Entry-Level tiers, continued at-will employment constitutes legally sufficient consideration for the revised PIIA. No supplemental consideration is recommended.
C. Documentation of Consideration
Each signed PIIA should include recital language expressly acknowledging the employee's receipt of adequate consideration. The recital language in the execution-ready templates provides as follows:
"In consideration of my employment or continued employment by the Company, and the compensation and benefits provided to me in connection with such employment, and [for executive-tier employees: the supplemental consideration described in the cover letter accompanying this Agreement,] and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, I agree as follows…"
In addition to the recital language in the PIIA itself, Calderwood & Harkness recommends that the Company maintain a centralized tracking log or spreadsheet documenting the following information for each employee:
• Employee name and employee ID number;
• Assigned tier and template version;
• Date the PIIA was presented to the employee;
• Date the employee executed the PIIA;
• Whether supplemental consideration was provided and, if so, the nature and amount; and
• Any notes regarding questions, concerns, or escalations.
This log will serve as an important evidentiary record in the event of any future dispute regarding the validity or enforceability of an employee's PIIA.
D. Employee Right to Review
Each employee should be provided a minimum of five (5) business days to review the revised PIIA and its exhibits before execution is required. This review period serves several important purposes: it ensures that the employee has a meaningful opportunity to understand the terms of the agreement, it permits the employee to consult with personal legal counsel if desired, and it strengthens the Company's position that the agreement was entered into voluntarily and with adequate opportunity for deliberation.
Employees should be expressly informed — in writing, in the cover letter or FAQ accompanying the PIIA — that they are permitted and encouraged to consult with their own attorney at their own expense before signing the agreement. This disclosure should be made clearly and without qualification.
During the review period and throughout the rollout process, the Company must refrain from any coercive, threatening, or retaliatory conduct. The presentation of the revised PIIA should be matter-of-fact and professional. Managers and HR personnel should not suggest that employees will face immediate adverse consequences for asking questions, requesting additional time within the review window, or expressing concerns. The agreement should be presented as a routine update to the Company's employment documentation in response to changes in California law, accompanied by the cover letter and FAQ described in Section V below.
IV. Key Substantive Provisions — Summary for HR Communicators
This section provides a plain-language summary of the key substantive changes reflected in the revised PIIA templates, intended for use by Gerald Huang, the People Operations team, and other HR communicators in preparing employee-facing materials and fielding employee questions. For a comprehensive legal analysis of each provision, please refer to our enforceability analysis memorandum dated April 8, 2024.
A. Deletion of Non-Compete Clause
The existing twelve (12)-month post-employment non-compete clause — which purported to restrict employees from engaging in competitive activities on a "global" basis for a period of one year following separation — has been removed in its entirety from all three tier templates. This provision does not appear in any form in the revised PIIAs.
The deletion of the non-compete clause reflects the requirements of California Business & Professions Code Section 16600, which provides, with limited statutory exceptions not applicable to Lumos's business, that "every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void." California courts have interpreted this prohibition broadly and have consistently declined to enforce post-employment non-compete agreements, even where such agreements are narrowly tailored in scope and duration. See Edwards v. Kraft Quill CPAs LLP, 44 Cal. 4th 937 (2008).
The urgency of this deletion is amplified by two pieces of legislation that took effect on January 1, 2024:
• SB 699 (codified as Cal. Bus. & Prof. Code § 16600.5): Provides that any contract that is void under Section 16600 is unenforceable regardless of where and when the contract was signed. This statute effectively prevents employers from attempting to enforce California-void non-competes by resort to the laws of other states or choice-of-law provisions.
• AB 1076 (codified as Cal. Labor Code § 432.5): Prohibits employers from including non-compete clauses in employment agreements or requiring employees to enter into agreements that include void non-compete provisions. This statute creates an affirmative prohibition — not merely a rule of unenforceability — against maintaining void non-compete provisions in employment documentation.
Lumos's continued maintenance of the existing non-compete clause in its employment agreements — even if the Company had no intention of enforcing the provision — creates potential exposure under these new statutes, including the risk of employee complaints, regulatory inquiry, and potential claims for injunctive relief and attorneys' fees. The revised PIIAs eliminate this exposure entirely. The separate SB 699/AB 1076 notification process for current and former employees is discussed in Section VIII below.
B. Narrowing of Non-Solicitation Clause
The existing employment agreements contained an eighteen (18)-month post-employment non-solicitation clause that prohibited departing employees from soliciting both (i) the Company's customers, clients, and business relationships and (ii) the Company's employees and independent contractors. This provision has been substantially revised in the revised PIIA templates.
Customer Non-Solicitation. The customer non-solicitation provision has been removed entirely from all three tier templates. Under California's broad reading of Section 16600 and in light of post-AMN Healthcare precedent, customer non-solicitation clauses are increasingly treated as invalid restraints on trade to the extent they restrict an individual's ability to engage in a lawful profession, trade, or business. While some California courts have drawn distinctions between non-solicitation clauses and non-compete clauses, the current trend in California jurisprudence is toward treating customer non-solicitation clauses as de facto non-compete provisions that are void under Section 16600. Calderwood & Harkness's assessment, set forth in detail in our April 8, 2024 enforceability analysis memorandum, is that the customer non-solicitation clause in the existing agreements is likely unenforceable and that its continued inclusion creates unnecessary risk.
Employee Non-Solicitation. The employee non-solicitation provision has also been removed from the body of the revised PIIA. If Lumos wishes to maintain any form of protection against the targeted raiding of its workforce by former employees, we note that the Company's interests are substantially addressed through the confidentiality provisions of the revised PIIA, which prohibit the use or disclosure of Lumos trade secrets and confidential information. To the extent a former employee uses Lumos's trade secret information — such as non-public employee compensation data, organizational charts, or performance evaluations — to target and recruit current Lumos employees, such conduct would constitute a violation of the confidentiality provisions and would also be independently actionable under the California Uniform Trade Secrets Act. A standalone employee non-solicitation clause is not necessary to protect against this conduct and, in light of the current California legal landscape, presents enforceability risk.
C. Invention-Assignment Provisions
The invention-assignment provisions in the revised PIIA templates have been comprehensively updated to comply with California Labor Code Sections 2870 through 2872. The key changes are as follows:
Section 2870 Carve-Out. The assignment clause now includes an express exclusion for inventions that qualify for protection under California Labor Code Section 2870. Specifically, the revised provision excludes from the scope of the assignment obligation any invention that the employee developed entirely on the employee's own time, without using the Company's equipment, supplies, facilities, or trade secret information, unless the invention (i) relates, at the time of conception or reduction to practice, to the Company's business or to the Company's actual or demonstrably anticipated research or development, or (ii) results from any work performed by the employee for the Company. This carve-out is mandatory under California law; the existing agreements' failure to include it rendered the invention-assignment clause potentially unenforceable and exposed the Company to claims by current or former employees seeking declaratory relief.
Exhibit B — Cal. Labor Code § 2870 Statutory Notice. California Labor Code Section 2872 requires that an employer, at the time of making an agreement requiring an employee to assign or offer to assign rights in any invention to the employer, provide the employee with a written notification of the provisions of Section 2870. To satisfy this requirement, Exhibit B to each revised PIIA sets forth the full text of Section 2870 in a clearly labeled notice. Exhibit B must be physically or electronically attached to and delivered with every signed PIIA. This is a mandatory requirement under California law, and no PIIA should be considered complete without it.
Exhibit A — Prior Inventions Disclosure Schedule. Exhibit A provides a form for each employee to identify any pre-existing inventions, original works of authorship, developments, improvements, or trade secrets that the employee has made prior to the commencement of employment (or, for existing employees, prior to the execution of the revised PIIA) and that the employee wishes to exclude from the scope of the invention-assignment obligation. Employees who have no prior inventions to disclose should check the "No Prior Inventions" box on the form. Completed Exhibits A should be reviewed and acknowledged as described in Section IX.B below.
D. Confidentiality Provisions
The confidentiality provisions in the revised PIIA templates have been restructured to distinguish between two categories of protected information, each subject to a different duration of post-employment obligation:
• Trade Secret Information: The revised PIIA imposes an indefinite post-employment obligation with respect to information that qualifies as a "trade secret" under the California Uniform Trade Secrets Act, California Civil Code Section 3426 et seq. This indefinite duration is consistent with the nature of trade secret protection, which continues for as long as the information retains its trade secret status.
• Other Confidential Information (Non-Trade-Secret): For confidential business information that does not rise to the level of a trade secret — such as internal business strategies, non-public financial data, and operational information — the revised PIIA imposes a post-separation confidentiality obligation with a duration of three (3) years. This time limitation was recommended in our April 8, 2024 enforceability analysis memorandum as a reasonable duration that balances the Company's legitimate interests in protecting non-public business information against the risk that an indefinite obligation on non-trade-secret information could be challenged as an unreasonable restraint.
The definitions of "Trade Secret Information" and "Confidential Information" in the revised templates have been carefully drafted to provide clarity regarding the categories of information subject to each tier of protection. HR communicators should be prepared to explain this distinction in general terms to employees who ask about the duration of their confidentiality obligations.
E. DTSA Whistleblower Immunity Notice
All three PIIA templates now include the notice required under the federal Defend Trade Secrets Act of 2016, 18 U.S.C. § 1833(b). This notice advises employees that an individual shall not be held criminally or civilly liable under any federal or state trade secret law for the disclosure of a trade secret that is made (i) in confidence to a federal, state, or local government official, either directly or indirectly, or to an attorney, and solely for the purpose of reporting or investigating a suspected violation of law, or (ii) in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal.
The inclusion of this notice is required under the DTSA; an employer that fails to include the notice in an agreement governing the use or disclosure of trade secrets may not be awarded exemplary damages or attorneys' fees in an action under the DTSA against an employee to whom the notice was not provided. The existing Lumos agreements did not include this notice, and its absence has been remedied in the revised templates.
F. Governing Law and Forum Selection
The governing law and forum selection provisions in the revised PIIA templates have been changed to reflect the California situs of the employment relationships governed by these agreements. Specifically:
• Governing Law: The governing law provision has been changed from Delaware law (as specified in the existing agreements) to California law. This change is appropriate because the employees covered by these agreements are based in California, perform their work in California, and are subject to California's mandatory employment protections, many of which cannot be waived by contract or choice-of-law clause.
• Forum Selection: The forum selection clause designates the state and federal courts located in San Francisco County, California, as the exclusive forum for any disputes arising under or relating to the PIIA. This is consistent with the location of Lumos's headquarters and the residence of the vast majority of the Company's California-based workforce.
V. Communication Strategy and HR Materials
The manner in which the revised PIIA is presented to employees will have a significant impact on the efficiency and smoothness of the rollout. Calderwood & Harkness recommends that Lumos prepare a suite of employee-facing communications to accompany the distribution of the revised agreements. These materials should be drafted in plain, accessible language and should be reviewed by Camille Desrosiers and, as needed, by Calderwood & Harkness before distribution.
A. Employee Cover Letter / Communication Template
Calderwood & Harkness recommends that Lumos prepare a brief, plain-language cover letter to accompany each PIIA at the time of distribution. The cover letter serves as the employee's initial introduction to the revised agreement and sets the tone for the rollout process. The cover letter should include the following content elements:
1. Context and Purpose. An explanation that Lumos is updating its employment agreements to reflect current California law requirements, and that the update is part of a company-wide initiative applicable to all California-based employees.
2. Positive Framing. Emphasis that the updates are protective of employee rights. In particular, the cover letter should note that the revised agreements (a) remove the prior non-compete restrictions, confirming that employees are free to pursue any lawful employment upon separation; (b) provide the statutory protections required under California Labor Code Section 2870, ensuring that employees' personal inventions remain their own property where the statutory criteria are met; and (c) include the DTSA whistleblower immunity notice.
3. Condition of Employment. A clear statement that execution of the revised PIIA is a condition of continued employment.
4. Review Period. Information about the review period, stating that the employee will have a minimum of five (5) business days to review the agreement and its exhibits before execution is required.
5. Contact Information. Contact information for questions, directing employees to Gerald Huang, Vice President of People Operations, and/or the designated member of the HR team responsible for fielding rollout inquiries.
6. Right to Counsel. A statement that employees are permitted and encouraged to consult with their own legal counsel at their own expense before signing.
7. Supplemental Consideration (Executive Tier Only). For executive-tier employees receiving supplemental consideration, the cover letter should describe the nature and amount of the supplemental consideration being provided in connection with the employee's execution of the revised PIIA.
The tone of the cover letter should be neutral, non-coercive, and factual. It should not include language that could be construed as threatening or that implies negative consequences for asking questions or requesting time to review. Calderwood & Harkness can provide a draft cover letter template upon request by Camille Desrosiers or Gerald Huang.
B. Frequently Asked Questions (FAQ) Document
In addition to the cover letter, Lumos should prepare a one- to two-page Frequently Asked Questions ("FAQ") document for distribution alongside the PIIA. This document should anticipate and address the most common questions that employees are likely to raise. Suggested topics for the FAQ include the following:
1. Why is Lumos updating its employment agreements? Explanation that the update is in response to changes in California law and is intended to bring the Company's agreements into full compliance.
2. What are the key changes from the prior agreement? Summary of the principal changes, including the removal of the non-compete clause, the narrowing of the non-solicitation provision, the addition of the Section 2870 notice, the restructured confidentiality obligations, and the DTSA whistleblower notice.
3. Am I giving up any rights by signing? Explanation that the revised agreement is, in many respects, more protective of employee rights than the prior agreement (e.g., removal of non-compete restrictions, addition of statutory invention protections).
4. What is the Prior Inventions Disclosure Schedule (Exhibit A)? Explanation of the purpose of Exhibit A and instructions for completion, including the direction to check the "No Prior Inventions" box if the employee has no pre-existing inventions to disclose.
5. What is the California Labor Code § 2870 Notice (Exhibit B)? Explanation that Exhibit B is a statutory notice required by California law that sets forth the employee's rights with respect to inventions developed on the employee's own time and without use of Company resources.
6. What if I have inventions I want to exclude? Instructions for listing prior inventions on Exhibit A and an explanation that the employee's prior inventions, once properly disclosed, will not be subject to the assignment obligation.
7. What happens if I don't sign? Statement that execution of the revised PIIA is a condition of continued employment and that the Company expects all employees to execute the agreement within the designated timeframe.
8. Can I consult my own attorney? Confirmation that employees are encouraged to consult with personal legal counsel at their own expense.
9. Who can I contact with questions? Contact information for Gerald Huang, VP of People Operations, and/or the designated HR team member.
All FAQ responses should be reviewed by Camille Desrosiers for accuracy and appropriateness and, as needed, by Calderwood & Harkness to ensure legal accuracy before distribution. Particular care should be taken in drafting the response to FAQ No. 7 ("What happens if I don't sign?") to ensure that the language is accurate and non-coercive while clearly conveying the Company's expectation.
C. Manager Briefing
Because managers and team leads are often the first point of contact for employee questions about company-wide initiatives, Calderwood & Harkness recommends that Lumos conduct a brief training session — or, at minimum, distribute a written talking-points document — for managers who may receive questions about the revised PIIA. The manager briefing should emphasize the following points:
• Managers should not provide legal interpretations of the PIIA's terms or attempt to explain the legal significance of specific provisions. Such inquiries should be directed to Gerald Huang or Camille Desrosiers.
• All substantive questions about the agreement's provisions, the employee's rights, or the consequences of non-execution should be directed to Gerald Huang, VP of People Operations, or to Camille Desrosiers, General Counsel.
• Managers should not use pressure tactics, make threats, or suggest that an employee's performance evaluation, promotion prospects, or standing within the Company will be affected by the employee's questions or by the timing of the employee's execution of the agreement. The signing of the revised PIIA is a condition of continued employment, but this fact should be presented matter-of-factly, without embellishment or emphasis that could be perceived as coercive.
• If an employee expresses discomfort or raises concerns, the manager should listen respectfully and direct the employee to the appropriate contact person. Managers should not attempt to resolve concerns independently.
VI. Coordination with Orion Talent Advisors, Inc.
Gerald Huang should coordinate with Marcus Reeves, Managing Director of Orion Talent Advisors, Inc. ("Orion"), located at 44 Montgomery Street, Suite 2100, San Francisco, California 94104, on the following logistical elements of the rollout:
1. Confirmation of Employee Classification Assignments. Orion should confirm each employee's tier classification against the tier definitions set forth in Section II.B above, drawing on the Company's current HRIS data, title records, and compensation information. Any discrepancies or borderline cases should be flagged for resolution by Camille Desrosiers.
2. Coordination of Distribution Mechanics. Lumos and Orion should determine the preferred method of distribution and execution for the revised PIIAs. Options include:
(a) Electronic Signature Platform. Distribution via the Company's existing electronic signature platform (e.g., Brightwater Software, Ashford Health IT), which allows for efficient distribution, tracking, and collection of executed agreements. If this approach is selected, Orion should coordinate the preparation of signature packets, ensure that each packet includes the correct tier template along with Exhibits A and B, and configure automated reminders for employees who have not yet executed.
(b) Wet-Ink Execution. Distribution of hard-copy agreements for in-person execution, which may be preferred for executive-tier employees. If wet-ink execution is used, Orion should coordinate the preparation of printed copies and ensure that executed originals are promptly collected, scanned, and filed.
3. Tracking of Execution Status. Orion should maintain a real-time tracker documenting the execution status of the revised PIIA for each of the 142 California-based employees, including the date of distribution, the date of execution (or non-execution), and any notes regarding employee questions or escalations.
4. Identification of Employees on Leave. Orion should identify any employees who are currently on leave — including leave under the Family and Medical Leave Act ("FMLA"), the California Family Rights Act ("CFRA"), disability leave, parental leave, or any other protected leave — and who may require a deferred rollout. Employees on protected leave should not be contacted about the PIIA rollout until their return, unless doing so can be accomplished in a manner that does not interfere with the employee's leave rights. The timing and manner of presentation for employees on leave should be reviewed with Calderwood & Harkness.
5. Compliance with Collective Bargaining or Other Contractual Obligations. Although Lumos does not currently have any unionized employees or employees covered by a collective bargaining agreement, Orion should confirm this fact and flag any contractual obligations (e.g., individual employment agreements with negotiated terms) that could affect the rollout process for specific employees. Any individual employment agreements containing negotiated provisions that differ from the standard PIIA terms should be reviewed by Camille Desrosiers and, as needed, by Calderwood & Harkness.
6. Supplemental Consideration Delivery. If supplemental consideration is to be provided to executive-tier employees, Orion can assist with the logistical coordination of that delivery, including the processing of one-time cash bonuses through the Company's payroll system or the coordination of equity acceleration with the Company's stock plan administrator.
VII. Corporate Governance Coordination with Whitmore & Cheng LLP
A. Board-Level Actions
Calderwood & Harkness recommends that the Lumos Board of Directors — or, if the Board has delegated authority to a committee (such as the Compensation Committee or a subcommittee thereof) — formally approve the adoption of the revised PIIA templates as the Company's standard form employment agreements for California-based employees. Board approval serves several important purposes: it confirms the Company's institutional commitment to compliance with California employment law, it creates a clear record of corporate authorization, and it addresses any potential investor or governance concerns arising from the material revision of employment documentation.
Coordination with Whitmore & Cheng LLP ("Whitmore & Cheng"), the Company's corporate counsel, is necessary to accomplish the following governance steps:
1. Board Resolution. Whitmore & Cheng (Leland Tsao, Partner, Corporate, 525 University Avenue, Suite 600, Palo Alto, CA 94301) should prepare and circulate for adoption a board resolution authorizing the revised PIIA templates. The resolution should (a) approve the three tier-specific PIIA templates and the accompanying Exhibits A and B as the Company's standard form proprietary information and inventions agreements for California-based employees, (b) authorize the CEO, the General Counsel, and the VP of People Operations, each acting individually, to execute the revised PIIAs on behalf of the Company and to take all actions necessary or desirable to implement the rollout, and (c) ratify any actions previously taken by management in connection with the preparation of the revised templates. The resolution may be adopted by unanimous written consent of the Board in lieu of a meeting, in accordance with the Company's bylaws and applicable Delaware corporate law (assuming Lumos is a Delaware corporation).
2. Investor Consent Review. Whitmore & Cheng should review the Company's Series C financing documents — including the Investors' Rights Agreement, the Voting Agreement, and any related side letters — to determine whether the adoption of revised employment agreements for the Company's workforce constitutes an action requiring investor consent or prior notification. While Calderwood & Harkness does not anticipate that the adoption of revised PIIA templates would trigger an investor consent right, the financing documents should be reviewed to confirm.
3. Board Observer Notification. Given that the PIIA remediation initiative originated from the observations of Ridgeline Ventures board observer Priya Narayanan, Whitmore & Cheng should confirm whether Ms. Narayanan and/or Ridgeline Ventures Fund IV, L.P. should be notified or consulted in advance of the Board's adoption of the revised templates. As a matter of good governance and investor relations, Calderwood & Harkness recommends that Camille Desrosiers provide Ms. Narayanan with a brief summary of the completed remediation prior to or contemporaneously with the commencement of the rollout, as appropriate.
B. 2020 Equity Incentive Plan Considerations
The revised PIIA templates reference each employee's equity grants under the Lumos Analytics Inc. 2020 Equity Incentive Plan, as amended (the "2020 Plan" or "Plan"). Several aspects of the revised PIIAs intersect with the Plan's terms, and Whitmore & Cheng should confirm the following:
1. "Proprietary Information Agreement" Condition Precedent. The 2020 Plan, as is typical for venture-backed company equity plans, likely includes a condition precedent providing that an employee's eligibility to receive or exercise equity grants is contingent upon the employee's execution and delivery of the Company's standard form proprietary information and inventions agreement (or a similar requirement). Whitmore & Cheng should confirm that the revised PIIA templates satisfy this condition precedent and that no gap or ambiguity exists in the Plan's language that could be exploited by a departing employee to argue that the revised PIIA does not satisfy the Plan's requirements.
2. No Amendment Required. Whitmore & Cheng should confirm that no amendment to the 2020 Plan is required to accommodate the revised invention-assignment or confidentiality terms in the new PIIA templates. In particular, if the Plan's definition of "Company Technology" or "Assigned Inventions" differs from the terminology used in the revised PIIAs, any discrepancy should be identified and addressed.
3. Supplemental Equity Consideration for Executives. If the Company elects to provide supplemental equity consideration to executive-tier employees in connection with their execution of the revised PIIA (e.g., acceleration of a portion of unvested equity), Whitmore & Cheng should confirm that (a) such acceleration can be granted within the existing Plan share reserves without exceeding the aggregate number of shares authorized for issuance under the Plan, (b) the Board or its Compensation Committee has the delegated authority to approve such acceleration, and (c) any required notice or consent under the Plan's terms has been obtained.
C. Devon Archer's May 20, 2024 Email
For ease of reference, we note that Devon Archer, Senior Associate at Calderwood & Harkness, sent a coordination email to Leland Tsao at Whitmore & Cheng on May 20, 2024, summarizing the employment agreement revisions undertaken by this Firm and requesting Whitmore & Cheng's input on the corporate governance steps described above. Whitmore & Cheng's responses to that email, once received, should be incorporated into the rollout process. If Whitmore & Cheng has not yet responded, Camille Desrosiers should follow up with Leland Tsao promptly to ensure that the governance steps can be completed within the timeline set forth in Section X below.
VIII. SB 699 Notification Requirement — Current and Former Employees
A. Statutory Background
Two pieces of California legislation, both effective January 1, 2024, impose affirmative obligations on employers that maintain or have maintained employment agreements containing void non-compete provisions:
• SB 699 (Cal. Bus. & Prof. Code § 16600.5). This statute provides that any contract that is void under Section 16600 is unenforceable regardless of where and when the contract was signed. It further provides that an employer, or former employer, shall not attempt to enforce a contract that is void under Section 16600, regardless of whether the contract was signed and the employment was maintained outside of California. The statute also creates a private right of action for employees and former employees against whom such enforcement is attempted.
• AB 1076 (Cal. Labor Code § 432.5). This statute provides that an employer shall not include a noncompete clause in an employment contract, or require an employee to enter a noncompete agreement, that does not satisfy an exception identified in Chapter 1 (commencing with Section 16600) of Part 2 of Division 7 of the Business and Professions Code. It further provides that any noncompete clause or agreement in violation of the statute is void and unenforceable. Critically, AB 1076 also requires that, by February 14, 2024, employers must have notified current and former employees whose agreements include void non-compete clauses that such clauses are void.
As noted above, the existing Lumos employment agreements contain a twelve (12)-month post-employment global non-compete clause that is void under Section 16600. To our knowledge, Lumos has not yet issued the notifications contemplated by these statutes. This gap should be addressed as part of the rollout process.
B. Notification to Current Employees
Calderwood & Harkness recommends that Lumos provide written notice to all one hundred forty-two (142) current California-based employees that the non-compete provision contained in their existing employment agreements — specifically, the twelve (12)-month post-employment global non-compete — is void and unenforceable under California law.
This notice should be either separate from the cover letter accompanying the new PIIA or, if included within the cover letter, clearly distinguished and separately identified so that the employee can readily understand that the notice pertains to the void status of a provision in the employee's existing agreement, independent of the employee's execution of the revised PIIA.
The notice should be individualized — that is, addressed to each employee by name — and delivered to each employee's last known address of record (mailing address) and to the employee's work email address. If Lumos maintains records of employees' personal email addresses, delivery to the personal email address as well is recommended as an additional precaution.
Calderwood & Harkness recommends the following content elements for the notice:
(a) Identification by name of the employee and by date of the employee's existing employment agreement containing the non-compete provision;
(b) A clear, unambiguous statement that the post-employment non-compete provision in the employee's existing agreement is void and unenforceable under California Business & Professions Code Section 16600;
(c) A statement that Lumos will not seek to enforce the non-compete provision against the employee;
(d) A statement that the employee is free to engage in any lawful profession, trade, or business upon separation from the Company; and
(e) Contact information for Gerald Huang, VP of People Operations, for questions.
Calderwood & Harkness can provide a draft notification template upon request.
C. Notification to Former Employees
The notification obligation under SB 699 and AB 1076 extends to former employees who signed employment agreements containing void non-compete provisions. Accordingly, Lumos should identify all former California-based employees who executed employment agreements containing the twelve (12)-month post-employment global non-compete clause during the period from the second quarter of 2021 (when the existing PIIA template was adopted) through the present date.
Written notice of the void status of the non-compete provision should be sent to each identified former employee at their last known mailing address and last known email address of record. Lumos's HR records and, if necessary, Orion Talent Advisors' records, should be consulted to compile the former employee list and obtain current contact information.
The content of the notice to former employees should be substantively identical to the notice provided to current employees, with appropriate modifications to reflect the individual's former-employee status.
Gerald Huang and Orion Talent Advisors should jointly compile the former employee list, coordinate the preparation and delivery of the notices, and maintain records of delivery as described in Section IX.C below.
D. Timing
The SB 699 / AB 1076 notifications should be sent as soon as practicable. The statutory deadline under AB 1076 for the initial round of notifications was February 14, 2024. As Lumos did not meet this deadline, the notifications should be sent without further delay to mitigate any potential exposure. Calderwood & Harkness recommends that the notifications be sent no later than June 10, 2024, which is the targeted commencement date for the broader employee rollout of the revised PIIAs.
All copies of the notifications and proof of delivery (including certified mail receipts, email delivery confirmations, and any electronic signature platform logs) should be retained in Lumos's employment records as described in Section IX below.
IX. Recordkeeping Obligations
Proper recordkeeping is essential to the Company's ability to demonstrate compliance with its legal obligations and to defend the enforceability of its revised employment agreements in the event of any future dispute.
A. Signed Agreement Retention
Lumos must retain a fully executed copy of each employee's revised PIIA, together with both Exhibit A (Prior Inventions Disclosure Schedule) and Exhibit B (California Labor Code § 2870 Statutory Notice), in the employee's personnel file. Execution of each agreement should be confirmed by verifying that (a) the employee has signed and dated the PIIA, (b) the employee has completed and signed Exhibit A (either listing prior inventions or checking the "No Prior Inventions" box), and (c) Exhibit B has been attached to and delivered with the executed PIIA.
Calderwood & Harkness recommends maintaining both electronic and physical copies of all executed agreements and exhibits. Electronic copies should be stored in the Company's HRIS or document management system in a manner that permits ready retrieval. Physical copies, if created, should be maintained in the employee's personnel file in a secure location.
The recommended retention period for executed PIIAs is the duration of the employee's employment plus a minimum of four (4) years following the employee's separation from the Company. This retention period is consistent with the four-year statute of limitations applicable to breach of a written contract under California Code of Civil Procedure Section 337. To the extent that any provision of the PIIA — such as the trade secret confidentiality obligation — survives indefinitely, the Company should consider retaining the executed agreement for a longer period or indefinitely.
B. Prior Inventions Disclosure Schedules
Each completed Exhibit A (Prior Inventions Disclosure Schedule) should be reviewed by the employee's direct manager and, for employees in the Senior Engineer / Data Scientist tier and the Executive tier, by Dr. Mei-Lin Zhao, Co-Founder and Chief Technology Officer, or her designee. The purpose of this review is to confirm that the prior inventions disclosed by the employee do not overlap with the employee's current work product, the Company's existing technology, or the Company's actual or anticipated research and development activities.
If the review reveals a potential overlap between a disclosed prior invention and the Company's technology or R&D activities, the matter should be escalated to Camille Desrosiers for assessment. In such cases, it may be necessary to negotiate a license, clarification, or other arrangement to address the overlap. Calderwood & Harkness is available for consultation on any disputes or ambiguities arising from the prior inventions review process.
Employees who check the "No Prior Inventions" box should be confirmed as having no disclosed prior inventions, and the completed Exhibit A should be filed with the executed PIIA in the employee's personnel file.
C. SB 699 / AB 1076 Notification Records
Lumos should retain copies of all void-provision notifications sent to current and former employees under SB 699 and AB 1076, together with proof of delivery for each notification. Acceptable forms of proof of delivery include:
• Certified mail receipts (USPS Form 3811 or equivalent) for notifications sent by mail;
• Email delivery confirmations or read receipts for notifications sent by email; and
• Electronic signature platform logs for notifications delivered through a signature platform.
These records should be maintained in a centralized file that is separate from (but cross-referenced to) individual employee personnel files. The centralized file should include a master list of all current and former employees to whom notifications were sent, together with the date and method of delivery for each notification.
D. Secure Document Portal
All final templates, exhibits, and engagement deliverables prepared by Calderwood & Harkness in connection with this engagement have been uploaded to the Calderwood & Harkness SecureShare portal (portal ID: LSA-0847). Camille Desrosiers and Gerald Huang have been provided with login credentials for the portal. Lumos should download and archive all documents from the SecureShare portal to its internal document management system for independent retention. Calderwood & Harkness's document retention policy provides for the retention of client files for a period of seven (7) years following the close of an engagement, after which files may be destroyed in accordance with the Firm's policy unless the client requests otherwise.