PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT
CALDERWOOD & HARKNESS LLP 101 California Street, Suite 4500 San Francisco, CA 94111
MEMORANDUM
TO: Harrison Wexford, Esq. (Responsible Partner); Beatrice Holloway, Esq. (Billing Partner)
FROM: Naomi Petersen, Esq. (Lead Associate); Ryan Kowalski, Esq. (Working Associate)
DATE: March 29, 2024
RE: Legal Due Diligence Summary — Prismyx Data Solutions LLC
MATTER NO.: 1008-00008
CLIENT: Lumos Analytics Inc.
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I. Executive Summary
The purpose of this memorandum is to summarize the key findings of the legal due diligence review conducted by Calderwood & Harkness LLP on behalf of our client, Lumos Analytics Inc. ("Lumos" or the "Buyer"), in connection with the proposed acquisition of Prismyx Data Solutions LLC ("Prismyx" or the "Target"). The proposed transaction is structured as a forward merger under Section 18-209 of the Delaware Limited Liability Company Act (the "DLLCA"), pursuant to which Prismyx Acquisition Sub LLC, a newly formed Delaware limited liability company and wholly owned subsidiary of Lumos (the "Merger Sub"), will serve as the merger subsidiary. Under the merger structure, Prismyx will merge with and into Merger Sub, with Merger Sub surviving as a wholly owned subsidiary of Lumos.
The due diligence review was conducted during the period from March 4, 2024 through March 29, 2024. During this period, the diligence team reviewed materials provided by Prismyx and its outside counsel, Cartwright, Daugherty & Voss LLP (Sabrina Delvecchio, lead partner; Marcus Greenbaum, associate), through a virtual data room hosted on Thackeray Solutions. In addition to the data room materials, the diligence team reviewed publicly available records, filings with the Delaware Secretary of State, records maintained by the United States Patent and Trademark Office ("USPTO"), and the results of Uniform Commercial Code ("UCC") and lien searches conducted in the states of Delaware and Pennsylvania.
Overall Assessment. Prismyx presents a relatively clean diligence profile, consistent with expectations for an early-stage software-as-a-service ("SaaS") company of its size and maturity. The Target's organizational structure is straightforward, its capitalization table is simple, and its regulatory footprint is minimal. We did not identify any material litigation, regulatory investigations, or undisclosed liabilities that would constitute a "deal-breaker" or fundamentally alter the economics of the proposed transaction. That said, the diligence review identified several risk areas that warrant attention in the definitive transaction documents and in integration planning, the most significant of which are as follows:
(a) Customer Concentration. Prismyx's revenue base is concentrated among a small number of customers, with the top three customers accounting for approximately 61% of total 2023 revenue.
(b) Change-of-Control Consent — Ardent Financial Technologies, Inc. The Master SaaS Agreement with Prismyx's largest customer, Ardent Financial Technologies, Inc. (representing approximately 31% of total revenue), contains a change-of-control consent requirement that must be satisfied in connection with the merger. Failure to obtain such consent would entitle Ardent to terminate the agreement.
(c) Pending Patent Application. Prismyx's sole patent application, covering the real-time anomaly detection engine that is a core differentiator of the PrismLens platform, remains pending before the USPTO and has not yet been granted. There is no assurance the patent will issue, and the scope of claims may be narrowed during prosecution.
(d) Key Person Dependency. Prismyx is heavily dependent on its two co-founders, Jonah Eberhardt (CEO) and Talia Messina (CTO), for critical intellectual property development, product expertise, and customer relationships. The retention earnout structure is designed to address this risk, but it remains a significant consideration for post-closing integration.
Transaction Overview. The aggregate deal value for the proposed acquisition is $15,000,000, consisting of $10,500,000 in closing cash consideration payable at the effective time of the merger, plus up to $4,500,000 in retention earnout payments contingent upon the satisfaction of certain performance milestones and the continued employment of the two co-founders through the applicable earnout periods. All outstanding membership units in Prismyx will be cancelled and converted into the right to receive the applicable merger consideration in accordance with the allocation set forth in the Agreement and Plan of Merger.
The remainder of this memorandum sets forth the detailed findings of our legal due diligence review, organized by subject matter, together with our recommendations for addressing the identified risks in the definitive Merger Agreement and related transaction documents.
II. Corporate Organization and Capitalization
A. Formation and Good Standing
Prismyx Data Solutions LLC is a limited liability company organized under the laws of the State of Delaware. The company was formed on September 14, 2020 upon the filing of its Certificate of Formation with the Delaware Secretary of State. Prismyx's principal place of business and headquarters is located at 1414 Walnut Street, Suite 310, Philadelphia, Pennsylvania 19102. The company's registered agent in the State of Delaware is Capitol Registered Agents, Inc., located at 1209 Orange Street, Wilmington, Delaware 19801. Prismyx's Employer Identification Number ("EIN") is 86-1537842.
We obtained a Certificate of Good Standing from the Delaware Secretary of State, which confirmed that Prismyx is in good standing under the laws of the State of Delaware as of the date of the search (March 11, 2024). We also confirmed that Prismyx is registered and qualified to do business as a foreign limited liability company in the Commonwealth of Pennsylvania, its headquarters state. No other foreign qualifications were identified in the data room materials, and based on the nature and geographic scope of Prismyx's business operations (a SaaS company with employees and a single office in Pennsylvania), we do not believe that any additional foreign qualifications are required at this time.
B. Operating Agreement and Governance
Prismyx is governed by an Amended and Restated Limited Liability Company Agreement dated January 8, 2021 (the "LLC Agreement"). The LLC Agreement was executed by both members, Jonah Eberhardt and Talia Messina, and sets forth the governance structure, economic arrangements, and operating procedures for the company.
Under the LLC Agreement, Jonah Eberhardt serves as the Managing Member and Chief Executive Officer of Prismyx. In his capacity as Managing Member, Eberhardt has the authority to bind the company in the ordinary course of business, including the authority to execute contracts, hire and terminate employees, manage day-to-day operations, and make expenditures within approved budgets. The LLC Agreement provides that certain extraordinary transactions — including mergers, acquisitions, dispositions of all or substantially all assets, the admission of new members, the issuance of additional membership units, and amendments to the LLC Agreement — require the prior written consent of members holding a majority of the outstanding membership units.
Prismyx does not have a board of directors or a board of managers. Governance authority is vested in the Managing Member, subject to the reserved matters described above. Given that Eberhardt holds 55% of the outstanding units and Messina holds 45%, approval of the proposed merger will require the affirmative consent of both members (as Eberhardt alone holds a majority, his approval alone would technically suffice under the LLC Agreement, but as a practical matter both members are expected to approve the transaction as part of the negotiated deal). Both members have indicated their support for the transaction through discussions with their counsel at Cartwright, Daugherty & Voss LLP.
C. Capitalization. The capitalization of Prismyx is straightforward. The LLC Agreement authorizes a total of 1,000 membership units, all of which have been issued and are outstanding. The membership units are held as follows:
There are no outside institutional investors, venture capital firms, or angel investors holding membership units or other equity interests in Prismyx. No preferred units, profit interest units, incentive units, or other classes of membership interests have been authorized or issued. Prismyx has not adopted any equity incentive plan, stock option plan, phantom equity plan, or similar arrangement. There are no outstanding warrants, convertible promissory notes, simple agreements for future equity ("SAFEs"), or other instruments that are convertible into or exercisable for membership units.
We conducted UCC searches in both Delaware (the state of organization) and Pennsylvania (the state of Prismyx's principal place of business) and confirmed that no UCC financing statements, liens, pledges, security interests, or other encumbrances were filed against the membership units of Prismyx. This is consistent with our understanding that the company has not incurred any secured indebtedness or entered into any credit facilities.
Observation. The simplicity of Prismyx's capitalization table — two holders, one class of units, no outstanding options or convertible instruments, and no third-party encumbrances — is a favorable factor in this transaction. It simplifies the allocation of merger consideration among the unit holders, reduces the complexity of the member approval process, and eliminates the need for option cancellation agreements, acceleration of equity awards, or other ancillary equity-related documentation that would otherwise be required in a more complex capital structure.
D. Subsidiaries and Affiliates
Prismyx does not have any subsidiaries, whether wholly owned or partially owned. We did not identify any material intercompany agreements, affiliate transactions, or related-party arrangements between Prismyx and any entity controlled by or affiliated with either of the two members. The absence of subsidiaries and affiliate transactions further simplifies the diligence review and reduces the risk of undisclosed liabilities or off-balance-sheet obligations.
III. Intellectual Property
A. Overview. Prismyx's principal asset, and the primary driver of its business value, is its proprietary software platform marketed under the brand name "PrismLens." The PrismLens analytics plugin suite is a SaaS product that provides real-time data visualization, anomaly detection, and predictive trend overlay capabilities for financial data. The platform is designed to integrate with existing financial data infrastructure and is typically deployed by institutional customers including banks, asset managers, and financial technology companies for purposes of monitoring data quality, identifying outlier events, and generating predictive analytics overlays.
All intellectual property relating to the PrismLens platform — including the underlying source code, algorithms, data models, documentation, user interfaces, and associated branding — is owned directly by Prismyx Data Solutions LLC. There are no intellectual property holding subsidiaries, and no intellectual property assets have been transferred to or held by any other entity or individual. The following subsections describe the specific categories of intellectual property identified during our review.
B. Patent Portfolio
Prismyx has one patent application on file with the USPTO:
U.S. Patent Application No. 17/842,316
Title: "Method and System for Real-Time Anomaly Detection in Financial Data Streams"
Filing Date: June 14, 2022 Status: Pending Inventors: Jonah Eberhardt, Talia Messina Assignee: Prismyx Data Solutions LLC
The patent application covers the core anomaly detection methodology employed by the PrismLens platform. As of the date of this memorandum, the application is under examination at the USPTO. Our review of the prosecution file indicates that no office action rejections have been issued to date. However, the patent has not yet been granted, and the application remains subject to the standard examination process, which may result in the narrowing of claims, the issuance of one or more office actions requiring response, or the ultimate rejection of the application.
Prismyx does not hold any issued U.S. patents. We did not identify any foreign patent applications, Patent Cooperation Treaty ("PCT") filings, or foreign patent grants in any jurisdiction.
Risk Note. The pending status of the patent application is a significant consideration for the transaction. The real-time anomaly detection engine is widely regarded as the core differentiator of the PrismLens platform and a key driver of customer value. Without an issued patent, the anomaly detection methodology relies on trade secret protection alone, which provides a weaker form of intellectual property protection against independent development by competitors. There is no assurance that the patent will issue, and even if it does, the scope of the issued claims may be materially narrower than the claims as originally filed. We recommend the following measures to address this risk:
(i) The representations and warranties in the Merger Agreement should include specific disclosures regarding the pending status of the patent application, including a representation that no office action rejections have been received and that all filing and prosecution fees are current.
(ii) Lumos's intellectual property team should conduct an independent evaluation of the prosecution strategy for the pending application, including an assessment of the likelihood of issuance and the potential scope of claims, promptly following the closing.
(iii) Lumos should evaluate whether additional patent applications covering related aspects of the PrismLens technology should be filed post-closing to strengthen the overall patent portfolio.
C. Trademarks. Prismyx holds three registered trademarks with the USPTO, each of which is assigned to Prismyx Data Solutions LLC:
All three registrations are currently active and in good standing. Based on the registration dates, the required maintenance filings under Sections 8 and 15 of the Lanham Act appear to be current. We did not identify any pending opposition or cancellation proceedings before the Trademark Trial and Appeal Board ("TTAB") involving any of the three marks. Additionally, we did not identify any third-party trademark applications or registrations that appear to present a material risk of confusion with Prismyx's marks.
D. Copyrights and Trade Secrets
We did not identify any formal copyright registrations with the U.S. Copyright Office for any of Prismyx's works. This is not uncommon for a software company of Prismyx's size, as copyright protection attaches automatically upon creation of an original work of authorship and registration is not required for protection, though it is a prerequisite to filing suit for infringement in federal court and provides certain statutory remedies. The PrismLens source code, software documentation, training materials, marketing content, and other original works created by Prismyx employees are copyrightable works owned by Prismyx, subject to the provisions of the relevant employee proprietary information and invention assignment agreements ("PIIAs").
Prismyx maintains trade secrets in its proprietary algorithms, data models, customer integration methodologies, and certain business processes. We reviewed the confidentiality and non-disclosure provisions contained in Prismyx's standard employee agreements and customer contracts and found them to be generally adequate for the protection of trade secrets, though we note the concern regarding incomplete PIIA coverage discussed in Section VI below. We also reviewed Prismyx's internal information security policies and found that the company maintains reasonable access controls, including role-based access to source code repositories and segregation of customer data environments.
E. Third-Party intellectual Property and Open Source
The PrismLens platform incorporates certain open-source software libraries and components. We reviewed the open-source component inventory provided by Prismyx in the data room. Prismyx's engineering team has represented that all open-source components incorporated into the PrismLens codebase are used under permissive open-source licenses, specifically the MIT License and the Apache License, Version 2.0. The engineering team has further represented that no code licensed under the GNU General Public License ("GPL"), the GNU Lesser General Public License ("LGPL"), the Affero General Public License ("AGPL"), or any other copyleft license has been incorporated into the proprietary PrismLens codebase in a manner that would trigger source code disclosure obligations or impose licensing restrictions on the proprietary code.
We recommend that Lumos consider engaging a third-party software composition analysis vendor to conduct a confirmatory open-source audit of the PrismLens codebase following the closing, to verify the accuracy of these representations and to establish a baseline open-source inventory for ongoing compliance purposes.
We did not identify any third-party intellectual property infringement claims, cease-and-desist demands, or threats of litigation against Prismyx. We also did not identify any inbound intellectual property licenses other than standard commercial software tool licenses (e.g., integrated development environment licenses, code repository hosting, analytics and monitoring tools), all of which appear to be on standard commercial terms and do not present material licensing risks.
F. Intellectual Property Assignment in the Merger
Upon the closing and effective time of the merger, all intellectual property owned by Prismyx will transfer to the surviving entity (Prismyx Acquisition Sub LLC, a wholly owned subsidiary of Lumos) by operation of law pursuant to DLLCA § 18-209. Under this statutory framework, the surviving entity succeeds to all rights, privileges, and property of the non-surviving entity without the need for separate assignment agreements. Accordingly, no separate intellectual property assignment agreements should be required to effectuate the transfer of Prismyx's intellectual property to the surviving entity.
Notwithstanding the foregoing, we recommend that Lumos record the merger-related transfer of the pending patent application (U.S. Patent Application No. 17/842,316) and the three trademark registrations (Registration Nos. 6,894,112, 6,701,488, and 6,933,201) with the USPTO following the closing. This recordation will update the public records to reflect the surviving entity as the owner of record and will help ensure a clean chain of title for future prosecution and enforcement purposes.
IV. Material Contracts
A. Customer Contracts — Overview
Prismyx generates its revenue exclusively through recurring SaaS subscription agreements with institutional customers. For the fiscal year ended December 31, 2023, Prismyx reported total revenue of approximately $3,800,000, consisting entirely of recurring subscription fees. The company reported adjusted EBITDA of approximately $620,000 for the same period. Revenue is derived from a relatively small number of customer relationships, and the customer base is concentrated in the financial services and financial technology sectors.
The following subsections describe the material customer contracts and other agreements reviewed during the diligence period.
B. Ardent Financial Technologies, Inc. (Largest Customer)
Agreement: Master SaaS Agreement between Prismyx Data Solutions LLC and Ardent Financial Technologies, Inc. ("Ardent"), dated March 15, 2021, as amended.
2023 Annual Contract Value ("ACV"): Approximately $1,178,000, representing approximately 31% of Prismyx's total 2023 revenue.
Term: The agreement has an initial term of three years with automatic annual renewals thereafter, subject to termination by either party upon 90 days' written notice prior to the end of any renewal period.
Change-of-Control Provision: Section 12.4 of the agreement contains a change-of-control consent requirement. Specifically, the agreement provides that Prismyx shall not, without the prior written consent of Ardent, undergo any merger, consolidation, acquisition, or change of control (defined to include any transaction or series of related transactions in which more than 50% of the equity interests in Prismyx are transferred to a third party, or in which Prismyx merges with or into another entity). In the event that Prismyx undergoes a change of control without Ardent's prior written consent, Ardent shall have the right to terminate the agreement upon 30 days' written notice.
Risk Note — HIGH PRIORITY. The change-of-control consent requirement in the Ardent agreement is the single most critical third-party consent required for the proposed transaction. The proposed merger of Prismyx with and into Merger Sub will constitute a change of control within the meaning of the Ardent agreement, and Ardent's prior written consent must be obtained. Failure to obtain such consent would entitle Ardent to terminate the agreement, which would result in the loss of approximately $1,178,000 in annual recurring revenue — representing 31% of Prismyx's total revenue. Such a loss would constitute a material adverse effect on Prismyx's business and financial condition and would significantly impair the achievability of the earnout milestones contemplated by the transaction. We make the following recommendations:
(a) Obtaining Ardent's written consent to the change of control should be made an express closing condition in the Merger Agreement. The transaction should not close without this consent.
(b) Outreach to Ardent should commence promptly following the execution of the Merger Agreement (or, if Ardent is willing to engage, prior to signing). The founders should be involved in such outreach, given their existing relationships with Ardent's management team.
(c) The Sellers' representations and warranties in the Merger Agreement should include a specific representation regarding the absence of any threatened termination, material dispute, or material breach under the Ardent agreement.
(d) To the extent possible, Lumos should seek to negotiate a consent letter from Ardent that also includes a confirmation of Ardent's intent to continue the relationship post-closing, providing additional comfort beyond the bare minimum required by the change-of-control provision.
Other than the change-of-control provision, the Ardent agreement contains standard commercial SaaS terms, including customary service level commitments, data security obligations, indemnification provisions, and limitation of liability clauses. We did not identify any other unusual or non-standard provisions in the agreement.
C. Halcyon Capital Markets LLC
Agreement: Master SaaS Agreement between Prismyx Data Solutions LLC and Halcyon Capital Markets LLC ("Halcyon"), dated September 1, 2021.
2023 ACV: Approximately $684,000, representing approximately 18% of Prismyx's total 2023 revenue.
Term: Initial two-year term with automatic annual renewals.
Change-of-Control Provision: None. The Halcyon agreement does not contain a change-of-control consent requirement or any other provision that would be triggered by the proposed merger. No consent from Halcyon is required in connection with the transaction.
We reviewed the Halcyon agreement and did not identify any material issues. The agreement is on standard SaaS subscription terms, and there are no unusual restrictions, most-favored-nation pricing clauses, or other provisions that would present concerns in the context of the proposed transaction.
D. Corbin Institutional Services Corp.
Agreement: Master SaaS Agreement between Prismyx Data Solutions LLC and Corbin Institutional Services Corp. ("Corbin"), dated January 10, 2022.
2023 ACV: Approximately $456,000, representing approximately 12% of Prismyx's total 2023 revenue.
Term: Initial two-year term with automatic annual renewals.
Change-of-Control Provision: None. The Corbin agreement does not contain a change-of-control consent requirement or any other provision that would be triggered by the proposed merger. No consent from Corbin is required in connection with the transaction.
We reviewed the Corbin agreement and did not identify any material issues. The agreement contains standard SaaS subscription terms, and we did not identify any unusual provisions.
E. Remaining Customer Base
The remaining customer base, consisting of approximately a dozen smaller financial institutions and financial technology firms, collectively represents approximately 39% of Prismyx's 2023 revenue (approximately $1,482,000 in aggregate). We reviewed a representative sample of customer agreements from this group. All reviewed agreements were based on Prismyx's standard form SaaS subscription agreement and contained customary terms and conditions. We did not identify any change-of-control consent requirements, most-favored-nation pricing clauses, or other unusual provisions in the sample reviewed. While we did not review every customer agreement in the portfolio, the use of a standard form agreement mitigates the risk of undiscovered non-standard terms.
F. Cloud Hosting — Ridgeway Industries
Agreement: Cloud hosting services agreement with Adriatic Technologies ("Meridian Technologies").
Monthly Expenditure: Approximately $14,200 per month.
Terms: The agreement is on a month-to-month basis under Meridian Technologies's standard Customer Agreement and applicable Service Terms. No fixed-term commitment, reserved instance agreement, or minimum spend obligation was identified.
The Meridian Technologies hosting relationship does not present any change-of-control issues. Meridian Technologies's standard terms do not include change-of-control consent requirements, and the month-to-month nature of the arrangement provides flexibility for Lumos to adjust hosting arrangements post-closing as part of integration planning, if desired.
G. Office Lease
Premises: 1414 Walnut Street, Suite 310, Philadelphia, Pennsylvania 19102.
Landlord: Walnut Street Commercial Partners LP.
Lease Commencement Date: February 1, 2021.
Lease Expiration Date: January 31, 2026.
Monthly Rent: $8,750 (approximately $105,000 per year).
Approximate square Footage: 3,800 square feet.
We reviewed the lease agreement and found it to be a standard commercial office lease for the Philadelphia market. The lease contains a restriction on assignment and subletting, requiring the landlord's prior written consent for any assignment of the lease by the tenant. However, the lease includes a customary carve-out for assignments by operation of law, including assignments resulting from a merger, consolidation, or reorganization of the tenant entity. Based on the merger structure (Prismyx will merge with and into Merger Sub, with Merger Sub surviving as the successor tenant by operation of law), we believe that the assignment carve-out should apply and that landlord consent is not required for the transfer of the lease to the surviving entity. However, we recommend confirming this interpretation with the landlord and providing written notice of the merger to the landlord promptly following the closing, as a matter of best practice and to maintain a cooperative relationship.
We did not identify any material defaults, disputes, or rent arrears under the lease. The lease expires on January 31, 2026, providing approximately 22 months of remaining term from the expected closing date. Lumos should consider its plans for the Philadelphia office footprint as part of integration planning, including whether to renew the lease, relocate to a different facility, or consolidate employees into Lumos's existing office space.
H. Other Contracts
We did not identify any other material vendor contracts, strategic partnership agreements, joint venture agreements, reseller agreements, distribution agreements, or government contracts in the data room materials. Prismyx's other vendor relationships include standard-form agreements with payroll processors, employee benefits administrators, and similar service providers. We reviewed a sample of these agreements and did not identify any unusual terms, material liabilities, or provisions that would be triggered by the proposed transaction. Prismyx does not have any outstanding loan agreements, credit facilities, or other indebtedness (other than ordinary-course trade payables).
V. Customer Concentration Risk
As noted in the preceding sections, Prismyx's revenue base is significantly concentrated among a small number of customers. The following table summarizes the revenue contribution of the top three customers for the fiscal year ended December 31, 2023:
This level of customer concentration presents a meaningful risk to the business. The loss of any one of the top three customers — and in particular, the loss of Ardent Financial Technologies, which alone represents nearly one-third of total revenue — would have a material adverse impact on Prismyx's financial performance, cash flows, and growth trajectory. Customer concentration risk is also directly relevant to the earnout structure contemplated by the transaction. The retention earnout payments (up to $4,500,000 in the aggregate) are contingent upon the achievement of PrismLens Net New ARR targets of $2,200,000 for Earnout Period 1 and $3,500,000 on a cumulative basis for Earnout Period 2. Loss of a major customer during the earnout periods would not only reduce existing ARR but would also increase the net new ARR required to achieve the milestones.
We recommend that the Merger Agreement address customer concentration risk through the following mechanisms:
(a) Representation Regarding Material Customers. The Sellers should represent and warrant that, as of the signing date and as of the closing date, no material customer (defined as any customer representing more than 10% of annual revenue) has given written notice of termination, non-renewal, or intent to materially reduce its usage or spending under its agreement with Prismyx, and that no material dispute exists between Prismyx and any material customer.
(b) Pre-Closing Covenant. The Sellers should covenant to use commercially reasonable efforts to maintain the goodwill and business relationships of Prismyx's material customers during the period between signing and closing, including cooperating with Lumos in any outreach efforts to such customers.
(c) Material Adverse Effect Definition. The definition of "Material Adverse Effect" in the Merger Agreement should include, as a specified carve-out from any general exceptions, the loss or threatened loss of any customer representing more than 15% of Prismyx's annual revenue.
VI. Employment and Labor Matters
A. Workforce Overview
As of the date of this due diligence review, Prismyx employs a total of 22 individuals, all of whom are classified as W-2 employees. Employees are based in the Philadelphia, Pennsylvania metropolitan area or work remotely from various locations within the United States. The workforce includes software engineers, data scientists, product managers, customer success personnel, and a small number of general and administrative staff.
Prismyx does not have any collective bargaining agreements, and none of its employees are represented by a labor union. We did not identify any pending union organizing activity or unfair labor practice charges. We reviewed the classification of Prismyx's workers and did not identify any independent contractors or consultants whose classification as non-employees appeared to present a material misclassification risk based on the information available. All workers providing services to Prismyx are classified as W-2 employees.
B. Key Employees — Founders
The two co-founders of Prismyx are the most critical employees from both a business continuity and an intellectual property perspective:
Jonah Eberhardt — Co-Founder, Chief Executive Officer, and Managing Member
Mr. Eberhardt, age 34, holds a Bachelor of Science in Computer Science from Carnegie Mellon University and a Master of Science in Data Science from Columbia University. He co-founded Prismyx in 2020 and has served as Managing Member and CEO since the company's inception. Mr. Eberhardt is the lead architect of the PrismLens anomaly detection engine, the core technology underlying the platform's primary differentiator. He holds 550 of 1,000 outstanding membership units (55% interest). Under the proposed transaction terms, Mr. Eberhardt will join Lumos following the closing as Vice President, Plugin Engineering, with a base salary of $275,000 per year, a target annual bonus of 25% of base salary, and a 30-month employment commitment tied to the retention earnout structure.
Talia Messina — Co-Founder, Chief Technology Officer, and Member
Ms. Messina, age 31, holds a Bachelor of Science in Applied Mathematics from the University of Pennsylvania and a Master of Business Administration from the Wharton School. She co-founded Prismyx in 2020 and has served as CTO since inception. Ms. Messina leads product development and customer integration efforts and has been the primary point of contact for several of Prismyx's largest customers, including Halcyon Capital Markets and Corbin Institutional Services. She holds 450 of 1,000 outstanding membership units (45% interest). Under the proposed transaction terms, Ms. Messina will join Lumos following the closing as Vice President, Data Visualization, with a base salary of $260,000 per year, a target annual bonus of 25% of base salary, and a 30-month employment commitment tied to the retention earnout structure.
Key Person Risk. Both founders are integral to the ongoing development and maintenance of the PrismLens technology and to the preservation of key customer relationships. The retention earnout structure — providing for up to $4,500,000 in additional payments contingent upon continued employment through the applicable earnout periods — is the primary financial mechanism designed to incentivize the founders' continued engagement with the business following the closing. However, Lumos should be aware that the departure of either founder during the earnout period, whether voluntary or involuntary, would likely have a significant adverse impact on product development velocity, customer satisfaction, and the institutional knowledge base of the business, regardless of the financial consequences under the earnout structure.
We recommend that the Employment Agreements to be entered into by each founder at closing include the following provisions:
(i) Non-Competition Covenant: A 24-month post-termination non-compete restricting each founder from engaging in competitive activities in the financial data analytics and visualization space.
(ii) Non-Solicitation Covenant: A 24-month post-termination non-solicitation restriction covering both (a) employees of Lumos and the surviving entity, and (b) customers and prospective customers of the PrismLens platform.
(iii) Invention Assignment and Work-for-Hire Provisions: Comprehensive provisions assigning to Lumos all intellectual property rights in inventions, developments, and works of authorship created during the employment period and relating to the business of Lumos or the PrismLens platform.
(iv) Confidentiality: Perpetual confidentiality obligations covering all proprietary information of Lumos and the surviving entity.
C. Employee Agreements
We reviewed a sample of employee offer letters and proprietary information and invention assignment agreements ("PIIAs") maintained by Prismyx. The standard PIIA used by Prismyx contains provisions relating to confidentiality of proprietary information, assignment of inventions and intellectual property rights to the company, non-solicitation of employees and customers, and return of company property upon termination of employment. The provisions are generally adequate for the protection of Prismyx's intellectual property and trade secrets.
Issue Noted. We were unable to confirm that all 22 current employees of Prismyx have executed PIIAs. The data room contained signed PIIAs for 18 of the 22 employees. The remaining four employees for whom signed PIIAs could not be located include three software engineers and one data scientist, all of whom have access to the PrismLens source code and proprietary algorithms. The absence of executed PIIAs for these employees creates a potential gap in the chain of intellectual property ownership, as the company's claim to inventions and works created by these employees may rely solely on common-law principles (which vary by jurisdiction and are less certain than contractual assignment provisions).
We recommend the following measures to address this issue:
(a) Sellers should be required, as a pre-closing covenant, to use commercially reasonable efforts to obtain executed PIIAs from the four identified employees prior to the closing date.
(b) In the alternative or in addition, the Merger Agreement should include a specific representation from the Sellers that all current and former employees and contractors who have contributed to the development of the PrismLens platform have executed written agreements assigning all intellectual property rights in their work to the company, and that no employee or contractor has any claim of ownership to any company intellectual property.
(c) Lumos's human resources team should plan to obtain executed PIIAs (under Lumos's standard form) from all continuing employees promptly following the closing.
D. Employee Benefits
Prismyx offers a standard employee benefits package, including employer-sponsored group health insurance, dental insurance, and vision insurance. The company also sponsors a 401(k) retirement savings plan; however, the plan does not include an employer matching contribution. We did not identify any defined benefit pension plan, supplemental executive retirement plan, deferred compensation arrangement, or other non-qualified retirement plan.
As noted in Section II.C above, Prismyx has not adopted any equity compensation plan, and there are no outstanding stock options, restricted units, phantom equity awards, profit interests, or similar equity-based compensation arrangements. This is favorable from a transaction perspective, as it eliminates the need to address the treatment of outstanding equity awards in the Merger Agreement.
We did not identify any material Employee Retirement Income Security Act ("ERISA") compliance issues based on the documentation reviewed, including the plan documents, summary plan descriptions, and Form 5500 filings for the 401(k) plan.
E. Employment Litigation and Claims
We did not identify any pending or threatened employment-related litigation, arbitration proceedings, or administrative proceedings involving Prismyx. Specifically, we confirmed the absence of any pending charges before the Equal Employment Opportunity Commission ("EEOC") or any state or local human rights agency, any complaints filed with the Occupational Safety and Health Administration ("OSHA"), and any wage-and-hour claims or class action complaints. Officers' certifications provided by both founders confirm no knowledge of any threatened employment-related claims.
VII. Litigation and Regulatory Matters
A. Litigation. We conducted a comprehensive litigation search covering both state and federal courts in Delaware and Pennsylvania, as well as a review of the data room materials and officers' certifications. We did not identify any pending, threatened, or historical litigation, arbitration, or other legal proceedings involving Prismyx Data Solutions LLC, whether as plaintiff or defendant. Officers' certifications executed by both Jonah Eberhardt and Talia Messina confirm that, to their knowledge, no claims have been threatened against the company and that the company is not aware of any facts or circumstances that would reasonably be expected to give rise to a claim.
B. Regulatory Matters
Prismyx is a SaaS provider that offers data analytics and visualization tools to financial services industry participants. Based on our review, Prismyx does not hold itself out as a registered investment adviser, broker-dealer, transfer agent, or any other type of regulated financial services entity. The PrismLens platform is an analytics and visualization tool; it does not execute trades, provide investment advice, custody customer assets, or perform any other function that would, based on the information available, require registration with the Securities and Exchange Commission ("SEC"), the Financial Industry Regulatory Authority ("FINRA"), or any state financial services regulatory authority. We did not identify any regulatory filings, registrations, or licenses held by Prismyx, nor did we identify any pending or historical regulatory investigations, examinations, inquiries, or enforcement actions.
With respect to data privacy and cybersecurity, Prismyx represents that it has not experienced any data breach, cybersecurity incident, or unauthorized access to customer data. Prismyx further represents that it maintains System and Organization Controls 2 ("SOC 2") Type II compliance for its cloud-hosted platform, with the most recent SOC 2 Type II audit report dated November 2023 provided in the data room. The SOC 2 Type II report did not identify any material exceptions or deficiencies. While we did not conduct a comprehensive assessment of Prismyx's data privacy compliance program (which would typically be the province of a specialized privacy consultant), we note that Prismyx processes financial data on behalf of its institutional customers and should maintain compliance with applicable data protection requirements, including any contractual data processing obligations contained in its customer agreements.
VIII. Tax Matters
A. Entity Tax Status
Prismyx Data Solutions LLC is a Delaware limited liability company with two members (Jonah Eberhardt and Talia Messina). The company is classified as a partnership for U.S. federal income tax purposes by default under the Treasury Regulations' entity classification rules (commonly known as the "check-the-box" regulations). We confirmed that Prismyx has not filed an election on IRS Form 8832 to be classified as a corporation for tax purposes. The company's EIN is 86-1537842.
B. Tax Compliance
We reviewed Prismyx's federal and state income tax returns for the fiscal years ended December 31, 2021, December 31, 2022, and December 31, 2023 (the 2023 return being in draft form as of the date of this memorandum). Prismyx files annual partnership tax returns on IRS Form 1065 and issues Schedule K-1s to both members. In addition, Prismyx files applicable state partnership returns in Delaware and Pennsylvania. Our review of the returns did not identify any material issues, unusual positions, or significant deferred tax items. All returns appear to have been timely filed or properly extended.
We did not identify any pending or threatened tax audits, examinations, assessments, or disputes with the Internal Revenue Service or any state or local taxing authority. We also did not identify any outstanding tax liens, unpaid tax liabilities, or delinquent tax filings. The data room contained copies of all filed returns and evidence of timely payment of estimated tax obligations.
C. FIRPTA. The Foreign Investment in Real Property Tax Act ("FIRPTA") is not applicable to this transaction. Both members of Prismyx — Jonah Eberhardt and Talia Messina — are United States persons within the meaning of Section 7701(a)(30) of the Internal Revenue Code. Accordingly, no FIRPTA withholding obligations will arise in connection with the payment of merger consideration to the members.
D. Merger Tax Treatment
The proposed forward merger of Prismyx with and into Merger Sub will be treated as an asset acquisition for U.S. federal income tax purposes. Because Prismyx is classified as a partnership for tax purposes, the merger is treated under the applicable tax principles as a deemed sale of all of Prismyx's assets by the partnership, followed by a deemed distribution of the merger consideration to the members in liquidation of their partnership interests. This characterization is favorable to Lumos as the buyer because it provides Lumos (through the surviving entity) with a stepped-up tax basis in the acquired assets equal to the purchase price (including any assumed liabilities), which can be amortized or depreciated over the applicable recovery periods under the Internal Revenue Code.
The members (Eberhardt and Messina) will recognize gain or loss on the deemed sale at the partnership level and on the deemed liquidating distribution, measured as the difference between the merger consideration received and their respective adjusted bases in their partnership interests. The allocation of the purchase price among the acquired assets will be governed by Section 1060 of the Internal Revenue Code and the Treasury Regulations thereunder, and must be reported consistently by Lumos and the Sellers on IRS Form 8594.
We recommend coordination with Haverford & Keane, CPAs (Lorraine Chow, Engagement Partner) on the purchase price allocation and Section 1060 reporting, as well as with Bristow Farr Financial Advisory LLC (Arun Padmanabhan, Managing Director) on valuation considerations that may inform the allocation. The Merger Agreement should include a covenant requiring the parties to cooperate on the purchase price allocation and to file consistent tax returns.
IX. Insurance
Prismyx maintains the following insurance policies, as evidenced by certificates of insurance provided in the data room:
• Commercial General Liability Insurance: Provides coverage for bodily injury and property damage claims arising from Prismyx's business operations. Coverage limits appear reasonable for a company of Prismyx's size and industry.
• Professional Liability / Errors & Omissions ("E&O") Insurance: Provides coverage for claims arising from professional services rendered by Prismyx, including claims related to software defects, data errors, and service failures. This coverage is particularly important given the nature of PrismLens as a financial data analytics tool relied upon by institutional customers.
• Cyber Liability Insurance: Provides coverage for costs and liabilities arising from data breaches, cyberattacks, and other cybersecurity incidents, including notification costs, forensic investigation expenses, business interruption losses, and regulatory fines. Given that Prismyx processes financial data on behalf of its customers, this coverage is appropriate and important.
We reviewed the certificates of insurance and confirmed that coverage limits, deductibles, and policy periods are consistent with market norms for a SaaS company of Prismyx's size. We did not identify any pending insurance claims, coverage disputes, or lapsed policies.
We note that Prismyx does not maintain directors and officers ("D&O") liability insurance. This is not unusual for a two-member limited liability company that does not have a board of directors or board of managers, as D&O coverage is typically procured by companies with independent boards and fiduciary exposure to outside directors. The absence of D&O insurance does not present a material concern in the context of this transaction. However, Lumos should consider whether tail D&O coverage (or equivalent indemnification protections in the Merger Agreement) is appropriate to cover any pre-closing acts or omissions of the founders in their capacity as managers of Prismyx.
X. Real Property
Prismyx does not own any real property. The company's sole real property interest is its commercial office lease at 1414 Walnut Street, Suite 310, Philadelphia, Pennsylvania 19102, which is described in detail in Section IV.G of this memorandum. As noted therein, the lease expires on January 31, 2026, and no landlord consent is expected to be required for the transfer of the lease to the surviving entity by operation of the merger.
We did not identify any other real property interests, including subleases, licenses to use real property, or rights of first refusal to acquire real property.
XI. Environmental Matters
Prismyx is a software and SaaS company with no manufacturing operations, laboratory facilities, industrial processes, or physical product distribution activities. The company's sole physical premises is a leased commercial office space. Based on the nature of Prismyx's business and operations, we did not identify any environmental liabilities, environmental permits, hazardous materials handling activities, underground storage tanks, or environmental compliance obligations. We did not identify any pending or threatened environmental claims, notices of violation, or remediation obligations. Environmental matters represent a minimal risk area for this transaction.
XII. Summary of Identified Risks and Recommendations
The following is a summary of the key risks and issues identified during the due diligence review, organized by priority level, together with our recommendations for addressing each item in the definitive transaction documents and integration planning.
A. Critical / High-Priority Items
1. Ardent Financial Technologies Change-of-Control Consent
The Master SaaS Agreement with Ardent Financial Technologies, Inc. — Prismyx's largest customer, representing approximately 31% of total revenue ($1,178,000 ACV) — contains a change-of-control consent requirement that must be satisfied in connection with the proposed merger. Failure to obtain Ardent's prior written consent would entitle Ardent to terminate the agreement on 30 days' notice. Loss of the Ardent contract would constitute a material adverse effect on Prismyx's business and financial condition and would significantly impair the earnout milestones.
Recommendation: Obtaining Ardent's written consent should be a closing condition in the Merger Agreement. Outreach to Ardent should commence promptly after signing. The Sellers should represent that no dispute or threatened termination exists under the agreement. Lumos should seek a consent letter that also confirms Ardent's intent to continue the relationship.
2. Customer Concentration
The top three customers collectively represent approximately 61% of Prismyx's total 2023 revenue. Revenue concentration at this level exposes the business to significant risk from the loss or reduction of any single major customer relationship.
Recommendation: The Merger Agreement should include representations regarding the status of material customer relationships, a pre-closing covenant to maintain customer goodwill, and a material adverse effect definition encompassing the loss of any customer representing more than 15% of annual revenue. Lumos should factor customer concentration risk into its integration planning and earnout milestone assessments.
3. Key Person Dependency on Founders
Both co-founders — Jonah Eberhardt (anomaly detection engine architect, CEO) and Talia Messina (product development and customer integration lead, CTO) — are critical to the ongoing operations, technology development, and customer relationships of the business. Their departure would create significant operational risk.
Recommendation: The retention earnout ($4,500,000) and 30-month employment commitments are the primary mitigants. Employment Agreements should include robust non-compete (24 months), non-solicitation (24 months), invention assignment, and confidentiality provisions. Lumos should also develop a knowledge transfer and succession plan during the integration process.
B. Moderate-Priority Items
4. Pending Patent Application (U.S. Patent Application No. 17/842,316)
The sole patent application covering the anomaly detection engine — a core differentiator of the PrismLens platform — remains pending and has not been granted. There is no assurance the patent will issue, and the scope of claims may be narrowed during prosecution.
Recommendation: The Merger Agreement should include specific disclosures regarding the pending status. Lumos's IP team should evaluate the prosecution strategy and freedom-to-operate landscape following closing. Lumos should also consider filing additional patent applications to strengthen the portfolio.
5. Incomplete Proprietary Information and Invention Assignment Agreements
Signed PIIAs were located for only 18 of 22 current employees. The four employees lacking confirmed PIIAs include technical staff with access to proprietary source code and algorithms.
Recommendation: Sellers should be required to obtain executed PIIAs from the four identified employees prior to closing. The Merger Agreement should include a representation that all employees and contractors have assigned IP rights to the company. Lumos should obtain new PIIAs from all continuing employees at closing.
C. Low-Priority / Administrative Items
6. Office Lease
The office lease at 1414 Walnut Street, Suite 310, Philadelphia, PA, contains an assignment restriction with a standard merger/operation-of-law exception. The lease expires January 31, 2026.
Recommendation: Confirm applicability of the merger exception to the assignment restriction. Provide landlord notice post-closing. Lumos should plan for the Philadelphia office footprint decision in connection with integration.
7. Trademark Maintenance
Prismyx holds three active trademark registrations. Ongoing maintenance filings must be made to preserve the registrations.
Recommendation: Lumos's IP team should calendar all upcoming maintenance filing deadlines for the three registrations and ensure timely filings following closing.
8. USPTO Recordation
The transfer of the pending patent application and three trademark registrations to the surviving entity by operation of the merger should be recorded with the USPTO to maintain a clean chain of title.
Recommendation: File appropriate assignment recordation documents with the USPTO promptly following closing.
XIII. Data Room Index and Materials Reviewed
The following is a summary of the principal categories of documents and records reviewed during the due diligence period through the virtual data room maintained by Prismyx and its counsel, as well as through independent searches and public record reviews: