PRIVILEGED & CONFIDENTIAL — ATTORNEY-CLIENT COMMUNICATION
MEMORANDUM
From: Rachel Bernstein, Partner, and Leila Nazari, Associate — Calderwood & Harkness LLP
To: Christine Aldridge, Partner & Deal Lead, and Tomas Medina, Vice President — Pinnacle Venture Fund II LP
Date: April 4, 2026
Re: Preliminary Memorandum on Transaction Structure — Proposed Series A Preferred Stock Financing of Quillen Technologies, Inc.
Matter No.: 1002-00002
Billing Code: 78412.001
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I. Executive Summary
The purpose of this memorandum is to provide the Pinnacle deal team with a comprehensive preliminary overview of the proposed Series A preferred stock financing of Quillen Technologies, Inc. ("Quillen" or the "Company"), based on our review of the draft term sheet received from the Company, through its counsel, Fenwick, Torres & Keane LLP ("Ostrander Solutions"), on April 4, 2026. This memorandum is intended to frame the key economic and governance terms of the proposed transaction, identify areas of concern, and set forth our recommended negotiation priorities in advance of Pinnacle's delivery of a counter-term-sheet.
The proposed transaction contemplates a $22.5 million Series A Preferred Stock financing in which Pinnacle Venture Fund II LP ("Pinnacle" or the "Fund") would serve as lead investor, committing $14.0 million of the total round. Two co-investors are expected to participate alongside Pinnacle: Blackthorn Growth Fund III LP ("Blackthorn"), committing $6.0 million, and Stonebridge Ventures LLC ("Stonebridge"), committing $2.5 million.
Company Background. Quillen Technologies is a Delaware C-corporation, incorporated on July 12, 2023 (Delaware Secretary of State File Number 7384219), and headquartered at 88 Garrison Street, Floor 4, Boston, Massachusetts 02116. The Company develops and commercializes "Mosaic," an AI-driven portfolio analytics and risk-attribution software-as-a-service ("SaaS") platform. Mosaic is sold primarily to institutional asset managers, pension consultants, and endowments. The platform provides clients with real-time risk decomposition, factor attribution, and scenario analysis capabilities powered by proprietary machine-learning models.
Key Company Metrics. As of the end of Q1 2026 (March 31, 2026), the Company reports annualized recurring revenue ("ARR") of approximately $3.8 million and last-twelve-months ("LTM") revenue of approximately $3.2 million. The Company has 38 full-time employees, of whom 24 are in engineering and product development, with the remainder distributed across sales, marketing, operations, and general and administrative functions. The Company's current cash on hand is approximately $1.1 million, with a monthly burn rate of approximately $420,000, yielding approximately 2.6 months of remaining runway absent new financing. This limited runway underscores the time sensitivity of the proposed transaction. In addition, the Company has outstanding convertible notes with an aggregate principal balance of $1,500,000 that were originally due March 15, 2026, and have been extended to a maturity date of June 30, 2026, which creates further urgency to close the Series A financing prior to that date.
Founders and Key Personnel. The Company was co-founded by Dr. Amara Osei, who serves as Chief Executive Officer, and Julian Voss, who serves as Chief Technology Officer. Both founders have been with the Company since its inception in July 2023. Priya Chandrasekar joined the Company as Vice President of Product in January 2025 and is a key member of the leadership team.
Calderwood & Harkness Engagement. Calderwood & Harkness LLP ("C&H") opened its engagement with Pinnacle on this matter on April 1, 2026. The engagement team consists of Rachel Bernstein (Responsible Partner), Miriam Calloway (Billing Partner), Leila Nazari (Lead Associate), and Robert Jansen (Working Associate).
Scope of This Memorandum. This memorandum addresses the following topics: (a) the proposed transaction economics, including round size, valuation, and investor allocations; (b) the pre-existing capitalization of the Company; (c) the mechanics of the convertible note conversion; (d) the post-closing pro forma capitalization table; (e) the key economic and governance terms set forth in the draft term sheet; and (f) our recommended negotiation priorities for Pinnacle's counter-term-sheet. This memorandum is preliminary in nature and is based solely on the draft term sheet and the limited information provided to date by the Company and Ostrander Solutions. Our analysis and recommendations are subject to revision upon completion of legal, financial, intellectual property, and technical due diligence.
II. Transaction Economics
A. Round Size and Investor Allocations
The draft term sheet contemplates a total round size of $22,500,000 in Series A Preferred Stock (the "Series A") at a price per share of $5.00. On this basis, the total number of Series A shares to be issued in exchange for new-money investment will be 4,500,000 shares ($22,500,000 ÷ $5.00 per share). This figure does not include shares to be issued upon conversion of the outstanding convertible notes, which are addressed separately in Section IV below.
The proposed investor allocations are as follows:
As lead investor, Pinnacle's $14.0 million commitment represents approximately 62.2% of the total round. We note that Blackthorn Growth Fund III LP is represented by Diana Hershfield, Partner, and its outside counsel is Whitfield & Pryor LLP, located in New York, New York. The primary contact for Stonebridge Ventures LLC is Kevin Ashby, Managing Director. We understand that Stonebridge has not yet formally engaged outside counsel for this transaction.
B. Valuation
The draft term sheet proposes the following valuation framework:
• Pre-money valuation: $57,500,000
• Post-money valuation: $80,000,000 ($57,500,000 + $22,500,000 new money)
The price per share of $5.00 is derived by dividing the pre-money valuation by the pre-money fully-diluted share count:
$57,500,000 ÷ 11,500,000 pre-money fully-diluted shares = $5.00 per share
The pre-money fully-diluted share count of 11,500,000 shares is calculated as follows:
• Common Stock outstanding: 8,000,000 shares
• Series Seed Preferred Stock outstanding: 2,500,000 shares
• Proposed option pool expansion (additional shares to be reserved pre-closing): 1,000,000 shares
• Total pre-money fully-diluted shares: 11,500,000
It is important to note that the pre-money fully-diluted share count includes the proposed 1,000,000-share increase to the equity incentive plan option pool, which is to be implemented prior to closing. This means that the dilutive effect of the option pool expansion is borne entirely by the pre-Series A stockholders (i.e., the founders and the Series Seed investors), and not by the Series A investors. This is consistent with market-standard practice for venture capital financings. The treatment of the option pool in the pre-money share count is discussed further in Section V.
We also note that the pre-money fully-diluted share count of 11,500,000 does not include the shares that will be issued upon conversion of the outstanding convertible notes. As discussed in Section IV, the note conversion will generate an additional 851,250 shares of Series A Preferred Stock. These conversion shares are treated as post-money dilution and are therefore not included in the denominator used to calculate the price per share. This is an important structural point that we will need to confirm is consistent with the Company's and Ostrander Solutions's understanding, as any disagreement on this methodology would directly affect the price-per-share calculation and the resulting ownership percentages.
C. Pinnacle's Ownership Position
Based on the proposed transaction structure, Pinnacle's post-closing ownership position can be evaluated on several bases:
Fully-Diluted Post-Money Basis. Pinnacle's 2,800,000 shares of Series A Preferred would represent approximately 17.2% on a fully-diluted post-money basis. The fully-diluted post-money share count is approximately 16,251,250 shares, which includes all outstanding Common Stock, Series Seed Preferred Stock, Series A Preferred Stock (both new money and note conversion shares), outstanding option grants, and unissued but reserved option pool shares:
2,800,000 ÷ 16,251,250 ≈ 17.2%
Post-Money Invested-Capital Basis. On a simple invested-capital basis, Pinnacle's $14.0 million investment represents 17.5% of the $80.0 million post-money valuation:
$14,000,000 ÷ $80,000,000 = 17.5%
Share of Series A Investor Base (New-Money Investors Only). Among the three new-money Series A investors, Pinnacle's allocation represents 62.2% of the round:
2,800,000 ÷ 4,500,000 = 62.2%
We note that precise fully-diluted ownership percentages will be confirmed through the detailed capitalization table analysis to be prepared and verified during the due diligence process and delivered at or prior to closing. Minor adjustments may result from the final determination of accrued interest on the convertible notes, reconciliation of option grants, and confirmation of vested versus unvested shares.
III. Pre-Series A Capitalization
Set forth below is our preliminary understanding of Quillen's pre-Series A capitalization, based on information provided in the draft term sheet and related materials received from Ostrander Solutions. All figures remain subject to verification during due diligence, including review of the Company's stock ledger, option grant records, convertible note instruments, and certificate of incorporation as currently in effect.
A. Common Stock
The Company's certificate of incorporation currently authorizes 15,000,000 shares of Common Stock. As of the date of this memorandum, 8,000,000 shares of Common Stock are issued and outstanding, held as follows:
We will need to review the stock purchase agreements, restricted stock agreements, and any applicable vesting schedules for each of the above holders during due diligence. In particular, we will need to confirm whether any of the outstanding Common Stock is subject to existing vesting arrangements, repurchase rights, or transfer restrictions. The proposed founder re-vesting provisions discussed in Section VII.J below will apply to the shares held by Dr. Osei and Mr. Voss.
B. Series Seed Preferred Stock
The Company completed a Series Seed Preferred Stock financing in October 2023, raising a total of $3,000,000 at a price per share of $1.20. A total of 2,500,000 shares of Series Seed Preferred Stock are currently issued and outstanding, held as follows:
We will need to review the Series Seed Preferred Stock purchase agreement, the existing certificate of incorporation provisions governing the Series Seed Preferred, and any ancillary agreements (including any existing investors' rights agreement, voting agreement, or right of first refusal and co-sale agreement) during due diligence. The rights, preferences, and privileges of the Series Seed Preferred will need to be addressed in the Amended and Restated Certificate of Incorporation to be filed in connection with the Series A closing, and we will need to understand the existing liquidation preference, conversion rights, anti-dilution provisions, and protective provisions applicable to the Series Seed.
C. Equity Incentive Plan (2023 Plan)
The Company adopted an equity incentive plan in 2023 (the "2023 Plan") under which the Board of Directors is authorized to grant stock options, restricted stock awards, and other equity-based incentive awards to employees, directors, and consultants. The current status of the 2023 Plan is as follows:
• Total shares authorized under the 2023 Plan: 2,000,000 shares
• Options granted and outstanding: 1,200,000 shares
• Unissued and available for future grants: 800,000 shares
During due diligence, we will review the 2023 Plan document, the form of option agreement, the schedule of all outstanding grants (including grant dates, exercise prices, vesting schedules, and holder identities), and any applicable Board or stockholder resolutions. We will also need to confirm that all option grants were made at fair market value as determined by a Section 409A-compliant valuation (typically a "409A valuation" performed by an independent appraiser) and that the Company has properly filed any required tax forms.
D. Convertible Notes
The Company has outstanding convertible promissory notes with an aggregate principal balance of $1,500,000, which were issued on March 15, 2024. The key terms of the convertible notes are as follows:
• Interest rate: 6% simple interest per annum
• discount to Series A price: 20%
• Valuation cap: $25,000,000
• Original maturity date: March 15, 2026
• Extended maturity date: June 30, 2026 (extension agreed by all note holders)
The notes are held by the following parties:
We note that Harborview Angel Syndicate LLC is both a Series Seed Preferred stockholder and a convertible note holder. This dual position will give Harborview a meaningful ownership stake post-closing across multiple classes of the Company's capital stock. We will review the convertible note instruments, amendment documents (relating to the maturity extension), and any related consents during due diligence. The conversion mechanics applicable to these notes are discussed in detail in Section IV.
IV. Convertible Note Conversion Mechanics
The convertible notes issued by the Company on March 15, 2024 are expected to convert into shares of Series A Preferred Stock at the closing of the Series A financing. The conversion mechanics are governed by the terms of the notes themselves, which provide for two alternative methods of determining the conversion price. The more favorable price to the note holders (i.e., the lower price) controls.
A. Conversion Price Determination
The two conversion price methodologies set forth in the notes are as follows:
Method 1 — Discount to Series A Price. Under this method, the conversion price is calculated by applying the 20% discount to the Series A price per share:
$5.00 × (1 − 0.20) = $4.00 per share
Method 2 — Valuation Cap. Under this method, the conversion price is calculated by dividing the $25,000,000 valuation cap by the fully-diluted pre-money share count as defined in the note instrument. Based on our preliminary review, the denominator for the valuation cap calculation is 12,500,000 shares, calculated as follows:
• Common Stock outstanding: 8,000,000
• Series Seed Preferred Stock outstanding: 2,500,000
• Option pool shares (total authorized under 2023 Plan): 2,000,000
• Total: 12,500,000 shares
The resulting valuation cap conversion price is:
$25,000,000 ÷ 12,500,000 = $2.00 per share
Result. The valuation cap price of $2.00 per share controls, as it is more favorable to the note holders than the $4.00 discount price. This reflects the fact that the Company's pre-money valuation of $57,500,000 significantly exceeds the $25,000,000 valuation cap on the notes, such that the cap becomes the binding constraint.
We note that the denominator used for the valuation cap calculation (12,500,000 shares) differs from the pre-money fully-diluted share count used in the Series A price-per-share calculation (11,500,000 shares). The difference of 1,000,000 shares is attributable to the fact that the note instrument's definition of fully-diluted shares includes the full 2,000,000-share option pool (both granted and unissued), whereas the Series A pricing calculation includes only the 1,000,000-share option pool expansion and does not double-count the existing pool against the outstanding Common and Preferred. We will confirm the precise definition of "fully-diluted" capitalization in the note instruments during diligence, as this directly impacts the number of conversion shares to be issued.
B. Accrued Interest Calculation
Simple interest has been accruing on the aggregate principal balance of the convertible notes since the date of issuance. For purposes of this memorandum, we have assumed a closing date of June 15, 2026, which is the target closing date set forth in the draft term sheet.
• Issuance date: March 15, 2024
• Assumed closing date: June 15, 2026
• Period: Approximately 27 months (2.25 years)
• Interest calculation: $1,500,000 × 6% × (27 / 12) = $202,500
• Total conversion amount (principal + interest): $1,500,000 + $202,500 = $1,702,500
We note that the precise amount of accrued interest will depend on the actual closing date and the specific day-count convention (e.g., 30/360 or actual/365) set forth in the note instruments. We will confirm these terms during due diligence and update the conversion amount accordingly. The above calculation is based on a simple 27/12 year-fraction and is intended as an approximation.
C. Shares Issued on Conversion
Based on the foregoing analysis, the total number of shares of Series A Preferred Stock to be issued upon conversion of the outstanding convertible notes is:
$1,702,500 ÷ $2.00 per share = 851,250 shares of Series A Preferred Stock
These conversion shares will be issued as shares of Series A Preferred Stock carrying the same rights, preferences, and privileges as the new-money Series A shares, notwithstanding the fact that they are issued at the lower conversion price of $2.00 per share. This is a standard feature of convertible note financings and reflects the economic bargain struck with the note holders, who provided early capital to the Company at a time of greater risk.
The allocation of conversion shares among the three note holders will be proportional to each holder's share of the total conversion amount (principal plus pro rata accrued interest). On a preliminary basis, the approximate allocation is as follows:
• Harborview Angel Syndicate LLC: $750,000 principal + approximately $101,250 pro rata interest = approximately $851,250 → approximately 425,625 shares
• Caldwell Family Office LLC: $500,000 principal + approximately $67,500 pro rata interest = approximately $567,500 → approximately 283,750 shares
• Dr. Lawrence Hu: $250,000 principal + approximately $33,750 pro rata interest = approximately $283,750 → approximately 141,875 shares
• Total: Approximately $1,702,500 → approximately 851,250 shares
These figures are subject to adjustment based on the actual closing date and confirmed interest calculation methodology.
D. Impact on Economics
The issuance of 851,250 conversion shares is significant from an economic perspective for several reasons:
First, the conversion shares represent additional dilution to all stockholders beyond the 4,500,000 new-money Series A shares. The total number of Series A Preferred shares outstanding after the closing will therefore be approximately 5,351,250 (4,500,000 new-money shares + 851,250 conversion shares), rather than 4,500,000.
Second, it is important for Pinnacle to confirm that the conversion shares are counted separately from the new-money share allocation and do not reduce the number of shares issued to new-money investors. In other words, Pinnacle should receive 2,800,000 shares for its $14.0 million investment irrespective of the number of shares issued upon conversion of the notes. We expect this to be the case based on the structure of the draft term sheet, but we will confirm this point expressly in the definitive documents.
Third, the favorable $2.00 conversion price means that the note holders are receiving shares at a significant discount to the $5.00 Series A price paid by new-money investors. This discount — effectively a 60% discount to the Series A price — reflects the note holders' early risk in providing capital to the Company approximately two years before the Series A round. While this is standard and expected, it results in meaningful additional dilution that should be understood and accounted for in Pinnacle's ownership and return analysis.
V. Option Pool Expansion
The draft term sheet contemplates an expansion of the Company's equity incentive plan option pool from 2,000,000 authorized shares to 3,000,000 authorized shares, representing the addition of 1,000,000 new shares to the pool. This expansion is to occur prior to the closing of the Series A financing.
Following the expansion, the option pool will have the following composition:
• Outstanding option grants: 1,200,000 shares (carried over from the existing pool)
• Unissued options available for future grants: 800,000 shares (current unissued balance) + 1,000,000 shares (new expansion) = 1,800,000 unissued options
• Total authorized option pool post-expansion: 3,000,000 shares
Dilution Allocation. Consistent with standard venture capital practice, the dilution attributable to the option pool increase is to be borne entirely by the pre-Series A stockholders — that is, the founders, other Common Stock holders, and the Series Seed Preferred holders. This is achieved by including the 1,000,000-share expansion in the pre-money fully-diluted share count (as described in Section II.B above), which has the effect of reducing the per-share price paid by the Series A investors relative to what it would be absent the pool expansion. The Series A investors' ownership percentage is not diluted by the pool expansion because the expansion is already reflected in the pre-money valuation calculation.
Pool Sizing Analysis. We recommend that Pinnacle confirm, as part of the diligence process, that the proposed post-expansion pool of 1,800,000 unissued options is adequate to cover the Company's anticipated hiring and retention needs over the next 18 to 24 months — the expected period between the Series A closing and a potential Series B financing. The Company currently has 38 full-time employees, with 24 in engineering. Given the Company's growth trajectory and the competitive market for AI and machine-learning talent in the Boston area, it is likely that the Company will need to make significant new hires during this period, particularly in engineering, data science, sales, and customer success. If the proposed pool is insufficient, a further expansion would dilute the Series A investors and should be addressed now rather than deferred to a later date. Conversely, if the pool is oversized, it unnecessarily dilutes the pre-money stockholders and could create misaligned incentive structures.
We recommend requesting from the Company a detailed hiring plan and equity budget for the next 18–24 months, including anticipated role levels, grant sizes, and vesting schedules, so that Pinnacle can assess the adequacy of the proposed pool expansion.
VI. Post-Series A Capitalization (Pro Forma, Fully Diluted)
Set forth below is our preliminary pro forma capitalization table for Quillen Technologies following the closing of the Series A financing, assuming (i) the issuance of 4,500,000 new-money Series A Preferred shares, (ii) the conversion of outstanding convertible notes into 851,250 Series A Preferred shares, (iii) the expansion of the option pool by 1,000,000 shares, and (iv) no other changes to the Company's capitalization between the date hereof and the closing.
Pinnacle's Fully Diluted Ownership: 2,800,000 ÷ 16,251,250 ≈ 17.2%
We note that the fully-diluted total of approximately 16,251,250 shares includes the 1,800,000 unissued but reserved option pool shares in the denominator. This is a common convention for reporting fully-diluted ownership, as it reflects the maximum potential dilution from the option pool. If unissued options are excluded from the denominator, the total outstanding share count would be approximately 16,051,250, and Pinnacle's ownership percentage would be modestly higher (approximately 17.4%).
The precise percentages and the methodology for including or excluding unissued option pool shares in the fully-diluted denominator will be confirmed and reconciled in the detailed cap table analysis to be prepared during the due diligence process. We will work with Ostrander Solutions to agree on a mutually acceptable cap table methodology prior to circulation of the definitive transaction documents. Any discrepancies identified during this process will be flagged for the Pinnacle deal team's attention.
We also note that the above table does not reflect the impact of the proposed founder re-vesting arrangement described in Section VII.J below. If founder shares are subjected to vesting, unvested shares may be subject to the Company's repurchase right upon a founder's departure, which could affect the effective ownership percentages depending on the circumstances of any such departure.
VII. Key Economic and Governance Terms
This section summarizes the key economic and governance terms set forth in the draft term sheet received from Ostrander Solutions, together with our analysis and recommendations for each material provision. Where the draft term sheet's proposed terms differ from Pinnacle's preferred position, we have noted the discrepancy and provided our recommendation for the counter-term-sheet.
A. Liquidation Preference
Company's Proposal (Per Draft Term Sheet). The draft term sheet proposes a participating preferred liquidation preference with a 3× cap. Under this structure, upon a liquidation event (including a merger, acquisition, or asset sale), the Series A holders would first receive their original investment amount (1× liquidation preference), and would then participate pro rata with the Common Stock holders in the distribution of remaining proceeds, until the aggregate amount received by the Series A holders equals 3× their original investment. After reaching the 3× cap, the Series A holders would cease to participate in further distributions, and remaining proceeds would be distributed to the Common Stock holders.
Pinnacle's Preferred Position. We understand that Pinnacle's preference is for a 1× non-participating preferred liquidation preference. Under this structure, upon a liquidation event, the Series A holders would receive the greater of (a) 1× their original investment amount plus any declared but unpaid dividends, or (b) the amount they would receive if they converted their Series A Preferred shares into Common Stock and participated in the distribution on an as-converted basis. This structure effectively gives the Series A holders downside protection (through the 1× preference) while aligning their upside interests with those of the Common Stock holders (through the conversion option).
Our Recommendation. We recommend that Pinnacle hold firm on 1× non-participating preferred. This is the market-standard liquidation preference structure for Series A rounds at the Company's valuation level, and it is widely regarded as the most founder-friendly form of preferred stock preference consistent with standard institutional venture capital practice. A participating preferred structure — even with a 3× cap — would significantly increase Pinnacle's downside protection but could create adverse incentive misalignment in certain exit scenarios. Specifically, a participating preferred structure can result in the Series A holders receiving a disproportionate share of proceeds in modest exit scenarios, which may reduce the founders' effective returns and diminish their motivation to pursue value-maximizing outcomes.
Moreover, a participating preferred term at the Series A stage may signal adversarial deal dynamics to the market and could complicate the Company's ability to raise future financing rounds. Subsequent investors may view the participating preferred as an indication of either investor overreach or company weakness, neither of which serves Pinnacle's long-term interests as a supportive lead investor.
We expect the liquidation preference to be a key negotiation point with the Company and Ostrander Solutions. Should the Company insist on some form of participation, as a fallback position only, we may consider a participating preferred with a lower cap (e.g., 2×), but we recommend reserving this concession for later in the negotiation process and only in exchange for meaningful consideration on other terms. Under no circumstances do we recommend agreeing to a full (uncapped) participation structure at this stage.
B. Dividends
The draft term sheet provides for 8% non-cumulative dividends, payable when and if declared by the Board of Directors. This is a standard dividend provision for a Series A preferred stock financing. The "non-cumulative" designation means that dividends do not accrue or accumulate if not declared by the Board in any given period — unpaid dividends are simply forfeited and do not create an obligation of the Company. In practice, dividends are rarely declared by early-stage technology companies, and this provision primarily serves as a contractual priority: if dividends are declared, the Series A holders receive their preferential dividend before any dividends are paid to the Common Stock holders.
We do not anticipate any negotiation issues with respect to this provision.
C. Anti-Dilution Protection
The draft term sheet provides for broad-based weighted-average anti-dilution protection for the Series A Preferred Stock. This is the market-standard anti-dilution mechanism for venture capital financings. Under this provision, if the Company issues equity securities in a future financing round at a price per share lower than the Series A conversion price (a "down round"), the Series A conversion price is adjusted downward using a weighted-average formula that takes into account the number of shares outstanding, the number of new shares issued, and the price at which the new shares are issued. The "broad-based" variant uses the fully-diluted share count (including options, warrants, and other convertible securities) as the denominator in the formula, which results in a smaller adjustment than the "narrow-based" variant and is therefore more favorable to the Company and its Common Stock holders.
This is a standard and non-controversial provision. We recommend accepting the broad-based weighted-average anti-dilution protection as proposed.
D. Board Composition
The draft term sheet proposes a five-member Board of Directors, composed as follows:
• Two (2) seats elected by the holders of Common Stock (expected to be founder/management designees — Dr. Amara Osei and Julian Voss initially)
• Two (2) seats elected by the holders of Series A Preferred Stock (one Pinnacle designee, expected to be Christine Aldridge; one Blackthorn designee, expected to be Diana Hershfield)
• One (1) independent director mutually agreed upon by the holders of Common Stock and Preferred Stock
This composition gives the investor block effective parity with the founders on the Board, with the independent director serving as a swing vote on matters where the founder directors and investor directors disagree. This is an appropriate and market-standard governance structure for a Series A financing of this size. The independent director provision ensures that neither the investor block nor the founder block has outright control of the Board, which promotes balanced decision-making and accountability.
We recommend confirming this board structure in the counter-term-sheet. As a practical matter, we also recommend that Pinnacle begin identifying potential candidates for the independent director seat and be prepared to discuss criteria with the Company at the appropriate stage of the negotiation.
E. Protective Provisions
The draft term sheet references standard NVCA-based protective provisions requiring the approval of a majority of the outstanding shares of Series A Preferred Stock (or, in certain cases, the specific approval of Pinnacle as lead investor) before the Company may take specified corporate actions.
In addition to the standard NVCA protective provisions, Pinnacle is seeking specific consent rights over the following corporate actions:
• Incurrence of any indebtedness in excess of $500,000 (whether in a single transaction or a series of related transactions);
• Any acquisition, merger, consolidation, or other business combination involving the Company, or any liquidation, dissolution, or winding up of the Company.
The standard NVCA protective provisions that would be included in the Amended and Restated Certificate of Incorporation or the Voting Agreement typically cover the following additional corporate actions (among others):
• Any amendment, alteration, or repeal of any provision of the Company's certificate of incorporation or bylaws in a manner that adversely affects the rights, preferences, or privileges of the Series A Preferred Stock;
• The authorization or issuance of any securities that are senior to or on parity with the Series A Preferred Stock with respect to liquidation preference, dividends, or other rights;
• The declaration or payment of any dividend or distribution on any shares of Common Stock or other junior securities;
• Any increase or decrease in the authorized size of the Board of Directors;
• Any transaction between the Company and any of its officers, directors, or holders of more than 1% of the Company's outstanding capital stock (related-party transactions);
• Any increase in the number of shares authorized under the Company's equity incentive plan or any modification to the terms of the plan.
Negotiation Note. We anticipate that the $500,000 debt threshold may be a point of contention with the Company and Ostrander Solutions. Company counsel may argue that a $500,000 threshold is unduly restrictive and may push for a higher threshold — for example, $1,000,000 — to provide the Company with greater operational flexibility. We recommend that Pinnacle hold firm at the $500,000 threshold, particularly given the Company's current burn rate of approximately $420,000 per month and its limited cash position. At a $500,000 threshold, the Company would need Pinnacle's consent to take on debt exceeding approximately 1.2 months of operating expenses, which is a reasonable control mechanism for an early-stage company that will be operating primarily on investor capital. A higher threshold of $1,000,000 would allow the Company to take on significant debt — approaching 2.4 months of burn — without investor approval, which in our view is excessive given the Company's current financial profile.
F. Pro Rata Rights and Right of First Offer
The draft term sheet provides that all Series A investors will receive pro rata participation rights and a right of first offer on future equity financing rounds. These rights allow each Series A investor to invest its proportional share of any subsequent equity financing, thereby maintaining (or increasing) its ownership percentage as the Company raises additional capital.
These are standard provisions that protect Pinnacle's ability to maintain its approximately 17.2% ownership stake in future rounds. We recommend confirming these rights in the counter-term-sheet without modification.
G. Drag-Along
The draft term sheet provides for a drag-along provision, under which all stockholders can be compelled to support an approved sale or merger of the Company. The approval threshold for triggering the drag-along is:
• A majority of the outstanding shares of Common Stock, plus
• A majority of the outstanding shares of Preferred Stock, voting together as a single class.
This is a standard drag-along structure that ensures the Company can consummate an approved exit transaction without being held up by minority stockholders. We recommend accepting this provision as proposed.
H. Information Rights
The draft term sheet provides the following information rights to the Series A investors:
• Monthly unaudited financial statements delivered within 30 days of the end of each calendar month;
• Annual audited financial statements delivered within 120 days of the end of each fiscal year, with audits to be conducted by Pemberton & Associates CPAs LLP (engagement partner Diane Stratton);
• Annual budget and operating plan to be delivered by December 15 of each calendar year for the upcoming fiscal year.
These are standard information rights for a Series A financing. We note, however, that Pinnacle may wish to obtain enhanced quarterly reporting and key performance indicator ("KPI") dashboards — including metrics such as ARR, net revenue retention, customer acquisition cost, lifetime value, churn rate, and headcount — on a more granular basis than the monthly unaudited financials may provide. We recommend that these enhanced reporting obligations be addressed through a separate side letter between Pinnacle and the Company, rather than in the Investors' Rights Agreement, to avoid imposing these additional obligations on the co-investors and to preserve flexibility in the scope and format of the reporting.
I. Registration Rights
The draft term sheet provides for the following registration rights:
• Demand registration: Available after the earlier of (i) five years from the closing of the Series A financing, or (ii) the completion of an initial public offering by the Company;
• S-3 registration: Standard short-form registration rights, available once the Company is eligible to use Form S-3;
• Piggyback registration rights: Standard rights permitting the Series A investors to include their shares in any registered offering by the Company.
These are NVCA-standard registration rights provisions and are unlikely to be contentious in the negotiation. We recommend accepting these provisions as proposed. We will review the specific procedural terms (including demand limitations, cut-back provisions, lock-up periods, and expense allocation) in the definitive Investors' Rights Agreement.
J. Founder Vesting
The draft term sheet provides that the existing shares held by Dr. Amara Osei and Julian Voss (the founders) will be subjected to a new four-year vesting schedule with a one-year cliff, effective as of the closing of the Series A financing. This means that if a founder departs the Company within one year of the closing, all of his or her unvested shares would be subject to repurchase by the Company (typically at the lower of cost or fair market value). After the one-year cliff, the shares would vest monthly over the remaining three years.
The founders would receive 25% vesting credit for time served prior to the closing. Both founders have been with the Company since its incorporation in approximately July 2023, representing approximately 35 months of service as of the target closing date of June 15, 2026. A 25% vesting credit would translate to approximately 8.75 months of vesting credit applied to the four-year (48-month) schedule. In practical terms, this means that, at the time of closing, approximately 18.2% of each founder's shares (8.75 / 48) would be treated as vested, and the remaining shares would vest over the balance of the 48-month schedule (subject to the one-year cliff running from the Series A closing).
Negotiation Point. We anticipate that the founders may resist the imposition of re-vesting on their existing shares, or alternatively may seek a higher vesting credit percentage — for example, 50% or even full credit for time served. Founder re-vesting is a common source of friction in Series A negotiations, as founders understandably view their pre-financing service and risk-taking as warranting greater credit.
We recommend that Pinnacle propose the 25% vesting credit as a reasonable compromise. This figure acknowledges the founders' approximately 35 months of dedicated service while still ensuring that a substantial portion of their equity remains subject to continued vesting and, by extension, continued commitment to the Company post-financing. Given that the Company is still early-stage, with significant execution risk and a product that is in the process of achieving market traction, it is important for Pinnacle to have the assurance that the founders' equity incentives remain aligned with the long-term success of the business. A higher credit percentage — or no re-vesting at all — would reduce the amount of equity at risk and could diminish the retention incentive.
K. Right of First Refusal and Co-Sale
The draft term sheet provides for standard right of first refusal ("ROFR") and co-sale (tag-along) rights applicable to transfers of shares by the founders. Under the ROFR, if a founder proposes to sell shares to a third party, the Company has the first right to purchase the shares at the proposed price and on the proposed terms. If the Company declines to exercise its ROFR, the investors have a secondary right to purchase the shares on a pro rata basis. If neither the Company nor the investors exercise their ROFR rights, the founder may proceed with the proposed sale to the third party, subject to the co-sale (tag-along) rights of the investors.
Under the co-sale provision, if a founder proposes to sell shares to a third party and the ROFR is not exercised, each investor has the right to participate in the sale on a pro rata basis, selling a proportional number of its own shares alongside the founder on the same terms and conditions.
These are standard provisions that protect Pinnacle and the other investors against unauthorized transfers of founder shares and ensure that investors have the opportunity to participate in any liquidity events initiated by the founders. We recommend accepting these provisions as proposed.
L. No-Shop / Exclusivity
The draft term sheet provides for a 45-day exclusivity (no-shop) period commencing upon the execution of the term sheet by all parties. During the exclusivity period, the Company and its representatives agree not to solicit, negotiate, or enter into any competing financing proposals or term sheets.
• Target exclusivity commencement: April 18, 2026
• Target exclusivity expiration: June 2, 2026
Negotiation Note. The 45-day exclusivity window is tight given the scope of legal, financial, intellectual property, and technical due diligence that will be required, as well as the time needed to negotiate and finalize the definitive transaction documents. To mitigate the risk of the exclusivity period expiring before the transaction can be closed, we recommend the following steps:
1. Transmit the due diligence request list to Ostrander Solutions immediately upon exclusivity commencement (or, ideally, prior to commencement with a caveat that the formal diligence period begins upon term sheet execution);
2. Begin drafting the definitive transaction documents (SPA, Amended and Restated Certificate of Incorporation, Investors' Rights Agreement, Voting Agreement, and ROFR/Co-Sale Agreement) in parallel with the diligence process, rather than sequentially;
3. Consider requesting a provision allowing for a 15-day extension of the exclusivity period upon mutual agreement of the parties, in the event that diligence or document negotiations require additional time.
M. Legal Fee Reimbursement
The draft term sheet provides that the Company will reimburse Pinnacle's legal fees up to a cap of $75,000, payable at closing. Calderwood & Harkness's estimated fees for work from the term sheet stage through closing are $60,000 to $75,000, which is within the proposed reimbursement cap. Any fees in excess of $75,000 would be borne directly by Pinnacle.
We note that the $75,000 cap is consistent with market norms for a Series A financing of this size. We will manage our billing carefully to remain within the cap, and will communicate promptly with the Pinnacle deal team if it appears that the scope of work may result in fees approaching or exceeding the cap, so that Pinnacle can make an informed decision regarding any excess costs.
VIII. Closing Conditions and Timeline
A. Conditions to Closing
The closing of the Series A financing will be subject to the satisfaction (or waiver) of customary conditions, which we expect to include the following:
1. Satisfactory completion of due diligence — legal, intellectual property, financial, and technical due diligence to be conducted by Calderwood & Harkness and Pinnacle's internal team, in each case to Pinnacle's reasonable satisfaction;
2. Execution and delivery of all definitive transaction documents — including, without limitation, the Stock Purchase Agreement ("SPA"), the Amended and Restated Certificate of Incorporation (the "Restated Charter"), the Investors' Rights Agreement, the Voting Agreement, the Right of First Refusal and Co-Sale Agreement, management rights letters (as applicable), legal opinions, and all ancillary documents and instruments;
3. Filing of the Amended and Restated Certificate of Incorporation with the Secretary of State of the State of Delaware, with evidence of such filing to be delivered to the investors at or prior to closing;