1042-00003 · Whitmore & Falk LLP · Analysis

board-update-memo.docx DOCUMENT Litigation

1 / 12 → ✕

PRIVILEGED & CONFIDENTIAL ATTORNEY-CLIENT COMMUNICATION — ATTORNEY WORK PRODUCT

MEMORANDUM

September 13, 2023

FROM: Catherine Bloom, Partner, intellectual Property Calderwood & Harkness LLP 700 Louisiana Street, Suite 3400 Houston, TX 77002

TO:

Priya Chandrasekaran, Chief Executive Officer Brightfield Cloud Services Inc.

Daniel Oshiro, General Counsel Brightfield Cloud Services Inc.

Graham Hollister, Managing Director Vantage Summit Capital Partners, LP (Board Observer)

RE: Status Update — Proposed Inbound Exclusive Technology License from Nexilis Innovations Ltd. (DeltaSync Platform)

Matter No.: 1042-00003

Billing Code: BCS-NEXILIS-LIC-2023

I. Executive Summary

Calderwood & Harkness LLP provides this privileged memorandum to update the board of directors, executive leadership, and senior management of Brightfield Cloud Services Inc. ("Brightfield"), together with Vantage Summit Capital Partners, LP ("Vantage Summit"), Brightfield's majority equity holder (board observer: Graham Hollister), on the current status of the proposed exclusive technology license from Nexilis Innovations Ltd. ("Nexilis") for the DeltaSync distributed-cache orchestration platform (the "DeltaSync Platform" or "DeltaSync").

This matter was opened on June 8, 2023, when Brightfield executed an engagement letter retaining Calderwood & Harkness LLP as outside intellectual property counsel for this transaction. Over the course of approximately fourteen (14) weeks, the parties and their respective counsel have engaged in extensive negotiations concerning the terms of a Technology License Agreement (the "License Agreement" or "TLA") under which Brightfield would acquire an exclusive inbound license to the DeltaSync technology for integration into Brightfield's Stratos enterprise cloud-management platform. The aggregate license fee under the proposed transaction is Eight Million Dollars ($8,000,000), structured as a fully paid-up license with no per-unit royalties within the permitted field of use.

Despite meaningful progress on a number of material terms — including intellectual property indemnification, audit rights, and maintenance and support obligations — negotiations have reached a critical impasse on the scope of the permitted field of use. As described in detail in Section V of this memorandum, Nexilis insists on restricting the license to Brightfield's deployment of DeltaSync solely for end-customers in two industry verticals: (a) financial services (Standard Industrial Classification ("SIC") codes 6000–6799) and (b) healthcare (SIC codes 8000–8099). Brightfield, by contrast, requires an unrestricted enterprise SaaS field of use — one that permits deployment of DeltaSync across all industry verticals served by the Stratos platform — in order to justify the $8,000,000 investment commercially and strategically.

In an effort to bridge this gap, Brightfield submitted a tiered-unlock compromise proposal to Nexilis on September 5, 2023, which would have provided a base license for the financial services and healthcare verticals at $5,200,000, with a paid expansion option to unlock all enterprise SaaS verticals for an additional $4,800,000 (bringing the aggregate consideration to $10,000,000). This proposal was formally rejected by Nexilis on September 10, 2023. Nexilis cited existing exclusivity commitments to portfolio companies of its lead investor, Ridgeline Ventures, operating in other industry verticals as the reason it could not expand the field of use — even on an option basis. Nexilis did not offer a counterproposal.

A final negotiation call between the parties and their respective counsel is scheduled for September 14, 2023. Calderwood & Harkness recommends that Brightfield enter that call prepared to terminate the transaction if the field-of-use impasse cannot be resolved on terms consistent with Brightfield's commercial requirements. Our specific recommendations are set forth in Section VIII below, and the requested board actions are enumerated in Section IX.

II. Background and Parties

A. Brightfield Cloud Services Inc.

Brightfield Cloud Services Inc. is a Delaware corporation headquartered at 4200 Bluebonnet Parkway, Suite 1100, Austin, Texas 78745. Brightfield operates as an enterprise SaaS platform and hybrid-cloud hardware appliance company, offering the "Stratos" cloud-management platform to mid-market and enterprise customers across multiple industry verticals. The Stratos platform is designed to be industry-agnostic, providing unified cloud orchestration, workload management, and infrastructure analytics to customers in sectors including, without limitation, financial services, healthcare, technology, telecommunications, retail, manufacturing, energy, and government.

For the fiscal year ended December 31, 2022 ("FY2022"), Brightfield reported annual recurring revenue ("ARR") of approximately One Hundred Forty-Two Million Dollars ($142,000,000). The company employs approximately 620 full-time employees across its Austin headquarters, satellite engineering offices, and field sales operations.

Brightfield is a portfolio company of Vantage Summit Capital Partners, LP, a growth-equity fund with principal offices at 555 California Street, Suite 2900, San Francisco, California 94104. Vantage Summit holds a majority equity position in Brightfield and maintains board observer rights through Graham Hollister, Managing Director. The investment thesis underlying Vantage Summit's acquisition of its equity stake in Brightfield contemplates cross-vertical growth and expansion of the Stratos platform's addressable market across all enterprise segments — a strategic objective directly relevant to the field-of-use issue that is the subject of this memorandum.

The following key Brightfield personnel have been actively involved in the DeltaSync license negotiation:

• Priya Chandrasekaran, Chief Executive Officer — executive sponsor of the transaction and primary decision-maker on strategic terms;

• Marcus Vail, Chief Technology Officer — responsible for technical diligence on the DeltaSync Platform and assessment of integration requirements with Stratos;

• Lisa Redmond, Vice President, Corporate Development & Strategy — lead business negotiator for Brightfield on deal terms and commercial structure; and

• Daniel Oshiro, General Counsel — primary legal point of contact for Brightfield and liaison with Calderwood & Harkness LLP.

B. Nexilis Innovations Ltd.

Nexilis Innovations Ltd. is a Delaware corporation with its principal offices at 77 Kendall Square, Suite 400, Cambridge, Massachusetts 02139. Nexilis is a deep-technology research and development firm founded in 2017 by Dr. Samira Hajjar and Dr. Eoin Callahan, both former researchers at the Massachusetts Institute of Technology ("MIT"). The company focuses on advanced distributed-systems technology, with particular expertise in cache coherence protocols, data synchronization algorithms, and low-latency networking architectures.

Nexilis holds a significant patent portfolio relating to the DeltaSync distributed-cache orchestration technology, comprising fourteen (14) issued United States utility patents (U.S. Patent Nos. 11,234,567 through 11,234,580) and six (6) pending United States patent applications (Application Nos. 17/901,201 through 17/901,206). The issued patents and pending applications collectively cover the core algorithms, system architectures, and methods of operation underlying the DeltaSync Platform. A detailed analysis of this patent portfolio was conducted by Crestline Patent Analytics LLC as part of the freedom-to-operate investigation described in Section IV below.

Nexilis derives its revenue primarily from technology licensing arrangements and sponsored research agreements. For FY2022, Nexilis reported revenue of approximately Thirty-One Million Dollars ($31,000,000). The company employs approximately 85 full-time employees, the majority of whom are research scientists and engineers.

Nexilis has been funded through a Series B equity financing round led by Ridgeline Ventures, a venture capital firm based in Menlo Park, California, with co-investment from Ashcroft Meridian Partners, based in New York, New York. As discussed in greater detail in Section V below, Nexilis's relationship with Ridgeline Ventures has proven to be a material factor in the field-of-use impasse, as Nexilis has represented that it has pre-existing exclusivity commitments to Ridgeline Ventures-backed portfolio companies operating in industry verticals other than financial services and healthcare.

The following key Nexilis personnel and outside counsel have been actively involved in the negotiation:

• Dr. Samira Hajjar, Chief Executive Officer and co-founder;

• Rebekah Tran, Vice President, Business Development & Licensing — Nexilis's lead business negotiator;

• Nathan Woolsey, General Counsel — Nexilis's in-house legal contact;

• Joanna Whitmore, Managing Partner, Whitmore & Falk LLP (100 Federal Street, 28th Floor, Boston, Massachusetts 02110) — lead outside counsel for Nexilis; and

• Derek Sung, Senior Associate, Whitmore & Falk LLP — supporting outside counsel.

C. The Licensed Technology — DeltaSync Platform

The DeltaSync Platform is a proprietary distributed-cache orchestration engine designed to enable sub-millisecond data synchronization across geographically dispersed cloud computing nodes. The technology addresses a fundamental challenge in modern multi-region cloud deployments: maintaining cache coherence — that is, ensuring that data stored in local caches at different geographic locations remains consistent in near-real-time — without introducing unacceptable latency or data integrity risks.

Brightfield's strategic objective in pursuing the DeltaSync license is to integrate the DeltaSync engine into the Stratos enterprise cloud-management platform, thereby enabling Brightfield's customers to achieve real-time cache coherence for multi-region deployments managed through Stratos. This capability would represent a significant competitive differentiator for the Stratos platform in the enterprise cloud-management market and would be expected to drive incremental ARR growth across all industry verticals served by Brightfield.

The technical diligence conducted by Marcus Vail and his engineering team, in coordination with the patent landscape analysis performed by Crestline Patent Analytics LLC, has confirmed that the DeltaSync technology is well-suited to integration with the Stratos platform architecture and that the core functionality represented by Nexilis is technically sound. The integration would, however, require meaningful engineering effort on Brightfield's part, and — as discussed in Section VI.A below — the Stratos platform architecture does not readily support vertical-specific feature gating, which has implications for the commercial viability of a narrow field-of-use restriction.

D. Engagement of Calderwood & Harkness LLP

Calderwood & Harkness LLP was retained as outside intellectual property counsel to Brightfield in connection with this transaction. The engagement letter was signed by Daniel Oshiro on behalf of Brightfield on June 8, 2023. The scope of the engagement encompasses negotiation and drafting of the Technology License Agreement, coordination of intellectual property diligence (including the retention of Crestline Patent Analytics LLC for patent landscape and freedom-to-operate analysis), and provision of strategic legal advice to the Brightfield board and executive team regarding the transaction.

The Calderwood & Harkness engagement team consists of:

• Catherine Bloom, Partner, intellectual Property (Houston office) — Responsible Partner and lead negotiator;

• Alan Ngo, Partner, intellectual Property (Palo Alto office) — Billing Partner;

• Wendy Schultz, Senior Associate, intellectual Property (Houston office) — Lead Associate, responsible for day-to-day drafting and negotiation communications; and

• Omar Siddiqui, Associate, intellectual Property (Houston office) — Working Associate, supporting research, diligence, and document preparation.

III. Proposed Deal Terms

The following summarizes the principal commercial terms of the proposed Technology License Agreement as they currently stand, reflecting the points of agreement reached during the negotiation process. The critical unresolved issue — the scope of the permitted field of use — is addressed separately in Section V.

A. License Fee Structure

The parties have agreed in principle on an aggregate license fee of Eight Million Dollars ($8,000,000), structured as a fully paid-up license with no per-unit royalties, per-seat charges, or usage-based fees within the permitted field of use. The payment structure is as follows:

• Upfront License Fee: Three Million Two Hundred Thousand Dollars ($3,200,000), representing forty percent (40%) of the aggregate license fee, payable upon execution of the License Agreement.

• Annual Maintenance and Support Payments: One Million Six Hundred Thousand Dollars ($1,600,000) per year for three (3) consecutive years following the effective date, for a total of Four Million Eight Hundred Thousand Dollars ($4,800,000). These payments represent the balance of the aggregate license fee (i.e., $8,000,000 minus $3,200,000 = $4,800,000, divided equally across three annual installments) and also encompass Nexilis's obligation to provide technical support, maintenance updates, bug fixes, and compatibility patches for the DeltaSync Platform during the initial three-year maintenance period.

The fully paid-up structure was a priority for Brightfield, as it provides cost certainty and avoids the administrative burden and potential for dispute associated with royalty-based models. Nexilis initially proposed a hybrid royalty structure in its initial term sheet (June 12, 2023) but agreed to the fully paid-up model during the Draft 1 to Draft 2 negotiation cycle.

B. License Term

The proposed license term is five (5) years from the effective date of the License Agreement. At the expiration of the initial five-year term, Brightfield would have the option to renew the license for successive two (2)-year terms, subject to the payment of renewal fees to be negotiated at the time of each renewal. The specific renewal fee mechanism and any associated escalation provisions remain subject to further negotiation but are not among the principal open issues.

C. Exclusivity

The proposed license would be an exclusive license within the permitted field of use. This means that, within whatever field of use is ultimately agreed upon, Nexilis would be prohibited from granting licenses to the DeltaSync technology to any third party, and Nexilis itself would be prohibited from competing with Brightfield's deployment of DeltaSync within that field. The exclusivity provision was a fundamental requirement for Brightfield and was agreed to by Nexilis in the initial term sheet, subject to the field-of-use limitation.

It is the interaction between the exclusivity provision and the narrow field-of-use restriction demanded by Nexilis that lies at the heart of the current impasse: while Brightfield would hold exclusive rights within the licensed verticals, Nexilis would retain the ability to license DeltaSync to competitors of Brightfield (or to other parties) for deployment in all other industry verticals, including technology, telecommunications, retail, manufacturing, energy, and government.

D. Governing Law

The parties have agreed that the License Agreement will be governed by the laws of the State of Delaware, without giving effect to principles of conflicts of laws. This selection is consistent with the corporate domicile of both Brightfield and Nexilis and is not a point of contention between the parties.

IV. Negotiation Timeline

Set forth below is a chronological summary of the key events and milestones in the negotiation of the DeltaSync Technology License Agreement from the opening of the engagement through the date of this memorandum.

June 8, 2023 — Calderwood & Harkness LLP engagement opened. Engagement letter executed by Daniel Oshiro, General Counsel of Brightfield. Matter number 1042-00003 assigned. Billing code BCS-NEXILIS-LIC-2023 established.

June 12, 2023 — Nexilis delivered its initial term sheet to Brightfield via Whitmore & Falk LLP. The term sheet outlined the principal commercial terms proposed by Nexilis, including an $8,000,000 aggregate license fee, a hybrid royalty component (subsequently abandoned), a five-year license term, and — notably — a field-of-use limitation to financial services and healthcare verticals. Calderwood & Harkness and Brightfield management reviewed the term sheet and identified the field-of-use limitation as a significant concern at the outset.

June 19, 2023 — A mutual Confidentiality and Non-Disclosure Agreement (the "NDA") was executed between Brightfield and Nexilis. The NDA governs the exchange of proprietary and confidential information between the parties in connection with the evaluation and negotiation of the proposed license transaction. The NDA includes standard provisions regarding the return and destruction of confidential information upon termination of discussions, which will be relevant in the event the transaction is not consummated.

June 26, 2023 — Calderwood & Harkness retained Crestline Patent Analytics LLC ("Crestline"), an intellectual property consulting firm based in Arlington, Virginia, to conduct a comprehensive freedom-to-operate ("FTO") analysis and patent-portfolio evaluation of the DeltaSync intellectual property. The engagement was led by Dr. Vanessa Polk, a principal at Crestline with extensive experience in distributed-systems and cloud-computing patent portfolios. The objective of the Crestline engagement was twofold: (i) to confirm the strength and scope of the DeltaSync patent portfolio and (ii) to identify any third-party patents that might present freedom-to-operate concerns for Brightfield's intended integration of DeltaSync into the Stratos platform.

July 10, 2023 — Crestline delivered its preliminary patent landscape memorandum (the "Crestline Memo"). The Crestline Memo concluded that the fourteen issued Nexilis patents and six pending applications collectively provide robust coverage of the core DeltaSync technology. The FTO analysis did not identify any disqualifying blocking patents held by third parties. However, the Crestline Memo recommended further investigation of two third-party patent families — one held by a large cloud-infrastructure provider and one held by a university research institution — that present potential, though not certain, freedom-to-operate considerations depending on the specific implementation architecture selected for the Stratos integration. Calderwood & Harkness communicated the Crestline findings to Daniel Oshiro and Marcus Vail and recommended that the two flagged patent families be monitored but that they did not constitute a basis for discontinuing negotiations at that time.

July 17, 2023 — Calderwood & Harkness delivered the initial draft Technology License Agreement ("Draft 1") to Whitmore & Falk on behalf of Brightfield. Draft 1 was a comprehensive license agreement prepared by Calderwood & Harkness reflecting Brightfield's position on all material terms. Critically, Draft 1 defined the "Permitted Field of Use" broadly to encompass all enterprise SaaS verticals and deployment contexts without any industry-specific restriction. Draft 1 also included Brightfield's preferred provisions on intellectual property indemnification, sublicensing rights, source code escrow, maintenance and support obligations, and termination rights.

July 31, 2023 — Whitmore & Falk returned a comprehensive redline of the License Agreement ("Draft 2") reflecting Nexilis's counter-positions. The most significant change introduced in Draft 2 was the insertion of a narrow field-of-use definition restricting Brightfield's deployment of DeltaSync exclusively to end-customers in two industry verticals: (a) financial services, defined by reference to SIC codes 6000–6799, and (b) healthcare, defined by reference to SIC codes 8000–8099. This restriction was implemented through a detailed "Permitted Field of Use" definition in the License Agreement and was reinforced by corresponding limitations in the grant-of-license clause, the exclusivity provision, and the sublicensing provisions. In addition to the field-of-use restriction, Draft 2 introduced several other material changes, including: (i) reduced caps on Nexilis's intellectual property indemnification obligations; (ii) limitations on Brightfield's ability to sublicense the DeltaSync technology to resellers and channel partners; and (iii) expanded audit rights permitting Nexilis to conduct annual compliance audits of Brightfield's use of DeltaSync to verify compliance with the field-of-use restriction.

August 14, 2023 — Calderwood & Harkness delivered a revised License Agreement ("Draft 3") to Whitmore & Falk. Draft 3 rejected the narrow field-of-use definition and restored the broad, unrestricted enterprise SaaS field-of-use language from Draft 1. Draft 3 also included revised compromise provisions on sublicensing (permitting sublicensing to authorized resellers subject to prior written notice to Nexilis) and an updated intellectual property indemnification structure that increased the indemnification cap relative to Nexilis's Draft 2 proposal while remaining below Brightfield's original Draft 1 position. The field-of-use issue, however, was presented as a non-negotiable priority for Brightfield.

August 28, 2023 — Recognizing that the field-of-use issue had become the central obstacle to reaching agreement, the parties agreed to set aside the comprehensive license agreement drafts and instead exchange dedicated field-of-use term sheets focused exclusively on resolving the scope of the permitted field of use. On August 28, the parties exchanged these focused term sheets, which identified four remaining open issues, all of which centered on the scope and definition of the permitted field of use: (i) the specific industry verticals to be included; (ii) the SIC code definitions and boundary cases; (iii) whether an expansion mechanism would be available; and (iv) the treatment of multi-vertical customers whose operations span both included and excluded verticals.

September 5, 2023 — Brightfield submitted its tiered-unlock compromise proposal (described in detail in Section V.C below) via Calderwood & Harkness to Whitmore & Falk, requesting a formal response from Nexilis by September 12, 2023.

September 10, 2023 — Nexilis formally rejected the tiered-unlock proposal. Whitmore & Falk communicated the rejection to Calderwood & Harkness by letter, stating that Nexilis's existing exclusivity commitments to Ridgeline Ventures-backed portfolio companies operating in industry verticals other than financial services and healthcare prevented Nexilis from granting Brightfield an expansion option or any other mechanism to access additional verticals in the future. Nexilis did not offer a counterproposal. No alternative path to resolution was suggested.

September 13, 2023 (today) — This memorandum is being delivered to the named addressees to provide an update on the status of negotiations and to seek authorization for the actions described in Section IX.

September 14, 2023 (scheduled) — A final negotiation call between the parties and their respective counsel is scheduled for September 14, 2023. The purpose of this call is discussed in Section VII below.

V. The Field-of-Use Impasse

The field-of-use issue has emerged as the single most significant obstacle to completion of the DeltaSync license transaction. Despite extensive negotiation across multiple drafts and dedicated term-sheet exchanges, the parties remain fundamentally apart on the scope of the industry verticals in which Brightfield would be permitted to deploy the DeltaSync technology. This section describes the positions of the parties, the compromise proposal advanced by Brightfield, and Nexilis's rejection of that proposal.

A. Nexilis's Position

Nexilis has maintained, consistently and without meaningful movement, that the license must be restricted to Brightfield's deployment of DeltaSync solely for end-customers operating in two industry verticals:

(a) Financial Services — defined by reference to Standard Industrial Classification ("SIC") codes 6000 through 6799, encompassing depository institutions, non-depository credit institutions, security and commodity brokers, insurance carriers, insurance agents, real estate, and holding and other investment offices; and

(b) Healthcare — defined by reference to SIC codes 8000 through 8099, encompassing health services including offices and clinics of doctors of medicine, offices and clinics of dentists, offices and clinics of doctors of osteopathy, offices and clinics of other health practitioners, nursing and personal care facilities, hospitals, medical and dental laboratories, home health care services, and health services not elsewhere classified.

Nexilis's stated rationale for the narrow field-of-use restriction is its desire to preserve its ability to license the DeltaSync technology separately to licensees operating in other industry verticals — specifically, technology, telecommunications, and government. Nexilis has represented that the DeltaSync technology has broad applicability and that Nexilis's long-term business model depends on its ability to execute multiple vertical-specific licensing transactions.

More significantly, Nexilis has disclosed that it has pre-existing exclusivity commitments to portfolio companies of its lead investor, Ridgeline Ventures, that operate in industry verticals other than financial services and healthcare. According to Nexilis, these commitments prevent Nexilis from granting Brightfield rights in those verticals, even on an option or contingent basis. Nexilis has declined to provide copies of, or allow Calderwood & Harkness to review, the underlying agreements evidencing these exclusivity commitments, notwithstanding that such review was requested under the protection of the mutual NDA.

B. Brightfield's Position

Brightfield has consistently maintained that a commercially viable DeltaSync license must encompass an unrestricted enterprise SaaS field of use — that is, a field of use permitting Brightfield to deploy DeltaSync as a feature of the Stratos platform for customers in all industry verticals, without limitation.

This position is grounded in the following commercial and strategic considerations:

1. Industry-Agnostic Platform Architecture. The Stratos platform is designed and marketed as an industry-agnostic cloud-management solution. Brightfield's go-to-market strategy, sales organization, and product roadmap are not organized around industry verticals. Restricting a core platform capability (distributed-cache orchestration) to only two verticals would be inconsistent with the fundamental product architecture and market positioning of Stratos.

2. Addressable Revenue Limitation. Brightfield's financial analysis indicates that the financial services and healthcare verticals together represent approximately Thirty-Eight Million Dollars ($38,000,000) in ARR — approximately 26.8% of Brightfield's total ARR of $142,000,000. At this level of addressable revenue, the $8,000,000 license fee cannot be commercially justified. The per-unit cost of the DeltaSync technology relative to the addressable revenue opportunity makes the transaction uneconomic under standard return-on-investment metrics.

3. Cross-Vertical Growth Strategy. Vantage Summit Capital Partners' investment thesis for Brightfield contemplates expansion of the Stratos platform across all enterprise verticals. Accepting a narrow field-of-use restriction would be inconsistent with this growth plan and would effectively preclude Brightfield from deploying a material competitive differentiator for the majority of its customer base.

C. Brightfield's Tiered-Unlock Compromise Proposal (September 5, 2023)

In an effort to bridge the gap between the parties' positions, Brightfield developed and submitted a tiered-unlock compromise proposal on September 5, 2023. The proposal was transmitted by Calderwood & Harkness to Whitmore & Falk via formal letter, with a requested response date of September 12, 2023. The tiered-unlock proposal was structured as follows:

• Base License (Tier 1): An exclusive license for the financial services (SIC codes 6000–6799) and healthcare (SIC codes 8000–8099) verticals at an aggregate license fee of Five Million Two Hundred Thousand Dollars ($5,200,000), representing sixty-five percent (65%) of the originally proposed $8,000,000 aggregate fee. Payment terms for the base license would mirror the structure described in Section III.A, with an upfront payment of $2,080,000 (40% of $5,200,000) and three annual maintenance/support payments of approximately $1,040,000 each.

• Expansion Option (Tier 2): A contractual option, exercisable by Brightfield at any time during the initial five-year license term, to expand the permitted field of use to encompass all enterprise SaaS verticals without industry restriction. Exercise of the expansion option would require payment of an additional Four Million Eight Hundred Thousand Dollars ($4,800,000), bringing the total aggregate consideration to Ten Million Dollars ($10,000,000) — i.e., $5,200,000 (Tier 1) plus $4,800,000 (Tier 2) = $10,000,000. The expansion option was designed to give Nexilis additional compensation for the broader field-of-use grant while allowing Brightfield a pathway to achieve the unrestricted deployment rights it requires.

The tiered-unlock proposal represented a significant concession by Brightfield, both in terms of the increased aggregate consideration ($10,000,000 versus $8,000,000 — a twenty-five percent premium) and in terms of Brightfield's willingness to accept a phased approach to field-of-use expansion rather than insisting on unrestricted rights from the outset.

D. Nexilis's Rejection (September 10, 2023)

Nexilis formally rejected the tiered-unlock compromise proposal on September 10, 2023, two days ahead of the requested September 12 response deadline. The rejection was communicated by Whitmore & Falk to Calderwood & Harkness by letter.

In its rejection, Nexilis stated that its existing exclusivity commitments to Ridgeline Ventures-backed portfolio companies operating in industry verticals other than financial services and healthcare prevent Nexilis from granting Brightfield an expansion option or any other mechanism — whether contingent, conditional, or deferred — to access additional verticals. According to Nexilis, even the granting of a future option to expand the field of use would conflict with its obligations under these existing arrangements.

Critically, Nexilis did not offer a counterproposal. The rejection letter did not suggest any alternative framework for addressing the field-of-use issue, nor did it identify any terms or conditions under which Nexilis might be willing to expand the permitted field of use beyond financial services and healthcare. The absence of a counterproposal is significant and, in Calderwood & Harkness's assessment, suggests that Nexilis's position on this issue is unlikely to change through further negotiation.

VI. Legal and Strategic Analysis

A. Commercial Impact of Narrow Field of Use

The commercial implications of accepting a DeltaSync license restricted to the financial services and healthcare verticals are significant and, in Calderwood & Harkness's assessment, substantially undermine the business case for the transaction.

If the license is restricted to financial services (SIC codes 6000–6799) and healthcare (SIC codes 8000–8099), Brightfield's return on the $8,000,000 investment would be limited to the approximately $38,000,000 in ARR attributable to customers in those two verticals. This represents approximately 26.8% of Brightfield's total ARR of $142,000,000. Under standard return-on-investment analyses, the cost of the DeltaSync license relative to this addressable revenue base is difficult to justify, particularly given the alternative technology paths available to Brightfield (discussed in Section VI.D below).

Moreover, the Stratos platform architecture does not currently support vertical-specific feature gating in a commercially efficient manner. Deploying DeltaSync as a feature available only to customers in two industry verticals — while withholding it from customers in all other verticals — would require material re-engineering effort by Marcus Vail's engineering team. This re-engineering would entail the development and maintenance of a feature-flagging infrastructure that does not currently exist in the Stratos codebase, the creation of vertical-classification logic to identify and categorize customers, and ongoing compliance monitoring to ensure that DeltaSync functionality is not inadvertently made available to customers outside the permitted field of use. The cost and complexity of this re-engineering effort have not been formally estimated but would represent a significant incremental burden on Brightfield's product development resources.

From a strategic perspective, Vantage Summit Capital Partners' investment thesis for Brightfield contemplates cross-vertical growth and the expansion of Stratos's addressable market across all enterprise segments. Accepting a narrow field-of-use restriction that applies a key competitive differentiator to only approximately one-quarter of Brightfield's customer base is fundamentally inconsistent with this growth strategy and would, in effect, create a competitive asymmetry in which Brightfield's customers in the majority of its served verticals would not have access to the cache-coherence capabilities that customers in financial services and healthcare would enjoy.

B. Delaware Law Enforceability of Field-of-Use Restrictions

Under Delaware law — the agreed governing law for the License Agreement — field-of-use restrictions in patent licenses are generally enforceable, provided that such restrictions are clearly defined and do not constitute an unreasonable restraint of trade. Delaware courts have consistently recognized the right of patent holders to segment their licensing rights by field of use, industry vertical, geographic territory, or other commercially reasonable criteria, and to grant exclusive licenses within such segments while retaining or licensing rights in other segments.

Accordingly, if Brightfield were to accept the narrow field-of-use restriction proposed by Nexilis and subsequently deploy the DeltaSync technology for end-customers outside the permitted financial services and healthcare verticals, Brightfield would be exposed to:

(a) Breach of contract claims by Nexilis under the License Agreement, potentially giving rise to damages, injunctive relief, and termination of the license; and

(b) Patent infringement claims by Nexilis (or by any third-party licensee to whom Nexilis has granted rights in other verticals), on the theory that Brightfield's use of DeltaSync outside the permitted field of use exceeds the scope of the license grant and therefore constitutes unauthorized use of the patented technology.

The risk of such claims is not merely theoretical. Given Nexilis's apparent intent to license DeltaSync to other parties in non-financial-services and non-healthcare verticals, and given the involvement of Ridgeline Ventures-backed portfolio companies in those other verticals, Brightfield would face a heightened risk of monitoring and enforcement by parties with both the economic incentive and the legal standing to police the boundaries of Brightfield's field-of-use restriction.

C. Risk of Nexilis's Ridgeline Ventures Exclusivity Commitments

Nexilis's disclosure that Ridgeline Ventures-backed portfolio companies hold exclusivity rights in industry verticals other than financial services and healthcare raises a significant concern that has not been fully resolved during the diligence process.

If Nexilis has already granted exclusive licensing rights to DeltaSync in other verticals — such as technology, telecommunications, or government — then the practical value of a broad DeltaSync license to Brightfield may already be encumbered by the existence of those prior grants. Even if Brightfield were able to negotiate an unrestricted field of use in its own license, the existence of prior exclusive grants to other parties could create overlapping or conflicting exclusivity rights that would give rise to disputes and potential litigation.

Calderwood & Harkness requested that Nexilis provide copies of, or at least summaries of, the exclusivity agreements with Ridgeline Ventures-backed portfolio companies, so that Calderwood & Harkness could assess the scope and nature of those commitments and their potential impact on the rights to be granted to Brightfield. Nexilis declined this request, citing confidentiality obligations under the relevant agreements. Nexilis also declined to provide the information under the protection of the mutual NDA between Brightfield and Nexilis, taking the position that the NDA did not obligate Nexilis to disclose the terms of agreements with third parties.

The inability to review these underlying exclusivity agreements means that Brightfield cannot fully assess: (i) the scope of the exclusive rights that have been granted to third parties; (ii) whether those rights would conflict with a broader license grant to Brightfield; or (iii) the risk that Nexilis's representations about the reasons for the field-of-use restriction are complete and accurate. This informational gap represents a meaningful diligence risk that weighs against proceeding with the transaction on the currently proposed terms.

D. Alternative Technology Paths

In the event that the DeltaSync license transaction is not consummated, Brightfield is not without alternatives. Marcus Vail, Brightfield's Chief Technology Officer, has assessed the feasibility of an internal build of comparable distributed-cache orchestration functionality for the Stratos platform. Based on Mr. Vail's preliminary assessment, communicated to Calderwood & Harkness and to Brightfield management:

• An internal build of distributed-cache functionality comparable to DeltaSync would require an estimated twelve (12) to eighteen (18) months of dedicated engineering effort; and

• The estimated cost of the internal build would be approximately Four Million to Six Million Dollars ($4,000,000–$6,000,000) in engineering resources, including salaries, contractor costs, infrastructure, and testing.

While an internal build would take longer to bring to market than a license of the DeltaSync technology, it would provide Brightfield with full ownership of the resulting intellectual property, eliminate any field-of-use restrictions, and avoid the ongoing dependency on Nexilis for maintenance, support, and future enhancements. The board should weigh this alternative against the stalled license transaction when considering the actions recommended in this memorandum.

It should be noted that Mr. Vail's estimate is preliminary and has not been subjected to a formal project-planning process. Calderwood & Harkness recommends that, if the license transaction is terminated, the board direct Mr. Vail to prepare a detailed project plan and cost estimate for the internal build alternative, as described in the requested board actions in Section IX.

VII. Scheduled Final Negotiation Call — September 14, 2023

A final negotiation call between the principals and counsel for both parties is scheduled for September 14, 2023. The purpose of this call is to determine whether any path to agreement on field-of-use terms exists, or whether the parties must conclude that the transaction cannot be completed on mutually acceptable terms.

The following individuals are expected to participate on behalf of each party:

Brightfield Cloud Services Inc.:

• Daniel Oshiro, General Counsel

• Lisa Redmond, Vice President, Corporate Development & Strategy

• Catherine Bloom, Partner, Calderwood & Harkness LLP

• Wendy Schultz, Senior Associate, Calderwood & Harkness LLP

Nexilis Innovations Ltd.:

• Rebekah Tran, Vice President, Business Development & Licensing

• Nathan Woolsey, General Counsel

• Joanna Whitmore, Managing Partner, Whitmore & Falk LLP

• Derek Sung, Senior Associate, Whitmore & Falk LLP

The call is intended to serve as the final substantive negotiation session between the parties on the field-of-use issue. If the call does not result in a resolution — specifically, if Nexilis does not agree to either an unrestricted enterprise SaaS field of use or the tiered-unlock compromise structure — Calderwood & Harkness recommends that Brightfield communicate to Nexilis on the call itself that Brightfield is terminating negotiations and closing the matter.

VIII. Recommendation

Based on the analysis set forth in this memorandum, Calderwood & Harkness LLP makes the following recommendations to the Brightfield board and executive leadership:

1. Enter the September 14 call prepared to terminate. Brightfield should enter the September 14, 2023 final negotiation call fully prepared to terminate the transaction if the field-of-use impasse is not resolved on that call. The negotiation team should not signal a willingness to continue open-ended discussions or to accept the narrow field-of-use restriction as a basis for further negotiation.

2. Define acceptable outcomes. Specifically, Calderwood & Harkness recommends that Brightfield communicate to Nexilis that only two outcomes are acceptable:

(a) Nexilis agrees to an unrestricted enterprise SaaS field of use at the originally proposed aggregate license fee of Eight Million Dollars ($8,000,000); or

(b) Nexilis agrees to the tiered-unlock structure at an aggregate consideration of Ten Million Dollars ($10,000,000) (base license of $5,200,000 for financial services and healthcare, plus expansion option of $4,800,000 for all enterprise SaaS verticals).

3. Terminate if impasse persists. If Nexilis is unwilling to agree to either of the foregoing outcomes, Calderwood & Harkness's recommendation is to close the matter and terminate negotiations. Continued negotiation in the absence of a realistic path to agreement on the field-of-use issue would not be a productive use of Brightfield's management time, legal resources, or negotiating capital.

4. Post-termination steps. Upon termination of the transaction, Calderwood & Harkness will:

(a) Issue a formal closing letter to Whitmore & Falk confirming the termination of negotiations;

(b) Coordinate the return and destruction of confidential information exchanged between the parties under the NDA (executed June 19, 2023), in accordance with the NDA's provisions governing the treatment of confidential information upon termination of discussions; and

5. Fees and disbursements to date. For the board's awareness, Calderwood & Harkness has, through the date of this memorandum, billed professional fees of $197,450 and disbursements of $42,500 (representing the Crestline Patent Analytics LLC engagement for the freedom-to-operate and patent landscape analysis), for a total of $239,950. This amount is within the range of the original fee estimate provided at the commencement of the engagement ($180,000–$250,000). Additional fees will be incurred in connection with the September 14 call, any post-call communications, and matter-closing activities, and a final invoice will be rendered upon completion of those activities.

IX. Requested Board Actions

Calderwood & Harkness respectfully requests that the Brightfield board take the following actions in connection with this memorandum:

1. Authorize participation in the September 14 call. Authorize Daniel Oshiro (General Counsel) and Lisa Redmond (VP, Corporate Development & Strategy) to participate in the September 14, 2023 final negotiation call with Nexilis, with instructions consistent with the recommendations set forth in Section VIII of this memorandum — specifically, authority to present the two acceptable outcomes (unrestricted field of use at $8,000,000 or tiered-unlock at $10,000,000) and to communicate Brightfield's intent to terminate if neither outcome is achievable.

2. Authorize termination of negotiations. Authorize Brightfield management to terminate negotiations with Nexilis and close the matter if the field-of-use impasse cannot be resolved on the September 14 call on terms consistent with this memorandum.

3. Direct preparation of internal build alternative. Direct Marcus Vail, Chief Technology Officer, to prepare a preliminary project plan, timeline, and cost estimate for an internal build of distributed-cache orchestration functionality comparable to DeltaSync, to be presented to the board in the event that the DeltaSync license transaction is not consummated. Calderwood & Harkness recommends that this project plan be prepared promptly so that the board has a concrete alternative before it in the event of transaction termination.

4. Acknowledge receipt and confirm limited distribution. Acknowledge receipt of this privileged attorney-client memorandum and confirm that distribution has been limited to the named addressees — Priya Chandrasekaran, Daniel Oshiro, and Graham Hollister. This memorandum is protected by the attorney-client privilege and the attorney work product doctrine, and its privileged status may be waived by disclosure to persons other than the named addressees.

X. Contact Information

We are available to discuss any aspect of this memorandum or the DeltaSync license negotiation at your convenience. The following members of the Calderwood & Harkness engagement team may be contacted directly:

Catherine Bloom Partner, intellectual Property Calderwood & Harkness LLP 700 Louisiana Street, Suite 3400 Houston, TX 77002 Direct: (713) 555-4821

Email: cbloom@calderwoodharkness.com

Responsible Partner — overall matter strategy and board-level communications

Alan Ngo Partner, intellectual Property Calderwood & Harkness LLP 525 University Avenue, Suite 800 Palo Alto, CA 94301 Direct: (650) 555-7193

Email: ango@calderwoodharkness.com

Billing Partner — available for billing inquiries, fee estimates, and engagement administration

Wendy Schultz Senior Associate, intellectual Property Calderwood & Harkness LLP 700 Louisiana Street, Suite 3400 Houston, TX 77002 Direct: (713) 555-4837

Email: wschultz@calderwoodharkness.com

Lead Associate — day-to-day contact for document review, negotiation correspondence, and diligence questions

Respectfully submitted,

CALDERWOOD & HARKNESS LLP

By: ________

Catherine Bloom Partner, intellectual Property 700 Louisiana Street, Suite 3400 Houston, TX 77002

Date: September 13, 2023

DISTRIBUTION NOTICE

This memorandum is subject to the attorney-client privilege and the attorney work product doctrine. It has been prepared by Calderwood & Harkness LLP at the request of, and for the exclusive use of, Brightfield Cloud Services Inc. and is intended solely for the named addressees: Priya Chandrasekaran (CEO, Brightfield Cloud Services Inc.), Daniel Oshiro (General Counsel, Brightfield Cloud Services Inc.), and Graham Hollister (Managing Director, Vantage Summit Capital Partners, LP). This memorandum contains confidential legal advice and attorney mental impressions, conclusions, and opinions formed in anticipation of potential litigation and in the course of rendering legal services. Distribution of this memorandum to any person or entity other than the named addressees — whether by forwarding, copying, summarizing, or otherwise disclosing its contents — may result in the waiver of applicable privileges. Do not forward, copy, or disclose this memorandum without prior written authorization from Calderwood & Harkness LLP. If you have received this memorandum in error, please contact Catherine Bloom at (713) 555-4821 immediately and destroy all copies in your possession.

PRIVILEGED & CONFIDENTIAL ATTORNEY-CLIENT COMMUNICATION — ATTORNEY WORK PRODUCT
MEMORANDUM
September 13, 2023
FROM: Catherine Bloom, Partner, intellectual Property Calderwood & Harkness LLP 700 Louisiana Street, Suite 3400 Houston, TX 77002
TO:
Priya Chandrasekaran, Chief Executive Officer Brightfield Cloud Services Inc.
Daniel Oshiro, General Counsel Brightfield Cloud Services Inc.
Graham Hollister, Managing Director Vantage Summit Capital Partners, LP (Board Observer)
RE: Status Update — Proposed Inbound Exclusive Technology License from Nexilis Innovations Ltd. (DeltaSync Platform)
Matter No.: 1042-00003
Billing Code: BCS-NEXILIS-LIC-2023
I. Executive Summary
Calderwood & Harkness LLP provides this privileged memorandum to update the board of directors, executive leadership, and senior management of Brightfield Cloud Services Inc. ("Brightfield"), together with Vantage Summit Capital Partners, LP ("Vantage Summit"), Brightfield's majority equity holder (board observer: Graham Hollister), on the current status of the proposed exclusive technology license from Nexilis Innovations Ltd. ("Nexilis") for the DeltaSync distributed-cache orchestration platform (the "DeltaSync Platform" or "DeltaSync").
This matter was opened on June 8, 2023, when Brightfield executed an engagement letter retaining Calderwood & Harkness LLP as outside intellectual property counsel for this transaction. Over the course of approximately fourteen (14) weeks, the parties and their respective counsel have engaged in extensive negotiations concerning the terms of a Technology License Agreement (the "License Agreement" or "TLA") under which Brightfield would acquire an exclusive inbound license to the DeltaSync technology for integration into Brightfield's Stratos enterprise cloud-management platform. The aggregate license fee under the proposed transaction is Eight Million Dollars ($8,000,000), structured as a fully paid-up license with no per-unit royalties within the permitted field of use.
Despite meaningful progress on a number of material terms — including intellectual property indemnification, audit rights, and maintenance and support obligations — negotiations have reached a critical impasse on the scope of the permitted field of use. As described in detail in Section V of this memorandum, Nexilis insists on restricting the license to Brightfield's deployment of DeltaSync solely for end-customers in two industry verticals: (a) financial services (Standard Industrial Classification ("SIC") codes 6000–6799) and (b) healthcare (SIC codes 8000–8099). Brightfield, by contrast, requires an unrestricted enterprise SaaS field of use — one that permits deployment of DeltaSync across all industry verticals served by the Stratos platform — in order to justify the $8,000,000 investment commercially and strategically.
In an effort to bridge this gap, Brightfield submitted a tiered-unlock compromise proposal to Nexilis on September 5, 2023, which would have provided a base license for the financial services and healthcare verticals at $5,200,000, with a paid expansion option to unlock all enterprise SaaS verticals for an additional $4,800,000 (bringing the aggregate consideration to $10,000,000). This proposal was formally rejected by Nexilis on September 10, 2023. Nexilis cited existing exclusivity commitments to portfolio companies of its lead investor, Ridgeline Ventures, operating in other industry verticals as the reason it could not expand the field of use — even on an option basis. Nexilis did not offer a counterproposal.
A final negotiation call between the parties and their respective counsel is scheduled for September 14, 2023. Calderwood & Harkness recommends that Brightfield enter that call prepared to terminate the transaction if the field-of-use impasse cannot be resolved on terms consistent with Brightfield's commercial requirements. Our specific recommendations are set forth in Section VIII below, and the requested board actions are enumerated in Section IX.
II. Background and Parties
A. Brightfield Cloud Services Inc.
Brightfield Cloud Services Inc. is a Delaware corporation headquartered at 4200 Bluebonnet Parkway, Suite 1100, Austin, Texas 78745. Brightfield operates as an enterprise SaaS platform and hybrid-cloud hardware appliance company, offering the "Stratos" cloud-management platform to mid-market and enterprise customers across multiple industry verticals. The Stratos platform is designed to be industry-agnostic, providing unified cloud orchestration, workload management, and infrastructure analytics to customers in sectors including, without limitation, financial services, healthcare, technology, telecommunications, retail, manufacturing, energy, and government.
For the fiscal year ended December 31, 2022 ("FY2022"), Brightfield reported annual recurring revenue ("ARR") of approximately One Hundred Forty-Two Million Dollars ($142,000,000). The company employs approximately 620 full-time employees across its Austin headquarters, satellite engineering offices, and field sales operations.
Brightfield is a portfolio company of Vantage Summit Capital Partners, LP, a growth-equity fund with principal offices at 555 California Street, Suite 2900, San Francisco, California 94104. Vantage Summit holds a majority equity position in Brightfield and maintains board observer rights through Graham Hollister, Managing Director. The investment thesis underlying Vantage Summit's acquisition of its equity stake in Brightfield contemplates cross-vertical growth and expansion of the Stratos platform's addressable market across all enterprise segments — a strategic objective directly relevant to the field-of-use issue that is the subject of this memorandum.
The following key Brightfield personnel have been actively involved in the DeltaSync license negotiation:
•  Priya Chandrasekaran, Chief Executive Officer — executive sponsor of the transaction and primary decision-maker on strategic terms;
•  Marcus Vail, Chief Technology Officer — responsible for technical diligence on the DeltaSync Platform and assessment of integration requirements with Stratos;
•  Lisa Redmond, Vice President, Corporate Development & Strategy — lead business negotiator for Brightfield on deal terms and commercial structure; and
•  Daniel Oshiro, General Counsel — primary legal point of contact for Brightfield and liaison with Calderwood & Harkness LLP.
B. Nexilis Innovations Ltd.
Nexilis Innovations Ltd. is a Delaware corporation with its principal offices at 77 Kendall Square, Suite 400, Cambridge, Massachusetts 02139. Nexilis is a deep-technology research and development firm founded in 2017 by Dr. Samira Hajjar and Dr. Eoin Callahan, both former researchers at the Massachusetts Institute of Technology ("MIT"). The company focuses on advanced distributed-systems technology, with particular expertise in cache coherence protocols, data synchronization algorithms, and low-latency networking architectures.
Nexilis holds a significant patent portfolio relating to the DeltaSync distributed-cache orchestration technology, comprising fourteen (14) issued United States utility patents (U.S. Patent Nos. 11,234,567 through 11,234,580) and six (6) pending United States patent applications (Application Nos. 17/901,201 through 17/901,206). The issued patents and pending applications collectively cover the core algorithms, system architectures, and methods of operation underlying the DeltaSync Platform. A detailed analysis of this patent portfolio was conducted by Crestline Patent Analytics LLC as part of the freedom-to-operate investigation described in Section IV below.
Nexilis derives its revenue primarily from technology licensing arrangements and sponsored research agreements. For FY2022, Nexilis reported revenue of approximately Thirty-One Million Dollars ($31,000,000). The company employs approximately 85 full-time employees, the majority of whom are research scientists and engineers.
Nexilis has been funded through a Series B equity financing round led by Ridgeline Ventures, a venture capital firm based in Menlo Park, California, with co-investment from Ashcroft Meridian Partners, based in New York, New York. As discussed in greater detail in Section V below, Nexilis's relationship with Ridgeline Ventures has proven to be a material factor in the field-of-use impasse, as Nexilis has represented that it has pre-existing exclusivity commitments to Ridgeline Ventures-backed portfolio companies operating in industry verticals other than financial services and healthcare.
The following key Nexilis personnel and outside counsel have been actively involved in the negotiation:
•  Dr. Samira Hajjar, Chief Executive Officer and co-founder;
•  Rebekah Tran, Vice President, Business Development & Licensing — Nexilis's lead business negotiator;
•  Nathan Woolsey, General Counsel — Nexilis's in-house legal contact;
•  Joanna Whitmore, Managing Partner, Whitmore & Falk LLP (100 Federal Street, 28th Floor, Boston, Massachusetts 02110) — lead outside counsel for Nexilis; and
•  Derek Sung, Senior Associate, Whitmore & Falk LLP — supporting outside counsel.
C. The Licensed Technology — DeltaSync Platform
The DeltaSync Platform is a proprietary distributed-cache orchestration engine designed to enable sub-millisecond data synchronization across geographically dispersed cloud computing nodes. The technology addresses a fundamental challenge in modern multi-region cloud deployments: maintaining cache coherence — that is, ensuring that data stored in local caches at different geographic locations remains consistent in near-real-time — without introducing unacceptable latency or data integrity risks.
Brightfield's strategic objective in pursuing the DeltaSync license is to integrate the DeltaSync engine into the Stratos enterprise cloud-management platform, thereby enabling Brightfield's customers to achieve real-time cache coherence for multi-region deployments managed through Stratos. This capability would represent a significant competitive differentiator for the Stratos platform in the enterprise cloud-management market and would be expected to drive incremental ARR growth across all industry verticals served by Brightfield.
The technical diligence conducted by Marcus Vail and his engineering team, in coordination with the patent landscape analysis performed by Crestline Patent Analytics LLC, has confirmed that the DeltaSync technology is well-suited to integration with the Stratos platform architecture and that the core functionality represented by Nexilis is technically sound. The integration would, however, require meaningful engineering effort on Brightfield's part, and — as discussed in Section VI.A below — the Stratos platform architecture does not readily support vertical-specific feature gating, which has implications for the commercial viability of a narrow field-of-use restriction.
D. Engagement of Calderwood & Harkness LLP
Calderwood & Harkness LLP was retained as outside intellectual property counsel to Brightfield in connection with this transaction. The engagement letter was signed by Daniel Oshiro on behalf of Brightfield on June 8, 2023. The scope of the engagement encompasses negotiation and drafting of the Technology License Agreement, coordination of intellectual property diligence (including the retention of Crestline Patent Analytics LLC for patent landscape and freedom-to-operate analysis), and provision of strategic legal advice to the Brightfield board and executive team regarding the transaction.
The Calderwood & Harkness engagement team consists of:
•  Catherine Bloom, Partner, intellectual Property (Houston office) — Responsible Partner and lead negotiator;
•  Alan Ngo, Partner, intellectual Property (Palo Alto office) — Billing Partner;
•  Wendy Schultz, Senior Associate, intellectual Property (Houston office) — Lead Associate, responsible for day-to-day drafting and negotiation communications; and
•  Omar Siddiqui, Associate, intellectual Property (Houston office) — Working Associate, supporting research, diligence, and document preparation.
III. Proposed Deal Terms
The following summarizes the principal commercial terms of the proposed Technology License Agreement as they currently stand, reflecting the points of agreement reached during the negotiation process. The critical unresolved issue — the scope of the permitted field of use — is addressed separately in Section V.
A. License Fee Structure
The parties have agreed in principle on an aggregate license fee of Eight Million Dollars ($8,000,000), structured as a fully paid-up license with no per-unit royalties, per-seat charges, or usage-based fees within the permitted field of use. The payment structure is as follows:
•  Upfront License Fee: Three Million Two Hundred Thousand Dollars ($3,200,000), representing forty percent (40%) of the aggregate license fee, payable upon execution of the License Agreement.
•  Annual Maintenance and Support Payments: One Million Six Hundred Thousand Dollars ($1,600,000) per year for three (3) consecutive years following the effective date, for a total of Four Million Eight Hundred Thousand Dollars ($4,800,000). These payments represent the balance of the aggregate license fee (i.e., $8,000,000 minus $3,200,000 = $4,800,000, divided equally across three annual installments) and also encompass Nexilis's obligation to provide technical support, maintenance updates, bug fixes, and compatibility patches for the DeltaSync Platform during the initial three-year maintenance period.
The fully paid-up structure was a priority for Brightfield, as it provides cost certainty and avoids the administrative burden and potential for dispute associated with royalty-based models. Nexilis initially proposed a hybrid royalty structure in its initial term sheet (June 12, 2023) but agreed to the fully paid-up model during the Draft 1 to Draft 2 negotiation cycle.
B. License Term
The proposed license term is five (5) years from the effective date of the License Agreement. At the expiration of the initial five-year term, Brightfield would have the option to renew the license for successive two (2)-year terms, subject to the payment of renewal fees to be negotiated at the time of each renewal. The specific renewal fee mechanism and any associated escalation provisions remain subject to further negotiation but are not among the principal open issues.
C. Exclusivity
The proposed license would be an exclusive license within the permitted field of use. This means that, within whatever field of use is ultimately agreed upon, Nexilis would be prohibited from granting licenses to the DeltaSync technology to any third party, and Nexilis itself would be prohibited from competing with Brightfield's deployment of DeltaSync within that field. The exclusivity provision was a fundamental requirement for Brightfield and was agreed to by Nexilis in the initial term sheet, subject to the field-of-use limitation.
It is the interaction between the exclusivity provision and the narrow field-of-use restriction demanded by Nexilis that lies at the heart of the current impasse: while Brightfield would hold exclusive rights within the licensed verticals, Nexilis would retain the ability to license DeltaSync to competitors of Brightfield (or to other parties) for deployment in all other industry verticals, including technology, telecommunications, retail, manufacturing, energy, and government.
D. Governing Law
The parties have agreed that the License Agreement will be governed by the laws of the State of Delaware, without giving effect to principles of conflicts of laws. This selection is consistent with the corporate domicile of both Brightfield and Nexilis and is not a point of contention between the parties.
IV. Negotiation Timeline
Set forth below is a chronological summary of the key events and milestones in the negotiation of the DeltaSync Technology License Agreement from the opening of the engagement through the date of this memorandum.
June 8, 2023 — Calderwood & Harkness LLP engagement opened. Engagement letter executed by Daniel Oshiro, General Counsel of Brightfield. Matter number 1042-00003 assigned. Billing code BCS-NEXILIS-LIC-2023 established.
June 12, 2023 — Nexilis delivered its initial term sheet to Brightfield via Whitmore & Falk LLP. The term sheet outlined the principal commercial terms proposed by Nexilis, including an $8,000,000 aggregate license fee, a hybrid royalty component (subsequently abandoned), a five-year license term, and — notably — a field-of-use limitation to financial services and healthcare verticals. Calderwood & Harkness and Brightfield management reviewed the term sheet and identified the field-of-use limitation as a significant concern at the outset.
June 19, 2023 — A mutual Confidentiality and Non-Disclosure Agreement (the "NDA") was executed between Brightfield and Nexilis. The NDA governs the exchange of proprietary and confidential information between the parties in connection with the evaluation and negotiation of the proposed license transaction. The NDA includes standard provisions regarding the return and destruction of confidential information upon termination of discussions, which will be relevant in the event the transaction is not consummated.
June 26, 2023 — Calderwood & Harkness retained Crestline Patent Analytics LLC ("Crestline"), an intellectual property consulting firm based in Arlington, Virginia, to conduct a comprehensive freedom-to-operate ("FTO") analysis and patent-portfolio evaluation of the DeltaSync intellectual property. The engagement was led by Dr. Vanessa Polk, a principal at Crestline with extensive experience in distributed-systems and cloud-computing patent portfolios. The objective of the Crestline engagement was twofold: (i) to confirm the strength and scope of the DeltaSync patent portfolio and (ii) to identify any third-party patents that might present freedom-to-operate concerns for Brightfield's intended integration of DeltaSync into the Stratos platform.
July 10, 2023 — Crestline delivered its preliminary patent landscape memorandum (the "Crestline Memo"). The Crestline Memo concluded that the fourteen issued Nexilis patents and six pending applications collectively provide robust coverage of the core DeltaSync technology. The FTO analysis did not identify any disqualifying blocking patents held by third parties. However, the Crestline Memo recommended further investigation of two third-party patent families — one held by a large cloud-infrastructure provider and one held by a university research institution — that present potential, though not certain, freedom-to-operate considerations depending on the specific implementation architecture selected for the Stratos integration. Calderwood & Harkness communicated the Crestline findings to Daniel Oshiro and Marcus Vail and recommended that the two flagged patent families be monitored but that they did not constitute a basis for discontinuing negotiations at that time.
July 17, 2023 — Calderwood & Harkness delivered the initial draft Technology License Agreement ("Draft 1") to Whitmore & Falk on behalf of Brightfield. Draft 1 was a comprehensive license agreement prepared by Calderwood & Harkness reflecting Brightfield's position on all material terms. Critically, Draft 1 defined the "Permitted Field of Use" broadly to encompass all enterprise SaaS verticals and deployment contexts without any industry-specific restriction. Draft 1 also included Brightfield's preferred provisions on intellectual property indemnification, sublicensing rights, source code escrow, maintenance and support obligations, and termination rights.
July 31, 2023 — Whitmore & Falk returned a comprehensive redline of the License Agreement ("Draft 2") reflecting Nexilis's counter-positions. The most significant change introduced in Draft 2 was the insertion of a narrow field-of-use definition restricting Brightfield's deployment of DeltaSync exclusively to end-customers in two industry verticals: (a) financial services, defined by reference to SIC codes 6000–6799, and (b) healthcare, defined by reference to SIC codes 8000–8099. This restriction was implemented through a detailed "Permitted Field of Use" definition in the License Agreement and was reinforced by corresponding limitations in the grant-of-license clause, the exclusivity provision, and the sublicensing provisions. In addition to the field-of-use restriction, Draft 2 introduced several other material changes, including: (i) reduced caps on Nexilis's intellectual property indemnification obligations; (ii) limitations on Brightfield's ability to sublicense the DeltaSync technology to resellers and channel partners; and (iii) expanded audit rights permitting Nexilis to conduct annual compliance audits of Brightfield's use of DeltaSync to verify compliance with the field-of-use restriction.
August 14, 2023 — Calderwood & Harkness delivered a revised License Agreement ("Draft 3") to Whitmore & Falk. Draft 3 rejected the narrow field-of-use definition and restored the broad, unrestricted enterprise SaaS field-of-use language from Draft 1. Draft 3 also included revised compromise provisions on sublicensing (permitting sublicensing to authorized resellers subject to prior written notice to Nexilis) and an updated intellectual property indemnification structure that increased the indemnification cap relative to Nexilis's Draft 2 proposal while remaining below Brightfield's original Draft 1 position. The field-of-use issue, however, was presented as a non-negotiable priority for Brightfield.
August 28, 2023 — Recognizing that the field-of-use issue had become the central obstacle to reaching agreement, the parties agreed to set aside the comprehensive license agreement drafts and instead exchange dedicated field-of-use term sheets focused exclusively on resolving the scope of the permitted field of use. On August 28, the parties exchanged these focused term sheets, which identified four remaining open issues, all of which centered on the scope and definition of the permitted field of use: (i) the specific industry verticals to be included; (ii) the SIC code definitions and boundary cases; (iii) whether an expansion mechanism would be available; and (iv) the treatment of multi-vertical customers whose operations span both included and excluded verticals.
September 5, 2023 — Brightfield submitted its tiered-unlock compromise proposal (described in detail in Section V.C below) via Calderwood & Harkness to Whitmore & Falk, requesting a formal response from Nexilis by September 12, 2023.
September 10, 2023 — Nexilis formally rejected the tiered-unlock proposal. Whitmore & Falk communicated the rejection to Calderwood & Harkness by letter, stating that Nexilis's existing exclusivity commitments to Ridgeline Ventures-backed portfolio companies operating in industry verticals other than financial services and healthcare prevented Nexilis from granting Brightfield an expansion option or any other mechanism to access additional verticals in the future. Nexilis did not offer a counterproposal. No alternative path to resolution was suggested.
September 13, 2023 (today) — This memorandum is being delivered to the named addressees to provide an update on the status of negotiations and to seek authorization for the actions described in Section IX.
September 14, 2023 (scheduled) — A final negotiation call between the parties and their respective counsel is scheduled for September 14, 2023. The purpose of this call is discussed in Section VII below.
V. The Field-of-Use Impasse
The field-of-use issue has emerged as the single most significant obstacle to completion of the DeltaSync license transaction. Despite extensive negotiation across multiple drafts and dedicated term-sheet exchanges, the parties remain fundamentally apart on the scope of the industry verticals in which Brightfield would be permitted to deploy the DeltaSync technology. This section describes the positions of the parties, the compromise proposal advanced by Brightfield, and Nexilis's rejection of that proposal.
A. Nexilis's Position
Nexilis has maintained, consistently and without meaningful movement, that the license must be restricted to Brightfield's deployment of DeltaSync solely for end-customers operating in two industry verticals:
(a) Financial Services — defined by reference to Standard Industrial Classification ("SIC") codes 6000 through 6799, encompassing depository institutions, non-depository credit institutions, security and commodity brokers, insurance carriers, insurance agents, real estate, and holding and other investment offices; and
(b) Healthcare — defined by reference to SIC codes 8000 through 8099, encompassing health services including offices and clinics of doctors of medicine, offices and clinics of dentists, offices and clinics of doctors of osteopathy, offices and clinics of other health practitioners, nursing and personal care facilities, hospitals, medical and dental laboratories, home health care services, and health services not elsewhere classified.
Nexilis's stated rationale for the narrow field-of-use restriction is its desire to preserve its ability to license the DeltaSync technology separately to licensees operating in other industry verticals — specifically, technology, telecommunications, and government. Nexilis has represented that the DeltaSync technology has broad applicability and that Nexilis's long-term business model depends on its ability to execute multiple vertical-specific licensing transactions.
More significantly, Nexilis has disclosed that it has pre-existing exclusivity commitments to portfolio companies of its lead investor, Ridgeline Ventures, that operate in industry verticals other than financial services and healthcare. According to Nexilis, these commitments prevent Nexilis from granting Brightfield rights in those verticals, even on an option or contingent basis. Nexilis has declined to provide copies of, or allow Calderwood & Harkness to review, the underlying agreements evidencing these exclusivity commitments, notwithstanding that such review was requested under the protection of the mutual NDA.
B. Brightfield's Position
Brightfield has consistently maintained that a commercially viable DeltaSync license must encompass an unrestricted enterprise SaaS field of use — that is, a field of use permitting Brightfield to deploy DeltaSync as a feature of the Stratos platform for customers in all industry verticals, without limitation.
This position is grounded in the following commercial and strategic considerations:
1.  Industry-Agnostic Platform Architecture. The Stratos platform is designed and marketed as an industry-agnostic cloud-management solution. Brightfield's go-to-market strategy, sales organization, and product roadmap are not organized around industry verticals. Restricting a core platform capability (distributed-cache orchestration) to only two verticals would be inconsistent with the fundamental product architecture and market positioning of Stratos.
2.  Addressable Revenue Limitation. Brightfield's financial analysis indicates that the financial services and healthcare verticals together represent approximately Thirty-Eight Million Dollars ($38,000,000) in ARR — approximately 26.8% of Brightfield's total ARR of $142,000,000. At this level of addressable revenue, the $8,000,000 license fee cannot be commercially justified. The per-unit cost of the DeltaSync technology relative to the addressable revenue opportunity makes the transaction uneconomic under standard return-on-investment metrics.
3.  Cross-Vertical Growth Strategy. Vantage Summit Capital Partners' investment thesis for Brightfield contemplates expansion of the Stratos platform across all enterprise verticals. Accepting a narrow field-of-use restriction would be inconsistent with this growth plan and would effectively preclude Brightfield from deploying a material competitive differentiator for the majority of its customer base.
C. Brightfield's Tiered-Unlock Compromise Proposal (September 5, 2023)
In an effort to bridge the gap between the parties' positions, Brightfield developed and submitted a tiered-unlock compromise proposal on September 5, 2023. The proposal was transmitted by Calderwood & Harkness to Whitmore & Falk via formal letter, with a requested response date of September 12, 2023. The tiered-unlock proposal was structured as follows:
•  Base License (Tier 1): An exclusive license for the financial services (SIC codes 6000–6799) and healthcare (SIC codes 8000–8099) verticals at an aggregate license fee of Five Million Two Hundred Thousand Dollars ($5,200,000), representing sixty-five percent (65%) of the originally proposed $8,000,000 aggregate fee. Payment terms for the base license would mirror the structure described in Section III.A, with an upfront payment of $2,080,000 (40% of $5,200,000) and three annual maintenance/support payments of approximately $1,040,000 each.
•  Expansion Option (Tier 2): A contractual option, exercisable by Brightfield at any time during the initial five-year license term, to expand the permitted field of use to encompass all enterprise SaaS verticals without industry restriction. Exercise of the expansion option would require payment of an additional Four Million Eight Hundred Thousand Dollars ($4,800,000), bringing the total aggregate consideration to Ten Million Dollars ($10,000,000) — i.e., $5,200,000 (Tier 1) plus $4,800,000 (Tier 2) = $10,000,000. The expansion option was designed to give Nexilis additional compensation for the broader field-of-use grant while allowing Brightfield a pathway to achieve the unrestricted deployment rights it requires.
The tiered-unlock proposal represented a significant concession by Brightfield, both in terms of the increased aggregate consideration ($10,000,000 versus $8,000,000 — a twenty-five percent premium) and in terms of Brightfield's willingness to accept a phased approach to field-of-use expansion rather than insisting on unrestricted rights from the outset.
D. Nexilis's Rejection (September 10, 2023)
Nexilis formally rejected the tiered-unlock compromise proposal on September 10, 2023, two days ahead of the requested September 12 response deadline. The rejection was communicated by Whitmore & Falk to Calderwood & Harkness by letter.
In its rejection, Nexilis stated that its existing exclusivity commitments to Ridgeline Ventures-backed portfolio companies operating in industry verticals other than financial services and healthcare prevent Nexilis from granting Brightfield an expansion option or any other mechanism — whether contingent, conditional, or deferred — to access additional verticals. According to Nexilis, even the granting of a future option to expand the field of use would conflict with its obligations under these existing arrangements.
Critically, Nexilis did not offer a counterproposal. The rejection letter did not suggest any alternative framework for addressing the field-of-use issue, nor did it identify any terms or conditions under which Nexilis might be willing to expand the permitted field of use beyond financial services and healthcare. The absence of a counterproposal is significant and, in Calderwood & Harkness's assessment, suggests that Nexilis's position on this issue is unlikely to change through further negotiation.
VI. Legal and Strategic Analysis
A. Commercial Impact of Narrow Field of Use
The commercial implications of accepting a DeltaSync license restricted to the financial services and healthcare verticals are significant and, in Calderwood & Harkness's assessment, substantially undermine the business case for the transaction.
If the license is restricted to financial services (SIC codes 6000–6799) and healthcare (SIC codes 8000–8099), Brightfield's return on the $8,000,000 investment would be limited to the approximately $38,000,000 in ARR attributable to customers in those two verticals. This represents approximately 26.8% of Brightfield's total ARR of $142,000,000. Under standard return-on-investment analyses, the cost of the DeltaSync license relative to this addressable revenue base is difficult to justify, particularly given the alternative technology paths available to Brightfield (discussed in Section VI.D below).
Moreover, the Stratos platform architecture does not currently support vertical-specific feature gating in a commercially efficient manner. Deploying DeltaSync as a feature available only to customers in two industry verticals — while withholding it from customers in all other verticals — would require material re-engineering effort by Marcus Vail's engineering team. This re-engineering would entail the development and maintenance of a feature-flagging infrastructure that does not currently exist in the Stratos codebase, the creation of vertical-classification logic to identify and categorize customers, and ongoing compliance monitoring to ensure that DeltaSync functionality is not inadvertently made available to customers outside the permitted field of use. The cost and complexity of this re-engineering effort have not been formally estimated but would represent a significant incremental burden on Brightfield's product development resources.
From a strategic perspective, Vantage Summit Capital Partners' investment thesis for Brightfield contemplates cross-vertical growth and the expansion of Stratos's addressable market across all enterprise segments. Accepting a narrow field-of-use restriction that applies a key competitive differentiator to only approximately one-quarter of Brightfield's customer base is fundamentally inconsistent with this growth strategy and would, in effect, create a competitive asymmetry in which Brightfield's customers in the majority of its served verticals would not have access to the cache-coherence capabilities that customers in financial services and healthcare would enjoy.
B. Delaware Law Enforceability of Field-of-Use Restrictions
Under Delaware law — the agreed governing law for the License Agreement — field-of-use restrictions in patent licenses are generally enforceable, provided that such restrictions are clearly defined and do not constitute an unreasonable restraint of trade. Delaware courts have consistently recognized the right of patent holders to segment their licensing rights by field of use, industry vertical, geographic territory, or other commercially reasonable criteria, and to grant exclusive licenses within such segments while retaining or licensing rights in other segments.
Accordingly, if Brightfield were to accept the narrow field-of-use restriction proposed by Nexilis and subsequently deploy the DeltaSync technology for end-customers outside the permitted financial services and healthcare verticals, Brightfield would be exposed to:
(a) Breach of contract claims by Nexilis under the License Agreement, potentially giving rise to damages, injunctive relief, and termination of the license; and
(b) Patent infringement claims by Nexilis (or by any third-party licensee to whom Nexilis has granted rights in other verticals), on the theory that Brightfield's use of DeltaSync outside the permitted field of use exceeds the scope of the license grant and therefore constitutes unauthorized use of the patented technology.
The risk of such claims is not merely theoretical. Given Nexilis's apparent intent to license DeltaSync to other parties in non-financial-services and non-healthcare verticals, and given the involvement of Ridgeline Ventures-backed portfolio companies in those other verticals, Brightfield would face a heightened risk of monitoring and enforcement by parties with both the economic incentive and the legal standing to police the boundaries of Brightfield's field-of-use restriction.
C. Risk of Nexilis's Ridgeline Ventures Exclusivity Commitments
Nexilis's disclosure that Ridgeline Ventures-backed portfolio companies hold exclusivity rights in industry verticals other than financial services and healthcare raises a significant concern that has not been fully resolved during the diligence process.
If Nexilis has already granted exclusive licensing rights to DeltaSync in other verticals — such as technology, telecommunications, or government — then the practical value of a broad DeltaSync license to Brightfield may already be encumbered by the existence of those prior grants. Even if Brightfield were able to negotiate an unrestricted field of use in its own license, the existence of prior exclusive grants to other parties could create overlapping or conflicting exclusivity rights that would give rise to disputes and potential litigation.
Calderwood & Harkness requested that Nexilis provide copies of, or at least summaries of, the exclusivity agreements with Ridgeline Ventures-backed portfolio companies, so that Calderwood & Harkness could assess the scope and nature of those commitments and their potential impact on the rights to be granted to Brightfield. Nexilis declined this request, citing confidentiality obligations under the relevant agreements. Nexilis also declined to provide the information under the protection of the mutual NDA between Brightfield and Nexilis, taking the position that the NDA did not obligate Nexilis to disclose the terms of agreements with third parties.
The inability to review these underlying exclusivity agreements means that Brightfield cannot fully assess: (i) the scope of the exclusive rights that have been granted to third parties; (ii) whether those rights would conflict with a broader license grant to Brightfield; or (iii) the risk that Nexilis's representations about the reasons for the field-of-use restriction are complete and accurate. This informational gap represents a meaningful diligence risk that weighs against proceeding with the transaction on the currently proposed terms.
D. Alternative Technology Paths
In the event that the DeltaSync license transaction is not consummated, Brightfield is not without alternatives. Marcus Vail, Brightfield's Chief Technology Officer, has assessed the feasibility of an internal build of comparable distributed-cache orchestration functionality for the Stratos platform. Based on Mr. Vail's preliminary assessment, communicated to Calderwood & Harkness and to Brightfield management:
•  An internal build of distributed-cache functionality comparable to DeltaSync would require an estimated twelve (12) to eighteen (18) months of dedicated engineering effort; and
•  The estimated cost of the internal build would be approximately Four Million to Six Million Dollars ($4,000,000–$6,000,000) in engineering resources, including salaries, contractor costs, infrastructure, and testing.
While an internal build would take longer to bring to market than a license of the DeltaSync technology, it would provide Brightfield with full ownership of the resulting intellectual property, eliminate any field-of-use restrictions, and avoid the ongoing dependency on Nexilis for maintenance, support, and future enhancements. The board should weigh this alternative against the stalled license transaction when considering the actions recommended in this memorandum.
It should be noted that Mr. Vail's estimate is preliminary and has not been subjected to a formal project-planning process. Calderwood & Harkness recommends that, if the license transaction is terminated, the board direct Mr. Vail to prepare a detailed project plan and cost estimate for the internal build alternative, as described in the requested board actions in Section IX.
VII. Scheduled Final Negotiation Call — September 14, 2023
A final negotiation call between the principals and counsel for both parties is scheduled for September 14, 2023. The purpose of this call is to determine whether any path to agreement on field-of-use terms exists, or whether the parties must conclude that the transaction cannot be completed on mutually acceptable terms.
The following individuals are expected to participate on behalf of each party:
Brightfield Cloud Services Inc.:
•  Daniel Oshiro, General Counsel
•  Lisa Redmond, Vice President, Corporate Development & Strategy
•  Catherine Bloom, Partner, Calderwood & Harkness LLP
•  Wendy Schultz, Senior Associate, Calderwood & Harkness LLP
Nexilis Innovations Ltd.:
•  Rebekah Tran, Vice President, Business Development & Licensing
•  Nathan Woolsey, General Counsel
•  Joanna Whitmore, Managing Partner, Whitmore & Falk LLP
•  Derek Sung, Senior Associate, Whitmore & Falk LLP
The call is intended to serve as the final substantive negotiation session between the parties on the field-of-use issue. If the call does not result in a resolution — specifically, if Nexilis does not agree to either an unrestricted enterprise SaaS field of use or the tiered-unlock compromise structure — Calderwood & Harkness recommends that Brightfield communicate to Nexilis on the call itself that Brightfield is terminating negotiations and closing the matter.
VIII. Recommendation
Based on the analysis set forth in this memorandum, Calderwood & Harkness LLP makes the following recommendations to the Brightfield board and executive leadership:
1. Enter the September 14 call prepared to terminate. Brightfield should enter the September 14, 2023 final negotiation call fully prepared to terminate the transaction if the field-of-use impasse is not resolved on that call. The negotiation team should not signal a willingness to continue open-ended discussions or to accept the narrow field-of-use restriction as a basis for further negotiation.
2. Define acceptable outcomes. Specifically, Calderwood & Harkness recommends that Brightfield communicate to Nexilis that only two outcomes are acceptable:
(a) Nexilis agrees to an unrestricted enterprise SaaS field of use at the originally proposed aggregate license fee of Eight Million Dollars ($8,000,000); or
(b) Nexilis agrees to the tiered-unlock structure at an aggregate consideration of Ten Million Dollars ($10,000,000) (base license of $5,200,000 for financial services and healthcare, plus expansion option of $4,800,000 for all enterprise SaaS verticals).
3. Terminate if impasse persists. If Nexilis is unwilling to agree to either of the foregoing outcomes, Calderwood & Harkness's recommendation is to close the matter and terminate negotiations. Continued negotiation in the absence of a realistic path to agreement on the field-of-use issue would not be a productive use of Brightfield's management time, legal resources, or negotiating capital.
4. Post-termination steps. Upon termination of the transaction, Calderwood & Harkness will:
(a) Issue a formal closing letter to Whitmore & Falk confirming the termination of negotiations;
(b) Coordinate the return and destruction of confidential information exchanged between the parties under the NDA (executed June 19, 2023), in accordance with the NDA's provisions governing the treatment of confidential information upon termination of discussions; and
(c) Deliver a final invoice for legal fees and disbursements incurred through the closing of the matter.
5. Fees and disbursements to date. For the board's awareness, Calderwood & Harkness has, through the date of this memorandum, billed professional fees of $197,450 and disbursements of $42,500 (representing the Crestline Patent Analytics LLC engagement for the freedom-to-operate and patent landscape analysis), for a total of $239,950. This amount is within the range of the original fee estimate provided at the commencement of the engagement ($180,000–$250,000). Additional fees will be incurred in connection with the September 14 call, any post-call communications, and matter-closing activities, and a final invoice will be rendered upon completion of those activities.
IX. Requested Board Actions
Calderwood & Harkness respectfully requests that the Brightfield board take the following actions in connection with this memorandum:
1.  Authorize participation in the September 14 call. Authorize Daniel Oshiro (General Counsel) and Lisa Redmond (VP, Corporate Development & Strategy) to participate in the September 14, 2023 final negotiation call with Nexilis, with instructions consistent with the recommendations set forth in Section VIII of this memorandum — specifically, authority to present the two acceptable outcomes (unrestricted field of use at $8,000,000 or tiered-unlock at $10,000,000) and to communicate Brightfield's intent to terminate if neither outcome is achievable.
2.  Authorize termination of negotiations. Authorize Brightfield management to terminate negotiations with Nexilis and close the matter if the field-of-use impasse cannot be resolved on the September 14 call on terms consistent with this memorandum.
3.  Direct preparation of internal build alternative. Direct Marcus Vail, Chief Technology Officer, to prepare a preliminary project plan, timeline, and cost estimate for an internal build of distributed-cache orchestration functionality comparable to DeltaSync, to be presented to the board in the event that the DeltaSync license transaction is not consummated. Calderwood & Harkness recommends that this project plan be prepared promptly so that the board has a concrete alternative before it in the event of transaction termination.
4.  Acknowledge receipt and confirm limited distribution. Acknowledge receipt of this privileged attorney-client memorandum and confirm that distribution has been limited to the named addressees — Priya Chandrasekaran, Daniel Oshiro, and Graham Hollister. This memorandum is protected by the attorney-client privilege and the attorney work product doctrine, and its privileged status may be waived by disclosure to persons other than the named addressees.
X. Contact Information
We are available to discuss any aspect of this memorandum or the DeltaSync license negotiation at your convenience. The following members of the Calderwood & Harkness engagement team may be contacted directly:
Catherine Bloom Partner, intellectual Property Calderwood & Harkness LLP 700 Louisiana Street, Suite 3400 Houston, TX 77002 Direct: (713) 555-4821
Email: cbloom@calderwoodharkness.com
Responsible Partner — overall matter strategy and board-level communications
Alan Ngo Partner, intellectual Property Calderwood & Harkness LLP 525 University Avenue, Suite 800 Palo Alto, CA 94301 Direct: (650) 555-7193
Email: ango@calderwoodharkness.com
Billing Partner — available for billing inquiries, fee estimates, and engagement administration
Wendy Schultz Senior Associate, intellectual Property Calderwood & Harkness LLP 700 Louisiana Street, Suite 3400 Houston, TX 77002 Direct: (713) 555-4837
Email: wschultz@calderwoodharkness.com
Lead Associate — day-to-day contact for document review, negotiation correspondence, and diligence questions
Respectfully submitted,
CALDERWOOD & HARKNESS LLP
By: ________
Catherine Bloom Partner, intellectual Property 700 Louisiana Street, Suite 3400 Houston, TX 77002
Date: September 13, 2023
DISTRIBUTION NOTICE
This memorandum is subject to the attorney-client privilege and the attorney work product doctrine. It has been prepared by Calderwood & Harkness LLP at the request of, and for the exclusive use of, Brightfield Cloud Services Inc. and is intended solely for the named addressees: Priya Chandrasekaran (CEO, Brightfield Cloud Services Inc.), Daniel Oshiro (General Counsel, Brightfield Cloud Services Inc.), and Graham Hollister (Managing Director, Vantage Summit Capital Partners, LP). This memorandum contains confidential legal advice and attorney mental impressions, conclusions, and opinions formed in anticipation of potential litigation and in the course of rendering legal services. Distribution of this memorandum to any person or entity other than the named addressees — whether by forwarding, copying, summarizing, or otherwise disclosing its contents — may result in the waiver of applicable privileges. Do not forward, copy, or disclose this memorandum without prior written authorization from Calderwood & Harkness LLP. If you have received this memorandum in error, please contact Catherine Bloom at (713) 555-4821 immediately and destroy all copies in your possession.

PRIVILEGED & CONFIDENTIAL ATTORNEY-CLIENT COMMUNICATION — ATTORNEY WORK PRODUCT

MEMORANDUM

CALDERWOOD & HARKNESS LLP

DISTRIBUTION NOTICE

Record

Parties

Dates

Amounts