Contract analysis

I. Introduction and Purpose We write on behalf of our client, Pinnacle Venture Fund II LP ("Pinnacle"), a Delaware limited partnership whose general partner is Pinnacle Capital Management LLC, a Delaware limited liability company, in connection with the ongoing negotiations concerning Pinnacle's proposed minority growth equity investment of Sixty Million Dollars ($60,000,000) in Verdana Software, Inc. ("Verdana" or t

II. Background and Transaction Summary As background, the proposed transaction contemplates that Pinnacle would purchase newly issued shares of Series D Preferred Stock of the Company (the "Series D Preferred Stock") for an aggregate purchase price of Sixty Million Dollars ($60,000,000). Pinnacle's investment target is to acquire approximately 18.75% of Verdana's fully-diluted post-closing capitalization. Based on th

III. Revised Valuation Proposal Having carefully evaluated the information and materials provided during the due diligence process, Pinnacle formally proposes a revised pre-money valuation of Two Hundred Sixty Million Dollars ($260,000,000) for the Company. Although this figure represents a reduction from the range that the parties have discussed since early May, Pinnacle believes, for the reasons set forth in detail

IV. Rationale for Revised Valuation — Customer Concentration Risk Pinnacle's revised valuation proposal is informed principally by findings from the due diligence process, which commenced on May 16, 2022, and has involved a comprehensive review of the Company's financial statements, customer contracts, operational data, technology platform, intellectual property portfolio, and competitive positioning. Of particular c

V. Rationale for Revised Valuation — Financial and Operational Considerations In addition to the customer concentration risks discussed above, Pinnacle's revised valuation proposal takes into account the Company's broader financial and operational profile as revealed through the due diligence process. Pinnacle acknowledges that the Company has demonstrated strong growth metrics. In particular, the Company achieved ye

VI. Ongoing Disagreements on Protective Provisions and Deal Terms In addition to the valuation gap that is the primary subject of this letter, Pinnacle wishes to note that the parties remain unable to agree on several material economic and governance terms that bear directly on the risk profile and risk-adjusted return of Pinnacle's proposed $60,000,000 investment. While Pinnacle recognizes that these terms are the s

VII. Pacific Summit Bank — Lender Consent As identified in this firm's review of the Company's credit facility documentation, the issuance of Series D Preferred Stock may trigger one or more negative covenants under the Pacific Summit Facility that restrict the Company from issuing new equity securities, incurring certain equity-linked obligations, or effecting changes to the Company's capitalization without the prio

VIII. Reaffirmation of Interest and Path Forward Notwithstanding the revised valuation proposal and the open issues identified in this letter, Pinnacle wishes to reaffirm its strong interest in completing the $60,000,000 Series D investment in Verdana. Pinnacle has invested significant time and resources in evaluating this opportunity, and Pinnacle's conviction regarding the long-term potential of the business remain

IX. Non-Binding Nature and Reservation of Rights This letter and the revised valuation proposal set forth herein are intended solely to facilitate the parties' ongoing negotiations and are non-binding in all respects. Nothing in this letter shall constitute or be deemed to constitute a commitment, obligation, or agreement of Pinnacle Venture Fund II LP, Pinnacle Capital Management LLC, or any of their respective affi

X. Confidentiality This letter and its contents are confidential and are subject to the terms of any applicable non-disclosure agreement, confidentiality agreement, or confidentiality provisions contained in any agreement between the parties or their respective affiliates. Pinnacle requests that this communication and the information contained herein not be disclosed, disseminated, or shared with any third party, oth