Contract analysis

I. Executive Summary This memorandum reviews the existing revolving credit facility (the "Credit Facility" or the "Facility") between Verdana Software, Inc. ("Verdana" or the "Company"), a Delaware C-corporation (EIN 93-1485726) headquartered at 1175 NW Couch Street, Suite 800, Portland, OR 97209, and Pacific Summit Bank, N.A. ("Pacific Summit" or the "Lender"), headquartered at 350 California Street, San Francisco,

II. Overview of the Credit Facility A. Key Commercial Terms The following table summarizes the key commercial terms of the Credit Facility based on the documentation produced to date in response to our diligence request list transmitted on May 14, 2022: The Credit Facility is structured as a traditional revolving credit facility under which Verdana may draw, repay, and re-borrow amounts up to the total commitment of

III. Financial Covenants Analysis The Credit Facility includes two principal financial covenants: (1) a minimum liquidity covenant and (2) an ARR-based coverage ratio. Each is analyzed below with reference to Verdana's current financial position and the anticipated impact of the Series D Transaction. A. Minimum Liquidity Covenant Requirement. The Credit Facility requires Verdana to maintain minimum liquidity of at le

IV. Negative Covenants Relevant to the Series D Transaction The Credit Facility is expected to contain a suite of negative covenants that restrict certain actions by the borrower without the prior written consent of the Lender. Such covenants are standard in revolving credit facilities and serve to protect the Lender's interests by limiting the borrower's ability to modify its capital structure, encumber its assets,

V. Structural Subordination Considerations Pacific Summit Bank holds a senior secured position with a first-priority blanket lien on substantially all personal property assets of Verdana. In the event of a liquidation, foreclosure, or other enforcement action, Pacific Summit Bank's secured claims would be satisfied first from the collateral, ahead of all unsecured creditors and equity holders, including holders of pr

VI. Consent / Waiver Requirements and Process A. Form of Consent Required Based on the foregoing analysis, Calderwood & Harkness recommends that Pinnacle require, as a condition to closing the Series D Transaction, that Verdana obtain an affirmative written consent or waiver from Pacific Summit Bank, N.A. authorizing the issuance of the Series D Preferred Stock on the terms contemplated by the parties. The consent sh

VII. Impact on Series D Transaction Documents The issues identified in this memorandum have direct implications for the drafting and negotiation of the Series D Transaction documents. The following recommendations should be incorporated into the relevant agreements. A. Stock Purchase Agreement The draft Series D Preferred Stock Purchase Agreement (initial draft of which was delivered by Calderwood & Harkness to Langf

VIII. Open Items and Next Steps The following items require further action and should be addressed promptly:

1. Obtain Full Copy of the Pacific Summit Bank Credit Agreement. We need to confirm that we have received a complete copy of the executed credit agreement, including all amendments, side letters, fee letters, security agreements, intellectual property security agreements, intercreditor agreements, and any other ancillary documentation. The diligence request list transmitted to Langford Price & Associates LLP on May 1

2. Confirm Specific Financial Covenant Definitions. The exact terms of the financial covenants need to be confirmed against the credit agreement, including: (a) The ARR coverage ratio formula, including the definition of "ARR" (e.g., whether it includes only contracted recurring revenue or also includes expansion/Upsell pipeline), the denominator (total committed debt vs. drawn amounts vs. all Indebtedness), and the

3. Review Change of Control Definition. The specific Change of Control definition in the credit agreement must be reviewed in detail to determine the exact ownership thresholds and triggering events, and to assess whether the Series D issuance triggers a Change of Control event of default or mandatory prepayment obligation. This analysis should consider both Pinnacle's individual post-investment ownership percentage

4. Confirm Whether Redeemable Preferred Stock Is Classified as "Indebtedness." The credit agreement's definition of "Indebtedness" should be reviewed to determine whether it captures preferred stock with mandatory or optional redemption features. This is directly relevant given Pinnacle's proposed 5-year redemption right and could affect both the negative covenant analysis (restrictions on incurrence of additional In

5. Coordinate with Langford Price on Lender Consent Process. We should schedule a call with Jonathan Hale and Rebecca Thornton at Langford Price & Associates LLP to discuss Verdana's plan for obtaining Pacific Summit Bank's consent, including the anticipated timeline for submitting the consent request, the identity of the relationship manager at Pacific Summit Bank, any prior interactions between the Company and the

6. Prepare Separate Lender Consent Analysis Memorandum. A follow-on memorandum with detailed recommendations regarding the form and substance of the lender consent, and the strategy for the consent negotiation process, should be prepared for Andrew Fitzpatrick and Marcus Trejo. This memorandum is anticipated to be delivered on or about June 30, 2022.

7. Flag for Marcus Trejo (Pinnacle). The Credit Facility has a maturity date of June 30, 2024, which is approximately two years after the proposed closing of the Series D Transaction. Pinnacle should consider whether Verdana will need to refinance this Facility at or prior to maturity and, if so, whether the Series D closing should be conditioned on or coordinated with any refinancing discussions. In particular, Pinn

IX. Conclusion The Pacific Summit Bank revolving credit facility presents a meaningful closing condition for the proposed Series D Transaction. Based on our analysis of the materials produced to date, the negative covenants in the Credit Facility almost certainly require Pacific Summit Bank's prior written consent for the issuance of preferred stock with the economic terms contemplated by either Pinnacle's or Verdana

1. Lender consent from Pacific Summit Bank should be included as a hard condition precedent to closing in the Series D Preferred Stock Purchase Agreement, and Pinnacle should retain the right to review and approve the form and substance of the consent.

2. Verdana should be required to initiate the consent process promptly, and the pre-closing covenant in the Stock Purchase Agreement should obligate the Company to use commercially reasonable efforts to obtain the consent, keep Pinnacle informed, and refrain from agreeing to Credit Facility amendments without Pinnacle's approval.

3. The parties should factor the consent timeline (approximately 2–4 weeks) into the closing schedule and should coordinate with Langford Price & Associates LLP to ensure that the consent request is submitted as early as practicable.

4. The open items identified in Section VIII should be addressed as a priority, with particular urgency on items 1 (completeness of credit agreement documentation), 3 (Change of Control definition), and 4 (classification of redeemable preferred stock as Indebtedness). This memorandum should be read in conjunction with the forthcoming lender consent analysis memorandum (anticipated June 30, 2022) and the comprehensive