Contract analysis

I. Executive Summary The purpose of this memorandum is to present a comprehensive comparison and analysis of the non-binding term sheet delivered by Pinnacle Venture Fund II LP ("Pinnacle" or the "Investor") to Verdana Software, Inc. ("Verdana" or the "Company") on April 22, 2022 (the "Pinnacle Term Sheet") against the counter-term sheet delivered by Verdana to Pinnacle on May 3, 2022 via its placement agent, Hargrov

1. Pre-Money Valuation — A $60,000,000 gap exists between Pinnacle's proposed $260,000,000 pre-money valuation and Verdana's proposed $320,000,000 pre-money valuation, which directly drives the price per share, the number of shares issued, and Pinnacle's post-close ownership percentage.

2. Liquidation Preference Multiple — Pinnacle proposes a 1.5x non-participating liquidation preference ($90,000,000 senior return), while Verdana proposes a 1.0x non-participating liquidation preference ($60,000,000 senior return), consistent with the terms of the Company's existing Series A, B, and C preferred stock.

3. Anti-Dilution Mechanism — Pinnacle proposes full-ratchet anti-dilution protection, whereas Verdana proposes broad-based weighted average anti-dilution protection, which is the mechanism applicable to all prior preferred stock series.

4. Option Pool Treatment and Expansion — Verdana proposes expanding the existing employee stock option pool ("ESOP") by 5,000,000 shares prior to closing, which would dilute Pinnacle's post-close ownership from approximately 15.79% to 15.00% (at Verdana's proposed pre-money valuation), with the economic burden of such dilution falling entirely on the incoming investor.

5. Drag-Along Provision Structure — Pinnacle proposes a drag-along triggered by a majority vote of preferred stockholders voting as a single class, whereas Verdana proposes a dual-trigger drag-along requiring approval by both a majority of preferred stock and a majority of common stock, with a minimum enterprise value floor of $500,000,000 below which no drag-along sale may be compelled. In addition to these five pri

II. Background A. The Parties Investor. Pinnacle Venture Fund II LP (the "Fund") is a Delaware limited partnership. The Fund's general partner is Pinnacle Capital Management LLC, a Delaware limited liability company (the "GP" or "Pinnacle Capital"). Pinnacle Capital is headquartered at 2400 Sand Hill Road, Suite 310, Menlo Park, California 94025. Pinnacle Venture Fund II LP is an $850,000,000 fund (2020 vintage) focu

1. Raj Anand — Founder Designee (CEO & Co-Founder)

2. Lena Kovac — Founder Designee (CTO & Co-Founder)

3. Priya Dasgupta — Ridgeline Ventures Designee (Partner, Ridgeline Ventures)

4. Elliott Margolis — Northgate Growth Partners Designee (Managing Director, Northgate Growth Partners)

5. Diana Chen — Brindoval Capital Group Designee (Principal, Brindoval Capital Group) There is currently no independent director on the Board. The Board has not established a formal audit committee, compensation committee, or nominating and governance committee, though we understand that the Company's General Counsel, Sandra Mikkelsen, has recommended the formation of such committees in connection with the proposed f

III. Side-by-Side Comparison of Key Terms The following table provides a detailed side-by-side comparison of the material terms set forth in the Pinnacle Term Sheet and the Verdana Counter-Term Sheet. Each row identifies the relevant provision, summarizes the position of each party, and notes the status of the issue (agreed, divergent, or requiring further discussion). This table is reproduced in landscape format in

IV. Analysis and Recommendations This Section sets forth our detailed analysis of each material area of divergence between the Term Sheets, together with our specific recommendations for Pinnacle's negotiation strategy. The issues are organized in approximate order of economic significance. A. Pre-Money Valuation and Ownership (Primary Commercial Issue) The $60,000,000 gap between Pinnacle's proposed $260,000,000 pre

I. Pacific Summit Bank Lender Consent The Verdana Counter-Term Sheet disputes the need for Pacific Summit Bank consent as a closing condition for the proposed transaction. Verdana's management team and its counsel, Langford Price & Associates LLP, have asserted that the terms of the existing $10,000,000 revolving credit facility may not require lender consent for the issuance of new preferred equity. However, based o

V. Summary of Open Issues and Priority Ranking The following table summarizes all material open issues between the Term Sheets, ranked by priority and materiality, together with a brief description of the nature and magnitude of each divergence. We recommend addressing the Critical and High priority items (ranks 1 through 5) as a package in the initial principal-level negotiation. The Medium priority items (ranks 6 t

VI. Recommended Next Steps Based on our analysis, we recommend the following sequence of actions:

1. Principal-Level Commercial Discussion. Schedule a call or meeting between Marcus Trejo (Pinnacle), Nathan Callister (Hargrove Securities), Raj Anand (Verdana CEO), and Thomas Brightwell (Verdana CFO) to discuss the valuation gap and option pool treatment before formalizing a written counter-proposal. The purpose of this discussion is to gauge Verdana's flexibility on pricing and to identify potential trade-offs be

2. Exclusivity Agreement. Finalize and execute the exclusivity agreement. Verdana's proposed 60-day exclusivity period, structured as a standalone exclusivity agreement (rather than embedded in the term sheet), appears acceptable and is consistent with market practice for growth equity transactions of this size. We recommend targeting execution of the exclusivity agreement by the week of May 9, 2022, concurrently wit

3. Commencement of Diligence. Upon execution of the exclusivity agreement, Calderwood & Harkness LLP will commence comprehensive legal, financial, and commercial due diligence on Verdana. C&H will prepare and transmit a detailed diligence request list to Langford Price & Associates LLP within five (5) business days of the execution of the exclusivity agreement. Priority diligence areas will include: (a) corporate org

4. Defer Definitive Document Drafting. We recommend deferring detailed drafting of the definitive transaction documents (including the Stock Purchase Agreement, Amended and Restated Certificate of Incorporation, Amended and Restated Investors' Rights Agreement, Amended and Restated Voting Agreement, and Right of First Refusal and Co-Sale Agreement) until the parties have narrowed the valuation and economic-term gaps

5. Capitalization Table and Waterfall Analysis. Calderwood & Harkness LLP will prepare a separate capitalization table analysis and liquidation waterfall model under multiple valuation scenarios ($260,000,000, $290,000,000, and $320,000,000 pre-money), with and without the proposed ESOP expansion, to support Pinnacle's negotiation position. This analysis will model Pinnacle's returns at various exit enterprise values

6. Pacific Summit Bank Credit Facility Review. Calderwood & Harkness LLP will prioritize the review of the Pacific Summit Bank credit facility documents promptly upon access to the data room. As discussed in Section IV.I, a determination of whether lender consent is required for the issuance of Series D Preferred Stock is essential before this closing condition can be resolved. We will provide a separate memorandum o

VII. Appendices Appendix A: Side-by-Side Term Comparison Table (Full) The complete side-by-side comparison table set forth in Section III above is reproduced below for ease of reference. In the event this memorandum is printed, this Appendix may be printed in landscape format for improved readability. Appendix B: Ownership and Dilution Sensitivity Analysis (Summary) The following table presents Pinnacle's post-close