Contract analysis

I. EXECUTIVE SUMMARY This memorandum presents the recommended tax-optimal fund-level structure for Pinnacle Continuation Vehicle LP ("PCV" or the "CV"), a GP-led secondary continuation vehicle designed to hold three high-performing software and SaaS portfolio company stakes currently held by Pinnacle Venture Fund II LP ("Fund II"). The proposed transaction is structured as a GP-led secondary / continuation vehicle tr

II. BACKGROUND AND TRANSACTION OVERVIEW A. Fund II Overview Pinnacle Venture Fund II LP ("Fund II") is a Delaware limited partnership formed in 2019 and registered with the Delaware Secretary of State under LP File No. DE-LP-2019-04817. Fund II's employer identification number is 84-3291067. Its registered agent is Pacific Registered Agents Inc., located at 1209 Orange Street, Wilmington, Delaware 19801. Fund II's ge

1. Luminos Systems Inc. Luminos Systems Inc. is a Delaware C-corporation (EIN 47-8823156) headquartered at 500 Folsom Street, 14th Floor, San Francisco, California 94105. The company is led by CEO Priya Venkatesh. Luminos has developed an AI-powered revenue operations platform designed for enterprise SaaS companies, providing predictive analytics, pipeline management, and revenue forecasting capabilities. The company

2. ClearArc Software Inc. ClearArc Software Inc. is a Delaware C-corporation (EIN 83-5519274) headquartered at 1201 Lake Austin Blvd, Suite 600, Austin, Texas 78703. The company is led by CEO Jonathan Hargrove. ClearArc has developed a cloud-native compliance and audit automation platform purpose-built for financial services institutions, enabling banks, insurance companies, and fintech firms to automate regulatory c

3. Vectral Cloud Inc. Vectral Cloud Inc. is a Delaware C-corporation (EIN 85-1102847) headquartered at 700 17th Street, Suite 2200, Denver, Colorado 80202. The company is led by CEO Elena Kowalski. Vectral has developed a multi-cloud infrastructure orchestration and FinOps platform that enables enterprises to manage, optimize, and govern workloads across multiple cloud providers (Meridian Technologies, Azure, Northga

4. Aggregate Portfolio Summary. The following table summarizes the aggregate portfolio to be transferred to the CV: The implied gross MOIC on the aggregate portfolio is 9.71× ($1,340,000,000 ÷ $138,000,000). C. LP Elections and Capitalization The Fund II limited partnership agreement permits the GP to offer existing limited partners an election to either "roll" their interests into the CV (retaining continued exposur

1. Rolling LPs (Estimated ~$680M NAV). The following known Rolling LPs have indicated their intention to roll 100% of their respective Fund II interests into the CV: Meridian Public Employees' Retirement System (Trevor Huang, Chief Investment Officer): Meridian committed $125 million to Fund II and has indicated it will roll 100% of its interest into the CV. Meridian is a U.S. tax-exempt pension fund organized under

2. Cashing-Out LPs (~$280M NAV). Certain Fund II limited partners have elected or are expected to elect to cash out their interests in exchange for liquidity: Redstone Family Office LLC (Barbara Redstone, Principal): Redstone committed $40 million to Fund II and is electing full liquidity. Redstone is a U.S. taxable domestic investor and does not require a blocker entity. Other Cashing-Out LPs: The balance of the app

3. New Secondary Investor. Garrison Secondaries Fund IV LP is the lead secondary buyer for the CV transaction. Garrison is a Delaware limited partnership headquartered at 399 Park Avenue, 22nd Floor, New York, New York 10022. Its general partner is Garrison Capital Advisors LLC. The key contact for the transaction is Mitchell Adler, Partner. Garrison's counsel is Whitfield & Calloway LLP (Douglas Whitfield, Partner),

4. Total CV Capitalization. The total capitalization of the CV at closing is summarized as follows: D. Transaction Advisors The following professional advisors have been engaged in connection with the CV transaction:

III. ENTITY SELECTION AND PROPOSED CV STRUCTURE A. Recommended Entity Type for the CV We recommend that the CV be organized as a Delaware limited partnership under the name Pinnacle Continuation Vehicle LP. This recommendation is based on the following considerations: Flow-Through Taxation. As a partnership for U.S. federal income tax purposes, the CV will not be subject to an entity-level federal income tax. Instead

IV. SECTION 721 NON-RECOGNITION CONTRIBUTION ANALYSIS A. General Rule Under Section 721(a)

Section 721(a) of the Code provides that "[n]o gain or loss shall be recognized to a partnership or to any of its partners in the case of a contribution of property to the partnership in exchange for an interest in the partnership." This non-recognition rule is one of the foundational provisions of subchapter K and reflects the policy judgment that the formation of or contribution to a partnership represents a change

Section 707(a)(2)(B) of the Code, together with the regulations promulgated thereunder (Treas. Reg. §§ 1.707-3 through 1.707-9), provides that a transfer of property by a partner to a partnership, followed by a related transfer of money or other consideration from the partnership to the partner (or a related person), may be treated as a disguised sale of the property by the contributing partner. If a transaction is r

V. QSBS PRESERVATION UNDER SECTION 1202 A. Overview of Section 1202

Section 1202 of the Code provides an exclusion from gross income for gain realized on the sale or exchange of "qualified small business stock" ("QSBS") held for more than five years. For QSBS acquired after September 27, 2010, the exclusion is 100% of the gain, up to the greater of (a) $10 million, or (b) 10 times the taxpayer's adjusted basis in the stock. The excluded gain is also exempt from the 3.8% net investmen

1. Luminos Systems Inc. The Luminos shares held by Fund II were acquired at original issuance in connection with the company's Series B and Series C financing rounds. Fund II's aggregate cost basis in the Luminos shares is $58.5 million. The five-year holding period for the initial Series B shares (acquired Q1 2020) will be satisfied as of approximately the first quarter of 2025, and for any additional shares acquire

2. ClearArc Software Inc. The ClearArc shares held by Fund II were acquired at original issuance in connection with the company's Series A and Series B financing rounds. Fund II's aggregate cost basis is $37.4 million. The five-year holding period for the initial Series A shares (acquired Q2 2020) will be satisfied as of approximately September 2025. We understand that the company's aggregate gross assets at the time

3. Vectral Cloud Inc. The Vectral shares held by Fund II were acquired at original issuance in connection with the company's Series B financing round in March 2021. Fund II's cost basis is $42.1 million. The five-year holding period will not be satisfied until March 2026, which is approximately five months after the CV's target final close of October 31, 2025. This presents two critical issues: Holding Period Issue.

1. Proceed with the two-step distribution/contribution approach as the primary recommendation for transferring the portfolio company shares from Fund II to the CV, in order to maximize the applicability of the Section 1202(h)(4)(A) safe harbor for QSBS tacking.

2. Obtain QSBS eligibility certifications from each portfolio company CEO (Priya Venkatesh for Luminos, Jonathan Hargrove for ClearArc, and Elena Kowalski for Vectral) confirming: (a) the company's status as a domestic C-corporation; (b) the aggregate gross assets at the time of each issuance of QSBS to Fund II; (c) compliance with the active business requirement during the relevant holding period; and (d) the absenc