CALDERWOOD & HARKNESS LLP Attorneys at Law
101 Montgomery Street, Suite 3500 San Francisco, California 94104 Telephone: (415) 732-8000 Facsimile: (415) 732-8001 www.calderwoodharkness.com
April 19, 2022
VIA ELECTRONIC MAIL AND HAND DELIVERY
Mr. Marcus Trejo Partner, Head of Growth Equity Pinnacle Capital Management LLC (as General Partner of Pinnacle Venture Fund II LP) 2400 Sand Hill Road, Suite 310 Menlo Park, California 94025
Re: Engagement of Calderwood & Harkness LLP by Pinnacle Venture Fund II LP — Proposed Series D Preferred Stock Investment in Verdana Software, Inc.
Matter Number: 1002-00004 Billing Client Number: PIN-0042
Dear Mr. Trejo:
We are pleased that Pinnacle Venture Fund II LP has selected Calderwood & Harkness LLP to serve as outside legal counsel in connection with the proposed transaction described below. This letter sets forth the terms and conditions of our engagement and, upon your counter-signature below, will constitute a binding agreement between the Firm and the Client regarding the scope, fees, and other terms of the legal representation. We ask that you review this letter carefully and contact us with any questions before signing.
1. Purpose and Scope of Engagement
Calderwood & Harkness LLP ("C&H" or the "Firm") is pleased to confirm its engagement by Pinnacle Venture Fund II LP, a Delaware limited partnership ("Pinnacle" or the "Client"), acting through its general partner, Pinnacle Capital Management LLC, a Delaware limited liability company (the "General Partner"). This engagement letter sets forth the terms upon which C&H will provide legal services to the Client in connection with the matters described herein.
Transaction Overview. C&H will represent Pinnacle in connection with a proposed minority growth equity investment of approximately Sixty Million Dollars ($60,000,000) in Verdana Software, Inc., a Delaware C-corporation ("Verdana" or the "Company"), through the purchase of shares of Series D Preferred Stock of the Company (the "Transaction"). The Transaction contemplates that, upon closing, Pinnacle will hold approximately 18.75% of Verdana's fully-diluted post-closing capitalization, subject to the final terms negotiated by the parties.
Scope of Services. The Firm's services in connection with this engagement will include the following:
(a) Transaction Documentation. Review, negotiation, and drafting of all principal transaction documents, including without limitation: a binding term sheet or letter of intent; the Series D Preferred Stock Purchase Agreement; an Amended and Restated Investors' Rights Agreement; an Amended and Restated Voting Agreement; an Amended and Restated Right of First Refusal and Co-Sale Agreement; an Amended and Restated Certificate of Incorporation of Verdana (to authorize and set forth the terms of the Series D Preferred Stock); a Management Rights Letter in favor of Pinnacle; a Board Designee Indemnification Agreement for any Pinnacle-designated director; and such other ancillary agreements, certificates, officer's certificates, closing deliverables, and related instruments as may be necessary or appropriate in connection with the Transaction;
(b) Legal Due Diligence. Conduct of legal due diligence on Verdana, encompassing corporate organization and governance, material contracts (including customer, vendor, and partnership agreements), intellectual property (patents, trademarks, copyrights, trade secrets, and open-source software compliance), employment and labor matters, regulatory and compliance matters, pending or threatened litigation, tax matters (to the extent incident to transactional due diligence, and not constituting tax advice), and capitalization (including outstanding equity, options, warrants, convertible instruments, and the Company's equity incentive plans);
(c) Existing Investor Rights and Capitalization Analysis. Review and analysis of Verdana's existing charter documents, stockholder agreements, investor rights, and capitalization table, including any existing anti-dilution protections, preemptive rights, information rights, registration rights, and co-sale or drag-along provisions held by prior investors;
(d) Credit Facility and Lender Consent. Review of Verdana's existing credit facility or loan agreements and analysis of any lender consent, waiver, or notification requirements triggered by the issuance of the Series D Preferred Stock or any related changes in governance or capitalization;
(e) Delaware Corporate Law Advice. Advice on matters of Delaware General Corporation Law pertinent to the Transaction, including the authorization and issuance of the Series D Preferred Stock, protective provisions, board composition, fiduciary duties, and stockholder approval requirements; and
(f) General Transactional Counsel. Provision of general legal counsel and strategic advice in connection with the Transaction through signing and closing, or, if the Transaction does not close, through the termination or dormancy of this matter.
Governing Law. The Transaction is expected to be governed by the laws of the State of Delaware with respect to the corporate and transactional aspects thereof.
Exclusions from Scope. The scope of this engagement specifically does not include the following:
(i) Tax Advice. C&H will not provide tax advice in connection with this engagement. The Client should consult its own independent tax advisors regarding any and all tax implications of the Transaction, including federal, state, local, and international tax matters, as well as any tax structuring considerations. To the extent that tax-related issues arise in the course of due diligence or document review, C&H may identify such issues for the Client's attention but will not render opinions or advice thereon;
(ii) Regulatory Filings. C&H will not prepare or file any regulatory filings on behalf of the Client beyond those that are directly incident to the closing of the Transaction (such as any applicable certificate filings with the Delaware Secretary of State). Any filings required under the Hart-Scott-Rodino Antitrust Improvements Act, securities laws, or other regulatory frameworks are outside the scope of this engagement unless expressly agreed in writing;
(iii) Representation of Affiliates. This engagement covers only Pinnacle Venture Fund II LP. C&H does not represent, and will not represent in connection with this engagement, any other Pinnacle fund, any parallel fund, any co-investment vehicle, or any affiliate of the Client, including the General Partner in its own right, unless such representation is incidental to and in furtherance of the Client's interests in this Transaction as described in Section 8 below; and
(iv) Litigation. C&H will not represent the Client in connection with any litigation, arbitration, or dispute arising from or related to the Transaction unless separately retained in writing to do so under a separate engagement letter and fee arrangement.
Any expansion or modification of the scope of this engagement will require the mutual written agreement of C&H and the Client.
2. Staffing and Engagement Team
C&H has assembled a team of attorneys with significant experience in venture capital, growth equity, and technology transactions to staff this engagement. The initial engagement team is as follows:
Harrison Wexford will serve as the Responsible Partner for this engagement and will be the Client's principal point of contact at the Firm for strategic and substantive matters. Beatrice Holloway will serve as the Billing Partner and will oversee all billing and invoicing matters. Day-to-day coordination of the engagement, including the management of diligence workflows, document drafting, and communication with counterparty counsel, will be handled by Andrew Fitzpatrick, Lead Associate. Naomi Petersen will serve as Working Associate and will assist with due diligence, research, and document preparation.
As the engagement develops, C&H may assign additional attorneys or other professionals to the matter, including specialists in corporate governance, intellectual property, employment law, and tax, as circumstances require. C&H will provide notice to the Client of any such additions to the engagement team. The billing rates for any additional timekeepers will be at C&H's then-current standard rates and will be communicated to the Client at the time of assignment.
The Client's primary contact for purposes of this engagement will be Marcus Trejo, Partner and Head of Growth Equity, Pinnacle Capital Management LLC. All substantive communications, draft documents, and engagement-related correspondence will be directed to Mr. Trejo unless the Client designates an alternative contact in writing.
3. Fees and Billing Rates
Basis of Fees. Fees for this engagement will be billed on an hourly basis, reflecting the actual time spent by each timekeeper on the matter. There is no contingency fee, success fee, transaction fee, or other premium component associated with this engagement.
Current Hourly Rates. The current hourly rates applicable to the engagement team are as follows:
The rates set forth above are C&H's standard rates for these timekeepers as of the date of this engagement letter. Rates for any additional timekeepers who may be assigned to the engagement will be at C&H's then-current standard rates for such professionals and will be communicated to the Client at or before the time any such additional timekeepers begin work on the matter.
Rate Adjustments. C&H's standard hourly rates are subject to annual adjustment, typically effective January 1 of each calendar year. The Client will be notified in advance of any changes to the rates applicable to this engagement. In the event the Transaction extends beyond December 31, 2022, adjusted rates will apply to time incurred on or after the effective date of any such adjustment.
Blended Rate Estimate. Based on the anticipated mix of partner and associate time for an engagement of this nature, C&H estimates a blended hourly rate of approximately $875 per hour. This blended rate estimate is provided solely for the Client's internal budgeting and estimation purposes and does not constitute a cap, floor, or guaranteed rate. Actual billing will be based on the individual hourly rates of the timekeepers who perform work on the matter, and the effective blended rate may vary from this estimate depending on the actual allocation of work.
4. Fee Estimate
Based on the anticipated scope of work described in Section 1 of this engagement letter, C&H estimates that total legal fees for this engagement will be in the range of Three Hundred Fifty Thousand Dollars ($350,000) to Four Hundred Fifty Thousand Dollars ($450,000).
This estimate is based on the following assumptions: (i) the Transaction is of the general scope and complexity described herein (a minority growth equity investment in a single target company through a single-round preferred stock issuance); (ii) the engagement will proceed through the customary phases of diligence, document negotiation, and closing; (iii) the Transaction will close on a timeline of approximately three to five months from the date of this engagement letter; (iv) no material, unanticipated issues arise during diligence, negotiation, or regulatory review that substantially increase the scope of legal work required; and (v) all counterparties and their counsel engage in a commercially reasonable and timely manner.
The fee estimate set forth above does not include disbursements and out-of-pocket expenses, which are addressed separately in Section 6 below.
This estimate is non-binding and is provided as a good-faith projection based on C&H's experience with transactions of comparable scope and complexity. Actual fees may be higher or lower than the estimated range depending on the development of the matter. C&H will endeavor to notify the Client promptly if, in the Firm's judgment, total fees are expected to materially exceed the upper end of the estimated range, and will discuss with the Client any changes in scope or approach that may affect fees.
In the event the matter is terminated by either party, placed on hold, or enters dormancy prior to closing, the Client will be responsible for, and will be invoiced for, all time incurred by C&H through the date of termination, hold, or dormancy, together with any outstanding disbursements and expenses.
5. Retainer / Advance Deposit
Upon execution of this engagement letter, the Client agrees to pay to C&H a retainer in the amount of Seventy-Five Thousand Dollars ($75,000) (the "Retainer"). The Retainer shall be paid in April 2022 by wire transfer to an account designated by C&H, or by check made payable to "Calderwood & Harkness LLP Client Trust Account."
The Retainer will be deposited into C&H's Interest on Lawyers' Trust Account ("IOLTA") or other client trust account maintained in accordance with the California Rules of Professional Conduct and applicable State Bar of California trust account requirements. The Retainer will remain the property of the Client until applied against fees or disbursements in accordance with this engagement letter.
The Retainer will be applied against the initial invoice(s) rendered by C&H in connection with this engagement. C&H will apply the Retainer as a credit on the first invoice(s) issued and will notify the Client when the Retainer has been fully applied.
If the Retainer is exhausted prior to the conclusion of the engagement, the Client will pay all subsequent invoices in accordance with the billing and payment terms set forth in Section 6 below. C&H will not require additional retainer deposits unless otherwise agreed in writing by the parties.
Any unused portion of the Retainer remaining upon the conclusion of this engagement (whether by closing, termination, or otherwise) will be refunded to the Client promptly, and in any event within thirty (30) days following the issuance of C&H's final invoice and the reconciliation of all outstanding fees and disbursements.
6. Billing and Payment Terms
Invoicing Frequency. C&H will render invoices to the Client on a monthly basis. Each invoice will reflect the time charges and disbursements incurred during the preceding calendar month, together with a description of the services performed by each timekeeper.
Payment Terms. Invoices are due and payable within thirty (30) days of the date of the invoice. Payment may be made by wire transfer, ACH transfer, or check payable to "Calderwood & Harkness LLP," at the Client's election.
Disbursements and Expenses. In addition to fees for professional services, C&H will bill the Client for out-of-pocket disbursements and expenses incurred in connection with the engagement. Such disbursements and expenses may include, without limitation: filing fees (including Delaware Secretary of State filing fees); document production, copying, and printing costs; travel expenses (airfare, ground transportation, lodging, and meals) incurred at the Client's request or with the Client's prior approval for travel in connection with the Transaction; online legal research and database charges (e.g., Westmark Data Systems, Sundial Solutions, and similar platforms); courier, messenger, and delivery charges; and any other out-of-pocket costs reasonably incurred in furtherance of the engagement. All disbursements will be billed at C&H's actual cost, without markup.
Late Payment. Amounts remaining unpaid beyond thirty (30) days from the date of invoice may be subject to a late payment charge at the rate of 1.0% per month (equivalent to 12% per annum) on the outstanding balance. C&H reserves the right to apply such interest charges to the Client's account but will endeavor to provide notice before doing so.
Invoice Detail. The Client may, at any time, request reasonable additional detail or supporting documentation for any invoice, including detailed time entries, expense receipts, or other backup. C&H will cooperate in good faith to provide such information in a timely manner.
7. Client Identity and Billing Reference
For all purposes of this engagement, the "Client" is Pinnacle Venture Fund II LP (EIN: 84-3921057), a Delaware limited partnership, acting through its general partner, Pinnacle Capital Management LLC (EIN: 84-2817634), a Delaware limited liability company. All duties of loyalty, confidentiality, and professional responsibility owed by C&H in connection with this engagement are owed to Pinnacle Venture Fund II LP.
The following billing and matter references will be used in connection with this engagement:
C&H Billing Client Number: PIN-0042
C&H Matter Number: 1002-00004
All invoices will be directed to Mr. Marcus Trejo at the following address, unless the Client provides alternative billing instructions in writing:
Marcus Trejo Pinnacle Capital Management LLC 2400 Sand Hill Road, Suite 310 Menlo Park, California 94025
The Client hereby authorizes Pinnacle Capital Management LLC, acting through its duly authorized officers and partners, to act on behalf of Pinnacle Venture Fund II LP in all matters relating to this engagement, including but not limited to providing instructions to C&H regarding the scope and direction of the legal work, receiving legal advice and privileged communications from C&H, reviewing and approving invoices for fees and expenses, and executing any necessary consents or waivers in connection with the engagement. C&H shall be entitled to rely on any instructions or authorizations provided by Pinnacle Capital Management LLC (and specifically by Mr. Trejo) as if given by the Client directly.
8. Conflicts of Interest
In advance of accepting this engagement, C&H has conducted a check for potential conflicts of interest in accordance with the Firm's conflicts clearance procedures and applicable rules of professional conduct. As of the date of this engagement letter, C&H has not identified any conflicts of interest that would preclude the Firm from undertaking this engagement.
The parties and entities checked as part of C&H's conflicts review include the following:
• Verdana Software, Inc. (the target Company)
• Raj Anand (Co-Founder and Chief Executive Officer, Verdana Software, Inc.)
• Lena Kovac (Co-Founder and Chief Technology Officer, Verdana Software, Inc.)
• Thomas Brightwell (Co-Founder and Chief Operating Officer, Verdana Software, Inc.)
• Sandra Mikkelsen (Chief Financial Officer, Verdana Software, Inc.)
• Ridgeline Ventures Fund III LP (existing investor in Verdana)
• Northgate Growth Partners Fund II LP (existing investor in Verdana)
• Brindoval Capital Group LLC (existing investor in Verdana)
• Langford Price & Associates LLP (counsel to Verdana)
• Hargrove Securities LLC (placement agent / financial advisor)
• Pacific Summit Bank, N.A. (existing lender to Verdana)
• Related entities and individuals associated with the foregoing parties
Scope of Representation. C&H represents only Pinnacle Venture Fund II LP in connection with this engagement. C&H does not represent, and does not undertake to represent, Pinnacle Capital Management LLC in its own right, any individual partner, principal, officer, or employee of Pinnacle or the General Partner, any other Pinnacle fund (including, without limitation, Pinnacle Venture Fund I LP, Pinnacle Venture Fund III LP, or any successor fund), any parallel investment vehicle, or any co-investor in the Transaction, except to the extent that such representation is incidental to and in furtherance of the Client's interests in the Transaction as described herein.
C&H does not represent Verdana Software, Inc., its founders, its management team, its existing investors or their affiliated funds, or any other party to or participant in the Transaction. The interests of the Client may differ from, or be adverse to, the interests of such other parties, and C&H's sole obligation of loyalty in this engagement is to the Client.
The Client acknowledges that C&H is a large, multi-office law firm and that C&H may currently represent, or may in the future undertake the representation of, other clients in matters that are unrelated to this engagement but that may involve one or more of the parties to or related to the Transaction, including Verdana, its founders, its existing investors, or their respective affiliates. C&H will comply with all applicable rules of professional conduct regarding any such concurrent or future representations, including the California Rules of Professional Conduct and the American Bar Association Model Rules of Professional Conduct. In the event that an actual conflict of interest arises during the course of this engagement, C&H will promptly notify the Client and will take appropriate steps in accordance with applicable professional responsibility rules, which may include seeking the Client's informed written consent to continued representation or, if consent is not obtained or is not permissible, withdrawing from the engagement or declining the conflicting representation, as circumstances require.
9. Confidentiality
C&H will maintain the confidentiality of all information received from or on behalf of the Client in connection with this engagement, in accordance with the California Rules of Professional Conduct, the attorney-client privilege, the work product doctrine, and all other applicable rules of professional responsibility.
Confidential information received from the Client or generated by C&H in the course of this engagement will not be disclosed to any third party without the Client's prior written consent, except as may be required by applicable law, regulation, court order, subpoena, or professional obligation. In the event C&H is compelled to disclose confidential information by legal process, C&H will, to the extent permitted by law, provide the Client with prompt notice and an opportunity to seek protective measures prior to any such disclosure.
The Client's identity, the existence of the attorney-client relationship, and the nature and terms of this engagement are confidential and will not be disclosed by C&H without the Client's consent, except as required by applicable professional rules or legal process.
The confidentiality obligations set forth in this Section 9 shall survive the termination or conclusion of this engagement.
10. Document Retention
C&H will maintain the engagement file, including correspondence, memoranda, research, drafts, transaction documents, due diligence materials, and related work product, in accordance with the Firm's document retention policies.
Upon conclusion of the engagement — whether by closing of the Transaction, termination of the engagement by either party, or the matter being placed on hold or dormant status — C&H will retain the engagement file for a period consistent with the Firm's retention policies and applicable rules of professional responsibility. C&H's current retention period for closed matter files is ten (10) years from the date of matter closure, although certain categories of documents (such as original executed instruments) may be retained for longer periods or returned to the Client.
The Client may request the return or transfer of documents contained in the engagement file at any time during or after the engagement. Upon receipt of such a request, C&H will make commercially reasonable efforts to assemble and deliver the requested documents in a timely manner. The Client acknowledges that C&H may retain copies of all documents in the engagement file for its own records and in accordance with applicable professional responsibility rules, even if originals are returned to the Client.
11. Termination
Either party may terminate this engagement at any time, with or without cause, by providing written notice to the other party. Termination shall be effective upon receipt of such written notice, subject to C&H's obligations under applicable professional responsibility rules regarding withdrawal from representation.
Upon termination of the engagement, the Client shall remain responsible for the payment of all fees and disbursements incurred by C&H through the effective date of termination, in accordance with the billing and payment terms set forth in this engagement letter. C&H will issue a final invoice to the Client within thirty (30) days following the effective date of termination.
In the event of termination, C&H will cooperate with the Client in an orderly transition of the matter to successor counsel, if applicable, including the transfer of relevant files, documents, and work product, subject to the Client's satisfaction of all outstanding payment obligations.
If the matter is placed on hold or dormant status rather than formally terminated — for example, if the Transaction is paused or the parties determine not to proceed to closing at that time — C&H will not actively perform work on the matter but will maintain the engagement file and will be available to re-engage upon the Client's written instruction. The Client acknowledges that a prolonged period of inactivity may result in C&H treating the matter as closed for administrative purposes, in which case the Client will be notified in writing and the document retention provisions of Section 10 will apply.
12. Limitation of Scope; No Guarantee of Outcome
C&H's engagement is limited to the scope of services described in Section 1 of this engagement letter. Any expansion of scope, including representation in connection with additional transactions, disputes, regulatory matters, or other legal needs, will require a separate written agreement between C&H and the Client, which may include different or additional terms regarding fees, staffing, and other engagement matters.
C&H makes no guarantee or prediction regarding the outcome of any negotiation, transaction, due diligence process, or other matter undertaken in connection with this engagement. While C&H will exercise its best professional judgment and apply reasonable care and diligence in performing the services described herein, the outcome of any transaction depends on numerous factors beyond the Firm's control, including the actions and decisions of other parties, market conditions, and regulatory developments.
This engagement and the attorney-client relationship created hereby are solely between C&H and the Client identified herein — Pinnacle Venture Fund II LP. This engagement does not create an attorney-client relationship between C&H and any other entity or individual, including the General Partner (except as described in Section 8), any partner, officer, employee, or agent of the Client or the General Partner, any co-investor, any portfolio company of any Pinnacle fund, or any other person or entity.
13. Governing Law and Dispute Resolution
This engagement letter shall be governed by, and construed in accordance with, the laws of the State of California, without regard to its conflicts of law principles.
In the event of any dispute, claim, or controversy arising out of or relating to this engagement letter, the services performed hereunder, or any fees or billing matters arising in connection with the engagement, the parties agree to first attempt to resolve such dispute through good-faith negotiation between senior representatives of C&H and the Client. If such dispute cannot be resolved through negotiation within thirty (30) days of written notice of the dispute, the dispute shall be submitted to and resolved by final and binding arbitration in San Francisco, California, administered in accordance with the rules of JAMS (or such other arbitration provider as the parties may mutually agree upon in writing). The arbitration shall be conducted by a single arbitrator with experience in legal malpractice or attorney fee disputes, as applicable. The arbitrator's decision shall be final and binding, and judgment thereon may be entered in any court of competent jurisdiction.
Notwithstanding the foregoing, either party may seek injunctive or other equitable relief in any court of competent jurisdiction to prevent irreparable harm pending the outcome of arbitration.
14. Entire Agreement; Amendments
This engagement letter constitutes the entire agreement between C&H and the Client with respect to the terms and conditions of this engagement and supersedes all prior or contemporaneous discussions, understandings, proposals, and agreements, whether oral or written, between the parties relating to the subject matter hereof.
This engagement letter may not be amended, modified, or supplemented except by a written instrument signed by both C&H and the Client. No waiver of any provision of this engagement letter shall be effective unless made in writing and signed by the party granting such waiver. A waiver of any provision on one occasion shall not be construed as a waiver of such provision on any subsequent occasion.
We are very much looking forward to working with you and the Pinnacle team on this investment. If the foregoing terms are acceptable, please indicate your agreement by signing and returning a copy of this letter to the undersigned. Upon receipt of your executed copy and the Retainer described in Section 5, we will commence work on the engagement immediately.
Please do not hesitate to contact Harrison Wexford at (415) 732-8112 or hwexford@calderwoodharkness.com, or Andrew Fitzpatrick at (415) 732-8247 or afitzpatrick@calderwoodharkness.com, if you have any questions regarding this engagement letter or any aspect of the proposed representation.
Very truly yours,
CALDERWOOD & HARKNESS LLP
By: ________
Harrison Wexford Partner, Mergers & Acquisitions Calderwood & Harkness LLP 101 Montgomery Street, Suite 3500 San Francisco, California 94104
AGREED AND ACCEPTED:
By executing below, the undersigned confirms that it has read, understands, and agrees to the terms and conditions of this engagement letter, and has authority to execute this agreement on behalf of the Client.
PINNACLE VENTURE FUND II LP
By: Pinnacle Capital Management LLC, its General Partner
By: ________
Name: Marcus Trejo
Title: Partner, Head of Growth Equity
Date: ________
Address:
2400 Sand Hill Road, Suite 310 Menlo Park, California 94025
Enclosure: Conflict Check Clearance (internal reference — not enclosed with Client copy)
cc: Elaine Whitford, Co-Founder & Managing Partner, Pinnacle Capital Management LLC cc: Derek Sung, Co-Founder & Managing Partner, Pinnacle Capital Management LLC cc: Beatrice Holloway, Billing Partner, Calderwood & Harkness LLP
| Name | Role | Department |
| Harrison Wexford | Responsible Partner | Mergers & Acquisitions |
| Beatrice Holloway | Billing Partner | Mergers & Acquisitions |
| Andrew Fitzpatrick | Lead Associate | Mergers & Acquisitions |
| Naomi Petersen | Working Associate | Mergers & Acquisitions |
| Timekeeper | Title | Hourly Rate |
| Harrison Wexford | Partner | $1,250 per hour |
| Beatrice Holloway | Partner | $1,200 per hour |
| Andrew Fitzpatrick | Associate | $725 per hour |
| Naomi Petersen | Associate | $550 per hour |