Contract analysis

I. Executive Summary This memorandum has been prepared at your request in connection with the pending $700,000,000 Senior Secured Term Loan B refinancing (the "New TLB") by our client, Verimark Hospitality Group Inc., a Delaware corporation ("VHG" or the "Borrower"). Its purpose is to analyze the material U.S. federal income tax consequences to VHG arising from the New TLB, with particular focus on two questions: (a)

1. The New TLB does not constitute an AHYDO. The yield to maturity of the instrument (approximately 6.29% based on rates prevailing at signing) is well below the threshold of the applicable federal rate plus 5 percentage points (approximately 8.07% as of July 2022). Accordingly, none of the deduction deferral or dividend-equivalent recharacterization rules of Section 163(e)(5) will apply.

2. The $7,000,000 of OID falls within the de minimis threshold under Treas. Reg. § 1.1273-1(d), and VHG is entitled to deduct the full amount as interest expense over the 7-year term of the New TLB. We recommend that VHG elect constant-yield amortization under Treas. Reg. § 1.163-7 in order to accelerate the timing of the deduction relative to the pro rata default.

3. Ancillary items, including the $3,125,000 prepayment premium payable to the existing lenders under the Greystone Federal Credit Corp. facility, the unamortized debt issuance costs from that facility, and the approximately $8,100,000 of new issuance costs attributable to the New TLB, are also addressed below. For the avoidance of doubt, this memorandum constitutes internal tax analysis prepared for use by the deal

II. Background — Transaction Summary A. The New TLB The Borrower is Verimark Hospitality Group Inc., a Delaware corporation with common stock listed on the New York Stock Exchange under the ticker symbol "VMRK," headquartered at 8200 West Palmetto Park Road, Suite 1500, Boca Raton, Florida 33433 (EIN: 82-3741956). The New TLB is a senior secured term loan B facility in the aggregate principal amount of $700,000,000,

III. Original Issue Discount — General Tax Treatment A. Statutory and Regulatory Framework Under Code Section 1273(a), OID with respect to a debt instrument equals the excess, if any, of the instrument's "stated redemption price at maturity" over its "issue price." The stated redemption price at maturity is the sum of all payments to be made on the instrument other than "qualified stated interest," and the issue pric

Section 1273(a)(3) and Treas. Reg. § 1.1273-1(d) provide that if the OID on a debt instrument is less than a specified de minimis threshold, the OID is treated as zero for federal income tax purposes. The threshold is calculated as 0.25% of the stated redemption price at maturity multiplied by the number of complete years from issuance to maturity. Applying this test: • 0.25% × $700,000,000 × 7 years = $12,250,000 •

IV. AHYDO Analysis — Code Section 163(i) and (e)(5) A. Overview of the AHYDO Rules Code Section 163(e)(5) imposes two adverse consequences on an issuer of an "applicable high yield discount obligation": (i) the deduction for OID accrued on the instrument is deferred until such OID is actually paid in cash (or otherwise treated as paid under the statute), and (ii) a portion of the OID — the so-called "disqualified por

1. Maturity Test. The instrument has a term of more than 5 years from the date of issue;

2. Yield Test. The yield to maturity on the instrument equals or exceeds the sum of the AFR (in effect for the month of issuance and for obligations of comparable maturity) plus 5 percentage points; and

3. Significant OID Test. The instrument has "significant OID," meaning that as of the close of any accrual period ending after the fifth anniversary of issuance, the aggregate amount that would be includible in income with respect to the obligation for prior periods exceeds the sum of (i) the aggregate amount of interest to be paid in cash before the close of such accrual period, plus (ii) the product of the issue pr

1. Maturity Test. The New TLB matures on July 21, 2029, exactly seven years after the July 21, 2022 closing date. Because 7 years exceeds the statutory 5-year threshold, the Maturity Test is satisfied. This conclusion is not affected by the quarterly amortization schedule or the balloon payment structure; what matters for Section 163(i)(1)(A) purposes is the stated maturity date. The Maturity Test is SATISFIED. We th

2. Yield Test. The yield to maturity of the New TLB is to be computed taking into account both the OID and all stated interest payable on the instrument (Treas. Reg. § 1.1272-1(b)). For a VRDI, yield-to-maturity is generally determined at issuance using the initial value of the qualified floating rate, treating that rate as if it were fixed for the term (Treas. Reg. § 1.1275-5(e)). Using the rates prevailing at signi

3. Significant OID Test (for Completeness). Even if the Yield Test were satisfied — which, as noted, it is not — the Significant OID Test would independently fail. The essence of the Significant OID Test is that an instrument accrues income at a materially faster rate than it pays cash interest. The New TLB, by contrast, is a current-pay instrument: interest at Adjusted Term SOFR + 375 bps is payable in cash quarterl

V. Code Section 163(j) — Business Interest Deduction Limitation Code Section 163(j) limits the deductibility of a taxpayer's "business interest expense" in any taxable year to the sum of (i) business interest income, (ii) 30% of "adjusted taxable income" ("ATI"), and (iii) floor plan financing interest. For post-2021 taxable years, ATI is computed without adding back depreciation, amortization, or depletion, material

VI. Tax Treatment of the Prepayment Premium on the Existing TLB In connection with the payoff of the Greystone Federal Credit Corp. facility, VHG will pay a prepayment premium of $3,125,000 (calculated as 0.50% × $625,000,000 original principal). Under Code Section 162 and Treas. Reg. § 1.163-7(c), and consistent with well-established case law treating call premiums and yield maintenance payments as additional intere

VII. Treatment of Unamortized Debt Issuance Costs from the Existing TLB The existing Greystone facility was originated on February 14, 2020, and VHG capitalized the associated debt issuance costs (legal fees, agent and arrangement fees, and any OID) for amortization over the original 7-year term (i.e., through February 2027). As of the anticipated payoff date of July 21, 2022, approximately 29 months of the original

VIII. Debt Issuance Costs — New TLB VHG will incur various third-party costs in connection with the issuance of the New TLB, which we expect to aggregate approximately $8,100,000, comprising: • Arrangement fee to Crescent Harbor Bank, N.A.: $3,500,000 • Advisory fee to Meridian Strauss Advisory LLC: $1,400,000 • Estimated legal fees and other closing costs: $3,200,000 For financial accounting purposes (ASC 835-30), t

IX. State and Local Tax Considerations (Brief) VHG is headquartered in Florida, which does not impose a state corporate income tax on entities other than banks, and does not conform to Section 163(j). VHG and its subsidiaries, however, conduct business operations in approximately 18 states, some of which decouple from the federal treatment of OID and interest expense (including, notably, some states that impose their

X. Summary of Conclusions and Recommendations

1. AHYDO. The $700,000,000 New TLB, with $7,000,000 of OID (1.00% discount), is not an applicable high yield discount obligation under Code Section 163(i). The Yield Test is not satisfied (yield to maturity of approximately 6.29% versus the AFR + 5% threshold of approximately 8.07%), and the Significant OID Test would independently not be satisfied given the substantial current-pay cash interest. Code Section 163(e)(

2. OID Treatment. The $7,000,000 OID falls below the de minimis threshold of $12,250,000 (0.25% × $700,000,000 × 7 years). We recommend that VHG elect constant-yield treatment under Treas. Reg. § 1.163-7 to accelerate the timing of the deduction relative to the pro rata default. The entire $7,000,000 is deductible as interest expense over the term of the New TLB.

3. Prepayment Premium. The $3,125,000 prepayment premium payable to Greystone Federal Credit Corp. is deductible as additional interest expense in FY2022, subject to the Section 163(j) limitation.

4. Unamortized Costs from Existing TLB. The remaining unamortized debt issuance costs from the February 2020 Greystone facility are deductible in FY2022 upon retirement of that facility. The refinancing constitutes a retirement rather than a significant modification under Treas. Reg. § 1.1001-3.

5. New Debt Issuance Costs. Approximately $8,100,000 of issuance costs incurred in connection with the New TLB should be capitalized and amortized over the 7-year term using the constant-yield method under Treas. Reg. § 1.446-5.

6. Section 163(j). VHG has substantial headroom under the 30% ATI limitation on current projections. We recommend that VHG (in consultation with Clearmont & Wharton LLP) evaluate the merits of the electing real property trade or business election under Section 163(j)(7)(B), taking into account the associated requirement to use ADS depreciation for real property.

7. Action Items. (a) Confirm unamortized balance of the Greystone facility's issuance costs with Ronald Ashby at Clearmont & Wharton LLP. (b) VHG tax department to make an affirmative election for constant-yield treatment of the de minimis OID under Treas. Reg. § 1.163-7. (c) State tax analysis to be completed separately for FY2022. (d) Establish quarterly Section 163(j) monitoring given the floating-rate coupon on t