Contract analysis

I. PURPOSE AND EXECUTIVE SUMMARY The purpose of this memorandum is to analyze and explain the key defined terms in the Credit Agreement (the "Credit Agreement") currently being negotiated among Verimark Hospitality Group Inc., a Delaware corporation ("VHG" or the "Borrower"), the Guarantors party thereto, Crescent Harbor Bank, N.A. ("Crescent Harbor"), in its capacity as Administrative Agent and Collateral Agent, and

II. BACKGROUND: TRANSACTION OVERVIEW A. The Borrower Verimark Hospitality Group Inc. is a Delaware corporation, publicly traded on the New York Stock Exchange under the ticker symbol "VMRK," with its principal executive offices located at 8200 West Palmetto Park Road, Suite 1500, Boca Raton, Florida 33433. VHG is a leading owner and operator of full-service and select-service hotels across the United States, currentl

III. ANALYSIS OF KEY DEFINED TERMS A. "Consolidated Net Income"

1. Definition as Drafted. As set forth in Section 1.01 of the Credit Agreement, "Consolidated Net Income" is defined as the net income (or net loss) of VHG and its Restricted Subsidiaries on a consolidated basis, determined in accordance with GAAP, for the applicable period. This definition serves as the starting point for the calculation of Adjusted EBITDA and, accordingly, is a foundational component of the financi

2. Key Addbacks and Exclusions Under Negotiation. The following categories of addbacks and exclusions are the subject of active negotiation between C&H and WGP: (a) Extraordinary, Unusual, or Non-Recurring Gains and Losses. The definition excludes all gains and losses characterized as extraordinary, unusual, or non-recurring. This is a standard provision in leveraged credit agreements, but the scope of "non-recurring

3. WGP Position. WGP's revised draft dated May 26, 2022 proposes a narrower set of addbacks than the C&H first draft. In particular, WGP seeks to: (i) include a cap on the aggregate amount of restructuring charges that may be excluded from Consolidated Net Income, (ii) limit the scope of the "non-recurring" exclusion to items that are individually material (defined as exceeding $5,000,000), and (iii) require that any

4. C&H Recommendation. We recommend pushing for the broadest permissible set of exclusions, consistent with precedent for BB-rated hospitality-sector credit facilities. In particular, we believe VHG should insist on excluding non-cash impairments on hotel assets from Consolidated Net Income, given the nature of hospitality real estate and the potential for periodic write-downs related to property-level performance, m

1. Central Importance of the Definition. The definition of "Adjusted EBITDA" (alternatively referred to in the Credit Agreement as "Consolidated Adjusted EBITDA") is the single most important defined term in the Credit Agreement. Adjusted EBITDA serves as the denominator in the Total Net Leverage Ratio calculation and therefore functions as the key gating metric for: (i) covenant compliance under the springing financ

2. Base Calculation. Adjusted EBITDA is calculated on a trailing four-quarter (last twelve months, or "LTM") basis, beginning with Consolidated Net Income and adding back, to the extent deducted in calculating Consolidated Net Income: (a) Consolidated interest expense; (b) Provision for federal, state, local, and foreign income taxes; (c) Depreciation and amortization expense; and (d) Additional addbacks enumerated i

3. Key Addbacks Under Negotiation. The following categories of addbacks are the subject of active negotiation between C&H and WGP. We describe each addback category, the current positions of each party, and our recommendation. (1) Non-Cash Charges, Losses, and Expenses. C&H's draft provides for the addback of all non-cash charges, losses, and expenses, including but not limited to: asset impairments, write-downs of h

4. Deductions from Adjusted EBITDA. Consistent with market practice, the definition provides that non-cash gains and income are deducted from Adjusted EBITDA to the extent such gains or income increased Consolidated Net Income during the applicable period. This deduction serves as the mirror image of the non-cash charge addback and ensures symmetrical treatment of non-cash items.

5. Calculation Methodology. Adjusted EBITDA is calculated on a trailing four-quarter (LTM) basis. Pro forma adjustments are permitted for acquisitions and dispositions consummated during the measurement period, calculated as if such acquisition or disposition had occurred on the first day of the applicable four-quarter period. This "annualization" methodology is standard in leveraged credit agreements and ensures tha

6. Summary Recommendation. C&H recommends pushing for: (i) the 25% cap on run-rate cost savings addbacks, (ii) uncapped restructuring and integration addbacks for costs incurred within 24 months of a permitted acquisition (or, if a cap is necessary, a cap at the greater of $35,000,000 and 10% of LTM Adjusted EBITDA), (iii) a broadly drafted non-cash addback with standard cash return clawback, and (iv) uncapped hotel

1. Consolidated Total Debt. "Consolidated Total Debt" is defined as all indebtedness of VHG and its Restricted Subsidiaries on a consolidated basis, determined in accordance with GAAP, including: (i) Drawn amounts under the New TLB ($700,000,000 at closing); (ii) Drawn amounts under the $400,000,000 RCF ($0 at closing, as the RCF is fully undrawn); (iii) Outstanding principal amount of the senior unsecured notes due

2. Consolidated Net Debt. "Consolidated Net Debt" is defined as Consolidated Total Debt minus unrestricted cash and cash equivalents held by VHG and its Restricted Subsidiaries. The "netting" of cash against total debt is a borrower-favorable feature, as it recognizes that cash on hand is available to service or repay indebtedness and therefore reduces effective leverage.

3. Key Negotiation Points. Three issues relating to these definitions remain under active negotiation: (a) Treatment of the Original Issue discount. The New TLB has a face amount of $700,000,000 and an OID of 1.00%, resulting in net funding proceeds of $693,000,000. VHG's position is that the TLB should be recorded at the net funded amount of $693,000,000 for purposes of the Consolidated Total Debt definition, consis

4. Closing Date Calculations. At closing, the relevant calculations are as follows: D. "Total Net Leverage Ratio"

1. Definition and Mechanics. The "Total Net Leverage Ratio" is defined as the ratio of Consolidated Net Debt to LTM Adjusted EBITDA, calculated on a trailing four-quarter basis with pro forma adjustments for acquisitions and dispositions consummated during the measurement period. Formula: Total Net Leverage Ratio = Consolidated Net Debt ÷ LTM Adjusted EBITDA

2. Covenant Level. The Credit Agreement imposes a Maximum Total Net Leverage Ratio of 4.5x. This is the sole financial maintenance covenant in the Credit Agreement, consistent with the "covenant-lite" structure typical of Term Loan B facilities in the current market.

3. Springing Mechanism. Importantly, the financial covenant is springing in nature. The 4.5x Maximum Total Net Leverage Ratio is tested quarterly on a trailing four-quarter basis, but only springs into effect when aggregate revolving credit exposure — defined as the sum of (i) drawn revolving loans and (ii) outstanding letters of credit — under the $400,000,000 RCF exceeds 35% of total revolving commitments. The 35%

4. Other Uses of the Total Net Leverage Ratio. In addition to its role as the sole financial maintenance covenant, the Total Net Leverage Ratio is referenced throughout the Credit Agreement in connection with the following provisions: (a) Incremental Facility Incurrence Test. The Credit Agreement permits VHG to incur additional term loans and/or revolving commitments under the incremental facility provisions, subject

1. Overview. The "Permitted Liens" definition sets forth the categories of liens that VHG and its Restricted Subsidiaries may grant without triggering a default under the negative pledge covenant. This definition interacts directly with the collateral package securing the obligations under the Credit Agreement.

2. Collateral Package. The New TLB and the RCF are secured by a first-priority lien on substantially all assets of VHG and the Guarantors, which include the following entities: • Verimark Resort Properties LLC • VHG Management Services Inc. • Verimark Convention Holdings LLC • Palmetto Beachfront Hotels LLC • Cascadia Hospitality Corp. The liens securing the New TLB are pari passu with the liens securing the $400,000

3. Permitted Lien Baskets. The definition of "Permitted Liens" includes the following standard baskets and carve-outs: • Existing liens (as identified on a schedule to the Credit Agreement) • Purchase money liens securing purchase money indebtedness permitted under the Permitted Indebtedness definition • Liens securing capital lease obligations permitted under the Permitted Indebtedness definition • Liens on assets o

IV. COVENANT BUILD AND PRO FORMA COMPLIANCE ANALYSIS A. Methodology. The covenant build and pro forma compliance analysis set forth below tests VHG's compliance with the 4.5x Maximum Total Net Leverage Ratio on a pro forma basis as of the anticipated closing date of July 21, 2022, giving effect to the consummation of the Refinancing and all related transactions, including: (i) The incurrence of the $700,000,000 New T

V. COMPARISON TO EXISTING GREYSTONE FACILITY DEFINITIONS The following is a brief comparison of the key defined terms and covenant structure in the existing $625,000,000 Term Loan B credit agreement (the "Existing Credit Agreement") with Greystone Federal Credit Corp. as administrative agent, originated on February 14, 2020, versus the proposed new Credit Agreement with Crescent Harbor Bank, N.A. Pricing. The Existin

VI. OPEN NEGOTIATION POINTS AND RECOMMENDATIONS A. Outstanding Items with WGP The following items remain open as of the date of this memorandum, based on the C&H Issues List dated May 20, 2022 and the WGP revised draft received May 26, 2022. We summarize each issue, the positions of C&H and WGP, and our recommendation.

1. Cap on Run-Rate Cost Savings Addback to Adjusted EBITDA C&H Position: 25% of Adjusted EBITDA (before giving effect to such addbacks). WGP Position: 15% of Adjusted EBITDA. Recommendation: Hold at 25%. This level is supported by recent precedent in the hospitality and real-estate sectors and is critical to VHG's ability to reflect the earnings impact of property renovations and brand conversions. A 15% cap would si

2. Springing Covenant Trigger Percentage Status: Agreed at 35% during the call on May 23, 2022. Need to confirm that the WGP next draft reflects this agreed position. Recommendation: Confirm in writing and mark as agreed.

3. Cash Netting in Consolidated Net Debt Definition C&H Position: Uncapped netting of all unrestricted domestic cash and cash equivalents. WGP Position: Cap of $100,000,000 on cash that may be netted against Consolidated Total Debt. Recommendation: Resist the $100,000,000 cap. VHG's current unrestricted cash position of $87,000,000 is already below the proposed cap, but the cap could become binding as VHG's cash bala

4. Treatment of OID in Consolidated Total Debt C&H Position: Consolidated Total Debt should reflect the net funded amount of $693,000,000 (face amount less OID), consistent with GAAP treatment of original issue discount. WGP Position: Face amount of $700,000,000 should be used. Recommendation: This is a relatively minor point ($7,000,000 difference, or approximately 0.02x on the leverage ratio). We recommend aligning

5. Restructuring and Integration Cost Addback Cap C&H Position: Uncapped for costs incurred within 24 months of a permitted acquisition. WGP Position: Capped at the greater of $25,000,000 and 7.5% of LTM Adjusted EBITDA. Recommendation: Seek a compromise at the greater of $35,000,000 and 10% of LTM Adjusted EBITDA (i.e., approximately $34,100,000 at current EBITDA levels). This represents a meaningful improvement ove

6. Permitted Indebtedness General Basket Size C&H Position: Greater of $75,000,000 and 22% of LTM Adjusted EBITDA (i.e., approximately $75,020,000 at current EBITDA levels). WGP Position: $50,000,000 flat cap (no grower component). Recommendation: Hold position. The dual-prong structure is critical to ensuring that VHG's flexibility grows with the business. A flat $50,000,000 cap would be undersized relative to VHG's

VII. CONCLUSION Based on the analysis set forth in this memorandum, we conclude as follows:

1. The key defined terms in the Credit Agreement are substantially in line with market practice for BB-rated hospitality-sector Term Loan B facilities. While certain defined terms require further negotiation — most notably the caps on Adjusted EBITDA addbacks and the cash netting provisions — the overall framework is sound and reflects VHG's improved credit profile relative to the Existing Credit Agreement.

2. The pro forma Total Net Leverage Ratio at closing of 2.52x provides 1.98x of headroom against the 4.5x maximum covenant level, representing approximately $676,500,000 in dollar headroom. This substantial cushion should withstand meaningful stress scenarios, as demonstrated by the sensitivity analysis in Section IV.C.

3. The springing nature of the financial covenant, combined with the broad Adjusted EBITDA definition and generous Permitted Indebtedness baskets, provides VHG with significant operational and strategic flexibility. Under normal operating conditions, the financial covenant will not even be tested, as VHG is unlikely to draw more than $140,000,000 on the RCF during the ordinary course.

4. C&H will continue to negotiate the open points identified in Section VI with Harrison Whitfield III and Megan Yeung at WGP in advance of the Second Revised Draft circulation, currently targeted for June 8, 2022. We anticipate that the next call with WGP will take place during the week of June 6, 2022.

5. A revised covenant build incorporating Q1 2022 financial results will be prepared once such data is available from VHG's finance team (Renata Haines, CFO, and Glenn Fischbach, Treasurer). We expect to receive the Q1 2022 financials no later than mid-June 2022 and will