Contract analysis

I. EXECUTIVE SUMMARY AND PURPOSE OF MEMORANDUM This memorandum catalogues and analyzes the principal open negotiation points in the Credit Agreement (the "Credit Agreement") governing the proposed $700,000,000 Senior Secured Term Loan B (the "Term Loan B" or "TLB") to be entered into by Verimark Hospitality Group Inc. (as Borrower), the Guarantors named therein, Crescent Harbor Bank, N.A. (as Administrative Agent and

1. Calderwood & Harkness LLP first draft of the Credit Agreement, circulated May 16, 2022 (the "C&H First Draft");

2. The Term Sheet agreed in principle between VHG and Crescent Harbor Bank, N.A. (the "Term Sheet");

3. The Commitment Letter and Fee Letter, which are being finalized in parallel and are targeted for execution on or about May 27, 2022 (the "Commitment Letter" and "Fee Letter," respectively); and

4. Initial informal comments received from WGP via email prior to the date of this memorandum (the "WGP Initial Comments"). We note that WGP's full revised markup of the C&H First Draft has not yet been received as of the date of this memorandum. The issues identified herein are based on the WGP Initial Comments and our anticipation of likely areas of negotiation based on the positions outlined therein. We will suppl

II. PRICING AND INTEREST RATE ISSUES Issue 1: SOFR Credit Spread Adjustment Priority: MEDIUM Background. The C&H First Draft defines "Adjusted Term SOFR" as CME Term SOFR plus a credit spread adjustment (the "CSA") intended to account for the structural basis between legacy LIBOR and SOFR. The CSA is a legacy of the LIBOR-to-SOFR transition and reflects the historical spread differential between the two rates. Althou

III. MOST FAVORED NATION (MFN) PROVISION The MFN provision is among the most commercially significant terms in the Credit Agreement for VHG, given VHG's stated intention to use a portion of the incremental proceeds to fund its acquisition pipeline. The MFN provision requires that, if VHG incurs incremental term loans at a yield exceeding the yield on the initial TLB by more than the specified threshold, the margin on

IV. REPRICING PROTECTION / SOFT CALL The repricing protection (or "soft call") provision restricts VHG's ability to reprice the TLB during a specified period following closing by imposing a premium on prepayments or amendments that reduce the effective yield on the TLB. The repricing protection is closely related to the MFN provision, as both are designed to protect existing lenders' yield expectations. Issues 7, 8,

V. FINANCIAL COVENANT ISSUES Issue 10: Financial Covenant Testing Trigger (Springing Mechanism) Priority: HIGH Background. The Credit Agreement contains a single financial maintenance covenant — a maximum total net leverage ratio of 4.5x, tested quarterly on a trailing four-quarter basis. Consistent with the "covenant-lite" structure typical of broadly syndicated TLB transactions, this financial covenant is not teste

VI. INCREMENTAL FACILITY PROVISIONS Issue 12: Incremental Term Loan Capacity and Interaction with MFN Priority: HIGH Background. The incremental facility provisions of the Credit Agreement allow VHG to incur additional term loans and/or revolving commitments after the Closing Date, subject to specified conditions and limitations. The incremental facility is one of the most important flexibility provisions in the Cred

VII. BENCHMARK REPLACEMENT / SOFR FALLBACK Issue 13: Benchmark Replacement Waterfall and Trigger Events Priority: MEDIUM Background. The benchmark replacement provisions of the Credit Agreement establish the mechanism by which the reference rate would be transitioned to a successor benchmark in the event that Term SOFR ceases to be available or is determined to be non-representative. Although the TLB is being origina