Contract analysis

I. Executive Summary and Conclusions This memorandum sets forth our analysis of the U.S. federal income tax implications of the proposed issuance by Verimark Hospitality Group Inc. ("VHG" or the "Issuer"), a Delaware corporation whose common stock is listed on the Nasdaq Stock Market under the ticker symbol "VMRK," of $500,000,000 aggregate principal amount of 8.250% Senior Notes due 2031 (the "Notes") in a private p

II. Transaction Overview and Key Terms Set forth below is a summary of the material terms and structural features of the proposed offering, based upon our review of the drafts of the Indenture, the Purchase Agreement, and the Offering Memorandum circulated by the Capital Markets group as of April 26, 2024, as well as the term sheet provided by the Initial Purchasers. Issuer. Verimark Hospitality Group Inc., a corpora

III. Original Issue discount Analysis A. Determination of "Issue Price" Under Treasury Regulations The determination of the "issue price" of the Notes is the threshold inquiry for the OID analysis, as OID is defined under IRC §1273(a)(1) as the excess of the "stated redemption price at maturity" over the "issue price" of a debt instrument. Under Treas. Reg. §1.1273-2(a)(1), the issue price of a debt instrument that i

IV. Treatment of Stated Interest A. Qualified Stated Interest The characterization of the 8.250% coupon on the Notes as "qualified stated interest" is critical to the OID analysis, because only payments that do not constitute qualified stated interest are included in the "stated redemption price at maturity" for purposes of computing OID. Under Treas. Reg. §1.1273-1(c)(1)(i), "qualified stated interest" ("QSI") is st

1. Statutory Framework. IRC §163(j), as substantially amended by the Tax Cuts and Jobs Act of 2017 (P.L. 115-97) (the "TCJA") and further modified by the Coronavirus Aid, Relief, and Economic Security Act of 2020 (P.L. 116-136) (the "CARES Act"), imposes a limitation on the deduction of "business interest expense" by taxpayers. Under §163(j)(1), the deduction allowed for business interest expense for any taxable year

2. Application to VHG. VHG's annual interest expense on the Notes will be $41,250,000 ($500,000,000 × 8.250%). Assuming the Existing Credit Facility is fully repaid at closing, the Notes will be VHG's sole material funded indebtedness, and total annual business interest expense should approximate $41,250,000 (subject to any revolving credit facility or other indebtedness incurred after closing). VHG reported Adjusted

3. Real Property Trade or Business Election. VHG may be eligible for, and may have already made, an irrevocable election under IRC §163(j)(7)(B) to be treated as an "electing real property trade or business." A taxpayer that makes this election is exempt from the §163(j) limitation entirely, meaning that all business interest expense would be fully deductible without regard to the 30% ATI cap. The trade-off for makin

4. Conclusion on Interest Deductibility. Interest on the Notes at a rate of 8.250% per annum ($41,250,000 annually) should be deductible by VHG under IRC §163(a), subject to the limitation on business interest expense under IRC §163(j). Based on VHG's scale of operations, as reflected in its Adjusted EBITDA of $412,000,000, the §163(j) limitation is not expected to restrict the full deductibility of the interest expe

V. Applicable High Yield discount Obligation (AHYDO) Analysis A. Statutory Framework — IRC §163(e)(5) Congress enacted the AHYDO provisions of IRC §163(e)(5) in 1989 as part of the Revenue Reconciliation Act of 1989 to address perceived abuses associated with high-yield, deeply-discounted debt instruments used in leveraged buyout and recapitalization transactions during the 1980s. The AHYDO provisions are designed to

VI. Treatment of Optional Redemption Premiums A. Call Premiums Under the Notes The Indenture provides VHG with a series of optional redemption rights, as well as an equity clawback right, and grants holders a put right upon a change of control. The following table summarizes the applicable premiums: B. OID Treatment of Redemption Premiums Under Treas. Reg. §1.1272-1(c)(5), a redemption premium — i.e., the excess of t

VII. Taxation of Holders — Summary for Offering Memorandum This section summarizes the key U.S. federal income tax consequences for holders of the Notes, for purposes of drafting the "Certain U.S. Federal Income Tax Considerations" section of the Offering Memorandum to be prepared by Calderwood & Harkness LLP. This summary is intended for internal use by the Capital Markets team and should be adapted and expanded as

VIII. Tax Treatment of Transaction Costs VHG will incur substantial transaction costs in connection with the issuance of the Notes and the refinancing of the Existing Credit Facility. The characterization and timing of the deduction for these costs depend on the nature of the expenditure and the applicable provisions of the Code and Treasury Regulations. Debt Issuance Costs. Under IRC §263 and Treas. Reg. §1.263(a)-5

IX. Assumptions and Limitations This memorandum is based on the Internal Revenue Code of 1986, as amended, Treasury Regulations promulgated thereunder, published rulings and administrative pronouncements of the Internal Revenue Service, and relevant judicial decisions, all as in effect as of the date hereof. Each of these authorities is subject to change, possibly with retroactive effect, and any such change could af

1. Debt vs. Equity Classification. We assume that the Notes will be treated as debt instruments (and not as equity) for U.S. federal income tax purposes. This assumption is well-supported by the following characteristics of the Notes: (a) a fixed, stated maturity date of July 1, 2031 (approximately seven years from issuance); (b) unconditional payment obligations for principal at maturity and interest at a fixed rate

2. Applicable Federal Rate. The AHYDO analysis relies on an assumed mid-term AFR of approximately 4.75% (semi-annual compounding) for instruments issued in June 2024. This assumption is based on recently published IRS Revenue Rulings. The precise mid-term AFR for June 2024 must be confirmed when published by the IRS (typically in a Revenue Ruling issued during the third or fourth week of May 2024). If the actual AFR

3. Issue Price. We assume that the issue price of the Notes will be 98.500% of par ($492,500,000), as indicated in the current term sheet. If the actual issue price is lower than anticipated (whether due to market conditions, pricing adjustments, or otherwise), the OID will increase, and the de minimis analysis and AHYDO analysis should be rechecked. As noted in Section III.C, the de minimis test is close to the boun

4. State and Local Tax. This memorandum does not address state or local income, franchise, or other tax consequences arising from the issuance of the Notes, the receipt of interest by holders, or the gain or loss on disposition of the Notes. State and local tax consequences may differ materially from the federal income tax consequences described herein.

5. Specific Categories of Holders. This memorandum does not address the tax consequences to specific categories of holders that may be subject to special rules, including but not limited to partnerships, S corporations, real estate investment trusts ("REITs"), regulated investment companies, personal holding companies, insurance companies, tax-exempt organizations (including entities described in IRC §501(a) and Indi

6. Transaction Documents. Our analysis is based on the drafts of the Indenture, Purchase Agreement, Registration Rights Agreement, and term sheet circulated as of April 26, 2024. If the final transaction documents differ from the drafts reviewed in any material respect, the conclusions herein should be re-evaluated. The conclusions set forth in this memorandum will form the basis of (a) the "Certain U.S. Federal Inco