Contract analysis

I. Executive Summary The purpose of this memorandum is to provide Verimark Hospitality Group Inc.'s ("Verimark" or the "Company") legal and executive team with a comprehensive update on the status of the litigation against Coastal Palms Franchise Holdings LLC ("Coastal Palms" or "CPFH"), Randall Brecker ("Brecker"), and Suncoast Room Management Inc. ("Suncoast") through the end of the second quarter of 2022, covering

1. Answer, Affirmative Defenses, and Counterclaim. On April 18, 2022, Coastal Palms, through its counsel Whitfield, Barrow & Crane LLP, filed its Answer, Affirmative Defenses, and Counterclaim. The Counterclaim seeks $12 million in damages based on Verimark's alleged failure to maintain brand standards and adequate reservation-system uptime. We address the substance of the pleading in detail in Section III.B below.

2. Verimark's Answer to Counterclaim. On May 2, 2022, Verimark filed its Answer to the Counterclaim, denying all material allegations and asserting several affirmative defenses, including failure to mitigate, estoppel, and unclean hands.

3. Case Management Conference. On June 14, 2022, the Court held its initial Case Management Conference before Judge Calloway. The Court set a trial date in February 2024 (specific date to be confirmed by subsequent order), acknowledged the anticipated complexity and volume of discovery, and encouraged the parties to adopt e-discovery protocols and to consider mediation at an appropriate stage. 4. discovery Plan. Foll

II. Background and Nature of Claims A. The Parties Plaintiff. Verimark Hospitality Group Inc. ("Verimark" or "VHG") is a Delaware corporation publicly traded on the Nasdaq Stock Market under the ticker symbol VHMK. Verimark maintains its principal executive offices at 2400 East Las Olas Boulevard, Suite 3100, Fort Lauderdale, Florida 33301. The Company operates and franchises approximately 340 branded hotel propertie

III. Pleadings Phase — Summary of Filings A. Complaint (Filed March 7, 2022) On March 7, 2022, Verimark filed its ten-count Complaint in the Circuit Court of the 17th Judicial Circuit, in and for Broward County, Florida. The action was assigned Case No. 1021-00006 and was subsequently assigned to the Honorable Richard M. Calloway, Circuit Judge. A Civil Cover Sheet was filed concurrently with the Complaint. The Compl

IV. Case Management Conference — June 14, 2022 The Court held its initial Case Management Conference on June 14, 2022 before the Honorable Richard M. Calloway, Circuit Judge. All parties were represented at the conference. Appearances. Calderwood & Harkness LLP appeared on behalf of Plaintiff Verimark through the undersigned, Priya Anand (Partner, appearing in person), and Yuki Nakamura (Lead Associate, appearing in

V. Discovery Plan and Strategy A. E-discovery Protocol Following productive negotiations between Calderwood & Harkness LLP and Whitfield, Barrow & Crane LLP, the parties executed a Joint E-discovery Protocol Stipulation on June 20, 2022. The stipulation was filed with the Court on the same date. The agreed-upon protocol addresses the following key areas: ESI Production Format. All electronically stored information sh

VI. Insurance Coverage Update Verimark notified Pinnacle Indemnity Insurance Co. of this litigation on March 14, 2022, one week after the filing of the Complaint. The notification was made pursuant to Policy No. PLI-VHG-2021-08874, which provides commercial general liability and franchise-litigation coverage for claims arising from Verimark's franchise operations. The primary contact at Pinnacle Indemnity is Arthur B

VII. Staffing The following attorneys are currently assigned to this matter: Priya Anand serves as the Responsible Partner for the engagement. Ms. Anand has primary responsibility for overall case strategy, key depositions, court appearances, and client interface. She has extensive experience in complex commercial litigation, franchise disputes, and fraud cases in the Florida state and federal courts. Douglas Carmich

VIII. Budget Tracking A. Preliminary Budget Estimate As set forth in the Matter Budget Memorandum dated March 10, 2022, which was reviewed and approved by Renata Solis-Vega and Martin Holcomb, the preliminary litigation budget through trial was estimated at $4.5 million to $7.5 million. This range reflects the inherent uncertainty associated with a complex, multi-defendant commercial case involving extensive document

IX. Upcoming Key Dates and Milestones The following table summarizes the key dates and milestones anticipated over the next several months: We will provide updated milestone dates in the Q3 2022 Quarterly Litigation Status Report, which is anticipated to be delivered in early October 2022.

X. Preliminary Case Assessment and Risk Factors A. Strengths We believe Verimark's claims are well-supported by the available evidence and by the contractual framework. The following factors strengthen Verimark's position: Unambiguous GRR Definition. Section 4.1 of the FLAs defines Gross Room Revenue as "all revenues derived from or attributable to the rental of guest rooms at the Hotel, including revenues from any b