Contract analysis

I. PURPOSE AND EXECUTIVE SUMMARY This memorandum provides Verimark Hospitality Group Inc. ("Verimark" or "VHG") with a comprehensive framework of recommended internal procedures for monitoring Coastal Palms Franchise Holdings LLC ("Coastal Palms" or "CPFH") and its principals' compliance with the Settlement Agreement and Mutual Release executed on April 22, 2024 (the "Settlement Agreement"). While the litigation is n

1. Structured Payment Tracking (Section III)

2. Franchise Surrender and De-Identification Compliance (Section IV)

3. Enhanced Audit Protocol for Retained Properties (Section V)

4. Acceleration-Event Monitoring and Enforcement Triggers (Section VI)

5. Ongoing Coordination with Calderwood & Harkness LLP (Section VIII) Additionally, the memorandum addresses Verimark's own obligations under the Settlement Agreement, particularly those relating to confidentiality and non-disparagement (Section VII), and provides a consolidated compliance calendar summarizing all key dates and milestones (Section IX). We recommend designating a single internal compliance coordinator

II. BACKGROUND AND SETTLEMENT OVERVIEW A. Litigation Summary On March 7, 2022, Verimark filed its Complaint in the Circuit Court of the 17th Judicial Circuit, Broward County, Florida, asserting ten (10) counts against Coastal Palms Franchise Holdings LLC, Suncoast Room Management Inc., Randall Brecker, and related entities. The counts included: • Counts I–III: Breach of Contract for underpayment of royalties, marketi

III. STRUCTURED PAYMENT MONITORING A. Payment Schedule The Settlement Agreement provides for a total monetary settlement of $87,500,000, payable as follows: a $25,000,000 lump-sum closing payment (already received) and eight (8) semi-annual structured installments of $7,812,500 each over a four-year period. The complete payment schedule, as set forth in Settlement Agreement Exhibit A, is as follows: Total Structured

1. Same-Day/Next-Business-Day Confirmation: On each payment due date (or the next business day if the due date falls on a weekend or federal holiday), Verimark's treasury department should confirm whether the wire transfer has been received. If receipt is not confirmed by the close of business on the first business day after the due date, Renata Solis-Vega and Deidre Langston should be immediately notified, and Calde

2. Interest Calculation Verification: For each payment, Verimark's finance team should independently calculate the accrued simple interest at 6.5% per annum on the remaining principal balance for the applicable period and confirm that the total amount received (principal installment plus interest) matches the expected amount. Any discrepancy should be documented and communicated to Coastal Palms' counsel promptly.

3. Running Payment Ledger: Verimark should maintain a running ledger documenting: (a) the date each payment was due; (b) the date each payment was received; (c) the principal amount received; (d) the interest amount received; (e) the total amount received; (f) the remaining outstanding principal balance; and (g) any discrepancy or late-payment notation. To assist with interest verification, the following illustrative

1. Annual UCC Search: At least once per year, Verimark should conduct a UCC search against Coastal Palms Franchise Holdings LLC (and any property-level entities that own collateral properties) to confirm that (a) Verimark's UCC-1 filing remains active and in first-priority position, and (b) no intervening liens, security interests, or judgments have been filed against any of the collateral properties. This search sho

2. UCC-1 Continuation Statement: UCC-1 Financing Statements are effective for a period of five (5) years from the date of filing under Florida's Uniform Commercial Code (Fla. Stat. § 679.5151). Accordingly, a continuation statement must be filed within six months before the expiration of the initial filing to maintain perfection. The filing was made on or about April 22, 2024; therefore, the continuation statement mu

3. Monitoring for Unauthorized Encumbrances: The Settlement Agreement contains a covenant by Coastal Palms prohibiting the sale, transfer, refinancing, or further encumbrance of any of the eight (8) collateral properties without Verimark's prior written consent. Verimark should monitor for any indication that Coastal Palms is attempting to sell, refinance, or encumber any collateral property. Potential monitoring mec

4. Personal Guaranties: The personal guaranties executed by Randall Brecker and Nolan Prescott are critical components of the security package. These guaranties provide that Mr. Brecker and Mr. Prescott are jointly and severally liable for all remaining structured-payment obligations under the Settlement Agreement. Verimark should: (a) Confirm that the executed original guaranty instruments have been received and pla

5. Coordination with Ironclad National Bank: Ironclad National Bank holds first-lien mortgage loans on eighteen (18) of the twenty-two (22) Coastal Palms properties, with an aggregate outstanding balance of approximately $94 million. The eight (8) collateral properties securing Verimark's UCC-1 lien are unencumbered by Ironclad's mortgages — that is, they are the four (4) properties in the portfolio that were owned f

IV. FRANCHISE SURRENDER AND DE-IDENTIFICATION COMPLIANCE A. Surrendered Properties — Identification Pursuant to Settlement Agreement § 12 and Exhibit B, Coastal Palms is required to surrender the franchise rights for fourteen (14) of its twenty-two (22) hotel properties. Individual franchise-surrender notices for all fourteen properties were sent on April 25, 2024 using the template approved by Calderwood & Harkness

1. Proprietary System disconnection: Verimark's IT department should work with the franchise operations team to schedule the disconnection of all Verimark proprietary systems at the surrendered properties. This includes the orderly removal of CRS access, PMS interfaces, and guest-facing technology (Wi-Fi portals, in-room entertainment system integrations, mobile-app connectivity). The disconnection schedule should be

2. Pending Reservations Management: Verimark should work with Coastal Palms to identify any pending reservations at surrendered properties that were booked through the Verimark CRS or Verimark's website/app. These reservations should be managed in a manner consistent with Verimark's brand-reputation standards. Options include honoring the reservations through their completion, transferring them to nearby Verimark-bra

3. Domain Name and Online Presence: Verimark should confirm that Coastal Palms ceases use of the domain name gulfcoastrooms.com — or any other domain name — for any bookings, marketing, or other online activity that references or implies an association with Verimark brands. To the extent that Coastal Palms has been using gulfcoastrooms.com as a direct-booking channel (which was one of the mechanisms underlying the re

V. ENHANCED AUDIT PROTOCOL — RETAINED PROPERTIES A. Retained Properties — Identification Eight (8) of Coastal Palms' twenty-two (22) franchise properties will be retained under new ten-year Franchise License Agreements, the form of which is attached to the Settlement Agreement as Exhibit C. These eight properties are also the unencumbered properties serving as collateral for the security interest securing the structu

1. Quarterly Audits: The original FLAs required annual audits of franchisee GRR reports, with Verimark having the right to conduct additional audits upon reasonable notice. Under the Enhanced Audit Protocol, Verimark is entitled to conduct quarterly audits of all eight retained properties for a minimum period of five (5) years from the Settlement Agreement effective date, through April 22, 2029. After the initial fiv

2. Audit Cost Allocation: Under the original FLAs (§ 8.2), the franchisee was responsible for audit costs only if the audit revealed an underpayment exceeding 2% of reported GRR. Under the Enhanced Audit Protocol, Coastal Palms bears all audit costs for the full five-year enhanced audit period, regardless of the audit's findings. This provision reflects the recognition that the need for enhanced auditing arose direct

3. Real-Time POS/PMS Integration: Settlement Agreement Exhibit D requires Coastal Palms to install and maintain Verimark-approved point-of-sale ("POS") and property-management system ("PMS") interfaces at all eight retained properties. These systems must transmit daily room-revenue data directly to Verimark's central revenue-management systems. The integration must capture all revenue transactions, including guest-ro

4. Comprehensive Booking-Channel Capture: The Enhanced Audit Protocol expressly requires that all booking channels be captured in the integrated PMS and reported as part of GRR under the FLA § 4.1 definition. This includes, without limitation: (a) Walk-in guests; (b) Corporate-direct contracts and negotiated-rate bookings; (c) Online travel agency ("OTA") channels (e.g., Aldermere Technologies, Bramwell Holdings, Dra

5. Prohibition on Separate Management Entities: The Enhanced Audit Protocol expressly prohibits Coastal Palms from using any separate management entity — such as the now-defunct Suncoast Room Management Inc. — to collect, process, or manage guest-room revenues outside of the integrated PMS. Any management-company arrangement for the retained properties must be disclosed to and approved by Verimark in advance, and all

6. Monthly GRR Certification: In addition to the quarterly audits, the Enhanced Audit Protocol requires that Randall Brecker (or his designated senior officer, subject to Verimark's approval of the designee) execute a sworn monthly certification of reported GRR for each retained property. The certification must attest, under penalty of perjury, that: (a) All revenues derived from or attributable to the rental of gues

1. Engagement of Independent Auditor: Verimark should engage an independent certified public accounting firm to perform the quarterly compliance audits. We recommend retaining Thornbury & Associates CPAs LLP for this engagement, given Malcolm Thornbury's familiarity with Coastal Palms' historical financial records and revenue-diversion practices from his work during the litigation. His firm's institutional knowledge

2. First Quarterly Audit — Q2 2024: The first quarterly audit under the Enhanced Audit Protocol should cover the period from April 1, 2024 through June 30, 2024 (Q2 2024). This audit should be scheduled for approximately July 2024, allowing sufficient time after the quarter's close for Coastal Palms to prepare its records and for the POS/PMS integration to be fully operational.

3. Quarterly Audit Calendar: A comprehensive quarterly audit calendar should be established covering the full five-year enhanced audit period through April 2029. The audit schedule should be as follows (subject to adjustment based on operational considerations):

4. Audit Budget: Based on comparable audit engagements in the hospitality industry and the scope of work required under Exhibit D, we estimate that the annual cost of the quarterly audits will be approximately $150,000 to $200,000 per year. Under the Enhanced Audit Protocol, these costs are borne entirely by Coastal Palms. Verimark should confirm that invoices for audit costs are submitted to Coastal Palms promptly a

5. Audit Scope: Each quarterly audit should include, at minimum: (a) PMS-to-Bank Reconciliation: Reconciliation of PMS-reported room revenue with bank-deposit records for each retained property, identifying any discrepancies between the revenue recorded in the PMS and the funds actually deposited; (b) Booking-Channel Verification: Verification that all booking channels (walk-ins, corporate-direct, OTA, direct-booking

6. Franchise Compliance Analyst: We recommend that Deidre Langston appoint a dedicated franchise compliance analyst within the franchise operations department to serve as the primary point of contact for audit coordination and to review quarterly audit reports. This individual should have sufficient experience in hospitality finance or franchise compliance to identify potential issues in audit reports and to escalate

7. Underreporting Thresholds and Escalation: If any quarterly audit reveals underreporting of GRR — regardless of amount — the finding should be documented and reported to Renata Solis-Vega. If the underreporting exceeds any threshold specified in the Settlement Agreement or the new FLAs as constituting a material breach, the finding should be treated as a potential acceleration event under Section VI below, and Cald

1. System Integration Verification: Verimark's IT department should confirm that the POS/PMS integration is fully operational at all eight retained properties before or concurrent with the execution of the new FLAs. A formal system-integration verification report should be prepared for each property, documenting that (a) the Verimark-approved POS and PMS interfaces have been installed, (b) daily room-revenue data is

2. Automated Data-Feed Alerts: Verimark's IT department should establish automated alerts that trigger when: (a) the daily data feed from any retained property is interrupted for more than 24 hours; (b) there is a significant discrepancy between PMS-reported revenue and bank-deposit data (e.g., a variance exceeding 5%); or (c) there is evidence that bookings are being processed outside the integrated PMS (e.g., booki

3. Monthly Data-Feed Integrity Review: The franchise compliance analyst should conduct a monthly review of data-feed integrity reports generated by Verimark's revenue-management systems. This review should confirm that (a) daily data feeds from all eight retained properties have been received consistently throughout the month; (b) no data anomalies or suspicious patterns have been identified; and (c) the PMS-reported

4. IT Security and Access Controls: Verimark should ensure that its POS/PMS integration protocols include appropriate security measures to prevent unauthorized access, modification, or deletion of revenue data by Coastal Palms personnel. This may include encryption of data feeds, access-control restrictions on the PMS, and audit trails that log all modifications to revenue records.

VI. ACCELERATION EVENTS AND ENFORCEMENT TRIGGERS A. Defined Acceleration Events The Settlement Agreement defines specific events that, if they occur, entitle Verimark to accelerate all remaining structured payments and pursue immediate enforcement of its security interest and personal guaranties. These acceleration events include, at minimum, the following:

1. Payment Default: Failure by Coastal Palms to make any semi-annual structured payment within the applicable grace period after written notice from Verimark. The grace period and notice requirements are specified in Settlement Agreement § 8.5 and should be strictly followed.

2. Audit Protocol Breach: Failure by Coastal Palms to submit to any quarterly audit under the Enhanced Audit Protocol, failure to maintain the required POS/PMS integration at any retained property, or failure by Randall Brecker (or his approved designee) to execute and deliver monthly GRR certifications within the required timeframe.

3. De-Identification Default: Failure by Coastal Palms to complete de-identification of all fourteen surrendered properties by the August 20, 2024 deadline, subject to any cure provisions in the Settlement Agreement.

4. Material Breach of New FLAs: A material breach by Coastal Palms of any of the new Franchise License Agreements for the eight retained properties that is not cured within the applicable cure period specified in the new FLAs.

5. Insolvency Events: The filing of a voluntary or involuntary petition in bankruptcy, the commencement of insolvency proceedings, the making of an assignment for the benefit of creditors, or the appointment of a receiver or trustee with respect to Coastal Palms Franchise Holdings LLC, any property-level entity (including Gulf Breeze Hospitality LLC and Savannah Lodging Partners LLC), or any personal guarantor (Randa

6. Unauthorized Disposition of Collateral: Any sale, transfer, conveyance, encumbrance, or other disposition of any of the eight collateral properties without Verimark's prior written consent, including any attempt to grant a mortgage, deed of trust, security interest, or other lien on any collateral property.

7. Renewed Revenue Diversion: discovery of additional unreported revenue or renewed revenue-diversion activity at any retained property, including the establishment or use of any management entity, booking channel, or other mechanism to collect or process guest-room revenues outside of the integrated PMS. B. Acceleration Mechanics Upon the occurrence and continuation of any acceleration event (and the expiration of a

1. Acceleration of Remaining Payments: Verimark may declare all remaining structured payments immediately due and payable. This means that the entire outstanding principal balance (less any payments already made), together with all accrued and unpaid interest at 6.5% per annum, becomes immediately due. For example, if an acceleration event occurs after the first three semi-annual installments have been paid, the rema

2. Default Interest: Following acceleration, interest continues to accrue on the accelerated balance at the rate of 6.5% per annum (or at any higher default rate specified in the Settlement Agreement) until the balance is paid in full.

3. Enforcement of Security Interest: Verimark may exercise all remedies available to a secured party under Article 9 of the Uniform Commercial Code as adopted in Florida (Fla. Stat. §§ 679.6011–679.6281), including foreclosure on the eight unencumbered collateral properties. Given the aggregate appraised value of $71.2 million, the collateral should provide substantial coverage for any remaining structured-payment ba

4. Pursuit of Personal Guaranties: Verimark may pursue Randall Brecker and Nolan Prescott, jointly and severally, under their personal guaranties for the full amount of the accelerated obligation. Enforcement of the guaranties may include the commencement of collection actions, the recording of judgment liens against the guarantors' personal assets, and such other remedies as may be available under applicable law.

5. Judicial Enforcement: Verimark may pursue judicial enforcement of the Settlement Agreement in the Circuit Court of the 17th Judicial Circuit, Broward County, Florida, consistent with the venue provisions of the original FLAs and the Settlement Agreement. Available judicial remedies may include an action to enforce the settlement agreement, a breach-of-contract action under the Settlement Agreement, a motion to reo

1. Identification and Reporting: Any Verimark department or employee who identifies a potential acceleration event should immediately report the matter to Renata Solis-Vega (SVP & General Counsel) and Deidre Langston (SVP, Franchise Operations). This includes, without limitation, reports from the finance/treasury department (missed payments), the franchise operations team (de-identification non-compliance, audit-prot

2. Legal Counsel Notification: Calderwood & Harkness LLP should be notified within 48 hours of the identification of any potential acceleration event. Counsel will conduct a legal assessment of whether the facts constitute a bona fide acceleration event under the Settlement Agreement, whether any cure period applies, and what enforcement options are available.

3. Internal Decision-Making: The decision to exercise acceleration rights should be made at the executive level, involving at a minimum: (a) Renata Solis-Vega (SVP & General Counsel) — legal assessment and recommendation; (b) Martin Holcomb (EVP & Chief Financial Officer) — financial impact analysis, including assessment of remaining payment exposure, collateral value, and the financial condition of Coastal Palms and

4. Documentation: Throughout the escalation process, Verimark must maintain detailed contemporaneous documentation of all facts giving rise to the potential acceleration event, including dates, witnesses, documents reviewed, communications with Coastal Palms and its counsel, and internal deliberations. This documentation will be essential in the event that acceleration is challenged or enforcement litigation becomes

VII. CONFIDENTIALITY AND NON-DISPARAGEMENT COMPLIANCE A. Confidentiality Obligations Settlement Agreement § 22 imposes mutual confidentiality obligations on the parties. The settlement amount, the specific terms of the Settlement Agreement, and the substance of the mediation proceedings are confidential, and neither party may disclose this information to any third party except as expressly permitted in the Settlement

1. Brief All Relevant Personnel: All Verimark personnel who have contact with Coastal Palms, its properties, or its principals — including franchise operations staff, field inspectors, IT personnel, auditors, and customer-service representatives — should be briefed on the non-disparagement obligation. They should be instructed that no statements may be made, whether orally, in writing, electronically, or through soci

2. Media and External Communications: Any media inquiries or external communications regarding the Coastal Palms litigation or settlement should be directed to Verimark's communications department and Renata Solis-Vega's office. No employee should respond to such inquiries independently.

3. Monitoring for Coastal Palms Violations: If Verimark receives information suggesting that Coastal Palms, its principals, or its representatives are violating the non-disparagement clause — for example, by making negative statements about Verimark to industry contacts, other franchisees, guests, or in online forums — Verimark should document the incident thoroughly (including screenshots, witness statements, and an

VIII. COORDINATION WITH CALDERWOOD & HARKNESS LLP A. Ongoing Role Although the litigation matter (Verimark Hospitality Group Inc. v. Coastal Palms Franchise Holdings LLC et al., Case No. 1021-00006) has been formally closed with the filing of the Joint Stipulation of Dismissal with Prejudice on April 26, 2024, Calderwood & Harkness LLP remains available to advise Verimark on all matters arisin