Contract analysis

I. PURPOSE AND EXECUTIVE SUMMARY This memorandum provides Martin Holcomb and the Verimark Hospitality Group Inc. ("Verimark") finance team with a comprehensive updated litigation budget for the above-captioned matter (the "Coastal Palms matter") as of the close of Q4 2023 (December 31, 2023). It is intended to serve as a planning tool for purposes of financial forecasting, accrual determination, and internal resource

II. MATTER STATUS SUMMARY A. Procedural Posture The matter is currently at the summary judgment stage. Cross-motions for summary judgment have been fully briefed and are awaiting oral argument. Verimark's Motion for Partial Summary Judgment on Count I (Breach of Contract — Royalties) and Count II (Breach of Contract — Marketing Fund Contributions) was filed on September 29, 2023. The motion seeks a determination of l

III. ACTUAL EXPENDITURES THROUGH DECEMBER 31, 2023 The following sections provide a detailed breakdown of all costs incurred in connection with the Coastal Palms matter through December 31, 2023. A. Calderwood & Harkness Fees (Incurred to Date) C&H fees incurred through December 31, 2023 total approximately $5.8 million to $6.0 million. The blended effective rate across the C&H team is approximately $685 per hour. Th

1. Randall Brecker (CEO, Coastal Palms Franchise Holdings LLC) — two-day deposition, January 9–10, 2023

2. Theresa Brecker (COO, Coastal Palms Franchise Holdings LLC) — January 17, 2023

3. Nolan Prescott (CFO, Coastal Palms Franchise Holdings LLC) — January 24, 2023

4. Janet Kerrigan (VP of Finance, Coastal Palms Franchise Holdings LLC) — January 31, 2023

5. David Ortega (General Manager, Coastal Palms Fort Lauderdale Beach) — February 7, 2023

6. Maria Chen (Controller, Coastal Palms Miami Airport) — February 9, 2023

7. William Tabor (General Manager, Coastal Palms Tampa Bay) — February 14, 2023

8. Karen Lipscomb (Director of Revenue, Suncoast Room Management LLC) — February 16, 2023

9. Antoine DuBois (General Manager, Coastal Palms Orlando Convention Center) — February 21, 2023

10. Rachel Stroud (Accounting Manager, Coastal Palms Jacksonville Riverfront) — February 23, 2023

11. Thomas Yee (General Manager, Coastal Palms West Palm Beach) — March 1, 2023

12. Stephanie Vasquez (Controller, Coastal Palms Sarasota Waterfront) — March 7, 2023

13. James Callahan (General Manager, Coastal Palms Naples Gulf Shore) — March 10, 2023

14. Patricia Drummond (30(b)(6) designee, Suncoast Room Management LLC) — March 17, 2023 Expert Depositions (June 26–27, 2023):

15. Dr. Sharon Kettlewell (Plaintiff's expert) — June 26, 2023

16. Prof. Grant Hargrove (Defendant's expert) — June 27, 2023 The court reporter costs include original transcripts, certified copies, videography for five key depositions (Brecker, Brecker, Prescott, Kerrigan, and Lipscomb), and real-time reporting for the Brecker two-day deposition. E. Other Costs Filing fees, service of process, courier services, and travel expenses incurred through December 31, 2023 total approxi

IV. REVISED BUDGET PROJECTIONS — REMAINING PHASES The following sections set forth C&H's revised budget projections for the remaining phases of the Coastal Palms matter. These projections are organized by phase, with each phase presenting a range based on the level of effort that may be required depending on the outcome of earlier phases and the parties' settlement posture. A. Phase 1: Summary Judgment Resolution (Ja

V. REVISED TOTAL BUDGET ESTIMATE Based on the actual expenditures set forth in Section III and the revised projections set forth in Section IV, C&H presents two budget scenarios, depending on whether the matter resolves through settlement or proceeds to trial. A. Scenario 1: Settlement Before Trial (More Likely Scenario) C&H believes that settlement prior to trial is the more likely outcome, particularly if Verimark

VI. VARIANCE ANALYSIS — ORIGINAL VS. REVISED BUDGET The following analysis identifies and quantifies the primary drivers of the variance between the original March 2022 budget estimate and the revised January 2024 estimate. A. Discovery Phase Overrun The discovery phase accounted for the single largest source of budget variance. The original estimate assumed a document universe of approximately 200,000 to 400,000 doc

VII. COLLECTIBILITY AND COST-BENEFIT CONSIDERATIONS C&H recognizes that the revised budget represents a significant investment by Verimark, and it is appropriate to evaluate the litigation costs in the context of the potential recovery. Total Claimed Damages. Verimark's total claimed damages in the Coastal Palms matter are approximately $150 million, comprised of the following components: Collectibility Consideration

VIII. BILLING AND PAYMENT STATUS C&H is pleased to report that all invoices issued in connection with the Coastal Palms matter are current through the November 2023 billing cycle. There are no outstanding balances or past-due amounts. The December 2023 invoice is currently in preparation and is expected to be delivered to Verimark no later than January 15, 2024. The December invoice will reflect the final summary jud

IX. RECOMMENDATIONS Based on the current status of the matter and the revised budget analysis set forth herein, C&H respectfully offers the following recommendations for Verimark's consideration:

1. Oral Argument. Priya Anand will argue the cross-motions for summary judgment at the January 19, 2024 hearing before Judge Calloway. Ms. Anand is fully prepared for this argument, and no additional budget authorization is needed for this phase. C&H will provide Verimark with a post-argument assessment memorandum promptly following the hearing.

2. Mediation Planning. C&H recommends that Verimark begin considering its mediation posture and settlement authority in anticipation of a post-ruling mediation process. The summary judgment ruling will substantially affect the parties' respective negotiating positions, and Verimark should be prepared to move quickly toward mediation once the ruling is issued. C&H will prepare a detailed settlement-authority memorandu

3. Insurance Recovery. C&H recommends that Verimark follow up with Pinnacle Indemnity Insurance Co. regarding the coverage determination under Policy No. PLI-VHG-2021-08874. Given the magnitude of the litigation costs incurred to date and the potential for significant additional costs through trial, any insurance recovery would meaningfully offset Verimark's net litigation expense. C&H is prepared to assist Verimark

4. Board / Audit Committee Notification. Given that total litigation costs will materially exceed the original budget estimate and that the matter may result in a material settlement, C&H recommends that Mr. Holcomb coordinate with Verimark's audit committee regarding updated accruals for SEC disclosure purposes. Verimark is publicly traded on the Nasdaq Stock Market under the ticker symbol VHMK, and the company's di

5. Budget Cap. In light of the revised budget analysis, C&H requests that Verimark confirm revised budget authorization at the $10.5 million level. This authorization would provide sufficient flexibility to take the matter through trial if settlement efforts are unsuccessful, without the need for further budget approval during a period when the C&H team may need to proceed expeditiously with trial preparation. C&H co

X. APPENDIX: SUMMARY BUDGET TABLE The following table provides a consolidated comparison of the original March 2022 budget estimate and the revised January 2024 estimate, organized by phase and cost category: Notes: (1) "Variance" reflects the range of potential overrun or underrun relative to the original estimate. Negative values in parentheses indicate potential underrun. (2) Trial Preparation and Trial phase esti