Contract analysis

I. Executive Summary On January 27, 2023, Pinnacle Atlantic Capital, LLC ("PAC") delivered repriced and restructured loan terms for the proposed first mortgage refinancing of the Coral Palms Grand Resort & Spa, located at 99000 Overseas Highway, Key Largo, Monroe County, Florida 33037 (the "Property"). This memorandum analyzes the repriced terms, compares them against the original terms set forth in the Commitment Le

II. Background A. Transaction Overview The transaction at issue is a proposed first mortgage refinancing of the Coral Palms Grand Resort & Spa. The key parties and material facts are as follows: Borrower. The borrower is Coral Palms Resort Holdings LLC, a Florida limited liability company and a wholly owned indirect subsidiary of Verimark Hospitality Group Inc., a Delaware corporation publicly traded on Nasdaq under

III. Side-by-Side Comparison of Original vs. Repriced Terms A. Comparison Table The following table provides a comprehensive side-by-side comparison of the material terms as set forth in the original Commitment Letter dated December 9, 2022, and the repriced terms delivered by PAC on January 27, 2023. This table is also reproduced in Exhibit A attached hereto for ease of reference. B. Key Observations on Each Changed

1. Loan Amount Reduction ($21,000,000). The repriced loan amount of $139,000,000 represents a $21,000,000 (13.13%) reduction from the original $160,000,000. It is noteworthy that while the mechanical maximum loan at the Commitment Letter's 68.0% LTV threshold would be only $130,560,000 (i.e., $192,000,000 × 68.0%), PAC is in fact proposing to lend $139,000,000, which corresponds to an LTV of approximately 72.40% at t

2. Interest Rate Increase (155 Basis Points). The increase in the fixed interest rate from 5.35% to 6.90% represents a 155 basis point widening. This is a substantial repricing that likely reflects a combination of factors: (i) PAC's assessment of the incremental credit risk associated with a higher effective LTV; (ii) the additional capital charges and risk-weighting that PAC's internal credit policies may impose on

3. Full Recourse Guaranty. The conversion from a limited recourse / "bad boy" carve-out guaranty to a full recourse guaranty represents, in our assessment, the most significant structural adverse change in the repriced terms. This single modification fundamentally alters the risk allocation between borrower and lender and has wide-ranging implications for VHG as a publicly traded company. Under the original Commitmen

4. Cross-Collateralization (Driftwood Bay Hotel). PAC's repriced terms introduce a new requirement that VHG pledge the Driftwood Bay Hotel, located in Sarasota, Florida, as cross-collateral for the Coral Palms loan. The Driftwood Bay Hotel is a separate VHG portfolio property and was not part of the original Commitment Letter or the transaction as previously negotiated. Cross-collateralization effectively means that

5. Additional PIP/Capital Improvement Reserve ($3,200,000). The imposition of an additional $3,200,000 PIP/capital improvement reserve, in addition to the $4,800,000 in upfront reserves already contemplated under the original Commitment Letter, brings total day-one reserves to $8,000,000. This represents a 66.67% increase in required upfront reserves. The additional reserve requirement raises questions about PAC's as

IV. Financial Impact Analysis A. Sources and Uses — Original vs. Repriced The following sources and uses analysis compares the expected flow of funds under the original Commitment Letter terms and the repriced terms. This analysis is also set forth in Exhibit B attached hereto. Original Terms — Sources and Uses. Repriced Terms — Sources and Uses. Impact Summary. The reduction in net cash-out proceeds is striking: • O

V. Legal and Structural Analysis A. Full Recourse Guaranty — Implications The conversion from a limited recourse / "bad boy" carve-out guaranty to a full recourse guaranty is the most consequential structural change in the repriced terms and warrants careful analysis. We address the key implications below. Nature of the Limited Recourse Guaranty. Under the original Commitment Letter terms, VHG's guaranty obligations

VI. Deposit Exposure Analysis A. Good Faith Deposit ($1,600,000) The good faith deposit of $1,600,000 was deposited with Meridian Title & Escrow, Inc. (Lisa Portman, Title Officer) on December 12, 2022, three business days after execution of the Commitment Letter, as required by its terms. Under the Commitment Letter and the accompanying Side Letter, the good faith deposit is characterized as generally non-refundable

VII. Strategic Considerations and Alternatives VHG has several strategic options available in response to PAC's repriced terms. We address each below, together with our assessment of the relative advantages and disadvantages. A. Proceeding Under Repriced Terms — Pros and Cons Potential Advantages:

1. Accomplishes the Primary Refinancing Objective. Proceeding under the repriced terms would achieve the fundamental goal of retiring the existing Tidewater National Bank loan, which has a maturity date of June 1, 2024 — approximately 16 months from the date of this memorandum. While the Tidewater maturity is not imminent, it is not remote, and eliminating the maturity risk has independent value.

2. Generates Some Cash-Out Proceeds. The repriced terms would generate approximately $8,065,000 in net cash-out (or $9,250,000 if closing occurs after March 1, 2023, eliminating the Tidewater prepayment premium). While far below the original expectation, this is not an inconsequential sum.

3. Locks in a Fixed Rate. The repriced terms offer a fixed rate of 6.90% for five years. While this rate is 155 basis points above the original rate lock, it does provide certainty in a rising rate environment and eliminates the interest rate risk associated with the existing floating-rate Tidewater loan.

4. Avoids the Need to Seek Alternative Financing. Proceeding with PAC avoids the time, cost, and uncertainty associated with seeking an alternative refinancing in what may be a challenging lending market. Disadvantages: 1. $24,200,000 Reduction in Net Cash-Out. The loss of $24,200,000 in expected cash-out proceeds fundamentally undermines the economic rationale for the transaction and deprives VHG of capital intended

3. Full Recourse Guaranty. The conversion to full recourse exposes VHG to unlimited corporate-level liability on a single-asset loan, with cascading implications for SEC disclosure, credit ratings, existing credit facility covenants, and borrowing capacity across the portfolio.

4. Cross-Collateralization Encumbers a Second Property. The cross-collateral lien on the Driftwood Bay Hotel restricts VHG's operational and financial flexibility with respect to a separate portfolio asset and introduces lien priority complications.

5. Additional $3,200,000 PIP Reserve. The incremental reserve further reduces net proceeds and ties up capital in a lender-controlled account.

6. Adverse Precedent. Accepting these terms may embolden other lenders to seek similarly aggressive terms in future VHG financings, particularly if market conditions remain volatile.

7. SEC Disclosure and Rating Agency Implications. The full recourse guaranty may trigger material disclosure obligations and potential rating agency scrutiny.

8. DSCR Deterioration. The decline in DSCR from 2.15x to 1.92x reduces VHG's margin for error on the extension tests and overall debt service coverage.

9. Materially Inferior Deal. Taken together, the repriced terms represent a fundamentally different and materially inferior transaction from what was commercially negotiated and agreed in December 2022. Proceeding would amount to an acceptance of terms that VHG would not have agreed to at the outset of the transaction. B. Termination and Alternative Refinancing VHG could terminate the PAC transaction, absorb the depo

VIII. Impact on Existing Tidewater Loan Regardless of whether VHG proceeds with the PAC refinancing, terminates the transaction, or pursues alternative financing, the existing Tidewater National Bank first mortgage loan remains a key consideration. Current Status. The Tidewater loan remains outstanding with a maturity date of June 1, 2024. The current outstanding principal balance is approximately $118,500,000. The l