Contract analysis

I. Executive Summary Calderwood & Harkness LLP ("C&H" or the "Firm") has been engaged by Verimark Hospitality Group Inc. ("VHG"), a publicly traded Delaware corporation (Nasdaq: VMRK) headquartered at 1400 Bayshore Boulevard, Suite 2200, Miami, FL 33131, to represent its wholly owned indirect subsidiary, Coral Palms Resort Holdings LLC ("CPRH" or the "Borrower"), a Florida limited liability company, as borrower's cou

II. The Parties A. Borrower — Coral Palms Resort Holdings LLC Full Legal Name: Coral Palms Resort Holdings LLC Entity Type: Florida limited liability company Role in Transaction: CPRH is the fee simple owner of the Coral Palms Grand Resort & Spa and will serve as the named borrower under the proposed PAC loan. The Property constitutes the sole material asset of CPRH, and CPRH was formed as a single-purpose entity in

III. The Property A. Property Overview Name: Coral Palms Grand Resort & Spa Address: 99000 Overseas Highway, Key Largo, Monroe County, FL 33037 Property Type: Full-service luxury oceanfront resort hotel with conference center, spa, marina, and ancillary commercial uses. The Property is situated on the waterfront in Key Largo, the northernmost island in the Florida Keys, and benefits from direct ocean access, proximit

IV. Existing Debt — Tidewater National Bank Loan The following is a summary of the existing first mortgage loan originated by Tidewater National Bank, N.A., which will be refinanced and paid off in full at the closing of the proposed PAC loan: Lender: Tidewater National Bank, N.A. Original Principal Amount: $125,000,000 Origination Date: June 1, 2019 Maturity Date: June 1, 2024 (five-year term from origination) Outst

V. Proposed Refinancing Loan — Key Terms The following is a summary of the key terms of the proposed refinancing loan, based on the PAC Commitment Letter executed December 9, 2022, and the underlying term sheet. All terms remain subject to the execution of definitive loan documents. A. Loan Amount and Structure Loan Amount: $160,000,000 Borrower: Coral Palms Resort Holdings LLC, a Florida limited liability company Gu

VI. Sources and Uses of Funds The following table sets forth the anticipated sources and uses of funds for the proposed refinancing transaction: A. Sources B. Uses Note on Estimated Closing Costs: The estimated closing costs of $3,250,000 represent a preliminary estimate and include the following major components: (i) lender's title insurance premium (the premium on a $160,000,000 loan policy in Florida is substantia

VII. Key Financial Metrics A. Debt Service Coverage Annual Interest-Only Debt Service (at 5.35%): $160,000,000 × 5.35% = $8,560,000 per year Debt Service Coverage Ratio (DSCR), Interest-Only Basis: $18,400,000 NOI ÷ $8,560,000 = 2.15x The DSCR of 2.15x on an interest-only basis is robust and exceeds the extension threshold of 1.25x by a comfortable margin of approximately 72%. This level of debt service coverage prov

VIII. Transaction Timeline The following table sets forth the key dates and milestones for the proposed refinancing transaction, including historical events and projected forward-looking dates: Note on Closing Timeline: VHG has expressed a strong preference to close the refinancing before March 1, 2023. This preference is driven in part by the desire to manage the prepayment premium exposure: if closing occurs before

IX. Key Diligence and Workstream Summary A. Loan Document Negotiation WBD circulated the initial draft loan documents on December 19, 2022. The loan document package is expected to include the following principal documents, all of which require C&H review, markup, and negotiation on behalf of the Borrower: (i) Loan Agreement — The primary credit agreement between CPRH and PAC, setting forth the terms and conditions o

X. Risk Factors and Open Issues The following risk factors and open issues have been identified by the C&H deal team and warrant close attention as the transaction progresses:

1. Appraisal Risk. The transaction is highly sensitive to the appraised value of the Property. VHG's internal valuation of $235,000,000 implies an LTV of 68.09%, which is at the very edge of the Commitment Letter's 68.0% maximum LTV. PAC has agreed to waive the nine-basis-point overage at VHG's projected value, but this waiver is predicated on the appraisal confirming a value at or near $235,000,000. Any appraised va

2. Prepayment Premium Timing. If closing occurs before March 1, 2023, the Tidewater prepayment premium of $1,185,000 will apply. If closing slips beyond March 1, 2023, the prepayment premium falls away, which would reduce total uses by $1,185,000 and increase net cash-out to VHG by the same amount. While a post-March 1 closing would be economically favorable with respect to the prepayment premium alone, any significa

3. Independent Operation / No National Brand. The Property is independently operated under the "Coral Palms" trade name and is not subject to a franchise agreement, license agreement, or management agreement with any national or international hotel brand (e.g., Harborline Corporation, Harborline Enterprises, Hyatt). While independent operation provides VHG with greater operational flexibility and avoids franchise fee

4. Monroe County / Key Largo Location — Insurance Exposure. The Property's oceanfront location in Key Largo, Monroe County, Florida — the northernmost island in the Florida Keys — subjects it to significant windstorm, hurricane, and flood risk. Windstorm insurance premiums in the Florida Keys are among the highest in the state, and availability of coverage from admitted carriers can be limited. The Property is situat

5. Deposit Exposure. VHG currently has $1,600,000 in Good Faith Deposit at risk, held in escrow by Meridian Title & Escrow, Inc. An additional $800,000 Rate Lock Deposit is anticipated in early January 2023, bringing VHG's total deposit exposure to $2,400,000. C&H should closely review the refundability conditions in the Commitment Letter and any side letter to determine the circumstances under which these deposits m

6. Cash Management and Lockbox Provisions. Hospitality loans originated by institutional and private lenders such as PAC typically include aggressive cash management structures, including hard lockbox arrangements, cash management accounts, and performance-based cash sweep triggers. These provisions can significantly affect the Borrower's day-to-day operational flexibility by requiring that all revenue be deposited i

7. Guaranty Scope. VHG's status as a publicly traded company listed on the Nasdaq Stock Market makes the scope of the guaranty carve-outs and any springing full recourse triggers a particularly sensitive negotiation point. Under SEC disclosure requirements, material contingent liabilities — including guaranty obligations — may require disclosure in VHG's periodic filings (Forms 10-K and 10-Q) and could affect VHG's f

XI. Calderwood & Harkness Fee Arrangement The following is a summary of the C&H fee arrangement for this engagement: Engagement Letter Date: December 5, 2022 Hourly Rates: The following hourly rates apply to the members of the C&H deal team assigned to this matter: Fee Estimate: C&H has provided VHG with a fee estimate of $350,000 to $475,000 for a full closing, assuming a transaction