Contract analysis

I. Purpose and Executive Summary This memorandum presents the recommendations of Calderwood & Harkness LLP ("Calderwood & Harkness" or "outside counsel") to the Audit Committee of the Board of Directors (the "Audit Committee") of Verimark Hospitality Group Inc. ("VHG" or the "Company") regarding employment actions for the three individuals who are the subjects of the internal investigation opened on July 24, 2023 (th

II. Summary of Investigation Findings Relevant to Personnel Actions The following summary sets forth the principal findings of the Investigation that bear directly on the recommended personnel actions. This summary is not intended to be exhaustive; a comprehensive recitation of all findings will be provided in the Final Investigation Report. A. Revenue-Recognition Irregularities Over a period spanning four fiscal qua

1. Garrett W. Daskine Mr. Daskine is a seventeen-year veteran of VHG and has served as Division President of VCR since 2018. In that role, he had overall operational and financial responsibility for VCR, including oversight of all revenue-generating activities and capital-expenditure approvals. With respect to the revenue-recognition irregularities, the evidence—including contemporaneous email communications, interna

2. Nicole Prescott Ms. Prescott is a nine-year veteran of VHG and has served as Vice President of Finance of VCR since 2020. In that role, she was responsible for VCR's financial reporting, budgeting, and accounting operations, reporting directly to Mr. Daskine at the division level and maintaining a dotted-line reporting relationship to VHG's Chief Financial Officer, Thomas Rhett Griffith. With respect to the revenu

3. Ryan Mateo Serrano Mr. Serrano is a five-year veteran of VHG and has served as Controller of VCR since 2021. In that role, he was responsible for VCR's general ledger, accounts payable, and internal financial controls, reporting directly to Ms. Prescott. With respect to the fictitious vendor scheme, Mr. Serrano created the 47 fictitious purchase orders in VCR's procurement system and served as the registered agent

III. Employment Agreement Analysis Calderwood & Harkness has reviewed the employment agreements of each of the three subjects, as well as the Cooperation Agreement executed by Mr. Serrano, and has analyzed the contractual bases for the recommended personnel actions. A. Daskine Employment Agreement Mr. Daskine's employment with VCR/VHG is governed by an Amended and Restated Employment Agreement dated March 1, 2019 (th

Section 7(c) of the Daskine Employment Agreement defines "Cause" to include, among other enumerated grounds: (i) fraud, embezzlement, misappropriation of funds, or dishonesty by the Executive in connection with the performance of his duties; (ii) the Executive's willful misconduct or gross negligence in the performance of his duties that is materially injurious to the Company; (iii) material breach by the Executive o

Section 6(c) of the Prescott Employment Agreement defines "Cause" in terms substantially similar to those in the Daskine Employment Agreement, encompassing fraud, embezzlement, misappropriation of funds, dishonesty, willful misconduct, material breach of fiduciary duties, criminal conviction or plea, and material breach of the employment agreement. Ms. Prescott's conduct as established by the Investigation—including

IV. Compensation Clawback Considerations A. Applicable Clawback Policies and Authorities VHG is subject to multiple clawback authorities, both mandatory and discretionary, that are potentially applicable to the incentive-based compensation received by the three subjects during the periods affected by the revenue overstatement. Sarbanes-Oxley Act Section 304. Section 304 of the Sarbanes-Oxley Act of 2002 ("SOX") autho

V. Indemnification Analysis A. VHG's Indemnification Obligations VHG is incorporated in the State of Delaware. Section 145 of the Delaware General Corporation Law ("DGCL") governs the scope of permissive and mandatory indemnification for officers and directors of Delaware corporations. Under DGCL § 145(a), a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threaten

VI. D&O Insurance Implications A. Primary D&O Policy — North Atlantic Indemnity Corp. VHG maintains a directors' and officers' liability insurance program with the following primary policy: Carrier: North Atlantic Indemnity Corp. Policy Number: NAI-DOL-2023-004891 Policy Period: January 1, 2023 – December 31, 2023 Primary Tower Limit: $25 million per claim / $50 million aggregate Retention (Side B/C): $1 million per

1. Confirm timely notice. VHG should confirm that timely and adequate notice of circumstances and/or claims has been provided to both North Atlantic Indemnity Corp. (under the primary D&O policy) and Ironbridge Specialty Insurance Ltd. (under the Side A DIC policy), and should provide supplemental notice as warranted by the Investigation's findings and the anticipated restatement.

2. Insurance-tender strategy. VHG should coordinate with General Counsel Patricia Navarro on the development of an insurance-tender strategy to maximize recovery of defense costs, investigation expenses, and any liability exposure arising from the matters under investigation.

3. Monitor reservation-of-rights positions. VHG should carefully monitor and respond to any reservation-of-rights letters issued by either insurer, and should be prepared to dispute any overly broad reservations or coverage denials.

4. Defense-cost advancement. In the event that Mr. Daskine or Ms. Prescott assert claims for defense-cost advancement under the D&O policy (as opposed to advancement under VHG's indemnification obligations), VHG should analyze the interplay between the policy's duty-to-advance provisions and the fraud/dishonesty exclusion. As noted, until there is a final adjudication of fraud, the insurer generally must advance defe

5. SEC preliminary inquiry. The SEC Division of Enforcement's preliminary inquiry (File No. HO-14237, opened September 2023) may independently trigger coverage obligations under the D&O policy, particularly under Side C (entity coverage) if the inquiry matures into a formal investigation or enforcement action, and under Sides A and B to the extent that individual directors and officers incur defense costs in connecti

VII. Process Recommendations for Implementing Personnel Actions A. Daskine Termination Calderwood & Harkness recommends that the termination of Mr. Daskine be effectuated through the following process:

1. Formal notification. Upon Audit Committee authorization, Calderwood & Harkness will prepare and transmit a formal termination notification letter to Mr. Daskine through his counsel, James Corwin Merritt of Merritt & Dunleavy LLP, 1200 Brickell Avenue, Suite 1800, Miami, Florida 33131. Notification through counsel is appropriate given that Mr. Daskine is represented and that direct communication with a represented

2. Termination letter. The termination letter will: (a) confirm that Mr. Daskine's employment with VHG and VCR is terminated for Cause, effective as of the date specified; (b) specify the contractual grounds for Cause, referencing the applicable provisions of the Daskine Employment Agreement and summarizing the factual basis for the termination (with appropriate limitations to preserve privilege where possible); (c)

3. Proposed effective date. Calderwood & Harkness recommends that the termination be effective December 18, 2023, which will allow sufficient time for preparation and transmission of the termination letter following Audit Committee authorization. B. Prescott Termination The process for Ms. Prescott's termination will be substantially identical to that for Mr. Daskine:

1. Formal notification. Calderwood & Harkness will prepare and transmit a formal termination notification letter to Ms. Prescott through her counsel, Candace O'Brien Langford of Langford Pace LLP, 315 South Calhoun Street, Suite 600, Tallahassee, Florida 32301.

2. Termination letter. The letter will confirm termination for Cause, specify the contractual grounds and factual basis, outline post-termination obligations (return of Company property, preservation obligations, regulatory cooperation, non-disparagement, and confidentiality), confirm forfeiture of severance and unvested compensation, and reserve VHG's rights regarding clawback and civil recovery.

3. Proposed effective date. December 18, 2023, consistent with Mr. Daskine's termination date. C. Serrano Termination The process for Mr. Serrano's termination will reflect the non-cause basis of the termination and the provisions of the Cooperation Agreement:

1. Formal notification. Calderwood & Harkness will prepare and transmit a termination notification letter to Mr. Serrano through his counsel, Marco A. Ruiz of Coletti & Ruiz PA, 100 North Tampa Street, Suite 2200, Tampa, Florida 33602.

2. Termination letter. The letter will confirm that Mr. Serrano's employment is terminated on a non-cause basis pursuant to Section 3 of the Cooperation Agreement, identify the specific benefits to which Mr. Serrano is entitled under the Cooperation Agreement (six months of salary continuation, six months of COBRA premium payment), and confirm Mr. Serrano's continuing cooperation obligations, including his obligation

3. Proposed effective date. December 20, 2023, consistent with the date contemplated in the Cooperation Agreement. The two-day separation between Mr. Serrano's termination date and the termination dates for Mr. Daskine and Ms. Prescott is intended to allow for any necessary coordination regarding Mr. Serrano's continuing cooperation obligations and to avoid any appearance that the three terminations are undifferentia

1. VHG senior management. VHG's Chief Executive Officer, Margaret Calder, Chief Financial Officer, Thomas Rhett Griffith, and General Counsel, Patricia Navarro, should be notified of the Audit Committee's authorization of the personnel actions promptly following the Audit Committee's decision. Calderwood & Harkness recommends that the Audit Committee authorize Ms. Kowalski, as Chair, to communicate the Audit Committe

2. Securities counsel. VHG's securities counsel at Westlake Burris & Holt LLP (engagement partner Irene Castellanos) should be consulted regarding any additional disclosure obligations under SEC rules, including whether the departure of Mr. Daskine (as Division President of a material subsidiary) triggers a Form 8-K disclosure obligation under Item 5.02 (Departure of Directors or Certain Officers; Election of Directo

3. Crestline Forensic Advisory LLC. VHG should coordinate with Crestline regarding any additional forensic analysis needed to support civil-recovery or clawback actions against Mr. Daskine and Ms. Prescott, including updated asset-tracing analysis and computation of erroneously awarded incentive-based compensation.

4. Operational transition. VHG management should designate interim leadership for VCR's operations, finance, and controllership functions. Given the sensitivity of the circumstances, VHG may wish to consider seconding experienced personnel from VHG's corporate headquarters or from other operating subsidiaries to assume these roles on an interim basis.

VIII. Potential Civil Recovery Actions Calderwood & Harkness recommends that VHG evaluate and, upon completion of the necessary preparatory steps, pursue civil claims against Mr. Daskine and Ms. Prescott to recover the funds misappropriated through the fictitious vendor scheme, the incentive compensation paid based on overstated financial results, and the costs and expenses incurred by VHG in connection with the Inve

1. Fraudulently diverted funds. The total funds traced to the three shell entities is $1,830,000, allocated as follows: • Attributable to Mr. Daskine's shell entities: $812,400 (GSC) + $430,000 (SPS) = $1,242,400 • Attributable to Ms. Prescott's entity: $587,600 (CDC) • Total: $1,830,000

2. Incentive compensation. Annual cash bonuses and equity-based compensation received by Mr. Daskine and Ms. Prescott that were calculated on the basis of VCR financial performance metrics inflated by the revenue overstatement. The precise amounts will be determined through the clawback analysis described in Section IV and will require coordination with VHG's Compensation Committee and external compensation consultan

3. Investigation and restatement costs. VHG has incurred, and will continue to incur, significant costs in connection with the Investigation and the forthcoming restatement. The total Investigation cost through November 30, 2023, is approximately $5.057 million, consisting of: • Calderwood & Harkness LLP fees and expenses: $3,420,000 • Crestline Forensic Advisory LLC fees and expenses: