Contract analysis

I. Executive Summary and Recommendation The purpose of this memorandum is to provide our recommendation regarding the settlement authority that Pellegrino Capital Group LLC ("PCG") should authorize in connection with the pending JAMS arbitration brought by Meridian Shores Hospitality LLC ("MSH"), JAMS Ref. No. 1440032871, and the upcoming mediation session scheduled for February 12, 2024. The core dispute concerns th

II. Procedural Status of the Arbitration A. Case Caption and Parties The arbitration is pending before JAMS under Reference Number 1440032871. The presiding arbitrator is the Honorable Margaret Liu Chen (Ret.), a former judge of the Eleventh Judicial Circuit of Florida who has extensive experience in complex commercial disputes. Claimant: Meridian Shores Hospitality LLC, a Florida limited liability company. MSH is re

III. Summary of the Parties' Positions The valuation dispute between the parties is substantial. PCG has tendered a buyout price of $41.3 million; MSH has demanded $70.0 million. The $28.7 million gap reflects fundamentally different appraisals of PGV's asset value, as well as MSH's assertion of a bad-faith penalty that PCG contests in its entirety. We summarize each party's position below. A. PCG's Position (Offered

IV. Linden Park Preliminary Indication of Value and Midpoint Equity Analysis A. Linden Park Findings Linden Park Advisory LLC was jointly retained by the parties on June 1, 2023, pursuant to OA Section 12.4(c) and the discovery stipulation entered at the May 15, 2023 preliminary conference. The engagement was led by Thomas Carraway, MAI, FRICS, the founder and principal of Linden Park. Mr. Carraway is a Member of the

V. Analysis of Key Risk Factors Affecting Settlement Authority In determining the appropriate settlement authority range, we have identified and analyzed five principal risk factors that could affect the outcome of the arbitration and that should inform PCG's negotiating posture. Each is discussed in turn below. A. Bad-Faith Penalty Exposure (OA Section 12.7) OA Section 12.7 is the most consequential risk factor in t

VI. Derivation of Recommended Settlement Range ($48.0M – $54.0M) Drawing on the midpoint equity analysis in Section IV and the risk-factor assessment in Section V, we derive the recommended settlement authority range as follows. A. Floor of Range: $48.0 Million The floor of the recommended range is $48.0 million. This figure represents the midpoint equity value for MSH ($46.9 million) plus a modest premium of approxi

VII. Funding Considerations A settlement within the recommended range of $48.0 million to $54.0 million will require PCG to arrange adequate funding for the lump-sum redemption payment. Based on our understanding of PCG's financial position and PGV's existing credit facility, the anticipated funding sources are as follows: PCG Existing Liquidity. PCG has approximately $22.0 million in available cash and liquid assets

VIII. Mediation Strategy The mediation with Raymond Alcazar of Alcazar Dispute Resolution LLC (333 SE 2nd Avenue, Suite 2100, Miami, Florida 33131) is scheduled to commence on February 12, 2024. Mr. Alcazar is an experienced mediator with a strong reputation in commercial real estate disputes in South Florida. He typically conducts full-day mediation sessions with an initial joint session followed by extended private

1. Linden Park's preliminary range undercuts Beacon. The neutral appraiser's preliminary indication of value ($130.0M–$138.0M) is substantially below the Beacon appraisal ($151.5M). Even at the high end of Linden Park's range, the neutral appraiser's assessment is $13.5 million below Beacon. This validates PCG's core contention that MSH's valuation is inflated.

2. Beacon's methodology is flawed. Beacon's exclusive reliance on the income approach, without a sales comparison approach, is inconsistent with accepted appraisal practice for hotel properties. The Appraisal Institute's published guidance and industry practice recognize the sales comparison approach as a critical check on income-approach valuations, particularly in active markets with sufficient comparable-sales dat

3. The bad-faith claim lacks evidentiary support. PCG engaged Gerald Whitfield, a reputable MAI-certified appraiser, and followed the contractual appraisal process without deviation. Divergent appraisals, without more, are insufficient to establish bad faith under Florida law. The investment-committee memoranda produced pursuant to Arbitrator Chen's November 30, 2023 order contain no evidence of intentional undervalu

4. The deferred-maintenance adjustment is exaggerated. The Palmetto Grand Resort & Spa underwent $24.3 million in renovations during 2017–2019. Subsequent maintenance budgets have been consistent with Aurelian Hotels & Resorts brand standards. Dr. Ramanathan's $8.2 million deferred-maintenance adjustment is speculative and unsupported by the property's actual condition.

5. MSH's demanded penalty exceeds the OA cap. MSH's claimed bad-faith penalty of $16.975 million implies a 32% penalty rate, which exceeds the 25% cap expressly stated in OA Section 12.7. Even under MSH's own theory, the penalty claim is mathematically overstated. C. Key Concessions to Anticipate from MSH Based on our experience in similar disputes and our assessment of MSH's litigation posture, we anticipate the fol

IX. Recommended Next Steps In light of the foregoing analysis, we recommend the following next steps:

1. Client Settlement Authority. Dominic R. Pellegrino and Adriana Pellegrino-Voss should confirm settlement authority in the range of $48.0 million to $54.0 million, with an optimal target of $50.0 million to $52.0 million. This authorization should be communicated to the undersigned in writing (by email to fmorano@calderwoodharkness.com) at the earliest opportunity, and in no event later than February 5, 2024, to al

2. Mediation Position Statement. Calderwood & Harkness will prepare a confidential mediation position statement for submission to Raymond Alcazar in advance of the February 12, 2024 mediation session. The submission deadline under Alcazar Dispute Resolution's standard protocol is typically seven (7) calendar days before the session. We will circulate a draft to the client for review by February 1, 2024.

3. Tax Implications. Marcus Thiel should coordinate with Grantham, Pryce & Associates CPAs (contact: Howard Grantham, CPA) to analyze the tax implications of the redemption payment at various price points within the recommended range. Key considerations will include the allocation of the payment between the return of MSH's capital contribution, the accrued preferred return, and any premium over equity value, as well

4. GANB Coordination. Marcus Thiel should make preliminary inquiries with Gulf Atlantic National Bank (contact: Christine Delacroix, SVP) regarding (a) available revolving-credit capacity under Loan No. CRE-2017-06284, (b) GANB's preliminary willingness to consent to the ownership-structure change resulting from the redemption of MSH's 35% interest, and (c) any conditions or requirements GANB may impose in connection

5. Mediation Preparation. Francesca Morano and Simone Laroche will continue preparation for the mediation session, including the development of negotiation strategy, preparation of talking points for the joint session and private caucuses, and coordination with Dominic Pellegrino regarding his participation in the mediation. Jeffrey Park will finalize the supporting financial exhibits, including detailed equity analy

6. Contingency Planning. If mediation is unsuccessful, the parties should be prepared for continued arbitration proceedings. Calderwood & Harkness will resume work on the expert-report exchange timeline, including coordination with Gerald Whitfield regarding finalization of any supplemental or rebuttal appraisal analysis, and will begin drafting pre-hearing briefs. We will also re-engage with Linden Park Advisory LLC

X. Conclusion Settlement of this dispute within the recommended range of $48.0 million to $54.0 million represents a sound and well-supported resolution for Pellegrino Capital Group LLC. The recommended range is anchored in a disciplined analysis of the Linden Park preliminary indication of value, the OA Section 12.4(c) averaging mechanism, and the parties' respective appraisals, and it incorporates a calibrated risk