Contract analysis

I. Executive Summary The purpose of this memorandum is to verify the accrued preferred return owed to Meridian Shores Hospitality LLC ("MSH") as of December 31, 2022, the valuation date applicable to all appraisals in the buyout-valuation dispute currently pending before JAMS (Ref. No. 1440032871). This memorandum was prepared at the direction of Francesca Morano in connection with our representation of Pellegrino Ca

II. Governing Contractual Provisions The calculation of the accrued preferred return is governed by three interlocking provisions of the Operating Agreement. I summarize each below, together with the interpretive points relevant to the computation. A. OA Section 4.1 — Capital Contributions

Section 4.1 of the Operating Agreement establishes the capital contribution obligations of the members in connection with the formation of PGV and the acquisition of the Palmetto Grand Resort & Spa (the "Property"). MSH's initial capital contribution at the acquisition closing on August 1, 2017 was established at $10,000,000. It bears noting that this figure represents an agreed and rounded amount rather than a stric

Section 5.1 of the Operating Agreement provides for a preferred return to each member at a rate of 8% per annum on such member's unreturned capital contributions. The preferred return accrues cumulatively and compounds annually. The accrual commences from the date of each capital contribution and continues until such capital contribution is returned in full pursuant to the distribution mechanics set forth in Section

Section 5.2 governs the distribution of available cash from PGV to the members. The distributions follow a multi-tiered waterfall priority structure, which operates as follows: First, under Section 5.2(a), available cash is distributed to the members in proportion to their accrued and unpaid preferred return, until all accrued and unpaid preferred return has been paid in full. This is the "current-year preferred retu

III. MSH Capital Contribution Timeline A. Summary Table of Capital Contributions The following table summarizes MSH's capital contributions to PGV, based on the capital call notices, PGV bank records, and the Grantham Pryce capital account ledger: The renovation capital of $8,505,000 was contributed in multiple tranches pursuant to capital call notices issued by PCG as Manager. The exact timing of each tranche affect

IV. Year-by-Year Preferred Return Calculation A. Methodology The preferred return calculation applies the following methodology, derived from the interlocking provisions of OA Sections 4.1, 5.1, and 5.2:

1. Rate and compounding convention: 8% per annum, compounding annually, as specified in OA Section 5.1.

2. Compounding base: The compounding base for each annual period consists of (a) MSH's unreturned capital contributions ($18,505,000, which remains constant throughout the period because no distributions reached the return-of-capital tier), plus (b) any accrued-but-unpaid preferred return carried forward from prior periods. This is the essential compounding mechanic: unpaid preferred from Year 1 becomes part of the b

3. Partial-year pro-ration: The investment period commenced on August 1, 2017, and the valuation date is December 31, 2022. The total period is approximately 5 years and 5 months (5.42 years). The first annual compounding period runs from August 1, 2017 through July 31, 2018. The final period is a partial year running from August 1, 2022 through December 31, 2022 (5 months), for which the 8% annual rate is pro-rated.

4. Distribution offset: Distributions characterized as preferred return payments under OA Section 5.2(a) offset the accrued-but-unpaid preferred return balance but do not reduce the unreturned capital base. For purposes of this calculation, distributions are applied against the accrued preferred in the period in which they are received, reducing the amount of unpaid preferred that carries forward into the compounding

5. Compounding effect of unpaid preferred: The OA's compounding mechanic means that when annual distributions are insufficient to cover the full annual preferred accrual, the shortfall carries forward and itself begins to compound. This produces an accelerating accrual over time, particularly in the early years of the investment when distributions were minimal due to renovations and the pandemic. B. Detailed Annual C

V. Cross-Reference to Grantham Pryce Work Papers A. Documents Reviewed In verifying the $17,010,000 accrued preferred return figure, I reviewed the following documents prepared or maintained by Grantham, Pryce & Associates CPAs:

1. Grantham Pryce Schedule K-1 work papers for Palmetto Grand Ventures LLC (EIN 82-5063921) for tax years 2017 through 2022, inclusive. These work papers set forth the allocation of partnership income, deductions, credits, and distributions to each member for each tax year and reconcile to the Schedule K-1s issued to PCG and MSH.

2. PGV capital account ledgers maintained by Grantham Pryce, showing MSH's capital account balance, preferred return accruals, and distribution allocations under OA Section 5.2. The capital account ledger tracks, on a quarterly basis, the unreturned capital balance, the accrued preferred return for the period, distributions received, the application of distributions under the Section 5.2 waterfall, and the cumulative

3. PGV audited financial statements for fiscal years ended December 31, 2018, December 31, 2019, December 31, 2020, December 31, 2021, and December 31, 2022. The audited financial statements include notes to the financial statements that disclose the members' capital account balances and the accrued preferred return liability.

4. Grantham Pryce preferred return computation spreadsheet, provided to Calderwood & Harkness on June 14, 2023, by Howard Grantham, CPA. This spreadsheet is the master computation that underlies the $17,010,000 figure. It tracks each capital contribution by date and amount, applies the 8% annual compounding convention, records each distribution and its characterization under the OA waterfall, and arrives at the net a

5. Distribution payment records from PGV's operating account at Gulf Atlantic National Bank (Loan No. CRE-2017-06284; the operating account is maintained at the same institution). These records confirm the dates and amounts of all cash distributions made by PGV to its members during the relevant period. B. Consistency of Grantham Pryce Computation Having reviewed the foregoing documents and compared them to the metho

VI. Comparison to Simple Interest Calculation For reference and to contextualize the magnitude of the $17,010,000 figure, it is useful to compare the compounded preferred return to what would result from a simple (non-compounding) interest calculation. Under a simple interest approach, the preferred return on MSH's unreturned capital of $18,505,000 at 8% per annum over 5.42 years would be: $18,505,000 x 8% x 5.42 yea

VII. Relevance to Buyout Price Calculations The accrued preferred return of $17,010,000 is a direct component of both parties' respective buyout price calculations. Understanding its role in each party's position helps to frame the stipulation recommendation. A. Impact on PCG's Offered Price PCG's buyout price calculation proceeds as follows: Gross asset fair market value (per Whitfield Hospitality Advisors appraisal

VIII. Potential Counterarguments and Risks While I recommend stipulation, I have considered potential counterarguments or risks associated with the $17,010,000 preferred return figure, and I conclude that none presents a material concern. A. MSH Challenge to Distribution Characterization MSH could theoretically argue that certain distributions should have been characterized as return of capital under OA Section 5.2(b

IX. Conclusion and Recommendation Based on the analysis set forth in this memorandum, the accrued preferred return of $17,010,000 owed to MSH as of December 31, 2022 is verified and supported by the following:

1. The terms of OA Sections 4.1, 5.1, and 5.2, which establish the capital contribution framework, the 8% annual compounding preferred return entitlement, and the distribution waterfall and distribution-reduction mechanics, respectively.

2. MSH's total capital contributions of $18,505,000, consisting of $10,000,000 in initial acquisition capital and $8,505,000 in renovation capital contributed in multiple tranches between Q4 2017 and Q1 2019.

3. The 8% annual compounding rate applied over the period from August 1, 2017 through December 31, 2022, a period of approximately 5.42 years, producing gross compounded preferred of approximately $21,200,000.

4. Distribution records confirming that all distributions to MSH during the 2017–2022 period (totaling approximately $4,190,000) fell within the OA Section 5.2(a) preferred return priority tier, with no distributions reaching the Section 5.2(b) return-of-capital tier. This preserved the full unreturned capital base of $18,505,000 throughout the entire period.

5. The Grantham Pryce work papers and preferred return computation spreadsheet, which are consistent with the OA provisions and the methodology described herein, and the oral confirmation of Howard Grantham, CPA, that the $17,010,000 figure has been consistently reported in PGV's internal financial reporting and tax returns. I recommend that PCG stipulate to the $17,010,000 accrued preferred return in the JAMS arbitr