1001-00005 · Ardent Capital Partners · Correspondence

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PRIVILEGED AND CONFIDENTIAL — ATTORNEY-CLIENT COMMUNICATION

CALDERWOOD & HARKNESS LLP Counselors at Law 1301 Avenue of the Americas, 40th Floor New York, New York 10019

January 26, 2023

Tomás Iglesias, Principal Ardent Capital Partners III LP 590 Madison Avenue, 38th Floor New York, New York 10022

Re: Ardent Capital Partners III LP — Proposed Take-Private Acquisition of Coral Reef Hospitality Group, Inc. (Nasdaq: CRFH) Matter No. 1001-00005 Lapse of Extended Outside Date and Recommended Next Steps

Dear Tomás:

1. Purpose and Summary

The purpose of this letter is to formally advise Ardent Capital Partners III LP ("Ardent") that the extended Outside Date of January 25, 2023, as established under the Agreement and Plan of Merger dated April 25, 2022 (as amended by Amendment No. 1 dated October 20, 2022) (the "Merger Agreement"), among Ardent Capital Partners III LP, CRFH Acquisition Sub, Inc. ("Merger Sub"), and Coral Reef Hospitality Group, Inc. ("Coral Reef" or the "Company") (Nasdaq: CRFH), has lapsed without the consummation of the contemplated merger transaction.

As of the date of this letter, no closing of the merger has occurred. Furthermore, neither Ardent nor Coral Reef has delivered a formal notice of termination of the Merger Agreement to the other party as required under the termination provisions set forth therein. The Merger Agreement therefore remains, in a technical sense, in effect, although the practical ability to consummate the merger has effectively ceased absent further agreement among the parties.

This letter is intended to provide Ardent with a comprehensive summary of: (a) the legal consequences flowing from the lapse of the extended Outside Date; (b) the current status of key contractual obligations and third-party commitments entered into in connection with the proposed transaction; and (c) a presentation of recommended courses of action for Ardent's consideration and direction. We request Ardent's prompt guidance on the path it wishes to pursue, as discussed more fully in Section 6 below.

This letter constitutes a privileged and confidential attorney-client communication and should not be disclosed to any third party without the prior written consent of Calderwood & Harkness LLP.

2. Background and Transaction Status

2.1 The Merger Agreement

The Merger Agreement was executed on April 25, 2022, by and among Ardent Capital Partners III LP, CRFH Acquisition Sub, Inc., and Coral Reef Hospitality Group, Inc. The transaction was structured as a reverse triangular merger under Section 251 of the Delaware General Corporation Law (the "DGCL"). Under this structure, Merger Sub — a Delaware corporation incorporated on March 4, 2022 as a wholly owned subsidiary of Ardent for the sole purpose of effectuating the merger — was to merge with and into Coral Reef, with Coral Reef surviving the merger as a wholly owned subsidiary of Ardent. Coral Reef is a Delaware corporation whose shares of common stock are listed on the Nasdaq Stock Market under the ticker symbol "CRFH" (CUSIP 21874R109; SEC File No. 001-38742).

The Merger Agreement provided for all-cash merger consideration of $4.75 per share of Coral Reef common stock. Based on 6,315,789 shares of Coral Reef common stock outstanding as of the date of execution, the merger implied an aggregate equity value of approximately $30,000,000. Taking into account Coral Reef's net indebtedness of approximately $8,200,000 at the time of signing, the transaction represented an enterprise value of approximately $38,200,000. The offered per-share consideration of $4.75 represented an approximately 47.5% premium to the unaffected closing price of $3.22 per share of Coral Reef common stock on February 10, 2022, the last trading day prior to media reports regarding a potential transaction.

2.2 Failed Stockholder Vote

The consummation of the merger was conditioned upon, among other things, the approval and adoption of the Merger Agreement by the holders of a majority of the outstanding shares of Coral Reef common stock, as required under Section 251 of the DGCL and the Merger Agreement. This threshold required the affirmative vote of at least 3,157,895 of the 6,315,789 shares of Coral Reef common stock then outstanding.

A special meeting of Coral Reef stockholders was convened on August 2, 2022 for the purpose of voting on the adoption of the Merger Agreement and the approval of the merger (the "Special Meeting"). At the Special Meeting, only 3,145,263 shares — representing approximately 49.8% of the outstanding shares — were voted in favor of the proposal. This result fell short of the required majority by approximately 12,632 shares.

Of particular note, the Ellender Family Trust (Marcus Ellender, trustee), which held 1,155,789 shares of Coral Reef common stock (approximately 18.3% of outstanding shares), voted all of its shares in favor of the merger in accordance with the terms of the Voting and Support Agreement dated April 25, 2022, entered into between the Ellender Family Trust and Ardent contemporaneously with the execution of the Merger Agreement. However, two other significant stockholders — Tidewater Asset Management LLC (holding 612,632 shares, representing approximately 9.7% of outstanding shares) and Broadleaf Institutional Partners LP (holding 448,421 shares, representing approximately 7.1% of outstanding shares) — abstained from voting at the Special Meeting, citing their publicly stated view that the $4.75 per-share merger consideration was inadequate.

Following the inconclusive vote, the Special Meeting was adjourned on August 5, 2022, with a reconvene date initially set for August 30, 2022. However, on August 26, 2022, the parties agreed by mutual consent to postpone the reconvened meeting indefinitely. Since the adjournment, Ardent has not proposed an increase in the per-share merger consideration, nor has it engaged in further shareholder outreach efforts directed at Tidewater, Broadleaf, or other stockholders whose votes would be necessary to satisfy the majority approval condition.

2.3 Outside Date Extension

The Merger Agreement, as originally executed on April 25, 2022, provided for an Outside Date of October 25, 2022 — a period of 180 days from the date of execution. Under the terms of the Merger Agreement, either party had the right to terminate the agreement if the merger had not been consummated on or before the Outside Date, subject to certain conditions.

On October 20, 2022 — five days prior to the expiration of the original Outside Date — the parties executed Amendment No. 1 to the Merger Agreement by mutual written consent of Ardent Capital Partners III LP, CRFH Acquisition Sub, Inc., and Coral Reef Hospitality Group, Inc. Amendment No. 1 extended the Outside Date from October 25, 2022 to January 25, 2023, a further extension of approximately 92 days. All other terms and conditions of the Merger Agreement remained in full force and effect under Amendment No. 1, and no substantive modifications were made to any other provision.

No further extension of the Outside Date was negotiated or agreed upon by the parties subsequent to Amendment No. 1. As of January 25, 2023, the merger had not been consummated, and the extended Outside Date has now lapsed. This lapse gives rise to the termination rights, contractual consequences, and strategic considerations discussed in the remainder of this letter.

3. Legal Consequences of the Lapse of the Outside Date

3.1 Termination Rights Under the Merger Agreement

The Merger Agreement provides that either Ardent or Coral Reef has the right to terminate the agreement if the merger has not been consummated on or before the Outside Date (as extended by Amendment No. 1), provided that the terminating party's breach of the Merger Agreement was not the primary cause of the failure to close by such date. This termination right is a customary feature of merger agreements of this type and is intended to provide both parties with an orderly exit mechanism in the event that closing conditions cannot be satisfied within the agreed-upon timeframe.

As of January 26, 2023 — the date of this letter — neither party has delivered a written notice of termination to the other party as required under the Merger Agreement's termination provisions. It is important to emphasize that the Merger Agreement does not provide for automatic termination upon the lapse of the Outside Date. Rather, the lapse of the Outside Date merely activates the right of either party to terminate the agreement by delivering a formal written notice of termination in accordance with the notice provisions set forth in the Merger Agreement. Until such notice is delivered and effective, the Merger Agreement technically remains in force.

While the Merger Agreement technically remains in effect pending the delivery of a termination notice, we note that the practical ability to consummate the merger has effectively ceased. The conditions to closing — including, critically, the stockholder approval condition — remain unsatisfied, the debt financing commitment has expired (as discussed in Section 4.1 below), and no reconvened stockholder meeting has been scheduled or is contemplated. Notwithstanding the foregoing, certain obligations under the Merger Agreement continue to bind the parties so long as the agreement has not been formally terminated. These continuing obligations include, among others, the parties' respective confidentiality obligations, cooperation provisions, and certain interim operating covenants applicable to the Company's conduct of its business pending the merger.

3.2 Status of Termination Fees

The Merger Agreement contains two distinct termination fee provisions. The applicability of each to the current circumstances is analyzed below.

Reverse Termination Fee (Buyer). The Merger Agreement provides for a reverse termination fee in the amount of $1,200,000 (representing 4.0% of the $30,000,000 aggregate equity value), payable by Ardent to Coral Reef in the event that Ardent terminates the Merger Agreement, or if termination arises from Ardent's failure to consummate the merger at a time when all conditions precedent to Ardent's obligations to close have been satisfied or waived — for example, a failure by Ardent to fund its equity contribution when required to do so.

The lapse of the Outside Date alone, absent a failure by Ardent to perform its obligations at a time when the closing conditions were satisfied, does not automatically trigger the reverse termination fee. In the present case, the stockholder approval condition — a condition to each party's obligation to consummate the merger — was never satisfied. Because this condition was never met, the obligation to close the merger never arose, and Ardent was never called upon to fund its equity contribution or otherwise perform its closing obligations. Accordingly, the reverse termination fee should not be payable under the current circumstances.

We note, however, that this analysis could be affected by any assertion on the part of Coral Reef that Ardent's failure to increase its offer price or to more aggressively solicit proxies from stockholders (including Tidewater Asset Management LLC and Broadleaf Institutional Partners LP) constituted a breach of Ardent's obligations under the Merger Agreement that contributed to the failure to obtain stockholder approval and, by extension, the failure to close. While we believe such an argument would be difficult for Coral Reef to sustain given that the Merger Agreement did not obligate Ardent to increase the merger consideration and that Ardent's proxy solicitation efforts were consistent with standard practice, the risk of such an assertion cannot be entirely dismissed and should be considered in evaluating the manner in which termination is effectuated.

Company Termination Fee (Target). The Merger Agreement provides for a company termination fee in the amount of $900,000 (representing 3.0% of the $30,000,000 aggregate equity value), payable by Coral Reef to Ardent in the event that Coral Reef terminates the Merger Agreement to accept a Superior Proposal (as defined in the Merger Agreement) or if certain other specified triggering events occur.

During the 30-day go-shop period running from April 25, 2022 through May 25, 2022, Coral Reef and its financial advisor, Lantern Hill Advisory LLC, conducted a market check in accordance with the terms of the Merger Agreement. No Superior Proposal was received during the go-shop period. Moreover, at no point following the expiration of the go-shop period has Coral Reef received or entertained a competing acquisition proposal, and no indication has come to our attention that the Coral Reef board of directors has considered or received any such proposal. The company termination fee therefore does not appear to be triggered by the current circumstances.

Conclusion. Based on the foregoing analysis, as matters currently stand, neither the reverse termination fee nor the company termination fee appears to have been triggered or is currently payable by either party. However, we caution that the manner in which the Merger Agreement is ultimately terminated — whether by unilateral notice from one party, mutual agreement, or otherwise — may affect this analysis, and care should be taken to ensure that the termination mechanics do not inadvertently create an argument that one party or the other is responsible for a breach that would give rise to a fee obligation. We address this further in our recommendations in Section 6 below.

3.3 Limited Guarantee

In connection with the execution of the Merger Agreement, Ardent Capital GP III LLC (EIN 13-6291048), as the general partner of Ardent Capital Partners III LP, executed a Limited Guarantee dated April 25, 2022 in favor of Coral Reef (the "Limited Guarantee"). Under the Limited Guarantee, Ardent Capital GP III LLC guaranteed Ardent's payment obligations under the Merger Agreement up to a maximum amount equal to the reverse termination fee of $1,200,000. The Limited Guarantee was signed by Julian Rask and Nadia Ferrante in their capacities as authorized signatories of Ardent Capital GP III LLC.

The Limited Guarantee is, by its terms, coterminous with the Merger Agreement. Accordingly, upon valid termination of the Merger Agreement with no amounts owing thereunder, the Limited Guarantee should terminate and expire in accordance with its terms, thereby releasing Ardent Capital GP III LLC from any further liability or contingent obligation in connection therewith.

We recommend that the formal termination of the Merger Agreement be coordinated with a contemporaneous release or written acknowledgment by Coral Reef confirming that the Limited Guarantee has expired and that no amounts are owing or claimed thereunder. This precautionary step is advisable in order to avoid any lingering contingent liability for Ardent Capital GP III LLC, particularly in light of the potential (even if we believe ultimately unsuccessful) argument regarding the reverse termination fee discussed in Section 3.2 above. A clean release or mutual acknowledgment would eliminate any future ambiguity on this point.

4. Status of Third-Party Commitments and Agreements

4.1 Pinnacle Commercial Lending Corp. — Debt Commitment

Ardent obtained a debt commitment letter (reference PCL-2022-SF-0417) from Pinnacle Commercial Lending Corp. ("Pinnacle"), dated April 8, 2022, for a $10,000,000 senior secured term loan facility to be extended to Coral Reef upon the consummation of the merger. The key terms of the commitment included an interest rate of SOFR plus 425 basis points, a five-year maturity, a 1.0% original issue discount, and a first priority lien on all assets of Coral Reef post-closing. Ardent was obligated to pay a commitment fee of 0.50% per annum on the undrawn commitment amount ($50,000 annually), payable quarterly in arrears beginning July 8, 2022.

Critically, the Pinnacle commitment letter contained a sunset provision that was expressly coterminous with the Outside Date under the Merger Agreement. As a result, the Pinnacle commitment expired on January 25, 2023, simultaneously with the lapse of the extended Outside Date. Pinnacle is no longer obligated to provide the committed financing, and the commitment letter is no longer in force.

We recommend that any commitment fees accrued and payable through the date of expiration be confirmed and reconciled with Andrew Gregg, Senior Vice President, Sponsor Finance at Pinnacle Commercial Lending Corp. (277 Park Avenue, 30th Floor, New York, New York 10172), to ensure that Ardent's accounts with Pinnacle are settled and no outstanding amounts remain. We anticipate that commitment fees for the final quarter (October 8, 2022 through January 8, 2023) have been invoiced or will be invoiced shortly.

In the event that Ardent elects to revive the transaction in any form, new debt financing commitments would need to be secured, in all likelihood at then-prevailing market terms. Given the current interest rate environment and credit market conditions, the terms of any replacement financing may differ materially from those contained in the original Pinnacle commitment letter.

4.2 Representations & Warranties Insurance

In connection with the proposed merger, a representations and warranties insurance ("R&W Insurance") binder was placed through Ridgeline Risk Advisors LLC (Samuel Feng, lead broker) with Ironwood Specialty Insurance Co. (policy no. ISI-RWI-2022-04892). The proposed policy provided for a coverage limit of $6,000,000, a retention (self-insured deductible) of $750,000, and an estimated annual premium of $192,000.

The R&W insurance policy was conditioned upon the closing of the merger. Because the merger has not closed, the policy was never bound in final form, and no coverage has been effectuated. The full annual premium should not be owing. However, there may be binder fees, underwriting fees, or application fees that were incurred in connection with the placement of the binder and the underwriting process that may remain outstanding.

We recommend confirming with Samuel Feng at Ridgeline Risk Advisors LLC and with the underwriting team at Ironwood Specialty Insurance Co. that no amounts remain outstanding in connection with the R&W insurance placement and that the binder has been formally withdrawn or cancelled. If any fees are owed, they should be settled promptly.

4.3 Escrow Agreement

An Escrow Agreement (reference CTC-ESC-2022-1173), dated April 25, 2022, was entered into among Ardent, Coral Reef (in its capacity as stockholder representative), and Commonwealth Trust Company, as escrow agent (3711 Kennett Pike, Suite 120, Greenville, Delaware 19807). The Escrow Agreement contemplated the deposit of $1,500,000 (representing 5.0% of the aggregate equity value) into an indemnity escrow account upon the closing of the merger, to be held for a period of 18 months post-closing to satisfy any indemnification claims of Ardent arising under the Merger Agreement.

Because the closing of the merger has not occurred, no escrow funds were deposited, and the Escrow Agreement has not become operative. No further action is required with respect to Commonwealth Trust Company at this time unless the transaction is revived, in which event a new or amended escrow agreement would likely need to be negotiated and executed.

4.4 Voting and Support Agreement

The Voting and Support Agreement dated April 25, 2022, entered into between Ardent and the Ellender Family Trust (Marcus Ellender, trustee), with respect to the Ellender Family Trust's 1,155,789 shares of Coral Reef common stock (approximately 18.3% of outstanding shares), remains in effect for the duration of the Merger Agreement. Under the Voting and Support Agreement, the Ellender Family Trust agreed to vote all of its shares in favor of the adoption of the Merger Agreement and the approval of the merger, and granted an irrevocable proxy to Ardent for such purpose.

The Voting and Support Agreement provides that it will terminate automatically upon the termination of the Merger Agreement in accordance with its terms. Accordingly, upon the delivery of a valid termination notice under the Merger Agreement, the Voting and Support Agreement will terminate by operation of its own terms, and the irrevocable proxy granted to Ardent will be automatically revoked.

While no separate termination notice is technically required to effect the termination of the Voting and Support Agreement, we recommend, as a matter of good practice and to maintain the parties' relationship, that Ardent provide written confirmation to Marcus Ellender and the Ellender Family Trust acknowledging the termination of the Voting and Support Agreement and the release of the irrevocable proxy. This step would provide clarity and avoid any potential misunderstanding regarding the Trust's ongoing obligations or the status of its shares.

4.5 Buyer's Financial Advisor — Grayson Partners & Co.

Ardent engaged Grayson Partners & Co. ("Grayson") as its financial advisor in connection with the proposed transaction. Under the terms of the engagement letter, Grayson was entitled to receive a flat advisory fee of $250,000, payable upon the closing of the merger. In addition, Grayson received a non-refundable retainer of $50,000, paid upon engagement, which was not creditable against the success fee.

Because the closing of the merger has not occurred, the $250,000 success fee has not been earned and is not payable. The $50,000 retainer was paid upon engagement and is non-refundable under the terms of the engagement letter, and no further obligation exists with respect to that amount.

We recommend confirming the final status of Ardent's obligations under the Grayson engagement letter with Priya Venkatesh, Director at Grayson Partners & Co. (745 Fifth Avenue, 12th Floor, New York, New York 10151), and obtaining written confirmation that no further fees or expenses are outstanding.

4.6 Target's Financial Advisor — Lantern Hill Advisory LLC

For completeness, we note that Coral Reef engaged Lantern Hill Advisory LLC ("Lantern Hill") as its financial advisor. Lantern Hill was entitled to a success fee equal to 1.0% of the aggregate equity value ($300,000), payable upon the closing of the merger. Coral Reef paid a non-refundable retainer of $75,000 upon engagement, which was creditable against the success fee at closing. The Lantern Hill engagement and fee obligations are the responsibility of Coral Reef and do not create any obligation on the part of Ardent. This information is noted here solely for the sake of completeness and to provide Ardent with a comprehensive picture of the advisory arrangements surrounding the transaction.

5. Calderwood & Harkness Fee Position

We take this opportunity to provide Ardent with an update on the status of Calderwood & Harkness's fees and expenses in connection with this matter.

Current billing rates applicable to this matter are $1,250 per hour for partners and $725 per hour for associates. These rates are consistent with the terms of the engagement letter between Calderwood & Harkness and Ardent.

Since the matter was classified as dormant pursuant to our memorandum dated September 15, 2022, additional time has been incurred by the Calderwood & Harkness team in connection with the preparation and negotiation of the Outside Date extension (Amendment No. 1, executed October 20, 2022), periodic monitoring of the status of the transaction and applicable regulatory and market developments, and the preparation of this letter. A supplemental invoice reflecting these additional charges will follow under separate cover.

We respectfully request that Ardent arrange for payment of the $52,500 outstanding accounts receivable balance at its earliest convenience. If there are any questions regarding any of the invoiced amounts, please do not hesitate to contact us, and we will be pleased to provide whatever additional detail may be helpful.

6. Recommended Next Steps and Options for Ardent

Based on the foregoing analysis, we present three courses of action for Ardent's consideration. We have set forth the key advantages and risks associated with each option and have indicated our preliminary recommendation, subject to Ardent's commercial judgment and strategic priorities.

Option A: Formally Terminate the Merger Agreement

Under this option, either Ardent or Coral Reef would deliver a written notice of termination referencing the lapse of the extended Outside Date as the basis for termination, in accordance with the notice provisions and termination mechanics set forth in the Merger Agreement.

The principal advantages of this approach are as follows:

(a) It provides finality and certainty for all parties, definitively bringing the transaction to a close.

(b) It releases Ardent and Coral Reef from all continuing obligations under the Merger Agreement, including the interim operating covenants, confidentiality provisions, and cooperation obligations.

(c) It effectuates the termination of the Limited Guarantee of Ardent Capital GP III LLC, thereby eliminating any contingent liability of the general partner under that instrument.

(d) It permits Ardent to redeploy capital, personnel, and other resources currently allocated or reserved for the Coral Reef transaction, including the pursuit of alternative investment opportunities in the hospitality sector or otherwise.

(e) It triggers the automatic termination of the Voting and Support Agreement with the Ellender Family Trust, releasing the Trust from its voting obligations and revoking the irrevocable proxy.

Based on the analysis set forth in Section 3.2 above, neither the reverse termination fee nor the company termination fee should be triggered by a termination based on the lapse of the Outside Date, provided that such termination is not attributable to a breach by the terminating party. We are confident in this analysis, but we recommend that the termination process be handled carefully to minimize any risk of dispute.

Specifically, we recommend coordinating with Whitfield, Crane & Sato LLP, counsel to Coral Reef (principal contact: Catherine Osei, partner), regarding the mechanics of termination. To the extent practicable, a mutual termination and release agreement — executed by all parties and expressly confirming that no termination fees are owed and that the Limited Guarantee has expired — would be preferable to a unilateral termination notice. A mutual termination agreement would provide a clean and comprehensive resolution, reduce the risk of subsequent claims, and would be standard practice in transactions of this nature where the parties have not acted in bad faith.

If a mutual termination is not achievable within a reasonable timeframe, Ardent may deliver a unilateral termination notice to Coral Reef in accordance with the Merger Agreement. We would be pleased to prepare a draft of either instrument for Ardent's review.

This is our recommended course of action, unless Ardent has a compelling strategic reason to pursue an extension or to delay.

Option B: Negotiate a Further Extension of the Outside Date

Under this option, Ardent would approach Coral Reef (through its counsel, Whitfield, Crane & Sato LLP, and the Coral Reef Special Committee) to negotiate a second amendment to the Merger Agreement, further extending the Outside Date beyond January 25, 2023.

Any further extension would require the agreement of all parties to the Merger Agreement — namely, Ardent Capital Partners III LP, CRFH Acquisition Sub, Inc., and Coral Reef Hospitality Group, Inc. — and would likely require the approval of the Coral Reef Special Committee (currently composed of Reginald Ashworth, chair; Diane Kowalski; and Howard Tremaine) and the Coral Reef board of directors.

This approach may be appropriate only if Ardent is prepared to take one or more of the following steps:

(a) Increase the per-share merger consideration above $4.75 in order to secure the affirmative votes of Tidewater Asset Management LLC and/or Broadleaf Institutional Partners LP, whose combined holdings of 1,061,053 shares (approximately 16.8% of outstanding shares) far exceed the approximately 12,632-share voting gap that prevented approval at the August 2, 2022 Special Meeting.

(b) Engage in targeted shareholder outreach — whether through direct engagement, revised proxy materials, a supplemental disclosure, or the retention of a proxy solicitation firm — sufficient to close the approximately 12,632-share voting gap through the solicitation of favorable votes from smaller, unaffiliated stockholders.

In addition, we note the following practical considerations associated with this option:

(c) The Coral Reef Special Committee and its advisors (Lantern Hill Advisory LLC and Whitfield, Crane & Sato LLP) may impose conditions of their own for any further extension, which could include a price increase, an enhanced termination fee, a ticking fee payable to Coral Reef stockholders, or other concessions.

(d) The debt financing commitment from Pinnacle Commercial Lending Corp. has expired and would need to be replaced. New financing commitments would need to be secured from Pinnacle or an alternative lender, likely at then-prevailing market terms, which may be less favorable than the original commitment given changes in the interest rate and credit environment since April 2022.

(e) The R&W insurance binder with Ironwood Specialty Insurance Co. would need to be refreshed or replaced, potentially at different terms, pricing, or coverage levels.

(f) The Escrow Agreement with Commonwealth Trust Company would need to be confirmed or re-executed to reflect the revised closing timeline.

(g) Ardent's financial advisor, Grayson Partners & Co., would likely need to be re-engaged or its engagement letter amended to reflect a revised transaction timeline.

We do not recommend this option unless Ardent has concluded, following internal deliberation, that the Coral Reef acquisition remains a strategic priority worth the additional time, expense, and transactional risk that a further extension would entail.

Option C: Allow the Merger Agreement to Remain in Its Current State Without Action

Under this option, Ardent would take no immediate action — neither terminating the Merger Agreement nor pursuing a further extension — and would allow the Merger Agreement to remain in its current state.

As noted in Section 3.1, the Merger Agreement does not automatically terminate upon the lapse of the Outside Date and technically remains in effect absent the delivery of a formal termination notice. Under this approach, the agreement would continue in force, along with the parties' respective continuing obligations (including confidentiality, cooperation, and certain interim operating covenants applicable to Coral Reef) and including the contingent liability of Ardent Capital GP III LLC under the Limited Guarantee.

This approach creates significant legal ambiguity and is accompanied by several meaningful risks:

(a) The Limited Guarantee of Ardent Capital GP III LLC would remain outstanding, preserving a contingent liability of up to $1,200,000 for the benefit of Coral Reef.

(b) The continuing obligations under the Merger Agreement — including the confidentiality provisions and any non-solicitation or non-competition restrictions applicable to Ardent — may impair Ardent's ability to pursue alternative investments or transactions in the hospitality sector.

(c) Prolonged inaction may give rise to arguments by Coral Reef that the delay is prejudicial or that Ardent has waived certain rights under the Merger Agreement.

(d) The uncertainty inherent in this posture may complicate Ardent's fundraising, investor reporting, and portfolio management activities with respect to Ardent Capital Partners III LP and its limited partners.

This approach is not recommended as a long-term posture. However, it could serve as a short-term approach for a period of 30 to 60 days if Ardent requires additional time to evaluate its strategic options, consult with its limited partner advisory committee, or assess market conditions before committing to a definitive course of action. If Ardent elects to pursue this approach on an interim basis, we recommend establishing a clear internal timeline for reaching a final decision and communicating that timeline to us so that we can manage any residual legal risks during the interim period.

7. Request for Client Direction

In light of the foregoing analysis, Ardent's prompt direction is requested on which of the above courses of action it wishes to pursue.

If Ardent elects to pursue Option A (formal termination), Calderwood & Harkness can prepare a draft termination notice — or, if preferred, a draft mutual termination and release agreement — for Ardent's review within 48 hours of receiving direction to proceed. We would then coordinate with Whitfield, Crane & Sato LLP on behalf of Coral Reef to finalize and execute the termination documentation as expeditiously as possible.

If Ardent wishes to explore Option B (a further extension of the Outside Date), we recommend scheduling a call among Julian Rask, Nadia Ferrante, and Tomás Iglesias, together with the Calderwood & Harkness team, to discuss pricing strategy, shareholder engagement considerations, and the terms under which Ardent would be prepared to approach the Coral Reef Special Committee and its advisors. This call should take place before any communication is made to Coral Reef or its representatives, so that Ardent's negotiating position is clearly defined and aligned.

If Ardent wishes to pursue Option C (a period of inaction while it evaluates its options), we recommend that this approach be limited to a defined period not to exceed 60 days, and that Ardent advise us of its expected decision timeline so that we can manage any legal risks that may arise in the interim.

Regardless of the path ultimately chosen, we strongly recommend that Ardent schedule a call to discuss these matters at its earliest convenience. Harrison Wexford and Megan Chu are available at any time and can accommodate Ardent's schedule.

8. Document Preservation Reminder

As noted in the dormancy status memorandum circulated on September 15, 2022, all documents and communications related to this matter must continue to be preserved in full. This includes, without limitation, all documents and communications maintained on or through the Thackeray Solutions virtual data room established for the transaction (Project Trident), as well as all internal and external correspondence, analyses, memoranda, financial models, board materials, and advisor work product generated in connection with the proposed acquisition.

These materials must continue to be preserved in accordance with both Calderwood & Harkness's and Ardent's respective document retention policies until such time as the Merger Agreement has been formally terminated and the applicable statute of limitations for any potential claims arising out of the transaction has expired. We will provide further guidance on the appropriate document retention period following the formal termination of the Merger Agreement. In the meantime, no documents or communications related to this matter should be deleted, destroyed, or otherwise disposed of without the prior written authorization of Calderwood & Harkness.

We remain available to discuss any of the foregoing at your convenience. Please do not hesitate to contact me or Megan Chu with any questions.

Very truly yours,

CALDERWOOD & HARKNESS LLP

By: ________

Harrison Wexford Partner Direct: (212) 558-4000

Email: hwexford@calderwoodharkness.com

cc: Julian Rask, Co-Founder & Managing Partner, Ardent Capital GP III LLC cc: Nadia Ferrante, Co-Founder & Managing Partner, Ardent Capital GP III LLC cc: Beatrice Holloway, Partner, Calderwood & Harkness LLP cc: Megan Chu, Associate, Calderwood & Harkness LLP

Encl.: None (all referenced documents previously provided)

Item	Amount
C&H Matter Number	1001-00005
Estimated total fees incurred through dormancy classification (September 15, 2022)	$485,000
Amount billed to date	$462,500
Amount collected to date	$410,000
Outstanding accounts receivable	$52,500

PRIVILEGED AND CONFIDENTIAL — ATTORNEY-CLIENT COMMUNICATION
CALDERWOOD & HARKNESS LLP Counselors at Law 1301 Avenue of the Americas, 40th Floor New York, New York 10019
January 26, 2023
Tomás Iglesias, Principal Ardent Capital Partners III LP 590 Madison Avenue, 38th Floor New York, New York 10022
Re: Ardent Capital Partners III LP — Proposed Take-Private Acquisition of Coral Reef Hospitality Group, Inc. (Nasdaq: CRFH) Matter No. 1001-00005 Lapse of Extended Outside Date and Recommended Next Steps
Dear Tomás:
1. Purpose and Summary
The purpose of this letter is to formally advise Ardent Capital Partners III LP ("Ardent") that the extended Outside Date of January 25, 2023, as established under the Agreement and Plan of Merger dated April 25, 2022 (as amended by Amendment No. 1 dated October 20, 2022) (the "Merger Agreement"), among Ardent Capital Partners III LP, CRFH Acquisition Sub, Inc. ("Merger Sub"), and Coral Reef Hospitality Group, Inc. ("Coral Reef" or the "Company") (Nasdaq: CRFH), has lapsed without the consummation of the contemplated merger transaction.
As of the date of this letter, no closing of the merger has occurred. Furthermore, neither Ardent nor Coral Reef has delivered a formal notice of termination of the Merger Agreement to the other party as required under the termination provisions set forth therein. The Merger Agreement therefore remains, in a technical sense, in effect, although the practical ability to consummate the merger has effectively ceased absent further agreement among the parties.
This letter is intended to provide Ardent with a comprehensive summary of: (a) the legal consequences flowing from the lapse of the extended Outside Date; (b) the current status of key contractual obligations and third-party commitments entered into in connection with the proposed transaction; and (c) a presentation of recommended courses of action for Ardent's consideration and direction. We request Ardent's prompt guidance on the path it wishes to pursue, as discussed more fully in Section 6 below.
This letter constitutes a privileged and confidential attorney-client communication and should not be disclosed to any third party without the prior written consent of Calderwood & Harkness LLP.
2. Background and Transaction Status
2.1 The Merger Agreement
The Merger Agreement was executed on April 25, 2022, by and among Ardent Capital Partners III LP, CRFH Acquisition Sub, Inc., and Coral Reef Hospitality Group, Inc. The transaction was structured as a reverse triangular merger under Section 251 of the Delaware General Corporation Law (the "DGCL"). Under this structure, Merger Sub — a Delaware corporation incorporated on March 4, 2022 as a wholly owned subsidiary of Ardent for the sole purpose of effectuating the merger — was to merge with and into Coral Reef, with Coral Reef surviving the merger as a wholly owned subsidiary of Ardent. Coral Reef is a Delaware corporation whose shares of common stock are listed on the Nasdaq Stock Market under the ticker symbol "CRFH" (CUSIP 21874R109; SEC File No. 001-38742).
The Merger Agreement provided for all-cash merger consideration of $4.75 per share of Coral Reef common stock. Based on 6,315,789 shares of Coral Reef common stock outstanding as of the date of execution, the merger implied an aggregate equity value of approximately $30,000,000. Taking into account Coral Reef's net indebtedness of approximately $8,200,000 at the time of signing, the transaction represented an enterprise value of approximately $38,200,000. The offered per-share consideration of $4.75 represented an approximately 47.5% premium to the unaffected closing price of $3.22 per share of Coral Reef common stock on February 10, 2022, the last trading day prior to media reports regarding a potential transaction.
2.2 Failed Stockholder Vote
The consummation of the merger was conditioned upon, among other things, the approval and adoption of the Merger Agreement by the holders of a majority of the outstanding shares of Coral Reef common stock, as required under Section 251 of the DGCL and the Merger Agreement. This threshold required the affirmative vote of at least 3,157,895 of the 6,315,789 shares of Coral Reef common stock then outstanding.
A special meeting of Coral Reef stockholders was convened on August 2, 2022 for the purpose of voting on the adoption of the Merger Agreement and the approval of the merger (the "Special Meeting"). At the Special Meeting, only 3,145,263 shares — representing approximately 49.8% of the outstanding shares — were voted in favor of the proposal. This result fell short of the required majority by approximately 12,632 shares.
Of particular note, the Ellender Family Trust (Marcus Ellender, trustee), which held 1,155,789 shares of Coral Reef common stock (approximately 18.3% of outstanding shares), voted all of its shares in favor of the merger in accordance with the terms of the Voting and Support Agreement dated April 25, 2022, entered into between the Ellender Family Trust and Ardent contemporaneously with the execution of the Merger Agreement. However, two other significant stockholders — Tidewater Asset Management LLC (holding 612,632 shares, representing approximately 9.7% of outstanding shares) and Broadleaf Institutional Partners LP (holding 448,421 shares, representing approximately 7.1% of outstanding shares) — abstained from voting at the Special Meeting, citing their publicly stated view that the $4.75 per-share merger consideration was inadequate.
Following the inconclusive vote, the Special Meeting was adjourned on August 5, 2022, with a reconvene date initially set for August 30, 2022. However, on August 26, 2022, the parties agreed by mutual consent to postpone the reconvened meeting indefinitely. Since the adjournment, Ardent has not proposed an increase in the per-share merger consideration, nor has it engaged in further shareholder outreach efforts directed at Tidewater, Broadleaf, or other stockholders whose votes would be necessary to satisfy the majority approval condition.
2.3 Outside Date Extension
The Merger Agreement, as originally executed on April 25, 2022, provided for an Outside Date of October 25, 2022 — a period of 180 days from the date of execution. Under the terms of the Merger Agreement, either party had the right to terminate the agreement if the merger had not been consummated on or before the Outside Date, subject to certain conditions.
On October 20, 2022 — five days prior to the expiration of the original Outside Date — the parties executed Amendment No. 1 to the Merger Agreement by mutual written consent of Ardent Capital Partners III LP, CRFH Acquisition Sub, Inc., and Coral Reef Hospitality Group, Inc. Amendment No. 1 extended the Outside Date from October 25, 2022 to January 25, 2023, a further extension of approximately 92 days. All other terms and conditions of the Merger Agreement remained in full force and effect under Amendment No. 1, and no substantive modifications were made to any other provision.
No further extension of the Outside Date was negotiated or agreed upon by the parties subsequent to Amendment No. 1. As of January 25, 2023, the merger had not been consummated, and the extended Outside Date has now lapsed. This lapse gives rise to the termination rights, contractual consequences, and strategic considerations discussed in the remainder of this letter.
3. Legal Consequences of the Lapse of the Outside Date
3.1 Termination Rights Under the Merger Agreement
The Merger Agreement provides that either Ardent or Coral Reef has the right to terminate the agreement if the merger has not been consummated on or before the Outside Date (as extended by Amendment No. 1), provided that the terminating party's breach of the Merger Agreement was not the primary cause of the failure to close by such date. This termination right is a customary feature of merger agreements of this type and is intended to provide both parties with an orderly exit mechanism in the event that closing conditions cannot be satisfied within the agreed-upon timeframe.
As of January 26, 2023 — the date of this letter — neither party has delivered a written notice of termination to the other party as required under the Merger Agreement's termination provisions. It is important to emphasize that the Merger Agreement does not provide for automatic termination upon the lapse of the Outside Date. Rather, the lapse of the Outside Date merely activates the right of either party to terminate the agreement by delivering a formal written notice of termination in accordance with the notice provisions set forth in the Merger Agreement. Until such notice is delivered and effective, the Merger Agreement technically remains in force.
While the Merger Agreement technically remains in effect pending the delivery of a termination notice, we note that the practical ability to consummate the merger has effectively ceased. The conditions to closing — including, critically, the stockholder approval condition — remain unsatisfied, the debt financing commitment has expired (as discussed in Section 4.1 below), and no reconvened stockholder meeting has been scheduled or is contemplated. Notwithstanding the foregoing, certain obligations under the Merger Agreement continue to bind the parties so long as the agreement has not been formally terminated. These continuing obligations include, among others, the parties' respective confidentiality obligations, cooperation provisions, and certain interim operating covenants applicable to the Company's conduct of its business pending the merger.
3.2 Status of Termination Fees
The Merger Agreement contains two distinct termination fee provisions. The applicability of each to the current circumstances is analyzed below.
Reverse Termination Fee (Buyer). The Merger Agreement provides for a reverse termination fee in the amount of $1,200,000 (representing 4.0% of the $30,000,000 aggregate equity value), payable by Ardent to Coral Reef in the event that Ardent terminates the Merger Agreement, or if termination arises from Ardent's failure to consummate the merger at a time when all conditions precedent to Ardent's obligations to close have been satisfied or waived — for example, a failure by Ardent to fund its equity contribution when required to do so.
The lapse of the Outside Date alone, absent a failure by Ardent to perform its obligations at a time when the closing conditions were satisfied, does not automatically trigger the reverse termination fee. In the present case, the stockholder approval condition — a condition to each party's obligation to consummate the merger — was never satisfied. Because this condition was never met, the obligation to close the merger never arose, and Ardent was never called upon to fund its equity contribution or otherwise perform its closing obligations. Accordingly, the reverse termination fee should not be payable under the current circumstances.
We note, however, that this analysis could be affected by any assertion on the part of Coral Reef that Ardent's failure to increase its offer price or to more aggressively solicit proxies from stockholders (including Tidewater Asset Management LLC and Broadleaf Institutional Partners LP) constituted a breach of Ardent's obligations under the Merger Agreement that contributed to the failure to obtain stockholder approval and, by extension, the failure to close. While we believe such an argument would be difficult for Coral Reef to sustain given that the Merger Agreement did not obligate Ardent to increase the merger consideration and that Ardent's proxy solicitation efforts were consistent with standard practice, the risk of such an assertion cannot be entirely dismissed and should be considered in evaluating the manner in which termination is effectuated.
Company Termination Fee (Target). The Merger Agreement provides for a company termination fee in the amount of $900,000 (representing 3.0% of the $30,000,000 aggregate equity value), payable by Coral Reef to Ardent in the event that Coral Reef terminates the Merger Agreement to accept a Superior Proposal (as defined in the Merger Agreement) or if certain other specified triggering events occur.
During the 30-day go-shop period running from April 25, 2022 through May 25, 2022, Coral Reef and its financial advisor, Lantern Hill Advisory LLC, conducted a market check in accordance with the terms of the Merger Agreement. No Superior Proposal was received during the go-shop period. Moreover, at no point following the expiration of the go-shop period has Coral Reef received or entertained a competing acquisition proposal, and no indication has come to our attention that the Coral Reef board of directors has considered or received any such proposal. The company termination fee therefore does not appear to be triggered by the current circumstances.
Conclusion. Based on the foregoing analysis, as matters currently stand, neither the reverse termination fee nor the company termination fee appears to have been triggered or is currently payable by either party. However, we caution that the manner in which the Merger Agreement is ultimately terminated — whether by unilateral notice from one party, mutual agreement, or otherwise — may affect this analysis, and care should be taken to ensure that the termination mechanics do not inadvertently create an argument that one party or the other is responsible for a breach that would give rise to a fee obligation. We address this further in our recommendations in Section 6 below.
3.3 Limited Guarantee
In connection with the execution of the Merger Agreement, Ardent Capital GP III LLC (EIN 13-6291048), as the general partner of Ardent Capital Partners III LP, executed a Limited Guarantee dated April 25, 2022 in favor of Coral Reef (the "Limited Guarantee"). Under the Limited Guarantee, Ardent Capital GP III LLC guaranteed Ardent's payment obligations under the Merger Agreement up to a maximum amount equal to the reverse termination fee of $1,200,000. The Limited Guarantee was signed by Julian Rask and Nadia Ferrante in their capacities as authorized signatories of Ardent Capital GP III LLC.
The Limited Guarantee is, by its terms, coterminous with the Merger Agreement. Accordingly, upon valid termination of the Merger Agreement with no amounts owing thereunder, the Limited Guarantee should terminate and expire in accordance with its terms, thereby releasing Ardent Capital GP III LLC from any further liability or contingent obligation in connection therewith.
We recommend that the formal termination of the Merger Agreement be coordinated with a contemporaneous release or written acknowledgment by Coral Reef confirming that the Limited Guarantee has expired and that no amounts are owing or claimed thereunder. This precautionary step is advisable in order to avoid any lingering contingent liability for Ardent Capital GP III LLC, particularly in light of the potential (even if we believe ultimately unsuccessful) argument regarding the reverse termination fee discussed in Section 3.2 above. A clean release or mutual acknowledgment would eliminate any future ambiguity on this point.
4. Status of Third-Party Commitments and Agreements
4.1 Pinnacle Commercial Lending Corp. — Debt Commitment
Ardent obtained a debt commitment letter (reference PCL-2022-SF-0417) from Pinnacle Commercial Lending Corp. ("Pinnacle"), dated April 8, 2022, for a $10,000,000 senior secured term loan facility to be extended to Coral Reef upon the consummation of the merger. The key terms of the commitment included an interest rate of SOFR plus 425 basis points, a five-year maturity, a 1.0% original issue discount, and a first priority lien on all assets of Coral Reef post-closing. Ardent was obligated to pay a commitment fee of 0.50% per annum on the undrawn commitment amount ($50,000 annually), payable quarterly in arrears beginning July 8, 2022.
Critically, the Pinnacle commitment letter contained a sunset provision that was expressly coterminous with the Outside Date under the Merger Agreement. As a result, the Pinnacle commitment expired on January 25, 2023, simultaneously with the lapse of the extended Outside Date. Pinnacle is no longer obligated to provide the committed financing, and the commitment letter is no longer in force.
We recommend that any commitment fees accrued and payable through the date of expiration be confirmed and reconciled with Andrew Gregg, Senior Vice President, Sponsor Finance at Pinnacle Commercial Lending Corp. (277 Park Avenue, 30th Floor, New York, New York 10172), to ensure that Ardent's accounts with Pinnacle are settled and no outstanding amounts remain. We anticipate that commitment fees for the final quarter (October 8, 2022 through January 8, 2023) have been invoiced or will be invoiced shortly.
In the event that Ardent elects to revive the transaction in any form, new debt financing commitments would need to be secured, in all likelihood at then-prevailing market terms. Given the current interest rate environment and credit market conditions, the terms of any replacement financing may differ materially from those contained in the original Pinnacle commitment letter.
4.2 Representations & Warranties Insurance
In connection with the proposed merger, a representations and warranties insurance ("R&W Insurance") binder was placed through Ridgeline Risk Advisors LLC (Samuel Feng, lead broker) with Ironwood Specialty Insurance Co. (policy no. ISI-RWI-2022-04892). The proposed policy provided for a coverage limit of $6,000,000, a retention (self-insured deductible) of $750,000, and an estimated annual premium of $192,000.
The R&W insurance policy was conditioned upon the closing of the merger. Because the merger has not closed, the policy was never bound in final form, and no coverage has been effectuated. The full annual premium should not be owing. However, there may be binder fees, underwriting fees, or application fees that were incurred in connection with the placement of the binder and the underwriting process that may remain outstanding.
We recommend confirming with Samuel Feng at Ridgeline Risk Advisors LLC and with the underwriting team at Ironwood Specialty Insurance Co. that no amounts remain outstanding in connection with the R&W insurance placement and that the binder has been formally withdrawn or cancelled. If any fees are owed, they should be settled promptly.
4.3 Escrow Agreement
An Escrow Agreement (reference CTC-ESC-2022-1173), dated April 25, 2022, was entered into among Ardent, Coral Reef (in its capacity as stockholder representative), and Commonwealth Trust Company, as escrow agent (3711 Kennett Pike, Suite 120, Greenville, Delaware 19807). The Escrow Agreement contemplated the deposit of $1,500,000 (representing 5.0% of the aggregate equity value) into an indemnity escrow account upon the closing of the merger, to be held for a period of 18 months post-closing to satisfy any indemnification claims of Ardent arising under the Merger Agreement.
Because the closing of the merger has not occurred, no escrow funds were deposited, and the Escrow Agreement has not become operative. No further action is required with respect to Commonwealth Trust Company at this time unless the transaction is revived, in which event a new or amended escrow agreement would likely need to be negotiated and executed.
4.4 Voting and Support Agreement
The Voting and Support Agreement dated April 25, 2022, entered into between Ardent and the Ellender Family Trust (Marcus Ellender, trustee), with respect to the Ellender Family Trust's 1,155,789 shares of Coral Reef common stock (approximately 18.3% of outstanding shares), remains in effect for the duration of the Merger Agreement. Under the Voting and Support Agreement, the Ellender Family Trust agreed to vote all of its shares in favor of the adoption of the Merger Agreement and the approval of the merger, and granted an irrevocable proxy to Ardent for such purpose.
The Voting and Support Agreement provides that it will terminate automatically upon the termination of the Merger Agreement in accordance with its terms. Accordingly, upon the delivery of a valid termination notice under the Merger Agreement, the Voting and Support Agreement will terminate by operation of its own terms, and the irrevocable proxy granted to Ardent will be automatically revoked.
While no separate termination notice is technically required to effect the termination of the Voting and Support Agreement, we recommend, as a matter of good practice and to maintain the parties' relationship, that Ardent provide written confirmation to Marcus Ellender and the Ellender Family Trust acknowledging the termination of the Voting and Support Agreement and the release of the irrevocable proxy. This step would provide clarity and avoid any potential misunderstanding regarding the Trust's ongoing obligations or the status of its shares.
4.5 Buyer's Financial Advisor — Grayson Partners & Co.
Ardent engaged Grayson Partners & Co. ("Grayson") as its financial advisor in connection with the proposed transaction. Under the terms of the engagement letter, Grayson was entitled to receive a flat advisory fee of $250,000, payable upon the closing of the merger. In addition, Grayson received a non-refundable retainer of $50,000, paid upon engagement, which was not creditable against the success fee.
Because the closing of the merger has not occurred, the $250,000 success fee has not been earned and is not payable. The $50,000 retainer was paid upon engagement and is non-refundable under the terms of the engagement letter, and no further obligation exists with respect to that amount.
We recommend confirming the final status of Ardent's obligations under the Grayson engagement letter with Priya Venkatesh, Director at Grayson Partners & Co. (745 Fifth Avenue, 12th Floor, New York, New York 10151), and obtaining written confirmation that no further fees or expenses are outstanding.
4.6 Target's Financial Advisor — Lantern Hill Advisory LLC
For completeness, we note that Coral Reef engaged Lantern Hill Advisory LLC ("Lantern Hill") as its financial advisor. Lantern Hill was entitled to a success fee equal to 1.0% of the aggregate equity value ($300,000), payable upon the closing of the merger. Coral Reef paid a non-refundable retainer of $75,000 upon engagement, which was creditable against the success fee at closing. The Lantern Hill engagement and fee obligations are the responsibility of Coral Reef and do not create any obligation on the part of Ardent. This information is noted here solely for the sake of completeness and to provide Ardent with a comprehensive picture of the advisory arrangements surrounding the transaction.
5. Calderwood & Harkness Fee Position
We take this opportunity to provide Ardent with an update on the status of Calderwood & Harkness's fees and expenses in connection with this matter.
Current billing rates applicable to this matter are $1,250 per hour for partners and $725 per hour for associates. These rates are consistent with the terms of the engagement letter between Calderwood & Harkness and Ardent.
Since the matter was classified as dormant pursuant to our memorandum dated September 15, 2022, additional time has been incurred by the Calderwood & Harkness team in connection with the preparation and negotiation of the Outside Date extension (Amendment No. 1, executed October 20, 2022), periodic monitoring of the status of the transaction and applicable regulatory and market developments, and the preparation of this letter. A supplemental invoice reflecting these additional charges will follow under separate cover.
We respectfully request that Ardent arrange for payment of the $52,500 outstanding accounts receivable balance at its earliest convenience. If there are any questions regarding any of the invoiced amounts, please do not hesitate to contact us, and we will be pleased to provide whatever additional detail may be helpful.
6. Recommended Next Steps and Options for Ardent
Based on the foregoing analysis, we present three courses of action for Ardent's consideration. We have set forth the key advantages and risks associated with each option and have indicated our preliminary recommendation, subject to Ardent's commercial judgment and strategic priorities.
Option A: Formally Terminate the Merger Agreement
Under this option, either Ardent or Coral Reef would deliver a written notice of termination referencing the lapse of the extended Outside Date as the basis for termination, in accordance with the notice provisions and termination mechanics set forth in the Merger Agreement.
The principal advantages of this approach are as follows:
(a) It provides finality and certainty for all parties, definitively bringing the transaction to a close.
(b) It releases Ardent and Coral Reef from all continuing obligations under the Merger Agreement, including the interim operating covenants, confidentiality provisions, and cooperation obligations.
(c) It effectuates the termination of the Limited Guarantee of Ardent Capital GP III LLC, thereby eliminating any contingent liability of the general partner under that instrument.
(d) It permits Ardent to redeploy capital, personnel, and other resources currently allocated or reserved for the Coral Reef transaction, including the pursuit of alternative investment opportunities in the hospitality sector or otherwise.
(e) It triggers the automatic termination of the Voting and Support Agreement with the Ellender Family Trust, releasing the Trust from its voting obligations and revoking the irrevocable proxy.
Based on the analysis set forth in Section 3.2 above, neither the reverse termination fee nor the company termination fee should be triggered by a termination based on the lapse of the Outside Date, provided that such termination is not attributable to a breach by the terminating party. We are confident in this analysis, but we recommend that the termination process be handled carefully to minimize any risk of dispute.
Specifically, we recommend coordinating with Whitfield, Crane & Sato LLP, counsel to Coral Reef (principal contact: Catherine Osei, partner), regarding the mechanics of termination. To the extent practicable, a mutual termination and release agreement — executed by all parties and expressly confirming that no termination fees are owed and that the Limited Guarantee has expired — would be preferable to a unilateral termination notice. A mutual termination agreement would provide a clean and comprehensive resolution, reduce the risk of subsequent claims, and would be standard practice in transactions of this nature where the parties have not acted in bad faith.
If a mutual termination is not achievable within a reasonable timeframe, Ardent may deliver a unilateral termination notice to Coral Reef in accordance with the Merger Agreement. We would be pleased to prepare a draft of either instrument for Ardent's review.
This is our recommended course of action, unless Ardent has a compelling strategic reason to pursue an extension or to delay.
Option B: Negotiate a Further Extension of the Outside Date
Under this option, Ardent would approach Coral Reef (through its counsel, Whitfield, Crane & Sato LLP, and the Coral Reef Special Committee) to negotiate a second amendment to the Merger Agreement, further extending the Outside Date beyond January 25, 2023.
Any further extension would require the agreement of all parties to the Merger Agreement — namely, Ardent Capital Partners III LP, CRFH Acquisition Sub, Inc., and Coral Reef Hospitality Group, Inc. — and would likely require the approval of the Coral Reef Special Committee (currently composed of Reginald Ashworth, chair; Diane Kowalski; and Howard Tremaine) and the Coral Reef board of directors.
This approach may be appropriate only if Ardent is prepared to take one or more of the following steps:
(a) Increase the per-share merger consideration above $4.75 in order to secure the affirmative votes of Tidewater Asset Management LLC and/or Broadleaf Institutional Partners LP, whose combined holdings of 1,061,053 shares (approximately 16.8% of outstanding shares) far exceed the approximately 12,632-share voting gap that prevented approval at the August 2, 2022 Special Meeting.
(b) Engage in targeted shareholder outreach — whether through direct engagement, revised proxy materials, a supplemental disclosure, or the retention of a proxy solicitation firm — sufficient to close the approximately 12,632-share voting gap through the solicitation of favorable votes from smaller, unaffiliated stockholders.
In addition, we note the following practical considerations associated with this option:
(c) The Coral Reef Special Committee and its advisors (Lantern Hill Advisory LLC and Whitfield, Crane & Sato LLP) may impose conditions of their own for any further extension, which could include a price increase, an enhanced termination fee, a ticking fee payable to Coral Reef stockholders, or other concessions.
(d) The debt financing commitment from Pinnacle Commercial Lending Corp. has expired and would need to be replaced. New financing commitments would need to be secured from Pinnacle or an alternative lender, likely at then-prevailing market terms, which may be less favorable than the original commitment given changes in the interest rate and credit environment since April 2022.
(e) The R&W insurance binder with Ironwood Specialty Insurance Co. would need to be refreshed or replaced, potentially at different terms, pricing, or coverage levels.
(f) The Escrow Agreement with Commonwealth Trust Company would need to be confirmed or re-executed to reflect the revised closing timeline.
(g) Ardent's financial advisor, Grayson Partners & Co., would likely need to be re-engaged or its engagement letter amended to reflect a revised transaction timeline.
We do not recommend this option unless Ardent has concluded, following internal deliberation, that the Coral Reef acquisition remains a strategic priority worth the additional time, expense, and transactional risk that a further extension would entail.
Option C: Allow the Merger Agreement to Remain in Its Current State Without Action
Under this option, Ardent would take no immediate action — neither terminating the Merger Agreement nor pursuing a further extension — and would allow the Merger Agreement to remain in its current state.
As noted in Section 3.1, the Merger Agreement does not automatically terminate upon the lapse of the Outside Date and technically remains in effect absent the delivery of a formal termination notice. Under this approach, the agreement would continue in force, along with the parties' respective continuing obligations (including confidentiality, cooperation, and certain interim operating covenants applicable to Coral Reef) and including the contingent liability of Ardent Capital GP III LLC under the Limited Guarantee.
This approach creates significant legal ambiguity and is accompanied by several meaningful risks:
(a) The Limited Guarantee of Ardent Capital GP III LLC would remain outstanding, preserving a contingent liability of up to $1,200,000 for the benefit of Coral Reef.
(b) The continuing obligations under the Merger Agreement — including the confidentiality provisions and any non-solicitation or non-competition restrictions applicable to Ardent — may impair Ardent's ability to pursue alternative investments or transactions in the hospitality sector.
(c) Prolonged inaction may give rise to arguments by Coral Reef that the delay is prejudicial or that Ardent has waived certain rights under the Merger Agreement.
(d) The uncertainty inherent in this posture may complicate Ardent's fundraising, investor reporting, and portfolio management activities with respect to Ardent Capital Partners III LP and its limited partners.
This approach is not recommended as a long-term posture. However, it could serve as a short-term approach for a period of 30 to 60 days if Ardent requires additional time to evaluate its strategic options, consult with its limited partner advisory committee, or assess market conditions before committing to a definitive course of action. If Ardent elects to pursue this approach on an interim basis, we recommend establishing a clear internal timeline for reaching a final decision and communicating that timeline to us so that we can manage any residual legal risks during the interim period.
7. Request for Client Direction
In light of the foregoing analysis, Ardent's prompt direction is requested on which of the above courses of action it wishes to pursue.
If Ardent elects to pursue Option A (formal termination), Calderwood & Harkness can prepare a draft termination notice — or, if preferred, a draft mutual termination and release agreement — for Ardent's review within 48 hours of receiving direction to proceed. We would then coordinate with Whitfield, Crane & Sato LLP on behalf of Coral Reef to finalize and execute the termination documentation as expeditiously as possible.
If Ardent wishes to explore Option B (a further extension of the Outside Date), we recommend scheduling a call among Julian Rask, Nadia Ferrante, and Tomás Iglesias, together with the Calderwood & Harkness team, to discuss pricing strategy, shareholder engagement considerations, and the terms under which Ardent would be prepared to approach the Coral Reef Special Committee and its advisors. This call should take place before any communication is made to Coral Reef or its representatives, so that Ardent's negotiating position is clearly defined and aligned.
If Ardent wishes to pursue Option C (a period of inaction while it evaluates its options), we recommend that this approach be limited to a defined period not to exceed 60 days, and that Ardent advise us of its expected decision timeline so that we can manage any legal risks that may arise in the interim.
Regardless of the path ultimately chosen, we strongly recommend that Ardent schedule a call to discuss these matters at its earliest convenience. Harrison Wexford and Megan Chu are available at any time and can accommodate Ardent's schedule.
8. Document Preservation Reminder
As noted in the dormancy status memorandum circulated on September 15, 2022, all documents and communications related to this matter must continue to be preserved in full. This includes, without limitation, all documents and communications maintained on or through the Thackeray Solutions virtual data room established for the transaction (Project Trident), as well as all internal and external correspondence, analyses, memoranda, financial models, board materials, and advisor work product generated in connection with the proposed acquisition.
These materials must continue to be preserved in accordance with both Calderwood & Harkness's and Ardent's respective document retention policies until such time as the Merger Agreement has been formally terminated and the applicable statute of limitations for any potential claims arising out of the transaction has expired. We will provide further guidance on the appropriate document retention period following the formal termination of the Merger Agreement. In the meantime, no documents or communications related to this matter should be deleted, destroyed, or otherwise disposed of without the prior written authorization of Calderwood & Harkness.
We remain available to discuss any of the foregoing at your convenience. Please do not hesitate to contact me or Megan Chu with any questions.
Very truly yours,
CALDERWOOD & HARKNESS LLP
By: ________
Harrison Wexford Partner Direct: (212) 558-4000
Email: hwexford@calderwoodharkness.com
cc: Julian Rask, Co-Founder & Managing Partner, Ardent Capital GP III LLC cc: Nadia Ferrante, Co-Founder & Managing Partner, Ardent Capital GP III LLC cc: Beatrice Holloway, Partner, Calderwood & Harkness LLP cc: Megan Chu, Associate, Calderwood & Harkness LLP
Encl.: None (all referenced documents previously provided)
Item | Amount
C&H Matter Number | 1001-00005
Estimated total fees incurred through dormancy classification (September 15, 2022) | $485,000
Amount billed to date | $462,500
Amount collected to date | $410,000
Outstanding accounts receivable | $52,500

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