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PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT

This memorandum constitutes attorney work product and is protected by the attorney-client privilege and the work product doctrine. It is intended solely for the use of the individuals named below and should not be distributed to any person outside of Calderwood & Harkness LLP without the prior written approval of a named partner. Any unauthorized disclosure, copying, or distribution of this memorandum is strictly prohibited.

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

MEMORANDUM

TO: Harrison Wexford, Responsible Partner, Mergers & Acquisitions Beatrice Holloway, Billing Partner, Mergers & Acquisitions

FROM: Megan Chu, Lead Associate, Mergers & Acquisitions

DATE: September 15, 2022

RE: Dormancy Classification — Matter No. 1001-00005; Ardent Capital Partners III LP — Proposed Take-Private Acquisition of Coral Reef Hospitality Group, Inc. (Nasdaq: CRFH)

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I. Purpose and Recommendation

The purpose of this memorandum is to recommend the formal classification of Matter No. 1001-00005 (Ardent Capital Partners III LP — Proposed Take-Private Acquisition of Coral Reef Hospitality Group, Inc.) as "dormant" under the firm's matter management policies, as set forth in Calderwood & Harkness LLP's Matter Lifecycle and Administration Guidelines (Rev. January 2021).

This recommendation is based on the fact that no substantive activity has occurred on this matter since August 26, 2022, when the adjourned special meeting of CRFH stockholders was postponed indefinitely by mutual consent of the parties. The original special meeting was held on August 2, 2022, and the merger proposal failed to receive the requisite stockholder approval by a shortfall of approximately 12,632 shares. Following the failed vote, the parties agreed to adjourn the meeting to August 30, 2022, but subsequently postponed the reconvened meeting indefinitely on August 26, 2022, without establishing a new date.

Since the August 26, 2022 postponement, our client, Ardent Capital Partners III LP (the "Buyer"), has not provided direction on next steps. Specifically, the Buyer has not indicated whether it intends to (a) propose an increase to the per-share merger consideration in order to secure the support of the institutional shareholders who abstained from the initial vote, (b) seek a further adjournment of the special meeting or an extension of the Outside Date under the Merger Agreement, (c) pursue termination of the Merger Agreement pursuant to its terms, or (d) take any other course of action. Multiple inquiries by the undersigned to Tomás Iglesias, Principal at Ardent and the designated deal lead, have not yielded a definitive response. Mr. Iglesias indicated informally during a brief telephone conversation on September 7, 2022 that the Ardent investment committee was "still evaluating" the situation, but he provided no timeline for a decision.

In light of the foregoing, I recommend that Matter No. 1001-00005 be classified as dormant effective as of the date of this memorandum. Dormancy classification will permit the reallocation of engagement team members to active matters while ensuring that (i) all document preservation obligations are maintained, (ii) periodic client check-ins are scheduled, and (iii) the firm remains positioned to reactivate the matter promptly should the Buyer provide direction to proceed. As discussed in greater detail in Section V below, the most time-sensitive issue requiring attention is the approaching Outside Date of October 25, 2022, which is only forty (40) days from the date of this memorandum. If neither party takes action to extend the Outside Date before it lapses, either party may have the right to terminate the Merger Agreement, and the consequences of such termination — including the potential applicability of termination fees — must be clearly communicated to the client.

II. Transaction Summary

A. Parties

Buyer. Ardent Capital Partners III LP is a Delaware limited partnership with its principal offices at 590 Madison Avenue, 38th Floor, New York, New York 10022. The general partner of Ardent Capital Partners III LP is Ardent Capital GP III LLC, a Delaware limited liability company (EIN: 13-6291048). The managing partners of the fund are Julian Rask and Nadia Ferrante. The deal lead for this transaction and the firm's primary client contact is Tomás Iglesias, a Principal at Ardent. Ardent Capital Partners III LP is a middle-market private equity fund focused on investments in the consumer services and hospitality sectors, with approximately $450 million in committed capital.

Target. Coral Reef Hospitality Group, Inc. is a Delaware corporation headquartered at 2400 Bayshore Boulevard, Suite 300, Tampa, Florida 33629. Coral Reef's shares of common stock are listed on the Nasdaq Stock Market under the ticker symbol "CRFH" (CUSIP 21874R109; SEC File No. 001-38742). The company operates a portfolio of boutique hotels, resort properties, and managed hospitality venues concentrated in the southeastern United States and Caribbean basin. As of the date of the Merger Agreement, the company's chief executive officer is Marcus Ellender, its chief financial officer is Patricia Sung, and the independent chair of its board of directors is Reginald Ashworth.

Merger Sub. CRFH Acquisition Sub, Inc. is a Delaware corporation formed on March 4, 2022 (EIN: 13-6318877), solely for the purpose of effecting the merger contemplated by the Merger Agreement. Merger Sub is a wholly owned subsidiary of Ardent Capital Partners III LP. Its registered agent is Capitol Registered Agents, Inc., located at 1209 Orange Street, Wilmington, Delaware 19801. Merger Sub has conducted no business operations and has no assets, liabilities, or obligations other than those incident to its formation and the transactions contemplated by the Merger Agreement.

B. Transaction Structure and Economics

The transaction is structured as a reverse triangular merger under Section 251 of the Delaware General Corporation Law ("DGCL"). Under the terms of the Merger Agreement, Merger Sub will merge with and into Coral Reef Hospitality Group, Inc., with Coral Reef surviving the merger as a wholly owned subsidiary of Ardent Capital Partners III LP. Upon consummation of the merger, Coral Reef's shares of common stock will be cancelled and cease to be listed on the Nasdaq Stock Market, and each share of CRFH common stock outstanding immediately prior to the effective time (other than dissenting shares and shares owned by Ardent, Merger Sub, or the company) will be converted into the right to receive $4.75 per share in cash, without interest.

The key economic terms of the transaction are as follows:

• Per-Share Merger Consideration: $4.75 per share of CRFH common stock, payable in cash at closing.

• Shares Outstanding: 6,315,789 shares of CRFH common stock were outstanding as of the record date.

• Aggregate Equity Value: Approximately $30,000,000 (6,315,789 shares × $4.75 per share).

• Enterprise Value: Approximately $38,200,000 ($30,000,000 aggregate equity value plus $8,200,000 in net debt).

• Premium: The per-share merger consideration of $4.75 represents a premium of approximately 47.5% over the unaffected closing price of $3.22 per share on February 10, 2022, the last full trading day prior to the public announcement of Ardent's non-binding indication of interest.

• Implied Valuation Multiples:

• EV / EBITDA: approximately 7.5x ($38,200,000 ÷ $5,100,000 LTM EBITDA).

• EV / Revenue: approximately 0.99x ($38,200,000 ÷ $38,700,000 LTM Revenue).

The target's key financial metrics for the fiscal year ended December 31, 2021 are summarized below:

These financial figures were derived from CRFH's audited financial statements for fiscal year 2021, as filed with the SEC, and were confirmed during the due diligence process conducted in March 2022.

C. Sources and Uses

The following table summarizes the anticipated sources and uses of funds for the transaction:

The equity contribution from Ardent represents approximately 69.2% of total sources, and the debt component represents approximately 30.8%. The relatively conservative leverage profile reflects both the post-pandemic recovery trajectory of the hospitality sector and the lending terms negotiated with Pinnacle Commercial Lending Corp.

D. Key Agreement Terms

The Merger Agreement was executed on April 25, 2022. The agreement was drafted by Calderwood & Harkness LLP on behalf of the Buyer and negotiated with Whitfield, Crane & Sato LLP ("WCS"), counsel to Coral Reef, with lead partner Catherine Osei of WCS handling the target-side negotiations. The principal terms of the Merger Agreement and related ancillary documents are summarized below:

Go-Shop Period. The Merger Agreement included a thirty (30) day go-shop period running from April 25, 2022 through May 25, 2022, during which Coral Reef was permitted to solicit alternative acquisition proposals. The go-shop period expired on May 25, 2022, and no Superior Proposal (as defined in the Merger Agreement) was received during the go-shop window. Following the expiration of the go-shop period, the standard non-solicitation covenant became effective, prohibiting Coral Reef from soliciting or encouraging competing acquisition proposals.

Company Termination Fee. Coral Reef is obligated to pay a termination fee of $900,000 (representing approximately 3.0% of aggregate equity value) to Ardent in the event of certain target-fault terminations, including a termination following a change in the recommendation of the board of directors of Coral Reef or a termination by Coral Reef in order to accept a Superior Proposal.

Reverse Termination Fee. Ardent is obligated to pay a reverse termination fee of $1,200,000 (representing approximately 4.0% of aggregate equity value) to Coral Reef in the event of certain buyer-fault terminations, including a termination resulting from Ardent's failure to consummate the merger when all conditions to closing have been satisfied.

Indemnity Escrow. At closing, $1,500,000 (representing approximately 5.0% of aggregate equity value) is to be deposited into an escrow account held by Commonwealth Trust Company (reference CTC-ESC-2022-1173) for a period of eighteen (18) months following the closing to secure certain indemnification obligations of Coral Reef's pre-closing stockholders. The Escrow Agreement governing the terms of the escrow was executed on April 25, 2022.

Material Adverse Effect ("MAE") Threshold. The Merger Agreement defines a Material Adverse Effect with reference to, among other things, a decline in trailing-twelve-month EBITDA exceeding 20% (i.e., a decline of more than $1,020,000 from the $5,100,000 LTM EBITDA baseline), subject to customary carve-outs for general economic conditions, industry-wide effects, changes in applicable law, and the like.

Stockholder Approval. The merger requires the approval of holders of a majority of the outstanding shares of CRFH common stock, i.e., at least 3,157,895 shares (out of 6,315,789 total shares outstanding). Under the DGCL, this is a majority-of-the-outstanding-shares standard, meaning that abstentions and failures to vote have the same practical effect as votes against the merger.

Outside Date. The Outside Date is October 25, 2022, which is 180 days from the date of execution of the Merger Agreement. If the merger has not been consummated by the Outside Date, either party may terminate the Merger Agreement, subject to certain conditions (including the limitation that a party whose breach has been the proximate cause of the failure to close by the Outside Date may not exercise this termination right).

Limited Guarantee. Ardent Capital GP III LLC has delivered a Limited Guarantee to Coral Reef guaranteeing Ardent Capital Partners III LP's payment obligations under the Merger Agreement, up to a maximum amount of $1,200,000 (equal to the reverse termination fee). The Limited Guarantee was executed on April 25, 2022.

Specific Performance. The Merger Agreement provides for mutual specific performance, entitling each party to seek equitable relief, including specific performance and injunctive relief, in addition to any other remedy to which it may be entitled at law or in equity.

III. Chronological Summary of Key Events

The following is a chronological summary of the principal events in the life of Matter No. 1001-00005, from the opening of the engagement through the date of this memorandum:

February 11, 2022 — Engagement Opened. Calderwood & Harkness LLP opened Matter No. 1001-00005 and executed an engagement letter with Ardent Capital Partners III LP to represent Ardent in connection with a proposed take-private acquisition of Coral Reef Hospitality Group, Inc. On the same date, Ardent submitted a non-binding indication of interest to the board of directors of Coral Reef expressing Ardent's interest in acquiring all of the outstanding shares of CRFH common stock at a price in the range of $4.50 to $5.00 per share.

February 14, 2022 — Special Committee Formation. The board of directors of Coral Reef Hospitality Group, Inc. formed a Special Committee composed of three independent directors to evaluate and negotiate the proposed transaction. The Special Committee members were Reginald Ashworth (Chair), Diane Kowalski, and Howard Tremaine. The Special Committee retained Whitfield, Crane & Sato LLP as its legal counsel and subsequently engaged Lantern Hill Advisory LLC as its financial advisor.

February 22, 2022 — Mutual NDA Executed. Ardent Capital Partners III LP and Coral Reef Hospitality Group, Inc. executed a mutual non-disclosure agreement for the purpose of facilitating the exchange of confidential information in connection with the proposed transaction. The transaction was assigned the project code name "Project Trident."

March 1, 2022 — Data Room Access Granted. Coral Reef granted Ardent and its advisors (including Calderwood & Harkness LLP) access to a virtual data room hosted on the Thackeray Solutions platform under the Project Trident designation. The data room contained financial, legal, operational, and regulatory materials relating to Coral Reef and its subsidiaries.

March 4, 2022 — Merger Sub Incorporation. CRFH Acquisition Sub, Inc. was incorporated in the State of Delaware as a wholly owned subsidiary of Ardent Capital Partners III LP for the purpose of effecting the proposed reverse triangular merger.

March 21, 2022 — Preliminary Due Diligence Memorandum. The Calderwood & Harkness engagement team (Megan Chu and Derek Okonkwo) completed and circulated a preliminary due diligence memorandum summarizing the results of the initial review of Coral Reef's legal, regulatory, and contractual profile, including identified risks and areas requiring further investigation.

March 28, 2022 — Revised Binding Offer. Following the completion of preliminary due diligence and internal discussions at Ardent, Ardent submitted a revised binding offer to acquire all of the outstanding shares of CRFH common stock at a price of $4.75 per share, conditioned on the negotiation and execution of a definitive merger agreement and the satisfaction of customary closing conditions.

April 8, 2022 — Debt Commitment Letter Executed. Pinnacle Commercial Lending Corp. executed a debt commitment letter (reference PCL-2022-SF-0417) committing to provide a $10,000,000 senior secured term loan facility to fund a portion of the merger consideration. The key terms of the commitment included an interest rate of SOFR plus 425 basis points, a five-year maturity, and a 1.0% original issue discount. The commitment letter was subject to customary conditions, including the execution of a definitive credit agreement and the satisfaction of specified conditions precedent to funding.

April 15, 2022 — Execution-Ready Merger Agreement. An execution-ready draft of the Merger Agreement, reflecting the resolution of all open negotiation points between Calderwood & Harkness LLP (for the Buyer) and Whitfield, Crane & Sato LLP (for the Target), was circulated to the parties for final review by their respective principals and boards.

April 22, 2022 — Fairness Opinion Delivered. Lantern Hill Advisory LLC (Evan Nakashima, Managing Director) delivered its fairness opinion to the Special Committee of the board of directors of Coral Reef, opining that, as of the date of such opinion and subject to the qualifications and limitations set forth therein, the per-share merger consideration of $4.75 was fair, from a financial point of view, to the holders of CRFH common stock (other than Ardent, Merger Sub, and their respective affiliates).

April 25, 2022 — Merger Agreement Executed; Public Announcement. The Merger Agreement was executed by and among Ardent Capital Partners III LP, CRFH Acquisition Sub, Inc., and Coral Reef Hospitality Group, Inc. The transaction was publicly announced via a joint press release and a Form 8-K filing by Coral Reef with the SEC. On the same date, the following ancillary documents were also executed and delivered:

(a) Limited Guarantee, executed by Ardent Capital GP III LLC in favor of Coral Reef Hospitality Group, Inc., guaranteeing Ardent's payment obligations up to $1,200,000;

(b) Escrow Agreement (ref. CTC-ESC-2022-1173), executed by the parties and Commonwealth Trust Company as escrow agent;

(c) Voting and Support Agreement, executed by the Ellender Family Trust (Marcus Ellender, trustee), pursuant to which the Ellender Family Trust agreed to vote its 1,155,789 shares of CRFH common stock (approximately 18.3% of outstanding) in favor of the merger at any meeting of stockholders called for such purpose.

May 10, 2022 — Preliminary Proxy Statement Filed. Coral Reef filed a preliminary proxy statement with the SEC on Schedule 14A in connection with the solicitation of proxies from CRFH stockholders for the purpose of approving the merger.

May 25, 2022 — Go-Shop Period Expired. The thirty-day go-shop period under the Merger Agreement expired. No Superior Proposal was received during the go-shop period. The customary non-solicitation covenant became effective upon expiration of the go-shop period.

June 3, 2022 — SEC Comment Letter Received. The staff of the Division of Corporation Finance of the SEC issued a comment letter on the preliminary proxy statement, raising questions relating to, among other things, the financial projections used in the fairness opinion, the background of the transaction, and certain disclosure matters.

June 14, 2022 — Draft Response to SEC Comments. Calderwood & Harkness LLP, in coordination with Whitfield, Crane & Sato LLP, prepared a draft response letter addressing each of the SEC staff's comments. The response letter was reviewed and approved by the parties before submission.

June 17, 2022 — Revised Preliminary Proxy Filed. Coral Reef filed a revised preliminary proxy statement with the SEC, incorporating the revisions responsive to the SEC staff's comment letter.

June 24, 2022 — Record Date Set. The board of directors of Coral Reef established June 24, 2022 as the record date for the determination of stockholders entitled to notice of, and to vote at, the special meeting of stockholders to be held for the purpose of approving the merger.

July 8, 2022 — Definitive Proxy Filed; Proxy Solicitor Engaged. Coral Reef filed the definitive proxy statement with the SEC and commenced distribution to stockholders of record. Meridian Proxy Services Inc. was engaged as the proxy solicitor to assist with the solicitation of proxies from CRFH stockholders.

August 2, 2022 — Special Meeting; Vote Failed. The special meeting of CRFH stockholders was held. The merger proposal failed to achieve the requisite stockholder approval. A total of 3,145,263 shares were voted in favor of the merger, falling short of the required 3,157,895 shares by approximately 12,632 shares. The details of the failed vote are discussed in Section IV of this memorandum.

August 5, 2022 — Meeting Adjourned. Following the failed vote, Ardent and Coral Reef agreed to adjourn the special meeting and to reconvene on August 30, 2022. The adjournment was intended to allow time for shareholder engagement, evaluation of strategic alternatives, and determination of whether a revised transaction structure or increased merger consideration might be warranted.

August 10, 2022 — Termination Rights Analysis Delivered. Calderwood & Harkness LLP delivered a Termination Rights and Strategic Options Analysis Memorandum to Ardent (addressed to Tomás Iglesias and Julian Rask). The memorandum evaluated several options available to the Buyer, including (i) proposing an increase in the per-share merger consideration, (ii) conducting targeted outreach to the institutional shareholders that abstained from the vote (Tidewater Asset Management LLC and Broadleaf Institutional Partners LP), (iii) seeking an extension of the Outside Date, and (iv) exercising termination rights and walking away from the transaction.

August 26, 2022 — Reconvened Meeting Postponed Indefinitely. By mutual consent of Ardent and Coral Reef, the adjourned special meeting that had been scheduled for August 30, 2022 was postponed indefinitely. No new date was established for the reconvened meeting. No formal public announcement was made regarding the indefinite postponement.

September 15, 2022 (this memorandum) — Dormancy Classification. In the absence of any substantive activity since August 26, 2022, and in the absence of client direction regarding next steps, this memorandum recommends that Matter No. 1001-00005 be classified as dormant, subject to the protocols and recommendations described herein.

IV. Failed Stockholder Vote — Detail

A. Vote Results

The special meeting of CRFH stockholders was held on August 2, 2022, at the offices of Coral Reef Hospitality Group, Inc. in Tampa, Florida. The sole item of business presented at the meeting was a proposal to approve the Agreement and Plan of Merger dated April 25, 2022 (the "Merger Agreement") among Ardent Capital Partners III LP, CRFH Acquisition Sub, Inc., and Coral Reef Hospitality Group, Inc.

Under the terms of the Merger Agreement and applicable provisions of the DGCL, the merger required the affirmative vote of holders of a majority of the outstanding shares of CRFH common stock entitled to vote on the proposal. As of the June 24, 2022 record date, there were 6,315,789 shares of CRFH common stock outstanding and entitled to vote. Accordingly, the affirmative vote of holders of at least 3,157,895 shares was required to approve the merger.

The vote results were as follows:

The merger proposal failed. The votes cast in favor fell short of the required threshold by approximately 12,632 shares. Under the majority-of-outstanding-shares standard applicable to this vote, abstentions and failures to vote had the same practical effect as votes against the merger, because the denominator for purposes of determining the requisite majority was the total number of outstanding shares, not merely the number of shares present or represented at the meeting.

B. Key Shareholder Voting Behavior

The following institutional shareholders played a significant role in the outcome of the vote:

Ellender Family Trust. The Ellender Family Trust, of which Marcus Ellender (CEO of Coral Reef) serves as trustee, holds 1,155,789 shares of CRFH common stock, representing approximately 18.3% of the outstanding shares. Pursuant to the Voting and Support Agreement dated April 25, 2022, the Ellender Family Trust voted all of its shares in favor of the merger. The Ellender Family Trust's favorable vote was consistent with its contractual obligation under the Voting and Support Agreement and was the single largest block of shares voted in favor of the merger proposal.

Tidewater Asset Management LLC. Tidewater Asset Management LLC holds 612,632 shares of CRFH common stock, representing approximately 9.7% of the outstanding shares. Tidewater abstained from voting, citing its view that the $4.75 per-share merger consideration was inadequate and did not reflect the intrinsic value of Coral Reef's portfolio of hospitality assets, particularly in light of what Tidewater characterized as improving fundamentals in the post-pandemic hospitality sector. Tidewater's abstention was publicly disclosed in a Schedule 13D/A amendment filed with the SEC on July 29, 2022, three days before the scheduled vote.

Broadleaf Institutional Partners LP. Broadleaf Institutional Partners LP holds 448,421 shares of CRFH common stock, representing approximately 7.1% of the outstanding shares. Broadleaf also abstained from voting, similarly citing price inadequacy. Broadleaf did not file a public statement but communicated its position to the Coral Reef board and Meridian Proxy Services Inc. during the proxy solicitation process.

It is important to note that, under the Merger Agreement and the DGCL, abstentions have the same effect as votes against the merger because the approval standard is based on a majority of all outstanding shares, not merely a majority of shares actually voted. Had the approximately 1,061,053 abstaining shares been voted in favor, the merger would have been approved by an overwhelming margin. The combined abstentions of Tidewater (612,632 shares) and Broadleaf (448,421 shares) account for 1,061,053 shares, which is the entirety of the abstention total. These two shareholders' decisions to abstain were therefore the proximate cause of the merger's failure to receive stockholder approval.

C. Post-Vote Actions

Following the failed vote on August 2, 2022, the engagement team took the following actions:

On August 5, 2022, the parties — through their respective counsel — agreed to adjourn the special meeting and set a reconvene date of August 30, 2022. The purpose of the adjournment was to allow additional time for shareholder engagement, including the possibility of direct dialogue between Ardent and the abstaining institutional shareholders, and to permit an evaluation of whether modifications to the transaction terms might be warranted.

On August 10, 2022, Calderwood & Harkness LLP delivered to Ardent (Tomás Iglesias and Julian Rask) a comprehensive Termination Rights and Strategic Options Analysis Memorandum. That memorandum evaluated the following strategic alternatives:

(a) Price Increase: An analysis of the financial implications of increasing the per-share merger consideration from $4.75 to a level that might satisfy Tidewater and Broadleaf's valuation concerns. Preliminary indications from both shareholders suggested that a price in the range of $5.25 to $5.50 per share might be required to secure their affirmative vote. At the midpoint of that range ($5.375 per share), the aggregate equity value would increase to approximately $33,947,368 — an increase of approximately $3,947,368 over the current deal price, which would require either additional equity from Ardent or an increase in the debt financing.

(b) Targeted Shareholder Outreach: An evaluation of whether Ardent should engage directly with Tidewater Asset Management LLC and Broadleaf Institutional Partners LP to understand their specific objections to the price and to explore whether non-price accommodations (such as a contingent value right or an adjustment to the indemnity escrow) might address their concerns.

(c) Extension of Outside Date: An analysis of the procedural requirements for extending the October 25, 2022 Outside Date and the potential need to negotiate an extension agreement with Coral Reef.

(d) Walk-Away Analysis: An evaluation of Ardent's termination rights under the Merger Agreement, including an analysis of whether any termination fee would be payable by Ardent to Coral Reef and the terms of the Limited Guarantee in a termination scenario.

On August 26, 2022, the reconvened special meeting that had been scheduled for August 30, 2022 was postponed indefinitely by mutual consent of the parties. No new date was set for any further meeting. Neither party has delivered a formal termination notice under the Merger Agreement, and the agreement remains in full force and effect as of the date of this memorandum.

As of September 15, 2022, Ardent has not proposed a price increase, authorized direct shareholder outreach, or indicated any willingness to sweeten the transaction terms. Nor has Ardent instructed Calderwood & Harkness to prepare or deliver a termination notice. The matter has been functionally inactive since August 26, 2022.

V. Current Status and Open Items

A. Merger Agreement Status

The Merger Agreement dated April 25, 2022 remains in full force and effect as of the date of this memorandum. No termination notice has been delivered by either Ardent Capital Partners III LP or Coral Reef Hospitality Group, Inc. under any provision of the Merger Agreement. Neither party has asserted a Material Adverse Effect, a breach of representations and warranties, or any other condition that would give rise to a termination right independent of the Outside Date.

The most significant near-term issue is the Outside Date of October 25, 2022, which is forty (40) days from the date of this memorandum. The Outside Date represents the contractual deadline by which the merger must be consummated. If the merger has not been consummated by October 25, 2022, either party may terminate the Merger Agreement by delivering written notice to the other party, provided that the terminating party's own breach has not been the proximate cause of the failure to close by such date.

No discussions regarding a potential extension of the Outside Date have resulted in an agreement as of this date. While informal communications between the undersigned and Catherine Osei of WCS have touched upon the possibility of an extension, no formal proposal has been exchanged. Any extension of the Outside Date would require the mutual written agreement of the parties and, depending on the duration of the extension, may implicate the need for supplemental proxy disclosure, a new record date, and potential amendment or reaffirmation of the debt commitment letter from Pinnacle.

Action Required: Calderwood & Harkness must communicate clearly and promptly to Ardent that a decision regarding the Outside Date is required before October 25, 2022. If Ardent wishes to preserve the transaction, an extension agreement must be negotiated and executed with Coral Reef before that date. Conversely, if Ardent does not wish to extend, it should evaluate whether to exercise its termination right under the Outside Date provision or to allow Coral Reef to exercise its own termination right. The termination fee implications of either scenario were analyzed in the August 10, 2022 memorandum.

B. Pinnacle Debt Commitment Letter

The debt commitment letter from Pinnacle Commercial Lending Corp. (reference PCL-2022-SF-0417) remains outstanding. The commitment provides for a $10,000,000 senior secured term loan facility at SOFR plus 425 basis points, with a five-year maturity and a 1.0% original issue discount.

Under the terms of the commitment letter, Ardent is obligated to pay a commitment fee of 0.50% per annum on the undrawn committed amount, which equates to $50,000 per year or approximately $12,500 per quarter. Commitment fee payments commenced on July 8, 2022 and are payable quarterly. As of the date of this memorandum, at least one quarterly payment should have been made, and Ardent should confirm that it remains current on its commitment fee obligations.

The commitment letter is tied to the Outside Date; the commitment will expire if the Outside Date lapses without closing. Accordingly, if the Outside Date of October 25, 2022 passes without an extension or closing, the debt commitment will lapse and Pinnacle will have no further obligation to fund the term loan.

Action Required: Ardent should be advised to contact Andrew Gregg, Senior Vice President, Sponsor Finance at Pinnacle Commercial Lending Corp., to confirm (i) the continued availability of the commitment, (ii) the status of commitment fee payments, and (iii) whether any extension of the commitment would require renegotiation of terms, a new credit committee approval, or additional fees. Given the rising interest rate environment, it is possible that Pinnacle may seek to reprice the facility or impose additional conditions if an extension is requested.

C. Representations and Warranties Insurance

A binder for a representations and warranties insurance policy was issued by Ironwood Specialty Insurance Co. under policy number ISI-RWI-2022-04892. The policy was brokered by Ridgeline Risk Advisors LLC, with Samuel Feng serving as the lead broker on the placement.

The key terms of the R&W insurance binder are as follows:

The R&W insurance policy was intended to provide buy-side coverage for breaches of the Target's representations and warranties in the Merger Agreement, subject to the policy terms, exclusions, and the $750,000 retention. The $6,000,000 coverage limit was sized to provide meaningful protection in excess of the $1,500,000 indemnity escrow.

Because the policy binding is contingent on closing and the premium has not yet been paid, the binder may have lapsed or be subject to expiration provisions triggered by the passage of time or the delay in closing. Many R&W insurance binders include a limited binding period (often 60 to 90 days), and it is now approximately 143 days since the Merger Agreement was executed.

Action Required: Ardent should be advised to contact Samuel Feng at Ridgeline Risk Advisors LLC to confirm whether the Ironwood binder remains in effect. If the binder has lapsed, a new underwriting process may be required if the transaction is revived, potentially at a different premium or with revised terms and conditions. This should be factored into any cost analysis of proceeding with the transaction.

D. Escrow Agreement

The Escrow Agreement (reference CTC-ESC-2022-1173) with Commonwealth Trust Company as escrow agent was executed on April 25, 2022, contemporaneously with the Merger Agreement and the other ancillary transaction documents. The Escrow Agreement provides for the establishment of an indemnity escrow fund in the amount of $1,500,000, representing approximately 5.0% of the aggregate equity value.

However, the escrow fund was not funded at the time of execution. Under the terms of the Escrow Agreement, the $1,500,000 deposit is to be funded at the closing of the merger from the merger consideration otherwise payable to CRFH stockholders. Because the merger has not closed, no funds have been deposited into the escrow account.

No action is required at this time with respect to the Escrow Agreement, but Commonwealth Trust Company should be notified of the dormancy classification if the matter remains inactive beyond the Outside Date. It may also be prudent to confirm whether Commonwealth Trust Company is charging any account maintenance or administration fees in connection with the escrow arrangement, even in the absence of funded amounts.

E. Termination Fees

No termination fee has been triggered or paid as of the date of this memorandum. The termination fee provisions of the Merger Agreement provide for two categories of termination fees:

Reverse Termination Fee. Ardent is obligated to pay a reverse termination fee of $1,200,000 to Coral Reef in the event of certain buyer-fault terminations, including (i) a termination by Coral Reef resulting from Ardent's or Merger Sub's willful and material breach of the Merger Agreement, and (ii) a termination resulting from Ardent's failure to consummate the merger when all conditions to Ardent's and Merger Sub's obligations to close have been satisfied or waived. The reverse termination fee is guaranteed by Ardent Capital GP III LLC under the Limited Guarantee up to the full amount of $1,200,000.

Company Termination Fee. Coral Reef is obligated to pay a company termination fee of $900,000 to Ardent in the event of certain target-fault terminations, including (i) a termination by Coral Reef in order to accept a Superior Proposal, and (ii) a termination following a change in the recommendation of the board of directors of Coral Reef.

As discussed in the Termination Rights and Strategic Options Analysis Memorandum delivered to the client on August 10, 2022, the applicability of termination fees in the current scenario — where the failure to close results primarily from the inability to obtain stockholder approval — is nuanced. A termination by either party after the lapse of the Outside Date, where the failure to close is attributable to the failure to obtain stockholder approval (rather than a party's willful breach), may not trigger a termination fee payable by either party, depending on the specific termination provision invoked and the applicable conditions. This analysis was provided to the client in detail, and no further direction has been received.

F. Proxy and SEC Matters

The definitive proxy statement was filed with the SEC on July 8, 2022, based on the record date of June 24, 2022. As discussed above, the special meeting was held on August 2, 2022, and the merger proposal failed to receive the requisite stockholder approval.

If the special meeting is reconvened after a significant delay, several procedural steps may be required:

(a) New Record Date. If the reconvened meeting is held more than a certain period after the original record date (typically governed by the company's bylaws and DGCL requirements), a new record date may need to be established by the board of directors. Changes in share ownership between the original and new record dates could affect the composition of the voting stockholder base.

(b) Supplemental Proxy Materials. Depending on the duration of the delay and any intervening events (including material changes in the Target's financial condition, changes in the terms of the transaction, or other developments), supplemental proxy materials may need to be prepared and filed with the SEC. If a price increase is proposed, a new or supplemental fairness opinion from Lantern Hill Advisory LLC may also be required.

(c) New Proxy Solicitation. A renewed proxy solicitation effort, potentially with the continued engagement of Meridian Proxy Services Inc., may be necessary.

As of this date, there are no pending SEC comments on the proxy materials. The revised preliminary proxy filed on June 17, 2022 and the definitive proxy filed on July 8, 2022 resolved all comments raised in the SEC staff's comment letter of June 3, 2022.

VI. Fee Position and Financial Summary

A. Calderwood & Harkness LLP Fee Status

The following table summarizes the current fee position for Matter No. 1001-00005:

The outstanding accounts receivable of $52,500 represents amounts that have been invoiced to Ardent Capital Partners III LP but remain uncollected as of the date of this memorandum. The firm's standard payment terms are net 30 days. A review of the billing records indicates that the oldest unpaid invoice is dated August 5, 2022, which is now 41 days past the invoice date. While Ardent has historically been a prompt-paying client, the current uncertainty surrounding the transaction may be contributing to a delay in payment processing.

The estimated unbilled work-in-progress of $22,500 represents time and expenses incurred since the most recent invoice that have not yet been billed. This amount includes time recorded by the undersigned and Derek Okonkwo for the preparation of the Termination Rights and Strategic Options Analysis Memorandum delivered on August 10, 2022, as well as time associated with client communications and internal matter management activities through the date of this memorandum.

Recommendation: I recommend that the billing department issue a final pre-dormancy invoice for all unbilled work-in-progress, and that the finance department follow up on the collection of the outstanding accounts receivable of $52,500. Given the uncertainty surrounding the future of this transaction, it is prudent to ensure that all fees earned to date are billed and collected before the matter enters dormancy.

B. Other Advisor Fee Status (for Reference)

The following is a summary of the fee status of other advisors engaged in connection with the transaction, provided for reference purposes. Calderwood & Harkness does not have billing responsibility for these engagements, but this information may be relevant in evaluating the overall cost posture of the transaction and in any discussions with the client regarding the economics of continuing or terminating the deal.

Lantern Hill Advisory LLC (Financial Advisor to Coral Reef / Special Committee):

Lantern Hill was engaged by the Special Committee of the board of directors of Coral Reef to serve as financial advisor and to deliver a fairness opinion. Lantern Hill received a non-refundable retainer of $75,000, which is creditable against a success fee of $300,000 payable upon closing of the merger. The success fee has not been earned and will not become payable unless and until the merger is consummated. Lantern Hill's fees are payable by Coral Reef.

Grayson Partners & Co. (Financial Advisor to Ardent):

Grayson Partners was engaged by Ardent to provide financial advisory services in connection with the proposed acquisition. Grayson Partners received a retainer of $50,000 and is entitled to a flat advisory fee of $250,000 payable at closing. The flat advisory fee has not been earned and will not become payable unless and until the merger is consummated. Grayson Partners' fees are payable by Ardent.

Pinnacle Commercial Lending Corp. (Lender):

As discussed in Section V.B above, Ardent is obligated to pay a commitment fee of 0.50% per annum on the $10,000,000 undrawn commitment amount, equating to $50,000 per year, payable quarterly beginning July 8, 2022. These commitment fees accrue regardless of whether the merger closes and are the ongoing financial responsibility of Ardent.

Ridgeline Risk Advisors LLC / Ironwood Specialty Insurance Co. (R&W Insurance):

The estimated premium for the representations and warranties insurance policy is $192,000. This premium is payable at closing and has not yet been incurred. As discussed in Section V.C above, the status of the binder should be confirmed with the broker. No brokerage fees or other costs have been paid to Ridgeline or Ironwood to date, though it is possible that a new underwriting process, if required, would involve incremental costs.

VII. Document Preservation Obligations

All matter files associated with Matter No. 1001-00005, including both electronic and physical records, must be preserved in accordance with Calderwood & Harkness LLP's document retention policies and applicable litigation hold principles. Although no litigation is currently pending or threatened in connection with this transaction, the preservation of all work product and client communications is required as a matter of firm policy for matters classified as dormant, and is also prudent given the possibility that the merger could be revived, terminated (potentially giving rise to disputes regarding termination fees), or become the subject of future litigation (including potential stockholder actions).

The following specific preservation obligations and actions are identified:

Virtual Data Room. The virtual data room hosted on the Thackeray Solutions platform under the Project Trident designation should remain accessible during the dormancy period. The undersigned should confirm with Coral Reef (through WCS) that the data room will not be deactivated, archived, or purged during the dormancy period. Access credentials for the Calderwood & Harkness engagement team should be maintained.

Document Management System. All drafts of the Merger Agreement, ancillary transaction documents, proxy materials, SEC filings, correspondence, internal memoranda, and other work product must be maintained on the firm's document management system (Vireo Data Systems) under Matter No. 1001-00005. No documents should be deleted, archived to offline storage, or otherwise removed from the active filing structure without prior approval from the responsible partner.

Key Documents to Be Preserved. The following is a non-exhaustive list of key documents that must be preserved:

• Engagement Letter (February 11, 2022)

• Mutual Non-Disclosure Agreement (February 22, 2022)

• Preliminary Due Diligence Memorandum (March 21, 2022)

• Merger Agreement — Execution Version (April 25, 2022)

• Limited Guarantee (April 25, 2022)

• Escrow Agreement (April 25, 2022)

• Voting and Support Agreement — Ellender Family Trust (April 25, 2022)

• Pinnacle Debt Commitment Letter (April 8, 2022)

• Ironwood R&W Insurance Binder (undated; approximately April 2022)

• Preliminary Proxy Statement — Initial Filing (May 10, 2022)

• SEC Comment Letter (June 3, 2022)

• SEC Comment Response Letter Draft (June 14, 2022)

• Revised Preliminary Proxy Statement (June 17, 2022)

• Definitive Proxy Statement (July 8, 2022)

• Termination Rights and Strategic Options Analysis Memorandum (August 10, 2022)

• All drafts, mark-ups, redlines, and negotiation correspondence relating to the foregoing

• All internal memoranda, research memoranda, and analytical work product

• All correspondence with opposing counsel (Whitfield, Crane & Sato LLP), the SEC, Pinnacle, Commonwealth Trust Company, Ridgeline Risk Advisors, Ironwood Specialty Insurance, Meridian Proxy Services, and Lantern Hill Advisory

Email Preservation. The undersigned should confirm with the firm's Information Technology department that all emails coded to Matter No. 1001-00005 are being retained in the firm's email archiving system and are not subject to automatic deletion under any periodic purge cycle. A preservation notice should be issued to all engagement team members confirming their obligation to retain all matter-related emails.

Physical Files. To the extent that any physical files exist for this matter (including executed signature pages, original documents, or physical correspondence), such files should be maintained in the firm's records management facility and appropriately labeled with the matter number. As of the date of this memorandum, the undersigned is not aware of any original executed documents in the firm's possession that are not also available in electronic form.

VIII. Engagement Team

The following attorneys comprise the engagement team for Matter No. 1001-00005:

Upon classification of this matter as dormant, team members other than the primary point of contact should be reassigned to active matters. Megan Chu will remain as the primary point of contact for any communications with the client, opposing counsel, or other parties in connection with this matter. In the event that the matter is reactivated, the full engagement team should be reconvened, subject to availability.

Harrison Wexford, as responsible partner, retains supervisory authority over all aspects of the matter, including any client communications regarding the Outside Date or potential termination of the Merger Agreement. Any substantive client direction should be escalated to Mr. Wexford promptly.

IX. Recommended Actions and Next Steps

Based on the foregoing analysis, the following actions are recommended:

1. Client Communication. Schedule a call or send formal correspondence to Tomás Iglesias, Principal at Ardent Capital Partners III LP, to (a) formally advise him of the dormancy classification of the matter and its implications for the allocation of engagement team resources, (b) confirm that Ardent has no current direction to proceed with the transaction or to terminate the Merger Agreement, and (c) flag the approaching Outside Date of October 25, 2022, which requires a decision regarding whether to seek an extension of the Outside Date, exercise termination rights, or take other action. This communication should be delivered no later than September 30, 2022 to allow adequate time for client deliberation before the October 25 deadline.

2. Outside Date Monitoring. Calendar the October 25, 2022 Outside Date as a critical deadline. If Ardent wishes to preserve the transaction, an extension agreement must be negotiated and executed with Coral Reef before that date. If no extension is obtained and no closing occurs, either party may have the right to terminate the Merger Agreement after October 25, 2022. The responsible partner should be notified immediately if no client direction is received by October 10, 2022.

3. Pinnacle Debt Commitment. Advise Ardent to contact Andrew Gregg, Senior Vice President, Sponsor Finance at Pinnacle Commercial Lending Corp., regarding (a) the continued status of the $10,000,000 debt commitment, (b) confirmation that all commitment fee payments are current, and (c) whether an extension of the commitment (if desired) would require renegotiation of terms or additional credit committee approval.

4. R&W Insurance Binder. Advise Ardent to contact Samuel Feng at Ridgeline Risk Advisors LLC to confirm whether the Ironwood Specialty Insurance binder (policy number ISI-RWI-2022-04892) remains in effect or has lapsed due to the passage of time. If the binder has lapsed, Ardent should be advised that a new underwriting process may be required if the transaction is revived, and that the premium and coverage terms may differ from those previously quoted.

5. Outstanding Accounts Receivable and Unbilled WIP. The firm's finance department should (a) follow up on the collection of the $52,500 in outstanding accounts receivable, and (b) issue a final pre-dormancy invoice for the estimated $22,500 in unbilled work-in-progress. All fees earned through the date of dormancy should be billed and collected before the matter is placed in dormant status in the billing system.

6. Periodic Client Check-In. Establish a schedule for quarterly check-in communications with Tomás Iglesias (or such other Ardent contact as may be designated) to assess whether the matter should be reactivated, the Merger Agreement has been or should be terminated, or the matter should be formally closed. The first quarterly check-in following dormancy classification should occur no later than December 15, 2022.

7. No Formal Termination. Until directed by the client, neither deliver nor respond to any termination notice under the Merger Agreement. Any incoming correspondence from Whitfield, Crane & Sato LLP on behalf of Coral Reef — including any termination notice — should be escalated immediately to Harrison Wexford and the undersigned for evaluation and client consultation before any response is provided.

X. Conclusion

Based on the foregoing analysis, Matter No. 1001-00005 (Ardent Capital Partners III LP — Proposed Take-Private Acquisition of Coral Reef Hospitality Group, Inc.) is hereby recommended for classification as dormant, effective September 15, 2022.

The transaction remains technically alive under the terms of the Merger Agreement dated April 25, 2022. No termination notice has been delivered by either party, and the agreement continues in full force and effect. However, no substantive progress has been made since August 26, 2022, when the adjourned special meeting of CRFH stockholders was postponed indefinitely by mutual consent of the parties. The Buyer has not provided direction regarding any of the strategic alternatives presented in the August 10, 2022 memorandum.

The most significant near-term issue requiring attention is the Outside Date of October 25, 2022. Absent client direction to the contrary, the Outside Date will lapse in forty (40) days, and either party may exercise its termination rights under the Merger Agreement. The potential termination fee implications and the consequences for the Pinnacle debt commitment, the Ironwood R&W insurance binder, and other ancillary arrangements have been summarized above and were addressed in detail in the Termination Rights and Strategic Options Analysis Memorandum delivered to the client on August 10, 2022.

All document preservation obligations and matter management protocols will remain in full effect during the dormancy period. The undersigned will serve as the primary point of contact for any reactivation of the matter and will conduct periodic check-ins with the client as described in Section IX above.

This memorandum, together with all underlying work product, internal analyses, and communications referenced herein, constitutes privileged and confidential attorney work product and is protected by the attorney-client privilege and the work product doctrine. It is not to be disclosed to any person outside of Calderwood & Harkness LLP without the prior written approval of the responsible partner.

Respectfully submitted,

CALDERWOOD & HARKNESS LLP

By: ________

Name: Megan Chu

Title: Lead Associate, Mergers & Acquisitions

Date: September 15, 2022

PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT

Calderwood & Harkness LLP

Distribution: Harrison Wexford, Beatrice Holloway (internal only — not for client distribution without partner approval)

Metric	Amount
LTM Revenue	$38,700,000
LTM EBITDA	$5,100,000
Total Debt	$11,400,000
Cash and Cash Equivalents	$3,200,000
Net Debt	$8,200,000
Sources	Amount
Ardent equity contribution	$22,500,000
Pinnacle Commercial Lending Corp. senior secured term loan	$10,000,000
Total Sources	$32,500,000
Uses	Amount
Equity consideration to CRFH shareholders	$30,000,000
Estimated transaction expenses (legal, advisory, filing, insurance, etc.)	$2,500,000
Total Uses	$32,500,000
Category	Shares	Percentage of Outstanding
Voted in Favor	3,145,263	49.8%
Voted Against	97,894	1.6%
Abstained	1,061,053	16.8%
Not Voted / Broker Non-Votes	2,011,579	31.8%
Total Outstanding	6,315,789	100.0%
Term	Detail
Insurer	Ironwood Specialty Insurance Co.
Policy Number	ISI-RWI-2022-04892
Coverage Limit	$6,000,000
Retention (Self-Insured)	$750,000

PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT
This memorandum constitutes attorney work product and is protected by the attorney-client privilege and the work product doctrine. It is intended solely for the use of the individuals named below and should not be distributed to any person outside of Calderwood & Harkness LLP without the prior written approval of a named partner. Any unauthorized disclosure, copying, or distribution of this memorandum is strictly prohibited.
CALDERWOOD & HARKNESS LLP 1301 Avenue of the Americas, 40th Floor New York, NY 10019
MEMORANDUM
TO: Harrison Wexford, Responsible Partner, Mergers & Acquisitions Beatrice Holloway, Billing Partner, Mergers & Acquisitions
FROM: Megan Chu, Lead Associate, Mergers & Acquisitions
DATE: September 15, 2022
RE: Dormancy Classification — Matter No. 1001-00005; Ardent Capital Partners III LP — Proposed Take-Private Acquisition of Coral Reef Hospitality Group, Inc. (Nasdaq: CRFH)
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I. Purpose and Recommendation
The purpose of this memorandum is to recommend the formal classification of Matter No. 1001-00005 (Ardent Capital Partners III LP — Proposed Take-Private Acquisition of Coral Reef Hospitality Group, Inc.) as "dormant" under the firm's matter management policies, as set forth in Calderwood & Harkness LLP's Matter Lifecycle and Administration Guidelines (Rev. January 2021).
This recommendation is based on the fact that no substantive activity has occurred on this matter since August 26, 2022, when the adjourned special meeting of CRFH stockholders was postponed indefinitely by mutual consent of the parties. The original special meeting was held on August 2, 2022, and the merger proposal failed to receive the requisite stockholder approval by a shortfall of approximately 12,632 shares. Following the failed vote, the parties agreed to adjourn the meeting to August 30, 2022, but subsequently postponed the reconvened meeting indefinitely on August 26, 2022, without establishing a new date.
Since the August 26, 2022 postponement, our client, Ardent Capital Partners III LP (the "Buyer"), has not provided direction on next steps. Specifically, the Buyer has not indicated whether it intends to (a) propose an increase to the per-share merger consideration in order to secure the support of the institutional shareholders who abstained from the initial vote, (b) seek a further adjournment of the special meeting or an extension of the Outside Date under the Merger Agreement, (c) pursue termination of the Merger Agreement pursuant to its terms, or (d) take any other course of action. Multiple inquiries by the undersigned to Tomás Iglesias, Principal at Ardent and the designated deal lead, have not yielded a definitive response. Mr. Iglesias indicated informally during a brief telephone conversation on September 7, 2022 that the Ardent investment committee was "still evaluating" the situation, but he provided no timeline for a decision.
In light of the foregoing, I recommend that Matter No. 1001-00005 be classified as dormant effective as of the date of this memorandum. Dormancy classification will permit the reallocation of engagement team members to active matters while ensuring that (i) all document preservation obligations are maintained, (ii) periodic client check-ins are scheduled, and (iii) the firm remains positioned to reactivate the matter promptly should the Buyer provide direction to proceed. As discussed in greater detail in Section V below, the most time-sensitive issue requiring attention is the approaching Outside Date of October 25, 2022, which is only forty (40) days from the date of this memorandum. If neither party takes action to extend the Outside Date before it lapses, either party may have the right to terminate the Merger Agreement, and the consequences of such termination — including the potential applicability of termination fees — must be clearly communicated to the client.
II. Transaction Summary
A. Parties
Buyer. Ardent Capital Partners III LP is a Delaware limited partnership with its principal offices at 590 Madison Avenue, 38th Floor, New York, New York 10022. The general partner of Ardent Capital Partners III LP is Ardent Capital GP III LLC, a Delaware limited liability company (EIN: 13-6291048). The managing partners of the fund are Julian Rask and Nadia Ferrante. The deal lead for this transaction and the firm's primary client contact is Tomás Iglesias, a Principal at Ardent. Ardent Capital Partners III LP is a middle-market private equity fund focused on investments in the consumer services and hospitality sectors, with approximately $450 million in committed capital.
Target. Coral Reef Hospitality Group, Inc. is a Delaware corporation headquartered at 2400 Bayshore Boulevard, Suite 300, Tampa, Florida 33629. Coral Reef's shares of common stock are listed on the Nasdaq Stock Market under the ticker symbol "CRFH" (CUSIP 21874R109; SEC File No. 001-38742). The company operates a portfolio of boutique hotels, resort properties, and managed hospitality venues concentrated in the southeastern United States and Caribbean basin. As of the date of the Merger Agreement, the company's chief executive officer is Marcus Ellender, its chief financial officer is Patricia Sung, and the independent chair of its board of directors is Reginald Ashworth.
Merger Sub. CRFH Acquisition Sub, Inc. is a Delaware corporation formed on March 4, 2022 (EIN: 13-6318877), solely for the purpose of effecting the merger contemplated by the Merger Agreement. Merger Sub is a wholly owned subsidiary of Ardent Capital Partners III LP. Its registered agent is Capitol Registered Agents, Inc., located at 1209 Orange Street, Wilmington, Delaware 19801. Merger Sub has conducted no business operations and has no assets, liabilities, or obligations other than those incident to its formation and the transactions contemplated by the Merger Agreement.
B. Transaction Structure and Economics
The transaction is structured as a reverse triangular merger under Section 251 of the Delaware General Corporation Law ("DGCL"). Under the terms of the Merger Agreement, Merger Sub will merge with and into Coral Reef Hospitality Group, Inc., with Coral Reef surviving the merger as a wholly owned subsidiary of Ardent Capital Partners III LP. Upon consummation of the merger, Coral Reef's shares of common stock will be cancelled and cease to be listed on the Nasdaq Stock Market, and each share of CRFH common stock outstanding immediately prior to the effective time (other than dissenting shares and shares owned by Ardent, Merger Sub, or the company) will be converted into the right to receive $4.75 per share in cash, without interest.
The key economic terms of the transaction are as follows:
•  Per-Share Merger Consideration: $4.75 per share of CRFH common stock, payable in cash at closing.
•  Shares Outstanding: 6,315,789 shares of CRFH common stock were outstanding as of the record date.
•  Aggregate Equity Value: Approximately $30,000,000 (6,315,789 shares × $4.75 per share).
•  Enterprise Value: Approximately $38,200,000 ($30,000,000 aggregate equity value plus $8,200,000 in net debt).
•  Premium: The per-share merger consideration of $4.75 represents a premium of approximately 47.5% over the unaffected closing price of $3.22 per share on February 10, 2022, the last full trading day prior to the public announcement of Ardent's non-binding indication of interest.
•  Implied Valuation Multiples:
•  EV / EBITDA: approximately 7.5x ($38,200,000 ÷ $5,100,000 LTM EBITDA).
•  EV / Revenue: approximately 0.99x ($38,200,000 ÷ $38,700,000 LTM Revenue).
The target's key financial metrics for the fiscal year ended December 31, 2021 are summarized below:
These financial figures were derived from CRFH's audited financial statements for fiscal year 2021, as filed with the SEC, and were confirmed during the due diligence process conducted in March 2022.
C. Sources and Uses
The following table summarizes the anticipated sources and uses of funds for the transaction:
The equity contribution from Ardent represents approximately 69.2% of total sources, and the debt component represents approximately 30.8%. The relatively conservative leverage profile reflects both the post-pandemic recovery trajectory of the hospitality sector and the lending terms negotiated with Pinnacle Commercial Lending Corp.
D. Key Agreement Terms
The Merger Agreement was executed on April 25, 2022. The agreement was drafted by Calderwood & Harkness LLP on behalf of the Buyer and negotiated with Whitfield, Crane & Sato LLP ("WCS"), counsel to Coral Reef, with lead partner Catherine Osei of WCS handling the target-side negotiations. The principal terms of the Merger Agreement and related ancillary documents are summarized below:
Go-Shop Period. The Merger Agreement included a thirty (30) day go-shop period running from April 25, 2022 through May 25, 2022, during which Coral Reef was permitted to solicit alternative acquisition proposals. The go-shop period expired on May 25, 2022, and no Superior Proposal (as defined in the Merger Agreement) was received during the go-shop window. Following the expiration of the go-shop period, the standard non-solicitation covenant became effective, prohibiting Coral Reef from soliciting or encouraging competing acquisition proposals.
Company Termination Fee. Coral Reef is obligated to pay a termination fee of $900,000 (representing approximately 3.0% of aggregate equity value) to Ardent in the event of certain target-fault terminations, including a termination following a change in the recommendation of the board of directors of Coral Reef or a termination by Coral Reef in order to accept a Superior Proposal.
Reverse Termination Fee. Ardent is obligated to pay a reverse termination fee of $1,200,000 (representing approximately 4.0% of aggregate equity value) to Coral Reef in the event of certain buyer-fault terminations, including a termination resulting from Ardent's failure to consummate the merger when all conditions to closing have been satisfied.
Indemnity Escrow. At closing, $1,500,000 (representing approximately 5.0% of aggregate equity value) is to be deposited into an escrow account held by Commonwealth Trust Company (reference CTC-ESC-2022-1173) for a period of eighteen (18) months following the closing to secure certain indemnification obligations of Coral Reef's pre-closing stockholders. The Escrow Agreement governing the terms of the escrow was executed on April 25, 2022.
Material Adverse Effect ("MAE") Threshold. The Merger Agreement defines a Material Adverse Effect with reference to, among other things, a decline in trailing-twelve-month EBITDA exceeding 20% (i.e., a decline of more than $1,020,000 from the $5,100,000 LTM EBITDA baseline), subject to customary carve-outs for general economic conditions, industry-wide effects, changes in applicable law, and the like.
Stockholder Approval. The merger requires the approval of holders of a majority of the outstanding shares of CRFH common stock, i.e., at least 3,157,895 shares (out of 6,315,789 total shares outstanding). Under the DGCL, this is a majority-of-the-outstanding-shares standard, meaning that abstentions and failures to vote have the same practical effect as votes against the merger.
Outside Date. The Outside Date is October 25, 2022, which is 180 days from the date of execution of the Merger Agreement. If the merger has not been consummated by the Outside Date, either party may terminate the Merger Agreement, subject to certain conditions (including the limitation that a party whose breach has been the proximate cause of the failure to close by the Outside Date may not exercise this termination right).
Limited Guarantee. Ardent Capital GP III LLC has delivered a Limited Guarantee to Coral Reef guaranteeing Ardent Capital Partners III LP's payment obligations under the Merger Agreement, up to a maximum amount of $1,200,000 (equal to the reverse termination fee). The Limited Guarantee was executed on April 25, 2022.
Specific Performance. The Merger Agreement provides for mutual specific performance, entitling each party to seek equitable relief, including specific performance and injunctive relief, in addition to any other remedy to which it may be entitled at law or in equity.
III. Chronological Summary of Key Events
The following is a chronological summary of the principal events in the life of Matter No. 1001-00005, from the opening of the engagement through the date of this memorandum:
February 11, 2022 — Engagement Opened. Calderwood & Harkness LLP opened Matter No. 1001-00005 and executed an engagement letter with Ardent Capital Partners III LP to represent Ardent in connection with a proposed take-private acquisition of Coral Reef Hospitality Group, Inc. On the same date, Ardent submitted a non-binding indication of interest to the board of directors of Coral Reef expressing Ardent's interest in acquiring all of the outstanding shares of CRFH common stock at a price in the range of $4.50 to $5.00 per share.
February 14, 2022 — Special Committee Formation. The board of directors of Coral Reef Hospitality Group, Inc. formed a Special Committee composed of three independent directors to evaluate and negotiate the proposed transaction. The Special Committee members were Reginald Ashworth (Chair), Diane Kowalski, and Howard Tremaine. The Special Committee retained Whitfield, Crane & Sato LLP as its legal counsel and subsequently engaged Lantern Hill Advisory LLC as its financial advisor.
February 22, 2022 — Mutual NDA Executed. Ardent Capital Partners III LP and Coral Reef Hospitality Group, Inc. executed a mutual non-disclosure agreement for the purpose of facilitating the exchange of confidential information in connection with the proposed transaction. The transaction was assigned the project code name "Project Trident."
March 1, 2022 — Data Room Access Granted. Coral Reef granted Ardent and its advisors (including Calderwood & Harkness LLP) access to a virtual data room hosted on the Thackeray Solutions platform under the Project Trident designation. The data room contained financial, legal, operational, and regulatory materials relating to Coral Reef and its subsidiaries.
March 4, 2022 — Merger Sub Incorporation. CRFH Acquisition Sub, Inc. was incorporated in the State of Delaware as a wholly owned subsidiary of Ardent Capital Partners III LP for the purpose of effecting the proposed reverse triangular merger.
March 21, 2022 — Preliminary Due Diligence Memorandum. The Calderwood & Harkness engagement team (Megan Chu and Derek Okonkwo) completed and circulated a preliminary due diligence memorandum summarizing the results of the initial review of Coral Reef's legal, regulatory, and contractual profile, including identified risks and areas requiring further investigation.
March 28, 2022 — Revised Binding Offer. Following the completion of preliminary due diligence and internal discussions at Ardent, Ardent submitted a revised binding offer to acquire all of the outstanding shares of CRFH common stock at a price of $4.75 per share, conditioned on the negotiation and execution of a definitive merger agreement and the satisfaction of customary closing conditions.
April 8, 2022 — Debt Commitment Letter Executed. Pinnacle Commercial Lending Corp. executed a debt commitment letter (reference PCL-2022-SF-0417) committing to provide a $10,000,000 senior secured term loan facility to fund a portion of the merger consideration. The key terms of the commitment included an interest rate of SOFR plus 425 basis points, a five-year maturity, and a 1.0% original issue discount. The commitment letter was subject to customary conditions, including the execution of a definitive credit agreement and the satisfaction of specified conditions precedent to funding.
April 15, 2022 — Execution-Ready Merger Agreement. An execution-ready draft of the Merger Agreement, reflecting the resolution of all open negotiation points between Calderwood & Harkness LLP (for the Buyer) and Whitfield, Crane & Sato LLP (for the Target), was circulated to the parties for final review by their respective principals and boards.
April 22, 2022 — Fairness Opinion Delivered. Lantern Hill Advisory LLC (Evan Nakashima, Managing Director) delivered its fairness opinion to the Special Committee of the board of directors of Coral Reef, opining that, as of the date of such opinion and subject to the qualifications and limitations set forth therein, the per-share merger consideration of $4.75 was fair, from a financial point of view, to the holders of CRFH common stock (other than Ardent, Merger Sub, and their respective affiliates).
April 25, 2022 — Merger Agreement Executed; Public Announcement. The Merger Agreement was executed by and among Ardent Capital Partners III LP, CRFH Acquisition Sub, Inc., and Coral Reef Hospitality Group, Inc. The transaction was publicly announced via a joint press release and a Form 8-K filing by Coral Reef with the SEC. On the same date, the following ancillary documents were also executed and delivered:
(a) Limited Guarantee, executed by Ardent Capital GP III LLC in favor of Coral Reef Hospitality Group, Inc., guaranteeing Ardent's payment obligations up to $1,200,000;
(b) Escrow Agreement (ref. CTC-ESC-2022-1173), executed by the parties and Commonwealth Trust Company as escrow agent;
(c) Voting and Support Agreement, executed by the Ellender Family Trust (Marcus Ellender, trustee), pursuant to which the Ellender Family Trust agreed to vote its 1,155,789 shares of CRFH common stock (approximately 18.3% of outstanding) in favor of the merger at any meeting of stockholders called for such purpose.
May 10, 2022 — Preliminary Proxy Statement Filed. Coral Reef filed a preliminary proxy statement with the SEC on Schedule 14A in connection with the solicitation of proxies from CRFH stockholders for the purpose of approving the merger.
May 25, 2022 — Go-Shop Period Expired. The thirty-day go-shop period under the Merger Agreement expired. No Superior Proposal was received during the go-shop period. The customary non-solicitation covenant became effective upon expiration of the go-shop period.
June 3, 2022 — SEC Comment Letter Received. The staff of the Division of Corporation Finance of the SEC issued a comment letter on the preliminary proxy statement, raising questions relating to, among other things, the financial projections used in the fairness opinion, the background of the transaction, and certain disclosure matters.
June 14, 2022 — Draft Response to SEC Comments. Calderwood & Harkness LLP, in coordination with Whitfield, Crane & Sato LLP, prepared a draft response letter addressing each of the SEC staff's comments. The response letter was reviewed and approved by the parties before submission.
June 17, 2022 — Revised Preliminary Proxy Filed. Coral Reef filed a revised preliminary proxy statement with the SEC, incorporating the revisions responsive to the SEC staff's comment letter.
June 24, 2022 — Record Date Set. The board of directors of Coral Reef established June 24, 2022 as the record date for the determination of stockholders entitled to notice of, and to vote at, the special meeting of stockholders to be held for the purpose of approving the merger.
July 8, 2022 — Definitive Proxy Filed; Proxy Solicitor Engaged. Coral Reef filed the definitive proxy statement with the SEC and commenced distribution to stockholders of record. Meridian Proxy Services Inc. was engaged as the proxy solicitor to assist with the solicitation of proxies from CRFH stockholders.
August 2, 2022 — Special Meeting; Vote Failed. The special meeting of CRFH stockholders was held. The merger proposal failed to achieve the requisite stockholder approval. A total of 3,145,263 shares were voted in favor of the merger, falling short of the required 3,157,895 shares by approximately 12,632 shares. The details of the failed vote are discussed in Section IV of this memorandum.
August 5, 2022 — Meeting Adjourned. Following the failed vote, Ardent and Coral Reef agreed to adjourn the special meeting and to reconvene on August 30, 2022. The adjournment was intended to allow time for shareholder engagement, evaluation of strategic alternatives, and determination of whether a revised transaction structure or increased merger consideration might be warranted.
August 10, 2022 — Termination Rights Analysis Delivered. Calderwood & Harkness LLP delivered a Termination Rights and Strategic Options Analysis Memorandum to Ardent (addressed to Tomás Iglesias and Julian Rask). The memorandum evaluated several options available to the Buyer, including (i) proposing an increase in the per-share merger consideration, (ii) conducting targeted outreach to the institutional shareholders that abstained from the vote (Tidewater Asset Management LLC and Broadleaf Institutional Partners LP), (iii) seeking an extension of the Outside Date, and (iv) exercising termination rights and walking away from the transaction.
August 26, 2022 — Reconvened Meeting Postponed Indefinitely. By mutual consent of Ardent and Coral Reef, the adjourned special meeting that had been scheduled for August 30, 2022 was postponed indefinitely. No new date was established for the reconvened meeting. No formal public announcement was made regarding the indefinite postponement.
September 15, 2022 (this memorandum) — Dormancy Classification. In the absence of any substantive activity since August 26, 2022, and in the absence of client direction regarding next steps, this memorandum recommends that Matter No. 1001-00005 be classified as dormant, subject to the protocols and recommendations described herein.
IV. Failed Stockholder Vote — Detail
A. Vote Results
The special meeting of CRFH stockholders was held on August 2, 2022, at the offices of Coral Reef Hospitality Group, Inc. in Tampa, Florida. The sole item of business presented at the meeting was a proposal to approve the Agreement and Plan of Merger dated April 25, 2022 (the "Merger Agreement") among Ardent Capital Partners III LP, CRFH Acquisition Sub, Inc., and Coral Reef Hospitality Group, Inc.
Under the terms of the Merger Agreement and applicable provisions of the DGCL, the merger required the affirmative vote of holders of a majority of the outstanding shares of CRFH common stock entitled to vote on the proposal. As of the June 24, 2022 record date, there were 6,315,789 shares of CRFH common stock outstanding and entitled to vote. Accordingly, the affirmative vote of holders of at least 3,157,895 shares was required to approve the merger.
The vote results were as follows:
The merger proposal failed. The votes cast in favor fell short of the required threshold by approximately 12,632 shares. Under the majority-of-outstanding-shares standard applicable to this vote, abstentions and failures to vote had the same practical effect as votes against the merger, because the denominator for purposes of determining the requisite majority was the total number of outstanding shares, not merely the number of shares present or represented at the meeting.
B. Key Shareholder Voting Behavior
The following institutional shareholders played a significant role in the outcome of the vote:
Ellender Family Trust. The Ellender Family Trust, of which Marcus Ellender (CEO of Coral Reef) serves as trustee, holds 1,155,789 shares of CRFH common stock, representing approximately 18.3% of the outstanding shares. Pursuant to the Voting and Support Agreement dated April 25, 2022, the Ellender Family Trust voted all of its shares in favor of the merger. The Ellender Family Trust's favorable vote was consistent with its contractual obligation under the Voting and Support Agreement and was the single largest block of shares voted in favor of the merger proposal.
Tidewater Asset Management LLC. Tidewater Asset Management LLC holds 612,632 shares of CRFH common stock, representing approximately 9.7% of the outstanding shares. Tidewater abstained from voting, citing its view that the $4.75 per-share merger consideration was inadequate and did not reflect the intrinsic value of Coral Reef's portfolio of hospitality assets, particularly in light of what Tidewater characterized as improving fundamentals in the post-pandemic hospitality sector. Tidewater's abstention was publicly disclosed in a Schedule 13D/A amendment filed with the SEC on July 29, 2022, three days before the scheduled vote.
Broadleaf Institutional Partners LP. Broadleaf Institutional Partners LP holds 448,421 shares of CRFH common stock, representing approximately 7.1% of the outstanding shares. Broadleaf also abstained from voting, similarly citing price inadequacy. Broadleaf did not file a public statement but communicated its position to the Coral Reef board and Meridian Proxy Services Inc. during the proxy solicitation process.
It is important to note that, under the Merger Agreement and the DGCL, abstentions have the same effect as votes against the merger because the approval standard is based on a majority of all outstanding shares, not merely a majority of shares actually voted. Had the approximately 1,061,053 abstaining shares been voted in favor, the merger would have been approved by an overwhelming margin. The combined abstentions of Tidewater (612,632 shares) and Broadleaf (448,421 shares) account for 1,061,053 shares, which is the entirety of the abstention total. These two shareholders' decisions to abstain were therefore the proximate cause of the merger's failure to receive stockholder approval.
C. Post-Vote Actions
Following the failed vote on August 2, 2022, the engagement team took the following actions:
On August 5, 2022, the parties — through their respective counsel — agreed to adjourn the special meeting and set a reconvene date of August 30, 2022. The purpose of the adjournment was to allow additional time for shareholder engagement, including the possibility of direct dialogue between Ardent and the abstaining institutional shareholders, and to permit an evaluation of whether modifications to the transaction terms might be warranted.
On August 10, 2022, Calderwood & Harkness LLP delivered to Ardent (Tomás Iglesias and Julian Rask) a comprehensive Termination Rights and Strategic Options Analysis Memorandum. That memorandum evaluated the following strategic alternatives:
(a) Price Increase: An analysis of the financial implications of increasing the per-share merger consideration from $4.75 to a level that might satisfy Tidewater and Broadleaf's valuation concerns. Preliminary indications from both shareholders suggested that a price in the range of $5.25 to $5.50 per share might be required to secure their affirmative vote. At the midpoint of that range ($5.375 per share), the aggregate equity value would increase to approximately $33,947,368 — an increase of approximately $3,947,368 over the current deal price, which would require either additional equity from Ardent or an increase in the debt financing.
(b) Targeted Shareholder Outreach: An evaluation of whether Ardent should engage directly with Tidewater Asset Management LLC and Broadleaf Institutional Partners LP to understand their specific objections to the price and to explore whether non-price accommodations (such as a contingent value right or an adjustment to the indemnity escrow) might address their concerns.
(c) Extension of Outside Date: An analysis of the procedural requirements for extending the October 25, 2022 Outside Date and the potential need to negotiate an extension agreement with Coral Reef.
(d) Walk-Away Analysis: An evaluation of Ardent's termination rights under the Merger Agreement, including an analysis of whether any termination fee would be payable by Ardent to Coral Reef and the terms of the Limited Guarantee in a termination scenario.
On August 26, 2022, the reconvened special meeting that had been scheduled for August 30, 2022 was postponed indefinitely by mutual consent of the parties. No new date was set for any further meeting. Neither party has delivered a formal termination notice under the Merger Agreement, and the agreement remains in full force and effect as of the date of this memorandum.
As of September 15, 2022, Ardent has not proposed a price increase, authorized direct shareholder outreach, or indicated any willingness to sweeten the transaction terms. Nor has Ardent instructed Calderwood & Harkness to prepare or deliver a termination notice. The matter has been functionally inactive since August 26, 2022.
V. Current Status and Open Items
A. Merger Agreement Status
The Merger Agreement dated April 25, 2022 remains in full force and effect as of the date of this memorandum. No termination notice has been delivered by either Ardent Capital Partners III LP or Coral Reef Hospitality Group, Inc. under any provision of the Merger Agreement. Neither party has asserted a Material Adverse Effect, a breach of representations and warranties, or any other condition that would give rise to a termination right independent of the Outside Date.
The most significant near-term issue is the Outside Date of October 25, 2022, which is forty (40) days from the date of this memorandum. The Outside Date represents the contractual deadline by which the merger must be consummated. If the merger has not been consummated by October 25, 2022, either party may terminate the Merger Agreement by delivering written notice to the other party, provided that the terminating party's own breach has not been the proximate cause of the failure to close by such date.
No discussions regarding a potential extension of the Outside Date have resulted in an agreement as of this date. While informal communications between the undersigned and Catherine Osei of WCS have touched upon the possibility of an extension, no formal proposal has been exchanged. Any extension of the Outside Date would require the mutual written agreement of the parties and, depending on the duration of the extension, may implicate the need for supplemental proxy disclosure, a new record date, and potential amendment or reaffirmation of the debt commitment letter from Pinnacle.
Action Required: Calderwood & Harkness must communicate clearly and promptly to Ardent that a decision regarding the Outside Date is required before October 25, 2022. If Ardent wishes to preserve the transaction, an extension agreement must be negotiated and executed with Coral Reef before that date. Conversely, if Ardent does not wish to extend, it should evaluate whether to exercise its termination right under the Outside Date provision or to allow Coral Reef to exercise its own termination right. The termination fee implications of either scenario were analyzed in the August 10, 2022 memorandum.
B. Pinnacle Debt Commitment Letter
The debt commitment letter from Pinnacle Commercial Lending Corp. (reference PCL-2022-SF-0417) remains outstanding. The commitment provides for a $10,000,000 senior secured term loan facility at SOFR plus 425 basis points, with a five-year maturity and a 1.0% original issue discount.
Under the terms of the commitment letter, Ardent is obligated to pay a commitment fee of 0.50% per annum on the undrawn committed amount, which equates to $50,000 per year or approximately $12,500 per quarter. Commitment fee payments commenced on July 8, 2022 and are payable quarterly. As of the date of this memorandum, at least one quarterly payment should have been made, and Ardent should confirm that it remains current on its commitment fee obligations.
The commitment letter is tied to the Outside Date; the commitment will expire if the Outside Date lapses without closing. Accordingly, if the Outside Date of October 25, 2022 passes without an extension or closing, the debt commitment will lapse and Pinnacle will have no further obligation to fund the term loan.
Action Required: Ardent should be advised to contact Andrew Gregg, Senior Vice President, Sponsor Finance at Pinnacle Commercial Lending Corp., to confirm (i) the continued availability of the commitment, (ii) the status of commitment fee payments, and (iii) whether any extension of the commitment would require renegotiation of terms, a new credit committee approval, or additional fees. Given the rising interest rate environment, it is possible that Pinnacle may seek to reprice the facility or impose additional conditions if an extension is requested.
C. Representations and Warranties Insurance
A binder for a representations and warranties insurance policy was issued by Ironwood Specialty Insurance Co. under policy number ISI-RWI-2022-04892. The policy was brokered by Ridgeline Risk Advisors LLC, with Samuel Feng serving as the lead broker on the placement.
The key terms of the R&W insurance binder are as follows:
The R&W insurance policy was intended to provide buy-side coverage for breaches of the Target's representations and warranties in the Merger Agreement, subject to the policy terms, exclusions, and the $750,000 retention. The $6,000,000 coverage limit was sized to provide meaningful protection in excess of the $1,500,000 indemnity escrow.
Because the policy binding is contingent on closing and the premium has not yet been paid, the binder may have lapsed or be subject to expiration provisions triggered by the passage of time or the delay in closing. Many R&W insurance binders include a limited binding period (often 60 to 90 days), and it is now approximately 143 days since the Merger Agreement was executed.
Action Required: Ardent should be advised to contact Samuel Feng at Ridgeline Risk Advisors LLC to confirm whether the Ironwood binder remains in effect. If the binder has lapsed, a new underwriting process may be required if the transaction is revived, potentially at a different premium or with revised terms and conditions. This should be factored into any cost analysis of proceeding with the transaction.
D. Escrow Agreement
The Escrow Agreement (reference CTC-ESC-2022-1173) with Commonwealth Trust Company as escrow agent was executed on April 25, 2022, contemporaneously with the Merger Agreement and the other ancillary transaction documents. The Escrow Agreement provides for the establishment of an indemnity escrow fund in the amount of $1,500,000, representing approximately 5.0% of the aggregate equity value.
However, the escrow fund was not funded at the time of execution. Under the terms of the Escrow Agreement, the $1,500,000 deposit is to be funded at the closing of the merger from the merger consideration otherwise payable to CRFH stockholders. Because the merger has not closed, no funds have been deposited into the escrow account.
No action is required at this time with respect to the Escrow Agreement, but Commonwealth Trust Company should be notified of the dormancy classification if the matter remains inactive beyond the Outside Date. It may also be prudent to confirm whether Commonwealth Trust Company is charging any account maintenance or administration fees in connection with the escrow arrangement, even in the absence of funded amounts.
E. Termination Fees
No termination fee has been triggered or paid as of the date of this memorandum. The termination fee provisions of the Merger Agreement provide for two categories of termination fees:
Reverse Termination Fee. Ardent is obligated to pay a reverse termination fee of $1,200,000 to Coral Reef in the event of certain buyer-fault terminations, including (i) a termination by Coral Reef resulting from Ardent's or Merger Sub's willful and material breach of the Merger Agreement, and (ii) a termination resulting from Ardent's failure to consummate the merger when all conditions to Ardent's and Merger Sub's obligations to close have been satisfied or waived. The reverse termination fee is guaranteed by Ardent Capital GP III LLC under the Limited Guarantee up to the full amount of $1,200,000.
Company Termination Fee. Coral Reef is obligated to pay a company termination fee of $900,000 to Ardent in the event of certain target-fault terminations, including (i) a termination by Coral Reef in order to accept a Superior Proposal, and (ii) a termination following a change in the recommendation of the board of directors of Coral Reef.
As discussed in the Termination Rights and Strategic Options Analysis Memorandum delivered to the client on August 10, 2022, the applicability of termination fees in the current scenario — where the failure to close results primarily from the inability to obtain stockholder approval — is nuanced. A termination by either party after the lapse of the Outside Date, where the failure to close is attributable to the failure to obtain stockholder approval (rather than a party's willful breach), may not trigger a termination fee payable by either party, depending on the specific termination provision invoked and the applicable conditions. This analysis was provided to the client in detail, and no further direction has been received.
F. Proxy and SEC Matters
The definitive proxy statement was filed with the SEC on July 8, 2022, based on the record date of June 24, 2022. As discussed above, the special meeting was held on August 2, 2022, and the merger proposal failed to receive the requisite stockholder approval.
If the special meeting is reconvened after a significant delay, several procedural steps may be required:
(a) New Record Date. If the reconvened meeting is held more than a certain period after the original record date (typically governed by the company's bylaws and DGCL requirements), a new record date may need to be established by the board of directors. Changes in share ownership between the original and new record dates could affect the composition of the voting stockholder base.
(b) Supplemental Proxy Materials. Depending on the duration of the delay and any intervening events (including material changes in the Target's financial condition, changes in the terms of the transaction, or other developments), supplemental proxy materials may need to be prepared and filed with the SEC. If a price increase is proposed, a new or supplemental fairness opinion from Lantern Hill Advisory LLC may also be required.
(c) New Proxy Solicitation. A renewed proxy solicitation effort, potentially with the continued engagement of Meridian Proxy Services Inc., may be necessary.
As of this date, there are no pending SEC comments on the proxy materials. The revised preliminary proxy filed on June 17, 2022 and the definitive proxy filed on July 8, 2022 resolved all comments raised in the SEC staff's comment letter of June 3, 2022.
VI. Fee Position and Financial Summary
A. Calderwood & Harkness LLP Fee Status
The following table summarizes the current fee position for Matter No. 1001-00005:
The outstanding accounts receivable of $52,500 represents amounts that have been invoiced to Ardent Capital Partners III LP but remain uncollected as of the date of this memorandum. The firm's standard payment terms are net 30 days. A review of the billing records indicates that the oldest unpaid invoice is dated August 5, 2022, which is now 41 days past the invoice date. While Ardent has historically been a prompt-paying client, the current uncertainty surrounding the transaction may be contributing to a delay in payment processing.
The estimated unbilled work-in-progress of $22,500 represents time and expenses incurred since the most recent invoice that have not yet been billed. This amount includes time recorded by the undersigned and Derek Okonkwo for the preparation of the Termination Rights and Strategic Options Analysis Memorandum delivered on August 10, 2022, as well as time associated with client communications and internal matter management activities through the date of this memorandum.
Recommendation: I recommend that the billing department issue a final pre-dormancy invoice for all unbilled work-in-progress, and that the finance department follow up on the collection of the outstanding accounts receivable of $52,500. Given the uncertainty surrounding the future of this transaction, it is prudent to ensure that all fees earned to date are billed and collected before the matter enters dormancy.
B. Other Advisor Fee Status (for Reference)
The following is a summary of the fee status of other advisors engaged in connection with the transaction, provided for reference purposes. Calderwood & Harkness does not have billing responsibility for these engagements, but this information may be relevant in evaluating the overall cost posture of the transaction and in any discussions with the client regarding the economics of continuing or terminating the deal.
Lantern Hill Advisory LLC (Financial Advisor to Coral Reef / Special Committee):
Lantern Hill was engaged by the Special Committee of the board of directors of Coral Reef to serve as financial advisor and to deliver a fairness opinion. Lantern Hill received a non-refundable retainer of $75,000, which is creditable against a success fee of $300,000 payable upon closing of the merger. The success fee has not been earned and will not become payable unless and until the merger is consummated. Lantern Hill's fees are payable by Coral Reef.
Grayson Partners & Co. (Financial Advisor to Ardent):
Grayson Partners was engaged by Ardent to provide financial advisory services in connection with the proposed acquisition. Grayson Partners received a retainer of $50,000 and is entitled to a flat advisory fee of $250,000 payable at closing. The flat advisory fee has not been earned and will not become payable unless and until the merger is consummated. Grayson Partners' fees are payable by Ardent.
Pinnacle Commercial Lending Corp. (Lender):
As discussed in Section V.B above, Ardent is obligated to pay a commitment fee of 0.50% per annum on the $10,000,000 undrawn commitment amount, equating to $50,000 per year, payable quarterly beginning July 8, 2022. These commitment fees accrue regardless of whether the merger closes and are the ongoing financial responsibility of Ardent.
Ridgeline Risk Advisors LLC / Ironwood Specialty Insurance Co. (R&W Insurance):
The estimated premium for the representations and warranties insurance policy is $192,000. This premium is payable at closing and has not yet been incurred. As discussed in Section V.C above, the status of the binder should be confirmed with the broker. No brokerage fees or other costs have been paid to Ridgeline or Ironwood to date, though it is possible that a new underwriting process, if required, would involve incremental costs.
VII. Document Preservation Obligations
All matter files associated with Matter No. 1001-00005, including both electronic and physical records, must be preserved in accordance with Calderwood & Harkness LLP's document retention policies and applicable litigation hold principles. Although no litigation is currently pending or threatened in connection with this transaction, the preservation of all work product and client communications is required as a matter of firm policy for matters classified as dormant, and is also prudent given the possibility that the merger could be revived, terminated (potentially giving rise to disputes regarding termination fees), or become the subject of future litigation (including potential stockholder actions).
The following specific preservation obligations and actions are identified:
Virtual Data Room. The virtual data room hosted on the Thackeray Solutions platform under the Project Trident designation should remain accessible during the dormancy period. The undersigned should confirm with Coral Reef (through WCS) that the data room will not be deactivated, archived, or purged during the dormancy period. Access credentials for the Calderwood & Harkness engagement team should be maintained.
Document Management System. All drafts of the Merger Agreement, ancillary transaction documents, proxy materials, SEC filings, correspondence, internal memoranda, and other work product must be maintained on the firm's document management system (Vireo Data Systems) under Matter No. 1001-00005. No documents should be deleted, archived to offline storage, or otherwise removed from the active filing structure without prior approval from the responsible partner.
Key Documents to Be Preserved. The following is a non-exhaustive list of key documents that must be preserved:
•  Engagement Letter (February 11, 2022)
•  Mutual Non-Disclosure Agreement (February 22, 2022)
•  Preliminary Due Diligence Memorandum (March 21, 2022)
•  Merger Agreement — Execution Version (April 25, 2022)
•  Limited Guarantee (April 25, 2022)
•  Escrow Agreement (April 25, 2022)
•  Voting and Support Agreement — Ellender Family Trust (April 25, 2022)
•  Pinnacle Debt Commitment Letter (April 8, 2022)
•  Ironwood R&W Insurance Binder (undated; approximately April 2022)
•  Preliminary Proxy Statement — Initial Filing (May 10, 2022)
•  SEC Comment Letter (June 3, 2022)
•  SEC Comment Response Letter Draft (June 14, 2022)
•  Revised Preliminary Proxy Statement (June 17, 2022)
•  Definitive Proxy Statement (July 8, 2022)
•  Termination Rights and Strategic Options Analysis Memorandum (August 10, 2022)
•  All drafts, mark-ups, redlines, and negotiation correspondence relating to the foregoing
•  All internal memoranda, research memoranda, and analytical work product
•  All correspondence with opposing counsel (Whitfield, Crane & Sato LLP), the SEC, Pinnacle, Commonwealth Trust Company, Ridgeline Risk Advisors, Ironwood Specialty Insurance, Meridian Proxy Services, and Lantern Hill Advisory
Email Preservation. The undersigned should confirm with the firm's Information Technology department that all emails coded to Matter No. 1001-00005 are being retained in the firm's email archiving system and are not subject to automatic deletion under any periodic purge cycle. A preservation notice should be issued to all engagement team members confirming their obligation to retain all matter-related emails.
Physical Files. To the extent that any physical files exist for this matter (including executed signature pages, original documents, or physical correspondence), such files should be maintained in the firm's records management facility and appropriately labeled with the matter number. As of the date of this memorandum, the undersigned is not aware of any original executed documents in the firm's possession that are not also available in electronic form.
VIII. Engagement Team
The following attorneys comprise the engagement team for Matter No. 1001-00005:
Upon classification of this matter as dormant, team members other than the primary point of contact should be reassigned to active matters. Megan Chu will remain as the primary point of contact for any communications with the client, opposing counsel, or other parties in connection with this matter. In the event that the matter is reactivated, the full engagement team should be reconvened, subject to availability.
Harrison Wexford, as responsible partner, retains supervisory authority over all aspects of the matter, including any client communications regarding the Outside Date or potential termination of the Merger Agreement. Any substantive client direction should be escalated to Mr. Wexford promptly.
IX. Recommended Actions and Next Steps
Based on the foregoing analysis, the following actions are recommended:
1.  Client Communication. Schedule a call or send formal correspondence to Tomás Iglesias, Principal at Ardent Capital Partners III LP, to (a) formally advise him of the dormancy classification of the matter and its implications for the allocation of engagement team resources, (b) confirm that Ardent has no current direction to proceed with the transaction or to terminate the Merger Agreement, and (c) flag the approaching Outside Date of October 25, 2022, which requires a decision regarding whether to seek an extension of the Outside Date, exercise termination rights, or take other action. This communication should be delivered no later than September 30, 2022 to allow adequate time for client deliberation before the October 25 deadline.
2.  Outside Date Monitoring. Calendar the October 25, 2022 Outside Date as a critical deadline. If Ardent wishes to preserve the transaction, an extension agreement must be negotiated and executed with Coral Reef before that date. If no extension is obtained and no closing occurs, either party may have the right to terminate the Merger Agreement after October 25, 2022. The responsible partner should be notified immediately if no client direction is received by October 10, 2022.
3.  Pinnacle Debt Commitment. Advise Ardent to contact Andrew Gregg, Senior Vice President, Sponsor Finance at Pinnacle Commercial Lending Corp., regarding (a) the continued status of the $10,000,000 debt commitment, (b) confirmation that all commitment fee payments are current, and (c) whether an extension of the commitment (if desired) would require renegotiation of terms or additional credit committee approval.
4.  R&W Insurance Binder. Advise Ardent to contact Samuel Feng at Ridgeline Risk Advisors LLC to confirm whether the Ironwood Specialty Insurance binder (policy number ISI-RWI-2022-04892) remains in effect or has lapsed due to the passage of time. If the binder has lapsed, Ardent should be advised that a new underwriting process may be required if the transaction is revived, and that the premium and coverage terms may differ from those previously quoted.
5.  Outstanding Accounts Receivable and Unbilled WIP. The firm's finance department should (a) follow up on the collection of the $52,500 in outstanding accounts receivable, and (b) issue a final pre-dormancy invoice for the estimated $22,500 in unbilled work-in-progress. All fees earned through the date of dormancy should be billed and collected before the matter is placed in dormant status in the billing system.
6.  Periodic Client Check-In. Establish a schedule for quarterly check-in communications with Tomás Iglesias (or such other Ardent contact as may be designated) to assess whether the matter should be reactivated, the Merger Agreement has been or should be terminated, or the matter should be formally closed. The first quarterly check-in following dormancy classification should occur no later than December 15, 2022.
7.  No Formal Termination. Until directed by the client, neither deliver nor respond to any termination notice under the Merger Agreement. Any incoming correspondence from Whitfield, Crane & Sato LLP on behalf of Coral Reef — including any termination notice — should be escalated immediately to Harrison Wexford and the undersigned for evaluation and client consultation before any response is provided.
X. Conclusion
Based on the foregoing analysis, Matter No. 1001-00005 (Ardent Capital Partners III LP — Proposed Take-Private Acquisition of Coral Reef Hospitality Group, Inc.) is hereby recommended for classification as dormant, effective September 15, 2022.
The transaction remains technically alive under the terms of the Merger Agreement dated April 25, 2022. No termination notice has been delivered by either party, and the agreement continues in full force and effect. However, no substantive progress has been made since August 26, 2022, when the adjourned special meeting of CRFH stockholders was postponed indefinitely by mutual consent of the parties. The Buyer has not provided direction regarding any of the strategic alternatives presented in the August 10, 2022 memorandum.
The most significant near-term issue requiring attention is the Outside Date of October 25, 2022. Absent client direction to the contrary, the Outside Date will lapse in forty (40) days, and either party may exercise its termination rights under the Merger Agreement. The potential termination fee implications and the consequences for the Pinnacle debt commitment, the Ironwood R&W insurance binder, and other ancillary arrangements have been summarized above and were addressed in detail in the Termination Rights and Strategic Options Analysis Memorandum delivered to the client on August 10, 2022.
All document preservation obligations and matter management protocols will remain in full effect during the dormancy period. The undersigned will serve as the primary point of contact for any reactivation of the matter and will conduct periodic check-ins with the client as described in Section IX above.
This memorandum, together with all underlying work product, internal analyses, and communications referenced herein, constitutes privileged and confidential attorney work product and is protected by the attorney-client privilege and the work product doctrine. It is not to be disclosed to any person outside of Calderwood & Harkness LLP without the prior written approval of the responsible partner.
Respectfully submitted,
CALDERWOOD & HARKNESS LLP
By: ________
Name: Megan Chu
Title: Lead Associate, Mergers & Acquisitions
Date: September 15, 2022
PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT
Calderwood & Harkness LLP | Matter No. 1001-00005
Distribution: Harrison Wexford, Beatrice Holloway (internal only — not for client distribution without partner approval)
Metric | Amount
LTM Revenue | $38,700,000
LTM EBITDA | $5,100,000
Total Debt | $11,400,000
Cash and Cash Equivalents | $3,200,000
Net Debt | $8,200,000
Sources | Amount
Ardent equity contribution | $22,500,000
Pinnacle Commercial Lending Corp. senior secured term loan | $10,000,000
Total Sources | $32,500,000
Uses | Amount
Equity consideration to CRFH shareholders | $30,000,000
Estimated transaction expenses (legal, advisory, filing, insurance, etc.) | $2,500,000
Total Uses | $32,500,000
Category | Shares | Percentage of Outstanding
Voted in Favor | 3,145,263 | 49.8%
Voted Against | 97,894 | 1.6%
Abstained | 1,061,053 | 16.8%
Not Voted / Broker Non-Votes | 2,011,579 | 31.8%
Total Outstanding | 6,315,789 | 100.0%
Term | Detail
Insurer | Ironwood Specialty Insurance Co.
Policy Number | ISI-RWI-2022-04892
Coverage Limit | $6,000,000
Retention (Self-Insured) | $750,000
Estimated Premium | $192,000
Premium Payment | Payable at closing
Binder Status | Contingent on closing
Category | Amount
Partner billing rate | $1,250 / hour
Associate billing rate | $725 / hour
Estimated total fees through dormancy | $485,000
Amount billed to date | $462,500
Amount collected to date | $410,000
Outstanding accounts receivable (billed, uncollected) | $52,500
Estimated unbilled work-in-progress (WIP) | $22,500
Name | Role | Department
Harrison Wexford | Responsible Partner | Mergers & Acquisitions
Beatrice Holloway | Billing Partner | Mergers & Acquisitions
Megan Chu | Lead Associate | Mergers & Acquisitions
Derek Okonkwo | Working Associate | Mergers & Acquisitions

PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT

MEMORANDUM

CALDERWOOD & HARKNESS LLP

Record

Parties

Dates

Amounts