1021-00001 · Verimark Hospitality Group · Board & Corporate Authorization

solvency-certificate.docx DOCUMENT Finance & Banking

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SOLVENCY CERTIFICATE

Delivered pursuant to Section 4.01(a)(ix) of the Credit Agreement, dated as of July 21, 2022 (as amended, restated, supplemented, or otherwise modified from time to time, the "Credit Agreement"), among

VERIMARK HOSPITALITY GROUP INC., a Delaware corporation, as Borrower,

THE GUARANTORS PARTY THERETO,

CRESCENT HARBOR BANK, NATIONAL ASSOCIATION, as Administrative Agent and Collateral Agent,

and

THE LENDERS FROM TIME TO TIME PARTY THERETO

in respect of the

$700,000,000 SENIOR SECURED TERM LOAN B FACILITY

Dated: July 21, 2022

RECITALS AND INTRODUCTORY STATEMENT

The undersigned, Renata Haines, in her capacity as Chief Financial Officer of Verimark Hospitality Group Inc., a corporation duly organized and existing under the laws of the State of Delaware (the "Borrower"), and not in her individual capacity, hereby delivers this Solvency Certificate (this "Certificate") in connection with the closing of the Credit Agreement on July 21, 2022 (the "Closing Date").

This Certificate is delivered to Crescent Harbor Bank, National Association, in its capacity as Administrative Agent (the "Administrative Agent"), pursuant to Section 4.01(a)(ix) of the Credit Agreement, which requires that the Borrower deliver a solvency certificate of the Chief Financial Officer of the Borrower as a condition precedent to the initial borrowing under the Credit Agreement on the Closing Date.

The undersigned certifies that she is the duly appointed Chief Financial Officer of the Borrower and is authorized to execute and deliver this Certificate on behalf of the Borrower. The undersigned is familiar with the financial condition, properties, businesses, assets, and liabilities of the Borrower and its Subsidiaries, taken together on a consolidated basis, and has made such investigations and inquiries as the undersigned has deemed necessary and appropriate in connection with the preparation and delivery of this Certificate, including a review of the documents, financial statements, projections, and other materials described in Section 2 below.

All capitalized terms used but not otherwise defined herein shall have the meanings assigned to such terms in the Credit Agreement.

SECTION 1: DEFINITIONS

For purposes of this Certificate, the following terms shall have the meanings set forth below:

"Borrower" means Verimark Hospitality Group Inc., a corporation duly organized and existing under the laws of the State of Delaware, with its principal executive offices located at 8200 West Palmetto Park Road, Suite 1500, Boca Raton, Florida 33433, whose shares of common stock are listed on the New York Stock Exchange under the ticker symbol "VMRK" and whose federal employer identification number is 82-3741956.

"Consolidated Group" means the Borrower and its Subsidiaries, taken as a whole on a consolidated basis in accordance with GAAP applied on a consistent basis, including without limitation the following direct and indirect Subsidiaries of the Borrower: Verimark Resort Properties LLC, VHG Management Services Inc., Verimark Convention Holdings LLC, Palmetto Beachfront Hotels LLC, Cascadia Hospitality Corp., and each other Subsidiary of the Borrower that is required to be consolidated with the Borrower under GAAP.

"Fair Value" means the amount at which the aggregate assets, both tangible and intangible, of the Consolidated Group would change hands between a willing buyer and a willing seller, within a commercially reasonable period of time, each having reasonable knowledge of the relevant facts, with neither being under any compulsion to act. For purposes of this definition, "assets" includes all property and rights of every kind, nature, and description (whether real, personal, or mixed, tangible or intangible, and wherever situated), including, without limitation, goodwill, going-concern value, franchise value, intellectual property, management contracts, license and permit rights, customer relationships, and all other intangible assets reflected on the consolidated financial statements of the Consolidated Group or otherwise having economic value to the Consolidated Group.

"Fair Saleable Value" means the amount that could be obtained if the aggregate assets of the Consolidated Group were sold in an orderly disposition over a reasonable period of time under present conditions in a current market, assuming a sale process conducted by a willing seller, without duress or compulsion, to a willing buyer, and taking into account the condition and location of such assets, market conditions prevailing at the time of the hypothetical sale, and all other factors that would reasonably be considered in determining the fair saleable value of such assets.

"Stated Liabilities" means the recorded liabilities (including contingent liabilities that would be recorded in accordance with GAAP under Accounting Standards Codification Topic 450, Contingencies, or any successor standard) of the Consolidated Group as of the date hereof, after giving pro forma effect to the Transactions, determined in accordance with GAAP applied on a consistent basis.

"Transactions" means, collectively:

(i) the incurrence of the $700,000,000 Term Loan B under the Credit Agreement, bearing interest at Adjusted Term SOFR plus a margin of 375 basis points per annum, with a SOFR floor of 0.50%, maturing on July 21, 2029;

(ii) the application of proceeds therefrom, including the repayment in full of the existing term loan facility with Greystone Federal Credit Corp. as administrative agent, including the outstanding principal balance of $621,875,000, together with approximately $2,916,667 of accrued and unpaid interest thereon through the Closing Date and a prepayment premium of $3,125,000 (representing 0.50% of the outstanding principal balance), for a total payoff amount of approximately $627,916,667, as set forth in the Payoff Letter dated July 19, 2022 from Greystone Federal Credit Corp.;

(iii) the payment of all fees, costs, and expenses incurred in connection with the foregoing and the Credit Agreement, including (A) the original issue discount of $7,000,000 (representing 1.00% of the aggregate principal amount of the Term Loan B), (B) the arrangement fee of $3,500,000 payable to Crescent Harbor Bank, National Association, in its capacity as sole lead arranger and sole bookrunner, (C) the advisory fee of $1,400,000 payable to Meridian Strauss Advisory LLC, in its capacity as financial advisor to the Borrower, and (D) estimated legal fees, filing fees, recording costs, title insurance premiums, and other closing costs of approximately $3,200,000 in the aggregate; and

(iv) the other transactions contemplated by the Credit Agreement and the related Loan Documents, including the execution and delivery of the Guarantee Agreement, the Pledge and Security Agreement, and the other collateral documents required thereunder.

SECTION 2: BASIS OF CERTIFICATE; FINANCIAL INFORMATION REVIEWED

In forming the opinions and certifications set forth in this Certificate, the undersigned has reviewed, considered, and is familiar with the following documents, financial statements, and other information:

(a) the Credit Agreement, dated as of July 21, 2022, among the Borrower, the Guarantors party thereto, Crescent Harbor Bank, National Association, as Administrative Agent and Collateral Agent, and the Lenders party thereto;

(b) the Guarantee Agreement, dated as of July 21, 2022, among the Borrower, the Guarantors party thereto, and Crescent Harbor Bank, National Association, as Administrative Agent, pursuant to which the Guarantors have unconditionally guaranteed the Obligations under the Credit Agreement;

(c) the Pledge and Security Agreement, dated as of July 21, 2022, among the Borrower, the Guarantors party thereto, and Crescent Harbor Bank, National Association, as Collateral Agent, pursuant to which the Borrower and the Guarantors have granted a first priority lien on substantially all of their assets as security for the Obligations under the Credit Agreement;

(d) the pro forma consolidated balance sheet of the Borrower and its Subsidiaries as of the Closing Date, after giving pro forma effect to the Transactions, prepared by management of the Borrower and reflecting the application of proceeds and payment of fees and expenses as described in Section 1 hereof;

(e) the audited consolidated financial statements of the Borrower and its Subsidiaries for the fiscal year ended December 31, 2021 ("FY2021"), consisting of the consolidated balance sheet, consolidated statement of operations, consolidated statement of comprehensive income (loss), consolidated statement of stockholders' equity, and consolidated statement of cash flows, together with the notes thereto, audited by Clearmont & Wharton LLP (Ronald Ashby, Engagement Partner), which issued an unqualified audit opinion dated March 1, 2022;

(f) internal financial projections and forecasts prepared by management of the Borrower (the "Management Projections"), covering the projected fiscal years ending December 31, 2022 through December 31, 2026, including projected revenue, EBITDA, Adjusted EBITDA, capital expenditure budgets, and cash flow projections, which Management Projections were prepared in good faith on the basis of assumptions believed by management to be reasonable at the time of preparation;

(g) the Funds Flow Memorandum dated July 20, 2022, prepared by Crescent Harbor Bank, National Association, setting forth the detailed application of proceeds on the Closing Date, including wire transfer instructions, amounts, and timing of all payments to be made in connection with the Transactions; and

(h) the Payoff Letter dated July 19, 2022 from Greystone Federal Credit Corp. (as administrative agent under the Existing Credit Agreement dated as of August 14, 2018), setting forth the total payoff amount of $627,916,667 required to discharge in full all obligations under the existing term loan facility and the related commitment to release all liens upon receipt of such payoff amount.

In addition to the foregoing documents, the undersigned has reviewed and relied upon the following key financial data and metrics in forming the certifications set forth herein:

(i) Revenue: For FY2021, the Consolidated Group reported total consolidated revenue of $1,420,000,000, derived primarily from room revenue, food and beverage revenue, meetings and events revenue, and hotel management fee income across the Consolidated Group's portfolio of owned and managed properties.

(ii) EBITDA and Adjusted EBITDA: For FY2021, the Consolidated Group generated EBITDA of $318,000,000 and Adjusted EBITDA (as defined in the Credit Agreement) of $341,000,000, reflecting add-backs for non-recurring charges, stock-based compensation expense, and certain other items permitted under the Credit Agreement.

(iii) Hotel Portfolio: The Consolidated Group owns, operates, or manages a portfolio of 74 full-service and select-service hotel properties located across 18 states in the United States, with an aggregate appraised value of approximately $3,100,000,000, as determined by independent third-party appraisals prepared by licensed MAI-designated appraisers within the twelve-month period preceding the Closing Date.

(iv) Mortgaged Properties: Of the 74 hotel properties referenced above, 42 properties are owned by Verimark Resort Properties LLC (a wholly owned indirect Subsidiary of the Borrower) and are subject to first-priority mortgage liens in favor of the Collateral Agent for the benefit of the Secured Parties under the Credit Agreement. These 42 mortgaged properties have an aggregate appraised value of approximately $2,180,000,000, representing approximately 70.3% of the total appraised portfolio value.

SECTION 3: PRO FORMA DEBT AND CAPITAL STRUCTURE AFTER GIVING EFFECT TO THE TRANSACTIONS

After giving pro forma effect to the Transactions on the Closing Date, the Consolidated Group's outstanding indebtedness and capital structure is as set forth below:

3.1 Funded Debt Obligations

The following table summarizes the funded debt obligations of the Consolidated Group after giving pro forma effect to the Transactions:

Material Terms of the New Term Loan B. The new $700,000,000 Senior Secured Term Loan B bears interest at a rate per annum equal to Adjusted Term SOFR (with a floor of 0.50%) plus a margin of 375 basis points. The CUSIP for the new Term Loan B is 92347LAB8. The maturity date is July 21, 2029. The Term Loan B amortizes at a rate of 1.00% per annum of the original aggregate principal amount thereof, payable in equal quarterly installments of $1,750,000 on the last business day of each fiscal quarter, commencing with the fiscal quarter ending September 30, 2022. The Term Loan B is secured by a first-priority lien on substantially all assets of the Borrower and the Guarantors, including the 42 mortgaged hotel properties owned by Verimark Resort Properties LLC.

Senior Secured Revolving Credit Facility. The $400,000,000 Senior Secured Revolving Credit Facility was established concurrently with the Credit Agreement and is available for working capital, capital expenditures, permitted acquisitions, and general corporate purposes. As of the Closing Date, no borrowings have been drawn under the Revolving Credit Facility, and no letters of credit have been issued thereunder. The full $400,000,000 commitment remains available to the Borrower, providing significant additional liquidity.

Senior Unsecured Notes due 2028. The $245,000,000 aggregate principal amount of 6.750% Senior Unsecured Notes due November 15, 2028, were issued by the Borrower under an indenture dated November 15, 2020, with Atlantic Standard Trust Company serving as indenture trustee. These notes are unsecured and are not subject to the Credit Agreement. The notes remain outstanding and are unaffected by the Transactions.

Repayment of Existing Term Loan B. The existing $625,000,000 term loan B facility (original principal amount) with Greystone Federal Credit Corp. as administrative agent, of which $621,875,000 in principal remained outstanding as of the Closing Date, has been repaid in full on the Closing Date utilizing proceeds of the new Term Loan B. The total payoff amount, inclusive of $2,916,667 of accrued and unpaid interest and a $3,125,000 prepayment premium, was $627,916,667. Upon receipt of such payoff amount, all liens securing the existing facility have been released in accordance with the Payoff Letter.

3.2 Pro Forma Capitalization Summary

After giving pro forma effect to the Transactions, the key capitalization metrics of the Consolidated Group are as follows:

Pro Forma Total Funded Debt: $945,000,000, consisting of the $700,000,000 new Term Loan B and the $245,000,000 Senior Unsecured Notes due 2028. The Senior Secured Revolving Credit Facility ($400,000,000 commitment) remains undrawn and is therefore excluded from funded debt.

Unrestricted Cash on the Balance Sheet: $87,000,000, representing cash and cash equivalents held by the Consolidated Group as of the Closing Date after giving pro forma effect to the Transactions, including the net incremental proceeds from the refinancing.

Pro Forma Net Debt: $858,000,000, calculated as total funded debt of $945,000,000 less unrestricted cash of $87,000,000.

Pro Forma Total Net Leverage Ratio: 2.52x, calculated as pro forma net debt of $858,000,000 divided by last twelve months ("LTM") Adjusted EBITDA of $341,000,000 (based on the FY2021 period). This leverage ratio is well within the maximum total net leverage ratio covenant of 4.50x set forth in Section 7.11 of the Credit Agreement, and provides substantial headroom of approximately 1.98x turns of Adjusted EBITDA.

3.3 Net Proceeds and Sources and Uses

The following table summarizes the sources and uses of funds in connection with the Transactions:

After accounting for pre-existing unrestricted cash balances of the Consolidated Group, the net proceeds available to the Borrower following the payoff of the existing facility and payment of all transaction-related fees and expenses are approximately $60,483,333, which will be retained on the Borrower's balance sheet and applied toward the Borrower's acquisition pipeline, capital expenditure program, and general corporate purposes.

SECTION 4: SOLVENCY CERTIFICATIONS

Based upon the undersigned's review of the documents, financial statements, information, and data described in Section 2 above, and after giving pro forma effect to the Transactions as described in Sections 1 and 3 above, the undersigned hereby certifies as follows:

4.1 Fair Value Exceeds Stated Liabilities (Balance Sheet Test)

As of the date hereof, and after giving pro forma effect to the Transactions, the Fair Value of the assets of the Consolidated Group, on a consolidated basis, exceeds the Stated Liabilities (including subordinated liabilities and contingent liabilities) of the Consolidated Group.

In reaching this certification, the undersigned has considered, among other things, the following: (a) the aggregate hotel portfolio of the Consolidated Group, consisting of 74 full-service and select-service hotel properties located across 18 states, has an aggregate appraised value of approximately $3,100,000,000, as determined by independent third-party MAI appraisals; (b) the Consolidated Group's total pro forma funded debt after giving effect to the Transactions is $945,000,000, resulting in a pro forma net leverage ratio of 2.52x LTM Adjusted EBITDA, which is well within the 4.50x maximum total net leverage ratio covenant under the Credit Agreement; (c) in addition to real property assets, the Consolidated Group has significant intangible asset value, including brand recognition, customer loyalty programs, management contracts, and going-concern value; and (d) the Consolidated Group has substantial unencumbered asset value in excess of its total liabilities.

The undersigned further notes that the Guarantors — Verimark Resort Properties LLC, VHG Management Services Inc., Verimark Convention Holdings LLC, Palmetto Beachfront Hotels LLC, and Cascadia Hospitality Corp. — and their respective assets and liabilities have been included in the foregoing consolidated analysis.

4.2 Fair Saleable Value Exceeds Stated Liabilities

As of the date hereof, and after giving pro forma effect to the Transactions, the Fair Saleable Value of the assets of the Consolidated Group, on a consolidated basis, is greater than the Stated Liabilities (including subordinated liabilities and contingent liabilities) of the Consolidated Group.

In reaching this certification, the undersigned has considered, among other things, that the 42 mortgaged hotel properties owned by Verimark Resort Properties LLC alone have an aggregate appraised value of approximately $2,180,000,000, which substantially exceeds the $700,000,000 principal amount of the Term Loan B secured thereby. The remaining 32 properties in the Consolidated Group's portfolio have an aggregate appraised value of approximately $920,000,000, providing additional cushion above the Consolidated Group's unsecured and other obligations. Furthermore, current conditions in the U.S. hospitality real estate market, including robust demand fundamentals and favorable transaction multiples for institutional-quality hotel assets, support the conclusion that the Consolidated Group's assets could be sold in an orderly disposition at values sufficient to satisfy all Stated Liabilities.

4.3 Ability to Pay Debts as They Become Due (Cash Flow / Equitable Solvency Test)

As of the date hereof, and after giving pro forma effect to the Transactions, the Consolidated Group is able to pay its debts and other liabilities (including subordinated liabilities, contingent liabilities, and unliquidated liabilities) as they become due in the ordinary course of business.

In reaching this certification, the undersigned has considered, among other things, the following:

(a) Earnings capacity: The Consolidated Group generated FY2021 Adjusted EBITDA of $341,000,000. The Management Projections, which were prepared in good faith on the basis of assumptions believed by management to be reasonable at the time of preparation, indicate that the Consolidated Group's Adjusted EBITDA is expected to remain stable or grow over the projected period, driven by anticipated increases in revenue per available room ("RevPAR"), continued recovery in group and business travel demand, and the contribution from recently completed renovations and repositionings across the portfolio.

(b) Modest mandatory debt service: The quarterly amortization obligation under the new Term Loan B is only $1,750,000 per quarter (or $7,000,000 per annum), representing 1.00% annual amortization of the original principal amount. This modest amortization schedule is easily serviceable from the Consolidated Group's operating cash flows.

(c) Interest expense: At an illustrative all-in interest rate of approximately 6.14% per annum (calculated as 1-month Term SOFR of 2.29%, plus the 10 basis point credit spread adjustment, plus the applicable margin of 375 basis points), the estimated annual cash interest expense on the new Term Loan B is approximately $43,000,000. This level of interest expense is well within the Consolidated Group's cash flow capacity, as evidenced by FY2021 Adjusted EBITDA of $341,000,000, which implies an interest coverage ratio of approximately 7.9x with respect to the Term Loan B alone.

(d) Available liquidity: As of the Closing Date, the Consolidated Group has unrestricted cash of approximately $87,000,000 on its balance sheet. In addition, the $400,000,000 Senior Secured Revolving Credit Facility remains entirely undrawn and fully available to the Borrower, providing total available liquidity of approximately $487,000,000. This liquidity provides a substantial cushion to meet the Consolidated Group's operating expenses, capital expenditure requirements, debt service obligations, and other liabilities as they become due.

(e) Debt maturity profile: The Term Loan B does not mature until July 21, 2029, and the Senior Unsecured Notes do not mature until November 15, 2028, providing the Consolidated Group with a favorable maturity profile that does not require any material principal repayments (other than the $7,000,000 annual amortization) for more than six years.

4.4 Capital Adequacy (Unreasonably Small Capital Test)

As of the date hereof, and after giving pro forma effect to the Transactions, the Consolidated Group does not have unreasonably small capital for the conduct of its business as currently conducted and as proposed to be conducted following the Closing Date.

In reaching this certification, the undersigned has considered, among other things, the following:

(a) The Borrower is a publicly traded company whose shares are listed on the New York Stock Exchange under the ticker symbol "VMRK," with a significant institutional shareholder base. For FY2021, the Consolidated Group generated total revenue of $1,420,000,000 and Adjusted EBITDA of $341,000,000, demonstrating the scale, revenue diversity, and cash flow generation capacity of the Consolidated Group's business operations.

(b) The Consolidated Group's pro forma stockholders' equity, after giving effect to the Transactions, substantially exceeds the minimum level of capital required to operate the Consolidated Group's business. The Consolidated Group's asset base, consisting of 74 hotel properties with an aggregate appraised value of approximately $3,100,000,000, provides a significant equity cushion above the Consolidated Group's total funded debt of $945,000,000.

(c) The refinancing effected by the Transactions results in estimated annual interest savings of approximately $3,500,000 compared to the existing term loan facility with Greystone Federal Credit Corp. These savings are derived from a reduction in the applicable margin of approximately 50 basis points applied to the $700,000,000 outstanding principal balance of the Term Loan B, which will enhance the Consolidated Group's cash flow and capital available for operations and investment going forward.

(d) The incremental net proceeds of approximately $60,483,333 available to the Borrower after the payoff of the existing facility and payment of all transaction-related fees and expenses provide additional liquidity for the Borrower's acquisition pipeline, capital expenditure program, and general corporate purposes, thereby augmenting the capital base of the Consolidated Group.

(e) The Consolidated Group's business plan and strategy, as reflected in the Management Projections, contemplate continued investment in property renovations, technology upgrades, and selective acquisitions, all of which are expected to be funded from operating cash flows, available liquidity under the Revolving Credit Facility, and the Consolidated Group's existing capital base, without the need for additional equity issuances or incurrence of indebtedness beyond that already contemplated.

4.5 No Intent to Hinder, Delay, or Defraud Creditors

The undersigned hereby certifies that, after giving pro forma effect to the Transactions:

(a) neither the Borrower nor any Guarantor has incurred, nor does the Borrower or any Guarantor intend to incur, debts or obligations beyond its ability to pay as such debts and obligations mature, whether at stated maturity, by acceleration, or otherwise; and

(b) the Transactions were not entered into, and the indebtedness under the Credit Agreement was not incurred, with the intent to hinder, delay, or defraud any existing or future creditors of the Borrower or any Guarantor. The Transactions were undertaken for the legitimate business purposes of (i) refinancing the existing term loan facility on more favorable terms (including a lower interest rate and extended maturity), (ii) generating incremental net proceeds for general corporate purposes, and (iii) securing long-term, stable financing for the Consolidated Group's ongoing operations and strategic initiatives.

SECTION 5: ASSUMPTIONS AND QUALIFICATIONS

The certifications set forth in Section 4 of this Certificate are based on the undersigned's good faith analysis and reasonable due diligence as of the date hereof. In connection with such certifications, the undersigned sets forth the following assumptions and qualifications:

(a) The undersigned is not expressing an opinion as to the value of any specific individual asset of the Consolidated Group, but rather as to the aggregate assets of the Consolidated Group taken as a whole on a consolidated basis. The asset values referenced herein, including the appraised values of the Consolidated Group's hotel properties, are based upon independent third-party appraisals and management's assessment of the Consolidated Group's assets as of the date hereof, and the undersigned has relied upon such appraisals and assessments in good faith.

(b) For purposes of this Certificate, the amount of contingent liabilities at any time has been determined at the amount that, in light of all the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability, irrespective of whether such contingent liabilities meet the criteria for accrual under Statement of Financial Accounting Standards or the Accounting Standards Codification promulgated by the Financial Accounting Standards Board, including ASC Topic 450, Contingencies (or any successor standard thereto).

(c) The Management Projections referenced in this Certificate were prepared by management of the Borrower in good faith and are based upon assumptions that management believes to be reasonable at the time of their preparation. However, no assurance can be given that such projections will be realized, and actual results may differ materially from such projections due to factors including, without limitation, changes in macroeconomic conditions, the competitive environment, travel demand patterns, operating costs, interest rates, and other factors beyond the control of the Consolidated Group.

(d) This Certificate is delivered solely for the benefit of the Administrative Agent and the Lenders under the Credit Agreement and is intended to satisfy the condition precedent set forth in Section 4.01(a)(ix) of the Credit Agreement. This Certificate may not be relied upon by any other person or entity without the prior written consent of the Administrative Agent. Without limiting the generality of the foregoing, this Certificate may not be relied upon by (i) any holder of the Senior Unsecured Notes due 2028, (ii) any trade creditor or counterparty of the Borrower or any Guarantor, or (iii) any other third party, in each case without the express prior written consent of the Administrative Agent.

(e) This Certificate does not constitute an opinion of counsel, an opinion of any investment bank or financial advisor, or an accountant's report, and no such opinion or report has been requested or obtained in connection with the preparation of this Certificate. This Certificate represents solely the certifications of the undersigned in her capacity as Chief Financial Officer of the Borrower, based upon her review, investigation, analysis, and understanding of the matters referenced herein.

SECTION 6: GOVERNING LAW

This Certificate shall be governed by, and construed in accordance with, the laws of the State of New York, without regard to principles of conflicts of laws that would result in the application of the laws of any other jurisdiction, except to the extent that the application of the laws of any other jurisdiction is mandated by applicable law and not permitted to be waived.

IN WITNESS WHEREOF, the undersigned has executed and delivered this Solvency Certificate as of the date first written above.

VERIMARK HOSPITALITY GROUP INC.

By: ________

Name: Renata Haines

Title: Chief Financial Officer

Date: July 21, 2022

ANNEX A

PRO FORMA CONSOLIDATED CAPITALIZATION TABLE

(as of July 21, 2022, after giving pro forma effect to the Transactions)

Note: This Annex A is provided for informational purposes only as a supporting schedule to the Solvency Certificate and forms an integral part thereof. All figures are as of the Closing Date after giving pro forma effect to the Transactions. Appraised values are based on independent third-party MAI appraisals conducted within the twelve months preceding the Closing Date. LTM Adjusted EBITDA is calculated in accordance with the definition of "Adjusted EBITDA" set forth in the Credit Agreement. The capitalization information set forth herein is subject to the assumptions and qualifications set forth in Section 5 of this Certificate.

Facility	Lender / Trustee	Principal Amount	Status
Senior Secured Term Loan B	Crescent Harbor Bank, N.A., as Administrative Agent	$700,000,000	Fully drawn on Closing Date
Senior Secured Revolving Credit Facility	Crescent Harbor Bank, N.A., as RCF Agent	$400,000,000 (commitment) / $0 drawn	Undrawn at Closing
Senior Unsecured Notes due 2028	Atlantic Standard Trust Company, as Indenture Trustee	$245,000,000	Outstanding
Existing Term Loan B (Greystone)	Greystone Federal Credit Corp., as Administrative Agent	$621,875,000 (former balance)	Fully repaid and discharged on Closing Date
Sources	Amount
New Term Loan B proceeds (gross)	$700,000,000
Total Sources	$700,000,000
Uses	Amount
Repayment of Greystone Term Loan B (principal)	$621,875,000
Accrued and unpaid interest on Greystone facility	$2,916,667
Prepayment premium on Greystone facility	$3,125,000
Original issue discount (1.00%)	$7,000,000
Arrangement fee — Crescent Harbor Bank, N.A.	$3,500,000
Advisory fee — Meridian Strauss Advisory LLC	$1,400,000
Legal and closing costs (estimated)	$3,200,000
Subtotal Uses	$643,016,667
Net proceeds to Borrower (balance sheet cash)	$56,983,333
Total Uses	$700,000,000
Capitalization Item	Amount
Senior Secured Term Loan B (Crescent Harbor Bank, N.A., as Administrative Agent) — CUSIP: 92347LAB8	$700,000,000
Senior Secured Revolving Credit Facility (Crescent Harbor Bank, N.A., as RCF Agent) — Commitment	$400,000,000
Less: Undrawn portion of Revolving Credit Facility	($400,000,000)
Revolving Credit Facility — Drawn Amount	$0
Senior Unsecured Notes due 2028 (Atlantic Standard Trust Company, as Indenture Trustee) — 6.750%	$245,000,000

Pro Forma Total Funded Debt	$945,000,000
Less: Unrestricted Cash and Cash Equivalents	($87,000,000)
Pro Forma Net Debt	$858,000,000

Credit Metrics

LTM Adjusted EBITDA (FY2021)	$341,000,000
Pro Forma Total Net Leverage Ratio (Net Debt / LTM Adjusted EBITDA)	2.52x
Maximum Permitted Total Net Leverage Ratio (Section 7.11 of Credit Agreement)	4.50x
Headroom (turns)	1.98x
Headroom (dollar equivalent, in terms of incremental debt capacity)	~$675,000,000

Liquidity Summary

Unrestricted Cash and Cash Equivalents	$87,000,000
Undrawn Revolving Credit Facility	$400,000,000
Total Available Liquidity	$487,000,000

Asset Coverage

Aggregate Appraised Value — Total Hotel Portfolio (74 properties)	$3,100,000,000
Aggregate Appraised Value — Mortgaged Properties (42 properties)	$2,180,000,000
Loan-to-Value Ratio (Term Loan B / Mortgaged Properties Appraised Value)	32.1%
Loan-to-Value Ratio (Total Funded Debt / Total Portfolio Appraised Value)	30.5%

SOLVENCY CERTIFICATE
Delivered pursuant to Section 4.01(a)(ix) of the Credit Agreement, dated as of July 21, 2022 (as amended, restated, supplemented, or otherwise modified from time to time, the "Credit Agreement"), among
VERIMARK HOSPITALITY GROUP INC., a Delaware corporation, as Borrower,
THE GUARANTORS PARTY THERETO,
CRESCENT HARBOR BANK, NATIONAL ASSOCIATION, as Administrative Agent and Collateral Agent,
and
THE LENDERS FROM TIME TO TIME PARTY THERETO
in respect of the
$700,000,000 SENIOR SECURED TERM LOAN B FACILITY
Dated: July 21, 2022
RECITALS AND INTRODUCTORY STATEMENT
The undersigned, Renata Haines, in her capacity as Chief Financial Officer of Verimark Hospitality Group Inc., a corporation duly organized and existing under the laws of the State of Delaware (the "Borrower"), and not in her individual capacity, hereby delivers this Solvency Certificate (this "Certificate") in connection with the closing of the Credit Agreement on July 21, 2022 (the "Closing Date").
This Certificate is delivered to Crescent Harbor Bank, National Association, in its capacity as Administrative Agent (the "Administrative Agent"), pursuant to Section 4.01(a)(ix) of the Credit Agreement, which requires that the Borrower deliver a solvency certificate of the Chief Financial Officer of the Borrower as a condition precedent to the initial borrowing under the Credit Agreement on the Closing Date.
The undersigned certifies that she is the duly appointed Chief Financial Officer of the Borrower and is authorized to execute and deliver this Certificate on behalf of the Borrower. The undersigned is familiar with the financial condition, properties, businesses, assets, and liabilities of the Borrower and its Subsidiaries, taken together on a consolidated basis, and has made such investigations and inquiries as the undersigned has deemed necessary and appropriate in connection with the preparation and delivery of this Certificate, including a review of the documents, financial statements, projections, and other materials described in Section 2 below.
All capitalized terms used but not otherwise defined herein shall have the meanings assigned to such terms in the Credit Agreement.
SECTION 1: DEFINITIONS
For purposes of this Certificate, the following terms shall have the meanings set forth below:
"Borrower" means Verimark Hospitality Group Inc., a corporation duly organized and existing under the laws of the State of Delaware, with its principal executive offices located at 8200 West Palmetto Park Road, Suite 1500, Boca Raton, Florida 33433, whose shares of common stock are listed on the New York Stock Exchange under the ticker symbol "VMRK" and whose federal employer identification number is 82-3741956.
"Consolidated Group" means the Borrower and its Subsidiaries, taken as a whole on a consolidated basis in accordance with GAAP applied on a consistent basis, including without limitation the following direct and indirect Subsidiaries of the Borrower: Verimark Resort Properties LLC, VHG Management Services Inc., Verimark Convention Holdings LLC, Palmetto Beachfront Hotels LLC, Cascadia Hospitality Corp., and each other Subsidiary of the Borrower that is required to be consolidated with the Borrower under GAAP.
"Fair Value" means the amount at which the aggregate assets, both tangible and intangible, of the Consolidated Group would change hands between a willing buyer and a willing seller, within a commercially reasonable period of time, each having reasonable knowledge of the relevant facts, with neither being under any compulsion to act. For purposes of this definition, "assets" includes all property and rights of every kind, nature, and description (whether real, personal, or mixed, tangible or intangible, and wherever situated), including, without limitation, goodwill, going-concern value, franchise value, intellectual property, management contracts, license and permit rights, customer relationships, and all other intangible assets reflected on the consolidated financial statements of the Consolidated Group or otherwise having economic value to the Consolidated Group.
"Fair Saleable Value" means the amount that could be obtained if the aggregate assets of the Consolidated Group were sold in an orderly disposition over a reasonable period of time under present conditions in a current market, assuming a sale process conducted by a willing seller, without duress or compulsion, to a willing buyer, and taking into account the condition and location of such assets, market conditions prevailing at the time of the hypothetical sale, and all other factors that would reasonably be considered in determining the fair saleable value of such assets.
"Stated Liabilities" means the recorded liabilities (including contingent liabilities that would be recorded in accordance with GAAP under Accounting Standards Codification Topic 450, Contingencies, or any successor standard) of the Consolidated Group as of the date hereof, after giving pro forma effect to the Transactions, determined in accordance with GAAP applied on a consistent basis.
"Transactions" means, collectively:
(i) the incurrence of the $700,000,000 Term Loan B under the Credit Agreement, bearing interest at Adjusted Term SOFR plus a margin of 375 basis points per annum, with a SOFR floor of 0.50%, maturing on July 21, 2029;
(ii) the application of proceeds therefrom, including the repayment in full of the existing term loan facility with Greystone Federal Credit Corp. as administrative agent, including the outstanding principal balance of $621,875,000, together with approximately $2,916,667 of accrued and unpaid interest thereon through the Closing Date and a prepayment premium of $3,125,000 (representing 0.50% of the outstanding principal balance), for a total payoff amount of approximately $627,916,667, as set forth in the Payoff Letter dated July 19, 2022 from Greystone Federal Credit Corp.;
(iii) the payment of all fees, costs, and expenses incurred in connection with the foregoing and the Credit Agreement, including (A) the original issue discount of $7,000,000 (representing 1.00% of the aggregate principal amount of the Term Loan B), (B) the arrangement fee of $3,500,000 payable to Crescent Harbor Bank, National Association, in its capacity as sole lead arranger and sole bookrunner, (C) the advisory fee of $1,400,000 payable to Meridian Strauss Advisory LLC, in its capacity as financial advisor to the Borrower, and (D) estimated legal fees, filing fees, recording costs, title insurance premiums, and other closing costs of approximately $3,200,000 in the aggregate; and
(iv) the other transactions contemplated by the Credit Agreement and the related Loan Documents, including the execution and delivery of the Guarantee Agreement, the Pledge and Security Agreement, and the other collateral documents required thereunder.
SECTION 2: BASIS OF CERTIFICATE; FINANCIAL INFORMATION REVIEWED
In forming the opinions and certifications set forth in this Certificate, the undersigned has reviewed, considered, and is familiar with the following documents, financial statements, and other information:
(a) the Credit Agreement, dated as of July 21, 2022, among the Borrower, the Guarantors party thereto, Crescent Harbor Bank, National Association, as Administrative Agent and Collateral Agent, and the Lenders party thereto;
(b) the Guarantee Agreement, dated as of July 21, 2022, among the Borrower, the Guarantors party thereto, and Crescent Harbor Bank, National Association, as Administrative Agent, pursuant to which the Guarantors have unconditionally guaranteed the Obligations under the Credit Agreement;
(c) the Pledge and Security Agreement, dated as of July 21, 2022, among the Borrower, the Guarantors party thereto, and Crescent Harbor Bank, National Association, as Collateral Agent, pursuant to which the Borrower and the Guarantors have granted a first priority lien on substantially all of their assets as security for the Obligations under the Credit Agreement;
(d) the pro forma consolidated balance sheet of the Borrower and its Subsidiaries as of the Closing Date, after giving pro forma effect to the Transactions, prepared by management of the Borrower and reflecting the application of proceeds and payment of fees and expenses as described in Section 1 hereof;
(e) the audited consolidated financial statements of the Borrower and its Subsidiaries for the fiscal year ended December 31, 2021 ("FY2021"), consisting of the consolidated balance sheet, consolidated statement of operations, consolidated statement of comprehensive income (loss), consolidated statement of stockholders' equity, and consolidated statement of cash flows, together with the notes thereto, audited by Clearmont & Wharton LLP (Ronald Ashby, Engagement Partner), which issued an unqualified audit opinion dated March 1, 2022;
(f) internal financial projections and forecasts prepared by management of the Borrower (the "Management Projections"), covering the projected fiscal years ending December 31, 2022 through December 31, 2026, including projected revenue, EBITDA, Adjusted EBITDA, capital expenditure budgets, and cash flow projections, which Management Projections were prepared in good faith on the basis of assumptions believed by management to be reasonable at the time of preparation;
(g) the Funds Flow Memorandum dated July 20, 2022, prepared by Crescent Harbor Bank, National Association, setting forth the detailed application of proceeds on the Closing Date, including wire transfer instructions, amounts, and timing of all payments to be made in connection with the Transactions; and
(h) the Payoff Letter dated July 19, 2022 from Greystone Federal Credit Corp. (as administrative agent under the Existing Credit Agreement dated as of August 14, 2018), setting forth the total payoff amount of $627,916,667 required to discharge in full all obligations under the existing term loan facility and the related commitment to release all liens upon receipt of such payoff amount.
In addition to the foregoing documents, the undersigned has reviewed and relied upon the following key financial data and metrics in forming the certifications set forth herein:
(i) Revenue: For FY2021, the Consolidated Group reported total consolidated revenue of $1,420,000,000, derived primarily from room revenue, food and beverage revenue, meetings and events revenue, and hotel management fee income across the Consolidated Group's portfolio of owned and managed properties.
(ii) EBITDA and Adjusted EBITDA: For FY2021, the Consolidated Group generated EBITDA of $318,000,000 and Adjusted EBITDA (as defined in the Credit Agreement) of $341,000,000, reflecting add-backs for non-recurring charges, stock-based compensation expense, and certain other items permitted under the Credit Agreement.
(iii) Hotel Portfolio: The Consolidated Group owns, operates, or manages a portfolio of 74 full-service and select-service hotel properties located across 18 states in the United States, with an aggregate appraised value of approximately $3,100,000,000, as determined by independent third-party appraisals prepared by licensed MAI-designated appraisers within the twelve-month period preceding the Closing Date.
(iv) Mortgaged Properties: Of the 74 hotel properties referenced above, 42 properties are owned by Verimark Resort Properties LLC (a wholly owned indirect Subsidiary of the Borrower) and are subject to first-priority mortgage liens in favor of the Collateral Agent for the benefit of the Secured Parties under the Credit Agreement. These 42 mortgaged properties have an aggregate appraised value of approximately $2,180,000,000, representing approximately 70.3% of the total appraised portfolio value.
SECTION 3: PRO FORMA DEBT AND CAPITAL STRUCTURE AFTER GIVING EFFECT TO THE TRANSACTIONS
After giving pro forma effect to the Transactions on the Closing Date, the Consolidated Group's outstanding indebtedness and capital structure is as set forth below:
3.1 Funded Debt Obligations
The following table summarizes the funded debt obligations of the Consolidated Group after giving pro forma effect to the Transactions:
Material Terms of the New Term Loan B. The new $700,000,000 Senior Secured Term Loan B bears interest at a rate per annum equal to Adjusted Term SOFR (with a floor of 0.50%) plus a margin of 375 basis points. The CUSIP for the new Term Loan B is 92347LAB8. The maturity date is July 21, 2029. The Term Loan B amortizes at a rate of 1.00% per annum of the original aggregate principal amount thereof, payable in equal quarterly installments of $1,750,000 on the last business day of each fiscal quarter, commencing with the fiscal quarter ending September 30, 2022. The Term Loan B is secured by a first-priority lien on substantially all assets of the Borrower and the Guarantors, including the 42 mortgaged hotel properties owned by Verimark Resort Properties LLC.
Senior Secured Revolving Credit Facility. The $400,000,000 Senior Secured Revolving Credit Facility was established concurrently with the Credit Agreement and is available for working capital, capital expenditures, permitted acquisitions, and general corporate purposes. As of the Closing Date, no borrowings have been drawn under the Revolving Credit Facility, and no letters of credit have been issued thereunder. The full $400,000,000 commitment remains available to the Borrower, providing significant additional liquidity.
Senior Unsecured Notes due 2028. The $245,000,000 aggregate principal amount of 6.750% Senior Unsecured Notes due November 15, 2028, were issued by the Borrower under an indenture dated November 15, 2020, with Atlantic Standard Trust Company serving as indenture trustee. These notes are unsecured and are not subject to the Credit Agreement. The notes remain outstanding and are unaffected by the Transactions.
Repayment of Existing Term Loan B. The existing $625,000,000 term loan B facility (original principal amount) with Greystone Federal Credit Corp. as administrative agent, of which $621,875,000 in principal remained outstanding as of the Closing Date, has been repaid in full on the Closing Date utilizing proceeds of the new Term Loan B. The total payoff amount, inclusive of $2,916,667 of accrued and unpaid interest and a $3,125,000 prepayment premium, was $627,916,667. Upon receipt of such payoff amount, all liens securing the existing facility have been released in accordance with the Payoff Letter.
3.2 Pro Forma Capitalization Summary
After giving pro forma effect to the Transactions, the key capitalization metrics of the Consolidated Group are as follows:
Pro Forma Total Funded Debt: $945,000,000, consisting of the $700,000,000 new Term Loan B and the $245,000,000 Senior Unsecured Notes due 2028. The Senior Secured Revolving Credit Facility ($400,000,000 commitment) remains undrawn and is therefore excluded from funded debt.
Unrestricted Cash on the Balance Sheet: $87,000,000, representing cash and cash equivalents held by the Consolidated Group as of the Closing Date after giving pro forma effect to the Transactions, including the net incremental proceeds from the refinancing.
Pro Forma Net Debt: $858,000,000, calculated as total funded debt of $945,000,000 less unrestricted cash of $87,000,000.
Pro Forma Total Net Leverage Ratio: 2.52x, calculated as pro forma net debt of $858,000,000 divided by last twelve months ("LTM") Adjusted EBITDA of $341,000,000 (based on the FY2021 period). This leverage ratio is well within the maximum total net leverage ratio covenant of 4.50x set forth in Section 7.11 of the Credit Agreement, and provides substantial headroom of approximately 1.98x turns of Adjusted EBITDA.
3.3 Net Proceeds and Sources and Uses
The following table summarizes the sources and uses of funds in connection with the Transactions:
After accounting for pre-existing unrestricted cash balances of the Consolidated Group, the net proceeds available to the Borrower following the payoff of the existing facility and payment of all transaction-related fees and expenses are approximately $60,483,333, which will be retained on the Borrower's balance sheet and applied toward the Borrower's acquisition pipeline, capital expenditure program, and general corporate purposes.
SECTION 4: SOLVENCY CERTIFICATIONS
Based upon the undersigned's review of the documents, financial statements, information, and data described in Section 2 above, and after giving pro forma effect to the Transactions as described in Sections 1 and 3 above, the undersigned hereby certifies as follows:
4.1 Fair Value Exceeds Stated Liabilities (Balance Sheet Test)
As of the date hereof, and after giving pro forma effect to the Transactions, the Fair Value of the assets of the Consolidated Group, on a consolidated basis, exceeds the Stated Liabilities (including subordinated liabilities and contingent liabilities) of the Consolidated Group.
In reaching this certification, the undersigned has considered, among other things, the following: (a) the aggregate hotel portfolio of the Consolidated Group, consisting of 74 full-service and select-service hotel properties located across 18 states, has an aggregate appraised value of approximately $3,100,000,000, as determined by independent third-party MAI appraisals; (b) the Consolidated Group's total pro forma funded debt after giving effect to the Transactions is $945,000,000, resulting in a pro forma net leverage ratio of 2.52x LTM Adjusted EBITDA, which is well within the 4.50x maximum total net leverage ratio covenant under the Credit Agreement; (c) in addition to real property assets, the Consolidated Group has significant intangible asset value, including brand recognition, customer loyalty programs, management contracts, and going-concern value; and (d) the Consolidated Group has substantial unencumbered asset value in excess of its total liabilities.
The undersigned further notes that the Guarantors — Verimark Resort Properties LLC, VHG Management Services Inc., Verimark Convention Holdings LLC, Palmetto Beachfront Hotels LLC, and Cascadia Hospitality Corp. — and their respective assets and liabilities have been included in the foregoing consolidated analysis.
4.2 Fair Saleable Value Exceeds Stated Liabilities
As of the date hereof, and after giving pro forma effect to the Transactions, the Fair Saleable Value of the assets of the Consolidated Group, on a consolidated basis, is greater than the Stated Liabilities (including subordinated liabilities and contingent liabilities) of the Consolidated Group.
In reaching this certification, the undersigned has considered, among other things, that the 42 mortgaged hotel properties owned by Verimark Resort Properties LLC alone have an aggregate appraised value of approximately $2,180,000,000, which substantially exceeds the $700,000,000 principal amount of the Term Loan B secured thereby. The remaining 32 properties in the Consolidated Group's portfolio have an aggregate appraised value of approximately $920,000,000, providing additional cushion above the Consolidated Group's unsecured and other obligations. Furthermore, current conditions in the U.S. hospitality real estate market, including robust demand fundamentals and favorable transaction multiples for institutional-quality hotel assets, support the conclusion that the Consolidated Group's assets could be sold in an orderly disposition at values sufficient to satisfy all Stated Liabilities.
4.3 Ability to Pay Debts as They Become Due (Cash Flow / Equitable Solvency Test)
As of the date hereof, and after giving pro forma effect to the Transactions, the Consolidated Group is able to pay its debts and other liabilities (including subordinated liabilities, contingent liabilities, and unliquidated liabilities) as they become due in the ordinary course of business.
In reaching this certification, the undersigned has considered, among other things, the following:
(a) Earnings capacity: The Consolidated Group generated FY2021 Adjusted EBITDA of $341,000,000. The Management Projections, which were prepared in good faith on the basis of assumptions believed by management to be reasonable at the time of preparation, indicate that the Consolidated Group's Adjusted EBITDA is expected to remain stable or grow over the projected period, driven by anticipated increases in revenue per available room ("RevPAR"), continued recovery in group and business travel demand, and the contribution from recently completed renovations and repositionings across the portfolio.
(b) Modest mandatory debt service: The quarterly amortization obligation under the new Term Loan B is only $1,750,000 per quarter (or $7,000,000 per annum), representing 1.00% annual amortization of the original principal amount. This modest amortization schedule is easily serviceable from the Consolidated Group's operating cash flows.
(c) Interest expense: At an illustrative all-in interest rate of approximately 6.14% per annum (calculated as 1-month Term SOFR of 2.29%, plus the 10 basis point credit spread adjustment, plus the applicable margin of 375 basis points), the estimated annual cash interest expense on the new Term Loan B is approximately $43,000,000. This level of interest expense is well within the Consolidated Group's cash flow capacity, as evidenced by FY2021 Adjusted EBITDA of $341,000,000, which implies an interest coverage ratio of approximately 7.9x with respect to the Term Loan B alone.
(d) Available liquidity: As of the Closing Date, the Consolidated Group has unrestricted cash of approximately $87,000,000 on its balance sheet. In addition, the $400,000,000 Senior Secured Revolving Credit Facility remains entirely undrawn and fully available to the Borrower, providing total available liquidity of approximately $487,000,000. This liquidity provides a substantial cushion to meet the Consolidated Group's operating expenses, capital expenditure requirements, debt service obligations, and other liabilities as they become due.
(e) Debt maturity profile: The Term Loan B does not mature until July 21, 2029, and the Senior Unsecured Notes do not mature until November 15, 2028, providing the Consolidated Group with a favorable maturity profile that does not require any material principal repayments (other than the $7,000,000 annual amortization) for more than six years.
4.4 Capital Adequacy (Unreasonably Small Capital Test)
As of the date hereof, and after giving pro forma effect to the Transactions, the Consolidated Group does not have unreasonably small capital for the conduct of its business as currently conducted and as proposed to be conducted following the Closing Date.
In reaching this certification, the undersigned has considered, among other things, the following:
(a) The Borrower is a publicly traded company whose shares are listed on the New York Stock Exchange under the ticker symbol "VMRK," with a significant institutional shareholder base. For FY2021, the Consolidated Group generated total revenue of $1,420,000,000 and Adjusted EBITDA of $341,000,000, demonstrating the scale, revenue diversity, and cash flow generation capacity of the Consolidated Group's business operations.
(b) The Consolidated Group's pro forma stockholders' equity, after giving effect to the Transactions, substantially exceeds the minimum level of capital required to operate the Consolidated Group's business. The Consolidated Group's asset base, consisting of 74 hotel properties with an aggregate appraised value of approximately $3,100,000,000, provides a significant equity cushion above the Consolidated Group's total funded debt of $945,000,000.
(c) The refinancing effected by the Transactions results in estimated annual interest savings of approximately $3,500,000 compared to the existing term loan facility with Greystone Federal Credit Corp. These savings are derived from a reduction in the applicable margin of approximately 50 basis points applied to the $700,000,000 outstanding principal balance of the Term Loan B, which will enhance the Consolidated Group's cash flow and capital available for operations and investment going forward.
(d) The incremental net proceeds of approximately $60,483,333 available to the Borrower after the payoff of the existing facility and payment of all transaction-related fees and expenses provide additional liquidity for the Borrower's acquisition pipeline, capital expenditure program, and general corporate purposes, thereby augmenting the capital base of the Consolidated Group.
(e) The Consolidated Group's business plan and strategy, as reflected in the Management Projections, contemplate continued investment in property renovations, technology upgrades, and selective acquisitions, all of which are expected to be funded from operating cash flows, available liquidity under the Revolving Credit Facility, and the Consolidated Group's existing capital base, without the need for additional equity issuances or incurrence of indebtedness beyond that already contemplated.
4.5 No Intent to Hinder, Delay, or Defraud Creditors
The undersigned hereby certifies that, after giving pro forma effect to the Transactions:
(a) neither the Borrower nor any Guarantor has incurred, nor does the Borrower or any Guarantor intend to incur, debts or obligations beyond its ability to pay as such debts and obligations mature, whether at stated maturity, by acceleration, or otherwise; and
(b) the Transactions were not entered into, and the indebtedness under the Credit Agreement was not incurred, with the intent to hinder, delay, or defraud any existing or future creditors of the Borrower or any Guarantor. The Transactions were undertaken for the legitimate business purposes of (i) refinancing the existing term loan facility on more favorable terms (including a lower interest rate and extended maturity), (ii) generating incremental net proceeds for general corporate purposes, and (iii) securing long-term, stable financing for the Consolidated Group's ongoing operations and strategic initiatives.
SECTION 5: ASSUMPTIONS AND QUALIFICATIONS
The certifications set forth in Section 4 of this Certificate are based on the undersigned's good faith analysis and reasonable due diligence as of the date hereof. In connection with such certifications, the undersigned sets forth the following assumptions and qualifications:
(a) The undersigned is not expressing an opinion as to the value of any specific individual asset of the Consolidated Group, but rather as to the aggregate assets of the Consolidated Group taken as a whole on a consolidated basis. The asset values referenced herein, including the appraised values of the Consolidated Group's hotel properties, are based upon independent third-party appraisals and management's assessment of the Consolidated Group's assets as of the date hereof, and the undersigned has relied upon such appraisals and assessments in good faith.
(b) For purposes of this Certificate, the amount of contingent liabilities at any time has been determined at the amount that, in light of all the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability, irrespective of whether such contingent liabilities meet the criteria for accrual under Statement of Financial Accounting Standards or the Accounting Standards Codification promulgated by the Financial Accounting Standards Board, including ASC Topic 450, Contingencies (or any successor standard thereto).
(c) The Management Projections referenced in this Certificate were prepared by management of the Borrower in good faith and are based upon assumptions that management believes to be reasonable at the time of their preparation. However, no assurance can be given that such projections will be realized, and actual results may differ materially from such projections due to factors including, without limitation, changes in macroeconomic conditions, the competitive environment, travel demand patterns, operating costs, interest rates, and other factors beyond the control of the Consolidated Group.
(d) This Certificate is delivered solely for the benefit of the Administrative Agent and the Lenders under the Credit Agreement and is intended to satisfy the condition precedent set forth in Section 4.01(a)(ix) of the Credit Agreement. This Certificate may not be relied upon by any other person or entity without the prior written consent of the Administrative Agent. Without limiting the generality of the foregoing, this Certificate may not be relied upon by (i) any holder of the Senior Unsecured Notes due 2028, (ii) any trade creditor or counterparty of the Borrower or any Guarantor, or (iii) any other third party, in each case without the express prior written consent of the Administrative Agent.
(e) This Certificate does not constitute an opinion of counsel, an opinion of any investment bank or financial advisor, or an accountant's report, and no such opinion or report has been requested or obtained in connection with the preparation of this Certificate. This Certificate represents solely the certifications of the undersigned in her capacity as Chief Financial Officer of the Borrower, based upon her review, investigation, analysis, and understanding of the matters referenced herein.
SECTION 6: GOVERNING LAW
This Certificate shall be governed by, and construed in accordance with, the laws of the State of New York, without regard to principles of conflicts of laws that would result in the application of the laws of any other jurisdiction, except to the extent that the application of the laws of any other jurisdiction is mandated by applicable law and not permitted to be waived.
IN WITNESS WHEREOF, the undersigned has executed and delivered this Solvency Certificate as of the date first written above.
VERIMARK HOSPITALITY GROUP INC.
By: ________
Name: Renata Haines
Title: Chief Financial Officer
Date: July 21, 2022
ANNEX A
PRO FORMA CONSOLIDATED CAPITALIZATION TABLE
(as of July 21, 2022, after giving pro forma effect to the Transactions)
Note: This Annex A is provided for informational purposes only as a supporting schedule to the Solvency Certificate and forms an integral part thereof. All figures are as of the Closing Date after giving pro forma effect to the Transactions. Appraised values are based on independent third-party MAI appraisals conducted within the twelve months preceding the Closing Date. LTM Adjusted EBITDA is calculated in accordance with the definition of "Adjusted EBITDA" set forth in the Credit Agreement. The capitalization information set forth herein is subject to the assumptions and qualifications set forth in Section 5 of this Certificate.
Facility | Lender / Trustee | Principal Amount | Status
Senior Secured Term Loan B | Crescent Harbor Bank, N.A., as Administrative Agent | $700,000,000 | Fully drawn on Closing Date
Senior Secured Revolving Credit Facility | Crescent Harbor Bank, N.A., as RCF Agent | $400,000,000 (commitment) / $0 drawn | Undrawn at Closing
Senior Unsecured Notes due 2028 | Atlantic Standard Trust Company, as Indenture Trustee | $245,000,000 | Outstanding
Existing Term Loan B (Greystone) | Greystone Federal Credit Corp., as Administrative Agent | $621,875,000 (former balance) | Fully repaid and discharged on Closing Date
Sources | Amount
New Term Loan B proceeds (gross) | $700,000,000
Total Sources | $700,000,000
Uses | Amount
Repayment of Greystone Term Loan B (principal) | $621,875,000
Accrued and unpaid interest on Greystone facility | $2,916,667
Prepayment premium on Greystone facility | $3,125,000
Original issue discount (1.00%) | $7,000,000
Arrangement fee — Crescent Harbor Bank, N.A. | $3,500,000
Advisory fee — Meridian Strauss Advisory LLC | $1,400,000
Legal and closing costs (estimated) | $3,200,000
Subtotal Uses | $643,016,667
Net proceeds to Borrower (balance sheet cash) | $56,983,333
Total Uses | $700,000,000
Capitalization Item | Amount
Senior Secured Term Loan B (Crescent Harbor Bank, N.A., as Administrative Agent) — CUSIP: 92347LAB8 | $700,000,000
Senior Secured Revolving Credit Facility (Crescent Harbor Bank, N.A., as RCF Agent) — Commitment | $400,000,000
Less: Undrawn portion of Revolving Credit Facility | ($400,000,000)
Revolving Credit Facility — Drawn Amount | $0
Senior Unsecured Notes due 2028 (Atlantic Standard Trust Company, as Indenture Trustee) — 6.750% | $245,000,000
Pro Forma Total Funded Debt | $945,000,000
Less: Unrestricted Cash and Cash Equivalents | ($87,000,000)
Pro Forma Net Debt | $858,000,000
Credit Metrics
LTM Adjusted EBITDA (FY2021) | $341,000,000
Pro Forma Total Net Leverage Ratio (Net Debt / LTM Adjusted EBITDA) | 2.52x
Maximum Permitted Total Net Leverage Ratio (Section 7.11 of Credit Agreement) | 4.50x
Headroom (turns) | 1.98x
Headroom (dollar equivalent, in terms of incremental debt capacity) | ~$675,000,000
Liquidity Summary
Unrestricted Cash and Cash Equivalents | $87,000,000
Undrawn Revolving Credit Facility | $400,000,000
Total Available Liquidity | $487,000,000
Asset Coverage
Aggregate Appraised Value — Total Hotel Portfolio (74 properties) | $3,100,000,000
Aggregate Appraised Value — Mortgaged Properties (42 properties) | $2,180,000,000
Loan-to-Value Ratio (Term Loan B / Mortgaged Properties Appraised Value) | 32.1%
Loan-to-Value Ratio (Total Funded Debt / Total Portfolio Appraised Value) | 30.5%