CALDERWOOD & HARKNESS LLP Attorneys at Law

CALDERWOOD & HARKNESS LLP Attorneys at Law
One Liberty Plaza, 52nd Floor New York, New York 10006
Telephone: (212) 506-7000 Facsimile: (212) 506-7001 www.calderwoodharkness.com
August 8, 2022
VIA ELECTRONIC MAIL AND FIRST CLASS MAIL
Priya Narayanan, Esq. General Counsel & Corporate Secretary Verimark Hospitality Group Inc. 8200 West Palmetto Park Road, Suite 1500 Boca Raton, Florida 33433
Re: Engagement Wrap-Up and Final Invoice Summary — $700,000,000 Senior Secured Term Loan B Refinancing Engagement No.: 1016-00009 Reference: Verimark Hospitality Group Inc. — Term Loan B Refinancing with Crescent Harbor Bank, N.A.
Dear Priya:
1. Introduction and Purpose
We are pleased to write to confirm the successful completion of Calderwood & Harkness LLP's representation of Verimark Hospitality Group Inc. ("VHG" or the "Company") as borrower's counsel in connection with the Company's $700,000,000 Senior Secured Term Loan B Refinancing (the "Transaction"). This letter serves as our formal engagement wrap-up communication and accompanies the final invoice for the engagement, as described in further detail below.
As you are aware, the Credit Agreement (the "Credit Agreement") was executed on July 21, 2022, among VHG (as Borrower), the Guarantors party thereto, Crescent Harbor Bank, N.A. (as Administrative Agent and Collateral Agent), and the Lenders from time to time party thereto (collectively, the "Lenders"). Funding occurred simultaneously with execution, and the refinancing of VHG's prior term loan facility was consummated on the same date.
We are further pleased to confirm that all post-closing deliverables were completed as of August 5, 2022, in full compliance with the terms and deadlines set forth in the Post-Closing Letter Agreement dated July 21, 2022 (the "Post-Closing Letter"), which was entered into in connection with the closing of the Credit Agreement. As a result of the foregoing, and with all work associated with this engagement having been concluded, the matter is now being designated as "closed/completed" in the firm's records under Engagement No. 1016-00009.
The balance of this letter provides a summary of the Transaction, a description of the scope of legal services rendered, identification of key dates and milestones, a summary of your final invoice, and certain reminders regarding future compliance obligations and notable dates under the Credit Agreement.
2. Summary of the Transaction
By way of brief recitation, the Transaction involved VHG's entry into a $700,000,000 Senior Secured Term Loan B credit facility (the "New TLB") with Crescent Harbor Bank, N.A. serving in the capacities of Administrative Agent, Collateral Agent, Lead Arranger, and Sole Bookrunner. The principal economic and structural terms of the New TLB are summarized as follows:
Facility Amount: $700,000,000
Pricing: Adjusted Term SOFR plus 375 basis points per annum, subject to a SOFR floor of 0.50%
Maturity Date: July 21, 2029 (seven-year tenor from the Closing Date)
Amortization: 1.00% per annum of the original principal amount, payable in equal quarterly installments of $1,750,000 each, with the remaining outstanding balance due and payable on the Maturity Date
CUSIP: 92347LAB8
The New TLB replaced VHG's existing $625,000,000 Senior Secured Term Loan B facility (the "Existing TLB"), which was originally closed on February 14, 2020, with Greystone Federal Credit Corp. serving as administrative agent (CUSIP 92347LAA0). The refinancing achieved a meaningful reduction in VHG's cost of borrowing. Specifically, the applicable margin was reduced by 50 basis points—from LIBOR plus 425 basis points under the Existing TLB to Adjusted Term SOFR plus 375 basis points under the New TLB—representing estimated annual interest savings of approximately $3,500,000. In addition to the favorable repricing, the Transaction also effectuated a transition from LIBOR to Adjusted Term SOFR as the applicable reference rate, consistent with market developments and the ARRC's recommended best practices.
Beyond the interest cost savings, the refinancing generated approximately $75,000,000 in incremental proceeds, representing the difference between the $700,000,000 New TLB and the $625,000,000 Existing TLB. These incremental proceeds are available to VHG for permitted acquisitions and general corporate purposes, as defined in and subject to the terms of the Credit Agreement.
The total payoff to Greystone Federal Credit Corp. in respect of the Existing TLB was approximately $627,916,667, comprising the following components:
•  Outstanding principal: $621,875,000
•  Accrued and unpaid interest through the payoff date: approximately $2,916,667
•  Prepayment premium: $3,125,000
After accounting for the payoff of the Existing TLB, the original issue discount ("OID") of $7,000,000 (1.00% of the aggregate principal amount), the advisory fee of $1,400,000 payable to Meridian Strauss Advisory LLC, and estimated legal and closing costs of approximately $3,200,000, the net proceeds to VHG totaled approximately $60,483,333.
Syndication of the New TLB was managed by Crescent Harbor Bank, N.A. as Sole Bookrunner and was successfully completed during June 2022. Final syndication allocations were confirmed on June 30, 2022, with the full $700,000,000 committed amount allocated across eight institutional lenders. The syndication was well-received by the market, reflecting the strength of VHG's credit profile and the attractive terms of the facility.
At closing, VHG's pro forma total net leverage ratio was 2.52x (calculated in accordance with the methodology set forth in the Credit Agreement), which is well within the maximum total net leverage covenant of 4.50x. This significant cushion under the covenant provides VHG with meaningful operational and financial flexibility going forward.
3. Key Protective Provisions Negotiated
In the course of our representation, we negotiated a number of important protective provisions on behalf of VHG that provide the Company with enhanced flexibility for future financing activities and strategic transactions. We highlight the following key provisions:
Most Favored Nation ("MFN") Provision. The Credit Agreement contains an MFN provision applicable to incremental term loans, with a 50 basis point threshold. This provision is subject to an 18-month sunset period, running from July 21, 2022 through January 21, 2024 (the "MFN Sunset Date"). During the sunset period, any incremental term loan facility incurred under the Credit Agreement must be priced at a yield no greater than 50 basis points above the effective yield on the initial New TLB, unless VHG elects to adjust the margin on the initial New TLB to within the 50 basis point threshold. Critically, following the MFN Sunset Date, VHG may incur incremental term loans at any yield without triggering a margin adjustment on the initial New TLB. This sunset feature was a key negotiating point and provides VHG with significant future flexibility.
Repricing Protection (Soft Call). The Credit Agreement includes a soft call premium of 1.00% of the aggregate principal amount prepaid or repriced, applicable during the six-month period immediately following the Closing Date (i.e., through January 21, 2023). After this date, VHG may prepay or reprice the New TLB without the payment of any premium or penalty. This relatively short repricing protection window—six months as compared to the twelve-month period initially proposed by Crescent Harbor—was successfully negotiated by our team and preserves VHG's ability to opportunistically take advantage of improved market conditions.
Springing Financial Covenant. The Credit Agreement contains a single financial maintenance covenant: a maximum total net leverage ratio of 4.50x. Importantly, this covenant is a "springing" covenant and is tested on a quarterly basis only when the aggregate revolving credit exposure (excluding undrawn letters of credit up to $10,000,000 and Cash Management Obligations) exceeds 35% of total revolving commitments. This structure was negotiated in lieu of a covenant tested at all times, and provides VHG with additional operational flexibility when the revolving credit facility is not substantially drawn.
LIBOR to SOFR Transition. The Credit Agreement is denominated in Adjusted Term SOFR from inception, thereby eliminating the uncertainty associated with the anticipated cessation of LIBOR. The Credit Agreement further incorporates hardwired benchmark replacement fallback language consistent with the Alternative Reference Rates Committee ("ARRC") recommended best practices, ensuring a smooth and predictable transition in the event of any future discontinuation of or material change to the Term SOFR reference rate. This language was carefully reviewed and negotiated to ensure that VHG's economic position would be preserved in any benchmark replacement scenario.
4. Key Dates and Milestones Achieved
For your records, and to supplement the timeline maintained by VHG's in-house team, the following is a summary of the key dates and milestones achieved during the course of the engagement:
The engagement was completed on schedule within approximately three and one-half months from the opening of the matter through closing, and all post-closing items were delivered within the timeframes specified in the Post-Closing Letter.
5. Scope of Work Performed
The following is a comprehensive summary of the legal services rendered by Calderwood & Harkness LLP during the course of this engagement:
(a) Negotiation and Drafting of Credit Agreement and Ancillary Loan Documents. We prepared and negotiated the Credit Agreement through multiple rounds of mark-up with agent's counsel, Whitfield Gage & Partridge LLP. In addition to the Credit Agreement itself, we drafted, reviewed, and negotiated the following ancillary loan documents: the Guarantee Agreement; the Pledge and Security Agreement; the Amended and Restated Intercreditor Agreement (reflecting the addition of the New TLB and the release of liens associated with the Existing TLB); Promissory Notes; the Perfection Certificate; the form of Compliance Certificate; and the initial Borrowing Request.
(b) Negotiation and Review of Pre-Closing Documents. We reviewed and negotiated the initial term sheet provided by Crescent Harbor Bank, N.A. and subsequently reviewed and negotiated the Commitment Letter, Fee Letter, and Syndication Flex Letter, ensuring that the terms therein were consistent with VHG's commercial objectives and market-standard borrower protections.
(c) Corporate Authorizations and Closing Certificates. We prepared the VHG Board Resolutions authorizing the Transaction, the Omnibus Secretary's Certificate (covering VHG and each Guarantor subsidiary), the Incumbency Certificate, the Solvency Certificate (in the form required by the Credit Agreement), and the Officer's Closing Certificate certifying satisfaction of all conditions precedent to funding.
(d) Tax Analysis. Leonard Cross, Specialist Partner in the firm's Tax practice, provided tax analysis in connection with the Transaction, including advice regarding: (i) the treatment of the $7,000,000 original issue discount for U.S. federal income tax purposes; (ii) applicable high yield discount obligation ("AHYDO") analysis under Section 163(i) of the Internal Revenue Code of 1986, as amended; (iii) the deductibility of the $3,125,000 prepayment premium paid to Greystone Federal Credit Corp.; and (iv) the treatment of unamortized deferred financing costs and OID associated with the 2020 financing for purposes of determining whether such costs could be deducted in the current taxable year or were required to be capitalized and amortized over the term of the New TLB.
(e) Confidential Information Memorandum and Lender Presentation Materials. We reviewed the Confidential Information Memorandum ("CIM") prepared by Meridian Strauss Advisory LLC for legal accuracy and compliance with Rule 10b-5 under the Securities Exchange Act of 1934, as amended. We also prepared the legal summary section of the lender presentation materials utilized during the bank meetings conducted during the week of June 13, 2022.
(f) Real Property Security Documents. We prepared multi-state mortgage and deed of trust documents (as applicable by jurisdiction) covering VHG's portfolio of 42 hotel properties across 12 states, as follows:
•  Florida: 12 properties
•  New York: 6 properties
•  California: 5 properties
•  Texas: 4 properties
•  Georgia: 3 properties
•  Colorado: 3 properties
•  Arizona: 2 properties
•  Illinois: 2 properties
•  Washington: 2 properties
•  Oregon: 1 property
•  Nevada: 1 property
•  Virginia: 1 property
Each mortgage or deed of trust was prepared in compliance with the applicable state-specific requirements and was recorded in the relevant county recording office. We note that this workstream required substantial coordination across multiple jurisdictions and with local counsel in several states.
(g) Title Insurance Coordination. We coordinated with Continental Fidelity Title Company on the issuance of lender's title insurance policies and endorsements for each of the 42 mortgaged properties, including review of title commitments, resolution of title exceptions, and negotiation of affirmative endorsements as required by the Credit Agreement.
(h) UCC Filings and Lien Perfection. We prepared and filed UCC-1 financing statements with the Delaware Secretary of State (as the state of VHG's incorporation) and the Florida Secured Transaction Registry (as the state of VHG's principal place of business). We also prepared and filed UCC-3 amendments effecting the termination of all existing liens held by Greystone Federal Credit Corp. in connection with the Existing TLB. In addition, we prepared and filed the intellectual property security agreement with the United States Patent and Trademark Office and the United States Copyright Office to perfect the Collateral Agent's security interest in VHG's registered trademarks, patents, and copyrights.
(i) Lien Searches. We obtained and reviewed comprehensive lien searches in the following jurisdictions: Delaware, Florida, New York, and California. These searches encompassed UCC financing statement searches, federal tax lien searches, judgment lien searches, and litigation searches, and were conducted at both the state and county levels as appropriate.
(j) Payoff and Discharge Coordination. We prepared the payoff letter in respect of the Existing TLB, coordinated with Greystone Federal Credit Corp. (through Marion Stillwell, Associate General Counsel) to confirm payoff amounts and wire instructions, prepared the funds flow memorandum setting forth the flow of all closing date payments, and coordinated the discharge and release of all liens and encumbrances associated with the Existing TLB upon receipt of the payoff amount.
(k) Legal Opinions. We prepared and delivered the borrower's counsel legal opinion and enforceability opinion (governed by the laws of the State of New York) addressed to Crescent Harbor Bank, N.A. (in its capacity as Administrative Agent) and to the Lenders, covering the due authorization, execution, delivery, and enforceability of the Credit Agreement and the other Loan Documents, as well as related matters customary for transactions of this type.
(l) Good Standing Certificates. We coordinated the procurement of certificates of good standing for VHG and each Guarantor subsidiary from the Delaware Secretary of State (as the state of incorporation) and the Florida Department of State (as the state of VHG's headquarters and principal place of business), dated no earlier than 30 days prior to the Closing Date, as required by the Credit Agreement.
(m) Insurance Compliance Review. We reviewed certificates of insurance provided by VHG's insurance broker against the insurance requirements set forth in the Credit Agreement and the Pledge and Security Agreement, and confirmed compliance with the requirement that the Collateral Agent be named as additional insured and loss payee, as applicable.
(n) Closing Checklist and Closing Binder. We prepared and maintained the master closing checklist throughout the engagement, tracking each deliverable and condition precedent to funding. Following closing and the completion of all post-closing items, we compiled the comprehensive closing binder, as further described in Section 8 below.
6. Engagement Team
The following Calderwood & Harkness LLP attorneys were assigned to and worked on this matter:
Ian Blackwood — Responsible Partner, Banking & Finance. Mr. Blackwood served as the lead relationship partner responsible for overall engagement management, negotiation strategy, and client communication throughout the Transaction.
Stephanie Okafor — Billing Partner, Banking & Finance. Ms. Okafor served as the billing partner for the engagement and provided substantive support in the drafting and negotiation of the Credit Agreement and related documents, with particular focus on the covenants, events of default, and incremental facility provisions.
Sophie Tremblay — Lead Associate, Banking & Finance. Ms. Tremblay served as the lead associate responsible for day-to-day management of the documentation process, including the preparation of initial drafts, coordination of comments among the parties, and management of the closing process, closing checklist, and post-closing deliverables.
Daniel Obi — Working Associate, Banking & Finance. Mr. Obi provided associate support across all workstreams, including preparation of security documents, UCC filings, lien searches, corporate authorizations, and the closing binder.
Leonard Cross — Specialist Partner, Tax. Mr. Cross provided specialized tax analysis and advice as described in Section 5(d) above.
We wish to acknowledge the productive and highly efficient working relationship between our team and VHG's in-house legal and finance teams throughout this engagement. In particular, we thank you, Priya, and Glenn Fischbach, Treasurer, for your consistent responsiveness, clear direction, and collaborative approach, all of which contributed directly to the timely and successful completion of the Transaction. We also wish to recognize the valuable contributions of Elise Cavanaugh and her team at Meridian Strauss Advisory LLC, who served as VHG's financial advisor, as well as the professionalism of Harrison Whitfield III and Megan Yeung of Whitfield Gage & Partridge LLP, who served as counsel to the Administrative Agent.
7. Final Invoice Summary
Enclosed with this letter please find the final invoice for Engagement No. 1016-00009 (the "Final Invoice"). This invoice covers all professional fees and disbursements incurred through the completion of all post-closing deliverables on August 5, 2022. A summary of the billing is set forth below:
Billing Rates Applied:
Fee and Disbursement Summary:
The foregoing Grand Total of $3,043,000.00 is consistent with the estimated legal and closing costs of approximately $3,200,000 referenced in the funds flow memorandum, which figure also included certain third-party costs (including title insurance premiums and survey costs payable directly by VHG to Continental Fidelity Title Company and the applicable surveyors) not included in Calderwood & Harkness's invoice.
Payment of the Final Invoice is due within thirty (30) days from the date of invoice. Wire transfer instructions are set forth on the face of the enclosed invoice. Please do not hesitate to contact Stephanie Okafor or me if you have any questions regarding the invoice or any individual time entry or disbursement item.
This is the final invoice for this engagement, and no further charges are anticipated. All time and expenses associated with this matter have been included in the Final Invoice.
8. Closing Binder and Document Retention
A complete closing binder has been compiled, indexed as of August 5, 2022, containing executed versions of all Transaction documents, including the Credit Agreement and all amendments thereto, the Guarantee Agreement, the Pledge and Security Agreement, the Amended and Restated Intercreditor Agreement, Promissory Notes, the Perfection Certificate, all corporate authorizations (Board Resolutions, Omnibus Secretary's Certificate, Incumbency Certificate, Solvency Certificate, Officer's Closing Certificate), the borrower's counsel legal opinion and enforceability opinion, all security documents (including recorded mortgages and deeds of trust, UCC-1 financing statements, UCC-3 termination statements, and IP security agreement filings), title insurance policies and endorsements, surveys, flood certifications, insurance certificates, the payoff letter, the funds flow memorandum, good standing certificates, and all ancillary documents and correspondence related to the Transaction (the "Closing Binder").
An electronic copy of the Closing Binder, in searchable PDF format organized by tab and index number, has been transmitted to you and to Glenn Fischbach via the firm's secure file transfer portal. Hard copies of the Closing Binder will be prepared and delivered to VHG's offices under separate cover upon your request. Please let us know if you would like us to arrange for delivery of one or more bound hard copy sets.
Calderwood & Harkness LLP will retain copies of the engagement file, including the Closing Binder and all working papers and correspondence, in accordance with the firm's document retention policies as outlined in Section 12 of the engagement letter dated April 8, 2022. As set forth therein, engagement files are retained for a period of ten (10) years from the date of matter closure, after which time the firm reserves the right to destroy such files in the ordinary course, subject to any applicable legal hold or regulatory requirement.
9. Ongoing Matters and Reminders
With the completion of all post-closing deliverables and the submission of our Final Invoice, Calderwood & Harkness LLP's engagement in this matter is now formally concluded. We wish to clarify that the firm has no ongoing obligation to monitor VHG's compliance with the Credit Agreement, update or supplement the legal opinions delivered at closing, advise on post-closing covenant compliance, or provide any other legal services in connection with the New TLB, unless we are separately engaged by VHG to do so pursuant to a new engagement letter or an amendment to our existing engagement.
For the convenience of VHG's in-house legal and treasury teams, we respectfully recommend that the following key dates and obligations under the Credit Agreement be calendared and monitored:
January 21, 2023 — Repricing Protection (Soft Call) Sunset. The 1.00% soft call premium applicable to voluntary prepayments and repricing transactions expires on this date. After January 21, 2023, VHG may prepay, reprice, or refinance the New TLB without the payment of any premium or penalty.
January 21, 2024 — MFN Sunset Date. The Most Favored Nation provision applicable to incremental term loans expires on this date. After January 21, 2024, VHG may incur incremental term loans under the Credit Agreement at any yield without triggering a margin adjustment on the initial New TLB.
Quarterly Amortization Payments. Quarterly amortization payments of $1,750,000 each are due and payable in accordance with the schedule set forth in the Credit Agreement, commencing on the first quarterly payment date following the Closing Date. Please refer to Section 2.07 of the Credit Agreement for the specific payment dates.
July 21, 2029 — Maturity Date. The outstanding principal balance of the New TLB (estimated at approximately $651,000,000, net of scheduled amortization payments) is due and payable in full on the Maturity Date.
We encourage you to contact our team at any time if VHG requires legal assistance with matters arising under or related to the Credit Agreement, including potential incremental facilities, amendments, waivers, covenant compliance questions, or any other financing transactions. We would be pleased to assist.
10. Acknowledgment and Appreciation
In closing, we wish to express our sincere appreciation for VHG's confidence in retaining Calderwood & Harkness LLP as borrower's counsel in connection with this significant refinancing transaction. The Transaction was successfully completed on schedule, within approximately three and one-half months from the opening of the engagement on April 4, 2022 through the simultaneous signing and closing on July 21, 2022, with all post-closing items delivered by August 5, 2022. This result was achieved through the efficient and collaborative efforts of all parties involved, and we commend VHG's management and in-house teams for their commitment to achieving an outstanding outcome for the Company.
We look forward to continuing to work with VHG and your team on future transactions and matters as they arise. Please do not hesitate to reach out to me or to any member of the engagement team at any time.
Very truly yours,
CALDERWOOD & HARKNESS LLP
By: ________
Ian Blackwood Partner, Banking & Finance
Direct Tel: (212) 506-7214
Email: iblackwood@calderwoodharkness.com
cc: Marcus Delvecchio, Chief Executive Officer, Verimark Hospitality Group Inc. Renata Haines, Chief Financial Officer, Verimark Hospitality Group Inc. Glenn Fischbach, Treasurer, Verimark Hospitality Group Inc. Stephanie Okafor, Partner, Calderwood & Harkness LLP Sophie Tremblay, Associate, Calderwood & Harkness LLP
Enclosure: Final Invoice — Engagement No. 1016-00009
Date | Milestone
April 4, 2022 | Matter opened at Calderwood & Harkness LLP
April 8, 2022 | Engagement letter executed by VHG and Calderwood & Harkness LLP
April 22, 2022 | Initial term sheet received from Crescent Harbor Bank, N.A.
May 12, 2022 | VHG Board of Directors authorized the refinancing transaction
May 16, 2022 | First draft of Credit Agreement circulated by Calderwood & Harkness LLP to agent's counsel
May 27, 2022 | Commitment Letter and Fee Letter executed by VHG and Crescent Harbor Bank, N.A.
June 6, 2022 | Syndication process launched by Crescent Harbor Bank, N.A. (as Sole Bookrunner)
June 13–17, 2022 | Lender presentations and bank meetings conducted
June 30, 2022 | Final syndication allocations confirmed across eight lenders totaling $700,000,000
July 18, 2022 | Final execution version of the Credit Agreement agreed among all parties
July 21, 2022 | Simultaneous signing and closing; initial funding; payoff of existing Greystone TLB
August 5, 2022 | All post-closing deliverables completed, including recordation of mortgages, delivery of title insurance policies, and finalization of surveys and flood certifications for 42 hotel properties across 12 states
Timekeeper | Role | Rate
Ian Blackwood | Partner, Banking & Finance | $1,450/hr
Stephanie Okafor | Partner, Banking & Finance | $1,450/hr
Leonard Cross | Specialist Partner, Tax | $1,550/hr
Sophie Tremblay | Associate, Banking & Finance | $825/hr
Daniel Obi | Associate, Banking & Finance | $825/hr
Category | Amount
Total Professional Fees | $2,437,625.00
Disbursements — Filing Fees (UCC filings, mortgage recording taxes, good standing certificates) | $528,940.00
Disbursements — Lien Search Fees | $47,215.00
Disbursements — Courier and Delivery Charges | $3,870.00
Disbursements — Travel Expenses (lender presentations, bank meetings) | $14,625.00
Disbursements — Document Production and Reproduction | $6,480.00
Disbursements — Miscellaneous Out-of-Pocket Costs | $4,245.00
Total Disbursements | $605,375.00
Grand Total | $3,043,000.00