1021-00001 · Verimark Hospitality Group · Transaction Documents

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PART A

EXHIBIT [●]

FORM OF COMPLIANCE CERTIFICATE

Pursuant to that certain Credit Agreement, dated as of July 21, 2022 (as amended, restated, amended and restated, supplemented, or otherwise modified from time to time, the "Credit Agreement"), among Verimark Hospitality Group Inc., a Delaware corporation (the "Borrower"), the Guarantors party thereto, Crescent Harbor Bank, N.A., as Administrative Agent and Collateral Agent (the "Administrative Agent"), and the Lenders from time to time party thereto (collectively, the "Lenders").

Capitalized terms used but not defined herein shall have the meanings assigned to such terms in the Credit Agreement. References to Sections, Articles, Exhibits, and Schedules shall be to the corresponding Sections, Articles, Exhibits, and Schedules of the Credit Agreement unless otherwise specified. All financial computations set forth herein shall be made in accordance with GAAP, applied on a basis consistent with the financial statements delivered pursuant to Section [●] of the Credit Agreement.

Section 1 — Introductory Recital

Date: [DATE]

This Compliance Certificate (this "Certificate") is delivered pursuant to Section [●] of the Credit Agreement. The undersigned, a Responsible Officer of the Borrower (which, for purposes of this Certificate and the Credit Agreement, is defined to include the Chief Executive Officer, Chief Financial Officer, Treasurer, or General Counsel of the Borrower), hereby certifies to the Administrative Agent and each of the Lenders as follows in connection with the fiscal quarter ending [●] (the "Fiscal Quarter End Date") and the fiscal year ending [●], for the trailing four consecutive fiscal quarter period ending on the Fiscal Quarter End Date (the "Test Period"):

The financial statements delivered concurrently herewith pursuant to Section [●] (in the case of annual financial statements) or Section [●] (in the case of quarterly financial statements) of the Credit Agreement have been prepared in accordance with GAAP and present fairly, in all material respects, the consolidated financial condition, results of operations, and cash flows of the Borrower and its Restricted Subsidiaries as of and for the periods covered thereby, subject (in the case of unaudited quarterly financial statements) to normal year-end audit adjustments and the absence of footnotes.

Section 2 — Certification of Representations and Warranties

The undersigned Responsible Officer hereby certifies that, as of the date hereof, the representations and warranties of the Borrower and each Guarantor contained in Article [●] of the Credit Agreement and in each other Loan Document (including, without limitation, the Guarantee Agreement, the Pledge and Security Agreement, and each Mortgage and related ancillary document) are true and correct in all material respects on and as of the date hereof; provided that, with respect to any representation or warranty that is qualified by reference to "materiality," "Material Adverse Effect," or any similar qualification, such representation or warranty is true and correct in all respects (without duplication of any materiality qualifier) on and as of the date hereof. To the extent that any such representation or warranty specifically relates to an earlier date, the undersigned certifies that such representation or warranty was true and correct in all material respects (or, with respect to representations and warranties qualified by materiality or Material Adverse Effect, true and correct in all respects) as of such earlier date.

[except as set forth on Schedule 1 hereto]

For the avoidance of doubt, the representations and warranties so certified include, without limitation, those pertaining to: (i) organizational existence and good standing; (ii) due authorization, execution, and delivery of the Loan Documents; (iii) no conflicts with applicable law, organizational documents, or material agreements; (iv) governmental approvals and consents; (v) financial condition; (vi) absence of material litigation; (vii) compliance with ERISA; (viii) environmental matters; (ix) accuracy of disclosure; (x) intellectual property; (xi) insurance; (xii) solvency; (xiii) status of Collateral; and (xiv) anti-corruption, anti-money laundering, and sanctions compliance.

Section 3 — Certification of No Default

The undersigned hereby certifies that, as of the date hereof, no Default or Event of Default (each as defined in Article [●] of the Credit Agreement) has occurred and is continuing under the Credit Agreement or any other Loan Document.

[except as set forth on Schedule 2 hereto]

In the event that a Default or Event of Default exists as of the date hereof, the following information is provided:

(a) Nature of Default or Event of Default: [Describe in reasonable detail the nature of each Default or Event of Default, including the specific Section of the Credit Agreement or Loan Document that has been breached or with respect to which a default has occurred.]

(b) Period of Existence: [Specify the date on which each Default or Event of Default first occurred and the duration of its continuance as of the date hereof.]

(c) Action Taken or Proposed: [Describe in reasonable detail the action that the Borrower has taken, is taking, or proposes to take with respect to each Default or Event of Default, including any proposed timeline for cure.]

Section 4 — Financial Covenant Compliance

4(a) — Springing Financial Covenant Testing Threshold

The financial maintenance covenant set forth in Section [●] of the Credit Agreement (the "Financial Covenant") requires the Borrower to maintain a Maximum Total Net Leverage Ratio of not greater than 4.50 to 1.00 as of the last day of each fiscal quarter. The Financial Covenant is a springing covenant and is tested only when the aggregate revolving credit exposure under the $400,000,000 senior secured revolving credit facility established pursuant to the Credit Agreement (the "Revolving Credit Facility") exceeds 35% of total revolving commitments (i.e., $140,000,000) as of the last day of the applicable fiscal quarter, excluding, for purposes of such threshold calculation, any outstanding Letters of Credit in an aggregate face amount not exceeding $15,000,000 and any unreimbursed Letter of Credit disbursements that are repaid within three (3) Business Days.

The undersigned hereby certifies the following with respect to the springing financial covenant testing threshold:

Aggregate Revolving Credit Exposure as of [last day of fiscal quarter]: $[●]

35% of Total Revolving Commitments: $140,000,000

Financial Covenant Testing Required: [Yes / No]

4(b) — Maximum Total Net Leverage Ratio Calculation

Regardless of whether the springing financial covenant testing threshold set forth in Section 4(a) above has been met, the undersigned provides the following computation of the Total Net Leverage Ratio for informational purposes, in accordance with the definitions and computational methodology set forth in the Credit Agreement:

(i) Total Funded Debt Calculation:

(ii) Cash Netting:

(iii) Adjusted EBITDA Calculation (Trailing Four-Quarter Basis / Test Period):

Supporting calculations for Adjusted EBITDA are set forth in greater detail on Annex A and Annex B attached hereto.

(iv) Total Net Leverage Ratio:

Section 5 — Prepayment / Excess Cash Flow (If Applicable)

[To be completed for the fiscal year-end Compliance Certificate only, if applicable.]

If this Certificate is being delivered in connection with the annual financial statements for the Borrower's fiscal year, and to the extent the Credit Agreement requires mandatory prepayments from Excess Cash Flow pursuant to Section [●] thereof, the following calculation is provided:

(a) Excess Cash Flow for the applicable fiscal year: $[●]

(b) Applicable Excess Cash Flow Percentage (based on Total Net Leverage Ratio as of the last day of the applicable fiscal year): [●]%

(c) Mandatory Prepayment Amount (Excess Cash Flow × Applicable ECF Percentage, less voluntary prepayments credited during such fiscal year): $[●]

(d) Due date for Excess Cash Flow prepayment (if any): Within [●] days after delivery of annual financial statements.

If no Excess Cash Flow sweep is required for the applicable period, indicate "Not Applicable."

Section 6 — List of Subsidiaries / Material Changes

The undersigned hereby certifies that the list of Subsidiaries attached as Schedule [●] to the Credit Agreement (as most recently updated and delivered to the Administrative Agent) is accurate and complete in all material respects as of the date hereof, except as set forth below:

(a) New Subsidiaries formed, acquired, or otherwise established during the period covered by this Certificate: [Identify any new Subsidiaries, including their jurisdiction of organization, ownership structure, and Restricted/Unrestricted Subsidiary designation, or state "None."]

(b) Subsidiaries dissolved, merged, or otherwise eliminated during the period covered by this Certificate: [Identify any such Subsidiaries or state "None."]

(c) Any Subsidiary that has become a Material Subsidiary (as defined in the Credit Agreement) during the period, thereby requiring joinder as a Guarantor under Section [●] of the Credit Agreement and the execution and delivery of a Joinder Agreement, a supplement to the Pledge and Security Agreement, and such other Loan Documents as the Administrative Agent may reasonably request: [Identify any such Material Subsidiary or state "None."]

Section 7 — Insurance Confirmation

The undersigned hereby certifies that the Borrower and each of its Subsidiaries maintain insurance with financially sound and reputable insurance companies or underwriters in such amounts, covering such risks, and with such deductibles and self-insured retentions as are consistent with the requirements of Section [●] of the Credit Agreement and as are customary for companies of similar size engaged in similar businesses. The Administrative Agent (for the benefit of the Secured Parties) is named as additional insured and/or loss payee, as applicable, on all required insurance policies, including property and casualty, general liability, and umbrella/excess liability insurance. No material change in insurance coverage has occurred since the date of the last Compliance Certificate delivered to the Administrative Agent, except as previously disclosed in writing to the Administrative Agent.

Section 8 — Attachments

The following schedules and annexes are attached hereto and incorporated herein by reference:

Schedule 1: Exceptions to Representations and Warranties (if any) — [None]

Schedule 2: Defaults or Events of Default (if any) — [None]

Annex A: Detailed financial calculations supporting the Total Net Leverage Ratio computation set forth in Section 4(b) hereof, including supporting work papers and applicable definitions and adjustments.

Annex B: Reconciliation of Consolidated Net Income to Adjusted EBITDA, prepared in a manner consistent with the audited or reviewed financial statements delivered by the Borrower's independent registered public accounting firm, Clearmont & Wharton LLP, as applicable for the relevant period.

[Signature page follows]

[Signature Page to Compliance Certificate]

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

VERIMARK HOSPITALITY GROUP INC.

By: ________

Name: [●]

Title: [●]

Date: [●]

PART B

COMPLIANCE CERTIFICATE

July 21, 2022

Delivered pursuant to Section [●] of the Credit Agreement, dated as of July 21, 2022 (the "Credit Agreement"), among Verimark Hospitality Group Inc., a Delaware corporation (the "Borrower"), the Guarantors party thereto, Crescent Harbor Bank, N.A., as Administrative Agent and Collateral Agent (the "Administrative Agent"), and the Lenders from time to time party thereto.

Capitalized terms used herein and not otherwise defined shall have the meanings set forth in the Credit Agreement. All dollar amounts are expressed in United States dollars unless otherwise indicated.

Section 1 — Officer Identification and Authority

The undersigned, Renata Haines, Chief Financial Officer of Verimark Hospitality Group Inc., a Delaware corporation (NYSE: VMRK), hereby certifies, in her capacity as a Responsible Officer of the Borrower, and not in her individual capacity, in connection with the initial borrowing under the Credit Agreement on the Closing Date (July 21, 2022), as follows:

The Borrower's principal executive office is located at 8200 West Palmetto Park Road, Suite 1500, Boca Raton, Florida 33433. The Borrower's Employer Identification Number is 82-3741956 and its Delaware File Number is 7291843. The undersigned has reviewed the terms of the Credit Agreement and the other Loan Documents and has made, or caused to be made under her supervision, a review of the transactions and condition of the Borrower and its Restricted Subsidiaries during the period covered by this Certificate. Such review did not disclose, and the undersigned has no knowledge of, the existence of any condition or event that constitutes a Default or Event of Default (each as defined in the Credit Agreement) as of the date hereof, except as set forth herein. The undersigned has the authority to execute and deliver this Certificate on behalf of the Borrower, and the execution and delivery of this Certificate have been duly authorized by all necessary corporate action on the part of the Borrower.

Section 2 — Certification of Representations and Warranties

As of the Closing Date, July 21, 2022, the representations and warranties of the Borrower and each of the following Guarantors:

(a) Verimark Resort Properties LLC, a Delaware limited liability company;

(b) VHG Management Services Inc., a Delaware corporation;

(d) Palmetto Beachfront Hotels LLC, a Florida limited liability company; and

(e) Cascadia Hospitality Corp., a Delaware corporation

(collectively, the "Guarantors"),

contained in Article [●] of the Credit Agreement and in each other Loan Document (including, without limitation, the Guarantee Agreement dated as of the date hereof, the Pledge and Security Agreement dated as of the date hereof, and each other collateral document, certificate, and agreement delivered in connection with the closing of the transactions contemplated by the Credit Agreement) are true and correct in all material respects on and as of the date hereof. With respect to any representation or warranty that is qualified by reference to "materiality," "Material Adverse Effect," or any similar qualification, such representation or warranty is true and correct in all respects (without duplication of any materiality qualifier) on and as of the date hereof. To the extent that any such representation or warranty specifically relates to an earlier date, such representation or warranty was true and correct in all material respects (or, with respect to representations and warranties qualified by materiality or Material Adverse Effect, true and correct in all respects) as of such earlier date.

No exceptions are noted.

Section 3 — Certification of No Default

As of the Closing Date, July 21, 2022, no Default or Event of Default has occurred and is continuing, or would result from: (i) the initial borrowing under the Credit Agreement, including the funding of the $700,000,000 Term Loan B; (ii) the execution and delivery of the Credit Agreement and the other Loan Documents; or (iii) the application of proceeds thereof, including, without limitation:

(a) the repayment in full of the existing $625,000,000 Term Loan B facility (of which $621,875,000 was outstanding in principal immediately prior to the Closing Date) for which Greystone Federal Credit Corp. served as administrative agent, together with all accrued and unpaid interest, fees, premiums, and other amounts owed thereunder;

(b) the payment of all transaction costs, fees, and expenses in connection with the closing of the Credit Agreement; and

(c) the application of remaining net proceeds for general corporate purposes of the Borrower and its Restricted Subsidiaries.

The existing credit agreement with Greystone Federal Credit Corp. as administrative agent has been terminated and all Liens securing obligations thereunder have been, or are in the process of being, released. Payoff letters and UCC-3 termination statements have been obtained or are being processed, and the Borrower has received written confirmation from Greystone Federal Credit Corp. that all obligations thereunder have been satisfied in full.

Section 4 — Pro Forma Financial Covenant Compliance at Closing

4(a) — Springing Covenant Testing Threshold at Closing

The Financial Covenant set forth in Section [●] of the Credit Agreement is a springing covenant that is tested only when aggregate revolving credit exposure under the Revolving Credit Facility exceeds 35% of total revolving commitments as of the last day of the applicable fiscal quarter. As of the Closing Date, the status of the springing covenant testing threshold is as follows:

The $400,000,000 Revolving Credit Facility is fully undrawn as of the Closing Date. No Letters of Credit have been issued under the Revolving Credit Facility as of the Closing Date.

Notwithstanding that the springing financial covenant test is not triggered, the Borrower provides the following pro forma leverage calculation for informational purposes, as required by the conditions precedent to the initial borrowing set forth in Section [●] of the Credit Agreement.

4(b) — Pro Forma Total Net Leverage Ratio Calculation

The following Total Net Leverage Ratio is calculated on a pro forma basis after giving effect to the Transactions (as defined in the Credit Agreement), including:

(a) the incurrence of the $700,000,000 Term Loan B under the Credit Agreement (net of original issue discount of $7,000,000, representing 1.00% of the aggregate principal amount);

(b) the application of proceeds to repay in full the existing Term Loan B ($621,875,000 in outstanding principal, plus approximately $2,916,667 in accrued and unpaid interest, plus a $3,125,000 prepayment premium (calculated as 0.50% of the outstanding principal amount in accordance with the terms of the existing credit agreement), for a total payoff amount of approximately $627,916,667);

(d) the payment of the advisory fee of $1,400,000 to Meridian Strauss Advisory LLC for financial advisory services rendered in connection with the Transactions;

(e) the payment of estimated legal and closing costs of approximately $3,200,000 (including fees and disbursements of Whitfield Gage & Partridge LLP, as counsel to the Administrative Agent, and other third-party costs); and

(f) net proceeds to the Borrower of approximately $60,483,333 (calculated as $700,000,000 less $7,000,000 OID less $627,916,667 payoff amount less $3,500,000 arrangement fee less $1,400,000 advisory fee less $3,200,000 estimated legal and closing costs, subject to final reconciliation), to be retained as cash on the balance sheet for general corporate purposes.

(i) Total Funded Debt (Pro Forma at Closing):

Note: The existing $625,000,000 Term Loan B (Greystone Federal Credit Corp., as administrative agent; CUSIP: 92347LAA0) has been repaid in full on the Closing Date from proceeds of the New Term Loan B and is excluded from the foregoing calculation. All Liens securing obligations under the existing credit agreement have been, or are being, released.

(ii) Cash Netting:

The foregoing unrestricted cash and cash equivalents figure represents the Borrower's good faith estimate of cash on hand as of the Closing Date, on a pro forma basis after giving effect to the Transactions. Cash amounts are held in deposit accounts at Crescent Harbor Bank, N.A. and at other financial institutions, in each case subject to a Control Agreement in favor of the Administrative Agent (or, with respect to post-closing deposit accounts, subject to the delivery of Control Agreements within the timeframes set forth in the Post-Closing Letter Agreement).

(iii) Adjusted EBITDA (Last Twelve Months Ending March 31, 2022, as the Most Recent Test Period):

Note: For purposes of the Closing Date pro forma calculation, the Borrower has utilized FY2021 Adjusted EBITDA as reported in the audited consolidated financial statements of the Borrower for the fiscal year ended December 31, 2021, which financial statements were audited by Clearmont & Wharton LLP. The LTM period ending March 31, 2022 has been used as the most recent Test Period; however, the Borrower has utilized FY2021 full-year Adjusted EBITDA as the best available proxy, consistent with the methodology approved by the Administrative Agent and the Lenders in connection with the commitment letters and the Credit Agreement. A detailed reconciliation of Consolidated Net Income to Adjusted EBITDA is set forth on Annex B hereto.

(iv) Pro Forma Total Net Leverage Ratio:

The Borrower's pro forma Total Net Leverage Ratio of 2.52x provides substantial headroom relative to the 4.50x covenant threshold, representing a cushion of approximately 44.0%.

4(c) — Additional Pro Forma Metrics (Informational)

The following additional financial metrics are provided for informational purposes only and do not constitute covenants under the Credit Agreement:

Credit Ratings:

The foregoing credit ratings were assigned on or about July 14, 2022, in connection with the Transactions. The Borrower is not aware of any pending or threatened downgrade of such ratings as of the Closing Date.

Section 5 — Interest Rate Confirmation

The undersigned hereby confirms the following interest rate terms applicable to the Term Loan B as of the Closing Date:

Interest Savings Analysis: The all-in interest rate of 6.14% per annum represents an estimated annual interest savings of approximately $3,500,000 versus the existing Term Loan B with Greystone Federal Credit Corp. (which bore interest at LIBOR + 4.25% (425 bps)), reflecting the 50 basis point reduction in applicable margin achieved through the refinancing. This estimate is based on a comparison of the applicable margins and does not account for differences between SOFR-based and LIBOR-based benchmark rates, which may result in additional savings or costs over time.

Section 6 — Amortization Schedule Confirmation

The undersigned hereby confirms the following amortization schedule applicable to the Term Loan B under the Credit Agreement:

The foregoing amortization schedule is subject to reduction on account of any voluntary or mandatory prepayments applied in accordance with the terms of the Credit Agreement. Mandatory prepayments may include, without limitation, Excess Cash Flow sweeps, asset sale proceeds, debt issuance proceeds, and casualty/condemnation proceeds, in each case to the extent required by the Credit Agreement.

Section 7 — Repricing Protection and MFN Acknowledgment

The undersigned acknowledges and confirms the following repricing protection and most favored nation provisions applicable to the Term Loan B:

Repricing Protection (Soft Call):

A repricing premium equal to 1.00% of the outstanding principal amount of the Term Loan B that is repriced or refinanced shall be payable in the event that, prior to January 21, 2023 (the date that is six (6) months after the Closing Date), the Borrower (a) makes any prepayment of the Term Loan B in connection with a repricing transaction (as defined in the Credit Agreement), or (b) effects any amendment to the Credit Agreement that reduces the effective yield applicable to the Term Loan B. If the entire outstanding principal amount of the Term Loan B were prepaid within the soft call period, the repricing premium would be $7,000,000 (1.00% × $700,000,000).

Most Favored Nation ("MFN") Provision:

With respect to any incremental term loans incurred under the Credit Agreement through January 21, 2024 (the date that is eighteen (18) months after the Closing Date), a 50 basis point MFN threshold applies. If the effective yield (as defined in the Credit Agreement, taking into account the applicable margin, any interest rate floor, and original issue discount or upfront fees, with original issue discount and upfront fees being equated to interest based on an assumed four-year life to maturity) of any such incremental term loan exceeds the effective yield of the initial Term Loan B by more than 50 basis points, the applicable margin on the initial Term Loan B shall be increased to the extent necessary so that the effective yield of the initial Term Loan B is equal to the effective yield of such incremental term loan minus 50 basis points.

Section 8 — Guarantor Confirmation

The undersigned hereby certifies that each of the following Guarantors (i) is duly organized, validly existing, and in good standing under the laws of its jurisdiction of organization, (ii) is in compliance in all material respects with its obligations under the Guarantee Agreement dated as of July 21, 2022, and the Pledge and Security Agreement dated as of July 21, 2022, and (iii) has duly authorized, executed, and delivered its respective Loan Documents:

(a) Verimark Resort Properties LLC, a Delaware limited liability company — owner and operator of 42 hotel properties constituting the Mortgaged Properties;

(b) VHG Management Services Inc., a Delaware corporation — the Borrower's hotel management and brand services subsidiary;

(c) Verimark Convention Holdings LLC, a Delaware limited liability company — owner and operator of convention center and meeting space assets;

(d) Palmetto Beachfront Hotels LLC, a Florida limited liability company — owner and operator of beachfront hotel properties in the State of Florida; and

(e) Cascadia Hospitality Corp., a Delaware corporation — owner and operator of hotel properties in the Pacific Northwest region.

No new Subsidiaries have been formed, acquired, or otherwise established that would require joinder as a Guarantor under Section [●] of the Credit Agreement since the date of the Credit Agreement. The organizational chart delivered to the Administrative Agent on the Closing Date accurately reflects the corporate and ownership structure of the Borrower and its Subsidiaries as of the date hereof.

Section 9 — Post-Closing Items Acknowledgment

The undersigned acknowledges that certain post-closing deliverables remain outstanding as of the Closing Date and are subject to delivery by August 5, 2022 (fifteen (15) calendar days after the Closing Date), pursuant to the Post-Closing Letter Agreement dated July 21, 2022, entered into between the Borrower, the Guarantors, and the Administrative Agent. Such post-closing deliverables include, without limitation:

(a) Executed Mortgages (or amendments to existing Mortgages) with respect to 42 hotel properties owned by Verimark Resort Properties LLC located across 12 states: Florida, New York, California, Texas, Georgia, Colorado, Arizona, Illinois, Washington, Oregon, Nevada, and Virginia;

(b) Lender's title insurance policies issued by Continental Fidelity Title Company (or its local affiliates) with respect to each Mortgaged Property, in an aggregate insured amount satisfactory to the Administrative Agent, together with all required endorsements;

(c) ALTA/NSPS surveys for each Mortgaged Property, certified to the Administrative Agent and the title insurance company, dated not more than ninety (90) days prior to the Closing Date (or such earlier date as may be acceptable to the Administrative Agent);

(d) Flood certifications for each Mortgaged Property, confirming whether any such property is located in a Special Flood Hazard Area, and, if so, evidence of flood insurance in compliance with the National Flood Insurance Act of 1968 and the Flood Disaster Protection Act of 1973, each as amended; and

(e) Such other items as may be identified in the Post-Closing Letter Agreement or as the Administrative Agent may reasonably request.

The Borrower is in the process of obtaining and delivering each of the foregoing post-closing items and currently expects to deliver all such items within the timeframe specified in the Post-Closing Letter Agreement. The failure to deliver any such items within the required timeframe will constitute an Event of Default under the Credit Agreement unless waived by the Administrative Agent (acting at the direction of the Required Lenders).

Section 10 — No Material Adverse Change

The undersigned hereby certifies that no Material Adverse Effect (as defined in the Credit Agreement) has occurred since December 31, 2021, the date of the most recent audited consolidated financial statements of the Borrower and its Restricted Subsidiaries delivered to the Administrative Agent. For the avoidance of doubt, the financial condition, operations, business, properties, and prospects of the Borrower and its Restricted Subsidiaries, taken as a whole, have not experienced any material adverse change since such date, and no event or circumstance has occurred that, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect.

[Signature page follows]

[Signature Page to Compliance Certificate — Closing Date]

IN WITNESS WHEREOF, the undersigned Responsible Officer has executed and delivered this Compliance Certificate as of the date first written above. The undersigned certifies that the foregoing statements are true, correct, and complete in all material respects as of the date hereof and are delivered to the Administrative Agent and the Lenders in satisfaction of the conditions precedent to the initial borrowing set forth in Section [●] of the Credit Agreement.

VERIMARK HOSPITALITY GROUP INC.

By: ________

Name: Renata Haines

Title: Chief Financial Officer

Date: July 21, 2022

Delivery Instructions

This Compliance Certificate, together with all schedules and annexes attached hereto, shall be delivered to the following parties:

Administrative Agent:

Crescent Harbor Bank, N.A. 600 Lexington Avenue, 34th Floor New York, New York 10022

Attention: Theodore Marchetti, Managing Director, Leveraged Finance

Email: theodore.marchetti@crescentharbor.com

and

Attention: Anika Holm, Director, Loan Syndications

Email: anika.holm@crescentharbor.com

With a copy to counsel to the Administrative Agent:

Whitfield Gage & Partridge LLP 383 Madison Avenue, 28th Floor New York, New York 10179

Attention: Harrison Whitfield III, Esq.

Email: hwhitfield@wgplaw.com

Delivery of this Certificate by electronic mail (in .pdf format) to the foregoing email addresses shall be deemed effective delivery for all purposes of the Credit Agreement; provided that the Borrower shall deliver an original executed counterpart to the Administrative Agent promptly following electronic delivery. To the extent the Credit Agreement requires delivery of this Certificate through an electronic platform or data site maintained by or on behalf of the Administrative Agent, the Borrower shall also upload this Certificate to such platform or data site promptly following execution.

This Compliance Certificate and the certifications contained herein are made solely for the benefit of the Administrative Agent and the Lenders under the Credit Agreement. No other person or entity is entitled to rely on the certifications contained herein. The undersigned has made reasonable inquiry and investigation in connection with the preparation of this Certificate, and the statements and certifications contained herein are made to the best knowledge and belief of the undersigned after due inquiry.

Line Item	Amount ($)
Outstanding principal amount of Term Loan B (Crescent Harbor Bank, N.A., as Administrative Agent)	[●]
Outstanding principal amount under Revolving Credit Facility (drawn balances)	[●]
Outstanding principal amount of Senior Unsecured Notes due 2028 ($245,000,000 at issuance; indenture trustee: Atlantic Standard Trust Company)	[●]
Capital lease obligations (as determined in accordance with GAAP)	[●]
Other Indebtedness (specify, if any)	[●]
Total Funded Debt	[●]
Line Item	Amount ($)
Unrestricted cash and cash equivalents of the Borrower and its Restricted Subsidiaries (determined in accordance with the definition set forth in the Credit Agreement and held in deposit accounts subject to a Control Agreement or otherwise not restricted)	[●]
Net Debt (Total Funded Debt minus Unrestricted Cash and Cash Equivalents)	[●]
Line Item	Amount ($)
Consolidated Net Income for the Test Period	[●]
Plus: Consolidated Interest Expense	[●]
Plus: Income tax expense (including federal, state, local, and foreign income taxes)	[●]
Plus: Depreciation and amortization expense	[●]
Plus: Non-cash stock-based compensation expense	[●]
Plus: Restructuring and transaction costs (to the extent permitted as add-backs under the definition of "Adjusted EBITDA" in the Credit Agreement, subject to applicable caps)	[●]
Plus: Other permitted add-backs per the Credit Agreement definition of "Adjusted EBITDA" (including, without limitation, non-cash charges, business optimization expenses, "run-rate" cost savings and synergies, and other items expressly permitted pursuant to the Credit Agreement)	[●]
Minus: Non-cash gains and other required subtractions (including non-cash items of income that increased Consolidated Net Income for the Test Period)	[●]
Plus/Minus: Pro forma adjustments for Permitted Acquisitions and dispositions consummated during the Test Period (calculated in accordance with the pro forma methodology set forth in the definition of "Adjusted EBITDA" in the Credit Agreement)	[●]
Adjusted EBITDA for the Test Period	[●]
Metric	Value
Net Debt (from (ii) above)	$[●]
Divided by: Adjusted EBITDA (from (iii) above)	$[●]
Total Net Leverage Ratio	[●]x

Maximum Total Net Leverage Ratio permitted under Section [●] of the Credit Agreement	4.50x
In Compliance	[Yes / No]
Metric	Amount
Aggregate Revolving Credit Exposure as of the Closing Date	$0
35% of Total Revolving Commitments ($400,000,000 × 35%)	$140,000,000
Financial Covenant Testing Required	No (since $0 < $140,000,000)
Component	Amount ($)
New Term Loan B (Crescent Harbor Bank, N.A., as Administrative Agent; CUSIP: 92347LAB8)	700,000,000
Revolving Credit Facility (Crescent Harbor Bank, N.A., as RCF Agent) — drawn amount	0
Senior Unsecured Notes due 2028 (Atlantic Standard Trust Company, as indenture trustee; 6.250% coupon)	245,000,000
Capital Lease Obligations	0
Other Indebtedness	0
Total Funded Debt	945,000,000
Component	Amount ($)
Unrestricted cash and cash equivalents (pro forma, including approximately $60,483,333 in net proceeds retained plus existing cash on hand of approximately $26,516,667; estimated total)	87,000,000
Net Debt (Total Funded Debt minus Unrestricted Cash and Cash Equivalents)	858,000,000
Component	Amount ($)
Consolidated Net Income for the LTM period ending March 31, 2022	—
Reference: FY2021 Adjusted EBITDA (as audited by Clearmont & Wharton LLP, independent registered public accounting firm; engagement partner: Ronald Ashby, CPA; audit report dated March 15, 2022)	341,000,000
FY2021 Revenue (for reference only)	1,420,000,000
FY2021 EBITDA (before permitted adjustments)	318,000,000
Permitted add-backs (including non-cash charges, transaction costs, and other items permitted under the definition of "Adjusted EBITDA" in the Credit Agreement)	23,000,000
LTM Adjusted EBITDA for the Test Period	341,000,000
Metric	Value
Net Debt	$858,000,000

Adjusted EBITDA	$341,000,000
Total Net Leverage Ratio	2.52x
Maximum Total Net Leverage Ratio (Credit Agreement covenant, Section [●])	4.50x
Cushion (in turns)	1.98x
Cushion (in dollar terms, representing incremental debt capacity at current Adjusted EBITDA levels)	Approximately $675,180,000
In Compliance	Yes
Metric	Value
Total Funded Debt (pre-netting)	$945,000,000
Total Gross Leverage Ratio (Total Funded Debt ÷ Adjusted EBITDA)	$945,000,000 ÷ $341,000,000 = 2.77x
Hotel Portfolio Appraised Value (74 properties across 18 states)	Approximately $3,100,000,000
Mortgaged Properties Appraised Value (42 properties owned by Verimark Resort Properties LLC, serving as Collateral under the Mortgage Documents)	Approximately $2,180,000,000
Loan-to-Value (Term Loan B vs. Mortgaged Properties)	$700,000,000 ÷ $2,180,000,000 = Approximately 32.1%
Rating Agency	Corporate Family Rating	Term Loan B Rating
Kellaway Ratings Group ("KRG")	BB-	B+
Pinnacle Credit Services ("PCS")	Ba3	B1
Component	Rate / Amount
Initial Interest Period	1-month Adjusted Term SOFR
1-month Term SOFR as of July 21, 2022 (as published by CME Group Benchmark Administration Limited)	2.29%
SOFR Credit Spread Adjustment (1-month, as set forth in the Credit Agreement)	0.10%
Adjusted Term SOFR (Term SOFR + Credit Spread Adjustment)	2.39%
SOFR Floor (as set forth in the Credit Agreement)	0.50%
SOFR Floor Binding	No (Adjusted Term SOFR of 2.39% exceeds Floor of 0.50%)
Applicable Margin (as set forth in the Pricing Grid in the Credit Agreement, based on the Borrower's corporate family credit rating)	3.75% (375 bps)
All-In Interest Rate (Adjusted Term SOFR + Applicable Margin)	6.14% per annum
Default Rate (Credit Agreement Section [●])	Not applicable; no Default or Event of Default exists

Component	Amount / Date
Original Principal Amount of Term Loan B	$700,000,000
Annual Amortization Rate	1.00% of original principal amount
Annual Amortization Amount	$7,000,000
Quarterly Amortization Payment	$1,750,000
First Quarterly Amortization Payment Due Date	October 21, 2022
Maturity Date	July 21, 2029
Total Number of Quarterly Amortization Payments	28
Aggregate Scheduled Amortization (28 quarters × $1,750,000)	$49,000,000
Balloon Payment at Maturity	$651,000,000

PART A
EXHIBIT [●]
FORM OF COMPLIANCE CERTIFICATE
Pursuant to that certain Credit Agreement, dated as of July 21, 2022 (as amended, restated, amended and restated, supplemented, or otherwise modified from time to time, the "Credit Agreement"), among Verimark Hospitality Group Inc., a Delaware corporation (the "Borrower"), the Guarantors party thereto, Crescent Harbor Bank, N.A., as Administrative Agent and Collateral Agent (the "Administrative Agent"), and the Lenders from time to time party thereto (collectively, the "Lenders").
Capitalized terms used but not defined herein shall have the meanings assigned to such terms in the Credit Agreement. References to Sections, Articles, Exhibits, and Schedules shall be to the corresponding Sections, Articles, Exhibits, and Schedules of the Credit Agreement unless otherwise specified. All financial computations set forth herein shall be made in accordance with GAAP, applied on a basis consistent with the financial statements delivered pursuant to Section [●] of the Credit Agreement.
Section 1 — Introductory Recital
Date: [DATE]
This Compliance Certificate (this "Certificate") is delivered pursuant to Section [●] of the Credit Agreement. The undersigned, a Responsible Officer of the Borrower (which, for purposes of this Certificate and the Credit Agreement, is defined to include the Chief Executive Officer, Chief Financial Officer, Treasurer, or General Counsel of the Borrower), hereby certifies to the Administrative Agent and each of the Lenders as follows in connection with the fiscal quarter ending [●] (the "Fiscal Quarter End Date") and the fiscal year ending [●], for the trailing four consecutive fiscal quarter period ending on the Fiscal Quarter End Date (the "Test Period"):
The financial statements delivered concurrently herewith pursuant to Section [●] (in the case of annual financial statements) or Section [●] (in the case of quarterly financial statements) of the Credit Agreement have been prepared in accordance with GAAP and present fairly, in all material respects, the consolidated financial condition, results of operations, and cash flows of the Borrower and its Restricted Subsidiaries as of and for the periods covered thereby, subject (in the case of unaudited quarterly financial statements) to normal year-end audit adjustments and the absence of footnotes.
Section 2 — Certification of Representations and Warranties
The undersigned Responsible Officer hereby certifies that, as of the date hereof, the representations and warranties of the Borrower and each Guarantor contained in Article [●] of the Credit Agreement and in each other Loan Document (including, without limitation, the Guarantee Agreement, the Pledge and Security Agreement, and each Mortgage and related ancillary document) are true and correct in all material respects on and as of the date hereof; provided that, with respect to any representation or warranty that is qualified by reference to "materiality," "Material Adverse Effect," or any similar qualification, such representation or warranty is true and correct in all respects (without duplication of any materiality qualifier) on and as of the date hereof. To the extent that any such representation or warranty specifically relates to an earlier date, the undersigned certifies that such representation or warranty was true and correct in all material respects (or, with respect to representations and warranties qualified by materiality or Material Adverse Effect, true and correct in all respects) as of such earlier date.
[except as set forth on Schedule 1 hereto]
For the avoidance of doubt, the representations and warranties so certified include, without limitation, those pertaining to: (i) organizational existence and good standing; (ii) due authorization, execution, and delivery of the Loan Documents; (iii) no conflicts with applicable law, organizational documents, or material agreements; (iv) governmental approvals and consents; (v) financial condition; (vi) absence of material litigation; (vii) compliance with ERISA; (viii) environmental matters; (ix) accuracy of disclosure; (x) intellectual property; (xi) insurance; (xii) solvency; (xiii) status of Collateral; and (xiv) anti-corruption, anti-money laundering, and sanctions compliance.
Section 3 — Certification of No Default
The undersigned hereby certifies that, as of the date hereof, no Default or Event of Default (each as defined in Article [●] of the Credit Agreement) has occurred and is continuing under the Credit Agreement or any other Loan Document.
[except as set forth on Schedule 2 hereto]
In the event that a Default or Event of Default exists as of the date hereof, the following information is provided:
(a) Nature of Default or Event of Default: [Describe in reasonable detail the nature of each Default or Event of Default, including the specific Section of the Credit Agreement or Loan Document that has been breached or with respect to which a default has occurred.]
(b) Period of Existence: [Specify the date on which each Default or Event of Default first occurred and the duration of its continuance as of the date hereof.]
(c) Action Taken or Proposed: [Describe in reasonable detail the action that the Borrower has taken, is taking, or proposes to take with respect to each Default or Event of Default, including any proposed timeline for cure.]
Section 4 — Financial Covenant Compliance
4(a) — Springing Financial Covenant Testing Threshold
The financial maintenance covenant set forth in Section [●] of the Credit Agreement (the "Financial Covenant") requires the Borrower to maintain a Maximum Total Net Leverage Ratio of not greater than 4.50 to 1.00 as of the last day of each fiscal quarter. The Financial Covenant is a springing covenant and is tested only when the aggregate revolving credit exposure under the $400,000,000 senior secured revolving credit facility established pursuant to the Credit Agreement (the "Revolving Credit Facility") exceeds 35% of total revolving commitments (i.e., $140,000,000) as of the last day of the applicable fiscal quarter, excluding, for purposes of such threshold calculation, any outstanding Letters of Credit in an aggregate face amount not exceeding $15,000,000 and any unreimbursed Letter of Credit disbursements that are repaid within three (3) Business Days.
The undersigned hereby certifies the following with respect to the springing financial covenant testing threshold:
Aggregate Revolving Credit Exposure as of [last day of fiscal quarter]: $[●]
35% of Total Revolving Commitments: $140,000,000
Financial Covenant Testing Required: [Yes / No]
4(b) — Maximum Total Net Leverage Ratio Calculation
Regardless of whether the springing financial covenant testing threshold set forth in Section 4(a) above has been met, the undersigned provides the following computation of the Total Net Leverage Ratio for informational purposes, in accordance with the definitions and computational methodology set forth in the Credit Agreement:
(i) Total Funded Debt Calculation:
(ii) Cash Netting:
(iii) Adjusted EBITDA Calculation (Trailing Four-Quarter Basis / Test Period):
Supporting calculations for Adjusted EBITDA are set forth in greater detail on Annex A and Annex B attached hereto.
(iv) Total Net Leverage Ratio:
Section 5 — Prepayment / Excess Cash Flow (If Applicable)
[To be completed for the fiscal year-end Compliance Certificate only, if applicable.]
If this Certificate is being delivered in connection with the annual financial statements for the Borrower's fiscal year, and to the extent the Credit Agreement requires mandatory prepayments from Excess Cash Flow pursuant to Section [●] thereof, the following calculation is provided:
(a) Excess Cash Flow for the applicable fiscal year: $[●]
(b) Applicable Excess Cash Flow Percentage (based on Total Net Leverage Ratio as of the last day of the applicable fiscal year): [●]%
(c) Mandatory Prepayment Amount (Excess Cash Flow × Applicable ECF Percentage, less voluntary prepayments credited during such fiscal year): $[●]
(d) Due date for Excess Cash Flow prepayment (if any): Within [●] days after delivery of annual financial statements.
If no Excess Cash Flow sweep is required for the applicable period, indicate "Not Applicable."
Section 6 — List of Subsidiaries / Material Changes
The undersigned hereby certifies that the list of Subsidiaries attached as Schedule [●] to the Credit Agreement (as most recently updated and delivered to the Administrative Agent) is accurate and complete in all material respects as of the date hereof, except as set forth below:
(a) New Subsidiaries formed, acquired, or otherwise established during the period covered by this Certificate: [Identify any new Subsidiaries, including their jurisdiction of organization, ownership structure, and Restricted/Unrestricted Subsidiary designation, or state "None."]
(b) Subsidiaries dissolved, merged, or otherwise eliminated during the period covered by this Certificate: [Identify any such Subsidiaries or state "None."]
(c) Any Subsidiary that has become a Material Subsidiary (as defined in the Credit Agreement) during the period, thereby requiring joinder as a Guarantor under Section [●] of the Credit Agreement and the execution and delivery of a Joinder Agreement, a supplement to the Pledge and Security Agreement, and such other Loan Documents as the Administrative Agent may reasonably request: [Identify any such Material Subsidiary or state "None."]
Section 7 — Insurance Confirmation
The undersigned hereby certifies that the Borrower and each of its Subsidiaries maintain insurance with financially sound and reputable insurance companies or underwriters in such amounts, covering such risks, and with such deductibles and self-insured retentions as are consistent with the requirements of Section [●] of the Credit Agreement and as are customary for companies of similar size engaged in similar businesses. The Administrative Agent (for the benefit of the Secured Parties) is named as additional insured and/or loss payee, as applicable, on all required insurance policies, including property and casualty, general liability, and umbrella/excess liability insurance. No material change in insurance coverage has occurred since the date of the last Compliance Certificate delivered to the Administrative Agent, except as previously disclosed in writing to the Administrative Agent.
Section 8 — Attachments
The following schedules and annexes are attached hereto and incorporated herein by reference:
Schedule 1: Exceptions to Representations and Warranties (if any) — [None]
Schedule 2: Defaults or Events of Default (if any) — [None]
Annex A: Detailed financial calculations supporting the Total Net Leverage Ratio computation set forth in Section 4(b) hereof, including supporting work papers and applicable definitions and adjustments.
Annex B: Reconciliation of Consolidated Net Income to Adjusted EBITDA, prepared in a manner consistent with the audited or reviewed financial statements delivered by the Borrower's independent registered public accounting firm, Clearmont & Wharton LLP, as applicable for the relevant period.
[Signature page follows]
[Signature Page to Compliance Certificate]
IN WITNESS WHEREOF, the undersigned Responsible Officer has executed and delivered this Compliance Certificate as of the date first written above.
VERIMARK HOSPITALITY GROUP INC.
By: ________
Name: [●]
Title: [●]
Date: [●]
PART B
COMPLIANCE CERTIFICATE
July 21, 2022
Delivered pursuant to Section [●] of the Credit Agreement, dated as of July 21, 2022 (the "Credit Agreement"), among Verimark Hospitality Group Inc., a Delaware corporation (the "Borrower"), the Guarantors party thereto, Crescent Harbor Bank, N.A., as Administrative Agent and Collateral Agent (the "Administrative Agent"), and the Lenders from time to time party thereto.
Capitalized terms used herein and not otherwise defined shall have the meanings set forth in the Credit Agreement. All dollar amounts are expressed in United States dollars unless otherwise indicated.
Section 1 — Officer Identification and Authority
The undersigned, Renata Haines, Chief Financial Officer of Verimark Hospitality Group Inc., a Delaware corporation (NYSE: VMRK), hereby certifies, in her capacity as a Responsible Officer of the Borrower, and not in her individual capacity, in connection with the initial borrowing under the Credit Agreement on the Closing Date (July 21, 2022), as follows:
The Borrower's principal executive office is located at 8200 West Palmetto Park Road, Suite 1500, Boca Raton, Florida 33433. The Borrower's Employer Identification Number is 82-3741956 and its Delaware File Number is 7291843. The undersigned has reviewed the terms of the Credit Agreement and the other Loan Documents and has made, or caused to be made under her supervision, a review of the transactions and condition of the Borrower and its Restricted Subsidiaries during the period covered by this Certificate. Such review did not disclose, and the undersigned has no knowledge of, the existence of any condition or event that constitutes a Default or Event of Default (each as defined in the Credit Agreement) as of the date hereof, except as set forth herein. The undersigned has the authority to execute and deliver this Certificate on behalf of the Borrower, and the execution and delivery of this Certificate have been duly authorized by all necessary corporate action on the part of the Borrower.
Section 2 — Certification of Representations and Warranties
As of the Closing Date, July 21, 2022, the representations and warranties of the Borrower and each of the following Guarantors:
(a) Verimark Resort Properties LLC, a Delaware limited liability company;
(b) VHG Management Services Inc., a Delaware corporation;
(c) Verimark Convention Holdings LLC, a Delaware limited liability company;
(d) Palmetto Beachfront Hotels LLC, a Florida limited liability company; and
(e) Cascadia Hospitality Corp., a Delaware corporation
(collectively, the "Guarantors"),
contained in Article [●] of the Credit Agreement and in each other Loan Document (including, without limitation, the Guarantee Agreement dated as of the date hereof, the Pledge and Security Agreement dated as of the date hereof, and each other collateral document, certificate, and agreement delivered in connection with the closing of the transactions contemplated by the Credit Agreement) are true and correct in all material respects on and as of the date hereof. With respect to any representation or warranty that is qualified by reference to "materiality," "Material Adverse Effect," or any similar qualification, such representation or warranty is true and correct in all respects (without duplication of any materiality qualifier) on and as of the date hereof. To the extent that any such representation or warranty specifically relates to an earlier date, such representation or warranty was true and correct in all material respects (or, with respect to representations and warranties qualified by materiality or Material Adverse Effect, true and correct in all respects) as of such earlier date.
No exceptions are noted.
Section 3 — Certification of No Default
As of the Closing Date, July 21, 2022, no Default or Event of Default has occurred and is continuing, or would result from: (i) the initial borrowing under the Credit Agreement, including the funding of the $700,000,000 Term Loan B; (ii) the execution and delivery of the Credit Agreement and the other Loan Documents; or (iii) the application of proceeds thereof, including, without limitation:
(a) the repayment in full of the existing $625,000,000 Term Loan B facility (of which $621,875,000 was outstanding in principal immediately prior to the Closing Date) for which Greystone Federal Credit Corp. served as administrative agent, together with all accrued and unpaid interest, fees, premiums, and other amounts owed thereunder;
(b) the payment of all transaction costs, fees, and expenses in connection with the closing of the Credit Agreement; and
(c) the application of remaining net proceeds for general corporate purposes of the Borrower and its Restricted Subsidiaries.
The existing credit agreement with Greystone Federal Credit Corp. as administrative agent has been terminated and all Liens securing obligations thereunder have been, or are in the process of being, released. Payoff letters and UCC-3 termination statements have been obtained or are being processed, and the Borrower has received written confirmation from Greystone Federal Credit Corp. that all obligations thereunder have been satisfied in full.
Section 4 — Pro Forma Financial Covenant Compliance at Closing
4(a) — Springing Covenant Testing Threshold at Closing
The Financial Covenant set forth in Section [●] of the Credit Agreement is a springing covenant that is tested only when aggregate revolving credit exposure under the Revolving Credit Facility exceeds 35% of total revolving commitments as of the last day of the applicable fiscal quarter. As of the Closing Date, the status of the springing covenant testing threshold is as follows:
The $400,000,000 Revolving Credit Facility is fully undrawn as of the Closing Date. No Letters of Credit have been issued under the Revolving Credit Facility as of the Closing Date.
Notwithstanding that the springing financial covenant test is not triggered, the Borrower provides the following pro forma leverage calculation for informational purposes, as required by the conditions precedent to the initial borrowing set forth in Section [●] of the Credit Agreement.
4(b) — Pro Forma Total Net Leverage Ratio Calculation
The following Total Net Leverage Ratio is calculated on a pro forma basis after giving effect to the Transactions (as defined in the Credit Agreement), including:
(a) the incurrence of the $700,000,000 Term Loan B under the Credit Agreement (net of original issue discount of $7,000,000, representing 1.00% of the aggregate principal amount);
(b) the application of proceeds to repay in full the existing Term Loan B ($621,875,000 in outstanding principal, plus approximately $2,916,667 in accrued and unpaid interest, plus a $3,125,000 prepayment premium (calculated as 0.50% of the outstanding principal amount in accordance with the terms of the existing credit agreement), for a total payoff amount of approximately $627,916,667);
(c) the payment of the arrangement fee of $3,500,000 to Crescent Harbor Bank, N.A., in its capacity as lead arranger;
(d) the payment of the advisory fee of $1,400,000 to Meridian Strauss Advisory LLC for financial advisory services rendered in connection with the Transactions;
(e) the payment of estimated legal and closing costs of approximately $3,200,000 (including fees and disbursements of Whitfield Gage & Partridge LLP, as counsel to the Administrative Agent, and other third-party costs); and
(f) net proceeds to the Borrower of approximately $60,483,333 (calculated as $700,000,000 less $7,000,000 OID less $627,916,667 payoff amount less $3,500,000 arrangement fee less $1,400,000 advisory fee less $3,200,000 estimated legal and closing costs, subject to final reconciliation), to be retained as cash on the balance sheet for general corporate purposes.
(i) Total Funded Debt (Pro Forma at Closing):
Note: The existing $625,000,000 Term Loan B (Greystone Federal Credit Corp., as administrative agent; CUSIP: 92347LAA0) has been repaid in full on the Closing Date from proceeds of the New Term Loan B and is excluded from the foregoing calculation. All Liens securing obligations under the existing credit agreement have been, or are being, released.
(ii) Cash Netting:
The foregoing unrestricted cash and cash equivalents figure represents the Borrower's good faith estimate of cash on hand as of the Closing Date, on a pro forma basis after giving effect to the Transactions. Cash amounts are held in deposit accounts at Crescent Harbor Bank, N.A. and at other financial institutions, in each case subject to a Control Agreement in favor of the Administrative Agent (or, with respect to post-closing deposit accounts, subject to the delivery of Control Agreements within the timeframes set forth in the Post-Closing Letter Agreement).
(iii) Adjusted EBITDA (Last Twelve Months Ending March 31, 2022, as the Most Recent Test Period):
Note: For purposes of the Closing Date pro forma calculation, the Borrower has utilized FY2021 Adjusted EBITDA as reported in the audited consolidated financial statements of the Borrower for the fiscal year ended December 31, 2021, which financial statements were audited by Clearmont & Wharton LLP. The LTM period ending March 31, 2022 has been used as the most recent Test Period; however, the Borrower has utilized FY2021 full-year Adjusted EBITDA as the best available proxy, consistent with the methodology approved by the Administrative Agent and the Lenders in connection with the commitment letters and the Credit Agreement. A detailed reconciliation of Consolidated Net Income to Adjusted EBITDA is set forth on Annex B hereto.
(iv) Pro Forma Total Net Leverage Ratio:
The Borrower's pro forma Total Net Leverage Ratio of 2.52x provides substantial headroom relative to the 4.50x covenant threshold, representing a cushion of approximately 44.0%.
4(c) — Additional Pro Forma Metrics (Informational)
The following additional financial metrics are provided for informational purposes only and do not constitute covenants under the Credit Agreement:
Credit Ratings:
The foregoing credit ratings were assigned on or about July 14, 2022, in connection with the Transactions. The Borrower is not aware of any pending or threatened downgrade of such ratings as of the Closing Date.
Section 5 — Interest Rate Confirmation
The undersigned hereby confirms the following interest rate terms applicable to the Term Loan B as of the Closing Date:
Interest Savings Analysis: The all-in interest rate of 6.14% per annum represents an estimated annual interest savings of approximately $3,500,000 versus the existing Term Loan B with Greystone Federal Credit Corp. (which bore interest at LIBOR + 4.25% (425 bps)), reflecting the 50 basis point reduction in applicable margin achieved through the refinancing. This estimate is based on a comparison of the applicable margins and does not account for differences between SOFR-based and LIBOR-based benchmark rates, which may result in additional savings or costs over time.
Section 6 — Amortization Schedule Confirmation
The undersigned hereby confirms the following amortization schedule applicable to the Term Loan B under the Credit Agreement:
The foregoing amortization schedule is subject to reduction on account of any voluntary or mandatory prepayments applied in accordance with the terms of the Credit Agreement. Mandatory prepayments may include, without limitation, Excess Cash Flow sweeps, asset sale proceeds, debt issuance proceeds, and casualty/condemnation proceeds, in each case to the extent required by the Credit Agreement.
Section 7 — Repricing Protection and MFN Acknowledgment
The undersigned acknowledges and confirms the following repricing protection and most favored nation provisions applicable to the Term Loan B:
Repricing Protection (Soft Call):
A repricing premium equal to 1.00% of the outstanding principal amount of the Term Loan B that is repriced or refinanced shall be payable in the event that, prior to January 21, 2023 (the date that is six (6) months after the Closing Date), the Borrower (a) makes any prepayment of the Term Loan B in connection with a repricing transaction (as defined in the Credit Agreement), or (b) effects any amendment to the Credit Agreement that reduces the effective yield applicable to the Term Loan B. If the entire outstanding principal amount of the Term Loan B were prepaid within the soft call period, the repricing premium would be $7,000,000 (1.00% × $700,000,000).
Most Favored Nation ("MFN") Provision:
With respect to any incremental term loans incurred under the Credit Agreement through January 21, 2024 (the date that is eighteen (18) months after the Closing Date), a 50 basis point MFN threshold applies. If the effective yield (as defined in the Credit Agreement, taking into account the applicable margin, any interest rate floor, and original issue discount or upfront fees, with original issue discount and upfront fees being equated to interest based on an assumed four-year life to maturity) of any such incremental term loan exceeds the effective yield of the initial Term Loan B by more than 50 basis points, the applicable margin on the initial Term Loan B shall be increased to the extent necessary so that the effective yield of the initial Term Loan B is equal to the effective yield of such incremental term loan minus 50 basis points.
Section 8 — Guarantor Confirmation
The undersigned hereby certifies that each of the following Guarantors (i) is duly organized, validly existing, and in good standing under the laws of its jurisdiction of organization, (ii) is in compliance in all material respects with its obligations under the Guarantee Agreement dated as of July 21, 2022, and the Pledge and Security Agreement dated as of July 21, 2022, and (iii) has duly authorized, executed, and delivered its respective Loan Documents:
(a) Verimark Resort Properties LLC, a Delaware limited liability company — owner and operator of 42 hotel properties constituting the Mortgaged Properties;
(b) VHG Management Services Inc., a Delaware corporation — the Borrower's hotel management and brand services subsidiary;
(c) Verimark Convention Holdings LLC, a Delaware limited liability company — owner and operator of convention center and meeting space assets;
(d) Palmetto Beachfront Hotels LLC, a Florida limited liability company — owner and operator of beachfront hotel properties in the State of Florida; and
(e) Cascadia Hospitality Corp., a Delaware corporation — owner and operator of hotel properties in the Pacific Northwest region.
No new Subsidiaries have been formed, acquired, or otherwise established that would require joinder as a Guarantor under Section [●] of the Credit Agreement since the date of the Credit Agreement. The organizational chart delivered to the Administrative Agent on the Closing Date accurately reflects the corporate and ownership structure of the Borrower and its Subsidiaries as of the date hereof.
Section 9 — Post-Closing Items Acknowledgment
The undersigned acknowledges that certain post-closing deliverables remain outstanding as of the Closing Date and are subject to delivery by August 5, 2022 (fifteen (15) calendar days after the Closing Date), pursuant to the Post-Closing Letter Agreement dated July 21, 2022, entered into between the Borrower, the Guarantors, and the Administrative Agent. Such post-closing deliverables include, without limitation:
(a) Executed Mortgages (or amendments to existing Mortgages) with respect to 42 hotel properties owned by Verimark Resort Properties LLC located across 12 states: Florida, New York, California, Texas, Georgia, Colorado, Arizona, Illinois, Washington, Oregon, Nevada, and Virginia;
(b) Lender's title insurance policies issued by Continental Fidelity Title Company (or its local affiliates) with respect to each Mortgaged Property, in an aggregate insured amount satisfactory to the Administrative Agent, together with all required endorsements;
(c) ALTA/NSPS surveys for each Mortgaged Property, certified to the Administrative Agent and the title insurance company, dated not more than ninety (90) days prior to the Closing Date (or such earlier date as may be acceptable to the Administrative Agent);
(d) Flood certifications for each Mortgaged Property, confirming whether any such property is located in a Special Flood Hazard Area, and, if so, evidence of flood insurance in compliance with the National Flood Insurance Act of 1968 and the Flood Disaster Protection Act of 1973, each as amended; and
(e) Such other items as may be identified in the Post-Closing Letter Agreement or as the Administrative Agent may reasonably request.
The Borrower is in the process of obtaining and delivering each of the foregoing post-closing items and currently expects to deliver all such items within the timeframe specified in the Post-Closing Letter Agreement. The failure to deliver any such items within the required timeframe will constitute an Event of Default under the Credit Agreement unless waived by the Administrative Agent (acting at the direction of the Required Lenders).
Section 10 — No Material Adverse Change
The undersigned hereby certifies that no Material Adverse Effect (as defined in the Credit Agreement) has occurred since December 31, 2021, the date of the most recent audited consolidated financial statements of the Borrower and its Restricted Subsidiaries delivered to the Administrative Agent. For the avoidance of doubt, the financial condition, operations, business, properties, and prospects of the Borrower and its Restricted Subsidiaries, taken as a whole, have not experienced any material adverse change since such date, and no event or circumstance has occurred that, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect.
[Signature page follows]
[Signature Page to Compliance Certificate — Closing Date]
IN WITNESS WHEREOF, the undersigned Responsible Officer has executed and delivered this Compliance Certificate as of the date first written above. The undersigned certifies that the foregoing statements are true, correct, and complete in all material respects as of the date hereof and are delivered to the Administrative Agent and the Lenders in satisfaction of the conditions precedent to the initial borrowing set forth in Section [●] of the Credit Agreement.
VERIMARK HOSPITALITY GROUP INC.
By: ________
Name: Renata Haines
Title: Chief Financial Officer
Date: July 21, 2022
Delivery Instructions
This Compliance Certificate, together with all schedules and annexes attached hereto, shall be delivered to the following parties:
Administrative Agent:
Crescent Harbor Bank, N.A. 600 Lexington Avenue, 34th Floor New York, New York 10022
Attention: Theodore Marchetti, Managing Director, Leveraged Finance
Email: theodore.marchetti@crescentharbor.com
and
Attention: Anika Holm, Director, Loan Syndications
Email: anika.holm@crescentharbor.com
With a copy to counsel to the Administrative Agent:
Whitfield Gage & Partridge LLP 383 Madison Avenue, 28th Floor New York, New York 10179
Attention: Harrison Whitfield III, Esq.
Email: hwhitfield@wgplaw.com
Delivery of this Certificate by electronic mail (in .pdf format) to the foregoing email addresses shall be deemed effective delivery for all purposes of the Credit Agreement; provided that the Borrower shall deliver an original executed counterpart to the Administrative Agent promptly following electronic delivery. To the extent the Credit Agreement requires delivery of this Certificate through an electronic platform or data site maintained by or on behalf of the Administrative Agent, the Borrower shall also upload this Certificate to such platform or data site promptly following execution.
This Compliance Certificate and the certifications contained herein are made solely for the benefit of the Administrative Agent and the Lenders under the Credit Agreement. No other person or entity is entitled to rely on the certifications contained herein. The undersigned has made reasonable inquiry and investigation in connection with the preparation of this Certificate, and the statements and certifications contained herein are made to the best knowledge and belief of the undersigned after due inquiry.
Line Item | Amount ($)
Outstanding principal amount of Term Loan B (Crescent Harbor Bank, N.A., as Administrative Agent) | [●]
Outstanding principal amount under Revolving Credit Facility (drawn balances) | [●]
Outstanding principal amount of Senior Unsecured Notes due 2028 ($245,000,000 at issuance; indenture trustee: Atlantic Standard Trust Company) | [●]
Capital lease obligations (as determined in accordance with GAAP) | [●]
Other Indebtedness (specify, if any) | [●]
Total Funded Debt | [●]
Line Item | Amount ($)
Unrestricted cash and cash equivalents of the Borrower and its Restricted Subsidiaries (determined in accordance with the definition set forth in the Credit Agreement and held in deposit accounts subject to a Control Agreement or otherwise not restricted) | [●]
Net Debt (Total Funded Debt minus Unrestricted Cash and Cash Equivalents) | [●]
Line Item | Amount ($)
Consolidated Net Income for the Test Period | [●]
Plus: Consolidated Interest Expense | [●]
Plus: Income tax expense (including federal, state, local, and foreign income taxes) | [●]
Plus: Depreciation and amortization expense | [●]
Plus: Non-cash stock-based compensation expense | [●]
Plus: Restructuring and transaction costs (to the extent permitted as add-backs under the definition of "Adjusted EBITDA" in the Credit Agreement, subject to applicable caps) | [●]
Plus: Other permitted add-backs per the Credit Agreement definition of "Adjusted EBITDA" (including, without limitation, non-cash charges, business optimization expenses, "run-rate" cost savings and synergies, and other items expressly permitted pursuant to the Credit Agreement) | [●]
Minus: Non-cash gains and other required subtractions (including non-cash items of income that increased Consolidated Net Income for the Test Period) | [●]
Plus/Minus: Pro forma adjustments for Permitted Acquisitions and dispositions consummated during the Test Period (calculated in accordance with the pro forma methodology set forth in the definition of "Adjusted EBITDA" in the Credit Agreement) | [●]
Adjusted EBITDA for the Test Period | [●]
Metric | Value
Net Debt (from (ii) above) | $[●]
Divided by: Adjusted EBITDA (from (iii) above) | $[●]
Total Net Leverage Ratio | [●]x
Maximum Total Net Leverage Ratio permitted under Section [●] of the Credit Agreement | 4.50x
In Compliance | [Yes / No]
Metric | Amount
Aggregate Revolving Credit Exposure as of the Closing Date | $0
35% of Total Revolving Commitments ($400,000,000 × 35%) | $140,000,000
Financial Covenant Testing Required | No (since $0 < $140,000,000)
Component | Amount ($)
New Term Loan B (Crescent Harbor Bank, N.A., as Administrative Agent; CUSIP: 92347LAB8) | 700,000,000
Revolving Credit Facility (Crescent Harbor Bank, N.A., as RCF Agent) — drawn amount | 0
Senior Unsecured Notes due 2028 (Atlantic Standard Trust Company, as indenture trustee; 6.250% coupon) | 245,000,000
Capital Lease Obligations | 0
Other Indebtedness | 0
Total Funded Debt | 945,000,000
Component | Amount ($)
Unrestricted cash and cash equivalents (pro forma, including approximately $60,483,333 in net proceeds retained plus existing cash on hand of approximately $26,516,667; estimated total) | 87,000,000
Net Debt (Total Funded Debt minus Unrestricted Cash and Cash Equivalents) | 858,000,000
Component | Amount ($)
Consolidated Net Income for the LTM period ending March 31, 2022 | —
Reference: FY2021 Adjusted EBITDA (as audited by Clearmont & Wharton LLP, independent registered public accounting firm; engagement partner: Ronald Ashby, CPA; audit report dated March 15, 2022) | 341,000,000
FY2021 Revenue (for reference only) | 1,420,000,000
FY2021 EBITDA (before permitted adjustments) | 318,000,000
Permitted add-backs (including non-cash charges, transaction costs, and other items permitted under the definition of "Adjusted EBITDA" in the Credit Agreement) | 23,000,000
LTM Adjusted EBITDA for the Test Period | 341,000,000
Metric | Value
Net Debt | $858,000,000
Adjusted EBITDA | $341,000,000
Total Net Leverage Ratio | 2.52x
Maximum Total Net Leverage Ratio (Credit Agreement covenant, Section [●]) | 4.50x
Cushion (in turns) | 1.98x
Cushion (in dollar terms, representing incremental debt capacity at current Adjusted EBITDA levels) | Approximately $675,180,000
In Compliance | Yes
Metric | Value
Total Funded Debt (pre-netting) | $945,000,000
Total Gross Leverage Ratio (Total Funded Debt ÷ Adjusted EBITDA) | $945,000,000 ÷ $341,000,000 = 2.77x
Hotel Portfolio Appraised Value (74 properties across 18 states) | Approximately $3,100,000,000
Mortgaged Properties Appraised Value (42 properties owned by Verimark Resort Properties LLC, serving as Collateral under the Mortgage Documents) | Approximately $2,180,000,000
Loan-to-Value (Term Loan B vs. Mortgaged Properties) | $700,000,000 ÷ $2,180,000,000 = Approximately 32.1%
Rating Agency | Corporate Family Rating | Term Loan B Rating
Kellaway Ratings Group ("KRG") | BB- | B+
Pinnacle Credit Services ("PCS") | Ba3 | B1
Component | Rate / Amount
Initial Interest Period | 1-month Adjusted Term SOFR
1-month Term SOFR as of July 21, 2022 (as published by CME Group Benchmark Administration Limited) | 2.29%
SOFR Credit Spread Adjustment (1-month, as set forth in the Credit Agreement) | 0.10%
Adjusted Term SOFR (Term SOFR + Credit Spread Adjustment) | 2.39%
SOFR Floor (as set forth in the Credit Agreement) | 0.50%
SOFR Floor Binding | No (Adjusted Term SOFR of 2.39% exceeds Floor of 0.50%)
Applicable Margin (as set forth in the Pricing Grid in the Credit Agreement, based on the Borrower's corporate family credit rating) | 3.75% (375 bps)
All-In Interest Rate (Adjusted Term SOFR + Applicable Margin) | 6.14% per annum
Default Rate (Credit Agreement Section [●]) | Not applicable; no Default or Event of Default exists
Component | Amount / Date
Original Principal Amount of Term Loan B | $700,000,000
Annual Amortization Rate | 1.00% of original principal amount
Annual Amortization Amount | $7,000,000
Quarterly Amortization Payment | $1,750,000
First Quarterly Amortization Payment Due Date | October 21, 2022
Maturity Date | July 21, 2029
Total Number of Quarterly Amortization Payments | 28
Aggregate Scheduled Amortization (28 quarters × $1,750,000) | $49,000,000
Balloon Payment at Maturity | $651,000,000

PART A

FORM OF COMPLIANCE CERTIFICATE

VERIMARK HOSPITALITY GROUP INC.

COMPLIANCE CERTIFICATE

VERIMARK HOSPITALITY GROUP INC.

Record

Parties

Dates

Amounts