1021-00003 · Verimark Hospitality Group · Engagement & Client Administration

engagement-letter-vhg.docx DOCUMENT Antitrust

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CALDERWOOD & HARKNESS LLP Attorneys at Law

333 SE 2nd Avenue, Suite 4400 Miami, Florida 33131 Telephone: (305) 814-7000 Facsimile: (305) 814-7001 www.calderwoodharkness.com

August 30, 2022

Nathaniel Driscoll, Esq. General Counsel Verimark Hospitality Group Inc. 1900 Brickell Avenue, Suite 3200 Miami, Florida 33129

Re: Engagement of Calderwood & Harkness LLP by Verimark Hospitality Group Inc. — Insurance Coverage Dispute Arising from Hurricane Callista Property Losses Engagement Number: 1021-00003

Dear Mr. Driscoll:

1. Purpose and Engagement

Calderwood & Harkness LLP (the "Firm") is pleased to confirm its engagement by Verimark Hospitality Group Inc. ("VHG" or the "Company"), a Delaware corporation publicly traded on the Nasdaq Stock Market under the ticker symbol VMRK, with its principal offices located at 1900 Brickell Avenue, Suite 3200, Miami, Florida 33129. This engagement letter (the "Letter" or "Engagement Letter") sets forth the terms and conditions under which the Firm will represent VHG in connection with the matters described herein, and is intended to memorialize the understanding between the Firm and VHG regarding the scope, staffing, fees, and other material aspects of the attorney-client relationship.

This Letter follows the discussions between Elaine Forsythe, Partner at Calderwood & Harkness LLP, and you, Nathaniel Driscoll, General Counsel of VHG, regarding the scope and nature of the engagement, including initial conversations held on August 22, 2022, and a follow-up telephone conference on August 26, 2022. We appreciate the confidence that VHG has placed in the Firm, and we look forward to providing diligent and effective representation in this matter.

By countersigning this Letter where indicated below, VHG confirms its agreement to the terms and conditions set forth herein. Unless otherwise agreed in a subsequent writing signed by both parties, this Letter shall govern the Firm's representation of VHG in the matters described in Section 2.

2. Scope of Representation

The Firm is retained to represent VHG in connection with VHG's claims for insurance coverage arising from property damage and business-interruption losses sustained at certain of VHG's resort and hospitality properties located in the State of Florida as a result of Hurricane Callista, which is anticipated to make landfall in the Florida Keys region in September 2022. The Firm's representation will encompass a comprehensive approach to the recovery of insurance proceeds to which VHG is entitled under its existing insurance program, from pre-litigation claim analysis through, if necessary, the prosecution of coverage litigation and alternative dispute resolution.

Specifically, the scope of the Firm's engagement includes the following:

(a) Policy Analysis and Review. Analysis and review of VHG's all-risk property and business-interruption insurance policies, including the primary policy issued by Ironclad Indemnity Corporation (Policy No. IIC-PRP-2022-07541) and excess-layer policies issued by Pinnacle Surplus Lines Inc. (Policy No. PSL-XS1-2022-3390), Montclair Assurance Company (Policy No. MAC-XS2-2022-09817), and Sovereign Re Ltd. (Policy No. SRL-XS3-2022-5102), together with all endorsements, schedules, declarations pages, binders, and related policy documents.

(b) Pre-Litigation Coverage Analysis and Strategy. Pre-litigation coverage analysis and development of a comprehensive claim strategy, including identification of applicable coverage grants, potential exclusions, sub-limits, deductibles, and conditions precedent to coverage, as well as assessment of the interplay among the various layers of VHG's insurance tower.

(c) Insurer Communications and Negotiations. Correspondence and negotiations with the insurers identified above and their respective counsel, claims representatives, and adjusters, including responses to reservation-of-rights letters, coverage-position letters, and any other communications from the insurers bearing on VHG's coverage entitlements.

(d) Proof of Loss and Claim Documentation. Preparation and submission of proofs of loss, sworn statements in proof of loss, and all related claim documentation required under the applicable policies, in coordination with VHG's internal risk management personnel and any retained loss consultants or public adjusters.

(e) Coverage Litigation. Prosecution of coverage litigation, if necessary, against any or all of the insurers in any court of competent jurisdiction, including the preparation and filing of complaints, motions, discovery requests and responses, depositions, expert reports, pre-trial and trial submissions, and post-trial motions and appeals.

(f) Alternative Dispute Resolution. Representation of VHG in mediation, arbitration, or other alternative dispute resolution proceedings, whether voluntary or required under the terms of any applicable policy or court order.

(g) Settlement Negotiations. Settlement negotiations with the insurers and their counsel at all stages of the engagement, including evaluation of settlement proposals, preparation of demand letters and settlement memoranda, and negotiation and documentation of any settlement agreements.

The properties at issue in this engagement are the following VHG-owned or VHG-operated resort properties, each of which is located within the projected impact zone of Hurricane Callista:

(i) Verimark Grand Key Resort, located at Mile Marker 48, Marathon, Florida 33050;

(ii) Verimark Harborview Hotel & Conference Center, located at 1400 Estero Boulevard, Fort Myers Beach, Florida 33931; and

(iii) Verimark Sunset Shores, located at 7200 Gulf Boulevard, St. Pete Beach, Florida 33706.

VHG's insurance program for the above-referenced properties is structured as a layered tower with a total available limit of Sixty Million Dollars ($60,000,000) above a Five Hundred Thousand Dollar ($500,000) per-occurrence deductible, allocated across four layers as described in the policy references set forth above. The Firm's representation will extend to all layers of VHG's insurance tower as necessary to maximize VHG's recovery.

Limitations on Scope. The scope of this engagement does not include representation in matters unrelated to the insurance coverage claims described herein, nor does it include representation in connection with any regulatory proceedings, governmental investigations, or claims asserted against VHG by third parties arising from Hurricane Callista. Additionally, this engagement does not include the prosecution of any claims against VHG's insurance broker, Tidewater Risk Advisors LLC, or any other broker, agent, or intermediary, unless such representation is separately agreed upon in writing between the Firm and VHG.

3. Identification of Adverse Parties

The following entities are identified as adverse or potentially adverse parties in connection with this engagement:

(a) Ironclad Indemnity Corporation, a Connecticut-domiciled stock insurance company, with its principal office located at 55 Constitution Boulevard, Hartford, Connecticut 06103. Ironclad Indemnity Corporation is the lead carrier and issuer of VHG's primary all-risk property and business-interruption insurance policy (Policy No. IIC-PRP-2022-07541).

(b) Pinnacle Surplus Lines Inc., a Texas-domiciled surplus-lines insurer, with its principal office located at 200 Congress Avenue, Suite 1400, Austin, Texas 78701. Pinnacle Surplus Lines Inc. is the issuer of VHG's first excess-layer policy (Policy No. PSL-XS1-2022-3390).

(c) Montclair Assurance Company, a New York-domiciled admitted carrier, with its principal office located at 1 Liberty Plaza, 38th Floor, New York, New York 10006. Montclair Assurance Company is the issuer of VHG's second excess-layer policy (Policy No. MAC-XS2-2022-09817).

(d) Sovereign Re Ltd., a Bermuda-domiciled excess and reinsurance carrier, with its principal office located at 14 Front Street, Hamilton HM 11, Bermuda. Sovereign Re Ltd. is the issuer of VHG's third excess-layer policy (Policy No. SRL-XS3-2022-5102).

The Firm has conducted a comprehensive conflicts check with respect to each of the above-identified adverse or potentially adverse parties, as well as their known affiliates and parent entities. The results of that review are documented in a separate Conflicts Check Memorandum dated August 29, 2022, which is maintained as an internal Firm document. Based upon that review, the Firm has confirmed that no conflict of interest exists with respect to any of the identified adverse parties that would preclude the Firm's representation of VHG in this engagement. Should any actual or potential conflict of interest arise during the course of this engagement, the Firm will promptly notify VHG and take appropriate action in accordance with the applicable rules of professional conduct.

4. Staffing

The following attorneys will be assigned to this engagement and will constitute the core engagement team:

(a) Elaine Forsythe, Partner — Responsible Partner. Ms. Forsythe will have overall responsibility for the strategic direction of the engagement, including principal client communications, formulation of litigation and negotiation strategy, supervision of all substantive work product, and responsibility for key filings and court appearances. Ms. Forsythe will serve as the primary point of contact for VHG on matters of strategy and significant developments.

(b) Howard Bellamy, Partner — Billing Partner. Mr. Bellamy will be responsible for billing oversight, invoice review, and compliance with VHG's billing guidelines, to the extent applicable. Mr. Bellamy will also contribute to strategic matters as needed and will provide senior-level review of significant work product, particularly with respect to complex coverage and policy-interpretation issues.

(c) Tiffany Rosenthal, Associate — Lead Associate. Ms. Rosenthal will be responsible for day-to-day case management, legal research, drafting of memoranda of law and court filings, coordination of fact and expert discovery, preparation of deposition outlines, and management of document production and review workflows. Ms. Rosenthal will serve as a day-to-day point of contact for VHG in conjunction with Ms. Forsythe.

(d) Andrew Fitzpatrick, Associate — Working Associate. Mr. Fitzpatrick will assist with legal research, document review, discovery preparation and responses, cite-checking and proofreading of filings, and will provide general support for all aspects of the engagement as directed by the partners and lead associate.

VHG should be aware that Ms. Forsythe and Mr. Bellamy are members of the Firm's Antitrust & Competition practice group but are cross-staffed to insurance-recovery matters, in which they have substantial experience. Ms. Rosenthal and Mr. Fitzpatrick are members of the Firm's Mergers & Acquisitions practice group and are being seconded to this engagement on a dedicated basis for the duration of the representation. Each member of the engagement team brings complementary skills and experience to the matter, and we are confident in the team's ability to provide VHG with effective and efficient representation.

The Firm reserves the right to assign additional attorneys, paralegals, or other professional staff to the engagement, or to modify the staffing of the engagement team, as the needs of the representation may require. VHG will be notified of any material staffing changes. Day-to-day client contact will be primarily through Elaine Forsythe and Tiffany Rosenthal, and all substantive communications regarding the engagement should be directed to one or both of those individuals unless otherwise agreed.

5. Fee Arrangement

5.1 Hourly Rates

Fees for legal services rendered in connection with this engagement will be billed on an hourly basis at the following individual rates for each member of the engagement team:

The blended hourly rate across the engagement team is approximately Seven Hundred Eighty-Five Dollars ($785.00) per hour, based on the anticipated allocation of work among the team members. Actual blended rates may vary from month to month depending on the nature of the work performed and the relative time contributions of each team member.

The hourly rates set forth above are the Firm's standard rates for 2022 and are subject to annual adjustment, typically effective as of January 1 of each calendar year. VHG will be notified in writing of any rate adjustments in advance of their effective date. In the event that additional attorneys or professional staff are assigned to the engagement, VHG will be notified of the applicable billing rates for such individuals at the time of their assignment.

All attorney time will be recorded in increments of one-tenth (0.1) of an hour. The Firm's timekeeping practices are designed to provide VHG with detailed and accurate billing records reflecting the nature of the work performed and the time expended by each timekeeper.

5.2 Contingency Enhancement

In addition to the hourly fees described in Section 5.1, upon resolution of the matter—whether by settlement, judgment, or other final disposition—the Firm shall be entitled to a contingency enhancement (the "Enhancement") equal to five percent (5%) of the net recovery obtained by or on behalf of VHG in excess of Thirty Million Dollars ($30,000,000).

For purposes of this Section, "net recovery" means the gross amount of any payment or payments received by or on behalf of VHG from the insurers identified in Section 3, or any of their affiliates or successors, whether by settlement, judgment, or otherwise, less any court-ordered costs or fees paid directly to third parties (but not including the Firm's own fees or expenses). Net recovery shall include the aggregate of all payments received from all insurers across all layers of VHG's insurance tower in connection with the Hurricane Callista losses described in Section 2.

The contingency enhancement, if any, shall be payable within thirty (30) days of receipt of the net recovery (or the final installment thereof, in the event recovery is received in multiple payments) by VHG. If recovery is received in installments over time, the Enhancement shall be calculated based on the cumulative net recovery and shall become payable when, and to the extent that, the cumulative net recovery exceeds the Thirty Million Dollar ($30,000,000) threshold.

For illustrative purposes only, the following example demonstrates the calculation of the contingency enhancement:

Example: If the net recovery obtained by VHG is Forty-Seven Million Dollars ($47,000,000), the contingency enhancement would be calculated as follows:

5% × ($47,000,000 − $30,000,000) = 5% × $17,000,000 = $850,000

The Enhancement of $850,000 would be payable to the Firm within thirty (30) days of VHG's receipt of the net recovery.

The contingency enhancement is intended to align the Firm's interests with VHG's objective of maximizing the insurance recovery and to compensate the Firm for the additional risk and commitment associated with this engagement. The Enhancement is in addition to, and not in lieu of, the hourly fees and expense reimbursements described elsewhere in this Letter.

5.3 Billing and Payment Terms

Invoices for fees and expenses will be rendered on a monthly basis, typically within fifteen (15) days following the end of each calendar month. All invoices are due and payable within thirty (30) days of the invoice date. Payment should be made by wire transfer or check to Calderwood & Harkness LLP, as specified on each invoice.

Each invoice will include a detailed description of the services rendered, the identity of the timekeeper performing the work, the number of hours expended by each timekeeper, the applicable hourly rate, and a summary of expenses and disbursements incurred during the billing period. The Firm's invoices are prepared in compliance with generally accepted legal billing practices and are designed to provide VHG with full transparency regarding the fees and expenses associated with the engagement.

All invoices and related billing correspondence should be directed to:

Nathaniel Driscoll, Esq. General Counsel Verimark Hospitality Group Inc. 1900 Brickell Avenue, Suite 3200 Miami, Florida 33129

VHG is requested to reference Engagement Number 1021-00003 on all invoice correspondence, payments, and communications relating to this engagement to ensure proper allocation and tracking of fees and expenses.

In the event that any invoice remains unpaid for more than sixty (60) days following the invoice date, the Firm reserves the right to suspend work on the engagement upon thirty (30) days' prior written notice to VHG, subject to the Firm's professional obligations and any applicable court orders. The Firm will work cooperatively with VHG to resolve any billing questions or disputes in a timely manner.

6. Expenses and Disbursements

In addition to the fees described in Section 5, VHG will be responsible for reimbursement of all reasonable out-of-pocket expenses and disbursements incurred by the Firm in connection with the engagement. Such expenses may include, but are not limited to, the following:

(a) Court filing fees and service of process costs;

(b) Expert witness and consultant fees, including fees of forensic economists, forensic engineers, meteorological consultants, independent adjusters, and other professionals retained in connection with the valuation and documentation of VHG's losses;

(d) Mediation and arbitration fees, including mediator and arbitrator compensation and administrative fees charged by dispute resolution providers;

(e) Travel expenses reasonably incurred in connection with the engagement, including airfare (coach or economy class for flights under four hours; business class for flights of four hours or more), lodging at standard business-class hotels, ground transportation, and meals, all at actual cost;

(f) Document reproduction costs, including photocopying, scanning, printing, and binding;

(g) Electronic discovery hosting, processing, and database costs, including fees charged by third-party e-discovery vendors;

(h) Messenger, courier, and overnight delivery charges; and

(i) Long-distance telephone charges and videoconference platform costs.

Any individual expense item expected to exceed Ten Thousand Dollars ($10,000) will be submitted to VHG for approval in advance of the expenditure. The Firm will use reasonable efforts to identify and communicate significant anticipated expenses as early as practicable.

The Firm will advance expenses as incurred and will seek reimbursement from VHG through the monthly invoicing process described in Section 5.3. All expenses will be billed at actual cost and will not be marked up or subject to any administrative surcharge.

7. Client Responsibilities

VHG agrees to cooperate fully with the Firm in the conduct of this engagement to ensure the efficient and effective prosecution of VHG's insurance coverage claims. VHG's cooperation obligations include, but are not limited to, the following:

(a) Document Production. Timely provision of all documents, records, and information relevant to the engagement, including without limitation all insurance policies, endorsements, declarations pages, binders, and schedules; all correspondence with the insurers and their representatives; property damage assessments, repair estimates, and remediation reports; business-interruption calculations and supporting financial records; loss inventories; internal memoranda and reports relating to Hurricane Callista and its impact on VHG's properties; and any other documents or information reasonably requested by the Firm.

(b) Personnel Availability. Making available key personnel for consultation, interviews, and preparation for depositions and other proceedings, including Marcus Ellsworth (Chief Executive Officer), Diane Calder (Chief Financial Officer), Sandra Pellegrini (Vice President, Risk Management), and such other officers, employees, or agents of VHG as may have knowledge of the insured properties, the Hurricane Callista losses, VHG's insurance program, or other matters relevant to the engagement.

(c) Timely Responsiveness. Prompt response to requests from the Firm for information, documents, approvals, and review of draft filings, correspondence, and other work product. Delays in client responsiveness can adversely affect the progress and outcome of the engagement, and VHG's cooperation is essential to the Firm's ability to meet deadlines and advance VHG's interests effectively.

(d) Litigation Hold. Prompt implementation of a litigation hold to preserve all documents and electronically stored information ("ESI") potentially relevant to VHG's insurance coverage claims, including emails, text messages, instant messages, voicemails, photographs, videos, electronic files, and data stored on servers, backup tapes, mobile devices, and cloud-based platforms. The Firm will provide VHG with guidance regarding the scope and implementation of the litigation hold.

VHG retains ultimate decision-making authority regarding all material strategic decisions in the engagement, including decisions regarding the settlement, compromise, or other disposition of VHG's claims. The Firm will provide VHG with its professional recommendations and analysis to assist VHG in making informed decisions, but all final decisions on such matters rest with VHG.

8. Confidentiality and Privilege

All communications between VHG and the Firm in connection with this engagement are intended to be protected by the attorney-client privilege and the work-product doctrine to the fullest extent permitted by applicable law. These protections are fundamental to the attorney-client relationship and are critical to the Firm's ability to provide candid and effective legal advice.

VHG should take care to maintain the confidentiality of all privileged communications and should not disclose such communications, or the substance thereof, to third parties without the prior written approval of the Firm. Inadvertent or unauthorized disclosure of privileged communications to third parties may result in a waiver of the attorney-client privilege, which could be harmful to VHG's interests. VHG should direct any questions regarding the scope of the privilege or the permissibility of specific disclosures to Ms. Forsythe or Ms. Rosenthal.

The Firm will maintain the confidentiality of all client information received in connection with this engagement in accordance with the Florida Rules of Professional Conduct, the applicable rules of any other jurisdiction in which the Firm may provide services in connection with the engagement, and any other applicable legal or ethical obligations. The Firm will not disclose VHG's confidential information to any third party except as authorized by VHG, required by law, or permitted under the applicable rules of professional conduct.

9. Document Retention

The Firm will maintain the engagement file, including all documents, correspondence, memoranda, work product, and other materials generated or received in connection with this engagement, in accordance with the Firm's document retention policies. The Firm's standard retention period for closed engagement files is ten (10) years from the date of the conclusion of the engagement, after which the Firm may destroy the file in accordance with its policies without further notice to VHG.

Upon conclusion of the engagement, original documents provided to the Firm by VHG will be returned to VHG upon written request. If no such request is received within ninety (90) days following the conclusion of the engagement, the Firm may incorporate such original documents into the engagement file and retain or dispose of them in accordance with its standard retention policies.

The Firm reserves the right to retain copies of all materials in the engagement file, including copies of original documents provided by VHG, for purposes of complying with the Firm's professional and ethical obligations, defending against any claims or disputes relating to the engagement, and maintaining institutional knowledge for the benefit of VHG in the event of future matters.

10. Termination

Either party may terminate this engagement at any time upon written notice to the other party. The Firm's representation of VHG will cease upon the effective date of such termination, subject to the Firm's professional obligations and any requirements imposed by applicable court rules, including the obligation to seek leave of court to withdraw from any pending litigation.

In the event of termination, whether by VHG or by the Firm, VHG will be responsible for payment of all fees earned and expenses incurred by the Firm through the date of termination, in accordance with the terms set forth in Sections 5 and 6 of this Letter. In addition, if a recovery has been obtained by or on behalf of VHG prior to the effective date of termination, or if a recovery is subsequently obtained that is attributable in whole or in part to work performed by the Firm prior to termination, VHG will be responsible for payment of the contingency enhancement described in Section 5.2, calculated on the basis of the net recovery as defined therein.

Upon termination, the Firm will take all reasonable steps to protect VHG's interests during the transition to successor counsel, including the orderly transfer of the engagement file, the provision of status reports on all pending matters and deadlines, and cooperation with successor counsel as reasonably requested. The Firm's obligations in this regard are subject to applicable court rules, the Florida Rules of Professional Conduct, and VHG's satisfaction of its outstanding financial obligations to the Firm.

11. Governing Law and Dispute Resolution

This Engagement Letter shall be governed by and construed in accordance with the laws of the State of Florida, without regard to its conflict-of-laws principles.

In the event of any dispute, claim, or controversy arising from or relating to this Engagement Letter, the Firm's representation of VHG, or the fees, expenses, or other charges billed in connection with this engagement, the parties agree to resolve such dispute by binding arbitration in Miami, Florida. The arbitration shall be conducted in accordance with the rules of a mutually agreed-upon arbitration provider, and the decision of the arbitrator(s) shall be final and binding upon the parties and may be entered as a judgment in any court of competent jurisdiction. Each party shall bear its own costs and attorneys' fees in connection with any such arbitration, unless the arbitrator determines otherwise.

The parties agree that, prior to initiating arbitration, they will engage in good-faith negotiations for a period of not less than thirty (30) days in an effort to resolve the dispute informally.

12. Entire Agreement; Amendment

This Letter constitutes the entire agreement between Calderwood & Harkness LLP and Verimark Hospitality Group Inc. with respect to the terms and conditions of the Firm's engagement and supersedes all prior discussions, understandings, and agreements, whether oral or written, relating to the subject matter hereof.

No amendment, modification, or waiver of any provision of this Letter shall be effective unless set forth in a writing signed by both Calderwood & Harkness LLP and an authorized representative of VHG. No failure or delay by either party in exercising any right or remedy under this Letter shall operate as a waiver thereof, nor shall any single or partial exercise of any right or remedy preclude any other or further exercise thereof or the exercise of any other right or remedy.

VHG is requested to reference Engagement Number 1021-00003 in all future correspondence, filings, and communications relating to this engagement.

13. Acceptance

We are grateful for the opportunity to represent Verimark Hospitality Group Inc. in this important matter and are committed to providing the highest quality of legal services. If the foregoing terms are acceptable, please indicate VHG's agreement by having an authorized representative countersign this Letter in the space provided below and return one fully executed copy to the undersigned at your earliest convenience. A duplicate original of this Letter is enclosed for your records.

Please do not hesitate to contact Elaine Forsythe at (305) 814-7025 or eforsythe@calderwoodharkness.com, or Tiffany Rosenthal at (305) 814-7043 or trosenthal@calderwoodharkness.com, should you have any questions regarding this Letter or the engagement.

We look forward to working with you and the VHG team.

Very truly yours,

CALDERWOOD & HARKNESS LLP

By: ________

Name: Elaine Forsythe

Title: Partner

333 SE 2nd Avenue, Suite 4400 Miami, Florida 33131

Date: August 30, 2022

AGREED AND ACCEPTED:

VERIMARK HOSPITALITY GROUP INC.

By: ________

Name: Nathaniel Driscoll

Title: General Counsel

1900 Brickell Avenue, Suite 3200 Miami, Florida 33129

Date: ________

cc:

Marcus Ellsworth, Chief Executive Officer, Verimark Hospitality Group Inc. Diane Calder, Chief Financial Officer, Verimark Hospitality Group Inc. Sandra Pellegrini, Vice President, Risk Management, Verimark Hospitality Group Inc. Howard Bellamy, Partner, Calderwood & Harkness LLP

Timekeeper	Position	Hourly Rate
Elaine Forsythe	Partner	$1,150.00
Howard Bellamy	Partner	$1,100.00
Tiffany Rosenthal	Associate	$625.00
Andrew Fitzpatrick	Associate	$475.00

CALDERWOOD & HARKNESS LLP Attorneys at Law
333 SE 2nd Avenue, Suite 4400 Miami, Florida 33131 Telephone: (305) 814-7000 Facsimile: (305) 814-7001 www.calderwoodharkness.com
August 30, 2022
Nathaniel Driscoll, Esq. General Counsel Verimark Hospitality Group Inc. 1900 Brickell Avenue, Suite 3200 Miami, Florida 33129
Re: Engagement of Calderwood & Harkness LLP by Verimark Hospitality Group Inc. — Insurance Coverage Dispute Arising from Hurricane Callista Property Losses Engagement Number: 1021-00003
Dear Mr. Driscoll:
1. Purpose and Engagement
Calderwood & Harkness LLP (the "Firm") is pleased to confirm its engagement by Verimark Hospitality Group Inc. ("VHG" or the "Company"), a Delaware corporation publicly traded on the Nasdaq Stock Market under the ticker symbol VMRK, with its principal offices located at 1900 Brickell Avenue, Suite 3200, Miami, Florida 33129. This engagement letter (the "Letter" or "Engagement Letter") sets forth the terms and conditions under which the Firm will represent VHG in connection with the matters described herein, and is intended to memorialize the understanding between the Firm and VHG regarding the scope, staffing, fees, and other material aspects of the attorney-client relationship.
This Letter follows the discussions between Elaine Forsythe, Partner at Calderwood & Harkness LLP, and you, Nathaniel Driscoll, General Counsel of VHG, regarding the scope and nature of the engagement, including initial conversations held on August 22, 2022, and a follow-up telephone conference on August 26, 2022. We appreciate the confidence that VHG has placed in the Firm, and we look forward to providing diligent and effective representation in this matter.
By countersigning this Letter where indicated below, VHG confirms its agreement to the terms and conditions set forth herein. Unless otherwise agreed in a subsequent writing signed by both parties, this Letter shall govern the Firm's representation of VHG in the matters described in Section 2.
2. Scope of Representation
The Firm is retained to represent VHG in connection with VHG's claims for insurance coverage arising from property damage and business-interruption losses sustained at certain of VHG's resort and hospitality properties located in the State of Florida as a result of Hurricane Callista, which is anticipated to make landfall in the Florida Keys region in September 2022. The Firm's representation will encompass a comprehensive approach to the recovery of insurance proceeds to which VHG is entitled under its existing insurance program, from pre-litigation claim analysis through, if necessary, the prosecution of coverage litigation and alternative dispute resolution.
Specifically, the scope of the Firm's engagement includes the following:
(a) Policy Analysis and Review. Analysis and review of VHG's all-risk property and business-interruption insurance policies, including the primary policy issued by Ironclad Indemnity Corporation (Policy No. IIC-PRP-2022-07541) and excess-layer policies issued by Pinnacle Surplus Lines Inc. (Policy No. PSL-XS1-2022-3390), Montclair Assurance Company (Policy No. MAC-XS2-2022-09817), and Sovereign Re Ltd. (Policy No. SRL-XS3-2022-5102), together with all endorsements, schedules, declarations pages, binders, and related policy documents.
(b) Pre-Litigation Coverage Analysis and Strategy. Pre-litigation coverage analysis and development of a comprehensive claim strategy, including identification of applicable coverage grants, potential exclusions, sub-limits, deductibles, and conditions precedent to coverage, as well as assessment of the interplay among the various layers of VHG's insurance tower.
(c) Insurer Communications and Negotiations. Correspondence and negotiations with the insurers identified above and their respective counsel, claims representatives, and adjusters, including responses to reservation-of-rights letters, coverage-position letters, and any other communications from the insurers bearing on VHG's coverage entitlements.
(d) Proof of Loss and Claim Documentation. Preparation and submission of proofs of loss, sworn statements in proof of loss, and all related claim documentation required under the applicable policies, in coordination with VHG's internal risk management personnel and any retained loss consultants or public adjusters.
(e) Coverage Litigation. Prosecution of coverage litigation, if necessary, against any or all of the insurers in any court of competent jurisdiction, including the preparation and filing of complaints, motions, discovery requests and responses, depositions, expert reports, pre-trial and trial submissions, and post-trial motions and appeals.
(f) Alternative Dispute Resolution. Representation of VHG in mediation, arbitration, or other alternative dispute resolution proceedings, whether voluntary or required under the terms of any applicable policy or court order.
(g) Settlement Negotiations. Settlement negotiations with the insurers and their counsel at all stages of the engagement, including evaluation of settlement proposals, preparation of demand letters and settlement memoranda, and negotiation and documentation of any settlement agreements.
The properties at issue in this engagement are the following VHG-owned or VHG-operated resort properties, each of which is located within the projected impact zone of Hurricane Callista:
(i) Verimark Grand Key Resort, located at Mile Marker 48, Marathon, Florida 33050;
(ii) Verimark Harborview Hotel & Conference Center, located at 1400 Estero Boulevard, Fort Myers Beach, Florida 33931; and
(iii) Verimark Sunset Shores, located at 7200 Gulf Boulevard, St. Pete Beach, Florida 33706.
VHG's insurance program for the above-referenced properties is structured as a layered tower with a total available limit of Sixty Million Dollars ($60,000,000) above a Five Hundred Thousand Dollar ($500,000) per-occurrence deductible, allocated across four layers as described in the policy references set forth above. The Firm's representation will extend to all layers of VHG's insurance tower as necessary to maximize VHG's recovery.
Limitations on Scope. The scope of this engagement does not include representation in matters unrelated to the insurance coverage claims described herein, nor does it include representation in connection with any regulatory proceedings, governmental investigations, or claims asserted against VHG by third parties arising from Hurricane Callista. Additionally, this engagement does not include the prosecution of any claims against VHG's insurance broker, Tidewater Risk Advisors LLC, or any other broker, agent, or intermediary, unless such representation is separately agreed upon in writing between the Firm and VHG.
3. Identification of Adverse Parties
The following entities are identified as adverse or potentially adverse parties in connection with this engagement:
(a) Ironclad Indemnity Corporation, a Connecticut-domiciled stock insurance company, with its principal office located at 55 Constitution Boulevard, Hartford, Connecticut 06103. Ironclad Indemnity Corporation is the lead carrier and issuer of VHG's primary all-risk property and business-interruption insurance policy (Policy No. IIC-PRP-2022-07541).
(b) Pinnacle Surplus Lines Inc., a Texas-domiciled surplus-lines insurer, with its principal office located at 200 Congress Avenue, Suite 1400, Austin, Texas 78701. Pinnacle Surplus Lines Inc. is the issuer of VHG's first excess-layer policy (Policy No. PSL-XS1-2022-3390).
(c) Montclair Assurance Company, a New York-domiciled admitted carrier, with its principal office located at 1 Liberty Plaza, 38th Floor, New York, New York 10006. Montclair Assurance Company is the issuer of VHG's second excess-layer policy (Policy No. MAC-XS2-2022-09817).
(d) Sovereign Re Ltd., a Bermuda-domiciled excess and reinsurance carrier, with its principal office located at 14 Front Street, Hamilton HM 11, Bermuda. Sovereign Re Ltd. is the issuer of VHG's third excess-layer policy (Policy No. SRL-XS3-2022-5102).
The Firm has conducted a comprehensive conflicts check with respect to each of the above-identified adverse or potentially adverse parties, as well as their known affiliates and parent entities. The results of that review are documented in a separate Conflicts Check Memorandum dated August 29, 2022, which is maintained as an internal Firm document. Based upon that review, the Firm has confirmed that no conflict of interest exists with respect to any of the identified adverse parties that would preclude the Firm's representation of VHG in this engagement. Should any actual or potential conflict of interest arise during the course of this engagement, the Firm will promptly notify VHG and take appropriate action in accordance with the applicable rules of professional conduct.
4. Staffing
The following attorneys will be assigned to this engagement and will constitute the core engagement team:
(a) Elaine Forsythe, Partner — Responsible Partner. Ms. Forsythe will have overall responsibility for the strategic direction of the engagement, including principal client communications, formulation of litigation and negotiation strategy, supervision of all substantive work product, and responsibility for key filings and court appearances. Ms. Forsythe will serve as the primary point of contact for VHG on matters of strategy and significant developments.
(b) Howard Bellamy, Partner — Billing Partner. Mr. Bellamy will be responsible for billing oversight, invoice review, and compliance with VHG's billing guidelines, to the extent applicable. Mr. Bellamy will also contribute to strategic matters as needed and will provide senior-level review of significant work product, particularly with respect to complex coverage and policy-interpretation issues.
(c) Tiffany Rosenthal, Associate — Lead Associate. Ms. Rosenthal will be responsible for day-to-day case management, legal research, drafting of memoranda of law and court filings, coordination of fact and expert discovery, preparation of deposition outlines, and management of document production and review workflows. Ms. Rosenthal will serve as a day-to-day point of contact for VHG in conjunction with Ms. Forsythe.
(d) Andrew Fitzpatrick, Associate — Working Associate. Mr. Fitzpatrick will assist with legal research, document review, discovery preparation and responses, cite-checking and proofreading of filings, and will provide general support for all aspects of the engagement as directed by the partners and lead associate.
VHG should be aware that Ms. Forsythe and Mr. Bellamy are members of the Firm's Antitrust & Competition practice group but are cross-staffed to insurance-recovery matters, in which they have substantial experience. Ms. Rosenthal and Mr. Fitzpatrick are members of the Firm's Mergers & Acquisitions practice group and are being seconded to this engagement on a dedicated basis for the duration of the representation. Each member of the engagement team brings complementary skills and experience to the matter, and we are confident in the team's ability to provide VHG with effective and efficient representation.
The Firm reserves the right to assign additional attorneys, paralegals, or other professional staff to the engagement, or to modify the staffing of the engagement team, as the needs of the representation may require. VHG will be notified of any material staffing changes. Day-to-day client contact will be primarily through Elaine Forsythe and Tiffany Rosenthal, and all substantive communications regarding the engagement should be directed to one or both of those individuals unless otherwise agreed.
5. Fee Arrangement
5.1 Hourly Rates
Fees for legal services rendered in connection with this engagement will be billed on an hourly basis at the following individual rates for each member of the engagement team:
The blended hourly rate across the engagement team is approximately Seven Hundred Eighty-Five Dollars ($785.00) per hour, based on the anticipated allocation of work among the team members. Actual blended rates may vary from month to month depending on the nature of the work performed and the relative time contributions of each team member.
The hourly rates set forth above are the Firm's standard rates for 2022 and are subject to annual adjustment, typically effective as of January 1 of each calendar year. VHG will be notified in writing of any rate adjustments in advance of their effective date. In the event that additional attorneys or professional staff are assigned to the engagement, VHG will be notified of the applicable billing rates for such individuals at the time of their assignment.
All attorney time will be recorded in increments of one-tenth (0.1) of an hour. The Firm's timekeeping practices are designed to provide VHG with detailed and accurate billing records reflecting the nature of the work performed and the time expended by each timekeeper.
5.2 Contingency Enhancement
In addition to the hourly fees described in Section 5.1, upon resolution of the matter—whether by settlement, judgment, or other final disposition—the Firm shall be entitled to a contingency enhancement (the "Enhancement") equal to five percent (5%) of the net recovery obtained by or on behalf of VHG in excess of Thirty Million Dollars ($30,000,000).
For purposes of this Section, "net recovery" means the gross amount of any payment or payments received by or on behalf of VHG from the insurers identified in Section 3, or any of their affiliates or successors, whether by settlement, judgment, or otherwise, less any court-ordered costs or fees paid directly to third parties (but not including the Firm's own fees or expenses). Net recovery shall include the aggregate of all payments received from all insurers across all layers of VHG's insurance tower in connection with the Hurricane Callista losses described in Section 2.
The contingency enhancement, if any, shall be payable within thirty (30) days of receipt of the net recovery (or the final installment thereof, in the event recovery is received in multiple payments) by VHG. If recovery is received in installments over time, the Enhancement shall be calculated based on the cumulative net recovery and shall become payable when, and to the extent that, the cumulative net recovery exceeds the Thirty Million Dollar ($30,000,000) threshold.
For illustrative purposes only, the following example demonstrates the calculation of the contingency enhancement:
Example: If the net recovery obtained by VHG is Forty-Seven Million Dollars ($47,000,000), the contingency enhancement would be calculated as follows:
5% × ($47,000,000 − $30,000,000) = 5% × $17,000,000 = $850,000
The Enhancement of $850,000 would be payable to the Firm within thirty (30) days of VHG's receipt of the net recovery.
The contingency enhancement is intended to align the Firm's interests with VHG's objective of maximizing the insurance recovery and to compensate the Firm for the additional risk and commitment associated with this engagement. The Enhancement is in addition to, and not in lieu of, the hourly fees and expense reimbursements described elsewhere in this Letter.
5.3 Billing and Payment Terms
Invoices for fees and expenses will be rendered on a monthly basis, typically within fifteen (15) days following the end of each calendar month. All invoices are due and payable within thirty (30) days of the invoice date. Payment should be made by wire transfer or check to Calderwood & Harkness LLP, as specified on each invoice.
Each invoice will include a detailed description of the services rendered, the identity of the timekeeper performing the work, the number of hours expended by each timekeeper, the applicable hourly rate, and a summary of expenses and disbursements incurred during the billing period. The Firm's invoices are prepared in compliance with generally accepted legal billing practices and are designed to provide VHG with full transparency regarding the fees and expenses associated with the engagement.
All invoices and related billing correspondence should be directed to:
Nathaniel Driscoll, Esq. General Counsel Verimark Hospitality Group Inc. 1900 Brickell Avenue, Suite 3200 Miami, Florida 33129
VHG is requested to reference Engagement Number 1021-00003 on all invoice correspondence, payments, and communications relating to this engagement to ensure proper allocation and tracking of fees and expenses.
In the event that any invoice remains unpaid for more than sixty (60) days following the invoice date, the Firm reserves the right to suspend work on the engagement upon thirty (30) days' prior written notice to VHG, subject to the Firm's professional obligations and any applicable court orders. The Firm will work cooperatively with VHG to resolve any billing questions or disputes in a timely manner.
6. Expenses and Disbursements
In addition to the fees described in Section 5, VHG will be responsible for reimbursement of all reasonable out-of-pocket expenses and disbursements incurred by the Firm in connection with the engagement. Such expenses may include, but are not limited to, the following:
(a) Court filing fees and service of process costs;
(b) Expert witness and consultant fees, including fees of forensic economists, forensic engineers, meteorological consultants, independent adjusters, and other professionals retained in connection with the valuation and documentation of VHG's losses;
(c) Deposition transcript costs, including court reporter fees, expedited transcript charges, and videography costs;
(d) Mediation and arbitration fees, including mediator and arbitrator compensation and administrative fees charged by dispute resolution providers;
(e) Travel expenses reasonably incurred in connection with the engagement, including airfare (coach or economy class for flights under four hours; business class for flights of four hours or more), lodging at standard business-class hotels, ground transportation, and meals, all at actual cost;
(f) Document reproduction costs, including photocopying, scanning, printing, and binding;
(g) Electronic discovery hosting, processing, and database costs, including fees charged by third-party e-discovery vendors;
(h) Messenger, courier, and overnight delivery charges; and
(i) Long-distance telephone charges and videoconference platform costs.
Any individual expense item expected to exceed Ten Thousand Dollars ($10,000) will be submitted to VHG for approval in advance of the expenditure. The Firm will use reasonable efforts to identify and communicate significant anticipated expenses as early as practicable.
The Firm will advance expenses as incurred and will seek reimbursement from VHG through the monthly invoicing process described in Section 5.3. All expenses will be billed at actual cost and will not be marked up or subject to any administrative surcharge.
7. Client Responsibilities
VHG agrees to cooperate fully with the Firm in the conduct of this engagement to ensure the efficient and effective prosecution of VHG's insurance coverage claims. VHG's cooperation obligations include, but are not limited to, the following:
(a) Document Production. Timely provision of all documents, records, and information relevant to the engagement, including without limitation all insurance policies, endorsements, declarations pages, binders, and schedules; all correspondence with the insurers and their representatives; property damage assessments, repair estimates, and remediation reports; business-interruption calculations and supporting financial records; loss inventories; internal memoranda and reports relating to Hurricane Callista and its impact on VHG's properties; and any other documents or information reasonably requested by the Firm.
(b) Personnel Availability. Making available key personnel for consultation, interviews, and preparation for depositions and other proceedings, including Marcus Ellsworth (Chief Executive Officer), Diane Calder (Chief Financial Officer), Sandra Pellegrini (Vice President, Risk Management), and such other officers, employees, or agents of VHG as may have knowledge of the insured properties, the Hurricane Callista losses, VHG's insurance program, or other matters relevant to the engagement.
(c) Timely Responsiveness. Prompt response to requests from the Firm for information, documents, approvals, and review of draft filings, correspondence, and other work product. Delays in client responsiveness can adversely affect the progress and outcome of the engagement, and VHG's cooperation is essential to the Firm's ability to meet deadlines and advance VHG's interests effectively.
(d) Litigation Hold. Prompt implementation of a litigation hold to preserve all documents and electronically stored information ("ESI") potentially relevant to VHG's insurance coverage claims, including emails, text messages, instant messages, voicemails, photographs, videos, electronic files, and data stored on servers, backup tapes, mobile devices, and cloud-based platforms. The Firm will provide VHG with guidance regarding the scope and implementation of the litigation hold.
VHG retains ultimate decision-making authority regarding all material strategic decisions in the engagement, including decisions regarding the settlement, compromise, or other disposition of VHG's claims. The Firm will provide VHG with its professional recommendations and analysis to assist VHG in making informed decisions, but all final decisions on such matters rest with VHG.
8. Confidentiality and Privilege
All communications between VHG and the Firm in connection with this engagement are intended to be protected by the attorney-client privilege and the work-product doctrine to the fullest extent permitted by applicable law. These protections are fundamental to the attorney-client relationship and are critical to the Firm's ability to provide candid and effective legal advice.
VHG should take care to maintain the confidentiality of all privileged communications and should not disclose such communications, or the substance thereof, to third parties without the prior written approval of the Firm. Inadvertent or unauthorized disclosure of privileged communications to third parties may result in a waiver of the attorney-client privilege, which could be harmful to VHG's interests. VHG should direct any questions regarding the scope of the privilege or the permissibility of specific disclosures to Ms. Forsythe or Ms. Rosenthal.
The Firm will maintain the confidentiality of all client information received in connection with this engagement in accordance with the Florida Rules of Professional Conduct, the applicable rules of any other jurisdiction in which the Firm may provide services in connection with the engagement, and any other applicable legal or ethical obligations. The Firm will not disclose VHG's confidential information to any third party except as authorized by VHG, required by law, or permitted under the applicable rules of professional conduct.
9. Document Retention
The Firm will maintain the engagement file, including all documents, correspondence, memoranda, work product, and other materials generated or received in connection with this engagement, in accordance with the Firm's document retention policies. The Firm's standard retention period for closed engagement files is ten (10) years from the date of the conclusion of the engagement, after which the Firm may destroy the file in accordance with its policies without further notice to VHG.
Upon conclusion of the engagement, original documents provided to the Firm by VHG will be returned to VHG upon written request. If no such request is received within ninety (90) days following the conclusion of the engagement, the Firm may incorporate such original documents into the engagement file and retain or dispose of them in accordance with its standard retention policies.
The Firm reserves the right to retain copies of all materials in the engagement file, including copies of original documents provided by VHG, for purposes of complying with the Firm's professional and ethical obligations, defending against any claims or disputes relating to the engagement, and maintaining institutional knowledge for the benefit of VHG in the event of future matters.
10. Termination
Either party may terminate this engagement at any time upon written notice to the other party. The Firm's representation of VHG will cease upon the effective date of such termination, subject to the Firm's professional obligations and any requirements imposed by applicable court rules, including the obligation to seek leave of court to withdraw from any pending litigation.
In the event of termination, whether by VHG or by the Firm, VHG will be responsible for payment of all fees earned and expenses incurred by the Firm through the date of termination, in accordance with the terms set forth in Sections 5 and 6 of this Letter. In addition, if a recovery has been obtained by or on behalf of VHG prior to the effective date of termination, or if a recovery is subsequently obtained that is attributable in whole or in part to work performed by the Firm prior to termination, VHG will be responsible for payment of the contingency enhancement described in Section 5.2, calculated on the basis of the net recovery as defined therein.
Upon termination, the Firm will take all reasonable steps to protect VHG's interests during the transition to successor counsel, including the orderly transfer of the engagement file, the provision of status reports on all pending matters and deadlines, and cooperation with successor counsel as reasonably requested. The Firm's obligations in this regard are subject to applicable court rules, the Florida Rules of Professional Conduct, and VHG's satisfaction of its outstanding financial obligations to the Firm.
11. Governing Law and Dispute Resolution
This Engagement Letter shall be governed by and construed in accordance with the laws of the State of Florida, without regard to its conflict-of-laws principles.
In the event of any dispute, claim, or controversy arising from or relating to this Engagement Letter, the Firm's representation of VHG, or the fees, expenses, or other charges billed in connection with this engagement, the parties agree to resolve such dispute by binding arbitration in Miami, Florida. The arbitration shall be conducted in accordance with the rules of a mutually agreed-upon arbitration provider, and the decision of the arbitrator(s) shall be final and binding upon the parties and may be entered as a judgment in any court of competent jurisdiction. Each party shall bear its own costs and attorneys' fees in connection with any such arbitration, unless the arbitrator determines otherwise.
The parties agree that, prior to initiating arbitration, they will engage in good-faith negotiations for a period of not less than thirty (30) days in an effort to resolve the dispute informally.
12. Entire Agreement; Amendment
This Letter constitutes the entire agreement between Calderwood & Harkness LLP and Verimark Hospitality Group Inc. with respect to the terms and conditions of the Firm's engagement and supersedes all prior discussions, understandings, and agreements, whether oral or written, relating to the subject matter hereof.
No amendment, modification, or waiver of any provision of this Letter shall be effective unless set forth in a writing signed by both Calderwood & Harkness LLP and an authorized representative of VHG. No failure or delay by either party in exercising any right or remedy under this Letter shall operate as a waiver thereof, nor shall any single or partial exercise of any right or remedy preclude any other or further exercise thereof or the exercise of any other right or remedy.
VHG is requested to reference Engagement Number 1021-00003 in all future correspondence, filings, and communications relating to this engagement.
13. Acceptance
We are grateful for the opportunity to represent Verimark Hospitality Group Inc. in this important matter and are committed to providing the highest quality of legal services. If the foregoing terms are acceptable, please indicate VHG's agreement by having an authorized representative countersign this Letter in the space provided below and return one fully executed copy to the undersigned at your earliest convenience. A duplicate original of this Letter is enclosed for your records.
Please do not hesitate to contact Elaine Forsythe at (305) 814-7025 or eforsythe@calderwoodharkness.com, or Tiffany Rosenthal at (305) 814-7043 or trosenthal@calderwoodharkness.com, should you have any questions regarding this Letter or the engagement.
We look forward to working with you and the VHG team.
Very truly yours,
CALDERWOOD & HARKNESS LLP
By: ________
Name: Elaine Forsythe
Title: Partner
333 SE 2nd Avenue, Suite 4400 Miami, Florida 33131
Date: August 30, 2022
AGREED AND ACCEPTED:
VERIMARK HOSPITALITY GROUP INC.
By: ________
Name: Nathaniel Driscoll
Title: General Counsel
1900 Brickell Avenue, Suite 3200 Miami, Florida 33129
Date: ________
cc:
Marcus Ellsworth, Chief Executive Officer, Verimark Hospitality Group Inc. Diane Calder, Chief Financial Officer, Verimark Hospitality Group Inc. Sandra Pellegrini, Vice President, Risk Management, Verimark Hospitality Group Inc. Howard Bellamy, Partner, Calderwood & Harkness LLP
Timekeeper | Position | Hourly Rate
Elaine Forsythe | Partner | $1,150.00
Howard Bellamy | Partner | $1,100.00
Tiffany Rosenthal | Associate | $625.00
Andrew Fitzpatrick | Associate | $475.00

CALDERWOOD & HARKNESS LLP Attorneys at Law

CALDERWOOD & HARKNESS LLP

AGREED AND ACCEPTED:

VERIMARK HOSPITALITY GROUP INC.

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