1021-00003 · Verimark Hospitality Group · Post-Settlement & Closing

confirmation-receipt-settlement-funds-memo.docx DOCUMENT Antitrust

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MEMORANDUM

PRIVILEGED AND CONFIDENTIAL / ATTORNEY WORK PRODUCT

TO: Elaine Forsythe, Responsible Partner Howard Bellamy, Billing Partner

FROM: Tiffany Rosenthal, Lead Associate

DATE: January 3, 2024

RE: Confirmation of Receipt of Settlement Funds — Verimark Hospitality Group Inc. v. Ironclad Indemnity Corporation, Pinnacle Surplus Lines Inc., Montclair Assurance Company, and Sovereign Re Ltd., Case No. 2022-CA-031547 (Eleventh Judicial Circuit of Florida, Miami-Dade County)

MATTER/ENGAGEMENT NO.: 1021-00003

CLIENT: Verimark Hospitality Group Inc. (Nasdaq: VMRK)

I. Purpose of Memorandum

The purpose of this memorandum is to confirm that all settlement payments due under the Settlement Agreement and Mutual Release dated December 19, 2023 (the "Settlement Agreement") have been received in full and have cleared into the Calderwood & Harkness LLP client trust account maintained at our Miami office. This memorandum is intended to serve as the firm's contemporaneous internal record documenting receipt of the settlement proceeds and to outline the remaining steps necessary to conclude this engagement.

As background, the Settlement Agreement resolved all claims, counterclaims, cross-claims, and potential claims asserted in Verimark Hospitality Group Inc. v. Ironclad Indemnity Corporation, Pinnacle Surplus Lines Inc., Montclair Assurance Company, and Sovereign Re Ltd., Case No. 2022-CA-031547, pending before the Honorable Catherine Embry in the Eleventh Judicial Circuit of Florida, in and for Miami-Dade County. The underlying dispute concerned the defendants' denial and underpayment of a substantial business-interruption insurance claim submitted by Verimark Hospitality Group Inc. ("VHG" or the "Client") arising from hurricane damage sustained at multiple hotel and resort properties during the 2022 hurricane season.

The total aggregate settlement amount is $47,300,000.00 (Forty-Seven Million Three Hundred Thousand Dollars and 00/100). All four insurer defendants — Ironclad Indemnity Corporation ("Ironclad"), Pinnacle Surplus Lines Inc. ("Pinnacle"), Montclair Assurance Company ("Montclair"), and Sovereign Re Ltd. ("Sovereign Re") — have funded their respective shares of the settlement in accordance with the Payment Allocation Schedule set forth in Exhibit A to the Settlement Agreement. Each wire transfer has been received and has fully cleared through the firm's trust account, and no amounts remain outstanding from any settling party. As detailed below, all payments were received well in advance of the contractual payment deadline.

II. Settlement Agreement Reference

The definitive Settlement Agreement and Mutual Release was executed on December 19, 2023, by all parties to the litigation — VHG as plaintiff, and Ironclad, Pinnacle, Montclair, and Sovereign Re as defendants — as well as by their respective counsel of record. The Settlement Agreement memorialized the terms previously agreed upon in the Term Sheet executed on December 5, 2023, during a two-day mediation session conducted before the Honorable Richard Mendelson (Ret.) at Keystone Dispute Resolution Inc. in Miami, Florida.

Section 3.1 of the Settlement Agreement obligated the four insurer defendants to make lump-sum payment of their respective settlement shares within forty-five (45) calendar days following execution of the Settlement Agreement, establishing a contractual payment deadline of February 2, 2024. As described more fully below, all four payments were received and cleared no later than January 2, 2024 — a full thirty-one (31) days in advance of the contractual deadline.

The specific allocation of the aggregate settlement amount among the four insurer defendants was governed by Exhibit A to the Settlement Agreement (the "Payment Allocation Schedule"), which set forth each insurer's pro rata share based on the applicable insurance tower layer. The Payment Allocation Schedule was negotiated during the mediation and reflected a layered allocation roughly proportional to each insurer's exposure within the insurance program, with the primary carrier bearing the largest share and the upper-layer excess carriers bearing progressively smaller shares. The precise allocation is detailed in Section III below.

The Settlement Agreement also contains a mutual release of all claims (Section 4), a confidentiality provision governing the settlement amount (Section 7), representations and warranties of authority (Section 5), and a provision requiring the parties to file a Joint Stipulation of Dismissal with Prejudice within thirty (30) days of receipt of all settlement payments (Section 6). The status of the stipulation of dismissal is addressed in Section VI.B below.

III. Summary of Funds Received

A. Table of Wire Receipts

The following table sets forth the details of the four wire transfers received from the settling defendants, including the paying party, applicable policy number, layer position, settlement amount, wire initiation date, date funds cleared, and the identity of sending counsel:

Copies of the bank wire confirmation receipts for each of the above transfers are included as Attachment 1 to this memorandum.

B. Aggregate Confirmation

The total funds received across all four wire transfers are calculated as follows:

$24,500,000.00 (Ironclad Indemnity Corporation) + $12,200,000.00 (Pinnacle Surplus Lines Inc.) + $6,800,000.00 (Montclair Assurance Company) + $3,800,000.00 (Sovereign Re Ltd.) = $47,300,000.00 (Total)

The total of $47,300,000.00 matches, to the penny, the aggregate settlement amount set forth in (i) the Term Sheet executed on December 5, 2023, at the mediation before the Honorable Richard Mendelson (Ret.) at Keystone Dispute Resolution Inc., and (ii) the definitive Settlement Agreement and Mutual Release dated December 19, 2023. There is no discrepancy, and no additional amounts remain due from any of the insurer defendants.

All funds are currently held in Calderwood & Harkness LLP's Interest on Lawyers' Trust Account ("IOLTA") / client trust account, maintained at Stonefield Trust Bank, at the firm's Miami office located at 333 SE 2nd Avenue, Suite 4400, Miami, Florida 33131. The funds remain in the trust account pending disbursement to the Client in accordance with the procedures described in Section VI.A below and in compliance with Rule 5-1.1 of the Rules Regulating The Florida Bar (Trust Accounts).

IV. Wire Transfer Details

A. Ironclad and Pinnacle Payments

Wire instructions for the Calderwood & Harkness LLP client trust account were transmitted to Gregory Stanton of Fendowell Rourke & Stanton LLP via letter dated December 20, 2023. That letter was prepared by the undersigned and included the firm's full wire routing information, ABA routing number, beneficiary account details, and reference information identifying the matter and applicable Settlement Agreement section. A copy of the wire instruction letter is included as part of Attachment 3 to this memorandum.

Ironclad Indemnity Corporation's payment of $24,500,000.00 and Pinnacle Surplus Lines Inc.'s payment of $12,200,000.00 were each wired separately on December 28, 2023. Both wires were initiated through the same sending institution, which is consistent with the fact that Fendowell Rourke & Stanton LLP served as joint defense counsel for both Ironclad and Pinnacle in this matter. Both transfers were confirmed as fully cleared and available in the Calderwood & Harkness client trust account on December 29, 2023, the next business day.

The combined payment received from Ironclad and Pinnacle totals $36,700,000.00, representing approximately 77.6% of the total aggregate settlement.

It bears noting that Ironclad's settlement payment of $24,500,000.00 represents its full primary policy layer limit of $25,000,000.00 less the $500,000.00 per-occurrence deductible that is retained by VHG under the terms of Policy No. IIC-PRP-2022-07541. The deductible was not at issue in the litigation and was not a component of the settlement, as VHG had already absorbed the deductible amount. Accordingly, Ironclad's payment of $24,500,000.00 effectively constitutes a settlement at 100% of its net exposure under the primary layer, exclusive of the deductible.

B. Montclair and Sovereign Re Payments

Wire instructions for the Calderwood & Harkness LLP client trust account were separately transmitted to Patricia Kraus of Delvecchio & Kraus LLP via letter also dated December 20, 2023, prepared by the undersigned. The wire instruction letter to Delvecchio & Kraus contained the same trust account routing and beneficiary information as the letter to Fendowell Rourke & Stanton, with appropriate reference information for the Montclair and Sovereign Re policy layers. A copy of this letter is also included as part of Attachment 3 to this memorandum.

Montclair Assurance Company's payment of $6,800,000.00 and Sovereign Re Ltd.'s payment of $3,800,000.00 were each wired separately on December 29, 2023. Although the wires were initiated on December 29, the funds did not clear and become available in the Calderwood & Harkness client trust account until January 2, 2024. The three-business-day clearing delay was attributable to the intervening New Year's holiday weekend; December 30 and 31, 2023, fell on Saturday and Sunday, respectively, and January 1, 2024, was a federal bank holiday. No portion of the delay was attributable to any funding deficiency, hold, or issue with the wire transfers themselves.

The combined payment received from Montclair and Sovereign Re totals $10,600,000.00, representing approximately 22.4% of the total aggregate settlement.

I confirmed receipt of all four wires directly with our firm's trust account administrator, Daniel Carrillo, on the morning of January 2, 2024, and obtained copies of the bank wire confirmation receipts at that time. Mr. Carrillo confirmed that all four wires were received without incident and that the full aggregate balance of $47,300,000.00 is reflected in the trust account ledger for Matter No. 1021-00003.

V. Reconciliation Against Settlement Terms

For purposes of evaluating the settlement outcome in the context of VHG's total claimed losses, the following reconciliation sets forth each insurer's settlement share as a percentage of its respective policy layer limit:

Ironclad Indemnity Corporation (Primary Layer) Settlement Amount: $24,500,000.00 Policy Layer Limit: $25,000,000.00 (subject to $500,000 per-occurrence deductible) Net Layer Exposure (after deductible): $24,500,000.00 Recovery as Percentage of Net Layer: 100.0%

Pinnacle Surplus Lines Inc. (1st Excess Layer) Settlement Amount: $12,200,000.00 Policy Layer Limit: $15,000,000.00 excess of $25,000,000 Recovery as Percentage of Layer Limit: 81.33%

Montclair Assurance Company (2nd Excess Layer) Settlement Amount: $6,800,000.00 Policy Layer Limit: $10,000,000.00 excess of $40,000,000 Recovery as Percentage of Layer Limit: 68.0%

Sovereign Re Ltd. (3rd Excess Layer) Settlement Amount: $3,800,000.00 Policy Layer Limit: $10,000,000.00 excess of $50,000,000 Recovery as Percentage of Layer Limit: 38.0%

The descending recovery percentages across the insurance tower are consistent with the settlement dynamics observed during the mediation. Ironclad, as the primary carrier, faced the greatest exposure and the weakest coverage defenses at the lower layer, and accordingly settled at the effective maximum of its net liability. The upper-layer excess carriers obtained progressively steeper discounts commensurate with the increasing uncertainty as to whether VHG's total provable loss would fully penetrate each successive layer. In particular, Sovereign Re's position at the $50 million excess attachment point afforded it significant leverage given the disputed quantum of VHG's business-interruption losses in the range above $50 million.

In aggregate, the total settlement of $47,300,000.00 represents recovery of approximately 78.83% of VHG's total asserted business-interruption claim of $60,000,000.00, as quantified in the expert report of Dr. Lawrence Pemberton of Meridian Forensic Economics dated June 14, 2023. While VHG did not recover 100% of its claimed loss, the settlement amount represents an excellent result in light of the contested coverage issues — particularly the defendants' period-of-restoration arguments and the anti-concurrent-causation defenses raised by Pinnacle and Montclair — and avoids the inherent risk, delay, and expense of a trial that was scheduled to commence on February 26, 2024.

All amounts set forth in the Settlement Agreement and received via wire transfer match the Payment Allocation Schedule set forth in Exhibit A to the Settlement Agreement. A copy of Exhibit A is included as Attachment 2 to this memorandum.

VI. Next Steps

A. Client Disbursement

Now that all settlement funds have been received and confirmed, the next step is the preparation and transmission of a Disbursement Letter to VHG's General Counsel, Nathaniel Driscoll, setting forth the calculation of net settlement proceeds to be disbursed to the Client after deduction of Calderwood & Harkness's legal fees and reimbursement of expenses advanced by the firm during the course of the engagement.

Howard Bellamy, as Billing Partner, should prepare and transmit this Disbursement Letter calculating the net settlement proceeds. The anticipated fee and expense deductions are summarized as follows:

Legal Fees

• Total Hourly Fees: Approximately $2,684,700.00, representing approximately 3,420 hours of professional time billed at a blended rate of approximately $785.00 per hour. This figure encompasses all partner, associate, and paralegal time recorded to Matter No. 1021-00003 from inception of the engagement through the date of settlement. A final time audit is being conducted by the billing department and is expected to be completed by January 4, 2024.

• Contingency Enhancement: $865,000.00, calculated as 5% of the net recovery above $30,000,000.00 (i.e., 5% × $17,300,000.00 = $865,000.00). The contingency enhancement was provided for in Section 4(c) of the Amended Engagement Letter dated September 12, 2022, which was approved by Nathaniel Driscoll on behalf of VHG's Board of Directors and provides for a success fee of 5% on any recovery exceeding the $30 million threshold.

• Total Fees (Hourly + Contingency Enhancement): Approximately $3,549,700.00.

Expenses Advanced

• Total Expenses Advanced: Approximately $412,000.00, encompassing the following principal categories:

• Expert witness fees for Meridian Forensic Economics (Dr. Lawrence Pemberton, forensic accounting and damages quantification): approximately $218,000.00

• Expert witness fees for Caldwell Engineering Associates (structural engineering and causation analysis): approximately $104,000.00

• Court filing fees and service of process costs: approximately $3,800.00

• Deposition transcription and videography costs (32 depositions): approximately $47,500.00

• Mediation fees (Keystone Dispute Resolution Inc., two sessions): approximately $22,000.00

• Travel and related costs (depositions, site inspections, mediation): approximately $11,200.00

• Document hosting and e-discovery platform costs (Relativity): approximately $5,500.00

Net Settlement Proceeds to Client

• Gross Settlement Proceeds: $47,300,000.00

• Less Total Fees: ($3,549,700.00)

• Less Expenses Advanced: ($412,000.00)

• Estimated Net Proceeds to VHG: $43,338,300.00 (subject to final time audit and expense reconciliation)

The target date for preparation and transmission of the Disbursement Letter to Nathaniel Driscoll is January 4, 2024. Upon receipt of VHG's written authorization to disburse, funds will be wired from the Calderwood & Harkness trust account to VHG's designated operating account in accordance with the Client's written instructions.

B. Stipulation of Dismissal

The draft Joint Stipulation of Dismissal with Prejudice (the "Stipulation") was circulated by the undersigned to defense counsel — Gregory Stanton at Fendowell Rourke & Stanton LLP and Patricia Kraus at Delvecchio & Kraus LLP — on December 22, 2023. Minor comments were received from Mr. Stanton on December 27, 2023, and have been incorporated into the revised draft.

The final agreed-upon version of the Stipulation is expected to be executed by all parties and filed with the Clerk of the Eleventh Judicial Circuit, Miami-Dade County, in Case No. 2022-CA-031547, promptly upon finalization. A Proposed Order of Dismissal with Prejudice will be submitted to the Honorable Catherine Embry contemporaneously with the filing of the Stipulation.

The undersigned will coordinate directly with Gregory Stanton and Patricia Kraus to obtain all necessary signature pages from the defendant parties and their counsel. All signature pages will be collected electronically to facilitate timely filing.

The target filing date for the Stipulation and Proposed Order of Dismissal is during the week of January 5, 2024. Pursuant to Section 6 of the Settlement Agreement, the Stipulation is required to be filed within thirty (30) days of receipt of all settlement payments, providing a contractual deadline of February 1, 2024. Filing during the week of January 5 will ensure compliance with this provision well in advance of the deadline.

C. Matter Closing

Upon confirmation of (i) the disbursement of net settlement proceeds to VHG, and (ii) the filing and entry of the Stipulation of Dismissal with Prejudice and corresponding Order, the engagement designated as Matter No. 1021-00003 should be formally closed in accordance with Calderwood & Harkness LLP's standard matter closing procedures.

In connection with matter closing, Elaine Forsythe, as Responsible Partner, should prepare the following:

1. Matter Closing Memorandum: A summary memorandum to be filed in the firm's matter management system documenting the resolution of the engagement, the settlement outcome, and any open items or follow-up required.

2. Client Post-Mortem Letter: A letter to VHG's General Counsel, Nathaniel Driscoll, providing a post-mortem summary of the litigation and, importantly, including recommendations regarding VHG's insurance program renewal for the upcoming policy period. In particular, the letter should address the coverage gaps and policy language ambiguities that gave rise to this dispute and recommend that VHG's risk management team and insurance broker work to obtain revised policy language addressing period-of-restoration calculations, anti-concurrent-causation clauses, and sub-limit adequacy for the company's hospitality portfolio.

VII. Document Retention and Confidentiality Note

All settlement-related documents — including, without limitation, the Settlement Agreement and Mutual Release, the Payment Allocation Schedule (Exhibit A), the Term Sheet, the wire confirmation receipts, correspondence with defense counsel regarding payment, and this memorandum — are subject to the confidentiality provision set forth in Section 7 of the Settlement Agreement. Specifically, Section 7.1 provides that the amount of the settlement is strictly confidential and may not be disclosed to any third party except as required by law, regulation, or legal process. Section 7.2 provides that the existence of the settlement may be disclosed, but not the specific financial terms. VHG's public disclosure obligations as a Nasdaq-listed company (Nasdaq: VMRK) under SEC regulations are carved out under Section 7.3, and VHG's securities counsel at Hartfield Quelston LLP has been separately advised regarding the extent to which disclosure in VHG's periodic filings may be required.

This memorandum constitutes attorney work product prepared in the course of and in anticipation of the firm's representation of VHG, and is protected by the attorney work product doctrine and the attorney-client privilege. This memorandum should not be disclosed to any person outside the firm without prior authorization from the Responsible Partner.

All client file materials relating to Matter No. 1021-00003, including paper files, electronic documents, and e-discovery databases, are to be retained in accordance with Calderwood & Harkness LLP's Document Retention Policy (Firm Policy DRP-2019, as amended), which generally provides for a retention period of ten (10) years following matter closing for commercial litigation engagements, unless the Client requests earlier return or destruction of materials.

VIII. Attachments / Enclosures

The following documents are attached to and incorporated by reference into this memorandum:

Attachment 1: Wire confirmation receipts for all four settlement payments, consisting of bank wire confirmation statements from Stonefield Trust Bank reflecting the receipt of:

• $24,500,000.00 from Ironclad Indemnity Corporation (cleared December 29, 2023)

• $12,200,000.00 from Pinnacle Surplus Lines Inc. (cleared December 29, 2023)

• $6,800,000.00 from Montclair Assurance Company (cleared January 2, 2024)

• $3,800,000.00 from Sovereign Re Ltd. (cleared January 2, 2024)

Attachment 2: Copy of Exhibit A to the Settlement Agreement and Mutual Release dated December 19, 2023 — Payment Allocation Schedule, setting forth the allocation of the $47,300,000.00 aggregate settlement amount among the four insurer defendants.

Attachment 3: Copies of wire instruction letters dated December 20, 2023, transmitted by Tiffany Rosenthal on behalf of Calderwood & Harkness LLP:

• Letter to Gregory Stanton, Fendowell Rourke & Stanton LLP (re: Ironclad Indemnity Corporation and Pinnacle Surplus Lines Inc. payments)

• Letter to Patricia Kraus, Delvecchio & Kraus LLP (re: Montclair Assurance Company and Sovereign Re Ltd. payments)

Prepared by:

________________________________________

Tiffany Rosenthal Lead Associate Calderwood & Harkness LLP 333 SE 2nd Avenue, Suite 4400 Miami, Florida 33131

Date: January 3, 2024

Reviewed by:

________________________________________

Andrew Fitzpatrick Working Associate Calderwood & Harkness LLP 333 SE 2nd Avenue, Suite 4400 Miami, Florida 33131

Date: January 3, 2024

Distribution:

Elaine Forsythe, Responsible Partner Howard Bellamy, Billing Partner

cc: File (Matter No. 1021-00003)

PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT This memorandum is protected by the attorney-client privilege and the attorney work product doctrine. Do not copy or distribute without authorization from the Responsible Partner. Calderwood & Harkness LLP	333 SE 2nd Avenue, Suite 4400	Miami, FL 33131
Paying Party	Policy No.	Layer	Settlement Amount	Date Wire Initiated	Date Funds Cleared	Sending Counsel / Entity
Ironclad Indemnity Corporation	IIC-PRP-2022-07541	Primary ($25M limit, $500K per-occurrence deductible)	$24,500,000.00	December 28, 2023	December 29, 2023	Fendowell Rourke & Stanton LLP (Gregory Stanton)
Pinnacle Surplus Lines Inc.	PSL-XS1-2022-3390	1st Excess ($15M xs $25M)	$12,200,000.00	December 28, 2023	December 29, 2023	Fendowell Rourke & Stanton LLP (Gregory Stanton)
Montclair Assurance Company	MAC-XS2-2022-09817	2nd Excess ($10M xs $40M)	$6,800,000.00	December 29, 2023	January 2, 2024	Delvecchio & Kraus LLP (Patricia Kraus)
Sovereign Re Ltd.	SRL-XS3-2022-5102	3rd Excess ($10M xs $50M)	$3,800,000.00	December 29, 2023	January 2, 2024	Delvecchio & Kraus LLP (Patricia Kraus)

MEMORANDUM
PRIVILEGED AND CONFIDENTIAL / ATTORNEY WORK PRODUCT
TO: Elaine Forsythe, Responsible Partner Howard Bellamy, Billing Partner
FROM: Tiffany Rosenthal, Lead Associate
DATE: January 3, 2024
RE: Confirmation of Receipt of Settlement Funds — Verimark Hospitality Group Inc. v. Ironclad Indemnity Corporation, Pinnacle Surplus Lines Inc., Montclair Assurance Company, and Sovereign Re Ltd., Case No. 2022-CA-031547 (Eleventh Judicial Circuit of Florida, Miami-Dade County)
MATTER/ENGAGEMENT NO.: 1021-00003
CLIENT: Verimark Hospitality Group Inc. (Nasdaq: VMRK)
I. Purpose of Memorandum
The purpose of this memorandum is to confirm that all settlement payments due under the Settlement Agreement and Mutual Release dated December 19, 2023 (the "Settlement Agreement") have been received in full and have cleared into the Calderwood & Harkness LLP client trust account maintained at our Miami office. This memorandum is intended to serve as the firm's contemporaneous internal record documenting receipt of the settlement proceeds and to outline the remaining steps necessary to conclude this engagement.
As background, the Settlement Agreement resolved all claims, counterclaims, cross-claims, and potential claims asserted in Verimark Hospitality Group Inc. v. Ironclad Indemnity Corporation, Pinnacle Surplus Lines Inc., Montclair Assurance Company, and Sovereign Re Ltd., Case No. 2022-CA-031547, pending before the Honorable Catherine Embry in the Eleventh Judicial Circuit of Florida, in and for Miami-Dade County. The underlying dispute concerned the defendants' denial and underpayment of a substantial business-interruption insurance claim submitted by Verimark Hospitality Group Inc. ("VHG" or the "Client") arising from hurricane damage sustained at multiple hotel and resort properties during the 2022 hurricane season.
The total aggregate settlement amount is $47,300,000.00 (Forty-Seven Million Three Hundred Thousand Dollars and 00/100). All four insurer defendants — Ironclad Indemnity Corporation ("Ironclad"), Pinnacle Surplus Lines Inc. ("Pinnacle"), Montclair Assurance Company ("Montclair"), and Sovereign Re Ltd. ("Sovereign Re") — have funded their respective shares of the settlement in accordance with the Payment Allocation Schedule set forth in Exhibit A to the Settlement Agreement. Each wire transfer has been received and has fully cleared through the firm's trust account, and no amounts remain outstanding from any settling party. As detailed below, all payments were received well in advance of the contractual payment deadline.
II. Settlement Agreement Reference
The definitive Settlement Agreement and Mutual Release was executed on December 19, 2023, by all parties to the litigation — VHG as plaintiff, and Ironclad, Pinnacle, Montclair, and Sovereign Re as defendants — as well as by their respective counsel of record. The Settlement Agreement memorialized the terms previously agreed upon in the Term Sheet executed on December 5, 2023, during a two-day mediation session conducted before the Honorable Richard Mendelson (Ret.) at Keystone Dispute Resolution Inc. in Miami, Florida.
Section 3.1 of the Settlement Agreement obligated the four insurer defendants to make lump-sum payment of their respective settlement shares within forty-five (45) calendar days following execution of the Settlement Agreement, establishing a contractual payment deadline of February 2, 2024. As described more fully below, all four payments were received and cleared no later than January 2, 2024 — a full thirty-one (31) days in advance of the contractual deadline.
The specific allocation of the aggregate settlement amount among the four insurer defendants was governed by Exhibit A to the Settlement Agreement (the "Payment Allocation Schedule"), which set forth each insurer's pro rata share based on the applicable insurance tower layer. The Payment Allocation Schedule was negotiated during the mediation and reflected a layered allocation roughly proportional to each insurer's exposure within the insurance program, with the primary carrier bearing the largest share and the upper-layer excess carriers bearing progressively smaller shares. The precise allocation is detailed in Section III below.
The Settlement Agreement also contains a mutual release of all claims (Section 4), a confidentiality provision governing the settlement amount (Section 7), representations and warranties of authority (Section 5), and a provision requiring the parties to file a Joint Stipulation of Dismissal with Prejudice within thirty (30) days of receipt of all settlement payments (Section 6). The status of the stipulation of dismissal is addressed in Section VI.B below.
III. Summary of Funds Received
A. Table of Wire Receipts
The following table sets forth the details of the four wire transfers received from the settling defendants, including the paying party, applicable policy number, layer position, settlement amount, wire initiation date, date funds cleared, and the identity of sending counsel:
Copies of the bank wire confirmation receipts for each of the above transfers are included as Attachment 1 to this memorandum.
B. Aggregate Confirmation
The total funds received across all four wire transfers are calculated as follows:
$24,500,000.00 (Ironclad Indemnity Corporation) + $12,200,000.00 (Pinnacle Surplus Lines Inc.) + $6,800,000.00 (Montclair Assurance Company) + $3,800,000.00 (Sovereign Re Ltd.) = $47,300,000.00 (Total)
The total of $47,300,000.00 matches, to the penny, the aggregate settlement amount set forth in (i) the Term Sheet executed on December 5, 2023, at the mediation before the Honorable Richard Mendelson (Ret.) at Keystone Dispute Resolution Inc., and (ii) the definitive Settlement Agreement and Mutual Release dated December 19, 2023. There is no discrepancy, and no additional amounts remain due from any of the insurer defendants.
All funds are currently held in Calderwood & Harkness LLP's Interest on Lawyers' Trust Account ("IOLTA") / client trust account, maintained at Stonefield Trust Bank, at the firm's Miami office located at 333 SE 2nd Avenue, Suite 4400, Miami, Florida 33131. The funds remain in the trust account pending disbursement to the Client in accordance with the procedures described in Section VI.A below and in compliance with Rule 5-1.1 of the Rules Regulating The Florida Bar (Trust Accounts).
IV. Wire Transfer Details
A. Ironclad and Pinnacle Payments
Wire instructions for the Calderwood & Harkness LLP client trust account were transmitted to Gregory Stanton of Fendowell Rourke & Stanton LLP via letter dated December 20, 2023. That letter was prepared by the undersigned and included the firm's full wire routing information, ABA routing number, beneficiary account details, and reference information identifying the matter and applicable Settlement Agreement section. A copy of the wire instruction letter is included as part of Attachment 3 to this memorandum.
Ironclad Indemnity Corporation's payment of $24,500,000.00 and Pinnacle Surplus Lines Inc.'s payment of $12,200,000.00 were each wired separately on December 28, 2023. Both wires were initiated through the same sending institution, which is consistent with the fact that Fendowell Rourke & Stanton LLP served as joint defense counsel for both Ironclad and Pinnacle in this matter. Both transfers were confirmed as fully cleared and available in the Calderwood & Harkness client trust account on December 29, 2023, the next business day.
The combined payment received from Ironclad and Pinnacle totals $36,700,000.00, representing approximately 77.6% of the total aggregate settlement.
It bears noting that Ironclad's settlement payment of $24,500,000.00 represents its full primary policy layer limit of $25,000,000.00 less the $500,000.00 per-occurrence deductible that is retained by VHG under the terms of Policy No. IIC-PRP-2022-07541. The deductible was not at issue in the litigation and was not a component of the settlement, as VHG had already absorbed the deductible amount. Accordingly, Ironclad's payment of $24,500,000.00 effectively constitutes a settlement at 100% of its net exposure under the primary layer, exclusive of the deductible.
B. Montclair and Sovereign Re Payments
Wire instructions for the Calderwood & Harkness LLP client trust account were separately transmitted to Patricia Kraus of Delvecchio & Kraus LLP via letter also dated December 20, 2023, prepared by the undersigned. The wire instruction letter to Delvecchio & Kraus contained the same trust account routing and beneficiary information as the letter to Fendowell Rourke & Stanton, with appropriate reference information for the Montclair and Sovereign Re policy layers. A copy of this letter is also included as part of Attachment 3 to this memorandum.
Montclair Assurance Company's payment of $6,800,000.00 and Sovereign Re Ltd.'s payment of $3,800,000.00 were each wired separately on December 29, 2023. Although the wires were initiated on December 29, the funds did not clear and become available in the Calderwood & Harkness client trust account until January 2, 2024. The three-business-day clearing delay was attributable to the intervening New Year's holiday weekend; December 30 and 31, 2023, fell on Saturday and Sunday, respectively, and January 1, 2024, was a federal bank holiday. No portion of the delay was attributable to any funding deficiency, hold, or issue with the wire transfers themselves.
The combined payment received from Montclair and Sovereign Re totals $10,600,000.00, representing approximately 22.4% of the total aggregate settlement.
I confirmed receipt of all four wires directly with our firm's trust account administrator, Daniel Carrillo, on the morning of January 2, 2024, and obtained copies of the bank wire confirmation receipts at that time. Mr. Carrillo confirmed that all four wires were received without incident and that the full aggregate balance of $47,300,000.00 is reflected in the trust account ledger for Matter No. 1021-00003.
V. Reconciliation Against Settlement Terms
For purposes of evaluating the settlement outcome in the context of VHG's total claimed losses, the following reconciliation sets forth each insurer's settlement share as a percentage of its respective policy layer limit:
Ironclad Indemnity Corporation (Primary Layer) Settlement Amount: $24,500,000.00 Policy Layer Limit: $25,000,000.00 (subject to $500,000 per-occurrence deductible) Net Layer Exposure (after deductible): $24,500,000.00 Recovery as Percentage of Net Layer: 100.0%
Pinnacle Surplus Lines Inc. (1st Excess Layer) Settlement Amount: $12,200,000.00 Policy Layer Limit: $15,000,000.00 excess of $25,000,000 Recovery as Percentage of Layer Limit: 81.33%
Montclair Assurance Company (2nd Excess Layer) Settlement Amount: $6,800,000.00 Policy Layer Limit: $10,000,000.00 excess of $40,000,000 Recovery as Percentage of Layer Limit: 68.0%
Sovereign Re Ltd. (3rd Excess Layer) Settlement Amount: $3,800,000.00 Policy Layer Limit: $10,000,000.00 excess of $50,000,000 Recovery as Percentage of Layer Limit: 38.0%
The descending recovery percentages across the insurance tower are consistent with the settlement dynamics observed during the mediation. Ironclad, as the primary carrier, faced the greatest exposure and the weakest coverage defenses at the lower layer, and accordingly settled at the effective maximum of its net liability. The upper-layer excess carriers obtained progressively steeper discounts commensurate with the increasing uncertainty as to whether VHG's total provable loss would fully penetrate each successive layer. In particular, Sovereign Re's position at the $50 million excess attachment point afforded it significant leverage given the disputed quantum of VHG's business-interruption losses in the range above $50 million.
In aggregate, the total settlement of $47,300,000.00 represents recovery of approximately 78.83% of VHG's total asserted business-interruption claim of $60,000,000.00, as quantified in the expert report of Dr. Lawrence Pemberton of Meridian Forensic Economics dated June 14, 2023. While VHG did not recover 100% of its claimed loss, the settlement amount represents an excellent result in light of the contested coverage issues — particularly the defendants' period-of-restoration arguments and the anti-concurrent-causation defenses raised by Pinnacle and Montclair — and avoids the inherent risk, delay, and expense of a trial that was scheduled to commence on February 26, 2024.
All amounts set forth in the Settlement Agreement and received via wire transfer match the Payment Allocation Schedule set forth in Exhibit A to the Settlement Agreement. A copy of Exhibit A is included as Attachment 2 to this memorandum.
VI. Next Steps
A. Client Disbursement
Now that all settlement funds have been received and confirmed, the next step is the preparation and transmission of a Disbursement Letter to VHG's General Counsel, Nathaniel Driscoll, setting forth the calculation of net settlement proceeds to be disbursed to the Client after deduction of Calderwood & Harkness's legal fees and reimbursement of expenses advanced by the firm during the course of the engagement.
Howard Bellamy, as Billing Partner, should prepare and transmit this Disbursement Letter calculating the net settlement proceeds. The anticipated fee and expense deductions are summarized as follows:
Legal Fees
•  Total Hourly Fees: Approximately $2,684,700.00, representing approximately 3,420 hours of professional time billed at a blended rate of approximately $785.00 per hour. This figure encompasses all partner, associate, and paralegal time recorded to Matter No. 1021-00003 from inception of the engagement through the date of settlement. A final time audit is being conducted by the billing department and is expected to be completed by January 4, 2024.
•  Contingency Enhancement: $865,000.00, calculated as 5% of the net recovery above $30,000,000.00 (i.e., 5% × $17,300,000.00 = $865,000.00). The contingency enhancement was provided for in Section 4(c) of the Amended Engagement Letter dated September 12, 2022, which was approved by Nathaniel Driscoll on behalf of VHG's Board of Directors and provides for a success fee of 5% on any recovery exceeding the $30 million threshold.
•  Total Fees (Hourly + Contingency Enhancement): Approximately $3,549,700.00.
Expenses Advanced
•  Total Expenses Advanced: Approximately $412,000.00, encompassing the following principal categories:
•  Expert witness fees for Meridian Forensic Economics (Dr. Lawrence Pemberton, forensic accounting and damages quantification): approximately $218,000.00
•  Expert witness fees for Caldwell Engineering Associates (structural engineering and causation analysis): approximately $104,000.00
•  Court filing fees and service of process costs: approximately $3,800.00
•  Deposition transcription and videography costs (32 depositions): approximately $47,500.00
•  Mediation fees (Keystone Dispute Resolution Inc., two sessions): approximately $22,000.00
•  Travel and related costs (depositions, site inspections, mediation): approximately $11,200.00
•  Document hosting and e-discovery platform costs (Relativity): approximately $5,500.00
Net Settlement Proceeds to Client
•  Gross Settlement Proceeds: $47,300,000.00
•  Less Total Fees: ($3,549,700.00)
•  Less Expenses Advanced: ($412,000.00)
•  Estimated Net Proceeds to VHG: $43,338,300.00 (subject to final time audit and expense reconciliation)
The target date for preparation and transmission of the Disbursement Letter to Nathaniel Driscoll is January 4, 2024. Upon receipt of VHG's written authorization to disburse, funds will be wired from the Calderwood & Harkness trust account to VHG's designated operating account in accordance with the Client's written instructions.
B. Stipulation of Dismissal
The draft Joint Stipulation of Dismissal with Prejudice (the "Stipulation") was circulated by the undersigned to defense counsel — Gregory Stanton at Fendowell Rourke & Stanton LLP and Patricia Kraus at Delvecchio & Kraus LLP — on December 22, 2023. Minor comments were received from Mr. Stanton on December 27, 2023, and have been incorporated into the revised draft.
The final agreed-upon version of the Stipulation is expected to be executed by all parties and filed with the Clerk of the Eleventh Judicial Circuit, Miami-Dade County, in Case No. 2022-CA-031547, promptly upon finalization. A Proposed Order of Dismissal with Prejudice will be submitted to the Honorable Catherine Embry contemporaneously with the filing of the Stipulation.
The undersigned will coordinate directly with Gregory Stanton and Patricia Kraus to obtain all necessary signature pages from the defendant parties and their counsel. All signature pages will be collected electronically to facilitate timely filing.
The target filing date for the Stipulation and Proposed Order of Dismissal is during the week of January 5, 2024. Pursuant to Section 6 of the Settlement Agreement, the Stipulation is required to be filed within thirty (30) days of receipt of all settlement payments, providing a contractual deadline of February 1, 2024. Filing during the week of January 5 will ensure compliance with this provision well in advance of the deadline.
C. Matter Closing
Upon confirmation of (i) the disbursement of net settlement proceeds to VHG, and (ii) the filing and entry of the Stipulation of Dismissal with Prejudice and corresponding Order, the engagement designated as Matter No. 1021-00003 should be formally closed in accordance with Calderwood & Harkness LLP's standard matter closing procedures.
In connection with matter closing, Elaine Forsythe, as Responsible Partner, should prepare the following:
1.  Matter Closing Memorandum: A summary memorandum to be filed in the firm's matter management system documenting the resolution of the engagement, the settlement outcome, and any open items or follow-up required.
2.  Client Post-Mortem Letter: A letter to VHG's General Counsel, Nathaniel Driscoll, providing a post-mortem summary of the litigation and, importantly, including recommendations regarding VHG's insurance program renewal for the upcoming policy period. In particular, the letter should address the coverage gaps and policy language ambiguities that gave rise to this dispute and recommend that VHG's risk management team and insurance broker work to obtain revised policy language addressing period-of-restoration calculations, anti-concurrent-causation clauses, and sub-limit adequacy for the company's hospitality portfolio.
VII. Document Retention and Confidentiality Note
All settlement-related documents — including, without limitation, the Settlement Agreement and Mutual Release, the Payment Allocation Schedule (Exhibit A), the Term Sheet, the wire confirmation receipts, correspondence with defense counsel regarding payment, and this memorandum — are subject to the confidentiality provision set forth in Section 7 of the Settlement Agreement. Specifically, Section 7.1 provides that the amount of the settlement is strictly confidential and may not be disclosed to any third party except as required by law, regulation, or legal process. Section 7.2 provides that the existence of the settlement may be disclosed, but not the specific financial terms. VHG's public disclosure obligations as a Nasdaq-listed company (Nasdaq: VMRK) under SEC regulations are carved out under Section 7.3, and VHG's securities counsel at Hartfield Quelston LLP has been separately advised regarding the extent to which disclosure in VHG's periodic filings may be required.
This memorandum constitutes attorney work product prepared in the course of and in anticipation of the firm's representation of VHG, and is protected by the attorney work product doctrine and the attorney-client privilege. This memorandum should not be disclosed to any person outside the firm without prior authorization from the Responsible Partner.
All client file materials relating to Matter No. 1021-00003, including paper files, electronic documents, and e-discovery databases, are to be retained in accordance with Calderwood & Harkness LLP's Document Retention Policy (Firm Policy DRP-2019, as amended), which generally provides for a retention period of ten (10) years following matter closing for commercial litigation engagements, unless the Client requests earlier return or destruction of materials.
VIII. Attachments / Enclosures
The following documents are attached to and incorporated by reference into this memorandum:
Attachment 1: Wire confirmation receipts for all four settlement payments, consisting of bank wire confirmation statements from Stonefield Trust Bank reflecting the receipt of:
•  $24,500,000.00 from Ironclad Indemnity Corporation (cleared December 29, 2023)
•  $12,200,000.00 from Pinnacle Surplus Lines Inc. (cleared December 29, 2023)
•  $6,800,000.00 from Montclair Assurance Company (cleared January 2, 2024)
•  $3,800,000.00 from Sovereign Re Ltd. (cleared January 2, 2024)
Attachment 2: Copy of Exhibit A to the Settlement Agreement and Mutual Release dated December 19, 2023 — Payment Allocation Schedule, setting forth the allocation of the $47,300,000.00 aggregate settlement amount among the four insurer defendants.
Attachment 3: Copies of wire instruction letters dated December 20, 2023, transmitted by Tiffany Rosenthal on behalf of Calderwood & Harkness LLP:
•  Letter to Gregory Stanton, Fendowell Rourke & Stanton LLP (re: Ironclad Indemnity Corporation and Pinnacle Surplus Lines Inc. payments)
•  Letter to Patricia Kraus, Delvecchio & Kraus LLP (re: Montclair Assurance Company and Sovereign Re Ltd. payments)
Prepared by:
________________________________________
Tiffany Rosenthal Lead Associate Calderwood & Harkness LLP 333 SE 2nd Avenue, Suite 4400 Miami, Florida 33131
Date: January 3, 2024
Reviewed by:
________________________________________
Andrew Fitzpatrick Working Associate Calderwood & Harkness LLP 333 SE 2nd Avenue, Suite 4400 Miami, Florida 33131
Date: January 3, 2024
Distribution:
Elaine Forsythe, Responsible Partner Howard Bellamy, Billing Partner
cc: File (Matter No. 1021-00003)
PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT This memorandum is protected by the attorney-client privilege and the attorney work product doctrine. Do not copy or distribute without authorization from the Responsible Partner. Calderwood & Harkness LLP | 333 SE 2nd Avenue, Suite 4400 | Miami, FL 33131
Paying Party | Policy No. | Layer | Settlement Amount | Date Wire Initiated | Date Funds Cleared | Sending Counsel / Entity
Ironclad Indemnity Corporation | IIC-PRP-2022-07541 | Primary ($25M limit, $500K per-occurrence deductible) | $24,500,000.00 | December 28, 2023 | December 29, 2023 | Fendowell Rourke & Stanton LLP (Gregory Stanton)
Pinnacle Surplus Lines Inc. | PSL-XS1-2022-3390 | 1st Excess ($15M xs $25M) | $12,200,000.00 | December 28, 2023 | December 29, 2023 | Fendowell Rourke & Stanton LLP (Gregory Stanton)
Montclair Assurance Company | MAC-XS2-2022-09817 | 2nd Excess ($10M xs $40M) | $6,800,000.00 | December 29, 2023 | January 2, 2024 | Delvecchio & Kraus LLP (Patricia Kraus)
Sovereign Re Ltd. | SRL-XS3-2022-5102 | 3rd Excess ($10M xs $50M) | $3,800,000.00 | December 29, 2023 | January 2, 2024 | Delvecchio & Kraus LLP (Patricia Kraus)

MEMORANDUM

PRIVILEGED AND CONFIDENTIAL / ATTORNEY WORK PRODUCT

MATTER/ENGAGEMENT NO.: 1021-00003

Record

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