CONFIDENTIAL

CONFIDENTIAL
CALDERWOOD & HARKNESS LLP Attorneys at Law 333 SE 2nd Avenue, Suite 4400 Miami, Florida 33131 Telephone: (305) 555-7200 Facsimile: (305) 555-7201 www.calderwoodharkness.com
January 4, 2024
VIA ELECTRONIC MAIL AND FIRST CLASS MAIL
Nathaniel Driscoll, Esq. General Counsel Verimark Hospitality Group Inc. 1900 Brickell Avenue, Suite 3200 Miami, Florida 33129
Re: Disbursement of Settlement Proceeds — Verimark Hospitality Group Inc. v. Ironclad Indemnity Corp. et al., Case No. 2022-CA-031547 (Eleventh Judicial Circuit of Florida, Miami-Dade County)
Engagement No.: 1021-00003
Dear Nathaniel:
We write to confirm that, as of January 3, 2024, all settlement funds due and payable to Verimark Hospitality Group Inc. ("VHG") under the terms of the Settlement Agreement and Mutual Release executed on December 19, 2023 (the "Settlement Agreement") have been received in full via wire transfer into Calderwood & Harkness LLP's client trust account (IOTA Account No. ending -4187, maintained at Harborview Capital Markets, Miami, Florida). The purpose of this letter is to provide VHG with a detailed and transparent accounting of the gross settlement proceeds received, all applicable deductions for legal fees earned and reimbursable expenses advanced by the firm on VHG's behalf during the course of this engagement, and a final calculation of the net settlement proceeds to be disbursed to VHG. We ask that you review the figures set forth below carefully and confirm your agreement so that we may promptly effectuate the disbursement.
1. Gross Settlement Proceeds Received
The aggregate gross settlement amount recovered on behalf of VHG is Forty-Seven Million Three Hundred Thousand Dollars ($47,300,000.00). This amount was received from four separate settling insurers in accordance with the payment provisions of the Settlement Agreement. We have confirmed receipt and clearance of each wire transfer as follows:
Each of the foregoing wire transfers was received into the firm's trust account on or before January 3, 2024, and each has been verified as fully cleared and available. The total aggregate settlement amount of $47,300,000.00 represents approximately 78.83% of VHG's total claimed business-interruption losses of $60,000,000.00 — a result that we believe is highly favorable in light of the factual complexities and coverage disputes at issue in this matter.
We further note that all payments were received well in advance of the February 2, 2024 deadline established by the Settlement Agreement, which required full payment within forty-five (45) days of the December 19, 2023 execution date. Ironclad Indemnity Corporation's payment, constituting the largest individual tranche, was received on December 28, 2023, and the final tranche from Sovereign Re Ltd. was received on January 3, 2024.
2. Deduction — Legal Fees
2.1 Hourly Fees
Pursuant to the terms of the Engagement Letter dated August 30, 2022, as amended and supplemented by the Revised Fee & Staffing Memorandum dated January 10, 2023 (collectively, the "Fee Agreement"), Calderwood & Harkness LLP has billed VHG on an hourly basis for professional services rendered throughout this engagement. The blended hourly rate across all members of the engagement team over the life of the matter was approximately $785 per hour. The individual billing rates for the principal members of the engagement team were as follows:
Over the course of the approximately seventeen-month engagement — spanning from the inception of the matter on August 30, 2022, through the completion of settlement-related activities in early January 2024 — the engagement team collectively recorded approximately 3,420 hours of professional time. This time encompassed, among other activities, the initial coverage analysis and pre-suit demand efforts, preparation and filing of the complaint and subsequent amended complaint, extensive fact discovery including the review of over 175,000 documents produced by the defendants, preparation and defense of eight fact depositions, the retention and coordination of testifying and consulting experts, motion practice (including VHG's successful opposition to Ironclad's Motion to Dismiss and Motion for Partial Summary Judgment), mediation preparation and attendance, and the negotiation and documentation of the Settlement Agreement.
The total hourly fees incurred across the life of the engagement are $2,684,700.00.
2.2 Contingency Enhancement
In addition to the hourly fees described above, the Fee Agreement provides for a contingency enhancement (sometimes referred to as a success fee or risk premium) calculated as five percent (5%) of the net recovery obtained on behalf of VHG in excess of Thirty Million Dollars ($30,000,000.00). This enhancement was negotiated to reflect the firm's assumption of meaningful risk in undertaking a complex, multi-party insurance coverage dispute against well-resourced insurers, and to align the firm's compensation incentives with the magnitude of VHG's recovery.
The contingency enhancement is calculated as follows:
Gross Settlement Proceeds: $47,300,000.00
Less: Threshold Amount: ($30,000,000.00)
Net Recovery Above Threshold: $17,300,000.00
Contingency Enhancement (5% × $17,300,000.00): $865,000.00
2.3 Total Legal Fees
The total legal fees payable to Calderwood & Harkness LLP in connection with this engagement are summarized as follows:
We note that the total legal fees of $3,549,700.00 represent approximately 7.5% of the gross settlement proceeds — a fee percentage that compares very favorably to market benchmarks for complex insurance coverage litigation of this magnitude and duration. A detailed breakdown of hours by timekeeper, by task code, and by billing period is included in the enclosed Final Billing Summary.
3. Deduction — Reimbursable Expenses Advanced
Throughout the course of the engagement, Calderwood & Harkness LLP advanced certain costs and expenses on behalf of VHG, consistent with the reimbursement provisions set forth in Section 7 of the Engagement Letter. The total reimbursable expenses advanced by the firm are $412,000.00. A summary of the principal expense categories is set forth below:
Expert Fees — Meridian Forensic Economics LLC. The firm retained Meridian Forensic Economics LLC to provide forensic accounting and economic damages analysis in support of VHG's business-interruption loss claim. Dr. Helen Vasquez served as the lead testifying expert, supported by a team of forensic analysts. Dr. Vasquez billed at a rate of $625.00 per hour, and supporting analysts billed at rates of $375.00 per hour. Meridian's scope of work included the preparation of an initial damages report, a rebuttal report responding to defendants' expert (Dr. Warren Birk of Whitmore Economic Group), deposition preparation, and consultation in connection with mediation. Meridian's fees constituted the single largest component of the reimbursable expense total.
Expert Fees — Caldwell Engineering Associates Inc. The firm retained Jeffrey Caldwell, PE, of Caldwell Engineering Associates Inc. to perform forensic engineering analysis related to the physical damage and operational disruption at VHG's affected properties. Mr. Caldwell's work included site inspections, engineering assessments, and the preparation of an expert report addressing causation and the scope of physical loss or damage to covered property.
Court Filing Fees and Service Costs. Filing fees associated with the initial Complaint, Amended Complaint, and various motions filed with the Eleventh Judicial Circuit Court, as well as costs of service of process on all named defendants and third-party subpoena respondents.
Deposition Transcript Costs. The firm incurred costs for court reporter services, original and certified transcript copies, and videography in connection with the depositions of the following individuals: Victor Haddon (Ironclad claims examiner), Denise Whitford (Ironclad underwriting manager), Franklin Orde (Pinnacle Surplus Lines claims supervisor), Marcus Ellsworth (VHG CEO), Diane Calder (VHG CFO), Sandra Pellegrini (VHG VP Risk Management), Dr. Helen Vasquez (VHG damages expert), and Dr. Warren Birk (defendants' damages expert). Transcript costs also included expedited delivery charges where necessitated by motion practice deadlines.
Mediation Fees — Keystone Dispute Resolution Inc. The parties participated in a two-day mediation on December 4–5, 2023, conducted by the Honorable Richard Mendelson (Ret.) of Keystone Dispute Resolution Inc. The mediator's fees totaled $30,000.00 (two days at $15,000.00 per day), which were split equally between the parties. VHG's share of $15,000.00 was advanced by the firm. The facility and administrative fees charged by Keystone for the two-day session are also reflected in this category.
Travel, Copying, Electronic discovery Hosting, and Miscellaneous Costs. This category includes attorney and staff travel costs incurred in connection with depositions, court appearances, and the mediation session; photocopying and document reproduction charges; electronic discovery hosting and processing fees charged by the firm's third-party e-discovery vendor (Relativity-platform hosting for the review and production of approximately 175,000 documents); long-distance telephone and conference call charges; messenger and courier services; and other miscellaneous out-of-pocket costs.
Detailed invoices and supporting documentation for each expense category, including third-party vendor invoices, receipts, and the firm's internal expense reports, are available for your review upon request. An itemized expense reconciliation is also included in the enclosed Final Billing Summary & Expense Reconciliation.
4. Net Settlement Proceeds Calculation
Based on the foregoing, the net settlement proceeds payable to VHG are calculated as follows:
Verification: $47,300,000.00 − $3,549,700.00 − $412,000.00 = $43,338,300.00
The net amount of Forty-Three Million Three Hundred Thirty-Eight Thousand Three Hundred Dollars ($43,338,300.00) is being held in the firm's trust account pending your confirmation of wire instructions and is available for immediate disbursement.
5. Disbursement Instructions
We respectfully request that VHG confirm or provide updated wire transfer instructions for the disbursement of the net proceeds of $43,338,300.00. For your convenience, we ask that the wire instructions include the following information:
(a) Name of receiving bank and ABA routing number;
(b) Account name and account number;
(c) Any reference or memo information to be included on the wire;
(d) Name and telephone number of a contact at the receiving bank for verification purposes; and
(e) Written authorization from an officer of VHG authorized to direct the disbursement, confirming agreement with the accounting set forth in this letter.
Upon receipt of confirmed and verified wire instructions, Calderwood & Harkness LLP will initiate the wire transfer from the firm's trust account. Please note that, consistent with our standard trust account procedures and applicable Florida Bar rules, we will independently verify all wire instructions by telephone callback to a known contact at VHG before executing the transfer. We ask for your prompt response so that we may facilitate the timely disbursement of these funds.
6. Remaining Administrative Matters
With respect to the formal disposition of the underlying litigation, please be advised that the Stipulation of Dismissal with Prejudice, executed by all parties in accordance with Section 4.2 of the Settlement Agreement, is being filed with the Clerk of the Eleventh Judicial Circuit Court on January 5, 2024. The accompanying Proposed Order of Dismissal has been submitted to the chambers of the Honorable Catherine Embry for review and entry. Upon entry of the Order of Dismissal, Case No. 2022-CA-031547 will be formally closed on the court's docket.
Following the completion of all remaining administrative steps — including the disbursement of net proceeds, the filing and entry of the dismissal order, and the archival of the engagement file — the firm will formally close Engagement No. 1021-00003 in its records. We will provide you with a final closing letter at that time.
We also take this opportunity to remind you that, pursuant to Section 8.1 of the Settlement Agreement, the amount of the settlement is confidential and may not be disclosed to any third party except as required by law, regulation, or applicable securities reporting obligations. The existence of the settlement and the fact that the matter has been resolved may, however, be disclosed. We encourage VHG to consult with its securities counsel and public relations team regarding any public disclosure obligations or considerations.
Finally, we anticipate providing separate correspondence in the near term addressing lessons learned from this coverage dispute and our recommendations regarding VHG's upcoming property and business-interruption insurance program renewal cycle. Given the issues that arose during the claims adjustment process and subsequent litigation, we believe there are meaningful steps VHG can take to strengthen its policy language, coverage documentation practices, and claims-readiness posture for future events. We look forward to discussing those recommendations with you and your risk management team at your convenience.
Closing
We are very pleased to have achieved this result on behalf of VHG. The recovery of $47,300,000.00 — representing nearly 79% of VHG's $60,000,000.00 business-interruption claim — reflects a strong outcome, particularly in light of the significant coverage defenses raised by the defendant insurers, the complexity of the multi-layered insurance program, and the inherent risks and uncertainties associated with continued litigation. This result would not have been possible without the extraordinary cooperation and active engagement of VHG's internal team. We wish to specifically acknowledge the contributions of Marcus Ellsworth, Diane Calder, Sandra Pellegrini, and you, Nathaniel, whose responsiveness, institutional knowledge, and thoughtful participation in strategy discussions proved invaluable at every stage of this matter.
Should you have any questions regarding the accounting set forth in this letter, the enclosed billing summary, the disbursement process, or any other aspect of this engagement, please do not hesitate to contact me directly at (305) 555-7218 or hbellamy@calderwoodharkness.com, or Elaine Forsythe at (305) 555-7205 or eforsythe@calderwoodharkness.com.
Very truly yours,
CALDERWOOD & HARKNESS LLP
By: ________
Howard Bellamy Partner
333 SE 2nd Avenue, Suite 4400 Miami, Florida 33131 Telephone: (305) 555-7218
Email: hbellamy@calderwoodharkness.com
cc: (via electronic mail)
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.
Elaine Forsythe, Partner, Calderwood & Harkness LLP
Tiffany Rosenthal, Associate, Calderwood & Harkness LLP
Enclosure: Final Billing Summary & Expense Reconciliation (Preliminary Version, dated January 4, 2024; final version to follow dated January 10, 2024)
Payor | Policy No. | Amount Received
Ironclad Indemnity Corporation | IIC-PRP-2022-07541 | $24,500,000.00
Pinnacle Surplus Lines Inc. | PSL-XS1-2022-3390 | $12,200,000.00
Montclair Assurance Company | MAC-XS2-2022-09817 | $6,800,000.00
Sovereign Re Ltd. | SRL-XS3-2022-5102 | $3,800,000.00
Total Gross Settlement Proceeds | $47,300,000.00
Timekeeper | Role | Hourly Rate
Elaine Forsythe | Responsible Partner | $1,150.00/hr
Howard Bellamy | Billing Partner | $1,100.00/hr
Tiffany Rosenthal | Lead Associate | $625.00/hr
Andrew Fitzpatrick | Working Associate | $475.00/hr
Fee Component | Amount
Hourly Fees (approx. 3,420 hours) | $2,684,700.00
Contingency Enhancement (5% of recovery above $30M) | $865,000.00
Total Legal Fees | $3,549,700.00
Expense Category | Amount
Expert Fees — Meridian Forensic Economics LLC | See Enclosure
Expert Fees — Caldwell Engineering Associates Inc. | See Enclosure
Court Filing Fees and Service Costs | See Enclosure
Deposition Transcript Costs | See Enclosure
Mediation Fees — Keystone Dispute Resolution Inc. | See Enclosure
Travel, Copying, E-discovery, and Miscellaneous | See Enclosure
Total Reimbursable Expenses | $412,000.00
Item | Amount
Gross Settlement Proceeds | $47,300,000.00
Less: Hourly Legal Fees | ($2,684,700.00)
Less: Contingency Enhancement | ($865,000.00)
Less: Reimbursable Expenses Advanced | ($412,000.00)
Net Proceeds Payable to VHG | $43,338,300.00