letter-ironclad-notice-settlement-lien.docx

1021-00006 · Client 1021 · Closing

letter-ironclad-notice-settlement-lien.docx DOCUMENT Litigation

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CALDERWOOD & HARKNESS LLP Attorneys at Law 110 SE 6th Street, Suite 2800 Fort Lauderdale, Florida 33301 Telephone: (954) 761-8200 Facsimile: (954) 761-8201 www.calderwoodharkness.com

April 24, 2024

VIA FEDEX AND ELECTRONIC MAIL

Devon Schultz Senior Vice President, Commercial Real Estate Lending Ironclad National Bank 225 Peachtree Street NE, Suite 2600 Atlanta, GA 30303

Re: Notice of Settlement and Lien — *Verimark Hospitality Group Inc. v. Coastal Palms Franchise Holdings LLC et al.*, Case No. 1021-00006, Circuit Court of the 17th Judicial Circuit, Broward County, Florida; Ironclad National Bank's First-Lien Mortgage Loans on Certain Hotel Properties Owned by Coastal Palms Franchise Holdings LLC and Affiliated Entities

Dear Mr. Schultz:

I. Introduction and Purpose of This Letter

This firm represents Verimark Hospitality Group Inc. ("Verimark" or "VHG"), a Delaware corporation publicly traded on the Nasdaq Stock Market under ticker symbol VHMK, with its principal executive offices located at 2400 East Las Olas Boulevard, Suite 3100, Fort Lauderdale, Florida 33301. We write on behalf of Verimark in connection with the above-referenced litigation and Ironclad National Bank's ("Ironclad" or the "Bank") commercial real estate lending relationship with Coastal Palms Franchise Holdings LLC ("Coastal Palms") and its affiliated entities.

The purpose of this letter is threefold. First, we write to formally notify Ironclad of the settlement of the above-captioned litigation, which was executed on April 22, 2024, and to apprise the Bank of the material terms thereof. Second, we write to inform Ironclad of the manner in which the settlement terms affect and intersect with Ironclad's lending relationship with Coastal Palms and its affiliates, including the Bank's first-lien mortgage positions on certain hotel properties within the Coastal Palms portfolio. Third, and of particular importance, we write to notify Ironclad of Verimark's perfection of a first-priority security interest in certain hotel properties that are not encumbered by Ironclad's existing mortgage loans, and to request the Bank's written acknowledgment of and consent to such security interest. We respectfully request Ironclad's prompt attention to the matters set forth herein.

II. Background — The Litigation

On March 7, 2022, Verimark filed a ten-count Complaint against Coastal Palms Franchise Holdings LLC, a Florida limited liability company with its principal office at 9500 Gulf Shore Drive, Suite 450, Naples, Florida 34108, and certain affiliated parties in the Circuit Court of the 17th Judicial Circuit, in and for Broward County, Florida, assigned Case No. 1021-00006. The named defendants in the action included Coastal Palms Franchise Holdings LLC, Randall Brecker (individually and in his capacity as Managing Member of Coastal Palms), and Suncoast Room Management Inc. ("Suncoast"), a Florida corporation controlled by Mr. Brecker that had been established and utilized to collect and divert direct-booking revenues from the franchised hotel properties.

The litigation arose from Coastal Palms' systematic underreporting of Gross Room Revenue ("GRR") over a nine-year period spanning from 2013 through 2021 across its portfolio of twenty-two (22) franchised hotel properties, consisting of eighteen (18) Verimark Suites-branded locations and four (4) Verimark Select-branded locations operating in the states of Florida and Georgia. The affected portfolio comprised approximately 3,740 total guest rooms. Through the use of Suncoast as an intermediary revenue-collection entity, Coastal Palms diverted direct-booking revenues outside the GRR calculations required under the applicable Franchise License Agreements, thereby materially understating the royalties, marketing-fund contributions, technology fees, and other amounts owed to Verimark.

Verimark's Complaint asserted claims for breach of contract, breach of the implied covenant of good faith and fair dealing, fraud, fraudulent concealment, unjust enrichment, violations of the Florida Deceptive and Unfair Trade Practices Act, and related causes of action, seeking approximately $150 million in damages, including underpaid royalties, marketing-fund contributions, technology fees, contractual late-payment interest at the rates specified in the Franchise License Agreements, and liquidated damages as provided therein.

After extensive discovery—including the production of more than 600,000 documents, the depositions of twenty-three fact witnesses and four expert witnesses, and the retention of forensic accounting experts—Verimark moved for partial summary judgment on Counts I (breach of contract) and II (breach of the implied covenant of good faith and fair dealing). On February 9, 2024, the Honorable Richard M. Calloway, Circuit Judge, granted Verimark's Motion for Partial Summary Judgment on those counts, finding as a matter of law that Coastal Palms' exclusion of revenues collected through Suncoast Room Management Inc. from the calculation of GRR constituted a material breach of the Franchise License Agreements. Judge Calloway's order further concluded that the plain language of the GRR definition in the Franchise License Agreements encompassed all room revenues generated at the franchised hotel properties, irrespective of the booking channel or the entity through which payment was collected.

The Court's ruling on partial summary judgment left for trial only the issues of the precise amount of damages and Verimark's remaining claims, including the fraud-based counts. Following entry of the partial summary judgment order, the parties engaged in court-ordered mediation, which ultimately led to the comprehensive settlement described below.

III. The Settlement

On April 22, 2024, Verimark and Coastal Palms, together with the following additional parties—Randall Brecker (individually), Theresa Brecker (individually), Nolan Prescott (individually), Gulf Breeze Hospitality LLC, Savannah Lodging Partners LLC, and Suncoast Room Management Inc.—executed a Settlement Agreement and Mutual Release (the "Settlement Agreement") resolving all claims and counterclaims in the above-captioned litigation.

A. Settlement Consideration

The total settlement amount is Eighty-Seven Million Five Hundred Thousand Dollars ($87,500,000.00), structured as follows:

1. Cash Payment at Closing. A cash payment of Twenty-Five Million Dollars ($25,000,000.00), which was funded via wire transfer from an Ironclad National Bank escrow account (Account No. ending in 4781) on April 22, 2024, the date of execution of the Settlement Agreement. Verimark acknowledges receipt of this payment in full.

2. Structured Payments. The remaining balance of Sixty-Two Million Five Hundred Thousand Dollars ($62,500,000.00), payable in eight (8) equal semi-annual installments of Seven Million Eight Hundred Twelve Thousand Five Hundred Dollars ($7,812,500.00) each, with the first installment due and payable on October 22, 2024, and successive installments due on the twenty-second day of each subsequent April and October, with the final installment due on April 22, 2028.

3. Interest on Deferred Payments. The outstanding balance of the structured payments shall bear simple interest at a rate of six and one-half percent (6.5%) per annum, calculated on the unpaid principal balance from the date of execution of the Settlement Agreement. Interest shall be payable concurrently with each semi-annual installment.

B. Additional Settlement Terms Relevant to Ironclad

The Settlement Agreement contains several additional provisions that are directly relevant to Ironclad's lending relationship with Coastal Palms and its affiliated entities:

1. Franchise Surrender — 14 Properties. Coastal Palms is required to surrender its franchise rights to fourteen (14) of the twenty-two (22) hotel properties within one hundred twenty (120) days of the date of the Settlement Agreement. The de-identification deadline—by which all Verimark branding, signage, logos, proprietary systems, and reservation-system integrations must be removed from the surrendered properties—is August 20, 2024. The fourteen surrendered properties are located in the following markets: Sarasota, Florida (3 properties); Fort Myers, Florida (4 properties); Jacksonville, Florida (2 properties); Savannah, Georgia (3 properties); and Brunswick, Georgia (2 properties). Upon de-identification, these properties will no longer be authorized to operate under the Verimark Suites or Verimark Select brands, nor will they have access to the Verimark reservation system, loyalty program, or proprietary technology platforms.

2. Retained Properties — 8 Properties. Eight (8) hotel properties will be retained under new ten-year Franchise License Agreements executed contemporaneously with the Settlement Agreement. The retained properties are located in Naples, Florida (4 properties); Marco Island, Florida (2 properties); and Tampa, Florida (2 properties). The new Franchise License Agreements incorporate enhanced quarterly audit protocols, including mandatory engagement of an independent third-party auditor approved by Verimark, as well as real-time point-of-sale ("POS") integration requirements that provide Verimark with direct, contemporaneous access to transactional revenue data at each retained property.

3. Counterclaim Dismissal. Coastal Palms' Twelve Million Dollar ($12,000,000.00) counterclaim, which alleged wrongful termination threats, tortious interference with business relationships, and unfair franchise practices, has been dismissed with prejudice pursuant to the terms of the Settlement Agreement.

4. Joint Stipulation of Dismissal. A Joint Stipulation of Dismissal with Prejudice was filed with the Circuit Court of the 17th Judicial Circuit, Broward County, Florida, on April 26, 2024, and the Court is expected to enter an order of dismissal in due course.

C. Confidentiality. We note that the terms of the Settlement Agreement are subject to confidentiality provisions binding on all parties thereto, with limited exceptions. Among those exceptions are disclosures required (a) to Ironclad National Bank in its capacity as lender to Coastal Palms and its affiliated entities, as contemplated by Section 11.3 of the Settlement Agreement, and (b) by Verimark in connection with its disclosure obligations under the Securities Exchange Act of 1934 and the rules and regulations of the U.S. Securities and Exchange Commission. Verimark intends to file a Current Report on Form 8-K with the SEC disclosing the material terms of the settlement, which filing is expected to be made on or about April 26, 2024.

IV. Ironclad's Existing Loan Position

We understand, based on publicly available information and representations made by Coastal Palms during the course of the litigation, that Ironclad National Bank holds first-lien mortgage loans on eighteen (18) of the twenty-two (22) hotel properties in the Coastal Palms portfolio, with an aggregate outstanding principal balance of approximately Ninety-Four Million Dollars ($94,000,000.00). We further understand that you, Devon Schultz, serve as the Senior Vice President and Relationship Manager for the Coastal Palms commercial real estate lending relationship at Ironclad, and that you are the appropriate point of contact for communications regarding these loans.

We also understand that eight (8) of the twenty-two (22) properties in the Coastal Palms portfolio are not encumbered by Ironclad's existing first-lien mortgage loans. That is, these eight (8) properties are not subject to, and do not serve as collateral under, Ironclad's existing first-lien mortgage position. It is these eight (8) unencumbered properties that are the subject of the security interest described in Section V below.

To the extent that Ironclad's records reflect a different number of encumbered or unencumbered properties, or a different aggregate outstanding balance, we respectfully request that you notify us promptly so that we may reconcile any discrepancies with the information provided by Coastal Palms.

V. Verimark's Security Interest — First-Priority Lien on the 8 Unencumbered Properties

A. Grant of Security Interest

Pursuant to Section 7.1 of the Settlement Agreement, Coastal Palms has granted Verimark a first-priority security interest in the eight (8) hotel properties described above that are not encumbered by Ironclad's existing mortgage loans. This security interest was granted as collateral to secure Coastal Palms' obligation to pay the Sixty-Two Million Five Hundred Thousand Dollar ($62,500,000.00) structured-payment balance, together with simple interest at six and one-half percent (6.5%) per annum accruing on the outstanding balance, as described in Section III.A above.

B. Appraised Value

The aggregate appraised value of the eight (8) unencumbered properties, as determined by independent MAI-certified appraisals conducted within the ninety (90) days preceding the execution of the Settlement Agreement, is Seventy-One Million Two Hundred Thousand Dollars ($71,200,000.00). Copies of the appraisals are available upon request, subject to the confidentiality provisions of the Settlement Agreement.

C. UCC-1 Financing Statement

Verimark is in the process of perfecting this security interest by filing a UCC-1 Financing Statement with the Florida Secured Transaction Registry. The material particulars of the filing are as follows:

Debtor: Coastal Palms Franchise Holdings LLC, 9500 Gulf Shore Drive, Suite 450, Naples, FL 34108

Secured Party: Verimark Hospitality Group Inc., 2400 East Las Olas Boulevard, Suite 3100, Fort Lauderdale, FL 33301

Collateral: All right, title, and interest of the Debtor in and to the eight (8) unencumbered hotel properties more particularly described in the Settlement Agreement, Exhibit F thereto, including without limitation all improvements, fixtures, furniture, furnishings, equipment, accounts, and general intangibles associated therewith.

In addition to the UCC-1 filing, Verimark intends to record mortgage instruments in the applicable county recording offices in the jurisdictions where the eight (8) unencumbered properties are situated, as contemplated by Section 7.2 of the Settlement Agreement.

D. Personal Guaranties

As additional security for the structured payments, personal guaranties have been executed by Randall Brecker and Nolan Prescott in favor of Verimark. These guaranties are absolute, unconditional, and irrevocable, and guarantee the full and timely payment of all structured-payment obligations, including accrued interest. The guaranties are governed by Florida law and contain standard provisions regarding waiver of defenses, consent to jurisdiction, and liability for costs and attorneys' fees in the event of enforcement.

E. Non-Interference with Ironclad's Lien Position

We wish to make clear that Verimark's first-priority security interest pertains exclusively to the eight (8) hotel properties that are not encumbered by Ironclad's existing first-lien mortgages. Because these eight (8) properties are not subject to Ironclad's mortgage loans, Verimark's lien does not in any way affect, impair, subordinate, or interfere with Ironclad's security position on any of the eighteen (18) properties that serve as collateral under Ironclad's existing mortgage loans. Ironclad's first-lien position on those eighteen (18) properties remains unimpaired and unaffected by the Settlement Agreement and the security interest granted thereunder.

Verimark's lien is intended to be a first-priority lien with respect to the eight (8) unencumbered properties. To the extent that any other encumbrances, liens, or security interests of record may exist on one or more of those eight (8) properties, Verimark's lien would rank in priority in accordance with applicable Florida and Georgia law. Based on the representations and warranties made by Coastal Palms in the Settlement Agreement, Verimark believes that no such prior encumbrances exist.

VI. Impact on Coastal Palms' Operations and Ironclad's Collateral

We believe it is important to bring certain operational implications of the settlement to Ironclad's attention, as they may bear upon the Bank's assessment of its collateral position and the financial condition of Coastal Palms as borrower.

A. Franchise Surrender — Impact on Ironclad's Collateral

As noted in Section III.B above, Coastal Palms is required to surrender franchise rights to fourteen (14) hotel properties and to complete de-identification by August 20, 2024. We understand that some or all of these fourteen surrendered properties may be among the eighteen (18) properties encumbered by Ironclad's mortgage loans. The de-identification of Verimark branding—including the removal of all exterior and interior signage, the disconnection from the Verimark central reservation system, the termination of access to the Verimark Rewards loyalty program, and the removal of proprietary technology systems—may have a material impact on the operating revenue and occupancy rates of those properties in the near term. Properties that lose their brand affiliation and access to a national reservation and loyalty platform may experience a meaningful decline in revenue per available room ("RevPAR"), which could in turn affect the debt-service coverage ratios and other financial covenants in Ironclad's loan documents with Coastal Palms.

We raise this point not to express a view on Ironclad's internal credit assessment, but rather to ensure that the Bank is fully informed of the settlement terms as they may relate to the value and income-producing capacity of Ironclad's collateral. We encourage Ironclad to consult with Coastal Palms and its counsel, Nathan Whitfield III of Whitfield, Barrow & Crane LLP, regarding the operational transition plan for the surrendered properties.

B. Retained Properties — Continuity of Brand Affiliation

The eight (8) retained properties—located in Naples, Marco Island, and Tampa—will continue operating under the Verimark brand under the terms of the new ten-year Franchise License Agreements. The enhanced audit protocols and real-time POS integration requirements applicable to the retained properties are designed to ensure full transparency and accurate reporting of GRR going forward. For those retained properties that are among the properties encumbered by Ironclad's mortgage loans, the continued Verimark brand affiliation should provide stability and continuity of revenue performance.

C. Settlement Payment Obligations

As previously noted, the Twenty-Five Million Dollar ($25,000,000.00) closing payment has already been funded from the Ironclad escrow account. The ongoing structured payments of Seven Million Eight Hundred Twelve Thousand Five Hundred Dollars ($7,812,500.00) per semi-annual installment, together with accrued interest, will constitute ongoing payment obligations of Coastal Palms and the personal guarantors. These obligations should be taken into account in any assessment of Coastal Palms' overall debt-service capacity and financial condition.

VII. Requests for Acknowledgment and Consent

In light of the foregoing, Verimark respectfully requests that Ironclad National Bank provide written acknowledgment and, to the extent applicable, consent with respect to the following:

1. Receipt and Review. Written acknowledgment that Ironclad has received and reviewed this notice regarding the settlement of Verimark Hospitality Group Inc. v. Coastal Palms Franchise Holdings LLC et al., Case No. 1021-00006, and the terms thereof as they affect Ironclad's lending relationship with Coastal Palms, including Verimark's first-priority security interest in the eight (8) unencumbered hotel properties.

2. Confirmation of Unencumbered Status. Written confirmation that the eight (8) properties subject to Verimark's first-priority lien, as described in Exhibit F to the Settlement Agreement and in Section V of this letter, are not encumbered by Ironclad's existing first-lien mortgage loans—that is, that these eight (8) properties do not serve as collateral under any Ironclad loan or credit facility.

3. Consent to Verimark's Lien. To the extent that any provision in Ironclad's loan documents with Coastal Palms—including but not limited to any negative pledge covenant, negative lien covenant, or other restrictive covenant—requires the prior written consent of Ironclad as lender for the granting of additional liens or security interests on assets of the borrower or its affiliates, Verimark requests that Ironclad provide such written consent to Verimark's first-priority lien on the eight (8) unencumbered properties. Verimark believes, based on information available to it, that the eight (8) unencumbered properties may not fall within the scope of Ironclad's negative-pledge covenants; however, out of an abundance of caution and to avoid any ambiguity, Verimark requests Ironclad's affirmative consent.

Verimark is prepared to provide Ironclad with copies of the relevant settlement documents, including the Settlement Agreement (with appropriate redactions consistent with the confidentiality provisions thereof), the form of UCC-1 Financing Statement, the independent appraisals of the eight (8) unencumbered properties, and the personal guaranty agreements, upon Ironclad's request. Any such documents will be provided subject to applicable confidentiality protections, and Ironclad will be asked to execute a brief confidentiality acknowledgment prior to receipt of the full Settlement Agreement.

We respectfully request that Ironclad's written acknowledgment and consent be directed to the undersigned at the following address:

Priya Anand, Esq. Calderwood & Harkness LLP 110 SE 6th Street, Suite 2800 Fort Lauderdale, FL 33301

Email: panand@calderwoodharkness.com

Telephone: (954) 761-8217

We would appreciate receiving Ironclad's response within fifteen (15) business days of the date of this letter, or by May 15, 2024, whichever is later.

VIII. Confidentiality Notice

As noted above, the settlement terms described in this letter are subject to confidentiality provisions under the Settlement Agreement. While disclosure to Ironclad in its capacity as lender to Coastal Palms is expressly permitted under Section 11.3 of the Settlement Agreement, Ironclad is requested to treat the information contained in this letter, and any settlement documents provided in connection herewith, as confidential. We ask that Ironclad limit the dissemination of this information to those officers, employees, attorneys, and advisors within Ironclad who have a bona fide need to know in connection with Ironclad's lending relationship with Coastal Palms and its affiliated entities. Any further disclosure by Ironclad of the settlement terms or related information should be made only as required by applicable law or regulation, or with the prior written consent of Verimark.

IX. Contact Information and Closing

Should you have any questions regarding the matters addressed in this letter, or should you wish to discuss any aspect of the settlement, Verimark's security interest, or the operational implications described herein, please do not hesitate to contact me directly at the telephone number and email address listed below. I am available to arrange a call or meeting at your convenience, and I am prepared to facilitate the prompt exchange of any additional information or documentation that Ironclad may require.

Primary Contact: Priya Anand, Partner Calderwood & Harkness LLP 110 SE 6th Street, Suite 2800 Fort Lauderdale, FL 33301 Telephone: (954) 761-8217

Email: panand@calderwoodharkness.com

FL Bar No. 0087451

In addition, should Ironclad prefer to communicate directly with Verimark's in-house legal team on any matter arising from this notice, the appropriate contact is:

Renata Solis-Vega Senior Vice President & General Counsel Verimark Hospitality Group Inc. 2400 East Las Olas Boulevard, Suite 3100 Fort Lauderdale, FL 33301 Telephone: (954) 338-6400

Email: rsolis-vega@verimarkhotels.com

We appreciate Ironclad's prompt attention to this matter and look forward to receiving the Bank's written acknowledgment and consent at your earliest convenience. Verimark values a constructive and transparent relationship with Ironclad, and we trust that the information provided herein will facilitate Ironclad's review of the settlement and its implications for the Bank's lending position.

Very truly yours,

CALDERWOOD & HARKNESS LLP

By: ________

Priya Anand Partner FL Bar No. 0087451 110 SE 6th Street, Suite 2800 Fort Lauderdale, FL 33301 Telephone: (954) 761-8217

Email: panand@calderwoodharkness.com

cc: (via electronic mail)

Renata Solis-Vega, SVP & General Counsel, Verimark Hospitality Group Inc.

Martin Holcomb, EVP & Chief Financial Officer, Verimark Hospitality Group Inc.

Nathan Whitfield III, Esq., Whitfield, Barrow & Crane LLP (counsel for Coastal Palms Franchise Holdings LLC)

Enclosures: None enclosed herewith. Copies of the Settlement Agreement and Mutual Release, draft UCC-1 Financing Statement, independent property appraisals, personal guaranty agreements, and related documents are available upon request, subject to applicable confidentiality provisions as described herein.

CALDERWOOD & HARKNESS LLP Attorneys at Law 110 SE 6th Street, Suite 2800 Fort Lauderdale, Florida 33301 Telephone: (954) 761-8200 Facsimile: (954) 761-8201 www.calderwoodharkness.com
April 24, 2024
VIA FEDEX AND ELECTRONIC MAIL
Devon Schultz Senior Vice President, Commercial Real Estate Lending Ironclad National Bank 225 Peachtree Street NE, Suite 2600 Atlanta, GA 30303
Re: Notice of Settlement and Lien — *Verimark Hospitality Group Inc. v. Coastal Palms Franchise Holdings LLC et al.*, Case No. 1021-00006, Circuit Court of the 17th Judicial Circuit, Broward County, Florida; Ironclad National Bank's First-Lien Mortgage Loans on Certain Hotel Properties Owned by Coastal Palms Franchise Holdings LLC and Affiliated Entities
Dear Mr. Schultz:
I. Introduction and Purpose of This Letter
This firm represents Verimark Hospitality Group Inc. ("Verimark" or "VHG"), a Delaware corporation publicly traded on the Nasdaq Stock Market under ticker symbol VHMK, with its principal executive offices located at 2400 East Las Olas Boulevard, Suite 3100, Fort Lauderdale, Florida 33301. We write on behalf of Verimark in connection with the above-referenced litigation and Ironclad National Bank's ("Ironclad" or the "Bank") commercial real estate lending relationship with Coastal Palms Franchise Holdings LLC ("Coastal Palms") and its affiliated entities.
The purpose of this letter is threefold. First, we write to formally notify Ironclad of the settlement of the above-captioned litigation, which was executed on April 22, 2024, and to apprise the Bank of the material terms thereof. Second, we write to inform Ironclad of the manner in which the settlement terms affect and intersect with Ironclad's lending relationship with Coastal Palms and its affiliates, including the Bank's first-lien mortgage positions on certain hotel properties within the Coastal Palms portfolio. Third, and of particular importance, we write to notify Ironclad of Verimark's perfection of a first-priority security interest in certain hotel properties that are not encumbered by Ironclad's existing mortgage loans, and to request the Bank's written acknowledgment of and consent to such security interest. We respectfully request Ironclad's prompt attention to the matters set forth herein.
II. Background — The Litigation
On March 7, 2022, Verimark filed a ten-count Complaint against Coastal Palms Franchise Holdings LLC, a Florida limited liability company with its principal office at 9500 Gulf Shore Drive, Suite 450, Naples, Florida 34108, and certain affiliated parties in the Circuit Court of the 17th Judicial Circuit, in and for Broward County, Florida, assigned Case No. 1021-00006. The named defendants in the action included Coastal Palms Franchise Holdings LLC, Randall Brecker (individually and in his capacity as Managing Member of Coastal Palms), and Suncoast Room Management Inc. ("Suncoast"), a Florida corporation controlled by Mr. Brecker that had been established and utilized to collect and divert direct-booking revenues from the franchised hotel properties.
The litigation arose from Coastal Palms' systematic underreporting of Gross Room Revenue ("GRR") over a nine-year period spanning from 2013 through 2021 across its portfolio of twenty-two (22) franchised hotel properties, consisting of eighteen (18) Verimark Suites-branded locations and four (4) Verimark Select-branded locations operating in the states of Florida and Georgia. The affected portfolio comprised approximately 3,740 total guest rooms. Through the use of Suncoast as an intermediary revenue-collection entity, Coastal Palms diverted direct-booking revenues outside the GRR calculations required under the applicable Franchise License Agreements, thereby materially understating the royalties, marketing-fund contributions, technology fees, and other amounts owed to Verimark.
Verimark's Complaint asserted claims for breach of contract, breach of the implied covenant of good faith and fair dealing, fraud, fraudulent concealment, unjust enrichment, violations of the Florida Deceptive and Unfair Trade Practices Act, and related causes of action, seeking approximately $150 million in damages, including underpaid royalties, marketing-fund contributions, technology fees, contractual late-payment interest at the rates specified in the Franchise License Agreements, and liquidated damages as provided therein.
After extensive discovery—including the production of more than 600,000 documents, the depositions of twenty-three fact witnesses and four expert witnesses, and the retention of forensic accounting experts—Verimark moved for partial summary judgment on Counts I (breach of contract) and II (breach of the implied covenant of good faith and fair dealing). On February 9, 2024, the Honorable Richard M. Calloway, Circuit Judge, granted Verimark's Motion for Partial Summary Judgment on those counts, finding as a matter of law that Coastal Palms' exclusion of revenues collected through Suncoast Room Management Inc. from the calculation of GRR constituted a material breach of the Franchise License Agreements. Judge Calloway's order further concluded that the plain language of the GRR definition in the Franchise License Agreements encompassed all room revenues generated at the franchised hotel properties, irrespective of the booking channel or the entity through which payment was collected.
The Court's ruling on partial summary judgment left for trial only the issues of the precise amount of damages and Verimark's remaining claims, including the fraud-based counts. Following entry of the partial summary judgment order, the parties engaged in court-ordered mediation, which ultimately led to the comprehensive settlement described below.
III. The Settlement
On April 22, 2024, Verimark and Coastal Palms, together with the following additional parties—Randall Brecker (individually), Theresa Brecker (individually), Nolan Prescott (individually), Gulf Breeze Hospitality LLC, Savannah Lodging Partners LLC, and Suncoast Room Management Inc.—executed a Settlement Agreement and Mutual Release (the "Settlement Agreement") resolving all claims and counterclaims in the above-captioned litigation.
A. Settlement Consideration
The total settlement amount is Eighty-Seven Million Five Hundred Thousand Dollars ($87,500,000.00), structured as follows:
1. Cash Payment at Closing. A cash payment of Twenty-Five Million Dollars ($25,000,000.00), which was funded via wire transfer from an Ironclad National Bank escrow account (Account No. ending in 4781) on April 22, 2024, the date of execution of the Settlement Agreement. Verimark acknowledges receipt of this payment in full.
2. Structured Payments. The remaining balance of Sixty-Two Million Five Hundred Thousand Dollars ($62,500,000.00), payable in eight (8) equal semi-annual installments of Seven Million Eight Hundred Twelve Thousand Five Hundred Dollars ($7,812,500.00) each, with the first installment due and payable on October 22, 2024, and successive installments due on the twenty-second day of each subsequent April and October, with the final installment due on April 22, 2028.
3. Interest on Deferred Payments. The outstanding balance of the structured payments shall bear simple interest at a rate of six and one-half percent (6.5%) per annum, calculated on the unpaid principal balance from the date of execution of the Settlement Agreement. Interest shall be payable concurrently with each semi-annual installment.
B. Additional Settlement Terms Relevant to Ironclad
The Settlement Agreement contains several additional provisions that are directly relevant to Ironclad's lending relationship with Coastal Palms and its affiliated entities:
1. Franchise Surrender — 14 Properties. Coastal Palms is required to surrender its franchise rights to fourteen (14) of the twenty-two (22) hotel properties within one hundred twenty (120) days of the date of the Settlement Agreement. The de-identification deadline—by which all Verimark branding, signage, logos, proprietary systems, and reservation-system integrations must be removed from the surrendered properties—is August 20, 2024. The fourteen surrendered properties are located in the following markets: Sarasota, Florida (3 properties); Fort Myers, Florida (4 properties); Jacksonville, Florida (2 properties); Savannah, Georgia (3 properties); and Brunswick, Georgia (2 properties). Upon de-identification, these properties will no longer be authorized to operate under the Verimark Suites or Verimark Select brands, nor will they have access to the Verimark reservation system, loyalty program, or proprietary technology platforms.
2. Retained Properties — 8 Properties. Eight (8) hotel properties will be retained under new ten-year Franchise License Agreements executed contemporaneously with the Settlement Agreement. The retained properties are located in Naples, Florida (4 properties); Marco Island, Florida (2 properties); and Tampa, Florida (2 properties). The new Franchise License Agreements incorporate enhanced quarterly audit protocols, including mandatory engagement of an independent third-party auditor approved by Verimark, as well as real-time point-of-sale ("POS") integration requirements that provide Verimark with direct, contemporaneous access to transactional revenue data at each retained property.
3. Counterclaim Dismissal. Coastal Palms' Twelve Million Dollar ($12,000,000.00) counterclaim, which alleged wrongful termination threats, tortious interference with business relationships, and unfair franchise practices, has been dismissed with prejudice pursuant to the terms of the Settlement Agreement.
4. Joint Stipulation of Dismissal. A Joint Stipulation of Dismissal with Prejudice was filed with the Circuit Court of the 17th Judicial Circuit, Broward County, Florida, on April 26, 2024, and the Court is expected to enter an order of dismissal in due course.
C. Confidentiality. We note that the terms of the Settlement Agreement are subject to confidentiality provisions binding on all parties thereto, with limited exceptions. Among those exceptions are disclosures required (a) to Ironclad National Bank in its capacity as lender to Coastal Palms and its affiliated entities, as contemplated by Section 11.3 of the Settlement Agreement, and (b) by Verimark in connection with its disclosure obligations under the Securities Exchange Act of 1934 and the rules and regulations of the U.S. Securities and Exchange Commission. Verimark intends to file a Current Report on Form 8-K with the SEC disclosing the material terms of the settlement, which filing is expected to be made on or about April 26, 2024.
IV. Ironclad's Existing Loan Position
We understand, based on publicly available information and representations made by Coastal Palms during the course of the litigation, that Ironclad National Bank holds first-lien mortgage loans on eighteen (18) of the twenty-two (22) hotel properties in the Coastal Palms portfolio, with an aggregate outstanding principal balance of approximately Ninety-Four Million Dollars ($94,000,000.00). We further understand that you, Devon Schultz, serve as the Senior Vice President and Relationship Manager for the Coastal Palms commercial real estate lending relationship at Ironclad, and that you are the appropriate point of contact for communications regarding these loans.
We also understand that eight (8) of the twenty-two (22) properties in the Coastal Palms portfolio are not encumbered by Ironclad's existing first-lien mortgage loans. That is, these eight (8) properties are not subject to, and do not serve as collateral under, Ironclad's existing first-lien mortgage position. It is these eight (8) unencumbered properties that are the subject of the security interest described in Section V below.
To the extent that Ironclad's records reflect a different number of encumbered or unencumbered properties, or a different aggregate outstanding balance, we respectfully request that you notify us promptly so that we may reconcile any discrepancies with the information provided by Coastal Palms.
V. Verimark's Security Interest — First-Priority Lien on the 8 Unencumbered Properties
A. Grant of Security Interest
Pursuant to Section 7.1 of the Settlement Agreement, Coastal Palms has granted Verimark a first-priority security interest in the eight (8) hotel properties described above that are not encumbered by Ironclad's existing mortgage loans. This security interest was granted as collateral to secure Coastal Palms' obligation to pay the Sixty-Two Million Five Hundred Thousand Dollar ($62,500,000.00) structured-payment balance, together with simple interest at six and one-half percent (6.5%) per annum accruing on the outstanding balance, as described in Section III.A above.
B. Appraised Value
The aggregate appraised value of the eight (8) unencumbered properties, as determined by independent MAI-certified appraisals conducted within the ninety (90) days preceding the execution of the Settlement Agreement, is Seventy-One Million Two Hundred Thousand Dollars ($71,200,000.00). Copies of the appraisals are available upon request, subject to the confidentiality provisions of the Settlement Agreement.
C. UCC-1 Financing Statement
Verimark is in the process of perfecting this security interest by filing a UCC-1 Financing Statement with the Florida Secured Transaction Registry. The material particulars of the filing are as follows:
Debtor: Coastal Palms Franchise Holdings LLC, 9500 Gulf Shore Drive, Suite 450, Naples, FL 34108
Secured Party: Verimark Hospitality Group Inc., 2400 East Las Olas Boulevard, Suite 3100, Fort Lauderdale, FL 33301
Collateral: All right, title, and interest of the Debtor in and to the eight (8) unencumbered hotel properties more particularly described in the Settlement Agreement, Exhibit F thereto, including without limitation all improvements, fixtures, furniture, furnishings, equipment, accounts, and general intangibles associated therewith.
In addition to the UCC-1 filing, Verimark intends to record mortgage instruments in the applicable county recording offices in the jurisdictions where the eight (8) unencumbered properties are situated, as contemplated by Section 7.2 of the Settlement Agreement.
D. Personal Guaranties
As additional security for the structured payments, personal guaranties have been executed by Randall Brecker and Nolan Prescott in favor of Verimark. These guaranties are absolute, unconditional, and irrevocable, and guarantee the full and timely payment of all structured-payment obligations, including accrued interest. The guaranties are governed by Florida law and contain standard provisions regarding waiver of defenses, consent to jurisdiction, and liability for costs and attorneys' fees in the event of enforcement.
E. Non-Interference with Ironclad's Lien Position
We wish to make clear that Verimark's first-priority security interest pertains exclusively to the eight (8) hotel properties that are not encumbered by Ironclad's existing first-lien mortgages. Because these eight (8) properties are not subject to Ironclad's mortgage loans, Verimark's lien does not in any way affect, impair, subordinate, or interfere with Ironclad's security position on any of the eighteen (18) properties that serve as collateral under Ironclad's existing mortgage loans. Ironclad's first-lien position on those eighteen (18) properties remains unimpaired and unaffected by the Settlement Agreement and the security interest granted thereunder.
Verimark's lien is intended to be a first-priority lien with respect to the eight (8) unencumbered properties. To the extent that any other encumbrances, liens, or security interests of record may exist on one or more of those eight (8) properties, Verimark's lien would rank in priority in accordance with applicable Florida and Georgia law. Based on the representations and warranties made by Coastal Palms in the Settlement Agreement, Verimark believes that no such prior encumbrances exist.
VI. Impact on Coastal Palms' Operations and Ironclad's Collateral
We believe it is important to bring certain operational implications of the settlement to Ironclad's attention, as they may bear upon the Bank's assessment of its collateral position and the financial condition of Coastal Palms as borrower.
A. Franchise Surrender — Impact on Ironclad's Collateral
As noted in Section III.B above, Coastal Palms is required to surrender franchise rights to fourteen (14) hotel properties and to complete de-identification by August 20, 2024. We understand that some or all of these fourteen surrendered properties may be among the eighteen (18) properties encumbered by Ironclad's mortgage loans. The de-identification of Verimark branding—including the removal of all exterior and interior signage, the disconnection from the Verimark central reservation system, the termination of access to the Verimark Rewards loyalty program, and the removal of proprietary technology systems—may have a material impact on the operating revenue and occupancy rates of those properties in the near term. Properties that lose their brand affiliation and access to a national reservation and loyalty platform may experience a meaningful decline in revenue per available room ("RevPAR"), which could in turn affect the debt-service coverage ratios and other financial covenants in Ironclad's loan documents with Coastal Palms.
We raise this point not to express a view on Ironclad's internal credit assessment, but rather to ensure that the Bank is fully informed of the settlement terms as they may relate to the value and income-producing capacity of Ironclad's collateral. We encourage Ironclad to consult with Coastal Palms and its counsel, Nathan Whitfield III of Whitfield, Barrow & Crane LLP, regarding the operational transition plan for the surrendered properties.
B. Retained Properties — Continuity of Brand Affiliation
The eight (8) retained properties—located in Naples, Marco Island, and Tampa—will continue operating under the Verimark brand under the terms of the new ten-year Franchise License Agreements. The enhanced audit protocols and real-time POS integration requirements applicable to the retained properties are designed to ensure full transparency and accurate reporting of GRR going forward. For those retained properties that are among the properties encumbered by Ironclad's mortgage loans, the continued Verimark brand affiliation should provide stability and continuity of revenue performance.
C. Settlement Payment Obligations
As previously noted, the Twenty-Five Million Dollar ($25,000,000.00) closing payment has already been funded from the Ironclad escrow account. The ongoing structured payments of Seven Million Eight Hundred Twelve Thousand Five Hundred Dollars ($7,812,500.00) per semi-annual installment, together with accrued interest, will constitute ongoing payment obligations of Coastal Palms and the personal guarantors. These obligations should be taken into account in any assessment of Coastal Palms' overall debt-service capacity and financial condition.
VII. Requests for Acknowledgment and Consent
In light of the foregoing, Verimark respectfully requests that Ironclad National Bank provide written acknowledgment and, to the extent applicable, consent with respect to the following:
1. Receipt and Review. Written acknowledgment that Ironclad has received and reviewed this notice regarding the settlement of Verimark Hospitality Group Inc. v. Coastal Palms Franchise Holdings LLC et al., Case No. 1021-00006, and the terms thereof as they affect Ironclad's lending relationship with Coastal Palms, including Verimark's first-priority security interest in the eight (8) unencumbered hotel properties.
2. Confirmation of Unencumbered Status. Written confirmation that the eight (8) properties subject to Verimark's first-priority lien, as described in Exhibit F to the Settlement Agreement and in Section V of this letter, are not encumbered by Ironclad's existing first-lien mortgage loans—that is, that these eight (8) properties do not serve as collateral under any Ironclad loan or credit facility.
3. Consent to Verimark's Lien. To the extent that any provision in Ironclad's loan documents with Coastal Palms—including but not limited to any negative pledge covenant, negative lien covenant, or other restrictive covenant—requires the prior written consent of Ironclad as lender for the granting of additional liens or security interests on assets of the borrower or its affiliates, Verimark requests that Ironclad provide such written consent to Verimark's first-priority lien on the eight (8) unencumbered properties. Verimark believes, based on information available to it, that the eight (8) unencumbered properties may not fall within the scope of Ironclad's negative-pledge covenants; however, out of an abundance of caution and to avoid any ambiguity, Verimark requests Ironclad's affirmative consent.
Verimark is prepared to provide Ironclad with copies of the relevant settlement documents, including the Settlement Agreement (with appropriate redactions consistent with the confidentiality provisions thereof), the form of UCC-1 Financing Statement, the independent appraisals of the eight (8) unencumbered properties, and the personal guaranty agreements, upon Ironclad's request. Any such documents will be provided subject to applicable confidentiality protections, and Ironclad will be asked to execute a brief confidentiality acknowledgment prior to receipt of the full Settlement Agreement.
We respectfully request that Ironclad's written acknowledgment and consent be directed to the undersigned at the following address:
Priya Anand, Esq. Calderwood & Harkness LLP 110 SE 6th Street, Suite 2800 Fort Lauderdale, FL 33301
Email: panand@calderwoodharkness.com
Telephone: (954) 761-8217
We would appreciate receiving Ironclad's response within fifteen (15) business days of the date of this letter, or by May 15, 2024, whichever is later.
VIII. Confidentiality Notice
As noted above, the settlement terms described in this letter are subject to confidentiality provisions under the Settlement Agreement. While disclosure to Ironclad in its capacity as lender to Coastal Palms is expressly permitted under Section 11.3 of the Settlement Agreement, Ironclad is requested to treat the information contained in this letter, and any settlement documents provided in connection herewith, as confidential. We ask that Ironclad limit the dissemination of this information to those officers, employees, attorneys, and advisors within Ironclad who have a bona fide need to know in connection with Ironclad's lending relationship with Coastal Palms and its affiliated entities. Any further disclosure by Ironclad of the settlement terms or related information should be made only as required by applicable law or regulation, or with the prior written consent of Verimark.
IX. Contact Information and Closing
Should you have any questions regarding the matters addressed in this letter, or should you wish to discuss any aspect of the settlement, Verimark's security interest, or the operational implications described herein, please do not hesitate to contact me directly at the telephone number and email address listed below. I am available to arrange a call or meeting at your convenience, and I am prepared to facilitate the prompt exchange of any additional information or documentation that Ironclad may require.
Primary Contact: Priya Anand, Partner Calderwood & Harkness LLP 110 SE 6th Street, Suite 2800 Fort Lauderdale, FL 33301 Telephone: (954) 761-8217
Email: panand@calderwoodharkness.com
FL Bar No. 0087451
In addition, should Ironclad prefer to communicate directly with Verimark's in-house legal team on any matter arising from this notice, the appropriate contact is:
Renata Solis-Vega Senior Vice President & General Counsel Verimark Hospitality Group Inc. 2400 East Las Olas Boulevard, Suite 3100 Fort Lauderdale, FL 33301 Telephone: (954) 338-6400
Email: rsolis-vega@verimarkhotels.com
We appreciate Ironclad's prompt attention to this matter and look forward to receiving the Bank's written acknowledgment and consent at your earliest convenience. Verimark values a constructive and transparent relationship with Ironclad, and we trust that the information provided herein will facilitate Ironclad's review of the settlement and its implications for the Bank's lending position.
Very truly yours,
CALDERWOOD & HARKNESS LLP
By: ________
Priya Anand Partner FL Bar No. 0087451 110 SE 6th Street, Suite 2800 Fort Lauderdale, FL 33301 Telephone: (954) 761-8217
Email: panand@calderwoodharkness.com
cc: (via electronic mail)
Renata Solis-Vega, SVP & General Counsel, Verimark Hospitality Group Inc.
Martin Holcomb, EVP & Chief Financial Officer, Verimark Hospitality Group Inc.
Nathan Whitfield III, Esq., Whitfield, Barrow & Crane LLP (counsel for Coastal Palms Franchise Holdings LLC)
Enclosures: None enclosed herewith. Copies of the Settlement Agreement and Mutual Release, draft UCC-1 Financing Statement, independent property appraisals, personal guaranty agreements, and related documents are available upon request, subject to applicable confidentiality provisions as described herein.

VIA FEDEX AND ELECTRONIC MAIL

CALDERWOOD & HARKNESS LLP

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