Dear Derek,
I am writing to provide you with an update on the deposit disposition in connection with the Coral Palms Grand Resort & Spa refinancing matter (Matter No. 1021-00007).
As you know, following VHG's termination notice delivered to Pinnacle Atlantic Capital, LLC ("PAC") on February 15, 2023, PAC responded on February 22, 2023, asserting its right to retain all deposits held by Meridian Title & Escrow, Inc. Since that time, we have been in active discussions with PAC and its counsel at Whitford Baines & Driscoll LLP (Philip Tarrant Corporation) to negotiate the disposition of VHG's deposits. I am pleased to report that the parties have reached agreement on settlement terms, which I summarize below.
**Summary of Negotiated Settlement Terms**
The total deposits held by Meridian Title & Escrow, Inc. aggregate $2,400,000, consisting of two components:
1. **Good Faith Deposit — $1,600,000 (Forfeited to PAC).** PAC will retain the $1,600,000 good faith deposit as liquidated damages under Section 8(b) of the Commitment Letter dated December 9, 2022. As we have discussed, VHG's position has been that the repricing PAC delivered on January 27, 2023, constituted a material modification of the commitment terms, which should entitle VHG to a full refund of this deposit. PAC, however, maintained throughout our discussions that VHG's borrower-initiated termination triggered the forfeiture provision irrespective of the repricing, and that VHG's remedy was to reject the repriced terms and await PAC's formal withdrawal — a position not without support under the Commitment Letter's language. After careful evaluation, and considering both the litigation risk and the cost of pursuing judicial recovery of this amount, our recommendation is that accepting this outcome is the prudent course.
2. **Rate Lock Deposit — $800,000 (Refunded to VHG).** PAC has agreed to refund the $800,000 rate lock deposit in full. This represents a meaningful negotiated concession. PAC's initial position, as set forth in its February 22 response, was that both deposits were non-refundable upon borrower termination. We argued successfully that the rate lock deposit was functionally distinct from the good faith deposit — it was deposited on January 5, 2023, pursuant to a separate Rate Lock Agreement, and critically, the rate lock was never consummated at the repriced terms that PAC subsequently proposed. Under these circumstances, we maintained that the rate lock deposit remained refundable, and PAC ultimately conceded the point.
**Net Result:** Of the $2,400,000 in total deposits, $1,600,000 will be forfeited to PAC and $800,000 will be refunded to VHG.
**Settlement Mechanics**
I have attached a draft Deposit Settlement Letter Agreement for your review. The principal terms are as follows:
- The agreement provides for mutual instructions to Meridian Title & Escrow, Inc. (Lisa Portman, Title Officer) to disburse the $1,600,000 good faith deposit to PAC and to return the $800,000 rate lock deposit to Coral Palms Resort Holdings LLC (or as VHG may otherwise direct). - The agreement includes a mutual release of all claims between Coral Palms Resort Holdings LLC, Verimark Hospitality Group Inc., and Pinnacle Atlantic Capital, LLC arising out of or relating to the terminated refinancing transaction. - Consistent with the Commitment Letter, the agreement is governed by Florida law. - The agreement is structured as a letter agreement to be executed by all three parties — CPRH, VHG, and PAC.
**Request for VHG Review**
I would ask that you review the attached draft with Natasha and, if appropriate, Conrad Elliston. We would appreciate receiving any comments or revisions no later than **Monday, February 27, 2023**, so that we can finalize execution by **February 28, 2023** — the target date we have discussed with PAC's counsel. Douglas Fairchild is available should VHG's board or executive team wish to discuss the settlement terms before signing.
**Additional Items**
A few additional points for your records:
- The $800,000 commitment fee (0.50% of the $160,000,000 loan amount) was payable only at closing and was never incurred. Accordingly, there is no outstanding exposure on that item. - Once the settlement agreement is executed and the $800,000 rate lock deposit is returned, this matter will be effectively closed from a transactional standpoint. At that time, we will prepare a matter closing memorandum summarizing the final disposition of all deposits, total legal fees incurred (approximately $287,500, against the original estimate of $350,000–$475,000 for a full closing), and a reconciliation of the $50,000 evergreen retainer deposited on December 7, 2022. - As a reminder, the existing Tidewater National Bank loan ($118,500,000 outstanding, SOFR + 2.25%) remains in place with a maturity date of June 1, 2024. We would recommend that VHG begin evaluating alternative refinancing options in due course to address the upcoming maturity well in advance.
**Closing Thoughts**
I am available to discuss any of the foregoing by phone at your convenience. While the forfeiture of the $1,600,000 good faith deposit is an unfortunate outcome, the full recovery of the $800,000 rate lock deposit — together with the mutual release of claims — represents a reasonable resolution given the circumstances and the inherent uncertainties of litigating the forfeiture provision. We believe this settlement positions VHG to move forward cleanly.
Thank you, Derek. Please do not hesitate to reach out with any questions.
Best regards,
**Grace Nakamura** Associate, Real Estate Calderwood & Harkness LLP 100 Southeast Second Street, Suite 3800 Miami, FL 33131 Direct: (305) 814-2260 Email: gnakamura@calderwoodharkness.com
**Attachment:** Draft Deposit Settlement Letter Agreement — PAC-VHG (02.24.2023).docx
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