PRIVILEGED & CONFIDENTIAL — ATTORNEY WORK PRODUCT
MEMORANDUM
TO: File — Matter No. 1021-00007
FROM: Douglas Fairchild, Responsible Partner, Real Estate Practice Group
DATE: October 19, 2022
RE: Engagement Team Assignment — Verimark Hospitality Group Inc. / Coral Palms Grand Resort & Spa Refinancing ($160,000,000 First Mortgage Loan)
1. Matter Overview
This memorandum sets forth the engagement team assignments, anticipated workstreams, and staffing plan for the above-referenced matter. It is prepared for the file and distributed to each member of the engagement team to ensure clarity of roles, responsibilities, and expectations from the outset of the representation.
Client. The client is Verimark Hospitality Group Inc. ("VHG"), a Delaware corporation publicly traded on the Nasdaq Stock Market under the ticker symbol "VMRK," with its principal executive offices located at 1400 Bayshore Boulevard, Suite 2200, Miami, Florida 33131. VHG is a diversified hospitality company that owns, operates, and develops resort and lifestyle hotel properties throughout the southeastern United States and the Caribbean.
Matter Number. This engagement has been assigned firm matter number 1021-00007.
Engagement Opened. October 19, 2022.
Nature of Matter. Calderwood & Harkness LLP ("C&H") has been engaged to represent VHG and its wholly owned indirect subsidiary, Coral Palms Resort Holdings LLC ("CPRH"), a Florida limited liability company, as borrower's counsel in connection with a proposed $160,000,000 first mortgage refinancing of the Coral Palms Grand Resort & Spa, a luxury full-service oceanfront resort hotel located at 99000 Overseas Highway, Key Largo, Monroe County, Florida 33037 (the "Property"). CPRH is the fee owner of the Property and will serve as the borrower under the proposed loan. VHG will serve as the limited recourse guarantor.
Prospective Lender. The prospective lender is Pinnacle Atlantic Capital, LLC ("PAC"), a Delaware limited liability company, with offices at 200 Lexington Avenue, 38th Floor, New York, New York 10016. PAC is an affiliate of Greystone Peak Asset Management LP, a diversified alternative asset management platform with approximately $14.7 billion in assets under management as of its most recent public disclosures. The principal contacts at PAC for this transaction are Martin Drubeck, Managing Director, and Jennifer Kwon, Vice President — Originations.
Lender's Counsel. Whitford Baines & Driscoll LLP ("WBD"), 1221 Avenue of the Americas, Suite 4400, New York, New York 10020. The lead partner at WBD is Philip Tarrant Corporation, and the lead associate is Catherine Yee. WBD is well known to this firm from prior transactions, and we have a productive working relationship with both Tarrant Corporation and his team.
Existing Lender (to be Refinanced). The existing lender on the Property is Tidewater National Bank, N.A. ("Tidewater"), with offices at 600 Waterside Drive, Norfolk, Virginia 23510. Tidewater holds an outstanding first mortgage loan with a current approximate balance of $118,500,000, originated under a $125,000,000 first mortgage loan that closed on June 1, 2019, and scheduled to mature on June 1, 2024. The C&H contact at Tidewater for payoff purposes is Alan Prescott, Senior Vice President — Commercial Real Estate.
Refinancing Purpose. The proceeds of the proposed PAC loan will be used to (i) pay off the existing Tidewater first mortgage loan in full (including accrued interest, any applicable prepayment premium, and release fees), (ii) fund upfront reserve accounts as required by PAC, (iii) pay transaction costs (including title insurance premiums, recording fees, lender's counsel fees, C&H's fees, appraisal fees, and environmental and survey costs), and (iv) distribute net cash-out proceeds to VHG. Based on preliminary estimates, the net cash-out to VHG after payment of the Tidewater payoff and all transaction costs is approximately $32,265,000.
Key Proposed Terms. The principal terms of the proposed refinancing, as discussed in preliminary negotiations between VHG (through Derek Huang) and PAC (through Martin Drubeck and Jennifer Kwon), are as follows:
• Loan Amount: $160,000,000
• Interest Rate: 5.35% per annum, fixed
• Loan Term: Five (5) years from the closing date
• Maximum Loan-to-Value ("LTV"): 68.0%
• Minimum Debt Yield: 9.5%
• Amortization: Interest-only during years one (1) and two (2); thereafter, monthly principal and interest payments based on a thirty (30) year amortization schedule
• Extension Options: Two (2) one-year extension options, subject to satisfaction of conditions including a minimum Debt Service Coverage Ratio ("DSCR") of 1.25x, payment of an extension fee of 0.25% of the then-outstanding principal balance per extension, and no continuing event of default
• Exit Fee: 0.25% of the original principal balance
• Good Faith Deposit: $1,600,000 (1.0% of the loan amount)
• Rate Lock Deposit: $800,000 (0.50% of the loan amount)
• Commitment Fee: $800,000 (0.50% of the loan amount)
• Lender's Counsel Fee Cap: $275,000 plus reasonable out-of-pocket disbursements
• Upfront Reserves: Approximately $4,800,000 (to cover tax, insurance, FF&E, and capital reserves)
Engagement Letter Status. As of the date of this memorandum, the engagement letter between VHG and C&H has not yet been executed. Formal execution is anticipated once term sheet negotiations between VHG and PAC advance sufficiently to confirm that VHG will proceed with the refinancing. The PAC term sheet is expected to be issued in mid-November 2022. The engagement letter was subsequently executed on December 5, 2022.
2. Engagement Team Assignments
The following attorneys have been assigned to this engagement. Each team member's role, responsibilities, hourly rate, and expected level of involvement are described below. All team members are resident in the firm's Miami office.
2.1 Douglas Fairchild — Responsible Partner, Real Estate
Title: Partner, Real Estate Practice Group
Office: Calderwood & Harkness LLP, 100 Southeast Second Street, Suite 3800, Miami, Florida 33131
Hourly Rate: $1,150 per hour
Role: Responsible partner with overall supervisory responsibility for the engagement. Douglas Fairchild will serve as the primary client relationship partner and will maintain direct communication with the senior leadership of VHG throughout the transaction.
Responsibilities:
• Overall strategic advice to VHG regarding deal structure, negotiation posture, and risk assessment in connection with the proposed refinancing.
• Primary client relationship management with Conrad W. Elliston (Chairman & CEO, VHG), Natasha Ricard (CFO, VHG), and Derek Huang (SVP — Capital Markets & Treasury, VHG).
• Oversight and quality control of all work product generated by the engagement team, including loan document markups, memoranda, correspondence, and opinion letters.
• Lead contact for lender's counsel, Philip Tarrant Corporation at WBD, on significant legal and commercial issues arising during commitment letter and loan document negotiations.
• Participation in key negotiation calls and meetings, including term sheet review sessions, commitment letter negotiations, and resolution of material open issues during loan document drafting.
• Review and approval of all material correspondence and document markups prior to transmission to WBD or PAC.
• Escalation point for unresolved issues between the working-level teams and for matters requiring partner-level judgment or client authorization.
• Management of client expectations regarding timeline, legal fees, risk allocation, and deal execution.
• Supervision of closing opinion deliverables, if applicable, including any enforceability, authority, or other legal opinions to be delivered at closing.
Expected Involvement: Periodic throughout the engagement, with concentrated involvement during the following phases: (i) commitment letter negotiation (expected late November through early December 2022), (ii) resolution of major open issues during loan document negotiation (expected January through February 2023), and (iii) closing (anticipated February through March 2023). Fairchild's involvement on routine due diligence and day-to-day document management matters will be limited, with those responsibilities delegated to the lead associate.
2.2 Angela Fontaine — Billing Partner, Real Estate
Title: Partner, Real Estate Practice Group
Office: Calderwood & Harkness LLP, 100 Southeast Second Street, Suite 3800, Miami, Florida 33131
Hourly Rate: $1,100 per hour
Role: Billing partner responsible for engagement economics, fee management, and compliance with firm billing policies and procedures. Angela Fontaine will also be available to provide substantive real estate counsel on selected workstreams as needed.
Responsibilities:
• Review and approval of all monthly invoices submitted to VHG in connection with this matter.
• Monitoring of actual fees and expenses incurred against the engagement fee estimate of $350,000 to $475,000 (for a full closing), and timely communication to Fairchild and the client if actual fees appear likely to exceed the estimated range.
• Coordination with VHG's finance team (principally Natasha Ricard, CFO) on billing matters, including invoice format, backup detail, and any fee-related inquiries.
• Management of the $50,000 evergreen retainer, which VHG has agreed to deposit into C&H's client trust account upon execution of the engagement letter. Fontaine will ensure that the retainer is properly held and applied in accordance with the engagement letter and applicable Florida Bar rules.
• Ensuring compliance with Net 30 payment terms and following up on any past-due invoices.
• Provision of substantive real estate counsel on selected workstreams as needed, including insurance compliance analysis, entity and organizational matters, and any other discrete workstreams that may benefit from additional partner-level review.
• Final fee reconciliation at closing, including preparation of the final invoice and confirmation that all outstanding fees and expenses have been collected or appropriately applied against the retainer.
Expected Involvement: Administrative and billing-related involvement throughout the engagement. Substantive involvement will be on an as-needed basis, driven by the complexity and volume of specific workstreams and the capacity of the associate team.
2.3 Grace Nakamura — Lead Associate, Real Estate
Title: Associate, Real Estate Practice Group
Office: Calderwood & Harkness LLP, 100 Southeast Second Street, Suite 3800, Miami, Florida 33131
Hourly Rate: $725 per hour
Role: Lead associate and day-to-day project manager for the engagement. Grace Nakamura will serve as the principal point of contact for lender's counsel and VHG's internal deal team on all transactional matters and will manage the workflow and deliverables schedule for the entire engagement.
Responsibilities:
• Primary point of contact for WBD associate Catherine Yee and VHG's internal transaction team, particularly Derek Huang (SVP — Capital Markets & Treasury), on all day-to-day transactional matters.
• Preparation and coordination of borrower's due diligence deliverables, including organization of materials for submission to PAC and WBD.
• Lead drafting and markup of all loan documents prepared by WBD, including but not limited to the Loan Agreement, Promissory Note, Mortgage (including Assignment of Leases and Rents, Security Agreement, and Fixture Filing), Guaranty Agreement, Environmental Indemnity Agreement, Cash Management Agreement, and Reserve Agreement.
• Preparation of internal memoranda for the engagement team and client, including the transaction summary memorandum, issues memoranda identifying open negotiation points, title and survey review memoranda, insurance compliance analysis, and any other analytical memoranda as required.
• Review of the PAC commitment letter and preparation of detailed comment letters reflecting borrower's requested modifications.
• Development and ongoing management of the master due diligence checklist, tracking the status of each deliverable and ensuring timely delivery to PAC and WBD.
• Coordination with third-party service providers engaged in connection with the transaction, including:
• Meridian Title & Escrow, Inc. (Lisa Portman) — title commitment, title insurance policy, escrow services, and recording.
• Landis & Shaw Surveying, Inc. (Robert Tran, PLS) — ALTA/NSPS land title survey.
• Oakridge Environmental Consulting Group, Inc. (Dr. James Whitmore) — Phase I Environmental Site Assessment.
• Castlegate Risk Advisors LLC (Monica Iglesias) — insurance brokerage, coverage review, and PAC-required endorsements.
• Development and management of the closing checklist, including tracking of all pre-closing conditions, signature page execution, and escrow closing mechanics.
• Supervision and mentorship of Rafael Dominguez, including delegation of appropriate tasks, review of Dominguez's work product, and provision of feedback.
Expected Involvement: Full-time throughout the engagement. Nakamura will carry the primary workload for this matter and will be expected to dedicate substantially all of her available working time to this engagement during peak periods, particularly during the loan document negotiation phase and the pre-closing period.
2.4 Rafael Dominguez — Working Associate, Real Estate
Title: Associate, Real Estate Practice Group
Office: Calderwood & Harkness LLP, 100 Southeast Second Street, Suite 3800, Miami, Florida 33131
Hourly Rate: $625 per hour
Role: Working associate supporting Grace Nakamura across all workstreams. Rafael Dominguez will handle a significant volume of the initial drafting, research, and document review tasks under Nakamura's supervision.
Responsibilities:
• Initial drafting of the master due diligence checklist for Nakamura's review and finalization.
• Comprehensive review and analysis of the existing Tidewater National Bank loan documents, including without limitation: the Loan Agreement (dated June 1, 2019), the Promissory Note, the Mortgage (recorded at Official Records Book 2892, Page 0445, Monroe County, Florida), the Assignment of Leases and Rents, the UCC-1 Financing Statement (File No. 202219087643), the Environmental Indemnity Agreement, the Cash Management Agreement, and any amendments thereto, including specifically the LIBOR-to-SOFR fallback amendment dated March 15, 2022. Dominguez's review should focus on prepayment provisions, consent requirements, defeasance provisions, and mechanics for payoff and discharge.
• Preparation of the payoff request letter to Tidewater National Bank (attention: Alan Prescott, SVP — Commercial Real Estate), requesting a payoff statement reflecting per diem interest, prepayment premium calculation, and total payoff amount.
• Preparation of an internal payoff calculation memorandum verifying the Tidewater payoff figures, including outstanding principal ($118,500,000), accrued interest at the applicable rate of SOFR plus 2.25%, prepayment premium ($1,185,000, based on the 1.0% premium applicable to prepayments made before March 1, 2023), and total payoff amount. The memorandum should cross-reference the payoff calculation against the refinancing sources of funds to confirm adequacy.
• Drafting of borrower authorizing resolutions for CPRH (manager/member resolutions authorizing entry into the $160,000,000 PAC loan and execution of all related loan documents).
• Drafting of guarantor authorizing resolutions for VHG (board of directors resolutions authorizing execution of the limited recourse Guaranty Agreement and Environmental Indemnity Agreement, and identifying Conrad W. Elliston and Natasha Ricard as authorized signatories).
• Preparation of requests for good standing certificates from the Florida Secretary of State (for CPRH) and the Delaware Secretary of State (for VHG), and coordination of receipt and delivery to WBD.
• Initial review of the title commitment issued by Meridian Title & Escrow, Inc. and the ALTA/NSPS land title survey prepared by Landis & Shaw Surveying, Inc. (Robert Tran, PLS).
• Preparation of draft title objection letters for Nakamura's and Fairchild's review.
• Drafting of escrow instructions to Meridian Title & Escrow, Inc. (Lisa Portman) regarding the deposit of the $1,600,000 good faith deposit.
• Legal research on Florida real estate and lending law issues as they arise during the engagement, including but not limited to documentary stamp tax and intangible tax calculations, mortgage recording requirements, UCC-1 filing and continuation requirements, and any Florida-specific hospitality or environmental regulatory issues.
• Document management and file organization, including maintenance of the virtual data room for borrower's due diligence deliverables.
Expected Involvement: Full-time throughout the engagement. Dominguez will work closely with Nakamura on all phases of the transaction and will carry a substantial volume of the day-to-day drafting, research, and document management responsibilities.
3. Anticipated Workstreams and Work Allocation
The following sections describe the anticipated workstreams for this engagement and the allocation of responsibilities among team members. This section is intended to provide a framework for project management and accountability; individual task assignments may be adjusted as the engagement evolves.
3.1 Pre-Commitment Phase (October–December 2022)
The pre-commitment phase encompasses the period from engagement opening through execution of the PAC commitment letter and our own engagement letter. Key tasks during this phase include:
Conflicts Clearance and Engagement Opening. Conflicts clearance has been completed as of the date of this memorandum. All required databases have been searched for conflicts against Pinnacle Atlantic Capital, LLC, Greystone Peak Asset Management LP, Whitford Baines & Driscoll LLP, Tidewater National Bank, N.A., and all other relevant parties. No conflicts have been identified. The engagement has been formally opened under matter number 1021-00007.
Review and Comment on PAC Term Sheet. The PAC term sheet is expected to be issued to VHG in mid-November 2022. Upon receipt, Nakamura will prepare initial comments and a redline reflecting borrower-favorable modifications. Fairchild will review and approve Nakamura's comments before they are communicated to Derek Huang at VHG for discussion and alignment. VHG and C&H will jointly determine the negotiation posture on key economic and structural terms. The term sheet was subsequently issued on November 14, 2022, and executed by VHG on November 28, 2022.
Engagement Letter Preparation and Execution. Fontaine will prepare the C&H engagement letter using the firm's standard form for real estate financing matters, incorporating the applicable fee estimate ($350,000–$475,000 for a full closing), billing rates, retainer provisions ($50,000 evergreen retainer), and Net 30 payment terms. The engagement letter will be circulated to VHG (attention: Natasha Ricard, CFO) for review and execution. The target for execution is early December 2022. The engagement letter was subsequently executed on December 5, 2022.
Commitment Letter Review and Markup. Upon issuance of the PAC commitment letter, Nakamura will lead the review and prepare a comprehensive comment letter and redline for Fairchild's review. Fairchild will negotiate key terms directly with Philip Tarrant Corporation at WBD. The commitment letter review should focus particular attention on the following provisions:
• Maximum loan-to-value ratio of 68.0% and the methodology for determining appraised value.
• Minimum debt yield covenant of 9.5% and the definition of net operating income used in the calculation.
• Refundability conditions for the good faith deposit ($1,600,000, representing 1.0% of the loan amount), including the triggers and timeline for deposit going "hard."
• Refundability conditions for the rate lock deposit ($800,000, representing 0.50% of the loan amount).
• Commitment fee of $800,000 (0.50% of the loan amount) and the conditions under which it is earned and non-refundable.
• Lender's counsel fee cap of $275,000 plus reasonable out-of-pocket disbursements, ensuring the cap is absolute and includes all professional fees of WBD.
• Extension option conditions, including the minimum DSCR of 1.25x, the extension fee of 0.25% of the then-outstanding principal balance per extension period, and any other conditions precedent.
• Exit fee of 0.25% of the original principal balance and the circumstances under which it is payable.
• Conditions precedent to closing, including appraisal, environmental, title, survey, and insurance requirements.
• Lender's diligence "out" provisions and the scope of lender's discretion to terminate the commitment.
Good Faith Deposit Escrow Instructions. Dominguez will draft escrow instructions in the form of a letter to Meridian Title & Escrow, Inc. (attention: Lisa Portman) regarding the deposit and holding of the $1,600,000 good faith deposit. The escrow instructions should address the conditions for deposit, release, and return of the deposit, interest accrual, and the parties' rights upon termination of the commitment letter.
3.2 Due Diligence Phase (December 2022–January 2023)
The due diligence phase encompasses the preparation, assembly, and delivery of all borrower due diligence materials to PAC and WBD, as well as the review of title, survey, environmental, insurance, and other third-party reports.
Due Diligence Checklist. Dominguez will prepare the initial master due diligence checklist based on the PAC commitment letter requirements and WBD's anticipated diligence request list. Nakamura will review, supplement, and finalize the checklist and coordinate the delivery schedule with Derek Huang at VHG. The checklist will be organized into the following principal categories:
• Entity/Organizational Documents: Operating agreements, articles of organization/incorporation, certificates of formation, good standing certificates, borrower and guarantor organizational charts, authorizing resolutions, incumbency certificates, and signature specimen cards.
• Property/Title: Existing deed (recorded at O.R. Book 2847, Page 1122, Monroe County, Florida), title commitment, ALTA/NSPS survey, legal description, existing mortgage and lien documents, UCC search results, judgment and tax lien searches, and title objection correspondence.
• Environmental: Phase I Environmental Site Assessment (to be prepared by Oakridge Environmental Consulting Group, Inc., under the direction of Dr. James Whitmore), together with any prior environmental reports, regulatory correspondence, and storage tank registrations.
• Insurance: Evidence of existing coverage, including property and general liability insurance (underwritten by Southland Mutual), windstorm coverage (underwritten by Southland Mutual), and flood insurance (underwritten by Bayfront Specialty), together with lender's required endorsements, additional insured provisions, and evidence of compliance with PAC's insurance requirements.
• Financial/Operating Data: Trailing twelve-month financial statements (through September 30, 2022), annual audited financial statements for the prior three fiscal years, rent roll and lease abstracts, management reports, STR reports, capital expenditure records (including documentation of the $47 million comprehensive renovation completed in August 2021), and other operating data. Coordination with VHG's auditor, Keswick & Holt LLP (Andrew Calloway, CPA), will be required for any requested audit-related deliverables.
• Zoning/Permitting: Zoning compliance letter or zoning report, certificates of occupancy, building permits, liquor licenses, health department permits, marina permits, and any applicable coastal construction control line permits.
• Management: Management and operating agreements, franchise agreements (none — the Property is independently operated under the "Coral Palms" trade name), key employee information, and any material service contracts.
Existing Loan Document Review. Dominguez will lead the review of the existing Tidewater National Bank loan documents. Nakamura will prepare a comprehensive memorandum analyzing the key provisions of the existing loan, with particular attention to:
• Prepayment provisions, including the 1.0% prepayment premium applicable to prepayments made before March 1, 2023 (yielding a prepayment premium of approximately $1,185,000 based on the current outstanding balance of approximately $118,500,000).
• Consent requirements for transfer, refinancing, or encumbrance of the Property.
• Defeasance provisions and their applicability (if any) as an alternative to prepayment.
• Mechanics for payoff and discharge of the existing mortgage, including requirements for delivery of a satisfaction of mortgage, UCC-3 termination statements, and any other lien release documentation.
• The LIBOR-to-SOFR fallback amendment dated March 15, 2022, and its impact on the current interest rate and per diem interest calculations.
Title Commitment Review. Upon receipt of the title commitment from Meridian Title & Escrow, Inc. (Lisa Portman), Nakamura will prepare a detailed memorandum analyzing the commitment, including:
• Verification of the vesting deed (recorded at O.R. Book 2847, Page 1122, Monroe County, Florida) and confirmation that fee title is properly vested in CPRH.
• Analysis of all Schedule B exceptions, including easements, restrictions, encumbrances, and other matters of record.
• Identification of the existing Tidewater mortgage lien (recorded at O.R. Book 2892, Page 0445, Monroe County, Florida) and confirmation that it will be released upon payoff and closing.
• Identification of any items requiring cure, additional documentation, or affirmative coverage endorsements.
• Recommendations regarding endorsements to be requested for the lender's title insurance policy.
Survey Review. Dominguez will prepare an initial review memorandum of the ALTA/NSPS land title survey prepared by Landis & Shaw Surveying, Inc. (Robert Tran, PLS). Nakamura will review and finalize the memorandum. The survey review should address:
• Site area (approximately 22.4 acres, waterfront).
• Legal description (Section 27, Township 60 South, Range 39 East, Monroe County, Florida).
• Folio Number: 00460780-000100.
• Location of all improvements relative to property boundaries and setback lines.
• Identification of any encroachments (by or onto the Property).
• Depiction of all recorded and apparent easements, including utility, drainage, access, and waterfront easements.
• Setback compliance under applicable Monroe County zoning regulations.
• Flood zone designations, including identification of FEMA flood zone panels and base flood elevations applicable to the Property.
• Comparison of survey to title commitment for consistency.
Title Objection Letter. Dominguez will prepare an initial draft of the title objection letter identifying all Schedule B exceptions and survey matters that are objectionable or require cure. Nakamura will review and refine the draft. Fairchild will approve the final version before transmission to Meridian Title & Escrow, Inc. and WBD.
Insurance Compliance. Nakamura will prepare a memorandum analyzing PAC's insurance requirements (as set forth in the commitment letter and anticipated loan documents) against VHG's existing insurance coverage for the Property. Based on the analysis, Nakamura will draft a letter to Castlegate Risk Advisors LLC (attention: Monica Iglesias), the client's insurance broker, identifying required endorsements, additional insured provisions, increased coverage limits, and any other modifications necessary to achieve compliance with PAC's requirements. Current coverage includes property and general liability insurance and windstorm coverage underwritten by Southland Mutual and flood insurance underwritten by Bayfront Specialty.
3.3 Loan Document Negotiation Phase (December 2022–Ongoing)
The loan document negotiation phase will commence upon receipt of the initial draft loan document package from WBD and continue through final agreement on all documents. WBD is expected to circulate initial drafts in mid-to-late December 2022, consistent with PAC's customary practice of issuing documents promptly following commitment letter execution.
Receipt and Review of Initial Drafts. Upon receipt of the initial loan document drafts from WBD, Nakamura and Dominguez will conduct a thorough review of the entire document suite. Nakamura will coordinate the allocation of document review responsibilities between herself and Dominguez to ensure efficient coverage.
Borrower's Markups. Nakamura and Dominguez will prepare comprehensive borrower's markups of the following documents:
• Loan Agreement: The principal financing agreement setting forth the terms and conditions of the $160,000,000 loan, including representations, warranties, covenants, events of default, and remedies.
• Promissory Note: The note evidencing the borrower's obligation to repay the loan, including interest rate, amortization schedule, payment dates, and default interest provisions.
• Mortgage (including Assignment of Leases and Rents, Security Agreement, and Fixture Filing): The mortgage encumbering the Property as security for the loan, together with the assignment of CPRH's interest in all leases, rents, and profits from the Property, a security agreement granting PAC a security interest in personal property and fixtures, and a fixture filing.
• Guaranty Agreement: The limited recourse (commonly known as "bad boy") carve-out guaranty to be executed by VHG as guarantor. The guaranty will impose liability on VHG for losses arising from specified "bad acts" of the borrower and its principals, including but not limited to fraud, misappropriation of funds, voluntary bankruptcy, environmental violations, and prohibited transfers. Negotiation of the scope of the carve-out triggers and the distinction between full recourse triggers and loss triggers will be a significant area of focus.
• Environmental Indemnity Agreement: The indemnity agreement under which CPRH (as borrower) and VHG (as guarantor) will indemnify PAC against environmental liabilities arising from the Property.
• Cash Management Agreement: The agreement governing lockbox and cash management arrangements, including cash sweep triggers, deposit account control requirements, and the conditions under which excess cash flow will be trapped or released. Negotiation of the cash sweep trigger levels (typically tied to DSCR and/or debt yield thresholds) and the conditions for return to "in-place" cash management will be a critical workstream.
• Reserve Agreement: The agreement establishing upfront and ongoing reserve accounts, including approximately $4,800,000 in upfront reserves for real estate taxes, insurance premiums, FF&E replacement, and capital expenditures. Nakamura will focus on the reserve release conditions, disbursement mechanics, and lender approval requirements for reserve draws.
Internal Issues Memorandum. Nakamura will prepare a comprehensive internal issues memorandum cataloging all open issues across the entire loan document suite. The memorandum will identify each issue, summarize the lender's position (as reflected in the WBD drafts), articulate the borrower's desired position, and recommend a negotiation strategy. Key issues expected to require significant negotiation include:
• Transfer restrictions and permitted transfer exceptions (including transfers of direct and indirect interests in the borrower and guarantor).
• Cash management triggers and cash sweep mechanics, including the DSCR and debt yield thresholds at which cash sweep commences and the conditions for release from cash sweep.
• Guaranty carve-out triggers, including the scope of "bad boy" events, the distinction between full recourse and loss-based carve-outs, and springing full recourse events.
• Default cure periods, including the length of notice and cure periods for monetary and non-monetary defaults and the borrower's right to cure.
• Casualty and condemnation provisions, including the thresholds for mandatory prepayment versus restoration, the timeline for restoration, and lender's approval rights over restoration plans and contractors.
• Reserve mechanics, including the amounts and timing of initial and ongoing reserve deposits, conditions for reserve disbursements, lender approval rights, and interest accrual (or lack thereof) on reserve balances.
• Prepayment and defeasance provisions, including lockout periods, yield maintenance or defeasance requirements, and open prepayment windows.
• Extension conditions, including DSCR, LTV, and debt yield thresholds, notice requirements, extension fees, and any requirements for a new appraisal or updated environmental report.
• Ongoing financial covenants, including LTV and debt yield covenants, testing frequency, and cure rights.
Negotiation Roles. Fairchild will lead negotiations with Tarrant Corporation at WBD on contested provisions that require partner-level discussion, including guaranty carve-outs, cash management triggers, transfer restrictions, and any other significant structural or commercial issues. Nakamura will handle working-level negotiations with Yee on all other provisions and will manage the iterative markup process through to final agreed-upon documents.
3.4 Entity and Authorization Documents
The following entity and authorization documents will be required for closing:
Borrower Authorizing Resolutions. Dominguez will draft the manager and/or member resolutions for Coral Palms Resort Holdings LLC authorizing CPRH to enter into the $160,000,000 PAC first mortgage loan and to execute and deliver all loan documents, including the Loan Agreement, Promissory Note, Mortgage, Cash Management Agreement, Reserve Agreement, and all other documents to be executed by CPRH in connection with the transaction. The resolutions should identify the authorized signatories and delegate authority to execute closing documents and any amendments, modifications, or consents thereafter.
Guarantor Authorizing Resolutions. Dominguez will draft the board of directors resolutions for Verimark Hospitality Group Inc. authorizing VHG to execute and deliver the limited recourse Guaranty Agreement and the Environmental Indemnity Agreement in connection with the PAC refinancing. The resolutions should identify Conrad W. Elliston (Chairman & CEO) and Natasha Ricard (CFO) as the authorized signatories and include appropriate recitals regarding the board's determination that the guaranty is in the best interests of VHG. Given VHG's status as a publicly traded company, Dominguez should consult with Nakamura regarding any additional corporate governance considerations that may apply.
Good Standing Certificates. Dominguez will prepare and submit requests for certificates of good standing (or certificates of status, as applicable) from the Florida Secretary of State, Division of Corporations (for CPRH) and the Delaware Secretary of State, Division of Corporations (for VHG). These certificates should be obtained as close to the anticipated closing date as practicable, and Dominguez should confirm with WBD the maximum acceptable age of such certificates (typically no more than thirty days prior to closing).
3.5 Existing Loan Payoff
The payoff and discharge of the existing Tidewater National Bank first mortgage loan is a critical workstream that must be coordinated with the refinancing closing.
Payoff Request Letter. Dominguez will draft a payoff request letter addressed to Tidewater National Bank, N.A. (attention: Alan Prescott, SVP — Commercial Real Estate), requesting that Tidewater issue a formal payoff statement in connection with the proposed refinancing. The payoff request should specifically request:
• A payoff statement reflecting the outstanding principal balance, accrued and unpaid interest through the anticipated payoff date, per diem interest, applicable prepayment premium, any outstanding fees or charges, and the total payoff amount.
• Confirmation of the prepayment premium calculation, including identification of the applicable prepayment premium rate (1.0%, based on prepayment prior to March 1, 2023) and the resulting premium amount.
• Delivery of an executed satisfaction of mortgage (or assignment of mortgage, if required) in recordable form.
• Delivery of a UCC-3 termination statement terminating the UCC-1 financing statement filed under File No. 202219087643.
• Wire transfer instructions for delivery of the payoff funds.
• A statement of any other lien release documentation that Tidewater requires in connection with the payoff.
Internal Payoff Calculation Memorandum. Dominguez will prepare an internal memorandum verifying the Tidewater payoff figures upon receipt of the payoff statement. The memorandum should independently calculate the following:
• Outstanding principal balance: approximately $118,500,000.
• Accrued and unpaid interest at the applicable rate of SOFR plus 2.25%, calculated through the anticipated payoff date.
• Prepayment premium: $1,185,000 (1.0% of the outstanding principal balance of $118,500,000), assuming prepayment occurs before March 1, 2023.
• Total payoff amount, including all accrued interest, premium, and any applicable fees.
• Cross-reference of the total payoff amount against the refinancing sources of funds ($160,000,000 PAC loan proceeds) to confirm that sufficient funds will be available at closing to satisfy the Tidewater payoff, fund required reserves (approximately $4,800,000), pay all transaction costs, and distribute the estimated net cash-out proceeds of approximately $32,265,000 to VHG.
3.6 Closing Phase (If Reached)
Assuming the transaction proceeds to closing, the following responsibilities will apply during the closing phase:
Closing Checklist and Coordination. Nakamura will develop and manage the closing checklist, which will track all conditions precedent to closing, required deliverables from each party, signature page execution, and escrow closing logistics. Nakamura will coordinate directly with Lisa Portman at Meridian Title & Escrow, Inc. to manage the escrow closing mechanics, including the deposit and disbursement of loan proceeds, recording of the mortgage and other documents, and issuance of the lender's title insurance policy.