1021-00007 · Verimark Hospitality Group · Existing Loan Payoff

payoff-calculation-memo.docx DOCUMENT Real Estate

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MEMORANDUM

PRIVILEGED & CONFIDENTIAL — ATTORNEY WORK PRODUCT This memorandum was prepared by counsel in connection with the rendering of legal advice and is protected by the attorney-client privilege and the work product doctrine. This memorandum is not intended for disclosure to any third party and should not be disclosed without the prior written consent of Calderwood & Harkness LLP.

To: Douglas Fairchild, Partner Angela Fontaine, Partner Grace Nakamura, Associate

From: Rafael Dominguez, Associate

Date: January 9, 2023

Re: Verimark Hospitality Group Inc. — Coral Palms Resort Refinancing; Verification of Tidewater National Bank Payoff Figures

Client Matter No.: 1021-00007

I. Purpose and Summary

The purpose of this memorandum is to verify the estimated payoff amount for the existing first mortgage loan (the "Existing Loan") encumbering the Coral Palms Grand Resort & Spa, located at 99000 Overseas Highway, Key Largo, Monroe County, Florida 33037 (the "Property"), which Existing Loan is currently held by Tidewater National Bank, N.A. ("Tidewater" or "TNB"). The Existing Loan is to be paid in full from the proceeds of the proposed $160,000,000 first mortgage refinancing loan (the "Refinancing Loan") to be provided by Pinnacle Atlantic Capital, LLC ("PAC") to Coral Palms Resort Holdings LLC (the "Borrower"), a wholly owned indirect subsidiary of our client, Verimark Hospitality Group Inc. ("VHG").

This memorandum calculates the total estimated payoff amount due to Tidewater, including all outstanding principal, accrued and unpaid interest through the anticipated payoff date, the prepayment premium (if applicable depending on the timing of the closing), and any other amounts that may be due under the Existing Loan documents. The memorandum further cross-references these amounts against the proposed refinancing sources of funds to confirm that the PAC Refinancing Loan proceeds are sufficient to satisfy the Existing Loan payoff and all other anticipated closing costs and reserve requirements.

Summary Conclusion: The total estimated payoff amount for the Tidewater Existing Loan, inclusive of the prepayment premium (assuming closing before March 1, 2023), is approximately $119,685,000 to $120,400,000, depending on the precise closing date and the applicable SOFR rate at the time of payoff. If closing can be scheduled on or after March 1, 2023, the prepayment premium of $1,185,000 is avoided entirely, reducing the total estimated payoff to approximately $118,500,000 to $118,900,000. Under either scenario, the Tidewater payoff is comfortably within the proposed $160,000,000 Refinancing Loan proceeds, leaving sufficient funds for closing costs, upfront reserves, and the anticipated net cash-out to VHG of approximately $32,265,000.

II. Existing Loan — Key Terms

Set forth below is a summary of the material terms of the Existing Loan based on our review of the loan documents provided by VHG, including the Loan Agreement dated as of June 1, 2019 (as amended, the "Loan Agreement"), the Promissory Note of even date therewith (the "Note"), the Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture Filing recorded in the Official Records of Monroe County, Florida (the "Mortgage"), and the LIBOR-to-SOFR Fallback Amendment dated March 15, 2022 (the "SOFR Amendment"). We have also reviewed the most recent loan statement provided by VHG's treasury department as of October 15, 2022.

A. Loan Origination Details

The following summarizes the basic origination details of the Existing Loan:

• Lender: Tidewater National Bank, N.A., a national banking association organized under the laws of the United States, with its principal office located at 600 Waterside Drive, Norfolk, Virginia 23510. The primary relationship contact at Tidewater for purposes of this transaction is Alan Prescott, Senior Vice President, Commercial Real Estate Division.

• Borrower: Coral Palms Resort Holdings LLC, a Florida limited liability company (the "Borrower"). The Borrower is a wholly owned indirect subsidiary of Verimark Hospitality Group Inc., a Delaware corporation. The Borrower was formed as a single-purpose entity in connection with the origination of the Existing Loan and holds fee simple title to the Property.

• Original Principal Amount: $125,000,000.

• Origination Date: June 1, 2019.

• Maturity Date: June 1, 2024 (reflecting a five-year term from origination).

• Mortgage Recording: The Mortgage was recorded in the Official Records of Monroe County, Florida at Official Records Book 2892, Page 0445. We have confirmed the recording information through a review of the title commitment issued by Meridian Title & Escrow, Inc. in connection with the proposed Refinancing Loan, which identifies the Tidewater Mortgage as an existing encumbrance that will be discharged at closing.

• UCC-1 Filing: A UCC-1 Financing Statement was filed with the Florida Secured Transaction Registry (Florida Department of State, Division of Corporations) under File No. 202219087643, covering the Borrower's personal property, fixtures, and other collateral pledged under the Existing Loan.

• Property Folio No.: The Property is identified in the records of the Monroe County Property Appraiser under Folio No. 00460780-000100.

B. Interest Rate

The Existing Loan originally bore interest at a floating rate equal to LIBOR (one-month London Interbank Offered Rate) plus a spread of 2.25% per annum (225 basis points). As described below, the interest rate benchmark was subsequently transitioned from LIBOR to SOFR.

• Original Rate: LIBOR + 2.25% per annum.

• Rate Conversion — LIBOR-to-SOFR Fallback Amendment: In anticipation of the discontinuation of LIBOR, the Borrower and Tidewater executed the SOFR Amendment dated March 15, 2022, pursuant to which the interest rate benchmark was converted from LIBOR to the Secured Overnight Financing Rate ("SOFR") as published by the Federal Reserve Bank of New York. The spread of 2.25% per annum was maintained, and an additional credit spread adjustment was applied in connection with the transition, consistent with the ARRC-recommended methodology. For purposes of this memorandum, the effective all-in spread over SOFR is treated as 2.25%.

• Current Rate: SOFR + 2.25% per annum.

• Note on SOFR Reference Rate: The SOFR Amendment specifies the use of 30-day Term SOFR as the applicable reference rate, as published by CME Group. As of the date of preparation of this memorandum, 30-day Term SOFR is in the range of approximately 4.30% to 4.55%, reflecting the Federal Reserve's rate-tightening cycle during 2022. For purposes of the payoff calculations in this memorandum, we have assumed a SOFR rate of approximately 4.35% at the midpoint, yielding an all-in interest rate of approximately 6.60% per annum. At the upper end of the assumed SOFR range (4.55%), the all-in rate would be approximately 6.80% per annum. The actual rate applicable at the time of payoff will be confirmed by Tidewater in its formal payoff statement and will be based on the Term SOFR rate in effect during the applicable interest accrual period.

C. Amortization Structure

The Existing Loan features a bifurcated amortization structure consisting of an initial interest-only period followed by a period of principal amortization:

• Interest-Only Period (Years 1–3): From the origination date of June 1, 2019 through May 31, 2022 (thirty-six months), the Existing Loan required monthly payments of interest only, with no scheduled principal amortization. During this period, the outstanding principal balance remained at $125,000,000.

• Amortization Period (Years 4–5): Commencing June 1, 2022, the Existing Loan converted to a thirty-year amortization schedule for the remaining two years of the loan term (through the maturity date of June 1, 2024). Monthly payments during this period include both interest (calculated on the outstanding principal balance at the floating rate described above) and principal amortization based on a hypothetical 360-month amortization schedule.

• Effect on Outstanding Balance: Because principal amortization has been occurring since June 1, 2022, the original principal balance of $125,000,000 has been reduced through scheduled amortization payments. Based on the most recent loan statement reviewed by our office, dated October 15, 2022, the outstanding principal balance has been reduced to approximately $118,500,000. We note that, given the thirty-year amortization schedule and the relatively short period of amortization (approximately four and one-half months as of October 15, 2022), the majority of each monthly payment during this period is allocated to interest rather than principal, which is consistent with the relatively modest reduction from the original $125,000,000 balance.

D. Outstanding Principal Balance

• Outstanding Principal Balance as of October 15, 2022: Approximately $118,500,000, based on the loan statement provided by VHG's treasury department.

• The precise outstanding principal balance as of the actual payoff date will be confirmed by Tidewater in its formal payoff statement. Additional scheduled amortization payments will have been made between October 15, 2022 and the anticipated closing date of the Refinancing Loan, which will further reduce the outstanding principal balance. Accordingly, the actual principal balance at closing is expected to be modestly lower than $118,500,000.

• For conservatism, and to avoid underestimating the payoff amount, this memorandum uses $118,500,000 as the assumed outstanding principal balance for all payoff calculations. This represents a slightly conservative (i.e., high-side) estimate if the closing of the Refinancing Loan occurs after October 2022, as is anticipated.

E. Prepayment Provisions

The Existing Loan documents contain the following prepayment provisions, as set forth in Section 2.4 of the Loan Agreement and Section 4 of the Note:

• Prepayment Premium (Before March 1, 2023): If the Existing Loan is prepaid in full (or in part, to the extent voluntary partial prepayments are permitted) prior to March 1, 2023, a prepayment premium equal to 1.0% of the outstanding principal balance at the time of prepayment is due and payable to Tidewater. Based on the assumed outstanding principal balance of $118,500,000, this premium would equal $1,185,000.

• No Prepayment Premium (On or After March 1, 2023): If the Existing Loan is prepaid in full on or after March 1, 2023, no prepayment premium is due. The Loan Agreement and Note expressly provide that the Borrower may prepay the Existing Loan in full without penalty or premium at any time on or after March 1, 2023, subject to customary prior notice requirements (the Note requires at least ten business days' prior written notice of intended prepayment).

• Significance for Closing Timing: The prepayment premium schedule has a material bearing on the economics of the Refinancing Loan closing date. If the closing of the PAC Refinancing Loan can be scheduled to occur on or after March 1, 2023, the Borrower would avoid the $1,185,000 prepayment premium in its entirety. Conversely, if the closing must occur before March 1, 2023 due to business or timing constraints, the prepayment premium will be an additional cost of the refinancing transaction. As discussed further in Section VII.B below, we recommend that the engagement team evaluate with VHG and PAC whether the closing timeline permits scheduling on or after March 1, 2023.

• Defeasance: We have reviewed the Existing Loan documents and confirmed that defeasance is not required as a condition to prepayment. While the Loan Agreement contains certain provisions relating to substitution of collateral in connection with a partial release, the prepayment provisions are governed by the declining premium schedule described above. Given that the prepayment premium is either 1.0% (before March 1, 2023) or zero (on or after March 1, 2023), defeasance is not an economically advantageous alternative and is not further analyzed in this memorandum.

III. Payoff Calculation — Scenario Analysis

To account for the impact of the prepayment premium on the total payoff cost, this memorandum presents two payoff scenarios based on the anticipated timing of the Refinancing Loan closing.

A. Scenario 1: Closing Before March 1, 2023 (Prepayment Premium Applicable)

Under this scenario, we assume that the closing of the PAC Refinancing Loan occurs prior to March 1, 2023, such that the 1.0% prepayment premium is due and payable to Tidewater. The components of the estimated payoff amount under this scenario are as follows:

1. Outstanding Principal. The outstanding principal balance is estimated at $118,500,000, based on the October 15, 2022 loan statement as described in Section II.D above. As noted, the actual principal balance at closing may be slightly lower due to continued scheduled amortization payments between October 15, 2022 and the closing date, but we use this figure as a conservative estimate to ensure that sufficient payoff funds are available at closing.

2. Prepayment Premium. The prepayment premium is calculated as 1.0% of the outstanding principal balance at the time of prepayment:

$118,500,000 × 1.0% = $1,185,000

We note that the prepayment premium is calculated on the actual outstanding principal balance at the date of prepayment. If the principal balance has been further reduced through scheduled amortization payments by the closing date (i.e., is somewhat less than $118,500,000), the prepayment premium will be correspondingly reduced. However, for conservatism, we use the $118,500,000 figure, which yields a prepayment premium of $1,185,000.

3. Accrued and Unpaid Interest. Interest on the Existing Loan accrues daily and is payable monthly. At the closing of the Refinancing Loan, accrued but unpaid interest from the last monthly payment date through the payoff date will be included in the payoff amount. The calculation is as follows:

• All-in interest rate assumption: SOFR (assumed at approximately 4.35%) + 2.25% = approximately 6.60% per annum.

• Per diem interest calculation: Consistent with standard commercial loan conventions, and as specified in the Loan Agreement, interest is calculated on the basis of a 360-day year and actual days elapsed:

$118,500,000 × 6.60% / 360 = $21,725.00 per diem (approximately)

• Accrued interest from last payment date to closing date: The exact amount of accrued interest depends on the number of days elapsed between the last monthly interest payment date and the payoff date. For illustrative purposes:

• If approximately 15 days of interest have accrued: $21,725 × 15 = $325,875

• If approximately 20 days of interest have accrued: $21,725 × 20 = $434,500

• If approximately 30 days of interest have accrued: $21,725 × 30 = $651,750

• The actual per diem interest amount and accrued interest will be confirmed by Tidewater in its formal payoff statement and will reflect the actual SOFR rate as of each applicable accrual period. The figures presented here are estimates for planning and closing statement preparation purposes.

4. Other Amounts. In addition to the principal, prepayment premium, and accrued interest, the following additional items may be included in or relevant to the payoff:

• Late charges: None expected. The Existing Loan is current and in good standing, with no history of late payments. No late charges are anticipated in the payoff statement.

• Default interest: Not applicable. The Existing Loan is not in default, and no default rate of interest has been triggered.

• Lender legal fees and processing fees: Tidewater may charge a nominal administrative or processing fee in connection with the preparation and delivery of the payoff letter, the satisfaction of mortgage, and the UCC-3 termination statement. Such fees are typically in the range of $2,500 to $7,500 for a loan of this size. For purposes of this memorandum, we estimate this amount at approximately $5,000, subject to confirmation by Tidewater.

• Escrow and reserve balances held by Tidewater: Under the Existing Loan documents, Tidewater holds certain escrow and reserve balances on behalf of the Borrower, which may include real estate tax escrows, insurance escrows, and furniture, fixtures, and equipment ("FF&E") reserve deposits. Upon payoff of the Existing Loan, these balances are to be returned to the Borrower. These amounts represent credits that reduce the effective net cost of the payoff to the Borrower but are typically not netted against the gross payoff amount in the payoff statement itself. Rather, the return of escrowed funds is handled as a separate disbursement following payoff. The amounts of any such reserve balances will be confirmed by Tidewater in connection with the payoff letter and should be reflected in the closing settlement statement prepared by Meridian Title & Escrow, Inc.

5. Total Estimated Payoff (Scenario 1). Based on the foregoing, the total estimated payoff amount under Scenario 1 (closing before March 1, 2023) is calculated as follows:

The total estimated payoff under Scenario 1 falls within a range of approximately $119,900,000 to $120,400,000, depending on the precise closing date (which affects the number of days of accrued interest), the actual SOFR rate in effect at the time of payoff, and the actual outstanding principal balance at closing. This range is exclusive of any reserve balance credits that may be returned to the Borrower following payoff.

B. Scenario 2: Closing On or After March 1, 2023 (No Prepayment Premium)

Under this scenario, we assume that the closing of the PAC Refinancing Loan is scheduled to occur on or after March 1, 2023, such that no prepayment premium is due to Tidewater. The components of the estimated payoff amount under this scenario are as follows:

1. Outstanding Principal. As with Scenario 1, the outstanding principal balance is estimated at $118,500,000, which represents a conservative estimate. By March 2023, the actual outstanding balance will be somewhat lower due to the additional months of scheduled amortization, but we retain this figure for conservatism.

2. Prepayment Premium. Under the terms of the Existing Loan documents, the prepayment premium expires entirely on March 1, 2023. Accordingly, if the payoff occurs on or after that date, the prepayment premium is $0.

3. Accrued Interest. The methodology for calculating accrued interest is identical to Scenario 1. The per diem interest amount remains approximately $21,725 per day at the assumed all-in rate of 6.60% (subject to adjustments based on the actual SOFR rate in effect in February/March 2023, which may differ from the rate assumed in Scenario 1). The total accrued interest will depend on the number of days elapsed from the last monthly payment date to the payoff date. For illustrative purposes, assuming approximately 15 days of accrued interest:

$21,725 × 15 = $325,875

4. Total Estimated Payoff (Scenario 2).

The total estimated payoff under Scenario 2 is approximately $118,500,000 to $118,900,000, depending on the precise closing date and applicable SOFR rate. This represents a savings of approximately $1,185,000 compared to Scenario 1, attributable entirely to the avoidance of the prepayment premium.

C. Recommendation on Closing Date Timing

Based on the analysis above, if it is practicable from a transaction timeline perspective, scheduling the closing of the PAC Refinancing Loan on or after March 1, 2023 would result in a savings of $1,185,000 to the Borrower and VHG by avoiding the Tidewater prepayment premium. This is a meaningful savings that warrants serious consideration in the closing timeline negotiations with PAC.

However, the decision to delay the closing must be balanced against several other factors:

(a) PAC deal timeline and rate lock. PAC's Commitment Letter and the associated rate lock agreement may impose deadlines for the closing of the Refinancing Loan. If the rate lock expires before March 1, 2023, VHG would need to either extend the rate lock (which may involve additional cost) or risk repricing of the Refinancing Loan at then-prevailing market rates. As discussed in Section VII.B below, we understand that the rate lock deposit of $800,000 was wired to Meridian Title & Escrow, Inc. on January 5, 2023, and the rate lock expiration date should be confirmed.

(b) Business objectives of VHG. VHG may have business reasons for completing the refinancing promptly, including the desire to access the net cash-out proceeds for planned capital expenditures, acquisitions, or other corporate purposes.

(c) No imminent maturity pressure. The Existing Loan does not mature until June 1, 2024, which is approximately seventeen months from the date of this memorandum. There is no imminent maturity default risk that would compel an accelerated closing timeline.

For purposes of the sources and uses analysis in Section V below, and in order to present a conservative estimate of the total cost of the refinancing transaction, this memorandum assumes that the closing will occur before March 1, 2023 and includes the full $1,185,000 prepayment premium in the estimated payoff amount. If the closing is ultimately scheduled on or after March 1, 2023, the sources and uses analysis can be adjusted to reflect the elimination of this cost, with a corresponding increase in the net cash-out to VHG.

IV. Per Diem Interest Detail

This section provides a detailed per diem interest calculation for use by the engagement team and Meridian Title & Escrow, Inc. in preparing the closing settlement statement. The per diem figure is the daily interest amount that accrues on the Existing Loan and is used to prorate interest charges to the exact closing date.

Formula:

Per Diem Interest = Outstanding Principal × Annual Interest Rate / 360

The 360-day divisor reflects the commercial loan convention (Actual/360) specified in the Existing Loan documents, pursuant to which interest is calculated on the basis of a 360-day year and the actual number of days elapsed.

Calculation at Assumed SOFR Levels:

Range: The per diem interest amount is estimated in the range of approximately $21,700 to $22,400 per day, depending on the prevailing SOFR rate at the time of the payoff.

Important Notes:

• Tidewater's formal payoff statement will specify the exact per diem interest amount based on the actual SOFR rate in effect during the applicable interest accrual period. The estimates presented above are for planning and budgeting purposes only.

• SOFR is published daily by the Federal Reserve Bank of New York, and the applicable 30-day Term SOFR rate is published by CME Group. The exact rate that will be used by Tidewater to calculate the per diem interest on its payoff statement will be determined based on the SOFR rate in effect at the time the payoff letter is issued (or as otherwise specified in the SOFR Amendment and the Loan Agreement).

• The per diem figure should be used by Meridian Title & Escrow, Inc. to calculate the accrued interest adjustment on the closing settlement statement, applying the per diem to the number of days from the last monthly interest payment date through and including the payoff date.

V. Cross-Reference to Refinancing Sources and Uses

To confirm the adequacy of the proposed Refinancing Loan proceeds, this section presents a sources and uses analysis that incorporates the Tidewater payoff amount along with other anticipated transaction costs and disbursements.

A. Sources of Funds

The sole source of funds for the refinancing transaction is the PAC Refinancing Loan:

B. Uses of Funds

The following table sets forth the anticipated uses of funds based on the original terms of the Refinancing Loan, prior to any adjustment for the recent appraisal repricing:

Reconciliation Note: The scenario description documents prepared by the deal team reference an estimated net cash-out of $32,265,000, which is calculated as follows:

$160,000,000 − $118,500,000 − $1,185,000 − $3,250,000 − $4,800,000 = $32,265,000

The slight difference between the deal team's figure of $32,265,000 and the net cash-out figure of approximately $31,065,000 shown in the table above reflects the fact that this memorandum's more detailed breakdown separately identifies certain line items — specifically, accrued interest (approximately $400,000) and the PAC commitment fee ($800,000) — that are subsumed within the deal team's $3,250,000 closing costs figure. For consistency with the Commitment Letter analysis prepared by this office and the deal team's financial model, the estimated net cash-out should be referenced as $32,265,000, with the understanding that the detailed breakdown of closing costs and transaction expenses will be finalized in the closing settlement statement.

C. Adequacy of Refinancing Proceeds

Based on the foregoing analysis, the proposed $160,000,000 PAC Refinancing Loan provides more than sufficient proceeds to accomplish all of the following:

(i) Pay off the Tidewater Existing Loan in full, including outstanding principal, accrued interest, and the prepayment premium (if applicable);

(ii) Fund all required upfront reserves for real estate taxes, insurance premiums, FF&E replacement, and capital expenditures as required under the PAC Commitment Letter and loan documents;

(iii) Pay all estimated closing costs, including title insurance premiums, recording fees, legal fees, survey and environmental costs, and lender fees; and

(iv) Generate approximately $32,265,000 in net cash-out proceeds to VHG for corporate purposes.

The Tidewater payoff amount (principal plus prepayment premium) of approximately $119,685,000 represents approximately 74.8% of the proposed $160,000,000 Refinancing Loan amount. This loan-to-payoff ratio provides a substantial margin of safety and confirms that the Refinancing Loan is appropriately sized to accomplish the payoff and provide the targeted cash-out.

VI. Documents Required from Tidewater for Closing

In order to complete the payoff of the Existing Loan and the closing of the Refinancing Loan, the following documents and deliverables will be required from Tidewater National Bank, N.A.:

1. Formal Payoff Letter / Payoff Statement. A payoff statement prepared and executed by Tidewater specifying the following:

(a) The outstanding principal balance as of the payoff date;

(b) The exact per diem interest amount, together with the applicable SOFR rate and the basis for calculation;

(d) Any other amounts due and payable under the Existing Loan documents (including any administrative fees, late charges, or other charges);

(e) Wire transfer instructions for the transmission of payoff proceeds to Tidewater; and

(f) The "good-through date" (i.e., the date through which the payoff figures remain valid, after which an updated statement would be required).

2. Satisfaction and Discharge of Mortgage. A duly executed and notarized Satisfaction and Discharge of Mortgage (or Satisfaction of Mortgage, as denominated under Florida law) in recordable form, for recording in the Official Records of Monroe County, Florida, to discharge the Mortgage recorded at Official Records Book 2892, Page 0445. This document should be delivered to Meridian Title & Escrow, Inc. at or promptly following closing for recording.

3. UCC-3 Termination Statement. A UCC-3 Financing Statement Amendment (Termination) terminating the UCC-1 Financing Statement filed with the Florida Secured Transaction Registry under File No. 202219087643. The UCC-3 should be in form suitable for filing with the Florida Department of State, Division of Corporations.

4. Assignment or Return of Escrow/Reserve Balances. Documentation confirming the return or assignment of any escrowed reserve balances held by Tidewater under the Existing Loan, including real estate tax escrows, insurance escrows, FF&E reserves, and any capital expenditure reserves. The specific balances and the mechanism for return (direct refund to the Borrower, or assignment to PAC as incoming lender) should be confirmed with Tidewater.

5. Lender Authorization and Bailee Letters. Any lender authorization letters, bailee letters, or similar documentation that may be required by Meridian Title & Escrow, Inc. or PAC to facilitate the simultaneous closing, including authorization for Meridian Title to disburse the payoff proceeds to Tidewater from the closing escrow fund.

Status of Request: Calderwood & Harkness has sent a formal payoff request letter to Tidewater National Bank, N.A., addressed to Alan Prescott, Senior Vice President, Commercial Real Estate Division, requesting the foregoing items. As of the date of this memorandum, we are awaiting Tidewater's response. We will circulate the payoff statement to the engagement team promptly upon receipt for review and verification against the estimates set forth in this memorandum.

VII. Open Items and Recommendations

The following items remain open and require follow-up action by the engagement team:

A. Confirm Actual Outstanding Balance

We recommend requesting an updated principal balance from Tidewater reflecting all scheduled amortization payments through the anticipated closing date. The $118,500,000 figure used throughout this memorandum is based on the loan statement dated October 15, 2022, and will be modestly lower at closing due to the intervening monthly amortization payments made in November 2022, December 2022, and January 2023 (and potentially February 2023, depending on the closing date). Receipt of Tidewater's formal payoff statement, as described in Section VI above, will resolve this item.

B. Prepayment Premium Timing Strategy

As discussed in Section III.C above, scheduling the closing on or after March 1, 2023 would save $1,185,000 in prepayment premium costs. We recommend that the engagement team evaluate this timing strategy with the following parties:

(a) VHG. Derek Huang, Senior Vice President, Capital Markets & Treasury, should be consulted regarding VHG's business timeline for receiving the net cash-out proceeds and whether a closing in early March (rather than late January or February) is acceptable from a corporate planning perspective.

(b) PAC. The PAC deal team should be consulted regarding any lender-imposed deadlines for closing the Refinancing Loan, including any expiration dates in the Commitment Letter and the rate lock agreement.

(c) Rate Lock Considerations. We understand that the rate lock deposit of $800,000 was wired to Meridian Title & Escrow, Inc. on January 5, 2023, in connection with the PAC Refinancing Loan. The rate lock expiration date and any extension mechanics (including the cost of any rate lock extension) should be confirmed to ensure that the rate lock does not expire before March 1, 2023. If the rate lock expires prior to March 1, the cost of extending the rate lock must be weighed against the $1,185,000 prepayment premium savings to determine the most cost-effective course of action.

C. Confirm SOFR Rate Convention

We recommend that the engagement team verify with Tidewater the specific SOFR index used under the Existing Loan, including:

(a) Whether the applicable rate is 30-day Term SOFR (as published by CME Group), Daily Simple SOFR, or SOFR Compounded in Arrears;

(b) The applicable lookback period or observation period for purposes of determining the SOFR rate applicable to each interest accrual period; and

(c) Whether a credit spread adjustment was applied in connection with the LIBOR-to-SOFR transition, and if so, the amount of such adjustment (which may affect the effective per diem interest calculation).

These details will be relevant to verifying the per diem interest figure in Tidewater's formal payoff statement against our independent calculation.

D. Reserve Balance Credits

We recommend confirming with Tidewater whether it currently holds any escrowed reserve balances under the Existing Loan. Specifically, the following categories should be investigated:

(a) Real estate tax escrows — monthly deposits for ad valorem property taxes on the Property;

(b) Insurance escrows — monthly deposits for property and casualty insurance premiums;

(c) FF&E reserves — deposits for the replacement and refurbishment of furniture, fixtures, and equipment at the Coral Palms Grand Resort & Spa; and

(d) Capital expenditure reserves — any additional reserves held for deferred maintenance or capital improvement purposes.

Upon payoff of the Existing Loan, these balances are required to be returned to the Borrower pursuant to the terms of the Loan Agreement. The aggregate amount of these reserve balances should be identified and reflected as credits to the Borrower on the closing settlement statement, as they will effectively offset a portion of the net cost of the payoff and may increase the effective net cash-out to VHG.

E. Wire Transfer Logistics

The engagement team should coordinate with Meridian Title & Escrow, Inc. (Lisa Portman, Title Officer) to confirm the following wire transfer logistics:

(a) Tidewater's wire transfer instructions as set forth in the payoff letter, including the receiving bank, ABA routing number, account number, and reference information;

(b) Confirmation that the Tidewater payoff will be wired from the closing escrow simultaneously with the disbursement of PAC Refinancing Loan proceeds, to ensure a simultaneous closing (i.e., the satisfaction of the existing Tidewater Mortgage and the recording of the new PAC Mortgage occur in the correct priority sequence); and

(c) Any pre-wire verification procedures required by Meridian Title & Escrow, Inc. or Tidewater's wire transfer department to prevent fraud or processing delays.

VIII. Conclusion

Based on the analysis set forth in this memorandum, the following conclusions and observations are presented for the engagement team's review:

1. The total estimated payoff amount for the Tidewater National Bank Existing Loan is approximately $119,685,000 to $120,400,000 if the closing occurs before March 1, 2023 (inclusive of the $1,185,000 prepayment premium and estimated accrued interest), or approximately $118,500,000 to $118,900,000 if the closing occurs on or after March 1, 2023 (thereby avoiding the prepayment premium entirely).

2. The proposed $160,000,000 PAC Refinancing Loan provides ample proceeds to satisfy the Tidewater payoff in full under either scenario, fund all required upfront reserves and closing costs, and generate the anticipated net cash-out of approximately $32,265,000 to VHG.

3. If feasible, scheduling the closing on or after March 1, 2023 would save $1,185,000 in prepayment premium costs, subject to confirmation of the PAC rate lock expiration date and VHG's business timeline.

4. This memorandum will be updated upon receipt of Tidewater's formal payoff statement, at which time the estimated payoff figures presented herein will be reconciled with the actual figures provided by Tidewater and a revised sources and uses analysis will be circulated to the engagement team.

All figures presented in this memorandum are estimates based on currently available information and assumptions regarding prevailing SOFR rates and closing date timing. Final payoff figures will be confirmed by Tidewater's formal payoff statement and reflected in the closing settlement statement prepared by Meridian Title & Escrow, Inc.

Please do not hesitate to contact me with any questions or if additional analysis is required.

Prepared by:

________________________________________

Rafael Dominguez Associate Calderwood & Harkness LLP

Reviewed by:

Distribution: Internal use only — Calderwood & Harkness LLP engagement team, Client Matter No. 1021-00007. This memorandum is not intended for distribution to any party outside of Calderwood & Harkness LLP without the prior approval of the responsible partner. This memorandum does not constitute legal advice to Verimark Hospitality Group Inc. or any of its affiliates and is prepared solely for the internal use of the engagement team in connection with the verification of payoff figures for the Coral Palms Resort refinancing transaction.

Component	Estimated Amount
Outstanding principal	$118,500,000
Prepayment premium (1.0%)	$1,185,000
Accrued interest (est. 20 days at $21,725/day)	~$434,500
Administrative / processing fees (est.)	~$5,000
Total estimated payoff	~$120,124,500
Component	Estimated Amount
Outstanding principal	~$118,500,000
Prepayment premium	$0
Accrued interest (est. 15 days at $21,725/day)	~$325,875
Administrative / processing fees (est.)	~$5,000
Total estimated payoff	~$118,830,875
Assumed SOFR Rate	All-In Rate (SOFR + 2.25%)	Per Diem Interest
4.30%	6.55%	$118,500,000 × 0.0655 / 360 = $21,560.42
4.35%	6.60%	$118,500,000 × 0.0660 / 360 = $21,725.00
4.45%	6.70%	$118,500,000 × 0.0670 / 360 = $22,054.17
4.55%	6.80%	$118,500,000 × 0.0680 / 360 = $22,383.33
Source	Amount
PAC Refinancing Loan proceeds	$160,000,000
Total sources	$160,000,000
Use	Amount
Tidewater payoff — Outstanding principal	$118,500,000
Tidewater payoff — Prepayment premium (1.0%)	$1,185,000
Tidewater payoff — Accrued interest (est.)	~$400,000 (variable)
Estimated closing costs (title insurance, recording, legal fees, lender fees)	$3,250,000

Upfront reserves (real estate taxes, insurance, FF&E, capital expenditure)	$4,800,000
PAC commitment fee (0.50% × $160,000,000, payable at closing)	$800,000
Subtotal uses (before net cash-out)	~$128,935,000
Estimated net cash-out to VHG	~$31,065,000
Total uses	$160,000,000
Reviewer	Initials	Date
Douglas Fairchild, Partner	__	__
Grace Nakamura, Associate	__	__

MEMORANDUM
PRIVILEGED & CONFIDENTIAL — ATTORNEY WORK PRODUCT This memorandum was prepared by counsel in connection with the rendering of legal advice and is protected by the attorney-client privilege and the work product doctrine. This memorandum is not intended for disclosure to any third party and should not be disclosed without the prior written consent of Calderwood & Harkness LLP.
To: Douglas Fairchild, Partner Angela Fontaine, Partner Grace Nakamura, Associate
From: Rafael Dominguez, Associate
Date: January 9, 2023
Re: Verimark Hospitality Group Inc. — Coral Palms Resort Refinancing; Verification of Tidewater National Bank Payoff Figures
Client Matter No.: 1021-00007
I. Purpose and Summary
The purpose of this memorandum is to verify the estimated payoff amount for the existing first mortgage loan (the "Existing Loan") encumbering the Coral Palms Grand Resort & Spa, located at 99000 Overseas Highway, Key Largo, Monroe County, Florida 33037 (the "Property"), which Existing Loan is currently held by Tidewater National Bank, N.A. ("Tidewater" or "TNB"). The Existing Loan is to be paid in full from the proceeds of the proposed $160,000,000 first mortgage refinancing loan (the "Refinancing Loan") to be provided by Pinnacle Atlantic Capital, LLC ("PAC") to Coral Palms Resort Holdings LLC (the "Borrower"), a wholly owned indirect subsidiary of our client, Verimark Hospitality Group Inc. ("VHG").
This memorandum calculates the total estimated payoff amount due to Tidewater, including all outstanding principal, accrued and unpaid interest through the anticipated payoff date, the prepayment premium (if applicable depending on the timing of the closing), and any other amounts that may be due under the Existing Loan documents. The memorandum further cross-references these amounts against the proposed refinancing sources of funds to confirm that the PAC Refinancing Loan proceeds are sufficient to satisfy the Existing Loan payoff and all other anticipated closing costs and reserve requirements.
Summary Conclusion: The total estimated payoff amount for the Tidewater Existing Loan, inclusive of the prepayment premium (assuming closing before March 1, 2023), is approximately $119,685,000 to $120,400,000, depending on the precise closing date and the applicable SOFR rate at the time of payoff. If closing can be scheduled on or after March 1, 2023, the prepayment premium of $1,185,000 is avoided entirely, reducing the total estimated payoff to approximately $118,500,000 to $118,900,000. Under either scenario, the Tidewater payoff is comfortably within the proposed $160,000,000 Refinancing Loan proceeds, leaving sufficient funds for closing costs, upfront reserves, and the anticipated net cash-out to VHG of approximately $32,265,000.
II. Existing Loan — Key Terms
Set forth below is a summary of the material terms of the Existing Loan based on our review of the loan documents provided by VHG, including the Loan Agreement dated as of June 1, 2019 (as amended, the "Loan Agreement"), the Promissory Note of even date therewith (the "Note"), the Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture Filing recorded in the Official Records of Monroe County, Florida (the "Mortgage"), and the LIBOR-to-SOFR Fallback Amendment dated March 15, 2022 (the "SOFR Amendment"). We have also reviewed the most recent loan statement provided by VHG's treasury department as of October 15, 2022.
A. Loan Origination Details
The following summarizes the basic origination details of the Existing Loan:
•  Lender: Tidewater National Bank, N.A., a national banking association organized under the laws of the United States, with its principal office located at 600 Waterside Drive, Norfolk, Virginia 23510. The primary relationship contact at Tidewater for purposes of this transaction is Alan Prescott, Senior Vice President, Commercial Real Estate Division.
•  Borrower: Coral Palms Resort Holdings LLC, a Florida limited liability company (the "Borrower"). The Borrower is a wholly owned indirect subsidiary of Verimark Hospitality Group Inc., a Delaware corporation. The Borrower was formed as a single-purpose entity in connection with the origination of the Existing Loan and holds fee simple title to the Property.
•  Original Principal Amount: $125,000,000.
•  Origination Date: June 1, 2019.
•  Maturity Date: June 1, 2024 (reflecting a five-year term from origination).
•  Mortgage Recording: The Mortgage was recorded in the Official Records of Monroe County, Florida at Official Records Book 2892, Page 0445. We have confirmed the recording information through a review of the title commitment issued by Meridian Title & Escrow, Inc. in connection with the proposed Refinancing Loan, which identifies the Tidewater Mortgage as an existing encumbrance that will be discharged at closing.
•  UCC-1 Filing: A UCC-1 Financing Statement was filed with the Florida Secured Transaction Registry (Florida Department of State, Division of Corporations) under File No. 202219087643, covering the Borrower's personal property, fixtures, and other collateral pledged under the Existing Loan.
•  Property Folio No.: The Property is identified in the records of the Monroe County Property Appraiser under Folio No. 00460780-000100.
B. Interest Rate
The Existing Loan originally bore interest at a floating rate equal to LIBOR (one-month London Interbank Offered Rate) plus a spread of 2.25% per annum (225 basis points). As described below, the interest rate benchmark was subsequently transitioned from LIBOR to SOFR.
•  Original Rate: LIBOR + 2.25% per annum.
•  Rate Conversion — LIBOR-to-SOFR Fallback Amendment: In anticipation of the discontinuation of LIBOR, the Borrower and Tidewater executed the SOFR Amendment dated March 15, 2022, pursuant to which the interest rate benchmark was converted from LIBOR to the Secured Overnight Financing Rate ("SOFR") as published by the Federal Reserve Bank of New York. The spread of 2.25% per annum was maintained, and an additional credit spread adjustment was applied in connection with the transition, consistent with the ARRC-recommended methodology. For purposes of this memorandum, the effective all-in spread over SOFR is treated as 2.25%.
•  Current Rate: SOFR + 2.25% per annum.
•  Note on SOFR Reference Rate: The SOFR Amendment specifies the use of 30-day Term SOFR as the applicable reference rate, as published by CME Group. As of the date of preparation of this memorandum, 30-day Term SOFR is in the range of approximately 4.30% to 4.55%, reflecting the Federal Reserve's rate-tightening cycle during 2022. For purposes of the payoff calculations in this memorandum, we have assumed a SOFR rate of approximately 4.35% at the midpoint, yielding an all-in interest rate of approximately 6.60% per annum. At the upper end of the assumed SOFR range (4.55%), the all-in rate would be approximately 6.80% per annum. The actual rate applicable at the time of payoff will be confirmed by Tidewater in its formal payoff statement and will be based on the Term SOFR rate in effect during the applicable interest accrual period.
C. Amortization Structure
The Existing Loan features a bifurcated amortization structure consisting of an initial interest-only period followed by a period of principal amortization:
•  Interest-Only Period (Years 1–3): From the origination date of June 1, 2019 through May 31, 2022 (thirty-six months), the Existing Loan required monthly payments of interest only, with no scheduled principal amortization. During this period, the outstanding principal balance remained at $125,000,000.
•  Amortization Period (Years 4–5): Commencing June 1, 2022, the Existing Loan converted to a thirty-year amortization schedule for the remaining two years of the loan term (through the maturity date of June 1, 2024). Monthly payments during this period include both interest (calculated on the outstanding principal balance at the floating rate described above) and principal amortization based on a hypothetical 360-month amortization schedule.
•  Effect on Outstanding Balance: Because principal amortization has been occurring since June 1, 2022, the original principal balance of $125,000,000 has been reduced through scheduled amortization payments. Based on the most recent loan statement reviewed by our office, dated October 15, 2022, the outstanding principal balance has been reduced to approximately $118,500,000. We note that, given the thirty-year amortization schedule and the relatively short period of amortization (approximately four and one-half months as of October 15, 2022), the majority of each monthly payment during this period is allocated to interest rather than principal, which is consistent with the relatively modest reduction from the original $125,000,000 balance.
D. Outstanding Principal Balance
•  Outstanding Principal Balance as of October 15, 2022: Approximately $118,500,000, based on the loan statement provided by VHG's treasury department.
•  The precise outstanding principal balance as of the actual payoff date will be confirmed by Tidewater in its formal payoff statement. Additional scheduled amortization payments will have been made between October 15, 2022 and the anticipated closing date of the Refinancing Loan, which will further reduce the outstanding principal balance. Accordingly, the actual principal balance at closing is expected to be modestly lower than $118,500,000.
•  For conservatism, and to avoid underestimating the payoff amount, this memorandum uses $118,500,000 as the assumed outstanding principal balance for all payoff calculations. This represents a slightly conservative (i.e., high-side) estimate if the closing of the Refinancing Loan occurs after October 2022, as is anticipated.
E. Prepayment Provisions
The Existing Loan documents contain the following prepayment provisions, as set forth in Section 2.4 of the Loan Agreement and Section 4 of the Note:
•  Prepayment Premium (Before March 1, 2023): If the Existing Loan is prepaid in full (or in part, to the extent voluntary partial prepayments are permitted) prior to March 1, 2023, a prepayment premium equal to 1.0% of the outstanding principal balance at the time of prepayment is due and payable to Tidewater. Based on the assumed outstanding principal balance of $118,500,000, this premium would equal $1,185,000.
•  No Prepayment Premium (On or After March 1, 2023): If the Existing Loan is prepaid in full on or after March 1, 2023, no prepayment premium is due. The Loan Agreement and Note expressly provide that the Borrower may prepay the Existing Loan in full without penalty or premium at any time on or after March 1, 2023, subject to customary prior notice requirements (the Note requires at least ten business days' prior written notice of intended prepayment).
•  Significance for Closing Timing: The prepayment premium schedule has a material bearing on the economics of the Refinancing Loan closing date. If the closing of the PAC Refinancing Loan can be scheduled to occur on or after March 1, 2023, the Borrower would avoid the $1,185,000 prepayment premium in its entirety. Conversely, if the closing must occur before March 1, 2023 due to business or timing constraints, the prepayment premium will be an additional cost of the refinancing transaction. As discussed further in Section VII.B below, we recommend that the engagement team evaluate with VHG and PAC whether the closing timeline permits scheduling on or after March 1, 2023.
•  Defeasance: We have reviewed the Existing Loan documents and confirmed that defeasance is not required as a condition to prepayment. While the Loan Agreement contains certain provisions relating to substitution of collateral in connection with a partial release, the prepayment provisions are governed by the declining premium schedule described above. Given that the prepayment premium is either 1.0% (before March 1, 2023) or zero (on or after March 1, 2023), defeasance is not an economically advantageous alternative and is not further analyzed in this memorandum.
III. Payoff Calculation — Scenario Analysis
To account for the impact of the prepayment premium on the total payoff cost, this memorandum presents two payoff scenarios based on the anticipated timing of the Refinancing Loan closing.
A. Scenario 1: Closing Before March 1, 2023 (Prepayment Premium Applicable)
Under this scenario, we assume that the closing of the PAC Refinancing Loan occurs prior to March 1, 2023, such that the 1.0% prepayment premium is due and payable to Tidewater. The components of the estimated payoff amount under this scenario are as follows:
1. Outstanding Principal.  The outstanding principal balance is estimated at $118,500,000, based on the October 15, 2022 loan statement as described in Section II.D above. As noted, the actual principal balance at closing may be slightly lower due to continued scheduled amortization payments between October 15, 2022 and the closing date, but we use this figure as a conservative estimate to ensure that sufficient payoff funds are available at closing.
2. Prepayment Premium.  The prepayment premium is calculated as 1.0% of the outstanding principal balance at the time of prepayment:
$118,500,000 × 1.0% = $1,185,000
We note that the prepayment premium is calculated on the actual outstanding principal balance at the date of prepayment. If the principal balance has been further reduced through scheduled amortization payments by the closing date (i.e., is somewhat less than $118,500,000), the prepayment premium will be correspondingly reduced. However, for conservatism, we use the $118,500,000 figure, which yields a prepayment premium of $1,185,000.
3. Accrued and Unpaid Interest.  Interest on the Existing Loan accrues daily and is payable monthly. At the closing of the Refinancing Loan, accrued but unpaid interest from the last monthly payment date through the payoff date will be included in the payoff amount. The calculation is as follows:
•  All-in interest rate assumption: SOFR (assumed at approximately 4.35%) + 2.25% = approximately 6.60% per annum.
•  Per diem interest calculation: Consistent with standard commercial loan conventions, and as specified in the Loan Agreement, interest is calculated on the basis of a 360-day year and actual days elapsed:
$118,500,000 × 6.60% / 360 = $21,725.00 per diem (approximately)
•  Accrued interest from last payment date to closing date: The exact amount of accrued interest depends on the number of days elapsed between the last monthly interest payment date and the payoff date. For illustrative purposes:
•  If approximately 15 days of interest have accrued: $21,725 × 15 = $325,875
•  If approximately 20 days of interest have accrued: $21,725 × 20 = $434,500
•  If approximately 30 days of interest have accrued: $21,725 × 30 = $651,750
•  The actual per diem interest amount and accrued interest will be confirmed by Tidewater in its formal payoff statement and will reflect the actual SOFR rate as of each applicable accrual period. The figures presented here are estimates for planning and closing statement preparation purposes.
4. Other Amounts.  In addition to the principal, prepayment premium, and accrued interest, the following additional items may be included in or relevant to the payoff:
•  Late charges: None expected. The Existing Loan is current and in good standing, with no history of late payments. No late charges are anticipated in the payoff statement.
•  Default interest: Not applicable. The Existing Loan is not in default, and no default rate of interest has been triggered.
•  Lender legal fees and processing fees: Tidewater may charge a nominal administrative or processing fee in connection with the preparation and delivery of the payoff letter, the satisfaction of mortgage, and the UCC-3 termination statement. Such fees are typically in the range of $2,500 to $7,500 for a loan of this size. For purposes of this memorandum, we estimate this amount at approximately $5,000, subject to confirmation by Tidewater.
•  Escrow and reserve balances held by Tidewater: Under the Existing Loan documents, Tidewater holds certain escrow and reserve balances on behalf of the Borrower, which may include real estate tax escrows, insurance escrows, and furniture, fixtures, and equipment ("FF&E") reserve deposits. Upon payoff of the Existing Loan, these balances are to be returned to the Borrower. These amounts represent credits that reduce the effective net cost of the payoff to the Borrower but are typically not netted against the gross payoff amount in the payoff statement itself. Rather, the return of escrowed funds is handled as a separate disbursement following payoff. The amounts of any such reserve balances will be confirmed by Tidewater in connection with the payoff letter and should be reflected in the closing settlement statement prepared by Meridian Title & Escrow, Inc.
5. Total Estimated Payoff (Scenario 1).  Based on the foregoing, the total estimated payoff amount under Scenario 1 (closing before March 1, 2023) is calculated as follows:
The total estimated payoff under Scenario 1 falls within a range of approximately $119,900,000 to $120,400,000, depending on the precise closing date (which affects the number of days of accrued interest), the actual SOFR rate in effect at the time of payoff, and the actual outstanding principal balance at closing. This range is exclusive of any reserve balance credits that may be returned to the Borrower following payoff.
B. Scenario 2: Closing On or After March 1, 2023 (No Prepayment Premium)
Under this scenario, we assume that the closing of the PAC Refinancing Loan is scheduled to occur on or after March 1, 2023, such that no prepayment premium is due to Tidewater. The components of the estimated payoff amount under this scenario are as follows:
1. Outstanding Principal.  As with Scenario 1, the outstanding principal balance is estimated at $118,500,000, which represents a conservative estimate. By March 2023, the actual outstanding balance will be somewhat lower due to the additional months of scheduled amortization, but we retain this figure for conservatism.
2. Prepayment Premium.  Under the terms of the Existing Loan documents, the prepayment premium expires entirely on March 1, 2023. Accordingly, if the payoff occurs on or after that date, the prepayment premium is $0.
3. Accrued Interest.  The methodology for calculating accrued interest is identical to Scenario 1. The per diem interest amount remains approximately $21,725 per day at the assumed all-in rate of 6.60% (subject to adjustments based on the actual SOFR rate in effect in February/March 2023, which may differ from the rate assumed in Scenario 1). The total accrued interest will depend on the number of days elapsed from the last monthly payment date to the payoff date. For illustrative purposes, assuming approximately 15 days of accrued interest:
$21,725 × 15 = $325,875
4. Total Estimated Payoff (Scenario 2).  
The total estimated payoff under Scenario 2 is approximately $118,500,000 to $118,900,000, depending on the precise closing date and applicable SOFR rate. This represents a savings of approximately $1,185,000 compared to Scenario 1, attributable entirely to the avoidance of the prepayment premium.
C. Recommendation on Closing Date Timing
Based on the analysis above, if it is practicable from a transaction timeline perspective, scheduling the closing of the PAC Refinancing Loan on or after March 1, 2023 would result in a savings of $1,185,000 to the Borrower and VHG by avoiding the Tidewater prepayment premium. This is a meaningful savings that warrants serious consideration in the closing timeline negotiations with PAC.
However, the decision to delay the closing must be balanced against several other factors:
(a) PAC deal timeline and rate lock. PAC's Commitment Letter and the associated rate lock agreement may impose deadlines for the closing of the Refinancing Loan. If the rate lock expires before March 1, 2023, VHG would need to either extend the rate lock (which may involve additional cost) or risk repricing of the Refinancing Loan at then-prevailing market rates. As discussed in Section VII.B below, we understand that the rate lock deposit of $800,000 was wired to Meridian Title & Escrow, Inc. on January 5, 2023, and the rate lock expiration date should be confirmed.
(b) Business objectives of VHG. VHG may have business reasons for completing the refinancing promptly, including the desire to access the net cash-out proceeds for planned capital expenditures, acquisitions, or other corporate purposes.
(c) No imminent maturity pressure. The Existing Loan does not mature until June 1, 2024, which is approximately seventeen months from the date of this memorandum. There is no imminent maturity default risk that would compel an accelerated closing timeline.
For purposes of the sources and uses analysis in Section V below, and in order to present a conservative estimate of the total cost of the refinancing transaction, this memorandum assumes that the closing will occur before March 1, 2023 and includes the full $1,185,000 prepayment premium in the estimated payoff amount. If the closing is ultimately scheduled on or after March 1, 2023, the sources and uses analysis can be adjusted to reflect the elimination of this cost, with a corresponding increase in the net cash-out to VHG.
IV. Per Diem Interest Detail
This section provides a detailed per diem interest calculation for use by the engagement team and Meridian Title & Escrow, Inc. in preparing the closing settlement statement. The per diem figure is the daily interest amount that accrues on the Existing Loan and is used to prorate interest charges to the exact closing date.
Formula:
Per Diem Interest = Outstanding Principal × Annual Interest Rate / 360
The 360-day divisor reflects the commercial loan convention (Actual/360) specified in the Existing Loan documents, pursuant to which interest is calculated on the basis of a 360-day year and the actual number of days elapsed.
Calculation at Assumed SOFR Levels:
Range: The per diem interest amount is estimated in the range of approximately $21,700 to $22,400 per day, depending on the prevailing SOFR rate at the time of the payoff.
Important Notes:
•  Tidewater's formal payoff statement will specify the exact per diem interest amount based on the actual SOFR rate in effect during the applicable interest accrual period. The estimates presented above are for planning and budgeting purposes only.
•  SOFR is published daily by the Federal Reserve Bank of New York, and the applicable 30-day Term SOFR rate is published by CME Group. The exact rate that will be used by Tidewater to calculate the per diem interest on its payoff statement will be determined based on the SOFR rate in effect at the time the payoff letter is issued (or as otherwise specified in the SOFR Amendment and the Loan Agreement).
•  The per diem figure should be used by Meridian Title & Escrow, Inc. to calculate the accrued interest adjustment on the closing settlement statement, applying the per diem to the number of days from the last monthly interest payment date through and including the payoff date.
V. Cross-Reference to Refinancing Sources and Uses
To confirm the adequacy of the proposed Refinancing Loan proceeds, this section presents a sources and uses analysis that incorporates the Tidewater payoff amount along with other anticipated transaction costs and disbursements.
A. Sources of Funds
The sole source of funds for the refinancing transaction is the PAC Refinancing Loan:
B. Uses of Funds
The following table sets forth the anticipated uses of funds based on the original terms of the Refinancing Loan, prior to any adjustment for the recent appraisal repricing:
Reconciliation Note: The scenario description documents prepared by the deal team reference an estimated net cash-out of $32,265,000, which is calculated as follows:
$160,000,000 − $118,500,000 − $1,185,000 − $3,250,000 − $4,800,000 = $32,265,000
The slight difference between the deal team's figure of $32,265,000 and the net cash-out figure of approximately $31,065,000 shown in the table above reflects the fact that this memorandum's more detailed breakdown separately identifies certain line items — specifically, accrued interest (approximately $400,000) and the PAC commitment fee ($800,000) — that are subsumed within the deal team's $3,250,000 closing costs figure. For consistency with the Commitment Letter analysis prepared by this office and the deal team's financial model, the estimated net cash-out should be referenced as $32,265,000, with the understanding that the detailed breakdown of closing costs and transaction expenses will be finalized in the closing settlement statement.
C. Adequacy of Refinancing Proceeds
Based on the foregoing analysis, the proposed $160,000,000 PAC Refinancing Loan provides more than sufficient proceeds to accomplish all of the following:
(i) Pay off the Tidewater Existing Loan in full, including outstanding principal, accrued interest, and the prepayment premium (if applicable);
(ii) Fund all required upfront reserves for real estate taxes, insurance premiums, FF&E replacement, and capital expenditures as required under the PAC Commitment Letter and loan documents;
(iii) Pay all estimated closing costs, including title insurance premiums, recording fees, legal fees, survey and environmental costs, and lender fees; and
(iv) Generate approximately $32,265,000 in net cash-out proceeds to VHG for corporate purposes.
The Tidewater payoff amount (principal plus prepayment premium) of approximately $119,685,000 represents approximately 74.8% of the proposed $160,000,000 Refinancing Loan amount. This loan-to-payoff ratio provides a substantial margin of safety and confirms that the Refinancing Loan is appropriately sized to accomplish the payoff and provide the targeted cash-out.
VI. Documents Required from Tidewater for Closing
In order to complete the payoff of the Existing Loan and the closing of the Refinancing Loan, the following documents and deliverables will be required from Tidewater National Bank, N.A.:
1.  Formal Payoff Letter / Payoff Statement. A payoff statement prepared and executed by Tidewater specifying the following:
(a) The outstanding principal balance as of the payoff date;
(b) The exact per diem interest amount, together with the applicable SOFR rate and the basis for calculation;
(c) The prepayment premium calculation (if applicable, depending on the closing date relative to March 1, 2023);
(d) Any other amounts due and payable under the Existing Loan documents (including any administrative fees, late charges, or other charges);
(e) Wire transfer instructions for the transmission of payoff proceeds to Tidewater; and
(f) The "good-through date" (i.e., the date through which the payoff figures remain valid, after which an updated statement would be required).
2.  Satisfaction and Discharge of Mortgage. A duly executed and notarized Satisfaction and Discharge of Mortgage (or Satisfaction of Mortgage, as denominated under Florida law) in recordable form, for recording in the Official Records of Monroe County, Florida, to discharge the Mortgage recorded at Official Records Book 2892, Page 0445. This document should be delivered to Meridian Title & Escrow, Inc. at or promptly following closing for recording.
3.  UCC-3 Termination Statement. A UCC-3 Financing Statement Amendment (Termination) terminating the UCC-1 Financing Statement filed with the Florida Secured Transaction Registry under File No. 202219087643. The UCC-3 should be in form suitable for filing with the Florida Department of State, Division of Corporations.
4.  Assignment or Return of Escrow/Reserve Balances. Documentation confirming the return or assignment of any escrowed reserve balances held by Tidewater under the Existing Loan, including real estate tax escrows, insurance escrows, FF&E reserves, and any capital expenditure reserves. The specific balances and the mechanism for return (direct refund to the Borrower, or assignment to PAC as incoming lender) should be confirmed with Tidewater.
5.  Lender Authorization and Bailee Letters. Any lender authorization letters, bailee letters, or similar documentation that may be required by Meridian Title & Escrow, Inc. or PAC to facilitate the simultaneous closing, including authorization for Meridian Title to disburse the payoff proceeds to Tidewater from the closing escrow fund.
Status of Request: Calderwood & Harkness has sent a formal payoff request letter to Tidewater National Bank, N.A., addressed to Alan Prescott, Senior Vice President, Commercial Real Estate Division, requesting the foregoing items. As of the date of this memorandum, we are awaiting Tidewater's response. We will circulate the payoff statement to the engagement team promptly upon receipt for review and verification against the estimates set forth in this memorandum.
VII. Open Items and Recommendations
The following items remain open and require follow-up action by the engagement team:
A. Confirm Actual Outstanding Balance
We recommend requesting an updated principal balance from Tidewater reflecting all scheduled amortization payments through the anticipated closing date. The $118,500,000 figure used throughout this memorandum is based on the loan statement dated October 15, 2022, and will be modestly lower at closing due to the intervening monthly amortization payments made in November 2022, December 2022, and January 2023 (and potentially February 2023, depending on the closing date). Receipt of Tidewater's formal payoff statement, as described in Section VI above, will resolve this item.
B. Prepayment Premium Timing Strategy
As discussed in Section III.C above, scheduling the closing on or after March 1, 2023 would save $1,185,000 in prepayment premium costs. We recommend that the engagement team evaluate this timing strategy with the following parties:
(a) VHG. Derek Huang, Senior Vice President, Capital Markets & Treasury, should be consulted regarding VHG's business timeline for receiving the net cash-out proceeds and whether a closing in early March (rather than late January or February) is acceptable from a corporate planning perspective.
(b) PAC. The PAC deal team should be consulted regarding any lender-imposed deadlines for closing the Refinancing Loan, including any expiration dates in the Commitment Letter and the rate lock agreement.
(c) Rate Lock Considerations. We understand that the rate lock deposit of $800,000 was wired to Meridian Title & Escrow, Inc. on January 5, 2023, in connection with the PAC Refinancing Loan. The rate lock expiration date and any extension mechanics (including the cost of any rate lock extension) should be confirmed to ensure that the rate lock does not expire before March 1, 2023. If the rate lock expires prior to March 1, the cost of extending the rate lock must be weighed against the $1,185,000 prepayment premium savings to determine the most cost-effective course of action.
C. Confirm SOFR Rate Convention
We recommend that the engagement team verify with Tidewater the specific SOFR index used under the Existing Loan, including:
(a) Whether the applicable rate is 30-day Term SOFR (as published by CME Group), Daily Simple SOFR, or SOFR Compounded in Arrears;
(b) The applicable lookback period or observation period for purposes of determining the SOFR rate applicable to each interest accrual period; and
(c) Whether a credit spread adjustment was applied in connection with the LIBOR-to-SOFR transition, and if so, the amount of such adjustment (which may affect the effective per diem interest calculation).
These details will be relevant to verifying the per diem interest figure in Tidewater's formal payoff statement against our independent calculation.
D. Reserve Balance Credits
We recommend confirming with Tidewater whether it currently holds any escrowed reserve balances under the Existing Loan. Specifically, the following categories should be investigated:
(a) Real estate tax escrows — monthly deposits for ad valorem property taxes on the Property;
(b) Insurance escrows — monthly deposits for property and casualty insurance premiums;
(c) FF&E reserves — deposits for the replacement and refurbishment of furniture, fixtures, and equipment at the Coral Palms Grand Resort & Spa; and
(d) Capital expenditure reserves — any additional reserves held for deferred maintenance or capital improvement purposes.
Upon payoff of the Existing Loan, these balances are required to be returned to the Borrower pursuant to the terms of the Loan Agreement. The aggregate amount of these reserve balances should be identified and reflected as credits to the Borrower on the closing settlement statement, as they will effectively offset a portion of the net cost of the payoff and may increase the effective net cash-out to VHG.
E. Wire Transfer Logistics
The engagement team should coordinate with Meridian Title & Escrow, Inc. (Lisa Portman, Title Officer) to confirm the following wire transfer logistics:
(a) Tidewater's wire transfer instructions as set forth in the payoff letter, including the receiving bank, ABA routing number, account number, and reference information;
(b) Confirmation that the Tidewater payoff will be wired from the closing escrow simultaneously with the disbursement of PAC Refinancing Loan proceeds, to ensure a simultaneous closing (i.e., the satisfaction of the existing Tidewater Mortgage and the recording of the new PAC Mortgage occur in the correct priority sequence); and
(c) Any pre-wire verification procedures required by Meridian Title & Escrow, Inc. or Tidewater's wire transfer department to prevent fraud or processing delays.
VIII. Conclusion
Based on the analysis set forth in this memorandum, the following conclusions and observations are presented for the engagement team's review:
1.  The total estimated payoff amount for the Tidewater National Bank Existing Loan is approximately $119,685,000 to $120,400,000 if the closing occurs before March 1, 2023 (inclusive of the $1,185,000 prepayment premium and estimated accrued interest), or approximately $118,500,000 to $118,900,000 if the closing occurs on or after March 1, 2023 (thereby avoiding the prepayment premium entirely).
2.  The proposed $160,000,000 PAC Refinancing Loan provides ample proceeds to satisfy the Tidewater payoff in full under either scenario, fund all required upfront reserves and closing costs, and generate the anticipated net cash-out of approximately $32,265,000 to VHG.
3.  If feasible, scheduling the closing on or after March 1, 2023 would save $1,185,000 in prepayment premium costs, subject to confirmation of the PAC rate lock expiration date and VHG's business timeline.
4.  This memorandum will be updated upon receipt of Tidewater's formal payoff statement, at which time the estimated payoff figures presented herein will be reconciled with the actual figures provided by Tidewater and a revised sources and uses analysis will be circulated to the engagement team.
All figures presented in this memorandum are estimates based on currently available information and assumptions regarding prevailing SOFR rates and closing date timing. Final payoff figures will be confirmed by Tidewater's formal payoff statement and reflected in the closing settlement statement prepared by Meridian Title & Escrow, Inc.
Please do not hesitate to contact me with any questions or if additional analysis is required.
Prepared by:
________________________________________
Rafael Dominguez Associate Calderwood & Harkness LLP
Reviewed by:
Distribution: Internal use only — Calderwood & Harkness LLP engagement team, Client Matter No. 1021-00007. This memorandum is not intended for distribution to any party outside of Calderwood & Harkness LLP without the prior approval of the responsible partner. This memorandum does not constitute legal advice to Verimark Hospitality Group Inc. or any of its affiliates and is prepared solely for the internal use of the engagement team in connection with the verification of payoff figures for the Coral Palms Resort refinancing transaction.
Component | Estimated Amount
Outstanding principal | $118,500,000
Prepayment premium (1.0%) | $1,185,000
Accrued interest (est. 20 days at $21,725/day) | ~$434,500
Administrative / processing fees (est.) | ~$5,000
Total estimated payoff | ~$120,124,500
Component | Estimated Amount
Outstanding principal | ~$118,500,000
Prepayment premium | $0
Accrued interest (est. 15 days at $21,725/day) | ~$325,875
Administrative / processing fees (est.) | ~$5,000
Total estimated payoff | ~$118,830,875
Assumed SOFR Rate | All-In Rate (SOFR + 2.25%) | Per Diem Interest
4.30% | 6.55% | $118,500,000 × 0.0655 / 360 = $21,560.42
4.35% | 6.60% | $118,500,000 × 0.0660 / 360 = $21,725.00
4.45% | 6.70% | $118,500,000 × 0.0670 / 360 = $22,054.17
4.55% | 6.80% | $118,500,000 × 0.0680 / 360 = $22,383.33
Source | Amount
PAC Refinancing Loan proceeds | $160,000,000
Total sources | $160,000,000
Use | Amount
Tidewater payoff — Outstanding principal | $118,500,000
Tidewater payoff — Prepayment premium (1.0%) | $1,185,000
Tidewater payoff — Accrued interest (est.) | ~$400,000 (variable)
Estimated closing costs (title insurance, recording, legal fees, lender fees) | $3,250,000
Upfront reserves (real estate taxes, insurance, FF&E, capital expenditure) | $4,800,000
PAC commitment fee (0.50% × $160,000,000, payable at closing) | $800,000
Subtotal uses (before net cash-out) | ~$128,935,000
Estimated net cash-out to VHG | ~$31,065,000
Total uses | $160,000,000
Reviewer | Initials | Date
Douglas Fairchild, Partner | __ | __
Grace Nakamura, Associate | __ | __

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