1021-00007 · Verimark Hospitality Group · Insurance

letter-to-insurance-broker.docx DOCUMENT Real Estate

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CALDERWOOD & HARKNESS LLP Attorneys at Law

100 Southeast Second Street, Suite 3800 Miami, Florida 33131

Telephone: (305) 814-7200 Facsimile: (305) 814-7201 www.calderwoodharkness.com

January 10, 2023

VIA EMAIL AND FEDEX

Castlegate Risk Advisors LLC 701 Brickell Avenue, Suite 1400 Miami, Florida 33131

Attn: Monica Iglesias, Senior Vice President

Re: Insurance Requirements — Proposed $160,000,000 First Mortgage Loan from Pinnacle Atlantic Capital, LLC to Coral Palms Resort Holdings LLC; Coral Palms Grand Resort & Spa, 99000 Overseas Highway, Key Largo, Monroe County, FL 33037

Client Matter No. 1021-00007

Dear Ms. Iglesias:

I. Introduction and Purpose

This firm represents Verimark Hospitality Group Inc. ("VHG") and its subsidiary, Coral Palms Resort Holdings LLC (the "Borrower"), as borrower's counsel in connection with a proposed $160,000,000 first mortgage refinancing of the Coral Palms Grand Resort & Spa (the "Property"), located at 99000 Overseas Highway, Key Largo, Monroe County, Florida 33037. The Borrower is a Florida limited liability company and a wholly owned indirect subsidiary of VHG, and is the fee simple owner of the Property.

The lender in this transaction is Pinnacle Atlantic Capital, LLC ("PAC"), a Delaware limited liability company with principal offices at 200 Lexington Avenue, 38th Floor, New York, New York 10016. PAC is represented by the firm of Whitford Baines & Driscoll LLP, with Philip Tarrant Corporation, Partner, serving as lead counsel for the lender.

As you may be aware, the existing mortgage loan on the Property, held by Tidewater National Bank, N.A. (with an outstanding principal balance of approximately $118,500,000), will be refinanced and paid off in full at the closing of the proposed transaction. Upon the consummation of the refinancing, the insurance requirements of PAC will supersede all existing mortgagee provisions, endorsements, and related insurance obligations previously established in favor of Tidewater National Bank, N.A.

The purpose of this letter is twofold. First, we wish to transmit to you the lender's insurance requirements as set forth in the draft Loan Agreement and related loan documents circulated by lender's counsel on December 19, 2022. Second, we respectfully request that Castlegate Risk Advisors LLC ("Castlegate") coordinate with VHG's existing insurance carriers to procure evidence of compliance with all such requirements, including all additional insured endorsements, mortgagee and loss payee endorsements, certificates of insurance, and related insurance documentation required as conditions precedent to the closing of the refinancing. A summary of the lender's requirements, organized by coverage type, is set forth in detail below. Additionally, we have enclosed relevant excerpts of the draft loan documents for your reference.

We emphasize at the outset that these requirements are derived from draft loan documents currently under review and negotiation. Certain provisions may be modified as the parties finalize the definitive agreements. We will advise you promptly of any material changes. In the interim, however, we ask that Castlegate proceed with the procurement of the deliverables described herein based on the current drafts, as the parties intend to move toward closing expeditiously.

II. Property Description

For your reference and for use in coordinating with the applicable insurance carriers, the following is a description of the Property and its key characteristics:

Property Name: Coral Palms Grand Resort & Spa

Street Address: 99000 Overseas Highway, Key Largo, Monroe County, Florida 33037

Tax Folio Number: 00460780-000100

Property Type: Full-service luxury oceanfront resort hotel with conference center, full-service spa, marina, and ancillary commercial uses

Key Statistics for Insurance and Underwriting Purposes:

Construction and Renovation History: The Property was originally constructed in 2006. A comprehensive renovation of the Property was completed in August 2021 at a total cost of approximately $47,000,000. The renovation encompassed guest rooms, public areas, food and beverage outlets, the spa facility, the conference center, building systems, and exterior improvements.

Location Considerations: The Property is located in Monroe County, Florida (the Florida Keys), which subjects it to enhanced windstorm and flood insurance requirements. As discussed more fully in Sections 4.2 and 4.3 below, the Property's coastal location in a high-velocity hurricane zone and within a Special Flood Hazard Area ("SFHA") necessitates specialized coverage that meets both regulatory mandates and the lender's heightened underwriting standards.

III. Existing Insurance Carriers

We understand that the following insurance carriers currently provide coverage on the Property. We ask that Castlegate confirm the accuracy of this information and, in particular, verify the current policy numbers, policy periods (including inception and expiration dates), and coverage limits for all existing policies:

(a) Property, General Liability, and Windstorm Insurance: Southland Mutual Insurance Company, a Florida-domiciled insurer, with principal offices at 400 North Ashley Drive, Tampa, Florida 33602. We understand that Southland Mutual provides the primary property (all-risk) and commercial general liability coverages for the Property, and we request confirmation as to whether windstorm coverage is included within the all-risk policy or is written separately.

(b) Flood Insurance: Bayfront Specialty Insurance Corp., a Florida-domiciled surplus lines flood insurer, which we understand provides excess or supplemental flood coverage beyond any coverage obtained under the National Flood Insurance Program ("NFIP"). Please confirm whether an NFIP policy is currently in force on the Property and, if so, the policy number and coverage limits, as well as the limits and terms of the Bayfront Specialty excess flood policy.

In addition to confirming the foregoing, please provide us with a complete schedule of all other insurance policies currently in force with respect to the Property and its operations, including but not limited to umbrella/excess liability, business income/loss of rents, workers' compensation and employer's liability, automobile liability, equipment breakdown, terrorism/TRIA, and any other coverages maintained by the Borrower or VHG. For each such policy, please identify the carrier, policy number, policy period, and applicable limits and deductibles.

IV. Summary of Lender's Insurance Requirements

The following is a comprehensive summary of the insurance coverages required by PAC as conditions to the closing and ongoing maintenance of the proposed $160,000,000 first mortgage loan. These requirements are derived from the draft Loan Agreement circulated by Whitford Baines & Driscoll LLP on December 19, 2022, and from the lender's insurance requirements schedule attached thereto. Castlegate should review each requirement carefully and coordinate with the applicable carriers to ensure full compliance. Where applicable, specific provisions of the Loan Agreement are referenced; however, we note that the final article and section numbering may change as the loan documents are finalized.

4.1 Property / All-Risk Insurance

The Borrower is required to maintain "all risk" or "special form" property insurance covering the Property, including all improvements, fixtures, furniture, fixtures and equipment ("FF&E"), and business personal property located at or used in connection with the operation of the Property. Coverage must be written on a replacement cost basis, without deduction for depreciation, and must include an agreed amount endorsement or, alternatively, a waiver of the coinsurance clause.

The coverage amount must be not less than the full replacement cost of all improvements and personal property, as determined by a qualified appraiser or insurance underwriter. An updated replacement cost appraisal may be required by the lender, and we will advise you if PAC requests one.

Named perils to be covered include, without limitation, the following: fire, lightning, windstorm (subject to the separate provisions of Section 4.2 below), hail, explosion, smoke, damage caused by aircraft or vehicles, riot and civil commotion, vandalism and malicious mischief, sprinkler leakage, sinkhole, collapse, and water damage (including damage resulting from the bursting, leaking, or overflow of water or steam pipes, plumbing fixtures, and similar apparatus).

The Loan Agreement prescribes maximum deductible thresholds for the all-risk property coverage, and Castlegate should confirm that all deductibles on the existing Southland Mutual policy are within the limits specified therein. We have enclosed the relevant excerpt from the draft Loan Agreement for your reference and will provide the final article and section references when the loan documents are executed. A replacement cost valuation endorsement is required on the property policy.

4.2 Windstorm / Named Storm Insurance

Given the Property's location in Monroe County, Florida — a high-velocity hurricane zone — the lender requires that windstorm and/or named storm coverage be in place, either as a component of the all-risk property policy or under a separate windstorm policy. If windstorm perils are excluded from the all-risk policy (as is common for properties in the Florida Keys), a separate windstorm policy must be procured providing coverage at full replacement cost.

Please confirm whether the existing Southland Mutual all-risk policy includes windstorm coverage or whether windstorm is excluded. If windstorm is excluded, please advise whether a separate policy is currently in force through Corvinael Property Insurance Corporation, a surplus lines carrier, or any other insurer, and provide the relevant policy details.

The lender's requirements specify that any named storm or windstorm deductible be capped at a maximum percentage of the total insured value (typically not to exceed five percent (5%) of the insured value, though the final cap will be as stated in the executed Loan Agreement). Castlegate should confirm the current windstorm deductible and advise us immediately if it exceeds the lender's prescribed threshold so that we can address the matter in the loan document negotiations or seek alternative coverage.

4.3 Flood Insurance

Flood insurance is required in an amount equal to the lesser of (a) the maximum coverage available under the NFIP and (b) the outstanding principal balance of the loan (i.e., $160,000,000). As the NFIP maximum for commercial properties is currently $500,000 for building coverage, the NFIP policy alone will be insufficient to satisfy the lender's requirements. Accordingly, excess or surplus lines flood coverage is required from Bayfront Specialty Insurance Corp. (or another acceptable carrier meeting the financial strength rating requirements described in Section VII below) to bridge the gap between the NFIP maximum and the full replacement cost of the Property or the outstanding loan amount, whichever is less.

The Property is located within a Special Flood Hazard Area, as designated by the Federal Emergency Management Agency ("FEMA"), and mandatory flood insurance compliance is required under the Flood Disaster Protection Act of 1973, as amended, and the National Flood Insurance Reform Act of 1994. Castlegate should confirm that both the NFIP policy and the Bayfront Specialty excess flood policy are current, that all premiums have been paid, and that the combined coverage limits meet or exceed the lender's minimum requirements.

Please provide copies of the current NFIP flood insurance declarations page and the Bayfront Specialty excess flood policy, together with evidence of compliance with all lender requirements.

4.4 General Liability Insurance

The Borrower is required to maintain commercial general liability ("CGL") insurance with minimum limits as specified in the Loan Agreement. Based on the current draft, the minimum required limits are $1,000,000 per occurrence and $2,000,000 in the general aggregate (subject to a per-location aggregate endorsement). Given the size and nature of the Property's operations — including a 342-key resort hotel, three food and beverage outlets, banquet and event operations, a full-service spa, and a 42-slip marina — the lender may require higher limits, and we will advise you if the final loan documents reflect increased minimums.

The CGL policy must provide coverage for, without limitation, the following:

(a) bodily injury and property damage liability;

(b) personal injury and advertising injury liability;

(d) liquor liability coverage, which is essential given the Property's operation of three food and beverage outlets and its banquet and event operations where alcoholic beverages are served; and

(e) marina liability coverage, to address the risks associated with the Property's 42-slip marina operations, including coverage for damage to vessels of third parties, bodily injury arising from marina operations, and related exposures.

Please confirm that all of the foregoing coverages are included in the existing Southland Mutual CGL policy or, if any are written separately, identify the applicable carrier and policy.

4.5 Umbrella / Excess Liability Insurance

The Borrower is required to maintain umbrella or excess liability insurance with limits as specified in the Loan Agreement, written in excess of the CGL, business automobile liability, and employer's liability coverages. Based on the current draft and typical lender requirements for a property of this size and nature, the minimum umbrella or excess liability limit is expected to be not less than $25,000,000 per occurrence and in the aggregate. The final required limit will be as stated in the executed Loan Agreement, and the lender may require higher coverage; we will advise you promptly if that is the case.

The umbrella or excess policy must follow the form of the underlying coverages and must not contain any exclusions or limitations that are more restrictive than those in the underlying policies, except as may be customary for umbrella or excess policies.

4.6 Business Income / Loss of Rents Insurance

The Borrower is required to maintain business interruption and loss of rents insurance (sometimes referred to as "business income with extra expense" coverage) in an amount sufficient to cover a minimum period of twelve (12) months — or eighteen (18) months, if required by the final Loan Agreement — of projected gross revenue or, alternatively, projected debt service on the loan, whichever formulation is specified in the executed loan documents.

For reference, the Property's trailing twelve-month ("T-12") total revenue is approximately $62,800,000, and the Property's T-12 net operating income ("NOI") is approximately $18,400,000. The business income coverage should be calibrated accordingly, and Castlegate should work with the carrier to ensure that the coverage limits are adequate to satisfy the lender's requirements based on the applicable measurement period.

An extended period of indemnity endorsement is required, providing coverage for the additional period of time (typically 60 to 180 days beyond the period of restoration) needed for the Property to return to its pre-loss occupancy and revenue levels.

4.7 Workers' Compensation and Employer's Liability

The Borrower is required to maintain workers' compensation insurance as required by the laws of the State of Florida, covering all employees working at or in connection with the Property. Employer's liability coverage must also be maintained with minimum limits as specified in the Loan Agreement (typically $1,000,000 per accident / $1,000,000 disease — each employee / $1,000,000 disease — policy limit, or as otherwise stated in the final loan documents).

Please confirm the identity of the workers' compensation carrier, the policy number, and the current limits.

4.8 Automobile Liability

The Borrower is required to maintain business automobile liability insurance covering all owned, hired, and non-owned vehicles used in connection with the Property's operations. The minimum combined single limit for bodily injury and property damage must be as specified in the Loan Agreement (typically $1,000,000 per accident). Given that the Property operates shuttle and valet services, please confirm that the existing auto liability coverage extends to all such vehicles and operations.

4.9 Builder's Risk / Course of Construction (If Applicable)

We note that the comprehensive renovation of the Property was completed in August 2021, and we are not aware of any material ongoing construction or renovation at the Property at this time. Accordingly, a builder's risk or course of construction insurance policy may not be required as of the closing date. However, the Loan Agreement will contain provisions requiring the Borrower to procure builder's risk insurance in connection with any future capital improvements, alterations, or renovations undertaken at the Property during the term of the loan, subject to specified dollar thresholds and coverage requirements.

Please confirm whether any construction or renovation activity is currently underway at the Property that would necessitate builder's risk coverage at this time. If so, please provide details of the existing builder's risk policy or advise us so that appropriate coverage can be arranged prior to closing.

4.10 Terrorism / TRIA Coverage

The lender requires that the Borrower maintain terrorism risk insurance on the Property, including coverage under or certified by the Terrorism Risk Insurance Act of 2002, as amended and reauthorized ("TRIA"). Terrorism coverage must apply to all applicable property, business income, and liability policies. Please confirm that the existing policies include terrorism coverage and provide evidence of the same, including confirmation of whether the TRIA backstop applies and whether the applicable carriers have made TRIA coverage available.

If terrorism coverage is not currently in place on any of the applicable policies, please advise us immediately so that coverage can be procured prior to closing.

4.11 Equipment Breakdown / Boiler and Machinery

The Borrower is required to maintain equipment breakdown insurance (formerly known as "boiler and machinery" insurance) covering all mechanical and electrical equipment, heating, ventilation, and air conditioning ("HVAC") systems, elevators, boilers, pressure vessels, electrical distribution systems, refrigeration equipment, and similar building systems. Given the Property's size and the complexity of its mechanical infrastructure — including the systems serving 342 guest rooms, the spa, the conference center, the marina, and the food and beverage outlets — this coverage is essential.

Coverage should be written on a comprehensive basis and should include coverage for the cost of repair or replacement of covered equipment, as well as business income loss resulting from an equipment breakdown event. Please confirm the carrier, policy number, and limits of the existing equipment breakdown coverage.

4.12 Pollution / Environmental Liability (If Required)

We note that the Borrower will execute a separate Environmental Indemnity Agreement in favor of PAC in connection with the closing of the loan. Additionally, Oakridge Environmental Consulting Group, Inc., under the direction of Dr. James Whitmore, is currently preparing a Phase I Environmental Site Assessment of the Property for the lender's benefit. Depending on the results of the Phase I ESA and the final terms of the loan documents, the lender may require the Borrower to maintain a pollution legal liability ("PLL") insurance policy in addition to the environmental indemnity.

At this time, we ask that Castlegate confirm whether any pollution legal liability or environmental impairment liability policy is currently in force with respect to the Property. If the lender ultimately requires PLL coverage as a condition of closing, we will advise you of the specific requirements, including minimum coverage limits, policy term, and acceptable carriers.

V. Required Endorsements and Policy Provisions

In addition to the coverages described in Section IV above, the lender requires that specific endorsements and policy provisions be included in or added to the applicable insurance policies. The following is a summary of the required endorsements, each of which must be in place as of the closing date:

5.1 Mortgagee / Lender's Loss Payee Clause

All property insurance policies (including the all-risk policy, any separate windstorm policy, the flood insurance policy, and the business income/loss of rents policy) must include a standard mortgagee clause (New York standard form or equivalent) naming PAC as first mortgagee and loss payee. The endorsement must reflect the following information:

Named Mortgagee / Loss Payee: Pinnacle Atlantic Capital, LLC (and its successors and assigns) 200 Lexington Avenue, 38th Floor New York, New York 10016

The mortgagee clause must provide that the interest of the mortgagee shall not be invalidated by any act or neglect of the Borrower or the owner of the Property, and must include the standard protections afforded to mortgagees under the New York standard mortgage clause or its equivalent.

Upon the closing of the refinancing and the payoff of the existing Tidewater National Bank, N.A. mortgage loan, all existing mortgagee designations in favor of Tidewater National Bank, N.A. must be removed from the applicable policies and replaced with the PAC endorsement described above.

5.2 Additional Insured Endorsement

PAC must be named as an additional insured on all liability insurance policies, including the CGL policy, the umbrella/excess liability policy, and the business automobile liability policy. The additional insured endorsement must provide that coverage afforded to PAC as an additional insured is on a primary and non-contributory basis, meaning that the Borrower's policies will respond first without contribution from any insurance separately maintained by PAC.

The additional insured endorsement should reference the following:

Additional Insured: Pinnacle Atlantic Capital, LLC 200 Lexington Avenue, 38th Floor New York, New York 10016

5.3 Waiver of Subrogation

All property and liability insurance policies must include a waiver of the insurer's right of subrogation against PAC, its officers, directors, employees, agents, and representatives. The waiver of subrogation must be blanket in nature (if available) or specifically endorsed to include PAC.

5.4 Notice of Cancellation / Non-Renewal

All insurance policies must contain provisions requiring the insurer to provide a minimum of thirty (30) days' prior written notice to PAC of any cancellation, non-renewal, or material change in coverage. In the case of cancellation for non-payment of premium, a minimum of ten (10) days' prior written notice is required.

Notices of cancellation, non-renewal, or material change must be sent to the following parties:

(a) Pinnacle Atlantic Capital, LLC 200 Lexington Avenue, 38th Floor New York, New York 10016

(b) Whitford Baines & Driscoll LLP 1221 Avenue of the Americas, Suite 4400 New York, New York 10020

Attn: Philip Tarrant Corporation

Please confirm with each carrier that the required notice provisions can be added to the policies by endorsement or that the policies already contain the required notice language.

5.5 No Separate Insurance / Primary Coverage

The Borrower's insurance policies must be designated as primary insurance and must not be contributing with any insurance carried by or on behalf of PAC. This provision ensures that the Borrower's policies respond first in the event of a covered loss, without seeking contribution from any insurance that PAC may independently maintain.

5.6 Agreed Amount / Waiver of Coinsurance

All property insurance policies must include an agreed amount endorsement or, alternatively, a waiver of the coinsurance clause. This endorsement eliminates the risk of a coinsurance penalty in the event of a partial loss and is a standard lender requirement. Please confirm that the existing property policies include this endorsement and, if not, arrange for it to be added.

5.7 Ordinance or Law Coverage

All property insurance policies must include ordinance or law coverage, which provides protection against loss resulting from the enforcement of building codes, zoning laws, or other governmental ordinances following a covered loss. This coverage must include the following components:

(a) Coverage A — Loss to the Undamaged Portion of the Building: Coverage for the loss in value of the undamaged portion of the building that must be demolished to comply with applicable building codes or ordinances;

(b) Coverage B — Demolition Cost: Coverage for the cost of demolishing the undamaged portion of the building and clearing the site; and

(c) Coverage C — Increased Cost of Construction: Coverage for the increased cost of rebuilding or repairing the building to comply with current building codes and ordinances, including any changes in building codes enacted after the original construction of the improvements.

Given the Property's location in Monroe County, which is subject to stringent building codes — including the Florida Building Code (High-Velocity Hurricane Zone provisions) and Monroe County's own land development regulations — ordinance or law coverage is particularly important. Please confirm the current limits of ordinance or law coverage and ensure they are adequate to meet the lender's requirements.

VI. Required Deliverables and Certificates

We respectfully request that Castlegate procure and deliver the following documentation to Calderwood & Harkness LLP (with copies to lender's counsel at Whitford Baines & Driscoll LLP) as soon as practicable, and in any event prior to the anticipated closing date of the refinancing:

1. ACORD 28 — Evidence of Commercial Property Insurance for all property, windstorm, and flood insurance policies, reflecting all required mortgagee and loss payee endorsements naming Pinnacle Atlantic Capital, LLC as first mortgagee and loss payee as described in Section 5.1 above.

2. ACORD 25 — Certificate of Liability Insurance for the CGL, umbrella/excess liability, business automobile liability, and workers' compensation and employer's liability policies, reflecting all required additional insured endorsements naming Pinnacle Atlantic Capital, LLC as additional insured on a primary and non-contributory basis as described in Section 5.2 above.

3. Copies of All Required Endorsements, including the mortgagee clause endorsement, additional insured endorsement, waiver of subrogation endorsement, and notice of cancellation/non-renewal endorsement for each applicable policy, as described in Section V above.

4. Copies of Current Full Insurance Policies (or certified binders, if renewal policies have not yet been issued for the current policy period) for the following coverages: all-risk property, windstorm (if separate), flood (NFIP and excess), CGL, umbrella/excess liability, business income/loss of rents, workers' compensation and employer's liability, business automobile liability, equipment breakdown, and terrorism/TRIA.

5. Evidence of NFIP Flood Insurance, including the NFIP declarations page, and Bayfront Specialty Insurance Corp. Excess Flood Coverage, including the declarations page and evidence of policy limits sufficient to meet the lender's requirements.

6. Evidence of Terrorism/TRIA Coverage on all applicable property, business income, and liability policies, including confirmation that coverage is certified under the Terrorism Risk Insurance Act.

7. Written Confirmation of Compliance with all deductible caps and coverage limits specified in the draft Loan Agreement, including a comparison schedule showing the lender's required minimums alongside the Borrower's current coverage amounts and deductibles.

We wish to note that lender's counsel at Whitford Baines & Driscoll LLP will conduct a thorough review of all insurance documentation submitted in connection with the closing. Based on their review, PAC may request additional endorsements, modifications to coverage terms, or supplemental documentation. Castlegate should be prepared for an iterative review and comment process, and we encourage you to build in adequate time in your coordination with the carriers to accommodate any such requests.

VII. Carrier Ratings and Acceptable Insurers

The Loan Agreement requires that all insurance carriers providing coverage on the Property meet specified minimum financial strength rating requirements. Specifically, all insurers must maintain a rating of not less than A- (Excellent) from A.M. Best Company, with a Financial Size Category of VII or larger, or an equivalent rating from a nationally recognized statistical rating organization. Carriers that do not meet these minimum thresholds will not be accepted by the lender.

We ask that Castlegate confirm that Southland Mutual Insurance Company and Bayfront Specialty Insurance Corp., as well as all other carriers providing coverage on the Property, currently meet or exceed these rating requirements. If any carrier does not meet the minimum financial strength rating threshold, please notify Calderwood & Harkness LLP immediately so that alternative carrier options can be discussed with VHG and, if necessary, with the lender's counsel.

For surplus lines carriers (including Bayfront Specialty Insurance Corp.), please also confirm that the carrier is authorized to write surplus lines business in the State of Florida and is listed on the Florida Surplus Lines Service Office eligible surplus lines insurer list.

VIII. Coordination and Timing

We wish to emphasize the time-sensitive nature of the insurance deliverables described in this letter. The closing of the $160,000,000 refinancing is being coordinated on an expedited basis, and the procurement and approval of compliant insurance documentation is a critical path item on the closing checklist. Any delays in obtaining the required endorsements, certificates, or policy documentation may impact the overall closing timeline and should be avoided to the extent possible.

We ask that Castlegate coordinate directly with Southland Mutual Insurance Company, Bayfront Specialty Insurance Corp., and all other applicable carriers to procure the required endorsements and documentation with the utmost urgency.

The primary VHG business contact for insurance matters in connection with this transaction is:

Derek Huang Senior Vice President — Capital Markets & Treasury Verimark Hospitality Group Inc. 1400 Bayshore Boulevard, Suite 2200 Miami, Florida 33131 Telephone: (305) 463-9500

Email: d.huang@verimarkhospitality.com

Please direct all substantive business questions regarding coverage limits, deductible tolerances, and operational insurance matters to Mr. Huang. All legal questions and questions regarding lender requirements and endorsement language should be directed to the undersigned or to Grace Nakamura at this firm.

We respectfully request that Castlegate provide a preliminary status update, identifying any anticipated issues, coverage gaps, or carrier concerns, within five (5) business days of receipt of this letter. This initial status report will allow us to identify and address any potential obstacles in advance of the closing.

All copies of insurance deliverables should be sent to the following:

(a) Calderwood & Harkness LLP

Attn: Grace Nakamura

100 Southeast Second Street, Suite 3800 Miami, Florida 33131

Email: g.nakamura@calderwoodharkness.com

(b) Verimark Hospitality Group Inc.

Attn: Derek Huang

1400 Bayshore Boulevard, Suite 2200 Miami, Florida 33131

Email: d.huang@verimarkhospitality.com

IX. Enclosures

The following documents are enclosed herewith for your reference:

1. Excerpt of insurance requirements from the draft Loan Agreement (Article IX — Insurance), as circulated by Whitford Baines & Driscoll LLP on December 19, 2022.

2. Lender's insurance requirements schedule, provided as Exhibit F to the Commitment Letter dated November 14, 2022, between Pinnacle Atlantic Capital, LLC and Coral Palms Resort Holdings LLC.

3. Property description and key statistics for underwriting reference.

We trust that the foregoing provides Castlegate with a comprehensive overview of the lender's insurance requirements for this transaction. Should you have any questions regarding the requirements set forth in this letter, the enclosed loan document excerpts, or the specific endorsement language required by the lender, please do not hesitate to contact the undersigned at the number below or Grace Nakamura at (305) 814-7244 or g.nakamura@calderwoodharkness.com. We are also happy to arrange a conference call with lender's counsel at Whitford Baines & Driscoll LLP if it would be helpful to discuss or clarify any specific endorsement language or coverage requirements directly.

We appreciate your prompt attention to this matter and look forward to working with you to ensure that all insurance requirements are satisfied in advance of the closing.

Very truly yours,

CALDERWOOD & HARKNESS LLP

By: ________

Douglas Fairchild, Partner

Direct Telephone: (305) 814-7218

Email: d.fairchild@calderwoodharkness.com

Enclosures (3)

cc:

Conrad W. Elliston, Chairman & CEO, Verimark Hospitality Group Inc. Natasha Ricard, Chief Financial Officer, Verimark Hospitality Group Inc. Derek Huang, SVP — Capital Markets & Treasury, Verimark Hospitality Group Inc. Angela Fontaine, Partner, Calderwood & Harkness LLP Grace Nakamura, Associate, Calderwood & Harkness LLP

CONFIDENTIAL — ATTORNEY WORK PRODUCT This letter and its enclosures contain information that is privileged and confidential. If you are not the intended recipient, please notify the sender immediately and destroy all copies.

Category	Detail
Guest Rooms and Suites	342
Gross Building Area	Approximately 412,000 square feet
Site Area	Approximately 22.4 acres (waterfront)
Meeting and Event Space	28,500 square feet
Full-Service Spa	18,000 square feet
Marina	42 slips
Food and Beverage Outlets	3
Parking Structure	1,200 spaces

CALDERWOOD & HARKNESS LLP Attorneys at Law
100 Southeast Second Street, Suite 3800 Miami, Florida 33131
Telephone: (305) 814-7200 Facsimile: (305) 814-7201 www.calderwoodharkness.com
January 10, 2023
VIA EMAIL AND FEDEX
Castlegate Risk Advisors LLC 701 Brickell Avenue, Suite 1400 Miami, Florida 33131
Attn: Monica Iglesias, Senior Vice President
Re: Insurance Requirements — Proposed $160,000,000 First Mortgage Loan from Pinnacle Atlantic Capital, LLC to Coral Palms Resort Holdings LLC; Coral Palms Grand Resort & Spa, 99000 Overseas Highway, Key Largo, Monroe County, FL 33037
Client Matter No. 1021-00007
Dear Ms. Iglesias:
I. Introduction and Purpose
This firm represents Verimark Hospitality Group Inc. ("VHG") and its subsidiary, Coral Palms Resort Holdings LLC (the "Borrower"), as borrower's counsel in connection with a proposed $160,000,000 first mortgage refinancing of the Coral Palms Grand Resort & Spa (the "Property"), located at 99000 Overseas Highway, Key Largo, Monroe County, Florida 33037. The Borrower is a Florida limited liability company and a wholly owned indirect subsidiary of VHG, and is the fee simple owner of the Property.
The lender in this transaction is Pinnacle Atlantic Capital, LLC ("PAC"), a Delaware limited liability company with principal offices at 200 Lexington Avenue, 38th Floor, New York, New York 10016. PAC is represented by the firm of Whitford Baines & Driscoll LLP, with Philip Tarrant Corporation, Partner, serving as lead counsel for the lender.
As you may be aware, the existing mortgage loan on the Property, held by Tidewater National Bank, N.A. (with an outstanding principal balance of approximately $118,500,000), will be refinanced and paid off in full at the closing of the proposed transaction. Upon the consummation of the refinancing, the insurance requirements of PAC will supersede all existing mortgagee provisions, endorsements, and related insurance obligations previously established in favor of Tidewater National Bank, N.A.
The purpose of this letter is twofold. First, we wish to transmit to you the lender's insurance requirements as set forth in the draft Loan Agreement and related loan documents circulated by lender's counsel on December 19, 2022. Second, we respectfully request that Castlegate Risk Advisors LLC ("Castlegate") coordinate with VHG's existing insurance carriers to procure evidence of compliance with all such requirements, including all additional insured endorsements, mortgagee and loss payee endorsements, certificates of insurance, and related insurance documentation required as conditions precedent to the closing of the refinancing. A summary of the lender's requirements, organized by coverage type, is set forth in detail below. Additionally, we have enclosed relevant excerpts of the draft loan documents for your reference.
We emphasize at the outset that these requirements are derived from draft loan documents currently under review and negotiation. Certain provisions may be modified as the parties finalize the definitive agreements. We will advise you promptly of any material changes. In the interim, however, we ask that Castlegate proceed with the procurement of the deliverables described herein based on the current drafts, as the parties intend to move toward closing expeditiously.
II. Property Description
For your reference and for use in coordinating with the applicable insurance carriers, the following is a description of the Property and its key characteristics:
Property Name: Coral Palms Grand Resort & Spa
Street Address: 99000 Overseas Highway, Key Largo, Monroe County, Florida 33037
Tax Folio Number: 00460780-000100
Property Type: Full-service luxury oceanfront resort hotel with conference center, full-service spa, marina, and ancillary commercial uses
Key Statistics for Insurance and Underwriting Purposes:
Construction and Renovation History: The Property was originally constructed in 2006. A comprehensive renovation of the Property was completed in August 2021 at a total cost of approximately $47,000,000. The renovation encompassed guest rooms, public areas, food and beverage outlets, the spa facility, the conference center, building systems, and exterior improvements.
Location Considerations: The Property is located in Monroe County, Florida (the Florida Keys), which subjects it to enhanced windstorm and flood insurance requirements. As discussed more fully in Sections 4.2 and 4.3 below, the Property's coastal location in a high-velocity hurricane zone and within a Special Flood Hazard Area ("SFHA") necessitates specialized coverage that meets both regulatory mandates and the lender's heightened underwriting standards.
III. Existing Insurance Carriers
We understand that the following insurance carriers currently provide coverage on the Property. We ask that Castlegate confirm the accuracy of this information and, in particular, verify the current policy numbers, policy periods (including inception and expiration dates), and coverage limits for all existing policies:
(a) Property, General Liability, and Windstorm Insurance: Southland Mutual Insurance Company, a Florida-domiciled insurer, with principal offices at 400 North Ashley Drive, Tampa, Florida 33602. We understand that Southland Mutual provides the primary property (all-risk) and commercial general liability coverages for the Property, and we request confirmation as to whether windstorm coverage is included within the all-risk policy or is written separately.
(b) Flood Insurance: Bayfront Specialty Insurance Corp., a Florida-domiciled surplus lines flood insurer, which we understand provides excess or supplemental flood coverage beyond any coverage obtained under the National Flood Insurance Program ("NFIP"). Please confirm whether an NFIP policy is currently in force on the Property and, if so, the policy number and coverage limits, as well as the limits and terms of the Bayfront Specialty excess flood policy.
In addition to confirming the foregoing, please provide us with a complete schedule of all other insurance policies currently in force with respect to the Property and its operations, including but not limited to umbrella/excess liability, business income/loss of rents, workers' compensation and employer's liability, automobile liability, equipment breakdown, terrorism/TRIA, and any other coverages maintained by the Borrower or VHG. For each such policy, please identify the carrier, policy number, policy period, and applicable limits and deductibles.
IV. Summary of Lender's Insurance Requirements
The following is a comprehensive summary of the insurance coverages required by PAC as conditions to the closing and ongoing maintenance of the proposed $160,000,000 first mortgage loan. These requirements are derived from the draft Loan Agreement circulated by Whitford Baines & Driscoll LLP on December 19, 2022, and from the lender's insurance requirements schedule attached thereto. Castlegate should review each requirement carefully and coordinate with the applicable carriers to ensure full compliance. Where applicable, specific provisions of the Loan Agreement are referenced; however, we note that the final article and section numbering may change as the loan documents are finalized.
4.1 Property / All-Risk Insurance
The Borrower is required to maintain "all risk" or "special form" property insurance covering the Property, including all improvements, fixtures, furniture, fixtures and equipment ("FF&E"), and business personal property located at or used in connection with the operation of the Property. Coverage must be written on a replacement cost basis, without deduction for depreciation, and must include an agreed amount endorsement or, alternatively, a waiver of the coinsurance clause.
The coverage amount must be not less than the full replacement cost of all improvements and personal property, as determined by a qualified appraiser or insurance underwriter. An updated replacement cost appraisal may be required by the lender, and we will advise you if PAC requests one.
Named perils to be covered include, without limitation, the following: fire, lightning, windstorm (subject to the separate provisions of Section 4.2 below), hail, explosion, smoke, damage caused by aircraft or vehicles, riot and civil commotion, vandalism and malicious mischief, sprinkler leakage, sinkhole, collapse, and water damage (including damage resulting from the bursting, leaking, or overflow of water or steam pipes, plumbing fixtures, and similar apparatus).
The Loan Agreement prescribes maximum deductible thresholds for the all-risk property coverage, and Castlegate should confirm that all deductibles on the existing Southland Mutual policy are within the limits specified therein. We have enclosed the relevant excerpt from the draft Loan Agreement for your reference and will provide the final article and section references when the loan documents are executed. A replacement cost valuation endorsement is required on the property policy.
4.2 Windstorm / Named Storm Insurance
Given the Property's location in Monroe County, Florida — a high-velocity hurricane zone — the lender requires that windstorm and/or named storm coverage be in place, either as a component of the all-risk property policy or under a separate windstorm policy. If windstorm perils are excluded from the all-risk policy (as is common for properties in the Florida Keys), a separate windstorm policy must be procured providing coverage at full replacement cost.
Please confirm whether the existing Southland Mutual all-risk policy includes windstorm coverage or whether windstorm is excluded. If windstorm is excluded, please advise whether a separate policy is currently in force through Corvinael Property Insurance Corporation, a surplus lines carrier, or any other insurer, and provide the relevant policy details.
The lender's requirements specify that any named storm or windstorm deductible be capped at a maximum percentage of the total insured value (typically not to exceed five percent (5%) of the insured value, though the final cap will be as stated in the executed Loan Agreement). Castlegate should confirm the current windstorm deductible and advise us immediately if it exceeds the lender's prescribed threshold so that we can address the matter in the loan document negotiations or seek alternative coverage.
4.3 Flood Insurance
Flood insurance is required in an amount equal to the lesser of (a) the maximum coverage available under the NFIP and (b) the outstanding principal balance of the loan (i.e., $160,000,000). As the NFIP maximum for commercial properties is currently $500,000 for building coverage, the NFIP policy alone will be insufficient to satisfy the lender's requirements. Accordingly, excess or surplus lines flood coverage is required from Bayfront Specialty Insurance Corp. (or another acceptable carrier meeting the financial strength rating requirements described in Section VII below) to bridge the gap between the NFIP maximum and the full replacement cost of the Property or the outstanding loan amount, whichever is less.
The Property is located within a Special Flood Hazard Area, as designated by the Federal Emergency Management Agency ("FEMA"), and mandatory flood insurance compliance is required under the Flood Disaster Protection Act of 1973, as amended, and the National Flood Insurance Reform Act of 1994. Castlegate should confirm that both the NFIP policy and the Bayfront Specialty excess flood policy are current, that all premiums have been paid, and that the combined coverage limits meet or exceed the lender's minimum requirements.
Please provide copies of the current NFIP flood insurance declarations page and the Bayfront Specialty excess flood policy, together with evidence of compliance with all lender requirements.
4.4 General Liability Insurance
The Borrower is required to maintain commercial general liability ("CGL") insurance with minimum limits as specified in the Loan Agreement. Based on the current draft, the minimum required limits are $1,000,000 per occurrence and $2,000,000 in the general aggregate (subject to a per-location aggregate endorsement). Given the size and nature of the Property's operations — including a 342-key resort hotel, three food and beverage outlets, banquet and event operations, a full-service spa, and a 42-slip marina — the lender may require higher limits, and we will advise you if the final loan documents reflect increased minimums.
The CGL policy must provide coverage for, without limitation, the following:
(a) bodily injury and property damage liability;
(b) personal injury and advertising injury liability;
(c) products liability and completed operations coverage;
(d) liquor liability coverage, which is essential given the Property's operation of three food and beverage outlets and its banquet and event operations where alcoholic beverages are served; and
(e) marina liability coverage, to address the risks associated with the Property's 42-slip marina operations, including coverage for damage to vessels of third parties, bodily injury arising from marina operations, and related exposures.
Please confirm that all of the foregoing coverages are included in the existing Southland Mutual CGL policy or, if any are written separately, identify the applicable carrier and policy.
4.5 Umbrella / Excess Liability Insurance
The Borrower is required to maintain umbrella or excess liability insurance with limits as specified in the Loan Agreement, written in excess of the CGL, business automobile liability, and employer's liability coverages. Based on the current draft and typical lender requirements for a property of this size and nature, the minimum umbrella or excess liability limit is expected to be not less than $25,000,000 per occurrence and in the aggregate. The final required limit will be as stated in the executed Loan Agreement, and the lender may require higher coverage; we will advise you promptly if that is the case.
The umbrella or excess policy must follow the form of the underlying coverages and must not contain any exclusions or limitations that are more restrictive than those in the underlying policies, except as may be customary for umbrella or excess policies.
4.6 Business Income / Loss of Rents Insurance
The Borrower is required to maintain business interruption and loss of rents insurance (sometimes referred to as "business income with extra expense" coverage) in an amount sufficient to cover a minimum period of twelve (12) months — or eighteen (18) months, if required by the final Loan Agreement — of projected gross revenue or, alternatively, projected debt service on the loan, whichever formulation is specified in the executed loan documents.
For reference, the Property's trailing twelve-month ("T-12") total revenue is approximately $62,800,000, and the Property's T-12 net operating income ("NOI") is approximately $18,400,000. The business income coverage should be calibrated accordingly, and Castlegate should work with the carrier to ensure that the coverage limits are adequate to satisfy the lender's requirements based on the applicable measurement period.
An extended period of indemnity endorsement is required, providing coverage for the additional period of time (typically 60 to 180 days beyond the period of restoration) needed for the Property to return to its pre-loss occupancy and revenue levels.
4.7 Workers' Compensation and Employer's Liability
The Borrower is required to maintain workers' compensation insurance as required by the laws of the State of Florida, covering all employees working at or in connection with the Property. Employer's liability coverage must also be maintained with minimum limits as specified in the Loan Agreement (typically $1,000,000 per accident / $1,000,000 disease — each employee / $1,000,000 disease — policy limit, or as otherwise stated in the final loan documents).
Please confirm the identity of the workers' compensation carrier, the policy number, and the current limits.
4.8 Automobile Liability
The Borrower is required to maintain business automobile liability insurance covering all owned, hired, and non-owned vehicles used in connection with the Property's operations. The minimum combined single limit for bodily injury and property damage must be as specified in the Loan Agreement (typically $1,000,000 per accident). Given that the Property operates shuttle and valet services, please confirm that the existing auto liability coverage extends to all such vehicles and operations.
4.9 Builder's Risk / Course of Construction (If Applicable)
We note that the comprehensive renovation of the Property was completed in August 2021, and we are not aware of any material ongoing construction or renovation at the Property at this time. Accordingly, a builder's risk or course of construction insurance policy may not be required as of the closing date. However, the Loan Agreement will contain provisions requiring the Borrower to procure builder's risk insurance in connection with any future capital improvements, alterations, or renovations undertaken at the Property during the term of the loan, subject to specified dollar thresholds and coverage requirements.
Please confirm whether any construction or renovation activity is currently underway at the Property that would necessitate builder's risk coverage at this time. If so, please provide details of the existing builder's risk policy or advise us so that appropriate coverage can be arranged prior to closing.
4.10 Terrorism / TRIA Coverage
The lender requires that the Borrower maintain terrorism risk insurance on the Property, including coverage under or certified by the Terrorism Risk Insurance Act of 2002, as amended and reauthorized ("TRIA"). Terrorism coverage must apply to all applicable property, business income, and liability policies. Please confirm that the existing policies include terrorism coverage and provide evidence of the same, including confirmation of whether the TRIA backstop applies and whether the applicable carriers have made TRIA coverage available.
If terrorism coverage is not currently in place on any of the applicable policies, please advise us immediately so that coverage can be procured prior to closing.
4.11 Equipment Breakdown / Boiler and Machinery
The Borrower is required to maintain equipment breakdown insurance (formerly known as "boiler and machinery" insurance) covering all mechanical and electrical equipment, heating, ventilation, and air conditioning ("HVAC") systems, elevators, boilers, pressure vessels, electrical distribution systems, refrigeration equipment, and similar building systems. Given the Property's size and the complexity of its mechanical infrastructure — including the systems serving 342 guest rooms, the spa, the conference center, the marina, and the food and beverage outlets — this coverage is essential.
Coverage should be written on a comprehensive basis and should include coverage for the cost of repair or replacement of covered equipment, as well as business income loss resulting from an equipment breakdown event. Please confirm the carrier, policy number, and limits of the existing equipment breakdown coverage.
4.12 Pollution / Environmental Liability (If Required)
We note that the Borrower will execute a separate Environmental Indemnity Agreement in favor of PAC in connection with the closing of the loan. Additionally, Oakridge Environmental Consulting Group, Inc., under the direction of Dr. James Whitmore, is currently preparing a Phase I Environmental Site Assessment of the Property for the lender's benefit. Depending on the results of the Phase I ESA and the final terms of the loan documents, the lender may require the Borrower to maintain a pollution legal liability ("PLL") insurance policy in addition to the environmental indemnity.
At this time, we ask that Castlegate confirm whether any pollution legal liability or environmental impairment liability policy is currently in force with respect to the Property. If the lender ultimately requires PLL coverage as a condition of closing, we will advise you of the specific requirements, including minimum coverage limits, policy term, and acceptable carriers.
V. Required Endorsements and Policy Provisions
In addition to the coverages described in Section IV above, the lender requires that specific endorsements and policy provisions be included in or added to the applicable insurance policies. The following is a summary of the required endorsements, each of which must be in place as of the closing date:
5.1 Mortgagee / Lender's Loss Payee Clause
All property insurance policies (including the all-risk policy, any separate windstorm policy, the flood insurance policy, and the business income/loss of rents policy) must include a standard mortgagee clause (New York standard form or equivalent) naming PAC as first mortgagee and loss payee. The endorsement must reflect the following information:
Named Mortgagee / Loss Payee: Pinnacle Atlantic Capital, LLC (and its successors and assigns) 200 Lexington Avenue, 38th Floor New York, New York 10016
The mortgagee clause must provide that the interest of the mortgagee shall not be invalidated by any act or neglect of the Borrower or the owner of the Property, and must include the standard protections afforded to mortgagees under the New York standard mortgage clause or its equivalent.
Upon the closing of the refinancing and the payoff of the existing Tidewater National Bank, N.A. mortgage loan, all existing mortgagee designations in favor of Tidewater National Bank, N.A. must be removed from the applicable policies and replaced with the PAC endorsement described above.
5.2 Additional Insured Endorsement
PAC must be named as an additional insured on all liability insurance policies, including the CGL policy, the umbrella/excess liability policy, and the business automobile liability policy. The additional insured endorsement must provide that coverage afforded to PAC as an additional insured is on a primary and non-contributory basis, meaning that the Borrower's policies will respond first without contribution from any insurance separately maintained by PAC.
The additional insured endorsement should reference the following:
Additional Insured: Pinnacle Atlantic Capital, LLC 200 Lexington Avenue, 38th Floor New York, New York 10016
5.3 Waiver of Subrogation
All property and liability insurance policies must include a waiver of the insurer's right of subrogation against PAC, its officers, directors, employees, agents, and representatives. The waiver of subrogation must be blanket in nature (if available) or specifically endorsed to include PAC.
5.4 Notice of Cancellation / Non-Renewal
All insurance policies must contain provisions requiring the insurer to provide a minimum of thirty (30) days' prior written notice to PAC of any cancellation, non-renewal, or material change in coverage. In the case of cancellation for non-payment of premium, a minimum of ten (10) days' prior written notice is required.
Notices of cancellation, non-renewal, or material change must be sent to the following parties:
(a) Pinnacle Atlantic Capital, LLC 200 Lexington Avenue, 38th Floor New York, New York 10016
(b) Whitford Baines & Driscoll LLP 1221 Avenue of the Americas, Suite 4400 New York, New York 10020
Attn: Philip Tarrant Corporation
Please confirm with each carrier that the required notice provisions can be added to the policies by endorsement or that the policies already contain the required notice language.
5.5 No Separate Insurance / Primary Coverage
The Borrower's insurance policies must be designated as primary insurance and must not be contributing with any insurance carried by or on behalf of PAC. This provision ensures that the Borrower's policies respond first in the event of a covered loss, without seeking contribution from any insurance that PAC may independently maintain.
5.6 Agreed Amount / Waiver of Coinsurance
All property insurance policies must include an agreed amount endorsement or, alternatively, a waiver of the coinsurance clause. This endorsement eliminates the risk of a coinsurance penalty in the event of a partial loss and is a standard lender requirement. Please confirm that the existing property policies include this endorsement and, if not, arrange for it to be added.
5.7 Ordinance or Law Coverage
All property insurance policies must include ordinance or law coverage, which provides protection against loss resulting from the enforcement of building codes, zoning laws, or other governmental ordinances following a covered loss. This coverage must include the following components:
(a) Coverage A — Loss to the Undamaged Portion of the Building: Coverage for the loss in value of the undamaged portion of the building that must be demolished to comply with applicable building codes or ordinances;
(b) Coverage B — Demolition Cost: Coverage for the cost of demolishing the undamaged portion of the building and clearing the site; and
(c) Coverage C — Increased Cost of Construction: Coverage for the increased cost of rebuilding or repairing the building to comply with current building codes and ordinances, including any changes in building codes enacted after the original construction of the improvements.
Given the Property's location in Monroe County, which is subject to stringent building codes — including the Florida Building Code (High-Velocity Hurricane Zone provisions) and Monroe County's own land development regulations — ordinance or law coverage is particularly important. Please confirm the current limits of ordinance or law coverage and ensure they are adequate to meet the lender's requirements.
VI. Required Deliverables and Certificates
We respectfully request that Castlegate procure and deliver the following documentation to Calderwood & Harkness LLP (with copies to lender's counsel at Whitford Baines & Driscoll LLP) as soon as practicable, and in any event prior to the anticipated closing date of the refinancing:
1. ACORD 28 — Evidence of Commercial Property Insurance for all property, windstorm, and flood insurance policies, reflecting all required mortgagee and loss payee endorsements naming Pinnacle Atlantic Capital, LLC as first mortgagee and loss payee as described in Section 5.1 above.
2. ACORD 25 — Certificate of Liability Insurance for the CGL, umbrella/excess liability, business automobile liability, and workers' compensation and employer's liability policies, reflecting all required additional insured endorsements naming Pinnacle Atlantic Capital, LLC as additional insured on a primary and non-contributory basis as described in Section 5.2 above.
3. Copies of All Required Endorsements, including the mortgagee clause endorsement, additional insured endorsement, waiver of subrogation endorsement, and notice of cancellation/non-renewal endorsement for each applicable policy, as described in Section V above.
4. Copies of Current Full Insurance Policies (or certified binders, if renewal policies have not yet been issued for the current policy period) for the following coverages: all-risk property, windstorm (if separate), flood (NFIP and excess), CGL, umbrella/excess liability, business income/loss of rents, workers' compensation and employer's liability, business automobile liability, equipment breakdown, and terrorism/TRIA.
5. Evidence of NFIP Flood Insurance, including the NFIP declarations page, and Bayfront Specialty Insurance Corp. Excess Flood Coverage, including the declarations page and evidence of policy limits sufficient to meet the lender's requirements.
6. Evidence of Terrorism/TRIA Coverage on all applicable property, business income, and liability policies, including confirmation that coverage is certified under the Terrorism Risk Insurance Act.
7. Written Confirmation of Compliance with all deductible caps and coverage limits specified in the draft Loan Agreement, including a comparison schedule showing the lender's required minimums alongside the Borrower's current coverage amounts and deductibles.
We wish to note that lender's counsel at Whitford Baines & Driscoll LLP will conduct a thorough review of all insurance documentation submitted in connection with the closing. Based on their review, PAC may request additional endorsements, modifications to coverage terms, or supplemental documentation. Castlegate should be prepared for an iterative review and comment process, and we encourage you to build in adequate time in your coordination with the carriers to accommodate any such requests.
VII. Carrier Ratings and Acceptable Insurers
The Loan Agreement requires that all insurance carriers providing coverage on the Property meet specified minimum financial strength rating requirements. Specifically, all insurers must maintain a rating of not less than A- (Excellent) from A.M. Best Company, with a Financial Size Category of VII or larger, or an equivalent rating from a nationally recognized statistical rating organization. Carriers that do not meet these minimum thresholds will not be accepted by the lender.
We ask that Castlegate confirm that Southland Mutual Insurance Company and Bayfront Specialty Insurance Corp., as well as all other carriers providing coverage on the Property, currently meet or exceed these rating requirements. If any carrier does not meet the minimum financial strength rating threshold, please notify Calderwood & Harkness LLP immediately so that alternative carrier options can be discussed with VHG and, if necessary, with the lender's counsel.
For surplus lines carriers (including Bayfront Specialty Insurance Corp.), please also confirm that the carrier is authorized to write surplus lines business in the State of Florida and is listed on the Florida Surplus Lines Service Office eligible surplus lines insurer list.
VIII. Coordination and Timing
We wish to emphasize the time-sensitive nature of the insurance deliverables described in this letter. The closing of the $160,000,000 refinancing is being coordinated on an expedited basis, and the procurement and approval of compliant insurance documentation is a critical path item on the closing checklist. Any delays in obtaining the required endorsements, certificates, or policy documentation may impact the overall closing timeline and should be avoided to the extent possible.
We ask that Castlegate coordinate directly with Southland Mutual Insurance Company, Bayfront Specialty Insurance Corp., and all other applicable carriers to procure the required endorsements and documentation with the utmost urgency.
The primary VHG business contact for insurance matters in connection with this transaction is:
Derek Huang Senior Vice President — Capital Markets & Treasury Verimark Hospitality Group Inc. 1400 Bayshore Boulevard, Suite 2200 Miami, Florida 33131 Telephone: (305) 463-9500
Email: d.huang@verimarkhospitality.com
Please direct all substantive business questions regarding coverage limits, deductible tolerances, and operational insurance matters to Mr. Huang. All legal questions and questions regarding lender requirements and endorsement language should be directed to the undersigned or to Grace Nakamura at this firm.
We respectfully request that Castlegate provide a preliminary status update, identifying any anticipated issues, coverage gaps, or carrier concerns, within five (5) business days of receipt of this letter. This initial status report will allow us to identify and address any potential obstacles in advance of the closing.
All copies of insurance deliverables should be sent to the following:
(a) Calderwood & Harkness LLP
Attn: Grace Nakamura
100 Southeast Second Street, Suite 3800 Miami, Florida 33131
Email: g.nakamura@calderwoodharkness.com
(b) Verimark Hospitality Group Inc.
Attn: Derek Huang
1400 Bayshore Boulevard, Suite 2200 Miami, Florida 33131
Email: d.huang@verimarkhospitality.com
IX. Enclosures
The following documents are enclosed herewith for your reference:
1. Excerpt of insurance requirements from the draft Loan Agreement (Article IX — Insurance), as circulated by Whitford Baines & Driscoll LLP on December 19, 2022.
2. Lender's insurance requirements schedule, provided as Exhibit F to the Commitment Letter dated November 14, 2022, between Pinnacle Atlantic Capital, LLC and Coral Palms Resort Holdings LLC.
3. Property description and key statistics for underwriting reference.
We trust that the foregoing provides Castlegate with a comprehensive overview of the lender's insurance requirements for this transaction. Should you have any questions regarding the requirements set forth in this letter, the enclosed loan document excerpts, or the specific endorsement language required by the lender, please do not hesitate to contact the undersigned at the number below or Grace Nakamura at (305) 814-7244 or g.nakamura@calderwoodharkness.com. We are also happy to arrange a conference call with lender's counsel at Whitford Baines & Driscoll LLP if it would be helpful to discuss or clarify any specific endorsement language or coverage requirements directly.
We appreciate your prompt attention to this matter and look forward to working with you to ensure that all insurance requirements are satisfied in advance of the closing.
Very truly yours,
CALDERWOOD & HARKNESS LLP
By: ________
Douglas Fairchild, Partner
Direct Telephone: (305) 814-7218
Email: d.fairchild@calderwoodharkness.com
Enclosures (3)
cc:
Conrad W. Elliston, Chairman & CEO, Verimark Hospitality Group Inc. Natasha Ricard, Chief Financial Officer, Verimark Hospitality Group Inc. Derek Huang, SVP — Capital Markets & Treasury, Verimark Hospitality Group Inc. Angela Fontaine, Partner, Calderwood & Harkness LLP Grace Nakamura, Associate, Calderwood & Harkness LLP
CONFIDENTIAL — ATTORNEY WORK PRODUCT This letter and its enclosures contain information that is privileged and confidential. If you are not the intended recipient, please notify the sender immediately and destroy all copies.
Category | Detail
Guest Rooms and Suites | 342
Gross Building Area | Approximately 412,000 square feet
Site Area | Approximately 22.4 acres (waterfront)
Meeting and Event Space | 28,500 square feet
Full-Service Spa | 18,000 square feet
Marina | 42 slips
Food and Beverage Outlets | 3
Parking Structure | 1,200 spaces

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