PRIVILEGED & CONFIDENTIAL — ATTORNEY WORK PRODUCT

PRIVILEGED & CONFIDENTIAL — ATTORNEY WORK PRODUCT
CALDERWOOD & HARKNESS LLP 100 Southeast Second Street, Suite 3800 Miami, Florida 33131
MEMORANDUM
January 9, 2023
TO: Philip Tarrant Corporation / Catherine Yee — Whitford Baines & Driscoll LLP (Counsel to Lender)
FROM: Grace Nakamura / Rafael Dominguez — Calderwood & Harkness LLP (Counsel to Borrower)
RE: Borrower's Markup — Reserve Agreement — Coral Palms Grand Resort & Spa — $160,000,000 Loan — Calderwood & Harkness Matter No. 1021-00007
Enclosed: Borrower's Markup of the Reserve Agreement (Tracked Changes), prepared in response to Lender's counsel initial draft circulated December 19, 2022
Phil and Catherine — please find enclosed Borrower's markup of the Reserve Agreement, with tracked changes and margin comments reflecting our client's positions. We have attempted to be thorough in our initial markup so as to minimize the number of turns. We would welcome a call at your convenience to discuss the comments summarized on the final pages hereof. We remain available at your convenience.
Best regards,
Grace Nakamura
RESERVE AGREEMENT
(Borrower's Markup — Tracked Changes)
Base Draft: Whitford Baines & Driscoll LLP (Philip Tarrant Corporation / Catherine Yee), circulated December 19, 2022 Borrower's Markup: Calderwood & Harkness LLP (Grace Nakamura / Rafael Dominguez), transmitted January 9, 2023 Client Matter No.: 1021-00007
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RESERVE AGREEMENT
THIS RESERVE AGREEMENT (this "Agreement") is made and entered into as of [__], 2023 (the "Effective Date"), by and between:
CORAL PALMS RESORT HOLDINGS LLC, a Florida limited liability company, having its principal office at c/o Verimark Hospitality Group Inc., 1400 Bayshore Boulevard, Suite 2200, Miami, Florida 33131 ("Borrower"),
and
PINNACLE ATLANTIC CAPITAL, LLC, a Delaware limited liability company, having its principal office at 200 Lexington Avenue, 38th Floor, New York, New York 10016 ("Lender").
Borrower and Lender are sometimes referred to herein individually as a "Party" and collectively as the "Parties."
RECITALS
A. The Loan. Lender has agreed to make a loan to Borrower in the original principal amount of One Hundred Sixty Million and No/100 Dollars ($160,000,000) (the "Loan") pursuant to that certain Loan Agreement of even date herewith (the "Loan Agreement") between Borrower and Lender. The Loan is secured by, among other things, that certain Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture Filing of even date herewith (the "Mortgage") executed by Borrower in favor of Lender, recorded or to be recorded in the Official Records of Monroe County, Florida, encumbering the Property (as defined below), together with all other security interests, assignments, pledges, and other collateral documents executed in connection with the Loan (collectively, with the Loan Agreement, this Agreement, and the Mortgage, and all other documents executed in connection therewith, the "Loan Documents").
B. The Property. The real property encumbered by the Mortgage is the full-service luxury oceanfront resort hotel commonly known as the Coral Palms Grand Resort & Spa, located at 99000 Overseas Highway, Key Largo, Monroe County, Florida 33037, Folio No. 00460780-000100, and more particularly described in Exhibit A to the Mortgage, being a parcel situate in Section 27, Township 60 South, Range 39 East, Monroe County, Florida (together with all buildings, structures, improvements, fixtures, personal property, and appurtenances thereon or pertaining thereto, the "Property"). The Property comprises approximately 342 guest rooms and suites; approximately 412,000 gross square feet of building area situated on an approximately 22.4-acre waterfront site; a 42-slip marina; approximately 28,500 square feet of meeting and event space; an approximately 18,000 square foot full-service spa; three (3) food and beverage outlets; and a 1,200-space parking structure, all as more particularly described in Schedule 1 attached hereto and incorporated herein by reference.
C. Reserve Requirements. As a condition to the making of the Loan, Lender requires Borrower to establish and fund certain reserve accounts for (i) real estate taxes, (ii) insurance premiums, (iii) furniture, fixtures and equipment replacement ("FF&E"), and (iv) capital improvements. Borrower has agreed to make initial deposits and ongoing monthly contributions to such reserve accounts in accordance with the terms and conditions set forth in this Agreement.
D. Guarantor. Verimark Hospitality Group Inc., a Delaware corporation ("Guarantor"), has executed a Guaranty Agreement of even date herewith (the "Guaranty Agreement") in favor of Lender, guaranteeing certain obligations of Borrower under the Loan Documents, as more particularly set forth therein.
NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Borrower and Lender agree as follows:
ARTICLE 1: DEFINITIONS
Section 1.1 — Defined Terms
As used in this Agreement, the following terms shall have the meanings ascribed to them below. Capitalized terms used but not otherwise defined in this Agreement shall have the meanings ascribed to such terms in the Loan Agreement.
"Annual Budget" means the approved operating and capital budget for the Property for each calendar year, prepared by Borrower and  . The Annual Budget shall include, without limitation, projected operating revenues and expenses, a capital expenditure budget, and an FF&E replacement budget. 
"Business Day" means any day other than a Saturday, a Sunday, or a day on which banking institutions in the State of New York or the State of Florida are authorized or obligated by law or executive order to close.
"Capital Reserve Account" means the segregated deposit account established and maintained by or on behalf of Lender for the purpose of holding capital improvement reserves in accordance with Article 2 and Article 3 hereof.
"Cash Management Agreement" means that certain Cash Management Agreement of even date herewith between Borrower and Lender, as the same may be amended, restated, supplemented, or otherwise modified from time to time.
"Closing Date" means the date of the funding of the Loan pursuant to the Loan Agreement.
"Debt Service" means all scheduled payments of principal and interest due and payable under the Note, including without limitation interest-only payments during years one (1) and two (2) of the Loan term and payments of principal and interest based on a thirty (30)-year amortization schedule during years three (3) through five (5) of the Loan term, together with any payments due during any extension term.
"DSCR" means the debt service coverage ratio, calculated as the ratio of trailing twelve (12)-month Net Operating Income to trailing twelve (12)-month Debt Service, in each case as determined in accordance with the Loan Agreement.
"Eligible Account" means a segregated trust or deposit account maintained at a federally insured depository institution  , the deposits of which are insured by the Federal Deposit Insurance Corporation to the fullest extent permitted by applicable law.
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"FF&E Annual Reserve Amount" means, for any calendar year, an amount equal to   of the trailing twelve (12)-month Total Revenue for the Property as of the last day of the immediately preceding calendar year (or, for the first partial calendar year, as of the most recent month-end for which financial statements are available). 
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"FF&E Reserve Account" means the segregated deposit account established and maintained by or on behalf of Lender for the purpose of holding furniture, fixtures and equipment reserves in accordance with Article 2 and Article 3 hereof.
"Guarantor" means Verimark Hospitality Group Inc., a Delaware corporation.
"Guaranty Agreement" means that certain Guaranty Agreement of even date herewith executed by Guarantor in favor of Lender.
"Initial Reserve Deposits" means the aggregate initial deposits required to be made by Borrower on the Closing Date pursuant to Article 2 hereof, in the aggregate amount of Four Million Eight Hundred Thousand and No/100 Dollars ($4,800,000), comprising the Tax Reserve Initial Deposit, the Insurance Reserve Initial Deposit, the FF&E Reserve Initial Deposit, and the Capital Reserve Initial Deposit, each as defined in Article 2 and as allocated among the Reserve Accounts in Exhibit A attached hereto.
"Insurance Reserve Account" means the segregated deposit account established and maintained by or on behalf of Lender for the purpose of holding insurance premium reserves in accordance with Article 2 and Article 3 hereof.
"Loan Agreement" has the meaning set forth in Recital A.
"Loan Documents" has the meaning ascribed to such term in the Loan Agreement, and includes this Agreement.
"Manager" means the property manager or operator of the Property. The Parties acknowledge that, as of the date hereof, the Property is independently operated under the "Coral Palms" trade name and is not subject to a franchise agreement or management agreement with a national hotel brand. Borrower or an affiliate of Borrower acts as manager of the Property.
"Monthly Reserve Deposit" means the aggregate of all monthly contributions required to be deposited by Borrower into the Reserve Accounts pursuant to Sections 3.1 through 3.4 hereof.
"Mortgage" has the meaning set forth in Recital A.
"Net Operating Income" or "NOI" means the trailing twelve (12)-month net operating income of the Property, calculated in accordance with the methodology set forth in the Loan Agreement. The Parties acknowledge that the trailing twelve (12)-month NOI of the Property as of September 30, 2022, was approximately Eighteen Million Four Hundred Thousand and No/100 Dollars ($18,400,000).
"Note" means that certain Promissory Note of even date herewith in the original principal amount of $160,000,000, made by Borrower in favor of Lender, as the same may be amended, restated, supplemented, or otherwise modified from time to time.
"Permitted Investments" means  .
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"Property" has the meaning set forth in Recital B.
"Reserve Accounts" means, collectively, the Tax Reserve Account, the Insurance Reserve Account, the FF&E Reserve Account, and the Capital Reserve Account.
"Reserve Release Conditions" has the meaning set forth in Section 5.1 hereof.
"Tax Reserve Account" means the segregated deposit account established and maintained by or on behalf of Lender for the purpose of holding real estate tax reserves in accordance with Article 2 and Article 3 hereof.
"Total Revenue" means the trailing twelve (12)-month total revenue of the Property, including without limitation all rooms revenue, food and beverage revenue, spa and wellness revenue, marina revenue, meeting and event revenue, parking revenue, and other ancillary revenue, all as calculated in accordance with the Uniform System of Accounts for the Lodging Industry (12th Revised Edition) and as set forth in the operating statements delivered to Lender pursuant to the Loan Agreement. The Parties acknowledge that the trailing twelve (12)-month Total Revenue of the Property as of September 30, 2022, was approximately Sixty-Two Million Eight Hundred Thousand and No/100 Dollars ($62,800,000).
Section 1.2 — Rules of Construction
(a) All capitalized terms used but not defined herein shall have the respective meanings ascribed to such terms in the Loan Agreement, unless the context clearly requires otherwise.
(b) This Agreement shall be governed by and construed in accordance with the laws of the State of Florida, without regard to its conflict of laws principles.
(c) The headings of the articles, sections, and subsections of this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof.
(d) Unless otherwise specified, (i) references to any "Article," "Section," "Exhibit," or "Schedule" refer to such Article, Section, Exhibit, or Schedule of or to this Agreement; (ii) the words "herein," "hereof," "hereunder," and words of similar import refer to this Agreement as a whole and not to any particular provision hereof; (iii) the words "include" and "including" and words of similar import shall be deemed to be followed by the phrase "without limitation"; and (iv) references to a "person" include any natural person, firm, partnership, limited liability company, corporation, trust, governmental authority, or other entity.
(e) All references to dollar amounts herein refer to the lawful currency of the United States of America.
ARTICLE 2: INITIAL RESERVE DEPOSITS
Section 2.1 — Aggregate Initial Deposit
On the Closing Date, Borrower shall deposit (or cause to be deposited) with Lender, from the proceeds of the Loan, the aggregate sum of Four Million Eight Hundred Thousand and No/100 Dollars ($4,800,000) (the "Initial Reserve Deposits"), to be allocated among the Reserve Accounts as set forth in this Article 2 and in Exhibit A attached hereto.
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Section 2.2 — Tax Reserve Initial Deposit
On the Closing Date, Borrower shall deposit into the Tax Reserve Account an amount equal to  
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Section 2.3 — Insurance Reserve Initial Deposit
On the Closing Date, Borrower shall deposit into the Insurance Reserve Account an amount equal to  . The insurance coverages currently in effect with respect to the Property are maintained with Southland Mutual Insurance Company (property, general liability, and windstorm coverages) and Bayfront Specialty Insurance Corp. (flood coverage).
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Section 2.4 — FF&E Reserve Initial Deposit
On the Closing Date, Borrower shall deposit into the FF&E Reserve Account an amount equal to  . 
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Section 2.5 — Capital Reserve Initial Deposit
On the Closing Date, Borrower shall deposit into the Capital Reserve Account an amount equal to  .
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Section 2.6 — Allocation Among Accounts
Lender shall allocate the Initial Reserve Deposits among the four (4) Reserve Accounts on the Closing Date in accordance with Exhibit A attached hereto. Lender shall provide Borrower with written confirmation of the allocation of the Initial Reserve Deposits within five (5) Business Days after the Closing Date. 
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ARTICLE 3: MONTHLY RESERVE CONTRIBUTIONS
Section 3.1 — Tax Reserve Monthly Deposits
(a) Commencing on the first Monthly Reserve Deposit date following the Closing Date and continuing on each Monthly Reserve Deposit date thereafter during the term of this Agreement, Borrower shall deposit into the Tax Reserve Account an amount equal to one-twelfth (1/12th) of the estimated annual real estate taxes for the Property (including all ad valorem real property taxes, special assessments, and other governmental charges assessed against the Property) as determined by the most recent tax assessment or tax bill issued by the Monroe County Tax Collector or other applicable taxing authority (each such deposit, a "Tax Reserve Monthly Deposit").
(b) 
(c) 
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Section 3.2 — Insurance Reserve Monthly Deposits
(a) Commencing on the first Monthly Reserve Deposit date following the Closing Date and continuing on each Monthly Reserve Deposit date thereafter during the term of this Agreement, Borrower shall deposit into the Insurance Reserve Account an amount equal to one-twelfth (1/12th) of the estimated annual insurance premiums for all insurance coverages required to be maintained under the Loan Agreement with respect to the Property, including without limitation property, general liability, windstorm, and flood insurance (each such deposit, an "Insurance Reserve Monthly Deposit"). The insurance coverages currently in effect with respect to the Property are maintained with Southland Mutual Insurance Company (property, general liability, and windstorm coverages) and Bayfront Specialty Insurance Corp. (flood coverage).
(b) 
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Section 3.3 — FF&E Reserve Monthly Deposits
(a) Commencing on the first Monthly Reserve Deposit date following the Closing Date and continuing on each Monthly Reserve Deposit date thereafter during the term of this Agreement (subject to the reserve release provisions of Article 5), Borrower shall deposit into the FF&E Reserve Account an amount equal to one-twelfth (1/12th) of the FF&E Annual Reserve Amount (each such deposit, an "FF&E Reserve Monthly Deposit").
(b) Based on the trailing twelve (12)-month Total Revenue of the Property as of September 30, 2022, of approximately $62,800,000, the estimated FF&E Reserve Monthly Deposit for the initial period following the Closing Date shall be:
(i)  ; and
(ii) the FF&E Reserve Monthly Deposit shall be recalculated annually based on the trailing twelve (12)-month Total Revenue as of the end of the immediately preceding calendar year, with such recalculated amount taking effect on the first Monthly Reserve Deposit date of each calendar year.
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Section 3.4 — Capital Reserve Monthly Deposits
(a) Commencing on the first Monthly Reserve Deposit date following the Closing Date and continuing on each Monthly Reserve Deposit date thereafter during the term of this Agreement (subject to the reserve release provisions of Article 5), Borrower shall deposit into the Capital Reserve Account an amount   based on the approved Annual Budget   (each such deposit, a "Capital Reserve Monthly Deposit").
(b) 
(c) 
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Section 3.5 — Payment Mechanics
(a) All Monthly Reserve Deposits shall be due and payable on the same date as the monthly payments of Debt Service under the Note (each, a "Monthly Reserve Deposit Date"). Each Monthly Reserve Deposit shall be made by wire transfer of immediately available funds to the applicable Reserve Account or to such other account as Lender may designate in writing from time to time.
(b) Reserve Accounts shall be maintained at an Eligible Account institution designated by Lender and reasonably acceptable to Borrower, or at such institution as may be designated in the Cash Management Agreement.
(c) 
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Section 3.6 — Adjustments to Monthly Deposits
(a) Lender shall have the right to adjust the Monthly Reserve Deposit amounts annually based on updated information, including without limitation revised tax assessments, insurance premium renewals, updated FF&E budgets, and revised capital improvement plans.
(b) 
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ARTICLE 4: DISBURSEMENTS FROM RESERVE ACCOUNTS
Section 4.1 — Tax Reserve Disbursements
(a) Lender shall disburse funds from the Tax Reserve Account   upon Borrower's written request (in the form of Exhibit D attached hereto or such other form as the Parties may agree), accompanied by the applicable tax bill or assessment notice, delivered to Lender at least fifteen (15) days prior to the delinquency date for such taxes.
(b) 
(c) 
Section 4.2 — Insurance Reserve Disbursements
(a) Lender shall disburse funds from the Insurance Reserve Account to the applicable insurance carrier, or to Borrower's insurance broker, Castlegate Risk Advisors LLC (Attention: Monica Iglesias, Senior Vice President), upon Borrower's written request (in the form of Exhibit D or such other form as the Parties may agree), accompanied by premium invoices or renewal notices, delivered to Lender at least thirty (30) days prior to the applicable policy renewal date.
(b) 
Section 4.3 — FF&E Reserve Disbursements
(a) Lender shall disburse funds from the FF&E Reserve Account upon Borrower's written request (in the form of Exhibit D or such other form as the Parties may agree), accompanied by the following documentation:
(i) Invoices, purchase orders, or contracts for FF&E items;
(ii) Evidence that the FF&E expenditure is consistent with the approved Annual Budget or an FF&E replacement plan approved by Lender;
(iii) 
(iv) Lien waivers from vendors and contractors (solely with respect to FF&E items that are permanently installed or affixed to the Property, and not with respect to movable furniture, fixtures, or equipment delivered to the Property without installation); and
(v) Such other documentation as Lender may reasonably request.
(b) 
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(c)  
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Section 4.4 — Capital Reserve Disbursements
(a) Lender shall disburse funds from the Capital Reserve Account upon Borrower's written request (in the form of Exhibit D or such other form as the Parties may agree), accompanied by the following documentation:
(i) A reasonably detailed description of the capital improvement project, including scope of work, estimated budget, and anticipated timeline;
(ii) Invoices, contracts, and/or architect's or engineer's certifications, as applicable;
(iii) Evidence of compliance with applicable governmental permits, approvals, and building codes;
(iv) Lien waivers from contractors, subcontractors, and material suppliers (partial waivers for progress payments and final waivers upon project completion); and
(v) Such other documentation as Lender may reasonably request.
(b) 
(c) Lender shall have the right to retain ten percent (10%) of each Capital Reserve disbursement as retainage (the "Capital Retainage"), .
(d) 
(e) 
Section 4.5 — General Disbursement Conditions
(a)  
(b) 
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(c)  
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Section 4.6 — Excess Reserve Balances
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ARTICLE 5: RESERVE RELEASE AND TERMINATION
Section 5.1 — Reserve Release Conditions
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Section 5.2 — Effect of Reserve Release
Section 5.3 — Reinstatement of Reserves
(a) If at any time following a reserve release pursuant to Section 5.2, any Reserve Release Condition ceases to be satisfied, Lender may reinstate the Monthly Reserve Deposit requirements under Sections 3.3 and 3.4 by providing   prior written notice to Borrower (a "Reinstatement Notice"), specifying the Reserve Release Condition(s) that Lender believes are no longer satisfied.
(b) 
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Section 5.4 — Termination of Reserve Agreement
(a) This Agreement shall terminate upon the earliest to occur of: (i) payment in full of the Loan and all other obligations of Borrower under the Loan Documents; or (ii) the release and discharge of the Mortgage.
(b) Upon termination of this Agreement pursuant to Section 5.4(a), all funds remaining in the Reserve Accounts (including all accrued and unpaid interest and investment earnings thereon) shall be disbursed to Borrower within ten (10) Business Days after such termination, by wire transfer to an account designated by Borrower.
(c) 
ARTICLE 6: SECURITY INTEREST AND ACCOUNT CONTROL
Section 6.1 — Grant of Security Interest
(a) As additional security for the Loan and all other obligations of Borrower under the Loan Documents, Borrower hereby grants to Lender a first-priority security interest in and to all Reserve Accounts and all funds, investments, and proceeds deposited therein or credited thereto from time to time, including all interest and investment earnings thereon (collectively, the "Reserve Collateral").
(b) Borrower hereby authorizes Lender to file one or more UCC financing statements (and continuation statements and amendments thereto) under the Uniform Commercial Code of the State of Florida (or any other applicable jurisdiction) describing the Reserve Collateral and perfecting Lender's security interest therein. Borrower shall execute and deliver such additional documents and instruments as Lender may reasonably request to further evidence, perfect, or protect Lender's security interest in the Reserve Collateral.
Section 6.2 — Account Control
(a) The Reserve Accounts shall be maintained at an Eligible Account institution  .
(b)  
(c) 
Section 6.3 — Interest on Reserve Accounts
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Section 6.4 — Commingling Prohibition
(a) Lender shall not commingle funds in the Reserve Accounts with Lender's own funds or with the funds of any other person or entity. Each Reserve Account shall be a separate, segregated, identifiable deposit account maintained solely for the purpose set forth herein.
(b) 
ARTICLE 7: REPRESENTATIONS AND WARRANTIES
Section 7.1 — Borrower's Representations
Borrower hereby represents and warrants to Lender as of the Effective Date  as follows:
(a) Organization and Good Standing. Borrower is a limited liability company duly organized, validly existing, and in good standing under the laws of the State of Florida, and has all requisite power and authority to own, lease, and operate the Property and to execute, deliver, and perform its obligations under this Agreement and the other Loan Documents.
(b) Ownership of Property. Borrower is the fee owner of the Property, as reflected in that certain Warranty Deed recorded in Official Records Book 2847, Page 1122, Public Records of Monroe County, Florida. Borrower's title to the Property is subject only to such liens, encumbrances, and other exceptions as are set forth in the title insurance policy delivered to Lender in connection with the closing of the Loan.
(c) Condition of Property. The Property was comprehensively renovated at a cost of approximately Forty-Seven Million and No/100 Dollars ($47,000,000), with such renovation having been completed in approximately August 2021.  the Property is in good condition and repair, and no material deferred maintenance items exist as of the date hereof .
(d) Operating Performance.  the trailing twelve (12)-month operating performance of the Property as of September 30, 2022, is as follows: occupancy of approximately 71.3%; average daily rate ("ADR") of approximately $389; revenue per available room ("RevPAR") of approximately $277.36; Total Revenue of approximately $62,800,000; and Net Operating Income of approximately $18,400,000. 
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(e) Authorization. The execution, delivery, and performance by Borrower of this Agreement has been duly authorized by all necessary action on the part of Borrower, including all required approvals of Borrower's members and managers. This Agreement constitutes the legal, valid, and binding obligation of Borrower, enforceable against Borrower in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium, and other similar laws affecting the enforcement of creditors' rights generally and to general principles of equity.
(f) No Conflict. The execution, delivery, and performance of this Agreement by Borrower does not and will not (i) violate or conflict with the organizational documents of Borrower, (ii) violate or conflict with any law, rule, regulation, order, judgment, or decree applicable to Borrower or the Property, or (iii) result in a breach of, or constitute a default under, any material agreement to which Borrower is a party or by which Borrower or the Property is bound.
Section 7.2 — Lender's Representations
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ARTICLE 8: COVENANTS
Section 8.1 — Property Maintenance Covenant
Borrower shall maintain the Property in good condition, order, and repair, consistent with the standards of a  . Borrower shall promptly make all necessary repairs and replacements using commercially reasonable efforts and in compliance with all applicable laws, rules, regulations, and ordinances.
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Section 8.2 — Annual Budget Covenant
(a) Borrower shall prepare and submit to Lender a proposed Annual Budget for the Property for each calendar year (including a proposed operating expense budget, a proposed capital expenditure budget, and a proposed FF&E replacement budget), in reasonable detail and in a format consistent with the Uniform System of Accounts for the Lodging Industry, no later than sixty (60) days prior to the start of such calendar year.
(b) Lender shall approve or disapprove (with specific written reasons for any disapproval) the proposed Annual Budget within thirty (30) days of Lender's receipt thereof.
(c) 
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(d) 
Section 8.3 — Reporting Covenant
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Section 8.4 — Insurance Covenant
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ARTICLE 9: EVENTS OF DEFAULT AND REMEDIES
Section 9.1 — Events of Default
(a) Each of the following shall constitute an "Event of Default" under this Agreement:
(i) The occurrence and continuance of an Event of Default under the Loan Agreement (as defined therein);
(ii)  
(iii) The misapplication or diversion by Borrower of funds deposited in any Reserve Account, or the use of Reserve Account funds by Borrower for any purpose other than as expressly permitted under this Agreement; and
(iv) Any material misrepresentation by Borrower in any disbursement request submitted pursuant to Article 4, or in any certification delivered by Borrower in connection with such disbursement request, .
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Section 9.2 — Remedies
(a) Upon the occurrence and during the continuance of an Event of Default under this Agreement:
(i) Lender may suspend all disbursements from the Reserve Accounts ;
(ii)   and
(iii) Lender may exercise all remedies available to Lender under the Loan Agreement, the Mortgage, and applicable law with respect to the Loan, the Property, and the Reserve Accounts.
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ARTICLE 10: MISCELLANEOUS PROVISIONS
Section 10.1 — Notices
All notices, requests, demands, consents, approvals, and other communications required or permitted under this Agreement shall be in writing and shall be delivered in accordance with the notice provisions of the Loan Agreement. For purposes of this Agreement, the notice addresses of the Parties are as follows:
If to Borrower:
Coral Palms Resort Holdings LLC c/o Verimark Hospitality Group Inc. 1400 Bayshore Boulevard, Suite 2200 Miami, Florida 33131
Attention: Derek Huang, SVP — Capital Markets & Treasury
Telephone: (305) 555-7400
Email: d.huang@verimarkhospitality.com
With a copy to:
Calderwood & Harkness LLP 100 Southeast Second Street, Suite 3800 Miami, Florida 33131
Attention: Douglas Fairchild
Telephone: (305) 555-2200
Email: d.fairchild@calderwoodharkness.com
If to Lender:
Pinnacle Atlantic Capital, LLC 200 Lexington Avenue, 38th Floor New York, New York 10016
Attention: Martin Drubeck, Managing Director — Real Estate Lending
Telephone: (212) 555-9100
Email: m.scholes@pinnacleatlantic.com
With a copy to:
Whitford Baines & Driscoll LLP 1221 Avenue of the Americas, Suite 4400 New York, New York 10020
Attention: Philip Tarrant Corporation
Telephone: (212) 555-6300
Email: p.Tarrant Corporation@whitfordbaines.com
Either Party may change its notice address by giving written notice to the other Party in accordance with this Section 10.1.
Section 10.2 — Governing Law
This Agreement shall be governed by and construed in accordance with the laws of the State of Florida, without regard to its conflict of laws principles. Each Party hereby irrevocably submits to the jurisdiction of the federal and state courts sitting in Monroe County, Florida, or Miami-Dade County, Florida, for purposes of any action or proceeding arising out of or relating to this Agreement, and each Party hereby waives any objection to venue or any claim of inconvenient forum with respect to any such action or proceeding.
Section 10.3 — Successors and Assigns
This Agreement shall be binding upon and inure to the benefit of the Parties hereto and their respective successors and assigns.  
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Section 10.4 — Amendment and Waiver
No amendment, modification, supplement, restatement, or waiver of any provision of this Agreement shall be effective unless set forth in a written instrument duly executed by Borrower and Lender. No waiver of any breach or default under this Agreement shall constitute a waiver of any other or subsequent breach or default. No delay or failure by either Party in exercising any right or remedy under this Agreement shall operate as a waiver thereof or preclude any other or further exercise of such right or remedy.
Section 10.5 — Entire Agreement
This Agreement, together with the Loan Agreement, the Mortgage, and the other Loan Documents, constitutes the entire agreement of the Parties with respect to the subject matter hereof and supersedes all prior agreements, understandings, negotiations, and discussions, whether oral or written, between the Parties with respect thereto. There are no representations, warranties, covenants, or undertakings other than those expressly set forth or referred to herein or in the other Loan Documents.
Section 10.6 — Severability
If any provision of this Agreement or the application thereof to any person or circumstance shall, for any reason and to any extent, be held to be invalid, illegal, or unenforceable, such invalidity, illegality, or unenforceability shall not affect any other provision of this Agreement or the application of such provision to other persons or circumstances, and to the maximum extent permitted by applicable law, the remaining provisions of this Agreement shall be construed so as to give full force and effect to the intent of the Parties as expressed herein.
Section 10.7 — Counterparts; Electronic Execution
This Agreement may be executed in any number of counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same instrument. Delivery of an executed counterpart of this Agreement by electronic transmission (including by email transmission of a PDF copy or by DocuSign or similar electronic signature platform) shall be as effective as delivery of a manually executed counterpart hereof. 
Section 10.8 — Conflicts with Loan Agreement
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Section 10.9 — Waiver of Jury Trial
EACH PARTY HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT, OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT, OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.
> C&H Comment: Acceptable.
[Remainder of this page intentionally left blank. Signature pages follow.]
IN WITNESS WHEREOF, the Parties hereto have executed this Reserve Agreement as of the date first written above.
BORROWER:
CORAL PALMS RESORT HOLDINGS LLC, a Florida limited liability company
By: ________
Name: ________
Title: ________
Date: ________
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LENDER:
PINNACLE ATLANTIC CAPITAL, LLC, a Delaware limited liability company
By: ________
Name: ________
Title: ________
Date: ________
EXHIBIT A
INITIAL RESERVE DEPOSIT ALLOCATION
The aggregate Initial Reserve Deposits of $4,800,000 shall be allocated among the Reserve Accounts as follows:
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EXHIBIT B
MONTHLY RESERVE DEPOSIT SCHEDULE — YEAR 1 (ESTIMATED)
The following table sets forth the estimated Monthly Reserve Deposits for the first twelve (12) months following the Closing Date. Amounts are subject to adjustment as provided in Sections 3.1 through 3.6 of the Agreement.
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EXHIBIT C
PERMITTED INVESTMENTS
For purposes of this Agreement, "Permitted Investments" shall mean any of the following:
1.  U.S. Government Obligations. Direct obligations of the United States of America, or obligations the timely payment of principal and interest on which are fully and unconditionally guaranteed by the United States of America, in each case with maturities not exceeding ninety (90) days from the date of acquisition.
2.  Agency Securities. Obligations of any agency or instrumentality of the United States of America, including without limitation obligations issued or guaranteed by the Harborview Partners LLC ("Freddie Mac"), the Thackeray Holdings ("Fannie Mae"), or the Government National Mortgage Association ("Ginnie Mae"), in each case with maturities not exceeding ninety (90) days from the date of acquisition.
3.  Money Market Funds. Shares or units in money market mutual funds that (a) are registered under the Investment Company Act of 1940, as amended, (b) invest exclusively in obligations described in items 1 and 2 above or in repurchase agreements collateralized by such obligations, and (c) are rated "Aaa" by Moody's Investors Service and "AAA" by S&P Global Ratings (or the equivalent rating by any successor rating agency).
4.  Deposit Accounts and Certificates of Deposit. Interest-bearing deposit accounts or certificates of deposit issued by any Eligible Account institution, in each case with maturities not exceeding ninety (90) days from the date of acquisition and insured by the Federal Deposit Insurance Corporation to the fullest extent available under applicable law.
5.  Other Investments. Such other investments as Borrower may propose and Lender may approve in writing, such approval not to be unreasonably withheld, conditioned, or delayed, provided that any such investment shall have (a) a maturity not exceeding ninety (90) days, (b) an investment-grade credit rating from at least one nationally recognized statistical rating organization, and (c) readily determinable market value and daily liquidity.
All Permitted Investments shall be made in the name of Borrower (or, if required, in the name of Lender for the benefit of Borrower), and all interest and investment earnings thereon shall accrue to the benefit of Borrower as provided in Section 6.3 of this Agreement.
EXHIBIT D
FORM OF DISBURSEMENT REQUEST
[Date]
Pinnacle Atlantic Capital, LLC 200 Lexington Avenue, 38th Floor New York, New York 10016
Attention: Martin Drubeck, Managing Director — Real Estate Lending
Re: Disbursement Request — Reserve Agreement dated [__], 2023 — Coral Palms Grand Resort & Spa
Ladies and Gentlemen:
Reference is made to that certain Reserve Agreement dated as of [__], 2023 (the "Agreement"), between Coral Palms Resort Holdings LLC ("Borrower") and Pinnacle Atlantic Capital, LLC ("Lender"). Capitalized terms used and not otherwise defined herein shall have the meanings ascribed to such terms in the Agreement.
Pursuant to [Section 4.1 / Section 4.2 / Section 4.3 / Section 4.4] of the Agreement, Borrower hereby requests a disbursement from the [Tax Reserve Account / Insurance Reserve Account / FF&E Reserve Account / Capital Reserve Account] in the amount of $[__], for the purpose described below.
1. Reserve Account: [Tax Reserve / Insurance Reserve / FF&E Reserve / Capital Reserve]
2. Amount Requested: $[__]
3. Description of Expenditure/Purpose:
[Insert detailed description of the expenditure, including the nature of the goods, services, or obligations to be paid, the name(s) of the vendor(s), contractor(s), or payee(s), and the relationship of the expenditure to the approved Annual Budget or applicable reserve plan.]
4. Payee Information:
5. Supporting Documentation Attached:
Invoice(s) / Premium notice(s) / Tax bill(s)
Purchase order(s) or contract(s) (for FF&E or capital items)
Architect's or engineer's certification (for capital projects, if applicable)
Evidence of compliance with applicable permits and approvals (for capital projects)
Lien waiver(s) from vendor(s) / contractor(s) / subcontractor(s) (as applicable)
Evidence of consistency with approved Annual Budget or applicable reserve plan
Other: [__]
6. Lien Waiver Checklist (for FF&E and Capital Reserve disbursements):
7. Borrower's Certification:
Borrower hereby certifies to Lender that, as of the date hereof:
(a) The expenditure described herein is consistent with the approved Annual Budget and/or the applicable reserve plan;
(b) No Event of Default has occurred and is continuing under the Agreement, the Loan Agreement, or any other Loan Document, and no event has occurred that, with the giving of notice or the passage of time (or both), would constitute an Event of Default;
(c) The representations and warranties of Borrower set forth in Article 7 of the Agreement are true and correct in all material respects as of the date hereof;
(d) The funds requested will be used solely for the purpose described above; and
(e) All information contained in this Disbursement Request and the supporting documentation attached hereto is true, correct, and complete in all material respects.
CORAL PALMS RESORT HOLDINGS LLC
By: ________
Name: ________
Title: ________
Date: ________
SCHEDULE 1
PROPERTY DESCRIPTION
Street Address: 99000 Overseas Highway, Key Largo, Monroe County, Florida 33037
Tax Folio Number: 00460780-000100
Legal Description:
A parcel of land situate in Section 27, Township 60 South, Range 39 East, Monroe County, Florida, as more particularly described in that certain Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture Filing of even date herewith executed by Coral Palms Resort Holdings LLC in favor of Pinnacle Atlantic Capital, LLC, and recorded (or to be recorded) in the Official Records of Monroe County, Florida, the legal description set forth in Exhibit A to said Mortgage being incorporated herein by reference.
Property Summary:
SUMMARY OF KEY CALDERWOOD & HARKNESS BORROWER COMMENTS (For Reference — Not Part of Agreement)
The following is a summary of the principal comments and proposed revisions reflected in the foregoing markup, prepared for the convenience of counsel and the parties. This summary is not intended to be exhaustive and does not supersede or modify the tracked changes set forth in the body of the Agreement.
End of Borrower's Markup
Calderwood & Harkness LLP — Grace Nakamura / Rafael Dominguez — Matter No. 1021-00007 January 9, 2023
Reserve Account | Initial Deposit Amount | Basis of Calculation
Tax Reserve Account | $[__] | Pro rata share of annual real estate taxes (Monroe County Tax Collector) from Closing Date to next installment due date
Insurance Reserve Account | $[__] | Pro rata share of annual insurance premiums from Closing Date to next renewal date (or waived/reduced if blanket program applies — see Section 2.3)
FF&E Reserve Account | $[__] | of trailing 12-month Total Revenue ($62,800,000), prorated for the period from Closing Date to the first anniversary of the Closing Date
Capital Reserve Account
TOTAL | $4,800,000
Reserve Category | Monthly Deposit (Est.) | Annual Total (Est.) | Basis
Tax Reserve | $[__]/month | $[__]/year | 1/12 of annual real estate taxes per Monroe County Tax Collector assessment (amount TBD)
Insurance Reserve | 1/12 of annual insurance premiums (or waived if blanket program maintained by VHG)
FF&E Reserve
Capital Reserve
Payee Name | Amount | Purpose
[__] | $[__] | [__]
[__] | $[__] | [__]
Total | $[________]
Contractor/Vendor | Partial Waiver | Final Waiver | N/A
[__]
[__]
Feature | Description
Property Name | Coral Palms Grand Resort & Spa
Property Type | Full-service luxury oceanfront resort hotel
Location | 99000 Overseas Highway, Key Largo, Monroe County, FL 33037
Site Area | Approximately 22.4 acres (waterfront)
Gross Building Area | Approximately 412,000 square feet
Guest Rooms/Suites | 342 keys
Marina | 42-slip marina
Meeting/Event Space | Approximately 28,500 square feet
Spa | Approximately 18,000 square feet (full-service)
Food & Beverage | 3 outlets
Parking | 1,200-space structured parking
Renovation | Comprehensive renovation completed August 2021; approximately $47,000,000 total cost
Chain of Title | Warranty Deed recorded in Official Records Book 2847, Page 1122, Public Records of Monroe County, Florida
No. | Topic | C&H Position | Reference
1 | FF&E Reserve Percentage | Reduce from 5% to 4% of Total Revenue; step-down to 3% during years 1–2 in recognition of $47M renovation completed August 2021 | §1.1 (FF&E Annual Reserve Amount); §3.3
2 | Capital Reserve Initial Deposit | Minimize or eliminate ($0 proposed) given $47M renovation completed August 2021; capital reserves should ramp over the Loan term | §2.5; Exhibit A
3 | Reserve Release Mechanism | Insert Reserve Release Conditions (DSCR > 1.50x; NOI maintenance; no default; insurance compliance; property condition) permitting suspension of FF&E and Capital Reserve monthly contributions | §5.1; §5.2
4 | Interest on Reserves | Funds must be invested in Permitted Investments (expanded definition); earnings accrue to Borrower; at minimum, interest-bearing accounts | §1.1 (Permitted Investments); §6.3; Exhibit C (new)
5 | Disbursement Timing | 10 Business Day maximum for Lender to process disbursement requests; 5 Business Day notice of incomplete requests | §4.3(b); §4.4(e)
6 | Disbursement Thresholds | Simplified process for FF&E items < $100K and capital items < $250K (Borrower certification only; no Lender approval) | §4.3(a)(iii); §4.4(b)
7 | Excess Reserve Balances | Right to recapture excess balances exceeding 110% of anticipated 12-month expenditures (new Section 4.6) | §4.6 (new)
8 | Tax/Insurance Escrow Waiver | Borrower right to pay directly absent Event of Default; insurance waiver if blanket program maintained by VHG | §3.1(c); §3.2(b)
9 | Annual Budget Deemed Approval | 30-day response period; if Lender fails to respond, prior year budget (+ 3% escalator) deemed approved; 15% line-item reallocation flexibility | §1.1 (Annual Budget); §8.2
10 | Cure Periods | 5 Business Day cure for monetary reserve defaults + 5 Business Day additional cure after notice (total 10 Business Days); 60-day cure for reserve reinstatement | §9.1(a)(ii); §5.3(b)
11 | Discretion Standard | Replace "sole discretion" with "reasonable discretion" throughout (Articles 4, 9) | §§4.4, 4.5, 9.2
12 | Essential Disbursement Carve-Out | Permit tax, insurance, life-safety, and emergency disbursements even during Event of Default | §4.5(b)
13 | Reporting / Insurance Covenants | Cross-reference to Loan Agreement rather than duplicating | §8.3; §8.4
14 | No Retainage on FF&E | Retainage inappropriate for movable FF&E; deleted 10% retainage for FF&E disbursements (retainage acceptable for capital projects with release upon final completion) | §4.3(c)