1021-00007 · Verimark Hospitality Group · Termination & Settlement

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CONFIDENTIAL

CALDERWOOD & HARKNESS LLP Attorneys at Law

100 Southeast Second Street, Suite 3800 Miami, Florida 33131 Telephone: (305) 884-7200 Facsimile: (305) 884-7201 www.calderwoodharkness.com

February 15, 2023

VIA OVERNIGHT COURIER AND EMAIL

Pinnacle Atlantic Capital, LLC

Attn: Martin Drubeck, Managing Director – Real Estate Lending

200 Lexington Avenue, 38th Floor New York, NY 10016

Re: Termination of Commitment Letter dated December 9, 2022, by and between Coral Palms Resort Holdings LLC ("Borrower") and Pinnacle Atlantic Capital, LLC ("Lender") — Proposed $160,000,000 First Mortgage Loan — Coral Palms Grand Resort & Spa, 99000 Overseas Highway, Key Largo, Monroe County, FL 33037

Dear Mr. Drubeck:

I. Purpose of This Notice

This firm represents Verimark Hospitality Group Inc. ("VHG"), a corporation duly organized and existing under the laws of the State of Delaware (Nasdaq: VMRK), and its wholly owned indirect subsidiary, Coral Palms Resort Holdings LLC (the "Borrower"), a Florida limited liability company. We are authorized to deliver this notice on behalf of both VHG and the Borrower.

This letter constitutes formal written notice of the Borrower's and VHG's election to terminate, effective immediately upon delivery hereof, the proposed One Hundred Sixty Million Dollar ($160,000,000) first mortgage refinancing transaction contemplated by that certain Commitment Letter dated December 9, 2022 (the "Commitment Letter"), entered into between the Borrower, as borrower, and Pinnacle Atlantic Capital, LLC ("Lender," "PAC," or "you"), as lender, for the reasons set forth in detail below. This correspondence is delivered under and with reference to our firm Matter No. 1021-00007.

This notice is delivered in accordance with the notice provisions set forth in Section 14 of the Commitment Letter and is effective upon receipt. We request that you acknowledge receipt of this notice in writing at your earliest convenience, as set forth more fully below.

II. Background and Recitals

For purposes of clarity and to establish the factual predicate for this termination, we recite the following chronology and material facts:

On November 14, 2022, Pinnacle Atlantic Capital, LLC issued a term sheet (the "Term Sheet") to the Borrower proposing a first mortgage loan in the principal amount of One Hundred Sixty Million Dollars ($160,000,000), to be secured by the Coral Palms Grand Resort & Spa, a full-service luxury resort property located at 99000 Overseas Highway, Key Largo, Monroe County, Florida 33037 (the "Property"). The Term Sheet set forth the preliminary economic terms and structural parameters of the proposed loan and was subject to the execution of a definitive commitment letter.

VHG, acting on behalf of the Borrower, executed and returned the Term Sheet on November 28, 2022, signaling the Borrower's intent to proceed with the proposed financing on the terms described therein.

Thereafter, on December 9, 2022, the Borrower and PAC executed the Commitment Letter, which set forth the material terms and conditions of the proposed first mortgage loan in greater specificity, including without limitation the following:

(a) Loan Amount: $160,000,000;

(b) Interest Rate: Fixed rate of 5.35% per annum for a five (5)-year term;

(c) Maximum Loan-to-Value Ratio: 68.0%, based on the Lender's appraised value of the Property as determined by an independent, Lender-approved appraiser;

(d) Minimum Debt Yield: 9.5%;

(e) Recourse Structure: Limited recourse, with standard "bad boy" carve-out guaranty to be provided by VHG as guarantor;

(f) Amortization: Interest-only payments during years one (1) and two (2) of the loan term; amortization on a thirty (30)-year schedule during years three (3) through five (5);

(g) Extension Options: Two (2) one (1)-year extension options, each subject to: (i) no event of default or event that, with the passage of time or the giving of notice, would constitute an event of default; (ii) a minimum debt service coverage ratio of not less than 1.25x; and (iii) payment of an extension fee equal to 0.25% of the then-outstanding principal balance of the loan.

In reliance upon the Commitment Letter and the terms set forth therein, the Borrower deposited One Million Six Hundred Thousand Dollars ($1,600,000) as a good faith deposit with Meridian Title & Escrow, Inc. (the "Escrow Agent") on December 12, 2022, as required under Section 5(a) of the Commitment Letter. Additionally, on January 5, 2023, the Borrower deposited Eight Hundred Thousand Dollars ($800,000) as a rate lock deposit with the Escrow Agent, as required under Section 5(b) of the Commitment Letter. The total deposits held by the Escrow Agent in connection with this transaction are Two Million Four Hundred Thousand Dollars ($2,400,000) (collectively, the "Deposits").

The stated purpose of the proposed refinancing was to (i) retire the existing first mortgage loan on the Property in the current outstanding principal balance of approximately One Hundred Eighteen Million Five Hundred Thousand Dollars ($118,500,000), held by Tidewater National Bank, N.A. (which loan was originally in the principal amount of $125,000,000, originated on June 1, 2019, with a stated maturity date of June 1, 2024); (ii) fund required reserves, including replacement reserves, insurance reserves, and tax escrows; (iii) pay all transaction costs associated with the refinancing, including title insurance premiums, lender's counsel fees, recording charges, and other customary closing costs; and (iv) return excess loan proceeds to the Borrower.

Following execution of the Commitment Letter, the Lender's outside counsel, Whitford Baines & Driscoll LLP ("WBD"), circulated initial drafts of the loan documents — including the loan agreement, promissory note, mortgage and security agreement, guaranty, environmental indemnity agreement, cash management agreement, and related ancillary documents — on December 19, 2022. Our firm, on behalf of the Borrower and VHG, transmitted comprehensive markups and comments to WBD on January 3, 2023, and the parties engaged in good-faith negotiations regarding the loan documentation throughout January 2023. These negotiations addressed, among other matters, the scope of the carve-out guaranty, the structure of the cash management waterfall, permitted transfers, and reserve requirements.

III. Appraisal and Valuation Shortfall

As a condition precedent to closing under the Commitment Letter, and in accordance with Sections 7(c) and 8(a)(ii) thereof, the Lender commissioned a full narrative appraisal of the Property from Hargrove & Whitley Valuation Services LLC. The appraisal was prepared by Scott Tremaine, MAI, MRICS, a state-certified general appraiser authorized to practice in the State of Florida, and was prepared in conformity with the Uniform Standards of Professional Appraisal Practice ("USPAP") and the requirements of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 ("FIRREA"), as applicable.

Mr. Tremaine conducted a physical inspection of the Property on January 6, 2023. The appraisal report was dated January 20, 2023, with an effective date of value of January 6, 2023. The appraisal employed the income capitalization approach, the sales comparison approach, and the cost approach, with primary reliance on the income capitalization approach, as is customary for hospitality assets of this nature.

The appraisal concluded that the "as-is" fair market value of the Property, as of the effective date, was One Hundred Ninety-Two Million Dollars ($192,000,000).

This appraised value represents a shortfall of Forty-Three Million Dollars ($43,000,000) — or approximately 18.30% — below VHG's projected value of Two Hundred Thirty-Five Million Dollars ($235,000,000), which projection was based on the Property's trailing twelve-month operating performance, pending capital improvements, and comparable resort transactions in the Florida Keys submarket.

The impact of this valuation shortfall on the sizing and viability of the proposed loan is substantial and dispositive. At the appraised value of $192,000,000, the proposed loan amount of $160,000,000 would result in a loan-to-value ratio of approximately 83.33% — a figure that materially exceeds the Commitment Letter's maximum permissible LTV covenant of 68.0% by more than fifteen (15) percentage points. The maximum permissible loan amount at the 68.0% LTV threshold, based on the appraised value, would be One Hundred Thirty Million Five Hundred Sixty Thousand Dollars ($130,560,000) — a reduction of Twenty-Nine Million Four Hundred Forty Thousand Dollars ($29,440,000) from the committed loan amount of $160,000,000.

Accordingly, the appraisal rendered the original Commitment Letter terms unachievable as a matter of the Lender's own underwriting criteria and the express conditions precedent set forth in the Commitment Letter.

IV. Material Modification — Repriced Terms

On January 27, 2023, PAC delivered to the Borrower and our firm a written communication setting forth repriced and restructured terms (the "Repriced Terms") in response to the appraisal shortfall described above. The Repriced Terms, which PAC characterized as revised commitments necessary to proceed with the transaction, constituted, in the Borrower's and VHG's view, a material and fundamental modification of the Commitment Letter. The specific elements of the Repriced Terms are as follows:

(a) Reduced Loan Amount: The proposed loan amount was reduced from $160,000,000 to $139,000,000, resulting in a loan-to-value ratio of approximately 72.40% (or approximately 72.5%) based on the appraised value of $192,000,000 — a ratio that itself exceeds the original maximum LTV of 68.0%;

(b) Increased Interest Rate: The proposed fixed interest rate was increased from 5.35% per annum to 6.90% per annum — an increase of one hundred fifty-five (155) basis points, representing a rate increase of approximately 29.0% over the originally committed rate;

(c) Conversion to Full Recourse: The recourse structure was converted from a limited recourse, standard "bad boy" carve-out guaranty to a full recourse guaranty by VHG, thereby exposing VHG's entire corporate balance sheet to liability for the full outstanding principal balance, accrued interest, and all other obligations under the proposed loan;

(d) Cross-Collateralization Requirement: PAC imposed a requirement that the loan be cross-collateralized with a second VHG-owned property, the Driftwood Bay Hotel, located in Sarasota, Florida, a property that was not referenced in, contemplated by, or otherwise subject to the Commitment Letter;

(e) Additional Reserve Requirement: PAC imposed a requirement for an additional upfront property improvement plan ("PIP") and capital improvement reserve in the amount of $3,200,000, on top of the $4,800,000 in upfront reserves already required under the original Commitment Letter, bringing total upfront reserves to $8,000,000.

The financial impact of the Repriced Terms on the economics of the proposed transaction is severe. Based on our analysis, the Repriced Terms would result in the following adverse consequences to the Borrower and VHG:

(i) The estimated net cash-out to the Borrower — after retirement of the existing Tidewater National Bank loan, payment of all transaction costs, and funding of required reserves — would be reduced from approximately $32,265,000 under the original Commitment Letter terms to approximately $8,065,000 under the Repriced Terms, a reduction of approximately Twenty-Four Million Two Hundred Thousand Dollars ($24,200,000);

(ii) Annual interest-only debt service during the initial interest-only period would increase from $8,560,000 (at the original rate of 5.35% on a $160,000,000 loan) to $9,591,000 (at the repriced rate of 6.90% on a $139,000,000 loan), an increase of approximately $1,031,000 per annum;

(iii) The debt service coverage ratio ("DSCR"), based on the Property's stabilized net operating income, would decrease from approximately 2.15x under the original terms to approximately 1.92x under the Repriced Terms, reflecting a meaningful deterioration in the Borrower's projected debt service cushion.

VHG and the Borrower assert that the totality of these changes — and in particular the 155 basis point increase in the fixed interest rate, the $21,000,000 reduction in loan proceeds, the shift from limited recourse to full recourse, and the previously uncontemplated demand for cross-collateralization with the Driftwood Bay Hotel — individually and collectively constitute a material modification of the Commitment Letter. These changes fundamentally alter the economic terms, risk profile, and commercial viability of the transaction as originally agreed upon by the parties. The Repriced Terms bear no reasonable resemblance to the deal that was negotiated, documented, and committed to by PAC in the Commitment Letter, and they impose burdens and risks on the Borrower and VHG that were never contemplated and are not commercially acceptable.

V. Borrower's Counter-Proposal and Lender's Rejection

In a further good-faith effort to preserve the transaction and to avoid the costs, delays, and disruption associated with termination and the pursuit of alternative financing, VHG submitted a counter-proposal to PAC on February 3, 2023 (the "Counter-Proposal"). The Counter-Proposal sought to identify a commercially reasonable middle ground between the original Commitment Letter terms and the Repriced Terms by proposing, among other things, that (i) the limited recourse, carve-out guaranty structure be maintained as originally agreed; (ii) the cross-collateralization requirement be eliminated entirely, as it was not contemplated in the Commitment Letter and would impose unacceptable encumbrances on a separate VHG asset; and (iii) the parties negotiate a more commercially reasonable interest rate and loan amount that would reflect the appraisal results while preserving a workable transaction structure.

On February 7, 2023, PAC rejected VHG's Counter-Proposal in its entirety, declining to make any material concessions from the Repriced Terms. PAC's rejection confirmed that the parties were unable to reach agreement on terms consistent with the Commitment Letter as originally executed, or on any modified terms that would be commercially acceptable to both parties. The Borrower and VHG made every reasonable effort to bridge the gap between the parties' respective positions, but PAC's unwillingness to engage constructively in further negotiation left the Borrower and VHG with no viable path forward under the existing Commitment Letter framework.

VI. Board Authorization and Election to Terminate

In light of the foregoing, on February 10, 2023, the Board of Directors of Verimark Hospitality Group Inc., at a duly called and constituted meeting, determined — after careful deliberation and consultation with management, financial advisors, and legal counsel — that the Repriced Terms proposed by PAC are not commercially viable and are inconsistent with VHG's fiduciary obligations to its shareholders, the Borrower's business objectives, and the economic rationale that underpinned the proposed refinancing. The Board of Directors thereupon unanimously authorized the termination of the proposed refinancing transaction and the Commitment Letter, and directed this firm to deliver this notice of termination on behalf of both VHG and the Borrower.

Accordingly, effective upon delivery of this notice, the Borrower and VHG hereby terminate the Commitment Letter dated December 9, 2022, and the proposed $160,000,000 first mortgage loan transaction contemplated thereunder, and all obligations of the parties arising thereunder, except as expressly set forth herein with respect to surviving provisions.

Neither the Borrower nor VHG shall have any further obligation to proceed to closing under the Commitment Letter, to negotiate further modifications thereto, to fund additional deposits, or to perform any of the Borrower's or VHG's obligations under the Commitment Letter or any related agreements, except as expressly set forth herein with respect to surviving provisions, including without limitation the confidentiality and indemnification provisions of the Commitment Letter, to the extent such provisions, by their terms, survive termination.

VII. Deposit Refund Demand

The Lender's delivery of the materially modified Repriced Terms, as described in Section IV above, constitutes a failure of the conditions upon which the Commitment Letter was predicated and a departure from the material terms to which the parties agreed. The Commitment Letter was premised upon, among other things, a loan amount of $160,000,000, a fixed interest rate of 5.35%, a limited recourse guaranty structure, and the absence of any cross-collateralization requirement. PAC's unilateral imposition of fundamentally different terms excuses the Borrower's performance obligations under the Commitment Letter and entitles the Borrower to a full refund of all Deposits, without offset, deduction, or penalty.

The Borrower hereby demands the immediate return of the entire Two Million Four Hundred Thousand Dollars ($2,400,000) in Deposits currently held by Meridian Title & Escrow, Inc., as Escrow Agent, consisting of:

(a) The good faith deposit in the amount of $1,600,000, deposited on December 12, 2022; and

(b) The rate lock deposit in the amount of $800,000, deposited on January 5, 2023.

The Borrower directs that PAC instruct Meridian Title & Escrow, Inc., as Escrow Agent, to release and return all deposited funds, together with any and all accrued interest thereon, to the Borrower's designated account. Wire instructions for the return of the Deposits will be provided by our office to the Escrow Agent upon confirmation of PAC's release instruction. The Borrower requests that such release instruction be delivered by PAC to the Escrow Agent within five (5) business days of the date of this notice.

In the event that PAC fails or refuses to deliver such release instruction, or in the event that the Deposits (together with any accrued interest) are not returned to the Borrower in full within ten (10) business days of the date of this notice, VHG and the Borrower expressly reserve the right to pursue all available legal and equitable remedies, including but not limited to an action for breach of contract, unjust enrichment, conversion, and any applicable statutory remedies, and to seek the recovery of attorneys' fees, costs, and interest to the fullest extent permitted by applicable law and the terms of the Commitment Letter.

VIII. Reservation of Rights

VHG and the Borrower expressly reserve all rights, claims, and remedies available to them at law or in equity, whether arising under the Commitment Letter, under applicable federal or state law, or otherwise, including without limitation any claims for breach of contract, breach of the implied covenant of good faith and fair dealing, unjust enrichment, fraud, negligent misrepresentation, or any other cause of action that may be available based upon the facts and circumstances described herein or otherwise arising out of or in connection with the proposed transaction.

Nothing in this notice, and no action taken or omitted by VHG, the Borrower, or their respective agents, counsel, or representatives, shall be construed as a waiver, release, or relinquishment of any right, claim, or remedy of VHG or the Borrower, whether known or unknown, contingent or matured, existing now or arising in the future.

Without limiting the generality of the foregoing, the Borrower reserves the right to seek recovery of all costs and expenses incurred in connection with the proposed transaction, including without limitation attorneys' fees, appraisal fees, environmental assessment costs, title and survey costs, engineering report costs, and other third-party due diligence expenses, to the extent permitted by the Commitment Letter and applicable law.

IX. Return and Disposition of Loan Documents and Confidential Materials

The Borrower hereby requests that PAC and its counsel, Whitford Baines & Driscoll LLP, promptly return or destroy all confidential documents, materials, financial statements, projections, operating data, personal financial information, environmental reports, engineering studies, and any and all other information and materials provided by or on behalf of the Borrower and VHG in connection with the proposed transaction. Such return or destruction shall be effected in accordance with the confidentiality provisions set forth in Section 12 of the Commitment Letter, which provisions survive the termination of the Commitment Letter. Upon completion of such return or destruction, we request written confirmation from PAC and WBD that all such materials have been returned or destroyed and that no copies, summaries, or derivative works have been retained, except as may be required by applicable law, regulation, or internal compliance policy.

For the avoidance of doubt, all draft loan documents circulated by WBD on or after December 19, 2022, and all markups, comments, and revised drafts prepared and transmitted by this firm, remain in draft form only and were never executed by any party. No party has any rights or obligations arising under or in connection with any such draft documents.

X. Notices and Communications

All further communications, correspondence, and inquiries regarding the termination of the Commitment Letter, the return of the Deposits, and any other matters arising out of or in connection with the proposed transaction should be directed exclusively to:

Douglas Fairchild, Esq. Partner Calderwood & Harkness LLP 100 Southeast Second Street, Suite 3800 Miami, FL 33131 Telephone: (305) 884-7218

Email: dfairchild@calderwoodharkness.com

The Borrower and VHG request that PAC acknowledge receipt of this termination notice in writing, directed to the undersigned at the address set forth above, within five (5) business days of receipt.

XI. Governing Law

This notice and any disputes, claims, or controversies arising hereunder or in connection herewith shall be governed by, and construed and enforced in accordance with, the laws of the State of Florida, without regard to principles of conflicts of laws, consistent with the governing law provisions set forth in Section 16 of the Commitment Letter.

We trust that the foregoing sets forth the Borrower's and VHG's position with clarity and completeness. We expect that PAC will act promptly and in good faith to facilitate the orderly wind-down of this matter, including the timely return of all Deposits and confidential materials. Should you wish to discuss any aspect of this notice, please do not hesitate to contact the undersigned directly.

Very truly yours,

CALDERWOOD & HARKNESS LLP

By: ________

Douglas Fairchild, Esq. Partner

On behalf of Verimark Hospitality Group Inc. and Coral Palms Resort Holdings LLC

Date: February 15, 2023

cc (via overnight courier and email):

Philip Tarrant Corporation, Esq. Whitford Baines & Driscoll LLP 1221 Avenue of the Americas, Suite 4400 New York, NY 10020

Lisa Portman, Title Officer Meridian Title & Escrow, Inc. 9100 South Dadeland Boulevard, Suite 1500 Miami, FL 33156

Conrad W. Elliston, Chairman & CEO Verimark Hospitality Group Inc. 1400 Bayshore Boulevard, Suite 2200 Miami, FL 33131

Natasha Ricard, Chief Financial Officer Verimark Hospitality Group Inc.

Derek Huang, SVP – Capital Markets & Treasury Verimark Hospitality Group Inc.

Enclosures: None

CONFIDENTIAL
CALDERWOOD & HARKNESS LLP Attorneys at Law
100 Southeast Second Street, Suite 3800 Miami, Florida 33131 Telephone: (305) 884-7200 Facsimile: (305) 884-7201 www.calderwoodharkness.com
February 15, 2023
VIA OVERNIGHT COURIER AND EMAIL
Pinnacle Atlantic Capital, LLC
Attn: Martin Drubeck, Managing Director – Real Estate Lending
200 Lexington Avenue, 38th Floor New York, NY 10016
Re: Termination of Commitment Letter dated December 9, 2022, by and between Coral Palms Resort Holdings LLC ("Borrower") and Pinnacle Atlantic Capital, LLC ("Lender") — Proposed $160,000,000 First Mortgage Loan — Coral Palms Grand Resort & Spa, 99000 Overseas Highway, Key Largo, Monroe County, FL 33037
Dear Mr. Drubeck:
I. Purpose of This Notice
This firm represents Verimark Hospitality Group Inc. ("VHG"), a corporation duly organized and existing under the laws of the State of Delaware (Nasdaq: VMRK), and its wholly owned indirect subsidiary, Coral Palms Resort Holdings LLC (the "Borrower"), a Florida limited liability company. We are authorized to deliver this notice on behalf of both VHG and the Borrower.
This letter constitutes formal written notice of the Borrower's and VHG's election to terminate, effective immediately upon delivery hereof, the proposed One Hundred Sixty Million Dollar ($160,000,000) first mortgage refinancing transaction contemplated by that certain Commitment Letter dated December 9, 2022 (the "Commitment Letter"), entered into between the Borrower, as borrower, and Pinnacle Atlantic Capital, LLC ("Lender," "PAC," or "you"), as lender, for the reasons set forth in detail below. This correspondence is delivered under and with reference to our firm Matter No. 1021-00007.
This notice is delivered in accordance with the notice provisions set forth in Section 14 of the Commitment Letter and is effective upon receipt. We request that you acknowledge receipt of this notice in writing at your earliest convenience, as set forth more fully below.
II. Background and Recitals
For purposes of clarity and to establish the factual predicate for this termination, we recite the following chronology and material facts:
On November 14, 2022, Pinnacle Atlantic Capital, LLC issued a term sheet (the "Term Sheet") to the Borrower proposing a first mortgage loan in the principal amount of One Hundred Sixty Million Dollars ($160,000,000), to be secured by the Coral Palms Grand Resort & Spa, a full-service luxury resort property located at 99000 Overseas Highway, Key Largo, Monroe County, Florida 33037 (the "Property"). The Term Sheet set forth the preliminary economic terms and structural parameters of the proposed loan and was subject to the execution of a definitive commitment letter.
VHG, acting on behalf of the Borrower, executed and returned the Term Sheet on November 28, 2022, signaling the Borrower's intent to proceed with the proposed financing on the terms described therein.
Thereafter, on December 9, 2022, the Borrower and PAC executed the Commitment Letter, which set forth the material terms and conditions of the proposed first mortgage loan in greater specificity, including without limitation the following:
(a) Loan Amount: $160,000,000;
(b) Interest Rate: Fixed rate of 5.35% per annum for a five (5)-year term;
(c) Maximum Loan-to-Value Ratio: 68.0%, based on the Lender's appraised value of the Property as determined by an independent, Lender-approved appraiser;
(d) Minimum Debt Yield: 9.5%;
(e) Recourse Structure: Limited recourse, with standard "bad boy" carve-out guaranty to be provided by VHG as guarantor;
(f) Amortization: Interest-only payments during years one (1) and two (2) of the loan term; amortization on a thirty (30)-year schedule during years three (3) through five (5);
(g) Extension Options: Two (2) one (1)-year extension options, each subject to: (i) no event of default or event that, with the passage of time or the giving of notice, would constitute an event of default; (ii) a minimum debt service coverage ratio of not less than 1.25x; and (iii) payment of an extension fee equal to 0.25% of the then-outstanding principal balance of the loan.
In reliance upon the Commitment Letter and the terms set forth therein, the Borrower deposited One Million Six Hundred Thousand Dollars ($1,600,000) as a good faith deposit with Meridian Title & Escrow, Inc. (the "Escrow Agent") on December 12, 2022, as required under Section 5(a) of the Commitment Letter. Additionally, on January 5, 2023, the Borrower deposited Eight Hundred Thousand Dollars ($800,000) as a rate lock deposit with the Escrow Agent, as required under Section 5(b) of the Commitment Letter. The total deposits held by the Escrow Agent in connection with this transaction are Two Million Four Hundred Thousand Dollars ($2,400,000) (collectively, the "Deposits").
The stated purpose of the proposed refinancing was to (i) retire the existing first mortgage loan on the Property in the current outstanding principal balance of approximately One Hundred Eighteen Million Five Hundred Thousand Dollars ($118,500,000), held by Tidewater National Bank, N.A. (which loan was originally in the principal amount of $125,000,000, originated on June 1, 2019, with a stated maturity date of June 1, 2024); (ii) fund required reserves, including replacement reserves, insurance reserves, and tax escrows; (iii) pay all transaction costs associated with the refinancing, including title insurance premiums, lender's counsel fees, recording charges, and other customary closing costs; and (iv) return excess loan proceeds to the Borrower.
Following execution of the Commitment Letter, the Lender's outside counsel, Whitford Baines & Driscoll LLP ("WBD"), circulated initial drafts of the loan documents — including the loan agreement, promissory note, mortgage and security agreement, guaranty, environmental indemnity agreement, cash management agreement, and related ancillary documents — on December 19, 2022. Our firm, on behalf of the Borrower and VHG, transmitted comprehensive markups and comments to WBD on January 3, 2023, and the parties engaged in good-faith negotiations regarding the loan documentation throughout January 2023. These negotiations addressed, among other matters, the scope of the carve-out guaranty, the structure of the cash management waterfall, permitted transfers, and reserve requirements.
III. Appraisal and Valuation Shortfall
As a condition precedent to closing under the Commitment Letter, and in accordance with Sections 7(c) and 8(a)(ii) thereof, the Lender commissioned a full narrative appraisal of the Property from Hargrove & Whitley Valuation Services LLC. The appraisal was prepared by Scott Tremaine, MAI, MRICS, a state-certified general appraiser authorized to practice in the State of Florida, and was prepared in conformity with the Uniform Standards of Professional Appraisal Practice ("USPAP") and the requirements of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 ("FIRREA"), as applicable.
Mr. Tremaine conducted a physical inspection of the Property on January 6, 2023. The appraisal report was dated January 20, 2023, with an effective date of value of January 6, 2023. The appraisal employed the income capitalization approach, the sales comparison approach, and the cost approach, with primary reliance on the income capitalization approach, as is customary for hospitality assets of this nature.
The appraisal concluded that the "as-is" fair market value of the Property, as of the effective date, was One Hundred Ninety-Two Million Dollars ($192,000,000).
This appraised value represents a shortfall of Forty-Three Million Dollars ($43,000,000) — or approximately 18.30% — below VHG's projected value of Two Hundred Thirty-Five Million Dollars ($235,000,000), which projection was based on the Property's trailing twelve-month operating performance, pending capital improvements, and comparable resort transactions in the Florida Keys submarket.
The impact of this valuation shortfall on the sizing and viability of the proposed loan is substantial and dispositive. At the appraised value of $192,000,000, the proposed loan amount of $160,000,000 would result in a loan-to-value ratio of approximately 83.33% — a figure that materially exceeds the Commitment Letter's maximum permissible LTV covenant of 68.0% by more than fifteen (15) percentage points. The maximum permissible loan amount at the 68.0% LTV threshold, based on the appraised value, would be One Hundred Thirty Million Five Hundred Sixty Thousand Dollars ($130,560,000) — a reduction of Twenty-Nine Million Four Hundred Forty Thousand Dollars ($29,440,000) from the committed loan amount of $160,000,000.
Accordingly, the appraisal rendered the original Commitment Letter terms unachievable as a matter of the Lender's own underwriting criteria and the express conditions precedent set forth in the Commitment Letter.
IV. Material Modification — Repriced Terms
On January 27, 2023, PAC delivered to the Borrower and our firm a written communication setting forth repriced and restructured terms (the "Repriced Terms") in response to the appraisal shortfall described above. The Repriced Terms, which PAC characterized as revised commitments necessary to proceed with the transaction, constituted, in the Borrower's and VHG's view, a material and fundamental modification of the Commitment Letter. The specific elements of the Repriced Terms are as follows:
(a) Reduced Loan Amount: The proposed loan amount was reduced from $160,000,000 to $139,000,000, resulting in a loan-to-value ratio of approximately 72.40% (or approximately 72.5%) based on the appraised value of $192,000,000 — a ratio that itself exceeds the original maximum LTV of 68.0%;
(b) Increased Interest Rate: The proposed fixed interest rate was increased from 5.35% per annum to 6.90% per annum — an increase of one hundred fifty-five (155) basis points, representing a rate increase of approximately 29.0% over the originally committed rate;
(c) Conversion to Full Recourse: The recourse structure was converted from a limited recourse, standard "bad boy" carve-out guaranty to a full recourse guaranty by VHG, thereby exposing VHG's entire corporate balance sheet to liability for the full outstanding principal balance, accrued interest, and all other obligations under the proposed loan;
(d) Cross-Collateralization Requirement: PAC imposed a requirement that the loan be cross-collateralized with a second VHG-owned property, the Driftwood Bay Hotel, located in Sarasota, Florida, a property that was not referenced in, contemplated by, or otherwise subject to the Commitment Letter;
(e) Additional Reserve Requirement: PAC imposed a requirement for an additional upfront property improvement plan ("PIP") and capital improvement reserve in the amount of $3,200,000, on top of the $4,800,000 in upfront reserves already required under the original Commitment Letter, bringing total upfront reserves to $8,000,000.
The financial impact of the Repriced Terms on the economics of the proposed transaction is severe. Based on our analysis, the Repriced Terms would result in the following adverse consequences to the Borrower and VHG:
(i) The estimated net cash-out to the Borrower — after retirement of the existing Tidewater National Bank loan, payment of all transaction costs, and funding of required reserves — would be reduced from approximately $32,265,000 under the original Commitment Letter terms to approximately $8,065,000 under the Repriced Terms, a reduction of approximately Twenty-Four Million Two Hundred Thousand Dollars ($24,200,000);
(ii) Annual interest-only debt service during the initial interest-only period would increase from $8,560,000 (at the original rate of 5.35% on a $160,000,000 loan) to $9,591,000 (at the repriced rate of 6.90% on a $139,000,000 loan), an increase of approximately $1,031,000 per annum;
(iii) The debt service coverage ratio ("DSCR"), based on the Property's stabilized net operating income, would decrease from approximately 2.15x under the original terms to approximately 1.92x under the Repriced Terms, reflecting a meaningful deterioration in the Borrower's projected debt service cushion.
VHG and the Borrower assert that the totality of these changes — and in particular the 155 basis point increase in the fixed interest rate, the $21,000,000 reduction in loan proceeds, the shift from limited recourse to full recourse, and the previously uncontemplated demand for cross-collateralization with the Driftwood Bay Hotel — individually and collectively constitute a material modification of the Commitment Letter. These changes fundamentally alter the economic terms, risk profile, and commercial viability of the transaction as originally agreed upon by the parties. The Repriced Terms bear no reasonable resemblance to the deal that was negotiated, documented, and committed to by PAC in the Commitment Letter, and they impose burdens and risks on the Borrower and VHG that were never contemplated and are not commercially acceptable.
V. Borrower's Counter-Proposal and Lender's Rejection
In a further good-faith effort to preserve the transaction and to avoid the costs, delays, and disruption associated with termination and the pursuit of alternative financing, VHG submitted a counter-proposal to PAC on February 3, 2023 (the "Counter-Proposal"). The Counter-Proposal sought to identify a commercially reasonable middle ground between the original Commitment Letter terms and the Repriced Terms by proposing, among other things, that (i) the limited recourse, carve-out guaranty structure be maintained as originally agreed; (ii) the cross-collateralization requirement be eliminated entirely, as it was not contemplated in the Commitment Letter and would impose unacceptable encumbrances on a separate VHG asset; and (iii) the parties negotiate a more commercially reasonable interest rate and loan amount that would reflect the appraisal results while preserving a workable transaction structure.
On February 7, 2023, PAC rejected VHG's Counter-Proposal in its entirety, declining to make any material concessions from the Repriced Terms. PAC's rejection confirmed that the parties were unable to reach agreement on terms consistent with the Commitment Letter as originally executed, or on any modified terms that would be commercially acceptable to both parties. The Borrower and VHG made every reasonable effort to bridge the gap between the parties' respective positions, but PAC's unwillingness to engage constructively in further negotiation left the Borrower and VHG with no viable path forward under the existing Commitment Letter framework.
VI. Board Authorization and Election to Terminate
In light of the foregoing, on February 10, 2023, the Board of Directors of Verimark Hospitality Group Inc., at a duly called and constituted meeting, determined — after careful deliberation and consultation with management, financial advisors, and legal counsel — that the Repriced Terms proposed by PAC are not commercially viable and are inconsistent with VHG's fiduciary obligations to its shareholders, the Borrower's business objectives, and the economic rationale that underpinned the proposed refinancing. The Board of Directors thereupon unanimously authorized the termination of the proposed refinancing transaction and the Commitment Letter, and directed this firm to deliver this notice of termination on behalf of both VHG and the Borrower.
Accordingly, effective upon delivery of this notice, the Borrower and VHG hereby terminate the Commitment Letter dated December 9, 2022, and the proposed $160,000,000 first mortgage loan transaction contemplated thereunder, and all obligations of the parties arising thereunder, except as expressly set forth herein with respect to surviving provisions.
Neither the Borrower nor VHG shall have any further obligation to proceed to closing under the Commitment Letter, to negotiate further modifications thereto, to fund additional deposits, or to perform any of the Borrower's or VHG's obligations under the Commitment Letter or any related agreements, except as expressly set forth herein with respect to surviving provisions, including without limitation the confidentiality and indemnification provisions of the Commitment Letter, to the extent such provisions, by their terms, survive termination.
VII. Deposit Refund Demand
The Lender's delivery of the materially modified Repriced Terms, as described in Section IV above, constitutes a failure of the conditions upon which the Commitment Letter was predicated and a departure from the material terms to which the parties agreed. The Commitment Letter was premised upon, among other things, a loan amount of $160,000,000, a fixed interest rate of 5.35%, a limited recourse guaranty structure, and the absence of any cross-collateralization requirement. PAC's unilateral imposition of fundamentally different terms excuses the Borrower's performance obligations under the Commitment Letter and entitles the Borrower to a full refund of all Deposits, without offset, deduction, or penalty.
The Borrower hereby demands the immediate return of the entire Two Million Four Hundred Thousand Dollars ($2,400,000) in Deposits currently held by Meridian Title & Escrow, Inc., as Escrow Agent, consisting of:
(a) The good faith deposit in the amount of $1,600,000, deposited on December 12, 2022; and
(b) The rate lock deposit in the amount of $800,000, deposited on January 5, 2023.
The Borrower directs that PAC instruct Meridian Title & Escrow, Inc., as Escrow Agent, to release and return all deposited funds, together with any and all accrued interest thereon, to the Borrower's designated account. Wire instructions for the return of the Deposits will be provided by our office to the Escrow Agent upon confirmation of PAC's release instruction. The Borrower requests that such release instruction be delivered by PAC to the Escrow Agent within five (5) business days of the date of this notice.
In the event that PAC fails or refuses to deliver such release instruction, or in the event that the Deposits (together with any accrued interest) are not returned to the Borrower in full within ten (10) business days of the date of this notice, VHG and the Borrower expressly reserve the right to pursue all available legal and equitable remedies, including but not limited to an action for breach of contract, unjust enrichment, conversion, and any applicable statutory remedies, and to seek the recovery of attorneys' fees, costs, and interest to the fullest extent permitted by applicable law and the terms of the Commitment Letter.
VIII. Reservation of Rights
VHG and the Borrower expressly reserve all rights, claims, and remedies available to them at law or in equity, whether arising under the Commitment Letter, under applicable federal or state law, or otherwise, including without limitation any claims for breach of contract, breach of the implied covenant of good faith and fair dealing, unjust enrichment, fraud, negligent misrepresentation, or any other cause of action that may be available based upon the facts and circumstances described herein or otherwise arising out of or in connection with the proposed transaction.
Nothing in this notice, and no action taken or omitted by VHG, the Borrower, or their respective agents, counsel, or representatives, shall be construed as a waiver, release, or relinquishment of any right, claim, or remedy of VHG or the Borrower, whether known or unknown, contingent or matured, existing now or arising in the future.
Without limiting the generality of the foregoing, the Borrower reserves the right to seek recovery of all costs and expenses incurred in connection with the proposed transaction, including without limitation attorneys' fees, appraisal fees, environmental assessment costs, title and survey costs, engineering report costs, and other third-party due diligence expenses, to the extent permitted by the Commitment Letter and applicable law.
IX. Return and Disposition of Loan Documents and Confidential Materials
The Borrower hereby requests that PAC and its counsel, Whitford Baines & Driscoll LLP, promptly return or destroy all confidential documents, materials, financial statements, projections, operating data, personal financial information, environmental reports, engineering studies, and any and all other information and materials provided by or on behalf of the Borrower and VHG in connection with the proposed transaction. Such return or destruction shall be effected in accordance with the confidentiality provisions set forth in Section 12 of the Commitment Letter, which provisions survive the termination of the Commitment Letter. Upon completion of such return or destruction, we request written confirmation from PAC and WBD that all such materials have been returned or destroyed and that no copies, summaries, or derivative works have been retained, except as may be required by applicable law, regulation, or internal compliance policy.
For the avoidance of doubt, all draft loan documents circulated by WBD on or after December 19, 2022, and all markups, comments, and revised drafts prepared and transmitted by this firm, remain in draft form only and were never executed by any party. No party has any rights or obligations arising under or in connection with any such draft documents.
X. Notices and Communications
All further communications, correspondence, and inquiries regarding the termination of the Commitment Letter, the return of the Deposits, and any other matters arising out of or in connection with the proposed transaction should be directed exclusively to:
Douglas Fairchild, Esq. Partner Calderwood & Harkness LLP 100 Southeast Second Street, Suite 3800 Miami, FL 33131 Telephone: (305) 884-7218
Email: dfairchild@calderwoodharkness.com
The Borrower and VHG request that PAC acknowledge receipt of this termination notice in writing, directed to the undersigned at the address set forth above, within five (5) business days of receipt.
XI. Governing Law
This notice and any disputes, claims, or controversies arising hereunder or in connection herewith shall be governed by, and construed and enforced in accordance with, the laws of the State of Florida, without regard to principles of conflicts of laws, consistent with the governing law provisions set forth in Section 16 of the Commitment Letter.
We trust that the foregoing sets forth the Borrower's and VHG's position with clarity and completeness. We expect that PAC will act promptly and in good faith to facilitate the orderly wind-down of this matter, including the timely return of all Deposits and confidential materials. Should you wish to discuss any aspect of this notice, please do not hesitate to contact the undersigned directly.
Very truly yours,
CALDERWOOD & HARKNESS LLP
By: ________
Douglas Fairchild, Esq. Partner
On behalf of Verimark Hospitality Group Inc. and Coral Palms Resort Holdings LLC
Date: February 15, 2023
cc (via overnight courier and email):
Philip Tarrant Corporation, Esq. Whitford Baines & Driscoll LLP 1221 Avenue of the Americas, Suite 4400 New York, NY 10020
Lisa Portman, Title Officer Meridian Title & Escrow, Inc. 9100 South Dadeland Boulevard, Suite 1500 Miami, FL 33156
Conrad W. Elliston, Chairman & CEO Verimark Hospitality Group Inc. 1400 Bayshore Boulevard, Suite 2200 Miami, FL 33131
Natasha Ricard, Chief Financial Officer Verimark Hospitality Group Inc.
Derek Huang, SVP – Capital Markets & Treasury Verimark Hospitality Group Inc.
Enclosures: None

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